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Rather than post another shocking earthquake photo, I chose serenity---an important part of Japanese culture...
The images of the devastation caused by the earthquake in Japan have been nothing short of shocking and heart-wrenching. I think we all were overwhelmed to see a first-world nation suffer so. My thoughts and prayers go out to those affected by this tragedy.
Japan produces 20% of the world's semiconductors and 40% of its electronic components with higher percentages the further one goes up the specialty supply chain. It may take weeks to catch up to demand. Also, 35 US companies, such as Coach, Ralph Lauren Polo, and Tiffany receive over 15% of their business directly from Japanese consumers.
Infrastructure reconstruction will be massive with the preliminary tab at 16 trillion yen, about $200 billion US. Fortunately, in a macabre way, the rebuilding will be only about 1.5 times the Kobe quake in 1995.
The potential USA financial effects up until Monday, March 21:
The Standard & Poor's 500 Index dropped 1.9% last week, yet staged a 1.5% rally on Monday, the 21st. Treasuries' interest rates fell sharply last week as investors fled to safety, yet have recovered quite well as concern eased that Japan will suffer a nuclear meltdown.
An indicator I watch closely, The Chicago Board Options Exchange Volatility Index (VIX), which measures investor fear, has increased steadily over the past month with the Mideast turmoil. Often in a declining stock market, the VIX surges. Today, it decreased 15 percent, the most since May on a closing basis and at a level normally indicative of market stability.
In other words, the US Market is essentially back to "normal" within ten days. And it appears the Middle East turmoil may have more effect on dentists' pocketbooks than the Japanese calamity.
Does the prudent dentist safety-up with commodities, treasuries, and generators in anticipation of more world political and geologic discord? I think not.
Larry Swedroe, author and commentator to numerous web sites and a firm advocate of scholarly investing, addressed the current climate last week in a Market Watch piece:
" What you can do is plan for these types of events - whether they're environmental like this one, political like the situation in Libya or economic like the situation in Greece last year - by diversifying your portfolio according to your plan and sticking to it, no matter how nervous the images in newspapers and on TV and the Internet may make you. You can also make sure your plan addresses the things you can control:
· The type and amount of risk you take
· The diversification of those risks
· The costs and tax efficiency of your portfolio
Then, you can stop worrying about how this will affect your investments and start thinking of much more productive, helpful and fulfilling things, such as how you can help during a tragedy like this."
Stay the course my friends; now is not a time for panic.
For additional information, click on the Bloomberg logo above for an important seven minute video commentary on March 22.
dc
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