Tuesday, March 15, 2011

Losers and Winners on the Ides of March

They weren't kidding about the Ides of March.

LOSERS. This is a day for losers.

Japan. With the 9.0 earthquake (about as big as they come) and the 30-foot tsunami that followed, Japan got walloped. Now, the rising risk of reactor fuel meltdown has the Japanese nation turning to its nuclear industry and asking, "Et tu?"

Industrialized World. Japan is deeply integrated into the world economy, as an exporter and importer. The ramifications of the soon-to-come earthquake-driven recession there affect crucial industries around the globe, including electronics, automotive, insurance (obviously), petroleum, and banking. With China slowing its economy to rein in inflation, Europe turning to austerity as it struggles with its currency crisis, and America getting by on the methadone of Federal Reserve easy, easy money, there's not a whole lot of horsepower in the international economy to pick up the slack left by Japan. The stock markets are starting to figure this out.

Nuclear Power Industry. While some Japanese nuclear power plant workers may, in effect, be committing hara kiri trying to contain meltdown risk, nuclear power projects worldwide are being curtailed and cut. When you play around with stuff that has real potential for destruction, no amount of engineering can guarantee safety. That's true of nuclear energy, and it's also true of financial derivatives.

Libyan Rebels. With the world's attention diverted to East Asia, the Libyan rebels' chances for resupply and a no-fly zone from other nations are fading rapidly. The U.S. buys little or no Libyan oil, and has no vital national interest there. Britain and France were quick to advocate a no-fly zone, but they know that only the U.S. Navy has the resources and power to actually impose one. That means America would have to bear the burdens and take the casualties. The U.S. government is clearly stalling for time--its demand for UN authorization is a transparent pretext for delay. Maybe the Obama administration knows something it can't really share with the rest of us, yet. Things in the Persian Gulf may be worse than the news services have reported. Saudi Arabian troops have rolled (in unmarked vehicles) into Bahrain, in order to help the Bahraini government stay in control. Things in the Persian Gulf could be deteriorating, and the U.S. military may have to keep its powder dry in order to retain the option to play a role there, where the U.S. has a large vested interest.

Barack Obama. The President hesitated to join up with the Libyan rebels, and they now think he has a secret pact with Gaddafi. Obama has called on Gaddafi to cede power and leave Libya, so Gaddafi knows that Obama isn't on his side. No matter who wins in Libya, America and Obama lose. The Japanese nuclear crisis has blown up Obama's nuclear power policies, and a recession in Japan could put pressure on the administration to apply more fiscal stimulus (i.e., engage in more deficit spending, which isn't exactly politically trendy these days). The perhaps not well publicized unrest in Bahrain and Saudi Arabia, along with a deteriorating situation in Yemen, put the Obama administration in the position of wanting to side with oppressive monarchs in order to protect U.S. interests. Even if these monarchs survive, America's already compromised image in the Arab world will suffer.

Republicans. International events are taking front page news coverage away from Republicans and their domestically-focused agenda. They can't easily criticize President Obama's foreign policy, which is strikingly similar to George W. Bush's. They may have to settle for appearances on Dancing With the Stars.

WINNERS. Even in ugly situations, there are winners. That's why you find the most cynical of stock market speculators swarming into select parts of the market when a crisis hits.

Natural Gas and Shale Oil. The NIMBY style controversies over fracking may seem manageable in light of massive radiation releases from Japanese nuclear power plants. Natural gas and shale oil might have to be repriced to cover the costs of reimbursing people damaged by fracking. But the stuff is found in plenitude in these United States, and will surely be a growing source of energy in the future.

Coal. It's not beloved by environmentalists and mining it leaves ugly scars on the land. But America has massive coal reserves and will surely turn more and more to them in the future. Long term, alternative/renewable energy sources may begin to play a major role in America, but for the short and medium term, coal will be definitely be a part of our lives.

Oil Producers. Oil producers, like Venezuela, Russia, Nigeria and Canada, see their fortunes rise. Too bad not all of them are friendly to America.

Iran. Iran gets a win-win here: increased revenues from rising oil prices and more opportunity from the Arab uprising to stir up Shiite co-religionists on the Arabian peninsula.

China and Taiwan. As Japan's economy struggles, Chinese and Taiwanese companies will get a chance to get into high value-added product lines the Japanese have dominated. Semiconductors and high tech automotive components are obvious targets. Look for Chinese automobile companies to try to move up their deadlines for introducing their products to America.

No comments: