Nuclear Update: Fukushima Unit 4 Is Sinking (Unevenly) … Fracking Now Allowed within 500 FEET of Nuclear Plants

Fukushima Update: Unit 4 Is Sinking … Unevenly

The spent fuel pool at Fukushima Unit 4 is the top short-term threat to humanity, and is a national security issue for America.

As such, it is disturbing news that the ground beneath unit 4 is sinking.

Specifically, Unit 4 sunk 36 inches right after the earthquake, and has sunk another 30 inches since then.

Moreover, Unit 4 is sinking unevenly, and the building may begin tilting.

An international coalition of nuclear scientists and non-profit groups are calling on the U.N. to coordinate a multi-national effort to stabilize the fuel pools. And see this.

Given the precarious situation at Unit 4, it is urgent that the world community pool its scientific resources to come up with a fix.

Earthquake-Causing Fracking to Be Allowed within 500 FEET of Nuclear Plants


The American government has officially stated that fracking can cause earthquakes. Some fracking companies now admit this fact The scientific community agrees. See this, this, this, this and this.

Earthquakes can – of course – damage nuclear power plants. For example, even the operator of Fukushima and the Japanese government now admit that the nuclear cores might have started melting down before the tsuanmi ever hit. More here.

Indeed, the fuel pools and rods at Fukushima appear to have “boiled”, caught fire and/or exploded soon after the earthquake knocked out power systems. See this, this, this, this and this. And fuel pools in the United States store an average of ten times more radioactive fuel than stored at Fukushima, have virtually no safety features, and are vulnerable to accidents and terrorist attacks. And see this.

Indeed, American reactors may be even more vulnerable to earthquakes than Fukushima.

But American nuclear “regulators” have allowed numerous nuclear power plants to be built in earthquake zones (represented by black triangles in the following diagram):

 Earthquake Causing Fracking to Be Allowed within 500 FEET of Nuclear PlantsSome plants are located in very high earthquake risk zones:

No1 Earthquake Causing Fracking to Be Allowed within 500 FEET of Nuclear Plants

(Note: Ignore  the long lines … they represent the Missouri and Mississippi rivers, which present a huge danger of flooding nuclear reactors):

And they have covered up the risks from earthquakes for years … just like the Japanese regulators did. For example:

  • The NRC won’t even begin conducting its earthquake study for Indian Point nuclear power plant in New York until after relicensing is complete in 2013, because the NRC doesn’t consider a big earthquake “a serious risk”
  • Congressman Markey has said there is a cover up. Specifically, Markey alleges that the head of the NRC told everyone not to write down risks they find from an earthquake greater than 6.0 (the plant was only built to survive a 6.0 earthquake)
  • We have 4 reactors in California – 2 at San Onofre 2 at San Luis Obisbo – which are vulnerable to earthquakes and tsunamis

For example, Diablo Canyon is located on numerous earthquake faults, and a state legislator and seismic expert says it could turn into California’s Fukushima:

On July 26th 2011 the California Energy Commission held hearings concerning the state’s nuclear safety. During those hearings, the Chairman of the Commission asked governments experts whether or not they felt the facilities could withstand the maximum credible quake. The response was that they did not know.

This is similar to what happened at Fukushima: seismologists dire warnings were ignored (and see this.)

Yet the Nuclear Regulatory Commission doesn’t even take earthquake risk into account when deciding whether or not to relicense plants like Diablo Canyon.

Are They Fracking With Us?

American nuclear regulators are allowing earthquake-inducing fracking to be conducted mere feet from nuclear power plants.

As the Herald Standard reports:

Chesapeake Energy has a permit to frack just one mile from the Beaver Valley Nuclear Power Station in Shippingport. Whether that is cause for alarm, experts can’t say.




“Hydraulic fracturing near a nuclear plant is probably not a concern under normal circumstances,” [Richard Hammack, a scientist at the Department of Energy’s National Energy Technology Laboratory] said. “If there is a pre-stress fault that you happen to lubricate there (with fracking solution), that is the only thing that might result in something that is (seismically) measurable.”

That’s not very reassuring, given that “lubrication” of faults is the main mechanism by which fracking causes earthquakes. (Indeed,  the point is illustrated by the analogous fact that leading Japanese seismologists say that the Fukushima earthquake “lubricated” nearby faults, making a giant earthquake more likely than ever.)

And as Akron Beacon Journal notes, fracking is allowed with 500 feet of nuclear plants:

“We’re not aware of any potential impacts and don’t expect any,” said FirstEnergy spokeswoman Jennifer Young today. “We see no reason to be particularly concerned.”




[But] experts can’t say if the proposed well so close to two nuclear power plants is cause for concern.




DEP spokesperson John Poister told the Shale Reporter that there are no required setbacks specifically relating to a required distance between such shale wells and nuclear facilities, just a blanket regulation requiring a 500-foot setback from any building to a natural gas well.

Brilliant …


Reality Check: Is the US Housing Market Really Recovering? Part II


“Looking at an REO-to-rental strategy, and while a rental strategy is very important, we decided it wasn’t the best solution for the FHA, servicers, borrowers and their communities.”

Carol Galante

Federal Housing Administration Acting Commissioner 

Housing Wire…


This week in The Institutional Risk Analyst newsletter, we featured a comment on the housing sector, “Reality Check: Is the US Housing Market Really Recovering?” 

Below is a cross-post on Zero Hedge of some additional comments that need to be made given the amazing reports and opinions we keep seeing in the Big Media about the “housing recovery.”  As Paul Jackson, CEO at Housing Wire, said to me last night: “Just because we are all tired of the housing crisis does not mean that it is going away.”  

Hold that thought, especially given the dearth of discussion of housing in the presidential campaign.

The first point to make is that there are literally millions of homes in process of foreclosure that are not available for sale.  This is why the market seems “tight” in many areas.  The complaints from real estate agents about a dearth of supply are real, but these are not a positive indicator.  This situation reminds me of the transition period between new and old models of computer memory chips.  For a while, supply is tight.  Then comes a flood of product. 

“There are 2 million plus foreclosed awaiting movement to sales category,” notes Professor Anthony Sanders at George Mason University.  “But there are still millions of borrowers who can no longer qualify. Count the number who went through foreclosures and add some percentage for people who avoided foreclosure, but went late.”  

What many observers in the Big Media fail to appreciate is that the banks and the US government itself have deliberately create a supply squeeze in residential housing by slowing the foreclosure process.  By dragging their feet on foreclosure, banks delay the day of loss recognition and also keep supply off the market.  This is good for prices in the short-term, but does not solve the supply problem.  

This is why, for example, that the FHA has refused to get into the REO-to rental market.  FHA also has strict limits on the number of vacant homes it will put on the market in a given neighborhood.  No more than 50% of the REO properties purchased from FHA, for example, can be put on the market for sale as a vacant foreclosure, FHA Acting Commissioner Galante said last month.  Instead, the buyer needs to put in place another solution, such as leaving the homeowner as a renter of the home.

The second factor is buy-to-rent, a strategy that some banks and investors are using to divert foreclosed homes from involuntary sales.  The US government has also been moving foreclosed homes into the rental column, though is relatively small amounts.  Between the FDIC, FHA and the housing agencies such as Fannie Mae, Freddie Mac and other GSEs, there are literally millions more homes waiting to hit the market.  The only question is when.  

While the rental boom is much discussed in investment circles, the reality is that there is only so much demand for rental housing.  The soft economy is the key factor here.  As Professor Sanders noted in an email today:  “Look at M2 Money Velocity. It kind of says it all.”


Bloomberg M2 Chart

Thanks to Tony Sanders & Bloomberg

The sharp decline in M2 nicely illustrates the contraction of credit that continues unabated in the US.  While the Fed believes that zero rates and purchases of agency RMBS are helping the economy, I respectfully disagree.  Zero rates are taking income out of the consumer economy in order to subsidize the biggest banks and levered investors.  

And the Fed’s reckless Fed market operations are eroding investor confidence, especially institutional investors unaccustomed to taking first loss risk on fixed income securities.  Professionals understand concepts like duration and interest rate risk, Chairman Bernanke.

The Fed is actually driving deflation, not recovery, with zero rate policy.  The politics of this are particularly interesting, one reason why Mitt Romney should be more aggressive in criticizing the Obama Administration’s do nothing policy on housing as well as the Fed.  Consider the political geography of housing from the perspective of the American home owner.

The Blue states tend to have high house prices, meaning that the dearth of non-jumbo financing hurts Democratic congressional districts most.  In most states, the urban congressional districts (mostly Blue) have the highest housing prices.  Lefties like Nancy Pelosi (D-CA), Henry Waxman (D-CA) and Maxine Waters (D-CA) should support issues like retaining the mortgage interest deduction and expanding the cap on conforming loans.

Republicans like John Boehner (R-OH), Eric Cantor (R-VA), Paul Ryan (R-WI) and Kevin McCarthy (R-CA) should be opposed to the mortgage interest deduction.  Their constituents tend not to itemize on their taxes and get no benefit from the mortgage interest deduction.  They represent borrowers who are always performing borrowers and have not gotten refis due to the machinations of the GSE-bank cartel.  These borrowers live in the cheaper, Red districts, BTW.  Somebody remind Mitt Romney of that fact. 

The final factor that most of us still do not yet grasp is the impact on home sales of the decline in prices, especially on consumer behavior.  Chris Mayer, Paul Milstein Professor of Real Estate and Finance and Economics at Columbia Business School, observes that the dynamics of the housing market supply and demand are more complex than most people imagine:

“Part is foreclosures, but much of this is very tight credit and challenges in the trade up market. In a normal market we would have 5 million or more sales without distressed sales or purchases of new homes.  So from my perspective, the decline in home prices from peak and the mortgage market tightness are driving down sales from a normal market.”

He adds:  “Obviously unemployment and poor labor market conditions also play a role, but the bulk of homeowners still have a job and have not seen their incomes appreciably decline in the crisis.”

So if you keep hearing the Big Media touting the recovery of the housing market, just remember that for every home listed for sale in your area there as many as two or more comparable homes waiting in the wings to come onto the market over the next several years.  This is both good news and bad.  

Just remember that the net, net effect may be for prices to simply stabilize at current levels.  Or to put in another way, by Christmas we may very well see Case-Shiller and other indicators of home prices headed back down, erasing the gains made in housing during 1H 2012.  

To read my earlier comment, go to:

IRA Analyst – Reality Check: Is the US Housing Market Really Recovering?



THe GReaT DeBaCLe: RouND 4.0


Question for Obama: Who is the Khan of the Republic of Bloomfukistan?


Question for Romney: Who will you appoint as Ambassador to The Cayman Islands?


Question for everyone: What size douche bag is Issa?



Question for Obama: How many “enemy combatants” live on Park Avenue?


Question for Obama: What size girdle does Angela Merkel wear?



Question for Romney: Is it better to be called a twit or a muppet by the Queen?



Question for Obama: When did JM Keynes leave his native homeland of Keynesia?



Question for Romney: What is the import duty on Chinese dressage horses?


Question for  Romney: How many tax holidays are there in a traditional Chinese year?




Question for Obama: Which basketball game did you miss on May 2, 2011?



Question for both candidates: Will Club NDAA be located in the Carribean or the Lake District of Poland?




Deception can take many forms
It comes in political storms
It’s greeted with cheers
And plays on our fears
By those who would promise reforms

The Limerick King

China, China, Everywhere; But Not A Drop Of QE To Drink

With this evening’s news that Japan and the USA are ‘backing down’ from a planned ‘joint security drill’ to recapture a remote ‘uninhabited’ island in Okinawa province (apparently amid concerns of backlash from Beijing); and chatter of the PBoC gauging demand for reverse repos (instead of flooding us with newly minted Yuan which everyone believes is just the remedy), it seems very clear who the world’s super-power is (militarily and economically). Furthermore, as The Diplomat explains, multi-faceted challenges to the new leadership — possible economic stagnation, social unrest, elite disunity, and a revival of pro-democracy forces — will make it more distracted and less politically capable to maintain discipline on numerous actors now involved in China’s foreign policy.  The effects of such accumulated internal woes, while not necessarily aggressive, are certain to be an erratic pattern of behavior that both worries and puzzles China’s neighbors and the rest of the international community.


On China’s Political Transition (via Damien Ma’s interview with Foreign Affairs Magazine):


Via Minxin Pei of The Diplomat: Sorry World, What Happens In Beijing, WON’T Stay In Beijing

One of the questions on the minds of most China watchers these days is how Beijing will behave externally when it faces a far more difficult internal environmentOf the well-recognized challenges China will encounter in the coming years are its deteriorating economic dynamism, a structure of decision-making with diffused power and uncertain authority, rising nationalism, growing demand for political reform, and widespread popular disenchantment with the status quo.


In totality, these internal difficulties will reduce the resources available to maintain and expand China’s influence around the world, constrain the Chinese military’s ability to accelerate its modernization, and make Chinese leaders more reluctant to assume greater international or regional responsibilities.  Most worryingly, erratic behavior driven by a mixture of lack of leadership experience and political security will most likely mark Beijing’s foreign policy conduct in the coming years.


Given the high profile China has assumed in projecting its economic influence around the world, particularly in resource-rich developing countries, one might dismiss as fanciful the suggestion that looming economic hardships at home may severely limit Chinese capacity for establishing itself as an economic alternative to the West.  But a closer look at how China has been funding its investments in Africa, Central Asia, and Latin America would show that such investments are not only expensive, but also very risky.   The grants and concessionary loans China has made to various countries to gain their goodwill have totaled at least tens of billions of dollars (these are reported figures; nobody knows the real amount).  They were made when China enjoyed double-digit growth and had ample cash to throw around.


But as the Chinese economy decelerates and less money flows into Beijing’s coffers, the Chinese government will obviously have less funds to sustain such economic and diplomatic offensives.  Politically, continuing a lavish foreign aid program when its own people are struggling will surely arouse fierce criticisms from the public.  Not too long ago, the Chinese Foreign Ministry was denounced bitterly when it was revealed that China donated safe school buses to Macedonia when its own schoolchildren have to ride in unsafe vehicles.


China’s risky foray into developing countries will face another hurdle.  Most of the big-ticket projects China has supported in these countries are funded by loans from China’s state-owned banks.  Based on previous experience, many of these projects are likely to fail.  As Chinese banks are themselves expected to struggle to deal with a wave of non-performing loans at home, the last thing they want to do is to keep funding these high-risk, low-return projects abroad.  So it is a foregone conclusion that a weaker China at home means a less influential China abroad.


Another obvious casualty is China’s much-vaunted campaign to project its “soft power.”  Internally called “dawaixuan” (big external propaganda), this campaign has led to a huge expansion of official Chinese media presence around the world.  Xinhua, for example, has launched its English-language television news service.  The nationalist tabloid, Global Times, has added an English edition.  The official China Daily has regularly placed high-priced full-page ads in The New York Times, The Wall Street Journal, and The Washington Post.  Judging by the worsening of Chinese image around the world, this campaign has been a flop.  When Beijing’s propaganda chiefs get their new austerity budgets in a year or two, it is hard to imagine they will decide to throw good money after bad.


China’s waning economic, cultural, and diplomatic influence caused by dwindling financial resources will not be the only victim of its internal difficulties.  The People’s Liberation Army, which has enjoyed double-digit growth in its budget for nearly two decades, will probably have to fight harder for its share of a smaller pie.  The pace of Chinese military modernization could slow down.  To Chinese neighbors, this development will reduce their anxieties.  Washington, of course, might also breathe a sigh of relief.  However, such an outcome is by no means certain.  It is conceivable that the PLA may cite the American “pivot,” and territorial disputes with Japan, the Philippines, and Vietnam, to push for more defense spending.  Should the PLA succeeds in making its case, it will have to pay a high price because the Chinese military will be competing with other equally powerful political interests, such as state-owned enterprises, the bureaucracy, and local governments, for dwindling budgetary outlays.


Some Western observers may welcome such mounting woes inside China since they will diminish Chinese influence and reduce the “China threat.”  But be careful what you wish for.  A weaker China could nevertheless inflict serious damage to the world order.


One obvious casualty of China’s internal weakness will be Beijing’s reluctance to play a more constructive role in global and regional affairs.  Cynics might say that Chinese leaders, even when times were good, talked more than they actually delivered.  While some of such criticisms were true, a more objective assessment may show that Beijing has, on occasion, played a more positive role than it has received credit for, such as during the East Asian financial crisis in 1997-98 and in its push for regional free trade.  Even on the Korean Peninsula, it has made Pyongyang behave less belligerently since early 2011 (after failing to do so in 2010).


On Iran and Libya, China has also chosen not to be a spoiler.  On global climate talks, Beijing’s evolving negotiating positions have also improved considerably.  However, even China’s modest contributions to the world order could be at risk if its leaders, so distracted by domestic crises, decide not to make any contributions at all.


A piece of conventional wisdom about a weaker China is that it will be more belligerent because its leaders will have the incentives to divert domestic attention with appeals to nationalism and a more aggressive foreign policy. This is a simplistic understanding of how Beijing behaves.  To be sure, such temptations do exist, and one can expect China’s new leaders, hobbled by inexperience and lack of political capital, to pander to nationalist sentiments.  But Chinese leaders are no fools.  Talking tough is one thing, but acting tough is another.   When we examine Chinese foreign policy behavior in the last sixty years, we will find that Beijing, for all its bombastic rhetoric, actually has picked its fights carefully.  Acutely aware of their own limited military capabilities, Chinese leaders have avoided getting into fights they would be sure to lose.


If we apply this insight to speculating about Chinese external conduct in the coming years, the only thing we are certain about is uncertainty.  The confidence derived from a strong economy and relative domestic stability will be gone, and so will be the self-imposed restraints on jingoistic rhetoric.  Multi-faceted challenges to the new leadership — possible economic stagnation, social unrest, elite disunity, and a revival of pro-democracy forces — will make it more distracted and less politically capable to maintain discipline on numerous actors now involved in China’s foreign policy.  The effects of such accumulated internal woes, while not necessarily aggressive, are certain to be an erratic pattern of behavior that both worries and puzzles China’s neighbors and the rest of the international community.

Q3 Earnings Season To Date Summary: Ugly… And Getting Worse

Roughly one third of the S&P has reported earnings so far, with another third reporting in the next five days and almighty AAPL on deck Thursday evening, and if there is one word to describe what has happened so far, that word would be “ugly.” The same word would be used to describe how Q4 is shaping up to be. And that word will be very a optimistic prediction of what 2013 will bring unless a major catalyst develops that pushes Congress to resolve the fiscal cliff situation. So far that catalyst is missing. But going back to Q3 earnings, here is how Goldman’s David Kostin summarizes events to date: “3Q reporting season is roughly one third finished. Two early conclusions: (1) Information Technology results have been startlingly weak with high-profile revenue disappointments by the four horsemen: MSFT, GOOG, IBM, and ORCL. (2) EPS guidance for 4Q has been overwhelmingly negative across all S&P 500 sectors with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect further EPS cuts of 6% loom ahead. Firms reporting next week: AAPL, T, PG, MRK, CMCSA, AMZN, COP, AMGN, OXY, MO, UTX, MMM, CAT, DD, and FCX.” Sorry Bob Pisani, better luck spinning earnings favorably next QE.

More detail on what is shaping up as the ugliest earnings season (even with DVA and loan loss-reserves included) in years:

Two early conclusions from 3Q earnings season: (1) Information Technology top-line sales results have been weak lead by MSFT, GOOG, IBM, and ORCL. Since the start of 3Q reporting season, analysts have cut 4Q sales forecasts for those Information Technology firms  reporting results by 70 bp, lowered margin forecast by 43 bp and cut expected EPS growth by 260 bp. (2) Earnings guidance for 4Q has been overwhelmingly negative across the S&P 500 with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect reductions of perhaps 6% still need to take place.


The distribution of 3Q results has been lower than the historical average. 117 firms in the index have now reported 3Q results (34% of total cap). 37% of companies beat earnings estimates and 21% missed. In a typical quarter, 41% of companies exceed EPS expectations and 13% miss.


The bar for 3Q earnings season is very low. First, 2Q results disappointed with twice as many revenue misses and one half as many beats compared with a typical quarter. Second, guidance heading into reporting season was more pessimistic than usual with 80% of firms guiding below consensus compared with prior quarters when the midpoint of guidance falls below the average analyst estimate roughly 67% of the time. Third, analysts slashed 3Q earnings estimates by 5% during the quarter, leading to the expectation that 3Q 2012 would witness a 1% year-over-year decline in EPS versus 3Q 2011.


Sales are disappointing again in 3Q with year/year growth of just 2% and negative surprises of 30 bp. 15% of firms beat consensus sales expectations by more than one standard deviation (below the historical average of 35%). In addition, 36% of firms have missed sales  estimates by that magnitude, versus 19% historically. Revenue estimates for 4Q have declined by 30 bp.


Margin of 8.6% is slightly below the expectation at the start of earnings season (8.7%) and represents a

year-over-year decline of roughly 33 bp. Information Technology results have been particularly disappointing. Microsoft (MSFT) and Google (GOOG) missed revenue and earnings estimates and IBM and Oracle (ORCL) missed sales estimates. The sector actually posted a nearly 1% positive surprise in revenue relative to analyst expectations. However, analyst methodology for forecasting financial results for certain Information Technology companies differs from the Standard and Poor’s definition of revenues and operating earnings.


Apple reports on Thursday evening. Consensus expects the company will grow 3Q EPS by 28% versus last year. AAPL sales are forecast to rise by 31%. Consensus expects margins will fall by 46 bp to a still stellar level of nearly 23%. Analysts expect AAPL will be the second largest contributor to S&P 500 earnings representing 3.7% of 3Q 2012 EPS and 20% of Information Technology earnings. AAPL represents 4.5% of S&P 500 equity cap and 24% of the Information Technology sector. While Apple’s share of 3Q EPS is not in proportion to its share of market cap, this appears to be a seasonal issue. Next quarter, consensus expects AAPL will contribute 6% of S&P 500 EPS. Information Technology sector is expected to grow 3Q earnings by 7% year/year. However, the sector earnings growth is just 3% excluding AAPL.


Managements are lowering guidance, indicating downside to 4Q EPS. Fully 20 companies have provided 4Q guidance following their 3Q earnings announcements and 18 of these firms have reduced 4Q profit guidance. The midpoint of guidance was below the mean consensus estimate in all but two cases. Although guidance tends to be downbeat, this is especially negative.


4Q EPS estimates for reported companies are down by just 40 bp. We expect further negative 4Q EPS revisions will occur most likely as a result of reduced margin estimates. We forecast full-year 2012 S&P 500 earnings of $100 per share. Assuming no change in 3Q EPS, 4Q estimates would have to fall by 6% to reach our full-year estimate.


Next week 160 firms representing 31% of S&P 500 market cap will report results. At the sector level, 41% of Health Care, 39% of Industrials, and 35% of Information Technology as measured by market cap will release results. Large companies reporting include: AAPL, T, PG, MRK, CMCSA, AMZN, COP, AMGN, OXY, MO, UTX, MMM, CAT, DD, and FCX.

And the purdy charts to go along with the narrative:

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