Dear Nikkei Officials: Keep The Exchange Open

• Posted by DynamicHedge
• on March 15th, 2011

Mark my words, this market will be skinned alive if there is no way for world’s third largest economy to exchange risk in a somewhat orderly manner.  Japanese individuals and corporations will look to other markets to lay off risk and will not find enough liquidity to do so because the act of closing of an exchange will reduce the confidence of the risk-taking community worldwide.

In the realm of “stuff we know,” there are two events that could derail the market.  One is a large scale Chernobyling of Japan due to a meltdown at the Fukushima facility.  The other is a closure of the Nikkei exchange.  Luckily, one of these events is within the control of man.

It may seem myopic and crass to compare the events of nuclear fallout to closing a stock exchange.  Believe me, closing a large exchange for a prolonged period (days or weeks) is a huge deal.  It will turn the discounting of an event and natural pullback into a crash and hamper the ability to rebuild.  I hope for the sake of the Japanese people that their leaders are brave enough to keep these institutions operating even as there are more pressing hardships and areas of immediate concern.

At some point, regardless of political will, keeping an exchange open is not an option.  God willing the situation does not deteriorate to that point.

Bottom line: if we see nuclear fallout or a prolonged exchange closure we will probably trade below 1100 — possibly substantially lower.  If Fukushima facility is contained and there are no prolonged exchange closures then we likely bottom out before hitting 1200.

blog comments powered by Disqus