Tuesday, March 29, 2011

notes on the week ended Mar 26th

the still unfolding disaster in japan remains the most important news of the week, if not of the decade...not only does it have the potential of being an environmental disaster approaching the scale of a chernobyl in a heavily populated area, the current estimates are for it to be the most expensive natural disaster of all time, more than double the the cost of hurricane katrina...although the number of dead doesnt approach the sichuan or haitian quakes, the 13 million people in tokyo continue to experience power outages & aftershocks...moreover, their water supply has been contaminated with radioactive iodine at moe than double the safe margin, and residents have been warned not to use tap water for infants & small children...supplies in the city are running short, and most of the world's shipping companies are now refusing to dock in either tokyo or yokohama for fear of radiation contamination, interrupting the normal supply routes for the tokyo bay area population of 35 million...it's been reported that many of the residents of tokyo who are mobile or have a place to go have made a temporary move to the south...

it now seems certain that at least one of the reactor containment vessels on the fukushima nuclear site has ruptured and spilled into the surrounding circulating water, as two of the engineers attempting to hook up power to the circulation pumps experienced radiation burns after coming in contact with the building's water, that was reported to be 10 thousand times the usual radioactivity experienced during normal operation...earlier this week, that was reported to be unit 3; now i see it's reported as unit 2, which is a good indication that a lot of the details being reported could be inaccurate...there hasnt been any new mention that i've seen regarding the spent fuel pond which had leaked last week and caught on fire so im assuming they're continuing to refill it with water from the pacific as planned...radiation exceeding 400 times the normal level has been detected in soil samples as far as 40km from the site, and radioactive iodine has been measured at 19 times normal in seawater 16 km south of the nuclear power plants...late this week the evacuation zone around the nuclear plant was extended to 25km, or about 18 miles, but it's not clear that all the residents are leaving...

we're starting to get a sense on how the loss of many of the specialized manufacturing facilities in the area, which have either been shut down due to lack of power or were damaged by the quakes, are going to affect manufacturing downstream...in the US, i've read of auto assembly plants in lousiana, new york, indiana, kentucky, and texas either shutting down or curtailing hours, and in addition to already closed operations in other east asian countries, auto plants in spain & germany have also shut down...if the worst case plays out, around 30% of worldwide automobile production could be shut down within 6 weeks, representing a loss of 100 thousand vehicles a day...and in one of those who'd of thunk it twists, the only plant that makes a pigment called xirallic was shut down, which means you can no longer order a new car in black or three shades of metallic red....the pigment is also widely used outside of the auto industry to give ceramics, plastics, inks and packaging to impart a metallic sheen...electronics is the other industry that will be hit; as something on the order of 1/4 of the production capacity for silicon wafers used to make silicon chips has been lost in the earthquake zone...a large texas instrument plant, representing 10% of TI's worldwide production, will be shut down till at least late july, with the earliest shipping not expected until sept...other major consumer and industrial electronic companies that have lost big chunks of production include sony, toshiba, and fujitsu...morgan stanley estimates the production losses worldwide could take a total of 1/2% off of global GDP this coming year...

domestically, i cant see how any recovery story can play out in the face of this; manufacturing was really the only economic bright spot this year, as the major contributors to GDP have lagged: as ive noted previously, almost the entire increase in retail sales came from chains catering to the wealthy, and we've all seen how state and local governments, the second largest contributor to GDP, are cutting back...construction is dead, and a big share of capital spending is in the defense industry, notable as a poor employer in a jobs for the buck ratio...
New Home Sales and Recessions

the major economic news this week was the existing & new homes sales reports for feburary, and its hard to imagine they could have been worse...new home sales fell 16.9% YoY and existing home sales fell 9.6%, with even lower prices reported by the national assoc of realtors, with the median price of $156K being 5.2% lower than a year ago (there are about a half dozen different housing price reports other than case shiller and they've all been down a percent or three)  existing home sales were worse than the worst forecast, and new home sales were the worst ever...(click on adjacent chart)

on the foreclosure front, yves smith & firedoglake report that the administration favored settlement with the banks may be falling apart, as some of the more aggressive democratic state attorney generals arent satisfied with the terms; in another nail in the MERS coffin, Freddie Mac has ruled their electronic registration can no longer be used in foreclosures; also, the closure of the Stern foreclosure mill in florida has left the paperwork for 100,000 foreclosures incomplete and in limbo, and the lack of foreclosure fees has created a fiscal emergency for the Florida court system, prompting the supreme court justice to ask for a state bailout to keep the courts operating till june 30th..

you might recall that i mentioned the Fed's stress tests on the 19 largest banks last week, & how they could pay dividends again...this week BofA announced they intended to institute a 5c a share dividend, and the Fed slapped them down, limiting their dividends to a penny...the same limit will apply to citigroup, but only if they do a 1 for 10 reverse stock split...those moves alone should tell us a lot more about the health of those two institutions than any passing grade on the stress tests does...as ive contended all along, the suspension of accounting rules that allow the banks to continue to mark their assets to make believe means that by any real accounting, the banks remain insolvent, and the major purpose of the Fed's monetary policies of zero interest and quantitative easing are to allow them to slowly recapitalize on the difference between their borrowing costs and the yields on their investments...

a few graphs from the cleveland Fed: The Cost of Food and Energy across Consumers... the only point i want to make with this is that you should remember these charts when you see a report on how the "average american" is dealing with food and energy costs...sure, maybe the top half or 3/4 are doing ok, but some people are being squeezed to the edge of their ability to survive...

FoodEnergy

it's not just the possibility of radioactive fallout that we will have to deal with...we've also learned this week that daylight in the northern hemisphere may also pose a hazard in the coming summer...due to unusually cold temperatures in the arctic ozone layer, approximately half of the ozone has been stripped from the atmosphere over the past two weeks, and since the conditions continue to prevail, there's even a possibility that the first northern hemisphere ozone hole ever recorded could open up...the scientists tell us that the low ozone atmosphere could affect areas as far south as new york city, which means most northern cities are at risk of increased exposure to ultraviolet radiation...a loss of 1% of the ozone over you translates into a 2% increase in UV-B reaching the surface, which is known to cause skin cancer and cataracts...moreover, the phytoplankton at the bottom of the ocean food chain has been observed to decline 8.5% in similar southern hemisphere events...

europe has been coming unglued again this past week, like it seems to once or twice a month...the portuguese failed to pass their budget, their prime minister resigned, and it looks like they'll be lining up behind greece and ireland in the bailout line...both their & irish borrowing cost hit records again this week, with both 2 and 10 year irish bonds over 10%...if you're interested in the blow-by-blow on portugal & the euro-summit, you can catch about 4 dozen links on it all at the end of this weeks blog post...

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

1 comment:

  1. Loving that "cheap" nuclear power yet?

    Soon! Soon!

    More to come.

    Just ask 'em.

    Right after they change all the standards.

    Higher! Higher!

    We don't want to go solar (or wind, or water)!

    Oh nooooooooooooooooooo!

    ReplyDelete