Archive - Apr 1, 2011 - Story

Zero Hedge friend Chris Martenson has procured and analyzed the latest set of Fukushima overflight photos from DigitalGlobe. His key takeaways: (i) The situation on the ground is still not stabilized. (ii) At current scope and resources of the response effort, it will take weeks to months before TEPCO is in real control of the situation.(iii) The aftereffects will occupy TEPCO and the Japanese government for years. Read the full analysis inside.

A late afternoon update from Stone McCarthy's Nancy Vanden Houten provides some much needed clarity on the topic that will be next week's number one topic (absent another colored swan joining the clusterflock): the threat of a government shutdown. It appears that Obama's warning that it would "height of irresponsibility" to shut down the government over a spending battle may have pushed republicans to come to an compromise. From SMR: "Increasingly, it looks as though Congress will be able to pass legislation funding the government for the rest of fiscal 2011, which is now half over and ends on September 30." And naturally this is merely one more of those strawmen whose inevitable resolution will be seen as an upside catalyst even if the probability of a downside outcome is impossible: after all the US government can not afford a shutdown period. So the only natural outcome will serve as the latest piece of news to get the momentum algos ramping the market into overdrive even though there is nothing notably catalytic about this development.

It’s commonly known in Japanese culture that citizens harbor gold to protect against unforeseen events. The gold isn’t sold unless it’s needed for an emergency. With respect to the Japanese government, the country’s central bank is the 8th largest holder of the metal (including the IMF and GLD). Beyond investment, Japan represents about 6% of worldwide gold fabrication (excluding investment demand), the majority of which is in electronics. Scrap recycling has been heavy in recent years, while jewelry demand is low. Regarding silver, the tiny island represents about 9% of global demand. Industrial uses comprise the biggest part of that, which includes the automotive industry, construction, medical uses and solar. Jewelry and silverware have minimal end-use, and photography, like most everywhere else, has been falling heavily. While the percentage of Japan’s buying to worldwide demand won’t drastically change in reaction to the recent disasters, they, like several other countries, are pursing another tactic to get minerals. The government is considering revising its mining law, specifically when it comes to seabed mineral exploration and extraction. This is noteworthy because Japan hasn’t touched its mining law in 50 years. To be sure, revisions will be stricter for permitting and monitoring, but the process will be streamlined for Japanese companies.

Your one stop summary of the week's key bullish and bearish developments.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 01/04/11

Remember when the G7 stepped in to valiantly sell yen when the Japanese currency was threatening to take out all of Wall Street with its hundreds of billions in wrong way carry trades? Well, it seems that today's bizarre sell off in the dollar was due to that particular plan crashing and burning, with Korea defecting from the pact first, and selling its $7 billion in USD acquired in the process of bailing out Japan. It seems it is fair game to buy the Yen once again.

While it is no surprise that the day after Lehman failed, every single bank scrambled to the Fed to soak up any and all available liquidity after confidence in the entire ponzi collapsed, what is a little surprising is that of the 6 banks that came running to papa Ben, and specifically his Primary Dealer Credit Facility, recently upgraded, or rather, downgraded to accept collateral of any type, two banks (in addition to Lehman of course which at this point was bankrupt and was forced to hand over everything to triparty clearer JPM), had the temerity to pledge bonds that had defaulted (i.e. had a rating of D). As in bankrupt, and pretty much worthless. Now that the Fed would accept Defaulted bonds as collateral: or "assets" that have no value whatsoever is a different story. What is notable is that the two banks that did so were not the crappy banks such as Citi or Morgan Stanley, but the two defined as best of breed: Goldman Sachs and JP Morgan. It is probably best left to the now defunct FCIC to determine if this disclosure is something that should also be pursued in addition to recent disclosure that Gary Cohn may have perjured himself by not disclosing truthfully his bank's discount window participation. However, we can't help but be amused by the fact that of all banks, the ironclad Goldman and JPM would be the only ones in addition to bankrupt Lehman to resort to something so low.

As stock volume surges (we won't insult your intelligence to tell you what that means for stock prices), there is one asset that is going up. Considering the just released news of imminent land invasion in Libya which will be the next domino to fall in the MENA region, we would believe it is rather easy to guess which asset that is.

While it has been made very clear that no US "boots" would be on the ground in Libya, except for those beloning to CIA operatives of course, no such stigma applies to Europe. Which is why we were not surprised to read the following from RIA Novosti: "The European Council on Friday approved the decision to mount an EU
military operation to support humanitarian efforts in Libya, if asked to
do so by the United Nations. "The EU will, if requested by the UN Office for the Coordination of
Humanitarian Affairs (OCHA), conduct a military operation in...order to
support humanitarian assistance in the region," the council statement
read." Of course, humantiarian assistance only works best with silver tipped warheads and laser scopes. And honestly who didn' expect that the goal for Triopli's oil would mean a land invasion any minute? Oil most certainly did, with WTI just closing at a fresh 2.5 year high of $108.

As some Americans managed to find part-time and temporary jobs in March, some other Americans dropped below the poverty level threshold. 105 thousand in one month to be precise. The total foodstamp participation in January hit an all time record 44,187,831 according to the USDA. But fear not, here's the bullish spin... sorry, there is no way to spin this.

Considering there was no POMO today, the fact that the Fed just pulled out $1.75 billion from the market via a 3 Day reverse repo (TOMO) may raise some eyebrows. This is probably the first day in many years in which there was a net outflow of liquidity from the market without a corresponding inflow from POMO. That the total amount submitted into the Reverse Repo was $3.09 billion probably indicates just how overliquified the market is, if PDs are willing to accept a modest 0.09% weighted rate of return on a 3 Day repo operation. Also, notable is that the lower bound in the submission rate was a laughable 0.04% on Treasury holdings. Either way, PDs are sans $1.8 billion and nary a hiccup in stocks, while bond yields are back at day's lows. And Dudley hopes the naive public will believe that it is not excess liquidity chasing commodities to all time highs...

Remember, way back when, when the dollar was supposedly on its way to rediscovering the little engine of growth that could just after the monthly NFP number came in just 30k below where it should be for the US to regain jobs list since December 2007, and the Fed was about to end debasing the US currency? Look again.

Unprecedented strength in corn continues, with futures rising by 4.5% on Thursday, following strong demand for corn to make food and fuel. That demand has whittled down the corn supply, which was already at its lowest level in 15 years in the United States, the world's top exporter of the grain. Per Reuters: " Demand has been strong from the livestock and ethanol sectors, and from importing nations, including China which is believed to have purchased 1.25 million tonnes last week. This week's rally, triggered by the U.S. Agriculture Department's lower-than-anticipated quarterly U.S. corn stocks estimate on Thursday, rekindled worries about food price inflation. The near-term supply concerns have largely overshadowed USDA's forecast that U.S. farmers will plant the second-largest corn acreage since 1944." Yet whether due to fundamental reasons or pure momentum, Goldman has just added more fuel to the fire by raising its corn price forecast, after having lowered it a whopping 10 days ago, from $6.00/bu and $5.80/bu to $7.80/bu and $7.00/bu, for 6 and 12 months respectively. Of course, all those who followed Goldman's recent downgrade made some very inverse profits. So it may well be time to trade against the squid yet again.

The BBC has released a dramatic recollection of events at ground zero when the Japanese earthquake and tsunami hit on March 11. The source is an unnamed maintenance worker who witnessed and experienced events in real time. Below is his story.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 01/04/11