The fact is that various financial market analysts are confirming that view in the midst of April 2011.
Our thesis for the commodities recommendation was based on the burgeoning debt and the rising risk of bankruptcy among the various debt insurers.
The forecast for sovereign and corporate debt doom and gloom was ratified by Standard & Poors issuing a negative outlook on the credit rating of the US.
The markets swooned from its recent highs with an intra-day retreat of over two percent.
The Efficient Market Hypothesis (EMH) is the principle that’s holding the feet of the traders to the fire of Fair Market Value (FMV), because the news is full of pending doom in the earnings reports and conference calls.
In an attempt to guard our perfect track record in terms of forecasting market trends, we at The KIN Consortium recently published an article discussing the impact of the post-quake crisis in Japan on various earnings reports.
We found that a number of earnings reports are referring to Japan as their Achilles’ heel.
One recent example was a Texas Instruments conference call, which brought out the uncertainty and fear about their manufacturing plants in Japan.
We are obviously tuning into each of these reports, listening to systemic problems in each of various business models.
We can see that there are two ways to look at the impact of Japan’s post-quake crisis.
The first way is from the production perspective, while the second is from a consumption perspective.
In terms of production, the Japanese are vulnerable to both the rising yen and the lack of fully functioning manufacturing facilities.
The scarcity of Japanese products will raise the prices of those goods that are produced in this type of market environment.
Subsequently, the rising cost of goods sold at the final assembly plants in the US will negatively impact financial markets.
The second way that international markets can be negatively impacted by the Japan crisis is the lack of consumption from the Japanese economy.
The stories that are unfolding in the news, reek of weakness and uncertainty in their company guidance due to the situation in Japan.
In fact, various media outlets began to discuss Chernobyl as an ongoing concern regarding radiation in Russia, while Japan’s nuclear scientists are trying to calm the world with solutions that may take six to nine months.
The question related to Japanese consumption of US goods and services will depend on how the story unfolds.
Everything from tourism to luxury goods to high-tech solutions are qualified as questionable sectors in the Japanese economy.
As a portfolio manager, we were trained to review the markets in two ways.
The first method is called bottom-up and the second method is called top-down.
Bottom-up is merely a fundamental study of an industry or economy that focuses on individual companies, while top-down is more of a macro view of individual sectors of the economy.
Let’s take this opportunity to build our thesis on the status quo of the financial markets using both methods.
From a top down perspective the sectors that will most dramatically suffer as a result of this crises are technology, auto manufacturing, and luxury good items.
On the other hand, bottom-up analysis will involve quantifying the impact on each individual company, which will involve gathering the data that is being announced as we write this very article.
We are still in the midst of the earnings reports season and the news seems dire at best.
Keep in mind that investors, manufacturers and retailers in Saudi Arabia can seize market opportunities by strategically planning end-to-end solutions.
We consistently advise our readers to adopt appropriate hedging strategies as well as consider buying and relocating various Japanese manufacturers to Saudi Arabia.
If you need any assistance with regard to either of these two strategies feel free to contact The KIN Consortium.
— Khalid I. Natto ([email protected]) is chairman & CEO of The KIN Consortium.