Trying to Find Signs of Hope
As Japan struggles to bounce back from its horrific nightmare, the markets are trying to find a ray of hope. One day after global commodity and stock markets got crushed on reports of a second explosion at the Fukushima Daiichi nuclear power plant, some markets are struggling to look beyond the disaster. But then the evening news late yesterday reported that the plant was once again dealing with a fire.
Late yesterday, as pointed out by Scott Ross, that even as grains, cotton, coffee, copper, silver, oil, gold plunged, commodity stocks like Shares of Freeport-McMoRan Copper & Gold Inc and Potash staged late day reversals signaling a time when the market will focus on the longer-term bullish aspects of this disaster as opposed to the near-term bearish implications. Still, overall the market action seemed to suggest that if Japan loses control of their nuclear plants, the global ramifications could derail the global economic recovery. Do you think the Federal Reserve might have mentioned that in their statement?
Despite the epic struggles, the Japanese stock market opened higher perhaps helped by the ¥15 trillion ($183 billion) that the Japanese central bank shot into the system. While that helped stocks, it hurt precious metals that sank on concerns that not only will investor and jewelry demand falter from Japan but the possibility that at some point the Japan central bank may sell gold reserves to raise capital for reconstruction. It is also possible that the International Monetary Fund, the third largest holder of gold reserves in the world, will be called on upon to help Japan battle back for what could turn out to be a disaster unlike any we have seen before.
The markets are trying to assess the damage and look ahead but because of the struggle with a potential nuclear meltdown, there is fear that the true extent of the demand destruction may not be known for some time. If this was a normal earthquake and tsunami situation it is likely that the market would already be preparing for the rebuilding phase, yet with the uncertainty surrounding all of Japan's nuclear plants means that it is impossible to gage exactly when this rebuilding will begin.
Of course all of this seems to be lost on the Federal Reserve, which failed to acknowledge or even mention the great threat that Japan poses for the global economy. Maybe if you don't have anything good to say, perhaps you should not say anything at all.