Using Veritas to Construct the "Per…

29-04-2017 Hits:88591 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:82274 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:82168 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:86661 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:83094 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:85214 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:56318 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:84550 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:84250 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:84113 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:90608 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:88179 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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This is an email exchange between a long time friend who is now a big willy in the derivatives field (I hope that puts a smile on your face, Mr.Willy) and me, discussing the monolines. We haven't agreed on a topic in over 20 years :-) I thought I would post it to illuminate the issue of asset recovery with structured products, or put in English - the monolines have issues...

Big time practitioner:
Yeah...... they were rescued by Warburg Pincus.
Reggie Middleton wrote:
I wouldn't go so far as to say rescued... But I know what you mean. In your opinion, can the insurer recover the ABS assets held by the CDO in the case of default, or have those assets already been pledged to the cdo itself and the insurer has only insured the tranche and not the cdo, hence have no underlying collateral to revcover?
Big time practitioner:
The insurer will not recover any ABS assets. The insurer makes its money on the spreads they recieve for insuring the senior CDO tranches. In the case of default, each CDO has a waterfall structure for payments. Certain levels get paid first. There may be administrative or other costs which the insurer recovers early in the waterfall ...... but after that, the insurer is likely to get whatever cash is left over after 'everyone else" in the waterfall is paid, which is probably nothing. But the lower the tranch rating, the less likely those holders are to get paid. No collateral to recover though.


And I do mean "rescue". There is no other word. Capital infusions are necessary for ALL primary monoline insurers. Otherwise they risk downgrade and so do the senior CDO tranches ..... which tricles down to the lower-rated tranches spelling additional disaster.
Reggie:
I have had my analysts spend about a month and a half on the portfolio analysis and pricing. For one, the pincus investment was underpriced and dilutive, from a practical perspective. Number two, they had no business insuring the products with no real loss history and models that assumed hpa (housing price appreciation) would perpetually increase, which as we can see is far from the truth. Three, they are woefully undercapitalized and used over 100 to 1 leverage. They own 17 percent of their reinsurer (redundant risk not truly transferred)... I can go on for a while. There is a lot of stuff on my site since I have been short these guys for a while and publish my research for free. It will be linked to some major financial magazines next month. Why don't you guest blog on the site? It can be anonymous if you wish. Great way to get your name out though. PWC, Aon, Bear Stearns (despite the fact that I bash then), etc. Subscribe to the blog.

I'm preparing a piece now that readdresses over optimistic recovery rates on both abs and cdos. That's why I asked.
Big time practitioner:
hmmm. Some of which I agree, some of the analysis i dont think is deep enough. for instance risk factors affecting defaults for senior and super-senior tranches do not fully support your undercapitalization statement, although I agree they were probably a bit optimistic at first... Whether or not the capital funding was dilutive is not as relevant and a red herring.
Remember, the monolines only shore up senior, higly rated debt. This capital infusion was necessary and another corrective infusion will probably be necessary in the 2nd quarter of 08. However, the top monolines will get what they need from large cap hedge funds. I don't know how much I would "short" them. Amback is a different story though. look at the rating agency views.... its ALL depends on their view since they rate the CDO tranches AND the monolines.
I dont think there is "over" optimism about CDOs and structured finance recovery (not called ABS). Everyone is simply trying to ride it out and waiting in the equity market, municipal bonds, government securities and other safer areas (ie, commodities). No-one is touching the credit markets. Look at what JPMorgan Chase is doing for indicative analysis. They're the huge player in the credit markets.
Reggie:
I was confident in my position until you said you agree with me. Now I am concerned. :-) Dilutive effects mean the world when you are an equity investor - long or short. Would you rather share $1000 with 2 people or 4? In addition, if you apply an option pricing model to the warrants pincus purchased, they paid about $18 to $24 per share while the market price was about $10 more than that and the economically "unadjusted" book value was even more. MBIA short changed their current investors out of desperation, which aided the shorts. We all know that stated book value is nonsense since much of the structured product insurance should technically be booked at a loss at inception of the contract, but is not due to accounting ambiguities. As for shorting - MBIA fell from $66 to about $22 in two months. That is a phenomenal return on the short side - way over 100%.
MBIA is woefully undercaptialized, simply run the numbers under realistic default scenarios and you will see where they will burn through their current equity capital quite quickly, 104 basis point move in the total portfolio value will devastate corporate equity - the destructive power of excessive leverage. They have less then $7 billion in Stat capital. The $500 million they received form pincus, which was a ripoff to current shareholders, and the promise for an additional five, which is more of a ripoff, add up to $1billion, they have about $500 billion of exposure, with about $31 billion in speculative structured finance, and $8.1 billion in CDOs and CDO squared (guaranteed losses). That's why I queried the term "rescue". Pincus (unwisely, in my opinion) bought stock on the cheap at the cost of current shareholders. MBIA will not be able to get reinsurance at realistic terms for anything that they actually need reinsurance for, but their "good" risks, which will further dilute current shareholders. They are losing revenue, as now bond issuers realize that their insurance is really a scam and doesn't truly add value, and so they can't even earn their way out of this. NY, Chicago, and CA have all decided to go without insurance this past month for issuing muni debt. MBIA's chairman, director of risk management, president, and COO have all left the company in the last year and a half. What did all of these guys know??? Probably what is written in this email.
Ambac I am even more bearish on. That is because they were foolish enough to temporarily publish their rather risky profile portfolio for a while (it is no longer up there in the detail that it was), and I had my guys go through almost all of it line by line. $8 billion dollars of expected losses on $2.6 billion of market cap and $1.65 of equity with about $5 billion of stat cap. The performance of their potfolio in terms of losses is abysmal, and my guys have went through auto, consumer finance, structured finance and RMBS. They didn't go through the munis, which will take larger than normal losses since most muni govt. overextended their budgets during the RE boom, and now that there is a bust have significant capital shortfalls. I don't see a lot of large cap hedge funds trying to fund these types of losses. Most of the large funds have done awful this year except for the ones that did what I did, shorted the insurers, banks, and real estate cos. Now, there is a lot of contention on the viability of these companies. Some say buy, some say sell. You know where I stand on this. The business model of the monolines was bound to fail. They don't have the expertise, track record, or capitalization to underwrite the risk that they do. The CDO risks insurance was particularly foolhardy since no one knows what the loss tail really looks like because the stuff hasn't been around long enough.
The opinions of the rating agencies are meaningless at this point. Unless they are going to provide capital, AAA is pointless since the wiser insureds now see that the monolines can't truly back up the insurance that they are offering. You have even confirmed my point with that statement. Any company that needs a AAA rating to stay in business, by default, inherently does not deserve a AAA rating. The ratings agencies have been so wrong this time around that they have lost all credibility with any fairly astute investor. Tranches that thay have declared AAA have not only stopped paying nterest, they have lost more than 20% of the principal. AA down to mezzanine in some cases have been nearly wiped clean. They have admitted that they relied on perpetually increasing HPA. nothing goes up forever. The ponzi scheme has simply fallen apart.