We now have the media and well known economists pondering, if not joining the consensus, that we are entering a double dip recession. I believe they are all wrong. From a practical standpoint, the previous recession was never completed, and I have stated this several times over through BoomBustBlog...

As a matter of fact, I parsed the semantics with the esteemed Nouriel Roubini at a party in his home last may, reference The "American Realist" Says: Past as Prologue - Re-blown Bubble to Pop Before the Previous Bubble Finishes Popping!!!!  Wednesday, 18 May 2011

In the Q&A he had with his clients, the topic of double dip recessions came up. In a nutshell, he felt that there was a possibility, but not assurance of a double dip. Let me add that I have an awful lot of respect for Nouriel. Outside of calling the housing crash accurately (as did I), he speaks his mind openly and does not mince his words. Coming from and independent guy such as myself, that trait is worth more than its weight in gold (that means worth more than 1,700 per troiy ounce, and counting). But after that comment, being the brash ass that I am, I interjected with the opinion that what was being labeled as a double dip was already a forgone conclusion, and in reality it wasn't a double dip at all, but really a continuation of the previous recession that was broken up by massive bubble blowing on a global scale. Nouriel countered that the difference between a double dip and what I espoused was a matter of semantics.

I respectfully disagreed with the esteemed doctor, for you see the difference is the economic sustainability of the alleged progress. If this was truly a double dip, then the economy actually grew, then stuttered. That's materially and significantly more positive than an economy which dramatically shrunk and then was literally pushed upwards by stimulus, and only stimulus, just to fall back IMMEDIATELY after said stimulus was ever so slightly slackened. What this means is that the economy was perpetually in free fall, and that fall was simply lessened by said stimulus. A stark difference from an economy that actually started growing on its own then petered out.

It has been my contention the Fed has spent a $1 for every $0.60 cents of recovery. Unsustainable! Unwise!

As detailed in  "Who is Reggie Middleton!!!", my empirical approach allowed me to see the housing crash, CRE crash, collapse of GGP, Bear Stearns, Lehman, WaMu, Countrywide, municipal finances, regional banks, monoline insurers, the pan-European sovereign debt crisis as well as a whole host of other valuation faux pas, considerably ahead of sell side Wall Street, ratings agencies, most independent shops and the financial media.

I fear many may dismiss my viewpoints simply because they may have a bearish tinge to them. Trust me, I am not a pessimist. As a matter of fact, my actions throughout the first half of the first decade of the new millennium would have led many to believe that I was the ultimate real estate bull. Alas, it was not optimism, it was realism, just as what may appear to be pessimism now is nought but realism. To discount realism as pessimism, from a historical perspective, may not be wise. Every since 2006, my views on the asset and credit bubble bursting have been quite contrarian and thought of as pessimistic. All one had to do was fast-forward a year or two and realism easily replaces the term pessimism. Go to the 11:00 mark in this video from the Dutch Station/show VPRO Tegenlicht and listen for at least 45 seconds. It pretty much tells the tale...

Another viewpoint from March 2011: Do Black Swans Really Matter? Not As Much as the Circle of Life, The Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the "Peak" phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality...

The result of this "Great Global Macro Experiment" is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

All four corners of the globe are currently "hobbling along on one leg", under the pretense of a "global recovery".

Simply sit back and look at the (supposed, none of these should truly be considered surprises) Black Swan Catalysts that we now face:

  1. US Housing, you know, the the thing that kicked this all of to begin with - The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance Friday, March 11th, 2011
  2. US and/or European Commercial Real Estate - Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate Friday, February 25th, 2011
  3. MENA, the Middle East & North Africa - Egypt’s Social Unrest As A Pan-European Economic and Financial Contagion? It Can Happen!!! Friday, January 28th, 2011  or First Tunisia, Then Egypt, Now Yemen: Will This Reach The Powder Keg That Is The EU & What Will Happen If It Does? Wednesday, February 2nd, 2011
  4. Japan - Can Contagion Be Avoided Considering The Magnitude Of Japan’s Woes? Tuesday, March 15th, 201

The list can go on.

Published in BoomBustBlog

A timely tidbit from one of contributing BoomBustBlog traders, Eurocalypse, basically an extension of what was expoused last week in Timely Trading Tips For 8/5/2011,which I excerpt:

I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time.

...I'd recommend to take partial profits. Premiums have probably doubled or morewith the move and probable increase in vol. at this stage even the move is so violent we should have a very bad day at least until the opening of the US market today,waiting at least 1 hour after the opening seems wise.

I'd recommend to take some profits, after that because theta becomes expensive at this level especially with the weekend coming!

There are several ways to do it:

    1. Take off X% of the initial strategy to make it 0 cost,
    2. Delta hedge, and increase the delta hedge when market continues to sell off (thats the benefit of gamma) for naked options.
  1. If vol jumped already to stupid levels, sell some put spreads below the strong support levels indicated in the previous trade setups to make up for the initial premium with the increase of vol, you sell less options and you end up with a nice structure which can end in the money on both sides.

The probability of a total meltdown is here though so I'd keep some downside but no one ever lost booking some profits.

All subscribers are welcome to download this full document This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Since then, my armageddon put trade has come a long way...
 image044

You see, although I feel we still have a lot to go, and I don't feel I put enough at risk before the market crash - contrary to popular belief, Greed is NOT Good. It's stupid. There's still the European bank run scenario that has yet to play out. On that note, a timely update from Eurocalypse:

Hi readers,

Dont be a pig, if you have profits not taken now, I suggest one takes serious chips off the table. Hedge your gamma; better even resell options
people are bidding vol like crazy now.

That's the truth. Product is expensive as hell now, priced to the point where you can't make money!

There will be [other] opportunities. if the move down continues. Having profited from this downmove, you'll be among the few able to play for a violent bounce. Market is clearly oversold.

The risk/reward in being bearish AT THESE LEVELS and in the short term, is much much worse than when we opened the positions, so....make the rational choice and dont regret even if it continues. Being too greedy is bad.

We may know the end of the story, but even bear markets are not one-way...this has been a big run...

Actually, most of the big money in drastic bears such as 2008/9 came from single day collapses, with the balance being choppy trading, sideways action and rallies. It's difficult, but I believe that the key is to have exposure but to roll profits while continusouly feeding your coffer by removing gains, no less than 50% of the total, regularly and religously. Timing the market is fool's play, I don't care what anyone else says. Those that get it often are lucky, period! Luck runs out, guaranteed. It may seem that I'm prescient, but in reality I'm just objective and know how to count. In the end, it's still hard as hell for me to time this correctly, which is why there is now such a strong trading component in my fundamental and forensic analyses. As I write this, the rally in ES futures is fading from 17 to 7, as I anticipated. Still, curiosity didn't kill the cat. Greed did!

Coming up soon, more on European banks blowing up!!!!

What makes this so interesting from a subscriber perspective is that this bank is sitting under everybody's nose yet no one suspects it. KaBoom!!! Nuclear chain reaction thoughout Europe based on panic, greed, avarice and fear?

For those how haven't followed my bank run series...

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Observations Of French Markets From A Trader's Perspective
  9. On Your Mark, Get Set, (Bank) Run! The D…

And the progenitor of the fundamentally flawed, but virtually guaranteed attenpt at a contrived equity rally...

ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme

Published in BoomBustBlog

As those who have been reading me for a while know, I have been crowing about sovereing debt default leading to a European bank collapse, causing global contagion for some time. For those who haven't, reference last years posts in the Pan-Europan Sovereign Debt Crisisseries, or The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! for something a little more recent. Early last week, I put one a trade in the US options markets to capitalize on what I saw as the European tipping point, Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options, Part 1 For Retail and Professional Realists (8/2/2011). I then updated said post with the results of said option trade, a full 260% return in 48 hours - Timely Trading Tips For 8/5/2011  as well as additional illustrative trades for blog subscribers as well as plenty of educational material for those that don't subscribe. That was last week.

Well, another week, another story. The very same armageddon trade is now up over 500%, and I believe it still has plenty to run. Athough we may be overdue for a snapback rally, the macro outlook AND the fundamentals are downright disgusting, and to be quite frank they have been since 1st quarter of 2009. Incessant bubble blowing by the global central planning cartel (the Fed, ECB, BOJ & Chinese government) have succeeded in convincing many an investor that bubbles blowing = economic growth. My dear friends, it simply does not. All you are doing by blowing bubbles is pulling/borrowing economic growth from future periods, and now its time to pay the full debt service (itnerest plus borrowed economic capital) back in spades! Reference Do Black Swans Really MatterNot As Much as ...,

Click to enlarge!

image042_copy_copy

We have also just released (this morning before the trading session) additional trade setups designed to take advantage of the recent US debt downgrade, see Trading the US Debt Rating Downgrade the…

 Update: Minutes afte typing this, the same put is Asked just under $48!!! If/once this option goes "in the money", the party will be just getting started!

Published in BoomBustBlog

This is an indepth piece that addresses my subcribers inquiries into trading the fundamental/forensic research I offer. The topic du jour is the US Treasury downgrade.

Attention subscribers: time sensitive, actionable research available at the end of this document.

Illustrative Trade Setups & Opinions For Retail Subscribers of BoomBustBlog

Instrument of choice for retails subscribers: The Proshare ETFs track the total return of an index on a daily basis with a x2 or x3 leverage. Professional and institutional subscribers would most likely trade the treasuries and futures markets directly.

image037_copy

The Basics

Targeting US Federal Government Fixed Income, there are 2 available indexes, one relating to 7-10yr treasuries (PST - seeks twice (200%) the inverse [opposite] of the daily performance of the Barclays Capital U.S. 7-10 Year Treasury Bond Index), one for 20yr+ treasuries (TBT - ProShares UltraShort 20+ Year Treasury seeks  twice (200%) the inverse [opposite] of the daily performance of the Barclays Capital U.S. 20+ Year Treasury Bond Index). Because 20Y treasuries have (much) more duration than shorter ones, they tend to move more in price terms as yields move about the same.

This is almost always true of fixed income, except in case of Greece’s current situation where the perception of imminent default causes all securities to converge to the same price, and yields simply to don’t follow the convention rules, ex. 8% of nothing is no less than 20% of nothing.

For an outright play (without options) TBT will be more volatile than PST, and has arguably more leverage embedded. However for an option play, the most volatile instrument is not of paramount importance, what’s most important is the return on the premium invested. A distinct, yet oft overlooked nuance.

Fundamentally Speaking…


From a fundamental play, our traders are not confident the market is ripe for THE BIG FIXED INCOME SELLOFF which would make the 10Y UST look like the Greeks. Actually there’s still a plausible case for 10Y UST moving sub-2% and to begin speaking Japanese ! (JGB yields currently 1% and have touched only a very few times and very briefly 2% in the last 10 years, averaging more 1.3%-1.4%...). Why? Because the FED like the BOJ could just monetize the debt and print money to put them on their balance sheet with a QE3, 4 etc....

The Greek scenario is a bank run scenario, which is possible (as we all know from informative postings such as On Your Mark, Get Set, (Bank) Run! The D…) but timing is everything and everything is difficult ot accomplish!!!

Caveat Emptor!

Even a guy(gal) who bought a 20Y JGB in 2003 at the lowest ever, 1% yield, if he held it through today, has made money despite the higher yield today.... The (BTFD -Buy The Fu@&ing Dip) mentality is truly firmly entrenched! To what should be no one’s surprise, the speculative longs are mostly the banks, "hedging" their ALM mismatch by buying bonds, assuming their deposits are stable.

The bank’s risk becomes a MTM risk, but accounting rules allow them to cope with that as long the deposits are there. For more strategically inclined banks (wink, wink), MtM losses would only affect their AFS (available for sale) reserves and capital (so not the net result of the bank).

Note: There is a potentially very profitable equity trade stemming from this habit, see The Mechanics Behind Setting Up A Potent… & European Bank Run Trading Supplement Ava…).

Of course because everybody is long, there are episodes of panic and risk reduction which are violent because it becomes a one-way market, but when everybody has reduced risk, it snaps back violently and a new cycle begins... so it has been.

The pain trade in FI for banks is lower yields, because high yields is how banks make easy money. Remember my comments on ZIRP killing the banks it was designed to help (reference the YouTube Video and scroll 13 minutes into the video).



On a short term basis, if anything our traders bet for higher FI prices and lower stocks again... and panic to resume.

Note how the 121 strike on the SPY were well chosen (reference subscription document SPY option strategies in violent down moves). We’ve come through, and as the market continues to sell off, you could continue to adjust your delta buying back (and locking actual profits because even if the market doesn’t move anymore your puts are in the money) when the market sells off and when it bounces towards 121 again, you can unload it. We saw 116 at the lows... gamma is how you make a killing with options.

With the aforementioned limitations, caveats and market behaviors in mind, I'm pleased to present to BoomBustBlog subscribers the following detailed, illustrative trade setups...

Published in BoomBustBlog
Friday, 05 August 2011 01:33

Timely Trading Tips For 8/5/2011

Sixty points down on the S&P with most world markets following suit! What a day, what a day. This is what those Armageddon puts discussed Yesterday morning looked like by the end of yesterday's trading session, up 265% in profit!

image027

The SPX/e-mini options are admittedely a pain in the ass to trade for many retail investors, so I posted a useful illustrative guide on a lower cost (out of pocket) alternative - Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options, Part 1 For Retail and Professional Realists.

Things were moving so fast that the market was breaking literally as I was posting it. Long story, short - if you believe that the Circle of Economic Life is about to come back to the forefront, you should still be stocking up of volatility. If not, then hedge up and sell of for full profit.

As excerpted from the afore-linked post:

What It Takes To Actually Make Money

ATM (annualized) vol (125) is around 24% on Aug, 23% on Sep, 22% on Oct and 21.5% on Nov. (these are approximations, rule of thumb: the implied daily move (in %) is (annual) volatility / sqrt (250) if we count 250 biz days every year). So 24% is roughly a 1.5% move a day. More adequately speaking, roughly, an options trader who is delta hedged and long options, needs the mkt to move more than 1.5% a day to make money. As implied is, because of risk premia, often 10% or 15% more than (expected) realized vol you see vol is not cheap against recent history, but compared to 2009 early 2010 it is quite cheap. So if you are of the mindset of our last few posts (see list at end of this article), there is upside there.

image025_copy

Any reversion to bank collapse volatility makes even today's option prices look cheap. You have to be careful, though. The global financial planning cartel has other plans.

Reference Do Black Swans Really Matter? Not As Much as ...

...

image017_copy

All subscribers are welcome to download this full document file icon This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups.

The following is a quick note from Eurocalypse on the topic...

Hi Reggie

This is terribly impressive, and I am in admiration with the timing of your call.

He is referring to the timing/macro/fundamantel call - I recommended he put together a vega trade via SPX/SPY opition setups last week, but a day or two delay combined with a rapid plunged gave scant time to take advantage of it

I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time.

...I'd recommend to take partial profits. Premiums have probably doubled or morewith the move and probable increase in vol. at this stage even the move is so violent we should have a very bad day at least until the opening of the US market today,waiting at least 1 hour after the opening seems wise.

I'd recommend to take some profits, after that because theta becomes expensive at this level especially with the weekend coming!

There are several ways to do it:

  1. Take off X% of the initial strategy to make it 0 cost,
  2. Delta hedge, and increase the delta hedge when market continues to sell off (thats the benefit of gamma) for naked options.
  3. If vol jumped already to stupid levels, sell some put spreads below the strong support levels indicated in the previous trade setups to make up for the initial premium with the increase of vol, you sell less options and you end up with a nice structure which can end in the money on both sides.

The probability of a total meltdown is here though so I'd keep some downside but no one ever lost booking some profits.

I'm actually quite confident it's going to happen, the issue is timing is everything, hence OTM longer dated puts.

Longer term down the road im even more pessimistic than you are.USSR 1989, EURO 2012 and put US, UK and Japan with it probably as well.

Beyond that chaos anarchy wars? I hope not but terra incognita!

The decision of BNY Mellon to tax big deposits is a prelude to financial repression, freezing accounts to prevent a bank run.

See BNY Mellon imposes fee on rapidly growing deposits, in short, the bank will punish anyone who does not invest their money in risk assets of some sorts. That's right, a bank that is trying to discourage you from saving in cash. What the hell??? This is probably just the beginning as the TPTB attempt to force capital into the Ponzi pool in order to keep the facade of value on devalued assets...

... having a max of money "voluntiraly" invested into debt instruments which wont be repaid...
What things like this will do is ensure the reverse will happen. The smart money will exit first en masse which will make sure they end up NEEDING to freeze these accounts.

Anyway, its a pleasure contributing to your blog

thanks


Published in BoomBustBlog

Bloomberg reports Stocks Tumble Two-Year Yield Drops to Record Low. It looks as if the short to medium term goals of Geithner and Bernanke may have paid off as the world's capital runs from one Ponzi scheme to another - exactly as I anticipated. image029

Go to 21:00 in the video below. Bernanke strategy all along 

Reference Do Black Swans Really Matter? Not As Much as ...

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…

The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

Here's how to play it via options -Game Over For The European Ponzi Scheme?…

Published in BoomBustBlog

The following are illustrative setups based on SPY options with some actual plays based upon my European Bank Run Research (see list at the bottom of this article). This was written yesterday evening, French time, as the S&P was at 124.60, trending downward. (Note: the market has literally collapsed since then).

The SPY is an ETF (trust) that tracks the S&P 500. I will be focusing on the FIRE sector in both Europe and the US, but the broad market will (is) probably fall first. These trades are presented to give some illustrative guidance to retail subscribers and more advanced setups to Pro subscribers.

The Tech Outlook

image022_copy

Regarding the tech outlook, I've turned actively bearish on the broad market a few days before the guys that I use to assist in the volatility setups, hence my collecting of the armageddon put above. Siince we broke major support, everybody is now on board. The issue is the fundamentals and the macro outlook are leading the technicals in bearish outlook, then again, they have been doing so for two years now - for what its worth, despite the fact the market has shot up nearly 100%!

As you can guess after such a move, vol went quite a bit up, but chances are there's much more room for vol expansion, if we just reverse to 2010 levels (that and because were breaking a 2 year long trend line). I fully expect the downtrade to be quite violent, like what were seeing in CAC as of late (reference Observations Of French Markets From A Trader's Perspective) with but a small respite and or the requisite short squeezes - which should be fewer and farther between since fundamental shorts have been beaten up and driven out of the markets.

My Vehical Of Choice For BoomBustBlog Retail Subscribers Looking To Capture Volatility Moves In The Broad Market

The SPY is an ETF which quotes 1/10 of the SPX index. I find it ideal for retail investors who don't have the capital to commit to the larger blocks required of the e-miini and can be easier to get out of considering the homicide spreads forced upon SPX option buyers who don't have the inside Squid track.

The vols are directly comparable as both indexes are just proportional.

First thing, looking at ATM vols on the 4 next expiries (Aug, Sep, Oct, Nov), the structure is slightly inverted (vol on aug > vol on sep > vol on oct > vol on nov) cause the mkt expects move to be shortlived and/or decreasing in intensity. I don't necessarily agree, which is what makes a market.

What It Takes To Actually Make Money

ATM (annualized) vol (125) is around 24% on Aug, 23% on Sep, 22% on Oct and 21.5% on Nov. (these are approximations, rule of thumb: the implied daily move (in %) is (annual) volatility / sqrt (250) if we count 250 biz days every year). So 24% is roughly a 1.5% move a day. More adequately speaking, roughly, an options trader who is delta hedged and long options, needs the mkt to move more than 1.5% a day to make money. As implied is, because of risk premia, often 10% or 15% more than (expected) realized vol you see vol is not cheap against recent history, but compared to 2009 early 2010 it is quite cheap. So if you are of the mindset of our last few posts (see list at end of this article), there is upside there.

image025_copy

Any reversion to bank collapse volatility makes even today's option prices look cheap. You have to be careful, though. The global financial planning cartel has other plans.

Reference Do Black Swans Really Matter? Not As Much as ...

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…

The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

Spreads on these contracts are tradable through my broker but liquidity on SPY options is palapable, so let's keep it simple and just buy naked puts, even after this market selloff.

To Achieve This End, We Are Illustrating 2 Strategies For Subscribers: Gamma and Vega play

A gamma play attempts to benefit from a quick and violent move. Short term expiries are favoured. As the break of the trendline is fresh, we have to bet on a quick move, so the options to most fit to employ are...

image017_copy

All subscribers are welcome to download this full document file icon This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Professional and institutional subscribers can access additional volatility strategies over the next 72 hours as well as a more indepth view of the new faux pax we discovered in our Bank Run At Risk subject. Basically, they're replicating Lehman Brothers more now than ever. Now, that's not a good idea, is it?

The macro/fundamental outlook as Reggie sees it:

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Observations Of French Markets From A Trader's Perspective
  9. On Your Mark, Get Set, (Bank) Run! The D…

Update as written by Eurocalypse:

game over, everything sold off, gold soaring... system is imploding

USSR 1989, EURO 2012, and i think we might well add US & Japan to the list as well.

even though in the short term time frame, i think if tomorrow CAC sells off a bit more (BNP as well) it makes sense to take partial profits (selling options or delta hedge), as its 2010 lows was the target and were oversold in daily.

seems to be big govt intervention now. weve seen BOJ on the ccy markets. ZH headlines about cancelling auctions in Italy, short selling might be soon suspended etc... caution there advised.

on the other hand SP has way more to go and yday bounce @close was the last for a while i think, it was there to test the patience of bears...and buy those SP puts timely ! mkt hammered immediately tells it all i think

Now it gets truly interesting. We're in Pan-European, pandemic, bank run territory boys and girls, and I believe I may have caught the number bank run subject lying about thier position risk, ala Lehman and Bear. Yes, outright lying. I will give an update to Pro and Instititional subscribers when its ready. In the meantime, refresh your memories. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such

Published in BoomBustBlog

As the Pan-European ponzi scheme starts to unravel, I would like to take this time to remind all of the value of this new media, this medium of reporting and opinionated analysis known as the blogosphere. To my knowledge, there are very, very few public sources where one can the granular information that would allow one to not only identify, not only circumvent, but actually profit from global banking collapse. Yes, the mainstream media has its placed, burned permanently in the psyche of content consumers, but it is nigh time the blogosphere moved several rungs up the evolutionary ladder. If you recall, it was a (BoomBust)blog that warned of the pending collapse of Bear, Lehman, WaMu, and Countrywide.

And so it begins...

Last year I was invited to give the keynote speech at ING's Commercial Real Estate Valuation seminar in Amsterdam. The keynote was delivered in April, and let there be no mistake - I pulled no punches.

To give you an idea of the tone that I set in this very large European financial insitution, this was the opening slide to the presentation...

ing_preentation_opening_slide_copy_copy

Although this was a real estate valuation seminar, the premise was consistent throughout: A dearth of available financing through a weak banking system coming off of a real asset and credit bubble burst spells big trouble. The "big trouble" is much worse than many make it out to be. You see, the one thing that nearly all banks lend against is real estate, and the less banks lend against said real estate, the less said real estate is worth. A vicious, self-reinforcing circle of real asset price correction in an attempt to reach equilibrium.

So, what does this have to do with French Banks?

Well, the big thing in the media nowadays is the sovereign debt crisis. But this crisis is but one part of the solvency puzzle, albeit a big one. Basically, the banks are saying we have XX billion Euro on our balance sheets, when in actuality they have 80% of XX billion euro, at the same time asset values are steadily declining, chewing up equity along the way. I illustrated this in detail in the video above. You see, the concerted efforts of global financial central planners world wide have distorted the valuation and pricing of real asset markets. This distortion has led many to believe that the crash/correction of 2008 is over without us ever having to face true reversion to the mean. Let me be the one to tell you, that just ain't happening... Reference Do Black Swans Really Matter? Not As Much as ...

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…

The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

 I will go into the impending continuation of the real estate debacle in a later post, but the impetus behind the debacle is the topic du jour, Is Another Banking Crisis Inevitable?In said piece I made it clear that the global banking lie that the so called "risk free" assets carried on the books are not only far from "Risk free" but have wiped much, if not most of the tangible equity from banking books. When, not if, but when, these banks are forced to make a market price transaction, hell will break loose. My post last month, Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!! basically says it all.

Referencing the material from the ING presenation..

Eurocalypse Cometh! Principal Haircuts, Serial Bailouts, ECB Insolvent! Disruptive Sound Of Dominoes In Background Going "Click, Clack"! BoomBustBloggers Instructed To Line Up Bearish Positions Again! 

If one were to even come close to marking the EU banks books to reality, market prices, or anything in between, the Lehman situation would look tame in compariosn! As excerpted from the subscriber document: File Icon The Inevitability of Another Bank Crisis

(click to enlarge) Even using overly optimisitic and much too rosy Eurostat numbers, the banks are sitting on top of a huge equity hole. The blue box below covers what we feel are the real numbers - a truly gaping hole!

And in the End, What Does It All Mean?

LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?

It is not as if this wasn't foreseeable, for I have been warning of this hole since 2009/early 2010. In the BoomBustBlog subscriber document File Icon European Bank's Greece exposure, I gave the macro warning. I drilled down to more specifics namin the bank I felt was most at risk in this subscriber document. The follow up to this document was going to come out late today, but the CEO has let the cat out of the bag.

FT reports SocGen profit warning on Greek debt:

 Société Générale has warned that its profit target for 2012 will be “difficult to achieve” as a writedown linked to its Greek exposure weighed on quarterly results. 

...Frédéric Oudéa, chairman and chief executive, cautioned that the group’s €6bn net income target for 2012 looks hard to reach “within the scheduled time frame”.

...However, he said that second-quarter results demonstrated the “resilience” of Société Générale, despite the inclusion of a €395m pre-tax writedown due to Greek government bonds held by France’s second-biggest bank.

The writedown is due to Société Générale’s pledge to play a role in the Greek bail-out plan finalised in July in which all the Greek bond holdings of the French banks maturing before 2020 will be involved. BNP Paribas and Crédit Agricole have also made provisions concerning the loss to bondholders.

Société Générale has no bonds which mature after 2020, a spokeswoman said, adding that the writedown includes sovereign bonds held by Geniki Bank, Société Générale’s Greek subsidiary.

Net income in the three months to June 30 was below consensus analyst expectations at €747m on revenue down 2.6 per cent to €6.5bn, but including the impact of the writedown.

Net income for the first half declined 22.5 per cent to €1.66bn on revenue down 1 per cent to €13.12bn. The group posted half-year earnings per share of €2.05, down from €2.75 last year.

The bank’s shares fell 6.94 per cent to €30.25 in early morning trading.

Société Générale, which last year unveiled a plan to double net profit by 2012, said that targets had assumed a return to a normal economic environment which “has not occurred,” naming the recent eurozone and US debt crises, as well as the political turmoil in the Middle East and Africa as concerns.

I will have some more goodies along these lines that still HAVE NOT been broached by either the pop media or the sell side for BoomBustBlog subscribers very soon.

Tools for tracking the ever elusive path of contagion for BoomBustBlog subscribers:

More On My Observations Of The French!

Trading the BoomBustBlog Forensics: Observations From The Field

Unsurprisingly CAC had a plunge yesterday, one of the worst performers in all of the European markets - exactly as we have warned, reference Observations Of French Markets From A Trader's Perspective and excerpts from European Bank Run Trading Supplement Available for Download:

The Monthly chart, with only one more trading day left tomorrow [Friday] shows we are breaking the monthly trendline at 3910 THIS month (July), even though on a weekly basis, there were a few weeks this month where it was below already.

image009_copy
That’s a quite NEGATIVE new development, with the 1st natural target being around 3600 (high above the trendline was 4200, break point  3900 - so a 300 point range) that 3600 level is the Nov10 low.

 Additional posts on the topic of Bank Runs

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Observations Of French Markets From A Trader's Perspective
  9. On Your Mark, Get Set, (Bank) Run! The D…


Published in BoomBustBlog

bankatrisktradeThe first Bank At Risk trading supplement is available for download to professional and instiutional subscribers. See File Icon This is the introductory post to a series of trade setups for the European bank we feel is at risk of a bank run. There will be plenty more to come over the next few days.

Published in BoomBustBlog

This is the introductory post to a series of trade setups for the Bank At Risk featured in the subscription document Italy Exposure Producing Bank Risk. These trade setups are for professional and institutional subscribers only, for they are relatively advanced. Those who have not been following the European bank research and opinion of the past 30 days should reference the following in reverse chronological order.

  1. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  2. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  3. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  4. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  5. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  6. Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!! 

Below are the thoughts of one of the BoomBustBlog resident European traders, annotated. The following post (within 24 hours) will contain charts and option position setups for susbscribers.

Setting Up A Potential European Bank Run Trade

20110725_-_CAC_Monthly

Interestingly enough, and sounding a bit different from BOOMBUSTBLOG fundamental analysis, it is really difficult to find clear TECHNICAL evidence in the short term for the Subject Bank at Risk.

The longer trend lines have being violated. The violent down move, has been broken in 2010, the uptrend from the 2009 (by a significant amount of euros !!) low seems over as well.

So we have to look at the more recent past and 60 now looks as the big resistance level, it was 2010 (Q1) high and 2011 YTD (Q1) high as well. On the downside, 2010 lows held as well, and I drew on the graph 2 lines @42 and 46 which look significant.
We have not reversed all of the down move last week, which seems to indicate that the market doesn’t want to call it over and squeeze all the shorts quickly.

It’s very tough to make a short term call.

However, THE SUBJECT BANK traded off the highs on Friday to close just below it.

In my personal view, THE SUBJECT BANK is more a systemic risk play because though I’m negative on the industry's future earnings, THE SUBJECT BANK doesn’t seem to have a particular short term problem and
banks accounting bag of tricks is not empty yet.

I have addressed this in this post, in detail. It is not a straightforward topic.

Of important note, as well, the 10Y BTP, which I called for a quick 5.40-5.50 move and actually traded over 6, came back below that 5.50 level. It was indeed overextended in the short term as it exceeded my level. We’ve seen the low 5.20s on Friday but it bounced back then, almost as anybody could have expected...

Because as we know 10Y BTPs broke the 5% level decisively, and I explained to you my view of why I could only see getting it worse, if only for VAR reasons, absent massive intervention in the market by governments (active BTP buying, short selling banned in CDS AND bonds...which need to push 10Y BTP below 4.5% and on its way to 4% to declare victory). That’s not my main scenario.

So in such a context, we can expect banks to trade down, even if on the chart they seem resilient. The  resistance having worked in Q1, and selling on strength worked this year (when we hit Bollinger highs) can give "optimism" to a short position. I say "optimism" because alas if this happens, it probably means our system is one step closer to its destruction.

Risk Reward selling in the middle of the 2010/2011 range is not a 100% proof recipe for success.

On the CAC40 monthly chart, the uptrend line could have been clearly broken if we stayed last week at the lows, but the bounce near that trendline leaves all possibilities open, with next week being important to me. Similarly SPX is holding well and could go up to 2007 highs above 1500. Problem is Nasdaq is already there... so is Nasdaq breaking thru resistance and leading at least a test higher for indices ? But that would look bullish for equities...

Clearly I’m not bearish (yet) on equities, at least not on a chart point of view, and equities are still the BEST hedge against inflation (save for the indebted and overleveraged firms, which is a whole lot of them.). Firms with no debt, like AAPL ARE a hedge to inflation.

So how can we play downside for THE SUBJECT BANK?

Well the prudent investor, can just opt for a "BETA trade" sell THE SUBJECT BANK against CAC40 beta-adjusted.

Buy put/put spreads to play for the systemic risk especially given the dire situation on the PIIGS debt markets who can be once again, showing the lead to the equity markets.

Disclosure: Eurocalypse has no positions in the stocks referenced above, doesnt trade CDS, and doesnt intend to take positions in those financial instruments"
"Eurocalypse actually owns a small quantity of Italian (inflation-linked) bonds at its own risk. Please do your own due diligence and trade at your own risk

Published in BoomBustBlog