Using Veritas to Construct the "Per…

29-04-2017 Hits:85837 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:80052 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:79912 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:84394 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:80932 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:83172 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:54186 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:82315 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:82157 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:82029 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:88072 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:85935 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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In a contributory post that I made for another site, one of the commenters alleged that it was misleading to say that the failed bulge bracket banks had backing from the Federal Reserve, or else they wouldn't have failed. This is simply not true. The blessing of the government does not necessarily cure all of your ills. The Federal Reserve opened its discount window to the remaining bulge bracket banks after Bear Stearns (Is this the Breaking of the Bear?) filed for bankruptcy. It even decided to allow much lower grade collateral, degrading its standards to the point where it took stock and MBS, if I am not mistaken. This liquidity backstop (among other programs) did not prevent the collapse of Lehman Brothers, nor the very near collapse of Merrill Lynch. The remaining two bulge bracket banks were literally forced to become commercial banks to stave off their downfall. This history is barely a year old and is already lost on some.

What the government's efforts did was backstop the liquidity of these banks, but the liquidity issues were a symptom of the bank issues, not the cause of the bank issues. The cause of the problem was, and still is, insolvency. I went through this in detail, exactly one year ago when Lehman and AIG went bust (Why didn't the Fed drop rates? Because it would have done little good). Here is a chart and excerpt from that post of over a year ago. If one were to chart the stocks of the companies that are in that chart, I am sure the solvency vs liquidity argument will be gelled, at least to some point...

image192.png

The primary reason why the Fed's lowering of the interest rates is not helping the banks is because monetary stimulus via discount windows and low interest rates can solve liquidity issues, which the banks have - but the banks liquidity issues stem from INSOLVENCY, and illiquidity. Thus, all the Fed is doing is taking a pricey, risky (inflation and weakening currency that pisses off our trading partners) and volatile band aid and applying it to deep and gushing wound. Those band aids with the pretty colors do indeed tend to make Mama's baby's little boo-boo feel better, but from a scientific perspective do very little in regards to addressing deep puncture wounds.

 As it turned out, the Fed did drop rates more, eventually to effectively zero. Guest what happened? NIM still dropped at many sick banks, and quite a few of them went out of business, and it is still happening at nearly a record pace. The FDIC has actually been driven into insolvency just a year after my warnings on the insolvency of the banking industry - reference my recent missive: "I'm going to try not to say I told you so...".

In "The Anatomy of a Sick Bank!" from over a year and a quarter ago were I again attempted to drive this concept of insolvency and the inability of liquidity bandages to stem the problem home. As excerpted:

"Let me explain the five major tenets of the sickness troubling banks these days.

  1. An absolutely horrible macroeconomic environment with the convergence of a downward banking business cycle, a bear market approaching, and recession.
  2. Rapidly depreciating assets borne from excesses during the recent real asset and credit bubble.
  3. High levels of these rapidly decreasing assets on (and off) the books of many banks
  4. High levels of leverage (the highest historically) used to purchase the aforementioned. Leverage which exacerbate both profit and loss (we are in a loss moment, now). The combination of this high leverage and the prices paid for the assets mentioned in point 2 create an INSOLVENCY trap for companies that attempt to reduce risk by delevering (ala Lehman Brothers or Citibank). When in this situation, the only way to reduce risk is to realize significant losses (and some banks are trying to hide them).
  5. Thin profit margins that are beyond the ability of the government to help. The banks can't earn their way out of this one.

This all basically leads to insolvency if not corrected timely. 


This is an insolvency issue, not a liquidity issue! I have been banging the table on this for almost a year... 

As concluded in the bullet list above, the trifecta of diminishing margins, increasing insolvency, and high leverage leads to a sick bank. I would like to delve deeper into each symptom and side effect in order to identify the sickest amongst the Doo Doo.

Insolvency exists for a person or organization when total financial liabilities exceed total financial assets. Financial and real estate institutions that have binged on overvalued risky assets at the top of a bubble, paying for said assets via highly leveraged credit, are now facing the effects of the devaluing of those assets and that devaluation being applied against the excessive debts that have been accumulated to buy those assets when they were bubblicious."

The only thing saving the big money center banks are their trading arms and the government complicity in masking their insolvency issues as liquidity issues through opaque accounting. The credit quality of assets and the general traditional banking business is performing horribly, across the board of the big money center guys and many of the regionals. The trading revenue spike has its costs, too, which is apparent as I parse through the lastest results of JP Morgan, which I will post a little later on, followed by a continuation of my off balance sheet series featuring Wells Fargo.

Re, JPM: The high trading revenue comes at a cost of high market risk which is reflected in higher VaR levels. The fixed income VaR has increased substantially and stood at $243 million at the end of 3Q09 against $183 million at the end of 3Q08.