Back finally. Japanese Nuclear Crisi? Major buying opportunity!

How long has it been my old friends? Seems like time has flown by since my last post. It has really been such a busy period for me and updating this blog has since fallen down my list of priorities. Since my last post, many of you have asked me why I have not been updating this blog. So here I am again. No promises that this will be updated on the same regularity as last year because I will probably be busy till end of the year.

So much has happened since the last time I posted. We have had fighting in the middle east and Africa, earthquake in Japan and a nuclear fallout. Stocks have gone on a roller coaster ride. Singapore equities are still negative for the year, with the strongest Asian market being China. The US and European equity markets have done well for the year in spite of risks of a double dip in the US housing market and continued European sovereign debt issues.

I guess it is time to get my thoughts more organised with regards to this current market situation. Lets address them one by one.

US housing sector

We have seen a significant slow down in the housing sector over the past few months. The US market has seen strong movements on the upside, breaking the 12300 points barrier. The market has been resilient in spite of the geopolitical weakness and disaster in the background. I know plenty of people have been very bullish on US equities and I agree with them totally for the first 6 months of this year but I believe the real test of the resilience of the US markets will be in June when QE2 programme comes to an end. Also, the headlines you read and listen to are all stressing on how well the US economy is recovering but no one has pointed out one important point....QE2 has failed. Why? Because it was supposed to be targeting medium to long term rates and to hold down the long term rates to give the housing market a little time cushion. What has happened since QE2 started? 10 year and 30 year rates have risen substantially and the housing market is slowing down. Thus I would say QE2 has failed. However many investors will disagree with me because the stock markets have done well since then. How funny is the investment world, when plans do not work according to the reasons laid out.

Japan.......

What can I say? The best way to put it is....that it could not happen to a better place than Japan. Not that it is not unfortunate that it happened. But now that it has happened, Japan is the best possible place for it to. Why? This is the most resilient race of all time. Two atomic bombs were dropped and what happened? They came back and became the 2nd largest economy in the world. Since the earthquake, rescue efforts have been organised, there have not been hysteria, looting etc. What do I think will happen? I believe over the next 3 months, Japan is going to go through a tough time and probably see a very steep drop in GDP, but in the next 12 months, I expect a V shape recovery.

Of course, I have a disclaimer...if the nuclear leakage gets worse and if Tokyo is hit, then all bets are off. But I find it highly unlikely. Radiation levels are rising and elevated levels have been detected in countries as far as US and Sweden. But if the rods are cooling down, this radiation scare should be shortlived.

With Sendai being a largely agricultural area, the vegetables and rice production in Japan will stop and what that means is that they will have to import their agri products. Also base metals and many other infrastructure related materials to rebuild this country from what is generally considered the worst disaster since WWII. Take my word for it, inflation will come into Japan. So what happens after that? The markets will rally. Why? Because that is exactly what the doctor ordered for Japan's economy to revive.

So here you have it...I am extremely bullish on Japan over the next 12 months. So if you can, go buy an etf or maybe a mutual fund that invests predominantly in Japanese stocks.

European debt crisis

I am really impressed with how the European markets have done so well even with all the downgrades on Spanish banks and resignation of Portugal's prime minister. The market is still doing well. I do not expect this to be a major issue within the next 12 months. Headlines will still be coming out but Europe is right now the least of our worries. At least while Japan and the Middle East continues to be the center of attention. So I am not going to talk too much about this.

Middle East unrest

Yes yes, I know about the "no fly" zone, I know that oil prices are rising and I know that political regimes are falling. But the key is Saudi, not Libya, not Egypt. All I can say is Monarchies are much harder to overthrow than dictatorships. Kingdoms are much more entrenched in the hearts of people that is why I really doubt that Saudi will fall. The king just gave US30 billion to the people...so that should keep them happy for a while.

Oil is rising extremely quickly and fears over a slow down in the global economy will surface once again. But don't worry, the economy will slow down not because of high oil prices, we have seen higher prices but the economy was unaffected. Do not let idiotic analysts who know nothing distract you. The key risk is in housing and what happens at the end of QE2. When the US Fed reserve passes the baton back to the private sector to hold up the economy. Whether the private sector has the capability to hold up the economy on its own is going to be a big question mark. In my view, I thnk that market is going to be fine till May where the market will feel the jitters over the end of QE2.

I have a couple of stocks in mind but this is my first week back so maybe lets not try to overachieve.

Have a good trading week ahead!

Best,

SVI