Using Veritas to Construct the "Per…

29-04-2017 Hits:85921 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:80131 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:79985 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:84466 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:80999 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:83233 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:54258 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:82385 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:82228 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:82092 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:88154 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:86003 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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This is the part where you should expect me to say all hell breaks loose. For those who don't follow me regularly, this is my take on the monolines and Ambac. Now, let's check the headlines... From Bloomberg.com:

Ambac's Insurance Unit Cut to AA From AAA by Fitch Ratings

Ambac Financial Group Inc., the second-largest bond insurer, was stripped of its AAA credit rating by Fitch Ratings after the company abandoned plans to raise new equity...Ambac Assurance Corp. was lowered two levels to AA and may be reduced further, New York-based Fitch said yesterday in a statement. The downgrade ``reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction,'' Fitch said... Without its AAA rating, New York-based Ambac may be unable to write the top-ranked bond insurance that makes up 74 percent of its revenue. Ambac may quit the business or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York. The downgrade throws doubt on the ratings of $556 billion in municipal and structured finance debt guaranteed by Ambac.

``This makes Ambac insurance toxic,'' said Matt Fabian, senior analyst and managing director at Municipal Market Advisors in Westport, Connecticut. And therein lies the fundamental problem. The insurance was toxic from the get-go. The Fitch change in moniker status did nothing to change this, but give us bloggers and some reporters something to type about.``The market has no tolerance for a ratings-deprived insurer.''

Moody's Investors Service and Standard & Poor's, the two largest ratings companies, are reviewing Ambac's ratings for a possible reduction. Moody's said this week that it may also cut the ratings of MBIA Inc., the largest bond insurer. This all a big fat joke. They cut ratings after a 80% drop in price and announcement of a $33 per share loss? Don't do us any more favors. Like I have disclaimed earlier, I am far from a fixed income expert, but I could have sworn that the ratings agencies advisory was aimed at being predictive, and not reactive. All they are doing is telling people how much money they lost!!!

``The likelihood is quite high the others will follow,'' said John Tierney, credit market strategist at Deutsche Bank AG in New York. ``Barring some significant development on new capital, it's just a matter of time before S&P and Moody's act on MBIA and Ambac.''... The seven AAA rated bond insurers place their stamp on $2.4 trillion of debt. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg. The industry guaranteed $100 billion of collateralized debt obligations linked to subprime mortgages, $22 billion of non-prime auto loans and $1.2 trillion of municipal debt. Buffet's stock may see a lot of demand out of this...

New York-based Merrill Lynch & Co., the world's largest brokerage, this week took $3.1 billion of writedowns on the value of default protection from bond insurers... Fitch, following its downgrade of Ambac Assurance, adjusted ratings accordingly for 137,990 municipal bonds and 114 non- municipal issues insured by the company. Bonds with underlying ratings higher than Ambac's will remain above the bond insurer's level, Fitch said yesterday in a statement...Fitch last month demanded the company raise $1 billion by the end of January. Ambac on Jan. 16 slashed its dividend 67 percent and said it would sell stock or convertible notes to bolster its capital. The plan provoked a boardroom dispute and led to the departure of Chief Executive Officer Robert Genader.

Ambac's interim CEO, Michael Callen, 67, said this week that the company planned to raise capital in ``an accelerated time frame.'' And exactly how are they going to accomplish that.

Moody's said this week that it may cut Ambac's ratings after the company forecast writedowns of $3.5 billion on subprime-mortgage securities. S&P said yesterday that it may cut Ambac's rating because its capital-raising options are ``impaired.'' I hate to say I told you so, but... The issue is now your credibility is severely damaged by making so many wrong calls to begin with, then taking so long to do something about them.

The sudden increase in scrutiny by Moody's, a month after the company affirmed the ratings, sparked tension with Ambac and MBIA. Ambac this week described Moody's decision to place its ratings on review as ``surprising.'' MBIA issued a statement yesterday, saying it had started a capital raising plan ``in good faith reliance'' on Moody's stated requirements. You guys know you weren't a AAA risk. Let's stop the shenanigans, please...

MBIA's surplus notes plunged as low as 70 cents on the dollar yesterday, indicating a yield of about 25 percent, traders said. MBIA fell 67 cents, or 7.3 percent, to $8.55 on the New York Stock Exchange, taking its decline to 48 percent this week. Now, here I am going to say "I told you so"! Actually, my words were, "wait until they start trading!". I don't know what investors were thinking went they bought these notes! Do they not have professional advisors ? If not, I will offer free access to my blog for those that need it. A quick lesson for free - stop trying to reach for above market yields, for you may be handed above market losses in return.

Ratings companies, which affirmed their assessments a month ago, are scrutinizing bond insurers to ensure they have enough capital to protect against losses. S&P this week said industry losses on subprime securities will be 20 percent more than it initially forecast. Ambac has a capital shortfall of about $400 million under the new assumptions, S&P said. Well, one of us needs to recharge the batteries in our calculators, recalibrate Excel, or something. I see billions of dollars in shortfalls... (see Monolines swoon, CDO's go boom & I really wonder why the ratings agencies are given any credibility!)

Ambac's 6.15 percent bonds due in 2037 have plunged by 25 cents on the dollar this week to 35.4 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield has soared to 17.6 percent from 10.5 percent and the extra yield investors demand over government securities with similar maturities has widened 7.2 percentage points to 13.4 percentage points. And Moody's considers this a AA risk!!! Can you imagine what they would mean by the term JUNK!

Prices for credit-default swaps that pay investors if MBIA can't meet its debt obligations imply a 71 percent chance it will default in the next five years, according to a JPMorgan Chase & Co. valuation model. Contacts on Ambac imply 72 percent odds. Hey, isn't that what I said in the links above???

Contracts tied to MBIA's bonds have risen 10 percentage points the past two days to 26 percent upfront and 5 percent a year, according to CMA Datavision in New York. That means it would cost $2.6 million initially and $500,000 a year to protect $10 million in MBIA bonds from default for five years.... Credit-default swaps on Ambac, the second-biggest insurer, rose 11.5 percentage points to 26.5 percent upfront and 5 percent a year yesterday, prices from CMA Datavision show.

Ambac agreed to guarantee almost $200 million of bonds sold so far this year, or 6 percent of the market for new insured issues, according to data compiled by Bloomberg. Ambac's market share was 22.5 percent as of Sept. 30, 2007, according to a Dec. 13 report from Bear Stearns Cos. In a few days I will illustrate the relationship between Bear Stearns, Ambac, and Mr. & Mrs. CounteryParty Risk.

  So, after all of this, what comes next??? Is this the part where you expect me to say, "All hell breaks loose!". Well, not all hell, but I think some companies may find just a taste of it...

Below is output from the Ambac mini-app, made available from one of my previous postings. I have sorted and categorized the issuers by alphabetical order and identified insured par and investment grade. I stripped the AAA products out of this pivot table, although we all know what that moniker is worth these days. Despite that, Fitch says that they will not harass the AAA guys. Anyway, let's see who's on the "I shouldn't have dealt with Ambac!" list.

 

  In the chart below, bonds whose rating are AA and who are not on negative watch will not be affected by this downgrade.

Collateral Type (All)            
               
Sum of Current Net Par Exposure ($Millions) Rating          
Issuer Current Net Par Exposure ($Millions) A AA BBB BIG Grand Total  
1st Financial Funding & Investment     $185   $185  
Accredited Home Lenders, Inc. $290       $290 Uh Oh!!!
American Business Financial Services     $32 $37 $69  
AmeriCredit Corp       $761   $761 Uh Oh!!!
Ameriquest Mortgage Company $57 $35   $5 $97 Uh Oh!!!
Asset Backed Funding Corporation       $4 $4  
Bear, Stearns & Co. Inc. $978     $638 $1,616 Analysis will post in a few days
Cabela's Credit Card Master Note Trust     $220   $220  
Capital One Auto Finance     $3,029   $3,029 Uh Oh!!!
Cendant Corporation     $1,334   $1,334 Uh Oh!!!
CIT   $125       $125 Uh Oh!!!
Citigroup Global Markets, Inc.   $197 $514   $712 Uh Oh!!!
Compass Bank   $338       $338  
Conseco Finance Corporation   $24   $130 $154 Uh Oh!!!
Contifinancial Services Corporation $8   $13   $21  
CountryPlace Mortgage $93   $85   $178  
Countrywide Home Loans, Inc. $1,261   $7,645   $8,906 Super Duper Uh Oh!!! Hey BAC read my blog!
Credit Suisse First Boston Mortgage Acceptance Corporation       $145 $145  
Deutsche Bank   $181       $181 Uh Oh!!!
EquiCredit Corporation     $588   $588  
Equity One, Inc.   $33   $32   $64  
First Franklin Financial Corporation $420       $420 Uh Oh!!!
First-Citizens Bank   $125       $125 Uh Oh!!!
Fremont Investment and Loan $9       $9  
GMAC Mortgage Corporation $32   $542   $574 Uh Oh!!!
Goldman, Sachs & Co. $248 $93     $340 Uh Oh!!!
Greenpoint Credit Corp.   $149     $149 Uh Oh!!!
GreenPoint Mortgage Funding $68   $18 $78 $163 Uh Oh!!!
Hertz Corporation       $1,744   $1,744 Uh Oh!!!
HK Mortgage Financing Ltd.     $2   $2  
Home Loan and Investment Bank, F.S.B. $48   $226   $273  
Hsinchu International Bank Co., Ltd.   $497     $497  
Impac Funding Corporation $385 $1,327 $221   $1,934 Super Duper Uh Oh!!!
Indymac Bank       $1,700   $1,700 Uh Oh!!! X 2
Irwin Home Equity Corporation $209   $587   $797  
JEA Florida       $6   $6  
Korea First Bank   $199       $199  
Lehman Brothers       $62   $62 Uh Oh!!! X 3
MERIT Securities Corporation   $74     $74  
Merrill Lynch   $83       $83 Call the lawyers!
Mid-State Homes, Inc. $343       $343  
Morgan Stanley   $950       $950 My Analysis coming in a few days
New South Federal Savings Bank $44   $39   $83  
Newcastle Investment Corp New York $245   $149   $394 Uh Oh!!! x 5
Option One Mortgage Corporation $602   $2   $604 Uh Oh!!! x 6
Origen Financial       $354   $354  
Patrimonio S.A. de C.V.     $197   $197  
Private Placement   $113 $603 $167   $883  
Providian Gateway Master Trust     $598   $598  
RBS Greenwich Capital Markets       $3 $3 Uh Oh!!!
Redwood Trust, Inc. $114       $114  
Rental Car Finance Corporation     $999   $999 Uh Oh!!!
Residential Funding Corporation / Homecomings Financial Network $2,598 $32 $1,500 $406 $4,536  
Samsung Life Insurance Limited $7       $7  
Southern Pacific Mortgage Ltd   $47     $47  
The Winter Group   $545       $545  
Triad Financial Corporation     $1,364   $1,364  
UBS Securities LLC   $878     $7 $885 Uh Oh!!!
United Panam Financial Corp     $174   $174  
Vanguard Car Rental USA, Inc.     $1,320   $1,320 Uh Oh!!!
Wachovia Bank, N.A. $298   $3,309   $3,607 Uh Oh!!!
Wells Fargo Home Mortgage $2       $2 Uh Oh!!!
Grand Total   $11,930 $3,077 $29,718 $1,455 $46,180 
Whole lot of Uh Oh!!!

 

This was definitely no suprise. I have been screaming about the monoliners for some time now. Last month I ran a series, Bank, Brokers and Bullsh1+ (see part one for model risk , and part two for counterparty risk ) which discussed model risk and counteryparty risk. How timely. All of the research that I posted will be effected by these events, significantly. Look to see updates and adverse price movements in the homebuilders (banks can no longer afford to be lenient), investment banks (big you haven' t really seen a write down yet), commercial real estate (those refi's are really going to get scarce now), and of course the monolines.

I have written much more juicy stuff on monolines with plenty of analytics, cartoons and jokes. A little something for everybody:

  1. A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton
  2. Tie-in to the Halloween Story
  3. Welcome to the World of Dr. FrankenFinance!
  4. Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion
  5. Follow up to the Ambac Analysis
  6. Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibility
  7. More tidbits on the monolines
  8. What do Brittany Spears, Snow White and MBIA have in Common?
  9. Moody's Affirms Ratings of Ambac and MBIA & Loses any Credibility They May Have Had Left
  10. My Analyst's Comments on MBIA/Ambac/Moody's Post
  11. As was warned in this blog, the S&P downgrade of a monoline insurer reverberated losses through c