It's a bit unfair to expect economic journalism to be concerned beyond economic news/moves...
And, if you think that it is callous, I remember reading in Liar's Poker (iirc) that a trader, when the Chernobyl occured, thought of arbitraging, what was it, potatoes futures between Europe and the US on the concept that radioactive contamination scares would lead to a premium for US potatoes...
Here is another article by William Pesek - It's interesting because, after Kobe, the Yen surged too and the rationale for that was never explained to my satisfaction. Rapatriation was mentioned then too but I never saw corresponding Treasuries sell-off or FDI data backing that up...
Black Swan Earthquake Catches Geithner Naked: William Pesek - Bloomberg
Black Swan Earthquake Catches Geithner Naked
By William Pesek - Mar 16, 2011
A sudden shock to the global financial system has a way of uncovering its true state.
As billionaire Warren Buffett famously said, it’s only when the tide goes out that you learn who has been swimming naked. Two events since Japan’s March 11 earthquake have shown the extent to which our economic reality has no proverbial clothes.
One is that the yen is rising. You would think earthquakes, tsunamis and radiation clouds would have investors actively fleeing yen assets. Not so. On March 14, a Bloomberg News headline proclaimed “Yen Reaches Four-Month High Against Dollar on Safe-Haven Demand.” Some haven, that Japan.
The other is how quickly Timothy Geithner, the U.S. Treasury secretary, got in front of the biggest worry in markets: that Japan will dump its vast holdings of Treasuries to raise cash. This latter one is worth exploring because its implications would travel farther and wider than the radiation leaking from nuclear power plants. It could just happen, roiling world markets like only a Black Swan-event can.
Theories for yen demand tread similar ground as the rationale for Japan selling its dollars holdings -- just less convincingly. We always need a handy explanation for why something is happening. New reports argue that it’s all about insurance companies repatriating funds to pay for quake demand.
Least Ugly Currency
Perhaps, yet it’s only part of the story. The yen has been irrationally strong since the 2008 collapse of Lehman Brothers Holdings Inc. Even with the nuclear risks, the yen is considered a less risky currency than the dollar and euro. It’s not that the yen is attractive. It’s that if the currency markets held a beauty contest, the yen would be the least ugly contestant.
The same could be said of U.S. debt. Pacific Investment Management Co.’s Bill Gross, who runs the world’s biggest bond fund, last month dumped government-related debt. Few investors seem willing to do the same. The reason: What else are you going to buy? Greek debt? French debt? Gold? Try to get your hands on some of the 5 percent of Japanese government bonds that aren’t held in Japan? For better or worse, it’s U.S. debt.
That is, unless the Japanese move to draw down large chunks of its $886 billion worth. It could trigger the nightmare chain reaction officials in Washington have dreaded since 2008. China, which holds $1.2 trillion of U.S. debt, might act to avoid even bigger losses. The U.K. ($278 billion), oil exporters ($216 billion), Brazil ($198 billion), Caribbean banking centers ($167 billion) might follow suit. So might Asia’s other dollars hoarders including Taiwan, Hong Kong, Singapore and Thailand.
1995 Experience
If history is any guide, it might not happen. “Based on the 1995 experience of the Great Hanshin earthquake, the risk of selling by Japanese insurance companies would appear to be limited, at least in the near-term,” says Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York.
Yet the Japan of 2011 isn’t the Japan of 1995. Its debt is now twice the size of the economy, leaving far less room to borrow to boost growth than there was 16 years ago. Also, the Bank of Japan’s interest-rate policies are already at zero and beyond. The next step would be massive BOJ purchases of Japanese stocks after the Nikkei 225 Stock Average fell 16 percent the in first two trading days after the earthquake.
That would be a slippery financial slope, but desperate times do tend to lead to desperate measure. That would certainly be the case if Japan decided to start dropping big blocks of Treasuries on the market. The turmoil would catch many a government policy maker or investor swimming naked, in the Buffett sense.
Who Knows?
Geithner had a point when he told the Senate Banking Committee yesterday that Japan has “a very high savings rate” and that “it has the capacity to help deal with not just the humanitarian challenge but the reconstruction challenge they face ahead.”
That would be fine if we knew what to expect. Fire and aftershocks continue to strike the crippled Fukushima Dai-Ichi power plant, as officials battle to prevent a nuclear meltdown after last week’s record earthquake. Clouds of white smoke or steam are rising from reactor buildings and moving in the direction of Tokyo.
Will a worsening crisis force Japan to sell hundreds of billions of dollars of Treasuries? We will see when and where the toxic dust settles.
Worse than Japan? Maybe our reaction...
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