by Charles J. Reid
March 11, 2011
NEWT'S ADULTERATED POLITICS
ANGEL FIRE, N.M., March 16, 2011 -- The banged-up flatbed bounced and bumped at 65mph, headed southbound on I-95 in moderate traffic, when a wheel came flying off.
Behind the truck in the center lane, wedged in by traffic on either side, I watched as if in slow motion as the giant tire spinning wildly smacked into the right side of my front bumper, and hurled my Audi into the air.
My seat belt held, my skull bumped the headliner, witnesses said all four of my wheels went airborne like in a movie chase scene, and the truck wheel kept spinning, landing atop the concrete median strip. I landed with a crash of sparks, made it to the next exit and survived to praise Audi and its engineers.
Today I listened to CNBC-TV's Mark Haynes, whom I trust, and his colleague Jim Cramer, whom I loathe, discussing worst-case scenarios for crashing markets and economies based on tragic Japanese headlines.
All night, listening to commentators from Hong Kong, Tokyo and Sidney, I heard similar fears. In fact, for most of my waking hours since last Friday's 9.0 earthquake, monster tsunami wave, and nuclear power plant compromises and explosions, I have pulled all of my old investigative reporter instincts together for the macro view of the future.
From the Straits Times of Singapore to the Financial Times of London, the news is mostly dismal. But reading and listening carefully between the lines, there could be another view.
As a firm Contrarian, a certain part of my brain believes this could be one of the best investment opportunities for Japan and other markets - including the United States - in many years.
Many of you will disagree with what I am writing. I chuckle because even here we are probably on the same page, because an old Wall Street adage says, "In a world of contrarians, if you're not, you are!¯
Each one of my observations is food for thought and for perhaps a complete "monogram" by the Wharton School's fine series of "Knowledge" reports.
So consider these starting points for future discussion, but also the synthesis of more than four decades as student and practitioner in the worlds of business, finance, politics, and human nature.
NUCLEAR DEBACLE - From fault-riddled California, to hurricane-prone Turkey Point in Florida, the world and its leaders will take new hard looks at nuclear power plants. There is no such thing as "fail safe" and there is no such thing as a foolproof system of protecting Earth from radiation leaks in disasters in a future we cannot know.
But what if all six impacted Japanese plants survive the crisis with a staged closing, going offline, securing or encasing "hot" cores, avoiding the escape of acceptably low levels of isotopes - and all this actually does not cause widespread death and future cancer risk?
The worst earthquake in memory; the worst tidal wave to hit a developed nation, and the failure of one, two, three or more redundant safety systems at nuclear plants!
The odds are millions to one of this confluence of events. But it happened. And if, just if, the engineers and managers, corporate sponsors and atomic energy regulators give an "all clear"¯and doomsday is avoided, I pose this question, which my fellow environmentalists will cringe at: "Is it possible that we can learn from the Japanese events, make further improvements, and grudgingly admit that nuclear power might indeed be a safer alternative to polluting and depleting hydrocarbons?"¯
The entire experience could prove that France with 75 per cent dependency on nuclear power actually is a better template for economic sanity than the United States still dependant on the violence and vagaries of Venezuela or Saudi Riyadh for our future.
It also shows that the technology which allowed Japan's power plants to survive the worst trembling troika in history could also mean that T. Boone Pickens and others are correct. They are correct in putting their minds and money into solar, wind, natural gas, geothermal, hydro- and other power sources.
One thing good about living atop my mountain some two hours from the closest Target or Starbucks is the thousand 1,000-gallon propane gas tank. It is up the hill behind the cabin has proven more reliable, more cost-effective and less polluting than any other power source I have used.
Finally, hoax "Radiation cloud charts" have appeared on the Internet (including here on AR, at my editor's insistence) showing the "arrival" of the "deadly" Japan nuclear "cloud" in California and Western states in six days. Virtually every reliable authority reports this is highly unlikely, and thousands of miles of ocean winds disperse atomic particles.
If and when the northeastern Japanese coastline blows up in a mushroom cloud, there is still little likelihood of danger to Americans at home.
INSURANCE RISK - The double-digit market declines in Asia and volatility in Europe and the United States are blamed in part on insurers dumping stocks to build cash to pay for billions of yen and dollars in claims from Japan. One might revisit the great dance choreographed by former AIG chief Hank Greenberg and his son after Hurricane Andrew hit South Florida.
In a now-infamous memo, the head of the world's largest insurer bragged about how the gigantic claims would allow AIG to (1) raise rates for people who want insurance at any cost, and (2) gather more policies and market share from holdouts who were scared that they did not have any or enough insurance on their homes and lives.
Yesterday one tv report said that only 18 percent of all Japanese homeowners have private supplemental earthquake insurance. They rely on a government insurance plan which provides some basic property benefits to quake victims. It is a bit like someone in a U.S. flood plain relying upon National Flood Insurance at a discount rate but "saving money" by not having their own State Farm or Allstate policy.
We have seen the images of elderly Japanese sleeping in cars, without supplemental income sources or cash to move away and rebuild elsewhere. The world has been given a refresher course in the stoic, introverted, controlled, and obedient Japanese psyche.
This might change when people wait weeks and months for basic and minimal benefits to rebuild and recover their lives. When 18 percent of their neighbors are driving a new mud-free car, living in a hotel room in another part of the country, and already hiring contractors as the neighbors await bureaucratic decisions, the insurance industry (including several U.S.-based underwriters and reinsurers) could boom.
In addition, people who are under-insured elsewhere in the world will also get the message.
'JAPAN IS AN ECONOMIC DISASTER' - The argument goes that the fiscal crisis in Japan, unlike the one in the United States, lasted the better part of two decades, killed off the equity market boom, and dried up loan money even at rates of 1 per cent or less.
The flaw is that Japan has survived and still is either the second or third strongest economy in the world, or the second and third most-developed nation in the world. More and more Toyotas and Hondas are made outside of Japan. Northeastern Japan was a manufacturing and transshipment hub for some auto manufacturers, but the Tragic Trifecta need not be a death rattle to industrial Japan.
With the highest saving rates in the world, an ingrained work ethic, and a thirst for technology and scientific achievement, the Japanese Miracle of post-World War II was built on U.S. minds and money, and Japanese productivity and diligence. For those old enough to remember, or smart enough to ask, one might pose this question: "Would it have been a good investment to put some of your money into defeated post-war Japan at a time when toys and trinkets stamped "Made in Japan" meant "Hey sucker, you just bought the cheapest crap on the planet!" And then hold on to your investments until that "Eureka!" day in 1970, or 1980, or 1990 when the names Lexus, Nikon, Sony, or Panasonic were just plain synonymous with "The Best Available Anywhere?"
It seems foolish and short-sighted to count out the Japanese economy.
EMERGED v. EMERGING - Investment gurus talking about the Pacific Rim and elsewhere seem to forget the realities of political stability and issues of trust versus corruption which impact your money. A top think tank wrote to me a few months ago and said the new BRIC (Brazil, Russia, India, and China) in 2011 would be: Colombia, Vietnam, Egypt, Turkey and Pakistan. All of these have infrastructure and political systemic issues, and two have undergone violent upheaval in recent months. Japan exports products and technology. Japan provided the seed money and design intellect for much of the success of South Korea, Taiwan, Indonesia, the Philippines, and perhaps even elements of Singapore and Malaysia.
INSCRUTABLE AND INTANGIBLE - When a quarter of a million people died in Haiti's earthquake last year, I was teaching two political science classes to university students. We dove into a semester-long project on Haitian rescue, relief and reconstruction as sort of a practicum on dealing with global disasters.
One Mexican student proudly told the stories of how her engineer father in the 1980s helped to rebuild and redesign Mexico City buildings after their huge back-to-back quakes to higher and better standards. In turn, her father and his cohorts exported their knowledge to other nations including Chile, China, and the United States to help avoid catastrophes caused by fraudulent, flimsy and phony construction in places such as Haiti.
But further investigation showed that much of the "Mexican" engineering excellence came from Japan. Japanese have experienced their own Diaspora in Ecuador, Brazil, Panama and elsewhere, and have been leaders in many academy disciplines in the arts and sciences.
My generation is more accepting about driving a Japanese car or viewing a Japanese flat screen. My parents and grandparents sometimes viewed the owner of a Mercedes, Fiat, or Datsun (Nissan) as traitors to the memories of Americans who died fighting Japan and its axis of evil.
But times and people change. Your views and your investments are determined by myriad personal goals, preferences and standards, not mine.
There are a number of Exchange Traded Funds (ETFs), and transnationals such as John Deere, Caterpillar, Clorox and others reasonably stand to gain from the Japanese crisis. Pension managers, day traders, hedge-fund managers, and conservative investors all have different priorities.
It is not my place legally or ethically to tell you what I am doing personally or for my clients. Tips galore seem to permeate the talking heads on tv.
Yet for many years there was an 90-year-old chart framed on my wall from Ibbotson & Associates of Chicago. It showed the progress of U.S. markets through the Crash of 1929, the Great Depression, World War II, the Cold War, the Assassination of JFK, Vietnam, Sept. 11, 2001 and many crises in between.
In a world of contrarians, you see, if you're not, you are.
AR Finance Writer Mark Scheinbaum is a regular contributor and a veteran reporter, editor, professor of political science and managing director of LF-Financial LLC. His thoughts are his own and not necessarily those of his firm, nor does he endorse or recommend any investment.