Fukushima’s Tritium Disaster Dwarfs The Titanic
By Yoichi Shimatsu
|In blatant disregard and denial of the ill effects of tritium on human health and the global ecosystem, the Tokyo Electric Power Company (TEPCO) is preparing to dump nearly a million short tons of tritiated wastewater from its storage tanks at Fukushima directly into the Pacific Ocean. The massive release of radioactive wastewater is casting the Pacific Rim and Arctic nations adrift onto the uncharted waters of a planetary catastrophe.
This premeditated crime stands in direct violation of the 1972 London Convention on Prevention of Marine Pollution and subsequent treaties, to which Japan is a signatory, forbidding ocean disposal of nuclear waste. Instead of building new storage tanks to replace the current units, which are past the 5-year expiry date, TEPCO in its drive for profitability can get away with gross violations of international law because the Japanese ministries of foreign affairs, fisheries, education and economic development aid have bribed the leaders of Pacific Basin nations, an open secret well known in the International Whaling Commission.
During the Fukushima meltdowns, Tokyo permitted and even encouraged TEPCO to release unprecedented amounts of radioactive isotopes in water and solid waste into the ocean. During the crucial years 2011-2014, the Tribunal of the UN Convention on Law of the Sea (UNCLOS) was under the thumb of its president Shunji Yanai, a diplomat and key supporter of Japan’s nuclear-weapons armament. No legal complaints were brought against Japan’s sea disposal, in notable disregard of the secret sea-dumping of weapons-grade plutonium. Not a whisper of objection was voiced by the top politicians of those “ banana republics of the north”, the U.S. and Canada, suppliers of reactors and uranium respectively for Japanese nuclear-energy companies.
In parallel to the despicable political cowardice and avarice, not a single research laboratory or scientific institute has ever issued a letter of protest over the geophysical impact of cumulative radioactive dumping along the tectonic subduction zones and volcanic vents on the seafloor. The institutions responsible for protecting public health and the marine environment from a nuclear disaster, including the IAEA, Japan’s Economy Ministry, the U.S. Department of Energy, NOAA and the WHO, have no clue about how to stop the continuing disaster spewing out of Fukushima and lack an iota of political will to stop this madness.
Their sole emergency response has been resounding silence and occasional disinformation to conceal the extent of the crisis. The scientific chicanery and lack of concern for public health is an ethical calamity in a certain sense more sordid than the mass murder now being perpetrated by the nuclear industry. Make no mistake about it: we are heading, amid this environmental and moral catastrophe, toward a day of reckoning when the perpetrators, collaborators and beneficiaries behind this monumental crime against humanity will face stern swift justice without a glimmer of mercy.
Q&A: Way Down Below the Ocean
A titanic force is gathering at the bottom of the Pacific Ocean, a powerful cocktail of radioactive isotopes and pure plutonium out of Fukushima and from other nuclear power plants since even before the 2011 reactor meltdowns.
Far from being a “lesser” threat as compared with cesium, strontium or particles of uranium, the heavy water elements of tritium and deuterium pose the potential danger of combining in a fusion reaction powerful enough to trigger earthquakes, tsunami and volcanic eruptions along The Ring of Fire. Contrary to the mistaken belief that seawater only quells nuclear reactions, the seabed is a natural test site for detonating fusion reactions. The Q&A is followed by a backgrounder discussion of the curious phenomenon called “muon-catalyzed cold fusion”.
– The starter question is: Does tritium dumping on this grand scale hold hidden dangers besides the radioactive poisoning of seawater, clouds and drinking water?
– The short answer: If released in large volume, tritium and its companion deuterium dumped into the ocean can fuse together in an uncontrolled chain reaction called muon-catalyzed cold fusion, which releases gamma rays and explosive energy.
In contrast to thermonuclear fission of enriched uranium or plutonium, which requires an enormous energy boost, muon-catalyzed cold fusion can start spontaneously at or below room temperature. Three components are needed to trigger this type of nuclear reaction: tritium and deuterium along with a muon, which is a subatomic particle derived from cosmic rays called neutrinos.
While laboratory experiments have been conducted since 1956, the potential for an uncontrolled fusion reaction outdoors in nature was inconceivable until TEPCO decided to dump its heavy water into the sea. Hence, we are playing catch-up with reality, if for no other reason than not to suffer the shock of ignorance like the civilians in Hiroshima when the bomb dropped. It’s all-important to know what’s hitting us.
– Q: Can muons occurring in nature trigger a large-scale fusion reaction between tritium and deuterium in the Pacific Ocean?
– A: Thus far in the Nuclear Era, the amount of tritium released from nuclear power plants and nuclear-powered war vessels has been insufficient for fusion by muon catalysis. A relatively short half-life of 12 years has also limited long-term build-up of tritium in the sea.
What makes seafloor fusion possible in the near future is the sheer volume of tritium and deuterium in the 777,000 metric tons of wastewater soon to be released from Fukushima. That’s of a different order entirely from heavy water releases of the past. All of a sudden, the threat dimension of tritium-deuterium fusion has emerged.
– Q: Won’t tritium and deuterium be dispersed across the Pacific and become too diluted to pose any threat?
– A: The hoax of dispersal and dilution of radioactive isotopes is shameless nonsense and part of a disinformation campaign by the nuclear industry, its supporters in government and publicity agents. Research studies have shown that heavy water, as its descriptor suggests, is denser than ordinary “light” water and seawater, and therefore sinks, especially in the colder waters off northeast Japan and the northern tier of the Pacific as well as the Arctic Ocean.
Along the seafloor, tritium and deuterium collect in depressions in the rock or keep moving along currents until reaching deep trenches. What is worrisome is the proximity of Fukushima to major subduction zones as well as other risk factors, including the high-grade plutonium secretly dumped into the ocean in the year following the 2011 meltdowns.
A fusion reaction can act as a trigger to unleash seismic forces or to initiate a powerful fission explosion by uranium-derived radioactive materials. If the tritium-deuterium mixture happens to settle over containers of high-grade plutonium, especially along an undersea fault or volcanic vent, that’s a problem much more serious than a deep-sea submersible vessel can handle. The Japanese Natural Resource Agency operates undersea mining vessels, but it will be difficult to convince the culprit government to admit that it did something as reckless as dumping war-grade plutonium off the coast. Another problems is extreme difficulty for a salvage operation to vacuum-pump heavy water from a great depth.
Temperature makes a great difference between the planned release of cold tritiated water and the earlier hot escape in 2011. The earliest tritium flows during the reactor meltdowns escaped containment as steam, rising in a heat column up to the jetstream across the Pacific and settled on colder places, including the mountains of North America, volcanic peaks in Hawaii (where mutated flowers were discovered in the following year) and across the Arctic region. Due to emission of heat energy and its different melting point, the tritium fallout fragmented the Arctic ice sheet and frozen lakes in northern regions. The Obama administration did absolutely nothing about the Arctic tritium crisis, and so the ball’s now in the court of the Trump team, which has also donned a blindfold even as the polar bears and walruses die off.
Q: Can muon particles reach the tritium and deuterium that’s concentrated on the seafloor?
A: Now for the bad news. Muons don’t just descend from the sky above the waves. Muons are created by neutrinos penetrating Earth from all directions, including the antipodes, meaning the opposite end of the planet. Neutrino collisions with minerals in the bedrock create muons. The deep water above the seafloor is constantly being bombarded by muons coming from all directions. Arguably, the deep sea is an optimal “lens” for fusion reactions.
Hardly anything is known about these undersea threats because the funding from NOAA and other agencies for benthic research is allocated to the “gold rush” to strip minerals from the seafloor or to study organisms inside volcanic vents. Instead of get-rich schemes or pondering how life began, it would have been better to invest in studies of how life on Earth could end. The world’s navies have dumped their nuclear reactors and depleted uranium into the ocean, so undersea radioactivity research has never been encouraged by governments.
As an example, one strange factor that could radically increase the efficiency of muon-catalysis are the vast layers of methyl hydrate, a type of frozen hydrogen interlaced with ice, called “fire ice”. This crystal matrix could provide a stable structure for efficient muon interactions with strategically placed tritium and deuterium, resulting in massive releases of neutrons and high energy. However, fire-ice has been researched solely as an alternative fuel and never for these sorts of risk factors. As a consequence of greed, environmental irresponsibility and neglect of risk, practically no attention is paid to explosives and toxic chemicals piled on the seabed. It’s a situation of waiting for an accident to happen.
Q: Can a fusion reaction trigger secondary explosions?
A: In an idyllic natural world, no, but this mangled planet is anything but idyllic or natural. There is a huge amount of radioactive material from nuclear plants dumped off the coast of Japan (3,000 containers prior to Fukushima 2011), South Korea and the United States. Besides that, the world’s seabeds contain an estimated 4 billion tons of natural uranium of unknown purity. During the year after the 2011 disaster, the Japanese nuclear authority removed weapons-grade plutonium from several secret sites in the greater Fukushima complex and dumped the highly reactive fissile material into the Pacific Ocean. Without maps or other public information about where those plutonium piles are located, it’s not advisable to dispatch a salvage vessel because it will end up as another Lucky Dragon No.5, the trawler irradiated near Bikini Atoll.
If muon-catalysis occurs near any of those dump sites, the fusion reaction could trigger a standard fission explosion. Note: the cold temperature of deep seawater should tend to suppress and quell a fission reaction, that is, if there are no mineral sources of oxygen nearby. One thing is certain: the sea is full of surprises.
If an explosion occurs near a seismic fault or volcanic vent, the initial shock wave alone could trigger tectonic forces or even tilt the Earth off its axis, as happened during the March 14, 2011 explosion of Reactor 3. The sun doesn’t set where it used to pre-Fukushima. The Earth is similar to a spinning top, and if the undersea blasts are strong enough, the planet will wobble wildly and might even topple over, and there goes all the air and water flung out into deep space.
Q: Can a fusion reaction by itself or in combination with a fission blast cause an undersea earthquake or an volcanic eruption?
A: If the initial explosion occurs at a build-up point of seismic tension, an undersea quake could ensue. The San Andreas Fault is patrolled by a security force to prevent just such a terrorist attempt to artificially trigger an earthquake. Japan is at the convergence point of three major subduction zones between four huge tectonic plates, meaning huge pressures are brought to bear on a relatively small geographic area. Therefore a fusion blast could indeed trigger a series of earthquakes, tsunami and volcanoes, any of which have the potential to destroy an onshore nuclear reactor as happened on 311.
Q: Can this series of catastrophes threaten the human future on this planet?
A: In London and Las Vegas, bookies are not giving odds on the end of life on Earth, if only because there won’t be anyone left to collect their winnings. A nuclear disaster is one of few possible catastrophes (others include a gigantic meteor strike and death rays from a supernova) that can eliminate the vast majority of species on this planet. Fukushima has probably done more harm to a greater number of species than any threat since the Ice Age and possibly, before this crisis is over, even more than the meteor that wiped out the dinosaurs.
The full extent of damage from Fukushima is yet to be seen, much less assessed, and undetected factors including radioactivity-caused DNA mutations in the human gene pool, may have already doomed our fragile genome. It’s not helpful that the nuclear regulators and scientific institutions remain in denial, or that there exists no civil defense system to protect the public while the Fukushima effects worsen.
Q: What can we do to stop this ongoing catastrophe?
A: – Learn to protect your health from radioactivity in food, water and the environment.
Following the Q&A section, the following essay touches on various aspects of muon-catalyzed cold fusion and the need for a much tougher stance on science, policy, public health and ethical issues. Since the scientific controversy related to cold fusion is a vast field in itself, it’s discussed here only briefly. The challenge is always, of course, to be accurate as possible while keeping things interesting and sometimes humorous as an essay rather than a research paper.
The Basics of Heavy Water
The health risk from tritium arises from its simple atomic structure similar to hydrogen, a component of the water molecule, which of course is the basis for life. Tritium and deuterium are nuclear-boosted variants of hydrogen.
The nucleus of hydrogen, the simplest of all atoms, is a single positive-charged proton, whereas the deuterium nucleus hosts an added neutron (a particle without a charge), which like hydrogen can assume the form of a gas or a component of water.
Aside from a small quantity of tritium and deuterium naturally produced by cosmic rays passing through the water in dams or lakes located at high altitude, the greater amount of heavy water on Earth is created inside nuclear reactors.
The tritium nucleus contains two added neutrons. Having double neutrons in a small light atom is inherently unstable, and during the 12-year half-life one tritium, one of those neutrons is likely to escape. The surplus energy, which held that neutron in place, will be released as a beta ray, which is energetic enough to cause skin burns or damage cells inside one’s body. (Beta burns are a widespread and serious problem in Japan in the Fukushima region and even at the 2020 Olympic sports venues in Tokyo Bay, with sores resembling melanoma.)
Due to the failure to accurately monitor and issue reports on water released from nuclear reactors, the amount of tritium and deuterium in the water supply has been steadily increasing over the decades. Despite the absurdly high levels of tritium permitted in drinking water by government agencies under pressure from the nuclear industry, tritium-contaminated water should be avoided to prevent beta-ray exposure to internal organs.
Deuterium is a lesser threat to health but it is not entirely safe. An estimated 30 percent deuterium content in your body’s water will bring on death. Nearly all space water (in ice asteroids) is deuterium due to cosmic-ray bombardment, dooming space colonization, which is something Branson and Musk is not telling prospective settlers. Just think of Conestoga wagons around pools of alkali water in the deserts of the western USA littered with skeletons.
A Cold Shot from Outer Space
Now let’s venture into the exotic science of muon-catalyzed cold fusion. Any physics professor or lab researcher who scoffs at cold fusion and attempts to deny its possibility is nowhere in the same league as the late Luis Alvarez, the champion of Catastrophism who overcame a mocking chorus of lesser minds to prove that the extinction of dinosaurs was caused by a meteor from outer space.
The concept of muon fusion was earlier proposed by Andrei Sakharov, the Nobel laureate and top nuclear-weapons designer in the Soviet Union. Alvarez and Sakharov, are there any tag-team challengers? After gaining the endorsement from that pair of brilliant minds, why then is cold fusion treated with disdain by the science fraternity and relegated to snake oil and unethical delusions?
Just take a look around to see whether anyone from that high priesthood has dared to criticize Fukushima. Not a peep from the peanut gallery. Here’s a tautology worthy of the DOE: Cold fusion with its great promise is a fraud but nuclear fission as demonstrated at Fukushima is great stuff.
Inside the liquid hydrogen chamber at his Berkeley laboratory in 1956, Alvarez detected a collision involving an incoming lepton particle, which his team’s calculations later showed to be a muon. The muon triggered fusion of proton and deuterium nucleus to create helium, which in the process released a gamma ray and 5.5 MeV (mega-electron-volts of energy). In contrast to nuclear fission, Alvarez eagerly noted, cold fusion required no external energy input.
To diagram how this remarkable cold fusion process worked, Alvarez and his research team suggested that a negative-charged muon, which has 500 times more mass-energy (momentum) than an electron, sometimes will hijack the electron shells of tritium and deuterium, creating a temporary cluster. The heavyweight muon squeezes these nuclei together, forcing the reaction.
The consequent merger of two nuclei (involving a total of 2 protons and 3 neutrons) creates an unstable helium atom. Only with the ejection of one of the neutrons, a gamma ray and 5.5 MeV (mega-electron volts, mega standing for million), does the newly formed helium atom achieve stability.
The muon can move on to repeat this process on another pair, but in most cases does not. The tendency of muons is to simply fly off, to the great disappointment of cold-fusion researchers. Commercial cold fusion energy production would require each muon to perform 200 such bondings during their brief existence of only 2.2 milliseconds.
Alvarez’s real-world experiments with fusion reactions, which produce far more energy that they consume, became the Holy Grail of nuclear physics in the quest for an energy source more efficient and less risky than the fire-breathing dragon of nuclear fission. That is until the Fleishman-Pons scandal put the brakes on research.
In the 1980s, taunting criticism from conservative physicists forced fusion research to stall after the media “witch trials” against the Fleishman-Pons claims of room-temperature fusion. Unfortunately, the more meticulous cold fusion research done by Steven Earl Jones at Brigham Young University was conveniently ignored by the press. (Jones later came into the media spotlight as the main expert critic of the official cover story about the 911 World Trade Center collapse and was persecuted in academia for his evidence-based analysis of a controlled demolition inside the WTC.)
It is to his lasting credit that Jones stood up against the philistine fraternity of fake science and stood by cold fusion as well as for the truth about 911 being an inside job. Science ethics did not win him subsequent research grants or a chair professorship. Instead Jones was ostracized and banned from his university. In its unethical essential character as a social club, science has not progressed since the trial of Galileo, who was found guilty of suggesting the Earth circles the Sun rather than vice versa. The persecution of truth-telling, sound familiar?
More recently, a younger less-biased generation of researchers have conducted laboratory trials inspired by the Alvarez findings. A team at the RIKEN institute in Tokyo developed techniques to focus muon beams to achieve increasingly strong energy releases of more than 3.0 MeVs with relatively simple equipment. Despite the gains, cold fusion is still relegated to fringe research.
It is ironic then that untrammeled greed and ethical duplicity at TEPCO are about to unleash cold fusion on a titanic scale, with the entire Pacific Ocean at a nuclear test site. Before long, instead of taunting cold-fusion theory as unworkable, the scientific authorities may soon be denouncing muon catalysis for releasing too much energy. If Godzilla rises out of the Pacific Trench to storm into Tokyo Bay, shout a cheer for cold fusion.
The bottom of the ocean is an environment favorable for muon-catalyzed fusion due to several factors, including intense pressure in the deep, the tendency of tritium and deuterium to sink in seawater, cold temperatures that retart the chaotic motion of free atoms, and an abundance of newly created muons.
An undersea research project of tangential significance is an Italian-sponsored project called NEMO Phase-2, a neutrino and muon detector placed face-down at a depth of 3,500 meters in the Mediterranean Sea off Cape Passero, near Syracuse, Sicily. NEMO stands for Neutrino Mediterranean Observatory. The research objective is to measure the muons that are created inside the Earth, below the seabed, by neutrinos from space angling in around the antipodes, the opposite side of the Earth, which for Italy is the Tasman Sea between New Zealand and eastern Australia
A Race Against the Speed of Light
Created inside stars, cosmic rays known as neutrinos are elementary particles without an electric charge that move at astonishing speed along straight paths. The neutrino speed controversy is a fascinating issue since these particles arrive to Earth from distant supernovae much earlier than light. The orthodox defenders of Einstein’s theory of relativity attribute the lag to the curvature of space as traveled by photons whereas neutrinos move in a straight line.
The vast majority of neutrinos zip through the Earth unharmed and keep heading toward some distant rendezvous with . . . something or the other, or maybe nothing. However, some of those neutrinos crossing our planet’s path collide with atoms in the Earth or dust in the atmosphere, releasing a negative-charged muon. Following birth, the majority of muons continue on their merry way. (Please, no questions about where muons go in the afterlife.)
When There’s No There There
Muon collisions sometimes occur only because there are so darned many of the little critters, although a lot of muons have so far been undetectable and therefore labeled “dark matter” (which is ridiculous) or as “flavors”. Scent is perhaps a better description that taste, since one might get a whiff of something passing by, like a heady perfume that triggers your wildest imagination but you never get to meet or even see the woman you’ve just fallen in love with. Well, an attachment like romantic love is delusional, and as Buddhist philosophy puts it, there’s only Emptiness.
Never feel alone because your lonesome body is the Holland Tunnel for ghostly commuter muons. According to a high-energy researcher at the University of Tokyo:
How can it be that you’ve never felt a single muon penetrate your vital organs, not even your private parts, and yet your body is being constantly invaded? Well, it’s like two ships passing in the night. You cannot feel, hear or see those million of tiny bullets zipping through your skin and bones, and they don’t know you are there. As a revisit to hometown Oakland was for Gertrude Stein: “there is no there there.”
Even if one or another muon happens to zap an atom in your urinary tract nobody will ever know, not even you in the morning.. It’s like the tree falling in the forest that nobody is around to hear.
The shyness of the muon is a huge problem. The solution to this nagging problem could be, thanks to TEPCO’s gross irresponsibility, in the crystal matrix of frozen hydrogen on the seafloor. Time for an analogy.
Bowling Pins and Nitro Frozen Cocktails
Muon catalysis is like bowling in the 1940s. That big heavy ball is the muon moving close to light speed down the bowling lane. The pin boy, however, is in a bad mood because he was stood up on date with a girl for the matinee movie, and so he places the pins here and there absentmindedly in no particular order, and then goes out to smoke a cigarette. As the bowler, you grit your teeth because your score is going to be awful, meaning you get to buy the next round of Pabst Blue Ribbon.
Then the manager comes over to tell you that a new-fangled pin-setting machine has just been installed in the next lane, and he wants you to try it out. To your amazement, after the machine is done clanking and groaning, the bowling pins are there in a perfect triangle. You kiss that ball, and feel the gravity of the moment, and let it roll. Boom! Clatter. Strike! Suddenly, for the first time in your life, you are a pro-level bowler.
As for cold beer, you just earned one, but what’s bowling have to do with cold fusion? Everything. Instead of trying to get the straight-shooting muon to hit dancing atoms inside a gas chamber, what if the tritium and deuterium atoms were to be aligned, in perfect formation inside a geometric matrix, a bowling alley made of ice.
The muon slams into one t-d pair, and then whichever way it’s deflected the muon will head straight into another pair, and so on ad infinitum for 200-plus hits. That’s like a score of 300 in bowling. Have a Pabst on Lawrence Berkeley, or nowadays a Corona. Actually, class, instead of a pop quiz, your assignment is to make a frozen margarita out of methyl hydrate . . . .
Unfortunately, that’s just the silver lining. The bowling pins are tritium and deuterium from Fukushima, and that next lucky strike is going to trigger a massive quake along the Nankai Trough and blow the lid off Mount Fuji, covering Tokyo and its environs with fire and brimstone, before the cataclysm moves on to the continents for a clean sweep. No beer or margaritas, bowling cancelled.
Before drifting off like muon, what’s methyl hydrate? Nobody knows for sure how the methyl hydrate got to the sea bottom. Japanese researchers suggest the hydrogen was extracted from ancient plant matter, whereas one American research team argue that undersea hydrogen is a byproduct of the mineral chemistry in the formation of serpentine rock. With the clock running down in overtime, too bad there’s not a minute left to find the answer.
If governments do not act to stop TEPCO, should you space cowboys try to escape to outlandish asteroids? Stephen Hawking’s advise is to get off this doomed planet ASAP. The self-centered tycoons plan to evade the coming planetary disaster by reserving a seat on an aerospace liner operated by Richard Branson or Elon Musk and leave the rest of us behind in the Earth Apocalypse. It’s not space tourist, it’s an escape plan.
Their problem, tut-tut, will be resupply after the death of this garden planet. Don’t expect another carton of Mars bars after the warehouse crew sees the huge tsunami heading inland and sweeping away cargo rockets like minicars in that foaming black tide during the 311 tsunami.
Soon thereafter, the space colonists will have to resort to cannibalism, those selfish swine in spacesuits. How delicious that will be! Hi, I’m Neil Hamstrung, your server for tonight. Which of you would like to meet our charcuterie chef on a private tour of our galley?
So it’s better to die with your feet on the ground or under sixty meters of water than to dangle in zero-gravity like a side of beef inside SpaceX Falcon Heavy. The Millennium Falcon, it’s not. Right, Chewy?
The stars are not all they’re cracked up to be. On the next clear moonless night, step outdoors to look at the glory of billions of sparkling stars and realize that the overwhelming majority of those solar systems cannot host life and are fatal to your health.
In this deathly galaxy, our living planet is amazingly rare, yet we, or they, are nearly done destroying it. How stupid is that? How utterly ungrateful for the gift of life. Sodom and Gomorrah was child’s play compared with the sins of our grotesquely demented elites.
Be thankful for life and discover inside yourself the joy to be one of the last men standing because you have an ultimate task ahead. The environmental crimes of TEPCO along with the rest of the deceitful nuclear industry are about to turn our garden planet into a molten orb spinning erratically in a death dance. The executives with the nuclear industry, their lackeys in politics, agents in regulatory agencies and the cult priesthood of physicists are homicidal criminals who must be rounded up and fitted into straitjackets until genocide trials can be hastily arranged and last-minute ecocide laws enacted and implemented.
Hawking’s wrong about off-planet escape but he’s right about the final hour approaching. When the death knell starts to toll, we must act to save whatever little is left of human dignity by laughing out loud. Life is the greatest gift, it’s glorious, especially when we’re about to lose it.
Yoichi Shimatsu is a science journalist who has conducted field research on both sides of the Pacific, in the Fukushima exclusion zone and radioactive sites in the U.S.
HSBC, Citigroup, Morgan Stanley say end of market boom is nigh
Breakdown in trading patterns is signal to get out soon
HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.
Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.
“Equities have become less correlated with FX, FX has become less correlated with rates, and everything has become less sensitive to oil,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, wrote in a note published Tuesday.
His bank’s model shows assets across the world are the least correlated in almost a decade, even after U.S. stocks joined high-yield credit in a selloff triggered this month by President Donald Trump’s political standoff with North Korea and racial violence in Virginia.
Just like they did in the run-up to the 2007 crisis, investors are pricing assets based on the risks specific to an individual security and industry, and shrugging off broader drivers, such as the latest release of manufacturing data, the model shows. As traders look for excuses to stay bullish, traditional relationships within and between asset classes tend to break down.
“These low macro and micro correlations confirm the idea that we’re in a late-cycle environment, and it’s no accident that the last time we saw readings this low was 2005-07,” Sheets wrote. He recommends boosting allocations to U.S. stocks while reducing holdings of corporate debt, where consumer consumption and energy is more heavily represented.
That dynamic is also helping to keep volatility in stocks, bonds and currencies at bay, feeding risk appetite globally, according to Morgan Stanley. Despite the turbulent past two weeks, the CBOE Volatility Index remains on track to post a third year of declines.
For Savita Subramanian, Bank of America Merrill Lynch’s head of U.S. equity and quantitative strategy, signals that investors aren’t paying much attention to earnings is another sign that the global rally may soon run out of steam. For the first time since the mid-2000s, companies that outperformed analysts’ profit and sales estimates across 11 sectors saw no reward from investors, according to her research.
“This lack of a reaction could be another late-cycle signal, suggesting expectations and positioning already more than reflect good results/guidance,” Subramanian wrote in a note earlier this month.
Oxford Economics Ltd. macro strategist Gaurav Saroliya points to another red flag for U.S. equity bulls. The gross value-added of non-financial companies after inflation — a measure of the value of goods after adjusting for the costs of production — is now negative on a year-on-year basis.
“The cycle of real corporate profits has turned enough to be a potential source of concern in the next four quarters,” he said in an interview. “That, along with the most expensive equity valuations among major markets, should worry investors in U.S. stocks.”
The thinking goes that a classic late-cycle expansion — an economy with full employment and slowing momentum — tends to see a decline in corporate profit margins. The U.S. is in the mature stage of the cycle — 80 percent of completion since the last trough — based on margin patterns going back to the 1950s, according to Societe Generale SA.
After concluding credit markets are overheated, HSBC’s global head of fixed-income research, Steven Major, told clients to cut holdings of European corporate bonds earlier this month. Premiums fail to compensate investors for the prospect of capital losses, liquidity risks and an increase in volatility, according to Major.
Citigroup analysts also say markets are on the cusp of entering a late-cycle peak before a recession that pushes stocks and bonds into a bear market.
Spreads may widen in the coming months thanks to declining central-bank stimulus and as investors fret over elevated corporate leverage, they write. But, equities are likely to rally further partly due to buybacks, the strategists conclude.
“Bubbles are common in these aging equity bull markets,” Citigroup analysts led by Robert Buckland said in a note Friday.
— With assistance by Cecile Vannucci