Archive - Mar 14, 2011

Reports suggest foreign intervention in Bahrain, or at least the possibility that the Bahraini military is taking over the security reins. Such moves mean the regime is getting increasingly concerned with Shiite unrest, which does not seem to be subsiding despite dialogue calls from Bahraini Crown Prince Sheikh Salman bin Hamad al-Khalifa. The ongoing unrest is exacerbated by the split between Bahrain’s Shiite movement, which became clearer during protests on March 11. The more hardline faction of the Shiite movement, led by the Wafa and al-Haq blocs, has been increasing the tension on the streets in the hopes of stalling the talks between the Shiite al-Wefaq-led coalition’s negotiations with the regime. Military intervention from GCC countries means the situation is increasingly untenable for the regime. The paradox the Bahraini regime faces is that it cannot contain the unrest while trying to kick off talks with al-Wefaq. Al-Wefaq finds itself in a difficult position, since it risks losing ground against hardliners if it appears too close to the regime while Shiite protesters are beaten by the police.

The Nikkei 225 plummeted to its lowest point in two years as the damage due to Japan’s recent earthquake became realized. The Bank of Japan injected ¥15T ($183B) into money markets this morning to maintain financial stability within Japan’s economy, while boosting asset purchasing capability to ¥40T from ¥35T to head off a likely decline in business sentiment. Reports put Japan’s insured earthquake losses at $14.5-35B, excluding tsunami-related losses. As a leading global consumer, Japan’s weakened state will likely affect commodity prices and its main trade partners. Although Australia’s second largest export market is Japan, the Australian press reported that its companies are not exposed to Japan’s recent disaster.

While geopolitical/logical news continues to dominate, the global economy still is supposed to be driven by something (even as the major slowdown to Japanese GDP is about to be factored in by economists). Today's important news in regard to marginal economic drivers comes from China where commercial banks extended CNY 535.6 billion in loans in February, down from CNY 1.04 trillion in January, substantially below market consensus: of CNY 650 billion. Same with existing credit: outstanding CNY loans grew by 17.7% yoy in February, down from 18.5% yoy in January (market consensus: 18.0% yoy). Just as importantly, M2 growth came in at 15.7% yoy, down from 17.2% yoy in January (market consensus: 17.0% yoy). China was officially slowing down long before of of the devastating news from Japan hit the tape.

Just headlines for now that war may just have broken out in the Persian Gulf. Look for America to have an official statement on this supposed act of war if for no other reason than to indicate on whose side the massive Fifth Fleet is on (for the time being).

And yes, in a day when a perfect clusterflock of black swans hits, news will be just a little faster than usual.

Our expectation that TEPCO CDS will fly this morning has just been confirmed with a market indicated 92 bps wider from Friday close at 133 bps. We expect this number will soon be at multiples as the fall out to the company is increasingly exposed to the market: to wit - news from Kyodo that the fuel rods at Reactor number 2 at Fukushima (which has so far not exploded) have now been fully exposed. Should there be a trifecta of explosions at Fukushima, TEPCO will likely not survive the public fury aftermath. And in related news, the Japanese government had just announced it will release 3 days worth of oil reserves. Per Wikipedia, Japan has the world's second largest strategic reserve, with state controlled reserves of petroleum at eleven different locations totaling 324,000,000 barrels.

And the hits just keep on coming. The news, first noted yesterday that Saudi Arabia would send troops into Bahrain, has just been confirmed with a Saudi Official reporting that more than 1,000 Saudi troops have entered the tiny island home to the US Fifth fleet. Just headlines for now and we will bring you more as we see it. But far more troubling is the rumor that oil exporting countries have now started dumping Treasurys, leading to a soft patch in the govvie space earlier. We have not yet confirmed the rumor, which may have confused the seller of bonds (Japanese insurance companies come to mind).

The latest in an endless escalation of bad news comes from Seattle Times: "Pentagon officials reported Sunday that helicopters flying 60 miles from the Fukushima Daiichi nuclear plant picked up small amounts of radioactive particulates — still being analyzed, but presumed to include cesium-137 and iodine-121 — suggesting widening environmental contamination. The detection of the highly radioactive elements heralds the beginning of an ecological and human tragedy. The two radioactive isotopes can mean only one thing: One or more of the reactor cores is badly damaged and at least partially melted down." If true, this also means that the Japanese government is blatantly lying to its people and the world, in its relentless determination to prevent panic and to pursue the party line that after two massive blasts the cores are still stable. And judging by the time stamp, this was announced before last night's second blast: if radioactivity had spread then, how about now? And who can blame Americans and people around the world who are concerned that radiation may be coming their way if nobody is to be trusted.

The following is another exclusive transcript put together by the guys at Santangel's Review. In his must read testimony in front of the Financial Crisis Inquiry Commission, Warren Buffett explains what he believes saved the global financial system during the depths of the crisis.

After Fridays action EURUSD battles its way back into the long zone with more than 60% of retail traders short the pair. The tragic events in Japan led to some dramatic action with the USDJPY, however this has done little to change overall retail positioning with over 75% of traders long USDJPY it stays firmly in our short zone. The key news events likely to effect retail positioning are EUR Industrial Production (06:00 EST) and AUD Monetary Policy Meeting Minutes (20:30 EST)