Archive - Mar 2011

• A Crisis That Markets Can’t Grasp (NYT)
• World Bank Says Japan Quake Rebuilding May Take Five Years (Bloomberg)
• Central Banks to Maintain Pressure on Yen (WSJ)
• Japan Faces Fresh Food Safety Crisis (FT)
• Coalition Air Strikes Rein in Gaddafi (FT)
• Geithner to Decide on Regulation of Foreign-Exchange Swaps (WaPo)
• Help Housing? Dump Uncle Sam (Forbes)
• Oil Companies Fear Nationalisation in Libya (FT)

Each time we begin to approach the end of an announced QE period, the nervous jitters of financial markets start to set in. Will Bernanke continue with QE(n+1) or won’t he? Now it’s true that professional traders live and die by their ability to front run rumor and perception, but for long term investors who fret over such decisions, it demonstrates a fundamental lack of understanding of what QE really is. To put it succinctly, QE is an economic deal with the Devil. Once it is begun in earnest there can be no turning back. It must be played to its ultimate conclusion.

While US stock futures continue doing their own thing, primarily on the back of JPMorgan's $20 billion financing for AT&T to buy T-Mobile (gotta love proximity to the discount window and/or excess reserves), with ES surging by 16 points overnight (but not Sprint - sorry guys, you are on your own) after the world apparently did not end, the black swan formation refuses to disperse. Here is the latest news update from Japan, Libya, and Yemen.

Futures positive this morning as Japan’s nuclear crisis made a step forward and U.N. allies took control of Libya’s airspace. Portugal’s government will present its fiscal austerity plans to Parliament today. Portuguese PM Socrates has warned of his resignation if the plan does not get passed while the main opposition party which has reached majority position has shown no support for the cost-cutting. The potential political turmoil will make a foreign bailout likely. Sunday’s German regional election in Saxony-Anhalt, showed less support for Chancellor Merkel’s CDU party which lost ground in the victory. Its lead in the region’s coalition will likely remain the same, but foreshadows a greater potential upset in the next round of election on March 27. U.N. allies began airstrikes on Libya this weekend, taking control of the country’s airspace and stopping Qaddafi’s advance on rebel outposts. Meanwhile, Syria and Yemen continue to see social unrest, adding to upward pressure on oil prices. Japan managed to gain control of two of six nuclear reactors, but the situation still remains dangerous despite the accomplishment.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 21/03/11

As EURUSD nears 5 months highs retail short positions have become increasingly stronger, today 68.62% of retail traders in our data set are short. This has pushed EURUSD into the Strong Long zone. What's also worth noting is EURGBP which is the long zone, however retail traders have become increasingly short this pair even though it continues to trend higher.

Well, in tried and true fashion, it took Japan a week to confirm what everyone else had been certain had occurred over a week earlier. According to the Asahi Shinbun, with a translation courtesy of Ex-Skf, we finally know that the "nuclear fuel rods in the pressure vessels and in the spent fuel pools at the plant have been damaged." Which means that any incremental work the repair crews may be doing at this point is simply window dressing in preparation for the concrete tomb/lead bath.

Last week we asked what could possibly be worse than a "grave" situation (as Fukushima was described by the IAEA). We now have our answer:

*WATER DOUSED ON REACTORS MAY HAVE LEAKED TO OCEAN, NHK SAYS
*NHK CITES JAPAN NUCLEAR AND INDUSTRIAL SAFETY AGENCY

And scene, as oxygen/fire-breathing, mutated 10 eyed, ill-tempered seabass and sharks with frickin laser beams attached to their heads rise out of the ocean take over the mainland.

While it will not come as a major surprise to most, according to senior BOE individuals and Wikileaks, Iran, as well as Qatar and Jordan have been actively purchasing gold well over the amount reported to and by the IMF, in an accelerated attempt to diversify their holdings away from the US dollar. "Iran has bought large amounts of gold in the international market, according to a senior Bank of England official, in a sign of how growing political pressure has driven Tehran to reduce its exposure to the US dollar. Andrew Bailey, head of banking at the Bank of England, told an American official that the central bank had observed “significant moves by Iran to purchase gold”, according to a US diplomatic cable obtained by WikiLeaks and seen by the Financial Times." The reason for Tehran's scramble into gold: "an attempt by Iran to protect its reserves from risk of seizure”. The misrepresentation of Iran's holdings could be so vast that Iran could possibly be one of the largest holders of goldin the world. "Market observers believe Tehran has been one of the biggest buyers of bullion over the past decade after China, Russia and India, and is among the 20 largest holders of gold reserves... with an alleged 300 tons, big enough to challenge the UK at 310 tons, and more than Spain! " As a reminder according to the WGC, Iran is not even disclosed as an official holder of gold. Also, Iran is not the only one: "Cables obtained by WikiLeaks cite Jordan’s prime minister as saying the central bank was “instructed to increase its holdings” of gold, and a Qatar Investment Authority official as saying the QIA was interested in buying gold and silver." Which means that there is far more marginal demand by countries supposedly friendly to the dollar, as many more than previously expected are actively dumping linen and buying bullion. What all this means for the future price of gold, especially with geopolitical tension in the region,  and QE3 imminent, is rather self-evident.

A surging yen currency is certainly the worst news for Japan's export-dependent economy. This dire predicament is enough to get the central banks of the G7 to step in and initiate a coordinated yen intervention not seen for over a decade.

More bad news for America's motorists experiencing first hand the objectivity of the Nobel peace prize award committee: all those who were expecting a decline in gasoline prices following one of the fastest jumps in history will have to defer their dreams just a little longer. As Trilby Lundberg observes: "this weekend the world has changed. Instead of seeing
the end of the price rise coming up, or even a decline, we might see a
resumption of the climb at the pump." And as we enter April with near record high prices (for this time of the year -gas is still 54 cebts below its all time summer high in July 2008), this month's consumer confidence number will once again print sorely lacking, causing the most reflexive market indicator to take another step down demanding every more nuanced attention from the Fed, which will soon have no choice but to step in and replace consumption lost (read buy the Russel 2000) due to unprecedented gas prices, further detaching markets from the underlying economy, and not to mention reality. Yet even these nosebleed US gas prices are nothing compared to the decimation in Europe, where gas is now likely almost $9/gallon (when we observed it last two weeks ago, it was $8.632/gallon). Does anyone wonder why France is so eager to liberate the Libyan people from the oppression of their light sweet crude oil, er, pardon, dictatorial regime...

Some required reading for all FX traders, as Goldman's Thomas Stolper breaks down his team's view on where the USDJPY is headed (no surprise there - can't stray from the party line), and summarizes his latest outlook on the EURUSD, which as we noted previously, is now expected to rise as high as 1.50 shortly. The poor dollar remains the most hated currency in the world... just as the chaircreature ordered.

My experience with the CCSVI treatment...

One of the Fukushima fallout's saving graces so far has been that the winds over Japan had traditionally been blowing radiation out to sea and away from major cities. Alas, as the meteorological office indicates, this is no longer the case and border breezes are now tugging each and every way, with the result being a lot of the radiation already accumulated east over the Pacific coming back with a vengeance. Unfortunately,the latest SPEEDI readings, indicate that the expected jump in gamma radiation has indeed been confirmed with reading every ten minutes over Ibaraki surging from mid triple digits over the past several days, to nearly 3000 nGy/h. While in the grand scheme of things this is still not a material threshold reading, it does confirm that the NPP continues to leak a dangerous amount of radiation, and the only key variable is the wind direction. Should winds continue to blow from the sea, it is only a matter of time before more and more Tokyo residents ask themselves if it is worth finding out if the government is lying about this latest data figure.

"In space, no one can see you print..." --The Keynsien