Japan

The situation at the Fukushima Daiichi nuclear complex is getting worse in many ways, but better in some ways. Here's a quick roundup ...

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.

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.

After first it was disclosed that TEPCO does not know the different between millions and thousands, the firm which is now set to be at least partially nationalized, has decided to blame its computers for the ongoing catastrophic handling of the Fukushima disaster. From NHK: "Tokyo Electric Power Company says it will review all data on radiation
leaked from the damaged Fukushima Daiichi nuclear plant, citing errors
in a computer program. The utility says it found errors in the program used to analyze
radioactive elements and their levels, after some experts noted that
radiation levels of leaked water inside the plant were too high." In other words, every "fact" you have heard so far in the past 3 weeks - you can forget it. And since the BLS is coming, and the Nasdaq is about to fund (105% debt financed) the Japan government's multitrillion restoration effort, it will all be well from now.

Chicago PMI was released, printing  at 70.6 on expectations of 69.9 and a decline from the prior 71.2. As Japan's PMI released earlier, look for this data series to drop substantially once the impact from the Japanese tragedy is felt in the US. Among the more amusing series in the index was the Order Backlog which hits the highest since February 1974, and the Employment index which hit a ridiculous 28 year high, and the second highest since February 1973. Most notably Price Paid, rising to 70, was the highest pring since July 2008 A few more points here and this index will be the highest since 1980. The followign surve response says it all: "1. It seems like it's time for everybody to jump on the "price
increase" bandwagon, justified or not. 2. Disasters in Japan will cause
inventory to blip upward as contingency plans are placed into effect. 3.
Challenges remain for offsetting any price increases incurred during
2011." Nothing else to be added.

And once again our prediction about Fukushima (namely the inevitable entombment of the entire facility in thousands of tons of concrete) is about to be realized. Bloomberg reports that Japan will consider pouring concrete into its crippled Fukushima atomic plant to reduce radiation and contain the worst nuclear disaster in 25 years. The reason for the admission of total defeat is the gradual comprehension that the worst case scenario has come to pass: "The risk to workers might be greater than previously thought because melted fuel in the No. 1 reactor building may be causing isolated, uncontrolled nuclear chain reactions, Denis Flory, nuclear safety director for the International Atomic Energy Agency, said at a press conference in Vienna." Not one to cover up the worst case outcome for a week, TEPCO only did so... for five days: "Radioactive chlorine found March 25 in the Unit 1 turbine building suggests chain reactions continued after the reactor shut down, physicist Ferenc Dalnoki-Veress of the James Martin Center for Nonproliferation Studies in Monterey, California, wrote in a March 28 paper." It's good thought"  Radioactive chlorine has a half-life of 37 minutes, according to the report." It appears Japan is willing to give up, and write off a several hundred square kilometer area, as nobody in their right mind will ever agree to move in next to a territory that, contrary to lies, er, promises, will not seep radioactivity in the soil and in the water. This is an unprecedented admission of defeat by the Japanese which unfortunately may be the only solution, which will certainly have major implications for the Japanese economy.

The IAEA which is quickly outstaying its Japanese welcome by disclosing actual facts about the radioactive fallout around the power plant, has just announced that it has found excessive radioactivity in a village 40 km from Fukushima. While the news will not be a surprise to anyone watching the grand lie unfold over the past three weeks, it may hopefully force the Japanese government to finally relent and extend the evacuation perimeter from the existing 20 km, thereby actually preventing the needless loss of life in the long run. From Reuters: "Radiation measured at a village 40 km from Japan's crippled nuclear plant exceeded a criterion for evacuation, the U.N. nuclear watchdog said on Wednesday, the latest sign of widening consequences from the crisis. Criticized for weak leadership during Japan's worst crisis since World War Two, Prime Minister Naoto Kan has said he is considering enlarging the evacuation area to force 130,000 people to move, in addition to 70,000 already displaced."The first assessment indicates that one of the IAEA operational criteria for evacuation is exceeded in Iitate village," Denis Flory, a deputy director general of the International Atomic Energy Agency (IAEA), said.  "We have advised (Japan) to carefully assess the situation and they have indicated that it is already under assessment," he told a news conference." Hopefully our Japanese readers who have been following our coverage of this tragedy, which many have at times called "hysteric" even if always based on facts, have already evacuated long ago. Ultimately, it is one thing for the government to lie with just the Russell 2000's closing level being at stake. It is something totally different when people's mutagenic skills and/or life expectancy is at stake. When this is all said and done, Kan will likely be forced into exile for his tragic botching of an operationg whose only downside to disclosing the truth would have been a few hundred points in the Nikkei/S&P. Well, those losses will still come eventually, but at least thousands of lives would not have been put needlessly at risk in the meantime.

Earlier today Japan Geiger counters had a brief scare following news that a second radioactive powerplant - Fukushima Daini briefly emitted smoke. Reuters reported: "smoke was reported to be coming from a second
damaged nuclear plant nearby on Wednesday, with the authorities saying
an electric distribution board powering a water pump was the problem. The Daini plant several miles from the stricken Daiichi facility has been put into cold shutdown." And while the incident was subsequently said to be under control, a bigger issue for Japan's export market is the attempt to overturn the food export embargo which many countries have imposed on the island nation out of radiation concerns. That this is a major issue for Japan becomes apparent following disclosure that the country is already pushing hard to overturn this ban: "Japan called on the world not to impose "unjustifiable" import curbs on its goods as French President Nicolas Sarkozy was due to arrive on Thursday, the first leader to visit since an earthquake and tsunami damaged a nuclear plant, sparking the worst nuclear crisis since Chernobyl in 1986. In a briefing to the World Trade Organisation (WTO), Japan said it was monitoring radioactive contamination to prevent potential food safety risks and would provide the WTO with quick and precise information." Alas, with Japanese credibility non-existent following the abysmal treatment of the catastrophe over the past three weeks, one can see why the world may be a little skeptical. Add to this earlier news that according to the IAEA there "might" be recriticality in the reactor, and we can't wait to see Japan's March trade balance when it is released in just over a month.

Reuters reports that just as Zero Hedge has been expecting as along, global economic growth is starting to slow. According to a leaked copy of the World Economic Outlook report coming out shortly:

• US GDP growth has been cut to 2.8% from 3.0% in 2011; while 2012 (which will be cut at a later date) was raised to 2.9% from 2.7%.
• Japan 2011 GDP cut to 1.4% from 1.6%, 2012 to 2.1% from 1.8% (same as above)
• Euro zone 2011 GDP raised to 1.6% from 1.5% in 2011; 2012 raised to 1.8% from 1.7% - good luck with this one.
• China 2011 GDP remains at 9.6%, slowing to 9.5% in 2012

Gold commenced 2011 at $1,420.78/oz and with two days of trading left in the first quarter, gold is marginally higher at $1,420/oz. It is therefore flat for the quarter after another quarter of correction and consolidation. A lower quarterly close would be the first lower quarterly close in 9 quarters. This may be beneficial to some of those short the gold market who may be attempting to 'paint the tape' and engineer a lower quarterly close - in the forlorn hope that this could lead to momentum selling by trend, following hedge funds and traders. A lower quarterly close may be achieved but the fundamentals of anaemic supply and continuing strong demand both from the investment sector, but also from the jewellery and industrial sectors (dental and electronics primarily) internationally, and particularly in China and Asia in general will likely see gold continue to rise in 2011. Interestingly, March 2010 and the first quarter last year (see chart above), also saw gold flatline prior to strong gains in April and the second quarter of 2010 (Q2 10). Gold rose by nearly 6% last April and by nearly 12% in the quarter. The unresolved eurozone debt crisis and the emergence of the Japanese natural and nuclear disasters and geopolitical risk in oil producing nations means that the fundamentals today are as sound as they were in 2010 - if not more sound.

Markets worldwide are negative this morning on the news of a possible increase in European bank capital levels while U.S. futures are still in positive territory. The U.S. Treasury Dept. has announced that it will publically grade mortgage providers on response quality to homeowners that need payment reductions. Italian bank equities dropped on UBI Banca announcing a €1B capital increase in order to boost its core Tier 1 capital. As a result of the announcement, speculation that other banks would follow suit resulted in a selloff in the equity markets. Increases in commodity prices sent New Zealand’s February trade balance surging to +NZD194MM v -NZD3MM prior, making it the country’s first trade surplus in eight months. Japan’s Vice Finance Minister said yesterday that the government may have to abandon a planned five percentage point cut in corporate taxes to help pay for earthquake damage. PM Kan followed that up today signaling that multiple government spending plans may be needed to pay for disaster rebuilding.

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.