Using Veritas to Construct the "Per…

29-04-2017 Hits:87101 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:81043 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:80879 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:85352 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:81859 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:84042 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:55091 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:83288 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:83035 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:82931 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:89169 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:86905 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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 Okay, this is going to be a quick and dirty review of Goldman's derivative real estate and off balance sheet real estate exposure as is probably reflected through their credit exposure as well.  

OTC Derivative Credit Exposure ($ mn)

 

 

 

 

Feb-09

% of total

Nov-09

% of total

Credit Quality Deterioration?

 Comments

AAA/Aaa

$15,387

15.6%

$14,596

20.7%

(5.10%)

<--Very significant decrease in AAA exposure

AA/Aa2

$33,820

34.2%

$24,419

34.7%

(0.50%)

<-- Decrease in AA exposure

A/A2

$25,291

25.6%

$16,189

23.0%

2.6%

<-- Significant increase in A exposure

BBB/Baa2

$9,724

9.8%

$6,558

9.3%

0.5%

<-- Increase in BBB exposure

BB/Ba2 or lower

$13,354

13.5%

$7,478

10.6%

2.9%

<-- Very significant increase in non-investment grade (junk) exposure

Unrated

$1,236

1.3%

$1,169

1.7%

(0.40%)

<-- Marginal decrease in small unrated exposure

Total

$98,812

100.0%

$70,409

100.0%

 

 

  Now, why would Goldman's OTC Credit Exposure be increasing and deteriorating even as it has taken expensive emergency money from Warren Buffet and strings attached TARP funds it is trying to pass on like a itchy veneral disease? You would think they would be trying to get rid of this stuff versus stuffing the balance sheet with it.

 

Exposure by asset category  ($ bn) (a) (a) %  of Equity Incl in L3 (b) ($ bn) (b) % of (a) (b) % of Equity
Prime $12 29% $1.7 14% 3.9%
 Alt-A $5 12% $2.0 41% 4.7%
Subprime $2 4% $0.9 49% 2.1%
Total $19.1 45% $4.6 24% 10.8%

Hmmm! 16% of Goldman's equity is in Alt-A and subprime assets. Alt-a doesn't look to good. Read this article thoroughly (The banking backdrop for 2009 ), then let's move on - or we can just glance at this chart.

Click image to enlarge

recast.jpg

 

The problem ahead: According to Fitch, of the nearly $200 bn of option ARMs outstanding, roughly $29 bn of loans are expected to recast by 2009. Of this $6.6 bn constitute 2004 vintage (that would be recast as a result of completion of the end of five-year term in 2009) and $23 bn constitute 2005 and 2006 vintage loans that would recast early due to the 110% balance cap limit.

Further an additional $67 bn is expected to recast in 2010 of which $37 bn belong to 2005 vintage (that would be recast as a result of completion of the end of five-year term in 2010) and the balance $30 bn consist of 2006 and 2007 vintage loans that would be recast early due to the 110% balance limit cap.

The potential average payment increase on the loans recast is 63%, representing an additional $1,053 due each month on top of the current average payment of $1,672. These large payment increases could cause delinquencies to increase, and increase dramatically, after the recast. The fact that only 65% of borrowers have elected (or are able) to make only minimum payments underscores the magnitude of the potential problem. The potential payment shock combined with the continuous deteriorating outlook for home prices and lack of refinancing opportunities could be a negative cause of concern for investors in Option ARM securities. Even more ominous, is pall cast upon the banks that hold these assets and are additionally exposed to other forms of consumer credit, ie. HELOCs, credit card debt and other unsecured loans (remember the links from the Asset Securitization Crisis above).

 

Well, let's take a look at the composition of their other exposures...

This is the "other exposure" not included in VaR table. Notice which category has the largest change...

$ mn

10% Sensitivity

 

May-08

May-07

% Change

Trading Risk

 

 

 

Equity

1,102

709

55%

Debt

1,147

1,045

10%

 

 

 

 

Non-trading Risk

 

 

 

SMFG

0

130

-100%

ICBC

262

205

28%

Other Equity

1,224

591

107%

Debt

637

277

130%

Real Estate

1,369

497

175%

 Surprise, Surprise!!!

 

 

 

Other market risk

5,741

3,454

66%

not included in VaR

 

 

 

Hmmmm! Their biggest non-VaR risk is real estate, primarily commercial real estate, but they have plenty of other juicy stuff as well. Let's bring back those two graphs from the previous article:

 

gscre.png

 Reference the CMBS exposure that Goldman has above (at no less than 14x leverage), then reference this chart directly below.  

image004.png

  Damn, that really looks like its going to hurt! Now, let's move on to the Off Balance Sheet Assets for the last quarter of 2008. 

  Q4-08

Unconsolidated VIE's  ($ mn)

VIE assets

Maximum loss exposure

Maximum loss as % of assets

 

Mortgage CDOs

13,061

5,858

45%


 Real estate derivative sec

Corporate CDOs and CLOs

8,584

1,079

13%

 

Real estate, credit-related and other investing

26,898

3,366

13%

 Raw real estate & credit sec.

Municipal bond securitizations

111

111

100%

 

Other mortgage-backed

0

0

0%

 

Other asset-backed

4,355

1,084

25%

 

Power-related

844

250

30%

 

Principal-protected notes

4,516

4,353

96%

 

Total

58,369

16,101

27.6%

 

Hmmmm! $40 billion dollars in real estate related assets and nearly $9 billion in loss exposure, and that's JUST THE OFF BALANCE SHEET EDITION!This begs the question. If they have this much exposure off balance sheet, how much do they have on balance sheet? Well, let's take a look-see...

Balance as at November 30, 2008

         

In US$ mn

Level 1

Level 2

Level 3

Netting and Collateral

Total

 

 

 

 

 

Commercial paper, certificates of deposit, time deposits and otr money market instruments

5,205

3,457

0

0

              8,662

U.S. govt, federal agency and sovereign obligations

35,069

34,584

0

0

            69,653

Mortgage and other asset-backed loans and securities

0

6,886

15,507

0

            22,393

Bank loans

0

9,882

11,957

0

            21,839

Corporate debt securities and other debt obligations

14

20,269

7,596

0

            27,879

Equities and convertible debentures

25,068

15,975

16,006

0

            57,049

Physical commodities

0

513

0

0

                 513

Derivative contracts

24

256,412

15,124

(141,223)

          130,337

Total

65,380

347,978

66,190

(141,223)

          338,325

 Now, if any of you are paying attention, you should be agasp in your chair. Why in the hell does Goldman carry more real estate assets exposure off balance sheet than on. Well, just take a look at those pretty graphs above. The answer is self-evident! Then there is also the spate of current events that are bound to make those commercial real estate credits worth a mint... Such as the nation's second largest Commercial property owner filing bankruptcy last week (as I made clear that they would fold in some form or fashion in 2007 -  GGP and the type of investigative analysis you will not get from your brokerage house).

Long story short, if you are bullish on commercial real estate and CLOs, then you may want to be bullish on Goldman. However, if you foresee any real estate problems, then this heavily laden, heavily valued, publicly traded fixed income and real estate hedge fund may not be seeing the best of days in the near to medium term!

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