David R. Kotok
March 13, 2011


“We are assuming that a meltdown has occurred.”
–Yukio Edano, Japan’s Chief Cabinet Secretary, describing his latest position on the quake-damaged nuclear reactor.


Japan is the world’s third largest economy (used to be second) and is experiencing its worst shock since World War II. The irony of history is that the shock involves radiation and peaceful nuclear power generation in a nation that has uniquely suffered the effects of atomic war.

Like others, we can only watch these events unfold. We witness the progression of reactors getting scrutiny. We see the collision between the fierce 5000° Fahrenheit inferno and the fragility of human-attempted cooling. This drama plays on a global stage.

And of course, we wish for the safety of personal friends, strategic allies, and innocent strangers who are victims. Our email to Japan is presently unanswered.

This is also an energy price shock. It starts in Japan, of course, where the nation has lost 10% of it electric power. For the rest of the world there is now an additional demand for substitute energy. That piles on the Middle East and North Africa (MENA) oil price shock. For nuclear power evolution, another setback has occurred that will be measured in years and billions. This earthquake-induced nuclear failure appears to dwarf Chernobyl and Three Mile Island.

The sad lesson of history is that malevolence in Tehran or Pyongyang is not likely to be tempered by this event. Will a meltdown in transparently peaceful Japan restrain the nuclear development that is flowering in opaquely dark North Korea and Iran? They have perfidious intentions. Restraint? We doubt it.

Investment and market implications are huge. Of course there is a global substitution effect. Nuclear loses in the near term. Conventional oil, natural gas, and coal are the winners. Finance tied to nuclear gets more risky, and incentives may be applied to the others.

As for the US, we have very low expectations. Our energy policy is an absolute mess. Our Congress is intractably deadlocked and polarized. It works to the detriment of our country.

In other nuclear-powered countries, this will trigger reexaminations. France is a key player since it has greatly expanded its nuclear use and substituted nuke power for coal. Keen eyes will look to Europe to see what now will be done for enhanced safety and how it is implemented. We expect another European generation to develop technological improvements in reactor containment.

In Israel, there are already alls for reexamination of the Dimona reactor which was built in the 1950s. Israel is in an earthquake-prone geography.

We believe there is a time coming when Japan will be attractive for investments. It is not today. It may be soon or it may be delayed.

Natural catastrophes can lead to massive rebuilding. Will this country that has promulgated QE 1-2-3-4-5-6 be able to finance? Will they finally turn from depressing deflation to mild inflation? If yes, what will happen to their two-decade-old very low interest rates. How will they handle the labor force pressure in their aging society? Does their high debt-GDP ratio impair their ability to cope with the crisis? There are many questions.

We will stop for now. It has already been a busy weekend for Cumberland. Look for some forthcoming views from our Chief Global Economist, Bill Witherell – if I leave him alone long enough to write them. The portfolio work must come first. The missives will follow in due time.


David R. Kotok, Chairman and Chief Investment Officer, Cumberland Investments

Category: Current Affairs, Energy, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

3 Responses to “Earthquake-Tsunami-Reactor”

  1. carrytrader says:

    The long term impact from the earthquake with depend on how the performance of the Yen. The repatriation of foreign assets by the Insurers to pay compensation will be an upward pressure on the Yen. The strength of the Japanese Yen will be the real danger to the Japanese economy.

    Interestingly, the quick notes coming out of the desks are saying the European Insurers have the most exposure as a region to the Japanese quakes. Since they need to pay compensation, they need to liquidate assets. Assuming they are long their domestic bonds, it would increase the European yields. Another factor in the existing problems of the European sovereigns.

  2. freejack says:

    Nuclear power works very well……until it doesn’t.

    “The big flaw in the business critique of regulation is not so much that it overstates the costs, but that it understates its benefits — in particular, the benefits of avoiding low-probability events with disastrous consequences.”

    Understating the Benefits of Avoiding Low-Probability Disastrous Consequences

  3. rip says:

    France is much safer with their nuclear power. They chose breeders.

    If we ever get our heads out of our asses we’ll go that way too.