CNBC reports: Conflict at Europe Central Bank Over Stimulus Rattles Markets

eu_europe_logoECB Executive Board Member Juergen Stark resigned on Friday, apparently because of opposition over the central bank's bond-buying program. "That makes ECB policymaking more difficult," said one analyst.

The euro extended losses against the dollar [EUR=X  1.3732    -0.0149  (-1.07%)] following the news.

"It's a sign that ECB policymaking is controversial even within the board. Clearly the German representatives have a position that differs from other central bankers. That makes ECB policymaking more difficult," Lothar Hessler, analyst at HSBC Trinkaus told Reuters.

A former finance ministry official and Bundesbank vice-president, Stark, known for his tough, no-frills style, has been a member of the ECB executive board since June 2006. His eight year term was due to run until May 31, 2014.

Manfred Neumann, economics professor at the Bonn University said: "This is remarkable. Stark held the same view of the bond-buying as Axel Weber and the current Bundesbank president. It is a position that all the Germans have. This is a sign of huge problems within the central bank. The Germans clearly have a problem with the direction of the ECB."

From Eurocalypse, one of the resident BoomBustBlog traders:

In the trading tips on the 6th [ Eurocalypse Trading Update 9-6-2011 (Global Macro, Trades & Strategy)], I wrote this may be the long awaited drop in EUR following the weekly reversal and worsening technicals.

The ECB is expected to make a UTURN and cut rates, that will add fuel to the fire. At the time of writing EURUSD was 1.41 and oversold, we sold even more to 1.40 then sawbriefly 1.42 on the EURCHF unwinding. That bounce proved the opportunity to sell as the oversold condition was removed... and now were down to 1.38. This move can go much further, EURUSD is headed for 1.20 rather quickly I think.

Only the technicals (which one should always respect) kept it bid, the fundamental story is horrible.

It's a total mess in Europe...beware though of massive govt intervention at some stage which could/will squeeze this markets fiercely...even if in the long (or not so long) run Euro is doomed.

For those of you who have not had the opportunity, register for and download the BoomBustBlog Currency Trend Model, along with the accompanying instructional video.

I have made an FX trend model available for all to download. Its 10 mb, containing a lot of data, but you'll definitely get your money's worth. The model is available here: BoomBustBlog Complimentary FX Index model

And on that note, the French banks who're so at risk due to Italian contagion are dropping like flies - 4% to 7% in a matter of minutes after NY opening. The US banks on the hook for all of that French exposure look set to follow suit as well, with puts starting to fatten on higher IV. For those who just don't know...

• The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
• What Happens When That Juggler Gets Clumsy?
• Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
• The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
• The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
• Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run 
• France, As Most Susceptble To Contagion, Will See Its Banks Suffer
• Observations Of French Markets From A Trader's Perspective
• On Your Mark, Get Set, (Bank) Run! The D…
• ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme

Trading commentary from BoomBustBlogger resident trader, Eurocalypse...

It's Labor Day in the US, but mkts are already in the move in Asia and Europe. The previous week ended on a quite bearish note, with red ink in all stock markets, especially financials, and moves that exceeded the implied volatilities/breakeven moves, after a period of relatively calm. This is hardly a surprise to us. Really! Any BoomBustBlogger who has put on any of the bearish positions recommended in the subscription material is due to be very, very richly rewarded in the next day or two. I can’t recall any good economic data last week, and one should be foolish to expect anything good anytime soon when all stimulus has been withdrawn, and austerity mode is full ON.

Still I believe the most significant development in the last days is not in the stock market but in the PIIGS crisis again, and on that note my full trading opinion can be downloaded by all subscribers here Eurocalypse Trading Update 9-6-2011.

 italy_10yr

10Y Italian yields have resumed their uptrend, with supply hitting the market through a very poorly received auction last week. As I have said before, no money manager can buy this Italian debt. This statement must be emboldend, for on Tuesday, 19 July 2011 I wrote "Didn't Anyone Notice The Seemingly Irreparable Damage To The Eurozone Last Week? Global Short Ban, Here We Come!":

When last week's Italian 10Y surged from 5% to 6%, it marked something irreparable, which was not indicated in the extent of the move, but its violence.
Six percent, as we know, is unsustainable for Italy (more than its GDP nominal growth which is closer to 2-3% today, and getting worse...)

Whats even more important is that VAR has gone crazy everywhere. Not only banks, even insurers and money managers take volatility of an asset as an input. When you lose 7% in capital in one week, which is 7x the 100bp spread you hoped to make in 1 year, something is very wrong. Even stock market indices failed to sell off as much in a week (and rarely do so)...
Thusly, nobody in their right mind is going to buy Italy (or Spain). The only natural buyers now stem from:

1. 1. short covering (profit taking) activity,
   2. passive buying from Italian accounts for ALM purposes (they must be "invited" to do so)
   3. and public buying trying to prop up the market, but their pockets aren't deep enough.

As a result, we may have the very few next auctions doing ok (especially if yields go up and short covering continues), but then its chaos Portugal-style.. it could take only a few weeks (or even days!) from here.

The only way I envision it not happening is Euro-bonds gaining traction and actually being implemented (but that doesnt seem likely if you believe the press reports) or financial repression.

Financial Repression???!!!

By financial repression, I mean taking out short sellers,,,, seriously! Not only banking stocks (like was done in 2008):

1. 1. SEC Extends Ban On Shorting Of Financial Stocks - Forbes.com Oct 1, 2008 – Restrictions will expire Oct. 17, about the time a slew of bank earnings are set to be released.

   2. SEC Halts Short Selling of Financial Stocks to Protect Investors Sep 19, 2008 – SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets. Commission Also Takes Steps to Increase Market Transparency ...

   3. S.E.C. Temporarily Blocks Short Sales of Financial Stocks ... Sep 19, 2008 – The Securities and Exchange Commission issued a temporary ban on short ... Short selling — a bet that a stock price will decline — is the ..

but on govt debt as well, making void all CDS contracts on sovereigns (or saying they will expire or cash settle at a very soon date) and trying to shut out HFs by increasing regulation, disclosure and taxation on them.

Excess volatility is not good for the markets, and it would surely cause huge short covering, but it could buy some time, and if the move is surprisingly large (bringing us to 4% range...!!!) then maybe it's not just buying time, and we are underestimating the extent of the short sellers which currently have the market in hand (and we know all the "good" reasons why).

Now, with the benefit of hindsight, we now know that I was much more prescient observative than many a long would be keen to admit!!! When the 10Y yields shot up from sub 5% to 6.3% in a few weeks’ time, VARs exploded. Traders and Money Managers just can't take any positions anymore (or only a fraction of what they could) and for choice, those who can take positions from a flat book, would prefer to be short, of course !!! Thus the only buying activity has been from tactical short covering and some passive domestic buying, but basically all the non-domestic non-passive demand has vanished, and the ECB just can’t make for all of that.

So it is only a matter of little time when Italy and Spain implode like Greece or Ireland or Portugal, especially with all the auctions hitting the market after the summer vacations. In this light, the post Did You Know That The Upcoming Italian Auction Can Spark Contagion That Touches A BIG US Bank? is s!imply indicitave of the chickens coming home to roost, and the subscription document that highlights the sytemic US bank that is at risk here is a very valuable document indeed! Subscribers, reference Actionable Note on US Bank/ French Bank Run Contagion, then follow up with the respective retail and pro versions of the subsequent docs on that subject bank.

So it is hardly a surprise to see the indexes down in Europe led by financials. Reggie has been spot on all along on that, and I am 100% with him on the big picture, and actually I may be even more pessimistic than he is. Think USSR 1989, (Crony) Capitalism 2012.

 socgen

I wrote last week to go short again the SP @ 1177, and to increase short positions when we traded 1215 before the payrolls. It was tough given the false double bottom signal, but that proved the correct choice. As I wrote, despite being oversold in the longer term charts, the European markets were vulnerable after the short squeeze, and and we called it over, especially in financials, reference Bank Run Candidate Option Trading Update (referencing native exchange pricing, ADRs are available for US investors.

Cutting gamma may have been a bit of a bad idea, but even with Fridays and todays move, which reminds that shorting vol is NOT a good idea, longs have had difficulties to make for the lost theta. Even though I’m pretty sure were in a bear market, I’m not sure we will see a straight line down from here. I still believe in my targets (see previous trading tips) of 1030 in SP and that if a crash in European markets happen, there will be a consequent bounce to play.

Many of the remaining recommended option strategies on the downside, are spreads which perform better if we don’t go down too fast until the end of the month, though the Armageddon November SP 1100 put is still alive.

Anybody who has followed the western European markets full know that the Reggie Middleton calls on French bank runs have been spot on. The French banks have basically been decimated as the markets start to truly realize what BoomBustBloggers have knew for months by now... Just As Predicted Over The Past Month, The French Bank Run Seems To Have Commenced. The French banks are truly getting slaughtered. For those who haven't been following Reggie and BoomBustBlog on this topic, you have missed out on an amazing call that I have not seen replicated anywhere! Below are a list of public links that detail the call:

1. France, As Most Susceptble To Contagion,…

2. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement

3. What Happens When That Juggler Gets Clumsy?

4. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such

5. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year

6. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!

7. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!

8. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run

9. Observations Of French Markets From A Trader's Perspective

10. On Your Mark, Get Set, (Bank) Run! The D…

Relevent Subscriber downloads

Trading setups and illustrations:

• 8-24-11 Trading Opinion & Analysis Retail Summary
  (Global Macro, Trades & Strategy)
• 8-24-11 Trading Opinion & Analysis - Pro
  (Global Macro, Trades & Strategy)
• Trading Analysis and Opinion 8-31-11

Fundamental analysis and forensic research:

• French Bank Run Forensic Thoughts - Addendum and Update
• Actionable Note on US Bank/ French Bank Run Contagion
• French Bank Run Forensic Thoughts - Retail Valuation Note
• French Bank Run Forensic Thoughts - pubic preview for Blog
• Bank Run Liquidity Candidate Forensic Opinion

True market volatility is still here with trading ranges that are as wide as some years annual moves. We still maintain our fundamental bearish stances, particularly on US EU banks, both of which have rallied heavily over the last few days. In today's news...

Losses Push Major Banks out of Top Europe Index

Euro Zone, IMF Clash on Estimates of Banks' Damage

International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt.

ecb_logo1The IMF’s work, contained in a draft version of its regular Global Financial Stability Report (GFSR), uses credit default swap prices to estimate the market value of government bonds of the three eurozone countries receiving IMF bailouts – Ireland, Greece and Portugal – together with those of Italy, Spain and Belgium.The analysis, which was discussed by the IMF’s executive board in Washington on Wednesday, has been strongly rebutted by the European Central Bank and eurozone governments, which say it is partial and misleading.

Although the IMF analysis may be revised, two officials said one estimate showed that marking sovereign bonds to market would reduce European banks’ tangible common equity – the core measure of their capital base – by about 200 billion euros ($287 billion), a drop of 10-12 percent. The impact could be increased substantially, perhaps doubled, by the knock-on effects of European banks holding assets in other banks.

The ECB and eurozone governments have rejected such estimates.

Elena Salgado, Spanish finance minister, told the Financial Times on Wednesday that the fund was mistaken in looking only at potential losses without also taking account of holdings of German Bunds, which have risen in price.

“The IMF vision is biased,” she said. “They only see the bad part of the debate.”

Ms Salgado added “this is the second time it has happened”, referring to the fund’s October 2009 GFSR, which estimated that eurozone banks had only written down $347 billion of $814 billion of probable losses from the financial crisis. 

It later revised down that total of probable total losses by a quarter. Ms Salgado said that the European stress tests of banks were a better indication of their vulnerabilities.

Officials involved in the debate say the mark-to-market analysis can explain much of the recent fall in European commercial banks’ share prices, including French and German institutions that have large holdings of eurozone sovereign debt.

“Marking to market is a fairly brutal exercise, but these are the estimates that hedge funds are currently making,” one official said.

Hmmm. The IMF and the EU are disagreeing on how bad the state of European banking really is... Has anyone really wondered what would happen if a truly independent entity would review the books? What would be their findings? Let's take a look at the BoomBustBlog EU archives and pull out Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! while keeping in mind that this article was researched and written well over a year ago!

For those of you who still have any interest in the big European Sovereign Debt Scam, I also introduce you to our analysis of European bank asset impairments. Reference (yes, once again) the instructional video, the public blog post and the high end subscription only "UGLY TRUTH". It is absolutely amazing how often I can use, and then reuse these links yet they still remain quite timely, informative and apt given the contextual news for the day at hand. Apparently, there must be some validity to their content.

The Keynote Presentation in Amsterdam

• a research note to subscribers,  The Inevitability of Another Bank Crisis,
• followed by blog posts on the same, see Is Another Banking Crisis Inevitable?, as excerpted...

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Euro banks remain weak as compared to their US counterparts

Health of European banks is weaker when compared to US banks. European banks are highly leveraged compared to their US counterparts (11.1x versus 4.1x) and are undercapitalized with core capital ratio of 6.5x vs. 8.5x. Also, the profitability of European banks is lower with net interest margin of 1.2% compared with 3.3%. However, non-performing loans-to-total loans for European banks are slightly better off when compared to US with NPL/loans at 4.9% vs. 5.6%. Nonetheless, considering the backdrop of high exposure to sovereign debt in Euro peripheral countries, we could see substantial write-downs for Euro banks AFS and HTM portfolio, which would more than offsets the relative strength of loan portfolio.

EURO Stress Test Rebuffed, Again

The OECD working paper “The EU stress test and sovereign debt exposures” by Adrian Blundell-Wignall and Patrick Slovik rebuffs the EU stress test, as we have several times in the past. The argument in the white paper echoes BoomBustBlog view that accounting policies allows banks and financial institutions to mask their true economic health. An asset that has declined in value leads to economic loss irrespective of its classification as held-to-maturity or held-for-trading, but accounting policies allow banks to mark down only their trading portfolio to the current market value while leaving a large chunk of held-to-maturity at book value even if said asset loses 50% in value that would take years to recover, or the bank could be presented with the very distinct possibility that there may be no recovery of said value loss. The former event (of recovering back to book value) would mask the true economic picture at a given snap shot of time while the latter (no recovery) is more of time shifting distortion wherein current profits are inflated for future losses.

Coming back to the EU stress test, the paper contends that by focusing only on the trading book exposures, the EU stress test gave a rosy picture of banks true health.

•     Sovereign bond haircuts were applied only on the trading book holdings with implicit assumption that bonds held to maturity will receive 100 cents in the euro. This assumption severely understates the banks losses as 83% of banks investment portfolio is in banking books in form of held-to-maturity assets while only 17% of assets are held in trading portfolio. In case of sovereign default, the distinction between the banking book and the trading book simply disappears. By considering only a smaller component of banks investment books, EU stress tests have severely undermined the estimated write-downs on banks books and have given rosy picture about banks true health. The logic of said methodology is that with the EU/ECB/ EFSF SPV (basically, a giant new European CDO) backing, no sovereign state will be allowed to default.

•     Second, and more importantly, the market is not prepared to give a zero probability to debt restructurings beyond the period of the stress test and/or the period after which the role of the EFSF SPV comes to an end.

o   The assumption of no default over 2010-2012 appears reasonable given that the EFSF is made up of a €720bn lending facility (€220bn from the IMF; €60bn from the EU; and the SPV can build exposures for 3 years to the limit of €440bn for the 16 Euro area countries) which provides a guarantee of funding for any countries facing financing pressures, certainly for the next 3 years.

o   However, the concerns in the market beyond 2012 are: the longer-run fiscal sustainability problem; and the difficulty of achieving structural adjustments in labor and pension markets and ability to achieve a sustainable growth in a period of budget restraint. The fear is that this will not be resolved by the time the support packages run out, and hence the probability of restructuring may not be put at zero by portfolio managers. Angela Merkel has recently announced her willingness to spearhead several common nation reforms to put the EU block of nations on heterogeneous footing in regards to regulation, debt management etc. This will go a long way to solving the problem at hand, but will also put significant strain on several of the weaker nations, again exacerbating the probability for restructuring to bring said nations in line with their stronger counterparts.

Impact of bank’s banking books on haircuts

EU banking book sovereign exposures are about five times larger than trading book. The table below gives sovereign exposure of major European countries for both trading and banking book. The EU trading book has €335bn of exposure while banking book has €1.7t exposure towards sovereign defaults. EU stress test estimated total write-down’s of €26bn as it only considered banks trading portfolio. This equated to implied haircut of 7.9% on trading portfolio with losses equating to 2.4% of Tier 1 capital. However, if the same haircuts (7.9% weighted average haircut) are applied to banking book then the loss would amount to €153bn equating to 13.8% of Tier 1 capital.

We have also presented an alternative scenario since we believe that EU stress test had failed not only to include banks HTM books but also the loss estimates were highly optimistic, as has much of the economic and financial forecasting that has come from the EU.

• Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest?

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

  • Then a full fledged, step by step tutorial on exactly how it will happen....
  • The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  • What Happens When That Juggler Gets Clumsy?
  • Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  • The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  • The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  • Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run 
  • France, As Most Susceptble To Contagion, Will See Its Banks Suffer
  • Observations Of French Markets From A Trader's Perspective
  • On Your Mark, Get Set, (Bank) Run! The D…
  • ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme

On Tuesday, 12 April 2011 I wrote "Weakening Revenue Streams in US Banks Will Make Them More Susceptible To Contingent Risks".  Today, CNBC runs this on thier front page today... Big Banks Forced to Cut Back Again as Economy Weakens: Battered by a weak economy, the nation’s biggest banks are cutting jobs, consolidating businesses and scrambling for new sources of income.

I believed this to be inevitable for we are still nowhere near a true economic recovery. The main source of lending for most US banks, the housing industry, is in a veritable depression. See Reggie Middleton's Real Estate Recap: As I Have Clearly Illustrated, It's a Real Estate Depression!!! and The Residential Real Estate Week in Review, or I Told You We're In A Real Estate Depression. Even the news today points to more of the same... Pending Home Sales Fall 1.3 Percent in July from June. 

Big companies are firiing freely again while the main engine of US employment, the small business, exhibits a slowing in hiring in August as wages dip. The balance sheet draw is evident as some banks dump assets at firesale prices.... years after the alleged fire has been put out, while other banks simply refuse to come clearn with the truth... Dexia Sets A $5.1bn Provision For Loss On Trying To Sell The Same Residential Real Estate Assets Upon Which JP Morgan Has Slashed Provisions 83% to $1.2bn from $7.0bn 

Needless to say, it is nigh time to start to take another look at the big US banks.

JohnMack_copyOn February 10, 2008, I created an extensive blog post, explicitly labeling Morgan Stanley as "The Riskiest Bank on the Street!" To my knowledge, I was the only one to make such a blatant accusation. Of course, months later Morgan Stanley and all of its brethren started collapsing. Many attributed this to the overall market malaise, I didn't.

In September of 2008, 7 months after the first bearish report, I penned "As I said, the Riskiest Bank on the Street", which essentially compared my opinion, analysis and most importantly accuracy, to that of the Street's sell side, as excerpted...

image001.png

Key highlights of my archived research from 2008 (before the crash) on the "Riskiest Investment Bank on the Street":

The Riskiest Bank on Wall Street – Morgan Stanley has US$74 billion of Level 3 assets, over 200% of its equity, which is the highest amongst its peers. Although the Level 3 assets have declined from the previous quarters owing to huge writedowns, the reclassification of assets from from Level 2 to level 3 category continues as the liquidity for the troubled mortgage paper drys up.

Declining ABX index indicates troubled times are not over yet – Morgan Stanley used the performance of the ABX index as one of the benchmarks to writedown US$9.4 billion in 4Q 07. As this index continiues to witness downward trend, we believe that the asset writedown done so far, may not be sufficient.

Forensic Accounting of ABS Assets yields more woes - a security by security accounting of MSs ABS inventory shows at least 30% and probably 56% in additional losses coming down the pike, as well as tests to its excessive exposure to the anemic capital reserves of its counterparties, namely monoline insurers and hedge funds.

Losses from unconsolidated VIEs of $38 billion can wipe out almost half of the company’s total equity –Morgan Stanley has $20 billion of its unconsolidated VIEs assets in credit & real estate portfolio where the company expects a maximum loss ratio of 65%. Considering the worsening real estate markets, we believe that the company will incur huge losses on this portfolio. In addition, the company has $7 billion towards MBS & ABS portfolio and $10 billion of strucutured finance products.

Exposure toward Bond Insurers/private funds raises counterparty risk – The failure of bond insurers, on whose shoulders lie the rating of $2.4 trillion of bonds, raises a serious doubt about a systemic failure in the U.S. financial services industry. Morgan Stanley’s exposure of $3.6 billion toward the bond insurers may result in unforeseen losses for the company. The company has a counterparty credit risk exposure of $13.9 billion toward parties rated BBB and lower.

The riskiest bank on Wall Street – High exposure to Level 3 assets despite significant write-downs

Need to raise additional capital if current crisis worsens – Morgan Stanley raised $5 billion from China Investment Corp to maintain its capital ratios as it reported huge losses in 4Q 07. Going forward, as the credit market environment, the housing and real estate markets continues to crack, the company will likely report huge and may have to raise additional capital.

Worsening macro and market conditions to restrict revenue growth – Financial services industry witnessing its toughest times in recent history faces a tough task of getting things back to normal. The deteriorating macro environment coupled with flagging confidence among investors/customers alike, things are more likely to get worse than better. Furthermore, the decline in structured product revenues, risk averse nature owing to recent turmoil and the less active M&A environment will exert pressure on the company’s revenue growth in the coming quarters.

We value Morgan Stanley at US$20.76 per share, 58% lower than the current market price – We have analyzed Morgan Stanley exposure toward the Level 3 assets and its exposure to unconsolidated VIEs. To value Morgan Stanley, we have used the Discounted Cash Flow (DCF), Price-to- adjusted book (P/BV) and Price-to-Earnings (P/E) multiple methods. Based on our weighted average valuation, we arrive at a fair value of $20.76 which represents a downside of 57% from current levels of $48.25.

Click the read more link below to continue reading or download the richly formatted pdf version:

 Morgan Stanley (287.96 kB 2008-02-11 12:49:56)

Watch out, Here Comes the The Fiery Sword of Truth! Contrary to the popular opinion that Goldman is the best and the brightest, Goldman Can't TRADE!!!

The financial markets are in a sense of déjà vu with widespread panic. Markets are as volatile as ever and Goldman Sachs is yet again challenged to demonstrate its ability to create alpha. The beta gazers (those who charge 2 and 20 to simply lever up on the broad market), or more commonly put, MoMo Chasers (those chasing the most popular stocks or strategies), would normally be seeking asylum given the state of recent financial markets. Unfortunately, despite the entire “God’s Work” syndrome attached to Goldman Sachs, its prop desk is yet to exhibit the ability to generate true alpha in highly volatile market, let alone match the success of BoomBustBlog.

Let's get something out in the open immediately so there is no misunderstanding. Goldman cant' trade! It can manipulate its dominant positoins in the markets. It can take advantage of the ignorance of its customers. It can front run those who don't have the reach or ability to defend themselves. It can (and obviously does) take advantage of privileged status in our political system. Those are the things that Goldman can do and apparently is skilled at, yet contrary to the popular opinion that Goldman is the best and the brightest, Goldman Can't TRADE!!! Not only that, but that inability to trade bangs the GS shareholder EVERYTIME volatility roils the markets, and causes many to overvalue GS over the long term.

For a little historical proof of this rather unpopular assertion, let's refer to the BoomBustBlog archives, namely A Few Questions on Goldman Sachs 3rd Quarter 2010 Results That No One Thought to Ask...

Trading revenues under pressure

Goldman Sachs posted Q3 net revenues of $8.9bn, a y-o-y decline of 28%. This is despite strong growth recorded at its investment banking and the asset management division which grew at 24.5% and 7.0%, respectively. The decline was principally led by dismal performance of the trading and principal transaction segment which declined 36% y-o-y as a result of weak market conditions. The decline in overall revenues despite strong growth recorded elsewhere underscores the importance of trading revenues in Goldman Sachs overall performance. Historically, trading and principal transaction segment contributed c60-65% of total revenues underpinning inherent risk in Goldman’s business model which is nothing short of a corporate hedge fund. We have expended considerable ink in demonstrating the overvaluation of Goldman Sachs and the volatility inherent in its revenues, particularly as they have been so dependent on trading - as many hedge funds are. As a matter of fact, I have been issuing this GS warning since 2009 when Goldman had perfect trading quarter and record trading profits. Reference last quarter's quarterly update: The BoomBustBlog Review of Goldman Sach’s 2nd Quarter, 2010 Performance: I Told You So!

About three months ago, Boombustblog forewarned that GS will stand out to be the worst hit in the event of trend reversal in the financial markets and the company will have little means to escape the implications of the same on its profitability and solvency. The company generates 60-70% of the revenues from trading activities which is largely dictated by the unpredictable turn of financial events. While the financial markets were celebrating the US officially coming out of recession in the 1Q10, the subsequent Eurozone crisis (see the Pan-European Sovereign Debt Crisis series) and the slowdown of expectations in 2Q10 has beaten down the irrational exuberance and the markets experienced a spurt in volatility and drop in prices. The consequent softening of trading revenues in 2Q10 vis-à-vis 1Q10 drove 31% drop in revenues and 82% drop in net income.

The chart below demonstrates how the volatility of the revenues from the trading and principal investments trickles down into volatility of the total revenues and profits of Goldman Sachs. I don’t call Goldman the world’s most expensive federally insured hedge fund for nothing!

As you can see above, volatility ramped up in 2008 and Goldman reacted like any other beta-chasing, long only hedge fund (although they aren't long only) - they lost money!

Now, with the benefit of BoomBustBlog hindsight, I'd like to announce to the release of a blockbuster document describing the true nature of Goldman Sachs, a description that you will find no where else. It's chocked full of many interesting tidbits, and for those who found "The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely" to be an iteresting read, you're gonna just love this! Subscribers can access the document here:

• Goldman Sachs Q3 Forensic Review - Retail
• Goldman Sachs Q3 Forensic Review - Professional

As is customary, I am including free samples for those who don't subscribe, so you can get a taste of the forensic flavor. Here are the first 2 pages of the 19

page professional edition, with illustrative option trade setups soon to follow.

 Goldman_Sachs_Q3_Forensic_Review_Page_01

Is Goldman Sachs stock really the front running, Mo-Mo traders wet dream?

Goldman_Sachs_Q3_Forensic_Review_Page_02 

Given the high correlation of Goldman’s prop trading desk to equity markets and taking into consideration the state of equity markets in Q2-Q3, it would be interesting to see how Goldman Sachs share perform in the coming quarters. Those who would have followed the traditional school of thought and bid the price up would have already seen their capital erode by 20% during the last quarter and by 12% over the last one month alone.

Oh, and while we're at it...

I noticed ZeroHedge (one of the few sites that I syndicate BoomBustBlog content through) caused a tiff with the Canadian academia and pop media by calling attention to the abysmally low TEC ratios of Canadian banks, and comparing them to European banks. For those who didn't have the spare time to catch the cross border banking media soap opera, see:

1. Is The Next Domino To Fall.... Canada? for the first salvoo
2. Who is Zero Hedge, and why should we care? for the passive aggressve retort
3. (as put by Tyler himself) "followed by a more coherent attempt to debunk the claim that a painfully low TCE ratio is never a good thing": Is Zero Hedge looking at the wrong numbers?"

I must say that the argument by those up north is wanting and ZH made a valid point, primarily in that the RWA (risk weighted asset) methodologies are simply too open for manipulation. Of course, that is probably why they are favored by the banking institutions. Let's end this morning's post by illuminating the fact that although, Goldman Sachs capital ratios have improved, it has nothing to do with a reduction in risks weighted assets. Risk weighted assets, to the contrary, have increased to $451bn as at end June 2011 from $384bn as at the beginning of 2009. One of the key reasons for increase in capital ratios have been dilutions. As a matter of fact, Goldman Sachs’ diluted shares outstanding have increased by c24% since beginning of 2008!

Goldman_Sachs_RWA

So, if Goldman really has a problem, why haven't we heard about it from the rest of Wall Street?

Because investment performance is not the Street's business model. If it was, they would have easily foreseen thier own demise back in 2008/9. The street's busness model is churning spreads, fees and commisions from clients and customers. I truly believe BoomBustBlog bests ALL of Wall Street's sell side research, reference Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? After all, who else is currently warning of Goldman's risk on the Street? Answer: No one! Then again, who warned back in the summer of 2008 before the share price got cut by nearly 2/3rds? I can only think of one shop....

Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street: ...t shared by most of the analyst community and those that follow them. This brings me to the issue of Goldman Sachs. I have been bearish on commercial, mortgage and investment banks for over a y... Saturday, 05 July 2008

Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis: Here is my detailed opinion on Goldman Sachs. Be sure to review my precursor to this report: Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street. Anybody who is interested in how I Thursday, 24 July 2008

Even after a clear pattern was formed, who on the sell side warned when the markets got rocky in 2010? Hmmm. I sense a trend here... If I may prompt one to reminesce: In What Do Goldman Sachs and B.B. King Have in Common? The Thrill is Gone…,, I made the following note:

GS’s considerable leverage provides a means (the lever) of high returns to shareholders when asset prices are appreciating but the same becomes a very material economic concern when the asset prices lose value. With low trading revenues, GS has little cushion to absorb write-downs on these assets, leading to erosion of equity. As of March, 2010, the GS’s investments portfolio amounted to $339 billion (nearly 566% of the tangible equity). Referencing my previous posts, “Can You Believe There Are Still Analysts Arguing How Undervalued Goldman Sachs Is? Those July 150 Puts Say Otherwise, Let’s Take a Look” and “When the Patina Fades… The Rise and Fall of Goldman Sachs???“, we can reminisce over the fact that Goldman BARELY earns its cost of capital on an economic basis, and that’s before considering the potential horrors which may (and probably do) lay on the balance sheet (for more on BS horror, referenceReggie Middleton vs Goldman Sachs, Round 2) .

As for the Canadian media's retorts on ZeroHede's credible article, I must dare, no... make that double dare, any one to ask in print or on TV, "Who is Reggie Middleton". As a matter of fact, I'll answer that question right now. He's the guy that called...

1. The housing market crash in the spring of 2006 and publicly in September of 2007: Correction, and further thoughts on the topic and How Far Will US Home Prices Drop?
2. Home builders falling and their grossly misleading use of off balance sheet structures to conceal excessive debt in November of 2007 (not a single sell side analyst that we know of made mention of this very material point in the industry): Lennar, Voodoo Accounting & Other Things of Mystery and Myth!

3. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear? | After the collapse, a prudent bullish call as well... Joe Lewis on the Bear Stearns buyout Monday, March 17th, 2008: "The problem with the deal is that it is too low, and too favorable for Morgan. It is literally guaranteed to drive angst from the other side. Whenever you do a deal, you always make sure the other side gets to walk away with something.  If you don’t you always risk the deal falling though unnecessarily. $2 is a slap in the face to employees who have lost a life savings and have the power to block the deal. At the very least, by the building at market price and get the company for free!" | BSC calls are almost free and the JP Morgan Deal is not signed in stone Monday, March 17th, 2008 | This is going to be an exciting, and scary morning Monday, March 17th, 2008 | As I anticipated, Bear Stearns is not a done deal Tuesday, March 18th, 2008 [Bear Stearns stock goes from $1 and change to $10, front month calls literally explode from pennies to several dollars]

4. The warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?”. I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now. ) | I just got this email on Lehman from my clearing desk Monday, March 17th, 2008 by Reggie Middleton | Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008 | It appears that I should have dug deeper into Lehman! May 2008
5. The fall of commercial real estate in general (September of 2007) and the collapse of General Growth Properties [nation's 2nd largest mall owner] in particular (November 2007): BoomBustBlog.com’s answer to GGP’s latest press release and Another GGP update coming… (among over 700 pages of analysis, review the January 2008 archives or search for “GGP” for more research).
6. The collapse of state and municipal finances, with California in particular (May 2008): Municipal bond market and the securitization crisis – part 2
7. The collapse of the regional banks (32 of them, actually) in May 2008: As I see it, these 32 banks and thrifts are in deep doo-doo! as well as the fall of Countrywide and Washington Mutual
8. The collapse of the monoline insurers, Ambac and MBIA in late 2007 & 2008: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Welcome to the World of Dr. FrankenFinance! and Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion
9. The overvaluation of Goldman Sachs from June 2008 to present): “Can You Believe There Are Still Analysts Arguing How Undervalued Goldman Sachs Is? Those July 150 Puts Say Otherwise, Let’s Take a Look”, “When the Patina Fades… The Rise and Fall of Goldman Sachs???“andReggie Middleton vs Goldman Sachs, Round 2)
10. The ENTIRE Pan-European Sovereign Debt Crisis (potentially soon to be the Global Sovereign Debt Crisis) starting in January of 2009 and explicit detail as of January 2010: The Pan-European Sovereign Debt Crisis
11. Ireland austerity and the disguised sink hole of debt and non-performing assets that is the Irish banking system: I Suggest Those That Dislike Hearing “I Told You So” Divest from Western and Southern European Debt, It’ll Get Worse Before It Get’s Better!
12. The mobile computing paradigm shift, May 2010: More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars! »
13. The French bank run of 2011

The professional level subscription document detailing the likely causes of a run on our primary bank run candidate is now available for download (Bank Run Liquidity Candidate Forensic Opinion, the retail version containing valuation available here - French Bank Run Forensic Thoughts - Retail Valuation Note). It is presented at a timely fashion for much of the core EU has just implemented short bans on financial companies - exactly as I anticipated several days ago. If history repeats itself (and it usually does), this action will serve as a precursor to the bank run that I have anticipated and warned about over the last few weeks. For those who don't subscribe to the professional BoomBustBlog analysis, yet want an inkling of what is going on in French banking, I have redacted the aforelinked document as a free public preview: French Bank Run Forensic Thoughts - pubic preview for Blog

You know, if it wasn't so damn destructive, it would actually be funny how regulators appear to find it genetically impossible to learn from mistakes - whether it be theirs or somebody elses. In 2008, when the US foolhardedly decided to allow banks to misreport their long term toxic assets bought with excessive, short term leverage, said banks collapsed. It was not as if this was unforeseen. France is anxious to repeat that exercise with its banks and sovereign debt. In 2008, when the US foolhardedly decided to ban shorts on insolvent financial companies, I made a small fortune constructing synthetic short positions with options that skyrocketed in value because regulators dabbled in markets in which they really had no clue. ZeroHedge reminds us that the short ban in the US ended in a 48% drop in financial company share prices.

It should be obvious to anyone who can remember at least 3 years ago that short bans are not good ideas. They spread more panic and uncertainty than they cure - and the banks' business models are based upon faith and full credit. It appears that the French think they can make ths mistake better than the Americans, as CNBC reports SocGen CEO Dismisses Rumors, Says France Is Not US. Of course not, they just act that way when there is an opportunity to efficiently repeat a boneheaded error. Exactly as I warned just TWO days ago in the post "Time To Load Up On Bank Puts? The Futile Attempt To Make The Insolvent Appear Solvent By Interefering With Market Pricing - Short Ban Has Started", I now bring you this afternoon's news - France, Italy, Belgium and Spain Ban Short Sales

Over the next few days I will offer advanced trading techniques to allow BoomBustBlog subscribers to monetize their view via the market, despite the attempts by those who do not see to manipulate free markets. In the mean time I will excerpt portions of the Pro/Institutional report on the French bank most at risk for a run, available for download right now - Bank Run Liquidity Candidate Forensic Opinion.

 Here are a few screen shots from the free public abridged version ( French Bank Run Forensic Thoughts - pubic preview for Blog), that easily demonstrates the problem with the French banks cannot be solved by banning short selling. The problem is inherent in the banks themselves. Please click to enlarge to printer quality...

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We warned our paying subscribers about the potential of a French bank run over a month ago and described the process in illustrative detail. See:

1. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
2. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! (see the free links below at the end of this article for more)

We also named the most at risk bank in question, and offered explicit trade setups to monetize the situation. What is happening now in France is basically a foregone conclusion and was easily foreseen if one was paying attention, or even if one was just reading BoomBustBlog. Now comes the next step in the saga, and that is the debunking of misinformation and disinformation.

Contrary to what some European bank officials have to say, the current crisis is and EXACT mirror of 2008. Reference this excerpt from On Your Mark, Get Set, (Bank) Run! The Dominos of Serial Lehman 2.0 (x 4) In The EU Are Falling Into Place At A Quickening Pace:

Here are a few updates supporting my thesis of the potential of a serial bank run (another one, that is) in Europe and the Eurozone. As was the case with Lehman Brothers and Bear Stearn (two of the biggest bank collapses that I have called during this "ongoing crisis), counterparties and funding sources get gun shy in the face of overvalued collateral and signs of insolvency - as well they should. Remember, we have identified banks that are at risk of Lehman 2.0, and for the exact same reasons that Lehman was at risk of such. Reference The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!, which I consider to be a must read!

Focusing on the most pertinent and contagious of the issues at hand leads us back to the initial premise of a European bank run. I laid the foundation for said topic discussion last Thursday in "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style" and the fear du jour is a European version of the Lehman Brothers or Bear Stearns style bank run. The aforelinked at explanatory piece is a must read precursor to this illustration of what can only be described as the anatomy of a European bank run - before the fact. Remember how the pieces of the puzzle were perfectly laid together for a Bear Stearns collapse in January of 2008, two months before the bank's actual collapse? Reference "Is this the Breaking of the Bear?"(January 2008) in which Bear Stearns collapse was illustrated in explicit, graphic detail. Lehman Brothers wasn't impossible to see either (Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008).

Yes, I did capitalize on the collapse of Bear Stearns and Lehman by identifying their failure and fall many months before it was every mentioned in the market or analysts reports. May I also add, they both had investment grade ratings from all three major purveyors of that... "stuff", and the management of both banks swore the market was simply exaggerating the problems when things did surface publicy. Using the archival power of the Web, let's reminisce, as excerpted from Four Facts That BANG JP Morgan That You Just Won't Hear From The Sell Side!!!

 The reason why I went into such an indepth recollection of the events of the rather recent past is to draw distinct parallels between Bear Stearns and Lehman Brothers, both banks whose problems I recognized ahead of the pack - and the French banks, whose problems I outlined for subscribers early on as well. Bear and Lehman underwent a liquidity crisis that was the result of solvency issues. Basically, assets purchased on leveraged basis for the balance sheet dramatically devalued, leaving a gaping equity hole. This equity hole scared off counterparties who gave liquidity, or forced them to raise collateral calls, calls which Bear and Lehman didn't have the money to pay due to asset/liability mismatch. Somebody let me know if this sounds familiar...

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As excerpted from Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such:

The biggest European banks receive an average of US$64bn funding through the U.S. money market, money market that is quite gun shy of bank collapse, and for good reason. Signs of excess stress perceived in the US combined with the conservative nature of US money market funds (post-Lehman debacle) may very well lead to a US led run on these banks.

 And here's the assets that were devalued and the games being played to hide the gaping equity hole on the European end...

The problem then is the same as the European problem now, leveraging up to buy assets that have dropped precipitously in value and then lying about it until you cannot lie anymore. You see, the lies work on everybody but your counterparties - who actually want to see cash!

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As excerpted from "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style":

The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors.  In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!

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I'm sure many of you may be asking yourselves, "Well, how likely is this counterparty run to happen today? You know, with the full, unbridled printing press power of the ECB, and all..." Well, don't bet the farm on overconfidence. The risk of a capital haircut for European banks with exposure to sovereign debt of fiscally challenged nations is inevitable. A more important concern appears to be the threat of short-term liquidity and funding difficulties for European banks stemming from said haircuts. This is the one thing that holds the entire European banking sector hostage, yet it is also the one thing that the Europeans refuse to stress test for (twice), thus removing any remaining shred of credibility from European bank stress tests. As I have stated many time before, Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run!

The biggest European banks receive an average of US$64bn funding through the U.S. money market, money market that is quite gun shy of bank collapse, and for good reason. Signs of excess stress perceived in the US combined with the conservative nature of US money market funds (post-Lehman debacle) may very well lead to a US led run on these banks. If the panic doesn’t stem from the US, it could come (or arguably is coming), from the other side of the pond. The Telegraph reports: UK banks abandon eurozone over Greek default fears

UK banks have pulled billions of pounds of funding from the euro zone as fears grow about the impact of a “Lehman-style” event connected to a Greek default.

 Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to euro zone banks, raising the prospect of a new credit crunch for the European banking system.

Standard Chartered is understood to have withdrawn tens of billions of pounds from the euro zone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.

Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.

In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.

One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the euro zone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.

Make no mistake - modern day bank runs are now caused by institutions!

Just in from Reuters, by way of Zerohedge:

Reuters continues:

 That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said. Contacted about the moves by the banks in Asia, a spokeswoman for top French lender BNP Paribas <BNPP.PA> in Paris said: "We never comment on market rumours."

Societe Generale <SOGN.PA> had no immediate comment to make while a spokeswoman for Credit Agricole <CAGR.PA>, which will publish its second-quarter earnings later in August, said the bank would not make any comment.

The banks in Asia and the sources -- a mix of risk officers, senior traders and loan bankers -- could not be identified because of the sensitive nature of the information.

The head of treasury risk management for Asia at one bank in Singapore said their credit lines to large French banks had been cut because of the perceived risks in lending to these counterparties.

"We've cut. The limits have been removed from the system. They have to seek approval on a case-by-case basis," the treasury risk official said. The bank official declined to name the French banks.

A senior credit trader in Singapore said that when a bank's shares fall that sharply their risk officer will automatically look at how much exposure they have to that lender.

And more:

 Banks' heightened responses could exacerbate the market strains if they all acted simultaneously with portfolio-at-risk modelling, analysts said.

"The thing is if they all use it at the same time they will all sell at the same time when risk goes up, and that will drive prices down and it is like a snowball because then the prices go down and then your value-at-risk ratio will tell you 'oh, I must reduce my risk even more'," said Mark Matthews, head of research at Julius Baer.

Several of the traders and bankers in Asia said that while they had not cut all exposure to any particular institution, they were very cautious about taking on new trading positions with them.

A senior risk officer at a bank in Singapore said "obviously we are having a review", when asked if they were reassessing their positions with European counterparties.

Bankers and risk officers at the five institutions in Asia that were still dealing with French banks said that while short-term lending of up to 30 days was still taking place, they were conducting a thorough review of longer-term credit lines regardless of the type of transaction.

"It's all in relation to (our) take on a French bank's credit risk, regardless of whether it's a swap or interbank lending transaction," said a senior loan banker at a Japanese bank.

Hopefully, I have given a clear enough picture of the parallels between the French banks and Bear Stearns and Lehman Brothers from a historical perspective. Now, let's hear what French bank management has to say...

Bloomberg reports SocGen Denies Rumors About Credit as Shares Tumble

Societe Generale (GLE) SA, France’s second-largest bank, denied “all market rumors” and asked the nation’s market watchdog for an investigation after speculation France’s creditworthiness was in doubt sent the shares tumbling.

The lender’s performance in July and early August shows it will be able to post “solid” results in the future, Paris- based Societe Generale said in a statement after the market closed yesterday. The bank asked France’s Autorite des Marches Financiers to open a probe into the origin of speculation that is “extremely harmful to the interests of its shareholders.”

1. Game Over For The European Ponzi Scheme?…
2. France, As Most Susceptble To Contagion,…
3. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
   1. What Happens When That Juggler Gets Clumsy?
4. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
   1. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
   1. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
6. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
   1. Observations Of French Markets From A Trader's Perspective

On Your Mark, Get Set, (Bank) Run! The D…

Attention subscribers! The French Bank run has BEGUN! Below is grab of the CDS chart of just one our subject banks as run candidate featured in the subscriber document, Italy Exposure Producing Bank Risk...

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Those who followed the recommendations in the subscriber document This is the introductory post to a series of trade setups for European Bank at Risk should be doing quite well. I am preparing a pro/institutional document for distribuion today, and may relasee the bank's ID to the public if it gets beat up bad enough today. For those that do not subscribe, re-read the following, for I will be writing the next leg of this saga very soon:

1. Game Over For The European Ponzi Scheme?…
2. France, As Most Susceptble To Contagion,…

3. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement

4. What Happens When That Juggler Gets Clumsy?

5. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such

6. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year

7. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!

8. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!

9. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run

10. Observations Of French Markets From A Trader's Perspective

11. On Your Mark, Get Set, (Bank) Run! The D…

 Update: As illustrated in my twitter stream from yesterday...

Yesterday was a rough, tumultuous ride. I went from supreme confidence to getting bloodied up. If you remember, the BoomBustBlog traders recommended a grab for profits or a gamma hedge. I decided to go all in to FIRE sector short risk, with just a wide trailing stop to protect me. I was quite comfortable up to the last 40 minutes of the session, wherein it seems as if Bernanke's floor traders swept in to teach smart asses such as my self a valuable lesson. Fortunately, CBs can only affect the markets, they can't control them. All short biased positions flourishing today as that French bank run that I promised looks to be coming to fruition and that 830% One Week Armageddon Trade moves right along... From my Twitter feed:

ReggieMiddleton: Load Up On Bank Puts? Futile Attempt To Make Insolvent Look Solvent By Interefering With Markets, Short Ban Has Started http://bit.ly/plfrwl

ReggieMiddleton:All wide trailing stops are still in place, allowing me (barring a violent gap up) a guaranteed 300% on the SPX, although it was 800%.

ReggieMiddleton: Nearly all of them are better traders than I, but instead of selling vol, I'm buying further up the ladder of risk at cheaper prices.

Update, my OTM cheaply bid puts are being hit. I'm getting deeper in the [short risk]  game. I will offer mini-reports on the companies in question soon

I went against the grain of both the consens and even the BoomBustBlog traders and loaded up on shorts in lieu of selling off profit and/or hedging. It was a bloody ride, and I was [mentally/emotionally] wiped after the Fed's intervention during the last 40 minutes of trading. Many of my FIRE sector and French bank positions were actually stopped out by the bell, making it difficult to even maintain a position with a semblance of risk management. I actually felt bad... You know regret, even though I moved wtih both the fundamentals and my gut. The following morning, my bold contrarian move was vindicated and we march on.

The 830% One Week Armageddon Trade Commentary: Tuesday, 8-9-2011, Continuing The Easily Seen Market Crash?

A timely tidbit from one of contributing BoomBustBlog traders, Eurocalypse, basically an extension of what was expoused last week in Timely Trading Tips For 8/5/2011,which I excerpt: I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time. ...I'd recommend to take partial profits....

Armageddon Put Trade Up Over 500% For Th…

Armageddon Put Trade Up Over 500% For The Week, More Room To Go And More Trades To Set Up!

As those who have been reading me for a while know, I have been crowing about sovereing debt default leading to a European bank collapse, causing global contagion for some time. For those who haven't, reference last years posts in the Pan-Europan Sovereign Debt Crisisseries, or The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run...