The news from Japan should, first and foremost, be viewed as a human tragedy of horrific proportions. We extend our prayers to the people affected by the earthquake, tsunami and nuclear reactor crises in Fukushima. The American people are really stepping up to the plate by pledging their support for the humanitarian efforts. The easiest way is to dial the Red Cross by typing in 90999 on your cell phone or 1-800-RED-CROSS on a regular phone line, or go to the web site at www.redcross.org. Reports say that the Japanese chapter of the Red Cross is one of the best organized in the world. Other opportunities to help are the International Rescue Committee, AmeriCares and UNICEF organizations.
The economic impact of this tragedy is much harder to gauge. As you have no doubt read, as the tragedy unfolded the the Japanese stock market dropped by 6% on 3/14 followed by an 11% drop on 3/15—the largest two-day decline in 40 years. But Wednesday 3/16 trading saw a remarkable 5.7% increase, proving once again that the markets tend to overreact to shocking events. Shares of Toyota gained 9.1% on the day, SONY Corp. was up 8.8% and Isuzu Motors closed 10.5% higher—the kind of gains that we normally associate with a year of trading.
Disruptions also spread both pain and opportunity disproportionately among the corporations on the scene. Some insurance companies might have direct exposure to earthquake-related losses, but some of the losses might be absorbed by government assistance programs. On the flip side, Japanese construction businesses will likely see additional business, probably why Kobe Steel was up a remarkable 15% in Wednesday trading. At the same time, there is likely to be a chill in global construction of nuclear power facilities, while governments and communities assess safety measures already in place.
While we wait to see what the true impact of this tragedy will be, remember that everyday we are all exposed to some risk of tragedy. There are steps you can take to minimize the personal damage: review and update your property and casualty/homeowners policy, have a reserve of cash, create a family emergency plan, and keep your investment portfolio diversified so that a major incident somewhere in the world has a minimal effect on your overall holdings.