Foster Group

I don’t know how many of you have DirecTV, but over the past two weeks I have become somewhat addicted to the DirecTV News Mix channel.  One channel with eight windows, simultaneously showing CNN, CNBC, Fox News, Fox Business, Bloomberg, MSNBC, Headline News and The Weather Channel.  It is wall-to-wall, 24/7, non-stop “news.”
The opportunity for my “news” addiction came as a result of some back surgery that has kept me at home for a few weeks of recovery, allowing me to experience the nature and impact of this constant news barrage.  During my home-bound recovery, Japan has had an historic earthquake and tsunami resulting in a nuclear emergency, Libya continues in civil war, and other parts of the Mideast are uneasy, at best.  Of course, investment markets declined abruptly as a result of these news items and the uncertainty surrounding the timing of their resolution.
While these market swings would be disquieting under normal circumstances, I have found first-hand that they are even more so when one is exposed to the non-stop info-tainment “analysis” that now passes for news.  On Wednesday, March 16th, I watched the Dow Jones Industrials first move down over 150 points on prepared remarks from a European energy commissioner (whose comments were later shown to be 24 hours old and without specific facts) and then up 100 points on a story that the Tokyo utility company was “close” to restoring some power to the overheating reactors (this didn’t happen for three more days). Both movements show how over-reactive markets can be to even a whiff of “news,” in this case, news that amounted to nothing!
Here are a couple observations that may be worth considering if this recent round of natural disaster and political unrest has you wondering if you should “do something” about how you are invested:
First, the natural disaster in northern Japan is tragic, especially for the people in the epicenter. “Fukutsu no sieshin” is the Japanese phrase for “never give up.”  The brave and purposeful Japanese people are once again proving their ability to persevere in the face of heavy adversity.  I spent some months in Japan during the late 1980’s and, as a nation, they are extremely disciplined and hard working; truly incredible people.
But this disaster will ultimately come to a conclusion and be absorbed in the much larger Japanese and world economy (remember our own experience with Hurricane Katrina and the Deepwater Horizon Oil Spill in the Gulf).  Diligent, enterprising and creative people will rise to the task of rebuilding.  People will find ways to recover and businesses and markets will recover as well.
Turning to the Middle East and the yo-yo of oil prices, one thing to remember is that oil-producing countries need oil-consuming economies to buy their oil.  When prices get too high, consumers use less and the oil producers are left with lower revenue.  If foreign oil prices rise even more dramatically, alternative fuels, including bio-fuels, natural gas, solar, wind, and even domestic oil production become relatively more cost-effective and threaten foreign oil producers’ long-term economic health.  The bottom line here is that Libya represents only 2% of world oil production and they need oil money in a worse way than the world needs their oil.  It seems that even Colonel Gadhafi may understand this as he has quickly announced today that he would not fight the UN “No-Fly Zone” resolution. What the Colonel actually does on the ground is anybody’s guess, as history has shown him to be a very unreliable leader.
Successful investing is still a long-term proposition regardless how much “news” is dispensed by the media every minute of every day.  As Foster Group Portfolio Director Ed Green has written in his recent blog post on portfolio strategy in light of the Japan situation, “In this tragedy, we can see again the wisdom of broad diversification.  Any market can suffer an unexpected crisis, whether economic or financial.  Any country can suffer a disaster, natural or man-made.  The best defense against all of these is to diversify broadly across countries, across segments of the market and across asset classes.”