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:84549 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:84460 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:86842 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:86459 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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 I fancy myself to be a pretty good investor. While I think I'm a pretty bright guy, I know I am not at the level of the rocket scientist known to be hired by the quant funds. While I am fairly creative, I am far from an artist. While I am not a high school drop out, I don't have a PhD. So, what makes me a good investor? I have this uncanny knack of being able to smell bullsh1t a mile away!

Now, for those banking CEOs, homebuilder CEOs (ex. Mr. Hovnanian), monoline CEOs and government officials (ex. Mr. Paulson), who claim that the worst is behind us - I can smell you guys!

I am starting to come clean on my commercial bank research and personal  investment positions. I do not publish my research until after I have established my positions, but I do release broader market and macro stuff early - figuring it can do little harm.

So, I hear Paulson says the worst is behind us!? I am assuming he is referring to the subprime mess, and the capital market melee that followed. Well, I don't believe the subprime mess is over, but if it is we still have to contend with at least 5 other failing categories of bank products that are imploding due to securitization imprudence - all rivaling or surpassing that of subprime.

Let's go over my research trail on the Current US Credit Crisis. Sections 1 through 5 are background material that is probably known to the professional in this arena, but will make good reading for the lay person. I used it to make sure I made judgments based on observable facts vs. media representation and/or personal bias. I feel the section on counterparty risk should be required reading for everybody, though. The report on PNC basically outlines, in full detail, why I chose that bank out of 329 others, to initiate my short foray into the regionals.

  1. Intro: The great housing bull run – creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble – A comparison with the same during the S&L crisis
  2. Securitization – dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble – declining home prices and rising foreclosure
  3. Counterparty risk analyses – counterparty failure will open up another Pandora’s box
  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue
  5. Municipal bond market and the securitization crisis – part I  
  6. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital


Now, let's take a more mundane look at the banking sector in general. Looking at how much of the banking industry's portfolio is concentrated in real estate, one should be concerned when housing priced drop precipitously (no spell checker, and I'm tired). We are in much more heady territory than in the S&L crisis (started by CRE lending), and the housing price drop is much worse as well.


 This graph should speak for itself. To put it in a few short words, "You ain't seen nuthin' yet!"


  We are overbuilt, not just in residential but commercial as well. Construction and development loans have always been a high risk/high reward endeavor, well the risk part is coming home to roost. We are at a historical high in the riskiest classes of bank loans, at a time when supply is excessive, the macro environment is downright destructive, and bank capital levels are at all time lows.



It appears as if the banks believe Henry Paulson's bullshi,, excuse me, "assertions" that the worst is behind us, for they appear to be explicitly under-reserving for what I see as a historically high level of RE loan concentrations.  This is not even taking into consideration the performance trend of those loans over the last few quarters.


 More to the point, look at the last two times real estate has gotten into trouble. Both times really hurt the US, with the earlier one (the S&L crisis) probably costing the US citizen and the banking system the most since the Great Depression. Despite this, the banking industry was much more prepared (in terms of loan loss provisions) to whether the storm then they are now. If you have read through my Asset Securitization Crisis primer and you are a reasonable man/woman, you should gather that we are in a much worse position now than we were in either of the last two downturns. This means that loan loss provisions are going to spike up sharply, and along with it capital requirements increase dramatically (spell the word D-I-L-U-T-I-O-N slowly, for we will be seeing a lot more of it) while earnings plummet. But then again, if the worse is behind us, it doesn't really matter, does it???


  I have screeched many times on my blog that some very smart people who should really know better are definitely overestimating the power of the Fed to get us out of this situation. Those guys over at CNBC say, "but we are getting rate cuts, margins are improving, yada, yada." Yes, we did get rate cuts. Yes, margins are improving. But from what level. As you can see, regional CRE lending institutions had it better during the S&L crisis, and you see what happened to over a thousand of them .


Wikipedia excerpt:

The U.S. Savings and Loan crisis of the 1980s and 1990s was the failure of several savings and loan associations in the United States. More than 1,000 savings and loan institutions (S&Ls) failed in what economist John Kenneth Galbraith called "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time."[1] The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government -- that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts-- [2], which contributed to the large budget deficits of the early 1990s. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse-selection incentives compounded the system’s losses. [3]   The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, the lowest rate since World War II. For the record, we are on track to easily break that housing starts record. Why would anyone bid up the homebuilders??? Study balance sheets and history, people!!!

As a matter of fact, the current environment shows the weakest net interest margins for the last 30 years! To make matters worse, I believe that sooner or later (probably sooner) the government is going to be forced to stop thier core inflation charade as energy, food, housing, and the materials used to produce these commodities, skyrocket through the clouds and into outer space. Of course inflation is under control as long as you don't have to eat, drink, drive or sleep in warm shelter! If real inflation forces the feds hands into raising rates, even just a little, the banks are toast. That little dip in NIMs at 1985 in the graph was probably the straw that broke the camel's back in the S&L crisis. Yes, Mr. Bernanke --- Conundrum! Or maybe not. Mr. Paulson said the worst is behind us!

  Below, you can see where we have a whole lot more loans to default on than we did in the S&L crisis, even after adjusting for inflation (not reflected in the chart).


So, after taking all of this into consideration, you can see why I don't think the worst is behind us. As a matter of fact, many focus on subprime, and more recently HELOCs (for good reason). Here is an interesting article on Calculated Risk regarding the losses on HELOC's being understated because the servicers are too busy to get timely information out. But (I know, never start a sentence with a conjuntion, but this is my blog - Enlgish teachers are not allowed here), if one simply takes a gander at what is really going on, you will find there is a broad field to choose from when selecting banks to short. 


I think I'll end this here. My next research post will be on muni losses affecting credit default swaps, charge offs in the banking sector, more bank short candidates that I chose to bypass, and a homebuilder update. I will also be hosting a high net worth and institutional investor pow wow on the Hudson River leaving from Chelsea Piers in Manhattan, for anyone of the aforementioned interested in my opinions and outlooks. Stay tuned.