Lars Schall talked with financial analyst Reggie Middleton from New York City. The host of the Boom Bust Blog, who is specialized in financial assets, told Schall about the risks of Credit Default Swaps, specifically for the U.S. banking system.
By Lars Schall
Reggie Middleton: Derivative Markets will Hit U.S. Banks, There is No Way Out
Lars Schall talked with financial analyst Reggie Middleton from New York City. The host of the Boom Bust Blog, who is specialized in financial assets, told Schall about the risks of Credit Default Swaps, specifically for the U.S. banking system. A European debacle could create a “credit event“ that potentially would bring down the system.
“There is not enough equity in the system, because each bank relies on the next bank, relies on the next bank – so it’s like a domino: you push your first domino, then the other domino is going to fall, because there was never enough equity for the first domino to stand on its own in the first place. It’s going to come back and hit the U.S. banks, there is no way out of it.“
The underlying problems for the situation will get worse. In respect to Germany, Middleton said: “Germany lives in the same roach hotel as the rest, although they live in the penthouse suite.“
Connected to gold he said: “You’re argument for gold is that it isn’t so easily manipulated like fiat currencies – which is true.“ However, one has to be cautious, he said, because the purchase of gold get increasingly popular. With regards to gold ETFs he said: “If I would advice a gold investor, I would go for actual physical ownership.“ That’s also a way to bypass the whole derivative system and its leverage. The whole storage issue of the gold is rather suspect according to Middleton who has read some of the prospects of the ETFs.
Derivatives are also a problem in the oil market, where they are used to manipulate the prices, he said: “I think a lot of the volatilty in the oil is due to manipulation in traded derivatives.“ Related to MF Global, he sees uncertainties raised for brokerage accounts. “The issue with MF Global is the ability for excess leverage.“ Banks would become more and more systemic risks. The great geopolitical game in the financial system is going on between the “triumvirat“ of the United States, the EU and China.
Reggie Middleton, host of the Boom Bust Blog (http://boombustblog.com/), that can count bulge bracket banks, hedge funds and proprietary desks, central banks and individual investors as subscribers from all over the globe, is the personification of the freethinking maverick — the ultimate nonconformist as it applies to macro strategies, investment, and analysis.
Finding most available research lacking, both in quality and quantity, Mr. Middleton assembled his own talented research staff. As forensic research is a lynchpin for his own investing, he stands behind it as doing what it is supposed to do – illustrate, elucidate and educate. He is an entrepreneur who exists outside of mainstream corporate America and Wall Street. This allows him the freedom to do things that many cannot—perform without conflicts of interest and corporate politics. Mr. Middleton prides himself on developing some of the highest quality, actionable research available – regardless of price.
He believes ideas and implementations are improved and fine-tuned when bounced off of the collective intellect of the many, in lieu of that of the few – in essence, a form of collaborative open source financial analysis. Mr. Middleton lives in New York City.
