Category: zerohedge

Back in 2006, some of the wall street banks (ahem, Goldman) managed to layoff quite a bit of their mortgage risk to unwitting European and Asian investors who, in their desperate ‘search for yield’, had no idea they had just been conned into stepping in front of a freight train.  Now, it seems that the same thing may be happening yet again with another favorite wall street structured product, Collateralized Loan Obligations (CLOs).

According to Bloomberg, money managers in Korea, Japan and China are piling into CLOs, and often into the most junior tranches no less, at an alarming rate which has resulted in a staggering 97% increase in YoY new issuance volume.

Faced with near record-low interest rates at home, money managers in Korea, Japan and China have been piling into complex and increasingly risky structured loan products in America. Their investments in collateralized loan obligations — including the high-yield “equity’’ tranches most exposed to defaults — have helped drive a doubling of issuance in 2017.

 

The bets have performed well so far. But some observers worry that Asian buyers are overlooking risks. Headwinds in the retail and energy sectors have raised the specter of defaults, while Moody’s Investors Service has stopped evaluating one type of CLO product amid concern that buyers will end up holding less creditworthy positions than they anticipated.

 

“CLOs are a difficult investment universe, and CLO equity is a boom-and-bust product,’’ said Mike Terwilliger, a New York-based portfolio manager at Resource America Inc., which oversees more than $9 billion and invests in CLOs. “Investors need to make sure they’re being adequately compensated.’’

 

“U.S. CLO equity is starting to look a little less attractive,” Tyler said. “Investors may want to lighten up on this space before there’s a turn in the credit cycle given the illiquid nature of CLO structures.”

Meanwhile, non-U.S. money managers’ share of American CLO tranches with single-A credit ratings more than tripled to 21% last year, mostly due to surging demand from Asia, according to Citigroup Inc.

Korea Post, which manages about $102 billion of savings and insurance products, said in March it had been adding to CLO holdings. Japan Post Bank Co. has made plans to boost exposure to the safest tranches, people familiar with the matter said in January. Gopher Asset Management, a Chinese investment firm that oversees $17.5 billion, is currently raising money for a second global credit fund that may invest in CLOs, said Chief Investment Officer PV Wang.

 

Some “super-aggressive’’ Korean funds are buying equity tranches, according to Eugene Chun, who helps manage about $100 million of CLOs as a Seoul-based executive managing director at HDC Asset Management. Others are purchasing what’s known as combination notes, Chun said. The products blend investment grade and equity tranches to deliver higher yields while still maintaining adequate credit ratings.

Helped by strong Asian demand, CLO issuance has totaled about $32 billion so far this year, up 97% from the same period in 2016, according to data compiled by Bloomberg.

Of course, the reasoning is fairly simple and quite familiar for those of us who lived through the ‘great recession’.  With all-in yields on even the riskiest U.S. debt hovering at just over 5.5%, much lower than even the 2006/2007 bubble levels…

 

…wall street has a convenient product that takes ‘safe’ levered loans, packages them up in a nice little bundle and then sells them to folks all over the world with juicy yields and an investment grade rating.  It’s a win-win-win…lower risk, higher yield and IG rating…

 

Haven’t we seen this movie before?

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Well known government mouthpiece, The China Global Times, published an op-ed overnight that was shockingly frank about the state of America (in their eyes) and did little to confirm President Trump's opinion that he and Premier Xi are best-buddies…

President Trump's Troubles Are Not Going Away

US President Donald Trump appears to be in big trouble. A memo by former FBI director James Comey exposed by The New York Times shows Trump had asked Comey to end an investigation into former national security adviser Michael Flynn in a meeting on February 14. US mainstream media and the Democratic Party accused Trump of obstruction of justice.

 

Earlier, US media had reported that Trump leaked highly classified intelligence on the Islamic State to visiting Russian foreign minister Sergey Lavrov, yet Washington failed to share the same information with its allies to protect the source.

 

As the attacks on Trump ramp up, many are now calling for him to be impeached. According to one poll, 48 percent supported impeachment, while 41 percent opposed. The numbers don't bode well for Trump.

 

The American elite still refuse to accept Trump after his 100 days in the Oval Office. He is at odds with the mainstream media; insiders have constantly leaked information to the media. Now some commentators have compared the exposure of the Comey memo to the Watergate scandal. As Congress is under Republican control, few believe there will be a move to impeach the president, but these latest revelations will certainly further erode Trump's presidential authority.

 

At the beginning of the corruption scandal, few believed that South Korean president Park Geun-hye would be impeached either. Could this be a reference for Trump's case? But evidence of Park's illegal activities was solid, while it will be more complicated to make determinations over whether Trump obstructed justice and leaked classified intelligence. 

 

To impeach Trump will need more evidence from further investigation. To completely discredit Trump among voters, the present scandal is not enough as it does not add to the negative image of Trump. Many just think Trump often speaks off the cuff, which ends up in silly blunders. 

 

If there is a major substantive scandal over and above him speaking out of turn then that will be another thing. But this is not the case at the moment.

 

Every country has its own troubles. The US model represents Western democracy, but it is crumbling, and the resulting social division has become more and more serious. The US Deputy Attorney General Rod J. Rosenstein appointed a special counsel to oversee the investigation into link between Russia and the 2016 US presidential election and related matters on Wednesday. More juicy details will continue to appear and the rifts may become wider. Trump will become one of the most frequently accused Americans.

 

The US won't be engulfed by chaos if its president is caught in a lawsuit. Someone has pointed out that no matter how chaotic the White House and Capitol Hill are, the overall operation of the US will not be a major problem as long as the enterprises and social organizations in the country are stable. This is seen as an advantage of the American system.

 

Although American society is relatively stable, the political tumult can't be taken as an advantage of the US system. The fact is that US politics is in trouble, and the benefits brought by its system are being squandered.

With friends like that, who needs North Korean enemies?

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A recent scientific study just proved something that viewers of CNN have probably suspected for years: Journalists' brains function at a lower level than the rest of the population. 

A study conducted by neuroscientist Tara Swift and the London Press Club determined that "the highest functions of journalists brains were operating at a lower level than the average population, due to dehydration, self-medicating, and fueling their brains with caffeine and high-sugar foods"

"However, the pressures of the job are not affecting journalists ability to endure and bounce back from adversity in the long term, due to a belief that their work has meaning," according to a press release from the London Press Club.

Journalists' brains show a lower level of executive function – that is, the ability of the brain to regulate emotions, suppress biases, switch between tasks, solve complex problems and think flexibly and creatively –  than the average person because to their heavy drinking, and caffeine consumption. They also eat too many high-sugar foods, and don't devote enough time to mindfulness.  

Dr Swart recruited 31 journalists from across the industry to participate in the study. Participants were required to record their eating and drinking habits, answer a brain profile questionaire, take blood tests, and wear heart-rate variability monitors. 

The study was initially launched to examine how journalists manage to "survive and thrive" while managing such high levels of occupational stress. "Journalism," the press release notes, "is one of many industries under an increasing amount of pressure in the digital age. Low pay, frequent deadlines, and high levels of accountability all contribute to high reported stress levels."

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Authored by Darius Shahtahmasebi via TheAntiMedia.org,

Hundreds of civilians are seeking refuge inside a mosque in the Central African Republic (CAR)’s border town of Bangassou, Reuters reports.

What may be surprising to the American public is that these civilians are trying to escape ongoing attacks committed by Christian militias that killed at least 30 civilians over the weekend, according to U.N. officials and aid workers.

According to Reuters, the weekend attacks in Bangassou, located on the Congolese border, have involved hundreds of fighters with heavy weaponry. The fighting is aimed at the Muslim populations and signals that the conflict currently besieging the country is worsening.

“The situation is extremely deplorable and we are doing everything to rapidly retake control of Bangassou,” MINUSCA (the U.N. mission) chief Parfait Onanga-Anyanga told Reuters in an interview.

According to Onanga-Anyanga, many of the fighters are child soldiers who appeared to be under the influence of drugs.

The head of the Red Cross in CAR, Antoine Mbao-Bogo, said his staff has counted 115 bodies in Bangassou following the latest fighting.

While these developments may be unheard of in the eyes and ears of much of the American public, the truth is that this conflict has been raging for some time now. According to the Guardian, thousands of Muslims have been killed or displaced in the conflict. For example, the city of Bangui previously had approximately 130,000 Muslim residents; the number of Muslims is now likely less than 1,000.

According to Reuters, the U.N. base in Bangassou has also been targeted.

CAR has been besieged by this violence since 2013, when mostly Muslim Seleka fighters ousted then-President Francois Bozize. Amnesty International has referred to the developments in the country as “ethnic cleansing” since the fighting erupted.

As this conflict rages on, however, don’t expect the corporate media to pay too much attention to it anytime soon — it doesn’t fit the mainstream narrative that only majority Muslim countries deploy groups of extremists that terrorize civilians.

In 2015, the U.N. Development Index rated CAR as having the lowest level of human development. It was ranked dead last. The country is the world’s 12th largest producer of diamonds and is home to a secretive, bloody gold trade and also harbors mineral, uranium, and oil reserves.

Liberation might be just around the corner, though the country’s majority Christian population might exclude it from the U.S. military’s ‘War on Terror’ narrative.

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Via HeatSt.com,

A major new study out of Harvard University has revealed the true extent of the mainstream media’s bias against Donald Trump.

Academics at the Shorenstein Center on Media, Politics and Public Policy analyzed coverage from Trump’s first 100 days in office across 10 major TV and print outlets.

They found that the tone of some outlets was negative in as many as 98% of reports, significantly more hostile than the first 100 days of the three previous administrations:

The academics based their study on seven US outlets and three European ones.

In America they analyzed CNN, NBC, CBS, Fox News, the New York Times, the Washington Post and the Wall Street Journal.

They also took into account the BBC, the UK’s Financial Times and the German public broadcaster ARD.

Every outlet was negative more often than positive.

Only Fox News, which features some of Trump’s most enthusiastic supporters and is often given special access to the President, even came close to positivity.

Fox was ranked 52% negative and 48% positive. – "Fair and Balanced" indeed.

The study also divided news items across topics. On immigration, healthcare, and Russia, more than 85% of reports were negative.

On the economy, the proportion was more balanced – 54% negative to 46% positive:

The study highlighted one exception: Trump got overwhelmingly positive coverage for launching a cruise missile attack on Syria.

Around 80% of all reports were positive about that.

The picture was very different for other recent administrations. The study found that President Obama’s first 100 days got a good write-up overall – with 59% of reports positive.

Bill Clinton and George W Bush got overall negative coverage, it found, but to a much lesser extent than Trump. Clinton’s first 100 days got 40% positivity, while Bush’s got 43%:

Trump has repeatedly claimed that his treatment by the media is unprecedented in its hostility.

This study suggests that, at least when it comes to recent history, he’s right.

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Former FBI Director James Comey has agreed to testify before the Senate Intelligence Committee in open session, Senators Richard Burr and Mark Warner announced on Friday. In a statement released late on Friday, the committee said the open hearing will be scheduled after Memorial Day.

Sen. Richard Burr, committee Chair, said “the Committee looks forward to receiving testimony from the former Director on his role in the development of the Intelligence Community Assessment on Russian interference in the 2016 US elections, and I am hopeful that he will clarify for the American people recent events that have been broadly reported in the media.”

Committee Vice Chair Mark Warner added that he expects the former FBI director to “shed light on issues critical” to the committee’s investigation and that Comey “deserves an opportunity to tell his story” and that the “American people deserve an opportunity to hear it.”

Since the hearing will take place after its original scheduled date next Wednesday, it will take place after Trump has returned from his global tour next weekend.

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Among a host of other issues, one the critical things that contributed to the housing crisis of 2008 was the fact that speculative borrowers had nearly no “skin in the game.”  Anyone who decided they wanted a piece of the rapidly inflating housing bubble could go out and buy multiple houses with no money down or, in some cases, even do “cash out” purchases whereby banks would finance more than 100% of the purchase price leaving ‘buyers’ to pocket the excess.

Shockingly, such terrible underwriting standards was a really bad idea.  Turns out that offering investors infinite returns on capital, given that they could purchase millions of dollar worth of assets without ponying up a single penny, causes wild speculation resulting in devastating asset bubbles.

But, in the wake of one of the worst asset bubbles in history, new legislation came along requiring traditional mortgage borrowers to put 20% down when purchasing a new home. 

Ironically, the new owner of one of the worst mortgage lenders of the 2008 era, is now arguing that down payment requirements should be slashed in half.  Speaking to CNBC, Bank of America CEO Brian Moynihan, the proud owner of Countrywide Financial, said that his mission is to reduce mortgage down payment requirements to 10% for traditional loans.  Per CNBC:

“But, you know, I think at the end of the day is people forget that, at different points in your life and different points on what you’re doing in life requires you to think about housing differently as a place for you and your friends, as a place for you and maybe your significant other, and then ultimately, a place for family. That drives change. And so yes, it’s taken more time. And we talked a lot about this, you know, four or five years ago, that if you require a 20% down payment, it takes just a little more time to accumulate 20% than it would 3% or none, which is what the rules were for a short period of time.”

 

“So our goal, going back to regulatory reform, is should you move the down payment requirement from 20% to 10%? Wouldn’t introduce that much risk.”

 

“But would actually help a lot of mortgage to get done. And if you look at the statistics, the difference between 80 and 90 LTV –loan-to-value – isn’t much different as it is between 95 and 90. That’s when you start to see real differences in performance statistics. And so we don’t want to wish people into borrowing money that then they have trouble repaying.”

 

Of course, we’re certain that Moynihan’s sole purpose for wanting to lower down payments is to help those poor millennials living in mom’s basement and has nothing to do with the fact that’s he’s lost a ton of fee revenue to government-backed loans that only require a 3% down payment.

 

But, why not?  Gradually destroying lending standards worked out really well last time around.

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An American Airlines crew and off-duty Honolulu police officer subdued a man Friday on board a Honolulu-bound flight after he tried to break into the cockpit, ABC and local news report. The flight, which took off from Los Angeles, landed safely about 11:35 a.m. with a military escort. Bloomberg adds that a laptop computer was placed near the cockpit door.

A source at the TSA told ABC News that the man was waiting for the bathroom near the cockpit when a flight attendant asked him to sit down. He had a laptop with him and appeared to try the cockpit door before he was subdued, the source said. Additional sources said the man, who is reportedly from Turkey, breached security at Los Angeles International Airport, but was assessed and allowed to board AA Flight 31 anyway.  The flight departed from Los Angeles International Airport at 8:34 a.m. local time. 

Once the Airbus A321 was in the air, the man allegedly tried to break through the cockpit door.

Image: Hawaii News Now.

American Airlines said in a statement that law enforcement met the plane upon landing in Honolulu following a “disturbance” on the flight: “Due to a disturbance during the flight, the crew requested that law enforcement meet the aircraft upon landing in Honolulu,” American Airlines said, in a statement. “American is in touch with federal law enforcement.”

The plane was escorted by two F-22 fighter jets for the duration of the flight following the disturbance, U.S. Pacific Command said in a statement.

LATEST: 2 F-22 fighter jets escorted American Airlines Flight 31 to Honolulu Int’l Airport due to disturbance on board, Pacific Command says http://pic.twitter.com/Ee8zTg4PN3

— ABC News (@ABC) May 19, 2017

The man has been detained, the Department of Homeland Security said in a statement. The DHS is continuing to monitor all flights “out of an abundance of caution,” it said.

DHS Statement: http://pic.twitter.com/lrZAYL4D6h

— Homeland Security (@DHSgov) May 19, 2017

“Crazy! Someone tried to break into the cockpit on my flight from LA to Honolulu,” the Instagram user wrote. “We were greeted by the FBI. They are now taking us off the plane a few rows at a time for dog sniffing and interviews.”

Greeted by the FBI in Hawaii. #fbi #police #hawaii #homelandsecurity

A post shared by bplus.noisefloor.dnb (@bplus.noisefloor.dnb) on May 19, 2017 at 3:08pm PDT

 

ABC adds that law enforcement is responding to analyze a suspicious item – reportedly a notebook computer – associated with the man.

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Authored by Toni Airaksinen via The CollegeFix.com,

Don’t want to risk our health

At a time when college administrators will seemingly give in to any student protest, Ivy League activists have stumbled upon a way to protest without accomplishing anything: short-term hunger strikes.

Anti-Israel protesters at Columbia University and union organizers at Yale have both come up short in their bids to force change by fasting in the past month.

Columbia students have been taking turns fasting in support of Palestinian political prisoners for more than two weeks.

More than 1,500 Palestinian political prisoners began a hunger strike on April 17 in advocacy of better conditions inside Israeli jails.

Student members of Columbia University Apartheid Divest (CUAD) began their protest May 3, vowing that “each day, one member will undertake a 24 hour hunger strike,” until the Palestinian political prisoners stop protesting.

Every day since, the designated striker of the day has been featured on the group’s social media page. Each holds a sign that reads “In Solidarity of Palestinian Prisoners on Hunger Strike #CUADHungerStrike.”

They cited political prisoner Marwan Barghouti for inspiration. “Our chains will be broken before we are, because it is human nature to heed the call for freedom regardless of the cost.”

“CUAD stands firmly in solidarity with the resilient Palestinian prisoners in the call for justice, freedom, and dignity,” they wrote.

 

Jeffrey Jacobs, a graduate student in the School of Arts and Science, was a recently featured striker.

“Palestinian prisoners are on the 31st day of their#DignityStrike, and today is Day 15 of#CUADhungerstrike in solidarity with their call for justice, freedom, and dignity,” CUAD captioned his photo.

Keeping in line with the group’s history of denigrating Israel, CUAD claimed that Israeli military forces are treating Palestinian prisoners inhumanely, contributing to mass incarceration of Palestinians, and that Israel is unlawfully occupying Palestine.

When the Danny Danon, Israeli ambassador to the United Nations, came to Columbia in February, CUAD members were there to shout him down.

They also flyered the campus with posters claiming “Palestine is Stolen Land” and that “Zionism is Racism,” and hosted an event inviting students to “learn about Israel’s racist and imperialist apartheid policies” during Israeli Apartheid Week.

The flyers were not taken lightly by members of Columbia’s pro-Israel group Aryeh. They fought back by dispatching 50 students to wear shirts that proudly proclaimed “ZIONIST” and condemning CUAD’s statements as “lies.”

So far, Columbia students who stop eating for a day – a common practice by Mormons, Muslims and other conservative religious groups – don’t appear to have changed anything.

But their strike has sought far more sweeping change than the failed hunger strike by Yale activists who are trying to get the administration to recognize their union.

Eight graduate teaching assistants started an “indefinite fast” on April 25, but the brochure they distributed to onlookers suggested they were taking turns not eating, similar to the Columbia strike.

After much confusion and derision – including a tweeted barb from CNN anchor Jake Tapper – their PR firm confirmed to The College Fix that “none of them have consumed food or anything except water” as of the ninth day of their strike.

By this week, the remaining three fasters gave up. New Haven Register reported that they threw in the towel after two weeks because those who were still fasting would start to “suffer serious physical harm,” in the judgment of medical professionals. Their places were taken by other union members.

Yale has not agreed to come to the bargaining table with the union yet. It is unclear whether fasting will help expedite that process.

The union, Local 33, is planning a more conventional protest with a better track record than fasting.

According to the Yale Daily News, the union and “peer organizations” have promised to “stage a disruptive protest” during the May 22 commencement. Graduating students are denouncing the planned disruption, with Class of 2017 Treasurer Mimi Pham calling it “insensitive” to her 1,300 peers.

Yale says it has made “contingency plans” for graduates and their loved ones if protesters try to ruin commencement.

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With the media narrative once again focused squarely on Trump and the “Russian connection”, something which will unlikely change over the next week absent “fireworks” elsewhere, the story of potential military intervention in South Korea has understandably dropped from the front pages. Although with a second US aircraft carrier now en route to the Korean Peninsula, and with Trump desperate for another “big bang” distraction, is it shortsighted to underestimate the potential of another geopolitical hotspot emerging in the next few days.

While the answer is unknown, on Friday afternoon Defense Secretary Jim Mattis reminded the American public just how high tht potential stakes are when he said that any military solution to the North Korea crisis would be “tragic on an unbelievable scale” and that Washington was working internationally to find a diplomatic solution.

Quoted by Reuters, Mattis told a Pentagon news conference that “we are going to continue to work the issue,” and added that “if this goes to a military solution, it’s going to be tragic on an unbelievable scale. So our effort is to work with the U.N., work with China, work with Japan, work with South Korea to try to find a way out of this situation.”

Gen. James Mattis on North Korea: Military solution would be tragic. http://pic.twitter.com/PoJykJqHiZ

— FOX Business (@FoxBusiness) May 19, 2017

Pundits took the remarks as one of the clearest indicators yet that President Trump’s administration will seek to exhaust alternatives before turning to military action to force Pyongyang’s hand, although it would not explain US willingness to potentially provoke the Kim regime with a second aircraft carrier in close proximity to Pyongyang. The US which has 28,500 troops in South Korea to guard against the North Korean threat, has called on China to do more to rein in its neighbor. Mattis appeared to defend China’s most recent efforts, even as he acknowledged Pyongyang’s march forward.

“They (North Korea) clearly aren’t listening but there appears to be some impact by the Chinese working here. It’s not obviously perfect when they launch a missile,” Mattis said, when asked about Sunday’s launch. Alternatively, if and when a “military solution” tragic as it may be, becomes reality, the US will simply be able to scapegoat China for not having done enough to rein North Korea in.

Separately, discussing last Sunday’s North Korean rocket launch of its most advanced ballistic missile to date, Mattis said that Pyongyang had likely learned a great deal from the latest test of what U.S. officials say was a KN-17 missile,  which today Mattis said was believed to have survived re-entry to some degree.

“They went to a very high apogee and when it came down obviously from that altitude they probably learned a lot from it. But I’m not willing to characterize it beyond that right now,” Mattis said.

David Wright, co-director and senior scientist at the Global Security Program at the Union of Concerned Scientists, the big question was whether North Korea could build a re-entry vehicle for a long-range missile that wouldn’t burn up during re-entry and could keep a warhead from becoming too hot in the process.

 

“This test in principle gave them a lot of information about this, assuming they had sensors that could send information back during reentry so they could monitor the heat, or they could recover the reentry vehicle and examine it,” he said.

In retrospect, it is unlikely that the US will engage in military action with North Korea while Trump is traveling over the next 8 days, although even that schedule may be truncated if the media scandals that have plagued Trump every single day this week escalate further, and the president is desperate for a grand distraction, similar to the Syrian missile attack, which managed to shift the public attention away from the Russian narrative, if only for a few weeks.

For now, keep watch on the locations of US carriers around the globe: with two already next to North Korea, and rumors that a third one is en route, this may be the clearest indicator of if and when a new military operation is coming.

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