Who is Reggie Middleton?: A Backgrounder
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What does Reggie Middleton do and how does he do it
Performance & Research: Reggie beat ALL of the major Wall Street analysts, hedge fund indices, pop investment personalities and global market indices by at least 100%
Facts & Figures
Reggie had nearly 5 million visitors since September of 2007, and over 3,000 subscribers
Reggie's BoomBustBlog research model has produced returns of approximately 100% for the year ending December 31st, 2008 while practically every other professional investor and index was deeply negative
Reggie's proprietary trading account finished the year up well over 400% on a time weighted basis for the year ending December 31st, 2008
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Reggie has appeared in the following: Forbes, Las Vegas Business Press, NY DailyNews, CNNfn: Digital Jam, Fortune, PC Magazine, BET, PC World, Real Estate Finance Today, Interactive Week, eWeek, Computer Shopper
Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree. You can consider me the individual investor of the new millenium.
Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not make my living from selling advice, I make my living from acting upon my own advice, I am not a reporter hence do not sell stories. I am not a broker/bank, hence I do not have to hawk my services. I am an entrepreneur who exists just outside of main
stream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it!
I find most research lacking, in both quality and quantity. Thus, the reason why I had to create my own research staff of high caliber analysts and forensic accountants was due to my dissatisfaction with what was currently available - to both individuals and institutions.
So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public at highly subsidized prices or free of charge. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.
Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned commercial banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.
So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities.
Our Subscribers - Social Proof:
- Banks (Morgan Stanley, UBS, Citibank)
- Consultants (Deloitte)
- Hedge Funds (Citadel)
- Central Banks and global quasi-government agenices (the European Central Bank, the Central Bank of Canada, The International Monetary Fund)
- Insurance companies (The Hartford)
- The nations largest real estate companies (General Growth Properties)
- High net worth and very high net worth individuals .
- 75% of the BoomBustBloggers are executives and professionals
- Over 35% of Reggie;s readers make over $100,000 per year, and over 1/4 make over $200,000 per year.
- 32% of Reggie's readers are millionaires.
- 18% are multimillionaires
- 5% have net worths over $10 million.
- 17% have investable assets over a million dollars
- 9% have currently investable assets over $2 million
Praise from our readers/subscribers
- wanted to say hello and thank you for all the work thats done here. i know nothing, basically about investments, markets, stratagy etc. i'm a working a playwright-actor-director. thats my line. therein lies my cash supply. ive not traded on your advise as yet, i do indeed think that may change over time. i stuck my 550 in the pot and the langauge of the martkets i'm taking in from you is eyepopping. the curve is breaking down quickly and i thank you and your team.
- From KC Dallas – “For those ignorant to assume the style of ones writing is an indication of their investment knowledge is, well, ignorant. Those that chose to bash Reggie Middleton should check out his work. It is some of the most in-depth analysis you will find!
While the pundits were telling everyone the worst was over and to buy, buy, buy (that includes Mr. Bove) Reggie's analysis told you how sick the financial companies were. If the pundits took the time to do their job and actually report the truth, they would have told you exactly what Reggie had been stating since 2007.Pundits have a job and that's to help Wall Street take your money.I highly recommend those who decided to bash on Reggie to take a look at his site and his data. You WILL NOT be disappointed. You'll get the truth backed up by factual data. Look over some of the data Reggie put out there on MS, LEH, GS, and WFC.When the pundits started reporting on earnings reports that were stretched truths, you would have already known exactly what amounts of Hide the Level 3 assets these firms had.If you want to see a difference in your accounts, check out his work. Yes, I am biased. Why? Because I've been checking out his site for months and I've been very well educated by his information as well as benefiting financially. Reggie... Thanks for an awesome year!!!! Looking forward to 2009 with you.”
- From Prescient – “For those who don't know Reggie he's the best around, GGP is his crown jewel. He also called HIG and the other insurers and the downfall of the IBs. His analysis is the best. I shouldn't have closed my short on GGP in the $20s, and you shouldn't have closed it in the teens,wow! Congrats on all the success man, you've earned it.
- From Smarty Pants “Nice summary of the Keynesian viewpoint of the economy. As your chart of US consumer credit shows, the US economy has been running on borrowed money for some time. The past four years of "growth" have been paid for by borrowing nearly $500 Billion to spend…….. That said, Mr. Middleton has presented an extensive and useful body of economic evidence that, for those who fantasize about a return to 2005, there really is more to fear than fear itself.”
- From Mike – “Hello Reggie:I am a new subscriber. Great research reports from what I am reading this far. Question: is there a summary listing of companies that you have covered or looking at from an investment point of view? There is a lot of content here and want to get caught up and focus on where the opportunities are. I do not want to overlook any potential investment opportunities. Great write up on HIG (The Hartford). I am actually an employee of the company, so it was a very insightful read. Stock rebounded after Friday's "investor day" but I think troubles still loom..particulary is the commercial mortgage market continue to get hit. Thanks Mike
- From Shaunsnoll - “you've been KILLING it lately!! is this the longest streak you've ever been on? because its the longest streak of anyone i personally know for sure. looking forward to the emerging market stuff Reggie!
- Reggie has been consistently bearish on the financial stocks for many months. I, for, one, am appreciative of his insights and articles, and have made a lot of money following many of his short recommendations. I would have done even better if I had followed them more aggressively!
See what else my readers have been saying in our Praise section .
Ponzi scheme operated by Bernard Madoff, a former chairman of the NASDAQ, with allegedly $50 bn of assets is by far one of the largest scam in history of financial markets. To put it in perspective, it literally dwarfs that of Enron and Worldcom/MCI in the corporate arena. With investors already battling massive losses on their investment portfolio, a scam of this magnitude could further dampen their confidence. As most of the exposure for leading banks and financial institutions towards Madoff's investment was indirect exposure in the form of clients' assets with minimal direct exposure, the potential capital loss / write-downs in the financial statements could be limited for these financial institutions. However there could be significant indirect impact in terms of future inflows and/or redemptions for their asset management and private banking division.
- The main impact from a systemic point of view is that it undermines the levels of confidence which is already being plagued by economic slowdown and financial woes. This cannot be understated. Take a look at the comparison of some of the biggest, most renowned Wall Street banks' performance as compared to the performance of the research model of this blog, my proprietary performance, and that of the broad and global equity markets. I didn't make this stuff up. The marketing machine of the street will take many years to repair the damage that fraud, combined with relative underperformance has wrought on their business.
- Since most of the money belonged to institutional investors, international and high net worth clients of private-banking business, the potential losses will probably affect one of the profitable segments for banks - Private and Wealth management business. This is a segment that was aggressively pursued by many medium and large financial institutions, along with the prime brokerage business, whose near to medium term growth prospects have been significantly overestimated. Expect a significant drag on these business segments that have seen a significant ramp up in resources, and significant opportunities to small and nimble entrepreneurial operations such as this hybrid new media/investment/ financial analysis publication from which you are currently reading. There will be an enormous impact for the hedge fund industry in form of higher redemption pressure. Already Hedge fund performance has been dismal due to slumping market situation See "In the Great Global Macro Experiment, the next bubble to burst is.." for more on this topic. In September 2008 alone Hedge Funds faced redemptions of $43 bn. This scam could further aggravate the redemption pressure for hedge funds which could in turn lead to massive global de-leveraging. With increased redemption and de-deleveraging the stock prices could witness further downside.
- Also the scam could enforce tighter regulation for the hedge fund industry. The financing requirements for hedge funds could get adversely impacted as they would be required to post more collateral with financial institutions that could limit their leverage.
In the table below we have highlighted some of the entities with largest exposure in Madoff investments (both direct and indirect).
|Institution||Potentila loss / exposure||Exposure type where available|
|US $ mn||Euro mn|
|Fairfield Greenwich Group||$7,500|
|Banco Santander SA||$3,298||€ 2,347||Indirect exposure - 2.3 bn Euros. Direct exposure - 17 mn Euros|
|Bank Medici AG||$2,100|
|Ascot Partners LLC||$1,800|
|Fortis NV||$1,405||€ 1,000|
|Union Bancaire Privee||$1,250|
|HSBC Holdings Plc||$1,000||Indirect exposure|
|AXA SA||$703||€ 500|
|Natixis||$632||€ 450||Indirect exposure|
|Royal Bank of Scotland||$623||Through trading, collateralized lending|
|BNP Paribas||$506||€ 360||Potential loss (however indirect exposure)|
|Banco Bilbao Vizcaya Argentina SA||$422||€ 300||Potential loss (however indirect exposure)|
|Man Group||$360||€ 450|
|Reichmuth & Co||$327|
|Nomura||$302||Impact on P&L virtually nil|
|Maxam Capital Management LLC||$280|
|UniCredit SpA||$105||€ 75||Indirect exposure|
|Swiss Life Holding AG||$79||Through fund of funds|
|Nordea Bank AB||$67||€ 48|
|Credit Agricole S.A||$14||€ 10|
|Bramdean Alternatives||9% of portfolio|
From Bloomberg: Former Bear Stearns CEO Greenberg Says Investment Banks ‘Gone’ .
“There’s no more Wall Street,” Greenberg, 81, said today in an interview to be aired on Bloomberg’s “Money & Politics” television program. “That model just doesn’t work because it’s at the mercy of rumors.” Really??!! Would these be the rumors that you bought a bunch of bad assets with a lot of leverage at the top of bursting bubble?
Greenberg elected to stay when JPMorgan Chase & Co. acquired Bear Stearns through a forced sale in March. The acquisition followed a run by clients and lenders that left Bear Stearns on the brink of bankruptcy. Market rumors helped cause customers to pull their money from Bear Stearns and Lehman Brothers Holdings Inc., and pushed down the stock prices, he said. I would think your balance sheet and opaque reporting helped to cause customers to pull their money from Bear Stearns and Lehman Brothers. See Is this the Breaking of the Bear? and Bear Fight - A most bearish view on Bear Stearns in a bear market.
The Wall Street Journal ran an interesting, well researched piece on the run on Morgan Stanley that has been well covered in the blogoshere. From a journalistic perspective, it was excellent, but it was lacking from an actual hard core investor's perspective - the very same hard core perspective that drives my patrons to pay for my blog. So, lest I disappoint my readers, let's throw some analytical and historical facts into this debate. I feel the need to throw my two cents in because nobody is calling a spade a spade, thus partially justifying the nonsense that was the short sale ban that came down from the highly hypocritical industry. Yeah, the same industry whose prop desks short other companies and industries,,, the same industry that profits heavily form enabling their clients (through prime brokerage) to short other companies and industries. With the final fall of the big sell side brokerages, there is even a bigger dearth of services left on Wall Street. Honest, unbiased research. That is, I believe, the draw that the BoomBustBlog has. That is what is lacking throughout nearly all of Wall Street. That is what this blogging medium has allowed me to provide - and I'm just luv'in it.
I was very clear in warning about the "everyman for himself" phenomenon back when the first US bailout package was announced in the US. All of the money given banks are going straight to the bank's coffers and nowhere else. It is a farce to believe that banks will act against their own self interest when given money. PNC took the money and bought a bank with a risky loan portfolio to boost deposits, AIG is paying margin calls with its taxpayer money, JP Morgan and Merrill chiefs flat out said, "No, I will not lend the new money out", and the Euro banks are also designing special textual diagrams to display their views on handling the new low interest rates they are benifititing from by way of the UK government. See what I just pulled off of the memorandum of understanding between HSBC and the government:
"The Company also announced that it has recently come to the attention of the Board that an affiliate of a Bucksbaum family trust advanced unsecured loans to Mr. Michaels and Bernard Freibaum, the company’s former director and CFO, for the purpose of repaying personal margin debt relating to company stock. The loan to Mr. Michaels, which totaled $10 million, has been repaid in full. The loan to Mr. Freibaum, whose employment was terminated prior to the Board’s knowledge of these loans, totaled $90 million and has $80 million presently outstanding.
A review by the Company’s independent directors concluded that, while the failure to disclose the loans to the Company’s Board of Directors did not follow internal company policy, no company assets or resources were involved in the loans and that no laws or Securities and Exchange Commission rules were violated as a result of the loans."
The Guys From ‘Government Sachs’
A most interesting article in the NY Times . Here's an excerpt...
Treasury faces, from left: Steve Shafran (formerly of Goldman), Kendrick Wilson III (ditto), Henry Paulson Jr. (you guessed it), Edward Forst (yep) and Neel Kashkari (see a trend?).
THIS summer, when the Treasury secretary, Henry M. Paulson Jr., sought help navigating the Wall Street meltdown, he turned to his old firm, Goldman Sachs, snagging a handful of former bankers and other experts in corporate restructurings.
In September, after the government bailed out the American International Group, the faltering insurance giant, for $85 billion, Mr. Paulson helped select a director from Goldman’s own board to lead A.I.G.
And earlier this month, when Mr. Paulson needed someone to oversee the government’s proposed $700 billion bailout fund, he again recruited someone with a Goldman pedigree, giving the post to a 35-year-old former investment banker who, before coming to the Treasury Department, had little background in housing finance.
I recommend reading the whole thing.
Well, hopefully you've read my more political pieces (and I've been holding back, noticed I haven't even touched McCain/Palin/Obama/Bidn, yet!) such as:
Is the worst behind us yet, Mr. Paulson?
Is Paulson to be trusted, or is this Bush Administration Shock and Awe, 2.0?
Reggie Middleton asks, "Do you guys know who you're messin' with?"
If I wasn't such an optimist, I just might start fearing for my country!
FASB endorsed FUD - Fear, Uncertainty and Doubt
NBC seems to be getting soft
The Great Global Macro Experiment, Revisited
A real life, real time example of the Great Global Macro Experiment
Well, there is a reason why I've been so critical of Paulson and this admnistration. Yeah, just as Rumsfeld so eloquently put it, Shock & Awe!
Here is a short email exchange on the recent Lehman auction and announced CDS settlement. It is timely considering my admonitions in the Asset Securitization Crisis series and the Great Global Macro Experiment (must read). The explanation was broken down with numbers for those who use the left side of their brains:
By the way, what is your thought on the Lehman CDS settlement situation? I smell something funny there.
The financial media has crowed in adulation that "only $6B was paid out on ~$400B of nominal derivatives". But wait a minute. Didn't the auction yield a $.91 to face value settlement? Doesn't that mean there will be, in aggregate, about $36B of write-downs? Yes, $6B may have changed hands, but that is on a reduced nominal value, which HAS to cost someone.
If so, where will those losses land, and when?
I don't know enough about this process to answer those questions. But it certainly has occurred to me that all the orderly derivatives settlement process gains is that massive losses will be bled out over a long period of time, rather than all derivatives imploding at once. So we get banks and other financials under-performing for more years, instead of all going to zero right now.
The investors footed the bill for much of the reduced nominal value, and the creditors and clients of the bank. Some prime broker clients will get pennies back on the dollar for thier accounts and have been forced to side pocket those assets, thus freeze their own clients money (much of which will not be returned at all).
As for the CDS payout, they were referring to a netting process, where bank A sold protection for Lehman to bank C, but bought similar 80% protection from bank B. Netted out, only 20% of net exposure had to be paid, THEORETICALLY.
Here's the real world:
The problem with the netting argument is that everyone is assuming bank B has the 80% to cough up, which they don't because they bought 80% protection from insolvent monoline MBIA to hedge them against bank A, but insolvent mononline MBIA reinsured with insolvent monoline Ambac, who sold protection to banks A, B, C, and D at 120x leverage and can't pay all of them at once.
Hence, bank C is f1cked, because bank A is f2cked by bank B, who got f3cked by MBIA who is currently getting f4cked by Ambac who can't pay everybody (or maybe even anybody, now), hence can generally be considered to be f5cking everybody involved.
Even common sense tends to evade these smart people. This is what happens when you are allowed to write OTC insurance without reserves, an exchange and regulations!
I expect this whole house of cards to collapse any time now. The problem is the revolution will not be televised.
You see, I don't use swaps, the primary reason being that when my gains are the juiciest, the likelihood of getting paid are the slimmest. Banks are rallying hard, again. I am slowly deploying my ample store of dry powder... Again, price and value have diverged significantly. Before we go on, make sure you have read:
CDS stands for Credit Default Suckers...
Lehman banrkuptcy + large, fragile unregulated CDS market = Kaboom!
The Next Shoe to Drop: Credit Default Swaps (CDS) and Counterparty Risk - Beware what lies beneath!
- Counterparty risk analyses - counter-party failure will open up another Pandora's box
Now, keeping the email exchance above in mind, notice what this astute gentlemen had to say (I have not verified the dates, but they seem right):
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Distracted by worldwide stock market
crashes, attention shifted away from Lehman’s derivatives’ payouts
scheduled for October 21. Recovery value has been set at 8.625 cents
per $1.00, which means that sellers of credit protection must pay
91.375 cents to the buyers (according to Creditex, the company that holds auctions).
More than 350 banks and investors signed up to settle credit-default
swaps tied to Lehman. The list of participants in the auction includes
Newport Beach, California-based Pacific Investment Management Co.
PIMCO, manager of the world’s largest bond fund, Chicago-based hedge
fund manager Citadel Investment Group
LLC and AIG, the New York-based insurer taken over by the government,
according to the International Swaps and Derivatives Association in New
According to JPMorgan, the largest foreign bank holders of Lehman’s
derivatives are Deutsche Bank, Barclays, Societe Generale, UBS, Credit
Suisse and Credit Agricole. Overall, as of June 30, 2008, the top ten
US banks in terms of derivatives exposure were: JPMorgan Chase, Bank of America,
Citibank, Wachovia, HSBC USA, Wells Fargo, Bank of New York, State
Street Bank, SunTrust Bank, and PNC Bank, according to the Comptroller
of the Currency Administrator of National Banks’ Quarterly Report on Bank Trading and Derivatives Activities for the second quarter of 2008....
... Washington Mutual could be another story. It’s Credit Event Auction
will settle, meaning prices will be determined, on October 23. Just
last week there were credit events at the largest three Iceland banks,
all of which have large quantities of derivatives outstanding. These
are all financial institutions; industrials haven’t started yet.
From the Timesonline :
On Friday night, America’s chief accounting body, the Financial Accounting Standards Board, revealed that it would suspend the mark-to-market rules to take account of extreme market conditions. Institutions will be able to use their own estimates of an asset’s worth instead. The move follows pressure from the US Securities and Exchange Commission.
In a “position” statement, the board said: “In determining fair value for a financial asset, the use of a reporting entity’s own assumptions about future cash flows and appropriately risk-adjusted discount rates is acceptable when relevant observable inputs are not available.”
Now, it's all marked to "I wish it were". After caving to special interests pressure, we will have a significant relieft from accounting pressures (whoopee!) and an extreme downdraft in economic valuations. If you thinks things were a little negative last week...
Although FASB really didn't make any changes to the rules, they failed to tighten up the understanding, and left room for game playing. The level 3 category may prove to be the dumping ground now. The market won't go for it.
You see, smart investors don't count accounting dollars, they count economic dollars. It is really irrelevant what management says an asset is worth, what truly matters is what investors believe an asset is worth. Why don't our regulators get this? Do they really think all of us are that stupid? If you think we had a rough week earlier, you probably ain't seen nuthin' yet. As financials and shadow banks attempt to hide their losses behind the accounting shenanigan curtain, stage left, the market will respond to this ambiguity and lack of transparency the same it always responds in the face of opacity - with LOWER VALUATIONS!!! If the smart investor is really not sure of a price to be paid, he defaults to the lowest common denominator and works his way up from there. It may come to be that the mere increase of any level 3 assets will spell the death knell for a financial company.