Archive - Mar 2011

Following now pervaseive allegations of a massive Fukushima accident cover up by the Japanese government including non-disclosure of real radioactive levels, the Japanese Prime Minister Naoto Kan said on Friday that the government has been dislosing all the information it has on the accident at the Fukushima Daiichi nuclear power plant according to Reuters. "We have been honestly saying that the situation with the nuclear plant accident remains very serious," he said in a televised address to the Japanese people marking one week since a devastating earthquake and tsunami struck northeast Japan. At this point we are willing to believe him: judging by the increasingly improvised Japanese response to the catastrophe nobody has any idea what is really going on or how to handle it properly. Which is why very expect to hear increasingly more about the "Chernobyl solution" - or the shotgun "resolution" of the problem by literally burying it in sand. From Reuters: "A "Chernobyl solution" may be the last resort for dealing with Japan's stricken nuclear plant, but burying it in sand and concrete is a messy fix that might leave part of the country as an off-limits radioactive sore for decades. Japanese authorities say it is still too early to talk about long-term measures while cooling the plant's six reactors and associated fuel-storage pools, comes first. "It is not impossible to encase the reactors in
concrete, but our priority right now is to try and cool them down
first," a Tokyo Electric Power official told a briefing on Friday." Alas if and when the plan to restore power to blown up cooling plants (has anyone actually seen the before and after pics of the reactor) fails, this will be the only option.

Come for a knockdown, drag out debate about the future of the global financial markets. More meat than a Carnegie deli pastrami. Floor traders please leave the brass knuckles at work. Commodities trades are required to wear shoes. Will the gold traders please leave your “wife beaters” at home.

Futures up this morning. Apparently quantitative easing, world strife, and currency intervention are interpreted as bullish. ECB executive board members told reporters that the Japanese earthquake will not affect intentions to raise interest rates. The European Banking Authority released details on its 2011 stress tests. The assumed GDP contraction shock will be 4% v 3% in last year’s tests. The EBS will only look at sovereign risk in banks’ trading books, rather than their overall portfolios, disappointing markets focused on an unfolding sovereign debt crisis. The U.N. Security Council at last came to an agreement yesterday for a no-fly zone over Libya. German parliament voted yesterday to prevent the ESM from buying government bonds, clashing with Merkel’s recent negotiating positions. The G7 together stepped into the foreign exchange market to help support the ailing yen after a request to the G7 from the Japanese. The buying effort is intended to put a limit on Japan’s rapidly rising exchange rate. The move has already made the yen fall and calmed markets worldwide.

As we are experiencing a furious regime change, the sellside positional updates are coming fast and furious. The latest major recommendation change comes again from Goldman which has just reiterated its belief gold will reach its 3 month target of $1,480 shortly. Of course, after a Cramer recommendation to buy the metal, this is the only call for a higher gold price that should be of great concern to everyone. From Goldman: "We expect gold prices to rally toward our 3-month price target of $1480/toz, and continue to recommend a long gold trade. While the protests and threat to oil supplies in the Middle East and North Africa drove COMEX gold prices to a new record high of $1437/toz on March 2, the events in Japan have paradoxically sent gold prices back below  $1400/toz despite the ongoing decline in US 10-year TIPS yields. Given the decline in US real interest rates, we see the recent retracement in gold prices as offering a good buying opportunity, and maintain our long gold trading recommendation as we expect gold to rally to our 3-month price target of $1480/toz."

At this point in the intervention cycle one would have to be a very brave person to dare to do anything in the FX market: the rules are now changing constantly as the central planners shuffle pieces to avoid giving the impression that the world's financial balance is now hanging by a central bank-woven thread. In the enivronment Goldman's Thomas Stolper has just come out with a lone EURUSD recommendation. We refuse to even analyze what this may mean with regard to Goldman's positioning, suffice to say that Goldman will have to do the opposite to what its clients are trading. However whether it is an initiating or closing trade is unknown. So while the big banks are playing hot currency potato with each other, Goldman now sees the EURUSD rising from the 1.41 range to 1.50, with a 1.35 sto: "US balance of payment pressures and the declining Eurozone fiscal risk premium have been our main G10 themes for some time. The latest evidence re-enforces these trends and suggest EUR/$ can appreciate further from current levels. Other factors, like higher oil prices and monetary policy differences between the inflation targeting ECB and dual-target Fed further strengthen the theme." As to whether this is also merely another attempt to by Goldman to push stocks nominally higher due to real value destruction (plunging dollar) is without question.

Presenting an updated Fukushima status update and timeline in which we read for the first time that Fukushima has considered a "Chernobyl Solution" - alas that leads us to believe that there is good reason to assume that the information-starved situation is just as bad as Chernobyl.

As if yesterday's revised Plaza accords was not enough, the complete domination of markets by central planners, er, banks continues as the PBOC has just announced another 50 bps hike in its RRR. Per RTT: "The
People's Bank of China on Friday lifted commercial banks' reserve ratio
for the third time this year to absorb excess liquidity in the system. The
reserve requirement ratio (RRR) of commercial banks was raised by 50
basis points. New rate will be effective from March 25, the central bank
said in a statement. Last year, the bank had raised reserve
ratio six times. With the latest hike, larger banks will have to set
aside 20 percent as reserves." And who can blame them: following yesterday's actions by the BOJ and the Japanese government inflation is certain to surge as fresh trillions are set to hit the money markets, and the last thing China needs is to import even more inflation. And surprisingly one commodity which should have fallen on the news, gold, is completely impervious to the PBOC's action and has moved to over $1416 overnight, a move driven exclusively by the surge in MENA risk and imminent money printing. Also a Goldman Sachs report that sees gold at $1,480 in 3 months (to come momentarily) certainly did not hurt the price action. Brent on the other hand has seen its ascent stopped for the time being, however not for long.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 18/03/11

Intervention. For the first time in a decade we're seeing multi-nation intervention to help weaken the Yen, as a beleaguered Japan works to recover from a multi-faceted disaster. Weakening of the Yen eases some of the strain on Japanese exporters, many of whom are being forced to keep factories closed due to power shortages and structural damage after the earthquake.

A Canadian bubble, eh?

It's over the top.

This is just getting way too deja vu'ish. From Reuters: "White smoke or steam was rising from three reactors, Nos. 2, 3 and 4, at a quake-damaged nuclear plant in northeaster Japan, the nuclear safety agency said on Friday. It said it believed there was still water in the spent fuel pool at reactor No.3." But isn't the whole point of this exercise to get bloody water in the spent fuel pool? And then this: "Smoke or steam rising from the crippled No.2 reactor in northeastern Japan could be coming from the spent fuel pool or from an explosion in the suppression chamber, the nuclear safety agency said on Friday. It said it hoped to fix a power cable to two reactors on Friday and to two others by Sunday." Oh, it could be an explosion. Well, that's ok. It might not be... At least someone somewhere knows something. It sure as hell ain't the nuclear safety agency. But at least the Nikkei couldn't care less about its troubles as it wakes up with a St Paddy's day hangover: a few days of breathing room have been bought. As to how the can is kicked next week, that's a bridge Bernanke's glass house can worry about crossing on Monday.

And we are off. The JPYUSD is up nearly 200 pips as the Bank of Japan buys billions in dollars, using freshly printed Yen, following an agreement with the G7 which will likely see a new plaza accord to keep the Yen low despite ongoing repatriation. This follows earlier news that the BOJ will underwrite a ¥10 trillion in earthquake recovery bonds as Japan is now lurching from one monetization step to another. Keep an eye out for intervention aftershocks as the BOJ now can not allow the USDJPY to drop below 80 or it will be all over. This is what global reflation gone nuts looks like. On the other hand, if the BOJ fails to keep the USDJPY above 80 following this action, and the inflows of yen are far greater than anyone expected, most certainly the G7, then we have big problems. Next up: Armageddon 2: the Sequel, in which the Chairsatan, Trichet, Shirikawa, King, and Hildebrand dig a deep hole in Haley's commet, in order to save the earth, only something goes horribly wrong and everyone blows up in a nuclear fireball. The end.

As was perfectly expected by Zero Hedge, Japan is issuing its first batch of Earthquake relief debt to the tune of ¥10 Trillion. And with massive repatriation flows (as confirmed today when Steve Liesman denied the very concept), and little demand out of domestic purchasers, Japan is about to (re)discover the pleasures of massive quantitative easing.

An hour ago we said: "Watch for the reaction in crude following the vote passage, and especially following Bloomberg headlines that France has launched an all out attack." Well the attack is still pending, but the oil reaction is here (and nobody could have seen it coming). WTI just passed $103. Demand destruction or no demand destruction, here we come. And just imagine what happens when Japan is fully back on line again (in about a year at which point the US will be between QE 4 and 5).