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Mark's Market Blog

3-11-11: Tsunami in Japan

By Mark Lawrence

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Libyans being shot down wholesale. Unarmed protestors in Saudi Arabia being shot at by police. 8.9 earthquake hits Japan. Inflation in China heats up, and they're suddenly running a trade deficit. Europe's banks continue to hemorrhage money, Moodys downgrades Greek and Spanish debt. It was all too much for even Bernanke, and the markets finally dropped a serious amount. In the picture below I drew in a couple lines to show how the market was tracing out a triangle - this always ends with a breakout, but you can't predict which direction. Well, now we know. . .

S&P 500 September 19 2010 to March 11 2011

Japan was hit by an 8.9 earthquake, the 7th largest earthquake in recorded history. The earthquake was about 230 miles NE of Tokyo, 80 miles off shore, 6 miles deep. The major damage appears to have been done by the subsequent 23 foot high tsunami, not the shaking. Casualty and damage numbers are not available at this time, but at least 1,600 were killed. Two Japanese nuclear reactors had damage to the cooling system. One has had an explosion, but not in the reactor vessel we're old. A total of eleven nuclear plants were shut down. Restarting these things is a big deal, you don't just turn the key. A potential nuclear leak has lead to the evacuation of 50,000. These evacuations are precautionary, it's extremely unlikely that there will be a melt down or serious radiation leak. Cell phone systems are out in Tokyo and most of the northern half of Japan, severely hampering rescue coordination and news. Power is out too, and will be out for an extended time. Immediately after a tsunami there is normally a severe shortage of drinking water. Aftershocks have included a couple 7.5 quakes offshore, and a 6.6 quake on land. Early estimates are that losses could exceed $100 billion.

Explosion at Japan's Fukushima Nuclear Plant

Japan is outstandingly well prepared for earthquakes, as this small island receives one fifth of all the world's earthquakes of magnitude 6 or greater. The Richter scale is logarithmic, so a 8.8 earthquake releases 10 times as much energy as the 7.8 earthquake that hit San Francisco in 1906. This was an 8.9. The largest quake ever recorded was a 9.5 off the coast of Chili in 1960; that quake released about 3.5 times as much energy as Friday's Japan quake. The December 26 2004 earthquake that created the Banda Ache tsunami was a 9.1, about half again more energy than this Japan quake.

Libya is now in a state of civil war. France has recognized the rebel council as the government of Libya and says they are considering intervention. Meanwhile, the oil facilities in Libya continue to get damaged. Director of National Intelligence James Clapper testified Thursday afternoon that Qaddafi would win, the rebels had little chance. The white house immediately disavowed him.

The Saudi "Day of Rage" came on Friday and fizzled. AP reported Thursday evening there was gunfire from Saudi security forces onto the unarmed crowds. Saudi security has been "authorized to take all measures against anyone who tries to break the law and cause disorder." Foreign minister Saud Al Faisal warned: "Any finger lifted in the face of the Kingdom, will be cut off!" Saudi law prevents all kinds of demonstrations, protests, strikes, or even a call for them as they're "against Sharia law and Saudi values and traditions." The Saudi Thugocracy will not give up power easily. We're getting a real taste of Sharia in application these days.

Moodys downgraded Spanish debt. The Spanish government says they need $25 billion to recapitalize their banks. Independent analysts think the number is more like $150 billion.

China ran a surprise trade deficit of $7.3 billion in February, and inflation came in hotter than expected at 4.9%. Trade deficits = outflow of jobs. Fighting inflation = fewer public construction projects and less employment. This is huge news, China is rapidly being backed into a corner.

Karen Ward, senior economist at the worldwide bank, cautioned that the UK could experience the kind of food riots seen in other countries. "Even in the developed world I think we have very, very low wage growth, so people aren't getting more in their pay packet to compensate them for food and energy, and I think we could see social unrest certainly in parts of the developed world and the UK as well." She went on to highlight the link between high food prices and the escalating cost of crude oil. "More and more we are seeing that some of these foodstuffs are actually substitutes for energy itself, particularly biofuels. So I think the energy markets are a significant contributor to these food price gains."

Wisconsin passed a bill severely limiting public unions, including provisions that members must re-join each year and the state no longer collects union dues. At this time 17 other states are considering or are in the process of passing variants on this bill. Public unions are going down faster than I expected.

The NFL and the NFL players union failed to reach an accord before their self-imposed deadline. The union has de-certified, there is no longer a players union. This is a legal maneuver: the union is prohibited from filing certain sorts of lawsuits due to the NFL's anti-trust exemption, but players are not. Several players have already filed an anti-trust lawsuit. In response, the owners have locked out the players: there will be no contact between players and coaches, no entry of the players into the stadiums until there is some agreement. Ostensibly this fight is over how to divvy up the NFL's $9 billion per year of income between owners and players. In fact, the real fight is between the owners: there are a group of 8 owners who do substantially better than average, and 24 who do substantially worse than average. The 8 rich owners don't want to disclose financial statements to anyone, including the other owners, and don't want to share all their profits with players or other owners. The NFL operates on a super-majority basis, and 8 owners can block progress. There will be no agreement with the players until first the owners reach an agreement among themselves. A second major hangup is that all lawsuits are heard by federal judge Doty. The owners think he consistently rules in favor of the players, and want him cut out of any new agreement; the players take exactly the opposite stance. If you miss football in the fall, I believe it would be most proper to blame Jerry Jones, Dan Snyder, Jeffrey Lurie, Bob Kraft.

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