Archive - Mar 20, 2011 - Story

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.

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.

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.

Not even a full day after the UN-endorsed attack on Libya began, and the "invader's remorse" is already manifesting itself as discontent among the "peacemakers" emerges. Per the AFP: "The Arab League on Sunday criticized Western military strikes on Libya, a week after urging the United Nations to slap a no-fly zone on the oil-rich North African state. "What has happened in Libya differs from the goal of imposing a no-fly zone and what we want is the protection of civilians and not bombing other civilians," Arab League secretary general Amr Mussa told reporters." We wonder what the Arab League will say when reports of innocent civilians, up to a million of whom have been forcefully armed by Gaddafi, being butchered en masse begin emerging. And how long before the entire operation is deemed a total failure... to be redeemed only by a full scale land invasion?

Well, those devious gold bugs and sound money advocates are at it again! They had the audacity to produce economic analysis that consistently outshines and embarrasses mainstream Keynesian pundits. They had the nerve to expose the seedy underpinnings of the private Federal Reserve. They even had the gall to bring the long established short manipulations of metals markets by global banks like JP Morgan and HSBC into the light of day, where anyone whose head was not buried in the dark recesses of their own colon could see and say “My god! There really is an organized cabal against gold and silver!” But if you thought all that was outrageous, these people, who promote the insane notion that our currency should actually be backed by tangible wealth and should be under the control of the voting public instead of some unaccountable parasitic corporate central bank, have now brought state legislators into the mix! The return to sound money has begun…

An interesting thing happened last week, garnering no coverage in the face of a global meltdown, literally and figuratively. Nike reported horrible earnings. A rare miss by the industry all star is best summed up by CEO, Mark Parker ”higher costs for materials, labor and freight are here, as predicted.” Then there was Fedex with another miss “earnings could be trimmed by ongoing Middle East turmoil and fuel costs.”... These are not isolated warnings but rather across all industries. Month after month PPI and CPI have been showing rising inputs costs, margin compression, rising non discretionary prices and contracting discretionary prices. At what point will corporate profits peak? It is quite possible that time is upon us.

In his latest Market Outlook, CLSA's Russell Napier, who has long been one of the better big picture strategists, comes to the same conclusion as we did when we penned from last Friday "$440 Billion Drop In Shadow And Conventional Banking System Liabilities In Q4 Gives Bernanke Carte Blanche For QE3" namely that the contraction in broad money aggregates (shadow banking in Zero Hedge's case, M3 in the case of Napier), opens the door wide for Bernanke to usher QE3. "recent data imply that the US reflation is in trouble. QEII has boosted reserves but banks continue to reduce credit, while broad money has contracted. There is material downside risk to equity valuations." In other words - "Sell equities as the market wonders whether there will be a QE3 and in what shape it will come. Napier's conclusion - "Whether equities will fall further depends on how flexible and successful the Fed’s next monetary package will be. Given the risk, investors are better off watching from the sidelines." This should not come as a surprise to Zero Hedge readers: we have been claiming since January that the market is due for a major correction in the end of March, early April in time to set the stage for the political wrangling that will inevitably accompany more monetary injections. That recent geopolitical events have forced some to coin the term "Glow in the Dark Swan" only makes the Fed's job that much easier...

As the world awakes, Japan discloses another round of good news/bad news about the Fukushima crisis. The good news: Reactors 5 and 6 went into stable condition on Sunday, after a successful
cold shutdown, authorities said. The reactors at the power plant went into cold shutdown following restoration of cooling
functions late Saturday. Alas, 5 and 6 were never the issue to begin with. The same came not be said about reactors 1 through 4, where the bad news comes from this morning. According to the Japan Times, a risky venting of Reactor 3, which saw its pressure rising yet again, was being considered, which would see another release of radioactive gas into the environment. "Pressure within the No. 3 reactor at the Fukushima No. 1 nuclear plant
was rising at one point and Tepco considered releasing more radioactive
gas into the environment to avert serious damage to the containment
vessel, the nuclear safety agency said Sunday afternoon. Tokyo Electric Power Co. had considered releasing the contaminated steam
directly into the environment, not through a "suppression pool" as it
did earlier in the crisis. The pressure needs to be lowered to protect the structural integrity of
the reactor, and the first step is to open the valve on a pipe connected
to the suppression pool. By going through the suppression pool, the
reactor's gas would liquefy and thus lower the pressure." And here is where the recent Operation Irrigation is now backfiring: "But if the pool is already filled with water, a valve on the reactor
itself would need to be opened and the radiation level of the released
gas would be higher than with the first method, explained Hidehiko
Nishiyama of the Nuclear and Industrial Safety Agency. "Without water, there would be more radioactive substances in the gas released into the environment."" In other words, the attempt (which some say is futile) to fill the containment pool with water is about to lead to another round of irradiation of the environment. And while all that is going on, here is what the already certain chain of downstream events is going to look like for the region, for Japan, and for the world.