Japan's Disaster Will Have Repercussions

Disaster Feeds Back into Global Financial and Energy Crises

Few people realize that before this human and economic disaster occurred, Japan was just facing up to the fact that it is facing a terrible fiscal and demographic crisis.

Only last month an official of the International Monetary Fund repeated a warning that Japan had to turn around its deficits which are now the highest in the world excepting Zimbabwe. In addition, the country's debt rating was lowered a notch by Standard & Poors as the risk is increasing that Japan may someday default.

This is the fiscal backdrop for Japan when its government embarks on a massive new spending response to the disaster this week. Whether the country really does have the option to do even more deficit spending remains to be seen, but it is likely the apparent desperation of Japan's stimulus spending will add to the perception that the world financial system is on an even weaker footing.

Japan is also an old country. It now has a median age of 45 years old, the oldest in the world. With the effect of a decreasing population (1/4 fewer people by 2055), falling tax revenues, lowered productive capacity and ever increasing demands on savings and entitlements, it will be extremely difficult for aging Japan to turn around its deficit problem. Becoming even less productive as the median age gets even older, Japan will likely be drawing on its foreign reserves to meet savers redemptions and most of those lie in the United States. In this way, Japan's fiscal crisis will someday limit the US's ability to finance its own deficits. A someday that may be beginning today. An ugly circle indeed.

Japan was perhaps the most prepared of any country to deal with problems at its nuclear power plants but not to this extent. Most countries don't have to build nuclear power plants in an active earthquake zone like Japan does, but they clearly didn't allow for the twin disasters of an 9.0 earthquake followed by a tsunami that wiped out the power plants generators and thus its cooling system. This was a highly unlikely event, but it happened as the unlikely often eventually does.

Hopefully the nuclear reactions will be contained but it is a sure thing that the reaction of the nuclear power naysayers will be shrill and vocal like they did in the aftermath of Three Mile Island. The evidence shows that not one person died as a result of that accident back in 1979 and there haven't been any other accidents since, even though 20% of our electricity comes from nuclear power and no other power source has been as clean and reliable either. Despite those facts, no nuclear power plants have been built since Three Mile Island. On the other hand, since 1979 no one knows how many lakes have died from acid rain, mountains denuded by strip mining or people's health harmed by the sulphur emissions from coal fired plants that could have been replaced with nuclear power

The US and the world are entering an energy crisis. It is obvious at the gas pumps. In the near future, electrification of our transport system will be increasingly important as a real substitute for oil powered motor vehicles. But solar panels won't recharge your electric car at night. How is the switch to electric going to be possible without nuclear power? That will be the question to ask the naysayers as they have their day this week. Which lessons the world takes from Japan's nuclear crisis will have huge repercussions in the future, probably even bigger than the carnage from the disaster itself.

Footnote Monday March 14: The anti Cramer would disregard the real Cramer's rant today that nuclear power is finished in the US. How you can replace that electrical output with volatile natural gas isn't fathomable never mind the vast number of new plants being built overseas. The hysteria has created some nice opportunities in the nuclear industry sector of the market the past two days.

Electric Cars Look Like They are for Real at the Detroit Car Show

The expectant air at this week's Detroit Auto Show bodes of increased sales, innovative products and a resurgent auto industry in the United States. This year the electric car concept is center stage and in the midst of all the excitement, the new electric Chevy Volt has been named Car of the Year.  The Volt has been hyped for a few years now and was talked about a lot in the Fall of 2008 in front of Congress as GM execs tried to show why the car would be important for the future and therefore why a bailout was warranted.

Two years later the Volt has finally appeared along with Nissan's electric Leaf. The pair already has plenty of competition right on their heels. At Detroit, the new electric car launch pad has been cranked up by a factor of three or more, and perhaps most notable was Ford as it announced the new electric Focus due later this year. In addition, Ford said it was only the first of a line of autos and vans targeting a full spectrum of uses and different energy efficient power configurations. 

The new electric Focus stands out because its marketing and features make electric for the first time look both practical and potentially mainstream. First it has double the range, 100 miles, on batteries as the Volt and won't need a backup gas motor. Ford has hinted it will sell for a lot less than a Volt too. It will be a lot easier to keep running as it will only take 4 hours to recharge it on its special charging unit that is kept in the garage and $3.60 of electricity will move you 100 miles. The charger will be sold at Best Buy for a reasonable price and uses Microsoft software to work at night when rates are lower. Co-branding and appeals to the American suburban lifestyle are at work here as well. 

Attractive and well marketed, costing only 3.6 cents/ mile to operate vs.more than 10 cents/mile for the gas version, having adequate daily range, it seems the new Focus is at or near the threshold of real sales success in the mass market. If that is the case,  electric cars like the Focus cars can pave the way for the United States to finally reclaim its own energy destiny by freeing itself from the use of imported energy.

Electricity has other benefits. Electric cars will be cleaner, quieter and run on domestically produced energy, but by what power plants? The greater electricity demand that electric cars will require will mostly have to come from new, probably nuclear power plants since they are the only mass scale, 24/7 and clean energy option we really have.

The Investment Themes Here are Powerful but Somewhat Longer Term.

Ford Motor Company's successes since 2007 have brought the stock a long way. But with success now seeming likely in the electric car niche as well, is the market ready for a really new era at Ford? I think we are seeing shows that the company will probably do much more than reclaim its previous market share. It seems to be positioning itself now to become the largest car company in America and maybe the world. 

As electric car demand ramps up, the demand for the electrical components, batteries, electronic controllers and minerals required to produce these cars will bring a lot of business to the relevant companies and industries.

Nuclear energy will be ramped up and have to be fast tracked to meet the extra demand over a similar time frame. On top of that, whatever growth in the nuclear power industry that is taking place in the United States is a fraction of the growth that is happening overseas, especially in the emerging economies. This looks like a great industry over at least the next 15 years or more. Look at nuclear construction companies and uranium miners. .