Archive - Mar 22, 2011 - Story

Following the just released post on the Fukushima whistleblower, which completely inverts the liability matrix, with suddenly Hitachi far more on the hook if indeed the company built a plant in full knowledge of faulty structural and support elements, and TEPCO receiving a reprieve, we have been inundated with requests for recent Hitachi CDS pricing. Below we satisfy those requests. We see a lot of levitation in this name's future.

It was only a matter of time before someone grew a conscience, and disclosed to the world that in addition to the massive cover up currently going on with respect to the true extent of the Fukushima catastrophe, the actual plant itself, in borrowing from the BP playbook, was built in a hurried way, using cost and labor-cutting shortcuts, and the end result was a true "time bomb." Bloomberg has just released a report that if and when confirmed should lead to the prompt engagement of harakiri by the Hitachi executives responsible for this unprecedented act of treason against Japan's citizens. Quote Bloomberg: "One of the reactors in the crippled Fukushima nuclear plant may have been relying on flawed steel to hold the radiation in its core, according to an engineer who helped build its containment vessel four decades ago. Mitsuhiko Tanaka says he helped conceal a manufacturing defect in the $250 million steel vessel installed at the Fukushima Dai-Ichi No. 4 reactor while working for a unit of Hitachi Ltd. in 1974. The reactor, which Tanaka has called a “time bomb,” was shut for maintenance when the March 11 earthquake triggered a 7-meter (23-foot) tsunami that disabled cooling systems at the plant, leading to explosions and radiation leaks....“Who knows what would have happened if that reactor had been running?” Tanaka, who turned his back on the nuclear industry after the Chernobyl disaster, said in an interview last week. “I have no idea if it could withstand an earthquake like this. It’s got a faulty reactor inside.” What follows is the harrowing tale of a criminal cover up at the only reactor that luckily was empty when the catastrophe occurred. We can only imagine what comparable horror stories will emerge in the next several days as other whistleblowers emerge and disclose that Reactors 1 through 3 (which unfortunately do have radioactive fuel in their reactors) passed the same "rigorous" quality control process that makes them the same time bombs just waiting or the signal to go off (and probably already have... but since the truth is the last thing the public will uncover one can only speculate).

Late last week, Zero Hedge pointed out that Goldman Sachs had come out with yet another flip flop piece on gold, having recommended that clients should go long, then short, then long again, pretty much depending on which way the wind blows. We have long been skeptical of Goldman calls on anything, let alone gold, as the firm, just like JPMorgan is very much fundamentally conflicted any time it has a bullish "recommendation" on any precious metal due to the very intimate influence gold and other commodities have on Fed presidents' perception of inflation (and the last thing one would want is for Bernanke's deflation scare tactics to be doubted by more than just Dallas Fed's Fisher, who despite lofty rhetoric has yet to back his words with even one abstaining vote). That said, our skepticism about Goldman's sudden shift in bias has been validated by FMX Connect, which has conducted a forensic analysis of just what Goldman is seeking to achieve with its most recent recommendation. We continue to be far more bullish on any price appreciation prospects for gold, when Goldman (not to mention that other clown on TV), are bearish on gold, than the inverse.

American foreign policy theory divides into two main schools. Both have been useful in the past, but neither fits the world we have to deal with now. On one side are realists, who believe that nations try to ‘balance’, try to make sure that no one of their potential rivals becomes powerful enough to dominate them. Wars, in realist theories, occur when the relative capabilities of nations change, and serve to ratify such changes. In such a dangerous world, national security is a concern that trumps everything else, and weakness only encourages aggression. On the other side are Wilsonians, who are impressed by the historical evidence that democracies don’t fight democracies. They essentially agree with Immanuel Kant, who argued, in Perpetual Peace, that a world of liberal states would be a world free of war. Kant, however, went one step further, suggesting that such a world would eventually become a sort of global federation, as the long habit of peaceful collaboration caused mutual trust to harden into mutual obligation. Once this occurred, of course, the Wilsonian foreign policy model would no longer apply, because international war would cease to be the issue – the security problem would then revolve around the potential for civil wars within the federation.

If one was merely listening to the Octogenarian of Omaha this morning on CNBC, one could easily have left the latest cheerleading attempt by the man who has made both an art and a science of frontrunning the government's rescues of the most incompetent and insolvent organizations in America (and later writing oped's both thanking and criticizing Uncle Sam for doing everything possible to transfer as much taxpayer money into Warren's right pocket just before the hypocrisy medication kicks in) to hypnotize the lemmings into believing all is fine in Japan. If indeed that would be the case, one may therefore be excused for not noting the killer irony of one Munich Re coming out just a few short hours later, saying it expects to not only see $2 billion in losses due the events in Japan, but miss its 2011 profit target by a mile, considering the firm had a $3.4 billion profit target. The kicker, of course, is that Munich Re is owned more than 10% by the same demented individual noted above, who has now gone full retard in his attempts to sucker as many sheep into the slaughter just so he can recover, through secondary and tertiary channels, some of his imminent losses in Japanese insurers and reinsurers. And considering that the Nikkei just reported total earthquake-related losses may be up to ¥25 trillion, or roughly ¥20 trillion more than covered by the Japanese Reinsurance Fund, Buffett better be right...Or if not, he better be petitioning the Japanese government to bend over just like America did 3 years ago, and once again bail out his "genius investor" derriere.

Earlier today, JPMorgan made waves by claiming, some would say rather uncouthly, that Portugal's government is about to keel over and die (even if it is undisputed- after all, on Wall Street no one can hear you speak the truth). Never one to be left wanting, here comes Citi with some charts of "parabolic" moves in the Irish 2 Year bond, and some even scarier claims. As expected any research report that starts with the words: "Oh dear...The picture on Irish interest rate markets is taking a very grim turn" - well, it is clear where it is going from there. In summary, Citi now believes that Ireland is essentially done for, or as Tom Fitzpatrick ever so more diplomatically puts it "things are about to get ugly", and recommends going long CDS since the entire short end of the curve has gone parabolic, now that Europe seems set to watch the island country explode, 2s10s has inverted in the past few days, and overall the Emerald Isle is now a dead man walking in the dumbest game of chicken since the creation of the euro. Too bad neither side is willing to back out, which will ultimately end with the eventual destruction of the eurozone and the euro. 

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/03/11

The latest news from Japan is not the radiation has now been found in various leaf vegetables in Fukushima, including cabbage and parsley: after all that was to be expected following the radioactive rain of the past few days. The news this time comes straight from TEPCO which finally admits that the temperature of Reactor 1 is 380-390 Celsius (715-735 Fahrenheit), which apparently is a "worry" as the reactor was meant to run at a temperature of 302 C (575 F). That is when the reactor is fully operational, not when it is supposed to be in a cold shut down mode.

This week's Straight Talk contributor is John Rubino, publisher of DollarCollapse.com, a popular hub for news impacting the economy. John is the author of several best-selling books foretelling (years in advance) the collapse of the housing market and the decline of the US dollar. Before starting his website, John was a featured columnist with theStreet.com, Institutional Investor, and a number of other influential financial publications. His perspective on Wall Street and the currency markets is shaped by his past roles as a Eurodollar trader, equity analyst and junk bond analyst in the 1980s.

There has been a lot of speculation about just what the JPMorgan note that claims the Portuguese government can fall as soon as tomorrow, says. The speculation can now end. "The likelihood that the Portuguese government will fall this week looks high. This suggests that the sovereign will likely access the EFSF in the near term, despite the current government's efforts to avoid this outcome." Incidentally if JPM is right, the market better have priced in the next insolvent domino to drop in Europe, although judging by where the EURUSD is these days, the market decided to take a long hard sabbatical about 2 weeks ago.

Chasing all the fluttering glow in the dark swans over the past month has put some of the key issues facing the US economy on the backburner. But just like today's surging inflation update in the UK confirmed, there is only so long that any given crisis can be used a distraction from the real problems at hand. And here is where we stand: per a quick check with the recently released and constantly updated MIT billion price project, which just happens to correlate 93% with the CPI, 2011 inflation in the US is trending at an 8.3% annual rate of increase. This is only comparable to China, which just happens to have a growth rate (presumably that is double that of the US), and is almost three times higher than the latest inflation data released by... Zimbabwe. Below is the most recent inverse disinflationary data confirmation from MIT (and plotted by John Lohman). By now we hope readers are honing their iPad eating skills.

Once again, we are left scratching our heads as to just where is it that the mass media is seeing an improvement in the Japanese radiation crisis. Because reading domestic media leaves one with a completely different impression. To wit, from the Asahi: "Iodine 131 detected in Tokyo hit 12,000 becquerels, compared with the
previous day: a tenfold increase in both radioactive Iodine and Cesium." As for Hitachinaka City, which according to SPEEDI has seen a surge in radiation over the past 24 hours, things are far worse: "Hitachinaka City, Ibaraki Prefecture, saw the highest radioactive values
recorded, with 12,000 becquerels of cesium, iodine
and 85,000 becquerels."

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 22/03/11

BofA's chief chartist Mary Ann Bartels chimed in on last week's market correction, in which as many observed, the market briefly dipped to unchanged for 2011. As Bartels points out, with the August uptrend now breached, and various technical supports taken out, there is a possibility for another 10% drop in the broader index. Of course, it wouldn't be a Bank of America report if the conclusion was not the one and only permitted one: BTFD.