(Note from Tim: this was posted last night; my frantics posts today kept some content at bay, so please take the time of posting into account.)
Our thoughts and prayers go out to the victims of the unimaginable tragedies in Japan.
In 1989, Michael Lewis (author of The Big Short) wrote an article titled "How a Tokyo Earthquake Could Devastate Wall Street." This piece eventually appeared with a collection of other articles in one of Lewis' books, The Money Culture. In the article, Lewis describes the potential implications to Wall Street when Japan, one of the largest holders of US equities, liquidates its foreign holdings to pay for the rebuilding of Tokyo after an earthquake.
Will this time be different? We have no idea.
Judging based on the remarkable price action of the Yen the past 48 hours, and observing the large ES selloff last night, only to persistently grind higher on anemic market breadth during the entire NY session today, we can surmise the leaders of the world's economies are working around the clock to either coordinate or contain their responses.
Just for kicks, we took a fresh look at the latest Foreign Holdings of US Securities, courtesy of the US Treasury. We then dropped the numbers into a spreadsheet and resorted in descending order according to Foreign Equity Holders. You can see the top 25 results below (not NCAA rankings).
How Will Rebuilding Efforts Be Funded?
Does this imply Japan will selloff US holdings to fund its rebuilding efforts? We have no idea. We can never know whether this time the global economies are better coordinated to respond to a tragedy like this, or whether a QE3+ will now go to prevent foreign liquidation of US equities, or whether a different impact will ensue altogether.
Will They Sell Dollars/Treasuries/Stocks/Commodities/Currencies?
Whatever the reasons, we find it interesting that in spite of the big selloffs and volatility in ES, Gold, Oil,and others the past 48 hours, the Yen is flirting with record highs and the Euro keeps retesting 1.4000s in an interesting wedge pattern.