Archive - Mar 2011

Below is the most recent summary update from Reuters on the Japanese crisis. The one topic that everyone is following, however, namely whether some cable is attached to some cooling installation that probably blew up on Monday or Tuesday, gets the proper treatment: i.e., in the span of 4 minutes Reuters reports two completely conflicting stories. Looks like we will be seeing more crocodile tears from TEPCO executives in the next few days.

• From 10:52 pm ET -  Engineers have yet to attach a cable to Japan's quake-stricken reactors but hope to be successful either on Saturday or Sunday, the plant operator said.
• From 10:54 pm ET - Engineers successfully attach a power cable to the outside of the damaged Fukushima Daiichi nuclear station in a first step to help cool reactors and stop the spread of radiation.

Credible stuff.

D'oh!

A concise summary of the past week's key bullish and bearish events.

Seriously, does anyone REALLY think the US could get its debt levels under control? We’ve already got Debt-to-GDP levels that are comparable to Greece and the other European countries that are collapsing. Our Central Bank now buys 50+% of all new debt issuance (of course waiting a few weeks to Wall Street can pawn this stuff off on the taxpayer for a profit). Medicare and Social Security are bankrupt. And the idea that the FDIC can cover all the deposits at banks that will fail is laughable

Today the Congressional Budget Office slammed the president's unrealistic budget presented recently, concluding that the cumulative deficit over the decade between 2011-2021 would be $9.5 trillion, or $2.3 trillion higher than that estimated by the White House. The reason for the differences according to the CBO is  "differences in the underlying projections of what would happen under
current law ($1.3 trillion) as well as from differing assessments of the
effects of the President’s proposals ($1.0 trillion)." Then again, as we fail to recall when was the last time even the slightly more realistic CBO predicted a correct cumulative deficit ten years forward, we are fairly certain both will vastly underestimate the actual deficit by 2021. And as gross debt issuance tends to run about 50% over cumulative deficits, Zero Hedge expects that the best case scenario is for $15 trillion in debt issuance over the next 10 years as a baseline, and likely far more (bringing total marketable debt to around $25 trillion by 2021). This is problematic to say the least, because as the AP notes, the White House's goal is to reach a point where the budget is balanced
except for interest payments on the $14 trillion national debt. Such
"primary balance" occurs when the deficit is about 3 percent of the size
of the economy, and economists say deficits of that magnitude are
generally sustainable. Instead, just the interest expense per the CBO will be greater than this threshold: "Outlays would be greater under the President’s budget than in CBO’s baseline in each of the next 10 years, largely because the proposed reduction in revenues would boost deficits and thus the costs of paying interest on the additional debt that would accumulate. In particular, net interest payments would nearly quadruple in nominal dollars (without an adjustment for inflation) over the 2012–2021 period and would increase from 1.7 percent of GDP to 3.9 percent." And once again, this is based on numbers which will likely way undershoot the final outcome.

My Nuke & BTFD.

You can peer under the hood, which could be very helpful ... assuming the data itself isn't fudged

"Sick on my journey, only my dreams will wander these desolate moors." (Matsuo Basho's death poem)

Absent further deterioration at the Fukushima plant over the weekend, the next big shoe to drop will be public reaction when the radioactive fallout hits Tokyo (and other major populated areas). And juging by the latest data available from Central Institute for Meteorology and Geodynamics (ZAMG) in Austria, Tokyo, which so far has been spared by friendly winds, may get its first dose of radiation by the weekend. Below we present the latest animated color-coded data for both Japan and the world, which extrapolates both fallout strength and direction. As ZAMG explains the fallout is, "currently in a critical region, dominated by a westerly flow. On the ground, the wind is relatively weak. There is no precipitation. Soon the wind will blow from the south-east and intensify. On Sunday rain front will arrive from the southwest to the crisis area and lead to some strong precipitation (radioactive rain). Behind the front, northerly winds are forecast, so the situation for the Tokyo area may again be critical. The dispersion calculations show fallout is now mainly transported to the sea. Currently cloud have a southeast direction, which will change to northeast tomorrow (see illustrations). Subsequently, more areas in Japan will be covered by fallout."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 18/03/11

The man who singlehandedly almost stole Goldman's algorithm that could "manipulate markets" (p 8, lines 4-7) is now the person with the biggest prison sentence to come out of the entire financial crisis. Sergey Aleynikov has just gotten a 97 month sentence for doing absolutely nothing but copying some Goldman code that would likely never be recreated by anyone. In the meantime the bank execs who should be in jail, are currently benefiting from their coopted Fed to allow them to collect taxpayer-funded dividend payments. Justice may be blind, but not in America, where its eyes have been unfortunately poked out. On the other hand, at least Aleynikov did not get the gas chamber...

That our politicians are unbearable hypocrites without borders is no secret. After all, Gaddafi himself was among Europe's best arms clients for a long time having to recycle billions of petrodollars into something tangible. It is these very same politicians (wink wink Bunga Bunga) that are now blasting him, and offering their airbases to launch offensive campaigns from. One person who however never misses an opportunity to expose each and every form of hypocrisy is Nigel Farage who takes Gollum-lookalike and European Council president Herman van Rompuy to the toolshed and anihilates him for his sycophantic attempts to appear larger than life by pandering to none other than now uber-despised dictator Colonel Gaddafi. And naturally he does it in his own very inimitable and always highly entertaining and humiliating style. We can't wait to see what haiku the Gollumite will tweet out in response...

Goldman appears to be in full freak out mode today. After the bank had been positioned for a smooth, low-vol economic reflation mode, complete with long stock and short bond exposure, the recent volatility has blown up Goldman's trades right in its face. Earlier we noted that the FX desk advised on a long EURUSD trade with a 1.50 target following the surge in FX vole. And while it is unclear if the jump in vol across all risk assets is enough to cripple the bank like it did in May 2010 when Goldman disclosed massive trading losses on its variance swap trade, the bank appears to have suffered some major damage on its treasury curve exposure following the recent tightening. As a result Francesco Garzarelli has just released a trade update, advising clients to go short the 5 Year at 1.936% with a 2.30% target and a stop at 1.80%. As usual, since that would mean Goldman is now accumulating 5 Year inventory, it appears we will soon have a rather dramatic duel between the two biggest Wall Street titans: PIMCO and Goldman, at least as pertains to their outlook on rates.

The Daily Mail has released a dramatic picture showing the emotional exhaustion of TEPCO managing director Akio Komori who is openly weeping as he leaves a conference to brief journalists on the true situation at Fukushima, following his acknowledgment that the radiation spewing from the over-heating reactors and fuel rods was enough to kill some citizens. "A senior Japanese minister also admitted that the country was overwhelmed by the scale of the tsunami and nuclear crisis. He said officials should have admitted earlier how serious the radiation leaks were. Chief Cabinet Secretary Yukio Edano said: 'The unprecedented scale of the earthquake and tsunami that struck Japan, frankly speaking, were among many things that happened that had not been anticipated under our disaster management contingency plans." This is precisely as Zero Hedge had expected would happen all along, following our recurring allegations of a massive cover up by the Japanese government. And furthermore as we predicted a week ago when we said that continued government lies and subversions would make the situation untenable once the population loses faith in the government, this is precisely what has happened.

The glorious president who has taken some time off from his extremely busy Ipanema tour schedule, is addressing the nation over the latest developments in Libya. Watch the prepared remarks being teleprompted live here.