Warren Buffett, the so-called Sage of Omaha, sees big opportunities in Japan and has made a bullish derivatives bet on Japan's benchmark stock index, the Nikkei 225. Buffett hopes to profit from rising demand for steel and raw materials as Japan sets about repairing the damage caused by the devastating earthquake and tsunami on March 11. "Something out of the blue like this, an extraordinary event, really creates a buying opportunity," Buffett said.
Still, Buffett is taking on some big risks.
First is the risk that the radiation leakage from the stricken nuclear plants will be much worse than currently expected, and that electricity supplies will be disrupted for months ahead. Also the repair bill will cause Japanese government debt – which already stands at a massive 200 per cent of GDP – to blow out even further for the world's most indebted nation.
Compare Buffett's optimism with the glum assessment from ratings agency Moodys which says global supply chains will be disrupted and that Japan will experience a recession in the first half of 2011, followed by a resumption of growth in the second half, once major spending kicks in on rebuilding damaged sites. And how long will the rebuilding take? Five years, says Moodys. It will be long and drawn out, there will be no rapid recovery.
So the question is which one is right? Buffett or Moodys?
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