Keeping It in Perspective

The earthquake and Tsunami in Japan may not have as much of an economic impact on the world as we feared.  “Globally, Japan will likely be a growth hiccup,” says The Wall Street Journal.  On the other hand, many of us are reacting on a more personal level, reeling from the sense of unpredictable disaster, brought home to us by thousands of photos and videos.

As we import from Japan far more that we export, the tragedy is likely to affect supplies of consumer goods, shortages that could eventually be more than made up for from other sources.  It is hard on them — very, very hard economically as well as personally.  “But absent a nuclear disaster, it shouldn’t be reason for investors to panic,” concludes the Journal.  (See, “Markets Misjudge Japan Risk.”)

Yet investors are showing great anxiety and insecurity.  “Investor confidence” is plummeting in markets around the world.

That’s because we are all more human than otherwise.  We see our own fate in that of others, and it is difficult to keep that human capacity in bounds.  It’s to our credit as a species that we react that way, and that as a result of that empathy we will send humanitarian aid to Japan.  And yet we need to be mindful of where the real risks are – and where they aren’t.

Professional traders on Wall Street will profit from the emotional over-reaction of most investors who tremble in the face of human disaster.  And they will probably end up profiting at the expense of the rest of us who identify too closely and react too quickly.