Effects of Middle East Turmoil and Japanese Disasters on Financial Market, Retirement Programs, and Individuals

1. Effects of Middle East Turmoil and Japanese Disasters on Financial Market, Retirement Programs, and Individuals RuiCao James Friedman Elvis Kamwa Catlin LeMire Zhenwei Pan Alex Slivinski Gerald Taylor

2. Introduction • Short Term and Long Term Economic Effects • Middle East • Japan • Abroad • Investment • Insurance • Retirement Benefits

3. What has happened? • Middle East • Political Turmoil • Japan • Earthquake • Tsunami • Nuclear Crisis

4. Effects on Economy(Middle East) • Most Middle East countries have very young populations which support political change. • This doesn’t create a very good environment for manufacturing and economic facilities because it takes considerable investment, government policy changes, and financial system modernization. • Therefore the economic outlook of the Middle East should not improve for quite some time. • An increase in democracy may disperse wealth. • Less oppression allows for better career and education opportunities.

5. Effects on Economy(Japan) • Immediately following the disasters, economic activity is depressed by the disruption of production. • Then there will be a few aftershocks from the loss of nuclear energy and production supply-chains. • After this, the necessity for new infrastructure (factories, roads, etc.) will actually boost the economy. • In the long run, effects should be minimal.

6. Effects on Economy(Abroad) • Japan produces 9% of world output. • These crises create plenty of uncertainty, inspiring businesses throughout the world to “postpone capital spending and hiring”. • Has caused slowdowns for companies such as Apple and Volkswagen. • The exports lost from Japan will be made up by other counties so overall the effects should be minimal and some countries will even benefit (especially U.S. car and manufacturing companies).

7. Effects on Economy(Abroad) • Japan is the second largest holder of U.S. debt. It could cash in its U.S. treasuries or, at least, stop purchasing more U.S. debt. • If Japan can no longer rely on Alternative Energy, prices of natural gas and oil will rise due to increased demand. • Increases in prices for commodities such as steel, lumber, and cement.

8. Effects on Economy(Abroad) • Rising oil prices due to Middle East turmoil. • More democracy should mean higher oil prices. • However, during previous crises in the Middle East, oil prices have returned to trend. • If U.S./NATO’s involvement in Libya increases, it could increase the budget deficit. • If Saudi Arabia joins in on political turmoil, effects on oil prices will increase substantially.

9. Investment • The GDP growth rate shouldn’t change so investors shouldn’t overreact. • However, there will be some companies that will detriment and some that benefit from the crises. • Falls in transportation, airlines, General Electric, Aflac, Apple, and Yahoo! • Rise in manufacturing, infrastructure, First Solar. • High volatility in Japanese bonds and the oil market. • Japanese interest rates on borrowing should increase. • Japanese stock prices initially fell but will recover.

10. Insurance • 20% of the Japanese crises should be covered by insurance. • There are some people/businesses with natural disaster insurance and there are special loans designed for these situations. • Others falsely believe their home insurance covers natural disasters when it doesn’t. • More people/businesses will buy natural disaster insurance in the future to prepare for adversity.

11. Effects on Retirement Benefits • Japan has many elderly that are spending down their savings—savings rate has fallen from 16% to 2% over the last twenty years. • Immigration might be needed because population is too old to build new infrastructure. • People without the proper insurance may be required to work longer or return to work. • People may lose jobs or be forced to move into different sectors. • Decrease in annuity rates due to Japanese disasters means people may be cut short on retirement income.

12. Conclusions • It should take a while for the economic outlook in the Middle East to improve, but this should not have much of an effect on anything other than oil prices. • In the event of successful protests, democracy would allow for better growth in the Middle East and raise oil prices worldwide. Otherwise, the worst case scenario is that the Middle East remains in the status quo.

13. Conclusions • In Japan, the amount of debt incurred by rebuilding is minimal and should not cause a financial crisis in the long run. • The most likely danger is fluctuation of the Yen, but Japan has already taken precautions to stop this from happening. • The effects abroad will be small and short term as long as nobody overreacts to the crises.

14. Sources • www.economist.com/node/18440781 • www.wktv.com/news/local/Economic-impact-of-Japans-earthquake-and-tsunami-117827629.html • www.retirementplanningnews.info/2011/03/15/devastation-in-japan-is-likely-to-affect-economies-worldwide/ • www.brookings-tsinghua.cn/sitecore/content/Home/opinions/2011/0330_global_shock_chat.aspx • www2.blackrock.com/US/individual-investors/market-insight/special-reports/turmoil-in-the-middle-east • www.washingtonpost.com/business/economy/japans-recovery-may-stretch-its-finances/2011/04/01/AFkuoJJC_story.html?hpid=z3 • www.nytimes.com/2008/07/08/business/worldbusiness/08iht-disasters.4.14335899.html • blogs.forbes.com/greatspeculations/2011/03/15/financial-effects-of-natural-disasters/ • moneywatch.bnet.com/economic-news/blog/daily-money/how-japans-disaster-could-impact-your-investments/2269/ • www.countercurrents.org/campbell110311.htm