Why are markets crashing? Herd Mentality!

I talked about herd mentality in the last few posts, something interesting to observe. The question is why are markets around the globe plunging because of this tragedy?

1.) Bank of Japan injected $184 billion into the financial system to fight future market turmoils, but NIKKEI still plunged over 17%. However, the Japanese banks will now have $184 billion to spare to rebuild the damages. Who will get this money?

2.) The damages are now estimated at around $170 billion! We can easily make the connection when we compare that number to $184 billion the central bank injected into the system. This is $170 billion that will spend. Who will get this money?

3.) Therefore unprecedented economic activity will unleash. Japan's economy will circulate with quarter of a trillion dollars in the next year or two. Again, who will get the money?

For starters, construction companies with earth moving machinery - Komatsu, Mitsubishi, Hitachi, US companies, like Caterpillar, they will make loads of money on restructuring the damaged areas, it is just mind-blowing. What about steel and copper? Japan will need millions of tons of steel. Nippon steel and ArcelorMittal - just think of how much steel they will have to provide to Japan!

For instance, Nippon Steel is trading 17.20% below the closing price on Thursday. Why is this stock trading low when it is inevitable to predict how much steel they will have to provide to rebuild devastated areas. ArcelorMittal is trading 28% below its 52-week high, you can find bargains by just simply analyzing the stock. Again, I am not suggesting any stocks, I am just showing you how to find bargains.

Another idea that crossed my mind. Solar and wind energy. Japan has proved that they can build nuclear power plants that can resist earthquake magnitude of 9, but they will always struggle with tsunamis and salt water, which is not that good for nuclear plants. Maybe they will heavily invest in wind power on the east cost of Japan and move the nuclear plants more inland.

Finding bargains in times like this is not difficult, you just have to understand the business, I am personally deeply invested in Energy/Commodities and Construction sector, so I understand this is my field of competence and you have to disconnect from the herd mentality.

Remember, $184 billion will be spent. Most of the money will go to construction companies, commodities such as steel and copper and energy sector, especially oil, but also solar and wind power.

Happy investing!

Damian Kosutic