Using Veritas to Construct the "Per…

29-04-2017 Hits:85370 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:79680 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:79544 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:84023 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:80570 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:82845 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:53839 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:81959 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:81836 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:81680 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:87654 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:85569 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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I am still in the process of preparing the Goldman Sachs stress tests for publication, but came across this headline in Bloomberg: General Growth Files for Protection in Biggest U.S. Real Estate Bankruptcy.

This prompted me to excerpt a portion of the Pro level Stress Test Analysis to publish on the public blog. Remember that Goldman has some of the highest VaR numbers of the bulge bracket save the collapsed Lehman Brothers, who collapsed in large part due to their commercial real estate exposure (as well as Bear Stearns). I also want to point out the investment horizon that I use when implementing my research. With the recent bear market rally forcing shorts into drawdown, keep in mind that my research looks 3 months to 1 year out. I personally bought puts on GGP at $60 and suffered through many a drawdown before the position reached fruition. That means that if I say XYZ company has poor prospects and that company doubles in price within 3 months, it really has no bearing on whether said analysis was right or wrong. I have absolutely no control or special insights into the markets. I can tell you if a company is in trouble though. The issue is, this trouble takes time to manifest, and this time period is often more than just a few months. Be prepared to hold on to your positions for a year or more. Trust me, it is worth it and I am right more often than not. Shorting a company from $60 to $1 yields a very strong IRR of return on an annual basis. Patience is both justified and highly rewarded. A lack of patience and weak hands easily turns a big profit into a big loss.

Goldman Sach's CMBS Pressure Points and Other Risk Factors Not Reflect in VaR

I have been banging the table about the unappreciated risk the commercial real estate market poses since September of 2007 - way before the crowd of investors, pundits, analysts and media. See:

Well, the nations second largest property owner and REIT has just filed chapter 11, after I warned readers over a year and a half ago of this very distinct possibility. See General Growth Files for Protection in Biggest U.S. Real Estate Bankruptcy then go on to read the 80 or so pages of research that I have generated to support riding the share price down from $60 to near zero: GGP and the type of investigative analysis you will not get from your brokerage house.

This underappreciated risk will reverberate through investment banks, insurers, money center and regional banks alike for these are the sourced of the large nonrecourse loans and CMBS that funded these vehicles. In addition, the retail mall REITs will see significant hits to asset prices and consequently rents (more so than they have already seen, which has been significant already) which will put additional stress on debt service. Keep in mind that the GGP issue is not confined to GGP. Debt that had financed assets during a property bubble cannot be rolled over due to a dearth in financing - causing bankruptcy. Chances are that this will be seen several more times in the next 8 quarters or so. Long story short - expect valuations, rents, credit quality and cashflows to drop as vacancies and delinquencies rise.

gscre.png

Break up of mortgage backed securities

 

 

 

 

 Q4 07

 Q1 08

 Q2 08

Total mortgage backed securities

54073

51852

37523

Commercial real estate

19,020

19440

16572

Residential

22837

19070

15238

Prime

14,370

12290

8597

Alt-A

6,358

4940

4704

Sub prime

2,109

1840

1937

Loan portfolio

12216

13342

5713

As the CRE market starts to deteriorate and the CMBS  market collapses, the entities that are holding these  securities through high leverage (Goldman currently has a roughly 22x leverage ratio) will be very sensitive to any changes in valuation. Goldman holds nearly $17 billion in CMBS, an at 22x leverage will be hurt if the GGPs of the world force realistic marks to be made through real world transaction, ex. Bankruptcy.  

 

 As a percentage of total mortgage backed securities

 

 

 

 

 Q4 07

 Q1 08

 Q2 08

Commercial real estate

35.17%

37.49%

44.16%

Residential

42.23%

36.78%

40.61%

Prime

26.58%

23.70%

22.91%

Alt-A

11.76%

9.53%

12.54%

Sub prime

3.90%

3.55%

5.16%

Loan portfolio

22.59%

25.73%

15.23%

 

The commercial real estate risk that Goldman Sachs is woefully underappreciated by the market and apparently unknown to the sell side analytical community. Take it from the guy that clearly anticipated the fall of Bear Stearns (Is this the Breaking of the Bear? [Sunday, 27 January 2008]) and (with the help of his readers) pointed out the Lehman Brothers CRE implosion connection (Is Lehman really a lemming in disguise? [Thursday, 21 February 2008]), as well as the GGP debacle in full detail (GGP and the type of investigative analysis you will not get from your brokerage house). Goldman has risk here, among other places that aren't even visible in its rapidly increasing VaR numbers....

gs_non_var_risk.png

 

Other risk exposure not included in VaR

 

 

 

 

 

 

 

 Q1 07

 Q2 07

 Q3 07

 Q4 07

 Q1 08

 Q2 08

Trading Risk

         

 

Equity

512

709

1,183

1,325

1,094

1,102

Debt

782

1,045

934

1,020

1,112

1,147

Non-trading Risk

         

 

SMFG

133

130

99

41

0

0

ICBC

217

205

231

250

239

262

Other Equity

462

591

1,059

1,054

1,083

1,224

Debt

222

277

403

500

550

637

Real Estate

455

497

708

1108

1241

1369

Total

2,783

3454

4617

5,298

5,319

5,741

See also: The Official Reggie Middleton Bank Stress Tests