Using Veritas to Construct the "Per…

29-04-2017 Hits:93282 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:84535 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:84450 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:89011 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:87494 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:87300 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:58463 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:86832 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:86450 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:86802 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:93096 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:90431 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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Now, like HIG, PFG has hit its valuation range thus I am releasing the research to the public. I am shocked the mainstream media hasn't decided to run a feature story on me. I know I may be a bit brash, but in looking at the performance of the current pop pundits in comparison to my consistent results... Anyway, here is the PFG note (although I have made them free, registration is still required):Principal Financial Group Actionable Intelligence Note Principal Financial Group Actionable Intelligence Note 2008-12-12 06:01:55 162.29 Kb  andPrincipal Financial Group Actionable Intelligence Note - Pro version Principal Financial Group Actionable Intelligence Note - Pro version 2009-01-15 11:18:50 252.74 Kb . If traded properly, this piece of research would have paid for a couple of years subscription on its own. BoomBustBloggers had TWO MONTHS notice regarding this companies obvious miss this quarter. The mere fact that it had "lower than expected" earnings vindicates an institutional subscription to the blog in and of itself. PFG did exactly as us BoomBustBloggers expected, so who expected differently? Speaking of which, institutional subscribers should be significantly boosting their returns through my significantly under-priced research. It will not stay this way for long, so I would like those who are in institutions and professional money managers to contribute a little more to the community. A polite request on my part.

 An important note to all subscribers and potential subscribers

  Insurance News and Analysis from across the Web

Reggie Middleton on Insurers and Insurance

Insurers get TARP

Insurers fixed income losses may exceed subprime

Life Insurers: terrible bond investors (no kidding!)

After $2.6 billion loss, Swiss Re gets a Buffet investment

ECB Financial Stability Review, June 2008

Insurance Linked Securities - Investing, Managing, and Trading

Cliff Risk and the Credit Crisis

I am working on a potentially very profitable thesis in this space. It is risky, but if it pans out as the other insurers did (MBIA - Ambac - Assured Guaranty - Hartford Insurance Group Forensic Analysis - Pro - Principal Financial Group - and the latest UK insurer The UK Insurer Forensic Analysis and Fundamental Valuation Sample Trade Addendum who should be breaking by the next quarterly reporting period (these links are to Pro reports, Retail subscribers may have to search the links manually) it will prove to be highly profitable. I don't see any reason why it shouldn't. I will be releasing preliminary reports on it next week and expect it to push my competition smashing performance numbers significantly higher.. It would be appreciated if the ticker/name weren't mentioned in the public forums until further notice do to its thinly traded status. You can see more of my opinion in the "Insurers and Insurance" section of

Despite all of this time and ample evidence, mainstream media and pundits still don't get the risks of the insurance industry and insurers such as PFG. Here is an excerpt from my first PFG actionable intelligence note:

AIG has been caught with their hand in the cookie jar, so to speak, writing naked CDS under the guise of synthetic securities. Basically, they were gambling. In this economic climate, the writers of CDS are most likely to take a loss, particularly those who wrote the swaps on anything related to a financial company or financial asset as an underlying. Those who bought the CDS have often recorded a paper gain, but counterparty risk is an issue as well. Realizing (after growing up in NY) that there is seldom only one cockroach, I had my team search for other insurance companies that basically gambled with their balance sheet under the guise of issuing insurance. The Principal Financial Group is who we found. Below, please find a summary analysis of what we've discovered.

·         As a result of huge investment losses on its investment assets Principal Financials' equity has been eroded significantly. The company's tangible equity has plunged 34% to $4.3 bn in 3Q2008 from $6.5 bn in 3Q2007. Resultantly Principal's adjusted book value per share is at $16.3 per share implying adjusted P/B multiple of 1.14x.

·         The company is highly leveraged with adjusted leverage of 33.4x as of September 2008. Despite deleveraging the company's leverage has increased as decrease in equity has been much sharper than decrease in assets.

·         Principal's investment losses have ballooned significantly over the last few quarters particularly in 3Q2008.  In 3Q2008 the company recorded net realized capital loss of $156 mn compared to $85 mn and $59 mn in 3Q2008 and 2Q2007, resepctively.

·         Net unrealized losses on AFS securities (cumulative after tax charge to equity) increased to $2.0 bn in 3Q2008 from $1.0 bn in 2Q2008.

·         Besides problems in investment portfolio (discussed in detail below), the company's operating metrics are also witnessing a softening trend. Principal's operating revenues declined 6.4% in 3Q2008 over 3Q2007 while its operating earnings declined 21% y-o-y in 3Q2008.

There are a plethora of additional issues that I have brought up in the two afore-linked reports that can't be seen with an electron microscope in the sell side analyst reports. I wonder why my subscriber roll is not larger than it is...

It is reasonable to assume that considering PFG's miserable quarterly results, they are at risk of a flight of capital - basically a run on the quasi-banks, as assets flee to a perceivably more stable environment. If so, this will weaken the insurer even more.

Highlights from the Principal Financial Group Inc. Q4 2008 Earnings Call

"Moving to Principal Global Investors, assets under management are down 19.6% from a year ago, again reflecting market conditions. For the year, net cash flows were positive, reflecting our depth and breadth of management capabilities.

PGI did experience negative non-affiliated flows of $3.6 billion in the fourth quarter, which is not indicative of our outlook going forward. The biggest contributor was a single real estate advisory mandate of $2.7 billion, which produced revenues of only $200,000 in 2008." See my "run on the bank" comment above.


As mentioned before, market volatility is causing retirement plan and institutional investors to delay making changes. They are apprehensive about investing into a falling market or being temporarily out of the market while executing a transition. As an example, we had commits in September and October from three sovereign institutions in Asia totaling $1.5 billion in global equities.

These were expected to fund by year end but they did not. Looking forward we currently expect two of these to fund, at least partially in the first quarter, and because PGI's relative investment performance remains strong, particularly for the three and five year periods, our level of final stage prospects remains high. Why is that? The markets, particularly the real estate, finance, investment and insurance sectors will get rougher this year, not better. if they were scared away last year, they will be totally frightened and frigid this year!


Of the 19% decline in asset under management from a year ago, 17% was attributable to foreign currency changes and 5% due to market declines, which were partially offset by a 3% increase from positive net cash flows. This raises a red flag. The broad currency moves of 2008 were very easy to see coming. It really calls into question the competency of the money manager if they were somehow caught by surprise by this. See the macro trade addendum of Banco Bilbao Vizcaya Argentaria SA (BBVA) Addendum - Pro Banco Bilbao Vizcaya Argentaria SA (BBVA) Addendum - Pro 2009-01-28 17:48:27 569.55 Kb or the same addendum of the UK insurer on how to hedge/speculate on such. If my retail individual investor subscribers can manage it, I don't see why a highly paid full time professional staff cannot achieve it. Maybe they should be subscribing to BoomBustBlog!


Let me add a couple of additional thoughts on health. We believe we are on track with the first phase of our turn around for the division stabilizing earnings.

The second phase is stabilizing then growing membership. We continue working on a number of fronts with a particular focus on more Principal specific network contracts in key metropolitan areas and on improving terms in existing network contracts.

These will help us gain greater control of claims cost, which in turn will enable us to price more competitively. We’re optimistic we will see progress in this area in 2009, but would remind investors that membership growth is a multiyear process as we are following a very disciplined approach. I would expect some margin compression here if this administration makes good on its healthcare promises of lowering costs across the board.


I don't know if they are simply trying to parse operating segments, but there is an apparent contradiction here. In one section they say:

 In part, this reflects operations that are less equity sensitive and the U.S. asset accumulation and global asset management segments. Of the 19% decline in asset under management from a year ago, 17% was attributable to foreign currency changes and 5% due to market declines, which were partially offset by a 3% increase from positive net cash flows.

But in the next section they say:

Terry Lillis

Thanks Larry. As indicated this morning, I’ll spend a few minutes providing financial detail for the company on each of our operating segments. I’ll also cover our investment portfolio. Let me start with total company results.

At $0.69 in fourth quarter 2008, operating earnings per share was down $0.18 from a year ago. As always, there are a number of items impacting comparability between periods. But the variance primarily reflects the impact of equity markets on assets under management, and in term B revenues and earnings.

I'd believe Terry Illis if I had to put my money on it.

Between the full service accumulation and mutual funds businesses alone the decline in equity markets reduced earnings per share by $0.16. Earnings were also dampened by several items, including the impact on net investment income of holding more liquid investments, severance cost due to our expense initiatives, weakening of Latin American currencies against the U.S. dollar, lower prepayment fee income, and higher amortization of deferred acquisition costs, which I’ll discuss in m ore detail shortly. I had anticipated much of this and expessed some of my concerns in the reports above.

Negative investment performance due to equity market performance declines erased nearly $38 billion in 2008, with more than $18 billion of the decrease in the fourth quarter between full service accumulation and principal funds. These are some big numbers, and again as anticipated in my reports, they are taking large slices out of tangible equity. Solvency is now a significant issue due to leverage and downward volatility!

At $103 million, segment operating earnings for fourth quarter 2008 were down $47 million from a year ago due to significant equity market declines. Full service accumulation earnings were $54 million dollars for fourth quarter 2008 compared to $82 million in fourth quarter 2007, reflecting a 22% decline in daily average account values. Again, the risk of capital flight.

Principal funds earnings were $2 million for fourth quarter 2008 compared to $11 million for fourth quarter 2007, reflecting a 29% decline in average account values. For these two businesses, fee revenues dropped in line with the decline in account values, but the primary variable expense offset during the quarter was investment management fees. Which were obviously not deserved considering the abysmal performance. Your clients would have fared much better simply buying a subscription to the blog and preserving capital. It is the underserved compensation via management fee for the right to lose 22% of your money that will cause the more astute investors to flee from your asset management program. If you enforce lock ups or gates of any kind through your insurance products, the outward pressure will simply grow. After a while, people simply won't take the abuse anymore. Listen to how the statement reads, "Principal funds earnings were $2 million for fourth quarter 2008 compared to $11 million for fourth quarter 2007, reflecting a 29% decline in average account values. For these two businesses, fee revenues dropped in line with the decline in account values, but the primary variable expense offset during the quarter was investment management fees." We lost 22% of your money, but luckily we charged you for the favor in order to offset our losses!


Individual annuity earnings were also down, with a $100,000 loss in the fourth quarter 2008 compared to earnings of $15.1 million for the prior year quarter. Twenty percent earnings growth from the fixed annuity business was offset by the impact of unfavorable equity markets on the variable annuity business, which included a true up for deferred acquisition costs and an increase in the guaranteed minimum death benefit reserves.

These items reduced fourth quarter 2008 earnings by about $12 million and $4 million after tax, respectively. Before moving on, a couple comments on amortization of full service accumulation deferred acquisition costs or DAC, which at $9 million for fourth quarter 2008, was down from $32 million in the year ago quarter. We saw this coming as well. HIG has/will share similar problems.

Moving to international asset management and accumulation, fourth quarter earnings of $18 million compared to $25 million a year ago. The decline was primarily due to weakening of Latin American currencies relative to the U.S. dollar, which reduced fourth quarter 2008 earnings by nearly $7 million after tax, when compared to the same period in 2007. Both periods benefited by about $4 million after tax from higher yields on invested assets in Chile, due to unusually high inflation. Here's a freebie for the folk at PFG Asset Management - Close out those Chilean fixed income positions now or face me talking sh1t to you this time next quarter!. Don't say I didn't tell you so.

A couple of other comments, first on Principal International’s net cash flow: excluding about $1.2 billion of outflows during the year from corporate money market funds in India, net cash flows would be up modestly from 2007.

The global liquidity crisis has made the money market funds unprofitable and we reduced our exposure pending improvement in market conditions. Excluding India, net cash flows were 9% of beginning of year assets, with another outstanding year in Brazil, which generated net cash flows of $1.4 billion. Whaaattt!? You state this rather nonchalantly. I wish I could just brush off a $1.2 billion outflow, or is it if you say it calm and cool enough nobody will notice?

Let me now comment briefly on net realized capital losses. In fourth quarter 2008, we recognized capital losses of $189 million, bringing full year capital losses to $505 million – $297 million of the losses for the year are credit-related, including $110 million between Lehman Brothers and Washington Mutual. There is going to be a lot more where they came from. Be prepared. If you subscribed to the blog, you would have been net positive, not net negative here. I warned months in advance on both of those companies:Lehman on 2.21.08 Is Lehman really a lemming in disguise? and WaMu on 9/8/07 Yeah, Countrywide is pretty bad, but it ain’t the only one at the subprime party… Comparing Countrywide to its peers.

Although higher than normal during this period of financial crisis, adherence to our internal credit exposure guidelines and the resulting diversification has helped limit our losses. I’d also point out approximately $110 million of the net realized losses in 2008 were on securities that were marked-to-market through the income statement, but we believe should recover when more normal investment conditions return. You know, that's exactly what the management of (click each link for my reports on these other insurers)  MBIA,  Ambac, and Assured Guaranty said as well. We ARE returning to more normal investment conditions, which is why you are taking losses. You invested during one of the biggest bubbles in our history while levered up. That bubble popped and we are now returning to normal. Are you telling your investors that you are going to wait until the next bubble to inflate the prices of your investments and boost your income statement and balance sheet? Let's look at the chart of the aforementioned insurers as they wait for more "abnormal" market conditions to undo their investment and underwriting errors...


In effect, these losses for accounting purposes will not necessarily equate to a true loss of capital over the long-term. We recognize there is concern with gross unrealized losses, which increased $3.8 billion from September 30. Let me offer a few thoughts. Yep, heard that one before too. From the monolines as well. It ain't gonna happen like that fella. Not only are you starting to sound like them, but your chart is starting to resemble their's as well...



First, as Larry mentioned, given the longer term nature of our liabilities and our disciplined asset liability management, we have the ability and intent to hold assets until maturity. Similar to last quarter, widening credit spreads, driven more by forced selling into a thinly traded bond market than credit fundamentals, was the primary driver behind the increasing gross unrealized losses.

We continue to believe the fundamentals of our fixed maturity portfolio remain sound. Rightttt! Like those fixed income investments in WaMu and Lehman Brothers? Let me guess, you probably have some regional banks (see the Doo Doo 32, Doo-Doo Bank 32 drill down: Part 2 - Popular, Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank, and The Anatomy of a Sick Bank!), a little JP Morgan (Re: JP Morgan, when I say insolvent, I really mean insolvent, Is JP Morgan Taking Realistic Marks on its WaMu Portfolio Purchase? Doubtful!), maybe a little foreign banking exposure (Banco Bilbao Vizcaya Argentaria SA (BBVA) Addendum - Pro Banco Bilbao Vizcaya Argentaria SA (BBVA) Addendum - Pro 2009-01-28 17:48:27 569.55 Kb) and some Wells Fargo as well ( Wells Fargo Forensic Analysis, About this Bank Plan - It Won't Save the Truly Insolvent Banks!). It is counterparties such as PFG that powerd my high triple digit results from last year. Guaging the way management is talking, it appears as if they are willing to donate to the Reggie Middleton cause again this year as well. Our assets continue to contractually perform and we expect them to mature at par. As an estimate of the significant illiquidity premium being reflected in the cash market prices, if you use the more actively traded credit default swap market as observable data, the increase in gross unrealized losses on our corporate bond portfolio would have been approximately $3.4 billion lower in the fourth quarter. I know you have CMBS. I am bearish on the CRE market for two years now, and have been right on the money thus far (Macerich Forensic Valuation - Professional Macerich Forensic Valuation - Professional 2008-11-28 14:47:43 344.92 Kb and GGP and the type of investigative analysis you will not get from your brokerage house). If you have any RMBS exposure (I'm sure you do, either directly or through your financial holdings) it doesn't look favorable either (see  About this Bank Plan - It Won't Save the Truly Insolvent Banks).

There is much more, but I'm tired and wish to go to bed. I still didn't recall anyone (whether management or analyst) commenting on the writing of the naked CDS. I think this is a big deal. You're gambling with insured's monies. Oh well, at least BoomBustBog subscribers see the light. Good night!