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I took the weekend off and all types of nonsense occurs in my wake. Well, I'm back with some fresh research. Subscribers, we have found another bank at risk (and you know how well the other banks that we targeted fared in the past - Bear, Lehman, the entire French banking system, etc.) and will be releasing the research in the next 24 hours. In the meantime, I would like to address the massive bear market rally/short squeeze that probably created many a draw down. First, a little misdirection and disinformation as reported by CNBC: Greek 'Haircut' No Threat to French Banks: Noyer 

French banks could cope with a significant Greek "haircut"—a private sector writedown of Greek bonds—but it is still possible that the country's financial institutions may have to be recapitalized, Christian Noyer, governor of the Bank of France, told CNBC.

"Greece is not a problem for the French banks," Noyer said. "The total (exposure) of the French banks to Greek sovereign debt is significantly smaller than the first half of profits for the French banking system."

That exposure amounts to roughly 8 billion euros, while French banks' first-half profits totaled about 11 billion euros.

Still, Noyer would not rule out recapitalization for banks in France, given that all of Europe's banks' could face mandatory increases to their required capital base, depending on a decision by the European Bank Authority (EBA), the European Union's banking regulator.

Where shall I begin? Well, Reuters reports German Finance Minister Insists Greek Debt Haircut Should Be At Least 50-60%, as excerpted:

Greece's debt crisis cannot be solved without larger write downs on Greek debt and governments are trying to persuade banks to accept this, German Finance Minister Wolfgang Schaeuble said on Sunday, just days ahead of a key EU summit.

Asked in the interview with ARD whether there could be a Greek debt write-down of as much as 50-60 percent, Schaeuble said: "A lasting solution for Greece is not possible without a debt write-down, and this will likely have to be higher than that considered in the summer."

In July, private creditors agreed to a voluntary write-down of 21 percent on their Greek debt, a figure which now looks insufficient. Euro zone officials said last week losses are now likely to be between 30 and 50 percent.

"Of course we would like, if possible, to agree together with the banks. That is why we will be discussing things with them. But it is clear, there must be a level of participation which is enough to bring about a lasting solution for Greece. That is enormously difficult," Schaeuble said.

The market has an even higher implied actual haircut! Analysis - Greek debt enters Argentina-style twilight zone

Reuters - Even that would be a better deal than levels of a 60 to 70 percent haircut currently priced into Greek debt. Most Greek bonds are trading at around 35 cents on the euro. For emerging market players with experience of Argentina, which defaulted on $100 ...

Of course, a little useless financial engineering can make things all good right? Yeah, right! You see, what looked like a bad deal just a week ago... EU Officials: Private Sector Bondholders Could Expect 30-50% Haircut Business Insider - ‎Eurozone officials told Reuters today that the private sector will likely see a 30-50% haircut on holdings of Greek bonds if they participate in a debt swap deal. That's far more than the 21% that had been expected under the initial terms of the July ...

Looks like a hell of a bargain today... Greek Bond Deal: Too Good to Last

Wall Street Journal (blog) - Reason 2: As we have pointed out before, a sharp fall in Greek bond prices since July 21 makes the bond swap look like an even better deal to bondholders. The new bonds they would receive through the exchange have other benefits to investors—they ...

Pointless Greek bond swap dead — long live pointless Greek bond swap

FT Alphaville (blog) - For all we know, the terms of the current bond swap may simply be tweaked to get the “new” haircuts, for example by lengthening the maturities of the new bonds or cutting the coupons paid by Greece, while keeping other things (like collateral) much the ...

Contrary to Noyer's opinion above, both Reggie Middleton and other disinterested yet objective sources state Greek banks can withstand haircut of up to 30 percent - sources
Reuters UK - ATHENS (Reuters) - Greek banks could endure a loss of up to 30 percent on their Greek government bonds but could not stand significantly bigger haircuts, Greek banking sources said on Thursday. "Banks can withstand a haircut of up to 30 percent but a ...

Of course, those loyal BoomBustBlog readers knew this to be the case a year and a half ago!
Subscription analysis from early 2010 shows Greece was nearly guaranteed to default as its banks were stuffed with trash:

File Icon Greece Public Finances Projections
File Icon Greek Banking Fundamental Tear Sheet

Online Spreadsheets (professional and institutional subscribers only) showed that haircuts were to be multiples of the originally proposed 21% if Greece were to even have a chance of digging itself out of the hole!!!

I also explained the situation in public, and for free, early in 2010: Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! The situation with the Greek banks is the same situation with the French, German, etc. banks. Leverage piled upon depreciating assets simply wipes out equity. Period! How Greece Killed Its Own Banks!

...These downgrades are going to cause people to increase their risk weightings,” Yelvington said.

Well, the answer is.... Insolvency! The gorging on quickly to be devalued debt was the absolutely last thing the Greek banks needed as they were suffering from a classic run on the bank due to deposits being pulled out at a record pace. So assuming the aforementioned drain on liquidity from a bank run (mitigated in part or in full by support from the ECB), imagine what happens when a very significant portion of your bond portfolio performs as follows (please note that these numbers were drawn before the bond market route of the 27th)...

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The same hypothetical leveraged positions expressed as a percentage gain or loss...

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I even went so far as to compare Greece to Argentina, complete with online models. No matter which way you slice it, a 50% haircut would be akin to a snowy Christmas in the summer of a devout Muslim country - highly unlikely! A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina

Now, referencing the bond price charts below as well as the spreadsheet data containing sovereign debt restructuring in Argentina, we get...

Price of the bond that went under restructuring and was exchanged for the Par bond in 2005

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Price of the bond that went under restructuring and was exchanged for the Discount bond

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On that note, ZeroHedge has come out with a blockbuster explanatory article: Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, €400 Billion Capital Shortfall

A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related.

I'd like to add that I've ridiculed all of these stress tests, US and European, although the European stress tests were by far the biggest joke. Dexia passed with a grade of A (or so), and will be nationalized momentarily. 'Nuff said!

To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls, SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.

And the scary charts:

1. Capital Shortfalls under Stress Test part Trois (9% min. CET1 ratio)

If anyone over there has two synapses to spark together, I would fully expect them to take my research over much of the anecdotal drivel passed around the Street as research. For instance, from the outside looking in, the Greek writedowns (yes, even the mark to myth Greek writedowns) will most likely wipe RBS profit for the year. Now, try applying what the real losses will be... Okay, after you do that, try realizing that no Greek default will occur in a vacuum and all peripheral assets will suffer in solidarity, not to mention their own solvency issues. Then add to that that RBS is an insolvent ward of the state to begin with, after passing stress tests itself then being nationalized. Okay, now that we've dispensed with the most of the optimism and good news (I'm going to skip over DB, since much of the market appears to be doing in assuming that Germany cannot be touched despite the fact that it is already very much "touched") and head on to the bank that I warned my paying subscribers about in late August - in time to see its share price halved despite not a damn peep of a warning from the sell side of the pop media. May I please be allowed reminisce, as excerpted from Small Independent, Bombastic Financial News Show Dramatically Scoops the Financial Times On French Bank Run Story :

 Post Note: BNP management is now shopping around for capital investment.

On that note, let's review my post last week, "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely File Icon Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers. It outlined some very telling reasons why BNP's share price appears to be spillunking, namely:

    1. Management is lying being less than forthcoming with the valuation of toxic assets on its books.
    2. The sheer amount of these assets on the books and the leverage employed to attain them are devastating
    3. BNP has employed the proven self destructive financing methodology of borrow short, invest in depreciating assets long!
    4. BNP management lying being less than forthcoming about reliance on said funding maturity mismatch, despite the fact it handily dispatched Bear Stearns and Lehman Brothers in less than a weekend!

Another BIG Reason Why BNP Paribas Is Still Ripe For Implosion!

As excerpted from our professional series File Icon Bank Run Liquidity Candidate Forensic Opinion:

BNP_Paribus_First_Thoughts_4_Page_01BNP_Paribus_First_Thoughts_4_Page_01

This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above.  Here I demonstrated what more realistic numbers would look like in said model... image008image008

To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...

BNP_Paribus_First_Thoughts_4_Page_09BNP_Paribus_First_Thoughts_4_Page_09

So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipe out, or is it? On to page 10 of said subscription document...

BNP_Paribus_First_Thoughts_4_Page_10BNP_Paribus_First_Thoughts_4_Page_10

Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...

Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trastde and European Bank Run Trading Supplement

I identify specific bank run candidates and offer illustrative trade setups to capture alpha from such an event. The options quoted were unfortunately unavailable to American investors, and enjoyed a literal explosion in gamma and implied volatility. Not to fear, fruits of those juicy premiums were able to be tasted elsewhere as plain vanilla shorts and even single stock futures threw off insane profits.

Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer

In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.

I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!

So, What's the Next Shoe To Drop? Read on...

For those who claim I may be Euro bashing, rest assured - I am not. Just a week or two later, I released research on a big US bank that will quite possibly catch Franco-Italiano Ponzi Collapse fever, with the pro document containing all types of juicy details. This is the next big thing, for when (not if, but when) European banks blow up, it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.

Now, let's refresh the output from And The European Bank Run Continues...and more importantly BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional, I strongly urge those who haven't to click upon said link and download your intellectual weapon of choice!) where I modeled Greek losses on BNP.  Below is sample output from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)This scenario was run BEFORE the Greek bonds dropped even further in price...

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Using more recent market inputs (you know, assuming this stuff was Level 1), we get the following...

bnp_haircut_exposure

Notice here the base case TEC impairment is now approaching the adverse case from just a few weeks ago - and this is using market pricing, not some pie in the sky model!

I have not recalculated the adverse scenario in this example, but you can simply use your imagination, or download the model and run it for yourself.

A Greek default with haircuts somewhat inline with market prices will wipe out 13% of BNP TEC, with a more severe cut (quite likely) taking out nearly 20%. This is not even glancing upon the many problems we discussed in our forensice reports (File Icon French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers,File Icon Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers).

Now, if the ZH referenced report above is accurate (and I believe it is) the banks are going to try to delever by selling assets in the open markets (all at the same time, selling the same assets to the same pool of potential buyers at the same bad times). This means that the prices used to populate this model are probably still too optmistic. Even if they weren't, look at the capital short fall the Greek default will leave BNP with assuming our institutional bank run thesis holds true and they see a slight withdrawal of liquidity of 10% this year and 15% next (knowing full well the numbers for Lehmand and Bear were much, much higher than that before they collapsed). First, a refesher on our European bank run theory expoused 5 months ago...

  1. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  2. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  3. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  4. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!

And the BNP results????

bnp_haircut_exposure_bank_run

Half trillion euros here, half trillion euros there... Sooner or later, we'll be talking about some real money! Since the problems have not been cured, they're literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional).

My next post should also include research on the next bank that we have found that has been (again) overlooked by the market, the media and the sell side. Can we expect the same that we saw in BNP, Bear, Lehman, etc.? Well, paying subscribers shall find out forthwith.

I can be reached via the following channels, or directly via email:

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I will be releasing the date (probably this week), location and time of the NYC meet and greet within the next 24 hours or so, so we can chat, drink, debate, argue and fraternize with pretty woman together in a trendy spot in the Meat Packing District or the Bowery (I apologize in advance to all of my female readers/subscribers). Those who are interested in attending should email customer support. There has been strong interest in the London meeting, enough to warrant the venue - I simply need to get the travel and venue organized due to a change of plans.
For those that are new to the blog, these are pics of previous meet and greets...

  

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Published in BoomBustBlog

Here is an interesting video that illustrates the extreme vulnerability of the banks if the "Occupy Wall Street" movement truly gets organized with direction from someone with a deep understanding of the system. You know, someone tall, brown, charismatic and not afraid to really speak the truth...

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This video touches upon many taboos in society, business and Wall Street finance... Right up my alley. One of the more interesting topics is that of social class, and how the little naked woman in the video just doesn't have the same impact as Carl Icahn. Careful, now. Don't laugh prematurely. The lightning fast distributed method of communal communication commonly known as social media is truly changing the way thing get done around here. Think about how you are reading this message and who you're reading it from.

One concept that I would like to dwell on this post, but unfortunately will not be able do due to time constraints, is the very real fact that there is NO MIDDLE CLASS! I believe it is a construct created by the capitalist class and their managers to placate the masses and muffle would be insurrectors who would dare attempt to move up the ranks. The reality is everybody is a member of the working class who is not a member of the capitalist class and needs to work for a living. That's right, if you cannot live off of your capital, then you are a working class citizen. Middle class and upper middle class monikers, are just that... monikers. That goes for you doctors, lawyers, accountants and well educated PhDs. You know the old saying about the friends walking down the street in Greenwich. One saw a neighbor and immediately urged the other to hustle across the street. When his friend asked what the rush was, the 1st man replied, I heard that Biff over there is starting to live off of his principle. Long story short, many more of you are members of that 99% than may have been led to believe by those in charge.

As excerpted from Super Brokers form to push Super Broken products to make those with High Net Worth Super Broke

Social Mobility: Unlike the Jefferson's, We're moving on down!

Social class is defined (on this blog) as the amount of control one has over one's socio-economic environment. It is much more than money, although money is a large component. For instance, Barack Obama is in a higher class than Robert DeNiro or Michael Jackson, although Robert DeNiro and Michael Jackson are most likely wealthier (although that is quite debatable after taking into consideration the value of Obama's campaign contribution list and membership database from his social networking site!). Obama's higher class stems from his ability to exert more control over his socio-economic environment. The factors that this author uses to determine class combine (with the associated weights) to create a "socioeconomic index":

Socioeconomic Index=

(Occupation X 12) + (Income source X12) + (Income X 7) + (Wealth X 14) +

(Education X 7) + (Dwelling area X 15) + (Class Consciousness X 7) +

(Housing X 12)

There is a handy dandy BoomBustBlog class model (based loosely upon the Index of Status Charcteristics) available for download for anyone interested in delving  into this further. See boombustblog.com_social_class_model v.7.3 156.00 Kb.

As you can see, wealth is the largest contributor to the class standing, and coincidentally it is the factor
that is the most at risk in this current economic climate. I believe that there will be a significant entry into the upper middle class by those who were once firmly entrenched into the upper classes! While that may not seem like a big deal to many, it is damn big deal to those who are moving down the ladder. This also means, that there will be some space for others to move (relatively speaking) up the ladder. One man's (or woman's) misfortune is another's opportunity. I believe this blog can not only be used to insure and proof against downward mobility
for those in the upper strata, but can also be used by those in the lower, middle and lower upper strata to rise upward a notch or even two. Social Mobility is the name of the game in times of severe dislocation - times like we are experiencing now.

Lower Strata

Underclass/Poor

 
 

Working Poor

 

Middle Strata

Lower Middle Class

 
 

Upper Middle Class

 

Upper Strata

Lower Upper Class

<-- 20% to 30% of BoomBustBloggers are here, roughly 1,000 of you!

 

Higher Upper Class

 

Now, in term of wealth (not social class and influence, just wealth) we can split the upper strata into three different categories (there are only two above because of the other factors that come into play when social class or socioeconomic standing is taken into consideration).
There is the poor wealthy, those guys and girls that are just a hair's breath from being pulled into the upper middle class strata due to marginal wealth. This would be the $1m to $10m net worth crowd, who rely on business profits, salary and investment returns for income. The next would be the middle strata of the wealthy, hailing between $10 to $100 million in Net Worth, and then there is the upper strata wealthy at above $100 million. Each of these three strata of wealth represent, in my opinion, distinct behavior tranches in terms of discretionary expenditures, investment, and politics and (what passes as, this is a story for another post) philanthropic activities.

 

Demographic

Source of wealth

Net Worth

Lower strata wealthy (High net worth)

Service professionals, corporate executives, entrepreneurs,
inheritors

Salaries, stock options, restricted stock, small business
profits, investment returns

$1 m to $10 m

Middle strata wealthy (Very High Net Worth)

Corporate executives, entrepreneurs, inheritors

Business ownership, investment returns, salaries, restricted
stock, stock options

$10 m to $100 m

Upper strata (the truly
Rich!)

Entrepreneurs, inheritors, very few CEOs

Business ownership, investment returns

$100 m to several $billion

A trip to practically any decent sized yacht club or recreational vehicle port reveals the relatively stark differences in discretionary spending behavior. The first strata can be found in the 36 ft. to 68 ft. yacht docks (where a captain is optional, but not mandatory and you really don't need a crew). The second strata can be found 50 ft to 120 ft docks, where captains, crews and semi-custom fiberglass boats abound. The third strata are almost exclusively in the super yacht category, where the carrying cost alone for these (basically waste of money) fully custom built hulls and vehicles are about million a year to start with. You can also see the other social economic strata as well, upper middle class in the 20 to 35 ft boats, the middle and working class in the considerably smaller fishing boats - as opposed to the ultra fast Viking and Hatteras deep sea fishers, etc. It is an interesting and instructional study in social studies and anthropolgy just walking along your local docks! Once you are aware of how these things break down, you will see many settings in a different light.

The dark purples, deep greens and reds are most likely the general demographic to get hit hardest.
Fortunately, those who follow this BoomBustBlog closely, either personally or through their advisor, should have seen a net increase in networth rather than a net decrease. This has hurt non-BoomBustBloggers in this demographic tranche significantly, and will hurt them even farther. At the same time, let's hope that the opinion and research that I bring to the blog helps, because many will need it. Download The new BoomBustBlog.com Socio-economic stratification model

And The European Bank Run Continues...

As excerpted from the article titled above, we find corroborating evidence that the common man/woman can indeed elicit significant cooperation from Wall Street baks, for those very same banks' institutional counterparties are quite skittish as it is. As a matter of fact, we are seeing the makings of an insitutional run right now, one that will easily be exacerbated if retail depositors pull their money out as well.

Since the problems have not been cured, they're literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional), read the balance of this article for perspective, then populate the assumptions and inputs with what you feel is realistic. I'm sure you will come up with conclusions similar to ours. Below is sample outout from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)

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Bloomberg reports: Lloyd’s of London Pulls Euro Bank Deposits

Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution.

“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”

European banks and their regulators are trying to reassure investors and customers that lenders have enough capital to withstand a default by Greece and slowing economic growth caused by governments’ austerity measures. Siemens AG (SIE), European’s biggest engineering company, withdrew short-term deposits from Societe Generale SA, France’s second-largest bank, in July, a person with knowledge of the matter said yesterday.

Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions.

Simply fuel to the fire... As excerpted from my bank run post yesterday: Most Headlines Now Show French Bank Run …

Siemens shelters up to €6bn at ECB: Siemens withdrew more than half-a-billion euros...matter told the Financial Times. In total, Siemens has parked between €4bn ($5.4bn) and...to deposit cash directly with the ECB. Siemens’ move demonstrates the impact of the eurozone... By Daniel Schäfer in London and Chris Bryant and Ralph Atkins in Frankfurt...

... 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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...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!

Make no mistake! And just for those who cannot catch the hint... Reuters reports:

Bank of China halts FX swaps with some European banks

The European banks include French lenders Societe Generale (SOGN.PA), Credit Agricole (CAGR.PA) and BNP Paribas (BNPP.PA), and Bank of China halted trading with them partly because of the downgrading from Moody's, the sources said.

Another Chinese bank said it had stopped trading yuan interest rate swaps with European banks.

The sources declined to be identified because they were not authorized to speak with the media.

Contacted about this move by the Chinese banks, spokespeople for Societe Generale, UBS and BNP Paribas declined comment. Credit Agricole was not reachable for comment.

One of the sources said that Bank of China's decision may apply across its branches, including the onshore foreign exchange market.

"Apart from spot trading, all swaps and forwards trading (with the European banks) have been stopped," one source who is familiar with the matter told Reuters.

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

Again, I believe the next big thing, for when (not if, but when) European banks blow up, is the reverberation through American banks and how it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.

Published in BoomBustBlog

I recieved this in the mail from a connected media editor regarding Goldman's very recent investment advisories...

Buy calls for a likely relief rally on earnings (Oct 20th)

We see the potential for a rebound in MS shares on earnings, but the event is not without risk. We believe concerns regarding its European swap and loan exposures appear overdone, as the firm signaled its net exposures to France and the periphery are modest if not immaterial. Uncertainty generated by press reports, as well as difficult markets have driven shares below levels reached when the market was at its March 2009 lows.

Balance sheet strengthened; sell short-dated CDS as fear falls

We believe the recent widening in MS CDS spreads does not reflect actual credit fundamentals. MS appears to have enough capital and liquidity

($182 bn in global liquidity pool + its bank status) to withstand significant market duress. Its 14.6% Tier 1 common ratio is at the high end of the industry. We expect the market focus to remain on European sovereign exposures and liquidity levels, and expect management to discuss this, highlighting the strength of its cash position, hedging and collateral, and progress in reaching its strategic goals, somewhat calming fears.

I responded with the rant below...

A)     Goldman’s investment advice sucks, big time – see Is It Now Common Knowledge That Goldman's Investment Advice Sucks?

B)      The term “net” exposures is misleading and in many cases, make believe. The offsetting hedges used to “alledgedly” hedge the gross exposure were written off of counterparties in the same businesses, trading the same products in the same markets as Morgan. When the feces hits the cooling machine blades, everyone’s liquidity will move in the same direction – downward. There is no true diversity, hence there is no true hedge – only academic hedges written, and traded, in paper form.

a.     I have addressed this ad nauseum on the blog, but the answer to that questions has been put best by Tyler Durden, at ZeroHedge put it best: ...Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else who on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky. The point of this detour being that if any of these four banks fails, the repercussions would be disastrous. And no, Frank Dodd's bank "resolution" provision would do absolutely nothing to prevent an epic systemic collapse.

C)    There is evidence that corroborates bullet point “B” in Goldman’s own missive, and I quote “Balance sheet strengthened; sell short-dated CDS as fear falls.” Are we to believe that Goldman is only giving this advice to those clients large enough, liquid enough, solvent enough and adequately diversified from the financial services, asset management and investment industry (this can be read as absolutely no hedge funds, HNW, pension funds and family offices – Yeah, right!) so as to ensure the ability to pay out these CDS in a fat tailed event? Or is Goldman peddling this advice that is not paid for to incentivize clients act in a fashion that Goldman is paid for, ex. Market maker/broker/principal/agent in the CDS market? As Goldman pushes CDS sales onto any willy nilly who’s willing to wright them, Goldman compounds the risks already inherent in a much less than perfect system. Isn’t that why AIG had to be bailed out to the tune of over a fifth a TRILLION US dollars?

D)    As for the last comment “MS appears to have enough capital and liquidity ($182 bn in global liquidity pool + its bank status) to withstand significant market duress. Its 14.6% Tier 1 common ratio is at the high end of the industry. We expect the market focus to remain on European sovereign exposures and liquidity levels, and expect management to discuss this, highlighting the strength of its cash position, hedging and collateral, and progress in reaching its strategic goals, somewhat calming fears.” I direct you to my latest post on what Superheroes may look like in real life –  Hunting the Squid, Part 5: Sometimes You…

Published in BoomBustBlog

 Yes! I'm still hunting Squid, but the Architeuthis dux apparently has called in an ally, a benefactor, an aid befit those who master the art of regulatory capture, one who is steeped in power, authority and influence. Yes, indeed - this benefactor is no mere game warden, and his mastery over this side of the force is not minimal. As a matter of fact, his mere spoken word today has served to move this elusive member of the Architeuthis genus farther away from equilibrium in terms of fundamental valuation - at least on a risk adjusted basis while at the same time reducing the value of put contracts on it. However, sometimes there exists a counterbalance to such forces.... Actually, more often than many are led to, and probably would like to believe... Superheroes don't look like what you see on TV or in the movies. No capes, tights, or patent leather boots. Sometimes, all they wear and bring to bear is... the Truth!!!

thumb_Reggie_Middleton_as_Tribal_Truth_Seeker_At_Goldman_Sachs_HeadquartersDow Jones reports: Geithner: Morgan Stanley, Other Major US Banks, Not at Risk of Failure

WASHINGTON - Morgan Stanley (MS) and other major U.S. banks aren't at risk of succumbing to the same fate as Lehman Brothers, which fell victim to the 2008 financial crisis, Treasury Secretary Timothy Geithner assured senators on Thursday.

When asked at a Senate Banking Committee whether the euro-zone sovereign debt crisis could bring down Morgan Stanley or another major financial institution, Geithner said, "Absolutely not."

The largest U.S. firms are much stronger than they were before the crisis, and the direct exposure of the financial system to European countries under the most pressure is "very modest," he said.

However, given Europe's size and interconnectedness, Geithner said leaders there need to "move more aggressively to address this."

 Okay, so either Geither doesn't read me, or he's bluffing. Months before Bear Stearns collapsed, did Tim Geithner and/or the Office of the Treasury warn of it? Did they even know? Hey, the bearer of the Truth warned you (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) with Is this the Breaking of the Bear? There comes a time when an actual track record of accomplishment means something. So, dear readers, do you look to Tim Geithner and the Office of the Treasure as your hero, championing the cause of Truth and financial insight, or dare you risk looking somewhere a tad less conventional but a hell of a lot more reliable? Long story short, is it time for investors and the media to accept new heroes... After all, before one considers whether Geithner is to be relied upon to accurately opine upon the health of Morgan Stanley and the other banks, one should look to how well he has done in the past. Since there are a raft of incidences upon which he could have used his (super0 powers of deductive reasoning and analytical prowess, he could have very well missed the collapse of Bear Stearns (after all, most of us are merely human) but still would have (or at least should have)...

  1. Warned or know about Lehman (I warned in Is Lehman really a lemming in disguise?),
  2. The housing market crash (I warned in Correction, and further thoughts on the topic and How Far Will US Home Prices Drop?)
  3. The commercial real estate crash (Will the commercial real estate market fall? Of course it will ~ Do you remember when I said Commercial Real Estate was sure to fall? ~ The Commercial Real Estate Crash Cometh, and I know who is leading the way!)
  4. The collapse of state and municipal finances, with California in particular (May 2008): Municipal bond market and the securitization crisis – part 2
  5. 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
  6. 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 
  7. 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
  8. 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!

If you have not heard from your Office of the Treasure head or Tim Geithner months ahead (or at least in time to do something about the happenstances listed above (and there are a lot more where that came from), then I do suggest it is high time you either started looking for new heroes, or at the very least, realize that Tim Geiithner may not know what the hell he's talking about in regards to which banks are at risk and which are not. That is, unless he is defining at risk as not being on the select list upon which he is willing to bankrupt the country in order to ensure they don't fail.

On that note, let's move on so I can demonstrate that those very same banks that Geithner opines upon do have risks which he has failed to delineate. Never fear, for Reggie will fill said gaps.

If you haven't already, please do review the first four parts of this series, and if so skip past this break and into the nitty gritty--->

 I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction  

I'm Hunting Big Game Today: The Squid On A Spear Tip

Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also...

 Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?  

Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part...

Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!

Hunting the Squid Part 3: Reggie Middleton Serves Up Fried Calamari From Raw Squid

For those who don't subscribe to BoomBustblog, or haven't read I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction and Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?, not only have you missed out on some unique artwork, you've potentially missed out on 300%...
 Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!  

Hunting the Squid, part 4: So, What Else Can Go Wrong With Goldman Sachs? Plenty!

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:  I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To...

If there is any doubt as to who to believe, your favorite Blogger Superhero or Timothy Geithner, I'd gladly put my track record up against his and his whole crew in order to ascertain who holds the most credibility!

As excerpted from the Dow Jones article above - yes, we must drive certain points home!:

When asked at a Senate Banking Committee whether the euro-zone sovereign debt crisis could bring down Morgan Stanley or another major financial institution, Geithner said, "Absolutely not."

The largest U.S. firms are much stronger than they were before the crisis, and the direct exposure of the financial system to European countries under the most pressure is "very modest," he said.

Okay, so as we know I run a subscription blog service. Those who actually do subscribe have read content that flies in the face of the assertion above, and have been paid handsomely for it as I Served Up Fried Calamari From Raw Squid. As excerpted from the subscription document File Icon Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, page 3:

thumb_image024

Mr. Geithner's assertion that "the direct exposure of the financial system to European countries under the most pressure is "very modest,"" really doesn't appear to hold much water, does it? Unless, of course, he doesn't think that France is under, or will be under much pressure? Hey, maybe that's it. Well, if it is, then maybe he should subscribe to BoomBustBlog! France is facing the threat of a serial European bank run as I type this. Reference Dexia Inches Toward Breakup as States Seek to Salvage Parts: Oct. 7 (Bloomberg) -- Dexia SA inched toward a breakup as France, Belgium and Luxembourg sought to protect their local units...

And it's not as if these countries don't have a history of defaulting..,

image022

You see, Now That European Bank Run Contagion Has Started Skipping Across That Big Pond... US Bank Risk Stands Woefully Underappreciated!!! If you scan the news, you will find that Most Headlines Now Show French Bank Run Has Started, And It's Happening Just As Our Research Anticipated. I have warned of the weakness in the French banking system at least a quarter and a half ago, see France, As Most Susceptible To Contagion, Will See Its Banks Suffer. Again, where was Mr. Geithner's salient warning? Be careful who you listen to! Since Geithner wasn't available to issue said warnings, I took it upon myself to create a step by step tutorial on exactly how it will happen....

I then cam forth publicly with much of the content offered to subscribers...

  1. The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download
  2. BNP Bust Up: Yet Another Reason Why BNP Paribas Is Still Ripe For Implosion!
  3. I Will Fly In The Face Of Common Wisdom & Walk Through A Run On BNP On International Television
  4. And The European Bank Run Continues...

Now, back to Mr. Geithner's comments to the US Senate:

Morgan Stanley (MS) and other major U.S. banks aren't at risk of succumbing to the same fate as Lehman Brothers, which fell victim to the 2008 financial crisis, Treasury Secretary Timothy Geithner assured senators on Thursday... The largest U.S. firms are much stronger than they were before the crisis,

Okay, I'l bite. The US banks have been flooded with capital and assistance since this debacle started. Despite that, their compensation and payout has not been limited and they are essentially back where they started from apart from being in compliance with new and updated capital requirements. I beg thee, ponder hither... Weren't they also in compliance with the then current and revised regulatory capital requirements when they started dropping like flies and requiring Trillions of dollars of additional assistance. Yes! Trillions! AIG alone pulled in nearly $200 billion of aid, and that's just ONE institution! Need I remind you of the magnitude of this situation? As excerpted from Hunting the Squid, part 4: So, What Else Can Go Wrong With Goldman Sachs? Plenty!

GS__Banks_Derivatives_exposure_temp_work_Page_2

This concept was further illustrated in An Independent Look into JP Morgan...

Click graph to enlarge (there is a typo in the graphic - billion should trillion)

image001.png

and again the following year on CNBC...

Mr. Middleton discusses JP Morgan and concentrated bank risk.

Okay, I know many of you are saying, "...but the banks ARE in compliance, right?" I'll dance.

Let's walk through WHY the banks are in compliance since the fact that they were in compliance last go around and still collapsed doesn't seem to move everyone in the room. Reason number one for the subject bank at hand, the SQUID, and reason enough to consider regulatory compliance to be a farce in and of itself in these tumultuous times...

Dilutions

To start with, Goldman Sachs regulatory ratios are adequate to meet Basel 3 norms and we expect the firm to sufficiently maintain its regulatory ratios above the minimum norms prescribed by the regulator, without any further dilution. However, given higher exposure to market risk compared to its peers which have higher weights for risk adjusted capital determination, Goldman Sachs will have the to set aside a higher proportion of capital compared to its peers which could be a source of competitive disadvantage to the firm and economic disadvantage to shareholders’.

Although, Goldman Sachs capital ratios have improved, it has nothing to do with a reduction in risk 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.

As excerpted from the subscription document file icon Goldman Sachs Q3 Forensic Review - Professional, page 6:
thumb_Goldman_Sachs_Q3_Forensic_Review_Page_06

To make matters even worse, there is a plausible argument that many of these numbers are grossly understated. Here are observation from a BoomBustBlogger who is also a trader at the CME:

My question is does DTCC capture the total amount of CDS outstanding. Lets take Greece for example I think they showed about 77.4 bln. outstanding in gross   notional amount and a net notional amount of 4.2 billion represented by 4,349 contracts (I guess that's net) I admit I have a hard time deciphering even these   basic entries from the DTCC pages. But I suspect that the numbers in the DTCC reports are not accurate.The reason is they say they report trades that are   cleared by one of their designated clearing entities. I suspect the majority of cds contracts are privately negotiated and not cleared by one of DTCC's clearers.

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:

  • Follow us on Blogger
  • Follow us on Facebook
  • Follow us on LinkedIn
  • Follow us on Twitter
  • Follow us on Youtube

Or simply email me.

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. I have also recieved significant interest in a paid seminar. Any who would be interest in such, basically tthe ability to bend my ear for 45 minutes or so, without the benefit of drinks and pretty ladies swarming around, please let me know so I can guage interest and arrange as deemed fit. Those who are interested should email the blog Customer Support for info.

 
Published in BoomBustBlog

20111005_235005This is the BoomBustBlog view of the "Occupy Wall Street" protests, the view that you just won't get through the MSM... It's ironic that the police came out in force to protect the institutions whose massive bonus's were derived, in large part, from raping and pillaging professional sheeple pools such as police pension funds. That's the sound of the beast...

Here's some more evidence of the risks of journalism when cops are out to defend those who pillage their pensions...

It appears as if I may have went over the head of a few skeptical readers with the "rape the police pension" bit, so here's an indepth tutorial of how it works for those so inclined to learn...

The Conundrum of Commercial Real Estate Stocks: In a CRE "Near Depression", Why Are REIT Shares Still So High and Which Ones to Short?

Key excerpts... 

 

re_fund_returns.pngre_fund_returns.pngre_fund_returns.png

re_fund_returns_tables.pngre_fund_returns_tables.png

Let’s take a look at another big bonus development exercise, marketing push they made into residential MBS a few years ago…

Apathy and the need to masochistally follow name brand investors is what enables this malarchy, and is what has allowed CRE prices to be artificially elevated this high for this long. Believe you me, reality will reassert itself and will do so in quite the destructive fashion. Again, For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks, and “Blog vs. Broker, whom do you trust!”

Believe it or not, very few institutional investors are interested in seeing the mechanics of how they have been bilked to fund Wall Street bonuses. I have been very generous with the CRE analysis on BoomBustBlog, but there have been relatively few takers for custom analysis. For those institutional investors who actually care about making money, or at least not losing 91% of it, I suggest you go through the public version of the model designed to create the analysis above. You can download it here: Real estate fund illustration & Interactive model Real estate fund illustration & Interactive model 2009-12-23 12:54:21 174.50 Kb. For those with even more interest, you should download our 2010 CRE outlook: CRE 2010 Overview CRE 2010 Overview 2009-12-16 07:52:36 2.85 Mb and our CRE consulting capabilities statement: CRE Consulting Capabilities CRE Consulting Capabilities 2009-12-17 14:17:01 655.48 Kb. I must say, any client of mine would have been very hard pressed to lose 91% of their money in a Goldman or Morgan Stanley fund.

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:

  • Follow us on Blogger
  • Follow us on Facebook
  • Follow us on LinkedIn
  • Follow us on Twitter
  • Follow us on Youtube

Or simply email me.

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

For those who don't subscribe to BoomBustblog, or haven't read I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction and Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?, not only have you missed out on some unique artwork, you've potentially missed out on 300% to 500% investment gains as well (as of the posting of this message from the beginning of the month)...

image019

Goldman's share price went down to nearly $50 during the 2009 crisis, and I believe things are worse this time around. Of course BoomBustBlogger, you shouldn't be greedy, subscribers. Cash in your fried calamari chips now, or at the very least hedge them - while you have them and prepare for the next opportunity. There will be plenty, rest assured. Remember how Goldman's stock actually trades...

.. 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:

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_01Goldman_Sachs_Q3_Forensic_Review_Page_01Goldman_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_02Goldman_Sachs_Q3_Forensic_Review_Page_02Goldman_Sachs_Q3_Forensic_Review_Page_02

 

Published in BoomBustBlog

Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction. Once one and all have caught up, we can move on to answering the question posed when we left off in The Squid On The Spear, namely So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't? Condensed, Cliff Notes style hint - Goldman has the most shortable share price of all the big banks at around $100 and is quite liquid; it is more susceptible to mo-mo traders than it is to it's own book value, it is highly levered into the European debt/banking mess, and last but not least, Goldman is the derivatives risk concentration leader of the world - bar none!

Click any and all graphics in this post to expand to print quality

Reggie_Middleton_hunting_the_Squid_Known_As_Goldman_Sachs_GS

As we sit at the precipice of devastating European banking failure, upon which Goldman is heavily levered into through excessive French exposure (and you've seen how prescient our French banking analysis has been, bordering the prediction of the fall of Bear Stearns and Lehman), I feel many of you should take heed when I say this bank's risk is woefully underappreciated. As in the case of Bear, Lehman, Countrywide, and a slew of other banks, the 10 minutes or so of your time to read this heavy, fact filled piece could be worth a small fortune. While we're at it, I would like to urge all paying BoomBustBlog subscribers  to (admiring the original artwork below, of course) to download and review the latest related documents on this topic:

  1. Goldmans Sachs Derivative Exposure: The Canary in the Coal Mine?
  2. Goldman Sachs Q3 Forensic Review - Retail or Professional levels
  3. Actionable Note on US Bank/ French Bank Run Contagion

You see, in said piece, ZeroHedge dutifully reported that Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure- a very interesting refresh of what I called out two years ago through "The Next Step in the Bank Implosion Cycle???":

The amount of bubbliciousness, overvaluation and risk in the market is outrageous, particularly considering the fact that we haven't even come close to deflating the bubble from earlier this year and last year! Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png

This concept was further illustrated in An Independent Look into JP Morgan...

Click graph to enlarge (there is a typo in the graphic - billion should trillion)

image001.png

and again the following year on CNBC...

Mr. Middleton discusses JP Morgan and concentrated bank risk.

ZeroHedge, and the market in general, appear to have a valid concern about one of these banks in particular - Morgan Stanley.

image003_copy

While I'm definitely not one dismiss the risks inherent in the Riskiest Bank on the Street, see The Truth Is Revealed About The Riskiest Bank On The Street - What Does That Say About The Newest Bank To Carry That Title?, I do believe the equity market is missing the forest due to excessive tree bark blocking its view. So, it's time to publicly pose the question that I answered for subscribers months ago, and that is...

Goldmans Sachs Derivative Exposure the Canary in the Coal Mine?

The notional amount of derivatives held by insured U.S. commercial banks have increased at a CAGR of 22% since 2005, which naturally begs the question “Has the value or the economic quantity of the underlying increased at a similar pace, and if not does this indicate that everyone on the street has doubled and tripled up their ‘bets’ on the SAME HORSE?”

Think about what happens if (or more aptly put, "when") that horse loses! Would there be anybody around to pay up?

Sequentially, the derivatives have increased every quarter since Q1-05 except for Q4-07, Q3-08 (Lehman crisis) and Q4-10 while on a YoY basis the growth has been positive throughout recorded history.  In Q2-2011, the notional value of derivative contracts increased 2% sequentially to $249 trillion. The notional value of derivatives was 12% higher than a year ago. The notional amount of a derivative contract is a reference amount from which contractual payments will be derived, but it is generally not an amount at risk. However, the changes in notional volumes can provide insight into potential revenue, and operational issues and potentially the contagion risk that banks and financial institutions poses to the wider economy – particularly in the form of counterparty risk delta. The top four banks with the most derivatives activity hold 94% of all derivatives, while the largest 25 banks account for nearly 100% of all contracts.  Overall, the US banks derivative exposure is $249 trillion and is more than four folds of World’s GDP at $58 trillion.

In absolute terms, JPM leads this list with total notional value of derivative contracts at $78 trillion, or 1.3x times the Wolds GDP. However, in relative terms, Goldman Sachs leads the list with total value of notional derivatives at 537 times is total assets compared with 44x for JPM, 46x for Citi and 23x for US Banks (average).

So, what does this mean? Well, it should be assumed that Goldman is well hedged for its exposure, at least on academic basis. The problem is its academic. AIG has taught as that bilateral netting is tantamount to bullshit at this level without government bailout intervention. If there is any entity at risk of counterparty default or who is at the behest of a government bailout if the proverbial feces hits the fan blades… Ladies and gentlemen, that entity would be known as Goldman Sachs.

As excerpted from Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, pages 2 and 3...

GS__Banks_Derivatives_exposure_temp_work_Page_2

Goldman is much more highly leveraged into the derivatives trade than ANY and ALL of its peers as to actually be difficult to chart. That stalk representing Goldman's risk relative to EVERY OTHER banks is damn near phallic in stature!

GS__Banks_Derivatives_exposure_temp_work_Page_3

As opined earlier through the links "The Next Step in the Bank Implosion Cycle???"and As the markets climb on top of one big, incestuous pool of concentrated risk... , this is not a new phenomenon. Quite to the contrary, it has been a constant trend through the bubble, and amazingly enough even through the crash as banks have actually ratcheted up risk and assets in a blind race to become TBTF (to big to fail), under the auspices of the regulatory capture (see Lehman Dies While Getting Away With Murder: Introducing Regulatory Capture). 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...

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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...

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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.

As you read exactly how precarios the situation is in France (and Belgium, through Dexia, et. al.) keep in mind that although this is definitely not good news for Goldman's numbers, historically since the beginning of this crisis, GS has actually correlated more with coke laced, red bull juice powered mo-mo trader patterns than actual book value - reference The Squid Is A Federally (Tax Payer) Insured Hedge Fund Paying Fat Bonuses That Can't Trade In Volatile Markets? Who's Gonna Tell The Shareholders and Tax Payer??? from just last reporting period...

... 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:

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_01Goldman_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_02Goldman_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.

 

What do you think happens when word of Goldman's true exposures get out? And I'm not even half way through exposing just SOME of the dirt that BoomBustBlog subscribers had access to back in July, when those Goldman puts were nice and cheap! Interested parties should click here to subscribe, cause next up we walk through several other American banks to see who's up for re-enacting 2008-9 put parade - and historically we have usually if not always been ahead of the curve, particularly when compared to Wall Street and the sells side - see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

Another BIG Reason Why BNP Paribas (France's LARGEST BANK) Is Still Ripe For Implosion!

As excerpted from our professional series File Icon Bank Run Liquidity Candidate Forensic Opinion:

BNP_Paribus_First_Thoughts_4_Page_01

This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above.  Here I demonstrated what more realistic numbers would look like in said model... image008

To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...

BNP_Paribus_First_Thoughts_4_Page_09

So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipeout, or is it? On to page 10 of said subscription document...

BNP_Paribus_First_Thoughts_4_Page_10

Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...

Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trastde and European Bank Run Trading Supplement

I identify specific bank run candidates and offer illustrative trade setups to capture alpha from such an event. The options quoted were unfortunately unavailable to American investors, and enjoyed a literal explosion in gamma and implied volatility. Not to fear, fruits of those juicy premiums were able to be tasted elsewhere as plain vanilla shorts and even single stock futures threw off insane profits.

Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer

In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.

I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!

Keiser Report: Troika Tanks, Junta Bots & a Run on French Banks

Stacy Summary: We interview Reggie Middleton about a run on French banks. I notice today that Pimco’s El-Erian is also talking about a run on French banks. He must have watched the Keiser Report when it aired from late last night PDT. We know you’re taking our shtick Mr. El-Erian, we’ve got our eye on you!

Go to 13:07 marker in the video, contrast and compare and consider watching the smaller more independent shows for the real scoop every now and then.

For some back ground on the "Kick the Can Triumvirate Three" [BBB Trademark], go to 20:50 in the video and dedicate 5 minutes to it...

The many ways to reach Reggie Middleton:

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Or simply email me.

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

Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also demonstrate how BoomBustBlog research not only runs circles around the big name brand bank analysts in their missing this risk (once again), but has been doing so for years, since our proclamation that Bear Stearns would collapse in January of 2008 (Is this the Breaking of the Bear?) and the fishy things at Lehman Brothers just a few days afterward (Is Lehman really a lemming in disguise?). I urge the big media to catch on as the TRUTH goes viral, delivered raw and uncut. Now let's go hunt some big Goldman game! You see, unlike some of the more meek (which is really to be read as conflicted), I am particularly well suited to go after the dangerous game...  Enjoy!

All paying subscribers are urged to download the latest forensic research: Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine? in order to get a head start on what will be publshed in parts 2 and 3 of this series!

Reggie_Midleton_The_Squid_Hunter

Friday, 9/20/11, Bloomberg reports: Morgan Stanley Seen as Risky as Italian Banks, as excerpted

Morgan Stanley (MS), which owns the world’s largest retail brokerage, is being priced in the credit- default swaps market as less creditworthy than most U.S., U.K. and French banks and as risky as Italy’s biggest lenders.

The cost of buying the swaps, or CDS, which offer protection against a default of New York-based Morgan Stanley’s debt for five years, has surged to 456 basis points, or $456,000, for every $10 million of debt insured, from 305 basis points on Sept. 15, according to prices provided by London-based CMA. Italy’s Intesa Sanpaolo SpA (ISP) has CDS trading at 405 basis points, and UniCredit SpA (UCG) at 424, the data show. A basis point is one-hundredth of a percent.

... Moody’s Analytics, an arm of Moody’s Investors Service that’s separate from the company’s credit-rating business, said in a report yesterday that Morgan Stanley’s CDS prices imply that investors see the bank’s credit rating as having declined to Ba2 from Ba1 in the last month. The company is actually rated six grades higher at A2 by Moody’s Investors Service.

By comparison, Bank of America Corp. (BAC) and France’s Societe Generale (GLE) SA, which have CDS trading at 403 basis points and 320 basis points respectively, have prices that imply a rating of Ba1, higher than the implied rating on Morgan Stanley, said Allerton Smith, a banking-risk analyst at Moody’s Analytics in New York.

... Morgan Stanley was the biggest recipient of emergency loans from the Federal Reserve during the financial crisis and also benefited from capital provided by Tokyo-based Mitsubishi UFJ Financial Group Inc., now the biggest shareholder, and the U.S. Treasury, which it repaid with interest.

... While the price of Morgan Stanley’s credit-default swaps is at the highest level since March 2009, it’s nowhere near the peak reached in 2008. On Oct. 10 of that year, the annual price for five-year protection rose to the equivalent of 1,300 basis points, according to data provided by CMA, a unit of CME Group Inc. that compiles prices quoted by dealers in the privately negotiated market.

... Trading in Morgan Stanley credit-default swaps has risen recently to 257 contracts last week, compared with 187 for Goldman Sachs Group Inc. (GS), according to the Depository Trust & Clearing Corp. That compares with a weekly average of 73 trades in Morgan Stanley and 91 in Goldman Sachs in the six months that ended on Aug. 26, DTCC data show.

... There was a net $4.6 billion of protection bought and sold on Morgan Stanley debt as of Sept. 23, according to DTCC. Even with the higher trading volume, investor skittishness in the face of Europe’s sovereign debt crisis may be leaving few market participants willing to sell CDS protection to meet the demand for hedges, said Hintz.

“With the EU teetering, few other firms are going to jump in and write CDS on a global capital markets player like MS,” Hintz said in his e-mail, referring to the European Union and to Morgan Stanley’s stock-market ticker symbol.

... The rise in Morgan Stanley’s CDS prices may also relate to an expected decline in third-quarter trading revenue or to the company’s exposure to French banks, Smith said.

... Morgan Stanley had $39 billion of cross-border exposure to French banks at the end of December before accounting for offsetting hedges and collateral, according to an annual filing with the U.S. Securities Exchange Commission. Cross-border outstandings include cash deposits, receivables, loans and securities, as well as short-term collateralized loans of securities or cash known as repurchase agreements or reverse repurchase agreements.

‘Galloping Wider’

While Morgan Stanley hasn’t updated those figures, Hintz estimated in a Sept. 23 note to investors that the bank’s total risk to France and French lenders is less than $2 billion when collateral and hedges are included.

As of June 30, Morgan Stanley had about $5 billion of funded exposure to Greece, Ireland, Italy, Portugal and Spain, which was reduced to about $2 billion when offsetting hedges were accounted for, according to a regulatory filing. The company also had about $2 billion in overnight deposits in banks in those countries and about $1.5 billion of unfunded loans to companies in those countries, the filing shows.

“Their spreads just are galloping wider,” Smith said. “Is it rational that Morgan Stanley CDS spreads would be wider than French bank CDS spreads if the concern is exposure to French banks? I don’t think that makes perfect sense.”

I have addressed this ad nauseum on the blog, but the answer to that questions has been put best by Tyler Durden, at ZeroHedge put it best:

...Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else who on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

The point of this detour being that if any of these four banks fails, the repercussions would be disastrous. And no, Frank Dodd's bank "resolution" provision would do absolutely nothing to prevent an epic systemic collapse.

You see, despite the massive following that the big brand name bank analysts have, none of them warned on Morgan Stanley nor the banking industry in a timely fashion. That is none, except for none other...

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  • In early August, when the French banking system was ripe for implosion and not a peep was available from any of the big brand names, who instead focused on Italy but apparently failed to inform clients that Italy fed contagion directly into the French banking system... The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  • Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer: In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head. I then provided a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!

 

File Icon French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers

 

 

File Icon Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers

 

 

Herein lies the rub, though. The Bloomberg article above rightfully states that Morgan Stanley has more gross exposure to France then its peers, but it totally leaves out the aggregate risk that its peers face. Is the media, led by the market, ignoring the squid canary in the coal mine?

 

A month or so ago (Monday, 22 August 2011), I penned the public blog post that also relased my most recent research on Goldman Sachs - The Squid Is A Federally (Tax Payer) Insured Hedge Fund Paying Fat Bonuses That Can't Trade In Volatile Markets? Who's Gonna Tell The Shareholders and Tax Payer??? -  as excerpted:

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:

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_01Goldman_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_02Goldman_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.

This warning given to both to my paying subscribers (in explicit detail) and my blog followers two months ago. Over the last few days, the sell side has followed suit, unfortunately not in enough time to capture much of the downward share price movement. Compare the difference between the two time frames from the perspective of catching/avoiding the sharp share price drop and it is clear that the BoomBustBlog one and a half month or so headstart/prescience had its advantages...

  • om: Goldman Sachs estimates cut at Meredith Whitney AdvisoryMeredith Whitney is slashing Goldman Sachs September quarter EPS estimate to 31c vs. consensus $1.45 and FY12 EPS estimate to $7.85 vs. consensus $15.14. Shares are Hold rated. :theflyonthewall.com

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If one were to click through on the links above this chart leading to the various sell side downgrades, the main focus is on accounting earnings diminishing primarily as a result of potential trading issues. These issues were covered in our report two months earlier, yes, but there are several things we covered that the sell side missed, and apparently is continuing to miss. It is these "misses" that will be the focus of the next two articles on. As a teaser, I urge all to read (or reread) the controversial piece: So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't? and stay tuned as I post part two of this documented virtual squid hunt over the next few hours.

Related reading and media:

We believe Reggie Middleton and his team at the BoomBust bests ALL of Wall Street's sell side research: Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

Published in BoomBustBlog