The combination of the catastrophic earthquake and tsunami in Japan and sustained instability and violence in the Middle East are taking their toll on U.S. and international markets and compelling large financial institutions to reassess their short- and long-term investments as they await the fallout.
This week, Bank of America Merrill Lynch debuted a new webcast series hosted by wealth management chief Sallie Krawcheck to explore the known and unknown implications of these international events on American companies and investors.
Krawcheck was joined by Ian Bremmer, founder and president of Eurasia Group, a prominent global political risk research and consulting firm and Michael Hartnett, chief global equity strategist for BofA Merrill Lynch's global research team to provide some insight and predictions to investors in this very Web 3.0 format.
"With global events occurring as quickly and dramatically as they have during the last few months, it can be easy for investors to become overwhelmed with uncertainty," Krawcheck said. "We will continue to bring together the world’s leading financial, economic and political experts to help investors decipher the potential impact of these events so, along with their advisors, they can make informed decisions about their financial lives."
While the trio was quick to point out the devastating earthquake and tsunami in Japan is first and foremost a humanitarian crisis, what happens next will have broad ramifications not only for the Japanese people but international companies and markets that are directly tied to the world's third-largest economy.
"Outside of Japan, the biggest long-term implication of the earthquake and tsunami will be on nuclear energy," Bremmer said. "Already a lot of folks in Congress are saying we need to relook at our regulatory policy and I expect in the West we'll see a shift against nuclear energy and toward unconventional gas in particular."
Bremmer added that China, the nation with the most recent and substantial investments in nuclear power, has decided to halt new approvals for plants going forward in response to the tragedy but that will have little if any impact on its growing demand for materials or its surging energy needs in the immediate future.
"They were already fully loaded in terms of the pipeline of nuclear plants," he said.
"From an economic perspective, natural disasters tend to be temporary," she said.
And in the short-term, all the pundits agreed that demand for commodities -- particularly oil, natural gas and materials used for reconstruction -- will continue to spike and push prices higher, potentially putting more pressure on interest rates and the recent recovery in the U.S. economy and stock market.
"The long-term consequences are that loss of one form of energy in Japan, in this case nuclear, means other forms of energy will be needed to replace it. There is also the potential for supply shocks at any stage in the future for commodities."
Putting aside the human and economic destruction in Japan, the disaster will only have a small impact on U.S. and international corporations primarily because Japan's economy has stalled in recent years and wasn't really viewed as a source of growth for international firms before the earthquake struck.
"The Japanese are going to continue to tolerate living with 0% growth," Bremmer said. "It's not an exciting story from a foreign investment perspective but it's not going to crush the Japanese."
"The Japanese people are incredibly unified when they respond to something like this," he added. "This is not a Katrina moment. This is a 9/11 moment."
And with hostilities escalating in the Middle East and Northern Africa in recent weeks and months, investors and geopolitical pundits are growing more and more concerned that instability in the region could not only spark more terrorist activity in the West but send already escalating oil prices through the roof and derail early signs of recovery in the U.S. economy.
"We're now in the third wave of the trajectory of this crisis in the Middle East with the rise of geopolitics and the internationalization of the no-fly zone and bombings of some Libyan sites," Bremmer said. "It's Shias and Sunnis and now even the Israelis are being drawn in."
"This is actually the dangerous phase that brings in the Americans and has the most potential for long-term [economic] implications," he added.
With oil prices above $115 a barrel, the potential for enormous strain the U.S. and other international economies becomes palpable.
"How the geopolitics play out is anyone's guess," Hartnett said. "But the markets are sensitive to oil prices because growth and interest rates are directly impacted by where oil goes from here."
Hartnett said that most economic experts think $150 a barrel would be the tipping point at which the budding recovery would unravel.
"But the markets aren't going to wait before we get there," he said. "They'll price it a long time before then."
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