Archive - Apr 2011 - Story

After prior reports that radiation in and around Fukushima had breached the dreaded barrier of 1 sievert/hour were attributed to some PR apparatchik not knowing how to carry the decimal comma, we once again get confirmation that previous attempts to refute what some saw merely as scaremongering, were in fact more lies. According to Reuters, the soon to be nationalized TEPCO said it had found a crack in the pit at its No.2 reactor in Fukushima, generating readings 1,000 millisieverts (1 sievert) of radiation per hour in the air inside the pit. "With radiation levels rising in the seawater near the plant, we have been trying to confirm the reason why, and in that context, this could be one source," said Hidehiko Nishiyama, deputy head of the Nuclear and Industrial Safety Agency (NISA), said on Saturday. He cautioned, however: "We can't really say for certain until we've studied the results." Since at this point nobody believes anything coming out of Japan and TEPCO, most are just expecting for the concrete to come: "TEPCO has begun pouring concrete into the pit to stop the leak, he said." Alas, as always happens when horrible plans go awry, this latest attempt to fix the problem with the nuclear (pardon the pan) "solution" is failing. "Public broadcaster NHK said late on Saturday that water was preventing the concrete from hardening and the pit was still leaking." In other words, recent horrendously planned attempts to cool the reactor by pumping water on it may well scuttle the Plan Z option of entombing the reactor. And if that doesn't work, then Japan is straight out of plans.

While it is no surprise that there is nothing in this world that can derail the optimism of Goldman's David Kostin (GS S&P 2011 target 1,500 until Jan Hatzius and his double Bill Dudley say otherwise), in his latest Weekly Kickstart he does provide a useful visual analysis of what happens in a period of rising interest rate cycles. Of course, this is only to create the illusion that rates are indeed set to rise: as we indicated said illusion was roughly two times stronger this time last year when the market once again didn't remember what a downtick looked like, and yet it all turned out to be a function of QE1, which upon ending on March 31 caused a correction, and QE2 a few months later. We wonder how many professional investors actually are naive enough to equate constant pumping of billions of dollars into the market by the Fed with economic improvement. But while we will get our answer in the next several weeks, here are the key signs to look for in the latter part of the interest rate cycle.

Next week is bound to be a doozy. The SPY and NYA are sitting just under their highs, and The Bernank is schedule to give his post-FOMC "King's Speech" on April 27. What are the odds that the market is going to have a significant correction going into this speech? At the same time, thousands of hedge fund managers who stepped aside during the recent correction will be forced to get back in to stocks if they take out new highs. After all, the desperation is reaching March Madness levels to "make your year" so they can temporarily "retire" at The Hamptons for the summer.

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.