Japan

Hopefully, this will turn out NOT to be as bad as it sounds ...

Contrary to earlier reports that cooling at Reactor 3 at Fukushima has failed (as per CNN and Reuters) and there is now a state of emergency for three reactors at the site, the IAEA has released a report refuting these rumors. It appears that there is a split in news reporting in Japan: on one hand we have the Nuclear and Industrial Safety Agency which seems to present a downside case, while the government is obviously spinning news in a favorable direction. While the Japanese government is likely not to be trusted much with truthful data dissemination, jumping the shark on rumor spreading is probably not in anyone's favor either. That said, with the government losing credibility (see prior Stratfor post), the question is just whom can the public trust, if not the Japanese government and media? Furthermore, if there is another accident at Fukushima, and the government's credibility is completely destroyed, what happens next: after all the BoJ needs as much "market faith" as it can muster ahead of its decision on Monday to flood the money markets with JPY2 trillion (sound familiar). If the government eats up all the street cred of Shirakawa, the BOJ rush to action may end up doing far more bad than good.

Japan’s Nuclear and Industrial Safety Agency (NISA) said March 12 that the explosion at the Fukushima Daiichi No. 1 nuclear plant could only have been caused by a meltdown of the reactor core, Japanese daily Nikkei reported. This statement seemed somewhat at odds with Japanese Chief Cabinet Secretary Yukio Edano’s comments earlier March 12, in which he said “the walls of the building containing the reactor were destroyed, meaning that the metal container encasing the reactor did not explode.”

Though China gets all the media attention, Japan is still a critical supplier of numerous high-tech parts in the global supply chain. The Japanese global corporations have learned from experience that anything they make in China will soon be pirated, so they have withdrawn all the really high-tech manufacturing to the home islands. I suspect most analysts are complacent about the possible global ripple effects of these quakes, simply because Kansai and Tokyo were largely spared. Given its great stability and wealth, Japan seems an unlikely candidate for social or financial changes triggered by a natural disaster. I am not so sure it is immune to these forces, given the fragility of its central State and local government finances and its sclerotic Power Elites and political machinery. The quiet stoicism of the next few months may give way to more systemic and possibly transformational forces than most observers believe possible.

After private Property and Casualty reinsurance companies got whacked on Friday on broad yet unquantified concerns about imminent losses, it is time for a deeper dive into the structure of how prepared Japan is to handle what are sure to be tens of billions in earthquake insurance claims. Using information from the Non-Life Insurance Rating Organization of Japan, we find that there is a clean distinction between the liabilities borne out by the private P&C sector and where reinsurance companies step in to fund losses on residential earthquake losses. A more nuanced breakdown comes from JPMorgan's Siddharth Parameswaran: "In Japan there is coverage provided for earthquake, through two distinct forms: 1) Coverage for losses of residences (governed by "Earthquake Insurance Law," It is covered by the domestic insurance industry and the Japanese Earthquake Reinsurance ("JER") Commission); and 2) Coverage for commercial losses internally insured and externally reinsured without involvement of the government." Of the former two, the first is far more important due to the pervasive losses of real estate in most of the northeastern coastal areas, which according to some estimates will reach in the tens of billions. The three numbers to keep in mind when evaluating potential liabilities are ¥115 billion (or $1.4 billion) which is the threshold for 100% private insurance coverage; next is ¥1.925 trillion ($23 billion), which is the limit on a 50/50 split between losses for private insurers and the JER (or $11.5 billion each), and lastly, ¥5.5 trillion through which 95% of all losses are borne by the government, and 5% by the private industry. In other words the total possible private losses to private P&Cs before reinsurance funding kicks in is about $16.5 billion, while the government stand to lose at most ¥4.3 trillion (or $52 billion). At this point losses are capped, and claims are pro-rated among all claimants. Should total losses surpass about $64 billion in real estate values (at various loss thresholds), claimants will have to settle for pennies on the dollar.

While there may have been a tsunami in Japan (and Money McBags heard rumors that it was caused by...

With much conflicting and biased news coming out of the mainstream media in its perfectly explainable attempt to prevent panic among the population, the World Nuclear News has released the best and most objective analysis of the events that have transpired and that have yet to transpire at Fukushima we have read to date.

The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by
damage to the nuclear reactor but by a pumping system that failed as
crews tried to bring the reactor's temperature down, Chief Cabinet
Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to
flood the reactor containment structure with sea water to bring the
reactor's temperature down to safe levels, he said. The effort is
expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no
immediate danger, Edano said. But authorities were nevertheless
expanding the evacuation to include a radius of 20 kilometers (about
12.5 miles) around the plant. The evacuation previously reached out to
10 kilometers." Next steps are to flood the reactor with salt water. NHK reports: "The
TEPCO Fukushima Daiichi nuclear power plant in Fukushima Prefecture is
believed to be exploded, and in order to prevent corruption, the
containment vessel will be filled with sea water to cool containers and
vehicles used by the SDF pump I. According to the Ministry of Defense,
work will begin at 8:00 pm, and that it expected to end around 1:00 am
on March 13 (or roughly 11 am Eastern)." And while containment efforts peak, the leakage is reported to be in the range of 1015 microsieverts / hr. In the meantime, confusion in Japan is pervasive as up to a million people are without power. And while we hope the outcome of the Fukushima situation will be prompt and favorable, the economic devastation to the country will be pervasive for weeks to come.

Update: It's possible that a meltdown may ALREADY have occurred at one nuclear power plant.

In an interview with Mark Hibbs, a Berlin-based senior associate at the Carnegie Endowment for International Peace, a nonprofit think tank, Newsmax magazine asks - what happens next at the Fukushima Nuclear Power Plant. The answer according to the nuclear expert, is that as Fukushima is now well on its way to a full core-melt nuclear accident, a worst case scenario could possibly lead to the same results last seen in 1986 Chernobyl.

CSI Financial presents a comprehensive look at the last century in US history (98 years to be precise, since the foundation of the Federal Reserve in 1913), highlighting the key events, and critical outcomes, explaining in simple terms how while Japan may have encountered an actual tsunami earlier today, the metaphoric version that has afflicted America is far more dangerous and will have far worse consequences for America's 300+ million citizens.

A just released report by Goldman's Jeffrey Currie attempts to quantify the impact of the Tsunami on the Japanese economy from a commodity standpoint. Currie summarizes his conclusions as follows: "Assuming that the broader power grid infrastructure has not been permanently damaged, we believe today’s events are likely to put upward pressure on residual fuel oil and diesel cracks, LNG, UK natural gas and rice; downward pressure on naphtha cracks and Dubai spreads relative to other crude grades." Yet the thing we found more interesting than energy related bottlenecks was the disclosure toward the end of the report discussing the threat to the Japanese rice harvest: "In addition to the damage to energy infrastructure from the earthquake, the tsunami also impacted rice producing regions in Japan. While Japanese rice inventories are large, this puts the 2011/12 crop production at risk and may in turn drive Japanese rice imports higher, posing upside risk to current prices." Granted, Japan is not a big exporter of rice, but it is a top 10 consumer. Should the country's consumption (which is estimated at around 9 million metric tons) need to be satisfied by a surge in imports, and with the price of rice already dependent on the margin on speculative money, this could be the catalyst that send the grain, which has plunged in price over the past month, finally break beyond any potential manipulative price suppression schemes.

I said it! Bill Gross said it (and put his money where his mouth was by selling off all US treasuries)! Common sense says it... Central Bank manipulated interest rates are too low. They will rise. What happens when they rise during a supply glut of real estate, foreclosure issues and a slow economy??? Put it this way... What made the markets crash in 2008: unemployment, slow economy, snow... Or real estate prices getting in touch with reality?

Taxes are always on the mind of the electorate, and while individual rates of taxation garner the greatest fraction of our attention, the way corporations are taxed is important too. A change in direction in this area could potentially free up a lot of capital, all the while reducing a great deal of waste.

This is why people tend to pay a premium for "Made in Japan"...