Using Veritas to Construct the "Per…

29-04-2017 Hits:63618 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:63073 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:62238 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:65024 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:63493 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:66074 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:40355 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:64540 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:64374 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:64715 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:67645 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:66216 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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Banks are the epicenter of the economic crises that face the developed and emerging nations over the last few years. Many appear to have allowed the media to carry the conversation away from the banks and into sovereign debt issues, social unrest etc., but the main issue still resides in the banks. Why, you ask? Well, because every single major country conducts its finances through the banks and when those finances become stressed, the banks will be the first to show it and usually show it in an aggrieved manner since most banks are still highly leveraged.

The fact that governments worldwide have made the (generally unwise) attempt to bailout their big banks by transferring bad debts and liabilities from the private sector and bank investors to the public sector and taxpayers doesn't mean that the problem has been solved or even ameliorated. As a matter of fact, I believe the problem has now been amplified, for now we have effective increased the implicit leverage in the already excessively leveraged banking problems as well as removed the natural firewalls that may have been in place by having the problems in individual financial institution versus sitting on government balance sheets, able to affect all without the need of the "domino effect" that was feared from the Lehman collapse.

This leverage stems from the fact that most European sovereign nations are considerably "overbanked". The levered assets of the banks in many Euro-sovereign nations easily outstrip those nations' GDP's. So when the nations' banks get in trouble from bad banking practices (and a very large swath have), the nations themselves not only are helpless in attempting to truly save the banks (and instead only institute a bait and switch wherein private default risk/insolvency potential is swapped for public manifestations of the same), but are put at risk themselves for the bank is actually more of a sovereign entity than the sovereign is - at least from an economic footprint perspective. This is what happened in Iceland. If one were to take an empirical look at other nations in Europe, Iceland and Greece are merely the tip of the iceberg. I have warned about this over a year ago regarding Spain and the Spanish banks (see The Spanish Inquisition is About to Begin...), and now the chickens are coming home to roost.

As it stands now, we have the most developed nations suffering from indigestion after bailing out their oversized banking industry, with many of the allegedly balance sheet bailouts actually being illusory and liquidity-based in nature. The US is case in point here, since most banks still have untold hundreds of billions of dollars of losses still sitting on their balance sheets, and the US taxpayer is stuck with the equivalent of hundreds of billions of dollars in losses simultaneously. Accounting rules have been laxed to give the impression of record profits in lieu of what should be record losses.

We also have European countries such as the UK which has nationalized several of their largest banks, taking on significant losses on the taxpayer's balance sheet, but still facing the drag of a poorly performing banking system that is still too big for the economy as a whole. Just the non-performing assets of just the top banks in the UK amount to nearly 9% of their GDP! That is a very big chunk of dead money floating around in the system that literally invalidates X% of reported GDP. The UK also has nearly $200 billion of exposure to Ireland, whose bank's NPA's are roughly 6% of that naion's GDP, the second highest in all of Europe save the UK (who has the same problem)!

The smaller sovereign nations that failed to keep their hands on the fiscal and budget reigns during the global liquidity bubble are also facing issues. Greece is the current poster child for this scenario, having been downgraded by the ratings agencies, money and capital are fleeing from the country in a typical "run on the bank scenario", their debt being shunned by the markets with CDS exploding and the big market makers in their debt refusing accept their bonds as collateral. This is Lehman Brothers, part deux, which actually makes plenty of sense since the solution to the banks failing was the government taking the failing asset risk onto the balance sheets, hence now the governments are being seen as at risk of failing versus the backstopped private sector.

The larger sovereign nations are at risk of either having to bailout their less fortunate brethren or facing the fallout of having the repercussions of a domino effect reverberate across the EU and its major markets/counterparties. This goes deeper than some may suspect. For instance, the weakest sovereigns in the Euro area are still the central and eastern European nations, and the stronger sovereigns are heavily leveraged into these countries through their "overbanked" system. If (or when) these companies start to publicly exhibit cracks, quite possibly due to the domino effect of Portugal, Greece and Spain finally tipping, then you will find the Nordics showing stress through their banking system (the biggest CEE lenders) at a level that the countries may be hard pressed to backstop, for their banking systems are literally multiples of their GDPs.

I will attempt to illustrate the "Overbanked" argument and its ramifications for the mid-tier sovereign nations in detail below and over a series of additional posts.

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

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This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they're domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems.

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There is a Method to the Madness: On to my perspective of the individual sovereigns

We performed a pan-European scan to identify banks with rising loan losses from troubled exposure. We retrieved an initial list of 510 banks and applied a number of filters based on a) Banks' assets as % of GDP b) Texas ratio c) share price etc to arrive at 40 banks for deeper analysis.

The selected 40 banks were organized into different sets for analysis based on the country of domicile.

1)      Spain - Owing to serious issues surrounding Spanish banks, we analyzed the four Spanish banks separately. It is observed that Spanish banks are witnessing substantial increase in NPAs. Included in the list is BBVA which we have already covered (see The Spanish Inquisition is About to Begin..., which has turned out to be a most profitable trade).  Among the four analyzed banks, the weakest bank had the highest Texas ratio of  51.6% and rapidly growing NPAs (increasing 132.5% over the last one year). Banco Satander , Spain's largest (and arguably, strongest) bank, is also witnessing substantial increase in NPAs growing about 95% over the last one year. The Bank's Texas ratio stands at 37.5%, although low relative to other banks examined, is still rich and the rising provisions for loan losses are depressing Bank's profitability. The stock has risen 86% over the last one year and is currently trading at Price-to-tangible BV of 2.1x. Banco Satander has an ADR. Subscribers can download a tear sheet on all Spanish banks investigated here: Spanish Banking Macro Discussion Note Spanish Banking Macro Discussion Note 2010-02-09 02:48:06 519.40 Kb).


I will continue this post with banks and sovereign stress data for Austria, Belgium, Sweden, Denmark, UK, Greece and Italy as well as the countries in central and eastern Europe, Asia and other emerging markets over the next few days. In the meantime, let's compare Spain and Greece on an apples to apples basis...

spain_vs_greece.png

Subjective thoughts on the Spanish Situation: Embedded structural rigidities will prolong the downturn causing the oft sought after "V shaped recovery" to become an unlikely occurrence. The very high private sector debt levels most likely exacerbated the effects of global downturn. A round of consolidation and restructuring seems inevitable as both the NPAs in its banks are increasing on a fundamental basis and the banks are forced to come clean with the true losses on their commercial and residential real estate in the form of increasing NPAs (see The Spanish Inquisition is About to Begin...) as well as the share of NPLs which are also increasing. PWC expected the bad loans ratio to increase to 8% by the end of 2009. It is apparent that the sector will need refinancing. however, Spain's loan-to-deposit ratio of 130% is higher than the Eurozone average of 115%, which shows Spain's high reliance of wholesale funding and securitization channels, both of which have dried up. 

What is not publicly touted about Greece? Greek banks exposure to emerging Europe poses an additional downside risk to the economy (I will get into this in detail for subscribers later on this week). Public debt stood at 94% of the GDP with the current account deficit rising to 14% of the GDP in 2008 (deteriorating public fiances is another concern).