Archive - Mar 2011 - Story

The Navy said very low levels of airborne radiation were detected Tuesday morning at greater Tokyo-area bases in Yokosuka and Atsugi, prompting commanders to direct base residents to remain indoors as a precaution. At 7 a.m., the aircraft carrier USS George Washington at Yokosuka Naval Base detected elevated radiation levels, according to a U.S. Navy 7th Fleet statement. The Navy said the elevated levels were associated with the disaster at the Fukushima Dai-Ichi nuclear power plant, located about 200 miles to the north. A level of 0.5 millirems of radiation was detected at Atsugi with similar levels at Yokosuka, said Atsugi public affairs officer Tim McGough. The radiation was detected coming from winds blowing from the northeast, he said...“The level of 0.5 millirems, which is translated to five microsieverts, is 50 times more than the level that exits in nature,” said Masaharu Hoshi, professor of radiation physics at the Research Institute of Radiation Biology and Medicine of the University of Hiroshima.

When we looked at TEPCO last two days ago, we said that as a result of the catastrophe in Fukushima its CDS which then had jumped by 90 bps to 133 bps, "we expect this number will soon be at multiples as the fall out to the company is increasingly exposed to the market." Alas, as predicted, the CDS is now trading 390-440 and will likely go points up very soon. Recall that the utility has over $90 billion in debt, which may or may not be nationalized, but any "conservatorship" treatment will likely trigger restructuring clauses. And the latest news out of Kyodo goes from bad to worse for the electric company: "TEPCO unable to pour water into No. 4 reactor's storage pool for spent fuel."

Marc Faber appeared earlier on CNBC in response to a plunging market, and gave his latest updated outlook on QE3... and 4, 5, 6, 7 and 8 (not to mention 18). "We may drop 10 to 15 percent. Then QE 2 will come, (then) QE 4, QE 5,
QE 6, QE 7—whatever you want. The money printer will continue to print,
that I'm sure. Actually I made a mistake. I meant to
say QE 18." Faber was modestly constructive on the Japanese selloff, which at one point hit 18% down in overnight futures trading: "This huge selloff is an investment opportunity in Japanese equities, but if a meltdown occurs then all bets are off." As usual, there is no love loss between Faber and the Chairsatan (recall that today's Empire Manufacturing survey confirmed margins continue to be crushed due to surging input costs): "I think Mr. Bernanke doesn't know much about the global economy but he probably watches the S&P every day." And on Fed criticism: ""Until very recently the Feds have had very few critiques, very few
people criticized the Fed's policies under Mr. Greenspan and Mr.
Bernanke. Over the last few months, a lot of critical
comments have come up about the Fed and its money-printing habit. The
S&P drops 20 percent (and) all the critics will be silent and they
will all applaud new money-printing." No fear of that here: Zero Hedge has been rather vocal in our opinion of the world's most destructive central planning buro from day one. We will continue being so, regardless how low the S&P plummets... Perhaps even to its fair value south of 500.

Confirming, yet again, that MIT Ph.D.'s (such as the FRBNY's Brian Sack) are among the most dangerous around, a paper made the rounds yesterday by one Josef Oehmen titled: "Why I am not worried about Japan’s nuclear reactors." In the ensuing 48 hours, anyone who listened to Josef's advice (who incidentally is not a scientist) and was also "not worried about the reactors" has paid an exorbitant price, possibly up to and including their lives. We demand that MIT School of Nuclear Science and Engineering clarify their position on the matter, and make sure that incidents such as this, where Oehmen's paper received top billing due to its perceived "endorsement" by MIT and has since been completely discredited, never recur.

In the rubric of today's irrelevant news, we have the Empire Manufacturing Index which came at 17.50 on expectations of 16.10, compared to a prior print of 15.43. And you know the drill: the only thing that matters for the average American is the Priced Paid, which increased from 45.78 to 53.25 a fresh two and a half year high: "The indexes for prices paid and prices received showed that prices continued to accelerate in March; the trend was particularly pronounced in the case of the prices paid index, which rose a cumulative 31 points over the past four months. This month, the index advanced 7 points to 53.3, with 53 percent of respondents reporting higher input prices while no respondents reported lower prices." The margin situation is getting worse as the Price Received increased by half the rate of increase of the Prices Paid at 20.78, compared to 16.87 in February. Elsewhere, New Orders, Inventories and Shipments all plunged. What is even scarier is that the Prices Paid Expectations soared from 55.42 to 71.43.

Meanwhile, after tracking all the manifestations of the black swan clusterflock, and taking a quick look at that "other" crisis, shows that the Gulf, and thus the oil supply picture, are about to be impacted. The AP reports that according to a security official, a Saudi soldier shot dead by opposition protester in Bahrain. We have no idea how this will impact the escalating violence even as Bahrain state TV reports that a second batch of Saudi soldiers has just arrived, following the announcement by the Bahrain king to order a national state of security for three months.

Those who wish to bypass the media entirely and observe Tokyo radioactivity directly, and the SPEEDI site is down (as it seems to always be), here is a live webcast showing a live Tokyo Geiger counter.

Markets strongly negative this morning as the Japanese earthquake and its accompanying nuclear threat continue to worry investors despite the pledge for government support. The FOMC will meet today and will likely maintain rates at their current levels and show support for the completion of QE2. However, the Japanese earthquake and respective stimulus reaction offers the potential for an unexpected announcement, though we ascribe a low probability to this occuring. Today’s Empire State manufacturing survey for March is expected to come in at 16.10E v 15.43 prior, in line with its recent correlation with the rising Philadelphia Fed Index. The Treasury will release US foreign net transactions today showing a decrease to $55.0BE v $65.9B prior.

The Japanese government has just authorized the BOJ to buy more ETFs and REITs in order to stabilize the market. In times like this apparently preserving the global "wealth effect" is of paramount importance. In the meantime the news is getting worse- according to the French Nuclear Watchdog the containment vessel on Reactor #2 is no longer sealed (meaning radiation can enter the environment freely), while according to Kyodo the radiation level is now too high for normal work at the Reactor #4 control room.

Japan's nuclear crisis has deepened and we deeply regret to say that there is now the real possibility of a nuclear catastrophe. Investor panic has set in with the Nikkei down over 16.5% in two days and the Topic index down by 17% - its worst two-day loss since the 1987 Wall Street stock market crash. The cost to insure Japanese debt has surged to a record with credit-default swaps protecting Japanese government debt for five years soaring 27 basis points to a record of 125 basis points. One UBS trader said that the deteriorating nuclear crisis had led to "near panic across local credit-default swap markets." While most equity indices and commodities have fallen, some sharply, gold has remained resilient and is down 1% in US dollar terms and is higher in Australian dollars which like other so called 'commodity' currencies has come under pressure in recent days. Gold remains marginally higher in all currencies since the tragedy began last Friday.

Simply surreal news out of Tokyo (which unfortunately we predicted once again) which is now reported to have ten times normal radiation levels: "Radiation wafted from an earthquake-stricken nuclear power plant towards Tokyo on Tuesday, sparking panic in one of the world's biggest and most densely populated cities. Women and children packed into the departure lounge at an airport, supermarkets ran low on rice and other supplies and frightened residents, tourists and expatriates either stayed indoors or simply left the city. "I'm not too worried about another earthquake. It's radiation that scares me," said Masashi Yoshida, cradling his 5-month-old daughter Hana. Confidence in the government is shaken and many decided not to take chances, especially after radiation levels in Saitama, near Tokyo, were 40 times normal -- not enough to cause human damage but enough to stoke fears in the ultra-modern and hyper-efficient metropolis of 12 million people. Many hoarded food and other supplies and stayed indoors. Don Quixote, a multistorey, 24-hour general store in Tokyo's Roppongi district, was sold out of radios, flashlights, candles, fuel cans and sleeping bags on Tuesday.

• Radiation levels at the quake-stricken Fukushima Daiichi
  complex have varied wildly, with a reading of 11,930
  microsieverts at the main gate of the plant at 0000 GMT, up from
  596 microsieverts as of 0630 GMT.
• Elsewhere at the plant, levels reached as high as 400,000
  microsieverts an hour (or 400 millisieverts an hour).
• The government gave no update on the status of a steel
  container surrounding the core of the plant's No.2 reactor,
  deemed by observers as most at risk of a meltdown.
• An explosion on Tuesday at the No.2 reactor had caused
  some damage to its suppression pool, which helps to cool and
  trap the majority of cesium, iodine, strontium in its water.
• Later, there was a fire and explosion at the complex's No.
  4 reactor and this is likely to have contributed to rising
  radiation levels.
• The No. 4 reactor had been shut down for maintenance ahead
  of the quake, but a spent-fuel cooling pool associated with that
  reactor caught fire, causing the explosion.
• The No.4 reactor's cooling pool, where spent nuclear fuel
  is stored, may be boiling and the water level may be falling.
• Radioactivity at the cooling pool is high and Tokyo
  Electric cannot make checks at the site or determine what has
  burned.
• Radiation leakage from complex is likely to spread after a
  fresh explosion at the plant.

Following the massacre amongst Japanese equities, the European stock markets are getting pummeled! The most important European indices are losing substantial ground, from -3% (CAC 40) up to -4% (DAX).

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 15/03/11