Japan

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.

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.