Using Veritas to Construct the "Per…

29-04-2017 Hits:94745 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:85616 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:85986 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:90092 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:88520 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:88255 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:59398 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:87872 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:87407 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:87759 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:94177 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:91461 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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For those of you who don't follow me regularly, I find it a travesty that banks insured by taxpayer dollars (ultimately) are allowed to take the risks that they do to chase earnings, then get to keep the profits as we indemnify the losses. This blatant risk taking paid off for Goldman this quarter (well, sort of, unless you actually take the risk into consideration when tabulating profit - risk that was incompletely reported, see The Goldman conspiracy theory is now no longer a theory). It also appeared to pull JP Morgan's fat out of the fire as well. The caveat is that these companies have big, rapidly deteriorating credit issues on their balance sheets, and the investing public is being given a smoke and mirrors routine based on strong, but risky and hyper-volatile trading profits to distract them from what caused the greatest recession of all time (thus far, it may get worse) - and that is credit issues. Fat trading profits are transient, these banks balance sheet holes and credit issues aren't. It's just that simple. And what about the banks that don't have trading arms to hide their negative earnings under??? Now, on to the review of credit issues in the JPM conference call...   

Leveraged loans marked 42 cents on the dollar

"First on leverage lending if you recall we started with $43 billion on a pro forma basis with Bear Stearns back in September, 2007 and that's on a notional basis. Now we carry a remaining amount of market value of $3.3 billion and that's carried at roughly $0.42 on the dollar so those are marked down values for what remains."

Now I'm going to be very quick going through the next three slides so I'm just going to make some common points, so the first point is that obviously when you look at home equity prime and sub prime, you're going to see the charge-offs continue to trend higher versus prior periods and in a couple of cases prime and sub prime we up our future guidance but the second point is that across each of these portfolios, so I just want to say it once, they flow into the early delinquency buckets and the dollar value of loans that are sitting in the early delinquency buckets has started to stabilize [this part of the comment seems to be referring to a very short term observation from which they have drawn a positive conclusion that flies in the face of the longer term trend, marked in bold above] .

.... So on slide nine, I'll just quickly hit numbers here, so you see in the upper right, charge-offs of $1.265 billion in home equity in the quarter, up a bit from last quarter but the pace of growth slowing down a little bit and we continue to have our forward guidance of quarterly losses trending to, down at the bottom last bullet, trending to about $1.4 billion a quarter over the next several quarters.

Doing the same think on slide 10 for prime, upper right box, you see $481 million in net charge-offs, up more substantially from last quarter in percentage terms but similar dollar terms and quarterly losses upping the guidance here to something maybe $100 million higher to the range of $600 million or so over the next several quarters whereas last time it was $500 million.

And then finally on sub prime on slide 11, $410 million of losses in net charge-offs in the upper right in the quarter and quarterly guidance trending to about $500 million or so, that used to be $375 million to $475 million for people keeping track at home.

[What is very noteworthy here is that JP Morgan is now losing more money (a lot more money) on their prime loans than they are on their sub-prime loans. The reason why the subprime losses are so high is because of the amount of 100% losses that they are experiencing. See Re: JP Morgan, when I say insolvent, I really mean insolvent  and  Is JP Morgan Taking Realistic Marks on its WaMu Portfolio Purchase? Doubtful!  and A few grim thoughts for the New Year, as I reflect upon the past year for my earlier ruminations on this topic]

I brought this issue up last year..


Yeah, you think the subprime category is eating heavily into equity, wait until the Option ARMs start to recast...

Here's an excerpt:

Option ARMs to Reset Earlier than Expected

In 2009 and 2010, loans with 2004 and 2005 vintages would be recast. Besides these vintages, loans with negative amortization are expected to recast early. With more than 65% of borrowers electing to make Minimum Monthly Payment (reaching a staggering 85% for 2006 and 2007 vintages), loans which recast on account of negative amortization caps are expected to increase drastically.

Click image to enlarge



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). What bank has that"Other forms of consumer credit" exposure stated above? JP Morgan who doubled up on the exposure when it bought Washington Mutual, the Option ARM king.

I commented heavily on the WaMu impaired portfolio last year, but as you can see below, JPM management says the losses are under control and progressing as expected. The only issue is that they failed to tell us exactly what the losses and trend of losses were, so I guess we are just forced to take there word for it.

"And so one last point before I move off retail onto card, I just wanted to make a comment on the WaMu credit impaired portfolio that we acquired from WaMu, marked down at the time we did the deal in the fourth quarter, just make the point we have no slides in here and no news is good news on that front.

What we're experiencing is losses that are coming in consistent with our original assumptions so seeing nothing to suggest that we have any need for further impairments based on what we see right now. So I just wanted to make that point and obviously we'll bring that to your attention in the future if ever we do start to see trends that are worrisome."

Credit Card Losses are literally STAGGERING! They are more than twice the losses on all of the mortgage credits, COMBINED, and they are trending higher. The WaMu portfolio is a genital jerking 18% to 24% and is in runoff. Keep these losses in mind, for the banks that don't have the big brokerage and investment banking divisions to pull the fat out of the fire this quarter with highly risk and volatile trading profits (ala Goldman and the trading branches of JPM) will be forced to report this losses naked. For subscribers, I have provided forensic analysis on three banks (without significant trading arms), two of which made foolish acquisitions of very large credit card, subprime mortgage and option arm portfolios, and the third was caught by us in heavy accounting shenanigans to make last quarters numbers. I am curious to see what their quarters look like. Feel free to join me in the private discussion groups to chat about this. For non-subscribers, here is what I think about a bank that was given a lenient hand in the WSJ the other day: The difference between a professional investor and a professional reporter is...

 In card, let me just move now to slide 12, obviously a disappointing loss of $672 million in the quarter. Credit costs the big story, $4.6 billion of credit costs. Most of that is charge-offs, we did add $250 million to loan loss reserves there. Now for Chase, the Chase portfolio versus the run off sub prime WaMu portfolio, the Chase portfolio was a charge-off rate of 8.97%, up about 200 basis points as we said last earnings in this quarter versus the first quarter.

And obviously very high but coming in as expected and looking ahead to next quarter think of that number being in the 10% range and really beyond that its going to be a function of where the economy and unemployment goes. And the WaMu side behaving consistent with the trend forward that we'll talk about on the outlook slide of trending towards the 18% to 24% range of losses that we talked about for that run off portfolio.

Most of us are expecting unemployent of about 11% next year, up from 9.5% (as officially counted, but not realistic numbers) now. If this is the type of carnage reflected at 9.5%, imagine 11%+. In addition, wasn't 9.5% unemployment the worst case scenario for the SCAP stress tests? As a matter of fact, as I reminisce.... Below is the summary findings of the potential "WORST CASE" losses over the next two years for all 19 of the bank holding companies that were subject to the government's stress test (taken from page 7 of the official stress test results).


Now, this is supposed to be Armageddon numbers for up to two years into the future. They look down right rosy right now. Hey, didn't JP Morgan just pay back their TARP monies????


Credit card revenues are falling as people either come to their senses, or are too broke to get cards, hence there is less revenue to cushion against those massive losses. Those killer trading profits are really one time events (stretched over maybe 1 to 3 quarters) so that won't be their to save JPM (or Goldman) the next time around. 

"Next point on card is just charge volumes, so you see charge and sales volumes, sales being just the spend piece on cards declined 7% year over year, that number is starting to stabilize. We look at it weekly but 7% down year over year together with us being less active in promoting balance transfers equates to downturn pressure on our outstanding, so you see a $148 billion end of period outstanding on the Chase side versus $150 last quarter contributing to some revenue pressure in the business overall.

... I will just say here it relates to revenues but one comment to make that in the quarter we did on the card securitization side take actions to support the securitization trust that caused the regulatory assets, the risk weighted assets in those for cards to come on balance sheet for regulatory capital purposes. I'll show you more about that later when we do capital and that also negatively impact revenues a bit in the quarter and so revenues in card would otherwise have been essentially flat quarter over quarter."

... Retail, I just recapped what the loss projections that we talked about in each of the main portfolios. We do expect continued underlying growth there. On the card services side you see the 10% loss rate for next quarter that we plus or minus that I talked about for the Chase portfolio and 18% to 24% is where WaMu is going to go.

But we do expect continued pressure on revenues given lower consumer spend levels having an effect on outstanding.