Using Veritas to Construct the "Per…

29-04-2017 Hits:85781 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:80009 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:79869 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:84347 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:80888 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:83135 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:54146 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:82269 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:82121 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:81990 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:88015 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:85890 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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The following stemmed from a conversation I had with a financial journalist for a prominent international finance rag after her perusal of my two blog articles: Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis and Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street. The converstation ended up centering around the "alleged" deleveraging of UBS and their shedding of risk. The following highlights the UBS situation in more detail...

From http://uk.reuters.com/article/businessNews/idUKL2112783220080521

UBS AG provided 75 percent of the funding used by U.S. asset manager Blackrock to buy a $15 billion (7.63 billion pounds) portfolio of distressed U.S. real estate assets from UBS, the bank said on Wednesday.

UBS provided $11.25 billion in loans to Blackrock, the Swiss-based bank said in a statement. Blackrock raised $3.75 billion in equity from investors to pay for the rest of the package, UBS said...


... The face value of the portfolio was $22 billion, meaning UBS received about 68 cents to the dollar on the sale.


This means that UBS effectively financed $18.25 billion dollars of the purchase, or 83%, a good portion being absolutely non-recourse since it was given in the form of a seller's concession (eg.  a discount). I have not seen the full terms of the deal, but other similar deals appear to have additional non-recourse characteristics. This is a very sweet situation for the buyer, but as I said, it is not an absolute transfer of risk from UBS balance sheet or an elimination of said risk for UBS shareholders.

 

"It makes absolute sense because it means they are getting the problems out of their balance sheet," Skierka said. "They might have a certain exposure anyway but ... the construction of the deal is such that they will be able participate from any gains in the value of the assets."

UBS said earlier in May that the structure of the deal would give it some exposure to potential upside should the value of the assets rise.

This, in combination to the risk exposure through the loan, has definitive equity-like characteristics. As I said, they have not truly transferred the risk off of their balance sheet, they simply transformed it. They traded (equity-like) ownership of risky assets with a very thin market for credit risk exposure to Blackrock, and/or potentially even higher risk through what very well may be non-recouse debt secured by the very same risky assets that devalued to the point that they ate up the UBS balance sheet to begin with. It appears to be a shell game. They are still at risk of taking an economic loss if the value of the assets sold decrease (particularly if the loan is non-recourse), which is probably why they structured the deal to be able to participate in any increase in the "allegedely" sold assets. It sounds very much like they still own the assets doesn't it??? Like I said, a shell game!


As for the Goldman: “People are too busy focusing on accounting earnings, no one is measuring the economic risk involved in generating those accounting earnings. When the wind chooses not to blow in their direction, the shit will hit the fan much harder than the rest of the Street. I agree that a firm’s survival and ability to hold on to businesses is dependent on management capability. But publicly traded firms' managements are rewarded for accounting performance, not for reducing economic risk at investment banks and this skews decision-making,” he warns. "This was not the case when Goldman was a private partnership. Then they had to eat their own dogfood, hence they made sure it tasted good before they dined".

In the case of Morgan Stanley, they are the The Riskiest Bank on the Street. See the update as well, Reggie Middleton on the Street's Riskiest Bank - Update. You see, with all of the off balance sheet holdings, credit default swap criss-crosses with lord knows who's the counter-party (see The Next Shoe to Drop: Credit Default Swaps (CDS) and Counterparty Risk - Beware what lies beneath!), and high levels of level 3 assets and leverage (see Banks, Brokers, & Bullsh1+ part 1 and Banks, Brokers, & Bullsh1+ part 2), there is no credible way to truly ascertain the full extent of the risk these companies have taken. They, till this date, have failed to voluntarily come clean about all assets and risks, so investors such as myself and my team are forced to play Inspector Clouseau (sp?), as in the Pink Panther. Simply adding the contents of off balance sheet entities and JVs can and will throw off the stated leverage of many of these firms as they rapidly attempt to delever in a downward spiraling market. I don't think the question to ask is whether the pure play investment banking model is better than the supermarket model, but whether mis-managed asset securitization and related trading practices truly had a better economic risk vs. return proposition for equityholders than the more traditional M&A advisory fee/brokerage/proprietary trading models or yore. From an accounting earnings perspective, it appeared as if the broker-banks could do no wrong, but when economic risks are factored into the equation, and more telling the advantage of 20/20 hindsight, it appears as if risk return proposition was really not all that good. 

This is an interesting take on GS's and MS's latest actions, http://boombustblog.com/component/option,com_myblog/show,Goldman-and-Morgan-Stanley-get-wise.html/Itemid,85/.

In order to get a firm grasp on the magnitude of the current crisis, I suggest you pour through this series when you get the time - http://boombustblog.com/component/option,com_myblog/show,The-Asset-Securitization-Crisis-Series-to-date.html/Itemid,85/.