Japanese Market Plummets 20% in 2 Days on Radiation Threat

The Nikkei slid 14% last night (3/15/11), and recovered 3% to end net 11% down for the day after the Japanese government banned brokerages from selling. This was after a 6% down day on 3/14 and a poor prior week. Both the TOPIX and the Nikkei are now down more than 20% for the year on the risk that nuclear radiation will pose a threat to Tokyo. Traders in Tokyo and Hong Kong said hedge fund selling of Nikkei futures, especially the Singapore-listed contracts , was behind the deepest drop in Japanese shares. Cash volumes on the Tokyo Stock Exchange hit a record for a second day running.

These equity sales were triggered by the explosion of a fourth nuclear reactor 130 miles away from the city, leaking lethal amounts of radiation.

An explosion and fire at the Fukushima Daiichi nuclear plant at 6: 10 am local time prompted officials within a 30-kilometer radius to stay indoors. This was the message released (translated):

"Please do not go outside. Please stay indoors. Please close windows and make your homes airtight. Don't turn on ventilators. Please hang your laundry indoors," Chief Cabinet Secretary Edano said to the residents in the danger zone. "These are figures that potentially affect health. There is no mistake about that."

According to the Associated Press, about 140,000 people were impacted by the warning.

Soon after the explosion, heightened levels of radiation were detected in Tokyo, 175 miles away. Radiation levels in Tokyo were 23 times the normal level in the city.

According to ABC News, "The Japanese government formally has asked the U.S. Nuclear Regulatory Commission for help in stabilizing its troubled nuclear reactors in the wake of the country's massive earthquake and tsunami. The NRC sent two boiling water reactor experts to Japan as part of a team of aid workers to help in the recovery efforts."

With this explosion at Fukushima, since the roof did not fall off the rod casing, the pressure is trapped within the vessel around the core, which will allow radi0active material to seep out. The real risk here is the risk of a meltdown, which could affect the health of millions in Japan and nearby nations. The fuel rods in all three of the reactors at the Fukushima plant appear to be melting.

The Japanese government reacted hours ago by adding $98 million in liquidity to the market, but this did not alleviate the stress in the market as U.S. 10 year yields jumped and DAX fell 4.5% in Europe. Hong Kong's Hang Seng Index tumbled 2.9%, China's Shanghai Composite lost 1.4%, Australia's S&P/ASX 200 shed 2.1%, Taiwan's Taiex skidded 3.4% and South Korea's Kospi fell 2.4%. India's Sensex shed 0.9% in afternoon trading. Brent crude fell more than 2.2% to below $112, while U.S. crude dropped to almost $98 a barrel.

$364 billion in Japanese wealth was just evaporated in a matter of 4 hours. Relying on the Japanese private insurance system is now out of the question.

The document below (LA Blog) shows an overview of the earthquake insurance system in Japan, which certainly cannot cover this mess.

http://leverageacademy.com/blog/2011/03/15/japanes...

Comments (19)

Mar 15, 2011

Buy Topix, this is a once in a lifetime opportunity.

Mar 15, 2011
BankingRUs9:

Buy Topix, this is a once in a lifetime opportunity.

Completely and utterly speculative right this second. There's still a very strong chance of an aftershock reaching 7 on the Richter scale and if a reactor really blows up, the Topix will get smoked. If there's no bad news tomorrow, stocks might rebound after being oversold since they've gapped down twice now but medium to long-term, Japan will probably end up underperforming.

Mar 15, 2011

Yeah right, buy the index. If you know anything about trading, then this is a situation where you either stay away from the market or short it. What's the upside? Look at the downside - possibly a scenario worse than anything ever seen regarding nuclear catastrophes. When the Nikkei opened in the beginning of this week, you did not have to be a genius to see what was coming.

This view is excluding any ethical influences.

Mar 15, 2011
ezekiel235:

Yeah right, buy the index. If you know anything about trading, then this is a situation where you either stay away from the market or short it. What's the upside? Look at the downside - possibly a scenario worse than anything ever seen regarding nuclear catastrophes. When the Nikkei opened in the beginning of this week, you did not have to be a genius to see what was coming.

This view is excluding any ethical influences.

I agree with you that the panic has not quite gone irrational yet, but I do think the Nikkei may be starting to get to undervalued levels. The best sign is when the short hedge funds go on CNBC claiming Tokyo will become a ghost town, Japan is finished, and people can't go swimming in Australia and Hawaii anymore.

So if you are invested in the Nikkei, I'd hold onto it if you can afford to watch another 25% evaporate over the next few days. That said, doing that is easier said than done. I knew a panic would be coming in the nuclear sector, I knew a lot of it would be overblown, I protected myself with puts on Friday knowing vol would go up the second I heard of the unfolding LOCA, but it is still very tempting to sell right now.

Bottom line- I wouldn't place a long-term bet against Japan.

Mar 15, 2011

prime opportunity for value investments in japanese companies, some of which were already undervalued

Mar 15, 2011

I love it how they were so optimistic when the reactor blew. The prime minister played it all cool. For the sake of Japan I hope there are effective scientific countermeasures against added exposure besides seawater.

Mar 15, 2011
karypto:

I love it how they were so optimistic when the reactor blew. The prime minister played it all cool. For the sake of Japan I hope there are effective scientific countermeasures against added exposure besides seawater.

possibly because they had bigger issues, here is a walk through of why there is not a significant nuclear risk
http://www.businessinsider.com/japan-reactors-pose.... not sure on biases or actual validity, but there are quite a few articles agreeing with this one, written by very smart people.

Mar 15, 2011
Cal.Bear.Finding.Bulls:

possibly because they had bigger issues, here is a walk through of why there is not a significant nuclear risk
http://www.businessinsider.com/japan-reactors-pose.... not sure on biases or actual validity, but there are quite a few articles agreeing with this one, written by very smart people.

Well, it appears that the third containment- the sealed concrete container- may not necessarily have a gaping hole in it, but at least has a leak. The containment is reported to have seen its pressure decrease from 3 ATM to 1 ATM:

http://www.nei.org/newsandevents/information-on-th...
The author is correct that this will not be a Chernobyl like situation, but I think the disaster is going to make the BP oil spill look like a picnic. Fission products like Cs-131, I-137, and Sr-91 have ~30 year half lives. The author misses the fact that the fastest emitters of radiation have had a chance to cool down since the nuclear reaction shut off four days ago. Now they are measuring rather unhealthy levels of radiation at the reactor site- 100 millirem per hour- enough energy to risk causing acute radiation sickness over about a month of exposure. Yes, this will come down over the next few months, but a significant portion of it may be getting caused by longer-lived fission products.

As an engineer, I think it is too early to put any bounds on this accident besides the fact that it will probably not be worse than Chernobyl even with potential meltdowns at all six reactors and even with some sort of disaster at the spent fuel pool. I'm not sure how likely other meltdowns are, but if they can keep the problem contained to just this one reactor,and keep the fuel from being exposed to the open atmosphere as well as prevent large amounts of fission products from leaking out into the environment, we may wind up with less damage than the gulf spill.

It's just too early to tell. My engineering profs all said the 6-ft-thick containment floor should be able to hold, but they also said you shouldn't see a decrease in pressure from the secondary containment. If we get a hydrogen explosion that rips the roof off the secondary containment, we could be in trouble. If we have to pour water into the reactor to cool the fuel and that water is leaking out carrying large amounts of Cesium with it, we could be in trouble, albeit probably a little less. Better to have a leak that stays closer to the reactor site than an explosion that carries the material offsite.

There's a lot of uncertainty and a lot of variance, here. Give it two weeks; wait for the dust to settle.

Mar 15, 2011

It's tough to speculate, but this will not be as bad as Chernobyl where a steam explosion threw a sizeable chunk of the fuel into the air. Some environmental activists have raised concerns about the MOX fuel with Pu-239 in it, but the vast majority of the radioactivity in the fuel comes from the fission products- like Cesium 137 and Strontium 90.

If you're downwind of the reactor, you need to stay indoors and ideally take an iodine tablet. Afterwards, find a doctor you trust and get a blood test so you are not worrying about your radiation exposure.

Mar 18, 2011
IlliniProgrammer:

It's tough to speculate, but this will not be as bad as Chernobyl where a steam explosion threw a sizeable chunk of the fuel into the air. Some environmental activists have raised concerns about the MOX fuel with Pu-239 in it, but the vast majority of the radioactivity in the fuel comes from the fission products- like Cesium 137 and Strontium 90.

If you're downwind of the reactor, you need to stay indoors and ideally take an iodine tablet. Afterwards, find a doctor you trust and get a blood test so you are not worrying about your radiation exposure.

IP, if I could have your technical knowledge for one day...

Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.

-Niccolo Machiavelli

Mar 15, 2011

IP, repping the U of I. Good to see an engineer weigh in.

Mar 15, 2011

Now take some risk off the table, I bought EZJ at open for over 10% gain. Cheers.

Mar 15, 2011

So does EZJ track index futures during the US market hours?

Mar 15, 2011

Security Description Notional Value Market Value Shares/Contracts
MSCI JPY SWAPS 26,063,064.22 - 34,573.28
Net Other Assets / Cash - 13,055,984.75 13,055,984.75

2x daily, uses swaps to mimic index futures - don't hold long term

Mar 15, 2011

Well played then. For some reason, I had never considered what ETFs on foreign indices were going off of during US market hours. Silly me.

Mar 15, 2011

thank you sir

Mar 15, 2011

it was a Leverage Academy fund trade

Mar 19, 2011

Alas, the facts on the ground might just be proving me wrong.

I was a huge nuclear booster three weeks ago and figured Chernobyl was an anomaly that affected only Russian-made RMBKs which had a nonexistent containment and a graphite-moderated nuclear reaction.

What I hadn't taken into account was the spent fuel pool, which contains several reactors worth of radioactive material- having a 30-year half-life.

So I'm afraid I have to retract my view that this will definitely be not as bad as Chernobyl in terms of environmental damage. In terms of the human toll from the actual nuclear meltdown (it's fair to call it a meltdown at this point), Japan has at least been relatively straightforward about the need for an evacuation- something that the USSR was not 25 years ago.

Guys- I'm just a guy with a Computer Science Engineering degree who took an introductory nuclear engineering course six years ago out of more than a dozen required for an actual major. It's hard to say I have technical knowledge on this. I know a thing or two about how nuclear plants work that the media doesn't seem to understand (a lot of engineers do), but I'm hardly an expert on this. And the funny thing is that even the experts are getting proven wrong with this accident. The Mark I containment was supposed to be practically impregnable like all western containments- and the exact same design is used in some of our Boiling water reactors in the US.

There's a lot of unknowns here. I was smart enough to buy protective puts on my uranium miners upon news of a Loss of Coolant Accident on Friday, but there's now a lot of folks with nuclear engineering undergrads and even PhDs who are a lot smarter than me advising the hedge funds.

Just be careful. Unless you've got a structural engineering or nuclear engineering background, I'd seriously think about stay away from any serious bets here at this point. And even then, you'd better have a good reason why you're right and the guy on the other side of the transaction is wrong. As for me, I'm not doing any more trades in the nuclear sector. The guys ultimately on the other side of the transaction are probably a whole lot smarter and better informed than me.

Mar 19, 2011
Comment

Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.

-Niccolo Machiavelli