Japan Quake Setting Off Market Aftershocks

Unless you’ve been hiding under a rock all weekend, you all know the news out of Japan. While initial reports indicated that the nuclear facilities in range had been secured in time to prevent any major damage, subsequent explosions on site have caused near panic as news of radioactive leaks have spread. No one knows yet just how substantial the damage will be to the world’s 3rd largest economy, which is among the world’s leading importers of Oil, Corn, and Cattle, but the Nikkei stock index down -7% since the quake can give you and idea.

The last time Japan (and the rest of the world) was affected by an earthquake anywhere close to this magnitude was the Kobe quake of 1995, and that was only a 7.2. Thus far, the markets are following a relatively similar path to that time period, with the Nikkei Index dropping 6.2% already today (WSJ).

Nikkei Performance- Kobe and 2011 Comparison

In 1995, Nikkei dropped 7.99% within four days of the quake. We’re only on the third day of trading since the 2011 quake, and it’s dropped 7.81% – taking most global stock markets with them (not to mention commodities like Platinum which are used in Japanese car production).  If you weren’t listening last week when we said it was time to diversify, you might want to now.

How this will play out over the next several months is anyone’s guess.  In looking at the moves in Japan’s largest import markets of Oil, Corn, and Cattle in the months of demand disruption after the Kobe quake, we can see there wasn’t a clear cut ‘trade’ to be put on. This is due to several factors, the largest of which is that even the world’s third largest economy (2nd largest at the time of the Kobe quake) having a hiccup isn’t enough to overcome other factors such as supply, interest rates, and more.

Market Performance After Kobe

But this demand disruption looks to be on a larger scale – and comes at a time when other market currents are going the other way. On one hand, violence in the Middle East and inflationary pressures due to quantitative easing have been driving commodity futures higher and higher.  On the other, the earthquake affecting the world’s third largest economy can drop demand (causing for lower prices) for things like oil, platinum and corn in the face of lowered production capabilities. For today at least, the quake is winning.

We mentioned in our 2011 Managed Futures Outlook that we thought managed futures performance in 2011 would be driven by downtrends in commodities instead of higher and higher highs, positing that a trend reversal would cause short term pain for many CTAs as they were stopped out of long positions, before longer term gains after initiating short positions.  Could this be the catalyst which finally ends the lengthy up trend which has essentially been in place in most stocks and commodities since March of 2009, and technically speaking since mid November 2010?  Stay tuned…

We don’t know what the future holds for Japan, but as the damage is assessed, our thoughts and best wishes go out to their beleaguered people.

Use the following link if interested in donating to the relief effort: http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1221

 

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.