The Big Picture

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• In the Dark
• Who are the Super PACs’ Biggest Donors?
• Bair: 5 Steps to Fix Wall Street
• Greek tax evaders 1, whistleblower journalist 0
• 10 Monday AM Reads
• Hunkered Down & Waiting . . .
• New Jersey, Pennsylvania and Connecticut Nuclear Plants In Path of Storm
• This Is How Scared You Should Be of Hurricane Sandy
• Look Out Below, Hurricane Sandy Version

In the Dark Posted: 30 Oct 2012 02:50 AM PDT We lost electricity about 3 PM yesterday. (No clue when it will come back on). We have plenty of supplies. I took some photos of the storm surge (I’ll post some later) After sunrise, I will check out local beaches/marinas. If Starbucks is open, I may get a post up later. Be back later . . .

Who are the Super PACs’ Biggest Donors? Posted: 29 Oct 2012 11:30 AM PDT This chart shows the share of all contributions given by the top ten donors to super PACs still active in the 2012 election, through September, 2012. Click for interactive graphic Source: ProPublica

Bair: 5 Steps to Fix Wall Street Posted: 29 Oct 2012 09:00 AM PDT I like this short list of fixes from Sheila Bair: 1. Break up the "too big to fail" banks Giant institutions and untested "living wills" is make financial system unstable. When the Fed is artificially keeping lending rates at near zero, that's a flaw. Solution: Make ‘em smaller 2. Publicly commit to end bailouts “Market must punish the boneheads." We should learn from post-2008 bailouts is we should never allow ourselves to be in that position again. Wall Street cannot have an indefinite option to "put" its losses to the Treasury and to taxpayers. Solution: Make penalties for asking for and getting bailouts egregious — wipe out shareholders, fire management. 3. Cap leverage at large financial institutions "Bank capital levels maybe isn't a mainstream issue, but it should be;" Limit banks’ abilities to take on risk via leverage or derivatives or whatever the latest "idiotic new innovation" Wall Street becomes infatuated with. Solution: Go back to firm 10 to 1 leverage rules. 4. End speculation in the credit derivatives market If arsonists can’t buy fire insurance on someone else's house, why allow speculation using credit derivatives?  Credit default swaps with no vested interested are the same thing. Solution: Require CDS buyers to demonstrate a specific interest. Even better regulate CDS as insurance products. 5. End the revolving door between regulators and banks Separating regulators from the regulated is crucial. Ending regulatory capture is key. Solution: Require longer periods of time between industry and regulator service. Good stuff . . .   Source: Sheila Bair: 5 Steps Obama or Romney Must Take to Fix Wall Street SUZANNE MCGEE The Fiscal Times, October 15, 2012 http://www.thefiscaltimes.com/Columns/2012/10/15/5-Steps-Obama-or-Romney-Must-Take-to-Fix-Wall-Street.aspx

Greek tax evaders 1, whistleblower journalist 0 Posted: 29 Oct 2012 07:30 AM PDT Australia’s forex reserves have risen materially – A$863mn in August and September. Basically, the Australian authorities are not converting forex inflows into A$’s – shows that they are concerned about the strength of the A$. Recently, the RBA has stated that the currency “was weighing more heavily on the economy than might have been expected”. I remain short, though reduced my short position recently – quite probably a mistake. (Source FT); Japanese retail sales rose by just +0.4% Y/Y in September, much lower than the +1.7% rise in August and worse than the +1.0% expected. Sales declined by -3.6% in September M/M, the largest decline since March 2011. The cessation of subsidies on cars impacted the numbers. With domestic consumption declining, combined with a downturn in exports, the economic situation in Japan is worsening, with the likelihood of declining GDP in the 2nd half of 2012. The Japanese finance minister states that Japan will run out of funds by the end of November unless the Parliament approves a bill to allow for further borrowings. The opposition have been blocking measures, demanding that the government first call a general election. This will, most likely, play out right down to the wire. The BoJ meets tomorrow – expectations are that they will announce an increase in the asset purchase programme of Yen10tr, together with firming up their language towards reaching an 1.0% inflation target – expected to be changed to inflation “goal”; Chinese markets declined to a 1 month low today. With corporate earnings and revenues from sales of land declining, the central authorities and the regions are facing reduced revenues. Reduced revenues will clearly restrict spending. Protests over building plants which are adding to pollution is rising. A planned petrochemical plant in Ningbo has been dropped. Pollution remains a serious issue in China, with a great deal of water supplies poisoned due to industrial development. As a result, agricultural production continues to suffer, which will require ever increasing imports; The new Indian finance minister Mr Chidambaram plans to reduce the budget deficit to 3.0% of GDP in the year to March 2017, from the current 5.3%. He plans to sell further state assets and reduce subsidies. If the deficit is not reduced, the ratings agencies will almost certainly downgrade India to junk status. The RBI meets tomorrow. A 25bps reduction in the cash reserve ratio is expected (going to be a tight decision), in spite of wholesale price inflation rising to 7.81% last month; The Troika have proposed that the EZ agrees to steep haircuts on previous loans to Greece – absolutely no chance, especially at this stage, but inevitable in due course. In addition, they suggest Greece be given 2 more years to meet its budget deficit targets. Added to this, they suggest that Greece will require E38bn in new funding – yeah right. The IMF has made it clear that it will not provide any further money to Greece, unless debt is reduced to a “sustainable level”. The Greeks have not agreed to the Troika’s proposals. Basically same old claptrap. One amazing report. The Greeks have arrested a journalist who reported on some 2,000 Greek tax evaders. The list was handed over to Greek authorities by Mrs Lagarde in 2010, when she was finance minister of France. The tax evaders – well they have not been touched. And yet the EZ wants to continue to pour money into Greece – go figure !!!!; PM Rajoy is meeting with PM Monti today. He is trying to persuade Italy to join Spain to request a bail out – no chance. Mr Monti is pressing Spain to request assistance as soon as possible. Both Spanish and Italian bond yields are rising, given the uncertainty and, in Italy’s case, political concerns relating to Mr Berlusconi threat to withdraw support from Mr Monti (unlikely) and a potential loss of support following elections in Sicily. Preliminary indications suggest that the Centre left party seems to be gaining support in Sicily, with Berlusconi’s party next; Spanish retail sales declined by -10.9% in September Y/Y, well below the decline of -6.2% expected. Yep, -10.9% – no typo. Retail sales were impacted by the higher VAT rate. Data on inflation, GDP and the budget deficit tomorrow will highlight the dire situation in Spain. The delay in requesting a bail out must threaten Spans credit rating, which is just 1 notch above junk. The Bank of Spain is to announce details of its proposal to set up a bad bank later today – expect to be disappointed; German October inflation (CPI) came in at 2.0% Y/Y, slightly higher than the +1.9% expected, though unchanged from September; Mrs Lagarde is to meet President Hollande today and Mrs Merkel tomorrow. The IMF is urging that the EZ accepts a haircut (significant) on loans to Greece – impossible, at this time. In addition, Mrs Lagarde will discuss the French economy with President Hollande. What’s the French for “a basket case”?; UK September mortgage approvals rose to 50.024k in September, from 47.921k in August, above expectations of 48k. Net mortgage lending rose by +£0.5bn. Consumer credit rose by +£1.2bn, from -£0.1bn in August, the largest rise since February 2008. I remain long the UK (London based) building/property sector; US September personal spending was higher by +0.8%, better than the +0.6% expected and +0.5% in August.Personal income was up +0.4%, in line with expectations and +0.4% in August. The deflator came in at +0.4%, also in line with expectations and a similar reading in August; Intrade gives a 63.1% chance of President Obama remaining as President; Outlook Asian markets closed lower, with European indicies following – Italy is particularly weak, given the political issues. US markets are closed, probably tomorrow as well, as a result of hurricane Sandy. Euro is weaker – currently just below US$1.29, with Gold at US$1711, and Brent (Dec) at US$110. Low volume in Europe, as US markets are closed. I remain cautious, indeed increasingly so. Kiron Sarkar 29th October 2012

10 Monday AM Reads Posted: 29 Oct 2012 07:00 AM PDT My morning reads: • Why Sandy Has Meteorologists Scared in 4 Images (The Atlantic) see also In Change of Course, U.S. Markets to Close Monday (Fox Business) • Passive Asset Allocation Vs. The World (Capital Spectator) • Shilling: Bargain-Addicted Investors Ignore Perils of Low Rates (Bloomberg) • SEC Weighs Bringing Back Fractions in Stock Prices (WSJ) • China or Japan? Let's Put America's Bankers Out of Business Now (Bloomberg) • UK: An Olympic bounce into a deleveraging headwind (FT Alphaville) • The Yankees’ A Rod Problem: Sunk costs and investing (AswathDamodaran) • Q&A with Gary Gorton: Misunderstanding Financial Crises (FT Alphaville) • You Know You Can't Live Without Apple's Latest Glass Rectangle (Bits) see also iPad Mini: Everything You Need to Know (GizModo) • Solar Stats That Will Blow Your Mind (The Motley Fool) What are you reading?   Breaking Down GDP Report Click to enlarge Source: HedgeEye

Hunkered Down & Waiting . . . Posted: 29 Oct 2012 06:09 AM PDT I never panic when these storms come. We live right near the water, but we are 75 feet above sea level, and set back 120 yards or so from the high tide line. My neighborhood often loses power, so we are well prepped. We take these things in stride. Long before the weekend, we had all the usual precautions set: We have lots of dry food and bottled water stored, plenty of batteries, paper goods, and an emergency hand crank radio with cell phone charger built in at the ready. SOP. When we know the storm is coming, we tank up the cars, get cash from ATM, take in the outdoor furniture cushions, flip over the tables, buy extra propane for grill, lock the grill wheels, remove the dangling/light stuff, put the garbage cans in the garage. We fill freezer bags with water, they go in the freezer (they will keep food cold for a few days if we loser power). Charge up everything that can be charged. You know, the usual suburban prep stuff. I always wonder how the people freaking out last minute forgot the “advance” part of advance planning. Last night, the gas stations and supermarkets were mobbed. This is so similar to investing: People never seem to think about the future before the storm, instead flipping out during or afterwards. Here’s some free advice: The time to read the card in the seartback in front of you is when you are before takeoff and on the tarmac — not when the oxygen masks drop after the plane dives 5,000 feet. This morning, I took the AWD wagon out to top it off at 8am (you cant pump gas if electricity goes out). There is a light drizzle, 10-20 mph winds. Roads were mostly empty, gas stations had plenty of gas, supermarket deserted. It was kinda creepy. I got a touch of the paranoia. So on the off chance that we would be without power for a week, I bought yet more emergency rations: Dried fruit, powerbars, bottled water, canned tuna, crackers, etc. Gas stations had plenty of fuel,  Supermarkets shelves were well stocked. ~~~ PS:   All you fiat money folks — the little green pieces of paper in my wallet bought me food, gas, water, supplies and medicine. Since you think they have no value, please contact me and I give them a good home. Be back soon . . .

New Jersey, Pennsylvania and Connecticut Nuclear Plants In Path of Storm Posted: 29 Oct 2012 05:00 AM PDT Hurricane Sandy May Score a Direct Hit On Spent Fuel Pools at Nuclear Plant Preface:  We hope and expect that the severity of the hurricane is being overblown, and that the nuclear plants in the Northeast will ride out the storm without any incident.     We noted Friday that more than a dozen nuclear plants are near Hurricane Sandy's path. Nuclear expert Arnie Gundersen says that there are actually 26 nuclear plants in the path of the hurricane, and that the spent fuel pools in the plants don't have backup pumps (summary via EneNews): You'll hear in the next 2 days, "We've safely shutdown the plant" What Fukushima taught us is that doesn't stop the decay heat You need the diesels to keep the reactors cool 26 plants in the East Coast are in the area where Sandy is likely to hit Fuel pools not cooled by diesels, no one wanted to buy them If recent refuel, hot fuel will throw off more and more moisture from pool Reactor buildings not meant to handle the high humidity Fuel pool liner not really designed to approach boiling water, may unzip if water gets too hot A lot of problems with allowing fuel pool to over Need water in around 2 days if hot fuel in pool The only fall-back if power is lost is to let fuel pools heat up EneNews also reports that the hurricane is forecast to directly hit the Oyster Creek nuclear plant and that – while the plant is currently shut down for refueling – it still might very well have new, very hot fuel in the fuel pools: Oyster Creek Nuclear Generating Station is located near New Jersey's shoreline in an area forecast to take a direct hit from Hurricane Sandy: "The current 'track center' for the landfall path is central New Jersey pointing Sandy in a path that would hit Oyster Creek nuclear station." -SimplyInfo       With Oyster Creek shut down for refueling starting last week, hot fuel may have been placed in the fuel pool quite recently. The unit at Oyster Creek is the same as Fukushima Daiichi No. 1: "Oyster Creek is one of the oldest US nuclear plants and is the same design as Fukushima unit 1." -SimplyInfo   Remember, Fukushima reactor number 4 was shut down for maintenance when the Japanese earthquake hit.  And yet the fuel pools at reactor 4 are in such precarious condition that they pose a giant threat to humanity. Hurricane Sandy is not very intense in terms of wind speed.  But the storm is so large, that storm surges could be 11 feet high. Obviously, the path of the hurricane could veer substantially, and may not hit Oyster Creek after all … weather forecasting is not an exact science.  But Gundersen argues that nuclear plants in Pennsylvania and New Jersey are in the most danger given current projections. As we noted Friday, the Salem and Hope Creek plants in New Jersey are also near the path of the hurricane, as are the following plants in Pennsylvania: Peach Bottom Limerick Three Mile Island Susquehanna Another concern is the Millstone plant in Connecticut: EneNews summarizes the situation in a post entitled "Officials in Connecticut warn of giant 16-foot storm surge, with 15-foot waves on top of that — State's nuclear plant directly exposed on ocean": The Hour: In a message sent to residents Sunday afternoon, [Norwalk, Connecticut] Mayor Richard A. Moccia warned of a 16-foot storm surge brought to land by Hurricane Sandy. [...] "I have declared a state of emergency in the City," he said. "Coastal flooding from this event will peak at midnight on Monday night and will be worse than any flooding Norwalk has experienced in recent history. If you have ever experienced flooding before it is likely you will be flooded in this storm." Moccia said that the storm will be equal to a Category 4 hurricane and will produce 16 foot storm surges. Westport Now: "The mood during the meeting was tense as federal officials estimated a 13-foot storm surge for Westport  [Connecticut] -– 3 or 4 feet higher that the inundation from Storm Irene last year," a news release said. "This is an unprecedented storm," said [First Selectman Gordon Joseloff], following his team's briefing with federal and state disaster preparedness officials. "This will be a storm of long duration, high winds and record-setting flooding. Take Storm Irene from last year and double it." he said. [...] The town is bracing for at least three waves of flooding, beginning with the high tide at midnight Sunday, the announcement said. [... An] estimated 15-foot wind-driven waves [...] are expected on top of the storm surge. According to the Weather Channel's latest map, a 6 to 11 foot water level rise is forecast for the Connecticut coastline. This is the highest increase of any area in the US. The state's only nuclear power plant is located directly on the ocean, see marker 'A' below: In July,  AP reported: Millstone Power Station, Connecticut's sole nuclear plant, is focusing on how best to guard against flooding and earthquakes to comply with tougher federal standards following the nuclear plant meltdown in Japan last year, the new chief of the power station said in an interview. Millstone is assessing its ability to withstand flooding and "seismic events," Stephen E. Scace, who took over as site vice president at Millstone in January, told The Associated Press on Thursday. He expects upgrades and installation of new equipment in the next three to four years.

This Is How Scared You Should Be of Hurricane Sandy Posted: 29 Oct 2012 04:00 AM PDT

Look Out Below, Hurricane Sandy Version Posted: 29 Oct 2012 03:27 AM PDT click for updated futures as of 7.32am   Stock and options exchanges are closed in the U.S. on Monday; this will be the first (unscheduled) market-wide shutdown since the 9/11 attacks due to the impending Hurricane Sandy. U.S. Securities and Exchange Commission announced that all trading of U.S. equities will be cancelled on Monday. Depending upon the impact of Sandy on Monday night, it is possible markets will be closed Tuesday as well. As you can see in the graphic above, Futures are still trading. Asian markets were mixed;  Crude is lower, but gasoline prices are ticking up. European markets fell modestly.

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