Friday, March 18, 2011

Japan Finally Raises Emergency Level To 5 On 7 Point Scale While Entire World Has Level at 6 Already; Frantic Efforts Resulted In No Progress; Supply Chain Disruptions Could Lead To Financial Meltdown; No Fly Zone Raises Oil Over $103; Goldman Sachs Cuts 1800; Yemen Uprising; UK Inflation At 4%

Update 1: The owner/operator of the Fukushima nuclear plant, TEPCO is now warning that a "nuclear chain reaction is feared" for reactor number 4. The fact that TEPCO is admitting this is even more so alarming.

On Monday, Japanese authorities stated roughly their reason the entire world outside of Japan declared this situation a 'disaster of colossal proportions' is because of the "time lag" in the information chain. This of particular interest since the the entire world outside of Japan declared the Nuclear Emergency Level at 6 on the International Nuclear and Radiological Event Scale (INES) already several days ago. Now today, a full week into this disaster and several days after a Level 6 was declared by everyone, Japan has finally raised the INES level to a 5 now that their efforts have resulted in "no improvement." We can only assume that once the international community raises the INES level to 7 on the 7 point scale, Japan will follow suit and raise it to a 6. Or not.

For perspective, the scale below represents the INES scale, as per Wikipedia, with 0 being "no significance" and 7 being "major accident" (a la Chernobyl).

7 – Major Accident
6 – Serious Accident
5 – Accident With Wider Consequences
4 – Accident With Local Consequences
3 – Serious Incident
2 – Incident
1 – Anomaly
0 – Deviation (No Safety Significance)

Up until today, Japan continued to keep their estimated level of the emergency at level 4, "accident with local consequences." However, now that radiation has officially been detected in other parts of the world including California, albeit low levels of radiation, one has to ponder their definition of local. 

Now as "Operation Extension Cord" is attempted multiple times, the Japanese are said to be preparing for "Operation Bury The Mess" a la Chernobyl. As Reuters reports:

"It was the first time the facility operator had acknowledged burying the sprawling 40-year-old complex was possible, a sign that piecemeal actions such as dumping water from military helicopters or scrambling to restart cooling pumps may not work."

Pieces of the puzzle are starting coming together. There is no certainty that the water pumps will even work so there remains only one final option- bury the entire facility in sand and concrete. And as the Daily Mail is reporting, "a senior Japanese minister also admitted that the country was overwhelmed by the scale of the tsunami and nuclear crisis. He said officials should have admitted earlier how serious the radiation leaks were."

Now that is shocking. Nevertheless, as reported here and by many other financial websites, the real fallout will come in the form of the economic impact. The estimates for the cost to the insurers has been in the range of $17-$35 Billion, but in this interconnected, interdependent global economy, even the slightest supply disruption can cause billions of dollars in economic losses around the world. From car parts to iPads, the shutdowns across Japan will negatively impact the global economy no matter how "bullish" some "experts" claim this event will actually be.

Of course, if by "bullish" they mean more endless printing of money in the form of POMO stock market injections, market intervention, etc., then yes, it will be very bullish for stock prices the world over. Perhaps, they should wish for many more disasters, as this will jump start the whole global economic engine. There has even been talk among experts that the crisis in Japan may get them out of a 20 year deflationary economic slump!

Of course, the unintended consequences such as hyperinflation, food riots, social unrest, the widening wealth gap, etc., are to be ignored at all costs. In the midst of the Japanese catastrophe, we should not forget the other catastrophe that is occurring right before your very eyes. In the UK for example, inflation has reached a critical level of 4%, making the inflation rate there higher than in record setting Zimbabwe, which is only at 3%.

In other news, last night the UN approved a No-Fly Zone over Libya, pushing the price of WTI oil back over $103. Shortly after, Libya declares a cease fire. However, live reports are stating that Gaddafi forces have once again resumed their attacks. Since the UN stated they will begin with violent air strikes, it seems this situation will not end well. Then again, many experts will consider this bullish as well for the global economy so put your rally hats on.

As stated in an earlier post, the inflationary pressures around the world will impact developing nations first and this will result in riots and social unrest, as seen in Yemen today where 46 people have been shot dead and a state of emergency has been declared. Coming to a town near you? This is definitely bullish for the global economy.

Another bullish sign that the recovery is in full swing,
Goldman Sachs is cutting 5% of its trading desks, or roughly 1,785 people, "due to soft volumes and a pullback in client activity" with "more layoffs coming." That's another 1,785+ people who will now be collecting unemployment benefits and no doubt be celebrating their departure by purchasing a new iPad2.


  1. keep going like dis
    and make my day:)!

  2. i wouldnt have known about the giant squid cuts without reading your blog.