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The F.I.R.E. Is Set To Blaze! Focus On Banks

Reggie Middleton's picture


In the beginning of the year, I appeared on CNBC extolling the risks of the F.I.R.E. sector, Reggie Middleton Sets CNBC on F.I.R.E.!!!.


The day after the warning on the insurance portion of F.I.R.E it was announced that Insurers’ 2011 Catastrophe Losses Hit Record. I was the only one in the mainstream media warning of the multi-sector risk that I know of. As a matter of fact, there were several personalities stating the exact opposite of the main man (and I don't meanLobo).


 Now, as you can see, there is a one quarter trading pop where the banks did well, but looking at the big picture and factoring in today's macro climate, I think it's easy to see where banks are bad news. Just ask Mr. Dimon. Where I believe Mr. Bove went wrong in the moderate term analysis is he, again, severely underestimated both the macro outlook for the banks, the fundamental risk of the trash on the balance sheets (almost none of which we are truly privy to) not to mention the extreme risk of the trading practices of these entities. These are the primary reasons why I have been so bearish on them. Time will tell who is right, and I believe I have time on my side.

Now, Dick Bove and I (with all due respect to Mr. Bove, this analyzing and predicting stuff is not easy!) have disagreed in the past, and more than once or twice - see CNBC Favorite Dick Bove Admits To Being Wrong On Banks, But For The Right Reasons, But Those Reasons Are Still Wrong!!! For those not familiar with Mr. Bove, he made an interesting bullish call on Bear Stearns which was essentially antithetical to my research - which essentially said Bear Stearns was done for back in Jaunary of 2008, see Is this the Breaking of the Bear? By March of 2008, Bear Stears was essentially done for. We also disagreed on Lehman Brothers, where Dick was bullish and I was quite bearish (see ). Karl Deninger's post from the Market Ticker explains the story explicitly, but of course from Karl's perspective, so to be fair to Dick all should keep that in mind:Dick Bove, Bear Stearns, And Controversy

Now, Dick Bove not withstanding, the sell side followed my lead for the big investment banks, albeit materially later. As excerpted from First I set CNBC on F.I.R.E., Now It Appears I've Set Sell Side Wall Street on F.I.R.E. As Well!!!:

If you remember, I also gave explicit warnings on the media's favorite bank, the "untouchable" Goldman Sachs! Well, it looks as if I've actually set the Wall Street Brokerage house on F.I.R.E as well. Lookee here: UBS, Goldman, Morgan Stanley Earnings Estimates Cut By JPMorgan Cazenove

JPMorgan Cazenove analysts cut their earnings outlook for investment banks for 2011, 2012 and 2013, citing worsening conditions in fixed income and equities.

Hmmmmm.... Where have we heard that befre???

UBS AG (UBSN) had its 2011 earnings-per-share estimate trimmed by 4 percent and the 2012 estimate by 11 percent, JPMorgan analysts including Kian Abouhossein said in a note to clients today.JPMorgan also curbed its Goldman Sachs Group Inc. (GS) forecast for 2011 by 37 percent and the 2012 figure by 19 percent.


The earnings downgrades of banks including Goldman and UBS “reflect weaker investment banking client activity and lower volumes across the board than previously anticipated,” JPMorgan’s analysts said. “Consensus needs to come down to reflect the weaker-than-expected environment” in 2011’s fourth quarter, they said.

JPMorgan also cut forecasts for other banks including Morgan Stanley (MS), whose estimates were reduced by 5 percent for 2011 and 17 percent for 2012.

From what I understand, Wells Fargo also issued a similar report on Goldman! Quite timely, fellas! Although this is not the First Time The Vampire Squid Get's Outed On TV!, I do believe it was the first time it was outright outed on the big MSM stations such as CNBC. Of course the sell side follows suit, after the fact. To wit, CNBC Favorite Dick Bove Admits To Being Wrong On Banks, But For The Right Reasons, But Those Reasons Are Still Wrong!!! I would like all to remember that Goldman, et. al. Suffer From The Same Malady That Collapsed Lehman and MF Global, Worlds 1st and 8th Largest Bankruptcies! This is proof positive that the BoomBustBlog Forecast Pan-European Bank Run Has Breached American Soil!!! Investors, pundits and analysts can sit idly by while Squids, Morgans & Counterparty Risk Blow Up The World One Tentacle At A Time or they can actively do something about it. The decision is yours to make.

Times are changing, y'all. Hey, when are rating agencies going to jump into the fray? Not! Maybe its time to pose the question "What Is More Valuable, The Opinion Of A Major Rating Agency Or The Opinion Of A Blog?" Go Ahead, I DARE You To Answer! In case I haven't delivered the hint strongly enough, let me be blunt. I'm directly challenging the the Sell Side house that is just now catching F.I.R.E. - Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

Just As I Predicted Last Quarter, The World's First FDIC Insured Hedge Fund Takes A Fat Trading Loss


I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & IntroductionI'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction  

I'm Hunting Big Game Today: The Squid On A Spear Tip

Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also...

 Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?  

Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part...

Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!

Hunting the Squid Part 3: Reggie Middleton Serves Up Fried Calamari From Raw Squid

For those who don't subscribe to BoomBustblog, or haven't read I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction and Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?, not only have you missed out on some unique artwork, you've potentially missed out on 300%...

 Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!  

Hunting the Squid, part 4: So, What Else Can Go Wrong With Goldman Sachs? Plenty!

Yes, this more of the hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3:  I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To...

Hunting the Squid, Part 5: Sometimes Your Local Superhero Doesn't Look Like What They Show You In The Movies

What Was That I Heard About Squids Raising Capital Because They Can't Trade?

Reggie Middleton vs the Squid That Can't Trade!

On that note, I post this update on our outlook for the venerable Goldman Sachs for subscribers (click here to subscribe): icon GS Revenue Analysis_Q2 12 (103.95 kB 2012-06-13 10:39:33).

I will review the other sectors of my FIRE thesis in upcoming posts, leading with CRE and European banking.

For those who are encountering me for the first time or don't know who I am, feel free to find the answer to the question "Who is Reggie Middleton?" 

 Relevant subscriber research:

icon Goldman Sachs Q3 Forensic Review - Professional (746.08 kB 2011-08-22 10:25:06)

icon Goldman Sachs Q3 Forensic Review - Retail (509.83 kB 2011-08-22 10:27:36)


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Wed, 06/13/2012 - 15:43 | 2523095 CTG_Sweden
CTG_Sweden's picture


I have said this before, but Reggie Middleton would probably give a more credible impression by wearing a 3p suit rather than the "hunting the squid" outfit. No J.P. Morgan or Goldman Sachs analysts use similar visual tools in order to reinforce their messages. They would not look credible if they would do that. 

Wed, 06/13/2012 - 15:21 | 2522948 boogerbently
boogerbently's picture

How many "analyst/experts have we heard with LUCID explanations of why BAC (and others) are actually INSOLVENT??

I thought it was funny how quickly they got him off the air.

Wed, 06/13/2012 - 15:18 | 2522931 boogerbently
boogerbently's picture

We laugh at EU, but we are guilty of the same thinking.

1) We can't survive without these TBTF banks.

We can't/won't "regulate" them into responsible investing.

Without "regulating" they have NO reason to confine themselves to responsible investing.....

2) We expect congress to "do the right thing". (regulation enforcement)

Doing the right thing will lower their personal income. (lobbying $$$)

Congress will NOT do the right thing.....

3) Congress/politicians bought their positions with the promises of entitlements.

NO ONE wants to accept LOWERED entitlement benefits.

The dollars required to pay those benefits is no longer available because...... (see scenario #1)


Wed, 06/13/2012 - 15:17 | 2522928 Zero Govt
Zero Govt's picture

Excellent Reggie

nothing cheers me up like miserable news on Goldman and Morgues trading risks

Wed, 06/13/2012 - 14:33 | 2522683 dmger14
dmger14's picture

Bove is an idiot who should retire to a nursing home.  I'll take Reggie's analysis over Bove any day. 

Wed, 06/13/2012 - 14:25 | 2522632 cossack55
cossack55's picture

Stickin' the knife to them is OK but to hear them really scream you gotta twist.

Wed, 06/13/2012 - 13:09 | 2522278 mendolover
mendolover's picture

Where can I get a pair of shorts like yours Reggie?  Great post as usual!

Wed, 06/13/2012 - 12:59 | 2522239 disabledvet
disabledvet's picture

The securities firms can do nothing without the banks. Morgan Stanley may in fact have bottomed here but they are the only one "small enough" to "be believed." the others are not TBTF...they're just too friggin big. Banks that are nothing more than "Government backstops" (that are failing in that regard btw) and as such "not to be believed in their current form." needless to say only the Government can change that form now. The Federal Government that is. Not saying the banks are a buy or sell...but anything "government controlled" and "money" we avoid. Nothing more than a slush fund/funder. Still not bearish over all tho because the private sector controls the energy market...and by extension therefore the entirety of the yield curve. (how do you want your oil? Now or never?) "they'll create a new bank for themselves" if they have to. Europe on the other hand...

Wed, 06/13/2012 - 12:52 | 2522215 Jolly.Roger
Jolly.Roger's picture

I love watching video from six months ago. 

You are such a genius and far seeing soothsayer Reggie. You need to remind people of that a bit more. 

Wed, 06/13/2012 - 12:49 | 2522209 hotkarlandthecl...
hotkarlandtheclevelandsteamers's picture


Wed, 06/13/2012 - 12:40 | 2522181 battle axe
battle axe's picture

So Goldman is toast, I would not bet on it....These guys are vampires, they always return from the dead. 

Wed, 06/13/2012 - 13:20 | 2522249 Doña K
Doña K's picture

A gambler fixer (so called "mechanic" in the business) was called down to Texas to investigate a poker game. These two guys were loosing constantly and they realized they were being had. To verify they brought the mechanic from Vegas and introduced him as a friend who also wanted to participate in the cash game.

Within two minutes the mechanic realized that there was another mechanic operating. Next day, they devised a method by which the Vegas mechanic will stack the deck and they will get most of their money back.

In the following night's game, the local mechanic knew that the new guy was also a mechanic. (BTW: to make sure that there can never be a highest guaranteed winner they had a ruling in their game that the four of a kind can be beat by a 23457) they called it chimichanga.

In that game the Vegas mechanic gave one of his friends a four of a kind. But somehow the crooks ended up with a chimichanga.

Several hands later, everyone was broke except the two mechanics and for all the money in the room, the Vegas mechanic dealt the other 4 aces and kept 23457 for himself.

They went all in and then the Vegas guy shows a chimichanga and attempts to take the money. At this point, the other mechanic said: "In our city, only one chimichanga per night is allowed".

Gamblers don't gamble. The rules will change while you are taking your coffee break.

MFGobal, Maddof, Margin requirements and everything in their disposal will be used to preserve their control and survival.

Stay home, hug your kids, make love to your spouse and keep your PM's, guns, food and whatever else is valuable to you.

Cheers mates 



Wed, 06/13/2012 - 15:56 | 2523154 Popo
Popo's picture

Agreed. I don't care how good an analyst anyone thinks they are. There's no way to calculate political bribes and paid-for legislation with a spreadsheet.

Wed, 06/13/2012 - 14:21 | 2522606 AustrianJim
AustrianJim's picture

>> These two guys were loosing constantly



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