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Clearly, the events that have unfolded in Japan are devastating. All of us are deeply concerned for the people of Japan, especially given that the full extent of physical damage and loss of life from this tragedy remains highly unknown at this time. I know many of you may be wondering how this situation may impact your financial situation, so I wanted to take a brief moment to address some questions you may have. In addition, the recent developments in the Middle East have also brought up many questions and concerns, thus I wanted to discuss a few things related to that situation as well.
This situation has had an impact on global financial markets, just as any unexpected event will in the short term. While it is too early to know with certainty what impact this event will have on the global economy, I wanted to try to shed some light to help put the event into economical context.
What we are witnessing in the capital markets is clearly a reaction to unprecedented and unpredictable events. Japan is the world’s third largest economy and, as a result of their resources, knowledge and planning, they will be able to respond to this tragedy and minimize the damage. As of today, the hardest hit areas in Japan represent a very small portion of the Japanese economic output. As was the case with the disasters that occurred in San Francisco (1989), Kobe (1995), Katrina (2005) and Chile (2010), the free markets and accumulated wealth of those developed areas helped to overcome those disasters relatively quickly. Looking back, many predicted a bad US recession as a direct result of Hurricane Katrina. This did not occur and our economy continued to grow in its aftermath. In Japan today, the same will be true.
In addition to the events in Japan, the developments in the Middle East have also impacted markets. The uprisings and uncertainty in the Middle East have driven oil prices higher over concerns about oil supply. Part of this uptick in prices is a result of speculators moving into oil related funds, which is increasing buy orders and demand. Knowing the impact by the speculators, that OPEC announced there is an excess supply of oil to meet current needs and Saudi Arabia’s willingness to increase production, increase spikes in oil prices are expected to be temporary. The market’s recent pullback appears to be more of a correction after a significant upward move and a result of fear and uncertainty from current developments rather than the beginning of a major market decline. General economic trends remain positive, which should help to stabilize the markets.
How Sherpa Financial Advisors tries to protect your investments:
Fear and panic is keeping everyone glued to news outlets as events unfold, but unfortunately, it is not a productive way to make sound long-term investment decisions. The important thing to do is to make decisions and structure a portfolio so that 1) it is diversified in that all of your investments won’t get impacted by a single event and 2) short-term assets are matched up with current needs and long-term assets are matched up with future needs. Most of you know as we’ve worked together over the years that I always encourage discussion and strive to build your portfolios with this in mind. We believe that our use of investment managers and the inclusion of alternative assets, such as real estate, private equity, timberland, managed futures and dividend producing investments, has positioned our clients to minimize the impact of these and other unrelated events that may occur.
There will be many ups and downs in the days ahead. Instead of allowing these events to create fear, we continue to look for the opportunities they create and will share these with you as they develop. In the meantime, please don’t hesitate to give us a call if you’d like to discuss this further or have specific questions related to your account.