Using Veritas to Construct the "Per…

29-04-2017 Hits:84654 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:79117 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:78962 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:83452 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:80015 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:82324 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:53298 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:81330 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:81328 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:81142 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:86992 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:85008 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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  • Countrywide was forced into a fire sale vs bankruptcy situation. It was totally insolvent and reeked of non-performing, illiquid and depreciating assets.
  • Merrill Lynch was forced into a fire sale vs bankruptcy situation. It was totally insolvent and reeked of non-performing, illiquid and depreciating assets.
    • Bank of America bought both of these companies. Hmmmm. Look at its share price and balance sheet. Where do we think all of those reeking assets ended up?
  • Bear Stearns was forced into a fire sale vs bankruptcy situation. It was totally insolvent and reeked of non-performing, illiquid and depreciating assets.
  • Washington Mutual was forced into a fire sale vs bankruptcy situation. It was totally insolvent and reeked of non-performing, illiquid and depreciating assets.
    • JP Morgan bought both of these companies. Hmmmm. Look at its share price and balance sheet. Where do we think all of those reeking assets ended up?

Goldman falls in price by ~75%, Morgan Stanley like- wise. They are both forced to become commercial banks. Morgan decides to play the retail banking game, but Goldman appears to remain obstinate. I think they are still punch drunk from drinking their own (we're the best on the Street) Kool Aid. I stated in the past, they have a very high share price correlation to their brethren (most of which no longer exist) and they still have some of the most illiquid and dangerous assets on their books. Yes, they have delevered significantly over the last few quarters, but a forensic glance shows that this delivering was achieved by selling the more liquid and marketable stuff, thus actually increasing the concentrations of the stuff that made them need to delever in the first place. Now, this is a judgment call by management, and I will not argue with it. I am sure they are loathe to sell depreciating assets in a down market when they probably feel the market will turn in the near to medium term. I look at it this way though. They wrote leveraged products on overvalued underlyings at the top of one of the most effervescent bubbles in modern history. Now the bubble has popped, and reality is hastily approaching. Many companies from the previous year would have been much better off (actually, would still be in business), if they bit the bullet and sold at a loss today in lieu of waiting tomorrow when their assets for sale are definitively worth less than the aggregate debt used to finance them. That is the danger of 30x leverage, and that is the danger with what's left with these banks.

 

We don't know what the leverage ratio is for these banks. Although many, ex. Goldman and Citi, have taken their leverage down considerably - we really don't know from what level it is truly coming from. Almost all of the off balance sheet vehicle, specifically the SIV's, use significant leverage. The reporting on them is murky at best, non-existent for the most part. Make no mistake, there is exposure to economic risk from these entities. Thus, as Goldman delevers by selling few things that it probably should keep, it amasses greater concentrations of the things most likely to kill it. Think of a woman that sheds lots of water (marketable assets) to lose weight to impress beauty judges (short sighted shareholders, shorter sighted regulators, and the sell side game), thereby building up dangerous levels of toxicity within her system. Now, the woman looks a lot better from the outside, and may even win a trophy, but the poisons within are now undiluted and potentially killing her. The pretty woman that walks down the aisle very well may collapse (like so many of her sisters from last year), and I get the feeling that if she does, everyone will act surprised.

"Won't the government help us?"

Many of my lesser aware associates are still of the mindset that the government will pull us out of this one. I am put in mind of those who blindly follow religion without bothering to once wonder exactly how all of those miracles may actually work. I believe it is a lot easier for government to allow us to go down the path to recession than it is to work our way out of it. Recession is natural and normal anyway, and needs to happen. The kicker is that  we had a wildly voracious up-cycle that ridiculed both the fundamentals and fiscal prudence - this lasted for about 6 and a half years. We have seen roughly 1 and half years of carnage. Methinks that we have roughly 3 to 6 years more of this to go, or 12 to 18 months of a hyper accelerated, extremely destructive downward plunge - one that would have 2008 something the optimists would end up wishing for. The only variable is the velocity of the decent. It is guaranteed, a given, that mother equilibrium will insist upon returning to her pre-bubble ways, and potentially then some.

I rant ad nauseum because I find myself returning back to the big money center banks mentioned above.

As you all know, I shorted all of the names mentioned above heavily backed by some rather comprehensive fundamental and forensic research, and am still short most of those that are still in business. The trades were roughly 6 months to a year in duration, and although proved to be very, very profitable (several scoring more than 100 point hits) had a significant amount of volatility introduced that produced some nasty drawdowns. These drawdowns came from bear market rallies that were sparked by the "Won't the government help us?" mentality. As stated earlier, recession is a natural and inevitable occurrence that needs to happen, just as much so as economic boom times. The dead banks will have to die. It's just a matter of whether we get it over quickly and allow the Phoenix to rise from its ashes to start anew, or we drag this out in a form of macro-economic water torture.

Remember, mortgage banks were dropping like flies. Bear Stearns collapsed over the weekend. The Fed backstopped investment banks by allowing unprecedented borrowing from the Fed discount window, accepting as collateral practically anything, stocks, private labeled MBS, baseball cards, manure and fertilizer (Okay, I was joking the baseball cardsJ). This allowed the market to rally from the March lows that was put in by the Bear Stearns collapse. After all, the government has unlimited resources and they have pretty much stated that they will not allow a large investment bank to fail. Six months later, a large investment banks fails in the form of Lehman Brothers.  What happened? The government said it wasn't their fault. They had no viable buyer. What happened to the government sanctioned liquidity? What did Lehman and Bear have on their books that the other ex-I banks don't? The short answer is nothing. They had higher concentrations o mortgage related assets. That may sound bad given the occurrences of the past year, but it trust me, it sounds worse than it is. This was not a real estate or mortgage crisis, but an asset securitization crisis born from the punch drunk giddiness to be had when lenders and their cronies have access to nigh unlimited balance sheets and liquidity, and very limited recourse and responsibility for their actions. Thus, any asset that was normally lent against, was most likely abusively lent against under this scenario. Real assets and mortgages were simply the first to pop, starting with subprime, and as we have already seen, definitely not ending there. As a matter of opinion, it is quite probable that the other asset classes that have bore witness to the lending abuses very well may be hit harder than real estate and mortgages - if not on an individual basis, then definitely on an aggregate basis. This is where Goldman, Morgan, HSBC, et. al. will see real pain. This is why Goldman's level 3 assets are actually increasing as they delever. Think private equity, think, leveraged loans, think venture capital. Just think...

Do you really think the government can prevent another big bank failure? It will happen sooner or later, but looking at the current condition and prospects, it appears to be more likely to happen than not.