Ukraine Possessed the Type of Missile System Which Shot Down Malaysian Airlines Flight MH-17

Ron Paul writes:

While western media outlets rush to repeat government propaganda on the [plane crash in Ukraine], there are a few things they will not report.




The media has reported that the plane must have been shot down by Russian forces or Russian-backed separatists, because the missile that reportedly brought down the plane was Russian made. But they will not report that the Ukrainian government also uses the exact same Russian-made weapons.

He's right …

The American government and media are loudly proclaiming that it must have been the Russian loyalists within Ukraine who shot down the plane because they possessed the type of missile used in the attack: SA-11 missiles fired from a Buk missile system.

Of course, the Ukrainians possess them as well.

As the Council on Foreign Relations notes:

All three regional actors—Russia, pro-Russian rebels of the “Donetsk People’s Republic,” and the Ukrainian government—had access or potential access to this weapons platform.

Reuters points out:

As Russia and Ukraine trade blame over the apparent shooting down of a Malaysian airliner, they appear to agree on one thing: the type of Soviet-era missile that brought it down.


But if an SA-11 Buk missile, known as “Gadfly” in NATO, struck the aircraft and killed all 298 on board, that won’t solve the mystery of who did it: Russia, Ukraine and Russian-speaking rebels have all claimed the missile in their arsenals.

Former Associated Press and Newsweek reporter Robert Parry explains:

Ukraine, after all, was part of the Soviet Union until 1991 and has continued to use mostly Russian military equipment.

For example, here’s a Ukrainian state company BOASTING about their Buk systems and SA-11s … complete with pictures:

(Click here and here to see big, clear images.)

The Ukrainian military also admits – after denying it for 8 days – that it accidentally shot down a Russian airliner in 2001, killing all 78 passengers, using a different missile system.

But – say American talking heads – it came from “rebel-controlled territory”.

Maybe … but last time we heard that kind of claim, it turned out to be totally false.


via Zero Hedge George Washington

White House ‘Quietly’ Exempts 4.5 Million People In 5 “Territories” From Obamacare

As WSJ reports, last week’s geopolitical chaos and distraction was ideal for a news dump, and the White House didn’t disappoint: On no legal basis, all 4.5 million residents of the five U.S. territories were quietly released from ObamaCare. It seems the costs of healthcare soared in these five territories due to uneconomic mandates – which woul dhave been a disaster PR-wise for the administration and so, under cover of catastrophe, WSJ reports all of a sudden last week HHS discovered new powers after “a careful review of this situation and the relevant statutory language,” that enabled them to ‘selectively exempt’ American Samoa, Guam, Puerto Rico, Northern Mariana Islands, and Virgin Islands from Obamacare. And all while vacationing…

As WSJ reports,

The original House and Senate bills that became the Affordable Care Act included funding for insurance exchanges in these territories, as President Obama promised when as a Senator he campaigned in Puerto Rico, the Virgin Islands and other 2008 Democratic primaries. But the $14.5 billion in subsidies for the territories were dumped in 2010 as ballast when Democrats needed to claim the law reduced the deficit.


As a consolation, Democrats opened several public-health programs to the territories and bestowed most of ObamaCare’s insurance regulations, which liberals euphemize as “consumer protections,” such as requiring insurers to accept all comers and charge the same premiums regardless of patient health.

However, costs soared as no insurer would touch them…

These uneconomic mandates promptly caused insurance rates to soar and many insurers to flee the territorial markets. You can’t buy any policy at any price in the Mariana Islands. So the territories have spent the last two years beseeching HHS for a regulatory exemption.

So time to change the rules… from this…

As recently as last year, HHS instructed the territories that they “have enjoyed the benefits of the applicable consumer protections” and HHS “has no legal authority to exclude the territories” from ObamaCare.

To this…

Laws are made by Congress, but all of a sudden last week HHS discovered new powers after “a careful review of this situation and the relevant statutory language.”

And thus 4.5 million people in the following 5 territories are now free of the tyrannical demands of Obamacare…

American Samoa, Guam, Puerto Rico, Northern Mariana Islands, and Virgin Islands.

*  *  *

Which leaves only one question… where does everybody else apply for their ‘uneconomic’ exemption?

via Zero Hedge Tyler Durden

Three Charts Of The Week: Money Printing Is Not Bringing Prosperity To Main Street

Submitted by David Stockman of Contra Corner blog,

Furious money printing by the world’s major central banks is not generating real growth and prosperity—–but professional economists never seem to get the word. As shown below, the 2014 outlook for global real growth has been marked down sharply since early 2013. Back then, of course, Abenomics and massive QE by the BOJ was supposed to cause the Japanese economy to soar; Draghi’s “anything it takes” bromide was going to jolt Europe out of its slump; and the elixir of QE3 was certain to finally cause the US economy to attain “escape velocity”.

Its not working out that way. In Japan, import inflation is soaring, real wages are still falling and the economy is entering a new slump in Q2 owing to a tax increase that was unavoidably necessary to pay for its runaway fiscal largesse. In Europe, the Bank Of Italy, Draghi’s home base, has now marked its forecast of 2014 real GDP growth to essentially zero. And in the US after the disastrous first quarter, along with what is shaping up to be a tepid second quarter, real growth will not achieve any kind of velocity, “escape” or otherwise; in fact, consensus real GDP has already been marked down to 1.7%—the lowest rate of expansion since the financial crisis. Accordingly, it is only a matter of time before the global forecast for 2014 shown below below is marked down even further.



It is no mystery as to where all the central bank “stimulus” is going. Since early 2013 fully fourth-fifths of the 40% rise in the S&P 500 is due to multiple expansion, not earnings growth from a tepid economy. This is clearly the effect of massive central bank injections of cash into Wall Street and other financial markets, yet it is especially perverse under current circumstances. Given the massive instabilities and headwinds afflicting the global economy—from the house of cards in China, to the failing retirement colony in Japan, the welfare state fiscal crunch in Europe and the faltering growth of breadwinner jobs and real investment in productive assets in the US—-the capitalization rate of future earnings should be down-rated. That is, future corporate earnings are now worth far less than the historical PE norm, not more. Accordingly, the massive expansion of PEs shown below is yet another expression of the vast financial deformations being caused by monetary central planning.


In any event, the “financialization” brought on by the central banks has had a truly perverse effect. Stock markets and corporate profits are at all time highs. Yet the true measure of main street economic health—-the share of adults who are employed—is at a modern low. It is said by traditionalist believers in sound money that we can not print our way to prosperity.



These charts of the week provide some pretty stunning evidence of that truth.

via Zero Hedge Tyler Durden

RJ Reynolds Fined $23.6 Billion


RJ Reynolds has been ordered by a Florida jury this Friday to pay a total of $23.6 billion to the widow of a chain-smoker that had filed a suit against the company. It’s possibly the largest single plaintiff payout in history for a tobacco manufacturer to date.

Cynthia Robinson of Pensacola began the long process of suing the company in 2008. Her husband had died in 1996 of lung cancer after smoking between two and three packets of cigarettes per day for 18 years. It was claimed that her husband had become addicted to cigarettes and despite attempts had failed to manage to quit. She claimed that RJ Reynolds had conspired to conceal the addictive nature of cigarettes and had failed to highlight the dangers of smoking. Robinson’s lawyers also accused RJ Reynolds of being negligent in informing customers of the dangers pf the consumption of tobacco.

• The jury deliberated for 11 hours on Friday 18th July 2014 and the verdict returned granted compensation of $7.3 million to the plaintiff as well as $9.6 million to her husband’s child from a previous marriage. 
• The jury went on to deliberate for a further 7 hours before it then awarded Robinson the punitive sum of$23.6 billion
• Robinson’s lawyer stated: “RJ Reynolds took a calculated risk by manufacturing cigarettes and selling them to consumers without properly informing them of the hazards”. 
• RJ Reynolds issued a statement calling the verdict “far beyond the realm of reasonableness and fairness”. 
• The company also stated that the company is “confident that the court will follow the law and not allow this runaway verdict to stand,” adding that the damages were “grossly excessive and impermissible under state and constitutional law”.
• In the USA today there are still half a million people that die from cigarette-related illnesses every year.
• But, only 18% of US citizens actually smoke these days, which is a huge drop from the 42% of the 1960s.

Robinson argued that the verdict was not as RJ Reynolds states “a runaway verdict” but rather that the jury was courageous to take the decision. The jury refused to accept the argument used by RJ Reynolds that the victim had in fact smoked out of choice rather than addiction.

Originally Robinson had filed a lawsuit against the company as part of a class-action litigation that opened in1994 against tobacco firms. It became known as the “Engle Case”. At the time the verdict given in 2000 was also in favor of the plaintiffs and they were awarded $145 billion in punitive damages. But, it was overturned in2006 when the Florida Supreme Court decided that each of the plaintiffs involved in the class-action litigation had in fact smoked for very personal, individual and different reasons. They were told that they could file lawsuits individually, which is what Robinson did. What was upheld by the Florida court was that the jury’s findings that cigarettes and tobacco in general lead to diseases and that they are defective as well as labelling tobacco companies as negligent. These issues are now standing and they do not need to be re-litigated in any future lawsuit that takes place. The Supreme Court in Florida also refused just a few weeks ago the request by RJ Reynolds (amongst others) to hear their appeals regarding other court judgments in Florida which come to a total of $70 million.

Just a few days ago RJ Reynolds announced the decision to take over Lorillard in order to conquer the electronic cigarette market and hopefully compensate the falling sales in the industry. The US tobacco industry is worth an estimated $120.7 billion (2013) in sales according to research carried out by Euromonitor.

It was just 50 years ago that the US Department of Health first published a report recognizing that tobacco could cause cancer. Since that date, 13 different types of cancer as well as other illness have been recognized as having a link with the substance.

RJ Reynolds manufactures Camel, Kool and Pall Mall cigarettes amongst others. The tobacco company founded in 1875 is the 2nd largest in the USA and it holds 33% of the tobacco market. For the first quarter of2014 it posted net sales to the value of $1, 563 million, with an operating income of $482 million.

Originally posted: RJ Reynolds Fined $23.6 Billion



via Zero Hedge Pivotfarm

Is This The Best Investing Strategy For The New “Free Lunch” Normal?

In a world in which there is no longer any risk, in which the Fed itself is the Chief Risk Officer of the S&P 500 itself (because either the Fed and central banks will keep on injecting “modest” liquidity and keep rates at zero or below for the indefinite future, or jump right back in with another massive, $1 trillion + liquidity dump the second the S&P dares to suffer a 10% correction), there is no longer any need to hedge as we have shown for the past two years. In fact, the best strategty for the past two years has been to actively go long the most shorted stocks. But as GMO’s Ben Inker shows, there may be one other strategy for the new “Free Lunch” new normal that avoids buying stock altogether and which has less volatility, a lower beta and a higher Sharpe ratio than merely buying stocks, while generating the same return: namely constantly selling 1 month ATM puts, rolling, and then selling again. Then again, judging by the ridiculous low VIX, perhaps everyone has already figured this out…

From GMO’s Ben Inker:

Free Lunches and the Food Truck Revolution

Over the past year or so, there has been a welcome change to the culinary landscape of the Boston financial district. After two decades of wandering to largely the same old haunts for lunch, I am now faced with a whole new set of inexpensive and tasty choices literally outside our door, changing daily as the food trucks perform their mysterious nightly dance. And while part of me may worry about the general advisability of having a burning wood-fired oven built into a small truck and another part may worry about the long-term impact to my weight and arteries from eating the pizza that comes out of said oven, my taste buds are thrilled, and my wallet has no complaints either. We at GMO have been accused at times of believing that either the world never changes or that when it does change, those changes are generally bad. Well, it may just be the dumplings talking (available on Fridays on the Greenway by Rowes Wharf, $8 for four dumplings along with fried rice and homemade Asian slaw, $1 more if you want to add a spring roll with ginger soy sauce), but the world has indeed changed, and it is good! Food trucks seem to be a genuinely disruptive innovation, lowering the cost of entry for the restaurant business, fighting the tyranny of location, taking advantage of other innovations – every food truck I’ve been to accepts credit cards via Square – and encouraging experimentation, new ideas, and most importantly, better lunches for me and others who work in culinarily challenged areas.

While I’m sure you are happy for me and my newfound culinary contentment, you may well be wondering whether this has any relevance for investing. I believe it does, and the relevance is this: investors spend far too much of their time looking for a free lunch, when they should be looking for the investing equivalent of an inexpensive and tasty food truck meal instead. Tasty food truck meals are far easier to find, and you are much less likely to discover that they come with strings attached that you didn’t think of until it was too late. So what are investing free lunches? Arbitrage opportunities, sources of high returns uncorrelated with the important risks to investors, portfolio construction techniques that reduce those risks without reducing returns, exploitable market inefficiencies that other investors are strangely willing to share the existence of with you. In common parlance, Alpha. I have used the capital A there as a signifier that there is something special about this particular Greek letter that gives it a fascination for investors well beyond what is ascribed to beta, gamma, delta, or the other symbols that finance has appropriated. My colleague Edmund Bellord suggested in a recent team meeting that we replace the term “Alpha” with “Magic Beans” in our conversations to add the proper element of skepticism when the term comes up. This is not to say that Alpha doesn’t exist. There are indeed occasional arbitrage opportunities, the markets do sometimes offer up sources of return uncorrelated to risks we should all care about, and we would be among the last to claim that markets are efficient. But finding Alpha is hard, everybody is on the lookout for it, and as all diligent analysts can tell you, most of the time that an opportunity starts out looking like Alpha, it winds up seeming more mundane as you do more research.

Put Selling and Merger Arbitrage – No Free Lunches Here

Just because an opportunity isn’t a free lunch, however, doesn’t mean it isn’t a tasty food truck meal, and such a meal can easily be an important part of your balanced diet … er, portfolio. So what do I mean by this? To some degree, the difference between a free lunch and a tasty food truck meal is a matter of mind-set. I’ll take the example of put selling, even though some of you may be bored of reading my musing on that particular topic by now. Some investors and strategists have suggested that put selling is a free lunch, and on the face of it, they seem to have a point, as you can see in Table 1, which compares holding the S&P 500 with selling one-month at-the-money (ATM) puts on the S&P 500 since 1983:

One-month puts have provided basically the same return after our estimated transaction costs as a buy and hold of the S&P 500, with a beta of about 0.5, volatility two-thirds that of the index, a Sharpe ratio 50% higher, and a CAPM alpha of 2.6%. To explain these, some strategists have invoked behavioral factors – irrational dislike of the limited upside of the strategy or other investor foibles. To our minds, no such explanations are necessary. Beta and standard deviation are lousy risk measures for a put selling strategy, because almost all of the volatility of the strategy is “bad” volatility. At the end of the day, an investor selling puts on the S&P 500 is taking the same risk as the investor who buys the S&P 500 – both lose money at more or less the same rate when the S&P 500 goes down. If the reason why the stock market has a long-term return above cash is the nature and timing of the losses that periodically befall investors who own it, put selling has all of the same downside, and therefore should offer the same basic upside. It happens to do that in a different manner – through the collection of option premiums instead of participating in the gains of the stock market – but as my colleague Sam Wilderman points out, it is dangerous to confuse the manner investors get paid with the reason why they get paid. Purveyors of option strategies are apt to talk about the “variance risk premium” and “capturing short-term  mean reversion” when analyzing put selling returns. But while these two factors do explain how put selling delivers its returns to investors, they arguably do little to help anyone understand why the returns exist. Variance risk premium (VRP) is a term used to explain the observation that implied volatilities on the S&P 500 and other equity indices are generally higher than the realized volatility of those markets. You can put together strategies that are designed to specifically try to capture the VRP and structure them in a way so that, most of the time, they have little stock market beta. But if you stop and think a bit about why the VRP exists, it starts to become clear that those strategies might not be a good idea. If implied volatilities were an unbiased estimate of future realized volatility for the market, puts and calls would have similar expected returns. We know from put-call parity that being short a put option and long a call option should give the same return above cash as a long investment in the market. If implied volatilities were “fair,” the call and put would each be expected to give half the return of the market. Because the put embodies the ugly risk of stocks and the call embodies the pleasant upside, this would be a strange outcome. Why would you expect to get paid half as much as the stock market, in buying a call, while taking none of the downside? The way to shift the returns to the put, where they belong, requires implied volatility to be higher than an unbiased expectation of future volatility, and that gap creates the variance risk premium. Selling volatility therefore should make money over time, but stock markets tend to show much more downside volatility than upside. If you are short volatility, you will find that most of the time you make a little money and periodically you lose a bunch as volatility spikes, and those spikes will almost invariably come when the market is falling. Your VRP trade therefore looks a lot like being short a put, although in this case an out-of-the-money put instead of an at-the-money. Selling out-of-the-money (OTM) puts often seems like a wonderful strategy, chugging away making money consistently with little volatility until, suddenly, it doesn’t. Table 2 shows the characteristics of a 5% OTM put selling strategy.

It works until it doesn’t.

It looks wonderful! Beta and volatility are basically half that of ATM puts, and the strategy has an even higher Sharpe ratio than ATM puts, one that most hedge fund managers would be very happy to achieve. It looks, on the face of it, like exactly the sort of strategy that one should be levering up instead of owning dumb old equities. The trouble is, while the strategy seldom loses money, when it does lose is exactly when you’d prefer it didn’t. Table 3 shows you a month and day that most people peddling option selling strategies won’t talk to you about. In part, this is because the main options database that most people use for their analyses only goes back to 1996. But it is quite possible to get options data on S&P 500 futures going back to 1983, so ignoring October 19, 1987 is also about hiding an unpleasant truth.

The 27.8% loss for the day of October 19, 1987 is a 76 standard deviation event for the OTM put selling strategy. While everyone “knows” that put selling does not have normally distributed returns, you can also bet that no one looking at the statistics of a strategy would say to themselves, “You know, I’d really better stress test my portfolio against a 76 standard deviation event just to be on the safe side.” But the simple truth is that plenty of strategies that look low-risk much of the time have the potential for profoundly larger losses if something odd, but possible, happens in the financial markets. You would never want to lever such a strategy based on its historical return characteristics, because you cannot be confident you understand the risks based on that limited sample. There are plenty of downturns in which a 5% OTM put selling strategy winds up losing far less than a long equity strategy, but there are some where it is worse, so treating it as one-third the “risk” of a long equity strategy is potentially deadly to your financial well-being.

This is all a long-winded way of saying that put selling is not a free lunch, and something to be levered only by the exceptionally brave, foolhardy, or those who take very seriously the incentives created by a 1 and 20% fee structure. But we still think put selling, in an unlevered form, can at times be a tasty food truck meal. Once you recognize that the reason you are getting paid for selling puts is because you are taking equity downside risk, but the manner in which you get paid is different from owning the market, there may well be some times when the payment for equity downside is better from put selling than owning the stock market. While it would be odd if put selling always gave a better return per unit of “risk” than owning the market, the different return pattern means that some of the time it almost certainly will, and we would contend that a situation in which valuations are higher than normal but not at nosebleed levels may well be such a time.

In a similar vein, merger arbitrage turns out not to be a true arbitrage and therefore not a free lunch, either. Like OTM puts, merger arbitrage looks to have a low correlation with the stock market in normal times, but the correlation rises uncomfortably in times of market stress, which is when you really wish it wouldn’t. Merger arbitrage professionals will talk about getting paid for taking the risk of deals falling through, and that their skill is in better handicapping the likelihood of the deal completing or completing at a higher price than the original offer. The gap between the current price and deal price is indeed the manner in which investors are paid in merger arbitrage, and the skill that a manager has does come from his/her ability to better analyze the probabilities and prices than the other guy. But we would argue that the reason why there is a decent return to the activity of merger arbitrage is that the circumstances in which lots of deals are likely to fail at the same time is one of significant market stress – when credit markets freeze up, equity markets are falling, and acquirers either find themselves unable to raise the money they need to complete a deal or have simply changed their priorities from empire building to survival. But this still leaves merger arbitrage a potentially tasty food truck meal, because of the timing of when it is attractively priced. There are a fair number of hedge funds out there pursuing merger arbitrage strategies, but their capital is finite, and the size and number of deals changes over time. Merger arbitrage is likely to be priced to give interesting returns when the size of the deal pool is large relative to the capital devoted to the activity, which is likely to be when stocks have been rising for a while and executives and investors are feeling confident about the future. This is probably a time when the expected return to owning stocks has fallen, and may well also be a time when investor confidence is reducing the expected return to selling puts directly.

via Zero Hedge Tyler Durden

Market Madness: Geopolitical Chaos Sparks Biggest “Dash-For-Trash” In 17 Months

Since The Fed’s extension of Operation Twist (and subsequent unveiling of QE3) in 2012, the stocks of “weak balance sheet” companies are up over 100%. In that same period, the stock prices of “strong balance sheet” companies are up a mere 43%.


The “dash-for-trash” that the Fed’s financial repression forced upon an investing public has enabled the worst companies to not only survive (creating yet another mal-investment boom) but squeezed their share prices to thrive. The reason we bring this up is simple…


This last week of exuberant equity market performance in the face of unimaginable geopolitical possibilities saw “weak balance sheet” stocks outperform “strong balance sheet” stocks by their most in 17 months. In other words, amidst all the chaos and uncertainty ‘investors’ drove the biggest dash for trash since March 2013.

*  *  *

Because what’s the first thing you do when the world pushes towards the edge of World War III… buy the junkiest stocks and sell the best quality ones… Of Course!!

And the reasons Goldman say it will continue… well we discussed them before – what a farce.

via Zero Hedge Tyler Durden

A “Tone-Deaf” Obama Mocked By The NYT For Vacationing While The World Burns

When it comes to mocking president Obama, there is no easier or more effective way than focusing on his vacation/golfing schedule. The conservative Washington Examiner did just that last week, before the latest Malaysian Airlines disaster, when it reported that “It’s going to be hot tubs, basketball, tennis and golf for the first family this summer, having set plans for a 16-day vacation in Martha’s Vineyard, Mass., on a $12 million, 10-acre forested estate on the southwestern corner of the island.

Reports from the Bay State indicate that President Obama and his family will vacation August 9-24 at the 8,100-square foot, beachfront home of a Democratic donor that includes a pool, hot tub, basketball and tennis court. It will be new digs for the first family, who have summered on tony Martha’s Vineyard every year of Obama’s presidency, except in 2012 when he was running for reelection. The Vineyard Gazette reported that the White House has no major or public events planned for the almost three weeks, typical at this stage of a presidential vacation.

That and golf of course.


However, all of that is to be expected, and sure enough, Obama can and will parry such mockery as political attacks coming from the right, while remarking how strong the US economy has become under his watch, how many millions of waiters and bartenders thousands of manufacturing jobs he has created, and of course, how the stock market hits a record high now on a daily basis.

Things get dicier, however, when Obama is mocked and virtually attacked for his vacation plans by none other than that flag-bearer of leftist ideology, the New York Times itself. Which is precisely what just happened in “Sticking to His Travel Plans, at Risk of Looking Bad

As smoke billowed from the downed Malaysian jetliner in the fields of eastern Ukraine on Thursday, President Obama pressed ahead with his schedule: a cheeseburger with fries at the Charcoal Pit in Delaware, a speech about infrastructure and two splashy fund-raisers in New York City.


The potential for jarring split-screen imagery was clear. Reports of charred bodies and a ground-to-air missile attack from Eastern Europe dominated television screens while photographers snapped pictures of a grinning Mr. Obama holding a toddler at the restaurant. The presidential motorcade was later filmed pulling up to Trump Place Apartments, the Riverside Avenue venue for his first fund-raiser.


And yet, White House aides said no consideration was given to abandoning the president’s long-planned schedule, even during the hourlong flight from Delaware to New York, when word suddenly arrived that Israel had begun a ground invasion of the Gaza Strip, providing the day’s second international challenge.


Instead, White House officials simply made sure to describe the president’s on-the-road management of the crises: calls to world leaders from Air Force One, telephone briefings from Secretary of State John Kerry and a secure-line meeting of his national security staff from a room in the Trump Place Apartments before his fund-raiser.


“It is rarely a good idea to return to the White House just for show, when the situation can be handled responsibly from the road,” said Jennifer Palmieri, the White House communications director.Abrupt changes to his schedule can have the unintended consequence of unduly alarming the American people or creating a false sense of crisis.”

Actually, that is somewhat correct: it has gotten to the point where seeing Obama actually work in the White House, instead of golfing of shaking hand with the same Wall Street bankers his DOJ pretends to prosecute, would create a “sense of crisis” among the American people. Not so sure about be “false” part.

And this is where things got rough:

For an administration in its sixth year, juggling presidential optics is nothing new. And with some rare exceptions, the public relations team around the president has remained consistently stubborn about refusing to let the never-ending stream of political, economic or international crises affect Mr. Obama’s daily schedule.


The current myriad incidents are no exceptions: Moments after making a grim statement about Ukraine on Friday, the president popped into the East Room, where the first lady, Michelle Obama, was holding a mock state dinner for children to promote her Let’s Move nutrition initiative. “My big thing,” he confessed to the kids, “chips and guacamole!” There was plenty of laughter all around.

To be sure, conservatives promptly ridiculed the president for what he does best: put on a great show before the teleprompter then quietly disappear in the golf cart. As noted above, this is nothing new and the administration felt no need to defend itself.

“Instead of responding to multiple international crises, the president apparently thought it was a better use of his time to attend a set of fund-raisers in New York,” Representative Kevin McCarthy, Republican of California and the incoming majority leader, said in a statement. “While the president is out on the loose and having a good time, he should remember that his responsibilities as commander in chief don’t stop when he’s out of the office.”

However, by now even the ubiquotous social media is starting not only to noticed, but to comment:

Administration officials shrug off that kind of organized Republican criticism. But social media users noticed, too. Twitter was filled with snarky mentions of the president’s activities on Thursday. One noted that Mr. Obama “interrupts busy fund-raising night to check in with team on two crises. Then back to business.” Another wrote: “Nice he could take a moment to check on those meddling world events.”

Obama won’t be the first president to see his reputation tarnished by his vacation plans:

Veterans of previous administrations recalled that the political damage could be serious if the American people concluded that the president was politically tone deaf or insensitive, especially to the suffering of others during an emergency.


Scott McClellan, who served as George W. Bush’s press secretary during Hurricane Katrina, recalled that Mr. Bush, on a trip through Western states, was photographed strumming a guitar with a country music artist even as the storm began to bear down on New Orleans, flooding streets and stranding residents.


“When those moments are placed side by side with a crisis that’s worsening, it creates a perception problem that the White House can’t ignore,” Mr. McClellan said in an interview.


In his book “What Happened,” Mr. McClellan recalls with horror seeing the “image of a seemingly carefree President Bush pursuing his original schedule and disregarding the plight of Katrina’s victims — the dead, the homeless, the lost.”


Later, Mr. McClellan writes: “With 20/20 hindsight, it’s clear that President Bush should have canceled his two-day western trip and headed back to Washington on Saturday or Sunday, before Katrina unleashed its fury.”

The NYT’s punchline:

“There is a total lack of symmetry from what the American people are seeing from the president and what is going on in the world,” Mr. Schmidt said. He acknowledged that no president should be captive to events or hunkered down in the White House. And he said presidents, like other people, deserved downtime. But he said White House occupants had to abandon those moments when the situation demanded.

Will this time be any different for the tone deaf president, and will the first observation of Obama’s vacationeering by a liberal outlet force him to change his ways? Or does the world have to finally succumb to at least one mushroom cloud beside the countless fires raging across the globe, before someone in the White House notices? We should find out… but not before Obama comes back from Martha’s Vineyard on August 24. Let’s just hope that no major wars break out over the next month.

via Zero Hedge Tyler Durden

“Buying The Car Was The Worst Decision I Ever Made” – The Subprime Auto Loan Bubble Bursts

It has been over six months since we first highlighted the growing deterioration in the quality of auto loans and mentioned the 's' word (subprime) as indicative that we learned nothing from the financial crisis. Since then, auto loans (and especially subprime in the last few months) have surged to record highs; and most concerning, recently has seen delinquencies and late payments spike. The reason we provide this background is that, thanks to The NY Times, this story is now hitting the mainstream media as subprime-quality car buyers (new and used) realize the burden they have placed on themselves thanks to exorbitantly high interest rates (and a rapidly depreciating 'asset'). As one car 'owner' exclaimed, "buying the car was the worst decision I have ever made."


As The NY Times reports, Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640.


Deja vu all over again…

And, like subprime mortgages before the financial crisis, many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds — a process that creates ever-greater demand for loans.

Exorbitant interest rates… (but still demand?)

The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent.


The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states.

Will we never learn…?

In another echo of the mortgage boom, The Times investigation also found dozens of loans that included incorrect information about borrowers’ income and employment, leading people who had lost their jobs, were in bankruptcy or were living on Social Security to qualify for loans that they could never afford.


“It appears that investors have not learned the lessons of Lehman Brothers and continue to chase risky subprime-backed bonds,” said Mark T. Williams, a former bank examiner with the Federal Reserve.

One painful example…

Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.


“I am not sure how I got the loan,” Mr. Durham, age 60, said.


Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car.

It's different this time…(worse)

Autos, of course, are very different than houses. While a foreclosure of a home can wend its way through the courts for years, a car can be quickly repossessed. And a growing number of lenders are using new technologies that can remotely disable the ignition of a car within minutes of the borrower missing a payment. Such technologies allow lenders to seize collateral and minimize losses without the cost of chasing down delinquent borrowers.


That ability to contain risk while charging fees and high interest rates has generated rich profits for the lenders and those who buy the debt. But it often comes at the expense of low-income Americans who are still trying to dig out from the depths of the recession, according to the interviews with legal aid lawyers and officials from the Federal Trade Commission

Who is to blame? Nefarious dealers?

The dealers have an incentive to increase both the size and the interest rate of the loans.


The arithmetic is simple. The bigger size and rate of the loan, the bigger the dealers’ profit, or so-called markup — the difference between the rate charged by the lenders and the one ultimately offered to the borrowers. Under federal law, dealers do not have to disclose the size of the markup.

Or The Fed's financial repression money printing forcing demand into these risky securities?

Investors, seeking a higher return when interest rates are low, recently flocked to buy a bond issue from Prestige Financial Services of Utah. Orders to invest in the $390 million debt deal were four times greater than the amount of available securities.


What is backing many of these securities? Auto loans made to people who have been in bankruptcy.


The average interest rate on loans bundled into Prestige’s latest offering, for example, is 18.6 percent, up slightly from a similar offering rolled out a year earlier. Since 2009, total auto loan securitizations have surged 150 percent, to $17.6 billion last year, though some estimates have put the total volume even higher.

The end-result…

In another sign of trouble ahead, repossessions, while still relatively low, increased nearly 78 percent to an estimated 388,000 cars in the first three months of the year from the same period a year earlier, according to the latest data provided by Experian.


The number of borrowers who are more than 60 days late on their car payments also jumped in 22 states during that period.


As a result, some rating agencies, even those that had blessed auto loan securitizations with high ratings, are starting to question the quality of the loans backing those securities, and warn of losses that investors could suffer if the bonds start to sour. Describing the potential trouble ahead, Kevin Cole, an analyst with Standard & Poor’s, said, “We believe these trends could lead to higher losses and weakened profitability in a few years.”

Read the full disaster here…

*  *  *

One quick question… (rhetorical of course) – Why did the Federal Reserve stop reporting auto-loan LTVs in February 2011? After 40 years of doing so!!

Bloomberg has reported the average loan to value (LTV) for subprime auto loans has increased to 114.5% this year and the average loan-to-value on new cars rose to 110.6% (which would be the highest ever according the Fed's data… way beyond the 100.4% previous peak in Sep 2006)

*  *  *

As we concluded previously, it is so bad that even Morgan Stanley now gets it:

Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery,” Adam Jonas, a New York-based analyst with Morgan Stanley, wrote in a note to investors last month. The rise of subprime lending back to record levels, the lengthening of loan terms and increasing credit losses are some of factors that lead Jonas to say there are “serious warning signs” for automaker’s ability to maintain pricing discipline.

And who gets to eat the losses? Well, as we have previously explained, the bulk of consumer credit issuance in the past year, a massive 99%, has been sourced by the government to go straight into auto and student loans.

Which means you, dear US taxpayer, will once again be on the hook when the music ends.

via Zero Hedge Tyler Durden

The Insiders’ Case For A Stock Market Mini-Crash

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The trade only works if everyone is lulled into staying on the long side until it's too late.

Let's try a thought experiment: suppose we're players in the stock market, Wall Street insiders with real leverage and connections to the Fed. You know, the kind of player who can reverse a decline in the S&P 500 with an order (executed through a proxy) for thousands of call options on the SPX.

Retail participants tend to forget we make money on both the long and short side. The small-fry who provide liquidity always assume a sharp decline in equities is a terrible thing because "everybody is losing their gains," and this general belief is pushed by the mainstream financial media: unfailingly chirpy news anchors' expressions and voices darken when reporting the rare drop in stocks: horrible, horrible, horrible, a drop means we all lose, I'm sad reporting this.

The players are laughing at this play-acting and the gullibility of the audience: insiders make huge gains when they engineer a sharp decline. It's not that difficult to manipulate the market when volume and volatility are low, especially in an age where quant-bot trading machines are programmed to follow trends.

It's also easy to hype stocks publicly while selling (distributing) your shares at the top to unwary punters who believe the PR (the Fed has your back, thanks to the Fed's quantitative easing (QE), the market will never go down, etc.).

But pushing the melt-up higher gets more difficult when the market gets heavy. Markets get heavy when participation thins (i.e. fewer stocks are leading the advance), speculative sectors are rolling over as the crowd of greater fools shrinks and volume on up days keeps declining.

When the markets get heavy, the easy-profits trade is get short and engineer a sharp decline. Nudging a heavy market into a free-fall has a number of advantages to players, other than the gratifying profits from being short equities and long volatility.

1. The Fed needs a decline to "prove" it isn't pushing markets higher, further enriching the already obscenely rich. A thoroughly corrupted Congress is finally awakening to the public rage over the Federal Reserve's blatant enrichment of the few at the expense of the many, and as a result, the Fed has a serious PR problem: Janet Yellen may be a lot of things, but a believable actress isn't one of them. Her performance claiming the Fed acts only on behalf of widows, orphans, Mom, apple pie and the merchants lining Main Street was laughably inauthentic.

A sharp decline would demonstrate that the Fed isn't controlling the market to enrich the insiders–even though a sharp decline would only benefit the insiders who engineered the drop. Heh. No need to be churlish about it. Where's your sense of humor?

2. A mini-crash would panic the herd into selling, enabling insiders to scoop up shares on sale. This is of course the classic insider play: unload enough shares to blow off all the sell stops (i.e. orders to sell if price drops to specified level), which extends the decline and reinforces the panic-selling.

3. Never give a sucker an even break. After two years without a meaningful correction and complacency at multi-year highs, how much profit is there left in pushing an increasingly heavy market up another few percentage points? The big money is in engineering a decline that catches the crowd by surprise and doesn't allow the traders a chance to board the short-bus before it roars out of the station.

Many traders are confident the market will broadcast a technical signal that will give them a chance to get on the short bus with the insiders. How likely is this? If we're engineering a decline, why would we spoil the trade by letting a bunch of peasants get on board? With every quant-bot programmed to recognize all the usual technical signals and systems, why telegraph the trade?

As legendary stock trader/manipulator Jesse Livermore observed, the market will take the fewest possible number of participants along for the ride, and expecting the market to issue a "go short now for easy profits" signal would violate this rule: if everybody shifts from the long side to the short side, the trade is no longer profitable.

The trade only works if everyone is lulled into staying on the long side until it's too late. Traders seem to be waiting for another standard-issue decline in September/October that would set up yet another standard-issue Santa Claus rally. Will it really be this easy to book profits in the second half? When everybody expects the same thing to unfold, it's just another form of complacency.

Complacency–and the confidence that you can beat a confidence game by following what everybody else is following–is dangerous.

via Zero Hedge Tyler Durden