Transcript Effects of Middle Turmoil and Japanese Disasters on Financial

Rui Cao
James Friedman
Elvis Kamwa
Catlin LeMire
Zhenwei Pan
Alex Slivinski
Gerald Taylor
Introduction

 Short Term and Long Term Economic Effects
 Middle East
 Japan
 Abroad
 Investment
 Insurance
 Retirement Benefits
What has happened?

 Middle East
 Political Turmoil
 Japan
 Earthquake
 Tsunami
 Nuclear Crisis
Effects on Economy
(Middle East)

 Most Middle East countries have very young
populations which support political change.
 This doesn’t create a very good environment for
manufacturing and economic facilities because it takes
considerable investment, government policy changes,
and financial system modernization.
 Therefore the economic outlook of the Middle East
should not improve for quite some time.
 An increase in democracy may disperse wealth.
 Less oppression allows for better career and education
opportunities.
Effects on Economy
(Japan)

 Immediately following the disasters, economic
activity is depressed by the disruption of production.
 Then there will be a few aftershocks from the loss of
nuclear energy and production supply-chains.
 After this, the necessity for new infrastructure
(factories, roads, etc.) will actually boost the
economy.
 In the long run, effects should be minimal.
Effects on Economy
(Abroad)

 Japan produces 9% of world output.
 These crises create plenty of uncertainty, inspiring
businesses throughout the world to “postpone
capital spending and hiring”.
 Has caused slowdowns for companies such as Apple
and Volkswagen.
 The exports lost from Japan will be made up by other
counties so overall the effects should be minimal and
some countries will even benefit (especially U.S. car
and manufacturing companies).
Effects on Economy
(Abroad)

 Japan is the second largest holder of U.S. debt. It
could cash in its U.S. treasuries or, at least, stop
purchasing more U.S. debt.
 If Japan can no longer rely on Alternative Energy,
prices of natural gas and oil will rise due to increased
demand.
 Increases in prices for commodities such as steel,
lumber, and cement.
Effects on Economy
(Abroad)

 Rising oil prices due to Middle East turmoil.
 More democracy should mean higher oil prices.
 However, during previous crises in the Middle East,
oil prices have returned to trend.
 If U.S./NATO’s involvement in Libya increases, it
could increase the budget deficit.
 If Saudi Arabia joins in on political turmoil, effects
on oil prices will increase substantially.
Investment

 The GDP growth rate shouldn’t change so investors
shouldn’t overreact.
 However, there will be some companies that will
detriment and some that benefit from the crises.
 Falls in transportation, airlines, General Electric, Aflac,
Apple, and Yahoo!
 Rise in manufacturing, infrastructure, First Solar.
 High volatility in Japanese bonds and the oil market.
 Japanese interest rates on borrowing should increase.
 Japanese stock prices initially fell but will recover.
Insurance

 20% of the Japanese crises should be covered by
insurance.
 There are some people/businesses with natural
disaster insurance and there are special loans
designed for these situations.
 Others falsely believe their home insurance covers
natural disasters when it doesn’t.
 More people/businesses will buy natural disaster
insurance in the future to prepare for adversity.
Effects on Retirement Benefits

 Japan has many elderly that are spending down their
savings—savings rate has fallen from 16% to 2% over
the last twenty years.
 Immigration might be needed because population is
too old to build new infrastructure.
 People without the proper insurance may be required
to work longer or return to work.
 People may lose jobs or be forced to move into
different sectors.
 Decrease in annuity rates due to Japanese disasters
means people may be cut short on retirement income.
Conclusions

 It should take a while for the economic outlook in
the Middle East to improve, but this should not have
much of an effect on anything other than oil prices.
 In the event of successful protests, democracy would
allow for better growth in the Middle East and raise
oil prices worldwide. Otherwise, the worst case
scenario is that the Middle East remains in the status
quo.
Conclusions

 In Japan, the amount of debt incurred by rebuilding
is minimal and should not cause a financial crisis in
the long run.
 The most likely danger is fluctuation of the Yen, but
Japan has already taken precautions to stop this from
happening.
 The effects abroad will be small and short term as
long as nobody overreacts to the crises.
Sources
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www.economist.com/node/18440781
www.wktv.com/news/local/Economic-impact-of-Japans-earthquake-and-tsunami117827629.html
www.retirementplanningnews.info/2011/03/15/devastation-in-japan-is-likely-to-affecteconomies-worldwide/
www.brookingstsinghua.cn/sitecore/content/Home/opinions/2011/0330_global_shock_chat.aspx
www2.blackrock.com/US/individual-investors/market-insight/special-reports/turmoilin-the-middle-east
www.washingtonpost.com/business/economy/japans-recovery-may-stretch-itsfinances/2011/04/01/AFkuoJJC_story.html?hpid=z3
www.nytimes.com/2008/07/08/business/worldbusiness/08iht-disasters.4.14335899.html
blogs.forbes.com/greatspeculations/2011/03/15/financial-effects-of-natural-disasters/
moneywatch.bnet.com/economic-news/blog/daily-money/how-japans-disaster-couldimpact-your-investments/2269/
www.countercurrents.org/campbell110311.htm