Free advice is sometimes worth a little more than you paid for it. On that note, Irishmen should take note of how much you paid for this research and then... Take your money and run!

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Earlier this week, I warned the Germans - Angela Merkel Should Talk To Me If She's Truly Enraged By The Anglo Irish Revelation, For That's Just The Beginning! This warning was based on multiple earlier warnings to the Irish, summarized (more or less) in the posts - Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You and The Beginning Of The Great Irish Unwind and  If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It.... Today is the day to focus on two of those warnings in particular, .one of which I will focus on specifically:

These posts focus on an explicit and stern warning that AIB is drastically undercapitalized and quite possibly the purveyor of a massive fraud on the Irish people, US investors and regulators and German taxpayers.

First, let's review what the Phoenix had to say. In reading this piece from the Phoenix, please keep in mind that if the Bank of Ireland is the best that Ireland has to offer, than I believe that Ireland is fraudulently fuc2#ed. I clearly warned on the Bank of Ireland, one of the most egregious offenders - 17 April 2013 I queried "What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors?"

Second, we anticipated fiscal problems in the Irish state as far back as 2010 when everyone swore that they were the poster child of austerity. Subscribers, see File Icon Ireland public finances projections. Professional and institutional subscribers should email me for a link to a live spreadsheet that can allow you to run your own calculations on toasted Ireland's finances really are. 

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Now, let's delve in once again, shall we? From Are You About To Get Cyprus'd in Ireland? When A Single Word's Worth Billions Of Euros...

AIB has inccurred significant debt from which the underlying collateral has significantly diminished. This caused the need for even more capital and more borrowing. It also apparently caused it to change the wording in its annual statements regarding repos, potentially allowing it to conceal financial aid in the form of even more debt .from another party. After all, when you borrow something it's a loan right, as in additional debt??? Below, you see a loophole for near unlimited borrowing, and not a peep will show up in the financial reporting!

Of course, theres more...AIB Charge DiscrepencyAIB Charge Discrepency

Definitions: Charge - The document evidencing mortgage security required by Crown Law (law derived from English law). A Frixed Charge refers to a defined set of assets and is usually registered. A Floating Charge refers to other assets which change from time to time (ie. cashinventory, etc.), which become a Fixed Charge after a default.

The charge document below, which was registered with Ireland’s Company Registration Office (CRO), states that the charge is in respect of the Company’s participation in Target 2-Ireland. It is also in respect of ‘all present and future liabilities whatsoever’ of Allied Irish Bank Plc. (to the Central Bank and Financial Services Authority of Ireland or to the European Central Bank). The charge is over ‘Eligible Securities’.

Target2 is a European Union payment system. I believe it is misleading to indicate in the annual accounts that Target 2 has a bearing on the security that has been given.

In the short particulars section of the charge; the property charged to the Central Bank and Financial Services Authority is over ‘all rights, title, interest and benefit, present and future, of AIB Plc. in and to each of the Eligible Securities from time to time, where ‘ Eligible Securities’ means, at any time securities of such a class or description as may from time to time  be designated  by the ECB as ‘Eligible for  Sale and /or Purchase, as the case may be.’ (Refer to actual CRO charge document below)

 

AIB Charge Discrepency1 copyAIB Charge Discrepency1 copy

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In the Irish version of the Bank’s annual Accounts (2008) and the SEC 20F (page 223 - 2) it states that the charge was placed in favour of the Central Bank and Financial Services Authority of Ireland over all of AIB’S ‘right, title, interest and benefit present and future in and to certain segregated securities.’
Using the description ‘certain segregated securities’ is completely different to the description all ‘eligible securities.
 
It appears that AIB is stating that they have given ‘certain segregated securities’ as security to the ECB whereas the ECB actually decides which securities will be designated as ‘eligible’. The charge is in favor of the Central Bank and is over ‘all present and future liabilities whatsoever’ of AIB. This charge is a floating charge over repo agreements, aka Eligible Securities - securities that the graphic above demonstrates can go on ad nauseum and way beyond the entities prudent ability to repay, yet not appear on the balance sheet or in its regulatory reporting!!!. These securities have been purchased by the ECB through the repo agreements.
 
Thus, it appears as if this floating charge granted to the ECB is over assets that the ECB already owned. The floating charge was given to the ECB by AIB for emergency funding (emergency liquidity). Do you see a circular argument here? A potential Ponzi even???!!!! I warned my paying subscribers three years ago, Beware of the Potential Irish Ponzi Scheme!

For those who don't get it, AIB is essentially asset/equity broke. All properties considered as marketable/acceptable collateral (in other words anything of real, tangible value) jas already been pledged to the ECB. EVERYTHING!!! To the prudent depositor, this is all that needs to be said, but there's more, much more, Irish men and women, prepare to be CYPRUS'D!!!

Now, hopefully I've answered the question "Are you about to get Cyrpus'd in Ireland?" Many Irish pensioners have been "Cyprus'd" already, but fear not if you missed the opportunity to lose your capital for the sake of your banker's bonuses, there's a lot more to come.

If you believe that the information above actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convey my message

Remember, extreme wealth concentrates, so you don't have to... Coming from a "Cyprus'd" bank near you!

Subscribers, can download ALL documents supporting shenanigans by these banks (click here to subscribe):

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Who Do Your Believe Reggie Middleton or Central Bank of Ireland

Three months ago I posted Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" As This Bank Scrambled For Capital!!! wherein I introduced to the public the extent of the shenanigans at Anglo Irish bank. I subsequently broke it down even more granularly in As Forewarned, The Irish Savers Have Just Been "Cyprus'd", And There's MUCH MORE "Cyprusing" To Come. I even went so far as to assert... If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It...

Well, for those who didn't believe me...

As excerpted from The Irish Independent,

Taped telephone recordings (from the bank's own systems) from inside doomed Anglo Irish Bank reveal for the first time how the bank's top executives lied to the Government about the true extent of losses at the institution.

... Anglo itself was within days of complete meltdown – and in the years ahead would eat up €30bn of taxpayer money. Mr Bowe speaks about how the State had been asked for €7bn to bail out Anglo – but Anglo's negotiators knew all along this was not enough to save the bank.

... The plan was that once the State began the flow of money, it would be unable to stop. Mr Bowe is asked by Mr Fitzgerald how they had come up with the figure of €7bn. He laughs as he is taped saying: "Just, as Drummer (then-CEO David Drumm) would say, 'picked it out of my arse'."

... Mr Bowe's comments in the audio recording reveal that Anglo's strategy was to lure the State in, leaving taxpayers with no choice but to continue to provide loans to "support their money".

... "If they (Central Bank) saw the enormity of it up front, they might decide they have a choice. You know what I mean?

"They might say the cost to the taxpayer is too high . . . if it doesn't look too big at the outset . . . if it looks big, big enough to be important, but not too big that it kind of spoils everything, then, then I think you have a chance. So I think it can creep up."

Mr Fitzgerald, the Director of Retail Banking, is heard saying: "Yeah. They've got skin in the game and that is the key."

... The recording also shows Mr Bowe and Mr Fitzgerald laughing as they say how there is no realistic chance of ever repaying the loans.

For the first time, taxpayers get an exclusive insight into the banking shenanigans that cost Ireland our sovereignty.

It doesn't end there...

The Beginning Of The Great Irish Unwind?!?!?!

Allegations of Fraud, 20% Drop In Stock Price, Market Manipulations, Internal Investigations: Nothing To See Here, Move On...

BoomBustBlog Hard Hitting, Bleeding Edge Research Results In 2nd High Level Ouster/Resignation In The UK & Euroland

Taxation Without Representation: UK Taxpayers Learn From The Irish What US School Kids Get Taught In 3rd Grade

Who is RBS? Royal BS... or the Royal Bank of Scotland

 

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Sporting Google Glass in the NYC flagship Apple store - #BLASPHEMY!

The video below is my introduction to Google Glass. As I wear it around NYC getting used to it, I offer feedback from the everyday consumer on the street as well as the investment perspective behind it.

Google has almost consistently outgrown the adoption rate of web advertising. What does this mean? Well, it means that although Web advertising is getting bigger and more popular as a slice of the total advertising pie, Google is getting even bigger and more dominant in the space – not less. Google is beating competition back even as the market grows! 

Google ad growth

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

The biggest risks to these price points are:

  1. A market that's being levitated by central bank magicians running short on magic spells...
  2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term. 
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On Wednesday, 17 April 2013 I queried "What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors?" In such query, I levied some heavy accusations at the Bank of Ireland. Its worth a read if you haven't done so already. Well, two months later, I read in the Irish Independent the following: Internal probe at Bank of Ireland

AN inquiry is under way within Bank of Ireland's private banking division, as the bank's internal auditors investigate what have been described as "possible irregularities".

The Sunday Independent has learned that Bank of Ireland's auditors have been inside the division, which counts many of Ireland's most wealthy and powerful individuals among its clients, at various stages over the past six weeks, conducting what one source described as a "thorough examination" of its activities.

Hmmmm. Now, that's interesting. Six weeks ago would have been about two weeks after I dropped my bomb of a scorching missive on sheeple who are to this day, much too trusting of the banking system. That two weeks is just about the amount of time it would have taken a big corporation to act on the information that I levied (if it was in a rush). Wholly a coincidence, I'm sure!

The bank's audit team is seeking to establish if any of its private banking clients' affairs have been handled in any way improperly.

The bank's management is understood to be treating the matter "very seriously". Commenting on this, one well-placed source said: "The investigation isn't complete yet. It's difficult to say when it will be complete. We are obliged to follow due process before we come to any conclusions."

Asked if Bank of Ireland had brought in any third parties to assist with the investigation or if it had made contact with gardai even on a preliminary basis, the source said: "No, the matter is being dealt with internally and all appropriate procedures are being followed.

... The source stressed that clients of the division that is under investigation would be notified immediately in the event that the bank uncovered any evidence to show that their affairs had been inappropriately managed.

I have to be honest, I hate it when people ask me for free advice. After all, if my advice/opinion/knowledge was thought to be worth something, then people ought to act like it, no? Well, methinks one should make an exception to the rule this one time and offer some free advice to the "internal audit team" at the Bank of Ireland. I know, I know... Nobody asked me, but since they haven't bothered to bring in any third parties yet, why not invite myself and crash the party?

Let's, once again, reference my post from two months ago - What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors? wherein I will update the ADR performance chart for the bank if Ireland.

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As you can see, there was a significant and material loss taken by ADR holders during the time in question at BoI. But, following the auspices of this story in the Independent, yet using our BoomBustBlog investigative resources, there's much more here than meets the eye. A document that I made available to professional/institutional subscribers details how the Bank of Ireland sought and received an exemption from SEC rule 102 of Regulation M (click here to brush up on your US securities law). In short, this exemption allowed the bank to literally trade in its own securities, provided it wouldn't abuse the privilege. See an excerpt below...

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This letter worked literal wonders for the Bank of Ireland stock within days of being issued. Even more miraculous is the fact that it wasn't public information at the time yet the public somehow knew to bid the shares up by nearly 100%. Hmmmm! Coincidence, eh?

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Even more damning is the fact that the alleged historical trading volume in the shares in question (a pertinent fact used as an argument to get the Reg M exemption in the first place) spiked by nearly 5X!!!

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...Bank of Ireland Private Banking is, according to its website, "Ireland's largest and oldest private bank. The country's leading entrepreneurs, business leaders, professionals and families trust us to manage their wealth with discretion and integrity."

 If the private banking client's capital was used to churn these shares, then.... Oh Boy~~~

Per WikipediaMarket manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for a securitycommodity or currency. Market manipulation is prohibited in the United States under Section 9(a)(2)[1] of the Securities Exchange Act of 1934, and in Australia under Section s 1041A of the Corporations Act 2001. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradable security.

Examples

  • Churning: "When a trader places both buy and sell orders at about the same price. The increase in activity is intended to attract additional investors, and increase the price."

If the stock was churned, the price would have increased temporarily until the performance numbers of the loss making bank would have came to fore. But then again, what would management have to gain by manipulating the stock in such fashion. After all, bankers aren't incentivized or measured by share prices, bonuses, year and reviews, etc., right???

I have released information that has apparently caused quite a bit of high level C-suite types to head for the hills, reference BoomBustBlog Hard Hitting, Bleeding Edge Research Results In 2nd High Level Ouster/Resignation In The UK & Euroland

If you believe that the information above actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convey my message


fraud

Those of you in Ireland who may not want to get "Cyprus'd", ie. have your bank accounts fund another bailout, should contact the Office of the Director of Corporate Enforcement. Click this link, and tell them Reggie from NYC sent 'ya. Seriously! The reason why Irish banks haven't been reformed was because not enough light has been shown on the activities. See a valid attempt at such here. This is the time, for the tea leaves foretell the next bank collapse & bailout will be funded directly out of your bank accounts, reference Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You for those who don't believe me. See Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" for an example of a bank statement of a Cypriot who didn't take the regulation of his bank seriously!!!

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For the past two months I have been releasing heretofore unseen documentation, proof-backed allegations and logical assertions throwing light on what I view to be gross misrepresentations, attempts at financial reporting prestidigitation and what I consider to be outright fraud in the Irish and UK banking system. BoomBustBlog has been the only source of such information and except for a few outliers, the MSM has literally refused to run stories on this. 

Alas, even though mainstream editors, producers and reporters are trying to ignore what the BoomBust has done, massive shock waves have shaken loose those at the very top of the power structure. Unfortunately, much of what is going down is beyond the ken of the hoi polloi due to the taboo nature of the most important message that I convey. 

Remember what happened when I initially dropped the Irish bomb on the unsuspecting Irish public? The head of the Irish Central Bank Regulatory Authority unexpectantly resigned...

reggie middleton on irish banks

So, what happens when you bring the Fiery Sword of Economic Truth to the UK and Ireland???

Here's the answer to that question in the form of another surprise (not) to all BoomBustBloggers. After my multiple expose's on RBS...

  1. I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!
  2. Who is RBS? Royal BS... or the Royal Bank of Scotland
  3. Taxation Without Representation: UK Taxpayers Schooled on What US Students Are Taught In 3rd Grade

We see Reuters reporting: RBS shares slump after shock ousting of CEO Hester. Surprise! Surprise!

 Royal Bank of Scotland shares fell seven percent on Thursday after the surprise ousting of CEO Stephen Hester left investors questioning who would steer the part-nationalized bank through to an eventual privatization.

Isn't this just one helluva string of coincidences that as I uncover dirt and grime, we get these "unexpected" and "unforeseen" ousters and resignations days and weeks afterward. If I didn't know better, I'd think someone busted these guys doing something naughty... Nahh! Couldn't be!

I know more than a couple of UK taxpayers who'd much not rather pay Irish bad debts. I decided to rub a little salt in the UK wound by throwing some arithmetic illumination on the situation via an embedded Irish bad bank tax calculator...

The app below allows the UK Taxpayer to calculate for themselves exactly what their individual contribution (pro rata) is to the government bailout of RBS.

I've taken the liberty of pre-populating the input fields for you, but if you don't agree with the numbers then by all means insert your own!

Then there's still that Cyprus'd thingy... 

While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.

While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.

The Irish presidency of the European Council is hoping to reach a common position by the end of next month.

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???

Other hard hitting pieces on the resurgent EU banking crisis

 

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Yesterday I opined extensively on transparency (actually, the lack thereof) in the European banking system - Transparency In The European Banking? Madness, I say! Sheet, Utter Madness!!! I tore into the Irish banks as well as reminding all of the 2011 research that found the French banks to be the weakest link in pan-European banking contagion. Of course, you'd never here that from the sell side. Well, as luck would have it, look what I found on Euromoney.com today (Hat tip @StaceyHerbert)...

French banks most systemically risky in Europe – HEC Lausanne study:

According to systemic risk measures for European financial institutions, developed by the Centre for Risk Management at Lausanne (CRML), French regulators would need to provide €300 billion, as of mid-May, to fulfil regulatory requirements in the event of a global financial crisis, defined as a 40% semi-annualized fall in global stock markets.
Using methodology developed in collaboration with the well-known and influential New York University Stern’s Volatility Institute, run by NYU professor Leonard Stern and Nobel laureate Robert Engle, the index gauges large European banks’ systemic risk by measuring size, leverage and exposure to global equity market shocks. The dynamic index, updated on a monthly basis, reveals that, as of mid-May, Crédit Agricole has the greatest risk exposure of any bank in Europe, followed by Deutsche Bank and BNP Paribas.

Hmmm... Now, where have we heard this before? 

French Banks Can Set Off Contagion That Will Make Central Bankers Long For The Good 'Ole Lehman Collapse Days!

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This Is Why BoomBustBlog Is THE Place To Go For Hard Hitting Research: BoomBust BNP Paribas?

The WSJ article excerpted above quotes BNP management as saying: "The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks."

OK, I'll bite. Excactly how did BNP get to this €135 billion figure? Was it by using Lehman math? Methinks so, as clearly delineated in my resarch report on the very first page:

BNP_Paribus_First_Thoughts_4_Page_01BNP_Paribus_First_Thoughts_4_Page_01

 

 The Beginning Of The Great French Unwind?!?!?!...

Another BIG Reason Why BNP Paribas Is Still Ripe For Implosion!

As excerpted from our professional series File Icon Bank Run Liquidity Candidate Forensic Opinion:

... Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above.  Here I demonstrated what more realistic numbers would look like in said model... 

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Wednesday, 12 June 2013 04:35

Apple Bonds Proven To Have A Nasty Taste

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The Financial Times reports Apple bonds lose 9% in six weeks:

Investors are nursing losses of up to 9 per cent on Apple’s record-breaking $17bn bond offering, less than six weeks after the securities landed in their portfolios.

The technology giant tapped the white-hot bond market for the largest debt fundraising to date on April 30, but a sharp turn in interest rates has caused a sell-off in corporate bonds and wiped hundreds of millions of dollars off the value of the offering.

Apple sold $3bn of bonds maturing in 2043, locking in a low interest rate of 3.9 per cent for the next 30 years, but the market price of these bonds had fallen to 90.36 per cent of face value in late trading on Monday, according to Trace data.

Investors in the offering paid 99.418 per cent of face value for the new bonds, but institutional and retail demand was so high that they traded as high as 101.97 in the secondary market.

 

The debt sale was one of the most frenzied on Wall Street for many years and there were three times as many orders as there were bonds available. Issues by companies with high credit ratings have been among the hottest fixed-income investments because the interest they provide outstrips the meagre yield available on government securities.

Hmmm.. So-called "investors" need to look to the future, not the present, when deploying their capital. These so-called "investors" are definitely not subscribers to BoomBustBlogLast month I posed the query, "Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In". After all, it had fallen over 40% from its recent all time high, a fall which I clearly told subscribers would come. This question is quite pertinent, both for Apple's long term viability and its short to medium term investors. Case in point, Apple's (rather astute) management saw it fit to lock in 3.9% 30 year funding rates. Kudos! A very smart move... For them! The buyers of these bonds (an offering that was 3x oversubscribed, may I add) obviously did not subscribe to BoomBustBlog. Let's count the reasons why such an offering was both ill timed, and ill priced.

The Apple Profit Engine Has Stalled & Is Rolling Downhill

Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple's revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

Click the graphic once to view, twice to enlarge to printer quality...

Reggie Middletonss Ultimate Apple Value Infographic

Apple's Competition Is The Greatest It Has EVER Been!

Apple's competition is the greatest it has ever been, and features companies who are literally at the top of their game. We are talking a lot of companies, and at the top of a very difficiult game as well. Reference What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

Apple is Materially & Quickly Losing Global Market Share! Clear Indicators Of Permanent Downward Moves In Its Peer Group

Apple is rapidly losing global market share over and the trend is worsening. This has ALWAYS signaled the beginning of the end for its peers. Reference Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there's no way to go but up. As excerpted from the Market Realist site:

For those who don't subscribe and/or haven't already seen it, here is the video that tells (nearly) all about Apple, from beginning (Q3 2010) to end.

Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescient!

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Last month I posted updates of my search and studies of distressed European assets stemming from the banking crisis to be had at prime risk adjusted returns, see Preparing Resources To Shop For Distressed Assets As Banks Refuse To Come Clean On Near Fraudulent Reporting  and Which Banks Are We Looking At To Shop For Assets?. Well, a month later, the Economist economist jumps into the fray with the article "Till default do us part, A half-hearted banking union raises more risks than it solves". To wit:

Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other. Yet the agreement that seems likely to emerge from a summit later this month will be one that does little to weaken this vicious link. If anything it may increase risks to stability instead of reducing them.

Almost everyone involved agrees that in theory a banking union ought to have three legs. The first is a single supervisor to write common rules and to enforce them uniformly. Next are the powers to “resolve” failed banks, which is a polite term for deciding who takes a hit; these powers also require a pot of money (or at least a promise to pay) to clean up the mess left by bust lenders and to inject capital into those that can get back on their feet. The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank. National insurance schemes offer scant reassurance to savers when sovereigns are wobbly and insured deposits make up a big chunk of annual GDP (see chart).


The logic behind this chart has been the engine behind out contagion model, the core thesis behind the short on continental Europe in general (see Overbanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe) and our hypothesis against the French banks - reference "On Your Mark, Get Set, Bank Run".

There's much more to this bank run, capital flight thingy in Europe. I explained it in detail over two years ago:

First, the European banks are just too big in relation to Europe, herself!

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

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Second, as stated in the Economist, we have a liquidity time bomb! 

As excerpted from our professional series File Icon Bank Run Liquidity Candidate Forensic Opinion:

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This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above.  Here I demonstrated what more realistic numbers would look like in said model... image008image008image008

To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...

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So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipe out, or is it? On to page 10 of said subscription document...

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Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...

Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement

Lastly... When everybody's lying, no one is trusted with telling the truth! There's the sovereigns themselves lying through their collective teeth, reference Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware! There's the so-called "Troika", reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. Then there's these banks and those damn stressless stress tests... Again, as excerpted from French Banks Can Set Off Contagion That Will Make Central Bankers Long For The Good 'Ole Lehman Collapse Days!:

On that note, ZeroHedge has come out with a blockbuster explanatory article: Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, €400 Billion Capital Shortfall

A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related.

I'd like to add that I've ridiculed all of these stress tests, US and European, although the European stress tests were by far the biggest joke. Dexia passed with a grade of A (or so), and will be nationalized momentarily. 'Nuff said!

To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls,SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.

And the scary charts:

1. Capital Shortfalls under Stress Test part Trois (9% min. CET1 ratio)

 

Judged against these three requirements, Europe’s new plan is a miserly one. Its outlines emerged in a joint paper released on May 30th by France and Germany. The minimalism of the paper suggests the summit will offer little more than the establishment of single supervisor and a promise to set up a vaguely defined “resolution mechanism”.


Those who follow me know that I'm medium term bearish on both any sovereign nations and their out-sized, profligate, insolvent banking systems which they support. Ireland makes a good  example - If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It... and The Beginning Of The Great Irish Unwind?!?!?!.

Back to that Economist article:

If a pot of money is pledged it will probably be a small fund raised through a tax on banks and without the backing of governments. If Europe’s bail-out fund, the European Stability Mechanism (ESM), is referred to it is likely to be only as a last resort to recapitalise lenders after ailing countries have already bankrupted themselves standing behind their banks. A euro-wide deposit insurance fund is so controversial it isn’t polite to mention it.

...The legal challenges are also enormous. Each country in the euro has its own bankruptcy code. A change in the treaties governing the European Union would probably be needed to give a new resolution authority the power to seize bank assets and impose losses on creditors.

 Events outside the negotiating room have also reshaped the scope of a banking union. The “bail-in” of Cypriot banks earlier this year dipped into the savings of uninsured depositors in order to recapitalise lenders. Repeating that tactic would risk deposit flight from peripheral banks and a sharp increase in banks’ funding costs. But rather than committing public funds to shore up banks elsewhere, some politicians would doubtless prefer to hit uninsured depositors again.

But,,,, but,,,, without a definitive source of "rescue" capital, a bail-in is all but guaranteed, right Ireland???!!! I hate to pick on them, but the Irish make a good  example - If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It... and The Beginning Of The Great Irish Unwind?!?!?!

A strategy of incrementally moving towards a full banking union might have worked in normal times. Doing so in the middle of a crisis is risky. Over the coming year the ECB will have the unenviable task of assessing the health of the banks it is about to supervise. Its root-and-branch examination may well reveal gaping holes at a number of big banks. Yet without ready access to a pot of money to fill these holes, the ECB could be reluctant to force banks to come clean. “It is madness to expose capital shortfalls if you don’t know where new capital is going to come from,” says one bank supervisor.

Oh, I see. This must explain the blatantly fraudulent-esque goings on I uncovered in the Irish banking system. In case you haven't heard, I issued a Direct Challenge To Federal Reserve & Irish Central Bank Bubble Blowers. When I did Provide Proof That The Entire Irish Banking System Is A Sham, the ECB did absolutely nothing! No phone calls! No meetings! No emails! Makes you wonder why, eh? 

 "Over the coming year the ECB will have the unenviable task of assessing the health of the banks it is about to supervise. Its root-and-branch examination may well reveal gaping holes at a number of big banks. Yet without ready access to a pot of money to fill these holes, the ECB could be reluctant to force banks to come clean."

Madness, I tell you! Madness!!!

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archangel vs demonToday Reuters reports Samsung Electronics loses $12 billion market value on smartphone worries while yesterday Barron's reports Apple, Samsung Sees Weakening Smartphone Sales. You know, reading BoomBustBlog is like reading the pre-eminent news sources of the world, just 3 months into the future. March 7, 2013, BoomBustBlog posts Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!

I'm preparing a brief report for my subscribers to illustrate a potentially highly skewered risk vs reward opportunity for equity investors in the tech space. It's borne from the battle for mobile computing supremacy, opportunity lies with more than just Google! As a recap, now that Google Has Officially Gone On Record To Confirm Reggie Middleton's "Negative Margin Business Model" Tactics used to cut Apple's, et. al. margins down to size, most observers are just getting a taste of what BoomBustBloggers have known for years, ie. Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!! As I have said several times, it's not just he high flying fruit names that will see #MarginCompression in the upcoming years, though. Remember, I proclaim smartphone hardware vendors are dead! Google's recent comments support that assertion, as well as recent market activity. If that's the case, then what happens to Google's hardware and OEM partners for Android? Well, even the most popular one's may succumb... Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!

What's Samsung to do? Well, if you haven't realized it yet, Samsung management is highly astute. They shoved Apple a fat one, and don't think they will take Google's marginaliztion of their core revenue and profit drivers (now, smartphones) lying down. Of course, as I mentioned in the above-linked article, Samsung's margins are already slipping - even as its revenues and profits rise. This is a dangerous sign that Nokia, HTC, Blackberry and Apple ignored  (and I warned years in advanced for the "fruit" companies -  Blackberries, Apples & Fruit Borne Successitis). Apparently, someone at Samsung reads my blog, for they have decided to take the battle to the cloud to compete with Google. 

How would they do such, you ask? Well, in order to compete with Google you'd need data... LOT's of DATA! Where in the world would Samsung get that much data, enough to compete with world's current shepherd of global data? Well, here's the crib notes answer. Samsung has sold over 220 million phones thus far. It has sold over 120 million "S" series smartphones (the higher end smart phones with extended capabilities) and about 20 million of its current high end flagship, the "S4". Each of these phones contain an array of sensors which measure and collect vast amounts of data about you and from around you. The higher end the phone, the more advanced and plentiful the sensors. Here's what last year's Samsung tech look liked...

phone sensors

That's a lot of stuff! Samsung is most assuredly gathering data through all of those little portals. Take a look at how many "what're you doing now, where, and how?" sensors are in its new flagship phone...

gs4hidden

They're probably going to be up to 125 to 150 million of these little privacy pits walking around by this time next year. Imagine the type of data that Samsung can amass in the cloud if it just executed with the slightest modicum of competence!!!

Google, the modern day master of the cloud is releasing a phone with even more sensors and more interactive intelligence. It was previously known as the Motorola X Phone, but is now called the Moto X. Gotta Be Mobile broke it down just as well as I would:

Google executives have been underplaying the potent power of Motorola Mobility’s X Phone, which has was recently referred to as the Moto X, but the device could signify trouble for dominant smartphone-makers Apple and Samsung.

You betcha!

The Price is Right

Google had aggressively priced its Nexus devices in the past to come with competitive specs and a very competitive price. And even with the Nexus devices, the specs may not be bleeding edge compared to rival flagships, but Google offered nice trade-offs with pricing and an unlocked strategy. Likely, the Moto X Phone will be priced aggressively and carrier subsidies will make Motorola a good bet for those looking to upgrade.

Hitting the Competition Where It Hurts

Where the X Phone really is important is its pricing strategy. Google has demonstrated that its Asus-made Nexus 7 tablet with a $200 price point could dominate the smaller form factor tablet market. With the X Phone, Google could deliver a better than decent phone experience and change the market.

Apple and Samsung, which are known to be the biggest winners in the smartphone industry and share the bulk of the market’s profits, will have to price their flagships down to compete against Google. Since the Nexus 7 debuted, Samsung’s Galaxy Tab series have seen prices dropping from when the slates first debuted.

For Samsung and other smartphone hardware companies, selling a product at or near cost may not make sense. For Google, this strategy is effective, as it doesn’t need to profit on hardware–it just wants to sell you another portal so that you’d want to use Google services. It’s like Gillette giving away free razors so you’ll buy the blades later, or HP handing away free printers so you’ll get the ink cartridges when you run out.

So on the surface, the Motorola X Phone may not wow you with its mid-range specs, but it will be an industry game changer where it matters: a good user experience with solid specs, pricing that’s affordable, a mainstream distribution strategy, and forcing industry pricing downward.

And my #MarginCompression thesis marches on into the mainstream!

Appealing to Your “Senses”

One area that Motorola’s new head Dennis Woodside had hinted to was a sensor network for Motorola’s future phone. Woodisde had stated that the company has been applying what it learned about always-on sensors and low power consumption as a result of the Motorola MOTO ACTV sports watch, and those battery-lengthening technologies could allow Motorola to construct a phone with more sensors.

motoactv-press-shotConsumers would benefit from graphs and analysis of the distance they walked or drove in any given day, the changing temperatures, and other information that embedded sensor networks may provide.

Google, on the other hand, could benefit if it could find meaning in the information it collects to improve its anticipatory Google Now search. It’s a win-win on both ends.

And given Google Now, a service, is a big draw to Android right now given how well it works in presenting data it learns about users in a meaningful way, the experience may be best experienced on a Motorola phone given the added sensors and data that Now could collect, process, and learn.

Just Plain Smart

At the end of the day, your smartphone experience isn’t about having the fastest and best specs on the market. It’s about the device being smarter, more agile and nimble to anticipate your needs and deliver you information as you need it.

And today, with cloud services, specs increasingly don’t matter on a phone. You no longer need a powerful phone to edit photos thanks to new Google photo and editing cloud services through Google+. As services move to the cloud, an entry level smartphone could become just as powerful as a high-end model, just with less cost.

Google is in a good position to start the next mobile revolution through its large Internet empire, and given the right pricing, the Motorola X Phone could be an invaluable, affordable gem that has the power to change the industry.

Then there's always Google Glass - the game changerIn closing, let me excerpt from Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!.

So, you ask, "How is it that hardware is dead?" Well....

    1. The open source OS paradigm calls for rapidly improving hardware specs at ever lower prices. I have pointed to evidence of this above, as these Asian OEMs produce ever better product at ever lower prices - just like the old school PC industry. This drives Google's info-centric business model which is why Google pushes free Android.
    2. After years of outsourcing manufacturing tech and IP integration to low cost labor Asian countries, those countries have found a way to produce trinkets of their own. Of limited quality and value so you say? Well, remember the iPhone is a Chinese phone, through and through -at least Chinese built. So now you argue, it's American designed, just Chinese made! Please peruse the Oppo Finder 5, a phone that's drastically superior to the iPhone 5 in practically every single way, retailing for $100 less than the cheapest iPhone 5 made. Low cost, low margin products combined with Google's free OS will drive the price of hardware down to near zero, if not negative. Google even has its own hardware arm now (Motorola) to facilitate this downward march in margins and prices. Suppose Google decides to create best of breed Nexus devices and give them away just below cost? Imagine the best smartphone available in the world, unlocked, without a contract, for the cost of a single monthly wireless phone payment??? Google's Nexus program is acting as a training ground to teach Google's Motorola division to build best of breed! Google's biggest and most successful partner - Samsung, is an Asian company. Samsung Electronics of South Korea reported today that its quarterly profit  jumped 76%, as its Galaxy smartphones beat rival Apple's iPhone in each quarter of 2012. What many seem to have missed is that EBITDA, Operating and Gross margins all slipped QonQ though. A sign of things to come??? Remember, Google benefits most when the barriers to access information are least. Reference "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!" as well as my videos below...

Samsung is also currently Google's biggest threat. This (soon to be combative) symbiotic relationship is akin to the relationship that Samsung had with Apple. Competitors, yet symbiotic partner/clients. Samsung and Google are poised to have a slugfest. Their relationship is similar to that of Samsung and Apple, with Samsung being the Apple in this case. Apple is highly reliant upon Samsung for memory and processor chips, and screens. Although Apple is the biggest Samsung client, it's by far not the only one and the Chinese manufacturers are up and coming.

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

The biggest risks to these price points are:

  1. A market that's being levitated by central bank magicians running short on magic spells...
  2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term. 

For those interested in a long position in Apple, see 

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TMO-Verizon-Head-to-Head Legal-approved FINAL-smallI received several letters in response to my Deadbeat Carrier Series. Here are a few, along with my responses to them.

Reggie, I found what I think are some flaws in your carrier monthly cost numbers in your "Deadbeat Carriers Compete" blog posting. First the biggest flaw is that the $70 T-Mobile plan does NOT include unlimited hot spot service. It only includes 500mb of hot spot service. You can read it on this link from T-Mobile.com. http://www.t-mobile.com/shop/plans/individual-plans.aspx I couldn't find the cost of 10gb of data including hot spot service but obviously it's going to be more than $70/month.

This is only a problem if you do not embrace Android as your default OS, and Android 4.2.2 is quite capable of doing so for over 85% of computer users. See the video below...

Second, where are you getting the costs for AT&T? I went to their website and they don't have minute plans that go up to 6000 minutes. Their individual plans are 450 minutes for $40, 900 minutes for $60 and unlimited minutes for $70 then you can add $20 for unlimited messaging. The data plans on the individual plans only go up to $50 for 5gb which includes hot spot service. They also have AT&T Mobile Share with unlimited talk and text plans which reduces the cost greatly from what you listed. Their 10gb mobile share plan costs $120/month and a single smartphone with that plan costs $30/month and you can use the hot spot service at that plan for no additional cost (I confirmed this with AT&T) so the total is $150/month (not $200 as you indicated).

AT&T has modified their pricing since I created the model, but the pricing has changed, not necessarily gotten cheaper. They effectively charge $10 per gigabyte for data, $70 for unlimited voice and $20 for unlimited texts. So 10 GB of data would be $100, and voice and text would be $90 combined - adding up to $190 before taxes, surcharges and fees which would add another nearly 20% on the price or roughly $220 total - as compared with T-Mobile whose package would be about $76 - all in (only sales tax is added in with pre-paid plans)! If one were to compare T-Mobile to the Mobile Share plan, there's still a big discrepancy for the reader forgot to include surcharges, fees and taxes - again another nearly 20% tacked on, so we're talking $180 per month, and that's just with 10 gigs of data use. If one were to use 40 gigs like me, then you'd add another $36 per month on that - or roughly $216 which is pretty much where we started in the first place.

Lastly, where are you getting the costs for Verizon? Again, they appear to be way off. Verizon's share everything plan with 10gb of data costs $100/month and then you add $40/month for single smartphone (with unlimited voice minutes and messages) and you can use the hot spot service at that plan for no additional cost so the total cost is $140/month (not $240/month as you indicated). I'm looking forward to your response. Thanks.

Again, the author is comparing family share plans to the single plan that was used in the model. Even so, Verizon pricing is far from a bargain. Let's look closely at the numbers he provided. Verizon is charging the same as AT&T, $10 per gig, but charging more for the handset service @ $40. If one where to use 40 gigs per month, that would be $400 per month plus $40 for the handset plus the nearly 20% in taxes, fees and surcharges - all told over $500 per month, compared to the flat $76 from T-Mobile. Even if you used half the data, your looking at about $280.

My next gift is your ability to generate your own chart with your own wasted wireless carrier dollar expenditures. Check it out..

As I said, deadbeat carriers. Here's some more mails...

Reggie, Good postings. One of the reasons why I'm switching off from AT&T very shortly and going to T-Mobile. They just have the same offerings for a LOT less. Isn't that what things were all about in the beginning before AT&T and Verizon slowly increased their prices and plans? On top of that one of the T-Mobile MVNO's, Solavei, has been on the market for just under a year now I believe and Solavei offers things for $49 "ünlimited." They're main offering is working it into a MLM/referral-based program where a few referrals can chop the bill to 0 or make a few bucks. Worst case it's good for a while before that program crashes possibly, then just jump back to T-Mobile (or other pre-paid style plans that offer nearly the same data and specs for less) Keep up the good work.

And here's another one...

Reggie,

To point one in the direction of "future" in the US, it probably suffices to point one in the direction of some carriers in Europe. Particularly these from Estonia. Sample plans here: https://www.emt.ee/en/internet-telefonishttps://www.elisa.ee/et/Eraklient/mint-mobiilis/562/MiNT-mobiilipaketid (use google translate), https://pood.tele2.ee/et/serviceplans/572 (use google translate).
Or some examples: 
    1. 10€/month for unlimited data at 3.5 Mbps (Elisa)
    2. 5€/month for unlimited data at 1 Mbps (Elisa)
    3. 11.95€/month for 30 GB of data at 6 Mbps (Tele2)
    4. My current plan from EMT: €38/month for a family plan with 4 phones, 400 minutes (unlimited calling between the family phones), text, unlimited internet on 2 of the phones.
Additionally the country (Estonia) is pretty much 100% covered - you get high-speed internet in the thickest of forests from all of the carriers.
When comparing these plans with anything considered "normal" in the US ($300-$400 for a similar 4-person family plan from US Cellular with white areas in every valley between moderate hills), it's clear that there's a very, very long way for the US providers yet to go. It's simply amazing how much US customers are paying for the little amount of services they are actually getting!
All the best,

So, what does this all mean? Google's Android will become much more pervasive as Web access becomes cheaper. It also means that the Wintel duopoly is primed to potentially be toppled. Take note that Intel is now supporting Android and system makers are adopting it. Android is rich enough to replace windows for many, and believe it or not in this short period of it's exisitence I believe Android has surpassed Windows in active users. What happens when the power of Intel Core I7 chips are pushing Android? I'm sure Microsoft doesn't want to know!

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