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April 03, 2009

Reggie Middleton on the latest Mark to Market Rule Changes...
by Reggie Middleton

A lot of people have been asking my about my opinion of the latest M2M rule changes. Well, I find it to be a travesty that political pressure and corporate lobbying can actually change the way accounting is done. Note, I say it is a travesty, but not a surprise. I should be grateful, though. This actually means that I should be making more money as people will undoubtedly have significantly more problems evaluating companies due to the ADDED LACK of TRANSPARENCY! Hey, more people for me to sell puts to.

In an earlier posting, I made clear that the lack of transparency should bring down the valuation of the entire sector, for when in doubt, devalue - hiding market values and permanent impairment losses does nothing if casts significant doubt. Yes, there will be a momentum trading pop, but I am a longer term investor, and I see these companies being devalued as guys like me start to punch holes in them. Even more profound is that I will not be able to make macro calls on 32 stocks to drop as accurately as before (see the Doo Doo 32), but when I do hit my target, it will be the motherload. The reason, well before the FASB political travesty that just happened, institutions had to move "other than temporary" impairments from the balance sheet to the income statement and take a loss for it. Now, they no longer have to. It was bad enough before, since the impairments that they did take weren't very accurately marked down to market. Now, there's no telling what kind of fairy tale numbers will be thrown at us. There is one thing for sure, though. Many (outside of my blog's paying subscribers, of course) will not see a company's collapse coming until they actually feel the impact of the debris slam against their cranium! FASB has effectively removed the warning signs for everyone who does not have a team of forensic CPAs and CFAs who have no conflicts of interests. In other words, just about 95% of the investment population!

Mark to Market will do nothing to aid the economic values of banks and financial institutions. Cash flows are cash flows, and losses are losses. Calling a loan a performing asset (in lieu of a non-performing assets) does not make the borrower pay his bills! As a matter, it very well may damage economic value of the companies in question due to the warped compensation system therein. For instance, many companies will not act in the best interests of the company and raise capital due to its dilutive effects when share prices are low and costs of capital are high. The alternative is that they risk running undercapitalized, which they now have considerably more freedom to do thanks to the punks pundits at the FASB. Management will receive higher bonuses due to higher per share performance metrics when compared to what they would have received had they went the safer route and diluted, but they run much, much higher risk. If, or more accurately when, the stinky brown mushy stuff hits the impeller blades, splat!!! Corporate implosion, ala Bear Stearns, Countrywide, IndyMac, Lehman Brothers, WaMu, etc. style. Let it be known that I warned on all of these companies months ahead of their implosions (save IndyMac).

Hey, if you catch HIV, and then call all of you political friends, and coerce, threaten or make love to the members of the Medical Boards to change the nomenclature of virus to that of a dermal rash, it does absolutely nothing to extend your lifespan or alter your medical condition. The most it will do is allow you to fool yourself or make it easier for you to pass the disease along to others as you tell them it's just a rash (while still remaining within the confines of technical veracity) as you infect them and put their lives in danger. Just keep that in mind when evaluating the financials under the M2M rules.

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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