Chart of the Day: Odds of Death

The Economist writes,

ON FEBRUARY 15th DA14, an asteroid 45 metres across, will sail past the Earth at 7.8km a second (4.9 miles a second). At just 27,700km away, it is well within the range of communication satellites. It will be the closest encounter on record with an asteroid this big. In 1908 an asteroid estimated to be around 100 metres in diameter destroyed 2,000 km² of forest in Siberia. Thankfully, such events are rare. NASA has identified 9,600 "near-Earth objects" since 1995, but just 861 with a diameter of 1km or more. The greatest threat to Earth is the 140-metre wide AG5; but it has just a 1-in-625 chance of hitting Earth, and not until February 5th 2040. More prosaic things are far more dangerous. According to data from America's National Safety Council, 27 people died in 2008 in America from contact with dogs (a one in 11m chance of death). The chart below compares the odds of dying in any given year from choking, cycling, being struck by lightning or stung by a bee.

While the odds of dying from a heart disease (467:1) may seem greater than dying from an asteroid impact (74,817,414:1) may be true, the basic problem with extrapolating statistics is that we really can’t determine or we simply DON’T know when that big ONE will arrive in whatever form to claim us.

Thus we can be lulled into complacency by the use of statistics from the risks of false negative errors, or specifically, result/s that appears negative when it should not. 

This reminds me of what author Nassim Taleb calls as the Black Swan Theory: the extreme impact of certain kinds of rare and unpredictable events (outliers) and humans' tendency to find simplistic explanations for these events retrospectively.

For instance, the NASA suspects that DA14’s whizzing past earth may trigger tremors on some parts of the world. Has the impact from such event been incorporated in the computation of the above probabilities? 

A meteor blast in Russia caused 400 injuries a day before DA14. The meteor incident was denied by officials as having been connected with DA14.

If the authorities are right, then this simply reveals how the Russian meteor incident can be construed as an “unpredictable-outlier event” but with limited impact. In short, no one saw this coming.  Yet the incident does not satisfy the ‘extreme impact’ conditions of the black swan model.

On the other hand, if authorities could have been wrong, then the statistical odds of death may have been underestimated, since the likely methodology in arriving at such probability may have been seen only from a direct impact from a meteor/asteroid collision and not from the ancillary events, such as Russia's meteor shower (as defined by CNN), which could have been the advance party of DA14, or from other potential ramifications from meteor or asteroid flybys.

The bottom line is that people tend to overestimate their knowledge of the world and or of the universe to the point that environmental jeremiahs or ecological-phobes use scare tactics to impose social controls on us in order to shape the world according to their false ideals. 

As discussed before the world is much larger than us, where various forms of potential black swans abound: 

While we have been made aware by media of these apocalyptic scenarios through a variety of science fiction movies that could or may occur; such as huge asteroid/s crashing on earth, super volcano eruptions, alien invasion, robot uprising and many more, there are other factors such as the black hole, gamma rays from an imploding star or the unleashing of a mighty wave of solar flares from our sun, that could send our world into oblivion, unpredictably and instantaneously.

Speaking of black holes, a science or Astrophysical journal recently asserted that black holes have been growing faster than expected and have grown beyond the sphere of traditional assumptions where black holes require “galaxy collisions”. 

Our knowledge of the environment has been incomplete and keeps changing.

Post Hurricane Sandy: Signs of Spontaneous Order in New York City

Observes Jaltcoh (hat tip Econolog’s Professor David Henderson)

The traffic in the blackout areas of Manhattan is lawless in the most literal sense: the traffic lights aren't working, so the law cannot be applied as usual. But "lawless" doesn't seem to be a fitting description; the driving seems better-behaved than usual. We're so used to seeing people act under a system of government rules that it's easy to assume that without the rules, everything would descend into chaos. But perhaps free people are generally capable of acting decently on their own. Of course, that's never going to be universal; but then, people break the law too. In fact, a dense set of rules tempts people to see how close to (or how far across) the borderline of legality they can go without being penalized. In the absence of governmental laws, people might focus more on other kinds of laws: social norms and ethics.

Contra Hobbes, these serve as anecdotal evidence that people are hardly endemically nihilistic.

Quote of the Day: Demand and Supply are Two sides of the Same Coin

It’s not that “supply creates its own demand,” but rather that supply is demand. One produces a good either to consume it oneself or, more commonly, to trade it for another good. Demand and supply are two sides of the same, well, coin—which reminds me to add that Say’s Law holds not just in a barter economy but a monetary one also—a freed one, that is, unlike the corporate state we all occupy.

True, someone might sell a good and not spend the money received. But this would lead to idleness only if the economy did not consist in a time structure of production coordinated by interest rates. In other words, money not spent is saved and available for investment (that is, payments for producer goods and labor, which will be spent on consumer goods) at stages remote from the consumer-goods level; that is, long-term investment in production for future consumption…

Given our insatiable demand for goods, in a freed market a general glut couldn’t happen; if prices were free to fluctuate in response to changed conditions or entrepreneurial error, the price of goods plentiful relative to demand would fall, while the price of goods deficient relative to demand would rise. Entrepreneurs would then adjust their plans, but since change is the rule, the market would never reach a state of rest. Say’s Law is about a (free) process through time, not general equilibrium.

This is from American political writer and libertarian Sheldon Richman at the Reason.com refuting progressives who deliberately misstate the great proto Austrian Frédéric Bastiat’s “Broken Window fallacy” or the fallacious economic doctrine which sees, from the perspective of spending, net benefits from destruction (e.g. natural calamities or wars).

Video: The Last 24 Hours of Pompeii (August 24 79 AD)

An animated reenactment of the final hours of Roman town city of Pompeii from the cataclysmic eruption of Mt. Vesuvius in August, 79 AD is shown through video below.

From the Daily Mail (hat tip lewrockwell.com)

The final 24 hours of the Roman city of Pompeii are being relived on Twitter today - exactly 1,933 years after an eruption of Mount Vesuvius buried the city beneath a blanket of ash.

The minute-by-minute reconstruction of the city's destruction is based on the tale of Pliny the Elder, the Roman scholar and admiral who took command of the city's evacuation.

The city's cataclysmic final day will be retweeted as it happened from the Twitter account Elder_Pliny, who has been brought to life by experts from the Denver Museum of Nature and Science.

Located near to modern day Naples in the Italian region of Campania, Pompeii was buried beneath 20ft of ash when Vesuvius erupted in 79AD

The city's destruction was total, and it remained lost for nearly 1700 years before it was rediscovered by archaeologists in 1748.

Since then, it's painstaking excavation has offered historians detailed insights into life in the Roman Empire, frozen at that moment Pompeii was entombed by the volcano's eruption.

The UNESCO World Heritage site has also become one of Italy's most popular tourist attractions, with some 2.5million visitors a year coming to soak up it's unique history.

Declining Fatalities of Natural Disasters

This should be another good news; despite the many accounts of natural disasters, the overall impact has been diminishing.

Writes the Economist, (bold emphasis mine)

THE world has succeeded in making natural disasters less deadly. Annual death tolls are heavily influenced by outliers, such as Haiti’s earthquake in 2010 (which killed more than 200,000) or the Bangladeshi cyclones in 1970 (300,000). But, adjusted for the Earth’s growing population, the trend in death rates is clearly downward. Economic costs, though, are rising as people and industrial activity cluster in disaster-prone areas such as river deltas and earthquake fault lines. The world’s industrial supply chains were only just recovering from Japan’s earthquake and tsunami in March when a natural disaster severed them again in October. The deluge in Thailand cost $40 billion, the most expensive disaster in the country’s history. J.P. Morgan estimates that it set back global industrial production by 2.5%. Five of the ten costliest, in terms of money rather than lives, were in the past four years. Munich Re, a reinsurer, reckons their economic costs were $378 billion last year, breaking the previous record of $262 billion in 2005 (in constant 2011 dollars). Besides the Japanese and Thai calamities, New Zealand suffered an earthquake, Australia and China floods, and America a cocktail of hurricanes, tornadoes, wildfires and floods. Barack Obama issued a record 99 “major disaster declarations” in 2011.

Yet the Economist has been reticent about the cause of the accounts of diminishing death toll of natural disasters: Rising global wealth.

Google Public Data

As Professor Christopher Westley writes,

the best protection against natural disasters is not an expansion of the public sector on an international basis, but wealth creation. It is no mistake that natural disasters, which are quite equitable in distribution between rich and poor countries, are more devastating to the poor than the rich. The establishment of a thriving private sector in Sri Lanka, India, and Indonesia is crucial for a quality of life to develop there that can withstand earthquakes and their aftermath as well as does the California coast.

Higher quality or standards of living allows people to take on more protection against prospective calamities.

Typhoon Sendong Exposes the Myth of Good Government

From the MSN.com

President Benigno Aquino on Monday fought off accusations that he was partying with starlets as the Philippines was mourning hundreds of people killed by a storm.

The presidential palace said Aquino briefly stopped by the traditional Christmas party of his elite security group at their compound on Sunday to show gratitude for their services.

"The president stayed for a little over 30 minutes. But he did not go up on stage, he did not sing, he did not dance. There was no partying," the head of the presidential security group, Colonel Ramon Dizon, said in a statement.

Tropical storm Washi hit the southern island of Mindanao at the weekend, spawning swollen rivers, flash floods and landslides which left 652 dead with hundreds other missing, according to Philippine Red Cross figures.

Reports of Aquino's alleged partying spread after a local TV actress and show host, Valerie Concepcion, said in her Twitter account that she met Aquino at the party, where she performed for the troops and their families.

Concepcion said Aquino laughed at her jokes and enjoyed her performance, triggering a wave of criticism directed at both.

The 51-year-old bachelor president, who comes from one of the country's richest landowning clans, had previously been linked to female celebrities and was once criticised for buying a Porsche sports car, which he has since sold.

My comments:

1. I told you so.

2. While I am very sympathetic to the unfortunate victims of the disaster, mainstream media foolishly makes it appear that events like this function as the only political priority. They make the public expect of excessive maudlinness or overreaction from officials. Policymaking for them, thus, has mechanically been demonstrated as perpetually attempting to please public sentiment reactively.

That’s why many Filipinos end up chasing their own tail—many, if not most, don’t really know what to expect from politicians except for political melodramatics which ultimately ends up frustrating them.

Understand that politicians will HARDLY deliver us from the terrible toll of natural calamities; to the contrary more interventionism, which have been the key cause, will likely worsen such conditions.

Notes the Inquirer,

The absence of a flood warning, high tide, darkness and a false sense of security proved disastrous for people of northern Mindanao when Tropical Storm “Sendong” came over the weekend.

Add illegal logging, rapid urbanization and mining, and the result was deadly for residents of Cagayan de Oro and Iligan cities, government and Red Cross officials said.

This represents as very naïve ex-post account of what has happened.

This assumes that had been none of the above activities occurred, the current fatalities and damages wouldn’t have happened. This is simplistic and sloppy thinking. In reality, this simply isn’t so.

Unknown to the author is that illegal logging activities globally, for instance, have been mainly caused by poverty and by the tragedy of the commons where effected arbitrary laws in response to such problems, has exacerbated the incidences of these activities and engendered other untoward consequences such as more corruption, organized crimes, human rights abuses and etc….

The application of conventional prohibition laws, which tramples on property rights, represents as typical example of applying a cure which is worst than the disease.

In other words, poverty brought about by excessive regulations, the lack of trade opportunities, and or the politicization of local economics has spawned these “illegal” activities and thereby the ensuing environmental degradation.

Poor people care about their day to day survival and not the environment.

Thus the said effects has flagrantly been misread by media as the cause, and thus dumbing down their gullible audiences.

So if the political reactive response will be to curb on these activities, we eventually end up with more of what we least desire. This would represent as the law of unintended consequences.

Instead, as seen in other countries, economic freedom has vastly mitigated the destructive effects of natural calamities. Wealthier people are likely to undertake protective measures for themselves, their families and the community regardless of government actions.

Bottom line: Keeping people poor and politically dependent is a guaranteed recipe for prospective victims of natural catastrophes.

Next as I have argued before, ALL public officials are HUMAN BEINGS. This means that as humans (and not a quasi-deity whose popular delusions has been promoted by media), their actions will be dictated by personal values and preferences.

Alternatively this exposes the myth about good government. There is no such thing as good government whose employment of organized violence will always be politically motivated benefiting a few at the expense of the rest. Despite all the idealistic blarney by media, politics has not been about serving the public (hahaha!) but of the self-interest of the political leaders and their allies, followers and cronies (insider-outsider dynamics).

Lastly, more “compassionate” overreactions actions by political authorities will extrapolate to more corruption and inefficient use of resources which leads to massive wastage and higher taxes and or inflation in the future.

This subsequently translates to more poverty and the same set of troubles in the future.

Does the politically connected mainstream media ever account for why, after all these years and all the changes in political stewardship, we get the same set of problems?

Good government? Duh!

Prediction Failure: Hurricane Forecasters Give Up

Another instance where math models, here applied to weather forecasting, has failed to live up to its much touted reputation (hat tip: Professor Russ Roberts)

From OttawaCitizen.com

Two top U.S. hurricane forecasters, famous across Deep South hurricane country, are quitting the practice of making a seasonal forecast in December because it doesn’t work.

William Gray and Phil Klotzbach say a look back shows their past 20 years of forecasts had no predictive value.

The two scientists from Colorado State University will still discuss different probabilities of hurricane seasons in December. But the shift signals how far humans are, even with supercomputers, from truly knowing what our weather will do in the long run.

Cheers to William Gray and Phil Klotzbach for admitting the truth.

My Prayer to the Lord on Krugman’s Wish for More Destruction

[IMPORTANT UPDATE: The Krugman google+ quote below is an admitted forgery. Although Mr. Krugman could have said this in different ways. Forgery isn't justifiable.]

The Nobel Laureate Paul Krugman posted at the google+

People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage

Dear Lord,

In reading the above, I became distraught when I realized that people of high stature would actually wish or even impliedly invoke harm, damage or loss on other people for the sake of statistics.

In case You should grant Mr. Krugman and his followers their wishes, I do pray that You would not include them in that specter of greater destruction.

That’s because if you did, they will be spending for repairs, hospitalization expenses, reconstruction and etc…, money which they would have spent for other useful and more desirable things than on contingents.

Although they could be helping out the economy as they claim this would, it would be better that they be left unscathed, so that they can keep on telling half truths which the world so badly needs.

I pray too that Mr. Krugman and his followers would not suffer from the losses of lives and injuries associated with the accompanying devastation.

Because if You allowed this to happen, I would suppose that Mr. Krugman and company will also suffer from the misery, trauma and tragedy of the losses of family members, relatives close friends, colleagues and or associates.

Also they might even endure the agony of medical recuperation and therapy if they have been wounded. And if this is so, they will have to consume their savings unless they are adequately covered by insurance. Again they would be diverting money to spending on emergency than on attaining more convenience during 'normal' times.

And under the period of rehabilitation they may not be able to spread their negative knowledge to their disciples and to the gullible.

And they may not be also paid by their respective employers if their treatment will be prolonged or if they become permanently handicapped.

As I understand, the economy is about interacting human beings, where losses of lives and physical impairment translates to the reduction of human capital. And losses of human life, I understand essentially reduces, and not adds to, real economic growth.

If You so decide to take away all our lives and leave only Mr. Krugman and his followers alive, there won't be much to spend on because there will hardly be anyone left to produce to serve the needs of these hallowed survivalists. And countless green pieces of paper won't do anything too.

Most importantly I pray that Mr. Krugman and his followers will be forgiven for their misanthropic desires and dogmatic superciliousness.

And that such forgiveness be extended to me for my aghast response over what seems for me as a demented opinion.

Thanks for listening,

Benson

Effective Disaster Recovery Programs are Based on Personal-Community Relationships

The success of disaster recovery programs has mostly been associated with personal relationships. (Sorry but it’s hardly about governments)

That’s the findings of NPR’s Shankar Vedantam. (hat tip: Prof Peter Boettke) [bold emphasis mine]

Aldrich's findings show that ambulances and firetrucks and government aid are not the principal ways most people survive during — and recover after — a disaster. His data suggest that while official help is useful — in clearing the water and getting the power back on in a place such as New Orleans after Katrina, for example — government interventions cannot bring neighborhoods back, and most emergency responders take far too long to get to the scene of a disaster to save many lives. Rather, it is the personal ties among members of a community that determine survival during a disaster, and recovery in its aftermath.

When Aldrich visited villages in India hit by the giant 2004 tsunami, he found that villagers who fared best after the disaster weren't those with the most money, or the most power. They were people who knew lots of other people — the most socially connected individuals. In other words, if you want to predict who will do well after a disaster, you look for faces that keep showing up at all the weddings and funerals.

Hayek’s local knowledge plays a key role. Again from the same NPR article (bold emphasis)

It's this passion for a local community and granular knowledge about who needs what that makes large-scale government interventions ineffective by comparison. It's even true when it comes to long-term recovery...

Governments and big nongovernmental organizations — which are keenly aware of the big picture — are often blind to neighborhood dynamics...

The problem isn't that experts are dumb. It's that communities are not the sum of their roads, schools and malls. They are the sum of their relationships.

Why does personal-community based relationship matter more than governments?

As I previously explained, (emphasis original)

Remember it is in the vested interest of the private sector to be charitable.

This is not only due to self esteem or social purposes but for sustaining the economic environment.

Think of it, if retail store ABC's customer base have been blighted by the recent mass flooding, where a massive dislocation- population loss through death or permanent relocation to other places- would translate to an economic loss for the store, then, it would be in the interest of owners of store ABC to "charitably" or voluntarily provide assistance of various kind to the neighborhood in order to prevent such dislocation from worsening, or as a consequence from indifference, risks economic losses.

Hence, such acts of charity is of mutual benefit.

Moreover, charity is the province of the marketplace. That's because markets produce and provides the goods and services required by society to operate on. Whereas government essentially don't produce goods or services but generates revenues by picking on somebody else's pocket.

With government, personal relationships are merely reduced to political interests.

With the marketplace, people see the benefit of social cooperation arising from social exchanges, which is fundamental to community building.

As the great Ludwig von Mises wrote, (bold emphasis added)

Within the frame of social cooperation there can emerge between members of society feelings of sympathy and friendship and a sense of belonging together. These feelings are the source of man's most delightful and most sublime experiences. They are the most precious adornment of life; they lift the animal species man to the heights of a really human existence. However, they are not, as some have asserted, the agents that have brought about social relationships. They are fruits of social cooperation, they thrive only within its frame; they did not precede the establishment of social relations and are not the seed from which they spring.

The fundamental facts that brought about cooperation, society, and civilization and transformed the animal man into a human being are the facts that work performed under the division of labor is more productive than isolated work and that man's reason is capable of recognizing this truth. But for these facts men would have forever remained deadly foes of one another, irreconcilable rivals in their endeavors to secure a portion of the scarce supply of means of sustenance provided by nature. Each man would have been forced to view all other men as his enemies; his craving for the satisfaction of his own appetites would have brought him into an implacable conflict with all his neighbors. No sympathy could possibly develop under such a state of affairs.

This is a truism which politicians and their media bootlickers always misrepresents.

Japan Mulls More Bailouts for the Nuclear Industry (and Mega Banks)

As I have been saying, governments around the world would look for any excuses to print money and or extend bailouts or other political-financial privileges to pet sectors at the expense of the economy.

Japan mulls on extending new loans purportedly aimed at supporting her nuclear industry and to other sectors tied to the recent disaster.

Reports the Bloomberg, (bold emphasis mine)

Japan’s government is considering about 230 billion yen ($2.8 billion) in outlays for aid to Tokyo Electric Power Co. and radiation monitoring in its planned extra budget, according to a draft outline prepared by the Finance Ministry.

Prime Minister Naoto Kan’s government has yet to release details of the 2 trillion yen supplementary budget, which will need parliamentary approval. Officials will apply 1.8 trillion yen in tax revenue left over from the last fiscal year to help fund the package, according to the document, a copy of which was obtained by Bloomberg News.

The spending would be aimed at a nuclear crisis that remains unresolved more than three months after Japan’s record earthquake and ensuing tsunami crippled Tokyo Electric’s Fukushima Dai-Ichi reactor north of Tokyo. The utility, which has seen almost $37 billion of its market value erased, will hold its annual general meeting today...

Another 78 billion yen will be used to set up a fund for health care costs of people that were affected by radiation or live near the damaged reactor, the document said.

The cost of dismantling the Fukushima plant may reach 20 trillion yen, and compensation for households in a 20-kilometer evacuation zone may total 630 billion yen over 10 years, according to the Japan Center for Economic Research.

The draft budget also earmarked about 80 billion yen to help households that were indebted before the quake and now need to borrow more for repairs. Additional funds will be devoted to small companies affected by the natural disaster that left more than 23,000 dead or missing, according to the proposal.

Damage to buildings, roads and infrastructure will be around 16.9 trillion yen, the lower end of the government’s initial 16 trillion to 25 trillion yen forecast, the Cabinet Office said last week.

The government pledged 4 trillion yen in spending it its first extra budget, which was used to build temporary homes and clean up debris from the earthquake and tsunami.

As I earlier posted, Japan’s maintains a patronage crony relationship with the nuclear industry, and thus the proposed actions.

Second, I smell another indirect bailout of the domestic banking system. Japan’s mega banks have huge loan exposures on TEPCO which credit rating agency Moody’s recently threatened to downgrade.

From Businessweek.com

“About 2 trillion yen of loans to Tepco from megabanks and life insurance companies offered before the March quake would virtually fall to a default status if the financial institutions were to write them off,” Moody's analysts led by Tetsuya Yamamoto, Tokyo-based vice president of the financial institutions group, said in a report today.

Like any governments, politicians have no qualms on spending of other people’s money, especially for the benefit of their related or politically affiliated interests.

Tornadoes and Technology

From Patrick Michaels at the Forbes (ht: Don Boudreaux)

Despite 2011, there’s strong evidence that we are saving a tremendous number of lives with modern technology.

After the 1953 disasters, developers of weather radar convinced Congress to support a national network of detectors known as the WSR-57 (for 1957), a very acceptable machine for picking up tornadoes capable of causing significant damage. By the mid-1970s, WSR-57′s pretty much covered the tornado-prone regions of the nation.

An interesting thing happened to tornado frequencies. Before the WSR-57 went online the number of reported tornadoes averaged about 500 per year nationwide. By the time the network was complete, we leveled out around 800. Tornado death frequency–the number of fatalities per million–dropped precipitously. This was an unqualified technological success.

This only demonstrates how capitalism via technological advancement has helped saved many lives.

Did the Joint Currency Intervention for a Weaker Yen Succeed?

Japan’s triple whammy calamity, last March, pushed the yen to the stratosphere. This prompted global finance ministers to jointly intervene in the currency markets to stem its rise.

This from UK’s Guardian.co.uk last March, (highlights mine)

Finance ministers and central bankers from the world's developed nations decided late on Thursday night to send a firm message to financial markets that they would not stand by and watch the yen continue to strengthen

The Bank of Japan began selling yen overnight to depress its value. Other central banks are expected to follow suit as their markets open through today, in a rare concerted move.

The intervention signified as war against speculators: central banks versus speculators.

Over a month since the intervention, the New York Federal disclosed yesterday its participation in the joint action:

The U.S. monetary authorities intervened in the foreign exchange markets on one occasion during the first quarter, on March 18, buying $1 billion against Japanese yen, the Federal Reserve Bank of New York said today in its quarterly report to the U.S. Congress.

During the three months that ended March 31, the dollar depreciated 5.5 percent against the euro but appreciated 2.5 percent against the Japanese yen. In this period, the dollar’s trade-weighted exchange value depreciated 3.7 percent as measured by the Federal Reserve Board’s major currencies index.

The coordinated G-7 intervention was carried out by the foreign exchange trading desk at the New York Fed, operating in conjunction with Japanese monetary authorities, the European Central Bank (ECB) and the monetary authorities of, Canada and the United Kingdom. The intervention amount was split evenly between the Federal Reserve System Open Market Account and the U.S. Treasury’s Exchange Stabilization Fund (ESF).

The blue arrow marks the date when the US government (US Federal Reserve and the Treasury) intervened along with central banks of other nations in a grand scale of collaboration against speculators.

Over the short term, the intervention proved to be a success; the yen weakened.

Today, the yen is seen back at the level where the global governments intervened. In short, billions of dollars of taxpayers money went down the drain.

Bottom line:

Interventions did have immediate effects (which resonates with today’s war against commodities). However, eventually the effects wear out.

Yet who bears the losses from such interventions? Obviously taxpayers!

The battle was won by the central banks in March, but they appear to be losing the war.

Earth’s Possible Close Encounter With An Asteroid This November

Earth might have a close encounter with a huge asteroid this November, that’s according to Space.com [bold emphasis mine]

Mark your calendars for an impressive and upcoming flyby of an asteroid that’s one of the larger potentially perilous space rocks in the heavens – in terms of smacking the Earth in the future.

It’s the case of asteroid 2005 YU55, a round mini-world that is about 1,300 feet (400 meters) in diameter. In early November, this asteroid will approach Earth within a scant 0.85 lunar distances.

Due the object’s size and whisking by so close to Earth, an extensive campaign of radar, visual and infrared observations are being planned.

Asteroid 2005 YU55 was discovered by Spacewatch at the University of Arizona, Tucson’s Lunar and Planetary Laboratory on Dec. 28, 2005. En route and headed our way, the cosmic wanderer is another reminder about life here on our sitting duck of a planet

Read the rest here

This article hasn’t been meant to scare anyone, but as Space.com says our planet looks like a sitting duck.

And gloomy environmental stories about climate change seem to pale against the prospects of a wayward asteroid hitting us-the ultimate Black Swan.

Japan’s Calamity: Costliest Disaster Ever

Japan’s recent 1-2-3 calamity has been reported to be the costliest disaster ever.

The Economist writes,

JAPAN is still reeling from the earthquake and tsunami that struck its north-east coast on March 11th, with the government struggling to contain a nuclear disaster and around 10,000 people still unaccounted for. Provisional estimates released today by the World Bank put the economic damage resulting from the disaster at as much as $235 billion, around 4% of GDP. That figure would make this disaster the costliest since comparable records began in 1965. The Indian Ocean tsunami in 2004, which caused some 250,000 deaths, does not feature on this chart. Economic losses there amounted to only $14 billion in today’s prices, partly because of low property and land values in the affected areas.

This is an example where the losses from natural disasters are narrowly viewed in monetary terms. I am not sure if the estimates have quantified casualties in money terms (any estimates will likely be inaccurate and underestimate the value of human lives)

While the $ based losses may be huge, Japan’s disaster seems only a fraction of the 2004 Indian Ocean tsunami in terms of deaths.

For me, lives lost, injuries, displacement and trauma from the disasters are more important (or cost more) than $ based property damages.

Market’s Addiction To Inflationism As Seen In The Currency Markets

Exchange-rate policies produce the usual spiral of interventionism: the de facto consequences tend to diverge from the original intentions, prompting further rounds of doomed interventions. This interventionist escalation is not only limited to an incessant repetition of the same failed policies, but the errors committed in one policy area also affect other parts of the economy. Thus, it is only a matter of time until errors of monetary policy lead to fiscal fiascos, and exchange-rate interventions lead to trade conflicts.- Dr. Antony P. Mueller

The markets loudly cheered on Japan’s aggressive engagement of her version of quantitative easing. Even more ecstatically to the joint intervention by the G-7 on the currency market to weaken the Japanese Yen.

As I earlier pointed out, there is little relevance between Japan’s money printing and the containment of the radiation risk[1], as well as, the weakening of the Yen which may, on the contrary, even harm the recovery process, as a weak currency would increase the prices of imports which Japan sorely needs for her public works[2].

Yet this is exactly what I have been driving about since time immemorial, the global financial markets addiction to inflationism.

It’s not clear how effective such interventions work. The last time Japan intervened massively in the currency markets in 2004 (£150 billion[3]) as shown in the above chart[4] the result was an apparent failure.

To add, this week’s market meltdown, despite manifesting some signs of 2008 or across the board selloff, lacked the traditional safehaven features: the US dollar (USD) hardly rallied (red circle below the YEN) while the rally in US treasuries (UST) had likewise been unimpressive!

Meanwhile the Euro (XEU) substantially firmed while the Yen (XJY) soared by 3.3% on Wednesday March 16^th! But the Yen gave up much of its gains on Friday following the G-7 announcement.

Reports say that the repatriation trade has been exaggerated.

According to the Finance Asia[5],

Japanese insurers are well-hedged at about 70% and have huge holdings in government bonds, which they could easily sell if they needed yen. And the industry is reinsured by the government anyway, so there is no shortage of yen in the insurance market.

The repatriation trade is, at best, premature, but the rumour of its existence was enough eventually to tip the market into a forced sell-off yesterday as dollar/yen sank below 80.

Mrs Watanabe, the archetypal Japanese housewife, typically holds a long position in US dollars. By Tuesday, those positions reached an all-time peak and, with dollar/yen parked close to 80, foreign speculators anticipating repatriation flows started to sell in the early hours of yesterday morning as trading moved from New York to Tokyo and liquidity was exceptionally low.

It is unclear if these reports are accurate and dependable, but it would seem that the steep overnight climb of the Yen has been unwarranted.

And thus, the markets natural response has been to sell down the Yen down which apparently has been exacerbated by the G-7 intervention.

Furthermore, critical credit markets hardly budged.

US Cash indices and 3M Libor OIS spread for both the US and the Euro, had seen little signs of anxiety in the face of the meltdown.

All these simply evince of a knee jerk fear premium.

In addition, the European Financial Stability Facility [EFSF] has been reinvigorated which may have given some legs to the Euro. According to the Danske Bank research team[6],

The negative events seem to have overshadowed the positive news that EU leaders agreed on new terms for the EFSF. The lending capacity of the existing facilities has been increased to EUR500bn and the EFSF has been allowed to purchase bonds in the primary market. This could prove a substantial help for Portugal. In addition, the interest rate has been lowered for Greece and the maturity extended after Greece agreed to sell state owned assets worth EUR50bn. The moves by the EU leaders were ahead of market expectations and are positive for peripheral spreads and therefore for the banking sector.

The actions of the Euro have basically been fulfilling what we have been saying throughout 2010[7].

Bottom line:

The current environment has clearly departed from the 2008 episode.

Moreover, like Pavlov’s dogs, financial markets have been elated by inflationism, which only means that current market trends can continue if governments continued to inflate.

---

[1] See Japan’s Disaster Recovery Program: Wishing Away Real Problems With A Tsunami of Money, March 15, 2011

[2] See Currency Intervention: Japan And The G-7 Aims To Boost Stock Markets, March 18, 2011

[3] Businss TimesOnline.co.uk Japan ends its £150bn currency intervention as economy firms, March 24, 2004

[4] Shedlock Mish Currency Intervention Madness, Japan Intervenes to Weaken the Yen, September 15, 2010

[5] Finance Asia, Mrs Watanabe, not repatriation, driving yen volatility, March 18, 2011

[6] Danske Bank, Weekly Credit Update, March 18, 2011

[7] See Ireland’s Woes Won’t Stop The Global Inflation Shindig, November 22, 2010; See Buy The Peso And The Phisix On Prospects Of A Euro Rally, June 14, 2010

Earthquake Map of the US and the Philippines

The Daily Mail says

But 39 out of the 50 states – including New York and Tennessee – have moderate to high seismic hazard risk.

That still a lot better compared to the Philippines...

...where except for a few spots, the entire archipelago seems in a high risk zone. Map from USGS

The Philippines is part of the Pacific Ring of Fire belt, where “About 90% of the world's earthquakes and 80% of the world's largest earthquakes occur”

Have a nice day.

Chart Of The Day: The Historical Short Term Impact of Natural Disasters On Stock Markets

I earlier wrote about the impact of natural disasters on stock markets as mostly short-term in duration.

Eventually, markets write them off or discounts or reappraises ‘uncertainty’ into ‘risk’.

The Economist has a good depiction of such discounting process on the stock markets as seen in several major disasters via the graph below...

From the Economist

UNCERTAINTY over the extent of the damage caused by the earthquake in north-east Japan on March 11th, and the associated radiation leak at the Fukushima Daichi power station 140 miles (225km) north of Toyko, has made trading on Japan’s stockmarket an eventful affair. The Nikkei 225 index fell 17.5% in the three trading days following the catastrophe, wiping some ¥37 trillion ($458 billion) off equities. This compares unfavourably with market reactions to other disasters. Once the New York Stock Exchange had reopened six days after the September 11th terrorist attacks, the S&P 500 fell by 11.6% over five trading days, but after a further 14 days it had recovered to its pre-disaster level. After Japan’s last severe earthquake in the city of Kobe in 1995 the Nikkei 225 fell by 7.6% over the next four trading days, but it did not recover to its pre-earthquake level for another 11 months. The Nikkei 225 regained some lost ground today, closing up 5.7%. The Japanese will be hoping for the same bounce back in their own fortunes.

As I earlier said, while the earthquake-tsunami event had been predictable or was expected to happen (except for the exactitudes), the uncertainty over the scale of damage from the unfolding nuclear accident has been the black swan event.

Since this has yet to be resolved, the escalating risks of radiation leakages continue to linger or haunt the markets, hence the prolonged selling pressure.

The question remains if there are other hidden but more powerful forces at work which operates on the cover of the unfortunate Japan’s nuclear episode.

A Tally of The Impact of Japan’s Disaster On Global Stock Markets

Japan’s triple whammy of nuclear-earthquake-tsunami has likewise slammed on the world’s stock markets.

Developed economy stock markets which earlier this year had outperformed the world have been the hardest hit, and are now laggards

Here is an update of the performances of the world’s bourses since Japan’s disaster struck.

According to Bespoke Invest,

The average year to date stock market performance of the 79 countries listed has now turned negative (-2.20%). The average performance of the countries since 2/18 is -4.38%. As shown, Japan is down the most since 2/18 with a decline of 16.13%. Germany and France rank 2nd and 3rd worst with declines of 12.29% and 11.08% respectively.

Most of the world’s market has turned red. Although some like the BRICs (except Brazil) and ASEAN has been little scathed so far.

However, with the way the markets have been performing overall (I mean, currencies, bonds, commodities, stocks), I suspect that Japan’s calamity has only instigated and could be masking the unseen driving force behind the series of downdraft.

And it’s called the TIGHTENING of the monetary environment—as many EM central banks have been raising interest rates while authorities of developed economies seem to be conditioning the markets of the same prospective actions despite the calamity. I’d like to see more evidence on this.

The Declining Influence of Japan’s GDP

Yesterday’s widespread selloff had fundamentally been a black swan nuclear meltdown story. In other words, the market priced the uncertainty of a prospective contagion from radiation leaks.

The pivotal question is: Is the nuclear issue a systematic risk or is it a common factor risk?

One way to resolve this is to see the issue from the GDP prism.

BCA Research has this to share, (bold highlights mine)

According to IMF data, Japan’s share of global GDP has fallen over the past two decades from a high of about 10% in the early 1990s to under 6% today. Even more noteworthy is that on a purchasing power parity basis, the IMF estimates that Japanese growth has only accounted for about 1% of the world’s growth over the past five years. This is of course mostly due to the rapid expansion in emerging economies, but highlights that even without the devastating effects of last week’s earthquake, Japan is quickly becoming a small player in global growth. It also helps to explain why the blow to financial markets in the region (excluding Japan) has so far been fairly mild. In terms of the advanced economies, the country that is likely most susceptible to a slowdown in Japan is Australia – about 20% of Australia’s exports are destined for Japanese markets. Bottom line: Last week’s devastating earthquake in Japan may have limited impact outside of the country, given that global growth dynamics no longer rely heavily on a demand impulse from Japan.

Japan’s share is still substantial but has been steadily declining. Said differently, seen from the GDP perspective, the diminishing share of Japan’s GDP becomes more of a specific factor related risk—that is unless the radiation leaks spread to other nations which would transform fear into reality.

Thus, if fears from such uncertainty don’t gain ground, then the emotionally charged selloff could pose as an opportunity.

As a reminder, Japan isn’t the only source of uncertainty, but it has surely has diverted most of the public’s attention.

Japan’s Disaster Recovery Program: Wishing Away Real Problems With A Tsunami of Money

The Bank of Japan (BoJ) thinks that by flooding its system with money it can wish away real problems such as the threat of a nuclear catastrophe.

The BoJ has injected more liquidity into the system following 2 successive days of stock market blood bath.

The Marketwatch reports, (bold emphasis mine)

Japan's central bank injected 20 trillion yen ($245 billion) into the money markets Tuesday in an effort to help calm financial markets, according to reports. The move was designed to ensure that banks have enough liquidity to meet a surge in demand from companies and households seeking to raise funds. The same-day funds injection came as Japan's unfolding nuclear crisis deepened on Tuesday, with an explosion at reactor No. 2 and as the danger spread to reactor No. 4 at the stricken Fukushima nuclear plant. Elevated radiation levels were reported in Tokyo as southerly winds carried the radioactive plume from Japan's eastern coast towards urban areas.

This is in addition to yesterday’s injection.

As Economic Policy Journal’s Bob Wenzel writes,

There is no sound economic theory that suggests printing money can in any way help in the case of a physical disaster, as always this money will end up in the hands of the banking elite to provide them with an edge over those who have lost their homes and don't really need elitist bankers bidding against them for resources.