Japan Crisis

We are all watching Japan. It’s hard to find the signal through the noise with as much information pouring out. Obviously there is selling in the markets. The loss of lives is really sad. The economic damage is significant.

Japan is a resilient nation full of resourceful people. Even in this dark hour, I am optimistic for better days ahead.

I will be updating links at The Wall Street Sheet as the crisis continues.

Business insider’s Joe Weisenthal is tirelessly updating and reporting…. go here.

Some other great resources:

Abnormal Returns has a breakdown of what is happening and what sectors might actually benefit. Go– right now.

See MarketBeat‘s analyst syposium:

BNP Paribas: EURJPY should break higher following the impact of the earthquake and the nuclear disaster in Japan. This morning, USDJPY and EURJPY traded down to 80.70 and 112.70 respectively as the market tried to use the market reaction following 17 January 1995 Kobe earthquake as a guide which saw the [yen] rallying by 20%. The Kobe quake wiped out [$100 billion] of the economy, but the insurance loss was a moderate [$3 billion]. Today, AIR Worldwide estimates the insurance loss between [$10 billion and $35 billion] suggesting that the insurance related [yen] inflow would be bigger today.

Matthew Heimermann, J.P. Morgan: The first modeling company to publish a loss estimate for the magnitude 9.1 Honshu/Tohoku earthquake (up from magnitude 8.9) was AIR Worldwide, which is estimating an insured loss range of $14.5-$34.6 billion, net of recoveries from JER (Japanese Earthquake Reinsurance), for commercial and residential shake and fire losses as well as agriculture. The estimate does not reflect tsunami and surge losses at this point, nor the developing situation at nuclear facilities. The large variability reflects uncertainty about how widespread shake losses will be, especially with respect to distant areas such as Tokyo.

Tohru Sasaki, J.P. Morgan Global FX Strategy: Negative events for the Japanese economy and the welfare of its citizens has an inclination to support [the yen]. Among various reasons, the main reasons behind this is due to the fact that Japan (a) is the world’s largest creditor nation, (b) has the world’s second largest current account surplus, and (c) does not have a large amount of so-called “hot money” investments from overseas, which tends to move in and out of national borders frequently. Thus, negative events for Japan (1) see funds returning back into Japan to repair damages (or an increase in JPY purchases to further hedge FX-risk due to a lower level of risk tolerance), opposed to a flee of funds, and (2) causes a decline in risk tolerance, which dampens appetite for overseas investments.

Camilla Sutton, Scotia Capital: Drawing conclusions from the USDJPY reaction to the Kobe quake is dangerous. Japan had a very different fiscal position and the Fed was completing an interest rate hiking cycle and moving towards lowering rates, accordingly monetary policy dynamics were working against USDJPY (in favour of yen). We expect there will be significant pressure for USDJPY to show stability close to current levels for the near-term.

Ian Shepherdson, High Frequency Economics: The possible impact on the U.S. comes via a potential drop in Japanese demand for U.S. exports — if the economy slows even further — disruptions to the flow of U.S. imports from Japan and potential insurance losses. The latter on unlikely to be significant. U.S. insurers’ losses after the Kobe earthquake in 1995 were negligible, largely because of the reluctance to offer cover in such an earthquake prone country. Indeed, total insured losses from the Kobe quake were only about $6 billion despite damage estimated at $100 billion. Losses this time will be bigger but it’s hard to imagine they will reach economically significant levels for the U.S.

Daniel Pratt, Ticonderoga Securities: We expect the nuclear power plant shutdowns in Japan to dramatically increase Japanese liquefied natural gas (LNG) demand and therefore prices for spot cargoes … Nuclear power is 30% of Japanese power demand, provided by 54 individual reactors. The power sector is also the main gas consumer – 25% of power comes from gas, virtually all of imported as LNG.

Jeff Saut, Raymond James Equity Research: Worth considering, Japan has now lost 10% of its electric power, further increasing world-wide demand for oil, natural gas, and coal – clearly a drag on the world’s economy.

Nicholas Colas, ConvergEx: It is worth remembering that the 1995 Kobe earthquake came at a time when the rest of the world’s economies were in pretty good shape. The U.S. banking system had recovered from the early 1990s S&L crisis. Europe was reaping the benefits of cheaper labor from formerly Communist Eastern Europe. China was growing at double-digit rates. Oil prices were $16-17/barrel. The Federal Reserve was busy raising interest rates to forestall rising inflation rates in the U.S. Now, of course, the world’s economic picture is different, and frankly far more fragile. It therefore makes sense to be as diligent as possible in the coming days and weeks to watch for any signs of stress as Japan copes with the immediate aftermath of Friday’s disaster.
Akane Enatsu, Barclays Capital: Spreads for Japan sovereign CDS surged around 15bp to 89-92bp (Barclays quote) in the morning session on 14 March, largely due to concerns about potential further fiscal pressures by the stemming from Friday’s earthquake. From the perspective of sovereign credit, an increase in the fiscal burden associated with the earthquake and other factors is currently a concern. In the past, some natural disasters have triggered a default on sovereign debt, as was the case in Turkey, which defaulted on debts denominated in domestic currency in 1999. However, there are also cases where earthquakes have had a limited impact on sovereign credit, such as in New Zealand and Chile.

Click to jump to each of the interactive maps.

New Scientist:

Washington Post:

Disclosure: Long Client and/or Personal Accounts (EWJ)

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