Japan: Here Comes the "V"

I received a call from a friend in Osaka last night. It was scratchy, kept cutting in and out, and was barely comprehensible. There are so many companies attempting to track down alternative sources of parts in Japan these days that a lot of traffic is being routed away from satellites to the old trans Pacific undersea cables, which are normally used for large data transfers.

Osaka was packed with refugees from Tokyo. Anyone with relatives in this massive city 300 miles west of Tokyo had moved for the duration, at least until the nuclear thing blew over. Tokyo water and supplies were testing positive for radioactive Iodine, infants were limited to drinking bottled water, the rolling power outages were annoying, and there was no food anyway. All trains heading west were packed. I learned with great relief that the one friend I had in Sendai, a former analyst of mine, was on vacation in Thailand chasing girls. Thank goodness for small mercies.

Given the news from Japan yesterday, those visitors to Osaka may have to start looking for long term leases. Radioactive plutonium is leaking into the ground at the troubled Fukushima plant. The only way this could have happened is for there to have been a partial core melt down at one of the reactors. This highly unstable element has a half-life of 2 billion years, which means the entire site will have to be entombed in concrete, permanently taking all six reactors there off line. There were rumors that Tokyo Electric Power would be nationalized, and the distressed company was seen attempting to raise $25 billion in emergency financing in the market place. Suffice to say that one way or the other, this company is toast.

I was most fascinated by the new GDP forecasts put out by JP Morgan, which were remarkably similar to the ones I put out two weeks ago. The latest estimate for the Sendai damage is $300 billion, which means that the country has to spend 6% of GDP to get whole again. Morgan sees the same "V" scenario that I did, with Japanese growth shrinking as much as -1% in the first half of 2011, then roaring back to a 3.5% rate in the second half. The "V" goes global, with the impact of the multiple disasters creating a drag on the world economy of -1.2% in the first half, followed by a rebound of 1.3% in the second half. The car industry is expected to lose production of 650,000 units this year. That is a lot of cars.

In the meantime, take a look at the chart below of the Japan ETF. My call not to buy the initial dead cat bounce turned out to be the right one.

By. Mad Hedge Fund Trader