The Big Picture

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• Fukushima: “Far From Any Stable Shutdown”
• Amy Winehouse New Album: Lioness: Hidden Treasures
• Good Credit: MasterCard & Visa
• Succinct summation of week’s events (11/04/2011)
• Europe’s Tower of Terror
• Daily Deals by the Numbers
• Vizify + Twitter = Tweetsheet
• Triumph Insult Comic Dog Goes to Occupy Wall Street
• Employment Situation In Pictures
• Are Italian Yields Once Again At The Tipping Point?

Fukushima: “Far From Any Stable Shutdown” Posted: 04 Nov 2011 10:30 PM PDT Fukushima: Further Away From a Stable Shutdown Than Japanese Claimed Radioactive xenon has been detected at the Fukushima nuclear plant, indicating that nuclear reactions are still occurring. BusinessWeek notes that the Japanese government has confirmed the existence of radioactive xenon: The detection of xenon, which is associated with nuclear fission, was confirmed today by the Japan Atomic Energy Agency, the country's atomic regulator said. NHK reports: The operator of the crippled Fukushima Daiichi nuclear power plant says it found in the facility's No.2 reactor radioactive substances that could have resulted from continuous nuclear fission. The Tokyo Electric Power Company, or TEPCO, said on Wednesday that it detected xenon-133 and xenon-135 in gas taken from the reactor's containment vessel on the previous day. The substances were reportedly in concentrations of 6 to more than 10 parts per million becquerels per cubic centimeter. Xenon-135 was also detected in gas samples collected on Wednesday. Radioactive xenon is produced during nuclear fission. The half-life of xenon-133 is 5 days, and that of xenon-135 is 9 hours. *** The utility also says it wants to take a close look at the situation of the plant's No.1 and 3 reactors. Bloomberg writes: "Given the signs, it's certain that fission is occurring," Junichi Matsumoto, a general manager at Tepco who regularly talks to the media, told reporters in Tokyo today. There's been no large-scale or sustained criticality and no increase in radiation, he said. *** It's possible there are similar reactions occurring in the No. 1 and No. 3 reactors, the other cores damaged at the station, Matsumoto said. "Melted fuel in the No. 2 reactor may have undergone a sustained process of nuclear fission or re-criticality," Tetsuo Ito, the head of Kinki University's Atomic Energy Research Institute, said by phone. "The nuclear fission should be containable by injecting boron into the reactor to absorb neutrons." Bellona points out: According to Bellona physicist and executive director, Nils Bøhmer, and Dr Komei Hosokawa, head of the Department of Environmental and Social Research at Japan's Kyoto Seika University … The presence of these gasses indicated fresh nuclear fission taking place in the hot debris of the melted fuel rods at the bottom of the container…. "This clear indication that a nuclear chain reaction is going on in one the reactors is a very bad sign. TEPCO had said that the situation would be stable within nine months after the accident," said Bøhmer. "Any on-going uncontrolled chain-reaction is not an indication of a stable rector, and we could face a much longer period of instability until the reactors are safe," he said. A TEPCO official has confirmed a so-called "partial re-criticality" incident in reactor No 2, said Hosokawa in the information he forwarded to Bellona. Hosokawa said the term "partial re-criticality was "a new vague word for [TEPCO's] spin practice." Other radioactive gasses detected at the reactor, said Hosokawa, included Xenon-131m and Krypton-85, which are likely remnants of the chain reactions that occurred immediately after the earthquake and tsunami. However, Ex-SKF reports – based on a handout from Tepco – that there was a "100-Fold Increase in Krypton-85 from November 1" to November 2nd. EneNews notes the significance of Krytpon-85: According to a study published in the Journal of Environmental Radioactivity, "Krypton-85 is the best indicator for clandestine plutonium separations" when conducting wide-area atmospheric monitoring. Also, EX-SKF writes, "According to wiki, 'About three atoms of krypton-85 are produced for every 1000 fissions (i.e. it has a fission yield of 0.3%)'. Bellona also writes: Japanese nuclear authorities … say the chain reactions will not affect the projected shut-own schedule. Currently the temperature at the hot zones of the reactors is been sustained at below 100 degrees Celsius by seawater constantly being pumped in. Hosokawa, however, strongly disagreed, citing the apparent present condition of the nuclear fuel in reactor No 2, if not others. "TEPCO so far claimed that the melted-down uranium had formed an oval shape with a cooled-down crust. Their roadmap for the "cold shutdown, if ever, is based on this condition," said Hosokawa. "Now that they propose a quite different view regarding the condition of nuclear fuel, the roadmap vision [for shutdown] cannot be intact." Indeed, we've been reporting for months that nuclear reactions are probably still continuing at Fukushima (as have Fairewinds, Ene and Ex-SKF.) The New York Times points out: The unexpected bursts — something akin to flare-ups after a major fire … threaten to increase the amount of dangerous radioactive elements leaking from the complex and complicate cleanup efforts, raising startling questions about how much remains uncertain at the plant…. The plant's owner admitted for the first time that fuel deep inside three stricken plants was probably continuing to experience bursts of fission. *** It is impossible to determine exactly what state the fuel is in, given that even an intact reactor can offer only limited gauges in the form of temperature, pressure readings and neutron flow, but not visual observation. That lack of clarity is one of the most resonant lessons of the Fukushima disaster, where those trying to guide the response and assess the danger operated by what amounted to educated guesswork. In reactors of the design used at Fukushima, that chain reaction is normally stopped when the operator gives a command to insert control rods, which rise up from the bottom of the core and separate the fuel assemblies. But when the cores of three reactors at Fukushima melted, a large part of the fuel presumably formed a jumbled mass in the bottom of the vessel, and without a strict gridlike geometry, the control rods cannot be inserted. Some of the fuel has escaped the vessel, experts believe, and is in spaces underneath, where there is no way to use control rods to interrupt the flow of neutrons. *** The three reactors — together with spent fuel rods stored at a fourth damaged reactor — have been leaking radioactive material since the initial disaster, and new episodes of fission would only increase their dangers. "Re-criticality would produce more harmful radioactive material, and because the reactors are damaged, there would be a danger of a leak," said Hiroaki Koide, assistant professor at Kyoto University's Research Reactor Institute, whose prescient warnings about nuclear safety have won him respect in Japan. Mr. Koide holds that the nuclear fuel at the three reactors probably melted through containments and into the ground, raising the possibility of contaminated groundwater. If much of the fuel was indeed in the ground early in the crisis, the "feed and bleed" strategy initially taken by Tokyo Electric — where workers pumped cooling water into the reactors, producing hundreds of tons of radioactive runoff — would have prevented fuel still in the reactor from boiling itself dry and melting, but would not have done anything to reduce danger from fuel already in the soil — if it got that far. *** Tokyo Electric does not deny the possibility that the fuel may have burrowed into the ground, but its officials say that "most" of the fuel likely remains within the reactor, albeit slumped at the bottom in a molten mass. But even in their most dire assessments, some experts had not expected even bursts of re-criticality to occur, because it was unlikely that the fuel would melt in just the right way — and that another ingredient, water, would be present in just the right amounts — to allow for any nuclear reaction. If episodes of fission at Fukushima were confirmed, Mr. Koide said, "our entire understanding of nuclear safety would be turned on its head." Some nuclear experts have debated for months whether nuclear reactions might be continuing, either in the fuel inside the reactors, or in the spent fuel pools at the plant. They have pointed, for example, to the continued reports of short-lived iodine in the spent fuel pool at Reactor No. 3. A former nuclear engineer with three decades of experience at a major engineering firm … who has worked at all three nuclear power complexes operated by Tokyo Electric … said that tiny fuel pellets could have been carried to different parts of the plant, like the spaces under the reactor during attempts to vent them in the early days. That would explain several cases of lethally high radiation readings found outside the reactor cores. "If the fuel is still inside the reactor core, that's one thing," he said. But if the fuel has been dispersed more widely, then we are far from any stable shutdown." Hopefully, nuclear expert Paul Gunter's fear that we face a "China Syndrome" – where the fuel from the reactor cores at Fukushima have melted through the container vessels, into the ground, and are hitting groundwater and creating highly-radioactive steam – will turn out to be overblown (even though NHK and Tepco have allegedly confirmed that steam was escaping from underground back in June, something Fukushima workers have alleged for some time):

Amy Winehouse New Album: Lioness: Hidden Treasures Posted: 04 Nov 2011 03:22 PM PDT I first mentioned Amy Winehouse back in April 30th, 2007: “A fierce English performer whose voice combines the smoky depths of a jazz chanteuse with the heated passion of a soul singer.” Her death at 27 was tragic but inevitable; Now comes news of a posthumous release of Lioness: Hidden Treasures. Its a full 12 track album from Winehouse, scheduled US release on December 6th, a mix of previously unreleased tracks, alternate takes, brand new compositions. Its likely to be a big seller in the UK.  The Guardian in London got to hear most of the songs recently. They wrote: “At best, the seven tracks sounded like the basis for another hit album, although it’s hard to make any kind of judgment on the basis of one listen. Several are based around demos or early versions of songs, to which Remi subsequently added vocal parts, backing tracks and more. He insisted that since Winehouse’s death on 23 July, he has only spent two weeks polishing the material. “Touching things up, adding some strings,” he said. “Just what you’d do with any recording.” Nonetheless, it is hard to believe that Winehouse herself – who oversaw every aspect of the two albums she released – wouldn’t have reworked much of the material that is to be put out. There are certainly times when her vocal on a song sounds more like a sketch, even if she was an instinctive artist who appreciated the magic of capturing a first take.” Regardless, I expect it will find its way to my gift list this year. The Guardian has a track by track discussion of the new album. Track List: Our Day Will Come Between the Cheats Tears Dry Like Smoke Halftime The Girl from Ipanema A Song For You (The above were the seven tracks played at the listening session) Best Friends Valerie Wake Up Alone Will You Still Love Me Tomorrow; (Shirelles cover) Body and Soul (Tony Bennett duet) (These were mentioned but not played) > Previously: Amy Winehouse (April 30th, 2007) Tragically Inevitable: Amy Winehouse Dead at 27 (July 23rd, 2011) Sources: Amy Winehouse album to be released in time for Christmas Caspar Llewellyn Smith Guardian, 31 October 2011 www.guardian.co.uk/music/2011/oct/31/amy-winehouse-album-released-christmas

Good Credit: MasterCard & Visa Posted: 04 Nov 2011 02:58 PM PDT Fri 04 Nov 11 | 02:40 PM ET Disclosure: We own Visa for clients in our Separately Managed Accounts.

Succinct summation of week’s events (11/04/2011) Posted: 04 Nov 2011 12:30 PM PDT Succinct summation of week’s events: Positives: 1) While Oct job gains were only 80k, the weakest in 4 months, the prior two months were revised up by a net 102k 2) Initial claims below 400k at 397k 3) Oct Vehicle sales in line with estimates but best level since Feb 4) China service indices mixed relative to expectations but both firmly above 50 5) Inida mfr’g PMI rises to 52 from 50.4 and South Korea rises a touch although remains below 50 6) RB of Australia cuts interest rates 25 bps to 4.5% to help economic growth as one of the only responsible central banks in the world gave themselves bullets over the past few years 7) ECB cuts rates to help economy but inflation is their mandate, Phillips Curve faith Negatives: 1) Within payrolls, avg hourly earnings up only 1.9% y/o/y vs CPI near 4% 2) ISM mfr’g and services both slightly below forecasts 3) US Oct retail comps light 4) Canada reports unexpected sharp drop in jobs 5) Papandreou creates chaotic situation in Greece with referendum call. I’m all for democracy but that’s what elections are for and he made a deal with his EU counterparts 6) Italian gov’t losing the faith of the markets to liberalize their economy, yields spike across their yield curve 7) EFSF can’t sell bonds, an embarrassment for this supposed AAA paper 8) German Sept factory orders unexpectedly fall for a 3rd straight month 9) Euro zone mfr’g and services composite index revised down to 46.5 with Italian mfr’g specifically down to 43.3 and services at 43.9 10) Euro zone CPI at 3%, holding at highest since Oct ’08, ECB bets it’s not sustainable with slowing economic growth, we’ll see 11) China mfr’g PMI falls to 50.4 from 51.2, Taiwan drops to 43.7 12) Bernanke officially lays groundwork for QE3. I say he is the most dangerous impediment to sound economic growth, more so than Congress that he has enabled and financed to spend the way they have.

Europe’s Tower of Terror Posted: 04 Nov 2011 12:00 PM PDT The circus continues in Europe.  No big bazooka EFSF coming out of G20 to put a firewall around Greece and save Italy.   Greece is a sideshow and the Italy-Germany bond spread is what you need to watch as an indicator of the short-term direction of the risk markets.  Clearly, at least to us,  risk wants to run into year-end but fear of the EU macro bear is palpable and reflected in the elevated VIX even on big up days. Maybe the U.S. markets can decouple, but the fear and linkage in the financials is just too strong, in our opinion.     Here's the scoop from AFP, Germany-Italy bond yield spread widens to record The difference between the German and Italian sovereign 10-year bond yields widened on Friday to a record of 4.57 percentage points. The difference in the cost of borrowing for the two countries widened because money flowed into safe-haven German bonds, pushing down the fixed interest on those bonds, while concern about the state of Italy's public finances sent Italian rates up. The yield on 10-year Italian debt also rose to a record high point, putting Italy close to levels at which financing its debt mountain is widely considered to be unsustainable. So what is the trade?   If Italy continues to blow out and a big bazooka EFSF bailout fund is not attainable,  the EU will be faced with certain death or massive ECB bond purchases.   We think they will choose the later, which makes the Euro a sell against the dollar and gold a buy, in our opinion. At that point, maybe the S&P500 and Euro will become less correlated.  Time to rewrite the algo?   And time to rewrite "risk on/risk off"?   Jusk askin'.

Daily Deals by the Numbers Posted: 04 Nov 2011 11:30 AM PDT In light of Groupon’s IPO, have a look at this cool graphic from BuySellAds: > Thanks, Scott!

Vizify + Twitter = Tweetsheet Posted: 04 Nov 2011 10:30 AM PDT Pretty cool trick — here’s what happens when you combine Vizify with Twitter — you get Tweetsheet! > click for updated version

Triumph Insult Comic Dog Goes to Occupy Wall Street Posted: 04 Nov 2011 10:28 AM PDT From Conan: Hat tip Andrew Upward

Employment Situation In Pictures Posted: 04 Nov 2011 09:00 AM PDT Let’s take a fun romp through some of the employment charts today: > via Calculated Risk ˜˜˜ ˜˜˜ ˜˜˜ ˜˜˜ ˜˜˜ Source: Bianco Research ~~~ via Bruce Steinberg

Are Italian Yields Once Again At The Tipping Point? Posted: 04 Nov 2011 08:15 AM PDT Comment Back on September 12, we examined Italian bond spreads and CDS.  At the time, 5-year Italian CDS was approaching 5% and 10-year Italian spreads to Germany were approaching 4%.  Now that these levels are once again being breached, as shown in the charts below, we revisit why these markets may be reaching a tipping point. . LCH Clearnet is the main clearing house of European bonds and CDS.  In October 2010 they released a circular which formalized some of their guidelines for margin requirements: • LCH.Clearnet Ltd monitors the yield spreads between 10-year bonds from each sovereign issuer and benchmark 10-year AAA government bonds. We would generally consider a spread of 450 basis points over the 10-year AAA benchmark to be indicative of additional sovereign risk and LCH.Clearnet Ltd may materially increase the margin required for positions in that issuer. As a guide, materially would likely mean an increase in the order of 15% of position size, with further material increases in margin charged as the spread deteriorates further. We will also consider whether additional margin is required from indicators in CDS prices or Market Implied Rating data. • Where a sovereign issuer is downgraded to sub-investment grade by a major rating agency we would generally expect market liquidity to be significantly impacted and may seek to apply additional margin for positions in that issuer. • If a Clearing Member and sovereign issuer subject to increased 'jump-to-default' risk are highly correlated ('wrong-way' risk) we would also seek additional margin. When Irish spreads breached the 450 basis point level, LCH Clearnet responded with a margin hike. A second and third margin hike were announced when spreads remained consistently over 500 basis points. While the bullet points above would lead us to believe that Italy may be close to a margin hike, these rules should not be considered definitive.  In a world where a 50% Greek haircut can be deemed voluntary, anything is possible.  In fact, officials at LCH Clearnet recently commented on the guidelines above by saying, "It is important to note that it is an outline guide to our approach to managing risk.  Our risk managers will use their judgement to determine whether, and if so how, we will utilise the framework." The ECB clearly understands the importance of the 450 basis point spread.  They have been rumored to have bought large chunks of Italian debt in an attempt to hold this level.  The fear is that, if this measure only postpones the inevitable, LCH Clearnet will have to make some difficult decisions in the near future.  Based on past precedence, it would appear as though Italy is once again dangerously close to the tipping point. Source: Bianco Research

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