Why Bernanke’s Taper Talk is another Poker Bluff

Since 2010, I have been saying that FED “exit strategies” or the du jour “taper talk” represents no more than “poker bluffs”.  Each time the FED signaled about “exit”, the eventual consequence has been to expand easing policies.

Today’s “taper talk” by the Bernake-led US Federal Reserve essentially signifies as the same dynamic.

Bernanke’s “Taper talk” is really a tactical communication maneuver to REALIGN their actions with that of the current developments in the US bond markets. The FED wants the public to believe that they are in control of the markets when they are not.

As one would note, yields of the 10 year note has been ascendant since July 2012.

The Fed expanded unlimited QE 3.0 which only had a 3 month effect of bringing down rates.

Last May, yields began to move sharply upward a month after Kuroda’s announced one of the three arrows of Abenomics. Even the interest rate cut by the ECB had no effect on the global trend of rising yields

The impact from such polices has been one of narrowing durations, and this has been expressed by rising yields amidst unlimited and boldest monetary experiments which are indications of diminishing returns. 

Global central banks, led by the FED, will need another “shock and awe”, but effects of which may also be short-term.

The "Taper talk" as aggravating factor has only intensified the ascent of the treasury yields.

All these only reveals of the growing contradictions between monetary policies aimed at  maintaining “downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative” and rising rates as indicated by the bond markets. 

So in order to maintain credibility, the exigency by the FED has been to recalibrate policies to reflect on market’s actions, thus the taper talk.

In short, Bernanke’s taper talk really is a “face saving” act for the US Federal Reserve. Unfortunately face saving has been met by a dramatic revulsion in the marketplace.

Peter Schiff at the Euro Pacific Capital articulates why Bernanke’s Taper Talk is another Poker Bluff (bold mine)

As usual the Federal Reserve media reaction machine has fallen for a poorly executed head fake. It has fallen for this move many times in the past, and for its efforts, it has tackled nothing but air. Yet right on cue, it took the bait once more. Somehow the takeaway from Wednesday's release of the June Fed statement and Chairman Ben Bernanke's press conference was that the central bank is likely to begin scaling back, or "tapering," its $85 billion per month quantitative easing program sometime later this year, and that the program may be completely wound down by the middle of next year.

Although this scenario is about as likely as an NSA-sponsored ticker tape parade for whistle blower Edward Snowden, all of the market segments reacted as if it were a fait accompli. The stock market - convinced that it will lose the support of ultra-low, long-term interest rates and the added consumer spending that results from a nascent housing bubble - sold off in triple digits. The bond market, sensing that its biggest and busiest customer will be exiting the market, followed a similarly negative trajectory. The sell-off in government and corporate debt pushed yields up to 21 month highs. In foreign exchange markets, the dollar rallied off its four-month lows based on the belief that Fed tightening will support the currency. And lastly, the gold market, sensing that an end of quantitative easing would eliminate the inflationary fears that have partially fueled gold's spectacular rise, sold off nearly five percent to a new two-and-a-half year low.

All of this came as a result of Bernanke's mild commitments to begin easing back on permanent QE sometime later this year if the economy continued to improve the way he expected. The chairman did not really elaborate on what types of improvements he had seen, or how much farther those unidentified trends would need to go before he would finally pull the trigger. He was however careful to point out that any policy shift, be it for less or more quantitative easing, would not be dependent on incoming data, but on the Fed's interpretation of that data. By stressing repeatedly that its data goalposts were "thresholds rather than triggers," the chairman gained further latitude to pursue any stance the Fed chooses regardless of the data.

Yet the mere and obvious mention that tapering was even possible, combined with the chairman's fairly sunny disposition (perhaps caused by the realization that the real mess will likely be his successor's problem to clean up), was enough to convince the market that the post-QE world was at hand. This conclusion is wrong.  

Although many haven't yet realized it, the financial markets are stuck in a "Waiting for Godot" era in which the change in policy that all are straining to see will never in fact arrive. Most fail to grasp the degree to which the "recovery" will stall without the $85 billion per month that the Fed is currently pumping into the economy.

What exactly has convinced the Fed that the economy is improving? From what I can tell, the evidence centered on the rise in stock and real estate prices, and the confidence and spending that follow as a result of the wealth effect. But inflated asset prices are completely dependent on QE and are likely to reverse course even before it is removed. And while it is painfully clear that expectations about QE continuance have made a far bigger impact on the stock, bond, and real estate markets than any other economic data points, many must be assuming that this dependency will soon end.

Those who hold this belief have naively described QE as the economy's "training wheels." (In reality the program is currently our only wheels.) They are convinced that the kindling of QE will inevitably ignite a fire in the larger economy. But the big lumber is still too dampened by debt, government spending, regulation, and high asset prices to catch fire - all we have gotten is smoke instead. A few mirrors supplied by the Fed merely completed the illusion. The larger problem of course is that even though the stimulus is the only wheels, the Fed must remove them anyways as we are cycling toward the edge of a cliff.

Although Bernanke dodged the question in his press conference, the Fed has broken the normal market for mortgage backed securities. While it's true that the Fed only owns 14% of all outstanding MBS (the "small fraction" he referred to in the press conference), it is by far the largest purchaser of newly issued mortgage debt. What would happen to the market if the Fed were no longer buying? There are no longer enough private buyers to soak up the issuance. Those who do remain would certainly expect higher yields if the option of selling to the Fed was no longer on the table. Put bluntly, the Fed is the market right now and has been for years.

A clear-eyed look at the likely consequences of a pull-back in QE should cause an abandonment of the optimistic assumptions behind the Fed's forecast. Interest rates are already rising rapidly based simply on the expectation of tapering. Imagine how high rates would go if the Fed actually tried to sell some of the mortgages it already owns. But the fact is the mere anticipation of such an event has already sent mortgage rates north of 4%, and without a lifeline from the Fed in the form of more QE, those rates will soon exceed 5%. This increase will greatly impact the housing market. Speculative buyers who have lifted the market will become sellers. More foreclosure will hit the market, just as higher home prices and mortgage rates price any remaining legitimate buyers out of the market. Housing prices will fall to new post bubble lows, sinking the phony recovery in the process. The wealth effect will work in reverse: spending and confidence will fall, unemployment will rise, and we will be back in recession even before the Fed begins to taper.

In fact, the rise in mortgage rates seen over the last month has already produced pain in the financial world, with banks reporting a rapid decline in refinancing applications. By the time rates hit 5%, the current rally in real estate will have screeched to a halt. With personal income and wage growth essentially stagnant, individual buyers are extremely dependent on the affordability allowed by ultra-low rates. A near 50% increase in mortgage rates, which would result from an increase in rates from 3.25% to 5.0%, would price a great many buyers out of the market. Higher rates would also cool much of the housing demand that has been coming from the private equity funds that have been a factor in pushing up real estate prices in recent years. Falling home prices would likely trigger a new wave of defaults and housing related bankruptcies that plunged the economy into recession five years ago.

A similar dynamic would occur in the market for U.S. Treasury debt. Despite Bernanke's assurances that the Fed is not monetizing the government's debt, the central bank has been buying nearly 70% of the new issuance in recent years. Already, rates on 10-year treasury debt have creeped up by more than 50% in less than two months to over 2.5%. Any actual decrease or cessation in buying - let alone the selling that would be needed to unwind the Fed's multi-trillion dollar balance sheet - would place the Treasury market under extreme pressure. Since low rates are the life blood of our borrow and spend economy, it is highly likely that higher rates will lead directly to lower stock prices, lower GDP growth, and higher unemployment. Since rising asset prices and the confidence and spending they produce is the basis for Bernanke's rosy forecast, new lows in house prices and a bear market in stocks will likely reverse those forecasts on a dime.

Lost on almost everyone is the effect higher interest rates and a slowing economy will have on federal budget deficits. As unemployment rises, tax revenues will fall and expenditures will rise. In addition, rising rates will not only make it more expensive for the Fed to finance larger deficits, it will also make it more expensive to refinance maturing debts. Furthermore, the profit checks Fannie and Freddie have been paying the Treasury will turn into bills for losses, as a new wave of foreclosures comes tumbling in.

It's fascinating how the goal posts have moved quickly on the Fed's playing field. Months ago the conversation focused on the "exit strategy" it would use to unwind the trillions in bonds and mortgages that it had accumulated over the last few years. Despite apparent improvements in the economy, those discussions have given way to the more modest expectations for the "tapering" of QE. I believe that we should really be expecting a "tapering" of the tapering conversations.

As a result, I expect that the Fed will continue to pantomime that an eventual Exit Strategy is preparing for a grand entrance, even as their timeline and decision criteria become ever more ambiguous. In truth, I believe that the Fed's next big announcement will be to increase, not diminish QE. After all, Bernanke made clear in his press conference that if the economy does not perform up to his expectations, he will simply do more of what has already failed.

Of course, when the Fed is forced to make this concession, it should be obvious to a critical mass that the recovery is a sham. Investors will realize that years of QE have only exacerbated the problems it was meant to solve. When the grim reality of QE infinity sets in, the dollar will drop, gold will climb, and the real crash will finally be upon us. Buckle up.

Bottom line: High interest rate amidst a greatly leveraged system will sink asset prices heavily dependent on Fed steroids. This will impair the balance sheets of 1) politically privileged banking industry, main financing intermediaries of the US government, and 2) most importantly the heavily indebted US government.

The FED is trapped. Fed policies can now be said as “damned if you “taper”, damned if you “ease”.  

Yet like Mr. Schiff, since 2010 my bet has been on the latter. Crashing markets will only give the FED the eventual justification to ease. But again the potential outcome will hardly be a risk ON environment.

JGB Watch: 10 Year Yields Drifts at Near Critical Levels

Back to my frequent JGB-Japan debt crisis watch.

Stable instability has resumed.

The 10 year JGB yield has reached levels which previously sparked an ensuing stock market crash.

Notice that each time JGBs (orange) hit the .89-90+% levels, the Japanese equity benchmark as measured by the Nikkei index (lemon green) took a big hit. Currently the 10 year yield trades at .88-.89%.

It is important to point out that such serve as observations on correlations or patterns whose relationship may change.

Nonetheless 10 year JGB support area seems at the .79-.81+% levels.

Given the sharp spikes in bonds almost everywhere, dismissing a contagion on JGBs would be reckless. My impression is that the ceiling or resistance levels could be tested or breached anytime soon.

Today, the Nikkei rebounded from the opening big losses, which apparently had been a carryover sentiment from the badly beaten US-Euro equity markets, to close on the green.

It remains to be seen if the current global risk asset meltdown will ease or merely pause before another wave of selling occurs.

Chart of the Day: The End of Easy Money

Again, presenting the yield of 10 year US treasury note without further comment

China’s PBOC: From Tapering to Easing?

The whimsical actions of China’s PBoC serves as roadmap to what central bankers will do once the pain in the system from their policies swells enough to threaten the survival of their political institutions.

From Bloomberg:

The People’s Bank of China added 50 billion yuan ($8.2 billion) to the financial system yesterday after a cash squeeze drove money-market rates to record highs, said Hao Hong, chief China strategist at Bank of Communications Co.

The sum was supplied to a single lender through short-term liquidity operations and more banks were in talks to obtain financing, Hong said in a phone interview, adding that this is “proper and appropriate” use of the mechanism. Overnight funds were lent at 5.1 percent and seven-day money at 5.4 percent, he said, citing unidentified people in the industry. A PBOC press official said he was unaware of the matter, requesting anonymity in keeping with bank policies.

The purported ferreting out of the shadow banking industry represents no more than token symbolism.

And it would seem that China’s government has commenced on the bailing out of politically privileged institutions via “The sum was supplied to a single lender” 

Such supposed “noble intended” goals of assailing the property bubbles and the shadow banks, are actually responses to the consequences of their previous policies. These appear to have been overshadowed by the imperatives of political stability which would be undermined by a full blown crisis. 

Besides, all these make good publicity especially from a new administration desiring to win the public's approval (except that media conceals the true nature: fighting monsters of their creation)

Nonetheless, at a certain point, no amount of easing will be enough to prevent the laws of economics from ventilating on the accrued unsustainable imbalances brought about by massive interventionism in the marketplace.

Was the 1996 Crash Trans World Airline Flight 800 been due to a wayward missile?

First the furor has been about the NSA spying exposé by whistleblower Edward Snowden, and now, another revelation on the alleged US government cover up on the 1996 crash of Trans World Airline Flight 800 

From the Daily Mail

A new documentary about the deadly Trans World Airline Flight 800 featuring interviews with former investigators claims that the official explanation given for the ill-fated flight is wrong.

The flight crashed off the coast of Long Island in 1996, killing all 230 people on board in what is the third-deadliest aviation accident in U.S. history.

The official explanation given by the National Transportation Safety Board was that the crash was caused by a gas tank explosion, but the documentary gives 'solid proof' there was an external detonation, its co-producer said.

Many eye-witnesses claimed they had seen a streak of fire heading towards the plane before it crashed. Theories have suggested it was a missile strike from a terrorist or U.S. Navy vessel, and that the incident was subject to a government cover-up.

But now the producers of TWA FLIGHT 800, which premieres on July 17, the anniversary of the crash, on cable network EPIX, said they have more than just eye-witness statements to call on.

'Of course, everyone knows about the eyewitness statements, but we also have corroborating information from the radar data, and the radar data shows a(n) asymmetric explosion coming out of that plane - something that didn't happen in the official theory,' Tom Stalcup told CNN's New Day.

Are crashing markets and increasing number of political exposes indicative of imploding governments?

JGB Watch: Global Bond Markets Riot, Equities Hemorrhage

Back to my JGB-Japan debt crisis watch.

The Japanese financial markets are back into their natural state: stable instability.

The JGB yields of 5, 10, and 30 year maturities have all been trading higher as of this writing

I will not say that this has been due to the Bernanke 2014 taper.

Intraday 10 year JGB yields opened low (even when the US Treasury counterpart zoomed) and seesawed steeply between the .81+% and .85+% twice.

As of this writing 10 year yields are near the peak of the trading session.

The latest update on outstanding JGBs reveals of an increase of 5.3% to ¥969.12 trillion, with the Bank of Japan’s (BoJ) holdings hitting an all time high of ¥127.88 trillion at the end of March, up 43.8% from the previous year. (Japan Times) The BoJ’s share of total JGBs now accounts for 13.2% as against 12% in December 2012 as shown above as per Japan’s Ministry of Finance

The report also says that JGB holdings by overseas investors grew 6.5 percent to ¥81.55 trillion, also a record high as of the fiscal yearend, the BOJ said.

While foreign punters increased their JGB holdings, cash rich resident Japanese appear to be in a “capital flight” mode

From the Bloomberg,

Japan’s companies stockpile of cash reached a record in the first quarter as they poured investment abroad, underscoring Prime Minister Shinzo Abe’s challenge to boost the nation’s investment and wages.

Private companies’ cash and deposits rose 5.8 percent from a year before, to 225 trillion yen ($2.4 trillion) -- an amount in excess of the size of Italy’s economy or the liquid assets held by American firms, Bank of Japan data showed in Tokyo. Businesses held 55 trillion yen in direct investment abroad.

The cash and deposit holdings of Japan’s non-financial companies reached a record in the January-to-March period, according to BOJ figures dating back to 1979. The $2.4 trillion equivalent compares with the $1.8 trillion in liquid assets -- such as cash, deposits and money-market fund shares -- held by nonfinancial U.S. firms, according to Federal Reserve data.

So instead of domestic investments, in contravention to the desires of politicians, the Japanese are acting to preserve the purchasing power of their savings via overseas investments or placements. 

And without investments to spur productivity growth, there will hardly be sufficient sources of funding for the towering debt which the Japanese government continues to accumulate.

BoJ officials publicly exhibit "confidence" on the supposed success of Abenomics. But such confidence does not seem to be shared by the people within the institution as insiders appear to be apprehensive over the chances of success of Abenomics.

This report from the Wall Street Journal reveals of the cracks in the officialdom promoting Abenomics: (bold mine)

But for bank officials tasked with making sure the bond market operates smoothly, things have been anything but smooth over the past three months, as they scrambled to tame wild swings in bond yields triggered by the BOJ’s decision in April to double its already massive purchases of Japanese government bonds.

“They seem real desperate, asking us what they can do to contain the situation,” an official at a Japanese trust bank said recently.

“Mr. Kuroda comes across as being unfazed by the rises, but those at the Market Operations Division are determined to push them down,” added the official who declined to be identified, given the bank’s relationship with the BOJ.

The three-dozen officials at the BOJ’s Market Operations Division have suddenly found themselves in the spotlight after the bank, under Mr. Kuroda’s leadership, adopted bold monetary loosening measures in early April.

And anxious they should be.

Wild vacillation of the JGBs has also been reflected on the Nikkei which slumped 1.74% today.

Asian markets hemorrhaged badly today from a combo of interest rate risks factors seen via unstable JGBs, the spike in US treasury yields and the bedlam over at China’s credit markets

ASEAN bond markets likewise bled today. Today’s actions appears ominous to my recent warnings that the Philippine bond bubble is an accident waiting to happen

Europe’s stock markets as of this writing are also in deep red.

The French 10 year yield has also skyrocketed as of this writing.

Four of what I see as the very critical bond markets (Japan, France, China and the US) appear to be in  varying degree of seizure. 

And these has upset a broad spectrum of risk assets from stocks to commodities across the globe.

If the steep gyrations in the global bond markets are sustained, then the previous booms will metastasize into a global debt crisis sooner than later.  

As Bernanke Talks the Taper, China’s PBoC Tapers!

Step aside Ben Bernanke, the PBoC has moved ahead.

The Fed’s announced prospective tapering of QE has been programmed on the latter half of this year and which may totally end in 2014. 

But Bernake’s counterpart in China, the PBoC can’t seem to wait, they have began to bleed dry the financial system in order to force out the shadow banks.

From Bloomberg: (bold mine)

China’s benchmark money-market rate climbed to a record as the central bank refrained from using reverse-repurchase agreements to ease a cash crunch in the world’s second-biggest economy.

The financing system must “support economic transformation and upgrading in a more forceful way, serve real economy development in a better way, promote domestic demand in a more targeted way and prevent financial risks in a more concrete way,” the central government said yesterday in a statement after a meeting led by Premier Li Keqiang. The central bank did not conduct open-market operations to add or drain funds, though 40 billion yuan ($6.5 billion) was injected via an auction of six-month deposits from the Finance Ministry.

Aimed at the shadow banks?

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, fell five basis points to 4.45 percent in Shanghai, according to data compiled by Bloomberg. It jumped a record 51 basis points yesterday and touched an all-time high of 4.71 percent today.

Chinese regulators are forcing trust funds and wealth managers to shift assets into publicly traded securities as it seeks to curb lending that doesn’t involve local banks, according to Fitch Ratings.

Interest rates in key global markets have already been in an upside trend even before the "tapering" chatters, and the realized actions by the PBoC and the anticipated actions from the Fed will exacerbate such phenomenon that will percolate into the rest of the world.

In a world addicted to easy money, tightening of the money environment will bring into light the credit risks from heavily leveraged financial system and debt burdened governments. Boom will become a bust.

Caveat emptor

Chart of the Day: Bernanke’s 2014 Taper

Presented without further comment the yield of the 10 year US Treasury from US Fed Chair Bernanke’s 2014 taper.

JGB Watch: Calm markets; Will the Fed Taper tonight? Yawn

Back to my JGB-Japan debt crisis watch.

JGB yields have traded mixed today in what seems as relative composed markets.

JGB 30 year yields modestly rose as 10 year yields marginally declined.

Foreigners reportedly reduced their JGB holdings which now accounts for 8.4% of total outstanding debt from 8.7% last December.

Today, Bank of Japan’s Governor Haruhiko Kuroda announced that “he will do the utmost to avoid sharp rises in long-term interest rates helped the market slightly - but not to an extent that it offset selling in superlong bonds” (Reuters)

One day of calm markets does not a trend make. Good luck to Mr. Kuroda on what seems as wishful thinking.

The relatively tranquil JGB markets allowed Japan’s stock markets to regain some grounds. Today the Nikkei 225 bounced by 1.83%

Yet the propaganda to promote Abenomics continues.

Some of mainstream media continues to mislead the public on the supposed impact of Abenomics.

Early today, Japan's updated merchandise trade data was announced. Interestingly here are two contrasting reports

From Bloomberg:

Japan’s exports surged by the most since 2010 as the yen weakened and shipments to the U.S. jumped, boosting Prime Minister Shinzo Abe’s campaign to revive the world’s third-largest economy

Today’s data may help to sustain confidence in Abe’s efforts to jump-start the economy with fiscal and monetary stimulus and a rollback of regulations restricting business. Volatility in stocks and bonds has threatened to damp sentiment as Abe and central bank Governor Haruhiko Kuroda seek to pull the nation out of a 15-year deflationary malaise.

Yes exports surged alright, but that’s only half of the picture.

From US news:

Japan's trade deficit rose nearly 10 percent in May to 993.9 billion yen (nearly $10.5 billion) as rising costs for imports due to the cheaper yen matched a rebound in exports, the Ministry of Finance reported Wednesday.

Exports rose 10.1 percent in May over a year earlier to 5.77 trillion yen ($60.7 billion) while imports also surged 10 percent, to 6.76 trillion yen ($71.1 billion), the ministry said. Japan's trade deficit in May 2012 was 907.93 billion yen.

So whatever gains from exports has been effectively neutralized by imports. The result: the widening of trade deficits. 

Add to the bulging trade deficit the substantial deterioration of Japan’s fiscal balance, this means that the Japanese will have to dip into their rapidly depleting savings or increase on their colossal debt burden just to finance such deficits.

So deteriorating fiscal, trade and price instability in Japan’s economy will hardly “help to sustain confidence” in Abenomics.

Why is this important? Because media’s framing of the above event exposes on the bias for reckless policies. Some media outfit clearly serves as PR outfits of politicians.

In the same context, people are being conditioned to believe that FED’s convening 'later' (Philippine PM time) will be critical the financial markets.

For instance this headline screams “Will Ben Bernanke let interest rates rise? World markets wait.”

I have repeatedly been pointing out that US treasury yields have been ascendant since July 2012. This happened despite the FED’s QE 3.0 last September which had only a 3-month effect of lowering of UST yields.

Abenomics and ECB’s interest rate cut last May likewise failed to suppress coupon rates of the UST and of their respective bond markets.

French 10 year yields has been rising prior to the supposed Bernanke “Taper talk”.

And so with 10 year JGBs

The point is that yields have been rising even before the so-called Bernanke Taper Talk and will continue to rise regardless of the outcome of today’s FED meeting overtime.

The difference will be on the immediate effects from today’s policy actions.

If the FED will unexpectedly expands QE, then this may have temporarily dampen yields which should spike the stock markets for a short time. But given the diminishing marginal efficiencies of such easing programs, rates will continue to advance later.

Yet if the FED leaves the current program unchanged, then yields will likewise trend higher. 

A Fed "taper" will accelerate the current uptrend.

As pointed out yesterday, US president Obama has hinted on Bernanke’s exit 

If this will hold true, even if another money printer will replace Mr. Bernanke, uncertainty over a regime transition may compound on the pressure to drive yields higher.

For every transition of the FED chairmanship since William Miller in March 1978, increases in FED Fund rates occurred.

10 year yields also reflect on the same pattern, as Bob Wenzel at the EPJ noted

As Federal Reserve chairman Paul Volcker left the Fed chairmanship in August 1987, the interest rate on the 10 year note climbed from 8.2% to 9.2% between June 1987 and September 1987. This was followed, of course by the October 1987 stock market crash.

As Federal Reserve chairman Alan Greenspan left the Fed chairmanship at the end of January 2006, the interest rate on the 10 year note climbed from 4.35% to 4.65%. It then climbed above 5%. 

The current environment seems like the proverbial calm before the bond market storm.

“This is Glock Block”: The Growing use of Private Security in the US

In many parts of the US, homeowners have reportedly been taking security matters into their own hands.

From Economic Collapse Blog  (hat tip Zero Hedge) [bold original]

All over the United States, frustrated homeowners are banding together, arming themselves and patrolling their own streets.  One of the primary reasons this is happening is because police budgets all over the nation are being slashed at a time when violent crime rates in the United States are increasing and many our our largest cities are being transformed into crime-infested war zones.  So instead of waiting for government to come up with a solution, many Americans are taking matters into their own hands.  For example, one community group in Milwaukie, Oregon has started posting flyers with an ominous message for potential criminals: "This is a Glock block. We don’t call 911."  You can see a photo of this flyer right here.  One of the founders of the "Glock Block" is a breast cancer survivor named Coy Tolonen. She decided to arm herself after a thief stole one of her favorite statues out of her front yard while she was watching...

It’s mostly petty crime that neighbors are sick and tired of:  stolen lawn ornaments, vandalism.  But for neighbors like Tolonen, a breast-cancer survivor, that’s enough: “I will defend myself — and my home,” she told KOIN 6 News.

Tolonen recently had a beloved statue she calls “Lilly Rose” stolen off her front porch. She said she even saw the man who stole it and tried to chase him down — but he got away.

This was the last straw for Tolonen, who decided to take a class to get her concealed carry permit.

We are seeing similar things happen in other areas of the nation.  As I wrote about yesterday, the size of the police force has been cut in half in the city of Detroit over the past ten years.  Meanwhile, crime rates have skyrocketed.  So frustrated citizens are now teaming up with the police to patrol their own neighborhoods...

Volunteers given radios and matching T-shirts help officers protect neighborhoods where burglaries, thefts and thugs drive away people who can’t rely on a police force that lost a quarter of its strength since 2009. With 25 patrols on the streets, the city hopes to add three each year. Meanwhile, the homicide rate continues rising.

In some wealthier neighborhoods around the country, citizens are pooling their resources and are hiring private security firms to ward off criminals.  Just check out what is happening in Oakland...

After people in Oakland’s wealthy enclaves like Oakmore or Piedmont Pines head to work, security companies take over, cruising the quiet streets to ward off burglars looking to take advantage of unattended homes.

“With less law enforcement on the streets and more home crime or perception of home crime, people are wanting something to replace that need,” says Chris de Guzman, chief operating officer of First Alarm, a company that provides security to about 100 homes in Oakland. “That’s why they’re calling us and bringing companies like us aboard to provide that deterrent.”

According to Steve Amitay, the executive director of the National Association of Security Companies, this is also happening in other high crime cities such as Atlanta and Detroit.  In fact, it is being projected that the "private cop" business is going to absolutely boom in the years ahead.

But not everyone can afford to hire private cops.  Those with more limited resources are trying to cope with rising crime any way that they can.

Read the rest here

Lessons:

The erosion of people’s trust on incumbent institutions represents as symptoms of growing signs of institutional failure

Private sector can provide security services for the community. 

The coming global debt crisis will force a shift of many of the so-called government provision of "public goods" into the private sector.

JGB Watch: Are Rising Yields a sign of Communications Failure? Obama Hints of Bernanke's Retirement

Back to my JGB-Japan debt crisis watch.

Media says that today’s successful debt auction, which had a "solid demand" for 20-year JGBs, signifies the return to stability.

From Reuters:

Japanese government bond prices gained after a solid 20-year-bond auction indicated returning stability in the market after weeks of turbulence in the wake of the Bank of Japan's launch of its massive bond-buying program in April….

Solid demand for the 20-year auction helped fuel the rises in bond prices in the secondary market.

The finance ministry sold ¥1.1 trillion of 20-year bonds with a 1.7% coupon and a lowest price of 100.10, yielding 1.693%, in line with street forecasts.

Current yield actions hardly suggests of any meaningful improvements despite the supposed “solid demand” as 10 year JGBs has been rangebound for the past 3 days. 

Again this reveals of a seemingly complicit media whose bias has been to promote Abenomics. Unfortunately, Japan's latest populist economic policies basically represents “doing the same things over and over again and expecting different results”.

The three day consolidation period by the JGBs has evidently given a reprieve to Japan's embattled stock markets. Japan's major benchmark, the Nikkei 225, has bounced off its recent lows.

Today the Nikkei closed with marginal losses. 

The seeming equanimity in major bond markets has also allowed many Asian bourses to recover significantly from the recent selloffs. The question is-- if the current serenity is sustainable or not?

Even abroad, mainstream media seem as either lost in confusion or purposely diverting or misleading people’s attention from real issues.

The mainstream attributes rising bond yields to “communications failure”

From yesterday’s Bloomberg article:

What central banks may have the world over is a failure to communicate.

Officials are struggling to spell out their visions for monetary policy, often amid a chorus of competing views. Chairman Ben S. Bernanke is trying to manage expectations about when the Federal Reserve will slow asset purchases and raise interest rates. Bank of Japan Governor Haruhiko Kuroda’s reflation-push is backfiring by driving up bond yields. European Central Bank President Mario Draghi is dashing investors’ hopes he once kindled for extra stimulus.

Does the rising yields of 10 and 30 year US treasuries since July 2012 (as discussed last weekend) look like a “communications failure”?

Remember that Bernanke's FED implemented unlimited QE 3.0 in September of 2012, where yields has already been on the rise. Ironically QE 3.0 only had a rather short-lived 3-month effect of lowering rates.

Yet Bernanke’s "Taper Talk' last May 22nd occurred when yields had already been soaring. 

Rising yields from the above chart looks more like the diminishing returns from monetary policies. Or that they exhibit symptoms of the unraveling of current policies. In short such are signs of policy failures, and hardly from communications deficiency.

Oh by the way, US President Obama seems to be hinting of a Ben Bernanke retirement in January 2014.

From Bloomberg:

President Barack Obama said Federal Reserve Chairman Ben S. Bernanke has stayed in his post “longer than he wanted,” one of the clearest signals the central bank chief will leave when his current term expires next year.

“Ben Bernanke’s done an outstanding job,” Obama said in an interview with Charlie Rose that aired yesterday, when asked about nominating him for another term subject to Senate approval. “He’s already stayed a lot longer than he wanted or he was supposed to.”

Obama likened Bernanke’s tenure to that of outgoing Federal Bureau of Investigation Director Robert Mueller, who stayed on for two years after his term expired in 2011 and is leaving his post in September. Bernanke’s second four-year stint at the central bank ends Jan. 31.

Not to worry, Mr. Bernanke’s replacement will most likely be another money printer. 

Nonetheless I suspect that Mr. Bernanke's seemingly crafty move represents the proverbial passing of the “hot potato” or the unintended effects from his policies to his successor. If true then this would be a nice escape job for Mr. Bernanke.

Quote of the Day: We need whistle-blowers

The U.S. government is on a secrecy binge. It overclassifies more information than ever. And we learn, again and again, that our government regularly classifies things not because they need to be secret, but because their release would be embarrassing.

Knowing how the government spies on us is important. Not only because so much of it is illegal -- or, to be as charitable as possible, based on novel interpretations of the law -- but because we have a right to know. Democracy requires an informed citizenry in order to function properly, and transparency and accountability are essential parts of that. That means knowing what our government is doing to us, in our name. That means knowing that the government is operating within the constraints of the law. Otherwise, we're living in a police state.

We need whistle-blowers.

This is from renowned security technologist expert Bruce Schneier  writing at the Atlantic

Chart of the Day: Filipinos are the Biggest Gin Guzzlers in the world

Interesting data on global alcohol consumption

Filipinos reportedly holds the title as world’s biggest gin guzzlers, according to a recent study. 

Aside from gin, the Philippines ranks third in rum consumption.

From the Economist

ASIA'S growing middle classes are driving demand in the global spirits market. According to IWSR, a market-research firm, consumption last year grew by 1.6% to 27 billion litres—and China, the world’s biggest market, quaffed 38% of that. The national liquor, baijiu, accounts for a whopping 99.5% of all spirits consumed there, so China does not even feature in rankings of the best-known internationally consumed spirits, below. The most popular of these is vodka, mainly because it is drunk in copious amounts in Russia. Russians downed nearly 2 billion litres of the stuff in 2012, equivalent to 14 litres for every man, woman and child. (Unsurprisingly, perhaps, Russians are among the biggest drinkers in the world, according to the most recent World Health Organisation data.) The Filipinos' taste for gin can be attributed in part to good marketing and to the spirit's long-established toe-hold in the local market. Ginebra San Miguel, a firm that makes the world's two best-selling brands, started operations there in 1834.

Philippine gin consumption has been estimated as having a 43.5% of the world market, according to the ginvodka.org

The Philippines is the world’s largest gin market. The Philippines spirits market comprises nearly 50 million cases and is dominated by domestically produced spirits (98%). The Gin market, in which San Miguel is by far the largest brand, is 22M cases (62% of the market) but this is very approximate. In global terms, Philippine gin accounts for 43.5% of the world gin market. Imported gins account for a miniscule proportion of the market but some UK owned gin brands are produced locally.

I wouldn’t exactly equate gin consumption as signs of a “growing middleclass”, since local gin and rum are the cheapest alternative among available alcohol spirits.

I have no data on the domestic distribution of gin and rum sales for both local and international brands, but I suspect that the bulk of the sales from local brands may come from the provinces.

A growing middle class should translate to a shift to pricier alternatives.

By the way, vodka consumption represents as the largest share of alcohol mainly due to Russian consumption as noted above.

Man of Steel: One heck of an unorthodox Superhero movie

Man of Steel,  for me, signifies as one heck of an unorthodox superhero movie

In stereotyped movies, superheroes have been assumed to possess the politically correct ethical behavior. But not this one.

This movie extends to the shaping of Clark Kent’s values and character mostly by his foster father and mentor, Jonathan Kent.

Like the ethics of good old kung fu movie days, the elder and fatherly Kent, impressed upon his son of the importance of self-discipline, in the fear that his adapted son’s supernatural powers would be spurned and rejected by the human society.

Gosh, this fabulous dialogue—between dad Kent and his extra-terrestrial 13-year old son over the latter’s lifesaving of his schoolmates from a drowning school bus—represents a deontological dilemma something which philosophers from different ideological camps would passionately debate on…

All quotes from the IMDb.

Jonathan Kent: You have to keep this side of yourself a secret.

Clark Kent at 13: What was I supposed to do? Let them die?

[brief pause]

Jonathan Kent: Maybe...

The elder Kent knew that the supernatural powers of son would be put to good use one day, but until then should refrain from exposing himself…

Jonathan Kent: You're not just anyone. One day, you're going to have to make a choice. You have to decide what kind of man you want to grow up to be. Whoever that man is, good character or bad, it's going to change the world.

The sacrificing of the life of Jonathan Kent in order for Clark to realize the importance of self-discipline, in a tornado disaster, served as the climax of Clark’s moral and character training.

The movie importantly depicts of one of the greatest battles of our time: freedom versus collectivism. 

Superman’s nemesis General Zod wanted to resurrect genetically-engineered (and programmed) Kryptonians in earth via a genocide of the human race. General Zod brought into light Jeremy Bentham’s consequentialist “greatest good for the greatest number” utilitarianism

General Zod: No matter how violent, every action I take is for the greater good of my people.

Sounds familiar?

On the other hand, the reason Clark Kent’s biological Krypton father, Jor-el, sent his son Clark Kent/Kal-El (Kryptonian name) to earth was for the latter to steer his own destiny (freedom).

Jor-El: What if a child dreamed of becoming something other than what society had intended? What if a child aspired to something greater?

Such ideological conflict between Jor-el and General Zod, which was carried over by son Clark Kent/Kal-El, represents the crux of the movie.

For all the film’s other minor blemishes, the Man of Steel seems as a refreshing entertainment film against the predominant populist pseudo politically correct themes.