Here's proof, pulled off of the St. Loius Fed's site, and espoused in front of the actual entrance to the NY Fed.

More on the matter...

Bernanke's Lying Through His Teeth and Not A Single Pundit/Analyst/Banker Has Called Him On It!!!

Is The New US Consumer Consumption Bubble Primed To Pop? Yes, There's A Bubble!!!


Recent and related research

Below are three companies that probably will not do well even with Bernanke's machinations. When and if Bernanke fails, look out below.... Click here to subscriber!

Retailer Preliminary Analysis 08/03/2012
Published in BoomBustBlog
Friday, 31 August 2012 10:12

Gold Is Money Interview

Reggie Middleton on banking problems 

Investor Reggie Middleton — author of the BoomBustBlog.com — discusses the problems in our banking system with GoldMoney’s Alasdair Macleod. Reggie states that the current zero-interest rate policy being pursued by the Federal Reserve (often referred to as “ZIRP”) is masking problems with banks, but not solving them. He points out the basic truth that money-lending institutions make money off of interest, and that as long as rates remain artificially suppressed, this will constrain lenders’ profits. This is an issue all over the world — something that makes investing in this sector tricky. Middleton argues that the European situation is particularly fraught, on account of their being “too many chiefs and not enough Indians...

See the original interview posting on Gold is Money.

Published in BoomBustBlog
Tuesday, 28 August 2012 10:05

European Bank Run Watch: Spaniard Edition

As part of my ongoing series which I started in January of 2010 - Pan-European sovereign debt crisis, I detailed the rapidly developing financial malaise in Europe, detailing the risk to the larger more respected western European nations as well as their perceived profligate brethren to the south. One name popped up that analysts and media failed to harp on... Spain - at least back then. Now, people are wondering how Spain will handle its new found (at least to non-BoomBustBlog subscribers) funding crisis. To wit, and as excerpted from The Spain Pain Will Not Wane:

Professional subscribers can now actually download the original Spanish Bond Haircut Model that we used to calculate loss scenarios - Spain maturity extension_010610 (The Man's conflicted copy). Despite the fact I was probably the most realistically bearish out of the bunch, things have actually gotten materially worse since this model was constructed two years ago, hence it can use a refresh. Alas, it is still quite useful.

In the general subscriber document Spain public finances projections_033010, the first four (or 12) pages basically outline the gist of the Spanish problem today, to wit:

Spain_public_finances_projections_033010_Page_01Spain_public_finances_projections_033010_Page_01

Spain_public_finances_projections_033010_Page_02Spain_public_finances_projections_033010_Page_02

Spain_public_finances_projections_033010_Page_03Spain_public_finances_projections_033010_Page_03

Spain_public_finances_projections_033010_Page_04Spain_public_finances_projections_033010_Page_04

The stress caused by Spain breaking the central bank will bring to full fruition the theory behind our European Banking and Insurance research from the last few quarters. All would do well to remember (and re-read, if need be),

This research, although over 2 years old, has proved to be quite useful and prophetic, till this very day. Ask the editors at CNBC as they ran this story: Spain Recession Deepens as Austerity Weighs

Spain's economy shrank further in the second quarter of the year and a slump in domestic spending accelerated, signaling a protracted recession as the country presses on with efforts to slash its public deficit.

Spain's economy fell back into recession in the first quarter of the year, when output fell 0.3 percent, and government estimates show GDP will probably fall for this year and next year as it pushes through further measures aimed at slashing a bloated deficit.Gross domestic product fell by 0.4 percent in the second quarter of the year, according to final data that confirmed a preliminary reading. But on an annual basis it dropped by 1.3 percent, worse than initial estimates of 1.0 percent.

The data came a day after Spain said its economy performed less well than expected in both of the last two years.

On Tuesday, the National Statistics Institute, INE, also revised down 2011 fourth quarter GDP to -0.5 percent from -0.3 percent.

Close to record high borrowing costs and an economy showing little sign of picking up any time soon is nudging Spain closer to calling for a European bailout, which analysts say is only a matter of time.

Those that follow me know that I have been warning on Europe and its banking system years before the sell side and mainstream financial media (reference the Pan-European Sovereign Debt Crisis series).

Well, fast forward to today's CNBC headlines and you get: Spaniards Pull More Money Out of Banks in July. What a surprise, eh? As excerpted:

A rush by consumers and firms to pull their money out of Spanish banks intensified in July, with private sector deposits falling almost 5 percent as Spain was sucked into the centre of the euro zone debt crisis. Private-sector deposits at Spanish banks fell to 1.509 trillion euros at end-July from 1.583 trillion in the previous month.

Hmmm!!! How's that bank run thingy work again? Oh yeah, as excerpted from the prophetic piece from July 23, 2011 - The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! which detailed for my readers and subscribers the mechanics of the modern day bank run, particular as I see (saw) it occurring in Europe.

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JP Morgan is now calling for a clawback of INA Drew's excessive compensation. OF course, Sheila Bair (one of the few regulators whom I actually respect) declaresJamie Dimon's compensation should face a claw back as well. Well, it's apparent that Dimon's lobbying and influence reaches a bit farther than Ina Drew's, no? Ahhhh, regulatory capture at its best (as in How Regulatory Capture Turns Doo Doo Deadly).

BoomBustBlog readers remember this scenario from several years ago, to wit: Even With Clawbacks, the House Always Wins in Private Equity Funds. In said article, I explained that althought Blackstone instituted a clawback that returned funds to investors, the investors still got RIPPED OFF!!! Don't believe me? Read the following excerpt and keep in mind that private equity and LLP investors are easily replaced by public equity investors in the JPM scenario!

I have written extensively on this topic. For one, the CRE bubble was obvious, but funds plowed ahead because they receive fees for deals done as well as performance fees. I warned about Blackstone and the Sam Zell deal blowing up back in 2007 as it was being done (see Doesn’t Morgan Stanley Read My Blog?). It was quite OBVIOUS that the top of the market was there , but it doesn't matter if you get paid for both success AND failure, does it? They are often in a win-win situation. On April 15th, 2010 I penned “Wall Street Real Estate Funds Lose Between 61% to 98% for Their Investors as They Rake in Fees!” wherein I espoused much of my opinion on market manipulation and the state of CRE. I will excerpt portions below in an attempt to explain how REITs and the bankers that they deal with get to add 2 plus 2 and receive a sum of 6, or worse yet have 4 subtracted from their 6 and get to sell 5!!! Straight up Squid Math!

Oh, yeah! About them Fees!

Last year I felt compelled to comment on Wall Street private fund fees after getting into a debate with a Morgan Stanley employee about the performance of the CRE funds. He had the nerve to brag about the fact that MS made money despite the fact they lost abuot 2/3rds of thier clients money. I though to myself, “Damn, now that’s some bold, hubristic s@$t”. So, I decided to attempt to lay it out for everybody in the blog, see ”Wall Street is Back to Paying Big Bonuses. Are You Sharing in this New Found Prosperity?“. I excerpted a large portion below. Remember, the model used for this article was designed directly from the MSREF V fund. That means the numbers are probably very accurate. Let’s look at what you Morgan Stanely investors lost, and how you lost it:

The example below illustrates the impact of change in the value of real estate investments on the returns of the various stakeholders – lenders, investors (LPs) and fund sponsor (GP), for a real estate fund with an initial investment of $9 billion, 60% leverage and a life of 6 years. The model used to generate this example is freely available for download to prospective Reggie Middleton, LLC clients and BoomBustBlog subscribers by clicking here: Real estate fund illustration. All are invited to run your own scenario analysis using your individual circumstances and metrics.

realestate_fund.pngrealestate_fund.pngrealestate_fund.png

To depict a varying impact on the potential returns via a change in value of property and operating cash flows in each year, we have constructed three different scenarios. Under our base case assumptions, to emulate the performance of real estate fund floated during the real estate bubble phase,  the purchased property records moderate appreciation in the early years, while the middle years witness steep declines (similar to the current CRE price corrections) with little recovery seen in the later years.  The following table summarizes the assumptions under the base case.

re_scenarios.pngre_scenarios.pngre_scenarios.png

Under the base case assumptions, the steep price declines not only wipes out the positive returns from the operating cash flows but also shaves off a portion of invested capital resulting in negative cumulated total returns earned for the real estate fund over the life of six years. However, owing to 60% leverage, the capital losses are magnified for the equity investors leading to massive erosion of equity capital. However, it is noteworthy that the returns vary substantially for LPs (contributing 90% of equity) and GP (contributing 10% of equity). It can be observed that the money collected in the form of management fees and acquisition fees more than compensates for the lost capital of the GP, eventually emerging with a net positive cash flow. On the other hand, steep declines in the value of real estate investments strip the LPs (investors) of their capital. The huge difference between the returns of GP and LPs and the factors behind this disconnect reinforces the conflict of interest between the fund managers and the investors in the fund.

re_fund_returns.pngre_fund_returns.pngre_fund_returns.png

re_fund_returns_tables.pngre_fund_returns_tables.pngre_fund_returns_tables.png

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Under the base case assumptions, the cumulated return of the fund and LPs is -6.75% and -55.86, respectively while the GP manages a positive return of 17.64%. Under a relatively optimistic case where some mild recovery is assumed in the later years (3% annual increase in year 5 and year 6), LP still loses a over a quarter of its capital invested while GP earns a phenomenal return. Under a relatively adverse case with 10% annual decline in year 5 and year 6, the LP loses most of its capital while GP still manages to breakeven by recovering most of the capital losses from the management and acquisition fees..

re_fund_returns_tables3.pngre_fund_returns_tables3.pngre_fund_returns_tables3.png

Anybody who is wondering who these investors are who are getting shafted should look no further than grandma and her pension fund or your local endowment funds…

Published in BoomBustBlog

LIeBOR is all over the MSM today...

I wonder how many realize how deadly this is to big western banks workwide. I have commented on this in detail in my most recent Max Keiser interview, which aired last night. Download the Barclays Submission, aka the "Smoking Gun".pdf for more insight to what happened. Here's a taste...

barclays email header

barclays email

Quick translation...

BOE inquires why Barclay's LIBOR rate was always so high,  realistic...

Barclay's asks BOE reps to brand the liars as liars...

BOE says, "are you out of your fucking mind???"

BOE rep says, this is coming from on top, lose the truth, or lose your ass! But you didn't hear that from me...

Of course the most daming part of this email is this "I asked [Tucker] if he could relay the reality, that not all banks were providing quotes at the levels that represented real transaction". This clearly shows that the BOE was on alert (as if they didn't already know, and probably orchestrated) of the fact that most banks were outright lying.

See my extensive comments on Max Keiser's show earlier this week, starting at 12:48 in the following video...

Additional (in depth) commentary can be found starting at 3:10 in this video with Lauren Lyster...

So, who are these other banks???

From Matt Taibbi's blog:

 The Royal Bank of Scotland is about to be fined $233 million (£150 million pounds) for its role in the Libor-rigging scandal. It joins Barclays as the first banks to walk the plank in what should be, but so far is not, the most sensational financial corruption story since the crash of 2008.

Many of the banks implicated in the Libor mess have also been targeted in the various municipal bond bid-rigging investigations, and RBS is no different – its subsidiary Natwest is also a defendant in the major civil lawsuit in the bid-rigging case. The cases aren't related, except in the sense that they both involve manipulation and anticompetitive cooperation. It's going to be harder and harder to make the case that the major banks do not routinely cooperate at the expense of the public when it serves their purposes to do so.

The news that RBS is involved comes with a perverse twist. This is from the Times UK:

The bank, which is 82 per cent owned by the taxpayer, is preparing for a political firestorm over the affair because it believes that it has no power to claw back bonuses from the traders responsible. Instead, the expected fines would be borne by the shareholders — largely the Government.

Libor manipulation is a crime that already robs the public to create bonuses for bankers. By artificially lowering interest rates, the banks caused cities, towns, countries, and other public entities to receive smaller returns on their variable-rate investment holdings. If it turns out that taxpayers end up paying the fine for RBS's crime of robbing taxpayers, how perfect would that be?

More importantly Matt, synthetically depressed LIeBOR rates artificially lowers the bar for economic profit, in layman's terms it makes the bank look more profitable and less risky than they actually are. As you stated, this leads to bigger bonuses funded by bigger taxes borne by financially smaller taxpayers. Hmmmm....

Who else is in the sights of the upcoming truth? Citbank, Bank of Lynch (robbing) America Coutrywide and JP Morgan! Have I commented on these big banks' risks ad nauseum? The litigation risks in these institutions are enormous, and are not discounted in their pricing - Banks face crippling Libor litigation costs

Not only do the share prices of these banks fail to reflect the true litigation risks, the bank management themselves are failing to come clean, despite astute BoomBustBlog analysis....

There's imprudent risk management litigation stemming from JP Morgan's massive derivative's exposure, first brought to light in 2009 by yours truly...

Listen Carefully and You Can Hear the Crumbling ....May 11, 2012 – First, pardon my tardy response to this JP Morgan news. ... Equity segment, net income (excluding Private Equity results and litigation expense) ...



In 2009 I noticed that JPM's exposure to Fraudclosure-gate and to a greater extent, mortgage putbacks, was much, much more than what was being reported by managment. There's much more, see:

JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If It Was Not Obvious Years Ago That This Industry May Become The "New" Tobacco Companies

JP Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last Year & Is Still Severely Under Reserved By Over $4 Billion!!! Shareholder Lawyers Should Be Scrambling Now Mar 2, 2011 – JP Morgan Purposely Downplayed Litigation Risk That Spiked 5000% Last Year & Is Still Severely Under Reserved By Over $4 Billion!

The Rating Agency Endorsed BoomBustBlog Big Bank Bash Off ... Feb 16, 2012 – JP Morgan (as well as Bank of America) is literally a litigation sinkhole. See JP Morgan Purposely Downplayed Litigation Risk That Spiked ...

You see, what many believe to be a UK bank thing can drag these big American banks deeper, much deeper, into the quagmire. Beware, the F.I.R.E.! The F.I.R.E. Is Set To Blaze! Focus On Banks, part 1

Published in BoomBustBlog

Yesterday, I posted The Difference Between Money and Wealth and Why You Can Easily Print One But Must Actually Create The Other, and as if on cue, global inkjet nozzles 'round the world started whizzing - to wit:

Why such rampant printing? The whole world's afraid Europe's impending implosion will engulf global economies. They very well shoud be, this was quite evident 3 years ago (Pan-European sovereign debt crisis) and the can kicking is nearing the end of its useful cycle... ECB's Draghi: We See Now a Weakening of Growth in Whole Euro Area

Here's the secret that BoomBustBlog subscribers know yet seems to be lost on much of the European powers that be: cutting rates and printing will absolutely NOT prevent the nuclear winter in Real Assets. Since loans behind real assets are anywhere between a vast chunk and the majority of bank loans, when this thing goes the European banking system goes with it. This will manifest itself stateside (see sidebox), but the Europeans will get hit harder, at least initially... The reason? Well, it doesn't really matter how low interest rates are - if banks don't lend, borrows will not gain access to capital. Banks are too weak and skittish to lend despite "so-called" record profits, billions in bonuses and compensation, and trillions in bailouts. I repeat, and I repeat again, the only solution is to let the insolvent fail.

The REIT analysis referred to in the chart can be found here forsubscribers (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.

Reference the quite informative post from which the graphics below were excerpted: Watch As Near Free Money To Banks Fails To Prevent Nuclear Winter For European CRE

Slide21Slide21

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 So are there any concrete examples of all of this Reggie style pontification? If course there is. Do you see that chart above where the tiny country of the Netherlands is one of the largest per capita contributors to these bailouts? Well, you don't think all of the expenditure (to be) is free do you? Here are some screenshots of a prominent Dutch property company, on its way down the tubes - subscribers reference (click here to subscribe):

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Fastforward to today, and NIEUWE STEEN INVESTMENTS N.V. - NSI (one of our shortlisted REIT) suffered the most due to revaluation of their Dutch office portfolio. It therefore witnessed 26% decline in last 4 months.

NSI

NSI is simply a microcosm of what's to come for many larger real asset investors. I have warned that the Dutch, with what many consider to be a strong and relatively stable economy, was not immune to the European contagion, reference Are The Ultra Conservative Dutch Immune To Pan-European Economic Contagion...

 

 

 

 

Published in BoomBustBlog

An update of "shortable" (as in still having some meat on the bone) French banks is available for download to subscribers - French Bank Observations & Focus on...(519.21 kB 2012-06-28 08:36:37).  Part and parcel to this common sense update is recognition of the fact that Italy will bust French banks, causing France to do the socialist bailout thingy. See this chart from the report...

French bank Italian exposureFrench bank Italian Exposure: As Italy pops with outrageous funding yields (just like Greece), France will be forced to bailout its banks once again, leaving the socialist country facing the dilemma of potentially having to ask for a bailout itself. As you may know from my previous writings, the French banking system is bigger than France itself so a true bailout cannot practically come from within.

Of course, this was apparent two years ago...

This impetus of this video stemmed from the post Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe, for as France decides to to the socialist thingy, they may put themselves in the position of needing a bailout - as excerpted:

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

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

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Can the EU quasi-sovereign (they are not truly sovereign due to a lack of fiscal autonomy, and Germany is looking to limit that even more) states truly afford to bailout banking systems that are multiples of their GDP? Hell Nah!!!

I have made this quite clear in the past, namely in Watch The Pandemic Bank Flu Spread From Italy To France To ... where I simply quoted the arithmetical obvious, then in French Banks Can Set Off Contagion That Will ... where I basically did the same. Shouldn't the rating agencies start getting much rougher with France, or is the lesser of the dynamic bailout duo to sacrosant to touch with truly empirical bailout gloves???

Of course, all of this simply conforms to my F.I.R.E. thesis from the beginning of the year, a thesis which was actually aired through the MSM...

Reggie Middleton Sets CNBC on F.I.R.E.!!! Jan 4, 2012 – thumb_Reggie_Middleton_on_Street_Signs_Fire Last week I offered my susbscribers examples of the 2nd and 3rd sectors of the FIRE...

First I set CNBC on F.I.R.E., Now It Appears I've Set ... Jan 6, 2012 – burning-house Tuesday I literally Set CNBC on F.I.R.E.!!! as the only pundit/analyst/investor to warn of the FIRE (finance/insurance/real es...

Portuguese Liquidity Trap: When You Add Too ... Mar 12, 2012 – In this followup to Greece Is Trying To Convince Portugal To MakeF.I.R.E. Hot I think we should get straight to the point - Anyone who does...

Greece Is Trying To Convince Portugal To Make F.I.R.E. Hot!!! Mar 9, 2012 – Minutes ago I posted So, What's Next Step Towards The Eurocalypse? wherein I illustrated the folly in believing this CAC-powered Greek bon..

The F.I.R.E. Is Set To Blaze! Focus On Banks, part 1 - Jun 13, 2012 – Note to subscribers, updated research availalble: GS Revenue Analysis Q2 12 - our opinion of the robustness of Goldman's upcoming quarter

No Capital Controls In The EMU? Liar Liar Pants On Fire 3 days ago – I have outlined the upcoming EU bank runs up to two years in advance (see the many links below). Whenever one expects a bank run, the first 

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I have outlined the upcoming EU bank runs up to two years in advance (see the many links below). Whenever one expects a bank run, the first things TPTB do is institute capital controls to stem said bank run - which of course makes the bank run that much more necessary to get your capital out - wash, rinse, repeat! Remember, by treaty, no country in the EMU may use capital controls without automatically being removed from the union. Well, do you believe that to be fact that will last? Yeah, I don't either. Simply watch as the money bleeds from the banks and the bumbletrons attempt to staunch the flow using mechanisms that will simply exacerbate the flow. Even more incredible is the fact that even to this date, with the existence of publications such as BoomBustBlog, entire nations as well as their financial advisors, leaders, regulators and politictians STILL DO NOT EVEN COMPREHEND the nature of the modern bank run. You cannot stem the tide with capital controls, you can only exacerbate it. 

Now, As Predicted Last Year, The French and the Greeks Are In A Race For The Biggest Bank Run!

On Saturday, 23 July 2011 I penned "The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!" wherein I went through both the motive and the mechanism of a European bank run, focusing on Greece and France as impetus.

You see, the problem with this bank holiday thing is that the real damaging bank run will not be staunced by the conventional bank holidays, et. al. because it is a counterparty run that will cause the damage, not depositors. TPTB in Europe don't have the chops to stem this one, at least not from what I've seen. As for how that institutional bank run thing works, we excerpt "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!

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

And Yes!!! The fodder for bank rungs are ALL OVER THE EUROPEAN SPACE!!!!

Today's MSM headlines make this quite clear, but before we get to them, just remember how obvious this was two and three years ago and why NOBODY should be shocked or surprised! See Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe from Wednesday, 31 March 2010 and Is Another Banking Crisis Inevitable? from Feb 4, 2011 and a complete video tutorial based on early 2010 work that has yet to be even one iota inaccurate... 

Now, why would anyone be concerned about a bank run today? Oh yeah...

 CNBC reports Spain Officially Requests Cash for Bank Bailout From Europe, right after I made it clear that CNBC is asking the wrong questions - to wit: CNBC Asks, "So Why Are Spanish Bond Yields Falling?" I Ask The Better Question, "Why Are Spanish Banks Considered Solvent?" 

You also have CNBC reporting that Fitch Cuts Cyprus to Junk as Greek Exposure Hits (exactly as the Greek bailout constructionist lawyer from Gottlieb in the video above said it would last week). Exactly one year ago today I claimed Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par at 30x+ Leverage: Bank Collapse is Inevitable!!! I wasn't joking. Bank collapse is INEVITABLE!!!

If you remember, Greece was supposed to be in the clear right? Let's bring back Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! All said Greece would never default while I made it clear multiple defaults were literally guaranteed as far back as 2010:

The Greece and the Greek Banks Get the Word “First” Etched on the Side of Their Domino 2010

Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! 2010

and the list goes on...

  1. Greek Soap Opera Update: Back to the Bailout That Was Never Needed?

  2. Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ!

 

As I Explicitly Forewarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!

How Greece Killed Its Own Banks!

Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!

 

 

Spain was even called as an unrecognized problem back in 2010: As We Have Warned, the Fissures Are Widening in the Spanish Banking System

 

So what's the purpose of all of this reminiscing? Well, the contagion trade is on and popping my friend. Those BoomBustBlog Armageddon Puts That Became Fashionable At Goldman are ready to be strategized. My next post on this topic will be on that big EU bank that was the last to be priced for contagion. In the meantime, remember (subscriber only - click here to subscribe) contagion model research:

Next up is an updated take on that big bank hooked to deep into Greek and Italian exposure. I'll try to have the subscriber document and a free preview opinion up in a few hours on BoomBustBlog. In the mean time and in between time, follow me:

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On Monday, 18 June 2012 I penned "Is Morgan Stanley Once Again The "Riskiest Bank On The Street"?". You see, MS has more than a few skeletons in the closet an d the upcoming market volatlity and dearth of revenues isn't going to help the situation any. Yesteday, Moody's chopped two notches off of the MS ratings belt, albeit in the usual too little too late faschion. 

Via ZH: Here We Go: Moody's Downgrade Is Out - Morgan Stanley Cut Only 2 Notches, To Face $6.8 Billion In Collateral Calls

  • MOODY'S CUTS 4 FIRMS BY 1 NOTCH

  • MOODY'S CUTS 10 FIRMS' RATINGS BY 2 NOTCHES

  • MOODY'S CUTS 1 FIRM BY 3 NOTCHES

  • MORGAN STANLEY L-T SR DEBT CUT TO Baa1 FROM A2 BY MOODY'S

  • MOODY'S CUTS MORGAN STANLEY 2 LEVELS, HAD SEEN UP TO 3

  • MORGAN STANLEY OUTLOOK NEGATIVE BY MOODY'S

  • MORGAN STANLEY S-T RATING CUT TO P-2 FROM P-1 BY MOODY'S

  • BANK OF AMERICA L-T SR DEBT CUT TO Baa2 BY MOODY'S;OUTLOOK NEG

Remember, it was collaeral calls that put the nails in Bear Stearns and Lehmans coffin. I made this very clear in both cases - 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? 

Am I right about the Bear?

Despite the Bear Stearns negative developments, and my opinion of its value, Bear Stearns has managed to find investors as was mentioned earlier in the insider transaction section. These are accomplished and wealthy investors to boot. My concern is that so many astute, accomplished and economically powerful investors have failed to realize and fully appreciate the depth and breadth of the current real asset recession, burst bubble, and quite possibly asset depression we have recently entered. This has destroyed the value of many bottom fishing value investors, both intitutional and retail.

image018.gifimage018.gifimage018.gifA brief perusal through my site reveals a fairly decent track record of recognizing the potential damage to be done by this "devaluation diaspora". Only time shall tell the tale of Bear Stearn's contribution to this list. Twelve months to date, BSC has lost over 50% of its share value and it near ground zero of the housing bubble burst. Observing the share price patterns of the companies who were actually at ground zero shows that a 50% is far from the midway mark when tracking from the peak of the bubble. I am certain their may be financial concerns such as well capitalized investment funds, foreign firms/funds, and/or stateside banks who have, and are considering a buyout. Yet, as I have stated with Ambac Financial, MBIA, Beazer Homes, and Countrywide during similar institutional forays into attempted vulture investing - Caveat Emptor: Seeking the bottom of a bottomless pit is a hazardous venture, indeed.

To date, I have been blessed with a modicum of accuracy in my research. As always, I am short any company that I am bearish on, and will be long any company that I am bullish on.

There was also 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?”

Those damn rating agencies...

Of course, we all know how reliable and timely the rating agencies are, right? See Rating Agencies vs Reggie Middleton, Part 3 and the Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts

Reggie_VPRO_Ratings_agencies
Published in BoomBustBlog

The latest Q2 qualitative observations for JPM are now available for all paying subscribers to download: JPM June 20 2012 Observations. This document contains a few interesting tidbits that, of course, you will get from nowhere else. For instance, did you know that the Q1 2012 financial results have many hidden secrets? We have looked at the Bank’s Q1 2012 financial results and have the following observations:

  • The Bank reported Q1 2012 revenues of $26.7 billion , an increase of $1.5 billion , or 6% , from the prior-year quarter. That sounds decent for a big bank in tough recessionary times, eh? However, the increase was primarily driven by a $1.1 billion benefit from the Washington Mutual bankruptcy settlement. Excluding this benefit, the revenues were almost the same as that in Q1 2011. With flat revenues like these, just imagine what could happen to the bottom line when a multi-billion dollar trading loss occurs.
  • The Bank had booked a loss on fair value adjustment of Mortgage Service Rights (MSR) in Q1 2011 of $1.1 billion. Hey, you know they just don't make those ephemeral, totally contrived 2nd order derivative products like they used to, eh?

Excluding the effect of the MSR loss along with the impact of gain from Washington Mutual bankruptcy, the bank’s Q1 2012 revenues actually decreased compared to Q1 2011.

Combine these secrets, derivative trading (oops, I mean hedging) losses and that bland ZIRP sauce that sucks profits in an increasingly expensive compensation landscape and you'll get one hell of a safe return for your 401k, right Mr Bove, et. al.? 

From the 2009 BoomBustBlog "I told you so" archives...

To wit regarding JP Morgan, on September 18th 2009 I penned the only true Independent Look into JP Morgan that I know of. It went a little something like this:

Click graph to enlarge

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Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM's derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008). We all know what happened to Bear Stearns and Lehman Brothers, don't we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail - unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated. Who would you put your faith in, the big ratings agencies or your favorite blogger? Then again, if it acts like a duck, walks like a duck, and quacks like a duck, is it a chicken??? I'll leave the rest up for my readers to decide. 

This public preview is the culmination of several investigative posts that I have made that have led me to look more closely into the big money center banks. It all started with a hunch that JPM wasn't marking their WaMu portfolio acquisition accurately to market prices (see Is JP Morgan Taking Realistic Marks on its WaMu Portfolio Purchase? Doubtful! ), which would very well have rendered them insolvent...

... You can download the public preview here. If you find it to be of interest or insightful, feel free to distribute it (intact) as you wish. JPM Public Excerpt of Forensic Analysis Subscription JPM Public Excerpt of Forensic Analysis Subscription 2009-09-18 00:56:22 488.64 Kb

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