Treece: Market tumbles on misplaced Japan fearsWritten by Dock David Treece | | firstname.lastname@example.org
Recently on FOX Toledo, we discussed the potential impact of the natural disasters in Japan on the global economy and financial markets.
At that time, much of the damage from the earthquake, along with the ensuing tsunami and aftershocks, was still being assessed. Based on what we were seeing from early reports, we explained that the economic impact in the United States should actually be relatively muted; that the greatest impact would be felt by those holding investments in companies that have been directly affected.
Obviously this does not include the myriad Japanese who have sadly lost their homes, their businesses or their lives.
We started by explaining that events like those in Japan “don’t shape markets, they shock markets.” However, we also realized that the situation in Japan was and is still fluid, and that consequences could be different if problems like those we are seeing with the Fukushima reactors continue.
For the most part, what we said then still holds true: We still expect the impact of these events on the global economy and the world’s financial markets to be fairly low. Outside of Japan, we expect that those who will be hurt the most by these events will be those with investments in Japanese companies.
All-in-all, we believe that the vast majority of the decline in the world’s capital markets has been due to fear, not economics. As we said on FOX Toledo, these events have caused many investors to reassess some of the risks in their portfolios. Unfortunately, the fear resulting from the Japan events have caused the U.S. stock markets to give back almost all of their gains for 2011.
As reports continue to come out of the region, it is becoming increasingly clear that Japan’s domestic economy has suffered tremendous blows. These problems will only get worse if the reactor problems continue to worsen, as the time required to rebuild would be extended.
However, even if the reactor problems do spread, we still expect the effects on the global economy to remain minimal. The only exception would be if Japan’s manufacturing capacity is affected, though it has remained mostly untouched so far.
The little impact that has been seen so far on Japan’s manufacturing industry has been due to limited electricity. While the earthquakes and tsunami don’t appear to have hit Japan’s manufacturing center directly, they have damaged both the infrastructure used to get products into and out of the country, and the production of electricity used to manufacture goods.
Though the disasters in Japan didn’t strike industrial plants, they did strike in areas that seemed to have high concentrations of electricity-producing facilities. Already we’re hearing stories of rationing electricity, as well as goods like food, oil, etc. This, in turn, is hurting manufacturing.
There’s another aspect to these events that we didn’t get the chance to cover on FOX: how they further support what we’ve been saying for some time: Manufacturing will return to America.
In our discussion on TV, we did point out that events like those in Japan remind the public of the risks involved in investing internationally. Additionally, they also remind businessmen of the dangers of putting down roots in higher-risk areas.
After all, there’s a reason that you don’t hear about many businesses setting up shop in Colombia, Venezuela, or the Middle East, all areas with significant exposure to political turmoil.
The stories coming out of Japan should also serve to remind business leadership to consider geographic risks, not only as they relate to shipping costs but also the potential for natural disasters. Apart from the potential damage caused by disasters themselves, we are also being reminded of the threat of commercial downtime caused by any ensuing fallout, plus the time required for cleanup before business can return to normal.
It goes without saying that our thoughts and prayers go out to those in Japan who have been so terribly impacted. We can only hope that the problems there do not continue to compound, and that people around the world can learn valuable lessons from this tragedy.
Dock David Treece is a discretionary money manager with Treece Investment Advisory Corp and a stockbroker licensed with FINRA. He works for Treece Financial Services Corp and also serves as editor of the financial news site Green Faucet and as a business commentator for Toledo Free Press. The above information is the express opinion of Dock David Treece and should not be construed as investment advice or used without outside verification.