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August 26, 2009

The FDIC as a Catalyst, or the New Doo Doo 32!
by Reggie Middleton

Yes, I am still bearish on the market. I try, and I try, but I still cannot find the fundamentals (or even the forward looking promise of the fundamentals) to justify the markets run up. What does that mean? Well, to me, it means the market will probably have to come down again, or earnings will have to skyrocket upwards. Since practically all earnings "beats" were off of dwindling revenues and were achieved through multiple lowered analyst expectations coupled with extensive cost cutting, this upcoming earnings season will not feature the same catalysts.

In the meantime, I have missed out on, and have disgorged some profits during, this historic bull run. It has been a traders market, not a stock pickers market - and I am a stock picker not a trader. I have instituted a market neutral strategy that basically allows me to hover while waiting for the next big catalyst. Since it is neutral, I will benefit from the catalyst pushing up or down. I think it will be down, but I have to hedge since I have admittedly underestimated the extent of this 5 month rally.

One area where I am very good at picking stocks, the financials, actually features an advocate that can act as a catalyst. While the accounting boards and the government collude in assisting the banks to hide losses, in an attempt to conceal failure until hopefully earnings pull them out of the hole, the FDIC comes in and actually closes failed banks and sells them off. I am looking at the pattern of this behavior and plan on using it to anticipate future bank closings, of which I anticipate there will be many more.

So what does a bank look like that is about to be closed by the FDIC? Well, here's a snapshot of recent failings of banks with over $1 billion in assets:

As you can see, the numbers are all of over the place, but there are a few common denominators which I will share with subscribers in the next major research release, as well as the list of banks that I feel are likely to be deemed a failure by one of our only true government advocates in realistic bank analysis, the FDIC.

Since I feel "Banks are actually worse off now than they were before" and the original Doo Doo 32 list was so prescient (many of the banks on the list no longer exist, or are trading in the single digits), I feel confident that the Doo Doo list - part two, will bear fruit. Don't get me wrong, I am far from a perma bear, but I really need the promise of earnings and value to justify going long, not just the fact that share prices have increased. For those that can remember, following momentum while blindly ignoring fundamentals was how everyone lost their shirt in the dot.com crash. Then again, that bubble was notoriously hard to short as well.

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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