Using Veritas to Construct the "Per…

29-04-2017 Hits:93308 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:84550 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:84461 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:89021 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:87508 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:87312 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:58472 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:86843 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:86460 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:86811 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:93104 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:90438 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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Sometimes I have to actually read articles twice, because it really seems that I have somehow missed the point the first time around. Well, on my third glance at this Bloomberg article, I still don't get itL SLM Sells Debt at Higher Interest Rate Than Students Pay: Credit Markets

March 17 (Bloomberg) -- SLM Corp., the largest U.S. student-loan company, raised $1.5 billion in the bond market, paying more than it charges some borrowers to begin addressing $11 billion of bonds maturing through next year.

Sallie Mae, as the company is known, sold $1.5 billion of 8 percent notes due in 2020 at a yield of 8.25 percent, according to data compiled by Bloomberg. Stafford federal loans disbursed between July 1, 2009, and June 30, 2010, have a fixed interest rate of 5.6 percent, according to the company’s Web site.

I know I'm not as good at math and finance as those fancy Wall Street banker guys, but isn't this a BAD thing? They are essentially borrowing themselves into a hole. I also don't see any indication in the article of the potential for a reversal in this trend, either.

With $4.51 billion of bonds maturing this year and $6.44 billion in 2011, Sallie Mae is reestablishing access to unsecured debt markets. The offering may bolster investor confidence, lowering borrowing costs as the company will likely need to tap debt markets again, said Matthew Eagan, a money manager at the Loomis Sayles Bond Fund in Boston.

I'm not a shareholder, but this would drain my confidence, not bolster it. they have a lot of debt to rollover, and thus far they are rolling it over at a significantly negative spread to their main product! Even if they were to be able to lower their borrowing costs, it looks as if they may have to nearly halve it in order to be cashflow positive, unless servicing is really that profitable or they will be able to raise the rate they charge their customers. Again, I don't follow the company so there may be extenuating circumstances of which I am not aware, but this blurb did seem rather odd to the casual observer.

“They’re in a virtuous cycle now,” said Eagan, who helps oversee $18.9 billion, including Sallie Mae debt. “People will see they can raise money in the market and they’re going to have no problem refinancing all these near-term maturities, pushing their cost of borrowing down.”

Oh, I see. It really is that easy??!!

Sallie Mae hadn’t sold unsecured debt since a $2.5 billion offering of 10-year notes in June 2008. Its sale came after average yields fell to 3.978 percent yesterday, the lowest since Dec. 6, 2004, according to the Bank of America Merrill Lynch Global Broad Market Corporate index.

When the company issued asset-backed bonds linked to student loans on March 3, the debt priced to yield 325 basis points, or 3.25 percentage points, more than the London interbank offered rate, Bloomberg data show. Three-month Libor, a borrowing benchmark, was set at to 0.266 percent today.

‘Expensive for Them’

“This will be expensive for them,” said Peter Thornton, an analyst at KDP Investment Advisors in Montpelier, Vermont. “When you’re a lender you need to borrow money as cheaply as possible if you’re going to turn around and lend it.”

"as cheaply as possible"!!! Let's try borrowing it a little cheaper than you lend it out for starters!

Elsewhere in credit markets, the Federal Home Loan Bank system, the 12 government-chartered cooperatives owned by U.S. financial companies, plan to sell $3 billion of two-year notes tomorrow. BNP Paribas, Barclays Plc and Deutsche Bank AG are lead managers on the sale, according to a statement today from system’s finance office in Reston.
Oh, this is rich. These are the banks that lobbied their senators and congress men to repeal the mark to market rules because they only foresaw $12 million or so in actual losses although the market was punishing them as if they were to have $300 million or so in losses. Let's excerpt from a previous post: About the Politically Malleable FASB, Paid for Politicians, and Mark to Myth Accounting Rules

About a year ago, the government-chartered lender [Federal Home Loan Bank of Seattle] blamed accounting rules after it wrote down its portfolio of mortgage- backed securities by $304.2 million to reflect how much their fair-market values had fallen. While those declines counted against its earnings and regulatory capital, the bank said they were “well beyond any expected economic loss.”

The bank’s executives said they expected to lose a mere $12 million of principal over the life of the securities. That estimate proved far too hopeful, though.

The bank, one of 12 regional Federal Home Loan Banks that supply low-cost loans to about 8,000 member banks and finance companies, now says itexpects about $311.2 million of credit losses on its portfolio. And in December, it filed lawsuits against 11 Wall Street underwriters, including Goldman Sachs Group Inc. and Morgan Stanley, seeking more than $3.9 billion of refunds on the securities, plus interest. You know the losses are real when the bank is suing to get its money back.

 As you can see from my table below, FHLB Seattle execs were obviously engaged in one of those wicked sensimilia sessions when they came up with that $12 million dollar loss figure, and over the entire loss of the securities may I add, not even for just one quarter.



he bank became a poster child for everything supposedly wrong with mark-to-market accounting. At a March 12, 2009, congressional hearing, U.S. Representative Ed Perlmutter of Colorado cited the disparity between the bank’s writedown and its much smaller anticipated [emphasis added] loss as “an example that really was disturbing.”

The congressman leading the hearing, Paul Kanjorski of Pennsylvania, pointed to a similar instance at the Federal Home Loan Bank of Atlanta. The bank reported an $87.3 million writedown on its mortgage-backed securities for the 2008 third quarter; however, it said it expected its actual losses would be only $44,000.

While that’s roughly equivalent to the losses from a modest studio condo foreclosure, Kanjorski didn’t question the tiny number, saying: “I find that accounting result to be absurd.”

“It fails to reflect the economic reality,” he said. “We must correct the rules to prevent such gross distortions.” Kanjorski, Perlmutter and other lawmakers told Bob Herz, the chairman of the FASB, that it needed to change its rules immediately so banks could show stronger earnings. The board, which fancies itself as an independent standard setter, complied a few weeks later.

Changing the Rules

The rest of the story: Last year when the Atlanta bank released its financial results for the third quarter, it said it had raised the credit-loss estimate to $263.1 million. (Here’s the math in case you missed it: $263.1 million > $44,000.)

No, I didn't miss it. As a matter of fact, I feel the need to elaborate...

image011.pngEven before the estimate, it was evident that the bank felt the need to declare more losses permanent and to recognize more losses in earnings. Translation, even they realized the jig was up. But what happened to the $44,000 loss estimate? They only expected ONE house to be foreclosed upon, right???!!! 


Current reporting trends show that:

1. All FHLB banks reported the majority of their credit losses (more than 70%) for 9M09 to comprehensive income, with only less than 30% being charged to income statement.
2. Fed Home Loan Bank of Seattle, Federal Home Loan Bank of Atlanta and Federal Home Loan Bank of Chicago transferred majority of their credit losses to comprehensive income during 1Q09 and 2Q09. However, they made a reverse transaction by charging more than 100% of their credit losses to income statement in 3Q09.


  Alas, I digress - back to the Bloomberg article at hand...

... Sallie Mae is seeking to raise cash as legislation is debated in Congress that would eliminate federal guarantees and subsidies to private student lenders provided under the Federal Family Education Loan Program, or FFELP. FFELP lending has been the “primary driver” of Sallie Mae’s business and profits since its creation as a government-sponsored entity in 1972, according to a March 8 report from KDP.

“We assume Sallie Mae’s traditional business of originating federally guaranteed student loans will be phased out over time as the Department of Education ramps up direct lending to students and parents,” the KDP analysts said.

If the government starts originating loans, Sallie Mae will be transformed into a company focused on loan servicing and private lending that is not guaranteed by the government.

Hmmm, so they will now be competing against the government (who is currently borrowing at negative real rates) as well as funding their product at a negative nominal and real margin. Tell me again why those asset managers are getting optimistic. I must have missed the "good news" part...

Tighter Underwriting

Sallie Mae has cut back on private student-loan originations in part because of tighter underwriting standards, the company said in a Jan. 20 statement. The company originated $3.2 billion of private student loans last year, down from $6.3 billion in 2008, the statement said.

Late payments on student loans are rising as graduates struggle to find jobs. The jobless rate reached a 26-year high of 10.1 percent in October, according to figures from the Labor Department. It has fallen since, holding at 9.7 percent in February for a second month.

Oh yeah! That must've been the (relatively) good news that I missed. The markets are now so damn devoid of any correlation to the fundamentals that I actually expect an Atlantic City slot machine burst out of my trading screen for my convenience.

Delinquency Rate

The delinquency rate on Sallie Mae’s portfolio of private loans increased to 9.43 percent last month compared with 8 percent in November and 9.29 percent a year ago, according to a March 15 report from Keefe Bruyette & Woods.

Hmmm... Maybe that was the good news part.

Sallie Mae had been selling debt backed by its student loans through the Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF. The program, begun last March to jumpstart the market for securities backed by consumer and small business loans, ends this month. The lender sold $1.55 billion in asset-backed debt for the final TALF round on March 3.
Okay, so maybe this is the good news that is slipping past me???

The Sallie Mae bonds are expected to be rated Ba1 by Moody’s Investors Service, one level below investment grade, and one step higher at BBB- by Standard & Poor’s.

Do they really deserve a junk rating???

Sallie Mae’s sale and a $2 billion offering from International Lease Finance Corp., the plane-leasing unit of American International Group Inc., show investors are receptive to companies closely linked to the U.S. government that haven’t sold bonds recently, said Timothy Norman, director of fixed income trading at Thrivent Financial for Lutherans in Minneapolis.

I am at a total loss as to how Sallie Mae will pay these bonds back. Their volume has dropped about 60%, their existing book of business is mounting significant and increasing credit losses heading into a negative looking macro environment that portends even more extensive losses in the foreseeable future. They are currently borrowing at a negative margin, and the crux of their business model (government subsidies) looks to be dismantled. On top of it all, it looks as if they will have to compete directly with the government. On top of that, the little bit of government bailout that was thrown to them (TALF) is being phased out right about now. 

Sallie Mae... Debt offering... Successful... Good news... Non Sequitur

‘Wouldn’t Have Believed’

“You’re seeing ILFC and Sallie Mae both do a deal in the same day, which even six short months ago you wouldn’t have believed,” said Norman, who helps manage $64.7 billion. “The world has changed and they have certainly adapted and are making some progress relative to where they were a short time ago.”

Yeah! You're right. The world has changed. In the world I used to live in, prudent asset managers wouldn't touch this company with YOUR fingers, wrapped around a 10 foot pole. In today's melt up the equity market on any good news, bad news, or maybe even just news news, and report it as something positive in the mainstream media, it sort of makes one happy to know that independent blogs do exist.

A $25.3 billion takeover bid for Sallie Mae from investors including J.C. Flowers & Co. collapsed in 2007 when Congress passed legislation that cut federal subsidies to student lenders.

The company reported net income of $309.1 million in the fourth quarter and $159.1 million in previous three-month period, which ended four straight quarters of losses.

I wonder if I were to dig in deep, would I find that the reported income stemmed from something other than purely economic gains...