This is a guest post by Kevin Craig who is a financial writer for various finance related Communities. He has been providing advice on debt settlement as well as on debt consolidation programs since 2007. With his advice many are now living a debt free life.
The twin disaster in the form of a deadly earthquake and a giant tsunami has killed more than 2000 people in Japan. It has also resulted in a nuclear crisis which is escalating at an alarming speed. Also, this tragedy has caused a major setback to the Japanese economy.
Japan was already struggling to stabilize the balance of public debt in the pre-earthquake period. The combination of earthquake and tsunami has made the situation worse. The reconstruction of the areas affected by the disaster will increase the national debt. Possibly, the Japanese government will release some of the assets to combat the situation. However, the investors are skeptical if Japan can successfully restructure its debt.
Amidst the predicaments that the Japanese people are facing, it might seem heartless to discuss the impact of the recent disaster on investments. Nonetheless, it is important to be concerned about investments at this point because the Japanese catastrophe can hit your portfolio in a major way. The effect of earthquake and tsunami is already taking toll on the stocks. The Japanese stock market fell by 6.2% on 14th March. Many investors are feeling that this is the right time for wholesale stock selling.
However, don’t be impulsive. You should not take decisions based on the current situation. Anticipate the future developments and make your choices accordingly. Here are some key things which you need to keep in mind:
The current situation won’t last forever: It is natural for the investors to worry when natural disaster hits a highly developed country. But be assured that there is no reason to panic. Japan is world’s third largest economy. It has survived fatal consequences of world wars and recessions before. There are reasons to believe that the Japanese economy will get back to its feet sooner than you imagine. In fact, natural disasters, says a Wall Street economist, are devastating for the present but can lead to positive growth in the future as the economy reorganizes itself.
Keep the Japanese stocks: Do you have a fair share of Japanese stocks on your portfolio? If yes, then you must be an anxious man right now. But make sure that you do not sell out the stocks. You will incur short term losses if you sell them right now. Have faith on Japanese stocks. Do you know that Nikkei fell by more than 20% during the earthquake of 1995? But it was back to normal by January 1996. Since the magnitude of the disaster is bigger this time, Japan might take a bit longer to turn around. Nonetheless, if you have patience, the Japanese stocks will pay off. Smart money managers like Charles de Vaulx says that there is no point making major changes to your portfolio due to the Japanese disaster. He says that the Japanese equity market is looking promising and the major Japanese companies are working with improved operating efficiency. Therefore, this is actually an opportunity to buy quality stocks at a low price.
Effect of tsunami on U.S treasury bonds: Japan’s investment in the U.S treasury bonds amounts to $882 billion. What could this imply in the post-tsunami period? Well, Japan can sell the treasuries to fund the damage caused by tsunami and earthquake. Even if they don’t, they would not invest in bonds for quite some time. This would mean that the U.S loses the second largest buyer of bonds (the largest is China). Consequently, the U.S bonds will face more pressure.
Natural disasters hit us time and again but the market endures and eventually it recovers. Remember that many people lost hope when Japan suffered a serious recession during the early 1990’s. But the country came back strongly. Therefore, you need to be rational and analytical instead of being anxious to understand the effect of Japan’s tragedy on your portfolio. It might be a wise idea to either buy stocks at a low price or not to make a move at all in the current situation.
After almost three decades of slowly declining interest rates, the direction is beginning to reverse and we are about to begin a sustained period of rising interest rates. How high they will go is impossible to predict, but it is not going to be a short-term event. It will probably go on for several years because the Fed must keep inflation in check, although inflation is close to non-existent right now. But as the economy begins to improve, prices are going to start rising slowly but surely, so inflation will begin to increase. One certainty is that any increase in interest rates is going to be slow so as not to hinder the economic recovery in any way. But it is coming, and soon. Consider a few of the results of rising rates.