“This is a huge disaster for the Japanese stock market. Traders everywhere are going to feel it in their portfolios if they’re not prepared.”
San Francisco, CA (PRWEB) March 16, 2011
Global finance expert, John Thomas, has released an in-depth analysis of Japan’s economic outlook. Things have gone from bad to grim in the world’s third-largest economy following the worst natural disaster in nearly 100 years, and the financial shockwaves are rippling around the world.
“This is a huge disaster for the Japanese stock market,” said Thomas, who created the world’s first dedicated international hedge fund. “Traders everywhere are going to feel it in their portfolios if they’re not prepared.”
Panicked investors are scrambling after the Tokyo Stock Exchange’s dismal post-quake debut Monday following the country’s worst natural disaster in nearly 100 years. The immediate economic effect on Japan is an instant flip in the GDP growth rate from +2% to -3%, a swing of -5%, Thomas said. This will be similar to what happened following 1995’s Kobe earthquake, which resulted in a down yen for the next decade.
“We could reach a 30-35% drop,” he said.
According to Thomas, since Japan has the world’s third largest economy, after the US and China, this will take a bite out of global economic growth, as well. International trade will definitely take a hit. This is bad for oil, commodity, and metals prices, but good for bonds.
As for the auto manufacturers, Thomas says this disaster hurts Nissan more than Toyota, as they have many more factories closer to the epicenter.
“This makes nonsense of all existing earnings forecasts for Japanese companies,” he said. “Although it will takes weeks for the downgrades to feed into the marketplace.”
The outlook for the yen (FXY), (YCS) is a little more complex. After Kobe, the yen shot up 20% against the dollar. Past is not prologue, however. That was the final blow off the top of a 35-year bull market for the Japanese currency, from ¥360 to ¥79.5, and it fell for a decade after that, taking 15 years to get back up to that level.
“It’s more than ironic that the double tops on a 60-year chart for the yen correspond with giant killer earthquakes,” Thomas said.
What’s next for the yen? “Short-term traders and momentum players are going to gun the yen to the upside in an attempt to trigger the mountain of stop-loss orders to buy yen that exist just under ¥80,” he predicts. “This will force the Bank of Japan to play its cards with a massive round of intervention.”
Thomas has strong Japanese ties. In the 1970s, he moved from the U.S. to Tokyo to work for a securities company as research analyst of Japanese companies. He went on to work for seven years as the Tokyo correspondent for The Economist and the Financial Times. In 1989, he was appointed director of Swiss Bank Corporation, and was responsible for its then-vast portfolio of Japanese equity derivatives. A year later, he went on to establish the world’s first dedicated international hedge fund, earning him the nickname, The Mad Hedge Fund Trader. Almost a decade later, he sold his fund to concentrate on managing his personal investments. Now, he is the Chief Global Market Strategist for financial publisher, Market Authority.
As the world watches and waits, Thomas is preparing himself and clients for high volatility and much uncertainty in the days, months and—quite possibly—years ahead.
“We have just had a V-shaped economy dumped in our laps, and we have embarked on a precipitous down leg,” Thomas said. “I’m not holding my breath for a quick recovery.”
Thomas’s full report is available online here.
Contact: Dean Gallagher, Market Authority