Japan

Update: first market post news: 300-350; 100 bps tighter.

Per Yomiuri, TEPCO may be up for nationalization, precisely as we had predicted, due to the insurmountable amount of accrued liabilities from the Fukushima disaster which would bury a standalone company. And just as we rode the CDS on the way up from 90 to 460, so now is the time to assume there will be no credit risk whatsoever, now that TEPCO is the first ever non-bank Japanese TBTF. Time to bail as central planning is about to branch out.

How can we compare Japanese radiation levels to "background radiation" ... when radioactive cesium and iodine DON'T EXIST in nature?

Following much ongoing confusion about a fact-based reality in Japan, leading many to express somewhat extremist opinions due to persistent scarcity of facts, here are three much needed clips showing the sentiment on the ground in Tokyo courtesy of the mostly impartial BBC News.

Confirming that in a time of instantaneous crowdsourced information distribution and analysis, any attempt by a government to institute an information blackout of any nature is doomed to failure, is the following amazing Google Earth-based 3D interactive map of Geiger readings from Japan. And if that is not enough, the Pachube community has released an extensive selection of crowd-sourced realtime radiation monitoring tools and widgets, focusing on as many Japanese territories as possible. Shortly we are confident all geographical holes will be filled, and every square mile of the affected territories will be mapped out surpassed the government's "Under Survey" blackout attempts.

I still remember when there was a certain cachet to Japanese made products. They were technologically advanced and better built than anything else available. Sonyo, Toshiba, Toyota, Honda, Kawasaki, Yamaha, etc. were all dominating brands. You could find products in Electric City in Tokyo that were generations ahead of what you could purchase in New York City. That gap has narrowed and in many cases reversed over time, but now we might be hitting a stage where 'Made in Japan' is a big negative...I was long Japan post quake as the market seemed to have over reacted to the earthquake. The bounce, though, has been large and profitable, so I'm out, and as the situation in Fukushima continues to deteriorate, the market looks expensive as its not pricing in the potential consequences of this being a nuclear event rather than an earthquake event.

The latest news from Fukushima continue progressing from bad to worse. Which of course means that the (physical) silver lining around the mushroom cloud will be that much more potent: after all, the greater the destruction, the higher the Russell 2000. Just ask the Keynesians.

• FUKUSHIMA REACTOR VESSEL MAY HAVE STUCK VALVE, UCS SAYS
• TEPCO FINDS POOLED WATER AT ALL FOUR TROUBLED REACTORS: KYODO
• INCREASED RADIATION RELEASE FROM FUKUSHIMA POSSIBLE, UCS SAYS

This in turn has prompted the Japanese government to increase the "voluntary" evacuation radius frmo 20 to 30 kms, finally. Shortly, this will be 80. But not before many more innocent people are irradiated and sacrificed at the altar of Nikkei 10,000 (and RUT 36,000).

Goldman's Dominic Wilson has just released his magnum opus analysis on the situation in Japan and its aftermath. Unlike the lunatic drivel disseminated each and every week by GSAM's Jim O'Neill, which would interpret the imminent collapse of the Earth into a neutron star as the most bullish event in the (soon to be over) history of mankind, this report is actually one of more biased we have read from the Goldman strategists. That said, the natural bias to spin everything in a positive light still dominates the report (to which we retort: why not just blow up unpopulated pieces of America and rebuild them over and over: it does miracles for the Chinese "GDP" - it should work just as well in the US - plus Krugman would be in a constant state of Keynesian extasy). We obviously disagree: never before has there been the added precedent of nuclear fallout, or a pyschological intangible, to the mostly superficial infrastructural repairs that have to be undertaken. Goldman does acknowledge this as follows: "The ongoing nuclear risk at Fukushima has the potential to magnify the impact in other ways, although at the time of writing these risks seem to be fading." Based on what? Manipulated data reporting out of Japan, TEPCO and everyone else who is either guilty of strategic mismanagement, or is desperate to avoid a worldwide panic. It is this type of rushing to conclusions based on a complete lack of facts, that drives objective market observers furious with blind rage at the idiocy of the authors (and yes, idiots is what Sean Corrigan called all those who only see the upside in the Japanese catastrophe and ignore the massive human, economic and financial downside). Yet for all those who can bottle their rage for 15 minutes, we recommend reading the enclosed report as it is the very best that the Kool Aid crowd can serve at this point. Which, when applying some common sense, is not very much.

The ongoing tragedy in Japan has unsurprisingly generated a great deal of commentary covering how - and if - the country will recover economically from difficulties that at least from the television screen, seem insurmountable. The happy news is that if history is any kind of indicator, Japan will rebound with great speed.

According to Kyodo, the Fukushima sea fallout is getting material enough to where the sea soon won't need a blacklight to glow in the dark:

• Kyodo says radioactive caesium found in sea water 24.8 times limit
• Kyodo says radioactive Iodine found in sea water 126.7 times limit

The only logical solution is for the Japanese ministry of deadly disinformation to raise the radioactive Cesium sea water limit by 25 times, and that of Iodine by 127 times. And all shall be well.

Even as the market has now apparently fully priced in Fukushima, the bad news continue coming:

• TOKYO ELECTRIC RADIOACTIVITY FOUND CONFIRMS FUEL DAMAGE: NHK
• TOKYO ELECTRIC DETECTS 5 TYPES OF RADIOACTIVITY, NHK SAYS

No surprise there: by now everyone is well aware that the fuel rods are if not completely then certainly partially destroyed. However, the real danger, and explains why we have been following atmospheric conditions over Japan so closely, is that as Kyodo just reported, the rain is now pouring radioactive cats and dogs. But the most troubling development is that instead of being proactive and finally warning its citizens about the dangers, the Japanese government has just raised the decontamination threshold by nearly 20 times from 6,000 cpm to a stunning 100,000 cpm. Is is rather safe to assume that this number was not picked arbitrarily.

While US stock futures continue doing their own thing, primarily on the back of JPMorgan's $20 billion financing for AT&T to buy T-Mobile (gotta love proximity to the discount window and/or excess reserves), with ES surging by 16 points overnight (but not Sprint - sorry guys, you are on your own) after the world apparently did not end, the black swan formation refuses to disperse. Here is the latest news update from Japan, Libya, and Yemen.

The next shoe drops as Japan realizes that what radionuclides go up, they typically come down, even despite a relatively short half life (and say goodbye to sushi unless one has a penchant for 15 eyed albacore). Bloomberg reports that "Radiation was detected in water in Tokyo and the prefectures of Tochigi, Gunma, Saitama, Chiba and Niigata, Japan’s Ministry of Education, Culture, Sports, Science and Technology said today in a faxed statement." But since nobody has any reason to doubt what the Japanese government says, here is the dislaimed: "Samples of tap water taken yesterday in Tokyo and five nearby
prefectures showed traces of radiation that were within acceptable
levels, the Japanese government said." And with the radioactive cloud about to loop back and hit Japan head on, things are about to get far worse, but in the meantime those living in Tochigi Prefectuve are advised to not drink the water: "Tochigi Prefecture’s reading of radioactive iodine-131 was 77 Becquerel per kilogram, the highest among the prefectures, while the level of iodine found in Tokyo’s Shinjuku district was 1.5. All the numbers were within the 300 Bq/kg limit, the ministry said." In the meantime the "Under Survey" farce continues: "Readings couldn’t be taken in Miyagi and Ibaraki prefectures because of disruption of water supply following the magnitude 9 earthquake that struck Japan on March 11, while Fukushima Prefecture takes its own readings, the statement said." But as long as people are indoors, and preferrably under their desk, when they drink radioactive water, all should be well, yes? Something tells us this total and utter bullshit, will lead to at least one more TEPCO executive profuse crying bout in front of the cameras within 48 hours.

Below is the most recent summary update from Reuters on the Japanese crisis. The one topic that everyone is following, however, namely whether some cable is attached to some cooling installation that probably blew up on Monday or Tuesday, gets the proper treatment: i.e., in the span of 4 minutes Reuters reports two completely conflicting stories. Looks like we will be seeing more crocodile tears from TEPCO executives in the next few days.

• From 10:52 pm ET -  Engineers have yet to attach a cable to Japan's quake-stricken reactors but hope to be successful either on Saturday or Sunday, the plant operator said.
• From 10:54 pm ET - Engineers successfully attach a power cable to the outside of the damaged Fukushima Daiichi nuclear station in a first step to help cool reactors and stop the spread of radiation.

Credible stuff.

"Sick on my journey, only my dreams will wander these desolate moors." (Matsuo Basho's death poem)

Following now pervaseive allegations of a massive Fukushima accident cover up by the Japanese government including non-disclosure of real radioactive levels, the Japanese Prime Minister Naoto Kan said on Friday that the government has been dislosing all the information it has on the accident at the Fukushima Daiichi nuclear power plant according to Reuters. "We have been honestly saying that the situation with the nuclear plant accident remains very serious," he said in a televised address to the Japanese people marking one week since a devastating earthquake and tsunami struck northeast Japan. At this point we are willing to believe him: judging by the increasingly improvised Japanese response to the catastrophe nobody has any idea what is really going on or how to handle it properly. Which is why very expect to hear increasingly more about the "Chernobyl solution" - or the shotgun "resolution" of the problem by literally burying it in sand. From Reuters: "A "Chernobyl solution" may be the last resort for dealing with Japan's stricken nuclear plant, but burying it in sand and concrete is a messy fix that might leave part of the country as an off-limits radioactive sore for decades. Japanese authorities say it is still too early to talk about long-term measures while cooling the plant's six reactors and associated fuel-storage pools, comes first. "It is not impossible to encase the reactors in
concrete, but our priority right now is to try and cool them down
first," a Tokyo Electric Power official told a briefing on Friday." Alas if and when the plan to restore power to blown up cooling plants (has anyone actually seen the before and after pics of the reactor) fails, this will be the only option.