Why You Should Sell Everything in Japan

During my ten years in Japan, I suffered through many earthquakes. One shaker caught me on the 20th floor of the Foreign Correspondents Club of Japan, where the building swayed two feet on either side and I saw my life flash before me. The staff started throwing up from the sea sickness. Thank goodness for Japanese engineering.

The ground was still rolling when the calls came in from friends in Tokyo with details about the disaster. Their goal was to get the news out before the lines went down and the trans-Pacific network was swamped. By the next morning I concluded that the death toll would easily exceed 10,000 and could go to six figures. The million residents of Sendai were only given 15 minutes to evacuate, and thousands were swept out to sea. Trains packed with passengers were completely destroyed, as were busloads of fleeing residents.

As I live on a mountain peak overlooking the Golden Gate Bridge, there were hundreds standing on my street waiting for a giant wave to strike the next morning. At 8:25 am, a series of lazy two foot high tidal bores rolled into San Francisco Bay, clearly visible with a telescope. Nearby Santa Cruz harbor fared less well with a seven foot surge, major damage, and 30 boats sunk. The rotten mooring lines on the old boats snapped, freeing them to smash into the new ones.

The investment community has always known that a big one would hit Japan someday, and the various scenarios and market impacts were thought out a long time ago. All that remained was to pull them off the shelf, dust them off, and see how much still applied today. It may seem hard hearted to consider economic consequences when the dead are yet to be cremated. But as long as markets never rest, not shall we.

For a start, you dont rush out and short Japanese insurance companies. Earthquake insurance in Japan is very expensive, so most individuals dont buy it. The government has always required the commercial policies written to be 95 reinsured abroad. So there is far more Japanese earthquake risk on books in the US and Europe than there is in Japan.