Using Veritas to Construct the "Per…

29-04-2017 Hits:85916 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:80124 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:79979 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:84459 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:80994 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:83229 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:54255 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:82379 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:82223 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:82087 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:88148 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:85998 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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It looks like my bearish position on AGO needs to be doubled up. From the WSJ.com:

Ambac Financial Group Inc. is in discussions to effectively split itself up in a move aimed at ensuring that municipal bonds backed by Ambac retain high credit ratings, according to a person familiar with the situation.

A halving of Ambac would create one unit that insures municipal debt and one that would cover rapidly diminishing securities tied to the mortgages in a structure that effectively creates a so-called "good bank" and "bad bank." Bond insurers generate revenue by promising to cover bond payments on debt issued by a range of entities, including local governments. Bond insurers now are under pressure, though, because they also agreed to guarantee payments on mortgage debt or securities to banks, brokers and investors.

Ratings companies now are poised to further cut credit ratings on bond insurers because of those guarantees. Ratings downgrades can have chain reactions and lead to increased borrowing costs for municipalities and write-downs for banks that own debt backed by the insurance providers. To avert financial chaos, regulators in New York, including state insurance superintendent Eric Dinallo and Gov. Eliot Spitzer have pressured the companies to find solutions or else face regulatory action.

Ambac is one of two bond insurers considering an effective break-up. FGIC Corp. on Friday notified Mr. Dinallo's office, the New York State Insurance Department, that it is pursuing an effective break-up. But according to people familiar with the situation, FGIC's plan came as a surprise to a consortium of banks that had been in early discussions to shore up FGIC's capital. Talks between the two sides be prolonged and litigation may be one outcome. Ambac's plan is much further along and an announcement could be made this week.

But the plan to split Ambac is complex and has required tens of hours in recent days. While a "good bank-bad bank" model has existed for decades, there isn't a playbook for halving a bond insurer. A number of issues remain to be resolved, said a person familiar with the situation.

So, what does this mean for the companies and industries covered in my blog? Well, in my opinion, this is the beginning of the endgame. Let's walk through the game board...

  1. Those REITs that are having problems refinancing those high LTV loans are really in trouble now. The amount of CMBS insured and reinsured by ABK and MBI are higher than most realize. The market for this stuff is quite thin to begin with. My next post will be comparison of who may be in trouble, besides GGP. GGP makes a good example of how this unfolds, though:
  2. More pressure on the homebuilders. Centex has a very large mortgage operation that actually relies on Ambac. See chart below. The builders will also see a further crunch in the mortage markets. Centex also has a lot of off balance sheet JV exposure whose debt may be forced back in the form of maintenance and remarging agreements. You can use the Lennar analysis as a template of how this unfolds: 
  3. The investment and commercial banks will get very hard, due to illiquid assets and direct credit exposure. I feel I have went into this in depth. See  

 

Obviously, the impact on the banking community cannot be understated. Take a look at the estimated losses that I have come up with, based upon these big banks' exposure to JUST Ambac and MBIA! As you can see, the loss exposure goes a very long way in verifying the research performed in the 4 bank links directly above - Basically, Morgan Stanley and Bear Stearns are going to get their head handed to them if Ambac bifurcates. Their potential losses actually make Countrywide look relatively good.

image001.png

Now, what gloom and doom bearish article on the monolines structured product portfolio meltdown will be complete without one harping on one of the sellside darlings of the industry? I warned my blog readers last year that the inherent risks in Assured Guaranty were far from being adequately recognized in the market. Read through this post from last year very carefully and Assured Guaranty is, in my opinion, really a play on your confidence in Rating Agencies.

I am in the process of performing a full forensic analysis of this company which the sell side seems so enamored with. I don't buy their story. We shall see what I come up with using the Reggie Reality Engine. Let's revisit an overview of this company's exposure to significant devaluations that may occur if Ambac bifurcates, leaving the structured product risks in a standalone company that is "assuredely" (pun intended) to get immediately downgraded. Remember, AGO just reinsured $28 billion of Ambac ceded risk.

Break-dwon of Net premium earned -AGO

Public finance

5.2

9.3%

Structured finance

26.5

47.2%

Financial guaranty direct

31.7

56.4%

 

 

 

Public finance

15.4

27.4%

Structured finance

6.2

11.0%

Financial guaranty reinsurance

21.6

38.4%


 

 

Mortgage guaranty

2.9

5.2%

Net Premiums Earned

56.2

100.0%

  

Now, here we have a relatively thinly capitalized company with 58.2% of its earned premiums stemming from structured products, coming off of two quarters of record mark to market losses, and 5.2% of earned premiums coming from mortgage guarantees in the worst underwriting vintages of the worst housing bust in the history of this country. Does anyone besides me see a blowup just waiting to happen? The waves of devaluation and counterparty failure that will occur if/when FGIC and Ambac bifurcate will devestae this little reinsurer. Then again, this is just speculation. Let's see what the forensic analysis can confirm, when it gets here.