March: In Like a Lion, Out Like a Lion

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 |  Includes: DIA, FXY, QQQ, SPY, TKECF, UUP
by: Wall Street Strategies

by David Silver

March is said to come in like a lion and go out like a lamb. For the stock market, it looks to be leaving more like a bull than anything else, but the actual month was anything but lamblike. Unrest in North Africa and the Middle East continued into March and shows no sign of abating to this day. The "war" in Libya is looking more and more like a prolonged civil war (that is as long as NATO continues to help the rebels), however, the lack of leadership and true fighting contingent has left the rebels vulnerable and the resistance appears to be crumbling (in military terms). Throughout the rest of the Arab world, Bahrain has continued protests despite Saudi troops on the ground, and Syria and Yemen are on the verge of dethroning their respective leaders. Yemen's President Ali Abdullah Saleh is trying to negotiate his resignation, but there are apparently road blocks. While in Syria, Bashar al-Assad accepted the resignation of his entire cabinet to try to quell the uprising. Then we had the massive earthquake and subsequent tsunami in Japan.

On March 11, at 2:46 PM local time, a massive 9.0 earthquake (the third strongest on record since 1900) struck off the coast of Japan and caused a thirty foot wall of water to rush inland. The damage could cost north of $310 billion and that is still rising. Then you had the now infamous Fukushima Nuclear Power Plant. Of the six reactors, five were in danger of melting down at one point or another. The Fukushima 50 risked their lives (four have been hospitalized with radiation symptons and the others are expected to see increased damage from radation in the coming months and years) to try to save a country. Their efforts have basically paid off, however, reactor 3 continues to be a thorn in the side of the workers and radiation continues to seep out into the air, ground, and water. This problem is going to be fixed as the following picture , a Japanese highway, shows.

After the earthquake, the yen surged to a record 76.25 per dollar (reached on March 17); however, over the subsequent few days, with the backing of the G-7, Japan's government intervened and sold more than $8.4 billion (692.5 billion). The yen had risen on prospects Japanese investors would repatriate assets to pay for rebuilding. The following chart (click to enlarge) shows the yen in terms of U.S. dollars and notice the big spike down.

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The yen has been steadily strengthening over the past three years and the latest spike lower took it to record territory. However, looking forward, 85.00 is the key resistance level for the yen. There was a split following the earthquake on which would be better for the country as a whole, a weaker or stronger yen. The case for a weaker yen, meant that the companies that are actually producing stuff in Japan and exporting would see improved competitiveness, which would in turn help profits; however, the case for the stronger yen means that the country would be able to purchase the raw material it needs to rebuild with a stronger currency (more purchasing power). The jury is still out which would be best for the country. Click to enlarge:

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Back to the Fukushima power plant, which is owned by Tokyo Electric Power Company (OTCPK:TKECF). The Company warned of a potential bankruptcy a few days after the tsunami, and in an effort to prevent that the Japanese government purchased 50% of the Company and essentially nationalized the struggling power giant.

It has been a few days since that power plant was front page news and was the lead story on just about every news show as well. However, our thoughts and prayers are still the more than 300,000 people living in temporary structures in Fukushima Prefecture, as well as the millions that have been affected by this disaster.