Is Bitcoin Too Risky? Whenever the Bitco…

12-01-2017 Hits:1056 BoomBustBlog Reggie Middleton

Is Bitcoin Too Risky? Whenever the Bitcoin is Mentioned in Financial Pop Media, Ignorance Ensues

I hate to be the one to break bad news to you, but most of the pop media/mainstream media financial pundits that I hear and see opine on bitcoin have...

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What Happens When Rates Rise While the S…

10-01-2017 Hits:586 BoomBustBlog Reggie Middleton

What Happens When Rates Rise While the S&P 500 Relies on Cheap Credit To Boost EPS?

So, the stock market, bond market and real estate markets are all at all-time highs. Everything is Awesome! You know better than that. You see, when the bond market wakes...

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Debt Encumbered Oil, Sovereign Soil, Toi…

10-01-2017 Hits:489 BoomBustBlog Reggie Middleton

Debt Encumbered Oil, Sovereign Soil, Toil & Trouble: Can't You Hear Seems Cracking in the OPEC Empire?

@WSJ reports Libya Ramping Up Oil Production, Threatening OPEC (supposed) Plans to lift global oil place by artificially limiting supply. This would be in violation of federal antii-trust laws in the...

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Ten Years Since BoomBustBlog Was 1st Pub…

09-01-2017 Hits:793 BoomBustBlog Reggie Middleton

Ten Years Since BoomBustBlog Was 1st Published & That Initial Research Still Relevant Today

We have looked into insurance companies' performance last month in regards to our bearish real estate thesis. A small comederie of companies are suffering losses and/or declining profits as we've exected....

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The Macro Truth About The Big Bitcoin Po…

07-01-2017 Hits:950 BoomBustBlog Reggie Middleton

Bitcoin has dropped precipitously, and as is usual, we have the cacophony of instant digital currency pundits cackling about as if they had a clue. This is the inaugural post...

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To Bust or Not To Bust: Are We In A Real…

04-01-2017 Hits:659 BoomBustBlog Reggie Middleton

To Bust or Not To Bust: Are We In A Real Estate Bubble?

Banks are showing thin NIM, yet many of the big banks are able to boast stable if not slightly improving credit metrics. This doesn’t make sense considering the explosive growth...

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What Happens To Real Asset Lending Banks…

03-01-2017 Hits:515 BoomBustBlog Reggie Middleton

What Happens To Real Asset Lending Banks When the Real Funding Rate Appears? We're About to Find Out

During the financial crisis of 2008, money market funds who subjectively agreed to hold their NAV (net asset value) unit prices at $1 “broke the buck”. That is, the unit...

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Stress Test on Banks’ Earnings Facing th…

30-06-2014 Hits:44622 BoomBustBlog Reggie Middleton

Stress Test on Banks’ Earnings Facing the Veritaseum UltraCoin Value Transaction Platform

My last post on the topic of disintermediation during a paradigm shift was Wall Street Should Be First To Invest In Reggie Middleton's UltraCoin, Much Of It Won't Be Here In...

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Introducing the "Unbreakable Promis…

09-06-2014 Hits:39458 BoomBustBlog Reggie Middleton

Introducing the "Unbreakable Promise" As a Method Increasing Efficiencies and Decreasing Risk

Continuing on the margin compression theme originally laid out in Margin Compression Is Coming in the Payment Processing Space As $100 Million Pours Into Startups, I illustrate mathematically how the bit...

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Bitcoin (and Apple) Mythbusting 101

04-06-2014 Hits:40361 BoomBustBlog Reggie Middleton

Bitcoin (and Apple) Mythbusting 101

Yesterday, I did a radio interview with Benzinga. In it I busted myths about Apple, Bitcoin and Coins in general (ABCs). Listen to the interview below and the info sheets...

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Bitcoin (and Apple) Mythbusting 101

04-06-2014 Hits:44957 BoomBustBlog Reggie Middleton

Bitcoin (and Apple) Mythbusting 101

Yesterday, I did a radio interview with Benzinga. In it I busted myths about Apple, Bitcoin and Coins in general (ABCs). Listen to the interview below and the info sheets...

Read more

Margin Compression Is Coming in the Paym…

21-05-2014 Hits:45554 BoomBustBlog Reggie Middleton

Margin Compression Is Coming in the Payment Processing Space As $100 Million Pours Into Startups

After an interesting discussion with those in my laboratory, I've decided to apply the forensic analysis team from BoomBustBlog to the privately funded companies in the Bitcoin space. See my...

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By now, you probably realize that I think the homebuilders are in worse trouble than the mortgage lenders. Their collateral is not as ephemeral, since it is a real asset, but it is also much less liquid. Don't get me wrong, I think the mortgage lenders are in very big trouble as well, but the big lenders cannot be allowed to go out of business due to the damage to the economy. Nobody is going to miss a homebuilder going belly up.

The only way out of the mess is the way we got into it, the hard way.

I live in NY, where, due to gentrification, low interest rates, super lenient credit terms, a weak dollar, and up until '03 or so a weak equity market that couldn't compete with real property returns, the residential real estate market was literally on fire. I mean quite a few areas of Brooklyn saw (up to) a 300% to 450% increase in transaction price (notice how I did not say value). This was, in part, due to gentrification, and as a socio-economic phenomenon I don't believe will be easily reversible and will have some staying power. The balance was due to a housing bubble, which is very different from most bubbles due to the fact that the assets are very illiquid and require significant investment and more importantly often involve significant leverage which tends to exacerbate gains and losses considerably.

So... The end result is that you have houses that went for $180k in 2000, selling for $700k now. Your average middle class public school teacher makes about $35 - 50,000 per year, and can count on about a 2-4% increase annually (I'm just guessing at this). During the boom period, housing prices went up a max of 450% and a minimum of at least 100% while wages went up around 15% (again, just taking a guess, but you get the point). They were able to buy this house in 2003 for $300k, not because they could afford it (10 years ago they need 120% of their gross, b4 tax income for down payment and closing costs, while the debt service would be more the 50% of their disposable after tax income as a off the cuff calculation), but because you had engineered mortgages that allowed flexibility in debt service, and very low rates which made it more affordable.

Now, the esoteric loan is out, and rate are shooting up, independently of LIBOR, treasuries, and other traditionally correlated rates. The obvious result of defaults, and reduction of both transaction volume and pricing is starting to soak in, but developers are still churning out product at a ridiculous rate because they to have binged on easy credit and must sell all of the land that they have bought (this is cheaper than holding depreciating land while paying debt service on it), and take a loss on underwater option contracts. The additional supply added to a market that is swimming in inventory is serving to further depress pricing which causes lower MBS true value due to diminished collateral value. Further depressed pricing puts more mortgages under water, causing more people to walk away from their homes, causing more foreclosures and REOs (bank owned real estate for sale), which causes lower MBS values due to higher defaults and which causes more supply on the market at fire sale prices, which causes more people to walk away from their underwater mortgages which causes more foreclosures which causes lower MBS values due to defaults and lower collateral, which.... Hopefully you get the picture.

This scenario has to play itself out until that teacher on a $50k salary in Brooklyn can again afford to buy a house under conventional terms currently offered by a bank (my bet would be 20% down, full doc, at rates about 150 basis points from where we are now). Until then, home prices will continue to drop, for they are out of reach of the main fundamental driver of lasting home value, the everyday buyer.

Now, factor in a 25% drop in home value nationwide, and I think it spells recession, but I am not an economist, just an arm chair investor. Also, keep in mind that real estate is very localized. Nobody lives in a median home, so you cannot use aggregate arithmetical measures to quantify home value across the US, not even across a single city. The example above applies to one small section of Brooklyn (bed stuy). Less than a mile over, the fundamentals are different (downtown Brooklyn), and 2 miles over in Manhattan, the average cost of a home is over 1 million dollars (hence the dearth of public school teachers)...