Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:895 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:1107 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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It's the Real Estate Crash That I Warned…

20-03-2017 Hits:1573 BoomBustBlog Reggie Middleton

It's the Real Estate Crash That I Warned You About (again)

I've issued several warnings late last year warning of the real estate bubble peaking and popping. I feel I'm especially qualified to do such since I quite accurately called the...

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When It Comes Time To Show and Prove, Eq…

20-03-2017 Hits:1347 BoomBustBlog Reggie Middleton

When It Comes Time To Show and Prove, Equity Markets May Drop Hard

The markets have gotten euphoric since the Trump election, apparently because someone believed what he was selling. Take a look at the broad market jump (powered greatly by the bank...

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So, Brexit Is Now Almost Official. Is Th…

20-03-2017 Hits:629 BoomBustBlog Reggie Middleton

Note: All downloadable legacy content is for subscribers only. We currently have a sale for $11 per month for basic access. Professional subscribers are now evevated to have direct access...

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In Less Than Two Weeks, Another Bitcoin …

17-03-2017 Hits:2130 BoomBustBlog Reggie Middleton

In Less Than Two Weeks, Another Bitcoin ETF Faces SEC Deadline - It's Denial Is NOT A Bearish Event

LedgerX's "SOLIDX BITCOIN TRUST" has an approval deadline this March 30th, 2017.If it is approved, Bitcoin is due for one hell of a bump, but...  

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The Fed Raises Rates While Still Baby Fe…

17-03-2017 Hits:1968 BoomBustBlog Reggie Middleton

The Fed Raises Rates While Still Baby Feeding the MBS Market With Billions in Monthly Purchases

The Fed has raised rates, officially making real what was mere signaling of the end of its expansionary era... Or is it? You see, from a practical perspective, QE is...

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A Bitcoin ETF or Similar Regulated Insti…

16-03-2017 Hits:2516 BoomBustBlog Reggie Middleton

A Bitcoin ETF or Similar Regulated Institutional Vehicle is a Forgone Conclusion - What Happens Next?

Someone with over 53 years on Wall Street sent me this article from Lex of the Financial Times...

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Why the Winelvoss Bitcoin ETF Was Reject…

13-03-2017 Hits:3328 BoomBustBlog Reggie Middleton

Why the Winelvoss Bitcoin ETF Was Rejected and How to Create a Regulated Vehicle That Passes Muster

 The Winkelvoss ETF application was rejected by the SEC, and bitcoin dropped about 20% in price. I repetitively warned those that followed me that a very low risk buying opportunity...

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Trump Calls Obama's Policies On Russia W…

10-03-2017 Hits:3002 BoomBustBlog Reggie Middleton

 Donald Trump's recent Tweet discusses how Russia has gotten stronger at the behest of President Obama.   For eight years Russia "ran over" President Obama, got stronger and stronger, picked-off Crimea and...

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SNAP's Greed Derived Self-Inflicted Woun…

08-03-2017 Hits:4063 BoomBustBlog Reggie Middleton

SNAP's Greed Derived Self-Inflicted Wounds Continue to Manifest

The day before the SNAP IPO, I penned "Goldman Sachs & Morgan Stanley Pull Off the Heist of the Decade, Bends Over Those Who Don't Read BoomBustBlog". Despite being rather...

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Bitcoin Is Reaching the Point of No Retu…

08-03-2017 Hits:3793 BoomBustBlog Reggie Middleton

Bitcoin Is Reaching the Point of No Return - Buy Side Should Take Note

Many bitcoin aficionados are waiting with baited breath as the SEC is to announce by this Friday whether they will approve the first registered bitcoin ETF. This is not the...

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I'll make this one quick and clean. From the blog post dated Thursday, 29 November 2007 - Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion in Equity!:

"The calculations in this analysis are only estimated losses in 4 insured categories (of many, they are enough to generate significant losses). I am expecting higher losses in Public Finance as well due to the loss of property tax revenues (lower tax base) and income tax revenues led by housing value declines and loss of corporate revenue and jobs, respectively. Many municipalities created huge budgets during bubble times (like everyone else) and failed to prepare for the bubble to burst. Now unfunded services run rampant. The shortfall will have to be covered somewhere, and default on debt service is not out of the question.

In the base case scenario created, we expect the company to report losses to the tune of $8 billion+ in its Structured Finance, Subprime RMBS and the Consumer Finance portfolio. This loss will wipe out the company's remaining equity and it will need to raise an additional $2 billion in order to function as an ongoing concern. Moreover, we think the company will need to reinsure a higher percentage of its portfolio in order to transfer risk and free up capital."

The ironic thing is that this particular post encompassed an awful lot of research and calculation, but was derided by many as being too tabloidal and not credible - despite the fact that this post and the three that followed it on Ambac contained more data and analysis (over 80 pages worth) than any Ambac commentary I have seen freely offered on the web to date, save Ackman's Pershing presentation. Two things of note here: 1) the majority are usually overly optimistic at the onset of a bursting bubble, and 2) nothing takes the place of good 'ole fashion, thorough fundamental analysis. As of Jan. 8th 2008, Ambac has previously undisclosed muni problems and has had to go for additional reinsurance. It appears the post is rather prescient in light of the following...

From Bloomberg.com, January 8, 2008:

Wells Fargo & Co. put out a little notice dated Jan. 2 in its role as trustee on a bond issue sold in 2000 by the director of the state of Nevada, Department of Business and Industry.

``The Bonds are scheduled to pay principal and interest in the aggregate amount of $19,013,846.88 on January 1, 2008,'' says the Notice, which continues: ``However, amounts available in the 1st Tier Debt Service Fund and the 2nd Tier Debt Service Fund are insufficient to pay all amounts of principal and interest coming due on that day.''

The trustee goes on to report that, in order to make the Jan. 1 debt service payment, it dipped into the debt service reserve funds, taking $1,620,907.02 from the First Tier fund and $762,896.30 from the Second Tier fund.

Withdrawing money from the reserve funds is never a good sign; depending upon how the issuer defines ``default'' in its documents, it may even signify a so-called event of default. Not to worry, bondholders -- even if the trustee draws down all of the reserve funds -- the First Tier bonds are insured!

By Ambac Financial Group Inc.

"Will there be an Ambac if or when this particular municipal bond issue taps out? Investors have to hope so...

Perhaps I should mention that the issuer of those bonds guaranteed by Ambac back in 2000 was the ``Director of the State of Nevada, Department of Business and Industry,'' but the state has no obligation to repay them. No, the $451 million in First Tier bonds helped build and are secured by the Las Vegas Monorail...

And, hey, let's face it, Las Vegas! Who ever lost money in Las Vegas, right?..

The high-yield muni market came crashing down just a couple of weeks after the monorail bonds were sold, when Heartland Advisors of Milwaukee told investors that it had decided to cut the value of its High-Yield Municipal Bond Fund by 70 percent, and its High Yield Short Duration Muni Fund by 55 percent...

An internal pricing committee had found that it was almost impossible to determine what a lot of the bonds in the funds were worth. Sound familiar? I'm not sure the high-yield muni market has ever come back.

And when will that be? The First Tier fund began life with almost $21 million, the Second Tier with a little more than $14 million. In lowering the credit rating on the bonds last July 10, to CC from CCC, Fitch Ratings said it expected ``internal liquidity'' to last ``for, at best, three years.''

I suspect a taxpayer bailout long before that occurs, but you never know. Ambac, if there is one, may yet be called upon to make those debt service payments."

Of course, after the November blog post, Ambac had to go for additional reinsurance, and of course I didn't like how it went down. See Moody's Affirms Ratings of Ambac and MBIA & Loses any Credibilty They May Have Had Left :

"Ambac buys reinsurance from Assured Guarantee, a company in the same business as Ambac taking very similar losses, and it gets to retain its AAA rating??? Doesn't anyone see concentration risk and an uncomfortable amount of correlation here, or is it just me?

Assured Guaranty reported a net loss of $115.0 million, or $1.70 per diluted share, for the quarter ended September 30, 2007 compared to net income of $37.9 million, or $0.51 per diluted share, for the third quarter of 2006. The decline in net income was primarily due to an after-tax unrealized mark-to-market loss on derivatives (hey, isn't that what Ambac and MBIA said as well?) that was announced by the Company on October 22, 2007 of $162.9 million, or $2.40 per diluted share, on financial guaranties written in credit default swap ("CDS") contract form. As of November 30th (38 days later), it reported that it has after tax mark to market losses of $220 million. They are averaging one and a half million dollars per day in value loss, with this rate bound to accelerate in the very near future (they only had $1.6 million in 9/06 - that's a 200x increase). The macro conditions that brought upon the CDS (paper) loss are getting much worse, not better as the trend clearly indicates. About 70% of the unrealized CDS loss stems from RMBS and CMBS swaps. Well, you know how I feel about the residential market. Here is how I feel about the commercial market. Things are about to get much worse. Despite all of this, AGO now accepts $29 billion of additional ceded risk from one of the most dangerous monoline portfolios in the business. I am appalled!

I hear a lot of people crooning about this being only paper losses, and not actual claims until payment is defaulted or missed or principal is actually and materially impaired before maturity. Well, it is happening now, and in droves. AGO's management laments on how they have minimal exposure and losses to direct subprime liabilities, which appears to be true with a casual glance at their reporting, but the devil is again, in the details. Aside from 75% of AGO's mortgage portfolio being in the most toxic vintages of 2006 and 2007 (which most likely will lead to problems down the line), they have a strong correlation in product mix with Ambac, the company they just reinsured $29 billion of exposure. Ambac's loss exposure is stemming primarily from their structure product and consumer finance guarantees, not their residential mortgages, per se. Structured finance in particular is what got them in trouble. There is no real loss history on this stuff, because it is brand new and the losses that are being witnessed now are tremendous. Well, hazard a guess as to where the majority of Assured's earned premium comes from? That's right, structured finance. As of 9/30/07, it was 58%. Now, with the acquisition of Ambac's risk, and of course depending on exactly what it was that was actually reinsured (we don't really know yet, do we?) it will/can definitely shoot upwards, significantly upwards. No matter which way you look at it, there is a VERY high concentration of risk, especially in an area with no real discernible loss history and the only real discernible losses being significant. Compare and contrast to the actuarial loss histories used in life, vanilla P&C, and health lines - we're talking multiples of decades (like 50 - 60 years+), not just a few years as in CDOs. That is REAL insurance. This new fangled, financially (not so)engineered, structured product guarantee business is gambling with shareholders capital, pure and simple - slot machines - Vegas style! "

Speaking of "Vegas style", isn't that where the allegedely low risk/no loss muni bond insurance book is at risk of taking a haircut. The prophetic pun intended, of course

See more on  Insurers and Insurance from Reggie Middleton.