Mid-Month Update: A quick update on the implications of the situation in Japan

Tokyo Electric Power Co.’s nuclear power plant experienced two explosions today that significantly increase the chance of more radiation leaks. These leaks are not expected to be on the same level as Chernobyl however given recurring aftershocks it seems hard to rule anything out at this time.

This has direct implications on Japanese stock markets, of which we have little to no exposure to; it has indirect implications on global markets due to the size of Japan’s economy and the threat that a significant slowdown there could spread to other economies. Most non-Asian markets are down 1.5% to 2% (at the time of this writing), which does not qualify as an extreme move, but still warrants caution. The USD, CHF and JPY, as well as US Treasuries, are up on a flight to safety. Most commodities are down on global slowdown concerns; natural gas is up as this catastrophe represents a significant setback for nuclear power.

First and foremost, our hearts go out to everyone that has family or friends in Japan, or that is in anyway affected by the events in Japan. With that said, we are weighing our long-term investment philosophy versus the extremely unique and highly unpredictable nature of the current situation, and may decide to temporarily reduce our higher beta equities allocations, such-as emerging markets, as well as other allocations should the situation deteriorate further. As of this writing no action has been taken.

To be clear, we are invested for the long-term and do not let day-to-day or even month-to-month swings strongly influence our decisions (and neither should you). However given the unpredictable nature of this event, combined with the unprecedented (and possibly escalating) unrest in the Middle East, we may err on the side of being overly cautious, reduce some of our exposure and wait for more clarity on the global outlook.

If you have any questions/comments please do not hesitate to contact us.
To monitor the events in Japan in near real-time: http://live.reuters.com/Event/Japan_earthquake2


Sincerely,
James & Adam