Month: July 2019

Well-off Chicago residents have been exploiting a legal loophole to obtain need-based college financial aid and scholarships by giving up legal guardianship of their children. 

The tactic, which has been used by dozens of families (and maybe more according to Propublica Illinois), involves handing over guardianship to a friend or relative during the student’s junior or senior year in high school – allowing them to declare themselves financially independent from their families. This qualifies them for federal, state and university financial assistance, according to the report. 

“It’s a scam,” said Andy Borst, director of undergraduate admissions at the University of Illinois at Urbana-Champaign. “Wealthy families are manipulating the financial aid process to be eligible for financial aid they would not be otherwise eligible for. They are taking away opportunities from families that really need it.”

While ProPublica Illinois uncovered this practice in north suburban Lake County, where almost four dozen such guardianships were filed in the past 18 months, similar petitions have been filed in at least five other counties and the practice may be happening throughout the country. ProPublica Illinois is still investigating. –Propublica

Borst’s suspicion was first raised when a high school counselor from a wealthy Chicago suburb called him to ask why a certain student who had obtained a legal guardian had been invited to an orientation program for low-income students. 

According to the University of Illinois, at least 14 applicants have done the same – three of whom just completed their freshmen year, and the rest enrolling this fall according to Borst – who noted that the three students will have their university-based financial aid reduced. 

“We didn’t hear any complaint, and that is also a big red flag,” said Borst. “If they were needy, they would have come in to talk with us.”

ProPublica Illinois found more than 40 guardianship cases fitting this profile filed between January 2018 and June 2019 in the Chicago suburbs of Lake County alone. The parents involved in these cases include lawyers, a doctor and an assistant schools superintendent, as well as insurance and real estate agents. A number of the children are high-achieving scholars, athletes and musicians who attend or have been accepted to a range of universities, from large public institutions, including the University of Wisconsin, the University of Missouri and Indiana University, to smaller private colleges. –Propublica

When reached for comment by ProPublica Illinois, parents or guardians in 15 of these cases flipped out – some hanging up the phone, others refusing to comment, and some demanding anonymity. 

In light of the scam, the University of Illinois is now scrutinizing applicants who have recently entered into a guardianship, ” including whether they have contact with their parents, who they live with and who pays for their health insurance and cellphone bill,” according to the report. 

Borst says the questions are working, and that some families have backed off seeking financial aid from the university. 

While the university has discretion over offering institutional aid, it is obligated to distribute the federal and state grants for needy students, known as the Pell Grant and the state Monetary Award Program, or MAP grant in Illinois, Borst said. Combined, they can total about $11,000 a year.

He said the university has alerted the U.S. Department of Education and officials at the Illinois agency that administers state financial aid, the Illinois Student Assistance Commission. An ISAC spokeswoman said the agency has not yet been told about a specific case, but that it would alert the state attorney general and the U.S. Department of Education if necessary. A U.S. Department of Education spokesman said he could neither confirm nor deny current or potential investigations. –Propublica

Last year, around 82,000 students were eligible for the MAP grant, however around 5,000 students did not receive it because there wasn’t enough money for the first-come, first-served award. 

Read the rest of the report here. 

via ZeroHedge News https://ift.tt/2Owhnem Tyler Durden

For the second time in a week, North Korea has seemingly snubbed President Trump by test-firing multiple unidentified projectiles this morning.

South Korea’s Yonhap News Agency reports:

(URGENT) N. Korea fired multiple unidentified projectiles early Wednesday: JCS https://t.co/ePwu6emzQc

— Yonhap News Agency (@YonhapNews) July 30, 2019

This somewhat provocational act comes just hours after North Korea told a White House official that working-level meetings between the U.S. and North Korea will restart “very soon,” a Trump administration official told reporters Tuesday.

Developing…

via ZeroHedge News https://ift.tt/2ZjUtI0 Tyler Durden

Authored by Charles Hugh Smith via OfTwoMinds blog,

Small businesses on the precipice need only one small shove to go over the edge, and there won’t be replacements filling the fast-multiplying empty storefronts.

As a generality, the average employee (including financial pundits) has no real experience or understanding of what it takes to start and operate a small business in the U.S. Government employees in the agencies that oversee and enforce regulations on small businesses also generally lack any experience in the businesses they regulate.

A third generality is the endlessly promoted ethos of entrepreneurism cultivates the illusion that there is an essentially endless supply of entrepreneurs who are itching to start businesses and throw everything they have into the risky gamble.

All we ever hear when a restaurant owner is interviewed is how much they love their business, their work, their customers, their neighborhood, etc. etc. Sadly, enthusiasm isn’t enough to pay the rent when belt-tightening reduces sales while costs notch ever higher.

The story plays out the same everywhere; the only variation is the relative scale of the costs that are squeezing small businesses and the limits on how much they can raise prices:

America’s Highest Minimum Wage Sparks Fight in Small California City: Restaurants in Emeryville say they can’t keep raising prices, but workers say $16.30 an hour is barely enough in the Bay Area.

For those of you who don’t read the entire article: one cafe owner reports that she netted a whopping $5,000 in a good year, her entrepreneurial payoff for working insane hours and putting up with the ceaseless grind of keeping her business afloat.

The reality is very few people have the drive, risk appetite, capital and experience to start and operate a small business. Once this pool of people has been exhausted or bankrupted, the number of new small businesses plummets and does not recover.

Another reality is a great many bricks-and-mortar Main Street businesses are on the precipice of closing. There are two primary drivers of this systemic vulnerability:

1. Costs are rising far faster than enterprises’ ability to raise prices for the goods and services they sell

2. Wages and salaries (earned income) has stagnated for the past 20 years for the lower 95% of households while costs of big-ticket expenses such as rent, healthcare, college, childcare and government services and taxes have risen sharply.

This leaves less discretionary income available to spend on non-essentials, i.e. “experience consumption.”

Simply put, small business expenses are rising while their customers’ stagnating income means there is little leeway to raise prices. Small business is in a vise.

There’s another dynamic in bricks-and-mortar businesses that must rent commercial space. The bubble in real estate valuations has spread to commercial real estate in many if not most urban areas, but certainly to every urban area with a vibrant job market–exactly the sort of place that attracts those willing to start a new business.

If a retail building was worth $1 million a decade ago, and now it sold for $3 million, the new owners naturally expect rents to cover all expenses and yield a 5% return on their investment.

The new owners don’t think of themselves as greedy; a 5% return on capital is conservative.

The higher price doesn’t just increase the size of the mortgage and the monthly payments; it also increases the property taxes due. Since the fees charged for government services are soaring, business licenses, permits, etc. have also increased far faster than official inflation.

For the investment to pencil out for the new owner who paid $3 million for the building, the rent for each space has to triple from $1,000 a month to $3,000 a month.

How many small businesses can afford a doubling or tripling of rent? Since wages, healthcare, licenses, permits, etc. have increased dramatically while the ability to raise prices has been constrained, many small businesses can’t afford even a 20% increase in rent, never mind 200%.

(Note on interest rates: even if the interest rate on the commercial-property mortgage declined a bit, that doesn’t offset the much larger principal payment required since the mortgage tripled in size, nor does it reduce the property taxes or other fixed costs. In other words, the interest part of the owners’ monthly expenses is not the key metric.)

Now let’s factor in a recession or slowdown, a period of consumer belt-tightening that causes revenues to drop.

A great many Main Street businesses paying market rents are only making money in the very best of times. Any slowdown, however modest, pushes them into the red.

If they expect revenues to pick up in a month or two, small business owners will absorb losses, cut the hours of employees, work longer hours, etc. But if the revenues don’t recover while expenses click higher, the entrepreneur eventually has no choice: either close down now or go broke via the drip of monthly losses.

Once the slowdown is undeniable, no one with any moxie is going to step up and pay market rent on the vacant space. The inexperienced souls who try their hand in the new space will be bankrupted in a matter of months by the high rent.

The building owners are loathe to drop the rent from $3,000 a month to $2,800, much less to $2,000 a month. Yet the reality is that no small business can afford more than $1,000 a month.

The building owners are caught in their own vise: they need rents close to $3,000/month to cover their expenses, and so dropping rents to what small businesses can afford will result in horrendous monthly losses. But leaving the spaces vacant generates losses, too.

The only way out is to default on the mortgage and abandon the building to the lender, who then faces enormous losses because the building is no longer worth $3 million since rents have crashed.

Neither the commercial building owners nor the small business tenants have any wiggle room. The only alternative to increasing losses each has is to close down the business / sell the building for a huge loss or default on the mortgage.

All the increasing costs are famously sticky: wages don’t go down, healthcare costs don’t go down, city fees don’t go down, and rent goes down only grudgingly, in increments too small to save small businesses operating in the red.

And since the pool of experienced entrepreneurs is small (and shrinking as people burn out, go bankrupt, retire, etc.), the empty storefronts will stay empty for a long, long time– until rents drop back to levels that enable small businesses to make a profit in recessionary times.

Nobody wants to see building valuations decline by 2/3 or more: cities, lenders and investors all want valuations to notch higher or at least remain stable. But bubble-era valuations lead to rents that are completely unaffordable, so small businesses will close, resulting in the rental income dropping to $0 per month.

Since all the costs are sticky and expectations are wildly unrealistic, there is no painless way forward.

Small businesses on the precipice need only one small shove to go over the edge, and there won’t be replacements filling the fast-multiplying empty storefronts. The hurdles, costs and risks of starting a new enterprise notch ever higher while the rewards diminish. No wonder startups are in systemic decline: we’ve made it so difficult to start and operate a small business that few have the skills, stamina and capital to survive, much less thrive.

Blowing a real estate bubble that crushed small business may well be viewed in hindsight as the Federal Reserve’s cruelest and most destructive policy error.

*  *  *

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via ZeroHedge News https://ift.tt/2MsMBQW Tyler Durden

First, three quarters ago, Apple shocked investors when it said it would no longer disclose the number of iPhones it was selling – a clear signal that selling had slowed dramatically. Shocked investors sold off the stocks… then BTFD with gusto sending AAPL sharply higher. A few months later, on January 3 2019, Apple once again shocked the market when it slashed its revenue guidance by 8% for only the first time since this century (naturally, it blamed China). As AAPL stock tumbled, it reveberated across all capital markets, and even prompted a flash crash cascade in most yen and pound pairs. However, just like a quarter earlier, Apple’s “shock” was quickly overcome, and the after hours plunge actually marked the max pain for longs, and as the chart below shows, AAPL has soared 46%. And to think all it had to do was slash revenue guidance..

Then, last quarter, as largely expected, Apple reported that iPhone sales had indeed slumped, but the reason why the market kept bidding up the stocks, was the company’s effervescent outlook, which while declining on a year over year basis, was well above sellside consensus, dispelling fears of a growth slump and boosting hopes that Apple is successfully transitioning to a services company (the new $75 billion stock buyback repurchase authorization did not hurt). As a result, heading into its third quarter, AAPL stocks was trading near the highest levels of the year, and not too far from its all time highs.

So with US-China trade talks resuming today, Trump’s twitter rant notwithstanding, everyone’s attention was glued to the Apple earnings report at 430pm ET to see if all the optimism over the past 3 quarters would be justified.  The answer appears to be yes, because moments ago, Apple reported that in fiscal Q3, it beat both revenue and EPS earnings:

• Q3 EPS: $2.18, Exp. $2.10
• Q3 Revenue: $53.8BN, Exp. $53.35BN
• Q3 Gross Margin $20.23BN
• Q3 Product revenue: $42.35 billion

Apple also announced that it had repurchased a whopping $17BN in stock in the quarter, and spent $3.6BN on dividends.

While Apple beating on earnings was great news (and the extravagant buyback certainly did not hurt), less impressive was Apple’s iPhone revenue, which came in at $25.986BN, below the $26.45BN expected, and well below the $29.5 billion from a year ago, as well as the slight miss in services revenue which came in at $11.46BN, below the $11.88BN consensus.

Another disappointing data point: China revenue came in at $9.16BN, down 4.1% Y/Y.

However, the reason why the stock is some 3% higher after hours was largely due to the company’s revenue and gross margin outlook, which came in well above the Sellside estimate:

• Q4 revenue between $61 and $64 billion, exp. $61.04BN
• Q4 gross margin between 37.5% and 38.5%, exp. 37.5%

Commenting on the earnings, Apple CFO Luca Maestri said that “Our year-over-year business performance improved compared to the March quarter and drove strong operating cash flow of $11.6 billion. We returned over $21 billion to shareholders during the quarter, including $17 billion through open market repurchases of almost 88 million Apple shares, and $3.6 billion in dividends and equivalents.”

Looking at the company’s increasingly important service revenue number, Apple reported $11.46BN in service revenue, up from $10.2BN a year ago, but below the $11.88BN expected by analysts, and virtually unchanged from the prior quarter.

So the bottom line: a modest profit beat, coupled with weaker than expected iPhone and Services revenue, offset by very strong guidance, which is enough to push AAPL stock 3.5% higher to $216 after hours.

via ZeroHedge News https://ift.tt/2GPM2x9 Tyler Durden

Oil rallied notably today as traders anticipated a growth jolt from The Fed tomorrow and tensions remain in the MidEast as Iran threatened to choke supplies.

“The crude oil market loves trade headlines,”

“Even if they were negative earlier in the day, at the end of the day the countries are trying to make a deal happen. They’re not there to fail, and that supports oil.”

API

• Crude -6.024mm (-2.75mm exp)

• Cushing -1.449mm

• Gasoline -3.135mm

• Distillates -890k

After the prior week’s shockingly large draw, crude inventories were expected to modestly drop further but once again surprised to the downside with a bigger-than-expected 6mm drop in stocks (and big draw in gasoline also)…

 

WTI had surged back above $58 ahead of the API print and extended gains after the surprise API Print

 

via ZeroHedge News https://ift.tt/2SW8auy Tyler Durden

Just one day before convicted pedophile Jeffrey Epstein was found in his jail cell with mysterious injuries, the accused child sex-trafficker was served with legal documents claiming that he forcibly raped a 15-year-old girl in his New York mansion in 2001, according to CNBC. 

The accuser, Jennifer Araoz, plans to sue Epstein next month for claims of sexual assault, battery and rape, which she alleges he started committing when she was a New York high school student in 2001, according to a court filing earlier this month.

But first, Araoz is asking a judge to order Epstein to submit to a deposition, where he can be asked by Araoz’s lawyers the identity of a female “recruiter”who allegedly conspired with him to identify her “as a potential sexual abuse victim” and “facilitated the grooming” of Araoz. –CNBC

Araoz first detailed the alleged sexual assault on July 10, days after Epstein’s arrest. 

Epstein gave her a tour of his mansion that culminated in a visit to what he described as his “favorite room in the house,” Araoz said. A massage table sat on the floor. A painting of a nude young woman hung from the wall.

Araoz would return to that room regularly over the next year, she said, manipulated into stripping down to her panties and giving Epstein massages that ended with him pleasuring himself to completion and her leaving with $300.

In the fall of 2002, Epstein pressured her to do more, Araoz said. He told her to remove her panties. Then he grabbed her 15-year-old body.

“He raped me, forcefully raped me,” Araoz told NBC News in an exclusive interview. “He knew exactly what he was doing.”

“I was terrified, and I was telling him to stop. ‘Please stop,’” Araoz, now 32, added.

“Upon identification of the recruiter, she will be added as a defendant to” Araoz’s pending lawsuit. “Further, the recruiter possesses critical evidence of [Araoz’s] sexual assault claims,” reads the filing. 

The unnamed recruiter is undoubtedly Ghislaine Maxwell, who has been accused by several women of actively seeking out young women to satisfy Epstein’s sexual desires. Among others, Maxwell was accused by allgeged Epstein victim Virginia Giuffre of recruiting the then-15-year-old into sexual slavery while she was working at a towel girl at President Trump’s Mar-a-Lago club.

Araoz’s filing also requests that a judge order Epstein to produce records of who worked for him between 2000 and 2003, as well as logs of “everyone who entered or exited his” Upper East Side townhouse over the same period. 

A New York City Sheriff’s Office official gave Epstein — a former friend of Presidents Donald Trump and Bill Clinton — copies of that request and related documents on July 22 at the Metropolitan Correctional Center, according to an affidavit filed Monday in Manhattan Supreme Court.

Epstein, 66, has been held in that federal jail in lower Manhattan since early July, when he was arrested on child sex trafficking charges.

A day after he was given the court documents, Epstein was found injured and semi-conscious on the floor of his cell, with marks on his neck. He then was was put on suicide watch. –CNBC

According to a lawyer for one of Epstein’s victims, the financier may have been injured in an attempted ‘hit’ in order to prevent him from implicating powerful people who may have participated in his sexual deviance. 

A lawyer for the now-32-year-old Araoz said “Jennifer endured unspeakable abuse by Jeffrey Epstein and his enablers, who robbed her of a piece of her childhood,” adding “She brought this action to hold those responsible accountable and deliver a simple message: she’s not afraid anymore.” 

via ZeroHedge News https://ift.tt/2yrwTxj Tyler Durden

Beyond Belief…

 

China stocks dipped in the afternoon after a morning buying panic…

 

UK stocks limped lower, outperforming the rest of Europe as its currency crumbled…

 

European Bank stocks dropped back into the red for 2019 again…

 

US markets were mixed with Small Cap soaring off early weakness but the rest of the majors ending red with Nasdaq worst…

NOTE – Trannies spiked at the close into the green barely.

 

Is a Fed rate-cut enough to make new highs in stocks… just like we did in 1987…

 

Small Caps were saved by another huge short-squeeze…

 

BYND was battered…

 

And Under Armor was hammered…

 

VIX is about to enter the riskiest part of the year…

 

Another extremely narrow range day in Treasuries that ended with yields down 1-2bps across the curve…

 

The Dollar Index trod water on the day

 

Cable continued its slide (down 7 of the last 8 days) – heading for its worst month since Oct 2016…

NOTE – this will be the lowest monthly close for sterling since Jan 1985

 

Cryptos rallied on the day led by Bitcoin Cash (Bitcoin remains below $10k)…

 

Oil prices spiked today as China trade talks and Iran tensions raised premia as copper crumbled, PMs both rallied…

Silver outperformed Gold again…

Speculators are piling into the silver-options market as the precious metal returns to the limelight ahead of the Federal Reserve meeting, where policy makers are widely expected to cut borrowing costs.

As Bloomberg’s Nancy Moran and Michael Roschnotti notes, the combined volume of calls and puts has surged above 218,000 contracts this month, on course for the highest since November 2010. The bulls driving the trading are of the mind the commodity will catch up to the gains of its pricier cousin gold, while the bears are counting on weakening global manufacturing to hurt industrial demand.

WTI spiked back above $58 ahead of tonight’s API inventory data…

 

Finally, given the market’s expectations of at least a 25bps cut tomorrow, one wonders what the point is when global financial conditions are back at extreme easy levels…

Data-dependent my left nut!!

via ZeroHedge News https://ift.tt/2Yh2Jfq Tyler Durden

We’re thrilled to see the far-left in America has the same respect for the Democratic process as their forebears did (for a reference to their forebears, see here).

On Tuesday, Calif. Gov. Gavin Newsom signed a bill requiring President Trump to either release his tax returns or he won’t appear on the ballot in the state.

Calif Gov. Gavin Newsom

Under SB 27, called the “Presidential Tax Transparency and Accountability Act,” any candidate running for president or governor in California must file copies of their tax returns from the previous five years to the California secretary of State, or their names will be stricken from the ballot, the Hill reports.

Newsom argued that, as the largest economic engine within the US, California has a “responsibility” to demand this additional information (for the record: the Constitution doesn’t say anything about candidates releasing tax returns – though the federal income tax didn’t exist back on).

“As one of the largest economies in the world and home to one in nine Americans eligible to vote, California has a special responsibility to require this information of presidential and gubernatorial candidates,” Newsom said.

“These are extraordinary times and states have a legal and moral duty to do everything in their power to ensure leaders seeking the highest offices meet minimal standards, and to restore public confidence. The disclosure required by this bill will shed light on conflicts of interest, self-dealing, or influence from domestic and foreign business interest.”

A Trump campaign spokesman called the new law “unconstitutional,” and insisted that there was a good reason why California’s last governor, Jerry Brown, refused to sign the legislation.

In a statement, Trump campaign spokesman Tim Murtaugh called the move “unconstitutional.”

“There are very good reasons why the very liberal Gov. Jerry Brown vetoed this bill two years ago – it’s unconstitutional and it opens up the possibility for states to load up more requirements on candidates in future elections. What’s next, five years of health records?” he said.

Murtaugh said states cannot add requirements to presidential candidates’ qualifications for running.

“The Constitution is clear on the qualifications for someone to serve as president and states cannot add additional requirements on their own,” he said. “The bill also violates the 1st Amendment right of association since California can’t tell political parties which candidates their members can or cannot vote for in a primary election.”

Unsurprisingly, the bill was overwhelmingly passed by California’s assembly and the state senate earlier this month. Among its more appalling provisions, the bill includes an “urgency clause”, which would allow it to take effect before the 2020 vote, meaning any Californians who want to vote for President Trump might need to write his name in.

Though it has faded from the headlines somewhat, the battle over Trump’s tax returns continues to rage. The administration is already suing New York State, which recently passed a law allowing the state to request Trump’s tax returns, while in Congress, the Ways and Means Committee has filed a lawsuit over the administration’s refusal to release Trump’s returns, which is likely the beginning of a lengthy legal battle.

Surprisingly, Trump was joined in his outrage by some liberal pundits who have stood out for their opposition to Trump’s ideas.

This remains a terrible, anti-democratic idea and California should be embarassed. https://t.co/dYHAEtrnE5

— Nate Silver (@NateSilver538) July 30, 2019

We imagine California won’t be the last state to pass such a bill, but given Trump’s deep unpopularity throughout most of the state, he was unlikely to win any delegates from California: Imagine what will happen when swing states like Colorado and New Hampshire start trying to pass these types of laws?

And finally….

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