Archive - Mar 14, 2011

If the following letter posted by the BBC Blog is indicative of prevailing popular mood in the Japanese capital now that the government has lost credibility (as Zero Hedge predicted on Saturday), Tokyo may soon be a ghost town.

Mikan in Tokyo writes: "There is a growing sense that the Japanese
government is not telling us the true story. On one end, there is the
Japanese media that plays down the nuclear drama and focuses on human
drama, and at the other, the foreign media is up-playing the nuclear
disaster. In my company I heard at least half the essential staff is
being sent to Hong Kong, Singapore or even Sydney. I am preparing to
leave Tokyo and/or Japan. So are many of my friends. There is a sense of
deserting Tokyo as soon as possible."

All those hoping (here's looking at you Mo) to see a prompt bounce back in Japan to baseline economic levels may be in for some disappointment. Reuters reports that according to various sellside analysts, the impact to Japanese GDP (which is virtually tied with China for the world's second largest economy), could be anywhere between 3 and 5%. "Quake-hit Japan  faces a recovery and reconstruction bill of at least $180 billion, or 3 percent of its annual economic output and more than 50 percent higher than the total cost of 1995's earthquake in Kobe. The Kobe earthquake is estimated to have cost $115-118 billion, or 2 percent of GDP in 1995 terms. This time -- in a still unfolding disaster -- initial estimates from Credit Suisse and Barclays put the cost at $180 billion. Mitsubishi UFJ Securities and Sarasin expect the cost could run as high as 5 percent of GDP. Mitsubishi's estimates take into account a wider economic cost including a loss of tax revenues, subsidies to various industries of the affected area, loss of productivity following rolling blackouts on top of straight reconstruction costs." And it could be far, far worse: "some extreme projections of the longer-term cost look at figures closer to $1 trillion over several years." And as we first quantified over the weekend, the reinsurance caps for real estate losses are maxed out at about $60 billion. Which means either the government will leave those with insurance policies to split pro rate proceeds that refunds amounts owed at a big haircut, or in tried US fashion, will have to step in with emergency transfer funding measures, capitalized through the issuance of tens if not hundreds of billions of new debt. As for who will buy that debt, we look forward to Bill Gross' next letter for clues thereto. In the meantime, look for global GDP to be cut by at least 1-2% by the sellside pundits "shortly" especially as the way for QE3 is paved by the likes of Jan Hatzius who is lucky to have a force majeure on his second "Golden Age" call.

Gold’s continuous ten-year rise hasn’t sheltered it from controversy. Despite producing consistent returns in virtually all currencies year after year, some market pundits still question its validity as an asset class. It’s true that gold doesn’t pay any interest, and it’s also true that much of the gold produced throughout history still exists in some form today. But these characteristics shouldn’t inhibit it from performing as a monetary asset. Cash, after all, doesn’t pay real interest either, and there is more fiat money in existence today than ever before. So why does gold still receive such harsh criticism?

We believe much of it stems from a widely held misconception that gold is forming a financial bubble. It’s a fairly straightforward view – that gold buyers are merely foolhardy speculators buying on a whim with no rationale other than to sell to the ‘greater fool’ at higher prices in the future. It’s a view that assumes that gold has no intrinsic value and is simply a speculative asset that has captured investors’ imaginations.

We don’t take these views on gold lightly. We’ve seen bubbles before and fully know how they end. We have no interest whatsoever in participating in some sort of speculative frenzy – that’s a recipe for disaster in the investment business. Thankfully, however, our gold investments present no such risk. As our analysis has revealed, gold is actually a surprisingly under-owned asset class – and one that has generated far more attention in the media than it probably deserves. While its exemplary performance since 2000 is certainly worthy of discussion, gold simply hasn’t commanded enough investment to warrant the bubble fears it seems to have aroused among market pundits and business commentators. The truth about gold is that most people simply don’t own it…yet.

Zero Hedge first observed the duration mismatch in US Treasury holdings back in November 2009, when we highlighted the concerning amount of debt that the government has to roll every year courtesy of about 30-40% in outstanding paper that is of very short duration (under 2 years or so). We have also been pretty adamant that by now the US economic system is nothing but a ponzi scheme pure and simple. Today, we observe how this epiphany manifests itself when it occurs to a congressman, in this case John Campbell (California). The punchline: "I understand that the Fed and the Treasury are trying to keep interest rates low and improve the economy and the deficit. But, when coupled with the huge deficits, these moves look a bit like a Ponzi scheme that will soon unravel." Amen brother.

Charlie Sheen’s epic meltdown has dominated America’s asinine media conversation for the past few weeks. Charlie has never been a bigger celebrity than he is now as he runs around creating new words for the English language (tigerblood, biwinnning), garnering millions of twitter followers and appearing on multiple media outlets. The latest reports indicate that a massive lawsuit will be fought between Warner Brothers and Sheen with Sheen demanding hundreds of millions of dollars in compensation. “I have mouths to feed,” Sheen was quoted as saying. While it might seem surprising that a man who made almost $2 million dollars an episode for his last season of 2 and a Half Men would desperately need money, the fact is that Charlie’s fiscal health might be as potentially deteriorated as his mental health. As we all know, Charlie’s favorite past time is coke and hookers. Consuming coke and hookers is pretty expensive. A life spent swimming in the two cannot just dent your net worth but in Charlie’s case it can practically destroy it. Now, I don’t have all of Charlie Sheen’s coke and hooker receipts. What I do have though is a snap shot of Charlie Sheen’s finances in early 2008. These finances became available as a result of a divorce that Charlie Sheen had with his ex wife Brooke Mueller. At that point, Charlie Sheen had assets of roughly $24 million with outstanding debt of $8 million for a cumulative net worth of $16 million. The majority of the assets consisted of home and furniture and he had only $3,000 in a retirement account – see below.

Two and a half years into the so-called recovery and the country is still in the throes of a severe multi-year depression.

All corporate earnings forecasts have just been rendered meaningless. We could be putting in a 50 year double top on the yen here. Taking a bite out of global economic growth. Flipping from a +2% GDP growth rate to -3% in two minutes. International trade takes a major hit. The looming electronics parts shortage. The death toll could go to six figures. Don’t rush out and short Japanese insurance companies. (FXY), (YCS), (EWJ).

Team Greyhat has just hacked the website of the Jishou Audit Office, a Chinese government property. Following Saturday's announcement by the Anonymous hacker syndicate of "civil disobedience" until Ben Bernanke steps down, how long before some US government websites are defaced in a comparable way? And just how hackerproof is Fedwire anyway?

This is what the recent explosions look like when looked at from space, per the BBC.

The media is still banging the nuclear fear drum over and over again to keep people watching but the reality is that the chance of a catastrophe, at this point is very slim...

As the public is concerned about a possible deterioration at Dai'ichi Reactor 2, which according to TEPCO is now in a worse condition than either Reactor One or Three, Kyodo reports that radiation twice the maximum seen so far detected at nuke plant Monday. We are currently looking for a real time microsievert update or online Geiger counter tracking at Fukushima, which would probably be the most useful service to a population that has been lied to repeatedly (it's all contained until someone actually checks) by the government over the past 48 hours. Additionally, AP reports that the 7th fleet has shifted positions to avoid possible fallout: "As a precaution, the U.S. said the carrier and other 7th Fleet ships involved in relief efforts had shifted to another area."

It just got worse. From AP:

Japanese officials say the nuclear fuel rods appear to be melting inside all three of the most troubled nuclear reactors.

Chief Cabinet Secretary Yukio Edano said Monday: "Although we cannot directly check it, it's highly likely happening."

Some experts would consider that a partial meltdown of the reactor. Others, though, reserve that term for times when nuclear fuel melts through a reactor's innermost chamber but not through the outer containment shell.

We can only hope that the team that did not test for an 8+ magnitude earthquake did a better job at fortifying the containment shell which is the only thing separating radiation from the outer world.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11