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Who Asked Him To Open His Mouth

S&P 500 Today - One Minute Chart

The market opened pretty much as I thought it might – down a little but strengthening as the day progressed – UNTIL Günther Oettinger, the EU Energy Commissioner, said there could be catastrophic events within only a matter of hours in Japan. Japan’s crippled Fukushima nuclear power plant risks provoking a “major disaster” and was “effectively out of control.”

You can see when his remarks hit the airwaves on the chart above – an immediate nose dive. And, as far as I can see from reading analysis from various sources at major universities, things are not as dire as they are being made out.

Here is an analysis from the University of Michigan that another money manager sent me today: “I’m not expert on this particular engineered system (not a nuclear engineer); but rather a nuclear physicist. That said, I see no reason to expect that, even if attempts to cool these cores completely failed and there was a worst case so-called meltdown of the entire core, the ultimate container vessel would not completely contain the entire mass and it’s radiation indefinitely.

The radiation releases to date are quite well understood as simply radiation entrained in steam that undergoes controlled releases as it is generated in cooling the rods with water. The rods are indeed cooling and the steam releases are apparently decreasing. Meanwhile spent rods in the pools are not in danger of some full meltdown, but need to be covered in water to dissipate heat and suppress radiation.

These are of course serious matters; but no one should be telling the public that a ‘meltdown’ would release large amounts of radiation or contaminate large areas as long as there is no evidence that the ultimate container has ever been damaged. I have seen no such claims.”

Add to that the news reports that power is being restored so that water can be pumped into the reactors and that the AP is reporting that conditions are stable at Reactor No. 4, and this chief (note the small “c” in respect for the capital “C” Chief we all miss) caused baseless massive losses in wealth.

The good news is, we can call these buying opportunities for the right companies.

I thought I’d give you an idea of some of the things we’ve started buying. News driven panic provides the perfect opportunity to buy high quality companies at bargain prices.

Novo-Nordisk: This leading producer of insulin from Denmark is one of my favorite health care companies. Diabetes is one of the fastest growing cronic diseases and their earnings growth is following suit. However, they have an insulin plant in Japan (one of several around the world). Investors see this, and sell with impunity – providing an opportunity for us to buy it 18% off its high and at an important technical level at the bottom of the price channel (See below)

Novo Nordisk

Yara International: Another favorite, this Norwegian ag chemical company produce Nitrogen fertilizer with growing international demand. However, they are caught up in another disaster – the fight in Libya. They have a plant there which represents 1% of their revenue, but it is caught in a war zone. Investors see a plant in Libya and knock 23% off its price – way too drastic for an asset that represents only 1% of revenues. We are a buyer of this at that valuation after this panic induced selloff

Yara International

These are just two examples of quality companies in desirable industries that have had news-driven selloffs that far exceed the negative impact.

If we get some good news on the nuclear reactor situation in Japan, coupled with the Fed’s announcement of continued easy monetary policy for as far as the eye can see, we will likely get a rebound in the markets as the fear penalty is abated.

For our Best Ideas portfolio clients, we will be likely adding a Japan Rebound theme to client portfolios – probably a combination of reconstruction companies (maybe a Kubota?), the banks (we’ve owned Mitsubishi Bank in the past and we could revisit it?), a car company (how about Nissan as the Leaf fits our alternative energy theme as well?), and others that I’ve yet to determine. For our clients that also have our Developed Markets and ETF portfolio exposure, we will certainly add some Japanese equity to it.

Until the next post, I’ll let the Black Eyed Peas provide some sound advice to chief Oettinger the next time he thinks its wise to speak publicly:


Click here for video on YouTube

Mark