Reggie Middleton

Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!

Only if my D&O insurance is not paid up:-) I think it is absolutely purposeful misleading and I believe it meets the three basic tenets of fraud, but that is my opinion and I was told not to call banks names by my mama:-) In addition, I am no lawyer, hence I can only give my layman's opinion.

On A more

The Dangers of Deposit Insurance Arbitrage

Hey, thanks. That's one helluva compliment!

The Next Step in the Bank Implosion Cycle

RonB: Just because you don't see my name on a top performing list doesn't mean I am not a top performer. How in the world you know if I outperformed Buffet over the last 10 years or not? Because you don't see me on a list???

And that broad based analysis comment doesn't make sense either. The WFC analysis is 60 some odd pages of some of the most intense scrutiny that I have ever seen on the company. Since you didn't bother (or didn't pay) to read it, how is it that you can call it broad based - or anything else for that matter?

I've Been Warning About Wells Fargo Since Spring of '08 - The Doo Doo

Thanks. I see bad things in store for many big banks. The gov. chose to hide the problem in lieu of curing it. There are minor errors in this article. Please refer to the update on my site for the corrected version: boombustblog.com/Reggi...

Wasted Lessons from AIG

Interesting that all of the critics of the article basically ignored what the article was about, which is naked swap writing. It was not about the names of the AIG execs, my business back then, my relationship with them, nor the split adjusted price of AIG.

BTW, thanks John, et. al. I don't frequent SA comments that often.

Pre-Paid Legal Services: SEC Won't Find Any Wrongdoing

Well put PDT. In addition, PPD's performance metrics are actually on a steady decline, in direct contravention to the author's proclamations. New membership and new associate revenue are on the decline from an organic perspective, and PPD juices it by raising associate fees which makes it even harder for associates to make money.

Management has also been selling directly into the corporate buy back program, which has to smell fishy to somebody. No management buys, always management sells.
I suggest anyone interested in this company read the links in my article on the topic: boombustblog.com/Reggi...

Pre-Paid Legal: The Flim Flam Scam Gets SEC'd

Unfortunately, it appears as if all of the links to my research were somehow left out of this article. Here are the warnings that I have issued on PPD over the last 6 or 7 months which very well may have sparked this SEC investigation:

Flim, Flam, Scam: Would a PPD Ponzi and Pyramid scheme cause your wealth to Scram? - boombustblog.com/20090...
(Reggie Middleton's Boom Bust Blog/MyBlog)
...reversion to the mean, or the discovery of the truth, I foresee signficant downside movement. My PPD opinion has garnered significant interest. We shall see what comes of it. Let me posit this -...
Wednesday, 18 March 2009

A Demonstration of How PPD Management is Destroying the Company - boombustblog.com/20090...
(Reggie Middleton's Boom Bust Blog/MyBlog)
...ership sales, the share buyback behavior and the repayment of borrowings on the weighted fair value of PPD and its impact on the cash balance of the company. We understand that the management is in bu...
Tuesday, 07 April 2009

Cash Shortage in the Flim Flam Scam? - boombustblog.com/20090...
(Reggie Middleton's Boom Bust Blog/MyBlog)
...2009 as of Feb 17 $6,714,000 $68,872,749 A large portion of PPD shares were held by the board of directors and the management of the company which, apparentl...
Wednesday, 18 March 2009

Reggie Middleton's Continued Public Service Announcement on the Flim Flam Scam - boombustblog.com/20090...
(Reggie Middleton's Boom Bust Blog/MyBlog)
For those who haven't been following my research on PPD, I am continuing to release this research for free because I am really that negative on this company's ethics. For all of those that mo
Friday, 03 April 2009

Additional Commentary on PPD - boombustblog.com/20090...
(Reggie Middleton's Boom Bust Blog/MyBlog)
This is additional commentary on PPD from Robert Fitzpatrick: Fitzpatrick PPD Q-1'09Update 2009-04-07 13:09:57.

On Goldman and CIT: No Free Lunches

"You have "literally" no idea how markets work dude"

Okay, smarty pants. Why don't you educate us on how a CDS is priced on the ABX, and exactly what the tracking error, if any, is on the actual liklihood of an event of default? What is the definition of default on the contracts written on the ABX?

You can also explain to us if there is any discrepancy and/or relationship between the actual credit default (or its probability) and the ability of the trust to pay out to avoid default.

I admit that I am a neophyte in practically all things, so my ears are open.

You say I know nothing of how markets work, but the CDS space is not truly a market, it is a space run purely by an oligarchy of broker/dealers with the Golden formula of pricing/clearing/settl... A true market has price discovery emanating for asks and bids between all members of a community, not gate keepers on Wall Street. Think stock market, housing market, bond market, currency market.

On Goldman and CIT: No Free Lunches

"How do you know the 5 banks with 97% notional aren't individually net flat? "
Let's use CIT as an example. If all 5 banks have CDS positions in CIT, and Goldman has a billion dollar CDS purchase, then in order to net, the other 5 would have to have $1billion on the other side. The problem is that it appears nearly everybody bought CDS on CIT! There are no chatterings about entities that sold more CDS than CIT has debt, now are there? There appears to be significantly more CDS written on CIT than CIT has net debt, or gross debt. This begs the question, "who is on the other side"?

An even more tantamount question is what is the credit quality of those guys who did write the CDS? If they are just a bunch of $100 million hedge funds holding several billion dollars of CDS risk, then there you go. If they are one of these 5 banks who have hegded their risk with the other 4 banks who hedged their risk with the other 3 banks who relied on those first 2 banks to hedge their risk, well then there you go!

I don't know if all 5 bank are net flat, but I doubt so very seriously. I have went through nearly all of their balance sheets, and one (I have released one bank in particular to my subscribers) have written more than a quarter of their TCE in naked CDS, just like AIG did!

If they are all net flat, then has any risk truly been transferred or are they passing the buck around a circle of 5? I can understand a circle of 50,000, but 5???

On Goldman and CIT: No Free Lunches

You comment as if you haven't read the article. The big deal is that CDS are a ponzi scheme ready to collapse. There is no cash market for price discovery, hence the dealers can literally construct pricing due to opacity. There is extreme concentration risk in derivatives in general, and CDS as a subset.

The article is about risk concentration so whether the CDS is a hedge or not, there is still a counterparty on the other side of the transaction. 5 banks hold 97% of the notional value of derivatives. I bet all 5 of those banks have CDS positions on CIT. Thus, exactly how is that risk truly hedged versus simply being shuffled around in a game of counterparty risk musical chairs.

The other big deal (although not nearly as big) is that it is not truly an economic hedge if the payout from the hedge is greater than the payout on the hedged transaction. Economically, it is a speculative position. Don't consider it a game of semantics for it creates an inverse incentive for GS when they benefit more from the collapse of underlying than they do from the repayment of the loan.

On Goldman and CIT: No Free Lunches

YES YES YES! GS has purchased CDS protection on top of the makewhole, at least according to the article. If you have some insider information, I would love to hear it.

"In the case of CIT, market players have bought more insurance than the company’s $30bn in debt. Those holders include Goldman, who purchased such a credit protection to hedge against a June 2008 rescue financing of up to $3bn to CIT, Goldman said. Goldman also held other CIT debt, although the company declined to comment on these other exposures."

Falling Up: The New Business Model

Kudos!

I'm going to try not to say I told you so...

@buyitcheap: I usually don't get into specifics with my portfolio, and definitely will not do it on SA where I don't have editorial control. Hopefully, you understand. Trade secrets, and all.

@Anand: "I disagreed on the premise that a favored bank like jpm willl go under after the gov't handing them bear sterns assets and wamu on a platter and making them the "model institution.""

The gov. used JPM to absorb distressed assets. It wasn't necessarily on a silver platter. If you read my report, JPM is already underwater on its highly discounted WaMu assets, and we are not even half way through this mess yet.

"Why can't they save them all in combination with those banks abilities to raise capital lately... if bac can raise capital months ago at $12 a shares they sure as hell can today... I"

So would you buy a 2nd BAC secondary offering now? If not, what makes you think everyone else would? Even if they do raise capital, the subscribers to my site know that the capital that they have raised pales to the capital lost and the capital at risk. The government helped engineer a bubble to capitalize the banks, it is not something that can happen on a regular basis. BAC stock was trading above the secondary offering price, even Lewis couldn't believe it.

"As for equity investors fannie and freddie had very a different urgency and they needed to be in conservatorship for the govt to manipulate."

And what was the difference??? A lending institution with the implicit/explicit backing of the government that was stuffed to the gills wtih bad mortgages and derivatives in a deflationay, deleveraging environment with decreasing demand. That description could easily fit Freddie, Fannie, LEH, JPM, C or BAC. The only difference between now and then is the government backed liquidity, and modicum of more capital but not nearly enough to justify the risks. It appears that very few people realize that none of the core problems that caused this mess have been addressed, hence there is no practical reason to believe that more bank failures are not eminent.

" sure as hell hope you didn't go long in 2000... and if you did I hope you avoided tech! The s&p got cut in half two years later so you must have been an incredible stock picker in 2000..."

I went long, highly leveraged into distressed real estate in 2000 and started selling off in 2004 and 2005 in anticipation of an obvious popping of the bubble which happened in the 2nd half of 2006. I shorted everything real estate related in 2007. Practically all of the problems in 2007 and 2008 are in existence in 2009 thanks to a combination of ignorant investors believing that the problem was solved and a government that is too entwined with a lobbying financial sector to force it to take the bitter deflationist medicine that needs to be swallowed.

"Why can't I find this article in your profile under recent articles... I have to go through my comments to find it... strange."

You are not trying to find my stuff very hard if you have not been to my blog. That is where all of my original content is to be found. I have no control of the editorial stuff on SA. As for your other comments, come on over to the blog and lets have that discussion there.

Banking Sector: Worst Is Yet to Come

viewfromnyc: some of the banks are so sick they cannot take advantage of zero interest rates. Even JPM, the most respected, has actually had declining NIM, even though the Fed has been letting them get money for free and FASB has implemented "look the other way" accounting for marking their assets.

If you look at the economic earnings of most banks, they are not earning money nearly as fast as they are losing it on stinky assets. No matter how high your margins may be for funding, if you are not making loans those margins are not going to be translated into profits. The only substantial lending done over the last year was refinances and government subsidized purchases (with the $8k tax credit), and both of those have pretty much come to an end.

Now, the reality of a deflationary environment and extreme slack in credit demand will meet the reality of extreme dearth in credit quality and the deleveraging of highly levered assets that where written at the top of a bubble. The result, crash....

I'm going to try not to say I told you so...

I am glad that I have garnered your respect. 95% of my returns since 9/07 were on the short side. 100% of the returns from 2000 to 2006 were on the long side (another big gain). The reason I was able to pull such big returns was because the market was trading AGAINST the fundamentals and I recognized it. The returns are definitely abnormal and I don't expect them to continue, but as long as things are out of whack there is an outsized profit to be made.

The key that has helped me was not to gamble (as in going long just because everybody else was long, refusing to take profits, etc.). I shorted Bear Stearns at $185 and published research as to why. I eventually went long at about $1.65 and it went up to $10. BSC was an obvious short from their balance sheet. The same with Lehman, GGP, WaMu, etc. I took incremental profits, and sometimes just left the original basis in the position after 100% or so profits in speculation the company would totally collapse, which many did. Once profits start ramping up I very rarely go less then 50% cash and make heavy use of options.

I don't give investment or trading advice, so although I understand your stated position, it doesn't apply to me. I offer only fundamental analysis and opinion.

They exact same scenario that caused the other big banks and cos. to fail last year is extant now with many of the banks that people say are too big to fail. They are not too big to fail. Banks have been failing for thousands or years, and life has still went on. It is a myth to believe that the world will come to an end if JP Morgan fails. Jamie Dimons deferred comp may come to an end, but that just leaves a space for smaller more entrepenurial firms to take JPM's place and get their chance to grow into large behemoths who may themselves be at risk of being replaced if they can't compete in a competent fashion. This, my friend, is called capitalism. By propping up insolvents, even for fear that the world will come to an end is not only erroneous, it is anti-capitalistic and will significantly prolong the economic downturn.

Even if the government attempts to save the big banks (which they can't save them all), they will probably not be saving the equity investors. Reference Fannie and Freddie for prime examples.