Using Veritas to Construct the "Per…

29-04-2017 Hits:82049 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:77699 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:77269 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:82016 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:78603 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:80903 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:47782 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:79605 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:79136 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:79681 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:84639 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:81606 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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Additional macro pressures pushing up against bank balance sheets... Personal Consumption -Personal consumption which accounts two-third of the aggregate demand is the key driver of the real economy.Key Drivers

·         According to RGE Monitor, household’s net worth losses since Q2 2007 is already closer to US$15 trillion, against Flow of Funds estimate of US$ 13 trillion. The erosion is expected to exceed US$20 trillion by the end of this cycle, (US$10 trillion just related to the housing sector if RGE Monitor’s forecast of 44% fall in home prices peak to trough materializes). This can push the savings rate beyond 7% in the mid -2009 itself.

·         Sharp erosion in wealth is expected to result from housing and equity market losses, the disappearance of home equity withdrawal in 2008, mounting job losses, tighter credit conditions and high debt servicing ratios (the debt to income ratio went from 70% in the 1990s to 100% in 2000 to 140% at present). Consequently, personal consumption will contract sharply in 2009.

·         The consumer spending is likely to stabilize in late 2009 and early 2010 with positive impact of eased credit conditions and mortgage rates (resulting from Fed measures), lower energy prices and fiscal stimulus plays in. However, the home price correction and job will continue to as pose downside risks till 2010.

Housing Sector – RGE Monitor estimates that home prices are still far from their bottom since the continuing weakness in demand and the high existing excess supply (all-time high) will outweigh any positives coming from the bottoming of the supply.

Key Drivers 

·         Both demand and supply have fallen sharply. On the supply side, total housing starts are down 75% from their peaks in Jan, 2006 and single-family starts built for sale are down 81% from their Q1 2006 peak. On the demand side, new single-family home sales are down 75% from their July 2005 peak.

·         However, at this stage, inventories persist at record highs and the gap between one-family starts (for sale) and one-family sales (-136K annual rate in Q4 2008 according to our estimates) is still at levels that cannot promote a fast work–off of inventories (at roughly 12 months at current rate of sale versus a long-term average of 6). RGE further gives numbers on vacant homes for-sale-only which were standing at an all time high of 2.2 million in Q4 2008 against an average of 1 million from 1985 to 1995 and 1.3 million from 2001 to 2005. This implies an excess supply that ranges between 0.9 and 1.2 million units, of which roughly 85% are single-family structures.

·         No substantial recovery in demand in spite of affordability (as measured by the National Association of Realtors) at an all time high reflects uncertainty about future incomes and expectations of further decline in housing prices.

Home prices were back at the levels of Q4 2003 as of Jan, 2009 (according to S&P Case-Shiller). The Composite indices were down about 30% from the peak in mid-2006. RGE Monitor expects 44% peak to trough fall before the mid-2010.

 Comments on foreclosure problems – Further correction in the home prices will increase the number of homeowners with negative equity from over 12 million currently. The government’s actions to stimulate home demand by buying MBSs and reducing mortgage rates will become less effective as households facing wealth erosion, job losses and tighter credit lending standards step back from taking a mortgage or purchasing a home. The Homeowner Affordability and Stability Plan helps only homeowners facing temporary difficulty in making monthly payments by reducing monthly interest payments by extending maturity and reducing interest rates while keeping the principal reduction only as the last resort, thereby just delaying the risk of re-default or foreclosure (in cases where equity is negative) which runs as high as 45-55%.However, the bill currently being debated in the Congress to allow bankruptcy courts to modify mortgage terms for homeowners in bankruptcy while giving legal protection to lenders and servicers from lawsuits might help increase lender and borrower participation. There have been other proposals to adopt an across-the-board mandatory program to reduce foreclosures rather than the voluntary and case-by-case approaches tried so far. An across-the-board mandatory program would most likely include principal reduction for 'qualifying' homeowners with negative equity (the extent of home price decline according to zip code as suggested by many is an attractive parameter to use) and the refinancing of the loan at a fixed interest rate with the government sharing this cost with lenders (greater than that of the current program). In this scenario the government would also offer guarantees to share the cost of default or profits from future home appreciation. Bank’s credit losses 

According to RGE estimates, the losses on loans and fall in the market value of assets will reach US$ 3.6 trillion and the banks will be bearing nearly half of it, or US$1.8 trillion. This exceeds the bank’s capital of US$1.4 trillion (including federal bailout funds) by about US$400 billion. In other words, banking system stands insolvent if RGE Monitor’s loss estimates materialize.

 Key assumptions

·         Loan losses on a total of US$12.37 trillion unsecuritized loans are expected to reach US$1.6 trillion. Of these, U.S. banks and brokers are expected to incur US$1.1 trillion.

·         Mark-to-market write downs based on derivatives prices and cash bond indices on a further US$10.84 trillion in securities reached about US$2 trillion (US$1.92 trillion.) About 40% of these securities (and losses) are held abroad according to flow-of-funds data. U.S. banks and broker dealers are assumed to incur a share of 30-35%, or US$600-700 billion in securities write downs.

·         Total loan losses and securities write downs on U.S. originated assets are expected to reach about US$3.6 trillion. The U.S. banking sector is exposed to half of this figure, or US$1.8 trillion (i.e. US$1.1 trillion loan losses + US$700bn write downs.)

·         FDIC-insured banks' capitalization is US$1.4 trillion as of Q3 2008; investment banks had US$110bn in equity capital as of Q3 2008. Past recapitalization via TARP 1 funds of US$230bn and private capital of US$200bn still leaves the U.S. banking system borderline insolvent if RGE Monitor’s loss estimates materialize.

 Comments on Public-Private Partnership Investment Program- According to Nouriel Roubini, the plan won't solve the problem since it assumes that the system is solvent, while nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion, allow credit markets to unfreeze and lending finally to resume. While the program incorporates reasonable level of price discovery through involvement of the private sector, the questions are still afloat about the banks’ willingness to sell and take a write down. FDIC Chairman Sheila Bair has already warned that while this plan will help many solvent banks get rid of their toxic assets thus clearing the way for new loans and fresh capital some banks are beyond the stage of rescue. Those borderline insolvent banks will likely require an additional incentive to sell -or mandatory participation- otherwise they will prefer to hold on to their assets, especially in view of the FASB’s prospective easing of mark-to-market accounting rules. Further, better safeguards need to be established in order to prevent banks and asset managers from potentially colluding in their common interest to the detriment of the taxpayer. Finally, the tax payer stands the risk of bearing huge losses in case of defaults on underlying loans of the toxic legacy assets.The program might not be able stimulate credit flow in the near term since some of the banks that choose to sell assets and take a write down might be in need of additional capital before they can resume lending. Also, for those institutions that are beyond the stage of rescue and effectively insolvent, the plan will likely not be as effective in stimulating lending or participation in the first place. Further, the demand for new credit will remain subdued as the real economy continues to deteriorate. Moreover, a further continued deterioration on the real side of the economy would imply new defaults on credit cards, consumer loans, auto loans and mortgages that would result in new toxic assets on the balance sheets of financial institutions recreating an environment where banks would maintain stringent lending standards. Therefore, what is required is fiscal stimulus package which sustains aggregate demand, minimizes job losses and restart demand in the housing sector.Personal Consumption -Personal consumption which accounts two-third of the aggregate demand is the key driver of the real economy.Key Drivers

·         According to RGE Monitor, household’s net worth losses since Q2 2007 is already closer to US$15 trillion, against Flow of Funds estimate of US$ 13 trillion. The erosion is expected to exceed US$20 trillion by the end of this cycle, (US$10 trillion just related to the housing sector if RGE Monitor’s forecast of 44% fall in home prices peak to trough materializes). This can push the savings rate beyond 7% in the mid -2009 itself.

·         Sharp erosion in wealth is expected to result from housing and equity market losses, the disappearance of home equity withdrawal in 2008, mounting job losses, tighter credit conditions and high debt servicing ratios (the debt to income ratio went from 70% in the 1990s to 100% in 2000 to 140% at present). Consequently, personal consumption will contract sharply in 2009.

·         The consumer spending is likely to stabilize in late 2009 and early 2010 with positive impact of eased credit conditions and mortgage rates (resulting from Fed measures), lower energy prices and fiscal stimulus plays in. However, the home price correction and job will continue to as pose downside risks till 2010.

Housing Sector – RGE Monitor estimates that home prices are still far from their bottom since the continuing weakness in demand and the high existing excess supply (all-time high) will outweigh any positives coming from the bottoming of the supply.

Key Drivers 

·         Both demand and supply have fallen sharply. On the supply side, total housing starts are down 75% from their peaks in Jan, 2006 and single-family starts built for sale are down 81% from their Q1 2006 peak. On the demand side, new single-family home sales are down 75% from their July 2005 peak.

·         However, at this stage, inventories persist at record highs and the gap between one-family starts (for sale) and one-family sales (-136K annual rate in Q4 2008 according to our estimates) is still at levels that cannot promote a fast work–off of inventories (at roughly 12 months at current rate of sale versus a long-term average of 6). RGE further gives numbers on vacant homes for-sale-only which were standing at an all time high of 2.2 million in Q4 2008 against an average of 1 million from 1985 to 1995 and 1.3 million from 2001 to 2005. This implies an excess supply that ranges between 0.9 and 1.2 million units, of which roughly 85% are single-family structures.

·         No substantial recovery in demand in spite of affordability (as measured by the National Association of Realtors) at an all time high reflects uncertainty about future incomes and expectations of further decline in housing prices.

Home prices were back at the levels of Q4 2003 as of Jan, 2009 (according to S&P Case-Shiller). The Composite indices were down about 30% from the peak in mid-2006. RGE Monitor expects 44% peak to trough fall before the mid-2010.

 Comments on foreclosure problems – Further correction in the home prices will increase the number of homeowners with negative equity from over 12 million currently. The government’s actions to stimulate home demand by buying MBSs and reducing mortgage rates will become less effective as households facing wealth erosion, job losses and tighter credit lending standards step back from taking a mortgage or purchasing a home. The Homeowner Affordability and Stability Plan helps only homeowners facing temporary difficulty in making monthly payments by reducing monthly interest payments by extending maturity and reducing interest rates while keeping the principal reduction only as the last resort, thereby just delaying the risk of re-default or foreclosure (in cases where equity is negative) which runs as high as 45-55%.However, the bill currently being debated in the Congress to allow bankruptcy courts to modify mortgage terms for homeowners in bankruptcy while giving legal protection to lenders and servicers from lawsuits might help increase lender and borrower participation. There have been other proposals to adopt an across-the-board mandatory program to reduce foreclosures rather than the voluntary and case-by-case approaches tried so far. An across-the-board mandatory program would most likely include principal reduction for 'qualifying' homeowners with negative equity (the extent of home price decline according to zip code as suggested by many is an attractive parameter to use) and the refinancing of the loan at a fixed interest rate with the government sharing this cost with lenders (greater than that of the current program). In this scenario the government would also offer guarantees to share the cost of default or profits from future home appreciation. Bank’s credit losses 

According to RGE estimates, the losses on loans and fall in the market value of assets will reach US$ 3.6 trillion and the banks will be bearing nearly half of it, or US$1.8 trillion. This exceeds the bank’s capital of US$1.4 trillion (including federal bailout funds) by about US$400 billion. In other words, banking system stands insolvent if RGE Monitor’s loss estimates materialize.

 Key assumptions

·         Loan losses on a total of US$12.37 trillion unsecuritized loans are expected to reach US$1.6 trillion. Of these, U.S. banks and brokers are expected to incur US$1.1 trillion.

·         Mark-to-market write downs based on derivatives prices and cash bond indices on a further US$10.84 trillion in securities reached about US$2 trillion (US$1.92 trillion.) About 40% of these securities (and losses) are held abroad according to flow-of-funds data. U.S. banks and broker dealers are assumed to incur a share of 30-35%, or US$600-700 billion in securities write downs.

·         Total loan losses and securities write downs on U.S. originated assets are expected to reach about US$3.6 trillion. The U.S. banking sector is exposed to half of this figure, or US$1.8 trillion (i.e. US$1.1 trillion loan losses + US$700bn write downs.)

·         FDIC-insured banks' capitalization is US$1.4 trillion as of Q3 2008; investment banks had US$110bn in equity capital as of Q3 2008. Past recapitalization via TARP 1 funds of US$230bn and private capital of US$200bn still leaves the U.S. banking system borderline insolvent if RGE Monitor’s loss estimates materialize.

 Comments on Public-Private Partnership Investment Program- According to Nouriel Roubini, the plan won't solve the problem since it assumes that the system is solvent, while nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion, allow credit markets to unfreeze and lending finally to resume. While the program incorporates reasonable level of price discovery through involvement of the private sector, the questions are still afloat about the banks’ willingness to sell and take a write down. FDIC Chairman Sheila Bair has already warned that while this plan will help many solvent banks get rid of their toxic assets thus clearing the way for new loans and fresh capital some banks are beyond the stage of rescue. Those borderline insolvent banks will likely require an additional incentive to sell -or mandatory participation- otherwise they will prefer to hold on to their assets, especially in view of the FASB’s prospective easing of mark-to-market accounting rules. Further, better safeguards need to be established in order to prevent banks and asset managers from potentially colluding in their common interest to the detriment of the taxpayer. Finally, the tax payer stands the risk of bearing huge losses in case of defaults on underlying loans of the toxic legacy assets.The program might not be able stimulate credit flow in the near term since some of the banks that choose to sell assets and take a write down might be in need of additional capital before they can resume lending. Also, for those institutions that are beyond the stage of rescue and effectively insolvent, the plan will likely not be as effective in stimulating lending or participation in the first place. Further, the demand for new credit will remain subdued as the real economy continues to deteriorate. Moreover, a further continued deterioration on the real side of the economy would imply new defaults on credit cards, consumer loans, auto loans and mortgages that would result in new toxic assets on the balance sheets of financial institutions recreating an environment where banks would maintain stringent lending standards. Therefore, what is required is fiscal stimulus package which sustains aggregate demand, minimizes job losses and restart demand in the housing sector.