Five years ago I posed the question, "Has the Web and the Blogosphere ushered in the Death of Radio?" Lookng at radio station revenues and ad rates, while their death is not necessarily eminent, the metastatization of a near terminal disease is. Now, half decade later, is it time to pose that question for Mainstream Media in general? Methinks there is a significant opporutunity for those true entrepeneurs who can figure out how to make a better mouse trap. The infographic below says it all...

Internet Influence

Other examples...

• Mainstream Media Says Cyprus Salvaged By EU ...
• What Sell Side Wall Street Doesn't Understand ... 
• A Couple Of Apple Facts That Mainstream Media ... 
• BoomBustBlog Research Opinion Hits the Mainstream Media, Sort Of...

Isn't it amazing that you can get more notoriety for showing your ass and a pretty smile than you can get for outing the scam of the decade through intellectual analysis? More money was lost through the Facebook scam IPO at $38 than Bernie Madoff could ever have pulled off. Notice that Bernie went to jail for his relative pennies, while the bankers selling and snake oil in the form of overpriced Facebook shares got paid record bonuses on the back of taxpayer bailouts!!!Often times people can see a blatant fact, a seemingly undeniable truth, and totally ignore it as if it doesn't exist. In the US, the Wall Street banks are masters of this marketing derived form of prestidigitation. Wall Street banks pay humongous bonuses (from your tax dollars) based on the dispensing of bogus advice, despite the fact that it can be proven beyond a shadow of a doubt that there are many other entities that have advised better, considerably more accurately and have done so consistently (Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?). Go figure...

Media celebrities are also adept at garnering significant mind share, although it's a bit more understandable why this is so. Some are beautiful, some sound good, others act well on stage - basically, they are capable of doing more than simply muppetizing clients (Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Walk Over Clients). This article looks to counter that magic that allows those who consistently under perform to continuously be looked upon as masters of the universe, while those who have performed consistently are thought of as "alternative" or "fringe", simply because they don't garner the mindshare of the sexy celebrity or the "Masters of the Intellectual Universe Investment Bank". Well, there's a new sheriff in town! Here comes that new, "Intellectual Celebrity". One should consider me the Kim Khardashian of global finance and investment. Instead of big ass and a pretty face, I offer a massively analytical perspective, a damn near offensive intellectual honesty and an unyielding penchant for spitting the facts that few want to hear. So, it's not Jay-Z! It's Reg-G!. Here we go...

Reggie_Middleton_hunting_the_Squid_Known_As_Goldman_Sachs_GSThere's a new celebrity in town. He sports acute intellectual capacity instead of ass, is much more aggressive and aims to make the masses aware, despite who he may offend. Yes, I know... It may take some getting used to!

This article is segmented, and those who have followed me can skip my history with Facebook valuation vs the Wall Street banks and move forward to the Google+ Communities vs Facebook Groups comparison...

How the Facebook story got started...

Facebook started its institutional investment life as a very popular, very well known company. Goldman took this story (private) stock and went bananas with it, as meticulously illustrated in the following blog posts:

1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!

I issued private research to my subscribers while publicly warning that Facebook at, or anywhere near, its IPO price was a blatant bald faced SCAM & RIPOFF!!!

1. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
2. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

As the actual IPO arrived, JP Morgan, Morgan Stanley, Goldman Sachs, etc. piled on the Bullshit, basically espousing how great an investment this was at $38, screaming that this was a once in a lifetime opportunity. Basically, they took the opposite stance of yours truly. And how did that worked out??? BoomBustBlog Challenges Face Ripping Facebook Share Peddlers That Left Muppets Faceless And Nearly 50% Poorer After IPO.

The stock debuted at $38, went up to about $44 that day, then hasn't seen the high or IPO price since, dropping to $17 or so and now trading around $27 on additional analyst upgrades (because the Muppets didn't get bent over hard enough the first time around).

All should still be aware of the primary factor in this "growth company" stock's story....

image002

These facts should not have been a surprise, and blog subscribers were made aware nearly a 2 years ago, as excerpted from our 2nd most recent forensic analysis.

FB IPO Analysis Valuation Note Page 04

I want to focus on the Google+ effect mentioned in the research page above. JC Kendall of SocialMedia Today posed the question "Google+ Communities: The Last Nail In The Facebook Coffin?". Basically, he ponders whether or not the release of the Google's recent answer to Facebook's Groups product will drive Facebook the way of MySpace. I will excerpt the parts pertinent to this discussion, but I urge you to visit the full article and also keep in mind that Mr. Kendall is a socail media professional, hence may have a different perspective than that of the casual user. Here's some very interesting highlights of what he had to say:

• Back in March of 2012, Facebook reported that on average only 16% of Facebook Brand Page posts were read on average by the fans of those pages.  For all the money spent on Facebook advertisements, they resulted in a CRT (click-through-rate) of 0.051%.
• In May of 2012, Facebook began allowing business to “Promote their Posts” after killing off the previous “Reach Generator”, a program that GUARANTEED at launch that it would reach 75% of Facebook users that had liked a Brand Page, but only produced an average of 16% reach. 
• In June 2012, fed up with what he concluded as Facebook blocking his ability to reach his huge audience of Facebook fans, George Takei of [Lieutenant Sulu] Star Trek fame contacted Facebook about his concerns, and was told “buy more promoted posts.”  Takei watched his reach dwindle while the number of his posts remained the same, and decided it was due to EdgeRank, the Facebook algorithm that determines who gets to see a user’s updates. ....Facebook determines who sees users posts, not the users and you get to pay for this!   In June, George Takei established a profile on Google+, where 100% of his messages would be available to his friends at zero cost.  
• {In} Google+, all posts, no matter how large the audience, are free of charge to 100% of your followers. 

When I talk to businesses about why, in the face of such dismal advertising returns, they are still concentrating their Social Media efforts on Facebook, the answer is the same, about 90% of the time:  Facebook Groups.  

Google+ Communities is less than a week old, and its growing like a weed!

• ... all those things you did from your Facebook Groups to develop a relevant and interested audience for your business, could be done easier, smarter, more effectively, and free of charge? Google+ Communities, because of the added services available to Google+ Users and integration with all the other benefits of the Google infrastructure, simply blows Facebook Groups out of the water. 
• ...Here is the kicker:  All of the content from a Public Google+ Community is indexed, and discoverable through Search on both Google and Google+. This is something that Public Google+ Community Moderators need to consider when creating their destinations.
• ... to maintain a level of real privacy, there are two options for Private Communities as well. Private Communities can be restricted to its invited members only, but remaining discoverable by search.  Or, a fully private Community can be created, similar to a private YouTube channel, where it can be found only by knowing the specific URL of the Community. 
• Any organization can create a Google+ Community that is open and available to anyone without an invitation necessary.  To get the word out, all the moderator needs to do on Google, is share their Community to the Public Stream, which will inform not only 100% their circled followers,  but the announcement is now part of the worldwide Google Index, and available through a keyword search, along with the content of every post, every image, every video. 
• Contrast this with Facebook, where after a Facebook Group is created, the moderator now has to determine whether or not they wish to pay.  The price is determined by the number of Facebook friends who might see it, in order to reach 100% of their audience.  Consider that this is true not only to announce the Group, but the organization must also pay for EVERY update (promoted post) they make during the lifecycle of the Group’s initiative. For any Business or Organization with their eyes on the bottom line, the choice is clear. You can spend your  budget on managing and performing your daily activities from a Google+ Community,  with its various ways to allow users to either see you or find you, or you can devote a chunk of your resources to paying Facebook for the right to let all of your friends know what you are doing, with no guarantee of a decent CTR result. 
• If I were a decision maker for an organization migrating from Facebook to Google+,  I may pay to send a single promoted post to my Facebook friends and followers, to let them know that my charity drive now and for the future can be found  now be found on Google+.  But, if my Facebook friends have any problem finding my Community Based Charitable initiative, not to worry, because they can (duh) GOOGLE IT. 
• It is not as though someone cannot be a member of both Google+ and Facebook at the same time, so why would an Organization of any kind, pay more for much less on Facebook?  In addition, the SEO (search engine optimization) advantages of Google+ Communities cannot be overstated, along with the Google Authorship potential for preventing fraudulent association or duplication with your Google+ Community.

Google Hangout is a group video conferencing and video broadcast platform within Google+. It's very handy for multi-media publishing and has no match anywhere near its price - of free!

• Google+ Hangouts can be scheduled by event and run from within a Google+ Community, with Hangout invitations sent to all members automatically.  Members of communities do not have to be within their community to share comments and information; they can post directly to their Communities from their public streams. 

• On Google+, users can share files from Google drive both inside and outside their Google+ Communities. Users can both link to and distribute documents of all kinds, and even HOST A WEB SITE from their Google Drive with JavaScript support built in.  Pow! 
• Suppose two (or up to ten) persons within a Google+ Community share an interest and want to speak RIGHT NOW to each other? They have the option of starting a video Hangout together, or should one of the two not have a web cam, use Google’s Voice services to place a free international call to the other person from within the hangout itself!  Did I mention FREE, and no limit to amount of usage?

• Google, with the introduction of Google+ communities, has essentially matched or surpassed every level of functionality available on Facebook for a Business to develop its brand, and attract a growing number of followers to its audience. The additional features of SEO, Authority, and Trust associated with a Google+ presence is a difficult thing to pass up, and I predict that the steady stream of Businesses building a Brand Presence on Google+ will soon, with the addition of Google+ Communities will soon become a flood. 

• Because Facebook has no public search engine, all content is confined within its forums. Facebook will not be able anytime soon to emulate what Google has done with SEO, Authorship or even Hangouts.  You see, the video performance of Hangouts cannot be duplicated without an associated fiber-network between datacenters like those Google has built. 
• Google+ users connect through this network, away from all of the latency adding routers, switches, repeaters that connect together the rest of the internet. Creating desktop video conferencing for up to 10, or (15 users with a paid Google Apps account) is basically impossible given today’s video compression standards.  Google has promised HD Hangouts in the not too distant future.  I would expect to see those first along Google’s Fiber rollout for users in Kansas City, MO. 

Whew! That's a lot of info to digest. I apologize for excerpting so much of JC's content, but he had so much of relevance to contribute I had to. This is not all of it, by a long shot, so I again urge you to read the original SocialMedia Today article. The obvious question is, "Does he actually make a valid point?" BoomBustBloggers as well as FB and Google investors really need to know. Even though Facebook Does The Reverse Gravity Thing, Defies Logic, I still had to quip  - Hey Muppets, Only Another 100% Climb In Share Price To Go Before You Break Even With MS/GS/FB Investment Advice. Let's turn to my site's stats to reveal some actual facts and stats.

 image017

As you can see from the chart above, the social network to beat for actual site referrals is Twitter. I believe that is due in large part to the nature of my site (financial analysis, which has a penchant towards real time information seekers). It is also due in part to a social media push that I have started, in which Twitter has the richest 3rd party publishing tools - something that I feel the other participants in the chart have erred in not directing significant resources. Time will tell if I'm correct.

Google search has always been a large contributor to site traffic, and when combined with Google Plus and Google.com referrals, is still number one despite the aggregate social media push. Google has integrated Google Plus into practically all of it properties, which makes the use of almost any Google product an indirect use of Google Plus. A wise move, one that (at least at this time) benefits the end user, and a move that significantly disadvantages its competitors - primarily Facebook! My Facebook account has been active for a couple of years, yet I just started a Facebook Company page last year, and it has been mostly inactive. I recently started adding content to it, along with a Google Plus page and LinkedIn Page (used to be active, then I stopped adding content and recently started again). Twitter has been active for about a year. At this point all of the major social media platforms get the same content posted simultaneously, and you can see the results. The content is formatted for Twitter, which may give Twitter an edge in this comparison.

What makes this comparison even more interesting is the fact that Google Plus is less than a year old while all of the other competitors are several years old. That makes Google Plus's competitiveness and growth appear outstanding. It is a true, clear, and credible threat to Facebook (as well as the others, and that's without considering the tech advancements) and I feel that FB investors are hardly giving this the attentition that it deserves. Google is out-Facebooking Facebook at an incredibly alarming rate!

 image019

The site stats mirror my description of the newness of my social media push. The new visits come mostly from my push onto new social media platforms. Of interest is the fact that Google Plus has a very high bounce rate, which denotes a lower quality of traffic, but the small amount of sample data being used is not conclusive. In addition, since the content is being formatted for Twitter's short form input rules, it fails to take full advantage of Facebook's and Google Plus's rich media capabilities. I will experiment with this theory by hosting a Google Plus Hangout Group Video session on my Facebook and Google research and opinion to see if this materially changes the stats. I believe it will, for the interaction in the content that I've posted on Google Plus, when there is interaction, is much greater than the other platforms - Twitter included!

 image016

The pages per visit metric is another measure of the quality of traffic. Here you see the Google search properties reign supreme, primarily because that traffic is pushed onto my site (the people are actively looking for me) as opposed to being pulled onto the site (I'm pushing content to them to entice them to come in). By effectively combining search with social media (which Google is doing) Google can convert Plus into a push versus pull scenario. Now for the most important point: Google Plus has just been launched, and it is now just launching new aspects of the platform. All of these platform aspects from Google are absolutely free. If you factor in the cost of paid advertising on LinkedIn, Twitter, or Facebook and cost per page visit, Google Plus shoots way up to the top. WAAAAYYYYYYY UPPPP!!!! Try ti for yourself. Divide the cost of advertising on these platforms plus the cost of content creation and management by the net visitor or engagment session or purchase (or however you measure success) and you will find Google Plus to end up at the top of the list - and that is despite its highly nascent state! Imagine what happens once Google actually gets the ball rolling!!!

This is going to be a problem for all of those social media sites whose business models are predicated on ad revenue. How can you charge for something when your competitor gives the same thing away (arguably on a better platform) for free? This is the question of doom that proved to be the death of the classifieds industry, soon the news industry as we know it, and the smartphone OS industry (ask RIMM if I know what I'm taking about BoomBustBlog Research Performs a RIM Job!, or even Apple Deconstructing The Most Hated Trade Of The Decade, The w 375% BoomBustBlog Apple Call!! and Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All).

Google is able to disintermediate these industries through a process known as cost shifting - basically offering a competitors cash cow product for free to the end user by shifting the cost of making and delivering said product to a natural producer who must incur said costs anyway, thereby totaly disrupting the business models and crushing the margins of the established status quo. With the newness of Facebook et. al., it may be hard for old timers to consider them status quo, but in Internet Time, Facebook is old school and faces disintermediation through cost shifting if they don't figure something out, and figure it out fast! 

Here I break down Google Cost Shifting on the Max Keiser (who, after being broadcast on China TV, may very well be the most seen independent newscaster in the world) Show

So, why aren't you hearing this from those big Wall Street banks that were clamoring to sell you those Facebook shares at $38?

Well, I've Told You Before, And I'll Tell You Again - Goldman Sachs Investment Advice Sucks!!! I thought everyone would be asking the question Is It Now Common Knowledge ThatGoldman's Investment Advice Sucks?, but since they aren't I'm here to fan the flames. The reason why you don't here this from those banks is because their business model is predicated upon your ignorance. Independent investors and analysts (say BoomBustBlog) are to the extant, big Wall Street bank as Google Plus is to Facebook, a source of pending disintermediation and margin compression. As excerpted from BoomBustBlog Challenges Face Ripping Facebook Share Peddlers That Left Muppets Faceless And Nearly 50% Poorer After IPO:

I made it clear that those who lost roughly half of their capital at or near the IPO price simply forfeited those funds from not reading BoomBustBlog, and this situation was virtually guaranteed. I felt so strongly about it that I made much of my opinion available for free this time.

Here's where I broke it down on Capital Account

I also happened to do the same on the Max Kesier show...

I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

Additional Facebook analysis, valuation and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Double your money by shorting the Street's advice! Once Again!

Here is a full year of free blog posts and paid research material warning that ANYBODY following the lead of Goldman, Morgan Stanley and JP Morgan on the Facebook offering would get their Face(book)s RIPPED!!! Could you imagine me on a reality TV show based on this stuff??? Well, it's coming...

1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly
8. On Top Of The 2x-10x Return Had Off Of BoomBustBlog Facebook Research, Our Models Show How Much More Is Available...
9. Is Time For Facebook Investors To Literally Face the Book (Value)?
10. Facebook Bubble Blowing Justification Exercises Commence Today
11. Facebook Options Are Now Trading, Or At Least The PUTS Are!
12. Reggie Middleton breaks down "Muppetology," Face Ripping IPO's, and the Chinese Wall!
13. Facebooking The Chinese Wall: How A Blog Has Outperformed Wall Street For 5 Yrs
14. Why Shouldn't Practitioners Of Muppetology Get Swallowed In A Facebook IPO Class Action Suit?
15. Shorting Federal Facebook Notes Are Not Allowed Today ?
16. As I Promised Last Year, Facebook Is Being Proven To Be Overhyped and Overpriced!

It would seem that Facebook Finally Faces The Fact Of BoomBustBlog Analysis. Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. I just nominally input some very generous numbers and the best case scenario chart (see the chart tab after your own individual inputs) is quite revealing, indeed! The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update, and the latest iteration can be found here FB IPO Analysis & Valuation Note - update with per share valuation 05/21/2012. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011).

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade. 

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

Google Q1-2012 Valuation Summmary 04/20/2012

Google Q1 2011 results 04/18/2011

Google Q3 2010 reveiw 11/08/2010

Google Valuation Model 09/21/2010 

 Google's VOIP and Telephony Services 09/16/2010

Google Cloud Based Services

Google TV Analysis

A couple of bits from our archives...

Now that Facebook has actually filed for an IPO, it's time to revisit our previous analyses. BoomBustBlog subscribers are prompted to review our Facebook Forensic Analysis from this time last year - FB note final 01/11/2011. I will probably review the Facebook IPO filing and update my opinions Friday and/or over the weekend to product a part two of this article. I say probably because this is competing for resources with the REIT research that we are doing, namely calculating the likelihood of bankruptcy. Yes, our opinion has been downgraded to the point where we are questioning its ability to remain a going concern. The opportunity actually has options trading on it as well. Alas, in the meantime let's look at how we got to where are now by excerpting my previous opinions and analysis on this deal.

1. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private! Monday, 03 January 2011

2. “Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure“ Tuesday, 04 January 2011

   Yesterday, I attempted to pull the wool from some of the more complacent eyes of news media consumers by outlining the potential goals for Goldman's half billion "investment" in Facebook while at the same time pondering the market for a different type of media concern. A media concern that is heavy on the analysis and investigation, yet light on the political correctness and conflicts of interest (see Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!). I definitely don't want to be condescending, but there is obviously (at least to me) a need for such an entity amongst the mainstream rags for as I read through the comment sections of the articles written on the topic, I see such naivete as, "Wow!!! If Goldman is putting their money in this, it must be serious!" I say do myself, "It's a damn shame if that is actually a real person's viewpoint and not a Goldman equity underwriting employee".

…

I would like you, dear reader, to let me know why or why not such a media concern as the one I intimated above should not make as much or more money than Goldman, et. al. and the financial engineering bunch, for the media concern actually imparts useful knowledge that actually adds to society, know? Am I being to idealistic in my search for the Utopian world or is there truly a market for real knowledge and insider info. I'm all ears. Now, back to the topic at hand...

For some background into my work on Facebook's offering, go to 13:55 in the video to see me discussing Goldman's Facebook offering that never was.

This is the 3rd installment of my controversial rant against the American education system - this time in video. If you haven't been following me, it is recommended that you read through the first two (admittedly lengthy, yet well worth the time) posts:

1. How Inferior American Education Caused The Credit/Real Estate/Sovereign Debt Bubbles and Why It's Preventing True Recovery
2. The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

I fully expect plenty of comments on this one! I come in at 3:40 in the video, but the first three and a half minutes may be worth viewing as well for those in the education industry.

laurynlister_Reggie_on_RT

Some rather hard hitting reporting and analysis on the Vampire Squid...

Start at 2:20 into the video.

I have much more on this...

Yes, The BoomBustBlog Forecast Pan-European Bank Run Has Breached American Soil!!!

The Ironic, Prophetic Nature of the MF Global Bankruptcy Filing and It's Potential Ramifications

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

MF Global ran into a liquidity squeeze while betting on the European debt that I have warned my subscribers for two years to avoid like the plague. Goldman is doing the same thing, no?

As excerpted from the model that powers BoomBustBlog subscriber document Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?

goldman_balance_sheet_risk

As you can see, Goldman traded its derivative book risk for sovereign risk - just in the nick of time to catch the tail end of a derivative crisis  & the start of a sovereign debt crisis. Excellent job fellas! Goldman has literally doubled its sovereign assets, starting the exact year that I started warning in the Pan-European Sovereign Debt Crisis series. BoomBustBlog subscribers covered this scenario over a year ago.

Go to the 26:40 marker in the video...

Note: This will probably be the last post until after Thanksgiving, after which I will delve into insurance industry shorts for my subscribers. In the meantime, I have compiled a very meaty post to keep reades and subscribes alike stuffed to the gills like a turkey. If you haven't noticed, I tend to be a bit spicier and considerably more eccentric than the average financial pundit, commentator, analyst or investor. I think because of that, I've been left out this year's Wall Street bank Christmas party invitations. I ask that anyone who wishes to add a little "spice" in additional to some intellectual discourse and fun to their Goldman, JP Morgan, Morgan Stanley, etc. Christmas party shoot me an email and invite me along. It'll be fun - really!

In looking through this morning's MSM headlines I see what is tantamount to a mandate for BoomBustBlog subscriptions. Let's walk throught CNBC's front page.

msm_11-23

Starting at the top. The latest German bund auction flopped!

• Poor Auction Demand Shows German Bunds Losing Appeal [CNBC]
• German Bund Auction Falls Flat [WSJ]

The day before yesterday, and throughout the year, I warned that Bunds would make a good short and Germany was next on The Next Stop On The European Bank Flu Express. There's no reason to believe that Germany, as a net export nation, will not get sick as ALL of its EU neighbors sneeze recession in its face! Nearly two years ago, I posted the following prescient pieces:

1. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? – illustrates the potential for the domino effect

2. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. – attempts to illustrate the highly interdependent weaknesses in Europe’s sovereign nations can effect even the perceived “stronger” nations.

3. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

4. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

Then we have the Asian markets down on weak China PMI. What else was there to expect? Does one really think China to be the 23 year of growth packed into 3 year miracle that the sell side and the media make it out to be? I've been warning on China since 2009 as well. See China Is In a Self-Imposed Bubble That Has Nowhere To Go But Bust! You Don't Get Something (Growth Through Stimulus) For Nothing (No Economic Consequences), as exceprted:

The Federal Reserve announced Tuesday it plans to stress test U.S. banks—including the six largest—against a hypothetical market shock, such as an escalation of the European debt crisis.

Dick Bove

cnbc.com Dick Bove

But noted banking analyst Dick Bove said there is nothing for investors to get upset about because the stress tests are pro forma and are not an indication that the Fed  has any particular concerns about the state of American banks.

“It was really required by the Dodd-Frank law that they have a stress test,” the Rochdale Securities analyst told Larry Kudlow. “So every year at about this time you have the Fed setting up a new stress test for the banking industry.”

The six big banks to be tested are Bank of America [BAC  5.37    -0.12  (-2.19%)   ], Citigroup [C  24.46    -0.54  (-2.16%)   ], Goldman Sachs [GS  89.40    -1.90  (-2.08%)   ], JPMorgan Chase [JPM  29.41    -0.50  (-1.67%)   ], Morgan Stanley [MS  13.52    -0.08  (-0.59%)   ] and Wells Fargo [WFC  23.93    -0.25  (-1.03%)   ].

While the Fed's stress tests will see whether U.S. banks can withstand any further deepening of the European debt crisis crisis, Bove isn't worried about contagion from the EU.

“If [the European banks] run into significant difficulties, it is not going to create a massive crisis in American banks,” he said. “American banks are benefiting meaningfully as a result of the European banking crisis and it’s showing up in their earnings.”

Will someone buy Mr. Bove an Insitutional BoomBustBlog subscription. Of course it won't create a massive crisis in American banks... The 8th largest bankruptcy in this country's history doesn't even scratch the radar, right??? The Ironic, Prophetic Nature of the MF Global Bankruptcy Filing and It's Potential Ramifications

That’s because European banks are selling American assets to American banks at discounted prices.

However, Bove thinks it’s highly unlikely that the European banks will collapse. He believes the European Central Bank will ultimately bail them out.

Okay, where do I start? Well, I must admit, I don't look, speak, think nor act like any of the sell side analysts. If you are into convention, and not into hard hitting analysis and outspoken brothers, then I'm just not your man. If that's the case, I suggest you simply get you some Dick. For those who (like me) don't favor dick, I have a slightly different flavor to offer in terms of analysis and perspective.

For those not familiar with Mr. Bove, he made an interesting call on Bear Stearns which was essentially antithetical to my research. I will copiiously (I apologize Karl) excerpt a post from the Market Ticker which explains the story explicitly: Dick Bove, Bear Stearns, And Controversey

  Apparently Mr. Bove does not like my ticker from last night, and believes that I have been in some way "unreasonable" in my characterization of him, specifically this paragraph:

"The Truth: The "powers that be" (including the media, The Fed and The Banks) are absolutely beside themselves with the possibility that stocks, especially bank stocks, might decline in value. For "why" see the top of this blog entry. If you fall for this you will be wiped out. DICK BOVE PUT A MARKET PERFORM RATING ON BEAR STEARNS STOCK ON MARCH 11th - JUST THREE DAYS BEFORE IT BLEW UP AND (THE FOLLOWING MONDAY) WENT TO $2! You have NOT and you WILL NOT see CNBC or DICK BOVE take responsibility for the wipe out of SEVERAL BILLION DOLLARS IN SHAREHOLDER WEALTH - when he could have preserved YOUR MONEY if he had told you the truth about our financial institutions and that YOU SHOULD SELL ALL OF THEM AS THERE ARE AND WILL BE MORE EXPLOSIONS, ALTHOUGH NEITHER HE OR I HAVE NO WAY TO KNOW WHICH ONES AND NEITHER DO ANY OF THE ANALYSTS SINCE WE CAN'T SEE HONEST BALANCE SHEETS!"

He was kind enough to send me a copy of the full report which I have edited to remove his email address and phone number (at his request), but which is otherwise reprinted here with his permission. You are urged to read the report in full and draw your own conclusions about whether the market performrating was reasonable or not. Links are at the bottom of this post. There apparently is one word he can legitimately complain about in my original ticker - the word "PUT". In fact, he maintained a "Market Perform" rating on the 11th of March; the upgrade to Market Perform from SELL appears to have occurred in February.

You can find an archived copy of that story here. It says among other things, in reference to Bear and Lehman:

"He said private equity may once again be able to fund activities in the high yield markets, while adding that credit derivatives markets were unlikely to go lower, and that the mortgage business may actually be quite strong this year.

New York-based Lehman will likely recover faster than its peers due to the expected strength in mortgages, Bove said."

Ok, I apologize for the error in not noting that the actual upgrade apparently came a month earlier, not that I think its material, but when you're wrong, you admit you're wrong. Mr. Bove, of course, didn't bother to mention when the rating was issued by him during our phone call, nor that when he issued the rating the price of the stock was even HIGHER (by nearly $20!) than it was in March when the rating was "maintained" (even though he claims it really wasn't if you read the narrative.) Now let's get to the meat of the matter and why I raised a stink about it in The Ticker - the rating. Dick claims that "anyone who read the report in full would see that I had told them to stay away from the stock."

After reading the report in full, I agree - the stock, by the narrative of the report, is indeed a sell - albiet a sell $20, or 25% of your money, too late!

But here's the problem - the report clearly cuts the price target from $90 to $45 (a 50% haircut!) and further is a reduction of 25$ (from $59 to $45) from the closing price on the day the report was issued.

The report is intended only for institutional clients who pay his firm, but it, like the report yesterday, was picked up and widely quoted in the media. Take a look at the second page of that report, directly above Mr. Bove's certification, under the definition of "Market Perform":

"Common stock is expected to perform with the market plus or minus five percentage points."

Since I took the liberty of excerpting so much, I urge all who are interested in this story to read Karl Deningers full post on his page - Dick Bove, Bear Stearns, And Controversey. In regards to me, let's contrast my opinions of Lehman and Bear in January of 2008, as opposed to Dick's - Is this the Breaking of the Bear?

Bear Stearns is in Real trouble

Bear Stearns will soon be, if not already, in a fight for its life. It is beset with the possibility of a criminal indictment (no Wall Street firm has ever survived a criminal indictment), additional civil litigation, and client defection and alienation. Despite all of these, the biggest issues don't seem all that prevalent in the media though. Bear Stearns is in a real financial bind due to the assets that it specialized in, and it is not in it by itself, either. For some reason, the Street consistently underestimates the severity of this real estate crash. If you look throughout my blog, it appears as if I have an outstanding track record. I would love to take the credit as superior intelligence, but the reality of the matter is that I just respect the severity of the current housing downturn - something that it appears many analysts, pundits, speculators, and investors have yet to do with aplomb. With a primary value driver linked to the biggest drag on the US economy for the last century or so, Bear Stearn's excessive reliance on highly "modeled" and real asset/mortgage backed products in its portfolio may potentially be its undoing. This is exacerbated significantly by leverage, lack of transparency, and products that are relatively illiquid, even when the mortgage days were good...

Book Value, Schmook Value – How Marking to Market Will Break the Bear’s Back

Okay, I’ll admit it. I watch CNBC. Now that I am out of the confessional, I can say that when I do watch it I hear a lot of perma-bulls stating that this and that stock is cheap because it is trading at or below its book value. They then go on to quote the historical significance of this event, yada, yada, yada. This is then picked up by a bunch of other individual investors, media pundits and other “professionals,” and it appears that rampant buying ensues. I don’t know how much of it is momentum trading versus actual investors really believing they are buying on the fundamentals, but the buying pressure is certainly there. They then lose their money as the stock they thought was cheap, actually gets a lot cheaper, bringing their investment down the crapper with it. What happened in this scenario? These investors bought accounting numbers instead of true economic book value...

Level 2 and Level 3 Assets – Model Risk

Model risk, or the risk of the bank living in a spreadsheet in lieu of the market, has already reared its head in the summer of ’07 with the blow up of two of BSC’s hedge funds, which have left them in litigation with their own customers. Basically, many of the assets of the fund were levered highly, and valued based upon modeled cash flows from assets, and not from the actual tradable value of the assets. This is fine, until you need to liquidate by selling assets. As luck would have it, they found no market they felt was acceptable and were forced to market value down significantly, approaching zero. It has also manifested itself more recently in the recent announcement that they will be moving at least 7 billion dollars to the level three (the most BullSh1+) category. Bear Stearns has recently announced another hedge fund blow up, which doledout significant losses to investors and is attempting liquidation. For my laymen’s plain English take on level 1, 2, and 3 asset accounting, see the Banks, Brokers and Bullsh|+series (Banks, Brokers, & Bullsh1+ part 1 for model risk,).

Level 3 Assets at 231% of Total Equity; Amongst the Highest on Wall Street

Weighted average price (US$)
Methodologies	Weight assigned	Fair Price	Weighted average price
Fair price using P/Adj. BV approach	50.00%	33.84	16.92
Fair price using P/E approach	50.00%	39.00	19.50
Weighted average fair price			36.42
Current price			87.03
Upside from current levels (US$)			-58.2%

 

The book value numbers are after our economic marking and adjustments, of course. The “E” portion of the P/E ration is quite conservative, since the we built model incorporated BSC doing much better during the next 4 fiscal quarters than their peers are reporting for this quarter, and in my opinion BSC will not only fail to match their peers, but underperform due to the loss of their primary value drivers – mortgage derivative and related fixed income products – not to mention their asset management, legal, and litigation distractions as well as client and talent retention issues.

Am I right about the Bear?

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

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And this is a summmary of my takes on Lehman Brothers from a similar period:

(February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?”. I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now. ) | I just got this email on Lehman from my clearing desk Monday, March 17th, 2008 by Reggie Middleton | Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008 | It appears that I should have dug deeper into Lehman! May 2008

Now that we've established a small base of potential credibility when it comes to bank failure, back to today and Dick's proclamations on CNBC, let's start with Bank of America, who Dick says won't be affected by European malaise. This is Reggie's take...

• On Challenges To The Mainstream Financial Channels, BofA's (In)Solvency and Long-Only Pundits Dominating the MSM

• Bank of America Lynch[ing this] CountryWide's Equity Is Likely Worthless and It Will Rape FDIC Insured Accounts Going Bust

• This Bank Is Much Worse Than the Rest and the (Guaranteed?) Bust Will Probably Be Funded Right Out Of Your Bank Account!

Then there's Goldman Sachs, the bank where Reggie is just so loved...

After all, I'm sure there'll be no volatility in the markets if Europe blows up. Then again, even if there is volatility in the markets, Goldman's prop desk can handle it, right? I sure hope you guys don't think I'm being a Dick, do you?

What Was That I Heard About Squids Raising Capital Because They Can't Trade? Well, you guys know where I stand on this, and I have warned you ad nauseum...the Squid Can't Trade!

Reggie_Middleton_hunting_the_Squid_Known_As_Goldman_Sachs_GS

After all, eventually someone must query, So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?

On to the next Banque de Dick... You'd think with Dexia in the news, one would know to either stay clear of JP Morgan or at least subscribe to the BoomBust, eh? CNBC reports today (as highlighted in the introductory graphic) France, Belgium Wrangle About Dexia Deal: Reports. Why is this important? Well, look at why Dexia's in trouble in the first place. In the (must read) post Dexia Sets A $5.1bn Provision For Loss On Trying To Sell The Same Residential Real Estate Assets Upon Which JP Morgan Has Slashed Provisions 83% to $1.2bn from $7.0bn you will find..

...Similarly, many sell-side researchers award stocks “buy” or “overweight” ratings even as their internal asset-management units unload shares, presenting a conflict of interest and ethical dilemma. Goldman’s most famous front-runs to date were the Abacus transactions, through which the bank allegedly postured for high ratings for its mortgage-backed CDOs, sold them to clients and then shorted them.

According to research from the Street.com, Goldman put a Conviction Buy Recommendation on JP Morgan Chase shares and issued it to their clients, and then sold 4,200,009 shares of JPMorgan Chase. At an average of $45/share,  that means that Goldman had a lack of conviction in its own "Conviction Buy" recommendation to the tune of $189,000,405. I'd hate to see what the company would do if they recommended clients sell, or worst yet short sell, stock. Oh yeah! We already know, don't we.

Bloomberg reports: Dexia Takes 3.6 Billion-Euro Charge on Asset Sales

That charge taken by Dexia was more than necessary, and most likely not nearly enough. But wait a minute, why did JP Morgan do the exact opposite regarding the exact same asset class?

Do you remember my recent missive "There’s Something Fishy at the House of Morgan"? Well, in it I queried how it was that JP Morgan can continuously pull risk provisions and reserves to pad quarterly accounting earnings at time when I not only made clear that we are in a real estate depression but the facts actually played out the same. As excerpted from the aforementioned article:

I invite all to peruse the mainstream financial media and sell side Wall Street's take on JP Morgan's Q1 earnings before reading through my take. Pray thee tell me, why is there such a distinct difference? Below are excerpts from the our review of JP Morgan's Q1 results, available to paying subscribers (including valuation and scenario analysis): JPM Q1 2011 Review & Analysis.

'Nuff said! Let's move over to Morgan Stanley... The Truth Is Revealed About The Riskiest Bank On The Street - What Does That Say About The Newest Bank To Carry That Title? You know, I'm still quite bearish on Asian, European and American banks. Just look at the facts as they're laid before you...

• Squids, Morgans & Counterparty Risk: Blowing Up The World One Tentacle At A Time

• Is The Entire Global Banking Industry Carrying Naked, Unhedged "Risk Free" Sovereign Debt Yielding 100-200%? Quick Answer: Probably!

There's another headline with Cramer's opinion on RIMM, which brings me to mind of all of the flack that I got when I said RIMM was bust as it traded in teh 60's and 70's (currently quoted at about $17). See As Forecast Last Year and Clearly Demonstrated This Year, Research in Motion's Problems Are Far From Over:

Research in Motion has been one of the most successful tech shorts of this blog's history (thus far). We first recommended a short last year and reiterated it in the fist quarter of this year. Reference:

1. 1. BoomBustBlog Research Performs a RIM Job!

   2. BoomBustBlog's Fundamental/Forensic Analysis of Research in Motion Has Returned 2x-3x Original Investment This Year!!

This is a snapshot of RIMM as of the writing of this article...

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As you can see, the results have been spectacular, particular if well timed puts have been put to use. In January I posted:

I don't want to pick on just the Dicks on Wall Street. I'm willing to challenge the entire sell side as a whole. I hit hard...

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?

 Feel free to subsrcibe to BoomBustBlog or follow me via the following channels...

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... 

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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 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 2009-12-16 07:52:36 2.85 Mb and our CRE consulting capabilities statement:  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.

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...

• When bank shares were flying and the sell side passed out buy recommendations on each other like cheap candy on Halloween... Monday, 29 August 2011 The Banking Industry Still Looks Dismal Despite Rising Share Prices
• When the opportune time to short Morgan Stanley actually arrived, starting in early 2008... The Truth Is Revealed About The Riskiest Bank On The Street - What Does That Say About The Newest Bank To Carry That Title? Notice the price movement since this BoomBustBlog refresh article.

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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!

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

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

• This was culminated in the piece, BoomBust BNP Paribas? - a must read!

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:

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

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

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

 Goldman_Sachs_Q3_Forensic_Review_Page_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

• Bernstein cuts Goldman, Morgan Stanley estimates
  

  Bernstein Research analyst Brad Hintz cut price targets and earnings estimates for Goldman Sachs Group Inc and Morgan Stanley on Monday, saying a capital ...
• Goldman Sachs: Earnings Estimates Get Whacked - Deal Journal ...blogs.wsj.com/deals/2011/.../outlook-shrivels-for-goldman-earnings/ 5 days ago - According to FactSet, the average of analyst estimates for Goldman's third-quarter earnings has been cut in half in just three weeks. At the end of August, the ...
• Goldman Bracing for Yet Another Weak Quarterly Earnings Report ...www.advancedtrading.com/infrastructure/231602136 1 day ago - In a note to clients, Barclays analyst Roger Freeman cut his earnings forecast for Goldman to a loss of 35 cents a share after a prior prediction of a $2.40 per

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?

Bloomberg reports: Sales of U.S. Existing Homes Increased More Than Forecast

21 Sep 2011 Of all purchases, cash transactions accounted for about 29 percent, the same as in July, Jed Smith, managing director of research at the NAR, said in a news conference today...

 And to think, I thought Bloomberg got the message.

A First In The History Of Mainstream Media? NAR Is Identified As A Joke!

So, what's my beef with the National Association of Realtors? Well, quite frankly they are simply doing their job, which is lobbying on behalf and marketing the interests of realtors in the US. The fact of the matter is that they not only undermine the credibility of all in the profession but purposefully mislead those who may not have the money to spare into flushing said hard earned dollars down the toilet, all of the sake of a 2.5% commission split. Let's take this step by step, shall we?

On Tuesday, February 22nd, 2011 at 3:14 pm I posted "When Will the Mainstream Media Be Ready To Call The NAR The Sham That It Really Is?" wherein I laughed at the WSJ article that illustrated where the NAR's housing data may have understated extend of collapse. But of course, it understated said collapse. If one were to peruse the history of the NAR and their paid marketers economists one will see a very long history of such.

The NAR video from 2008 saying that buying opportunities have never been better| buying now is a key to building long term wealth | there are a lot of buyers in the market to buy your home, etc. while I was saying the commercial and residential real estate markets are in the beginning of a long term collapse...

This is David Lereah, the NAR chief economist in 2006...

Then again, one can peruse David Lereah's literary prose, circa 2006-7...

Absolutely exquisite insight!!!

It's not just David. After moving on, Lawrence Yun (David's successor) got nearly 8 minutes on Bloomberg (hopefully, I will get the chance to get 10 or 15 minutes to truly illustrate the lay of the land from an unbiased, empirical, investor's perspective sometime soon) to say that 2008 was an opportune time for buyers who want to own a home

Here's Dr. Yun with more good news for home sellers in 2008. Ohhhh, the optimism!!!

In July 2008 Yun stated “I think we are very near to the end of the housing downturn,” Yun said (AP News).

Lawrence Yun, chief economist for the Realtors, said that the housing rescue bill should play a major role in helping the housing market to rebound. He said an especially significant feature is a tax break worth up to $7,500 for first-time home buyers who purchase between April 9 of this year and July 1, 2009. Yun estimated that up to 3 million first-time home buyers could qualify for that tax break, providing a significant boost to sales at a critical time. “I think we are very near to the end of the housing downturn,” Yun said.

As a point of reference..

Of course, I can go on…

In 2007 Lawrence Yun state there would be no recession in 2008, according to USA Today. Of course, in that year I took the opposite side of that trade and said very bad things were coming. As it turned out I was a tad bit optimistic: Correction, and further thoughts on the topic, How Far Will US Home Prices Drop?, and Is this the Breaking of the Bear? (Yeah, the Bear Stearns and Lehman Brother’s collapse were an easy calls if you read the balance sheets and were realistic about leverage and the real estate situation). This  was also about the time I got into it with GGP’s CFO for calling out their insolvency. He called me names, and then they filed for bankruptcy. Of course, they had an investment grade and buy ratings from the ratings agencies and the sell side: BoomBustBlog.com’s answer to GGP’s latest press release and Another GGP update coming… (among over 700 pages of analysis, review the January 2008 archives or search for “GGP” for more research).

In my post “On the Latest Housing Numbers” of  Tuesday, November 24th, 2009, I quipped.

Lawrence Yun, NAR’s chief economist volunteered,

“We have seen some bulk purchases by investors, but we are not picking up that data through the Multiple Listing Service or through our release data, but we do know that there is some bulk purchases by investors who plan on releasing those properties within a year’s time, when they see a better market condition.”

I don’t believe “better” market conditions are coming any time soon. We are just coming off of the best market conditions anyone will see in their lifetime. Those market conditions were predicated upon unsustainable conditions, hence they came crashing down. They are crashing down, not crashed – as in past tense. I believe we have some ways to go. That is why I am not buying real estate, and I believe that those that are jumping in now are jumping in prematurely.

Personally, I don’t consider Mr. Yun to be a credible source, either. He may be smart and capable, but the extreme bias of his employer (the ultimate real property perma-bull) and the incredibly biased reports of his predecessor color his opinions by default. He is not nearly as bad as David Lereah (who was literally sensationalist-style perma-bullish) was, but he is still not objective. See  The Reggie Middleton Real Estate IQ Test – Who believes the NAR?

This is an excerpt from that post on Tuesday, 08 January 2008

From CNBC.com: Home Sales Seen Holding Steady In Coming Months

Pending sales of existing U.S. homes inched lower in November and should hold steady over the next few months, a real estate trade group said. (I ask, “Why should they do that? Credit is tighter, recession evidence is stronger. Supply is greater, and demand is lower. Hmmm, let me consult the book written by that ex-NAR guru for the answer.” )

The National Association of Realtors Pending Home Sales Index, based on contracts signed in November, dropped 2.6% in November, to 87.6 from an upwardly revised 89.9 in October.

Economists polled by Reuters ahead of the report were expecting pending home sales to decline by 0.5 percent from October’s originally reported 87.2.

The November number was down 20% from a year earlier.

The pending homes sales data suggests that the volume of sales will hold steady for a while before turning upwards before the end of the year, said NAR chief economist Lawrence Yun.

With all due respect to Mr. Yun, Mr. Lereah and the NAR, anyone swift enough to complete the registration form for this blog should know, by now, to discount this association’s data and opinions. They do not do the industry justice with this nonsense. Realtors should actually be the first in the protest line. It is their credibility that is being called into question, for this is THEIR trade group. Credibility is the key!

Notice how accurate that NAR prediction was for 2007 and 2008!  We are actually in a real estate depression, and no amount of flowery commercials with cute little girls can counteract this fact.

• In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse
• Further Proof Of The Worsening Of The Real Estate Depression
• Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate

So, I query the mainstream media, "At what point do these clowns lose credibility?" For consumers of such media, at what point will you refuse to view said clowns?

I'm not in the business of giving out buying advice to potential homeowners, but if I were a home buyer and I cared about capital depreciation in the near to medium term, I would definitely hold off. I have crunched the numbers for March 2011 and calculated the most recent shadow inventory numbers for subscribers. It ain't pretty. Click here for the PDF summary ( Shadow Inventory Update) and click here for the embedded spreadsheet with the latest numbers, graphs, projections and calculations (note that this is actually a very large model, so be sure to scroll past the first 6 or 7 graph tabs to access the raw data and calculations behind them). You can increase the magnification of your browser if you want a larger view of the embedded model.

Subscribers have access to all of the data and analysis used to create these charts, in addition to a more granular application, by state in the SCAP template and by region in housing price and charge off templates – see

• House price data, 2nd Quarter 2010
• Bank Charge-offs and Recoveries 2Q10
• The very extensive SCAP Assumptions, showing the credit metrics banks needed to submit for the stress tests of 2009, Updated for last quarter on a state by state basis_09082010 Web

The 3rd Quarter in Review, and More Importantly How the Shadow Inventory System in the US is Disguising the Equivalent of a Dozen Ambac Bankruptcies! Wednesday, November 10th, 2010: All paying subscribers can download the full shadow inventory report here:  Foreclosures & Shadow Inventory. Professional and Institutional subscribers should also download the accompanying data and analysis sheet in Excel – Shadow Inventory.

Banks, Monolines, and Ratings Agencies As The Three Card Monte (Wall)Street Hustlers! Its a Sucker’s Bet, Who’s Going to Fall for it in QE2? Tuesday, November 9th, 2010

The Truth Goes Viral, Pt 1: Housing Prices, Economic Sales and the State of Depression Tuesday, October 5th, 2010

bnp_paribasStacy Herbert and Max Keiser have absolutely scooped the FT on the French bank run story with thier interactive interview of me and the use of new media. Absolutley! The following are Stacey's Twitter stream in reverse chronological order for today:

1. No lines outside BNP Paribas. But then it is still lunch time. No self-respecting French person would neglect dessert course.
2. Here is @ReggieMiddleton on a French bank run on 12 September boombustblog.com/BoomBustBlog/A… Post provides links back to even earlier warnings.
3. A must watch Keiser Report youtube.com/watch?v=ciGKW3… Troika Tanks, Junta Bots & A Run On French Banks
4. Today's episode of the Keiser Report features interview with @ReggieMiddleton talking about a run on French banks. Should be on youtbe soon.
5. Keiser Report bit.ly/qvnYBi Troika Tanks, Junta Bots & a Run on French Banks with @ReggieMiddleton #keiserreport
6. @ReggieMiddleton warned you first! read.bi/oRSDwd EL-ERIAN WARNS: "These Are All The Signs Of An Institutional Run On French Banks"

Last week, Stacey and Max distributed free bank run models for thier viewers and readers to play with...

Posted on September 18, 2011  -Stacy Summary: We’re interviewing Reggie Middleton this week for  the Keiser Report. In particular, we’ll be talking about French banks. Check out his “Run on the Bank” model for BNP Paribas. Questions for Reggie in the comments thread below.

And they even used Twitter to solicit questions from their audience to ask me during the taped show. All in all, a very strong coverage of the French bank run situation, before the actual run. This is how I belive the media should work. While I don't necessarily disagree with anything that Mr. El-Erian has said in this interview (and how could I since it is essentially an abbreviated version of what I have been saying for 4 months), and I have the utmost respect for him, it is far, far from timely. I urge any and all to read Mr. El-Erian's article and the FT presentation and compare it to that of the more independent (if not bombastic) new media and let me know which offers more substantive value.  For those that do not follow me, the following has been my chronological take to date (those that do follow me and have seen this already can skip past the recap down to the videos below):

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  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. 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 levereage 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  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!

• •  French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
  •  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers

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.

• •  Contagion Forensic Review - Retail
  •  Contagion Forensic Review - Professional

Here is the actual Max Keiser post today that has the interview...

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...