Mar 14, 2011

Disaster in Japan

The news is being dominated by the horrible events coming out of Japan. Thousands have been left dead after the 8.9 earthquake triggered a cataclysmic 25 foot high tsunami. Waters from the tsunami reached 13 miles inland.

In addition to the damage from the two natural disasters, the country’s nuclear power plants, which generate 30% of the country’s electricity, are facing severe meltdowns. Much of the country is without power or water after the cooling system at Fukushima failed on the #1 and #3 reactors. This morning the #2 reactor’s cooling system stopped working, and over 200K people have been evacuated due to concerns about radiation leaks. Three US helicopters and 17 crewman from the USS Ronald Reagan tested positive for radiation exposure after assisting with the emergency measures at Fukushima.

The Nikkei reopened this morning and fell 6%, the biggest one day drop since December 2008, while credit risk surged. Japan’s central bank has been active selling US treasuries to provide additional capital for the country’s clean up and rescue efforts. The Bank of Japan has already poured $183 billion into the economy and has doubled its asset buying program to offset the impact of the quake.

Construction stocks may benefit from the upcoming rebuilding effort as roads, buildings, homes and power plants have been severely damaged. Additionally, insurance brokers may benefit as global consumers re-evaluate their insurance coverage after the disaster. Losses to insurers are being conservatively estimated at $34 billion.

Global oil prices have tumbled since the disaster on demand concerns. Japan is the #2 global importer of oil, deriving 100% of its oil from imports. All of the country’s refineries are offline today, and gas rationing has been implemented to insure supplies for rescue efforts.

The quake was the largest in over 1200 inside the boundaries of the North American and Pacific tectonic plates. Japan lies within the “Ring of Fire”, an arc of volcanoes and fault lines surrounding the Pacific Basin. Scientist are already saying that pressure levels on the plates have shifted dramatically, and will provide aftershocks for “a long time.” They are expecting aftershocks up to a 10 magnitude in the ensuing decades. It is estimated that because of the plate rupture, the country may have shifted almost 8 feet and the earth has shifted its axis by 10 inches.

Berkshire Hathaway made a $9 billion offer for lubricant and additive manufacturer Lubrizol. Leonard Green Partners and management made a $1.3 billion bid for 99 Cents Only stores.

The NFL players and owners were unable to come to terms before the preceding labor agreement expired. While it appears the owners may have capitulated some near the end of negotiations, the players moved ahead and decertified their union. The next step will include attempts by the players to use the court system to find the NFL in violation of antitrust regulations. The players will claim that all of the operating rules they agreed to in the now expired collective bargaining agreement are antitrust violations. Meanwhile, players won’t be paid, teams can’t sign or trade them, they won’t receive their health insurance, and roughly 500 free agents can’t get new jobs in football. Newly drafted players (the draft is April 28), won’t be signed to contracts until the dispute is settled.

Have a great day


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