The S&P futures are trading down -9 points on Sunday night as a result of the damage in Japan and worries over how that will be felt in the global economy.

The damage in Japan is very bad and it will take many months to cleanup the piles of twisted lumber from the 100,000 homes and businesses that were literally washed away in the tsunami. The bigger problem is the loss of 8.6 gigawatts of electricity from eleven nuclear plants. Two have melted down to some extent and will be closed permanently. Four or five more have minor damage but may not be back online for months. Over five million homes and businesses have no power.

In the short-term the hardship is going to be severe due to lack of infrastructure, shelter, food and water. It is the short-term ramifications the market will be dealing with on Monday and the potential to be a drag on the current global recovery. In the long-term this will be a plus for the recovery because of the demand for products and services to replace and rebuild the homes, businesses and infrastructure. Companies like Caterpillar will see a surge in sales limited only by their ability to produce in quantity.

We need to realize that despite the magnitude of the damage on TV this only had severe impact on the coastal areas nearest the quake. In the major population centers the biggest damage was some cracked plaster and broken windows. For a country that experiences a major earthquake about every ten years the damage to the heavily industrialized areas and high population centers was minimal.

The press will eventually come to this realization but as we all know those hardship pictures sell newspapers and capture eyeballs on TV and increase ratings.

I was tempted to add CAT and a couple others as speculation plays today but with the futures down over nine points I decided to wait until Monday night.

Jim Brown



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