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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The FDIC quarterly report has been released. For some reason, it doesn't seem as cheery about the medium term as many other pundits and government officials. According to the trends in this document, the wost for the banking system lie ahead of us. Keep in mind that bank Failures Jump 10% in One Friday Night (see Regulators Shut Four Banks: The total number of failures for the year jumped 10%, to 44, in one night, as four small banks failed in three states).

 

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Fitch Ratings  agrees with the me and the FDIC analysis (although I still feel the ratings agencies are still a little late to the party, as I will illustrate in a moment) in stating that end-of-quarter delinquency levels and reduced recovery prospects will bring about material deterioration in US credit card losses in the second quarter. From the afore-linked report:

Recent revisions to unemployment expectations, following the unexpected pace of deterioration in the first quarter, indicate that significant pressure on card credit metrics will remain over the balance of 2009 and into 2010 - Meghan Crowe, Senior Director at Fitch. ‘Furthermore, net charge-off levels will be hurt by industry portfolio contraction, which will make trends in absolute dollar losses more useful in coming quarters.’  “Higher portfolio losses combined with lower spend volume and smaller loan portfolios are expected to challenge card segment profitability in 2009 and 2010. Purchase volume dropped an average of 5% sequentially at the top six card issuers in the fourth quarter of 2008, and fell another 14.2% in the first quarter of 2009. These spending trends are expected to continue over the balance of the year. Fitch expects issuers with less dependence on interest spread income, like American Express Company (NYSE: AXP), will fare relatively better from an earnings standpoint.” [ Standard & Poor's downgraded American Express's credit rating to BBB+/A-2 with a negative outlook on April 30.]

Now why didn't Fitch and S&P warn on Amex in 2007 or 2008? After all, the signs were definitely there. I made it clear that this company had seen better days nearly a year ago - AXP Consolidated final AXP Consolidated final 2008-08-30 06:28:15 437.96 KbPressure from NY AG Cuomo does seem to have whipped these companies into shape - relatively speaking, but to investors who still believe they can rely on rating agencies for their predictive abilities - "Caveat Emptor"! 

“Portfolio contraction is expected to reduce funding needs across the credit card industry in 2009. The Federal Reserve Board launched its Term Asset-Backed Securities Loan Facility (TALF) on March 3, 2009 in the hopes of expanding credit availability. On March 26, 2009, Citibank (NYSE: C) became the first credit card issuer to issue notes eligible for the TALF program, but other large credit card issuers have been noticeably absent from the program, as historically low interest rates continue to make deposits a more attractive funding source. Fitch believes the regulatory capital implications of the SFAS 140 amendment, which will require all off-balance sheet assets to be recorded on balance sheet, may make ABS issuance less attractive for some card issuers going forward.”

 

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Banks have been benefitting significantly from non-interest income, but a peek under the covers reveal that non-interest expenses have pretty much nullified the gains achieved. Long story, short: trading, fees and underwriting have been stron both last quarter and this quarter, but net revenues have shrunk while compensation has actually increased on a net basis as a percentage of revenues. Good for employees (at least the ones that are still employed), not so good for investors. Interest income has increased at the big banks, not so much the smaller ones as you can see from the graphic below) due to federal welfare assistance, but the bogey in the booty is the increase in loan loss provisions, which is quite huge. Those who subscribe to my services can tell from the granular analyses that I have provided, that many banks (big and small) are very aggressive in their loan loss provisioning, in other words, they are significantly under-provisioning in relation to the rise in delinquincies. Thus, this big spike represented in the chart above is actually quite understated.

small_bank_margins_decline.jpg

As stated, smaller bank margins are collapsing, despite federal assistance through ZIRP (zero interest rate policy). For a look at regional banks with this problem as far as one year back (actually, exactly one year as of last week, see my post "The Anatomy of a Sick Bank! "). Yes, I saw this coming a while back as well, which was the impetus for the creation of the Doo- Doo 32 list: (As I see it, these 32 banks and thrifts are in deep doo-doo!).

bank_industry_income_remains_well_below_normal.jpg

Despite the "alleged" strong performance last quarter (which was quite contrived and illusory when examined closely, at least for the banks that I cover: BOK 1Q09 small retail bank 1Q09 2009-05-07 06:34:52 460.74 Kb, First Quarter 2009 Goldman Sachs Update First Quarter 2009 Goldman Sachs Update 2009-04-14 11:34:23 468.64 Kb, WFC Investment Note 22 May 09 - Retail WFC Investment Note 22 May 09 - Retail 2009-05-27 01:55:50 554.15 Kb, WFC Investment Note 22 May 09 - Pro WFC Investment Note 22 May 09 - Pro 2009-05-27 01:56:54 853.53 Kb, etc.), industry income remains well below normal levels, and has spiked last year as well before falling precipitously.

asset_quality_deteriorating.jpg

While we struggle with the quantity and quality of earnings, asset quality is still repidly deteriorating. Keep in mind that the Q4-08 to Q1-09 comparison is distorted significantly by the foreclosure moratorium, whose effect shall be less masking of the truer quality of assets in the upcoming quarters.

failures_hit_a_17_year_high_in_first_quarter.jpg

As an obvious result, bank failures it a 17 year high in Q1-09, and as you can see, we do have significant room for many more failures just to match the fallout from the S&L crisis. To add a little doom to this gloom, the current credit crisis makes the S&L crisis look like a kindergarten time-out period in comparison. Imagine the S&L crisis, on a global scale, covering not just commercial real estate and one class of lending institution, but every loan class conceivable, Just look at the trends and tell me, does it look like the worst is behind us????

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And as bank failures start to ramp up, the Federal Deposit Insurance Fund (DIP) starts to get significantly drawn down. If I am correct in my assertion that this is to be much worse than the S&L crisis, and that this is closer to the middle of the crisis than the end, than this fund will be drawn down to zero, and potentially more than once.

This chart is very, very important. Please click it to enlarge, then notice the growth rate in the problem bank. Of particular importance is the rate at which the failure rate is ramping up. Notice the first quarter comparisons (with the asterisks) between last year and this year. Q1-09 has seen more problem banks than all of last year, and more importantly, more than all of '04, '05, '06 and '07 combined. This is just one quarter! And the rate of problem bank increase is not on the mend either. Last Friday alone, the failed bank tally jumbed by 10% OVERNIGHT as the FDIC shut down, took over or auctioned off 4 banks!

failed_and_problem_banks_growing_fast.jpg