Recession Looms On Japan, Says Expert

Originally published in International Business Times, March 24, 2011.

John O'Donnell is Chief Knowledge Officer of Online Trading Academy which focuses on stock trading, forex trading, options trading and e-mini trading education. In view of the disaster in Japan, O'Donnell has outlined the impact on global markets in an interview.

Here are some excerpts from the interview:

IBT: What is your take on Japan's earthquake?

O'Donnell: This event will cause deep financial and psychological damage for Japanese communities, especially those near "ground zero". Japan will rebuild quickly as they did after WW2, as they are proven in multiple crisis era to be very resilient. I expect Yen to continue to grow vs dollar as capital is returned home to rebuild infrastructure.

IBT: Is there any possibility that the recent earthquake/tsunami will push Japan into a recession?

O'Donnell: Yes..short term disruptions to global supply chains to this export economy will cause recession conditions to continue…as they are an anemic economy since 1989 and over 220% debt/GDP ratio of Fed debts…very extreme and will now need to borrow more money to rebuild.

IBT: If yes, how long will the recession last and what does Japan need to do to recover from the recession?

O'Donnell: Depends if the nuclear crisis is contained…but expect short term recession conditions to continue thru 2012-3. But expect their Central Bank to flood monetary system with capital to regroup and renew the system.

IBT: What do you think are likely implications of Japan's earthquake on the global stock markets, especially U.S.?

O'Donnell: Will hurt the US markets in general short term, and especially those companies that need the Japan suppliers to send goods to US like Apple and GM, etc.

IBT: How long do you think the global markets will be in the red?

O'Donnell: I think we have seen the high in Dow for the year already!!..I expect the Dow to drift lower in 2011 for many different reasons, including deleveraging balance sheets of the consumer in US and W. Europe. Japan only accelerates the trend.

IBT: What will bring the optimism back to stock markets?

O'Donnell: Settle the geopolitical challenge in Middle East first and second, this summer solve the sovereign debt crisis in W. Europe. If Middle East oil shipments are impaired all bets are off for recovery in short term.

IBT: Which sector stocks in the U.S. will benefit from or get affected by the Japan tragedy? Why?

O'Donnell: Natural gas stocks to win as LNG is used heavily in Japan.

IBT: What do you think is the best bet for traders in forex, commodities and stocks in this scenario?

O'Donnell: Own more gold and silver bullion, GLD, and GDX mining stocks.

IBT: What made you recommend the bargain hunting? Is it for forex alone, or is applicable to stocks and commodities also?

O'Donnell: Price sold into a strong demand zone, where we expected support and we bought…and panic is very emotional and extreme fear drives bargains!!…good bargains always prevail in times of irrational emotional stress.

IBT: What are the emerging trends you are forecasting and the result of those trends?

O'Donnell: More global uncertainty brings danger and opportunities, at Online Trading Academy (OTA) we trade both ways, and public need to learn (to do the) same.

Free Class
Online Trading Academy logo