Archive - Mar 17, 2011 - Story

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).

The vote by the UN Security Council to impose a no-fly zone on Libya and take "all necessary measures" to protect Libyan civilians from government-led attacks, has passed with a vote of 10 to 5. The vote "will also allow military intervention to enforce the ban, and calls to take "all necessary measures" to protect civilians and civilian populated areas under threat of attack." The UN Security Council Resolution was backed by 10 countries, enough to pass, while 5 other countries - including Russia, China and Germany - chose to abstain. None voted against. Next up: CNN's ratings go through the roof as everyone picks up where they left off in the Gulf War with watching 1st person perspectives of bombing sorties taking out various Libyan targets. German planes however will be missing: Merkel's state refuses to participate at all in the bombing.

As reported earlier, the UN Security Council will vote in minutes (process to begin at 6:00PM Eastern) on whether to commence the imminent bombing of Libya. The preliminary roll call has US, UK and France voting yes, with China and Russia likely abstaining. The vote is sure to pass unless someone vetoes it which is very unlikely. Also as was disclosed previously, the full resolution that is being voted and which nobody has probably read, can be found at the following link. Watch for the reaction in crude following the vote passage, and especially following Bloomberg headlines that France has launched an all out attack.

The collapse of the Shadow Banking is not resulting in the degree of asset deflation you might expect because the assets deflating are what has been referred to as toxic debt. The underlying basis for these instruments is real estate which is correspondingly being stopped from collapsing by the halting of Mark-to Market and other Fed sanctioned accounting gimmickry. Meanwhile the offsetting Money creation by the Fed is flowing into equities and bonds. This is creating the asset inflation that the Fed wants and needs. A major problem for the Fed is not just being able to generate the amount required to offset the Shadow Banking System erosion, but also the rate at which the it can realistically make this happen. The Fed needs to buy more time. Unfortunately there are other major problems that are boxing them in.

This one goes both in the "WTF" and "no Chinese bubble at all" bins. MSNBC report of a Lamborghini owner in China hires a crew to smash his $289,000 Lamborghini Gallardo L140 in protest after allegedly disputing with the company on maintenance and engine issues. The protest was made to provoke public support and goad the manufacturer to respect his consumer rights. At the end of the protest the world is sans one Gallardo, a credit billionaire couldn't care less, and nothing has changed. Yet somehow we are certain Thomas Lee from JP Morgan will find this act of wonton destruction as contributing 0.001% to China's 2011 GDP.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 17/03/11

With the world's attention diverted to Japan for the past week, WTI managed to drop substantially trading just above $96. Well, just as we predicted a few days ago observing the ongoing developments in Bahrain and Libya, and the imminent realization that Japan will need to boost its petrochemical imports due to drop in nuclear power output, crude spike by the most in over a week, in what was virtually a straight line touching $102/bbl and closing just below. Mocking the concept of a perfectly efficient market is Reuters with the following update: "Oil prices recovered for a second day from three-week lows, which had been sparked by prospects of lower oil demand from earthquake-stricken Japan, and was part of an advance across markets on worries about increasing geopolitical risks, analysts said. "The focus is back on continuing unrest in the Middle East and what will be a lot of disruption in Libya for a long time," said Christopher Bellew, an oil trader at Bache Commodities. "The risk is more to the upside -- there was a lot of long liquidation on that sharp sell off at the beginning of the week," he added." Then again in describing some of the "bullish" reading in the economy, Reuters itself seems to be a little confused: "Data showing that inflation remained contained despite rising prices also helped boost investor mood." Uh, come again? Anyway, following the French invasion of Tripoli some time after 7 pm Eastern, when Paris finally reveals the undisputed military beast it has always been, against an air force consisting of 20 or so Mig-21s with one million air hours of service each, look for oil to attempt recreating the JPY melt up from last night.

The glorious president who has taken some time off from his extremely busy schedule, is addressing the nation over the latest developments in Japan. He is not taking any questions for the obvious reason that answers are still "under survey." Watch the prepared remarks being delivered live here.

No seriously, it is all under control. And furthermore, the radiation detectors only go off on less than dangerous doses. And if that fails, GE can simply raise the sensitivity threshold on its scanners so no more vile, malicious false alarms such as this are set off in the future. "Mayor Richard Daley acknowledged today passengers on a flight from Tokyo had set off radiation detectors at O’Hare International Airport, but he offered no details and said federal officials will be handling the situation."

In an eerie recreation of the events that transpired during last year's flash crash, among the reasons for the spectacularly wide spreads during yesterday's dramatic yen surge (which was more than just a selloff of in the USDJPY but virtually all carry pairs as we pointed out previously) is that various brokers pulled away their entire market making in the currency. While the full list is those who turned the machines off is still unknown, one company is. According to Dow Jones, "Barclays Capital pulled yen prices off its Barx dealing system for a short period Wednesday, as the Japanese currency fizzed to its strongest levels on record, a person familiar with the situation said Thursday." The reason: "to protect themselves during hectic trading conditions" - but why, remember there is no more prop trading on Wall Street (wink wink). And had others followed suit in Barclays footsteps and withdrawn markets due to a stop loss triggered wipe out in the FX market, compounded by fundamental uncertainty, it is easy to see how the yen may well have surged far, far higher. Luckily, it did not happen this time, although the USDJPY is trading at all all time lows today. On the other hand, if the market, despite trillions in capital injected by the central planners is so jittery it can take out all bids in what is supposedly to be the world's most liquid market on literally a moment's notice, we wonder just what will happen if and when Bernanke announces the end of QE3 and we have a repeat crisis...

Minutes after the United Nations announced it would vote on imposing the No Fly Zone over Libya, which is probably merely a formality at this point with virtually no hold outs on the Security Council, Libya has immediately retaliated by saying that it such a decision would open counterstrikes by Libya against any "air and maritime traffic in the Mediterranean Sea" as well as "civilian and military facilities in the country." Whether this means that Gaddafi will promptly attack his oil infrastructure as Zero Hedge first suggested 3 weeks ago is unclear, but the Crude market is not taking any chances: Brent is now up almost $4 on the day having snapped its several day losing streak.

Ben Bernanke has surrounded all of earth’s inhabitants within a Ring of Fire that will create a monetary earthquake that will very soon ravage the livelihoods of billions (the tremors have already started in MENA). While the headlines are now focused on Japan, the dominos continue to fall in the Middle East and Saudi Arabia and Iran seem to be fighting a proxy war in Bahrain. All of the themes I have discussed in earlier emails are only exacerbated by the Japanese quake as the response has been and will be to print infinite amounts of confetti money and try to secure resources to rebuild with it. The problem is that EVERY nation is doing the same thing. So worthless fiat is being expanded exponentially and will compete for real things and why should the holders of the necessities of life, gold and silver (real money and true financial security) as well as food and energy sell their goods for colored confetti or even worse digital entries in a bank account. If you don’t think the governments of all countries that posses massive resources will not export less and in order to keep more internally to quiet their restless populations you aren’t paying attention. This liquidation selloff in commodities since the Japanese earthquake is probably already over and I expect a HARD reversal to the upside to new highs in food and especially oil. The Asia Tapis benchmark is closed at just under $117/b last night and it a whopping 3% off of the high. Wholesale gasoline prices traded here in the U.S. are down about 4% from the high but are a terrifying 15% higher than a month ago. I expect another major surge in the price of oil imminently. Remember last week I wrote that I thought the Dow and gold would ultimately meet at around 5,000. Can’t imagine how this can happen? Watch the next few months. - Mike Krieger