DISCLAIMER This is in no way, shape or form, fluid and function, an analytical, qualitative or intelligent compte rendu. There is absolutely no financial advice here because the only financial advice I can give is to research, research, and research. The purpose of this analysis is to serve as an example of an investigation into a company's background, fundamentals, and assets through various lenses to determine what is a good potential investment. The function of this write up is to serve as an educational resource for investors looking to understand how to find good investments. So read and learn some things about a bank that might just bust.
Thesis Archegos and Credit Suisse. A thesis of two names simplifies the core mechanisms behind this author's theory of the rise of the fall of the big banks. While history might bear the true weight these two bare upon current times, the evidence is clear that the pillars are crumbling that once held the majestic financial institutions. As Credit Suisse continues to unravel, Archegos' has pulled back, and the true picture remains unknown. While Credit Suisse brought in their own investigation on the critical systemic errors in their risk management philosophy, the core issue is that Credit Suisse took on more risk than they were liquid for, all for small fees. Archegos' manipulation and predation on the greed of Credit Suisse, Goldman Sachs, UBS, etc., doesn't raise the question of how they got away with it, but why? Why were the big banks willing to give so much money for so little?
Perhaps it is the sudden realization that the equities market is the lynchpin of the world stage and they are mere attendants to the stage. The hyperinflationary wealth of the world's elite can be directly linked to the wealth creation that the stock market brings. Companies with greater monetary value than sovereign countries with millions of residents; the stock market is the portal to a critical dissociation of the world's manifested power versus unmanifested. That is to say, that the might of the voice is not carried by the souls proclaiming, but the strength of the gold it carries. At which point could Apple, a corporation worth over 2 trillion dollars, decide to wage economic warfare upon a country via suppression of their currencies value, the suppression of the value of their companies via short selling them, or complete corporate control by buying key elements to their power grid, communications grid, housing, farming, water or oxygen?
To this end, the greatest creation of wealth isn't Musk's Tesla, Gates' Microsoft, Job's Apple, or Bezos' Amazon; it is the creation of Kenneth Griffin's Citadel, Jeff Yass' Susquehanna, and Steven Cohen's Point72. While Musk et al companies are true marvels of the modern world, many came before it worth far less, even relatively. It is the development of a system that allows unlimited wealth creation that is the true marvel in the economic world. Governments print currency, backed in some form of word or might; the stock market prints billions of dollars of wealth out of nothing and backed by nothing. The loss of the dividend as the final blow, or just another in a masterstroke of separation of the value and meaning of wealth from the real world to the financial world, the resultant the same. Creation of debt became less profitable than the gaming of volatility around the worth of that debt.
Musk built cars, Gates built computer software, etc., etc., etc.. Griffin, Yass, and Cohen built nothing. Should an author wipe their accomplishments from the texts of history, no greater progress would be lost, no change in the greater welfare of humanity. Yet it is by their hands that the others are fed. These three (and plenty others, but few remain as momentous as these at this current economic juncture) gamified loopholes and market mechanisms to manipulate the creation of unlimited wealth. Kenneth Griffin's Citadel nearly bankrupt in 2008, yet now he is known to manage over $270 billion in assets that he or his personal friends own. The picture is much the same for Yass and Cohen. While correlations to the disappearance of corrupt wealth in Russia, China, etc., could be drawn, the key element remains; the stock market is no longer a reflection of the wealth, and health, of the underlying market, but a tool for the creation of wealth by those that know how to play the game.
How does this lead to Morgan Stanley? Morgan Stanley tried to play it, and got tripped up. Whether by foul play from others or itself, the pipes can be heard in the distance, and the crows gather. Morgan Stanley has been selling equities short, taking loans and writing them as gains on their books to prop up their sorry books; Morgan Stanley has $155 billion in interest rate derivatives, $65 billion in Foreign exchange derivatives, and $43 billion in equity derivatives, and writing them all off as positive net Assets. Bold of Morgan Stanley to assume they win all those bets. If words are art, the following excerpt from Pamela Russell at Better Markets must be a page from the Kama Sutra:
"Systemic risk from secret and interconnected leverage, trading and derivatives in astronomical undisclosed amounts continue to permeate the shadow banking system and remain as dangerous today as it was in 1998 when the Long-Term Capital Management hedge fund blew up. And, as in 1998, 2008 and 2020, Wall Street’s largest, taxpayer-backed and bailed-out too-big-to-fail banks are at the center of creating and selling these dangerous products and enabling this high-risk conduct."
The true poison from the pages of Morgan Stanley's latest 10-Q isn't the deficits seen, but the ones hidden. It is unlikely that Morgan Stanley finds the leadership or guidance for these tumultuous periods, and Powell's heavenly coddle of them may soon end as his wings are clipped. To this end, Credit Suisse may be the most public image of a crumbling system, and if it falls, Morgan Stanley will join Lehman and Bear Stearns.
Morgan Stanley equity holdings analysis[/I] Just the largest 10 holdings here, check out their "full" whalewisdom.com/filer/morgan-stanley This is in no way their full holdings, just their primary Hedgefund's holdings. MS works like any other bank, they hold their client's money and securities, meaning it is very difficult to separate what is theirs and what isn't, but the bad part is it doesn't matter. If Morgan Stanley the bank crashes, so does it's holdings. If you are a client of MS, you are protected up to the FDIC limit, and no more. Your equities have a separate protection division, but if MS should fall, so too will all the stocks it holds, barring the NSCC's new equity REPO facility.
AMZN -5.6 million shares Recent sell of 660k shares. For those of you who missed this, (northmantrader.com/2021/08/02/the-wyckoff-problem/)AMZN looks to be hitting a big peak. While they are certainly hitting their milestones and advancing with their objectives, the basis for their extreme valuation is that they would continue to be extremely dominant in everything. This author believes retail investors may just be the spear head that disembowels Amazon's stranglehold, with companies like GME and WISH gaining a prominent investor base, allowing these companies to raise capital to compete and have a social platform to see that follow through. While this author doesn't respect WISH all too much, y'all should know I am 100% behind the GME movement.
SPY -43 million shares Most recent purchase of 8 million shares, it is likely that MS is going to be the first bank crushed by a crash in the indices, or is going to be the reason for the crash in SPY when they need to liquidate their portfolio for their stupid derivative bets and CDO bullshit that got them crushed in the first place.
MSFT - 65.4 million shares Most recent sell of 3.8 mllion shares, MSFT has had a great run, but they may be facing issues they didn't think they would have to; a bipartisan push on an effort to break up big tech, competitors disrupting their government base like PLTR (even though I loathe that company, the threat to Microsoft has to be addressed). This author has the belief that too many view the blue chips as too permanent. All companies fall eventually.
AAPL - 122.4 million shares Same story, selling 8 million shares. AAPL is monstrously large for monstrously little reason. They have accomplished some of the most successful business maneuvers imaginable, but how much longer do they get to keep it up? Their fanbase remains ravenous, their followers devout, their investor-base rock solid, but can they keep bringing money in, or will they exist to be a reference for inflation?
V - 41.2 million shares It feels crazy to think that Visa's reign may one day come to an end, but with quickly developing services like BTCUSD Lightning network, Paypal, Venmo, etc etc etc, it is difficult to think that if some massive collapse of the old financial world happens, V would maintain their own position.
FB - 25.7 million shares Not much to say, FB has at no point in it's history been profitable, nor been close to even the hopes of profitable. They exist as a mechanism of control of the public and the private accumulation and distribution of the public's private information. Aside from the rising sentiment against Facebook by their own userbase, the development of alternative social media platforms like Reddit and Twitter, its reasonable to assume a government crackdown on Facebook isn't just overdue, but extremely necessary as a measure to show corporate greed has no right to own people's social sphere.
UBER - 129 million shares Recent purchase of 7 million shares because their CIO must be actually brainless. UBER is dead, right now is just the silence before the body hits the floor. While UBER might not declare bankruptcy too soon, it is hard to see a world in which they keep winning legislative battles in europe or America. Their margins suck. They can't seem to stop assaulting their female staff, and they can't seem to hire a competent board of directors with an interest in anything more than assaulting their female staff.
SHOP - 6 million shares Recent purchase of 1.2 million shares. This author knows very little and understands less of the marketing world. From a basal level, Shopify looks good, but if this is one of the few good holdings, MS is in big trouble.
QQQ - 20.9 million shares Bought 2.6 million more shares. There are many authors who have studied and went into the current machinations behind QQQ, but very few analysts see sunshine behind those clouds.
MA - 18.5 million shares 1.4 million in a recent buy, it is starting to feel like MS is clinging to the old finance world and isn't doing a good job of rotating into the new one. Same view as V. There are so many mechanisms behind MA and V valuation, and their networks for payments was once thought to be unbeatable and unshakable… but now random food vendors in the middle of El Salvador have the ability to use BTCUSD as legal tender without the fees and limits that MA and V survive on.
GOOGL + GOOG - 3.2 + 2.4 million shares, respectively
Fundamentals morganstanley.com/about-us-ir/shareholder/10q0621.pdf Page (20 of PDF/17 on 10Q) is the part where I will focus on the most, namely these: Trading assets at fair value Investment securities Securities purchased under agreements to resell Securities borrowed Loans
First off, never trust these numbers because no one goes through and audits these forms. Trading assets at fair value sounds and smells like bullshit, where they openly admit that loans held at fair value. While this author doesn't presume to know 100% that Morgan Stanley is hiding bad bets as loans in trading assets, their in house department hedgefund has ~180 billion in AUM while their total trading asset valuation is 315 billion. Furthermore, they have 166 billion in loans.
Breaking down 2 key elements here; Securities purchased under agreements to resell, and securities borrowed. Borrowing securities could be 2 things, first it could be Morgan Stanley borrowing shares to increase their voting power at shareholder meetings, or it is shares sold short but not bought back. Securities purchased under agreements to resell is fine and all, except the valuation is bullshit. These are worth 96 billion dollars only if someone agrees to buy them at "fair value", which they never do. This could become a $96 billion dollar deficit instantly depending on the securities held. A key concept to short selling is buying back. Depending on the spread of those securities, and the impact on the price, seeing $126 billion here is scary. If the underlying stocks raise an average of 30% in price, this becomes a $170 billion loss, which needs to come from something else, like their equities. Utilizing the NSCC's equity repo program would be an interesting solution, except for the part where MS is entirely incompetent at making stable and safe money, so them reaching a point where they can rebuy their equities from the NSCC becomes a bit remote. Furthermore, I don't believe this will see a 30% increase in price. Furthermore, there is a non-zero chance a significant amount of this debt is on GME, AMC and the other Memestreet stocks, where a 10x multiplier isn't unreasonable. When analyst's say things like "GameStop could kill the major banks", it is because it is a boot on the neck of every major financial institution. If Morgan Stanley itself did not short sell GME, it is likely their sponsored Hedgefunds did, which makes that debt rest on their shoulders regardless.
Including loans as a plus instead of a negative is also a big no no. How this was allowed by the SEC to fly through is unbeknownst to me, but putting money on your books that isn't your money isn't correct. In general, one must pay back a loan, not keep it forever on their books as a positive.
On the same page, their liquidity is not in a great place. In general, money kept with the U.S. government isn't liquid. That isn't money given back to you if needed, that is money kept in the event that that institution melts and is used to clean up the mess. Furthermore, their liquidity has $110 billion in mortgage backed securities, assuming their fair value being the highest price possible, a Fed tapering of MBS will kill this. True liquidity is possibly closer to $10 billion with cash deposits. Unencumbered HQLA Securities is only unencumbered if the issuing government has the ability to pay back, and with a debt crisis ongoing, counting on the US government to back you up (again), is not a great play.
Morgan Stanley and RRPs RRP (reverse repurchase agreement) works in that a basket of securities is given worth X amount to Morgan Stanley, Morgan Stanley gives X dollars. Only Morgan Stanley doesn't know what is in the basket of securities and Morgan Stanley doesn't hold the basket of securities, JP Morgan or BNY do. The concept of an RRP is plain stupid, the arrogance insurmountable, and the potential fraud and corruption surrounding palpable; this author has zero confidence that anything in an RRP is real, or anything more than magic. Morgan Stanley relies on a blinded system to give $222.6 billion USD to borrowers and receives nothing but another banks promise that they did their job. Morgan Stanley out of all other banks should know to never trust a bank, with having made and sold so many MBS swaps pre-2008 that they relied on heavy government bailouts to survive, potential investors of Morgan Stanley should definitely be made aware of this empty promise of $223 billion in RRP securities; If the borrower goes bankrupt, Morgan Stanley doesn't get the money, and the securities are at "Fair value", meaning it is at the maximum price possible, and as calls/puts are eligible for RRP, it is extremely likely that if Morgan Stanley loses the money, and is left holding the RRP securities, they have an even bigger problem on their hands.
Fair Value of Derivative Contracts "Oh Romeo, oh Romeo, won't you give me high book value for my worthless interest rate derivatives?" -Morgan S. Shakespeare
There isn't much to say here other than the fact that derivatives, and the true value of the respective theoretical gains and losses: It ain't over 'til the fat lady sings. The true unrealized losses from Morgan Stanley's derivative contracts (spread from Interest rates on who knows what, FOREX, Credits, Equities, and Commodities) are unknown until they are done. Unfortunately, with the most likely holder of the other end of the derivative being a hedgefund as a means to hide phantom shares, these contracts aren't worthless, but are a sitting time bomb of exponential debt. A fake contract to hide phantom shares isn't worthless, it’s a contract tied to a share that should not exist, and the holder of said share is responsible for the identity, and the cost of said share. If Morgan Stanley made a ton of calls and puts to create GME shares, they are going to be the ones who have to buy it back at the market. If 1% of their equity derivatives is GME:
$430 million dollars of GME derivatives, assuming a fair value is the underlying value of the shares, a derivative contract for GME as of June 30, 2021 was 210x100 or $21,000 dollars, results in 21,500 derivative contracts, or a net underlying obligation of 2.15 million shares of GME. If any sort of MOASS happens, there is no way to fundamentally cover that for these institutions. Liquidating every single asset, using all deposited cash, loan, every ounce of liquidity will not matter. At $10,000 per share for GME, assuming they are only in the hole for 2.15 million shares, is 21.5 billion dollars. If there is any sort of market crash or a second wave of memestreet stock rebound, the very financial institutions that made this world will crumble.
Disclaimer This is not to serve as financial advice, nor guidance on any world event, etc., etc.. This article is a reflection of my own personal views. I have no financial investment in Morgan Stanley as of the date of publication, 8/14/21. I do believe an economic event is about to happen, as I write extensively about hyperinflation and how equities are the safest place for that event (as crazy as it is so say out loud). I have no idea how to perfectly manage the chaos, nor when exactly it will happen, but I have 50% of my money in CVM and 50% in GME. As a small individual investor, I am able to consolidate more safely than bigger funds, and the perfect hyperinflationary asset to own is a cure for cancer and the company that is acting as a lightsaber through the blaster doors of the Wall Street elite.
Thanks for the writeup, but I have so many problems with this article lol.
1.) Firstly, your positions. CVM just FAILED its primary endpoint trial and will be relegated to selling its SoC product to a much MUCH smaller market. They did not "cure" cancer, lol. Also, GME? I'm sure there are those that disagree with me, but this stock will leak it's way back to fair value near 50 for the next year or so, barring some Jan-like incident. Not sure why one would have 50% of their net worth in this.
2.) The whole article smells like a politically fueled anti anarcho-capitalistic rant that's heavy on narrative and REALLY light on facts.
A sampling:
"As Credit Suisse continues to unravel, Archegos' has pulled back, and the true picture remains unknown."
-- CS is not unravelling, they took a huge write off. Archegos hasn't "pulled back", they are completely out of business. The dollar figure lost IS known.
"Why were the big banks willing to give so much money for so little?"
-- Pre-supposes perfect competency on the part of CS's (and others') prime brokerage arms. They take risks, and sometimes they get smoked. The way you presented a risk going bad in such a conspiratorial light is either a complete lack of understanding on your part or a bad faith effort to spread some dystopian view with no basis in reality
"The hyperinflationary wealth of the world's elite can be directly linked to the wealth creation that the stock market brings."
-- We can argue about the "hyperinflationary" part, but yeah. Owning productive assets is the biggest driver of wealth long term. You say this like it's some secret knowledge that's a detriment to society.
"That is to say, that the might of the voice is not carried by the souls proclaiming, but the strength of the gold it carries. At which point could Apple , a corporation worth over 2 trillion dollars, decide to wage economic warfare upon a country via suppression of their currencies value, the suppression of the value of their companies via short selling them, or complete corporate control by buying key elements to their power grid, communications grid, housing, farming, water or oxygen?"
-- Not sure how to reply to this ridiculousness
"the stock market prints billions of dollars of wealth out of nothing and backed by nothing. The loss of the dividend as the final blow, or just another in a masterstroke of separation of the value and meaning of wealth from the real world to the financial world, the resultant the same. Creation of debt became less profitable than the gaming of volatility around the worth of that debt."
-- The stock market isn't backed by nothing, it's backed by the earnings of the companies that participate in global GDP growth. Total nonsense. Also, Market makers and the big banks make NOTHING in profit compared to the rest of the economy.
PropNotes
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@DiscordiaResearch, 3.) "Musk built cars, Gates built computer software, etc., etc., etc.. Griffin, Yass, and Cohen built nothing. Should an author wipe their accomplishments from the texts of history, no greater progress would be lost, no change in the greater welfare of humanity. Yet it is by their hands that the others are fed."
-- Yes, capital allocators are important fixtures of society, in a society like ours where there exists a double co-incidence of wants and the two inputs to business are labor and capital. There are markets for both. Why are you fixating on those that play that role? If they didn't exist or that capital suddenly disappeared you can bet your ass things would change.
4.) " Morgan Stanley has been selling equities short, taking loans and writing them as gains on their books to prop up their sorry books; Morgan Stanley has $155 billion in interest rate derivatives, $65 billion in Foreign exchange derivatives, and $43 billion in equity derivatives, and writing them all off as positive net Assets."
-- I'm genuinely not sure if you're unfamiliar with how banks work, but in order to run their ACTUAL business -- market making -- they have to leverage their balance sheet in order to have inventory ready to buy and sell in the markets they participate in. P/L is per-trader attributed and controlled on that individual level. Those lines on the balance sheet don't just represent huge bets, they represent the inventory MS must keep in order to run their business. MS is not interested in taking directional risk 99% of the time within their capital markets desks.
5.) Equity holdings analysis pre-supposes that MS is failing and they will have to sell everything. Last time I checked, their balance sheet is rock solid, and they are growing profits and book value per share. The only reason you are STARTING from a place of "everything is going to fail" is because you've pre-bought into this conspiratorial zerohedge-like framework that has nothing to do with reality on the ground.
6.) It's clear that RRP's are not in your wheelhouse so here's a quick explainer to help understand what they are. Bank A has excess cash above reserve requirements. Bank B needs cash to meet reserve requirements. Bank B sells some assets to Bank A in return for cash, so they can meet cap req's. Bank B gets their assets back after some pre-determined time and they return the cash. They are simply the way by which idle cash is put to use and the system remains evenly capitalized.
DoctorFaustus
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@DiscordiaResearch, Dude, I don't know how to tell you, but in 2008 you would have lost everything. You are giving the same big bank and economist answers to every criticism that the banks and financial institutions have always faced, and with giving all those old answers, you fall into the same trap and prove yourself wrong. You assume that the rules of the game are absolute to the point that there can be no failure, that the government and banking system will figure it out and come together to make it work.
I went through 2008 in the same position. I promise you this, if you continue to put your blind faith and trust in the intelligence of the big banks, you are going to get burned. Spend some time to at least look into my criticisms. Prove me wrong rather than leave me unproven right.
PropNotes
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@DoctorFaustus, Capital levels are 1000x better than they were back in 2008, and we JUST went through a MASSIVE black swan event with COVID and our banks passed with flying colors.
I have looked into the doomer criticisms. I've analyzed thousands of companies over the last several years. I don't think narrative-based ad hominem attacks based on a crisis more than a decade old have any bearing on reality.
I looked through some of your posts and one sentence you wrote from a TAK idea stuck out:
"What the actual &#@$ is wrong with the world when the announcement of final submission of a multi-dose multi-nation massive epidemic that has the threat of spreading to the rest of the world, especially as mosquitoes capable of carrying the dengue virus have been found to have invaded into the US, doesn't do shit for your price?"
Believing strongly in narratives (even when the facts are on your side, which in this case, they aren't) is a tough way to make money. That's all I'm advocating at the end of the day. Early is the same thing as wrong.
That said, I love your page's quote!
"An hour of research could be worth a million dollars; there is nothing that you can't do, so believe in yourself and get to work!"
Indeed it can.
Stockystockman
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good read, and generally agree with a lot of your points. However, be mindful a lot of people have been betting on an "economic event" for some time now and that was way back before spy hit 300. The Federal Reserve has turned the stock market into a casino after their 2008 antics and there is nothing close to fair value in the market these days. The Feds are in a crisis based on what they started after the 2008 crisis, COVID made it worse. The massive bull run after 2008 was largely in part due to the Feds indirect help. I have no idea why they were supporting the market long after the 2008 crisis. Now coupled with the fact that banks and companies have hoards of cash they don't have anything else to do but buyback shares which further fuels the fire. They have created a scenario where the market has had an impossible time retracing. All that money they have been pumping into the market has never been so disconnected with the economy. Even a 30% retracement and almost all companies are still gong to be overvalued according to their individual metrics. the biggest gripe I have is that the 3 major all the indices are so heavily concentrated in just a handful of companies and a single company could single handily collapse the indices. The fact that the stock market keeps hitting new highs and the bond market is dying even after speculation of interest rates being raised soon means two things: they aren't raising rates anytime soon, or the bond market is going catastrophically collapse to junk. Stay nimble.
Very_Old_Guy
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As often happens on TView, the comments are as interesting as the article. Thanks folks.