Archive - Mar 2011 - Story

Confirming that the Fed's Weimar monetization practices are entirely dependent on the market, and that POMO can only proceed if the Plunge Protection Team does its job, the earlier cancelled POMO has been rescheduled for 12:05 pm now that the PPT-Citadel team is on the line and grinding ES like it is the new chick at Hustler Club. In other news, going forward, the terrorist will win if and when the bond market crashes at 10:59 am, which sends the entire Sack-Frost monetization model out of line. Next up: Article 15 to be implement in the US between the POMO hours of 10:15 am and 11:00 am, where any headline on Reuters or Bloomberg has to be precleared by an FRBNY NYU intern. Once again we get confirmation that when it comes to decisions on who really runs the country, the Primary Dealers who cancelled their entire POMO order book, come on top.

Can one spell headline risk:

• CHU SAYS U.S. THINKS `PARTIAL MELTDOWN' HAS OCCURRED
• SPENT FUEL POOLS CHIEF THREAT TO ENVIRONMENT, UCS SAYS
• SPENT FUEL POOLS HAVE SHORTEST `PATHWAY' TO AIR, UCS SAYS

Who would have thought that monetizing our way to a bright Weimar future is "market contingent." With the EU dude crashing the market at 10:59 am and spooking the Primary Dealers, what does one expect?

Trust the EU to come in prancing with all the grace of a shroomed up, drunk bull in a nitroglycerin store.

• EU Energy Chief says possible catastrophic events in next hours
• EU's Energy chief says situation at Japan nuclear plant is out of control

As a reminder here is how one says the same, but just a little more diplomatically:

• IAEA sasy Japanese authorities have reported concerns about condition of spent nuclear fuel pool at Fukushima Daiichi units 3 and 4

This is about as pathetic as it gets. In order to deal with a new baseline level of radiation across Fukushima (which Japan still refuses to discloses to the world because it is "Under Survey"), the Japanese ministry of health labor has decided to take the unilateral act of scrapping years of safety data, and more than doubled the maximum allowable exposure for nuclear workers from 100 millisieverts to 250 millisieverts. At least we now know that the radiation level around Fukushima is most likely bounded by this range. As to the reason for the increase, the ministry said it is "unavoidable due to the circumstances." In other words, when self-administered Seppuku will not work, just apply it to someone else.

A stunning report from Reuters on how the crisis has transformed one of the world's most populous cities: "Areas of Tokyo usually packed with office workers crammed into sushi restaurants and noodle shops were eerily quiet. Many schools were closed. Companies allowed workers to stay home. Long queues formed at airports. As Japanese authorities struggled to avert disaster at an earthquake-battered nuclear complex 240 km (150 miles) to the north, parts of Tokyo resembled a ghost town."

Satellite imaging company Digitalglobe has just released its latest flyover image of reactors 1 through 4. Sadly, each one appears to have suffered extensive damage.

We present a handy real-time visual summary of radiation levels by Japanese prefecture. The levels in Fukushima and Sendai continue to be NA or "under survey" as the politically correct term is. We also show critical wind patterns as well as real time Tokyo power blackouts.

The following summarises what is happening at each unit, and the major risks

Stagflation, bitchez. PPI in February doubled to 1.6% on expectations of 0.7%, compared to 0.8% previously, and 5.6% Y/Y! This is the largest increase in finished goods prices since a 1.9-percent advance in June 2009. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 2.0 percent, and the crude goods index climbed 3.4 percent. On an unadjusted basis, prices for finished goods advanced 5.6 percent for the 12 months ended February 2011, the largest 12-month increase since a 5.9-percent rise in March 2010." And the stunner: "The index for finished consumer foods surged 3.9 percent in  February, the largest increase since a 4.2-percent climb in November 1974. About seventy percent of the February rise can be traced to higher prices for fresh and dry vegetables, which jumped 48.7 percent. Advances in the indexes for meats and dairy products also were major factors in the increase in the finished consumer foods index." And while inflation is everywhere, or at least for items people need, the housing market is now official dead. February housing starts came at 479K on expectations of 566K, a massive 22.5% collapse from revised January data, and the second lowest ever, better only to April 2009's 477K. Overall: complete stagflationary disaster, and one which means the Fed will use any excuse for QE3, inflation be damned.

Earlier today Portugal had a deplorable bond auction of €1 billion in 12 month Bills, which saw the interest rate paid jump to nearly 4.5% even as general demand indicated by Bid to Cover plunge from 3.1 to 2.2. And even so, the bulk of the purchasing was from Asia, read China, as the last thing Japan needs now is to rescue a insolvent Portugal, according to a finance minister disclosure. From Reuters: "The 12-month T-bill yield rose to 4.331 percent from 4.057 percent in an auction on March 2, in line with analyst expectations of around 4.3 percent and with the secondary market. It also stayed below record levels seen in December." Alas, while Portugal purchased a few days of funding, it merely confirmed that it is now effectively bankrupt as paying 4.3% for 12 months worth of debt indicates the Rubicon has long been passed. Look for Portugal to be bailed out any minute. And in attempting to avoid the same fate, Belgium decided to "postpone" its own bond issuance of 6 year benchmark notes on concern investors will puke all over the paper. "Belgium delayed the sale of a new six-year benchmark bond on Tuesday due to market volatility caused by the Japan earthquake and explosions at a nuclear power station there. Plans to issue the new bond, maturing in June 2017, were announced on Monday, with Deutsche Bank, KBC Bank and Morgan Stanley mandated as joint bookrunners. The markets are so volatile at the moment and attention is concentrating on what is happening in Japan," debt agency chief Anne Leclerq told Reuters." Luckily unlike Portugal which has no choice but to raise debt at every opportunity, Belgium has the choice to await greener pastures. For now.

Is Japan's already fragile financial system about to realize that not even endless pumping of liquidity by the BOJ will do much when the entire country is on the brink? According to Kyodo, Mizuho is unable to complete ¥570 billion in transactions, as problems include money transfers caused by a "system glitch." Si ATMs now, shadow banking tomorrow? The last thing an already stricken Japan needs right now is to remove cash access to its citizens. And while we await more information, we can't help but wonder just how lucky the country's financial system has been so far in preventing a wholesale freeze.

The Nikkei 225 finally saw a rebound yesterday, moving up 5.7% after its biggest two day fall in over twenty years. Nevertheless, the threat of nuclear disaster lingers and investors are demanding higher premiums on the country’s debt. Japan sold ¥1.1T in 20Y JGBs today at 2.13%, steepening the curve. S&P sees Chinese expansion slowing in 2011, forecasting GDP 9.1-9.6% with CPI in the 4.3-4.8% range. PBOC household inflation expectations weakening. February data indicate that money supply and lending activity have slowed, with lending down almost 50% from January’s flows. In its FOMC meeting yesterday, the Fed reported that the economic recovery is on a “firmer footing” while it made no mention of the current turmoil in Japan. The Fed acknowledged an increase in commodity prices, but qualified them as temporary. In our opinion, the Fed appeared more hawkish than in the last meeting in January, especially given the circumstances. The usage of the stronger language, however, does not foretell any significant change in our opinion, but rather should serve to shift the market focus even more towards jobs data. Mortgage applications for last week dropped 0.7% v +15.5% the week prior. Meanwhile, as anti-government protests continued, Bahrain declared a three month state of emergency yesterday. Along with the declaration came a second unit of military support from neighboring Gulf nations and a Fitch ratings downgrade from A- to BBB on the country’s long-term sovereign debt. Bahrain closed its stock market today and CDS spreads widened significantly.

The situation in Bahrain is going from bad to dire. Earlier, thousands of protesters marched to the Saudi embassy in the Bahraini capital, angry at the intervention of Gulf Arab forces. 1000 Saudi troops had rolled into the country at the request of Bahrain's Sunni rulers. As Reuters reports, and as Zero Hedge discussed extensively before, the troop movement could signify Saudi concern that any concessions in Bahrain might inspire the Kingdom's own Shi'ite minority. Earlier on Tuesday, the Bahrain King declared martial law as his government struggled to stop the protests. The three month state of emergency hands power over to Bahrain's security forces, which is dominated by the Sunni Muslim elite. Injured were taken to hospital as violence continued in the small Gulf island. "We came out of the tunnel and they started shooting at us and I got injured here, in the back." An opposition politician said one man was killed and several wounded in clashes with police in the Shi'ite area of Sitra. But the biggest news, that which caused crude to just jump by a dollar, is that the Iran President has called the actions by the Bahrain government "unjustifiable and irreparable." And if or rather when Iran gets involved on the basis of a religious escalation, watch out for global stagflation.

Below is a heatmap of the Nikkei "no news is great news, as is 26.5 trillion in fiat injections" relief rally. Note the main equity outlier, TEPCO, which however has seen its CDS tighten substantially overnight from 390-440 to just 285-315. The reason for the credit melt up is that according to an article, the operator of a nuclear facility will not be responsible for any damage caused by their reactor if it was due to "a grave natural disaster of an exceptional character or by an insurrection." Which simply means that the nationalization of TEPCO will be indirect and that Japan will have to issue that much more debt.