Goldman's strategy desk just came out with a recommendation that mirrors my guidance to subscribers, a 3 weeks later, reference Armageddon Puts Versus Truly Busted CRE REITS: Looking for that 5x-10x ROI 

Yesterday, I received a couple of emails along the lines of the one displayed below...

"Hi Reggie,

Can you please put out any guidance on your Armageddon Puts for your lowly retail subscribers?

Thanks"

Well, I would like all to know that I'm not a typical mo-mo type trader. I'm a strategist. With that being said, I'm also not the one to look a strong risk/reward proposition in the face and do nothing. Below is a set of charts that should drive the mindset home.

 

SPX_puts

 

The actual chart with the series and strike of the puts can be found in the retail investor's discussion forum. I will also be available to chat there as well.

If one would have averaged small OTM put purchases with with ample time value attached over the last week and a half, one would have amassed a neet little collection of Armageddon puts that will start popping into the money today. They were cheap enough to throw away in the rallying market, and if things go awry (quite likely) three digit returns are virtually guaranteed. The following is Goldman's note from this morning...

Published 10:46 AM Thu Jun 21 2012 ________________________________

Noah Weisberger

Aleksandar Timcenko

We are recommending a short position in the S&P 500 index with a target of 1285 (roughly 5% below current levels) and a stop on a close above 1390. This morning, the Philly Fed print of -16.6, down sequentially and worse than expected, provides further evidence that weakness has extended into June. Although yesterday's FOMC delivered easing as expected, with a dovish statement, positive risk sentiment ahead of the FOMC had already buoyed markets. And we now think, with incremental US monetary policy on hold, the market will need to confront a deteriorating growth picture near term. The risk to our recommendation is that the data soon reverts to the 2-percent growth path our economists expect, that China growth turns, or that European policy-makers' rhetoric buoys risk sentiment further from here, with the upcoming end-of-June summit a focal point on this count.

The MSM headline barrage continues to confirm my multiple warnings on the increasingly ugly macro situation both here and abroad...

This is how the European banks were killed in the first place -  Dead Bank Deja Vu? How The Sovereigns Killed Their Banks & Why Nobody Realizes They're Dead. The ECB will become the world's largest insolvent hedge fund (sans the hedges, of course) if it is not so already...  .

More MSM headlines to drive the point home

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Published in BoomBustBlog

Yesterday, I received a couple of emails along the lines of the one displayed below...

"Hi Reggie,

Can you please put out any guidance on your Armageddon Puts for your lowly retail subscribers?

Thanks"

Well, I would like all to know that I'm not a typical mo-mo type trader. I'm a strategist. With that being said, I'm also not the one to look a strong risk/reward proposition in the face and do nothing. Below is a set of charts that should drive the mindset home.

SPX_puts

The actual chart with the series and strike of the puts can be found in the retail investor's discussion forum. I will also be available to chat there as well.

The REIT analysis referred to in the chart can be found here for subscribers (the property by property valuations are for Professional/Institutional subscribers only):

I have just revisited the performance of this company (last update was at least a quarter ago). If my paid subscribers recall, we valued the company at rougly 10% of its current market price (see File Icon Cashflows and Debt Preliminary Analysis), with a variety of scenarios to be played out that may affect said valuation. This was based on valuation of key properties of the company, which together accounted 78% of the total portfolio in value terms.

Since then the company has released its full year 2012 results and 1Q2012 quarterly performance. There is no visible improvement in the performance of the company. The company is struggling to handle massive leverage, industry average defying LTVs, proportionately large debt liabilities coming due - the bulk of which is expected to face the music sometime in 2012 in view of upcoming liabilities of over nearly $700 million during the remainder of the year.

In recent times the company has used revolving credit facilities to fund debt repayments.It looks unlikely it will be able to do so this time around. Below is the depiction of projected cash shortfall in 2012...

Subscribers can download this full update from the next post, to be published within 24 hours...

Published in BoomBustBlog

fb_front_month_atm_puts

Front month ATM puts made 20% in the first hour of trading. If only the IPO did half as well...

Put contracts traded: 128,860

Cal contracts traded: 77,590

1.66 put call ratio means there's probably more BoomBustBlog subscribers out there than I imagined...

All paying subscribers (click here to subscribe) have access to the FaceBook IPO & Valuation Note Update February 2012. You may review the original analyses here file iconFB note final 01/11/2011. Again, as Facebook continues to fall in price, sooner or later it will be fairly valued and most assuredly after that undervalued. Speculators and value investors should be prepared for such an event. 

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for our reports, available for immediate download - Facebook Valuation Model 08Feb2012.

Published in BoomBustBlog

Apple has started exhibiting the behavior that I have been warning about, dropping four and five percent over the last 24 hours or so, then regaining a third of the same.

NAsdapple_or_Appldaq

This volatility should be of no suprise. If you look at the chart above, you will clearly and unequivocally see Apple (or AppleDAQ or NASDApple - regardless of the nomenclature) is essentially the NASDAQ, as was pointed out in previous posts from BoomBustBlog, ex. When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time - Enter The Rotten Apple and that of ZH Apple Responsible For 90% Of Intraday NASDAPPLE Gain - to wit:

Or perhaps the 209 hedgies who rely on this stock for their year will play prisoner's dilemma (and free ride) one too many times and dismiss their recency bias to remember that the first one to migrate wins when prices go vertical.

 

Again, as pointed out in When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time,  this process of Apple purging may have already started...


3h8sj2p

This interesting observation was brought up up in my Twitter feed, to wit:

# of funds in this order (%) since 12/2010: +1.4%, -4.0%, +8.7%, +4.3%, +5.4%, +3.2%, -25.8% (1st big drop) 

@PierreLeroux28 @ReggieMiddleton I just find it interesting (if the data is accurate) that more than 1,000 funds sold out during rise 

PierreLeroux28 Pierre Leroux So if institutions dump some $AAPL on strenght after that THEY ALSO BUY THE DIPS Like i will rebuy my 10 calls 

Of course the lovefest with Apple dictates the BTD will reign, but suppose the dips are accompanied  - better yet caused - by widespread use of technologies known as calculators, spreadsheets or BoomBustBlog subscriptions?

Correction, courtesy of @cperruna, author of the chart above: 

The MarketSmith chart I uploaded was not correct but I have revised my feed with the correct data. I actually questioned MarketSmith when I saw a large drop in another leader I have been tracking. In any event, the updated data is as follows, as I posted on my twitter feed:

"Although Institutional #'s were incorrect, $AAPL still down 8% from 4/7 chart stks.co/3FrS| sponsorship is now 4,196 from 4,308"

This isn't just about quantitative analytics uber blind hedgefund managers reaching for cap gains. There are very fundamental reasons for Apple owners to expect a pullback or slowing of growth. After all, that margin compression theory is ready to come into its own. We have created a very realistic scenario analysis that shows what could happen, and when, and topped it off with what we feel should happen. Interesting indeed! Subscribers, reference the Apple Margin & Valuation Note. I gave free readers an example of the evidence we uncovered showing Apple already experiencing margin compression and a loss of market share in one of its flagship products (Apple's iPad Is Losing Market Share And …).

If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter.

image061

image051

 

Published in BoomBustBlog
Thursday, 01 December 2011 08:15

Panic Buying?

From Eurocalypse:

litteraly... credit btp france, equities everything. charts dont mean anything anymore...never seen such a thing... nobody wants to play anymore... even those rallies are not good for the mkt... extreme vols make for extreme VARs and reduce automatically the risk taking ability of dealers in terms of volumes at a time when debt auction sizes increase etc...                                   the pain trade is that RISK assets perform for the time being... in spite of the worsening fundamentals

Published in BoomBustBlog
Wednesday, 12 October 2011 09:09

Trading Tips & Market Commentary Oct 11th

Trading Tips October 11th

 

Below, please find the latest trading commentary from BoomBustBlogger and institutional trader, Eurocalypse...

Hello BBB,

I must admit that lately I had a bad week, and among the ones disappointed and disoriented by the very recent vicious price action in financial markets. If you are not, congratulations; if you are, lets not punish ourselves too much, and lets do the sensible thing ie reduce risk and take a step back and look calmly at charts and info again.

Looking at the European markets, notably the CAC, I thought that the failed attempt to break 3025 on a closing basis on Friday Sep30th meant the resumption of the bear as the engulfing pattern wasnt completed. Well that was wrong; or maybe only half-wrong but half wrong is wrong.

 20111011_-_CAC_Weekly

So, what I was looking for was a bullish reversal signal was a bullish engulfing pattern (at the lows) in the weekly chart

 Capture_Bullish_Engulfing

http://www.candlestickforum.com/PPF/Parameters/12_61_/candlestick.asp

 Technicians don't all agree on the definition, the more agressive ones focus just on open and close ignoring highs and lows. The most restrictive definition is for the whole previous bar to be engulfed. On my own definition, i like for bullish (bearish) patterns for an engulfing pattern which includes the previous candle's high (low), not necessarily the low (high); and that finish the candle on a bullish note if zooming to a higher frequency chart.

Well the market did trade very weak on Monday Oct3rd and Tuesday Oct4th nearly revisiting the lows (thats the « half right ») only to bounce with a vengeance, taking out 3025 and running higher...closing at 3161 on Monday oct10th.

Anyhow, any trader going long on Friday's close or Monday's open on the basis of that pattern, had to have strong nerves as the price action was very scary until Tuesday...

So I will let you decide about all this discussion and the futility or not of trying to look for these kind of things. I will also mention that the bounce in stock markets in 2009 was initiated without this kind of signal.

Its a bit disappointing as I had been repeating for some time that European markets were oversold and that we were due for a bounce. I also thought that the skew in options gave a good incentive to buy calls as the risk/reward was in bullish trades and not anymore in bearish trades.

The newsflow had been very negative, and lets say it again, until proof of the contrary this is a bear market, and if politicians and ECB doesnt do anything, the banking system in Europe will implode, and it might implode even if ECB intervenes. But lets be honest. Being bearish now is a common view. BBB has given a lot of prescient calls but read the FT or WSJ interviews from portfolio managers or analysts, hard to see anyone very positive around now. Even when fundamentals are horrible, if there is no more seller, then the market can only go up, at least in the short term.

What were the important news this week ? Dexia I think... We've seen DEXIA go bust. Not a surprise to me. As an industry insider, Dexia (and Depfa) were among 2 big names known to do dumb things and very good « clients » of bigger banks. In bankster language, a « good client » is someone you can rip off well...What was a semi-public entity whose mission was supposedly to lend money to french and belgium municipalities. What the hell were they doing with subprime, or buying 30Y greek bonds on a highly levered basis refinancing on the money and interbank markets ??? sheer greed and stupidity...contagion assured as Dexia is a big counterparty in derivatives markets and has sold a lot of debt. Municipalities will have a hard time to refinance. My guess is Dexia total cleanup bill will be at least the 10-20bn EUR range probably with much more than that in guarantees. Not bad for a medium sized bank, and that's 25% of the EFSF...

Also weve seen continued downgradings. I just cant remember who and how many of them but i didnt hear of anyone being upgraded last week. Personnally more than the grade itself, its the yield that matters (remember Japan was downgraded in 2001 and in June 2003 10Y yields hit 0.5% !!). Italian and Spanish yields are still in an uptrend and if that doesnt change the bear market is not over. And MAYBE only the ECB might change that in a short time frame. For me 5.25% needs to in 10Y BTP yields for the current uptrend to be broken, and Id like to see 5% broken to call it all over. We are a far, far away from that today.

 20111011_-_Italy_10Y_yield

Personally i think the politicians will seize the ECB and that we will see fiscal union and massive monetization, together with recapitalization/nationalization of private european banks because there is nothing else to do (from their point of view). If that happens, however bad it may be for the long term, banks valuation will radically change (at least in the short term) as the systemic risk is kicked further out. There is a lot of uncertainties. Sure, banks will have to shift to a new business model, with less leverage, much lower returns, and they will have to eat govt bonds in their balance sheets as they will be invited to do so. No need for EFSF to buy govt bonds, banks will just do that. In that scenario, sovereign debt and banking sector are « saved » BTP and Bonos yields go down massively boosting (=no longer hitting) the capital of those banks. But longer term, no more derivatives game, no more leverage, no more yield, eroding margins, means utility type business model, need to merge those new « semi-public » entities.

Anyway even in this scenario, confidence in the financial system will be very low with ever higher debt/gdp ratios until the real fireworks begin with the sovereign crisis hitting core countries (US, UK, Germany, France, Japan, Italy...)

But lets not forget a stock like BNP was trading near 50 only 3 months ago when we recommended shorting it, and it more than halved at one stage. So on a lot of metrics, it is a cheap stock (at least cheaper than we sold it :-) ) and oversold so there is scope for a recovery in price without fundamentals changing and not the broader trend changing. I know a French HF manager who was bullish around 27, and he must be happy. But he had a modest 35 target...

Personally i dont want to be sucked in this kind of stuff. Had he bought Dexia instead...

Same for stock indexes, they were more expensive a while ago (but cheaper only a few days ago...)

So what are the new technical levels ?

On the CAC (3137)

Once 3025 has been broken, the natural objective is 3260-3280 which on the weekly chart corresponds to the close of the first violent decline in the early days of August, and caps the highs of the 2 following weeks and the squeeze attempt in the last days of August. It is also roughly were the upper bollinger band sits. Actually there is a local declining trendline with resistance nearer to current levels which i see at 3180 but its being threatened to be taken out.

The roughly 235 point rally objective is also consistent with the fact that the lowest weekly close is contained by 3025-235 = 2790

In the bulls case, looking at the weekly chart, we have to admit there is a divergence in the RSI and stochastics. But i dont think it means more than the 3260-3280 objective. The bulls can also argue that the weekly DMI is extremely strong and that a stronger technical correction is overdue.

On the monthly chart, we can see we are very far from the moving average, and a rally to for example 3400-3450 wouldnt change the broader trend.

 20111011_-_CAC_Monthly

However, i would note that if we close this month on a strong footnote above 3310, thats a bullish engulfing reversal pattern !! I dont favour this scenario at all, but we have to keep our mind open; and i dont know for you, but ill put all my structural bearish bets off for a while if that happens.

 

On the SP (1183)

 20111011_-_SP_Weekly

same kind of chart, but with the market even more reluctant to sell off, witness the candles of the 2nd week of August or 1st week of October which indicate strong and swift buying at the lows. And divergences in technical indicators RSI, stochastics. 1220-1240 is the level to watch on the upside, if it breaks, one should back off for a while I think. But its also the place to try to go short with tight stops.

Financials have been weak. We're looking at the next Armageddon trade. We hate GS (96) at BBB, but we think it has much more downside potential if/when everything blows up. But, the trendline channel support seem to have worked for GS which has lost more than 40% YTD. I personally prefer to be modest and thank BBB to have given realistic band valuations for the likes of GS and BNP and even if the risk is on further downside, I believe now is a place to reduce risk.

20111011_-_GS_Monthly

 

EURUSD (1.361) has been correlated 1to1 with stocks. With yesterday's big move in the EUR, i do feel stupid to have given a recommendation to stay short last week at 1.335. Eu(ro)phoria is not good for trading ! I should have set a stopwin. Weve recommended shorts since 1.41+ so its not a total disaster, but personally, ill go out for money management puposes. Actually 1.385/1.39 the moving average is quite near and is the zone where new players not involved should like to go short, because nothing changed...so LT players should stay short, but long term player am I not...

 

Also, whats also the point to hold similar positions in correlated assets ? None i think. Unless there is a specific and timely technical signal we (try to) get right.

 

Gold (1660) is still healing, I favour building longs cautiously on weakness around 1550-1600 again but i dont expect strong quick gains now. Here is the monthly chart. Please make up your own mind following the earlier discussion on engulfing patterns.


 20111011_-_Gold_Monthly

 Remember trading is not about getting all calls right; not even about getting more than 50% right, but about making and managing money. I prefer to miss a trade than to be involved in a messy trade. I am more in wait and see mode here. Luck, as usual, is also very important of course. I wish good luck to you all.

Published in BoomBustBlog
Friday, 07 October 2011 11:17

Subscribers, Look To The Discussion Forums

All paying subscribers, please make more use of our private discussion forums. I've left a not there about my position in Apple to get the discussion started.

Published in BoomBustBlog

Yes, this more of the hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3: 

  1. I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction
  2. Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?"
  3. Reggie Middleton Serves Up Fried Calamari From Raw Squid: Market Perceptions of Real Risk in Goldman Sachs

So, what else can go wrong with the Squid? 

Plenty! In Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?" I included a graphic that illustrated Goldman's raw credit exposure...

So, what is the logical conclusion? More phallic looking charts of blatant, unbridled, and from a realistic perspective, unhedged RISK starring none other than Goldman Sachs...

 image006

And to think, many thought that JPM exposure vs World GDP chart was provocative. I query thee, exactly how will GS put a real workable hedge, a counterparty risk mitigating prophylactic if you will, over that big green stalk that is representative of Total Credit Exposure to Risk Based Capital? Short answer, Goldman may very well be to big for a counterparty condom. If that's truly the case, all of you pretty, brand name Goldman counterparties out there (and yes, there are a lot of y'all - GS really gets around), expect to get burned at the culmination of that French banking party
I've been talking about for the last few quarters. Oh yeah, that perpetually printing clinic also known as the Federal Reserve just might be running a little low on that cheap liquidity antibiotic... Just
giving y'all a heads up ahead of time...

And for those who may not be sure of the significance, please review my presenation as the Keynote Speaker at the ING Real Estate Valuation Seminar in Amsterdam, below. After all, for all intents and purposes, Dexia has officially collapsed - [CNBC] France, Belgium Pledge Aid for Struggling Dexia... and its a good chance that it's a matter of time before BNP follows suit - exactly as BoomBustBlog predicted for paying subsccribers way back in July.

A step by step tutorial on exactly how it will happen....

 The European banking debacle was predicted at the start of 2010, a full year and a half before this has come to a head. If I could have seen it so clearly, why couldn't the banking industry and its regulators?

Now, back to GS, and considering all of the European falllout coming down the pike, of which Goldman is heavily leveraged into, particulary France (say BNP/Dexia/etc.)...

image009

Let's go over exactly how GS is exposed following the logic outlined in the graphic before this series of videos, as excerpted from subscriber document Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, pages 3,4 and 5.

GS__Banks_Derivatives_exposure_temp_work_Page_3

GS__Banks_Derivatives_exposure_temp_work_Page_4

GS__Banks_Derivatives_exposure_temp_work_Page_5

Booyah!

There you go. The markets and the media have concentrated on Morgan Stanely because Goldman has successfully hid much of its risk from those who didn't subscribe to BoomBustBlog. Of course, those who did subscribe picked up those puts ridiculosuly cheap, and are/will reap the benefits as the TRUTH goes VIRAL!

Those who wish to jump on the gravy train of our next US bank analysis featuring those susceptible to this malaise can subcribe here and now!

The many ways to reach Reggie Middleton:

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Meet Reggie Middleton in person in NYC and London!

I will be hosting two BoomBustBlog meet and greets, for those who aren't too put off by my truthful, fact-based style. One in the next couple of weeks in a swank, pretty people laden lounge in downtown Manhattan, and the other potentially in London in mid-November - both wherein we sit down and chew the fat about things financial, global macro and socio-economic over drinks and heated debate. I will have plenty of gratis BoomBustBlog research there as well. Those who are interested should email the blog Customer Support for info.

Published in BoomBustBlog
Tuesday, 04 October 2011 00:09

Eurocalypse trade opinion, 10-3-11

New trading opinion available from Eurocalypse, subscribers ony: File Icon Eurocalypse trade opinion, 10-3-11

Published in BoomBustBlog