As competition that is as inevitable as gravity itself both validates our contrarian thesis and causes Research in Motion's stock to imitate amateur base jumpers, sans parachute...

From CNBC: RIM Shares Plunge After Firm Lowers Guidance

Research In Motion shares were hammered in after-hours trading Thursday after the BlackBerry maker lowered its earnings and revenue guidance for the first quarter. Shares resumed trading at 4:30 pm ET after being halted for more than 20 minutes. Get after-hour quotes for Research in Motion here.

The company said it expects first-quarter earnings of between $1.30 to $1.37 a share short of analyst expectations of $1.48 a share.

Also, RIM said it sees first quarter revenue slightly below its previous guidance of between $5.2 and $5.6 billion.

RIM blamed the move to weak shipments of its BlackBerry phones and a shift toward handsets with lower price points. The firm has been struggling to compete against Apple's popular iPhone and other rivals of the smartphone market.

From Bloomberg: RIM Plunges as Analysts See Lost Credibility With Forecast Cut

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Bloomberg has on their front page: Bernanke Briefings May Offset Fed Hawks With Words as New Tool

When Federal Reserve Chairman Ben S. Bernanke convenes his first press conference next week, he may emphasize a point the markets seem to have forgotten: He’s serious about keeping interest rates low for an "extended period."

Shortly thereafter, CNBC runs at the top of their page: S&P Affirms US AAA Ratings While Revising Outlook to Negative (story developing), Futures Sink; S&P: U.S. Outlook to Negative

Broad market futures are currently down 15 points or so. You have heard me warn about the upcoming interest rate storm, potentially ad nauseum. Well, the chickens are coming home to roost.

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The Coming Interest Rate Volatility, Sovereign Contagion, Geo-political Unrest & Double-Dip Recessions: Here’s The Answer To Valuing Global Real Estate Through This Mess

The Inevitable Has Finally Been Admitted In Europe: The Macro Experiment Has Ignited Inflation Without Commensurate Growth & Rates Will Spike

It Should Be Obvious To Many That The Risk Of Defaulting Sovereign Bonds Can Spark A European Banking Crisis April 14th, 2011

Do Black Swans Really Matter? Not As Much as the Circle of Life, The Circle Purposely Disrupted By Multiple Central Banks Worldwide!!! March 24th, 2011

Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate Friday, February 25th, 2011


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A few readers have asked me to address Roger McNamara's comments on CNBC, not to mention the drop in Google's share price after earnings. I will split the response into several posts since it is the weekend.

Well, to begin with, I agree with his bullishness on tech and his premise that although it may not increase as a % of GDP in the near term, mobile computing has a lot of growth to run with. As for Google, it has expanded far beyond search and owns the most prominent and fastest growing mobile OS in the world, as well as controlling advertising on said platforms as well as the main video site. It is well positioned. As for the comment about nobody makes money from Android, well those entities that make money from Android disagree. I have outlined this in the first quarter, reference Apple Gears Up To Combat The Margin Compression That Apparently Only It, Google & Reggie Middleton Sees Coming Monday, February 14th, 2011

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I’m fresh back from my trip to Amsterdam where I lectured ING institutional clients and staff on the potential of a European banking collapse. Below are a few clips from the first of two lectures.

Now that the mainstream media has been reporting what BoomBustBloggers knew as fact as far back as two years ago. Today, the FT printed an article titled “Greek debt hit by restructuring fears“, whose pertinent points are as follows:

The euro tumbled on Thursday and premiums charged on Greek debt over Germany’s hit euro-era highs after the countries’ respective finance ministers talked of Greece needing more time and raised the prospect of debt restructuring.

In an interview with the Financial Times, George Papaconstantinou said Greece needed more time to convince international investors of its commitment to reform its finances.

Separately, Wolfgang Schauble, Germany’s finance minister, told Die Welt newspaper that, if a study already under way showed Greece’s debt levels were unsustainable, “further measures” would have to be taken.

When asked what those could be, he ruled out any involuntary restructuring before 2013, but warned investors could face losses after that point…  Yields on Greek two-year bonds jumped nearly a full percentage point to 17.884 per cent.

… “Greek bonds are getting crushed today due to the comments from the German finance minister and the Greek equivalent,” said Gary Jenkins, head of fixed income at Evolution Securities. “The European Stability Mechanism allows a roadmap towards restructuring, indeed it insists upon it if debt cannot be restored to a sustainable path.”

Investors… flight left yields on equivalent Greek debt 24bp higher at 13.162 per cent while Portuguese 10-year notes yielded 8.88 per cent, up 14bp. Mr Jenkins said investors expected that any restructuring would start with Greece trying to extend repayment deadlines on existing debt, or asking investors to “forgive” interest on the loans. But he warned it could take more than that. “Ultimately we believe that if the idea is to get the debt back to a sustainable level then the target will be the Maastricht treaty limit of debt-to-GDP of 60 per cent. In order to reach that level bonds will have to take a haircut of some 62 per cent,” he said.

Online Spreadsheets (professional and institutional subscribers only)

Professional and institutional subscribers should feel free to look at a variety of haircut scenarios via out proprietary sensitivity analysis for the Greek head grooming. If you remember last year when  illustrated How Greece Killed Its Own Banks!, you realize the main reason why the EU has been using the kids gloves with the Greeks. To make a long story short, let’s employ the old adage “A picture is worth a 1,000 words”…

Insolvency! The gorging on quickly to be devalued debt was the absolutely last thing the Greek banks needed as they were suffering from a classic run on the bank due to deposits being pulled out at a record pace. So assuming the aforementioned drain on liquidity from a bank run (mitigated in part or in full by support from the ECB), imagine what happens when a very significant portion of your bond portfolio performs as follows (please note that these numbers were drawn before the bond market route of the 27th)…

The same hypothetical leveraged positions expressed as a percentage gain or loss…

When I first started writing this post this morning, the only other bond markets getting hit were Portugal’s. After the aforementioned downgraded, I would assume we can expect significantly more activity. As you can, those holding these bonds on a leveraged basis (basically any bank that holds the bonds) has gotten literally toasted. We have discovered several entities that are flushed with sovereign debt and I am turning significantly more bearish against them. Subscribers, please reference the following:

If you think those charts look painful, imagine if the Maastricht treaty was actually respected. Our models haven’t pushed passed 80% debt to GDP, but if you were to put the treaty’s debt ceiling in you would see the very definition of contagion. The following chart represents the first order consequences of a 62% haircut on Greek debt…

From ZeroHedge: Greek 10 Year-Bund spreads just passed 1,000 for the first time ever and were last trading north. Following this statement from Germany's Hoyer, it seems all hell is about to break loose for peripheral spreads.

  • *GERMANY WOULD BACK VOLUNTARY GREEK RESTRUCTURING, HOYER SAYS
  • *GREEK DEFICIT CUTTING MAY NOT BE ENOUGH, HOYER SAYS
  • *GERMANY ‘WORRIED’ ABOUT GREEK FISCAL DEVELOPMENTS, HOYER SAYS
  • *GREEK DEBT RESTRUCTURING `WOULD NOT BE A DISASTER,' HOYER SAYS
  • *GERMAN EUROPE MINISTER HOYER SPEAKS IN INTERVIEW IN BERLIN
Published in BoomBustBlog

As anticipated last October, reality is catching p with the banking industry and JP Morgan in particular. From CNBC:

JPMorgan, BofA Earnings May Show Weaker Revenue

U.S. banks such as JP Morgan Chase & Co. and Bank of America Corp. may report weak revenue for the first quarter after lending by the industry dropped in almost every category.

I discussed the inevitability of this occurrence on CNBC's Squawk on the Street - 10/19/2010

[iframe http://media.cnbc.com/i/CNBC/components/Syndicated%20Video%20Player/videomodule.swf?id=1618325359&pcode=cnbcplayershare&play=&base=http://plus.cnbc.com/stickers/partners/cnbcplayershare/ 500 480]

JP Morgan's share price has increased, and they have been authorized to reinstitute their dividends, despite the following minor issues:

  1. Residential housing, where the vast majority of JPM's loans reside, has not only resumed its downward slide in terms of price but has also exacerbated it - In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse and The Latest Case Shiller Index – Housing Continues Freefall In Aggressive Search For Equilibrium
  2. JPM's lawsuits and aggregate legal exposure has literally ballooned - see JP Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last Year & Is Still Severely Under Reserved By Over $4 Billion!!! Shareholder Lawyers Should Be Scrambling Now and Less Than 24 Hours After My Warning Of Extensive Legal Risk In The Banking Industry, The Massachusetts Supreme Court Drops THE BOMB!
  3. Shadow inventory in the states is being compounded by the foreclosure issues, of which JPM is at the forefront - The 3rd Quarter in Review, and More Importantly How the Shadow Inventory System in the US is Disguising the Equivalent of a Dozen Ambac Bankruptcies!
  4. Despite a materially worsening housing market wherein JPM is a major lender, legal issues up the whazoo, and a spike in prospective shadow inventory, JP Morgan as reduced its risk reserves - An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less Roses Than the Maintream Media Presents“…

More on the topic:

JP Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last Year & Is Still Severely Under Reserved By Over $4 Billion!!! Shareholder Lawyers Should Be Scrambling Now Wednesday, March 2nd, 2011

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Yesterday, I made it clear that "It Looks Like Ireland Is About To Get Those Leprechaun Clippers Ready – Haircuts, Here We Come!" Today, in the news we see that...

Anglo Irish Bank Posts Record Loss

Anglo Irish Bank said its net loss widened to a record €17.65 billion last year, reflecting the heavy discounts on the transfer of its bad property loans to the government's asset-management agency.

Ireland May Merge Two Banks as Stress Tests to Trigger More Aid

The government is considering folding EBS Building Society, the fifth-largest, into Allied Irish Banks Plc (ALBK), the second- largest, according to two people with knowledge of the situation. An announcement may come today after the central bank publishes the results of bank stress tests at 4:30 p.m. in Dublin, said the people, who declined to be identified because the matter isn’t yet public....

Ireland’s banks were reliant on the European Central Bank for 88.7 billion euros of funding at the end of last month, the Irish central bank said today. They may have borrowed as much as an additional 70.1 billion euros in exceptional liquidity from the Irish central bank, according to figures on March 11.

The government may have to inject 27.5 billion euros extra into the banks in total, according to a survey of 10 analysts and economists by Bloomberg News.

This would exhaust about 80 percent of the bank fund set up last year as part of Ireland’s bailout by the European Union and International Monetary Fund. The fund includes 17.5 billion euros from Ireland’s own resources....

Published in BoomBustBlog

Ireland has been one of  the weakest points in the EU from a financial standpoint, and is well positioned to quickly and efficiently transmit contagion to its economic and geographic neighbors. I have been warning about Ireland for well over a year now and things are unraveling pretty much as I anticipated. Our modeling and research should have left all interested parties quite prepared. Going through the BoomBustBlog warnings in chronological order as excerpted from the Pan-European Sovereign Debt Crisis series...

  1. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
  2. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
  3. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
  4. Beware of the Potential Irish Ponzi Scheme!
  5. Ireland’s Bailout Is Finalized, The Indebted Gets More Debt As A Solution But The Fine Print Is Glossed Over – Caveat Emptor!

Amsterdam's VPRO Backlight and Reggie Middleton on brutal honesty, destructive derivatives and the "overbanked" status of many European sovereign nations

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As excerpted from Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe:

Published in BoomBustBlog
Monday, 21 March 2011 09:11

Buffet on Apple - Common Sense!

Bloomberg has Warren Buffet saying:

"Warren Buffett said he’ll probably prolong his aversion to electronics makers such as Apple Inc. (AAPL) because their business prospects are harder to predict than companies such as Coca-Cola Co. (KO)

“We held very few in the past and we’re likely to hold very few in the future,” the billionaire chairman of Berkshire Hathaway Inc. (BRK/A) said in Daegu, South Korea, today, referring to electronics makers. Coca-Cola, based in Atlanta, is “very easy for me to come to a conclusion as to what it will look like economically in five or 10 years, and it’s not easy for me to come to a conclusion about Apple,” he said".

He's absolutely right. Not only does Warren not know what lies in store for Apple's future, nobody else does either. Combine that with the fact that everyone is acting like they do know what lies in store for Apple's future - with the majority preaching abject and unfettered success if not domination, spells opportunity.

See my post from earlier this morning - and .

Published in BoomBustBlog

My condolences truly go out to the people of Japan. A massive earthquake, a horrifyingly destructive tsunami, and then multiple nuclear emergencies and radiation poisoning is more distress than any nation had had to endure in such a short period of time in recent history. I am reticent to discuss the ramifications of such, alas that is the crux of the analysis of BoomBustBlog. I have noticed that many professional investors are detached from the real world causes and consequences of volatility and large swings in the markets. In a way, I can sort of understand. It's like playing a video game. All you are doing is pushing buttons in reactions to changing pixels on a glowing screen. Unfortunately, the reality of the matter is sometimes much more than that. Thus, as we go on to illustrate what I see will probably come out of this situation, let’s keep in mind that real people are getting hurt to very significant extent. Real children, real families, real grandparents...

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The following is an excerpt of emails allegedly showing Bank of America employees purposely removing, falsifying and electronically altering loan documents. It was taken from Bank of America Sucks site, which is affiliated with Anonymous, a hacker group sympathetic with Wikileaks. This is apparently part on in a multi-part installment. I will leave it up to the readers to judge the veracity and weight of what is presented. Be aware that these emails were dated just four months ago. That means that these shenanigans are being performed very, very recently and under the watch of the new CEO. Ken Lewis was canned for allegedly not running a tight ship, but this is the bank that bought Countrywide, and Countrywide is literally a litigation sinkhole. As you can see, there are probably several follow-up email sessions to come.

My name is (Anonymous). For the last 7 years, I worked in the Insurance/Mortgage industry for a company called Balboa Insurance. Many of you do not know who Balboa Insurance Group (soon to be rebranded as QBE First by Australian Reinsurance Company QBE according to internal communication sent to all Balboa associates) is, but if you’ve ever had a loan for an automobile, farm equipment, mobile home, or residential or commercial property, we knew you. In fact, we probably charged you money…a lot of money…for insurance you didn’t even need.

Balboa Insurance Group, and it’s largest competitor, the market leader Assurant, is in the business of insurance tracking and Force Placed Insurance (aka Lender Placed Insurance, FOH, LPI, etc). What this means is that when you sign your name on the dotted line for your loan, the lienholder has certain insurance requirements that must be met for the life of the lien. Your lender (including, amongst others, GMAC, Aurora Loan Services [a subsidiary of Lehman Bros Holdings], IndyMac Federal Bank [a subsidiary of OneWest Bank], Saxon, HSBC, PennyMac [a collection agency started by former Countrywide Home Loans executive Stan Kurland after CHL and Balboa were sold to BAC], Downey Savings and Loans, Financial Freedom, Select Portfolio Services, Wells Fargo/Wachovia, and the now former owners of Balboa Insurance themselves…Bank of America) then outsources the tracking of your loan with them to a company like Balboa Insurance.

Balboa makes some money by charging these companies to track your insurance (the payment of which is factored into your loan). If you do not meet the minimum insurance requirements set by your lienholder, Balboa Insurance places a force placed insurance policy on your loan. You are sent a letter telling you that you do not have insurance, and your escrow account is then adjusted for the inflated premium of a full coverage policy placed by Balboa’s insurance tracking group, run by Steven Ramsthel, Sr Vice President of Loan Tracking Operations & Customer Care at Balboa Insurance Group, as seen on his LinkedIn profile below:

Published in BoomBustBlog