Disaster in Japan: The REAL Impact

Excuse my French, but all hell is breaking loose around the globe.

The disaster in Japan has completely overshadowed news of the still-raging Middle East crisis. And before that, the Middle East crisis violently shoved aside the historic budget battles in Washington, Wisconsin, Ohio, Illinois and elsewhere.

This triple-punch to the gut is hammering world’s investment markets.

And now, things are getting really strange …

As Japan’s nightmare unfolded, most experts expected investors to move their money out of Japan and into the U.S. or other major markets.

But in reality, the exact opposite is happening!

Yesterday, for instance, the Dow fell 242 points, the S&P 500 plunged 25 points, the Nasdaq declined 50, as global investors dropped U.S. stocks like hot potatoes. It was the market’s largest one-day decline in 7 months!

Even more telling, the Japanese yen soared to its highest level of all time!

But why? The answers are disturbing:

First, the U.S. market is vulnerable for a host of reasons — the continuing depression in housing, surging wholesale prices, rising long-term interest rates, and more!

Second, on the other side of the Pacific, Japan’s insurance companies are expecting to take massive hits. The insurance claims from Japan’s earthquake, tsunami and nuclear nightmare are bound to be both extremely large — and extremely difficult to estimate — for a long time.

I know because when I was a young analyst for a Japanese brokerage firm in Japan 30 years ago, and our primary clients were Japan’s largest insurers.

That’s how I learned that Japan’s Ministry of Finance (MOF) had been preparing Japan’s insurers for this disaster for many years.

They knew the next “Big One” was coming someday — an earthquake that could cause unprecedented volumes of claims both to property and casualty insurers as well as life and health companies.

They also knew they’d need liquid assets OUTSIDE of Japan to help pay the claims. So they mandated that insurers hold a solid chunk of their reserves in U.S., German and other foreign government securities.

How much? Huge amounts! Because they feared the earthquake might hit Tokyo. Instead, thankfully, Tokyo was spared a direct hit. But no one planned for a giant tsunami — let alone a nuclear disaster all at the same time.

Now the Japanese insurers have to start cashing in their foreign holdings, with most of those in U.S. markets. That means they’ve got to sell dollars, buy Japanese yen and then repatriate that money to help pay claims.

That’s a key reason the yen is surging, while the dollar plunges against the yen.

Third, the Bank of Japan will liquidate additional amounts of their U.S. assets to pump into the domestic economy and help finance reconstruction efforts.

Fourth, global investors aren’t dumb: They know that, to support the U.S. bond market, the U.S. Federal Reserve is going to print money hand over fist.

That not only hurts the U.S. dollar over the long haul … it also drives more money into all those assets that rise when the dollar falls, especially silver and gold.

My overall view:

This Crisis Will Drive Oil, Gold

and Silver Sharply Higher

While nearly ALL global markets got hit initially, our experts firmly believe that only certain vulnerable markets will continue declining … while others will soon find support, attract a flood of global buying and resume their surge.

That includes:

Crude oil: Until five days ago, nuclear energy was considered the ONE non-fossil fuel capable of meeting the excess global demand for power. Now a big portion of that huge energy source is either in triage or on its death bed.

The only possible outcome: A big, long-term shift in demand to crude oil.

And that’s on TOP of the Middle East crisis, which CONTINUES to spread and threaten the world’s largest reserves of crude.

Gold and silver: The disaster in Japan has not diminished the yellow metal’s luster as a safety haven. Quite to the contrary, the three recent blows to financial markets — the U.S. debt crisis, the Middle East and Japan — all reinforce gold’s role. Ditto for silver which invariably tracks — or even leads — gold’s rise.

This is why Sean Brodrick, Weiss Research’s “Indiana Jones of Natural Resources” is now getting ready to re-recommend his favorite silver and gold stocks with the potential for relatively rapid 3-digit profits.

In the days before the earthquake last Friday, nearly ALL of them clearly validated his earlier forecast of major surges. And, now thanks to the market’s latest reaction to the quake, most of these are now closer to his “buy zone.”

Click here for his wildly popular video presentation on this hot topic. We have brought it back — for three days only — to help investors take advantage of the latest market events.

Good luck and God bless!

Martin