You've got a friend

                                                                                    ---- March 20, 2011
When you're down and troubled and you need a helping hand.  

And nothing, whoa nothing is going right.

Close your eyes and think of me. 

And soon I will be there to brighten up even your darkest nights.

You just call out my name, and you know wherever I am.

I'll come running to see you again.      

Winter, spring, summer, or fall.

All you have to do is call, and I'll be there.    

You've got a friend.

If the sky above you should turn dark and full of clouds.

And that old north wind should begin to blow, Keep your head together.  

And call my name out loud,  and soon I will be knocking upon your door.---          
    
     Quoted from song lyrics - You;ve got a friend                                                                   
     Written by Carole King and performed by James Taylor

Digging up global economic trends at present isn't so easy as usual, as Old Man Winter is sure making it hard to figure out what's going on in the world. A series of pro-democracy moves across the N. Africa and Arabian countries had played havoc with economic data. The seismic shift in Pacific Rim, as-yet unknown outcome of Japan nuclear crisis and western military action against Libya further darken visibility of global economy. The world's domino effect has taken hold. There are several grave concerns for us to face:

Domino one: Global divergent trends in nuclear plant policy

One is a recurring theme of environmental protectionism. The 9.0 quake on Japan eastern coast and subsequent tsunami that impaired Fukushima Daiichi power plant prompted the countries using nuclear power to reevaluate their systems. For years, the world has regarded the energy as cornerstone for countries vying for resilient earning profile and success in global competitiveness.

The US, contending for retaining its world's No.1 economy, is said to plan a quintupling of its 104 nuclear plants amid a belief the industry will grow in prominence as oil supply will decrease in decades. Meanwhile, still sticking with its nuclear program, France plans to provide electricity to German in 2050, but has pondered restriction to help set up nuclear plants overseas. The countries now weighing ceding nuclear projects include German and Switzerland, and it's clear that who poses threat to the world's safety while shrugging off a nuclear crisis.

Consumption of the energy must be reigned in, as price will be paid on any botched nuclear plant. Most remember all too well about incidents of 1979 Three Mile Island and 1986 Chernobyl plant in Ukraine. To some extent, a damage of plant is self-inflicted. It might be the occurrence due to our excessive spending which phases out nuclear plants at a faster clip. As the old adage goes, people have spent money they didn't have, to buy things they didn't need, to impress people they didn't even like! There'll be time to pay the piper. Why on earth do they turn on the light after leaving offices at nights? The answer probably is for security or coverage of burglary and robbery insurance. One thing is certain that no one can resist romantic ambiance radiating from illumination in city skylines of Paris, Rome and Manhattan .  

Domino two: Taiwan's raging debate on nuclear plan

In the wake of meltdown of Fukushima Daiichi plant, Taiwan officials look unfazed to pledge its establishment of No.4 nuclear plant on this choked and cluttered island, an inhabitation environment akin to Japan. With backdrop of fewer factory installment and paucity of infrastructure project, ramping up power supply is quite disturbing, skeptical to those green movement supporters who lack a significant political weight. Taiwan is equipped with a 28% surplus of spared electricity capacity, whereas domestic electricity demand supplied by nuclear plants hits only 18%. The striking gap might fuel another round of raging debate about whether No.4 plant is exceedingly required.

The disastrous quake has sent Japan into a deep limbo, not in the least of which is rampant anxiety that a contagion effect of nuclear fallout will spread through the Globe. Taiwan may proffer plans to venture into wind and solar power spheres, with feed-in subsidies offering to developers. It's time to take a serious hiatus from the nuclear energy sector and let it slide towards oblivion in the world. You can run, but can't hide away from a nuclear plume of radioactive material.

Domino three: Disruption of Japan economic activity

Most analysts seem to sell the ideas that the quake will deal a modest blow to Japan GDP generally reassessed to be cut by a 0.5 pct from a previously estimated gain around 1.5% this year. Economic revival will arrive in latter part of 2011 as Japan rebuilds. Japan, the world's 3rd largest economy, is responsible for roughly 8.7% of global GDP, based on IMF. Even assuming a flat Japan GDP trend, global GDP will slump by a mere 0.1 pct to 4.2% this year, barring a full-blown nuclear catastrophe or other calamitous events. On an even brighter side, a bank juggernaut on Wall Street tipped that its forecast figure of Japan's economy will be barely budged. More sanguine is that the US could receive a "mild boost" to GDP as it runs a USD60 bn trade deficit with Japan. It is calculated that US' exports to Japan account for only 4.7% of all US goods exported.

Their unruffled hopes for Japan economic climate is relatively underestimated. Japan is a highly open economy interconnected with global counterparts. Its woes will then have widespread ramifications to regional and emerging countries, where it long spread its footholds. Japan's outbound investment is expected to dwindle in favor of its future reconstruction. A reassuring assumption of GDP, which is "domestic" one, may belie its influence on global economy. Regional countries lately were stunted by languishing tourism and consumption powered by doughty Japan shoppers, not to mention a ripple effect against global logistic system and supply chain.

Japan in 1995 suffered a fatal earthquake in Kobe, a city west of Tokyo, pushing most of leading makers to relocate production lines to currently-ravaged NE part. If the resettlement proven to be a failure, supply of key IT component to assemblers in ex-Japan area will be delayed and disrupted. The setback will also cast a pall over global electronic output and pent-up demand. Apple is reportedly victimized that its just-in-time products will be postponed with earnings dislocated. A quick fix is certainly a bounty to those emerging markets, yet the unfolding trouble is worrying, not just to economy but also human health. Civilians have evacuated the nuclear-ruined area which might be deserted and shunned by investors for years.  

Domino four: Disorder in global financial market

in a tone appearing to soothe investors, newsletters from foreign banks and securities houses in large conclude a limited economic affect. But funds exposed to Japan have met redemption frenzy, with calls for cashing out ringing up before next wave of depressing news. Plus, as recovery could cost more than USD186 bn, or about 3% of its GDP, repatriation by Japan institutional buyers in offshore funds gained tractions.  

Japan is the 2nd largest foreign holder of US Treasury bond, and there's a risk that  fixed-income markets will be shaken by typically aggressive Japan insurance buyers who may be forced to become net sellers raising cash to oblige claims. The damage bill for Japan insurers has been estimated at up to USD30 bn. But some dismiss an imminent liquidation, citing a firm showing in the aftermath of Kobe earthquake in 1995, in which Japan investors didn't dramatically lighten up but actually strengthened appetite for US Treasury bond.

However, after digging into historical data, one can reexamine their assessment which is mainly reviewed to blunt what could have been a snowballing effect of a lack of faith, or system risk in global financial system. Japan this time around will likely limp back to normal status and withstand hardship at a slower, sluggish pace. By comparisons, the island nation in 1995 raked in GDP and GDP per capita at USD5,244 trillion and USD41,807, while last year the figures stood at USD4,724 trillion and USD32,600. The unfavorable differences carry a bearish outlook still clouded by the nuclear radiation threat. 

As in most of the cases, there'll be always something, be it exogenous or endogenous, that allows folks and analysts to reactively assign reason to the rhyme, and make assumedly reasonable comparisons with isolated, past-tense events. They don't intend to neglect the quake's lingering impact, much less a spillover effect from their clients who may close out positions in droves. An exodus will slice their arrangement or annual administrative fee, etc., thereby they skewed comparable basis in comments. A relatively calm valuation noted in their fine-print newsletters to clients can be understandable.

A wild card in global forex market loomed after the USD-JPY pair last week saw JPY scale a record high against the greenback in Asia. The eye-popping appreciation of JPY was attributed to repatriation of foreign assets by Japanese firms and unwinding of carry-trade. A G7 statement about coordinated intervention drove down JPY a bit last Friday. While Japan downplays the need for the joint action, a further weakness of the pair will definitely crimp price rivalry for the export-oriented nation. A global continued forex conundrum will be likely morphing into a trade dilemma of sorts.

Domino five: The Chrysanthemum and the Sword

The world is now facing the worst nuclear crisis since 1986, as Japan lifted the Fukushima Daiichi INES event rating to 5 and placed the emergency on par with the 1979 incident at Three Mile Island power plant. The Chernobyl one in 1986 was rated at 7. Prime Minister, Naoto Kan of Democratic Party of Japan, is pressured by salvos for his failure to improve situation in the quake-stricken area.

Japanese are variously described as rigid and adaptable, submissive and resentful of being pushed around, loyal and treacherous, brave and timid, conservative and hospitable to new ways, according to Ruth Benedict in her 1946 research - The Chrysanthemum and the Sword. Being rigid in their behaviors, Japanese seemed not so disconcerted by current crisis. The West might get worry about Japan political road ahead after the crisis is resolved to an inevitably bitter end. The country has been changed by natural disasters before and not always for the better, as reflected by 1923 earthquake that eventually led to military rule. It's hoped that Japan can undergo a true two-party system where the veil of sensitive political issues can be lifted.

Each country needs a do-over from time to time, and Japan will likely rip up its prior political picture and craft a new one with a single aim: Instilling renewed business in restructuring. However, what's deeply rooted in western mind will be a mighty Sword reemerging out of a traditional "shame Vs. guilt" culture. In some countries, spent fuel rods are reprocessed and plutonium, produced during nuclear fission, will be dumped. Japan , viewed frugal with a valuable resource, mixes the used plutonium back into new fuel rods. Doubts gain grounds that reactor 3 fuel rods contain a higher backlog of plutonium, resurrecting caution against Japan's ambitious bid capable to produce atom bomb by using key material, plutonium, should situations demand. Japan's future rebirth action will be watched under strict microscope, much as its political landscape.

Taiwan stock market: In a state of flux; "No-fly zone" over 8,550 for bulls

Global stock markets have coped with double whammy - Japan's struggling efforts to rein in nuclear radioactive leak, and escalating tensions in Libya and Mid-East. The UN authorized military strikes on Libya last Thursday and martial law was in effect after violent crackdown in Bahrain .

Taiwan stock market last week plummeted 173 points to close at 8,394, well off its weekly low of 8,070 seen Tuesday. Helping form a V-spike reversal pattern in daily time-frame came from jumps in last two sessions, as oversold constructions roared back on Friday amid rumors that the new luxury tax draft will be shed. Nevertheless, the pattern looks less meaningful judged by its outsized volume on Tuesday versus average daily volume. The outburst of volume was up by nearly NTD30 bn from NTD129 bn registered on Monday, indicating renewed interest from day traders and stock scalpers. Odds for a stronger bull-run will increase if the low was accompanied with significantly declined volume, a sign of sellers' fatigue and stable market liquidity.

The lower shadow of 324 points in weekly candlestick would suggest a short-term floor was put in place verging over 8,000 after heavy sell-off since early Feb. Typically, a bottom consisting of a "W" formation, not a "V", will ooze more decisively-bullish omen. Yet, there is no reason to be stubborn and just let the market tell us where the bottom is. A case for it returning to the vicinity to retest support is not ruled out in near future. Up to now, the market is seemingly short of upbeat scenarios involving positive gamma and deep-in-the-money chances for longs. The solid resistant band between 8,550 - 8,700 will be a short-term effective "no-fly zone" for bulls. Questions about market ability to decouple from recently negatively-biased news still remain intact, particularly in face of latest foreigners' relentless dumping. 

Rushing to cash in on disaster, or quake-concept shares is foolish and irrational. A panic sell-off only serves as bottom-fishing opportunity to pick up cheaper big-beta and big-name stocks ridden with decent prospects. Not against all odds, one can manage to profit from rehab-related shares for get-rich-easy chances, but that's "against the God" from a folly scrambling to buy salt or iodine pills to stave off nuclear radiation.  

Strategy: Adopt a risk-aversion attitude

Clearly, no news is good news, or no evil news is better at the moment. Recent deluge of unexpected events are hard for analysts to chew on. Just at a time when global investors are ready to get comfortable with risk and indiscriminately embrace stocks, nuclear disaster and war jittery are back on their radars to make them realign portfolios. Things appear to be heading into the right direction as we expect a cool-off in Japan nuclear crisis. But corporate profit outlook is exactly the opposite, and is about to log a lackluster, far less-than-expected growth at least for 1Q11.

We can avert risk by taking a neutral stance and focus on capital preservation in a murky and elusive market phase. Risk-chasing buying impulse can't push equities higher, and isn't necessitated right now. But a human risk will lurk behind being recklessly wasteful in natural resource. Science brings welfare and fortune to the human, alongside potential misery misguided by its greedy and profligate nature. The nasty genes will accordingly trigger war affairs propelled by jockeying to control resource, and man-made mishaps such as nuclear crisis.

A butterfly flipping its wings in Japan or Libya has already kicked off a repercussion effect on global stock markets. Corridors on Wall Street will not be sparse in coming months, now that western power has showcased its muscle again to oust its currently major enemy, Gadhafi, by bombarding Libya. The West might take the news in stride, as the attack just confirms what many have been already assuming. Whether bulls or bears will roam on the streets will remain as a puzzle for a while. 

"Risk is a choice rather than a fate."   "The essence of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us." -- Quoted from "Against the Gods" written by Peter L.Bernstein.

Help Japan ! They need friends to console their spirits ! ……