Sunday, March 13, 2011

Monday's outlook

It seems ridiculous to be pondering the economic impact of the Japanese earthquake while the situation remains so volatile and so many lives have been lost but in today's 24/7 news cycle it's going to be a topic of discussion tomorrow.

Most markets seem to be taking this terrible news in stride with the notable exception of Japan's Nikkei which is down 5%. The long-term implications economic implications for Japan are substantial. Japan's debt to GDP was already a staggering 200% and they were recently passed by the Chinese economy in terms of total output. The long road to rebuilding the northern coastal towns that were lost, repairing transportation and electric infrastructures will take a huge toll on their collective balance sheet.

Perhaps the silliest piece of analysis I read over the weekend included the idea that "Japan's economic slowdown will lower global demand for oil and thus, lead to lower oil prices."

Since, oil's epic run has been fueled by unrest in the Middle East and not real end demand this strikes me as silly logic. Perhaps you could argue that the Libyan revolt is being crushed and things seem calm in Saudi Arabia and Iran (though the situation remains volatile in Egypt, Bahrain and Yemen), but to argue that "all of those cars you saw washed away won't be using any oil this week" seems mistaken (not to mention heartless).

*** Update on Bahrain. There is talk that Saudi Arabia might now be willing to invade Bahrain to settle things down in the Middle East. Yep, I'm sure that will calm those protesters right down.

The financial story of the day tomorrow might end up being the rumored leak of data implicating Bank of America of serious fraud related to their mortgage processes. This seems to be a pretty serious rumor and it seems like someone might make good with the details that Wikileaks could only allude to.

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Lots of news hitting the tape late at night -

* Bank of Japan increases their injection of money to 12 Trillion Yen ($147 Billion) - they initial estimate was 2 Trillion Yen.

* US helicopters are reporting radiation levels 60 miles off the coast of Japan.

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