How Wall Street Banks “Masked” A Record $350 Billion In Subprime Exposure

The latest monthly auto-loan data from the Fitch Auto ABS Index showed something very troubling: subprime delinquencies 60 days or more past due on the secondary market rose to 5.76% in February, the highest they’ve been in 22 years, or since 1996, and blowing past the highs hit during the 2008 financial crisis. At this rate, a record high print is assured in a month or two.

The data seemed confusing, almost a misprint to Hylton Heard, Senior Director at Fitch Ratings who said that “it’s interesting that [smaller deep subprime] issuers continue to drive delinquencies on the index in an unemployment environment of around 4%, low oil prices, low interest rates — even though they are rising — and a positive economic story overall.” In other words, there is no logical reason why in a economy as strong as this one, subprime delinquencies should be soaring.

As Brian Ford of Kroll Bond Rating Agency added “the securitized universe is a small subset of the overall universe of auto loans, but it still gives you a pretty good indication of the health of the consumer.” If that is the case, the US consumer is doing far worse than the near-record S&P and 4.0% unemployment rate would suggest.

Making matters worse, rising interest rates have made interest payment on subprime loans increasingly unserviceable for those who are currently contractually locked up – hence the surge in delinquency rates – or those US consumers with a FICO score below 620 who are contemplating taking out a new loan to buy a car, something we touched on three weeks ago in “Subprime Auto Bubble Bursts As “Buyers Are Suddenly Missing From Showrooms.”

Yet while the subprime bubble is clearly bursting on the demand side, courtesy of rising rates and a 3M USD Libor above 2.3%, Wall Street has remained relatively sanguine on the broader financial implications for one reason: there is, allegedly, no concentration in exposure among bank lenders, and thus no concern of a rerun of the subprime bubble bursting on Wall Street similar to 2007/2008. To be sure, following the financial crisis, big banks appeared to have learned their lesson and turned rather conservative when it comes to potential subprime borrowers, insisting on such things as income verification and other details, which has made room for specialty lenders with fewer such compunctions.

Meanwhile, as we highlighted two weeks ago, Wall Street’s exodus from …read more



Martin Shkreli Will Serve Out His 7-Year Sentence At Minimum Security Prison


As it turns out, Martin Shkreli’s post-conviction prediction that he’d serve out his sentence playing Xbox and basketball at a minimum-security “Club Fed” wasn’t far off the mark.

After being sentenced to seven years in federal prison after being found guilty on three counts of fraud related to a scheme to raid his former pharmaceutical company, Retrophin, to pay back investors in his failed hedge funds, Shkreli will be serving out his sentence at the Federal Correctional Institution in Fort Dix, NJ.

The prison was once home to former Providence Mayor Vincent “Buddy” Cianci, the New York Post reports.

Though inmates aren’t permitted to play video games. The prison is considerably better than the Metropolitan Detention Center in Brooklyn, home to high-level convicts like El Chapo, the Mexican drug cartel leader.

The 4,266-inmate, all-male FCI Fort Dix is adjacent to a minimum-security satellite camp housing 321 inmates, but Bureau of Prisons records indicate Shkreli is being held in the FCI.

However, it’s slightly less liberating than the minimum-security camp in Pennsylvania that his legal team tried – and failed – to have him transferred to, according to CNBC.

Camps are considered safer and more pleasant places to serve a sentence than facilities that have higher security designations.

But in either case, it looks like Shkreli – who will probably be out in four years on good behavior – won’t be facing the “hard time” that he had reportedly feared ahead of his sentencing.

…read more



Accountant defends tax returns in solar tax ‘scheme’ trial

SALT LAKE CITY — A tax expert testified Friday he visited the Delta site of a purported solar energy facility, walked into a home and flipped the switch on and off, believing solar lenses were generating the power.

“I did not think it was connected to the grid,” said Richard Jameson, a specialist in federal tax law who filed tax returns to the IRS on behalf of RaPower3 clients.

That company, IAUS, Neldon Johnson and Gregory Shepard are the subject of a federal complaint lodged in 2015 by the U.S. Department of Justice that alleges the business enterprise is nothing more than an “abusive tax scheme” that has cost the U.S. Treasury at least $50 million.

The case is now before U.S. District Judge David Nuffer in a trial expected to last at least two weeks. Federal prosecutors want repayment for the lost revenue due to energy tax credits and depreciation revenue they say was wrongly claimed.

They also seek to stop any further promotion of the lenses, which continues through tours of the Delta site, the company’s online promises of tax credits and weekly local radio shows in which Johnson promotes the technology.

The Department of Justice asserts the lenses have never generated any power and never will.

“Defendants’ solar energy scheme is clearly a complete sham. Defendants knew it was not generating income for customers for more than 10 years. Yet despite their clear knowledge that the system did not produce energy or income for customers, they continue to sell lenses, encourage customers to take purportedly related tax deductions and credits and deplete the U.S. Treasury,” justice attorneys wrote in court filing.

Jameson testified Friday that he believed the home he saw at the Delta site was off grid, observing a nearby solar tower that looked to be powering a turbine producing steam.

“It was making a hole in the ground that would fry things. It was pretty hot,” he said.

A cable not far from the turbine continued toward the house, he testified.

Under questioning from Department of Justice attorney Erin Hines, Jameson conceded it was only after Johnson was deposed for trial that he learned that the house was not being powered by the lenses.

According to his testimony, Jameson handled tax returns for many of the RaPower3 customers, assuring the IRS through “placed in service” letters provided by RaPower3 that the lenses met federal rules for tax credits and depreciation.

He did not personally verify they were …read more

Source:: Deseret News – Business News


US Army Colonel Admits: “Hard To Believe That Assad Would Use Chemical Weapons”

Authored by Erik Sandberg via,

The ex chief of staff to Colin Powell has criticized the “former colonial powers; France, U.K., and the U.S.”, questioning their motives for attacking Syria.

In an interview for Newsvoice Think, Colonel Lawrence Wilkerson  –  who served in the U.S. army for 31 years  –  said that he found it “unbelievable” that Bashar al-Assad would use chemical weapons and thus jeopardize his victory by drawing the United States into the situation.

Listen to the full interview in our weekly Newsvoice Think podcast.

Wilkerson, currently a visiting professor at The College of William & Mary in Virginia, feels the Pentagon pushed Trump to re-establish high ground in a war that has raged since the Arab Spring of 2011.

Col. Lawrence Wilkerson on Syria

The commercial motivations for the U.S. going to war in Syria were also laid bare by Colonel Wilkerson. He described Lockheed Martin  – the American defense technologies company  –  as “merchants of death” and described the monopolisation arms contractors have over the governments, and the massive profits they make from war.

Col. Lawrence Wilkerson on Lockheed Martin

“The main reason for the president to go to war in Syria was to get Stormy Daniels, the Russia scandal, James Comey and a host of other things that have imperiled his presidency off the TV screens. Nothing does it like a strike. Our media is quite puerile like that. When they see missiles flying they get transfixed and they love to report on it.”

Col. Lawrence Wilkerson on Donald Trump

Wilkerson was heavily critical, not just of Trump, but also of the havoc the U.S. has wreaked since 9/11, berating the country he served for decades in the army, and then as chief of staff to Colin Powell between 2002–2005. He told Newsvoice Think that estimates say that anywhere between 300,000–600,000 could have died from the wars in Iraq, Yemen, Afghanistan, Niger, and Somalia”

Col. Lawrence Wilkerson on the deaths caused by the “American empire.”

You can read more about Colonel Lawrence Wilkerson at the College of William and Mary.

* * *

With Newsvoice, you can be a part of the media. Our mission is to democratize the news, and move the power over to our readers. Get involved by downloading the app, or visit us at

…read more



Putin Warns Russian Students Living In Britain: “Come Home Immediately”

Facing the “noticeable negative impact of Russophobic attitudes,” Russian authorities have launched a campaign aimed at bringing home young people studying in the UK and other Western countries.

As The Express reports, Olga Evko – a representative of Rossotrudnichestvo, the Federal Agency for the Commonwealth of Independent States, Compatriots Living Abroad and International Humanitarian Cooperation – is behind Moscow’s “It’s time to go home” returnee scheme:

“The question for our youngsters studying abroad is very serious indeed.

“We have real grounds to worry that young Russians may suffer in provocations in countries that show an unfriendly attitude to (us).”

And guess where those overseas students can go when they get back to mother Russia?

Oleg Mansurov, of PreActum entrepreneurial community, told a Moscow conference on the plan that those with education and work experience in Britain “will be ready to take part in ambitious projects and move again, including to the Far East of Russia”.

Yes, Siberia!

Vladimir Putin is seeking to radically boost the economy of eastern Siberia and Russia’s Pacific rim to counter the negative impact of Western sanctions by expanding gas and oil production, gold and diamond mining, as well as nuclear energy and the digital economy.

As The Express notes, the initiative was ridiculed on social media.

Yana Prigozhina said: “I just can’t stop laughing. People who invested so much time in the often an incredibly hard step of moving to study abroad are supposed to buy the idea of ‘building the digital economy’ in the Far East of Russia?”

Referring to a former Gulag transit point in eastern Siberia, Maria G asked sarcastically “Why don’t I just swap my PhD in Cambridge for a job in Magadan?

The British embassy was quoted saying “as ever” Russians were welcome in the UK as students or tourists.

…read more



Weekend Reading: The Return Of Stagflation

Authored by Lance Roberts via,

One of the worst possible outcomes for the U.S. economy, and ultimately for investors, is stagflation. Of course, if you weren’t around in the 60-70’s, there is a reasonably high probability you are not even sure what “stagflation” is. Here is the technical definition:

“stagflation – persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.”

How can that happen? Exactly in the way you are witnessing now.

While the current Administration is keen on equalizing trade through tariffs, trade deals, and trade deficit reduction, they have also embarked on a deficit expanding spending spree which has deleterious long-term effects on economic growth. At the same time, the administration is attacking our major trading partners, particularly China, leading to a push to shift away from the U.S. dollar as a reserve currency.

What does all that mean?

Here is the problem with the current trajectory.

A weaker dollar leads to higher commodity prices creating cost-push inflation.

As fears of inflation infiltrate the markets, interest rates increase which raises borrowing costs.

As the dollar weakens, exports come under pressure which comprises about 40% of corporate profits.

Higher input costs, borrowing costs, and weaker profits ultimately force corporations to suppress wage growth to protect profits.

As wage growth is suppressed, particularly with a heavily indebted consumer, demand falls as higher costs, both product and borrowing costs, cannot be compensated for.

As demand falls, companies react by reducing the highest costs to their bottom lines: wages and employment.

As profits come under pressure, stock prices fall which negatively impacts the “wealth effect” further curtailing consumptive demand.

As the economy slumps into recession, unemployment rise sharply, demand falls, and interest rates decline sharply.

As I discussed just recently, the bottom 80% of U.S. households are heavily indebted with no wage growth to offset the rising costs in “non-discretionary” spending requirements of rent, utilities, food and healthcare and debt payments.

However, as the dollar weakens, the input costs to manufacturers rise leading to concerns of inflationary pressures which pushes interest rates higher.

The biggest risk to the markets, and investors, is both the current Administrations trade policies, particularly as it relates to China, and the reduction of the Federal Reserve’s balance sheet. Combined, these two represent the largest buyers of U.S. Treasuries which is most inopportune at a time where the fiscal deficit is set to swell creating a surge in U.S. debt issuance. (The chart below is …read more



Wells Fargo fined $1B for mortgage, auto lending abuses

NEW YORK — Wells Fargo will pay $1 billion to federal regulators to settle charges tied to misconduct at its mortgage and auto lending business, the latest punishment levied against the banking giant for widespread customer abuses.

In a settlement announced Friday, Wells will pay $500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net $500 million to the Consumer Financial Protection Bureau. The fine is the largest ever imposed by the CFPB and its first since the Trump administration took control of the bureau in late November.

Starting in September 2016, Wells has admitted to a number of abusive practices across multiple parts of its business that duped consumers out of millions of dollars. Regulators, in turn, have fined Wells several times and put unprecedented restrictions on its ability to do business, including forcing the bank to replace directors on its board. Even President Trump, whose administration has been keenly focused on paring back financial regulations, has called out Wells for its “bad acts.”

In Friday’s announcement, the CFPB and the OCC penalized Wells for improperly charging fees to borrowers who wanted to lock in an interest rate on a pending mortgage loan and for sticking auto loan customers with insurance policies they didn’t want or need. The bank admitted that tens of thousands of customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.

These abuses are separate from Wells Fargo’s well-known sales practices scandal, where employees opened as many as 3.5 million bank and credit card accounts without getting customers’ authorization. The account scandal torpedoed Wells Fargo’s reputation as the nation’s best-run bank.

In that case, Wells Fargo paid a combined $187 million in fines and penalties to federal regulators, including the CFPB, and the Los Angeles City Attorney’s office, and the company’s then-CEO John Stumpf stepped down after being bashed by politicians on both side of the aisle.

Even with the latest settlement, Wells Fargo isn’t in the clear. Its wealth management business is reportedly under investigation for improprieties similar to those that impacted its consumer bank. And the Department of Justice is investigating the bank’s currency trading business.

The $500 million paid to the Comptroller of the Currency will go directly to the U.S. Treasury, according to the order. The $500 million paid to the CFPB will go …read more

Source:: Deseret News – Business News


Fistfuls Of Dollars And The Good (Bitcoin), Bad (Bonds), & Ugly (Semis) Markets

Take your pick – Good, Bad, or Ugly…


The Dollar’s best week in over 4 months

Silver’s best week in 4 months

Bitcoin’s best 2-week gain in 4 months

Not Good:

30Y Bond’s worst week in 3 months

10Y highest yield close since Dec 2013

Semi stocks worst week in a month

Techs worst weekly underperformance relative to Banks in over 3 months

Gold’s worst week relative to silver since Sept 2016

How about next week? Do you feel lucky?

Odd week, all in all – major reversal midweek in many momentum strategies.

Big shift in momentum midweek, left Dow, S&P and Nasdaq unchanged on the week, Trannies outperformed…

S&P closed below its 50- and 100DMA…

The Dow, S&P, and Trannies all tumbled back into the red for 2018 today; only Nasdaq (green) and Small Caps (dark red) remain green for the year…

Growth was favored early in the week but rejected for value after Wednesday’s open…

Tech was the early week leader over banks.. but then XTE’s ban and Taiwan Semi’s warning spoiled the party…

Since The Fed hiked rates in March, stocks notably underperformed bonds into the end of March – then stocks outperformed bonds since April began… until the last couple of days…

Mixed bag for the FANGMAN stocks…

Mixed picture for banks too… MS leading, GS lagging…

Ugly week for HY bonds – HYG tagged its 100DMA and rolled over…

Bonds and Stocks recoupled after two weeks of trying… (green – buy both, red – sell both, orange – buy stocks, sell bonds)

3rd day in a row of negative aggregate returns for a stock and bond portfolio…

Treasury yields ended notably higher on the week, reversing dramatically midweek…

Real Yields and Breakevens surged…but breakevens dumped and pumped today…

10Y Yields tested 2.9500% for the first time since 2/21 (when stocks got spooked) and closed at the highest yield since Dec 2013…

The yield curve also reversed course midweek after flattening to fresh cycle lows, it ripped steeper from Wednesday’s European close… (2s10s jumped 8bps to 49bps off the lows, and 2s30s +10bps off the lows to 68bps)

The Dollar Index surged this week …read more



The Pain Continues: Here Are The Best And Worst Performering Hedge Funds Of 2018

February was the worst month for the hedge fund industry in years (and an absolute disaster for trend-followers and CTAs). Unfortunately, March wasn’t much better, and hedge fund returns sank for a second straight month in March, the first back-to-back loss since the first two months of 2016, as trade wars, tech-sector woes and a Fed rate hike dragged down the S&P 500 from its mid-month highs and hedge funds into the red for the year.

According to Bloomberg data, the broader HFRX Global Hedge Funds Index slumped 0.56% in the first quarter, as funds also finished the month of March down 0.75%, their second consecutive decline, despite modestly paring February’s 2.19% losses.

Not all assets were hurt equally: fixed Income strategies fell 0.10% in March, but ended the quarter in the black. Fixed Income Directional ended the first quarter up 0.75%, while Fixed Income Relative Value rose 1.03%.

Funds styles in the red topped those in the black by 19 to 7 in March, with Short Biased-style funds leading the table at 2.64 percent on the upside. Currency strategies, a subset of CTA/Managed Futures, finished March at the bottom, plunging 6.33 percent. That helped push Currency strategies down 14.7 percent, the biggest drop in the quarter.

Some other details:

Activist-style funds posted the biggest gains in the quarter at 3.67 percent, despite falling 1.66 percent in March. Long-Short funds outpaced the S&P 500 by 174 basis points, finishing the month down 0.80 percent. For the first quarter, Long-Short funds were up 0.30 percent, easily outpacing the S&P 500, which fell 1.58 percent on a total-return basis.

Meanwhile, the high beta, extremely volatilte Commodity Trading Advisors/Managed Futures strategies had the largest monthly swing in either direction from results in February at nearly 550 basis points, ending March down 0.27%, compared with down 5.75 percent in February.

Health Care-focused funds rose 0.04 percent for the month, ending the quarter up 4.66 percent, the highest among industry- focused funds.
Tech-focused funds were down the most in March, falling 1.05 percent, though it wasn’t enough to push them into the red after gains the prior two months. They finished the quarter up 2.82 percent.
Real Estate funds ended the quarter the lowest ranked among industry-focused funds, down 1.93 percent, despite finishing March up 0.30 percent.

The best indication of just how bad 2018 has been for hedge funds comes from the latest HSBC HF report, which shows that while …read more