The Chernobyl Option

Yesterday we briefly touched on what happens when fuel rods have been left exposed too long, they melt into a radio active blob and sink to the floor of the steel containment vessel which makes the blob extremely hard to cool at that point because there's less surface area. Yesterday we speculated that process may have already begun as there are leaks in the containment vessels.

Just out from the Guardian, it seems the worst scenario has occurred and reactor #2 has experienced a melt down, which makes it just a matter of time before all containment fails. The Guardian says that the actual steel containment vessel has likely been breached and a radio-active blob is now on the concrete floor of the containment building which houses the steel containment vessel.

It seems it's too late now to save reactor #2, which essentially means we can expect a massive release of radiation making it that much harder to deal with reactors 1, 3 and 4. If we follow the logic here, then similar events will occur in the remaining reactors and Fukushima is for all intents and purposes a total loss.

The only thing left to do is to launch plan C, the Chernobyl option and encase the entire complex in a concrete sarcophagus.

As for the market, Japan obviously is no where near the size of the Ukraine. What happens to the Japanese economy (I'm talking about the nuts and bolts, whether citizens will evacuate Tokyo or not) remains to be seen. Everyone is talking about costs of rebuilding, etc., but if you were Japanese and had any alternative which would allow you to leave the 4 island nation, what would your choice be? As Japan is (for now) the world's 3rd largest economy, this will have unimaginable consequences. As a major producer of advanced electronics, there are thousands of companies that will be effected immediately and for the foreseeable future.

2011 has gotten off to a historic, world changing start. From events in MENA, Europe, Asia and the U.S., it seems the whole world is about to be permanently realigned. The thing the market will be most concerned with immediately is the uncertainty of each of these unique situations. The market doesn't like uncertainty and has a habit of cutting and running when it can't understand, predict and accurately discount events. Being there is little if any precedent for each of these unique situations, it's not difficult to imagine why yesterday at 3 p.m. through the close, we saw huge sell side volume. Monday was the last day for the market to position itself (when accounting for T+3 settlement) before the end of the quarter tomorrow. The positioning was without a doubt negative. In fact in the market environment we've been in the last two years, one would have expected the exact opposite of yesterdays late day selling, that is if we failed to consider world events.

The market is telling us something, we need to listen.