Periscope: Surviving the Tsunami

A & I Financial Services LLC Newsletter

For the Week of

March 16, 2011

Greetings!

Tsunami

Oh the seas will split

And the ship will hit

And the sands on the shoreline will be shaking.

Then the tide will sound

And the wind will pound

And the morning will be breaking.

Bob Dylan, "When the Ship Comes In"

We should be thankful in times like these, watching the Japanese deal with the aftermath of the worst earthquake in 100 years, and one of the worst tsunamis of modern history. The nuclear power plants, missing trains, and thousands of casualties make this a moment to rethink our own safety, our own priorities, and think of friends and our families.

Eventually, the aftermath rolls around to a conversation about our investments. Fortunately, for the past few months Japan's stock market has been, on a relative basis, one of the world's strongest this year. Unfortunately, the past few days have seen the Japanese markets decline quickly. So, what do we do now?

Two types of investments take front stage in the wake of a natural disaster: insurance companies and builders.

Some investors worry about insurance companies in the wake of a catastrophe like this. According to the Wall Street Journal, the Japanese generally do not carry earthquake insurance and so insurance companies are, on a relative basis, not at great risk.

However, this lack of insurance could mean a long, slow recovery to find the money to fund the rebuilding.

After Hurricane Katrina, builders rallied as money moved into the rebuilding of New Orleans. So, could that be the case now? Hopefully this will help to buoy the Japanese market but because of the lack of liquidity, the Japanese rebuilding process could take some time.

Additionally, high technology companies and some auto manufacturers, Honda and Toyota, and semiconductors, particularly flash memory manufacturing, are at risk due to plant closures.

Short term, this event could have large effects. A silver lining could be that it takes the short-term focus off Europe, the Middle East and our (Federal and personal) debt problems here in the USA.

If you are interested in changes A&I has made in your investment accounts in particular, please contact your advisor!

Economic Briefs

BEST RETAIL SALES NUMBERS IN 4 MONTHS
The Census Bureau says that retail sales climbed 1.0% in February. That matched the median forecast of economists polled by Bloomberg News. Department store sales improved by 1.0% last month and restaurant sales improved by 1.2% (the best monthly gain in that category in a year). Auto sales saw a 2.3% gain in February. Overall U.S. retail sales were up 8.9% from a year before.(1,2)

LOWEST CONSUMER SENTIMENT IN 5 MONTHS
Sometimes economic releases seem completely contradictory. While retail sales have improved, consumer sentiment has dipped - at least according to the University of Michigan's initial March survey, which came in at 68.2, way below the final February mark of 77.5. Soaring gas prices would seem to be a factor. The index had been making progress back toward its 2002-2007 average reading of 89.(3)

ROUGH GOING FOR OIL & GOLD FUTURES
Last week's run from risk sent the prices of these commodities downward. Oil futures settled at $101.16 a barrel Friday - that was a 3.12% week-over-week drop. The decrease reflected concern over reduction of refinery capacity and demand in Japan, one of the world's leading oil importers. As for gold, it had its poorest week since mid-January, with prices slipping $6.70 on the COMEX over five days - a 0.47% weekly loss. Gold settled at $1,421.50 Friday as its five-week winning streak was snapped.(4)

DOW HOLDS ON TO 12,000
In light of last week's momentous seismic and political events, the ups and downs of Wall Street seem relatively trivial. Somehow, the Dow, S&P 500 and NASDAQ managed to remain above the psychologically significant 12,000, 1,300 and 2,700 benchmarks Friday. For the week, they performed as follows: DJIA, -1.03% to 12,044.40; NASDAQ, -2.48% to 2,715.61; S&P 500, -1.28% to 1,304.27. The CBOE VIX gained 6.56% last week.(5)

Market Summary