Archive - Mar 29, 2011

While it is no secret that TEPCO CEO Masataka Shimizu had been MIA in the aftermath of the Fukushima explosion, it appears things are progressing for the worse. From Reuters' Natsuko Waki: "TEPCO CEO "ill and hospitalised", TEPCO says company president Shimizu suffering from extreme dizziness, chairman Katsumata now at helm, and that the president was not taken to hospital by an ambulance." TEPCO has scheduled a press conference for 6am GMT to go over these and other matters. Alas, this may be game over for TEPCO. What next: will the national guard take over, or a joint French-US endomement task force?

Following the full day trading halt yesterday, a soon to be nationalized TEPCO decided to reopen. Instead it should not have passed go and gone straight to prison. The stock crashed 21% from yesterday's closing tick immediately at the open, 35% from Monday's close, and 79% in under three weeks. To all the major holders (which just happen to be Japan's largest insurance companies as disclosed previously) our condolences. And while TEPCO continues to be the only shining beacon of the complete uncontrolled collapse of the rescue efforts in Fukushima, with global markets now having moved on, here are the latest and greatest headlines out of the worst radioactive disaster since Chernobyl:

• IODINE IN SEAWATER SOUTH OF PLANT 3355 TIMES LIMIT (highest reading ever announced)
• SEAWATER SAMPLE TAKEN YESTERDAY AFTERNOON (so by now it is all good)
• LOW PRESSURE IN REACTOR 2, 3 PRESSURE VESSELS COULD BE SIGN OF LEAKAGE (or it could be a sign that futures are about to surge: nobody knows for sure).

And the latest news from Asahi, which is precisely as we predicted from the very beginning: "giant shrould mulled over Fukushima 1 to cut radiation leak." Now if only here was a shroud for all the radioactive lava and seeping subsoil water radiation...

Ever feel like your nanosecond algorithmic frontrunning skills are becoming obsolete? Unable to scalp even a few extra pennies from illiterate orphans, widows and kittens armed with REDIPlus 9.0? The joy in subpennying Fido and Vanguard on their block purchases of Netflix no longer there? Finding yourself quote stuffing and crashing the market just for the existential hell of it? Despair not, for Deutsche Boerse (better known as the firm that any minute now will be outbid by the Amish market in its acquisition of NYSE according to Gasparino's latest rumor) has Alpha Flash just for you.

Large US corporate defined-benefit pension plans experienced record sponsor contributions last year, consulting firm Milliman Inc. reported in a study, saying a decline in discount rates fueled record levels of pension expense and cash contributions.

Over two years ago, when discussing the absolutely top ticked purchase of one 666 Fifth Avenue by under-30 real estate mogul extraordinaire, NY Observer owner and now Donald Trump son in law, Jared Kushner, we said: "Looks like the commercial mortgage apocalypse is about to claim its next victim, this time in the form of the appropriately numbered 666 Fifth Avenue building, home to such previously flourishing tenants as Citi Private Wealth Management...the building's DSCR has fallen to an abysmal 0.69. Even when taking into account the $98 million (or much less) reserve fund the building has set aside to cover rent shortfalls, one can assume it won't be long before the 666 insignia again prominently graces the roof, especially since it would have to replace a laughable Citi sign." Ah, the good old days of 2009, when news mattered, data actually flowed through models, hedge funds traded on constant inside information, markets actually dipped, POMO was a clown, and central planning was merely a drop of unrecycled ink in Ben Shalom Mugabe's toner cartridge. But we digress. As usual Zero Hedge may have been just a little bit ahead of the curve, though still better late in our prediction than never. With little surprise we read in the WSJ, that after an artificial delay of over 2 years, the inevitable is about to catch up with reality, confirming that no amount of Vissarionovichian market manipulation can make up for the complete absence of cash flows. "As of March, the aluminum-panel-clad skyscraper was about $3.5 million-a-month short on debt service, say people familiar with the matter. Only $10 million remained in a reserve fund used to service the property's $1.22 billion mortgage, which is tied to the office portion of the building. Its revenues are only one-fourth the amount forecast in 2007." Next steps: technical and/or full blown default.

So why is Bill Gross, the Bond King, dumping US Treasuries? The 30-Year Treasury only has one support line left before it gets to the line that has supported it throughout its bull market of the last 28 years. When we take out that line, the US Debt Crisis will hit in full force, as our overleveraged financial system breaks down once again.

Sticker shock in grocery store checkout lines and gas pumps around the western world is starting to set in. At this point, you have to be living under a rock to not notice that prices of goods and services around the world are increasing substantially. Much of the blame for rising prices has rightfully been levied on the uncontrolled expansion of central bank balance sheets-- the US Federal Reserve, for example, created more money in the last two years than it had created in the previous 200. Rejecting reject the possibility that any of this money could impact consumer prices is just intellectually dishonest. There is another factor, however, that weighs heavily on inflation, and it is seldom discussed in this context: taxes.

Following the relase of its general equity market overview, GTAA has followed up by releasing the quarterly FX market analysis. In a nutshell, Cleusix sees the USD as the fulcrum security with substantial upside (we would agree...if Bernanke were to not pursue further debt monetization). "The USD is becoming increasingly undervalued against most currencies. It is at a 40 years low on a real broad trade-weighted basis. Sentiment is increasingly supportive for the USD. Speculators had their biggest USD net short position ever a week ago and have covered a third despite continued USD weakness (a positive divergence. Assets in the the Rydex Weakening Dollar have surpassed assets in the Rydex Strengthening Dollar fund but have yet to spike briefly higher as they usually do when the USD decline exhausts itself. There is a big global short USD position which is growing by the day as the increase in foreign central bank reserves can not be completely explained by their current account balance and the net foreign direct investments. Hot money is flowing to emerging markets and we are on the look out for canaries…" All this and much more in the full 56-page report enclosed.

While everyone knows that the CPI in the US is manipulated beyond repair (a topic far too broad to be discussed here suffice to say that as disclosed previously true inflation in the US is currently runrating at over 8%), inflation as actually represented by US consumers and reported by Zero Hedge earlier, in the form of the 1 year inflation expectation index of the Conference Board lack of confidence index, is near all time highs. So if one takes this data series and adds to it the narrow unemployment definition (U3) one would get an adjusted Misery Index for US citizens (using inflation expectations instead of manipulated CPI). As the chart below shows, the Misery Index, which is merely inflation plus unemployment, constructed as such, would now be at an all time high. Hardly in keeping with Bernanke's wealth effect prerogative, but surely in line with record food stamp usage reported month after month. That said, the silver lining to that particular mushroom cloud is our confidence that as the bulk of Americans live in record "misery", they will be comforted to know that their 20 shares of NFLX are trading at a four digit EPS multiple. And the other good news is that we have the Brits beat again: whereas the US is at a record, the UK is merely at a 20 year high, proving once again that only the US never does anything half-assed.

Following recent news that the supremely organized Libyan rebels have established their own central bank and oil company (does anyone recall when rebels merely rebelled instead of immediately setting up an oil export infrastructure and a fiat counterfeiting authority... those were the days), we now learn that this impressively "impromptu" development may have actually been intended all along. From Reuters: "The United States on Monday gave a green light to sales of Libyan crude oil from rebel-held territory, giving a potential boost to forces battling Muammar Gaddafi. A U.S. Treasury Department official said Libyan
rebels would not be subject to U.S. sanctions if they avoid entities
linked to Gaddafi's regime, which would allow them to sell oil under
their control." And confirming just hos hypocritical any international embargo attempts are, here is the Un confirming that when it comes to determining international priorities, the only word that matters is the one that did not figure once in Obama's Libya speech yesterday: "There is no U.N. embargo on Libyan oil," a U.N.
Security Council diplomat told Reuters on condition of anonymity. "The
rebels can sell oil. But they can't do it through the Libyan National
Oil Corporation."" And the kicker: according to the US NATO leader among those profiting from this latest move of US desperation is none other than Al Qaeda.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 29/03/11

If one central bank ramps up the wannabe Zimbabwe stock market to infinity and absolutely nobody is there to hear the sonic boom, did the central bank really pull a Gideon Gono?

And another update from Fukushima on its route to the concrete dome, irradiated ground water, and a 100 km "no live zone" from the Guardian: "The radioactive core in a reactor at the crippled Fukushima nuclear power plant appears to have melted through the bottom of its containment vessel and on to a concrete floor, experts say, raising fears of a major release of radiation at the site. At least part of the molten core, which includes melted fuel rods and zirconium alloy cladding, seemed to have sunk through the steel "lower head" of the pressure vessel around reactor two, Lahey said. "The indications we have, from the reactor to radiation readings and the materials they are seeing, suggest that the core has melted through the bottom of the pressure vessel in unit two, and at least some of it is down on the floor of the drywell," Lahey said. "I hope I am wrong, but that is certainly what the evidence is pointing towards." But there is good news: "It won't come out as one big glob; it'll come out like lava, and that is good because it's easier to cool." Well that's a load off.

BaNZai7 NeWS: The deadly QE Cobra (pictured below) that's been MIA at the Bronx Zoo has attained celebrity status -- it now has its own page in World's Greatest Disasters (This Time It's Reeeeeeeaaally Different!).

Starting to get doubts about QE3? Don't tell that to the official Chinese rating agency Dagong, who in traditional uber-pragmatic fashion, has the following summary observation on US monetary policy, and any imaginary changes thereto: "The second round quantitative easing policy ongoing in the United States can not change its weak domestic demand in the short term. In fact, it can only lower the interest rate of US Treasuries so as to maintain stable interest rate in the capital market in the long term, playing the indirect role of clearing some obstacles for a stable recovery. However, the plan of purchasing 600 billion US dollar Treasury bonds can not realize its predicted goal; and therefore, the United States will hardly change its predetermined monetary policy in 2011." What does this mean for China and the rest of the world: "The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system." Any questions?