Japan

Our thoughts and prayers go out to the people of Japan, what a terrible and devastating series of events. A question this is stated in the news is what does it mean for the world's economy? This newsletter tries to give some answers to this question. At the end are some famous quotes for your enjoyment.

Vanguard

The markets took a late-winter slide on Thursday after the Commerce Department reported that the U.S. trade deficit had broadened well above estimates in January. China also showed a trade deficit, its first in nearly a year. Meanwhile, consumer credit, retail sales, and business inventories all showed healthy increases. For the week ended March 11, the S&P 500 Index declined 1.3% to 1,304 (for a year-to-date total return—including price change plus dividends—of about 4.1%). The yield of the 10-year U.S. Treasury note decreased 9 basis points to 3.40% (for a year-to-date increase of 10 basis points).


Japan

To understand the economic impact of this disaster we need to remember the law of supply and demand as well as the influence of insurance. The law of supply and demand means that prices go up as supply goes down and demand goes up and conversely prices go down as supply goes up and demand goes down.

We know that the nation of Japan is the 3rd largest economy in the world and is an importer of oil and an exporter of cars and electronics. The demand for oil will go down so expect the price of oil to go down. The supply of cars and electronics will go down so expect the price for cars and electronics to go up and you should consider buying now instead of a month from now.

We know that much of the infrastructure must be rebuilt like roads, transportation systems, telecommunication systems, energy systems, etc. Also, we know that millions of buildings and homes have been destroyed that must be rebuilt as well as automobiles and personal property that must be replaced. The demand for commodites like steel, aggregate, cement, copper, and aluminum are going to increase so expect these commodity prices to go up in general.

The insurance industry plays a big role in this recovery. We pay insurance premiums which reduces our spending power on an ongoing basis and we get this spending power back when we collect. The same thing happens for every business and person in Japan. Insurance companies will fund much of the rebuilding. Also the government must spend a huge amount of money to replace infrastructure.

The bottom line is that the rebuilding of Japan is very positive for economies around the world. Companies around the world will grow because the government, businesses and people of Japan will need more products. This is positive for stock markets around the world. In the long run it will also be somewhat inflationary so interest rates will tend to rise.

As an investor, this means that the current investment strategy will be maintained.

Famous Quotes (Insults)

It's not nice to insult anyone, but sometimes it can be appropriate and funny. Here are some for your enjoyment.

• “Lady Astor to Winston Churchill - "If you were my husband I'd give you poison." Churchill to Lady Astor - "If you were my wife, I'd drink it."
• "He had delusions of adequacy." Walter Kerr
• "He has all the virtues I dislike and none of the vices I admire." Winston Churchill
• "A modest little person, with much to be modest about." Winston Churchill
• "I have never killed a man, but I have read many obitu-aries with great pleasure." Clarence Darrow
• "Thank you for sending me a copy of your book; I'll waste no time reading it." Moses Hadas
• "He can compress the most words into the smallest idea of any man I know." Abraham Lincoln
• "I didn't attend the funeral, but I sent a nice letter saying I approved of it." Mark Twain
• "I feel so miserable without you - it's almost like having you here." Stephen Bishop
• "He has no enemies, but is intensely disliked by his friends." Oscar Wilde
• "I've just learned about his illness. Let's hope it's nothing trivial." Irvin S. Cobb
• "He is not only dull himself; he is the cause of dullness in others." Samuel Johnson
• "There's nothing wrong with you that reincarnation won't cure." Jack E. Leonard
• "They never open their mouths without subtracting from the sum of human knowledge." Thomas Brackett Reed
• "He loves nature in spite of what it did to him." Forrest Tucker
• "He has Van Gogh's ear for music." Billy Wilder
• "I've had a perfectly wonderful evening. But this wasn't it." Groucho Marx