Archive - Mar 2011

But it's a LONG, LONG way away.

Hopefully, this will turn out NOT to be as bad as it sounds ...

The world's most (in)famous hacker group - Anonymous - known for effectively shutting down their hacking nemesis security firm (with clients such as Morgan Stanley and, unfortunately for them, Bank of America)- HBGary, advocating the cause of Wikileaks, and the threat made by one of its members that evidence of fraud by Bank of America will be released on Monday, has just launched communication #1 in its Operation "Empire State Rebellion." The goal - engage in "a relentless campaign of non-violent, peaceful, civil disobedience" until Ben Bernanke steps down and the "Primary Dealers within the Federal Reserve banking system be broken up and held accountable for rigging markets and destroying the global economy effective immediately."

Who says large public defined-benefit plans can't compete in the PRPP space?

Contrary to earlier reports that cooling at Reactor 3 at Fukushima has failed (as per CNN and Reuters) and there is now a state of emergency for three reactors at the site, the IAEA has released a report refuting these rumors. It appears that there is a split in news reporting in Japan: on one hand we have the Nuclear and Industrial Safety Agency which seems to present a downside case, while the government is obviously spinning news in a favorable direction. While the Japanese government is likely not to be trusted much with truthful data dissemination, jumping the shark on rumor spreading is probably not in anyone's favor either. That said, with the government losing credibility (see prior Stratfor post), the question is just whom can the public trust, if not the Japanese government and media? Furthermore, if there is another accident at Fukushima, and the government's credibility is completely destroyed, what happens next: after all the BoJ needs as much "market faith" as it can muster ahead of its decision on Monday to flood the money markets with JPY2 trillion (sound familiar). If the government eats up all the street cred of Shirakawa, the BOJ rush to action may end up doing far more bad than good.

Japan’s Nuclear and Industrial Safety Agency (NISA) said March 12 that the explosion at the Fukushima Daiichi No. 1 nuclear plant could only have been caused by a meltdown of the reactor core, Japanese daily Nikkei reported. This statement seemed somewhat at odds with Japanese Chief Cabinet Secretary Yukio Edano’s comments earlier March 12, in which he said “the walls of the building containing the reactor were destroyed, meaning that the metal container encasing the reactor did not explode.”

Though China gets all the media attention, Japan is still a critical supplier of numerous high-tech parts in the global supply chain. The Japanese global corporations have learned from experience that anything they make in China will soon be pirated, so they have withdrawn all the really high-tech manufacturing to the home islands. I suspect most analysts are complacent about the possible global ripple effects of these quakes, simply because Kansai and Tokyo were largely spared. Given its great stability and wealth, Japan seems an unlikely candidate for social or financial changes triggered by a natural disaster. I am not so sure it is immune to these forces, given the fragility of its central State and local government finances and its sclerotic Power Elites and political machinery. The quiet stoicism of the next few months may give way to more systemic and possibly transformational forces than most observers believe possible.

Barring some seemingly impossible refutation of Roddy Boyd's observations and analysis from visiting CCME, I'm ready to call this game over. CCME is a massive and entirely obvious fraud.

The story of Fairfax Financial vs almost every single US-based hedge fund is nothing new. The company has long been embroiled in litigation against a bevy of hedge funds, including SAC Capital, Exis Capital, Third Point, Kynikos, and Institutional Credit Partners, contending that ever since the start of 2002 it was the repeated target of bear raids, which involved not just a cabal of bearish hedge fund managers who would allegedly (although we now have evidence) spread rumors, innuendos, and outright lies about the company in the hope of bringing the price down (whether through naked shorts or otherwise is irrelevant), but also sellside research analysts, and of course media lackeys, willing to pander to the hedge fund "masters of the universe" in hopes of the occasional bone thrown their way. The reason Zero Hedge had largely ignored this story over the years is that its narrative truly reads like something out of a conspiracy theorist's wet dream: the allegations previously presented by the mainstream media implied such a level of collective deviousness and manipulation, that it would bring about the immediate ridicule of anyone who dared to bring them up in polite society. This is no longer case.

After private Property and Casualty reinsurance companies got whacked on Friday on broad yet unquantified concerns about imminent losses, it is time for a deeper dive into the structure of how prepared Japan is to handle what are sure to be tens of billions in earthquake insurance claims. Using information from the Non-Life Insurance Rating Organization of Japan, we find that there is a clean distinction between the liabilities borne out by the private P&C sector and where reinsurance companies step in to fund losses on residential earthquake losses. A more nuanced breakdown comes from JPMorgan's Siddharth Parameswaran: "In Japan there is coverage provided for earthquake, through two distinct forms: 1) Coverage for losses of residences (governed by "Earthquake Insurance Law," It is covered by the domestic insurance industry and the Japanese Earthquake Reinsurance ("JER") Commission); and 2) Coverage for commercial losses internally insured and externally reinsured without involvement of the government." Of the former two, the first is far more important due to the pervasive losses of real estate in most of the northeastern coastal areas, which according to some estimates will reach in the tens of billions. The three numbers to keep in mind when evaluating potential liabilities are ¥115 billion (or $1.4 billion) which is the threshold for 100% private insurance coverage; next is ¥1.925 trillion ($23 billion), which is the limit on a 50/50 split between losses for private insurers and the JER (or $11.5 billion each), and lastly, ¥5.5 trillion through which 95% of all losses are borne by the government, and 5% by the private industry. In other words the total possible private losses to private P&Cs before reinsurance funding kicks in is about $16.5 billion, while the government stand to lose at most ¥4.3 trillion (or $52 billion). At this point losses are capped, and claims are pro-rated among all claimants. Should total losses surpass about $64 billion in real estate values (at various loss thresholds), claimants will have to settle for pennies on the dollar.

While there may have been a tsunami in Japan (and Money McBags heard rumors that it was caused by...

The burgeoning demand for energy has spilled over to the corn market, where demand for feedstock by ethanol refiners is going from strength to strength. Nearly 40% of the country’s corn crop is being diverted to ethanol production. Expect the volatility of food prices generally to increase. (ADM).

With much conflicting and biased news coming out of the mainstream media in its perfectly explainable attempt to prevent panic among the population, the World Nuclear News has released the best and most objective analysis of the events that have transpired and that have yet to transpire at Fukushima we have read to date.

And while the general public frets over the latest geopolitical disasters, the SEC proves Rahm Emanuel correct once again, and letting no disaster go to waste, man-made or natural, the world's most incompetent (but massively underpaid, or so they claim) regulator is preparing to let Dick Fuld completely off the hook for last spring's stunning Repo 105 report by Anton Valukas, whose findings even the bankruptcy expert said were probably cause for civil lawsuits. The WSJ reports: "In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels....After zeroing in last summer on the battered real-estate portfolio and an accounting move known as Repo 105, SEC officials have grown more worried they could lose a court battle if they bring civil charges that allege Lehman investors were duped by company executives. The key stumbling block: The accounting move, while controversial, isn't necessarily illegal." Oh no, illegal it is. The problem is that should the SEC actually pursue it and win, that act would open up the floodgates for hundreds of lawsuits against everyone from Bank of America and Citi, which have also disclosed they used comparable tactics to misrepresent the true status of their books, to shady accounts like Ernst & Young, all the way to FASB at the very top of the corruption pyramid. And with hundreds of millions if not billions in legal fees about to be paid out if the fraudclosure back door settlement fails, the SEC simply can not allow the pursuit of justice to threaten the viability of America's only national interest: that of its criminal banking syndicate.

The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by
damage to the nuclear reactor but by a pumping system that failed as
crews tried to bring the reactor's temperature down, Chief Cabinet
Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to
flood the reactor containment structure with sea water to bring the
reactor's temperature down to safe levels, he said. The effort is
expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no
immediate danger, Edano said. But authorities were nevertheless
expanding the evacuation to include a radius of 20 kilometers (about
12.5 miles) around the plant. The evacuation previously reached out to
10 kilometers." Next steps are to flood the reactor with salt water. NHK reports: "The
TEPCO Fukushima Daiichi nuclear power plant in Fukushima Prefecture is
believed to be exploded, and in order to prevent corruption, the
containment vessel will be filled with sea water to cool containers and
vehicles used by the SDF pump I. According to the Ministry of Defense,
work will begin at 8:00 pm, and that it expected to end around 1:00 am
on March 13 (or roughly 11 am Eastern)." And while containment efforts peak, the leakage is reported to be in the range of 1015 microsieverts / hr. In the meantime, confusion in Japan is pervasive as up to a million people are without power. And while we hope the outcome of the Fukushima situation will be prompt and favorable, the economic devastation to the country will be pervasive for weeks to come.