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Tuesday, March 15, 2011

JAPAN is NOT a buying opportunity

Markets are in full reaction mode today to the possible Japanese nuclear disaster.

In addition to this, Japan has had over 200 aftershocks.

Is this a buying opportunity as over $700 billion has been wiped out of equity value in the Japanese market.

I am certain there will be relief rally, but I see a rough year for 2011 in the market from Japan. 

Buyer Beware

Japan is the world's 3rd largest economy and could be crippled for some time.  In addition to this, the Bank of Japan has printed money in unprecedented amount to try and keep order in the disorder.  Will this help?  Yes in the short term, but Japan is already at over 200% of debt to GDP, the largest in the world.  If Japan has a nuclear meltdown, ALL markets should fall 20-30%, while Japan should fall over 50%. 

A total loss of confidence from Japanese people would follow, leading to bank runs and a collapse of the stock market.

Regardless of the nuclear issues, Japan has just gone through an event that is equivalent to the atomic bomb during WWII.  These issues are being down played in the media to try and control panic.  Panic should not be controlled when it is in the shadows of the worlds largest earthquake and the first potential nuclear disaster since 1986.  Here is a WebMD article on the effects of radiation in relation to this event:  WEBMD article on JAPAN radiation

There has already been radiation leaks in this area and the area is MUCH more populated that Chernobyl.  Damage may have already been done and Tokyo is only 72 miles away and has a population of over $13 million.  Chernobyl affected an area of 150km.  Cancers were detected in Chernobyl for 12 years and child birth defects were common.

Japan was barely experiencing a quasi recovery before the quake-- Q4 GDP in Japan was already negative at -1.3%.  This event will drag their economy back down and the results will affect the world economy for a minimum of 12-18 months, even without a nuclear event. 

Everyone is saying this happened at the worst time-- there is NEVER a good time for a massive earthquake and possible nuclear disaster.  The uber bull market mentality  since QEII MUCH has every TV investor calling every opportunity a buying opportunity.  This is not a buying opportunity.  It is a chance to rebalance and take advantage of risk trades that have been so ignored.

The markets were needing a correction. 

There will still be a correction after the panic.  The world's 3rd largest recovery has become oatmeal.  Expect Japan to crash below those 2009 lows. 

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