Reggie's Blog & Proprietary Research

Reggie's Blog & Proprietary Research (1277)


Recent Press Coverage and Media Appearances & Awards

Crain's New York

“His work is so detailed, so accurate, it's among the best in the world,” says Eric Sprott, CEO of Sprott Asset Management, a Toronto firm that manages about $5 billion and subscribes to Mr. Middleton's research.

Reggie in Forbes (Going short)

 

Middleton's site combines self-promotion with meticulous financial analysis that is often delivered with a whiff of bathroom humor

Reggie on the Young Turks, Spewing the Truth to All!

Nearly all of the big name banks are insolvent if risk were to be properly accounted for and assets were marked to market!

Reggie on CNN!

 

The bank stress tests were a sham! I know it, you know it! Everybody knew it but played along with the game anyway...

Reggie on the BBC, March 18th, 2010

"Regulatory Capture" is the term du jour!

Reggie on the Reggie on the BBC, April 22nd, 2010

Will Obama's plans for financial overhaul make a difference?


Older Press Coverage and Media Appearances (samples no longer available)

  • CNNfn
  • Fortune
  • PC Magazine
  • PC World
  • BET
  • Real Estate Finance Today
  • Interactive Week
  • eWeek
  • Computer Shopper

Awards

This is the registered user addendum to the post: Non-Financial Companies to Short in 2010.

Non-paying subscribers should strongly consider upgrading to access our Premium Content (much more dense and informative). The subscription addendum to this is the product of exhaustive research (about a 1 and 1/2 man/months) to whittle this list of over 1,400 companies down to 7 who will make the most profitable short candidates. The professional and institutional level subscriptions will include full forensic analysis of those companies as well as the results from our financial short list as well as an upgraded version of the shortlist that contains 33 companies and computed metrics for:

  • Valuation
  • Solvency
  • Growth
  • and other ratios.

Professional subscribers can access an expanded list of 33 companies here and institutional subscribers can access the expanded list here.

Last week I reposted "Deflation, Inflation or Stagflation - You Be the Judge!"on a couple of other blogs and it got the gold bugs acting awfully Daffy Duckish! First an excerpt from last year's post...

In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly  report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges. Click graphic below to enlarge.

inflation_correlation.png

For those "gold bugs" who have never ran the numbers, gold offers less inflation protection than your house does. The same goes for WTI crude and probably most other categories of oil.

Now an excpert of the Donald Duckish behavior. Notice the Regulator in the blue hat, the Gold bugs as Daffy Duck, and Reggie - represented by my man, Bugs!

http://www.youtube.com/v/XWHGCFeaohA&hl=en_US&fs=1&color1=0x234900&color2=0x4e9e00

 A few more facts to munch on:

image008.png

Click this one to enlarge in order to get a better view.

image001.png

A different perspective

image005.png

http://www.youtube.com/v/fu92wc7IQl0&hl=en_US&fs=1&

Greece has been in the news a lot over the last 24 hours. Let's recap:

 Bloomberg: Greece May Find Lukewarm U.S. Reception for Its Bonds

April 7 (Bloomberg) -- Greece may discover it’s no cheaper to sell bonds in the U.S. than in Europe as the government seeks to persuade investors it can plug the region’s biggest budget deficit.

Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar bonds, 410 basis points more than benchmark German bunds and 330 basis points more than Treasuries, according to Paris-based Axa Investment Managers, which oversees about $669 billion. TCW Group Inc., which manages $115 billion in assets from Los Angeles, says Greece may have to offer a premium of as much as 400 basis points over Treasuries.

Petros Christodoulou, director general of Greece’s Public Debt Management Agency, said March 31 the country planned a “roadshow” in the U.S. and maybe Asia to drum up investor demand for a sale of dollar-denominated bonds. The country may offer as much as $10 billion of the securities, the Wall Street Journal reported the same day. Greece is struggling to tackle a budget deficit that is equivalent to 12.7 percent of gross domestic product, more than four times the European Union’s 3 percent limit.

Anybody present at these road shows should print out a copy of the post Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! and"Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!. Be sure to have the salespersons answer the hard questions posed in those pieces. Subscribers can feel free to whip out the subscription material and ask for explanations and clarifications - File Icon Greece Public Finances Projections. I am anxious to hear what would be said in response. At this point, I see a Greek effective default as a foregone conclusion.

More on this topic: Euro, Greek Bonds Drop on Rescue Concern; Most U.S. Stocks Gain

From CNBC: Greek Banks Hit by Money Moved Offshore: Report

Greek banks are being hit by a wave of redemptions as rich citizens and companies look to move their money to big global banks or offshore as the country's debt crisis rages, the Telegraph newspaper reported on its website.

The report appeared to contradict recent data from the European Central Bank and comments to Reuters by analysts and Greek banking sources, who said there was no clear evidence of a major, extended deposit outflow from Greek banks.

The UK newspaper said late on Monday that big depositors have been clamoring to move their cash to international financial firms such as HSBC or France's Societe Generale, which operate large branches in the country.

They are among those to have received several billion euros of new money, it said without specifying sources.

... More than 3 billion euros ($4.05 billion) of deposits held by Greek households and companies left the country in February, while in January about 5 billion euros of deposits were moved out, the Telegraph quoted figures from Bank of Greece as showing.

Switzerland, the UK and Cyprus have been the largest recipients of the money, with the wealthiest Greeks looking to move their deposits to Swiss banks accounts to escape the more punitive tax measures many fear will be introduced in the wake of the country's economic crisis, the newspaper said.

Subscribers should reference:

From the Greek banking site, bankingnews.gr: [coarsely translated] Greek long bond investors - At 450 bps premium still will not lend to Greece - In 382 m.v.to spread  

 

The alarm sounding clearly leading market players and officials of foreign banks saying that realizations from real money accounts ie real long-term investors that occurred yesterday is a clear warning that unless a reduction in the spread immediately and climb to 450 bp everyone unload bonds and then completely lost control. 
Today logically must react and reduce the spread sparingly and if that does not happen then just completely lost control and even very briefly highlighted the www.bankingnews.gr the morning and indeed no reaction as the spread falls to 382 bps with selective purchases from JP Morgan.
According to sources confirmed when the spread was at 300 basis points and estimated that it will move to the 400 bp 2 weeks earlier, indicating that 
1) Apart from the special short yesterday sold many long-term investors. The short want to test whether an instrument of support from the EU and the IMF reach the boundaries of Greece, although they risk but the returns they achieve are less striking because of the huge amount of holding spreads. 
But at least inspire concern that sell and long-term investors. 
hit stop losses and mandatory sold their investment positions. 
The crucial point is the 450 basis points if the spread up to where it will just completely lost control at bends. 
The 450 bp activate all mechanisms for the realization of direct positions in Greek bonds. 
2) The 450 bp are but a milestone in the bond market as more than just levels the state will not be able to borrow. 
According to well informed sources have already reported cases of investors who have indicated that over 450 bp longer be interested in bonds bearing in mind that the 10-year yields for example have reached or will tend to reach 8%. 
3) Today also when the spread slipped to 405 basis points late was the statement of Finance Minister, Mr Papaconstantinou that Greece has not requested any change in support mechanism from the EU and the IMF . 
Some sources say that the statement was made at the last minute and while the market was closed to prevent far worse. 
Please note that the mix of change in terms of device support, new scenarios and bankruptcy sales were short and long resulted in the spread be found by 405 basis points is to rise 65 basis points is a historical record.
 Please remain cognizant of the fact that a 400 basis point spread over treasuries is dead center in junk bond territory, with the likes of QVC Network, and the ilk!
 
The insane asylum has issued a statement. G-Pap has seen that his country would be Friendo'ed if Greece does not agree to austerity (which was part of the original agreement but whatever) and so has issued the following statement: "Responding to questions by journalists regarding actions taken by Greece to change the recent EU summit aid mechanism, the Greek Finance Minister clarified that there has not been any action on behalf of our country to change the terms of the recent EU Summit agreement." In the meantime rich Greeks have likely moved pretty much all their domestic deposits to some other Goldman Sachs controlled provenance. 

The IMF has recently released a white paper labeled "Strategies for Fiscal Consolidation in the Post-Crisis World". Here's a synopsis:

Introduction:

  • The fiscal state of the developed world is facing the question of solvency for the first time since WWII, and this time demographic trends are incredibly unfavorable.  See  Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for explicit evidence.
  • Current fiscal models for the developed world see fiscal tightening starting in 2011 [in 8 months governments are going to start tightening liabilities? Possible, but I wouldn't hold my breath for this one]
  • The only G-7 economy with debt projected at <85% of GDP is Canada [True, but is that because it is temporally behind the curve? See Easter Weekend News Update:
    • Canadian Dollar Too Strong? Bloomberg.com:

    • Minority opposition in Canadian Parliament is growing over strengthening Loonie
    • Leaders fear fallout in exports from CAD nearly at parity with USD
    • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)
  • Debts in emerging markets are beginning to look safer as they pare down stimulus packages plus old debt.

Potential Exit Strategies:

  • Inflating (debasing) one's own currency to pay off debt is too dangerous on a social level to be seriously considered, especially for emerging markets
  • Over the past three decades, the most successful method of managing debt and securing social safety has been to expand the primary balance surplus
Reference What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

Click to enlarge... 

italy_-_ireland.png
  • Currently, the biggest step toward renewing primary surpluses in the developed world would be to phase out entitlement/pension funding or drastically modify payout schemes
 [But who really knows where all of the bodies are buried? Reference Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

The French 

In 1997, the French government received an upfront payment of £4.7 billion ($7.1 billion) for assuming the pension liabilities for France Telecom workers in return. This quick cash injection helped bring down France's deficit, helping the country to meet the pre-condition to join the Euro zone. You may reference the pdfLaurent_Paul_and Christophe_Schalck_study for a background on the deal. I don't necessarily concur with their conclusions, but it does provide some info  france_telecomm_transaction.png

For the record and according to the doc referenced above, according to the State balance sheet for 2006, total pension liabilities of civil servants have been estimated at 941 billion €, i.e. 53% of annual GDP in France.  An attempt to reform all special schemes in 1995 collapsed because of severe strikes on the railways. Sounds awfully Hellenic in nature, doesn't it??? I, for one, believe that Greece is getting a bad rap, and not becaue it is being falsely accused but because it is just a lot sloppier at covering up its shenanigans than its European neighbors.

Now, back to France. A transaction similar to the France Telecomm deal took place in 2006 with La Poste which still employs 200,000 civil servants, but is now facing the same evolution as France Telecom in 1997. But an important difference with France Telecom is the obvious insufficiency of the lump sum paid by the postal company (2 billion €) compared to the amount of pension liabilities transferred (70 billion € at the end of 2006).
  • Almost 1/5 of public spending stabilization could come without affecting public investment, and simply cutting wage and transfer payments
  • The IMF recommends setting up government institutions to enforce budget restrictions (the ridiculousness of one government entity stopping a handful of spendthrift entities is mind boggling)

Global Adjustments:

  • Emerging markets that have opted to inflate away debt have seen interest rates skyrocket for years, while other who opted to adjust the primary balance deficit have seen interest rates fall
  • The average G-20 nation will need to adjust its balance sheet 8.8% by the end of the decade to reach public debt targets [RIIIGHT!!!! Like the Maastricht Treaty which, after 18 years has been respected by exactly 0.000000% of its members, all of whom are well below the 3% debt to GDP threshold by about an average of negative 300%!!!!]
  • Over the past 30 years, Greece has made a "large fiscal adjustment" once (1995), where they had more success generating new revenue, andbarely managed to cut expenditures. Greece's inability to make any sort of cuts to preserve fiscal responsibility is going to embarrass the cheerleaders looking to save Europe without lifting a finger. Spanish and Italian efforts have yielded similar results

Long Term Growth:

  • Over the previous 15 years, a clear inverse relationship has developed between debt ratios and real GDP growth
  • Evidence on whether adjustments should be upfront (shock therapy 1990's) or gradual is inconclusive according to IMF staff
  • One of the easier methods of reducing public expenditures is to tighten and reform pension policy (the days of mandatory retirements, backloaded payouts based on final five years average salary, etc, are numbered)
  • Countries with higher domestic debt ownership are more likely to honor debt and have higher debt tolerances among citizenry (i.e. Japanese JGB hoarding vs. USA tea parties)

Conclusion:

            The IMF has an incredible data set to work with yet somehow continues to see a picture far rosier than what meets the eye.  The impacts of measures to manage sovereign debt loads seemed to be futile in the medium-long term.  The situation we currently see is similar to the 1950's in data only.  The demographic makeup of the world today (particularly in Europe) is one that is aging, dependent on entitlement programs, and underfunded pensions that are seeing falling/no incoming revenue.  This is a clear contradiction to the call for managing or reducing entitlement and wage expenditures at the government level (globally), and is a sign that fears over a global sovereign default among advanced economies is a legitimate threat over the next decade.

Related Subscriber Content:

  1. Spain public finances projections_033010 (Global Macro, Trades & Strategy)
  2. UK Public Finances March 2010 (Global Macro, Trades & Strategy)
  3. Italy public finances projection (Global Macro, Trades & Strategy)
  4. Greece Public Finances Projections (Global Macro, Trades & Strategy)
  5. Banks exposed to Central and Eastern Europe (Commercial & Investment Banks)
  6. Greek Banking Fundamental Tear Sheet (Commercial & Investment Banks)
  7. Italian Banking Macro-Fundamental Discussion Note (Commercial & Investment Banks)
  8. Spanish Banking Macro Discussion Note (Commercial & Investment Banks)
  9. China Macro Discussion 2-4-10 (Global Macro, Trades & Strategy)

 The Pan-European Sovereign Debt Crisis, to date (free to all)

1.     The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.

2.     What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

3.     The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.

4.     The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

5.     The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

6.     The Beginning of the Endgame is Coming???

7.     I Think It's Confirmed, Greece Will Be the First Domino to Fall 

8.     Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

9.     Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

10.   "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! 

11.   Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...

12.   The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino

13.   As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

14.   Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

15.   Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

16.   Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

17.   Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

 

 

The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight

Grecian News and its Relevance to My Analysis

 Italy on the right track, IMF says: Wall Street Journal

  • Italy's economy continues to be based off of external demand, and that is important to maintain fiscal discipline (We may never hear Italy and fiscal discipline in the same sentence again)
  • IMF predicts that Italian unemployment rates will continue to rise, and that native banks will continue to see credit risk rise as loans are appearing to be less profitable.
italian_real_gdp.png
optmisitic_italy.jpg
As for listening to theIMF in regards to Italy's prospects throught this crisis, let's look at how accurate they have been since the crisis began, courtesy of "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!": For paid viewers and subscribers, reference our Italian Macro and Public Finance Research, which throws a much more realistic and unbiased light on things. 

Subscribers should also review as the truth about Greece rolls through the banking system: File Icon Italian Banking Macro-Fundamental Discussion Note

The Pan-European Sovereign Debt Crisis, to date (free to all)

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!
  6. The Beginning of the Endgame is Coming???
  7. I Think It's Confirmed, Greece Will Be the First Domino to Fall 
  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
  10. "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! 
  11. Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...
  12. The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino
  13. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis
  14. Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?
  15. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
  16. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
  17. Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks
  18. The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!
  19. How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight
  20. Grecian News and its Relevance to My Analysis
  21. A Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation in the Post-Crisis
  22. Greek Soap Opera Update: Back to the Bailout That Was Never Needed?

Commercial Delinquencies Rise Again, Data Goes Ignored: Mortgage Bankers Association

  • Commercial Real Estate delinquency rates for loans held >30 days rose to 5.69% (as REITs continue to hit record highs)
  • CMBS debt has continued to have the highest delinquency rate of all debt by sector
  • For a reminder of the early warnings on regional bank exposure, see the Doo Doo 32
  • For my 2010 commercial real estate outlook (which thus far has been right on the money) see CRE 2010 Overview CRE 2010 Overview 2009-12-16 07:52:362.85 Mb

retail_cre_vs_cap_rate.png

After having just stating in an interview earlier this week that although many banks are probably guilty of what Lehman was caught doing with Repo 105's pursuing those actions based upon semantics may be fruitless (it may be called depo 106?), Reuters comes out with this interesting story: Major US banks masked risk levels: report

(Reuters) - Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York.

The paper said on Friday 18 banks, including Goldman Sachs Group , Morgan Stanley , J.P. Morgan Chase Bank of America and Citigroup , understated the debt levels used to fund securities trades by lowering them an average of 42 percent at the end of each period.

The banks had increased their debt in the middle of successive quarters, it said.

Citi, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley were not immediately available for comment when contacted by Reuters outside regular U.S. business hours.

Excessive leverage by the banks was one of the causes that led to the global financial crisis in 2008.

Due to the credit crisis, banks have become more sensitive about showing high levels of debt and risk, worried their stocks and credit ratings could be punished, the Journal said.

Federal Reserve Bank of New York could not be immediately reached for comment by Reuters.

 

The Wall Street Journal (see their interactive model) and ZeroHedge broke a similar storty with some meat behind it to justify the allegations. Ahhh!!! The return of real reporting, and not just from blogs!

Sunday, 04 April 2010 19:00

Easter Weekend News Update

Written by

Canadian Dollar Too Strong? Bloomberg.com:

  • Minority opposition in Canadian Parliament is growing over strengthening Loonie
  • Leaders fear fallout in exports from CAD nearly at parity with USD
  • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)

Relevant BoomBustBlog content (we gave you an explicit warning of this in early January): China's Most Expensive Export: Price Inflation

Ukraine is dangerously close to the brink http://www.bloomberg.com/apps/news?pid=20601095&sid=aNw4Q7ntlMqc

  • Ukraine is about to use up the remainder of a $16.4 billion IMF loan
  • Premier Mykola Arazov has applied for another loan to "reform the economy" (what the hell did they do with the first $16.4 billion?)
  • Ukraine has needed assistance to make good with about 20 lenders

We have went through this in exquisite detail, both in the public sections of the blog and particularly in the subscriber-only content. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! Professional and institutional subscribers should carefully reference "Banks Exposed to CEE & SEE" while all paying subscribers should review the "Greek Banking Industry Tear Sheet".

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