True market volatility is still here with trading ranges that are as wide as some years annual moves. We still maintain our fundamental bearish stances, particularly on US EU banks, both of which have rallied heavily over the last few days. In today's news...

Losses Push Major Banks out of Top Europe Index

 

European banks Societe Generale, UniCredit and Intesa Sanpaolo, which suffered heavy losses in August, will be removed from the region's blue-chip STOXX Europe 50 index, the index complier STOXX said.

Euro Zone, IMF Clash on Estimates of Banks' Damage

International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt.

ecb_logo1The IMF’s work, contained in a draft version of its regular Global Financial Stability Report (GFSR), uses credit default swap prices to estimate the market value of government bonds of the three eurozone countries receiving IMF bailouts – Ireland, Greece and Portugal – together with those of Italy, Spain and Belgium.The analysis, which was discussed by the IMF’s executive board in Washington on Wednesday, has been strongly rebutted by the European Central Bank and eurozone governments, which say it is partial and misleading.

Although the IMF analysis may be revised, two officials said one estimate showed that marking sovereign bonds to market would reduce European banks’ tangible common equity – the core measure of their capital base – by about 200 billion euros ($287 billion), a drop of 10-12 percent. The impact could be increased substantially, perhaps doubled, by the knock-on effects of European banks holding assets in other banks.

The ECB and eurozone governments have rejected such estimates.

Elena Salgado, Spanish finance minister, told the Financial Times on Wednesday that the fund was mistaken in looking only at potential losses without also taking account of holdings of German Bunds, which have risen in price.

“The IMF vision is biased,” she said. “They only see the bad part of the debate.”

Ms Salgado added “this is the second time it has happened”, referring to the fund’s October 2009 GFSR, which estimated that eurozone banks had only written down $347 billion of $814 billion of probable losses from the financial crisis. 

It later revised down that total of probable total losses by a quarter. Ms Salgado said that the European stress tests of banks were a better indication of their vulnerabilities.

Officials involved in the debate say the mark-to-market analysis can explain much of the recent fall in European commercial banks’ share prices, including French and German institutions that have large holdings of eurozone sovereign debt.

“Marking to market is a fairly brutal exercise, but these are the estimates that hedge funds are currently making,” one official said.

Hmmm. The IMF and the EU are disagreeing on how bad the state of European banking really is... Has anyone really wondered what would happen if a truly independent entity would review the books? What would be their findings? Let's take a look at the BoomBustBlog EU archives and pull out Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! while keeping in mind that this article was researched and written well over a year ago!

The IMF and the EU have been consistently and overtly optimistic from the very beginning of this crisis. Their numbers have been dramatically over the top on the super bright, this will end pretty, rosy scenario side - and that is after multiple revisions to the downside!!! We can visit the US concept of regulatory capture (see How Regulatory Capture Turns Doo Doo Deadly and Lehman Brothers Dies While Getting Away with Murder: Regulatory Capture at its Best) for the EU, but due to time constraints we will save that topic for a later date. To make matters even worse, the sovereign states have taken these dramatically optimistic and proven unrealistic projections and have made even more optimistic and dramatically unrealistic projections on top of those in order to create the illusion of a workable "austerity" plan when in reality there is no way in hell the stated and published plans will come anywhere near reducing the debts and deficits as advertised - No Way in Hell (Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem - just to cover some of the Euro states caught fudging the numbers)!

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.

image005.png

Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. 

image018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...

image013.png

The EU/EC has proven to be no better, and if anything is arguably worse!

image031.png

Revisions-R-US!

image044.png

and the EU on goverment balance??? Way, way, way off.

image040.png

If the IMF was wrong, what in the world does that make the EC/EU?

The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha's bad, try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!...

greek_debt_forecast.png

Think about it! With a .5% revisions, the EC was still 3 full points to the optimistic side on GDP, that puts the possibility of Greek government forecasts, which are much more optimistic than both the EU and the slightly more stringent but still mostly erroneous IMF numbers, being anywhere near realistic somewhere between zero and no way in hell (tartarus, hades, purgatory...).

Now, if the Greek government's macroeconomic assumptions are overstated when compared with EU estimates, and the EU estimates are overstated when compared to the IMF estimates, and the IMF estimates are overstated when compared to reality.... Just who the hell can you trust these days??? Never fear, Reggie's here. Download our "unbiased, non-captured, empirically driven" forecast of the REAL Greek economy - (subscribers only, click here to subscribeGreece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb. Related banking research can be downloaded here:

It really is a shame when you have to pay for the truth, isn't it? If you think you've witnessed an example of social unrest in Greece, you ain't seen nuthin' yet. Wait until the reality of these faked numbers start hitting home...
greek_strikes.png

What about the UK?

I'm glad you asked. We just finished our UK analysis (subscribers, see UK Public Finances March 2010 UK Public Finances March 2010 2010-03-24 09:32:01 617.23 Kb), and the Greek theme has continued into the land of the Brits.

uk_economic_estimtes.png

... and in terms of government balance over-optimism???

uk_gaovernment_balance_projections.png

...

And what about Italy???

Again, we're glad you inquired. Subscribers should download Italy public finances projection Italy public finances projection 2010-03-22 10:47:41 588.19 Kb as well as theFile Icon Italian Banking Macro-Fundamental Discussion Note and the

File Icon Spanish Banking Macro Discussion Note in anticipation of our upcoming Spain analysis, which should be a doozy!

This is Italy's presumption of economic growth used in their fiscal projections:

italian_real_gdp_growth.pngitalian_real_gdp_growth.pngitalian_real_gdp_growth.png


image006.png

image042.png

 

For those of you who still have any interest in the big European Sovereign Debt Scam, I also introduce you to our analysis of European bank asset impairments. Reference (yes, once again) the instructional video, the public blog post and the high end subscription only "UGLY TRUTH". It is absolutely amazing how often I can use, and then reuse these links yet they still remain quite timely, informative and apt given the contextual news for the day at hand. Apparently, there must be some validity to their content.

The Keynote Presentation in Amsterdam

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Euro banks remain weak as compared to their US counterparts

Health of European banks is weaker when compared to US banks. European banks are highly leveraged compared to their US counterparts (11.1x versus 4.1x) and are undercapitalized with core capital ratio of 6.5x vs. 8.5x. Also, the profitability of European banks is lower with net interest margin of 1.2% compared with 3.3%. However, non-performing loans-to-total loans for European banks are slightly better off when compared to US with NPL/loans at 4.9% vs. 5.6%. Nonetheless, considering the backdrop of high exposure to sovereign debt in Euro peripheral countries, we could see substantial write-downs for Euro banks AFS and HTM portfolio, which would more than offsets the relative strength of loan portfolio.

EURO Stress Test Rebuffed, Again

The OECD working paper “The EU stress test and sovereign debt exposures” by Adrian Blundell-Wignall and Patrick Slovik rebuffs the EU stress test, as we have several times in the past. The argument in the white paper echoes BoomBustBlog view that accounting policies allows banks and financial institutions to mask their true economic health. An asset that has declined in value leads to economic loss irrespective of its classification as held-to-maturity or held-for-trading, but accounting policies allow banks to mark down only their trading portfolio to the current market value while leaving a large chunk of held-to-maturity at book value even if said asset loses 50% in value that would take years to recover, or the bank could be presented with the very distinct possibility that there may be no recovery of said value loss. The former event (of recovering back to book value) would mask the true economic picture at a given snap shot of time while the latter (no recovery) is more of time shifting distortion wherein current profits are inflated for future losses.

Coming back to the EU stress test, the paper contends that by focusing only on the trading book exposures, the EU stress test gave a rosy picture of banks true health.

•     Sovereign bond haircuts were applied only on the trading book holdings with implicit assumption that bonds held to maturity will receive 100 cents in the euro. This assumption severely understates the banks losses as 83% of banks investment portfolio is in banking books in form of held-to-maturity assets while only 17% of assets are held in trading portfolio. In case of sovereign default, the distinction between the banking book and the trading book simply disappears. By considering only a smaller component of banks investment books, EU stress tests have severely undermined the estimated write-downs on banks books and have given rosy picture about banks true health. The logic of said methodology is that with the EU/ECB/ EFSF SPV (basically, a giant new European CDO) backing, no sovereign state will be allowed to default.

•     Second, and more importantly, the market is not prepared to give a zero probability to debt restructurings beyond the period of the stress test and/or the period after which the role of the EFSF SPV comes to an end.

o   The assumption of no default over 2010-2012 appears reasonable given that the EFSF is made up of a €720bn lending facility (€220bn from the IMF; €60bn from the EU; and the SPV can build exposures for 3 years to the limit of €440bn for the 16 Euro area countries) which provides a guarantee of funding for any countries facing financing pressures, certainly for the next 3 years.

o   However, the concerns in the market beyond 2012 are: the longer-run fiscal sustainability problem; and the difficulty of achieving structural adjustments in labor and pension markets and ability to achieve a sustainable growth in a period of budget restraint. The fear is that this will not be resolved by the time the support packages run out, and hence the probability of restructuring may not be put at zero by portfolio managers. Angela Merkel has recently announced her willingness to spearhead several common nation reforms to put the EU block of nations on heterogeneous footing in regards to regulation, debt management etc. This will go a long way to solving the problem at hand, but will also put significant strain on several of the weaker nations, again exacerbating the probability for restructuring to bring said nations in line with their stronger counterparts.

Impact of bank’s banking books on haircuts

EU banking book sovereign exposures are about five times larger than trading book. The table below gives sovereign exposure of major European countries for both trading and banking book. The EU trading book has €335bn of exposure while banking book has €1.7t exposure towards sovereign defaults. EU stress test estimated total write-down’s of €26bn as it only considered banks trading portfolio. This equated to implied haircut of 7.9% on trading portfolio with losses equating to 2.4% of Tier 1 capital. However, if the same haircuts (7.9% weighted average haircut) are applied to banking book then the loss would amount to €153bn equating to 13.8% of Tier 1 capital.

We have also presented an alternative scenario since we believe that EU stress test had failed not only to include banks HTM books but also the loss estimates were highly optimistic, as has much of the economic and financial forecasting that has come from the EU.

If you liked this, then you probably would have great interest in:

Relevant material for capturing maximum alpha duing this European banking meltdown:

File Icon French Bank Run Forensic Thoughts - pubic preview for Blog - A freebie, to illustrate what all of you non-subscribers are missing!

Published in BoomBustBlog
Thursday, 25 August 2011 09:29

8-24-11 Trading Opinion & Analysis

Trading opinion and analysis is now avialable to paying subscribers, current as of 6:45 this morning.

I'm on the road and trying to us the new Macbook Air (top of the line 1.8Ghz i7) and its just not working out in terms of productivity. I will be swapping out for the new Sony Vaio which is much more expensive, but also much more machine in a lighter, smaller package (I swapped the MBA for the Samsung series 9, whcih wasn't worththe money) and report accordingly as I comment on Steve Jobs' resignation and other news headlines of the day. If I don't get the computer situation solved by late morning, check my twitter feed for commentary (upper right-hand corner of the home page of BoomBustBlog).
Published in BoomBustBlog

Watch out, Here Comes the The Fiery Sword of Truth! Contrary to the popular opinion that Goldman is the best and the brightest, Goldman Can't TRADE!!!

The financial markets are in a sense of déjà vu with widespread panic. Markets are as volatile as ever and Goldman Sachs is yet again challenged to demonstrate its ability to create alpha. The beta gazers (those who charge 2 and 20 to simply lever up on the broad market), or more commonly put, MoMo Chasers (those chasing the most popular stocks or strategies), would normally be seeking asylum given the state of recent financial markets. Unfortunately, despite the entire “God’s Work” syndrome attached to Goldman Sachs, its prop desk is yet to exhibit the ability to generate true alpha in highly volatile market, let alone match the success of BoomBustBlog.

Let's get something out in the open immediately so there is no misunderstanding. Goldman cant' trade! It can manipulate its dominant positoins in the markets. It can take advantage of the ignorance of its customers. It can front run those who don't have the reach or ability to defend themselves. It can (and obviously does) take advantage of privileged status in our political system. Those are the things that Goldman can do and apparently is skilled at, yet contrary to the popular opinion that Goldman is the best and the brightest, Goldman Can't TRADE!!! Not only that, but that inability to trade bangs the GS shareholder EVERYTIME volatility roils the markets, and causes many to overvalue GS over the long term.

For a little historical proof of this rather unpopular assertion, let's refer to the BoomBustBlog archives, namely A Few Questions on Goldman Sachs 3rd Quarter 2010 Results That No One Thought to Ask...

Trading revenues under pressure

Goldman Sachs posted Q3 net revenues of $8.9bn, a y-o-y decline of 28%. This is despite strong growth recorded at its investment banking and the asset management division which grew at 24.5% and 7.0%, respectively. The decline was principally led by dismal performance of the trading and principal transaction segment which declined 36% y-o-y as a result of weak market conditions. The decline in overall revenues despite strong growth recorded elsewhere underscores the importance of trading revenues in Goldman Sachs overall performance. Historically, trading and principal transaction segment contributed c60-65% of total revenues underpinning inherent risk in Goldman’s business model which is nothing short of a corporate hedge fund. We have expended considerable ink in demonstrating the overvaluation of Goldman Sachs and the volatility inherent in its revenues, particularly as they have been so dependent on trading - as many hedge funds are. As a matter of fact, I have been issuing this GS warning since 2009 when Goldman had perfect trading quarter and record trading profits. Reference last quarter's quarterly update: The BoomBustBlog Review of Goldman Sach’s 2nd Quarter, 2010 Performance: I Told You So!

About three months ago, Boombustblog forewarned that GS will stand out to be the worst hit in the event of trend reversal in the financial markets and the company will have little means to escape the implications of the same on its profitability and solvency. The company generates 60-70% of the revenues from trading activities which is largely dictated by the unpredictable turn of financial events. While the financial markets were celebrating the US officially coming out of recession in the 1Q10, the subsequent Eurozone crisis (see the Pan-European Sovereign Debt Crisis series) and the slowdown of expectations in 2Q10 has beaten down the irrational exuberance and the markets experienced a spurt in volatility and drop in prices. The consequent softening of trading revenues in 2Q10 vis-à-vis 1Q10 drove 31% drop in revenues and 82% drop in net income.

The chart below demonstrates how the volatility of the revenues from the trading and principal investments trickles down into volatility of the total revenues and profits of Goldman Sachs. I don’t call Goldman the world’s most expensive federally insured hedge fund for nothing!

As you can see above, volatility ramped up in 2008 and Goldman reacted like any other beta-chasing, long only hedge fund (although they aren't long only) - they lost money!

Now, with the benefit of BoomBustBlog hindsight, I'd like to announce to the release of a blockbuster document describing the true nature of Goldman Sachs, a description that you will find no where else. It's chocked full of many interesting tidbits, and for those who found "The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely" to be an iteresting read, you're gonna just love this! Subscribers can access the document here:

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

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

 Goldman_Sachs_Q3_Forensic_Review_Page_01

Is Goldman Sachs stock really the front running, Mo-Mo traders wet dream?

Goldman_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.

Oh, and while we're at it...

I noticed ZeroHedge (one of the few sites that I syndicate BoomBustBlog content through) caused a tiff with the Canadian academia and pop media by calling attention to the abysmally low TEC ratios of Canadian banks, and comparing them to European banks. For those who didn't have the spare time to catch the cross border banking media soap opera, see:

  1. Is The Next Domino To Fall.... Canada? for the first salvoo
  2. Who is Zero Hedge, and why should we care? for the passive aggressve retort
  3. (as put by Tyler himself) "followed by a more coherent attempt to debunk the claim that a painfully low TCE ratio is never a good thing": Is Zero Hedge looking at the wrong numbers?"

I must say that the argument by those up north is wanting and ZH made a valid point, primarily in that the RWA (risk weighted asset) methodologies are simply too open for manipulation. Of course, that is probably why they are favored by the banking institutions. Let's end this morning's post by illuminating the fact that although, Goldman Sachs capital ratios have improved, it has nothing to do with a reduction in risks weighted assets. Risk weighted assets, to the contrary, have increased to $451bn as at end June 2011 from $384bn as at the beginning of 2009. One of the key reasons for increase in capital ratios have been dilutions. As a matter of fact, Goldman Sachs’ diluted shares outstanding have increased by c24% since beginning of 2008!

Goldman_Sachs_RWA

So, if Goldman really has a problem, why haven't we heard about it from the rest of Wall Street?

Because investment performance is not the Street's business model. If it was, they would have easily foreseen thier own demise back in 2008/9. The street's busness model is churning spreads, fees and commisions from clients and customers. I truly believe BoomBustBlog bests ALL of Wall Street's sell side research, reference Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? After all, who else is currently warning of Goldman's risk on the Street? Answer: No one! Then again, who warned back in the summer of 2008 before the share price got cut by nearly 2/3rds? I can only think of one shop....

Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street: ...t shared by most of the analyst community and those that follow them. This brings me to the issue of Goldman Sachs. I have been bearish on commercial, mortgage and investment banks for over a y... Saturday, 05 July 2008

Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis: Here is my detailed opinion on Goldman Sachs. Be sure to review my precursor to this report: Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street. Anybody who is interested in how I Thursday, 24 July 2008

Even after a clear pattern was formed, who on the sell side warned when the markets got rocky in 2010? Hmmm. I sense a trend here... If I may prompt one to reminesce: In What Do Goldman Sachs and B.B. King Have in Common? The Thrill is Gone…,, I made the following note:

GS’s considerable leverage provides a means (the lever) of high returns to shareholders when asset prices are appreciating but the same becomes a very material economic concern when the asset prices lose value. With low trading revenues, GS has little cushion to absorb write-downs on these assets, leading to erosion of equity. As of March, 2010, the GS’s investments portfolio amounted to $339 billion (nearly 566% of the tangible equity). Referencing my previous posts, “Can You Believe There Are Still Analysts Arguing How Undervalued Goldman Sachs Is? Those July 150 Puts Say Otherwise, Let’s Take a Look” and “When the Patina Fades… The Rise and Fall of Goldman Sachs???“, we can reminisce over the fact that Goldman BARELY earns its cost of capital on an economic basis, and that’s before considering the potential horrors which may (and probably do) lay on the balance sheet (for more on BS horror, referenceReggie Middleton vs Goldman Sachs, Round 2) .


As for the Canadian media's retorts on ZeroHede's credible article, I must dare, no... make that double dare, any one to ask in print or on TV, "Who is Reggie Middleton". As a matter of fact, I'll answer that question right now. He's the guy that called...

  1. The housing market crash in the spring of 2006 and publicly in September of 2007: Correction, and further thoughts on the topic and How Far Will US Home Prices Drop?
  2. Home builders falling and their grossly misleading use of off balance sheet structures to conceal excessive debt in November of 2007 (not a single sell side analyst that we know of made mention of this very material point in the industry): Lennar, Voodoo Accounting & Other Things of Mystery and Myth!
  3. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear? | After the collapse, a prudent bullish call as well... Joe Lewis on the Bear Stearns buyout Monday, March 17th, 2008: "The problem with the deal is that it is too low, and too favorable for Morgan. It is literally guaranteed to drive angst from the other side. Whenever you do a deal, you always make sure the other side gets to walk away with something.  If you don’t you always risk the deal falling though unnecessarily. $2 is a slap in the face to employees who have lost a life savings and have the power to block the deal. At the very least, by the building at market price and get the company for free!" | BSC calls are almost free and the JP Morgan Deal is not signed in stone Monday, March 17th, 2008 | This is going to be an exciting, and scary morning Monday, March 17th, 2008 | As I anticipated, Bear Stearns is not a done deal Tuesday, March 18th, 2008 [Bear Stearns stock goes from $1 and change to $10, front month calls literally explode from pennies to several dollars]

  4. The warning of Lehman Brothers before anyone had a clue!!! (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 | May 2008
  5. The fall of commercial real estate in general (September of 2007) and the collapse of General Growth Properties [nation's 2nd largest mall owner] in particular (November 2007): 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).
  6. The collapse of state and municipal finances, with California in particular (May 2008): Municipal bond market and the securitization crisis – part 2
  7. The collapse of the regional banks (32 of them, actually) in May 2008: As I see it, these 32 banks and thrifts are in deep doo-doo! as well as the fall of Countrywide and Washington Mutual
  8. The collapse of the monoline insurers, Ambac and MBIA in late 2007 & 2008: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Welcome to the World of Dr. FrankenFinance! and Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion
  9. The overvaluation of Goldman Sachs from June 2008 to present): “Can You Believe There Are Still Analysts Arguing How Undervalued Goldman Sachs Is? Those July 150 Puts Say Otherwise, Let’s Take a Look”, “When the Patina Fades… The Rise and Fall of Goldman Sachs???“andReggie Middleton vs Goldman Sachs, Round 2)
  10. The ENTIRE Pan-European Sovereign Debt Crisis (potentially soon to be the Global Sovereign Debt Crisis) starting in January of 2009 and explicit detail as of January 2010: The Pan-European Sovereign Debt Crisis
  11. Ireland austerity and the disguised sink hole of debt and non-performing assets that is the Irish banking system: I Suggest Those That Dislike Hearing “I Told You So” Divest from Western and Southern European Debt, It’ll Get Worse Before It Get’s Better!
  12. The mobile computing paradigm shift, May 2010: »
  13. The French bank run of 2011

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For all of those calamari fans.... Remember, I warned about "the Squid" before it was trendy to hate them!

The Financial Times Vindicates BoomBustBlog's Stance On Goldman Sachs - Once Again!

Goldman Sachs Latest: Vindicates BoomBustBlog Research, Disappoints Sell Side Cheerleaders, Shows GS Is Just A Bank After All

Is It Now Common Knowledge That Goldman's Investment Advice Sucks???

A Few Questions on Goldman Sachs 3rd Quarter 2010 Results That No One Thought to Ask

Reggie Middleton vs Goldman Sachs, Pt. Deux: Buy into a Collapsing Market to Fund Bonuses, PLEASE!!!

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Published in BoomBustBlog

A more advanced approach to monetizing volatility in the US equity broad markets (at least comparison to the introductory subscription document SPY option strategies in violent down moves) is to trade the SPX options or futures directly. The spreads in the options are MURDER and the volatility has already jumped. If you would have acted when we first indicated, you would be in profit heaven right now. Reference The 830% One Week Armageddon Trade Commentary: Tuesday, 8-9-2011, Continuing The Easily Seen Market Crash?, as excerpted:

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

So, the question for all of new comers, Johnny Come latelys, skittish or those following the all will be well because the Fed/ECB are all powerful... Is it too late to set up new, profitable bearish positions? My answer is an unqualified "No" once it comes to our subject banks/countries (althought the risk/return on the French candidate is now diminishing save an all out rout, which is quite possible referencing the post The French Government Creates A Bank Run). We are working on the US contagion bank (reference File Icon Actionable Note on US Bank/ French Bank Run Contagion) and have yet to provide a valuation band, but if things kick off this will throw off considerable alpha. As for the simpler and more generic broader market, it all really depends on whether you belive the "long-only" asset management and sell side analyst crew are more credible than I am (see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on this topic). If you feel that I have a point in that the European situation will not end favorably without debt destruction, and said debt destrucion will destroy massive amounts of bank TEC, than the decision is easy. See the link list at the bottom for more on this topic. We also have the real estate problem hiding in both the US and European banking markets. These, in addition to insolvent sovereign states add up to an event worse than post-Lehman. If that's truly the case, then this is a no-brainer, even with nosebleed volatility levels. Take a look at the comparison of where we stand now and where we stood at the Lehman blow up...

image003_copy

Now, don't get me wrong. The path back to the bottom is fraught with risk, excessive volatility and markets so choppy as to be able to remove your head. Remember the bear market rally of 2009 that lasted until just a few months ago? Even correct calls this week proved to be considerably less profitable due to the heightened vol levels, at least in comparison to my 850% put trade referenced above. See what I did this week in relation to the broad market.

The SPX Oct. 20 1005 puts that I OVERPAID for on the 16th (as a result of getting stopped out of my previous Armageddon trade at 350% return down from 850% due to my ignoring my own advice and not gamma hedging/taking profits), went for $13.81, as was logged in my inventory. Today, with several significant drops in the broad market, these puts are currently bid at 23.70 and asked at 27.8. That's barely a 100% gain, wherein I posted a 550% gain last time around due to purchasing them when volatility was at a discount. Yes, the returns do sound good, but they are also rapidly diminishing... At this point, I would like to make it clear that this is not the market, and these are not the instruments for novice, meek, first time investors with a typical sell side directed brokerage account.

I will be posting more advanced trade setups over the next few weeks for professional and institutional subscribers and will post trading opinion slightly contrary to this piece later on today or tomorrow to give readers and subscribers a broader purview.

My warnings on the most recent banking crisis started in 2010, but here are the most recent rants starting with...

  • a keynote speech in Amsterdam,

Over the next few days I will offer advanced trading techniques to allow BoomBustBlog subscribers to monetize their view via the market, despite the attempts by those who do not see to manipulate free markets. In the mean time I will excerpt portions of the Pro/Institutional report on the French bank most at risk for a run, available for download right now -File Icon Bank Run Liquidity Candidate Forensic Opinion.

 Here are a few screen shots from the free public abridged version (File Icon French Bank Run Forensic Thoughts - pubic preview for Blog), that easily demonstrates the problem with the French banks cannot be solved by banning short selling. The problem is inherent in the banks themselves. Please click to enlarge to printer quality...

 French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_02_copy

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_04

Published in BoomBustBlog

bank_collpse_youtube_video_shotBank Run Candidate Option Trading Update (referencing native exchange pricing, ADRs are available for US investors)
As opined in the subscription trading setup available for download (This is the introductory post to a series of trade setups for European Bank at Risk), there was vacuum below the trading range drawn below the graph on page one (and similar levels for the other bank at risk) so it wasnt surprising we had this -20% (intraday on Tuesday) move in French banks when we broke the support convincingly. We already rallied significantly from the previous lows, because of the short selling ban but banks are clearly f*cked and even the short ban will not help much for recovery, and to the contrary will thoroughly assist prices in their collapse on the way down - reference The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely.

The conservative struck puts will probably end up making in excess of x3. The 40 gamma trade put already made a killing trading around 6 (x4) still, while having plenty of gamma on the way down. Rmember, volatility literally exploded as I update this slighlly dated report at 3:58 am EST, the European markets opened sharply down - led by the banks, of course.

Remember, after EVERY violent move in your favor, but particularly downward, it is YOUR DUTY to take profits and DELTA HEDGE!!!

Relevant material for capturing maximum alpha duing this European banking meltdown:

File Icon French Bank Run Forensic Thoughts - pubic preview for Blog - A freebie, to illustrate what all of you non-subscribers are missing!

The timeline of European bank run research and opinion...

Published in BoomBustBlog

bank-run-1931The bank run in Europe appears to be underway again, exactly as I have anticipated. Remember, historically, bank runs were mainly instituted by retail investors pulling deposits. Modern day institutions and mechanisms have successfully been implemented to mitigate and stem the tide of such occurrences to an extent that many potentially devastating bank runs have been avoided. The caveat is, a new instigator of the bank run has emerged. Make no mistake about it, the institutional counterparty is the new purveyor of the modern day bank run. For those who have not been following my European bank run rants, see my many warnings to date regarding the highly contagious European bank run below. For those who have been following, skip past the link list to the news excerpts directly below to see what is going on today and coincidentally what we have been working on for the last week - which is just starting to come out into the mainstream media and the sell side analysts water cooler chatter...

It all started as:

  • a keynote speech in Amsterdam,

First CNBC reports US Markets Indicating Sharp Selloff at Open on European Bank Concerns, This is shortly after reporting, by way of the Wall Street Journal reports: European Central Bank Dollar Loan Signals Euro Stress

The European Central Bank has lent dollars to a eurozone bank for the first time since February in the latest sign of escalating tensions in the region’s financial system.

A single bidder borrowed $500 million for a week, the ECB disclosed on Wednesday, after taking advantage of a facility that has largely lain dormant over the past year.

No details were given but the news suggested that at least one bank was having difficulties obtaining the dollar funds it required.

On its own, the use of the facility did not point to dramatic stress levels in funding markets, analysts said.

But it added to other evidence that European banks were struggling to access some forms of financing for the first time in a couple of years.

The so-called Euribor-OIS swap, a gauge of fear in the banking sector, is at its highest since 2009, while short-term euro basis swaps, which show a strong premium for buying dollars over the single currency, are at the most negative since the collapse of Lehman Brothers.

Meanwhile, the ECB continues to see high levels of funds being parked overnight in its “deposit facility”, rather than being lent to other banks.

...

“All the indicators are pointing in the same way: banks are becoming more keen to use official sources of liquidity than one month ago. Is it the crisis levels of 2008? No,” said Laurence Mutkin, rates strategist at Morgan Stanley.

Nick Matthews, European economist at Royal Bank of Scotland, said: “It is probably symptomatic of the kind of stresses and strains there are in the system.”

Acting with the US Federal Reserve, the ECB first offered US dollars to euro zone banks at the end of 2007. The program was reactivated after the collapse of Lehman Brothers in late-2008 – and again in May last year, when the euro zone debt crisis was at its most intense.

Any casual reader of BoomBustBlog has been thoroughly forewarned, and all BoomBustBlog subscribers should have their positions firmly in place, ready to monetize this situation after buying volatility on the cheap and short positions at favorable levels - reference the following documents, all produced while volatility was cheap and the subject banks were trading much higher:

  1. SPY option strategies in violent down moves
  2. This is the introductory post to a series of trade setups for European Bank at Risk
  3. and The Inevitability of Another Bank Crisis!

The Federal Reserve Bank of New York is intensifying its scrutiny of the U.S. units of Europe's biggest banks amid concerns that Europe's debt crisis could spill into the U.S. banking system, the Wall Street Journal reported citing sources familiar with the matter.

This is quite interesting and timely, for several weeks ago we started our own forensic investigation and many would be surprised at what we have found. All BoomBustBlog subscribers are strongly urged to download today's latest actionable note regarding the big American bank (see File Icon Actionable Note on US Bank/ French Bank Run Contagion) closely related to the big bank identified in The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely, as excerpted:

Over the next few days I will offer advanced trading techniques to allow BoomBustBlog subscribers to monetize their view via the market, despite the attempts by those who do not see to manipulate free markets. In the mean time I will excerpt portions of the Pro/Institutional report on the French bank most at risk for a run, available for download right now -File Icon Bank Run Liquidity Candidate Forensic Opinion.
Here are a few screen shots from the free public abridged version (File Icon French Bank Run Forensic Thoughts - pubic preview for Blog), that easily demonstrates the problem with the French banks cannot be solved by banning short selling. The problem is inherent in the banks themselves. Please click to enlarge to printer quality...

 French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_02_copy

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_03

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_04

Published in BoomBustBlog

Tuesday trading update from Eurocalypse...

The SP500 daily chart has the same pattern than CAC.a squeeze could lead us to 1240 but I don't see it really pushing any further out and I see the market being more heavy than Europe because we didn't sell off as hard.

sp500

Contrary to the CAC points (see Eurocalypse Trading Update 8/16/2011 - French Markets and The Inevitable Pan-European Real Estate Collapse), we didnt visit 2010 lows which are my target, so lets not talk about July 2009 lows just yet. The option set up and trading illustration given to subscribers last week still stands as the preferred method for those who trade optionable ETFs to best position themselves. All paying subscribers should download SPY option strategies in violent down moves for retail investors. We will review larger contract futures strategies for professional and institutional investors in the near future.

Fixed Income

While we believed that it's both rational and worthwhile to play the long US notes, Bunds (or Swap rates) as a positive carry trade to leverage the continuing debacle of western economies, these are profit taking levels for those momentum players and flight to quality traders, and perhaps even levels to cautiously try the short side. No, the strategy is not driven by the explosion of the ponzi that US debt or german debt, but simply an over extension of a trend. UST notes monthly charts shows we are in resistance zone.

On bunds, the German debt, there is still this joker that it is suddenly rerated as bad as PIIGS if Merkel gives in to support Italy and Spain (which she has shown she is thus far refusing to do in by refusing Eurobonds)...The short term mo-mo players are not looking at things this way. There is also this matter of the CRE rollovers that will either smash French and German banks, tank pan-European real estate, or the most likely option - both.

Things to watch

I think the stock market can tank in the short term only if the PIIGS crisis resumes abruptly. Is it possible ? Well of course, it is, but I think we'd see serious signs in the debt markets before the stock market reacts, as usual. I read that 22bn of PIIGS debt were bought last week, the fastest pace ever,
and a very significant amount. All the guys who sold, probably bought Bunds instead (they are bond funds, ALMs so if they sell an investment, they should
buy something else with the proceeds...). If ECB activity subsides, Bunds naturally lose some of their bid. and then the bid on PIIGS will be tested as Bunds' yield rise from here. Then the market could well call the ECB bluff and see how big their virtuo-synthetic inkjet powered pockets really are (from a political point of view, of course - they can literally print forever up until inflation scares them back - reference The Bull Argument For Europe Is Credible, Except For The Circular Argument: You Can't Solve Debt Problems With More Debt!!!). If these balls are not as deep as their virtual pockets, then....

Reggie's note:

Of interest, if we're correct in our fixed income outlook, that Pan-European CRE crash may well have ample company stateside. See my rant on over optimism in this space on CNBC: Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate.

As excerpted:

Listen up people, HERE ARE THE NASTY FACTS!!!

Real estate is a highly rate sensitive asset class. Capitalization rates (the popular method of pricing real estate) is explained in Wikipedia as:

Capitalization rate (or "cap rate") is the ratio between the net operating income produced by an asset and its capital cost (the original price paid to buy the asset) or alternatively its current market value.[1] The rate is calculated in a simple fashion as follows:

 \mbox{Capitalization Rate} = \frac{\mbox{annual net operating income}}{\mbox{cost (or value)}}

Without going into a CRE class, when interest rates go up, cap rates generally go up as well and the value (or cost to purchase) of the property goes down in sympathy unless the rise in interest rates is offset by a commensurate or greater rise in net operating income. Now, either everybody believes that unemployment is going to drop towards zero  in an era of US austerity (reference Are the Effects of Unemployment About To Shoot Through the Roof? then see Budget AusterityGoldman Sees Danger in US Budget Cuts - CNBC) at the same time that historically low interest rates that actually went negative are going to get lower (see the Pan-European Sovereign Debt Crisis) ---- or cap rates are about to skyrocket. I'll let you decide!

As you can see above, CRE drops in value whenever yields spike more than the + delta in NOI. Looking below, you can see that US CRE actually runs to the inverse of the 30 year Treasury.

That visual relationship is corroborated by running the statistical correlations...

The relationship is obvious and evident! In addition, we have been in a Goldilocks fantasy land for both interest rates and CRE for about 30 years. CRE culminated in the 2007 bubble pop, but was reblown by .gov policies and machinations. The same with rates. Ever hear of NEGATIVE interest rates where YOU have to PAY someone to LEND THEM MONEY!!!

So, BoomBustBloggers, where do YOU think rates are going to go from here? Up of Down??? Let's ask Portugal or any of the other PIIGS group. I have shown, very meticulously, how Portugal can not only afford the path that they are on (record high interest rates) but the losses that will come when they restructure (default) - for all to see. I have done the same with Spain, Ireland and Greece (for subscribers only). See The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog followed by The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History (December 6th & 7th, 2010). Be sure to carefully and very thoroughly peruse the spreadsheet below to see the many scenarios present that show the NPV of investor losses due to haircuts and restructurings...

I have went through what is inevitable in the US from a fundamental perspective right here in New Amsterdam, just a tad bit before I brought the message across the pond to old Amsterdam.

{youtube}MukxtjCVc5o{/youtubbe}

Remember, unlike many, I have asserted since 2007: It's a Real Estate Depression!!!

Published in BoomBustBlog

Tuesday trading update from Eurocalypse...

The SP500 daily chart has the same pattern than CAC.a squeeze could lead us to 1240 but I don't see it really pushing any further out and I see the market being more heavy than Europe because we didn't sell off as hard.

sp500

Contrary to the CAC points (see Eurocalypse Trading Update 8/16/2011 - French Markets and The Inevitable Pan-European Real Estate Collapse), we didnt visit 2010 lows which are my target, so lets not talk about July 2009 lows just yet. The option set up and trading illustration given to subscribers last week still stands as the preferred method for those who trade optionable ETFs to best position themselves. All paying subscribers should download SPY option strategies in violent down moves for retail investors. We will review larger contract futures strategies for professional and institutional investors in the near future.

Fixed Income

While we believed that it's both rational and worthwhile to play the long US notes, Bunds (or Swap rates) as a positive carry trade to leverage the continuing debacle of western economies, these are profit taking levels for those momentum players and flight to quality traders, and perhaps even levels to cautiously try the short side. No, the strategy is not driven by the explosion of the ponzi that US debt or german debt, but simply an over extension of a trend. UST notes monthly charts shows we are in resistance zone.

On bunds, the German debt, there is still this joker that it is suddenly rerated as bad as PIIGS if Merkel gives in to support Italy and Spain (which she has shown she is thus far refusing to do in by refusing Eurobonds)...The short term mo-mo players are not looking at things this way. There is also this matter of the CRE rollovers that will either smash French and German banks, tank pan-European real estate, or the most likely option - both.

Things to watch

I think the stock market can tank in the short term only if the PIIGS crisis resumes abruptly. Is it possible ? Well of course, it is, but I think we'd see serious signs in the debt markets before the stock market reacts, as usual. I read that 22bn of PIIGS debt were bought last week, the fastest pace ever,
and a very significant amount. All the guys who sold, probably bought Bunds instead (they are bond funds, ALMs so if they sell an investment, they should
buy something else with the proceeds...). If ECB activity subsides, Bunds naturally lose some of their bid. and then the bid on PIIGS will be tested as Bunds' yield rise from here. Then the market could well call the ECB bluff and see how big their virtuo-synthetic inkjet powered pockets really are (from a political point of view, of course - they can literally print forever up until inflation scares them back - reference The Bull Argument For Europe Is Credible, Except For The Circular Argument: You Can't Solve Debt Problems With More Debt!!!). If these balls are not as deep as their virtual pockets, then....

Reggie's note:

Of interest, if we're correct in our fixed income outlook, that Pan-European CRE crash may well have ample company stateside. See my rant on over optimism in this space on CNBC: Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate.

As excerpted:

Listen up people, HERE ARE THE NASTY FACTS!!!

Real estate is a highly rate sensitive asset class. Capitalization rates (the popular method of pricing real estate) is explained in Wikipedia as:

Capitalization rate (or "cap rate") is the ratio between the net operating income produced by an asset and its capital cost (the original price paid to buy the asset) or alternatively its current market value.[1] The rate is calculated in a simple fashion as follows:

 \mbox{Capitalization Rate} = \frac{\mbox{annual net operating income}}{\mbox{cost (or value)}}

Without going into a CRE class, when interest rates go up, cap rates generally go up as well and the value (or cost to purchase) of the property goes down in sympathy unless the rise in interest rates is offset by a commensurate or greater rise in net operating income. Now, either everybody believes that unemployment is going to drop towards zero  in an era of US austerity (reference Are the Effects of Unemployment About To Shoot Through the Roof? then see Budget AusterityGoldman Sees Danger in US Budget Cuts - CNBC) at the same time that historically low interest rates that actually went negative are going to get lower (see the Pan-European Sovereign Debt Crisis) ---- or cap rates are about to skyrocket. I'll let you decide!

As you can see above, CRE drops in value whenever yields spike more than the + delta in NOI. Looking below, you can see that US CRE actually runs to the inverse of the 30 year Treasury.

That visual relationship is corroborated by running the statistical correlations...

The relationship is obvious and evident! In addition, we have been in a Goldilocks fantasy land for both interest rates and CRE for about 30 years. CRE culminated in the 2007 bubble pop, but was reblown by .gov policies and machinations. The same with rates. Ever hear of NEGATIVE interest rates where YOU have to PAY someone to LEND THEM MONEY!!!

So, BoomBustBloggers, where do YOU think rates are going to go from here? Up of Down??? Let's ask Portugal or any of the other PIIGS group. I have shown, very meticulously, how Portugal can not only afford the path that they are on (record high interest rates) but the losses that will come when they restructure (default) - for all to see. I have done the same with Spain, Ireland and Greece (for subscribers only). See The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog followed by The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History (December 6th & 7th, 2010). Be sure to carefully and very thoroughly peruse the spreadsheet below to see the many scenarios present that show the NPV of investor losses due to haircuts and restructurings...

I have went through what is inevitable in the US from a fundamental perspective right here in New Amsterdam, just a tad bit before I brought the message across the pond to old Amsterdam.

{youtube}MukxtjCVc5o{/youtubbe}

Remember, unlike many, I have asserted since 2007: It's a Real Estate Depression!!!

Published in BoomBustBlog

Morning trading update from Eurocalypse...

It has been a hectic time laced with a very violent market. It’s been easy to get burnt both by being bullish or bearish. A very unusual situation wherein unless armed with superior research, deft trading skills, innovative strategies and a lot of luck, your basically damned if you do and damned if you don’t. This is why option strategies are so comfortable. You have a natural stop.  The recent BoomBustBlog subscriber content had some predefined targets and the good thingis to stick to them, even when the market is overshooting the target.Regarding the broad equity indexes, the call was to target the 2010 lows…

For the CAC40, it was around 3250-3300. Well, we’ve been quite wrong because we went more than 10% down from that going thru 3000 at one stage. But I wrote as well, that any significant move under that, would be an overshoot, and by taking profits at our target, we'd be the few ones able to take a short term bet on a squeeze. We are now sitting at 3240. Where from here? Well the market bounced where it should after surpassing the 3300. 3000 was the end of June/beginning of July 2009 lows. Given the speed of the move, and that nothing has changed (were all f*cked, but anyone reading BBB or ZH knew that before the move....), I dont see any fresh reasons, apart from momentum (which is enough in itself) to go much lower. The meaning of that, is that although we are in a bear market, selling without trying to time the market now, can be very painful given how far we are from the break and how the short term bottom COULD look after a bounce like a real bottom and prompt everyone for cover...

Click to enlarge...

20110816_-_CAC_Daily

I see no fundamental reason for a big bounce now, but in this volatile market, even an ephemeral 3450 doesnt seem impossible eventhough we already had a good
bounce. There seems to be a divergence on the daily chart ( on stochastics, MACD, RSI) and the short term pain trade could be higher prices. The ADX is very strong, and indicates as well the possibility of a further technical correction to the move. With implied vol high, fresh buying of options will probably not make money. I advise to keep some remaining gamma options and play with the delta hedge and try to take advantage of high vol and skew to position for FLY or broken flies bearish trades. I even advised buying some OTM vega calls at the lows, because they were too cheap even I had no conviction on a real bounce. Well theyve been repriced nicely thanks to the skew effect + the rally from the lows! Anyone who followed that advice should take profits cause im not sure vol will be bid and market upside is limited from here. Tech levels: if for a ST trade, be neutral at this level (3250) and opportunistic. A move towards 3450 should be faded.

20110816_-_CAC_Weekly

On the downside, last week lows COULD hold, even if it looks ugly when we revisit them... or could very well crash... but I wouldnt give more than 50% to that, so the right thing to do is trying to play the long side below 3000 with call or call spreads to limit the downsidethus for short term trading, I advise playing a volatile new range, 3000-3450, selling implied vols, selling the skew, and waiting a bit before setting up earnestly for the probable next move. Keep your mind open, as usual.

Reggie's Comments:

CNBC reports France, Germany Ruling Out Euro Bonds to Fix Debt Crisis and the S&P 500 resumes is slow downward descent. This is simply momentum trader reaction to what is essentially a foregone conclusion. Anyone who truly condones Eurobonds is essentially asking the more responsible states to willingly accept the risks and costs of funding what could potentially become a black hole with very limited upside in return. As I said in my interview with Property EU, the EU suffers from too many chiefs and not enough Indians! In order to justify a unified, common funding vehicle (or common currency for that matter, here's to you Euro) you will need a unified common, budgetary mechanism, common financial authority, and common government. Unitl then, you will simply have too many bosses telling to few capital Euros what to do. For those who are wondering why I included the article below, stay tuned to the subscription documents coming out over the next two weeks. A stagflationary environment, excess supply and a broken bankings system that not only won't lend but has signficant CRE debt rollovers coming up - and concentrated primarily in the banks of two nations (I'll let you guess who, one of whichi will be the subject of a bank run in 3...2...1...) all add up to a virtual Pan-European real estate collapse.

The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely

Reggie Middleton Featured in Property EU, one of Europes leading real estate publicatios

Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.

The related European commercial real estate video...

Published in BoomBustBlog

The professional level subscription document detailing the likely causes of a run on our primary bank run candidate is now available for download (Bank Run Liquidity Candidate Forensic Opinion, the retail version containing valuation available here - French Bank Run Forensic Thoughts - Retail Valuation Note). It is presented at a timely fashion for much of the core EU has just implemented short bans on financial companies - exactly as I anticipated several days ago. If history repeats itself (and it usually does), this action will serve as a precursor to the bank run that I have anticipated and warned about over the last few weeks. For those who don't subscribe to the professional BoomBustBlog analysis, yet want an inkling of what is going on in French banking, I have redacted the aforelinked document as a free public preview: French Bank Run Forensic Thoughts - pubic preview for Blog

You know, if it wasn't so damn destructive, it would actually be funny how regulators appear to find it genetically impossible to learn from mistakes - whether it be theirs or somebody elses. In 2008, when the US foolhardedly decided to allow banks to misreport their long term toxic assets bought with excessive, short term leverage, said banks collapsed. It was not as if this was unforeseen. France is anxious to repeat that exercise with its banks and sovereign debt. In 2008, when the US foolhardedly decided to ban shorts on insolvent financial companies, I made a small fortune constructing synthetic short positions with options that skyrocketed in value because regulators dabbled in markets in which they really had no clue. ZeroHedge reminds us that the short ban in the US ended in a 48% drop in financial company share prices.

It should be obvious to anyone who can remember at least 3 years ago that short bans are not good ideas. They spread more panic and uncertainty than they cure - and the banks' business models are based upon faith and full credit. It appears that the French think they can make ths mistake better than the Americans, as CNBC reports SocGen CEO Dismisses Rumors, Says France Is Not US. Of course not, they just act that way when there is an opportunity to efficiently repeat a boneheaded error. Exactly as I warned just TWO days ago in the post "Time To Load Up On Bank Puts? The Futile Attempt To Make The Insolvent Appear Solvent By Interefering With Market Pricing - Short Ban Has Started", I now bring you this afternoon's news - France, Italy, Belgium and Spain Ban Short Sales

France, Italy, Spain and Belgium plan to enact bans on short selling or on short positions, the European Securities and Markets Authority said today.

“Some authorities have decided to impose or extend existing short-selling bans in their respective countries,” ESMA said in a statement on its website. “They have done so either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field, given the close inter-linkage between some EU markets.”

The most false rumor is what is represented as many of these bank's balance sheets. I warned all BoomBustBloggers last year that this European bank collapse was coming.

It started as:

  • a keynote speach in Amsterdam,

Over the next few days I will offer advanced trading techniques to allow BoomBustBlog subscribers to monetize their view via the market, despite the attempts by those who do not see to manipulate free markets. In the mean time I will excerpt portions of the Pro/Institutional report on the French bank most at risk for a run, available for download right now -File Icon Bank Run Liquidity Candidate Forensic Opinion.

 Here are a few screen shots from the free public abridged version (File Icon French Bank Run Forensic Thoughts - pubic preview for Blog), that easily demonstrates the problem with the French banks cannot be solved by banning short selling. The problem is inherent in the banks themselves. Please click to enlarge to printer quality...

 French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_02_copy

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_03

French_Bank_Run_Forensic_Thoughts_-_pubic_preview_for_Blog_Page_04

Published in BoomBustBlog