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:79135 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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A knowledgeable reader, who is currently a sell side analyst, questioned me about using book value to value Goldman and investment banks in general. He proposed using a formula that entails revenues as well due to the fact that the main concern during the crisis was breakup value while revenue visibility is clearer now that the crisis is over.

Without going into the merits of his valuation suggestion (I am allowing him to make  a more compete argument with me), this suggestion does bring up several pertinent points. For one, while the crisis may be over, the root causes of the crisis have went nowhere, and the counterparty risk concentration is actually much worse than before. In addition, not only is it political suicide to attempt to bailout another bank, I think it is poor economic policy as well. Combining these two assertions, it is not clear that we will not see anymore bank failures. The probability of such has dropped considerably though.

In terms of revenue visibility, I simply don't see it as a positive. Though we have more revenue visibility, that visibility points to lower revenues since:

  1. we have just come out of a credit, financial asset and real asset bubble;
  2. we have just re-entered another financial asset bubble and an attempted (and very foolish) reflation of the real asset bubble due to Fed liquidity measures and virtually zero interest rate policies which also happened to;
  3.  cause an unsustainable spike in banking revenues

gs_rev_bubble.png.

As you can see from the graph above, Goldman's net revenues are nearly twice what they were during the bubble, and are even higher than they were at the PEAK of the bubble. This is, of course, after a drop to the negative zone when the bubble actually popped. This unstustainable pop was due primarily to the government dropping the cost of business for Goldman to near zero. Notice the inverse relationship of interest expense and net revenues. In addition, notice how quickly revenues have dropped (the spike and fall are due to trading), despite the act that rates have not risen yet. Goldman was able to ride higher revenues on the back of higher rates due to a credit, financial and real asset bubble. Without said bubbles, and with a potential rise in interest rates, Goldman's revenues have nowhere to go but down from here.

So, the argument of book value versus net revenue is highly academic. I see significant headwinds for Goldman's stock unless actual multiples increase. Goldman is already trading at a significant premium to its peers, despite the fact that the regulatory spirits are circling its most prolific and profitable net revenue source - trading. Does it deserve this premium moving forward?

See Reggie Middleton vs Goldman Sachs, Round 2 for the post that sparked this disucssion. I will now start working on the Central European and China info to ready it for distribution to the blog.