Using Veritas to Construct the "Per…

29-04-2017 Hits:85784 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...

Read more

The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:80012 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.

Read more

What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:79872 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...

Read more

Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:84351 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...

Read more

This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:80891 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...

Read more

What is the Value Proposition For Verita…

01-04-2017 Hits:83138 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...

Read more

This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:54149 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...

Read more

Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:82274 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...

Read more

Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:82124 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...

Read more

The Country's First Newly Elected Lame D…

27-03-2017 Hits:81993 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...

Read more

Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:88018 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.

Read more

The Transformation of Television in Amer…

21-03-2017 Hits:85893 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...

Read more

As a backgrounder for this one, see Zerohedge on dwindling market liquidity, then the video below with the trader from Themis Trading, and then my stuff on Goldman Sach's over reaching dominance on the NYSE, and the effect that it is having on its risk metrics (Market Manipulation from the Big Boys: Is there really a PPT (Plunge Protection Team)?).

 

If you aren't disturbed yet, don't worry. I'll get you by the end of this blog post.

First, let's explore the most likely reason why Goldman Sachs, et. al. are pushing so hard into capturing program trading market share, or to put it another way, why they are trying to take over the trading markets...

goldman_program_trading_volume.png

As the volume in the broad market decreases, GSs trading volume spikes...

 

gs_and_ms_program_trading_volumes.png            

GS trading volume is more than double the old title holder of the "The Riskiest Bank on the Street". You can guess who wields that title now (Who is the Newest Riskiest Bank on the Street?).
.    

Goldman Sachs program trading volumes has increased considerably for the first six months of 2009 with 68% increase in average weekly program trading volumes to 1,123 mn compared with 670 mn in 2008. Overall, GS share of program trading volumes averaged 22.7% in 2009 versus 12.8% and 11.5% in 2008 and 2007, respectively. Goldman Sachs program trading volumes share in total NYSE volumes averaged around 7.0% for the first six months of 2009 compared with 3.2% in 2008.It is quite apparent that Goldman is desperately trying to compensate for the significant drop in its other major business lines by accepting more risk in its proprietary trading units. This has, thus far and excluding the month of December -08, managed to generate greater accounting revenues but has also actually REDUCED Goldman’s risk adjusted returns. It appears that BoomBustBloggers are some of the very few that seem to give a damn about the risk assumed in pursuing accounting earnings and the bonuses that are attached to them, but if one pursues risk long enough, one will find it. It is a matter of time before this expanded exposure pushes back (as it did last December), and there is no telling how hard the blowback will be the next time around.

gs_and_ms_volumes.png

gs_trading_revenues.png

      Despite increase in trading activities Goldman Sachs trading revenues had a setback. Goldman Sachs’ net trading and principal revenues declined to $9.0 bn in 2008 from $31 bn in 2007. In 1Q09 (three months ended March 2009) GS trading revenues were $7.1 bn. As GS became a bank holding company, it was required to change its fiscal year-end from November to December. This resulted in a one-month transition period that began on November 29, 2008 and ended on December 26, 2008. GS had separately reported one month results in its 1Q-09 release. In December alone the company’s net trading and principal revenues were negative $507 mn. (Gross trading and principal revenues excluding interest revenues were negative $964 mn for the month of December).

It would be most unrealistic to assume a billion dollar trading loss will not happen again, or happen to a greater extent. The very nature of trading the markets entails engulfing significant risk and that risk (loosely defined as the potential of deviation from expected returns) is what is driving down Goldman’s risk adjusted returns. You see, if one were to adjust Goldman’s activities for risk, they are rapidly becoming less profitable, not more profitable. Even on a pure accounting basis, the affects of said risk are quite evident, as can be seen in the billion dollars of trading losses had in December. Long story short, if you roll the dice often enough, shit happens. Goldman is now forced to roll said die since nearly all of their major revenue drivers have all but dried up: M&A, securitization, underwriting, asset management, prime broking services, etc.

gs_var_vs_rorac.png

Notice a near perfect negative correlation between VaR (risk) and RORAC (risk adjusted return). Of course many will say that's because risk is used to calculate risk adjusted return. That's the point! For every incremental unit of risk assumed, one must generate that incremental unit of risk plus, in order to produce an economic profit. This is not the case in Wall Street and regulators, investors and analysts are not viewing Goldman or any of the systemic risk banks in this light until, of course, it is too late and they have already blown up after looking like super stars just months earlier.

gs_daily_var.png

It is plain to see that as Goldman captures more of the program trading market, it simultaneously and significantly increases its risk. Hey, where are our regulators when you need them? Now is the time you should be cracking the whip on systemic risk, before the not-so-Black Swan event happens, not after. Regulators, oh regulators, where out thou???'

As a result of increased trading activities Goldman Sachs trading VaR has increased consistently over the past two years. Goldman Sachs average daily trading VaR has increased to $240 mn in 1Q09 from $180 and $101 mn in 2008 and 2007, respectively. Since 2005 (arguably the apex, or close to it, of the credit bubble) Goldman Sachs trading VaR has increased more than three-fold increasing to $240 mn in 1Q09 from $70 mn in 2005 as Goldman has assumed multiples more risk in its pursuit of accounting revenue which consequently generate bonuses.

Remember, Goldman takes the risk of a public company using shareholder’s (and as of late, that of the US taxpayers') capital while being compensated as a partnership whose partners are indemnified against whatever risk they take. A perfect example is the reporting of record bonuses in the MSM, which were generated directly off of the backbone of taxpayer capital life support – TARP, debt guarantees, ZIRP, expedited bank charters, significantly relaxed collateral requirements, etc. The taxpayer’s capital earned a materially significant amount of those bonuses, and the taxpayer shoulder significant risk in the process without due compensation for said risk. I, as a significant US taxpayer, want both my cut of the Goldman bonus pool for my part in their revenue generation, and adequate compensation for the use of my capital as well.

Goldman Sachs risk adjusted return on capital continues to witness a downward trend as market volatility continues to increase. Keep in mind that the VIX is not the only metric of market volatility – reference the delta of the spreads on CDS contracts. As can be seen, GS’ RAROC declined to 11% in 1Q09 versus 13.7% in 1Q08, and it is fair to say that it will sink even further if they continue to pursue revenue though expanding their takeover of the NYSE through thier program trading aspirations. There is a reason why they call risk, RISK. The billion dollar loss in December can clue you in... 

image011.png

Who is am I?

I know many of you new readers are wondering, "Who the hell is this guy?". Well, this guy is someone who has been pretty good at ferreting out weak companies on the verge of collapse:

There is the call of the fall of REITs and commercial real estate in 2007 - "GGP has finally filed Bankruptcy, Proving My Analysis to be On Point Over the Course of 18 Months". I also called  Bear Stearns (Is this the Breaking of the Bear? [Sunday, 27 January 2008]), Lehman Brothers CRE implosion connection (Is Lehman really a lemming in disguise? [Thursday, 21 February 2008]), Countrywide and Washington Mutual (Yeah, Countrywide is pretty bad, but it ain’t the only one at the subprime party… Comparing Countrywide with its peer), nearly all of the failed or failing regional banks of significant size (As I see it, these 32 banks and thrifts are in deep doo-doo!), MBIA (A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton) and Ambac (Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion Market Cap and Follow up to the Ambac Analysis), among others - well in advance.


More Goldman Sach's Research:

gs_stress_test_cover.jpg
 Subscribe

Goldman Sachs Stress Test Retail Goldman Sachs Stress Test Retail 2009-04-20 10:08:06 720.25 Kb - 17 pages

Goldman Sachs Stress Test Professional Goldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 Mb - 131 pages

Free research and opinion

§  As Reality hits, the Masters of the Universe are starting to look like regular bank employees


 Premium Stuff!

Goldman Sachs - strategic investment and public offering Goldman Sachs - strategic investment and public offering 2008-09-26 02:29:15 895.36 Kb 

Goldman Sachs Report June 21, 2008 Goldman Sachs Report June 21, 2008 2008-10-20 16:48:01 361.18 Kb

Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Professional Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Professional 2008-12-18 10:12:37 267.49 Kb

Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Retail Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Retail 2008-10-20 15:45:05 348.99 Kb

GS ABS Inventory GS ABS Inventory 2008-02-25 06:48:56 1.22 Mb

 


Historical context for the "Riskiest Bank on the Street" moniker. 

Banks, Brokers, & Bullsh1+ part 1

Wednesday, 19 December 2007 | Reggie Middleton

A thorough forensic analysis of Goldman Sachs, Bear Stearns, Citigroup, Morgan Stanley, and Lehman Brothers has uncovered...  Last week, Morgan Stanley called Citibank the “short play of...

The Riskiest Bank on the Street
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)

Key highlights of my research on the "Riskiest Investment Bank on the Street": The Riskiest Bank on Wall Street – Morgan Stanley has US$74 billion of Level 3 assets, over 200% of its eq
Monday, 11 February 2008

A closer look at the exposure of the other brokers
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)

...- Who has the most of their assets tied up in illiquid Level 3 as a proportion to tangible equity? You guessed it, The Riskiest Bank on the Street. Now, they do have a decent amount of liquidity the ...
Sunday, 16 March 2008


 

19. On the insolvencies of non-bank financial institutions
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
...Bullsh1+ part 1 Banks, Brokers, & Bullsh1+ part 2 Money Panic Bear Fight The Breaking of the Bear The Riskiest Bank on the Street Here comes the CRE Bust (Quip on Lehman Brothers)...
Tuesday, 18 March 2008


 

20. Quick Morgan Stanley update from my lab
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
  This is a refresher to the The Riskiest Bank on the Street piece that I posted a few months ago on Morgan Stanley. Let me get straight to the salient points. High exposure to lev
Thursday, 20 March 2008


 

21. Early morning scan of events
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
For those that haven't noticed, I've begun sharing my early morning news and data routine with the blog. Here goes Monday moring EST. Is the Fed running out of ammo? Reserve
Monday, 31 March 2008


 

22. Reggie Middleton on the Street's Riskiest Bank - Update
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
This is the update to my forensic deep dive analysis of Morgan Stanley. It is still, in my opinion, the "riskiest bank on the street". A few things to make note of as you browse through my opinion a
Sunday, 06 April 2008


 

23. Banks, Brokers & Bullsh1t 3.0: Shenanigans at Morgan and Lehman
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
I've been promising to give an illustration of the shenanigans being played by the commercial and investment bank's for some time now, but I've been quite busy working on my entrepeneurial pursuits
Wednesday, 16 April 2008


 

24. I warned you about the risk of those I Banks
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
...ive counterparty and credit risk to imperfect hedges to dead and depreciating assets held off balance sheet: The Riskiest Bank on the Street Is this the Breaking of the Bear? Banks, Broke...
Wednesday, 21 May 2008