Financial, Real Estate, Stock Markets Trends and Current Affairs

Here are the most popular articles on BoomBustBlog over the last 364 days as we close out the 2012 year. As those who have been reading my work and following for the last 6 years know, I tend to call out trends early relative to the the pop pundits and sell side analysts. Unfortunately, these days, relatively early means before markets collapse or companies utterly dominate their industries.  Without further adieu... 

The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

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Last January, while oil price shocks, Israeli military tensions and beef with Iran dominated the headlines, I turned my focus on the single most overrated economy in the developed world - Germany! While not poised for utter collapse like you know who, many portfolios, bank balance sheets, insurance company actuarial analyses, etc. assumed this country can bailout out its own profligate banks, insolvent peripheral EU countries, and itself as its economy enters recession surrounded by trading partners who also are re-entering a recession (which they truly never left). To say the least, somebody is likely to be proven to be severely mistaken.

How Inferior American Education Caused The Credit/Real Estate/Sovereign Debt Bubbles and Why It's Preventing True Recovery

This is a lengthy, highly provocative article illustrating in explicit detail my thoughts on how America's inferior education system made the Great Recession not only a foregone conclusion of indoctrinated GroupThink, but prevents a true recovery from recovery due to the abject fear of price clearing. You may need to put your thinking caps on and exercise some patience and restraint with this one. I am going to follow it up with an explicit example of said groupthink by going against the conventional grain (yet again) and pointing out what many in the mainstream consider to be the most likely threat to economic prosperity in 2012 (and no, Iran is not even in the running on this one). I blame indoctrinated GroupThink for the inability of Wall Street to see the excessive coniferous expanse due to tree bark blindness! Until the next post, though...

The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media

A clear example of how simple math on a web-based spreadsheet unequivocally demonstrated that Greece HAD TO DEFAULT in 2012, and said default was arithmetically obvious as far back as 2010! 6th grade math, made easy (for everybody outside of the EC!).

Trading Physical Gold: Is Gold In A Bubble?

gbi-_gold_bullion_international

This is the 4th installment (of 5) of my interview of the CEO of GBI (Gold Bullion International), a small firm located on Wall Street that allows investors (retail & institutional) to actually buy, sell, trade and store physical gold in the investor's own name. The previous installments (listed below) feature some very tough questions. BoomBustBlog interviews are not pushovers or advertisements. You must be able to hold your own.

Bernanke's Lying Through His Teeth and Not A Single Pundit/Analyst/Banker Has Called Him On It!!!

As the Fed Chairman continues to bedazzle them with the Bullsh1t, I point out a multitude of nonsensical statements culminating with the obvious, another concerted bank bailout at the expense of Joe Sixpack. The video (published shortly after the story was penned) tells the story with pictures instead of prose...

Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All Time High

Oh, this one may not have been the most well-liked, but it was damn sure well viewed. I literally had thousands of comments knocking the analysis until it proved absolutely correct, then all that can be heard was crickets.... Let's not forget the follow-up posts a quarter or so later...

 Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money!

Deconstructing The Most Hated Trade Of The Decade, The 375% BoomBustBlog Apple Call!! 

... and going into detail with Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

appl copy

The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

Illustrating the farce that was the most anticipated IPO in the history of the US equity markets, the Facebook story was told well in advance on BoomBustBlog, actually over a year in advance. I warned that this company's shares were drastically overpriced while it was still trading as a private company on websites over the Internet. Through all of the froth and broth brought out by the highest paid, high pressure salesmen in the world (sell side bankers), the stock IPO'd at $38, rose to forty something that day, then fell to just over $17, to settle at around $27 or so today. Here is the analysis, released in large part to the public.

Below is a contributions from BoomBustBlogger Michael Holland. As I have received several inquiries into trading practices from the less experienced on this site, I thought the following piece may be of interest to some. Mr.  Holland's only affiliation to BoomBustBlog is that of a reader and follower. With that in mind, please read on....

CFD trading and options trading compared

CFDs and options trading are two of the most popular financial derivatives and although there are many similarities between them, there are also vital differences.

Derivates and leveraged

Both are derivatives, i.e. their values are derived from the value of some underlying asset – whether this be a share, commodity or currency. Both are also leveraged investment instruments, which means the trader can control a much larger amount of money than he or she has available to trade with.

Premiums

An option provides its owners with the opportunity, but not the obligation, to buy the underlying asset at the strike price (an agreed price) on a specific future date (the expiration date). To acquire a call or put option a trader has to pay an options premium – which will be forfeited if the underlying asset fails to reach the strike price on the expiration date.  

A CFD on the other hand is a more direct investment in the underlying asset. It has no expiry date and unlike with call or put options there is no costs involved accept for the CFD spread and finance charges on the open (long) position.

Profit/loss comparison

Take for example the shares of company ABC, currently trading at $100 per share. A trader who believes that these shares will gain in value over the next 3 months could either buy CFDs on e.g. 100 shares or buy 1 contract of call options representing 100 shares. The risk/reward profiles of the two trades are set out below in Fig. 10.29(a) and 10.29(b).

What immediately becomes clear is that:

1. The CFD position has unlimited risk to the downside. With the options position on the other hand, the maximum risk is limited to the amount that was paid for the options.
2. If the price of ABC shares remains completely stagnant, the CFD trader will only incur a small cost (the CFD spread and possibly finance charges), while the options trader would lose the premiums he/she paid for the options at the start of the trade.
3. The maximum profit of the CFD trade for a given price increase in ABC shares is somewhat higher than that of the call options. This is a direct result of the options trader having had to pay a premium for his or her options.
4. The options position only becomes profitable if the underlying asset increases with an amount that exceeds the premium. In this case the breakeven point is just over $104. The CFD position starts to make a profit as soon as the (relatively small) spread has been recovered.

Anyone who is 100% sure that the price of the underlying asset is going to increase would therefore be better off choosing the CFD trade. Unfortunately traders very seldom operate in a world where anything is 100% certain. If there is any significant risk of a price decline, the trader would therefore be better off buying call options, because in that case the downward risk is limited to the options premium.

It also has to be said that options are very flexible trading assets. A trader can benefit from both price increases (call options) and price decrease (put options) and these can be combined in innovative ways to create unique risk profiles which are simply not possible with CFDs alone.

Options trades can also be used to hedge CFD trades. More about that in a later discussion.

Marcus Holland is editor of the website - FinancialTrading.com.

FB Sep 21 12 18 puts

A couple of weeks ago after Facebook reported, I posted Hey Muppets, Only Another 100% Climb In Share Price To Go Before You Break Even With MS/GS/FB Investment Advice. You see, I warned about FB a half of a year before the IPO (reference the FB IPO Analysis & Valuation Note - update with per share valuation released exactly 5 months ago on 05/21/2012 (click here to subscribe)) stating that this thing was coming to market at multiples of a realistic valuation. So, what did Facebook's bankers do? They raised the offering price even more. Makes sense doesn't it?

Well, it makes more sense than the lock-up of hundreds of millions of shares ending, flooding the market with excess supply and the price of the stock.... increases!!!

Well, there may be a logical reason for this. By now, the more astute early investors in Facebook either read my analysis or somehow have come up with similar conclusions independently. That being the case, these guys had massive unrealized capital gains and a strong incentive to preserve them. Thus, they did what every hedge fund should do but what so little ever seem to do. What is that you ask? They hedged. I would assume that as soon as FB shares became available for short and/or puts started trading, these guys competed with me to get short in order to lock in whatever gains they still had left. That being the case, once the lock-up period expired, and actual sales occurred it was offset (and possibly then some) by the supportive buying created by the short position covering.

Of course, this is just a theory, but its a plausible one. Only time will tell if it holds water, for if the upward price pressure was cause by short covering, it will be over by next week and we should see a marginal decline.

Now that the weakness in Apple is apparent to all, and not just BoomBustBlog subscribers.... AAPL priced relative to the SPY... looking for this 4 year trend to break for the aapl story to be over as a market out-performer.

AAPL relative weekly rising wedge

My next post on this topic will answer the obvious quetion, "Is it now time to short Apple?" - as I release the content from or updated Apple model. This will be some very, very good stuff and well worth the subscription rate.

Unique, Indpendent and Accurate Apple Research

Apple 2Q2012 results analysis04/26/2012

Apple Margin & Valuation Note03/15/2012

Apple Margin Strategem WIP02/13/2012

Apple - Competition and Cost Structure05/16/2011

Apple Earnings Guidance Analysis08/12/2010

Goldman's strategy desk just came out with a recommendation that mirrors my guidance to subscribers, a 3 weeks later, reference Armageddon Puts Versus Truly Busted CRE REITS: Looking for that 5x-10x ROI 

Yesterday, I received a couple of emails along the lines of the one displayed below...

"Hi Reggie,

Can you please put out any guidance on your Armageddon Puts for your lowly retail subscribers?

Thanks"

Well, I would like all to know that I'm not a typical mo-mo type trader. I'm a strategist. With that being said, I'm also not the one to look a strong risk/reward proposition in the face and do nothing. Below is a set of charts that should drive the mindset home.

SPX_puts

The actual chart with the series and strike of the puts can be found in the retail investor's discussion forum. I will also be available to chat there as well.

If one would have averaged small OTM put purchases with with ample time value attached over the last week and a half, one would have amassed a neet little collection of Armageddon puts that will start popping into the money today. They were cheap enough to throw away in the rallying market, and if things go awry (quite likely) three digit returns are virtually guaranteed. The following is Goldman's note from this morning...

Published 10:46 AM Thu Jun 21 2012 ________________________________

Noah Weisberger

Aleksandar Timcenko

We are recommending a short position in the S&P 500 index with a target of 1285 (roughly 5% below current levels) and a stop on a close above 1390. This morning, the Philly Fed print of -16.6, down sequentially and worse than expected, provides further evidence that weakness has extended into June. Although yesterday's FOMC delivered easing as expected, with a dovish statement, positive risk sentiment ahead of the FOMC had already buoyed markets. And we now think, with incremental US monetary policy on hold, the market will need to confront a deteriorating growth picture near term. The risk to our recommendation is that the data soon reverts to the 2-percent growth path our economists expect, that China growth turns, or that European policy-makers' rhetoric buoys risk sentiment further from here, with the upcoming end-of-June summit a focal point on this count.

The MSM headline barrage continues to confirm my multiple warnings on the increasingly ugly macro situation both here and abroad...

• US Mid-Atlantic Factories Slow; Leading Indicators Rise The US never really left recession
• Manufacturing, Jobs Reports Add Up to More Bad News Ditto
• Spanish Banks Need Up to $79 Billion in Capital: Auditors Yeah, right - that's before you mark assets to market, right?
• Beware the Looming 'Monetary Cliff': Hatzius yep!
• Europe May Have Found a New Use for Its Bailout Fund This is dangerous. The ECB wants to lax collateral rules to assist southern banks (read Italy, Greece and Spain) in obtaining funding. That means the ECB will be filled with even more trash than before. Reference my work on this topic 
  • You Have Not Known Pain Until You've Tried To Limit The Borrowing Costs of Spain!!!
  • Is Morgan Stanley Once Again The "Riskiest Bank On The Street"?
  • CNBC Asks, "So Why Are Spanish Bond Yields Falling?" I Ask The Better Question, "Why Are Spanish Banks Considered Solvent?"

This is how the European banks were killed in the first place -  Dead Bank Deja Vu? How The Sovereigns Killed Their Banks & Why Nobody Realizes They're Dead. The ECB will become the world's largest insolvent hedge fund (sans the hedges, of course) if it is not so already...  Over A Year After Being Dismissed As Sensationalist For Questioning the ECB’s Continued Solvency After Sovereign Debt Buying Binge, Guess What.

More MSM headlines to drive the point home

• ECB Mulls Scrapping Sovereign Rating Rules: Sources - See what I mean? And the rating agencies have been much, much to soft and slow to rate the soveriengs accurately, to boot. What in the world would happen if you really had a thorough analytical force in there to guide clients in the clients (not the sovereings or the banks) best interests? Reference Rating Agencies vs Reggie Middleton, Part 3 and the Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts
• China's Factory Activity Shrinks for 8th Straight Month - Uh Huh! Reference A Quick Note On China's Rate Cut and Reggie Middleton Speaks On China, Greece Playing Chicken and US Ponzinomics, then Will China Hit That Inflation Deer In The Global Macroeconomic Headlights Anyway, Despite The Fact They Are Slamming On The Brakes?
  
  

Follow me:

Yesterday, I received a couple of emails along the lines of the one displayed below...

"Hi Reggie,

Can you please put out any guidance on your Armageddon Puts for your lowly retail subscribers?

Thanks"

Well, I would like all to know that I'm not a typical mo-mo type trader. I'm a strategist. With that being said, I'm also not the one to look a strong risk/reward proposition in the face and do nothing. Below is a set of charts that should drive the mindset home.

SPX_puts

The actual chart with the series and strike of the puts can be found in the retail investor's discussion forum. I will also be available to chat there as well.

The REIT analysis referred to in the chart can be found here for subscribers (the property by property valuations are for Professional/Institutional subscribers only):

• Fire Sale Scenario Analysis
  (Commercial Real Estate)
• Foreclosure Scenario Analysis
  (Commercial Real Estate)
• Sample Property Valuation
  (Commercial Real Estate)
• Cashflows and Debt Preliminary Analysis

I have just revisited the performance of this company (last update was at least a quarter ago). If my paid subscribers recall, we valued the company at rougly 10% of its current market price (see Cashflows and Debt Preliminary Analysis), with a variety of scenarios to be played out that may affect said valuation. This was based on valuation of key properties of the company, which together accounted 78% of the total portfolio in value terms.

Since then the company has released its full year 2012 results and 1Q2012 quarterly performance. There is no visible improvement in the performance of the company. The company is struggling to handle massive leverage, industry average defying LTVs, proportionately large debt liabilities coming due - the bulk of which is expected to face the music sometime in 2012 in view of upcoming liabilities of over nearly $700 million during the remainder of the year.

In recent times the company has used revolving credit facilities to fund debt repayments.It looks unlikely it will be able to do so this time around. Below is the depiction of projected cash shortfall in 2012...

Subscribers can download this full update from the next post, to be published within 24 hours...

fb_front_month_atm_puts

Front month ATM puts made 20% in the first hour of trading. If only the IPO did half as well...

Put contracts traded: 128,860

Cal contracts traded: 77,590

1.66 put call ratio means there's probably more BoomBustBlog subscribers out there than I imagined...

All paying subscribers (click here to subscribe) have access to the FaceBook IPO & Valuation Note Update February 2012. You may review the original analyses here FB note final 01/11/2011. Again, as Facebook continues to fall in price, sooner or later it will be fairly valued and most assuredly after that undervalued. Speculators and value investors should be prepared for such an event. 

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for our reports, available for immediate download - Facebook Valuation Model 08Feb2012.

Apple has started exhibiting the behavior that I have been warning about, dropping four and five percent over the last 24 hours or so, then regaining a third of the same.

NAsdapple_or_Appldaq

This volatility should be of no suprise. If you look at the chart above, you will clearly and unequivocally see Apple (or AppleDAQ or NASDApple - regardless of the nomenclature) is essentially the NASDAQ, as was pointed out in previous posts from BoomBustBlog, ex. When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time - Enter The Rotten Apple and that of ZH Apple Responsible For 90% Of Intraday NASDAPPLE Gain - to wit:

Or perhaps the 209 hedgies who rely on this stock for their year will play prisoner's dilemma (and free ride) one too many times and dismiss their recency bias to remember that the first one to migrate wins when prices go vertical.

Again, as pointed out in When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time,  this process of Apple purging may have already started...

3h8sj2p

This interesting observation was brought up up in my Twitter feed, to wit:

# of funds in this order (%) since 12/2010: +1.4%, -4.0%, +8.7%, +4.3%, +5.4%, +3.2%, -25.8% (1st big drop) 

@PierreLeroux28 @ReggieMiddleton I just find it interesting (if the data is accurate) that more than 1,000 funds sold out during rise 

PierreLeroux28 Pierre Leroux So if institutions dump some $AAPL on strenght after that THEY ALSO BUY THE DIPS Like i will rebuy my 10 calls 

Of course the lovefest with Apple dictates the BTD will reign, but suppose the dips are accompanied  - better yet caused - by widespread use of technologies known as calculators, spreadsheets or BoomBustBlog subscriptions?

Correction, courtesy of @cperruna, author of the chart above: 

The MarketSmith chart I uploaded was not correct but I have revised my feed with the correct data. I actually questioned MarketSmith when I saw a large drop in another leader I have been tracking. In any event, the updated data is as follows, as I posted on my twitter feed:

"Although Institutional #'s were incorrect, $AAPL still down 8% from 4/7 chart stks.co/3FrS| sponsorship is now 4,196 from 4,308"

This isn't just about quantitative analytics uber blind hedgefund managers reaching for cap gains. There are very fundamental reasons for Apple owners to expect a pullback or slowing of growth. After all, that margin compression theory is ready to come into its own. We have created a very realistic scenario analysis that shows what could happen, and when, and topped it off with what we feel should happen. Interesting indeed! Subscribers, reference the Apple Margin & Valuation Note. I gave free readers an example of the evidence we uncovered showing Apple already experiencing margin compression and a loss of market share in one of its flagship products (Apple's iPad Is Losing Market Share And …).

If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter.

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image051

10 yr Italian yields sitting on support after monster rally of the last few days.

btp_11-5-11

If you need to get up to speed on this topic...

Watch The Pandemic Bank Flu Spread From Italy To France To Spain: To Big Not To Fail!!!

Italy’s Woes Spell ‘Nightmare’ for BNP - Just As I Predicted But Everybody Is Missing The Point!!!

Where Are The Ratings Agencies Before UK & German Banks Go Boom? How About Those Euro REITs? Agencies Anybody?

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

From Eurocalypse:

litteraly... credit btp france, equities everything. charts dont mean anything anymore...never seen such a thing... nobody wants to play anymore... even those rallies are not good for the mkt... extreme vols make for extreme VARs and reduce automatically the risk taking ability of dealers in terms of volumes at a time when debt auction sizes increase etc...                                   the pain trade is that RISK assets perform for the time being... in spite of the worsening fundamentals