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September 18, 2008

As I said, the Riskiest Bank on the Street
by Reggie Middleton

For all of those who had/have a buy on Morgan Stanley, contact me for a special institutional subscription to the blog. I have said Morgan Stanley is a very strong short candidate (for about 9 months now).

Wall Street has said the following (from Zacks.com, ABR = average broker recommendation):

Let's see what John Mack, Morgan's CEO says behind closed doors... In the NY Times:

Only a day earlier, Morgan Stanley defended itself from growing doubts about its future, issuing a fairly positive earnings report (Nottt!!) to ward off concerns about its health. But the fear that gripped markets after Lehman Brothers failed also enveloped the firm.

Seeking to avoid the kind of fate that led Lehman and Bear Stearns to collapse, John J. Mack, Morgan Stanley's chief executive, made an unsuccessful effort on Tuesday evening to persuade Citigroup's chief executive, Vikram S. Pandit, to enter into a combination, according to people briefed on the talks.

"We need a merger partner or we're not going to make it," Mr. Mack told Mr. Pandit, according to two people briefed on the talks. Mr. Pandit, a former senior investment banker at Morgan Stanley, said Citigroup was not interested. It is thinking of deals it can strike with consumer banks, like buying the struggling Washington Mutual out of bankruptcy if its reported efforts to auction itself should fail, that would provide it with cheaper deposit funding. A Citigroup spokeswoman declined to comment.

Having failed at that, Mr. Mack entered into discussions on Wednesday with Wachovia and several other banks, people briefed on those discussions said. The talks with Wachovia are preliminary and a deal may not emerge. The banks declined to comment.

Let's take a look at the Golden Boys:

Look at what I said vs what the guys that most retail investors and family offices give their money says...

This is the verbage (that's verbage, not garbage) that accompanies these reports via hyperlink:

Recommendations Research Page

Brokerage Research firms spend over a billion dollars a year to fully analyze and recommend stocks to their clients. Most of that expense is paid out as compensation to a group of highly intelligent, and well compensated, equity analysts. It is usually in your best interest to know what these Wall Street heavy weights think about your stocks before you make buy, hold, sell decisions. And there is no better place to gather that information than on the Recommendations research pages on Zacks.com.

Okay bloggers and bloggettes, this doesn't make any damn sense. Why would anyone not want to subscribe to truly independent research is beyond my reckoning. Mediocre independent research is better than top notch biased research any day. Just imagine what mediocre biased research will offer you.

I know I may be a little biased on this topic because I may stand to gain from selling subscriptions, but let me make this very clear - I am an investor first and foremost. That is what I do all day, everyday. The blog always has, and probably always will, operate at a significant loss.The only reason I am bothering to make this post is because I am absolutely awed by the stickiness engendered by the sell side brokerage marketing machine. One would think that this site (or any independent research site) would be oversubscribed, if anything just because there is chance they may be trying to tell the truth. Okay, rant and rave is now offline...

If one were to consider the downloadable reports and analytical html posts that I offered for free to be recommendations akin to the Zacks chart above, the following would be the approximated cash returns.

	Blog post date	Companies negatively Blogged	Price as of Blog Date or following trading day	6/23/2008	% change	Assumed Holding Period in Months	Holding Period Return
2-Sep-07	1-Sep-07	len	$28.57	$12.72	(55.48%)	12.57	103.65%
		hov	$12.60	$7.14	(43.33%)	12.57	81.18%
		ctx	$29.12	$14.72	(49.45%)	12.57	93.41%
		dhom	$2.08	$0.55	(73.56%)	12.57	141.62%
	1-Sep-07	bzh	$11.29	$6.55	(41.98%)	12.57	78.48%
	1-Sep-07	bsc	$114.13	$9.43	(91.74%)	12.57	174.30%
		cfc	$19.81	$4.25	(78.55%)	12.57	151.60%
	3-Sep-07	mbi	$61.92	$9.71	(84.32%)	12.50	163.15%
		abk	$64.63	$5.77	(91.07%)	12.50	176.65%
	8-Sep-07	wm	$34.74	$2.01	(94.21%)	12.53	182.94%
	16-Oct-07	ryl	$23.96	$23.76	(0.83%)	11.27	(3.82%)
	19-Dec-07	ms	$50.08	$21.75	(56.57%)	11.27	107.65%
	8-Jan-08	ggp	$33.90	$20.37	(39.91%)	11.27	74.33%
	19-Feb-08	leh	$53.57	$0.13	(99.76%)	6.97	196.94%
	8-Feb-08	ago	$21.57	$13.04	(39.55%)	7.33	76.52%
		ms	$45.28	$21.75	(51.97%)	7.33	101.36%
		wfc	$31.69	$33.43	5.49%	7.33	(13.56%)
		gs	$177.36	$114.50	(35.44%)	7.33	68.31%
		wb	$34.72	$9.12	(73.73%)	7.33	144.89%
long	17-Mar-08	bsc	$4.81	$9.33	93.97%	6.03	180.18%
	27-Mar-08	kfn	$12.71	$6.53	(48.62%)	5.70	94.67%
	2-Apr-08	jef	$17.15	$19.31	12.59%	5.53	-27.76%
	15-May-08	pnc	$69.39	$71.96	3.70%	4.10	-9.98%
doo-doo list	22-May-08	bpop	$11.52	$8.00	(30.56%)	3.87	58.54%
		wm	$9.45	$2.01	(78.73%)	3.87	154.89%
		cfc	$4.69	$4.25	(9.38%)	3.87	16.19%
	16-Jun-08	ge	$28.97	$23.39	(19.26%)	3.07	35.95%
						Average	Average
						7.82	75.62%

I would like everyone to mail this post to anyone who thinks shorting investment banks should be halted. With a performance recorded like the one's stated above, it is no wonder why managment finds their own investment performance to be a magnet for short sellers. Feel free to run any stock in blog table above through the Zacks.com ABR query and report your findings back to the blog.

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

Visit his blog Boom Bust Blog.

Copyright © 2007-2009 Reggie Middleton

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