James Cramer: marked to market!

This is most likely the final installment in my "Name Brands
aren't all they're cracked up to be" series. This string of articles has seen
me compare my (a lowly blogger's) research model investment results with the
biggest and most influential names and indices in the US stock market. For
those who feel that the research model is too hypothetical (nonsense actually,
since it is the most well documented of its kind that I have seen), I have
included a snapshot of my own proprietary trading account. I will get to Cramer
in a minute, but before I do, let's peruse the roadmap of how we got here. Here
is the synopsis to date:

"The Company also announced that it has recently come to the attention of the Board that an affiliate of a Bucksbaum family trust advanced unsecured loans to Mr. Michaels and Bernard Freibaum, the company’s former director and CFO, for the purpose of repaying personal margin debt relating to company stock. The loan to Mr. Michaels, which totaled $10 million, has been repaid in full. The loan to Mr. Freibaum, whose employment was terminated prior to the Board’s knowledge of these loans, totaled $90 million and has $80 million presently outstanding.
A review by the Company’s independent directors concluded that, while the failure to disclose the loans to the Company’s Board of Directors did not follow internal company policy, no company assets or resources were involved in the loans and that no laws or Securities and Exchange Commission rules were violated as a result of the loans."

This is the timely insurance sector update for paying subscribers. The subject company of this update reports in a couple of days so I decided to issue an update to inform subscribers on where I stand in regards to this company's prospects. A more formal report will be issued once I have a chance to congeal my projections and assumptions with the company's stated results. One thing is for sure, things don't look good. They may be able to push off reporting the inevitable this quarter (although I doubt it), but they will have to pay the piper eventually since they are in the eye of the perfect storm.

This update also exemplifies the extreme value to be had in the professional subscriptions. I decided to dump a portion of my model's inventory markdown and calculation engine results into the pro addendum to exemplify and illustrate how much high level thought and resources go into the analysis of these various subject companies. Keep in mind this is just the inventory calcluation, which is included because althought operations and premium cycles are weakening singificantly, this company's Achille's heel is trashy investment inventory. The retail summary is 7 pages while the pro summary is 44 pages.

I will decide, after reviewing the reported numbers, whether I will pursue this company farther. Subscribers can access the research via the following links, Adobe v. 9+ required. Good luck!

10/25/08 Insurance Industry Update - retail (335.44 kB 2008-10-27 02:57:00)

10/25/08 Insurance Industry Update - Professional w/inventory addendum (7.5 MB 2008-10-27 03:00:37)

Global Recession - an economic reality

Part 28 of Reggie Middleton on the Asset Securitization Crisis

The repercussions of the historical events that unfolded on Wall Street in September 2008 are being felt across the global financial system-banks and insurers across the Atlantic and Pacific are beginning to implode at an increasingly rapid pace, held together by the glue of their respective government bailout packages. The crisis, thought to be restricted to US markets, has spread to their European and Asian counterparts, freezing credit markets in the region - with the emerging markets on tap. It looks like the investment banking era on Wall Street has ended with Lehman Brothers going bankrupt, Merrill Lynch being sold off to Bank of America, Bear Stearns imploding over a weekend and the conversion of Goldman Sachs and Morgan Stanley to bank holding companies. Nearly each week sees a new bank filing for bankruptcy (TGIF, its not - OMGIFDICFA). The latest to join the list are Washington Mutual and Wachovia Corporation. Washington Mutual's banking assets were taken over by JP Morgan Chase for US$1.9 billion, while Citigroup made a US$2.2 billion bid for certain banking assets of Wachovia. The crisis has spread to Europe as reflected by the nationalization of Fortis Bank-the governments of Belgium, Luxembourg and the Netherlands provided €11.2 billion to bail out the bank. The FDIC Troubled Bank List grew from 90 to 117 in Q2 08, indicating that more banks could head toward bankruptcy. These developments completely shook the confidence in the banking system, as jittery depositors queued to withdraw their deposits. What has emerged is a credit crunch, making it increasingly difficult for borrowers (individual and corporate) to fund their requirements (see The Butterfly Effect and the The Butterfly is released!). As a result, economic activities are slowing down.

The Name Brand - that bastion of marketing that the finance and investment industries have come to rely on to convince those who should no better to do things that they shouldn't -has come under attack. "Attack by who?", you may ask. Attack by me, Reggie. "Who the hell is Reggie?" you ask. Well, a quick bio , and a list of writings that have brought use here so we can move on...

In the past week or two I attempted to debunk the "'Name Brand' is the best" mentality of so many individual and INSTITUTIONAL investors enamored by the marketing machine that is the Wall Street banks, brokers and Greenwich/mid-town hedge funds. In attmepting to do so I have released this blog's research model results, provided a glimpse into my proprietary trading, a backgrounder on my investing style, and a comprehensive comparison of both the blog and my results as compared to all major (and minor) hedge fund indices.

Now that we know:

1. that a man can beat market averages,
2. we know hedge funds don't necessarily deliver that much absolute alpha,
3. we know the difference between relative and absolute return,
4. we know the difference between return and risk adjusted return,
5. and know who the hell Reggie is...

It's time to move on to what is the actual essence of Wall Street, the big money center banks and brokerages (or at least what's left of them). As representative of Wall Street, I am using the four largest and most representative banks and brokerages - Goldman Sachs, Citibank, JP Morgan, and Morgan Stanley.

I am releasing the balance of the Butterfly Effect (see The Asset Securitization Crisis Part 27: The Butterfly Effect) to the public in anticipation of the next two installments of the Asset Securitization Crisis to be published to subscribers, probably sometime this week. Before we go on, I would like to thank the loyal supports of my blog. I think this as I sit up at 3 am (my standard blogging time) typing this post into the blog’s text editor, slightly pissed off at some guy giving me a hard time because I won’t give him what he wants for free. I was enthusiastically supported by readers who truly appreciate the value of actionable intelligence. I would like to put a few excerpts here, starting with an explanation from me (edited to take some of the passion out of the debate):

Here is the latest report on Goldmans Sachs, which I am still actively pursuing in my proprietary accounts. It has been a most profitable trade from the 180's, unfortunately I failed to follow my instincts to look into it when it was trading in the 220's.

The pro version of the report explains all of the thought processes that went into the valuation, including:

• the Buffet and government preferred purchases,
• the TARP and associated haircuts, level 3 exposures,
• leverage and de-levering to reach bank holding status level (think JP Morgan, Bank of America and Citibank),
• disintegrating business model revenue drivers,
• limitations on risky practices (ex. prop and energy trading, private equity),
• cash drain from preferrred dividends,
• and a whole host of other variables.

Needless to say, this name brand company is going to have to learn some new tricks. Since the original Goldman Sachs model and report is nearly obsolete considering the pace of happenings these days, I will post that here as a freebie: Goldman Sachs Report June 21, 2008 (361.18 kB 2008-10-17 19:51:25).

For the record, here is a sampling of some of the CDS insured stuff that was on their books over the summer (allegedly) that they have been trying to dump (also free, but you must register first): GS ABS Inventory (1.22 MB 2008-02-25 06:48:56)

Adobe Acrobat version 9 is required for all recent reports (I will be adding flash video commentary to the reports very soon, a slick new feature of the new Acrobat software). Paid subscribers can download their respective reports below.

Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Retail (348.99 kB 2008-10-20 15:45:05)

Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Professional (267.49 kB 2008-10-20 15:50:04)

All transactions are final, unless Reggie Middleton, LLC is unable to perform. There are no returns, refunds or cancellations. In the case of non-performance, a cancellation will be available with a prorated refund based on a 360 day calendar year.

All subscriptions are automatically recurring in nature, thus are to be automatically billed periodically unless explicitly canceled by the subscriber. Purchased subscriptions allow access to certain portions of Reggie Middleton's, Reggie Middleton, LLC's and BoomBustBlog.com's information, data, research and opinion (hereinafter known as "research"). This research is the proprietary, copyrighted property of Reggie Middleton, LLC and is not to be shared, transmitted physically or through electronic means or in any other way disseminated to persons or entities other than the paid subscriber(s) whose account was given authorization through BoomBustBlog.com to initially access said research.

Reggie Middleton, LLC, through the BoomBustBlog.com web site, will attempt to produce 6 (six) analytical reports per calendar year. Availability of information, data, staffing and technical issues may affect the quantity and timeliness of the reports and opinions issued.

Disclaimer

Reggie Middleton, LLC's Boom Bust Blog analysis and conclusions in this presentation are based on publicly available information. Reggie Middleton, LLC recognizes that there may be confidential information in the possession of the Companies discussed in the presentation that could lead these Companies to disagree with Reggie Middleton LLC's conclusions. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Companies. Such statements, estimates, and projections reflect various assumptions by Reggie Middleton, LLC concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. The content herein is not, and should not be considered, investment advice of any form or fashion. Users of this content agree to hold harmless and indemnify Reggie Middleton, LLC and its agents, contractors, members, employees and associates against any action that may occur out of the use of this material.

Actual results may vary materially from the estimates and projected results contained herein. Reggie Middleton, LLC and its affiliates may own investments that are bullish or bearish on the subject entity in this material. These investments may include credit-default swaps, equity put or call options, warrants and short sales of common stock. Reggie Middleton, LLC is in the business of trading - buying and selling - public and private securities. It is possible that there will be developments in the future that cause Reggie Middleton, LLC to change its position regarding the Companies and possibly increase, reduce, dispose of, or change the form of its investment in the Companies.

This information and work is copyrighted.

BoomBustBlog is a financial news, opinion, analysis and information site, not an investment advisor. Making investment decisions based on information published solely on BoomBustBlog, or any internet site for that matter, is not recommended. BoomBustBlog provides no assurance or guarantee of "up-time," or reliability. BoomBustBlog does not guarantee to be free of errors, malicious code or computer viruses. BoomBustBlog is not responsible for any loss of data, financial loss, interruption in services, claims of libel or slander, damages or loss from the use or inability to access BoomBustBlog, any linked content, or the reliance on any information on the site. All of the content on BoomBustBlog is provided without assurance or warranty of any kind. No warranty of fitness for any particular use, merchantability or non-infringement is made. BoomBustBlog is not a broker-dealer, legal advisor, tax advisor, investment advisor or accounting advisor - thus should not be considered such. By registering and or downloading any of the BoomBustBlog content you indicate that you have read BoomBustBlog's disclaimer, copyrights policy and the BoomBustBlog privacy policy.

All transactions are final, unless Reggie Middleton, LLC is unable to perform. There are no returns, refunds or cancellations. In the case of non-performance, a cancellation will be available with a prorated refund based on a 360 day calendar year.

All subscriptions are automatically recurring in nature, thus are to be automatically billed periodically unless explicitly canceled by the subscriber. Purchased subscriptions allow access to certain portions of Reggie Middleton's, Reggie Middleton, LLC's and BoomBustBlog.com's information, data, research and opinion (hereinafter known as "research"). This research is the proprietary, copyrighted property of Reggie Middleton, LLC and is not to be shared, transmitted physically or through electronic means or in any other way disseminated to persons or entities other than the paid subscriber(s) whose account was given authorization through BoomBustBlog.com to initially access said research.

Reggie Middleton, LLC, through the BoomBustBlog.com web site, will attempt to produce 6 (six) analytical reports per calendar year. Availability of information, data, staffing and technical issues may affect the quantity and timeliness of the reports and opinions issued.

Disclaimer

Reggie Middleton, LLC's Boom Bust Blog analysis and conclusions in this presentation are based on publicly available information. Reggie Middleton, LLC recognizes that there may be confidential information in the possession of the Companies discussed in the presentation that could lead these Companies to disagree with Reggie Middleton LLC's conclusions. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Companies. Such statements, estimates, and projections reflect various assumptions by Reggie Middleton, LLC concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. The content herein is not, and should not be considered, investment advice of any form or fashion. Users of this content agree to hold harmless and indemnify Reggie Middleton, LLC and its agents, contractors, members, employees and associates against any action that may occur out of the use of this material.

Actual results may vary materially from the estimates and projected results contained herein. Reggie Middleton, LLC and its affiliates may own investments that are bullish or bearish on the subject entity in this material. These investments may include credit-default swaps, equity put or call options, warrants and short sales of common stock. Reggie Middleton, LLC is in the business of trading - buying and selling - public and private securities. It is possible that there will be developments in the future that cause Reggie Middleton, LLC to change its position regarding the Companies and possibly increase, reduce, dispose of, or change the form of its investment in the Companies.

This information and work is copyrighted.

BoomBustBlog is a financial news, opinion, analysis and information site, not an investment advisor. Making investment decisions based on information published solely on BoomBustBlog, or any internet site for that matter, is not recommended. BoomBustBlog provides no assurance or guarantee of "up-time," or reliability. BoomBustBlog does not guarantee to be free of errors, malicious code or computer viruses. BoomBustBlog is not responsible for any loss of data, financial loss, interruption in services, claims of libel or slander, damages or loss from the use or inability to access BoomBustBlog, any linked content, or the reliance on any information on the site. All of the content on BoomBustBlog is provided without assurance or warranty of any kind. No warranty of fitness for any particular use, merchantability or non-infringement is made. BoomBustBlog is not a broker-dealer, legal advisor, tax advisor, investment advisor or accounting advisor - thus should not be considered such. By registering and or downloading any of the BoomBustBlog content you indicate that you have read BoomBustBlog's disclaimer, copyrights policy and the BoomBustBlog privacy policy.

I have performed some more digging in the insurance sector, basically looking for the next AIG, and although I am far from finished I thought I would drop a note to the professional level subscribers that extended the general insurance note that I released last week. You may download the note here:
Actionable Item (189.75 kB 2008-10-17 11:26:41). In addition to the professional level subscription, you will need Adobe Acrobat Reader version 9 or higher to view this.

Here are a few highlights (keep in mind that the details are reserved for the download):

·
As a result of the continuing financial crisis,
the company is recording significant unrealized losses as a result of mark to market
adjustment of the general account securities (the portfolio on which the
company assumes the credit and the market risk). The net unrealized losses on
these securities rose a deafening 550% to 5.2% of the cost as of June, 2008 against 0.8% as of
Dec, 2007. As of June 2008, the risky components of $77.6 billion dollar
portfolio included $2.04 billion of sub prime RMBS, $2.6 billion of equity
securities (79% relates to financial services sector), $15.7 billion of CMBS,
$11.7 billion of corporate bonds issued by financial services sector and
$2.9 billion of senior secured bank loans CLOs.