Effect of Japanese Crisis on
U.S. Dollar and Treasuries
Thursday, March 17th, 2011
By Anthony Jasansky, P.Eng. for Profit Confidential
A few comments on the tragedy unfolding in Japan: the foremost reason for the devastation has been the tsunami rather than the strongest earthquake on record itself. According to Webster’s Dictionary, the word “tsunami” is of Japanese origin. It was the tsunami that has disabled the nuclear power station to the point of meltdown. When placing those nuclear stations on the seashore at elevations only meters above the sea level, the designers had chosen the convenience over the small odds of the stations ever getting hit by a massive tsunami.
As serious and tragic as the impact of tsunami has been, the Japanese will rebuild and recover, as they did after WWII. Even if it takes flooding the economy and the markets with a tsunami of money. Japan’s government has proportionately the largest debt to its GDP among industrialized countries. However, virtually all its debt is internal and is carrying the world’s lowest interest rates. Japan and Japanese investors combined also happen to be among the largest holders of U.S. treasuries outstanding.
It is probable that some of those U.S. treasuries will be sold by central banks, institutions, and private investors alike. That shall put a lid on the extended rally in the U.S. treasuries and the U.S. dollar. For many years, the greenback and the U.S. treasuries have continued to be viewed as an investment haven during political and financial crisis. Now, judging from their lackluster performance following the European debt crisis, the upheaval in Arab countries and now the disaster in Japan, it is apparent that the Fed’s massive money creation destroyed the special status that the U.S. dollar and the treasuries used to enjoy.
At this time, when the markets, politicians and public opinion have been hitting the panic button, I do not believe that joining the crowd is the way to go with your holdings. Even dumping uranium stocks may be an equivalent of closing the door after all horses have gone. In the upcoming days, the only buying to consider is that of gold and gold equities.
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Tags: economic news, gold and gold equities, investment haven, Japan, japanese economy, tsunami, U.S. dollar, U.S. Treasuries
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Tony is the developer of a proprietary general gauge called Marketmetre that tracks several fundamental and technical indicators. A hardcore technical analyst and avid follower of corporate insider market trades, over the past quarter century Tony’s Marketmetre has successfully called every major market move. Tony writes a monthly column in Profit Confidential.
