Who says only Americans are trying to delever?

Even with exposure to foreign events and insolvent counterparties at the top of every financial institution’s worry list for the rest of 2010, the microeconomic picture for debtors in the UK remains mediocre.  Americans were not the only ransacked with debt during the past decade, as Brits watched their securitized debt levels rise to incredible rates.  The Bank of England makes a point to state that without record low interest rates, defaults would be another issue for banks to look out for (interpreted: the Democratic People’s Republic of Korea will win the World Cup before the central bankers at the BoE even consider raising interest rates).  Soon after, they state that it would be easier to raise rates in times of robust growth than the uncertainty of current conditions, which is absolutely novel.

Domestic Credit:

  • A majority of UK households have a large amount of equity in their home value
  • Unsecured mortgages made up 2/3 of write offs since 2007, and even as they have stagnated, credit card write offs have increased to record highs
  • The beginnings of a potential CRE resurgence in the UK have been limited to prime properties, with higher yield projects being shunned
  • Even as prices are rising, they are still a third below 2007 peaks (and still probably overpriced if it is anything like the US CRE market)
  • If tighter credit conditions prevent voluntary restructuring, CRE prices will fall further on corporate liquidations and forced foreclosures
Published in BoomBustBlog

Here is a the final list of companies culled from a group of nearly 1,800 that we feel have the most profit potential for the year going forward.

This is a professional/institutional level document, but annual Retail subscribers and any subscribers who have been with me for a year ore more can email customer support for a copy as we show our gratitude for your continued patronage. Professional and Institutional subscribers should download this document in its entirety here: icon Financial and Non-Financial Short Scan Review & Analysis - Pro (392.88 kB 2010-06-28 05:33:44)

This is the culmination of four blog posts:

  1. 1. Non-Financial Companies to Short in 2010: methodology and short listing results;
  2. 2. BoomBustBlog Bankruptcy Search: Focus on British Petroleum and Collateral Damage: an objective look at the prospects of BP’s potential insolvency;
  3. 3. The BoomBustBlog Pan-European Sovereign Debt Crisis Bankruptcy Search:  a review the financial and bank holding companies whose economic and financial outlook do not support their current valuations;
  4. 4. and On Shorting Stocks, Double Dips and the UAL/CAL Merger: a drill down of suspect airlines stocks.

Note: The embedded spreadsheets contained in the posts above should be used to access the extensive fundamental data used in calculating the results below.

After two separate and rigorous short exercises, one each for financial and non-financial companies, we have narrowed down the list of potential candidates from nearly 1,800 companies to just 10 (with 13 runner-ups) – all of which we are confident are materially overvalued given their current and prospective financial condition and economic  outlooks. What is of particular interest is the fact that a full 50% of these companies landed on our computer screens as finalist in 2008, before the great market melt-up of 2009. They were overvalued and in bad shape during the lower prices of the turbulent times, hence they are significantly more so after seeing their share prices ride the wave of irrational, recession double-dipping, "recovery" exuberance. We have even released forensic analysis of 4 of these 10 companies over the last two years, and all of the banks in the list were also members of the original Doo Doo 32 of May 23, 2008. Members of this list provided significant profits for bears and short sellers as their prices gyrated and collapsed and the market began to realize the precarious situation that they were in. Now that low volume melt-ups are [starting to] giving way to realistic fundamentals, one can expect more of the same. The more things change, the more they stay the same. We plan to refresh the analysis of the repeat offenders, and offer fresh analysis of those who are new to the list.

The two separate short scans that we have conducted were for the non-financial sector and the financial/banking sector resulted in a short-list of 23 companies, with 10 of those companies targeted for full blown forensic analysis, time and resources permitting.

Below is the outline of the methodology used to produce them as well as a select excerpts from one of our previous reports on a particularly egregious "valuation" repeat offender that has proved profitable in the past whose macro outlook tied to the housing sector is a gloomy as ever - despite a near 100% pop in its share price. This the obligatory "freebie" that I toss in to entice non-subscribers to take the plunge. This particular "freebie" happens to be quite actionable, at least in my humble opinion.

Published in BoomBustBlog

In continuing my rant on why the mainstream media cannot charge for content, combined with the still deteriorating situation of many banks in the US and Europe, I release to subscribers the Bank of America Q1-2010 earnings opinion: File Icon BAC Q1 2010 Earnings Review, which is considerably less rosy than I have been reading in the mainstream media. To get up to speed on the MSM/blog rant, I suggest you read "Are Blogs Truly Competitive With the Mainstream Media in Terms of Quality of Content?"

For those who do not subscribe, here are some key excerpts:

Bank of America’s 1Q10 results are a reflection of the continued weakness in the commercial banking space. While the core operations’ revenues remained weak, the increase in trading profits and the consolidation of the securitized assets (due to FAS 166/167) made up for declines in revenue from the core portfolio and operations.

Published in BoomBustBlog

I will start posting more news topics of interest and welcome readers to forward research and investment ideas at will. Here is the crop from last week. I will post topics from the weekend later on today, and as usual will randomly comment on daily news events.

From Alliance Bernstein:

  • Core Intermediate Producer Prices have taken 6 months to rise 5.2% annualized, recession of 2002 took 2 years to reach same level
  • Operating Rate hit low of 65.4% last year and has only risen to 69.4%, still short of historical threshold causing rise in raw material prices (74%)
  • Increases in foreign operating rates have started to indicate US may now be a price follower instead of price leader
  • The Fed cited lack of resource utilization as reasoning for maintaining record low rates, as these concerns begin to wane Alliance Bernstein sees easing of emergency Fed policy


  • Christina Romer, Peter Orszag, and Tim Geithner have predicted unemployment will settle in 2010 at around 9.7%, citing poor job conditions
  • Federal deficit projections for 2011 & 2015 are $1.5 trillion & $751 billion respectively, White House officials cite Bush's medicare and income tax cuts for allowing deficit insanity
Published in BoomBustBlog
Tuesday, 23 March 2010 00:00

Newscan from the Weekend Past

Comments on global news from the weekend past...


  • $7.88 billion of slices underwritten by Deutsche Bank under downgrade review since underlying CMBS have been downgraded (CDOs are MAX CMBS I Ltd. Series 2007-1 and Series 2008-1), S&P has already downgraded 2007-1 to BB+
  • A BlackRock presentation stated that Deutsche Bank's CDO portfolio does not forecast for tranche losses
  • The MAX CDOs are among the Federal Reserve's holdings in Maiden Lane III
  • AIG provided Deutsche Bank with $5.61 billion in collateral before the Maiden Lane III transfer

FT Article: Merkel v. Greece Round 239,084.67 (Ding, ding) @ http://www.ft.com

  • Merkel insists Greece has not asked for money, and Greece does not need any [Let's permanently attached this to Merkel's credibility rating]
  • European Commission and IMF officials are far from same page as Merkel
  • The article wasn't dense with info, which is not unusual considering the subject matter, but what is clear is that the bazooka everyone was talking about has no trigger, and probably loaded with more baby powder than gunpowder!
  • That is going to be a big issue with Greek debt maturing in April if they have no revenue to pay it off

FT Article @ http://www.ft.com

  • British Airway strikes did nothing to dampen travel plans over the weekend
  • Examples like this are calling the union's bluff, they are not stopping society, potentially leaving room for union break ups by private companies, sovereigns and municipalities if they choose so, this could be a blip on the radar or an emerging trend, so something to continue to watch
Published in BoomBustBlog

Sometimes I have to actually read articles twice, because it really seems that I have somehow missed the point the first time around. Well, on my third glance at this Bloomberg article, I still don't get itL SLM Sells Debt at Higher Interest Rate Than Students Pay: Credit Markets

March 17 (Bloomberg) -- SLM Corp., the largest U.S. student-loan company, raised $1.5 billion in the bond market, paying more than it charges some borrowers to begin addressing $11 billion of bonds maturing through next year.

Sallie Mae, as the company is known, sold $1.5 billion of 8 percent notes due in 2020 at a yield of 8.25 percent, according to data compiled by Bloomberg. Stafford federal loans disbursed between July 1, 2009, and June 30, 2010, have a fixed interest rate of 5.6 percent, according to the company’s Web site.

I know I'm not as good at math and finance as those fancy Wall Street banker guys, but isn't this a BAD thing? They are essentially borrowing themselves into a hole. I also don't see any indication in the article of the potential for a reversal in this trend, either.

Published in BoomBustBlog
Sunday, 28 February 2010 23:00

HSBC is Performing as Expected

About a year and a half ago I warned that HSBC would be facing increasing and unanticipated (I was a contrarian on the China bubble) losses in Asia, as well as increasing losses on bad debt in the US. I believe I was one of the very few who threw this caution out there. I have included a free opinion along with the macro analysis to badk it up here: Part one of three of my opinion of HSBC and the macro factors affecting it . Subscribers can download the forensic reports: spreadsheet HSBC_Holdings_Report_04August2008 - retail 2008-09-16 06:38:38 87.28 Kb and HSBC_Holdings_Report_04August2008 - pro HSBC_Holdings_Report_04August2008 - pro 2008-11-06 10:11:09 138.89 Kb. As a refresher, the 2nd quarter 2008 review is available here: HSBC 1H 08 results update. There is a discernable trend.

From Bloomberg:

March 1 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank, posted full-year net income that missed analyst estimates after impairments for bad loans rose and profit in Asia fell.

Published in BoomBustBlog

Here are some very interesting facts on the latest trend in Alt-a mortgages that have been in the news as of late. The following charts were culled from my mortgage default model which was built primarily from date gathered from the FDIC and the NY Fed.

Published in BoomBustBlog
Monday, 21 December 2009 00:00

Has Moral Hazard Hit the FDIC?

The last standout to the Moral Hazard Brigade has finally joined ranks. The FDIC is considering bailing out the banks!!! From IDD Magazine:

WASHINGTON — As the number of bank failures continues to rise, some industry representatives are making a case that amounts to political heresy: the Federal Deposit Insurance Corp. should prop up dying institutions rather than letting them collapse.

Published in BoomBustBlog

As anticipated in the latest forensic analysis, JPMorgan Chase & Co., the biggest credit-card lender, said defaults climbed to a 2009 high of 8.81 percent from 8.02 percent in October. Delinquencies for the New York-based bank fell to 4.9 percent from 4.95 percent.

pdf JPM Public Excerpt of Forensic Analysis Subscription 2009-09-22 14:33:53 1.51 Mb

pdf JPM Forensic Report (092209) Final- Retail 2009-09-24 03:12:17 130.93 Kb

pdf JPM Report (092209) Final - Professional 2009-09-24 03:13:31 550.72 Kb

Defaults at Bank of America Corp., the No. 2 card lender, fell to 13 percent from 13.22 percent, while late payments increased to 7.69 percent from 7.59 percent, the Charlotte, North Carolina-based bank said in a federal filing.

pdf BAC Swap exposure_011009 2009-10-15 01:02:21 279.76 Kb - Is BAC the next AIG?

Capital One Financial Corp., the third-biggest issuer of Visa Inc. credit cards, posted increases in defaults and delinquencies. Write-offs climbed to 9.6 percent from 9.04 percent, and payments at least 30 days overdue rose to 5.87 percent from 5.72 percent, McLean, Virginia-based Capital One said.

Published in BoomBustBlog
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