It’s difficult thinking about stocks, commodities and investing in general when you see the tremendous devastation in Japan. Stock picking seems like a flippant endeavor compared to dealing with the loss of life in this natural disaster. My cousin’s husband is a Japanese American executive with Coca-Cola in Tokyo. Their immediate family is all right, but, as they communicated over e-mail, the entire country is virtually shut down.
The markets are clearly reflecting the shock of it all, as well as the very real economic worries now affecting the globe’s third largest economy. Japan consumes a lot of the world’s exports and there will no doubt be an immediate adjustment to businesses selling product to that country. As Japan’s economic interests naturally turn inward to focus on recovery and restoring infrastructure, the country’s fiscal situation will no doubt worsen. All this, just when Japan’s economy was seemingly coming out of a long period of stagnation.
Domestic lumber stocks are slightly ticking higher as speculators bet on Japan’s new infrastructure requirements. This, of course, is mostly just trading noise at this point. It’s way too early for any economic analysis of Japan’s actual need, other than it is enormous. This kind of speculation is just as likely not to work out anyway. Japan may choose to rebuild with metal studs instead of spruce. I don’t even want to think about it.
From a purely financial point of view, my analysis of domestic capital markets is that they will withstand this natural disaster. The stock market is now in the “lull” between earnings seasons and is actually holding up well considering the severity of events. The stock market has been due for a correction and it seems like events in Japan are unfortunately the catalyst. As the first quarter of 2011 is quickly coming to an end, the expectation is for strong corporate profits once again and that’s what institutional investors care about. This is what’s keeping investor sentiment in stocks generally positive.
I want to repeat a sentiment I’ve been writing about recently. There isn’t any rush for investors to be making any bold new bets in this market. I remain bullish on equities this year, although the action in the Dow Jones Transportation Average is still worrisome. Investing in gold has been, and continues to be, a good idea, but that commodity is also due for a major pullback. Over the very near term, global capital markets will reflect the daily events taking place in Japan. Domestic markets are now in a correction.