en David Stockman: Woodrow Wilson's War & Why The Entire 20th Century Was A Mistake <p><a href=""><em>Submitted by David Stockman via Contra Corner blog</em></a>,</p> <p><strong><span style="text-decoration: underline;">The Epochal Consequences Of Woodrow Wilson&rsquo;s War </span></strong></p> <p><em>Remarks by David Stockman</em></p> <p><em>Committee&nbsp;for the Republic</em></p> <p><em>Washington DC January 20, 2015</em></p> <p><strong>My humble thesis tonight is that the entire 20<sup>th</sup> Century was a giant mistake.</strong></p> <p><strong>And that you can put the blame for this monumental error squarely on Thomas Woodrow Wilson&mdash;&mdash;-a megalomaniacal madman who was the very worst President in American history&hellip;&hellip;..well, except for the last two.</strong></p> <p><strong><u>His unforgiveable error was to put the United States into the Great War for utterly no good reason of national interest.</u></strong> The European war posed not an iota of threat to the safety and security of the citizens of Lincoln NE, or Worcester MA or Sacramento CA. In that respect, Wilson&rsquo;s putative defense of &ldquo;freedom of the seas&rdquo; and the rights of neutrals was an empty shibboleth; his call to make the world safe for democracy, a preposterous pipe dream.</p> <p>Actually, his thinly veiled reason for plunging the US into the cauldron of the Great War was to obtain a seat at the peace conference table&mdash;&mdash;so that he could remake the world in response to god&rsquo;s calling.</p> <p>But this was a world about which he was blatantly ignorant; a task for which he was temperamentally unsuited; and an utter chimera based on 14 points that were so abstractly devoid of substance as to constitute mental play dough.</p> <p>Or, as his alter-ego and sycophant, Colonel House, put it: &nbsp;Intervention positioned Wilson to play &ldquo;<strong><em>The noblest part that has ever come to the son of man&rdquo;. &nbsp;</em></strong>America thus plunged into Europe&rsquo;s carnage, and forevermore shed its century-long Republican tradition of anti-militarism and non-intervention in the quarrels of the Old World.</p> <p>Needless to say, there was absolutely nothing noble that came of Wilson&rsquo;s intervention. It led to a peace of vengeful victors, triumphant nationalists and avaricious imperialists&mdash;-when the war would have otherwise ended in a bedraggled peace of mutually exhausted bankrupts and discredited war parties on both sides.</p> <p><u><strong>By so altering the course of history,</strong></u> <em>Wilson&rsquo;s war bankrupted Europe and midwifed 20<sup>th</sup> century totalitarianism in Russia and Germany.</em></p> <p><em>These developments, in turn, eventually led to the Great Depression, the Welfare State and Keynesian economics, World War II, the holocaust, the Cold War, the permanent Warfare State and its military-industrial complex.</em></p> <p><em>They also spawned Nixon&rsquo;s 1971 destruction of sound money, Reagan&rsquo;s failure to tame Big Government and Greenspan&rsquo;s destructive cult of monetary central planning.</em></p> <p><em>So, too, flowed the Bush&rsquo;s wars of intervention and occupation, &nbsp;their fatal blow to the failed states in the lands of Islam foolishly created by the imperialist map-makers at Versailles and the resulting endless waves of blowback and terrorism now afflicting the world.</em></p> <p><em>And not the least of the ills begotten in Wilson&rsquo;s war is the modern rogue regime of central bank money printing, and the Bernanke-Yellen plague of bubble economics which never stops showering the 1% with the monumental windfalls from central bank enabled speculation.</em></p> <p><strong>Consider the building blocks of that lamentable edifice.</strong></p> <p>First, had the war ended in 1917 by a mutual withdrawal from the utterly stalemated trenches of the Western Front, as it was destined to, there would have been no disastrous summer offensive by the Kerensky government, or subsequent massive mutiny in Petrograd that enabled Lenin&rsquo;s flukish seizure of power in November. That is, the 20<sup>th</sup> century would not have been saddled with a Stalinist nightmare or with a Soviet state that poisoned the peace of nations for 75 years, while the nuclear sword of Damocles hung over the planet.</p> <p>Likewise, there would have been no abomination known as the Versailles peace treaty; no &ldquo;stab in the back&rdquo; legends owing to the Weimar government&rsquo;s forced signing of the &ldquo;war guilt&rdquo; clause; no continuance of England&rsquo;s brutal post-armistice blockade that delivered Germany&rsquo;s women and children into starvation and death and left a demobilized 3-million man army destitute, bitter and on a permanent political rampage of vengeance.</p> <p>So too, there would have been no acquiescence in the dismemberment of Germany and the spreading of its parts and pieces to Poland, Czechoslovakia, Denmark, France, Austria and Italy&mdash;&ndash;with the consequent revanchist agitation that nourished the Nazi&rsquo;s with patriotic public support in the rump of the fatherland.</p> <p>Nor would there have materialized the French occupation of the Ruhr and the war reparations crisis that led to the destruction of the German middle class in the 1923 hyperinflation; and, finally, the history books would have never recorded the Hitlerian ascent to power and all the evils that flowed thereupon.</p> <p>In short, on the approximate 100<sup>th</sup> anniversary of Sarajevo, the world has been turned upside down.</p> <p>The war of victors made possible by Woodrow Wilson destroyed the liberal international economic order&mdash;that is, honest money, relatively free trade, rising international capital flows and rapidly growing global economic integration&mdash;-which had blossomed during the 40-year span between 1870 and 1914.</p> <p>That golden age had brought rising living standards, stable prices, massive capital investment, prolific&nbsp;technological progress and pacific relations among the major nations&mdash;&mdash;a condition that was never equaled, either before or since.</p> <p>Now, owing to Wilson&rsquo;s fetid patrimony, we have the opposite: A world of the Warfare State, the Welfare State, Central Bank omnipotence and a crushing burden of private and public debts. That is, a thoroughgoing statist regime that is fundamentally inimical to capitalist prosperity, free market governance of economic life and the flourishing of private liberty and constitutional safeguards against the encroachments of the state.</p> <p><u><strong>So Wilson has a lot to answer for&mdash;-and my allotted 30 minutes can hardly accommodate the full extent of the indictment. But let me try to summarize his own &ldquo;war guilt&rdquo; in eight major propositions&mdash;&mdash;a couple of which my give rise to a disagreement or two.</strong></u></p> <p><strong><span style="text-decoration: underline;">Proposition #1:</span></strong><strong>&nbsp; </strong>Starting with the generic context&mdash;&mdash;the Great War was about nothing worth dying for and engaged no recognizable principle of human betterment. There were many blackish hats, but no white ones.</p> <p>Instead, it was an avoidable calamity issuing from a cacophony of political incompetence, cowardice, avarice and tomfoolery.</p> <p>Blame the bombastic and impetuous Kaiser Wilhelm for setting the stage with his foolish dismissal of Bismarck in 1890, failure to renew the Russian reinsurance treaty shortly thereafter and his quixotic build-up of the German Navy after the turn of the century.</p> <p>Blame the French for lashing themselves to a war declaration that could be triggered by the intrigues of a decadent court in St. Petersburg where the Czar still claimed divine rights and the Czarina ruled behind the scenes on the hideous advice of Rasputin.</p> <p>Likewise, censure Russia&rsquo;s foreign minister Sazonov for his delusions of greater Slavic grandeur that had encouraged Serbia&rsquo;s provocations after Sarajevo; and castigate the doddering emperor Franz Joseph for hanging onto power into his 67<sup>th</sup> year on the throne and thereby leaving his crumbling empire vulnerable to the suicidal impulses of General Conrad&rsquo;s war party.</p> <p>So too, indict the duplicitous German Chancellor, Bethmann-Hollweg, for allowing the Austrians to believe that the Kaiser endorsed their declaration of war on Serbia; and pillory Winston Churchill and London&rsquo;s war party for failing to recognize that the Schlieffen Plan&rsquo;s invasion through Belgium was no threat to England, but a unavoidable German defense against a two-front war.</p> <p>But after all that&mdash;- most especially don&rsquo;t talk about the defense of democracy, the vindication of liberalism or the thwarting of Prussian autocracy and militarism.</p> <p>The British War party led by the likes of Churchill and Kitchener was all about the glory of empire, not the vindication of democracy; France&rsquo; principal war aim was the revanchist drive to recover Alsace-Lorrain&mdash;&ndash;mainly a German speaking territory for 600 years until it was conquered by Louis XIV.</p> <p>In any event, German autocracy was already on its last leg as betokened by the arrival of universal social insurance and the election of a socialist-liberal majority in the Reichstag on the eve of the war; and the Austro-Hungarian, Balkan and Ottoman goulash of nationalities, respectively, would have erupted in interminable regional conflicts, regardless of who won the Great War.</p> <p>In short, nothing of principle or higher morality was at stake in the outcome.</p> <p><strong><span style="text-decoration: underline;">Proposition # 2:</span></strong>&nbsp; The war posed no national security threat whatsoever to the US. &nbsp;Presumably, of course, the danger was not the Entente powers&mdash;but Germany and its allies.</p> <p>But how so?&nbsp; After the Schlieffen Plan offensive failed on September 11, 1914, the German Army became incarcerated in a bloody, bankrupting, two-front land war that ensured its inexorable demise. Likewise, after the battle of Jutland in May 1916, the great German surface fleet was bottled up in its homeports&mdash;-an inert flotilla of steel that posed no threat to the American coast 4,000 miles away.</p> <p>As for the rest of the central powers, the Ottoman and Hapsburg empires already had an appointment with the dustbin of history. Need we even bother with the fourth member&mdash;-that is, Bulgaria?</p> <p><strong><span style="text-decoration: underline;">Proposition #3:</span></strong>&nbsp; Wilson&rsquo;s pretexts for war on Germany&mdash;&ndash;submarine warfare and the Zimmerman telegram&mdash;-are not half what they are cracked-up to be by Warfare State historians.</p> <p>As to the so-called freedom of the seas and neutral shipping rights, the story is blatantly simple. In November 1914, England declared the North Sea to be a &ldquo;war zone&rdquo;; threatened neutral shipping with deadly sea mines; declared that anything which could conceivably be of use to the German army&mdash;directly or indirectly&mdash;-to be contraband that would be seized or destroyed; and announced that the resulting blockade of German ports was designed to starve it into submission.</p> <p>A few months later, Germany announced its submarine warfare policy designed to the stem the flow of food, raw materials and armaments to England in retaliation. &nbsp;It was the desperate antidote of a land power to England&rsquo;s crushing sea-borne blockade.</p> <p>Accordingly, there existed a state of total warfare in the northern European waters&mdash;-and the traditional &ldquo;rights&rdquo; of neutrals were irrelevant and disregarded by both sides. In arming merchantmen and stowing munitions on passenger liners, England was hypocritical and utterly cavalier about the resulting mortal danger to innocent civilians&mdash;&ndash;as exemplified by the 4.3 million rifle cartridges and hundreds of tons of other munitions carried in the hull of the Lusitania.</p> <p>Likewise, German resort to so-called &ldquo;unrestricted submarine warfare&rdquo; in February 1917 was brutal and stupid, but came in response to massive domestic political pressure during what was known as the &ldquo;turnip winter&rdquo; in Germany.&nbsp; By then, the country was starving from the English blockade&mdash;literally.</p> <p>Before he resigned on principle in June 1915, Secretary William Jennings Bryan got it right. Had he been less diplomatic he would have said never should American boys be crucified on the cross of Cunard liner state room so that a few thousand wealthy plutocrat could exercise a putative &ldquo;right&rdquo; to wallow in luxury while knowingly cruising into in harm&rsquo;s way.</p> <p>As to the Zimmerman telegram, it was never delivered to Mexico, but was sent from Berlin as an internal diplomatic communique to the German ambassador in Washington, who had labored mightily to keep his country out of war with the US, and was intercepted by British intelligence, which sat on it for more than a month waiting for an opportune moment to incite America into war hysteria.</p> <p>In fact, this so-called bombshell was actually just an internal foreign ministry rumination about a possible plan to approach the Mexican president <strong><em>regarding an alliance in the event that the US first went to war with Germany.</em></strong></p> <p>Why is this surprising or a casus belli?&nbsp; Did not the entente bribe Italy into the war with promises of large chunks of Austria? Did not the hapless Rumanians finally join the entente when they were promised Transylvania?&nbsp; Did not the Greeks bargain endlessly over the Turkish territories they were to be awarded for joining the allies?&nbsp; Did &nbsp;not Lawrence of Arabia bribe the Sherif of Mecca with the promise of vast Arabian lands to be extracted from the Turks?</p> <p>Why, then, would the German&rsquo;s&mdash;-if at war with the USA&mdash;- not promise the return of Texas?</p> <p><strong><span style="text-decoration: underline;">Proposition #4:</span></strong>&nbsp; Europe had expected a short war, and actually got one when the Schlieffen plan offensive bogged down 30 miles outside of Paris on the Marne River in mid-September 1914.&nbsp; Within three months, the Western Front had formed and coagulated into blood and mud&mdash;&mdash;a ghastly 400 mile corridor of senseless carnage, unspeakable slaughter and incessant military stupidity that stretched from the Flanders coast across Belgium and northern France to the Swiss frontier.</p> <p>The next four years witnessed an undulating line of trenches, &nbsp;barbed wire entanglements, tunnels, artillery emplacements and shell-pocked scorched earth that rarely moved more than a few miles in either direction, and which ultimately claimed more than 4 million casualties on the Allied side and 3.5 million on the German side.</p> <p>If there was any doubt that Wilson&rsquo;s catastrophic intervention converted a war of attrition, stalemate and eventual mutual exhaustion into Pyrrhic victory for the allies, it was memorialized in four developments during 1916.</p> <p>In the first, the Germans wagered everything on a massive offensive designed to overrun the fortresses of Verdun&mdash;&mdash;the historic defensive battlements on France&rsquo;s northeast border that had stood since Roman times, and which had been massively reinforced after the France&rsquo;s humiliating defeat in Franco-Prussian War of 1870.</p> <p>But notwithstanding the mobilization of 100 divisions, the greatest artillery bombardment campaign every recorded until then, and repeated infantry offensives from February through November that resulted in upwards of 400,000 German casualties, the Verdun offensive failed.</p> <p>The second event was its mirror image&mdash;-the massive British and French offensive known as the battle of the Somme, which commenced with equally destructive artillery barrages on July 1, 1916 and then for three month sent waves of infantry into the maws of German machine guns and artillery. It too ended in colossal failure, but only after more than 600,000 English and French casualties including a quarter million dead.</p> <p>In between these bloodbaths, the stalemate was reinforced by the naval showdown at Jutland that cost the British far more sunken ships and drowned sailors than the Germans, but also caused the Germans to retire their surface fleet to port and never again challenge the Royal Navy in open water combat.</p> <p>Finally, by year-end 1916 the German generals who had destroyed the Russian armies in the East with only a tiny one-ninth fraction of the German army&mdash;Generals Hindenburg and Ludendorff &mdash;were given command of the Western Front. Presently, they radically changed Germany&rsquo;s war strategy by recognizing that the growing allied superiority in manpower, owing to the British homeland draft of 1916 and mobilization of forces from throughout the empire, made a German offensive breakthrough will nigh impossible.</p> <p>The result was the Hindenburg Line&mdash;a military marvel based on a checkerboard array of hardened pillbox machine gunners and maneuver forces rather than mass infantry on the front lines, and an intricate labyrinth of highly engineered tunnels, deep earth shelters, rail connections, heavy artillery and flexible reserves in the rear. It was also augmented by the transfer of Germany&rsquo;s eastern armies to the western front&mdash;-giving it 200 divisions and 4 million men on the Hindenburg Line.</p> <p>This precluded any hope of Entente victory. By 1917 there were not enough able-bodied draft age men left in France and England to overcome the Hindenburg Line, which, in turn, &nbsp;was designed to bleed white the entente armies led by butchers like Generals Haig and Joffre until their governments sued for peace.</p> <p>Thus, with the Russian army&rsquo;s disintegration in the east and the stalemate frozen indefinitely in the west by early 1917, it was only a matter of months before mutinies among the French lines, demoralization in London, mass starvation and privation in Germany and bankruptcy all around would have led to a peace of exhaustion and a European-wide political revolt against the war makers.</p> <p>Wilson&rsquo;s intervention thus did not remake the world. But it did radically re-channel the contours of 20<sup>th</sup> century history. And, as they say, not in a good way.</p> <p><strong><span style="text-decoration: underline;">Proposition #5:</span></strong> &nbsp;Wilson&rsquo;s epochal error not only produced the abomination of Versailles and all its progeny, but also the transformation of the Federal Reserve from a passive &ldquo;banker&rsquo;s bank&rdquo; to an interventionist central bank knee-deep in Wall Street, government finance and macroeconomic management.</p> <p>This, too, was a crucial historical hinge point because Carter Glass&rsquo; 1913 act forbid the new Reserve banks to even own government bonds; empowered them only to passively discount for cash good commercial credits and receivables brought to the rediscount window by member banks; and contemplated no open market interventions in debt markets or any remit with respect to GDP growth, jobs, inflation, housing or all the rest of modern day monetary central planning targets.</p> <p>In fact, Carter Glass&rsquo; &ldquo;banker&rsquo;s bank&rdquo; didn&rsquo;t care whether the growth rate was positive 4%, negative 4% or anything in-between; its modest job was to channel liquidity into the banking system in response to the ebb and flow of commerce and production.</p> <p>Jobs, growth and prosperity were to remain the unplanned outcome of millions of producers, consumers, investors, savers, entrepreneurs and speculators operating on the free market, not the business of the state.</p> <p>But Wilson&rsquo;s war took the national debt from about $1 billion or $11 per capita&mdash;&ndash;a level which had been maintained since the Battle of Gettysburg&mdash;-to $27 billion, including upwards of $10 billion re-loaned to the allies to enable them to continue the war. There is not a chance that this massive eruption of Federal borrowing could have been financed out of domestic savings in the private market.</p> <p>So the Fed charter was changed owing to the exigencies of war to permit it to own government debt and to discount private loans collateralized by Treasury paper.</p> <p>In due course, the famous and massive Liberty Bond drives became a glorified Ponzi scheme. Patriotic Americans borrowed money from their banks and pledged their war bonds; the banks borrowed money from the Fed, and re-pledged their customer&rsquo;s collateral.&nbsp; The Reserve banks, in turn, created the billions they loaned to the commercial banks out of thin air, thereby pegging interest rates low for the duration of the war.</p> <p>When Wilson was done saving the world, America had an interventionist central bank schooled in the art of interest rate pegging and rampant expansion of fiat credit not anchored in the real bills of commerce and trade; and its incipient Warfare and Welfare states had an agency of public debt monetization that could permit massive government spending without the inconvenience of high taxes on the people or the crowding out of business investment by high interest rates on the private market for savings.</p> <p><strong><span style="text-decoration: underline;">Proposition # 6:</span></strong>&nbsp;&nbsp; By prolonging the war and massively increasing the level of debt and money printing on all sides, Wilson&rsquo;s folly prevented a proper post-war resumption of the classical gold standard at the pre-war parities.</p> <p>This failure of resumption, in turn, paved the way for the breakdown of monetary order and world trade in 1931&mdash;&ndash;a break which turned a standard post-war economic cleansing into the Great Depression, and a decade of protectionism, beggar-thy-neighbor currency manipulation and ultimately rearmament and statist dirigisme.</p> <p>In essence, the English and French governments had raised billions from their citizens on the solemn promise that it would be repaid at the pre-war parities; that the war bonds were money good in gold.</p> <p>But the combatant governments had printed too much fiat currency and inflation during the war, and through domestic regimentation, heavy taxation and unfathomable combat destruction of economic life in northern France had drastically impaired their private economies.</p> <p>Accordingly, under Churchill&rsquo;s foolish leadership England re-pegged to gold at the old parity in 1925, but had no political will or capacity to reduce bloated war-time wages, costs and prices in a commensurate manner, or to live with the austerity and shrunken living standards that honest liquidation of its war debts required.</p> <p>At the same time, France ended up betraying its war time lenders, and re-pegged the Franc two years later at a drastically depreciated level. This resulted in a spurt of beggar-thy-neighbor prosperity and the accumulation of pound sterling claims that would eventually blow-up the London money market and the sterling based &ldquo;gold exchange standard&rdquo; that the Bank of England and British Treasury had peddled as a poor man&rsquo;s way back on gold.</p> <p>Yet under this &ldquo;gold lite&rdquo; contraption, France, Holland, Sweden and other surplus countries accumulated huge amounts of sterling liabilities in lieu of settling their accounts in bullion&mdash;&ndash;that is, they loaned billions to the British. They did this on the promise and the confidence that the pound sterling would remain at $4.87 per dollar come hell or high water&mdash;-just as it had for 200 years of peacetime before.</p> <p>But British politicians betrayed their promises and their central bank creditors September 1931 by suspending redemption and floating the pound&mdash;&mdash;-shattering the parity and causing the decade-long struggle for resumption of an honest gold standard to fail.&nbsp; Depressionary contraction of world trade, capital flows and capitalist enterprise inherently followed.</p> <p><strong><span style="text-decoration: underline;">Proposition # 7:</span></strong>&nbsp; By turning America overnight into the granary, arsenal and banker of the Entente, the US economy was distorted, bloated and deformed into a giant, but unstable and unsustainable global exporter and creditor.</p> <p>During the war years, for example, US exports increased by 4X and GDP soared from $40 billion to $90 billion.&nbsp; Incomes and land prices soared in the farm belt, and steel, chemical, machinery, munitions and ship construction boomed like never before&mdash;&ndash;in substantial part because Uncle Sam essentially provided vendor finance to the bankrupt allies in desperate need of both military and civilian goods.</p> <p>Under classic rules, there should have been a nasty correction after the war&mdash;-as the world got back to honest money and sound finance.&nbsp; But it didn&rsquo;t happen because the newly unleashed Fed fueled an incredible boom on Wall Street and a massive junk bond market in foreign loans.</p> <p>In today economic scale, the latter amounted to upwards of $2 trillion and, in effect, kept the war boom in exports and capital spending going right up until 1929. Accordingly, the great collapse of 1929-1932 was not a mysterious failure of capitalism; it was the delayed liquidation of Wilson&rsquo;s war boom.</p> <p>After the crash, exports and capital spending plunged by 80% when the foreign junk bond binge ended in the face of massive defaults abroad; and that, in turn, led to a traumatic liquidation of industrial inventories and a collapse of credit fueled purchases of consumer durables like refrigerators and autos. The latter, for example, dropped from 5 million to 1.5 million units per year after 1929.</p> <p><strong><span style="text-decoration: underline;">Proposition # 8: </span></strong>&nbsp;In short, the Great Depression was a unique historical event owing to the vast financial deformations of the Great War&mdash;&mdash;deformations which were drastically exaggerated by its prolongation from Wilson&rsquo;s intervention and the massive credit expansion unleashed by the Fed and Bank of England during and after the war.</p> <p>Stated differently, the trauma of the 1930s was not the result of the inherent flaws or purported cyclical instabilities of free market capitalism; it was, instead, the delayed legacy of the financial carnage of the Great War and the failed 1920s efforts to restore the liberal order of sound money, open trade and unimpeded money and capital flows.</p> <p><strong>But this trauma was thoroughly misunderstood, and therefore did give rise to the curse of Keynesian economics and did unleash the politicians to meddle in virtually every aspect of economic life, culminating in the statist and crony capitalist dystopia that has emerged in this century.</strong></p> <p><u><strong>Needless to say, that is Thomas Woodrow Wilson&rsquo;s worst sin of all.</strong></u></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="247" height="300" alt="" src="" /> </div> </div> </div> Bank of England Belgium Bond Bulgaria Creditors Fail Federal Reserve France Germany Great Depression Hyperinflation Italy Keynesian economics Mexico Monetization National Debt national security Poland Totalitarianism World Trade Sun, 25 Jan 2015 03:00:24 +0000 Tyler Durden 500921 at "Cheerful" Dutch Financier Becomes 4th ABN Amro Banker Suicide <p><a href="">Following the deaths of 36 bankers last year</a>, 2015 has got off to an inauspicious start with the reported <strong>suicide of Chris Van Eeghen - the 4th ABN Amro banker suicide in the last few years</strong>. <a href="">As Quotenet reports,</a> the death of Van Eghen&nbsp; - the head of ABN's corporate finance and capital markets -"startled" friends and colleagues as the 42-year-old "had a great reputation" at work, came from an "illustrious family," and enjoyed national fame briefly as the boyfriend of a famous actress/model. As one colleague noted, <strong><em>"he was always cheerful, good mood, and apparently he had everything your heart desired. He never sat in the pit, never was down, so I was extremely surprised. I can not understand."</em></strong> </p> <p>&nbsp;</p> <p><a href=";view=article&amp;id=8843:dode-bankier-nummer-drie-weer-van-abnamro&amp;catid=15:financieel&amp;Itemid=28"><em>As Niburu details,</em></a> <strong>friends and colleagues were startled by the news that Chris van Eeghen had committed suicide.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>He worked in Amsterdam for ABN / AMRO in the position of "head of syndicate and corporate finance markets."</p> <p>&nbsp;</p> <p><a href=""><img src="" width="198" height="198" /></a></p> <p>&nbsp;</p> <p>Again, <strong>there is again a familiar pattern, namely that there is no indication that Van Eeghen had plans to take his life.</strong></p> <p>&nbsp;</p> <p>Ostensibly a successful banker, coming from what was described as an illustrious family. Chris was also a familiar sight in Amsterdam's nightlife scene and enjoyed national fame as possible new boyfriend of Tatjana Simic (a famous Croatian-Dutch model, singer, actress).</p> <p>&nbsp;</p> <p><img src="" width="410" height="310" /></p> <p>&nbsp;</p> <p><strong>"I have never expected. It was an incredibly nice cute guy, "</strong>said a neighbor from Amsterdam. In banking circles he had a good reputation.</p> </blockquote> <p>Most believe that the suicide is not related to his work at the bank,<br /> but a former colleague had <strong>noticed that on his Facebook recently changed<br /> its job title to "former."</strong></p> <p>Chris <strong>leaves behind a son - who had recently been cleared of cancer</strong>.</p> <p>*&nbsp; *&nbsp; *</p> <p><strong>This is the 4th ABN Amro suicide in recent years...</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>In <strong>December </strong>last year, missing couple, Thieu (64) [a relationship manager at ABN Amro] and Ellen (55) Leenen from Valkenswaard were found dead in their car Monday afternoon in the Bocholt-Herentals canal in Mol (Belgium). The circumstances under which the car is hit water, point to <strong>suicide</strong>, police said.</p> <p>&nbsp;</p> <p>In <strong>April </strong>last year killed former ABN Amro board member Jan-Peter Schmittman even <strong>suicide</strong>. </p> <p>&nbsp;</p> <p>In <strong>2009</strong>, ABN-Amro banker and Fentener Vlissingen scion Huibert Boumeester an end to his life in London to put a bullet through his head. Cause for the <strong>suicide </strong>were missed Madoff investments, was then suggested.</p> </blockquote> <p>* * *</p> <p>This is the <strong>third banker death in 2015...</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>1) Michael Flanagan, 45, head of Foreign Exchange, National Australia Bank, London, England</p> <p>&nbsp;</p> <p>2) Omar Meza, 33, Vice President, AIG, Los Angeles, America</p> <p>&nbsp;</p> <p>3) Chris van Eeghen, 42, Head of Syndicate and Corporate Finance Markets, ABN / AMRO, Amsterdam, The Netherlands</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>After at least 36 banker deaths last year...</p> <p>1) David Bird, 55, long-time reporter for the Wall Street Journal working at the Dow Jones news room<br />2) Tim Dickenson, a U.K.-based communications director at Swiss Re AG<br />3) William Broeksmit, 58, former senior manager for Deutsche Bank<br /><strong>4) Ryan Henry Crane, age 37, JP Morgan</strong><br /><strong>5) Li Junjie, 33, Hong Kong JP Morgan</strong><br /><strong>6) Gabriel Magee, 39, age JP Morgan employee</strong><br />7) Mike Dueker, 50, who had worked for Russell Investments<br />8) Richard Talley, 57, was the founder and CEO of American Title (real estate titles)<br />9) James Stuart Jr. 70, Former National Bank of Commerce CEO was found dead in Scottsdale, Ariz<br /><strong>10) Jason Alan Salais, 34 year old IT Specialist at JPMorgan since 2008</strong><br />11) Autumn Radtke, 28, CEO of First Meta, a Singapore-based virtual currency trading platform<br />12) Eddie Reilly, 47, investment banker, Vertical Group, New York<br />13) Kenneth Ballando, 28, investment banker, Levy Capital, New york<br /><strong>14) Joseph A. Giampapa, 55, corporate bankruptcy lawyer, JP Morgan Chase</strong><br /><span style="text-decoration: underline;"><strong>15) Jan Peter Schmittmann, 57, voormalig topbestuurder ANB/AMRO, Laren, Nederland</strong></span><br />16) Juergen Frick, 48, CEO Bank Frick &amp; Co AG, Liechtenstein<br />17) Benoît Philippens, 37, directeur BNP Parisbas Fortis Bank, Ans, België.<br />18) Lydia…, 52, bankier Bred-Banque-Populaire, Parijs<br />19) Andrew Jarzyk, 27, bankier, PNC Bank, New York<br />20) Carlos Six, 61, Hoofd Belastingdienst en lid CREDAF, België<br />21) Jan Winkelhuijzen, 75, Commissaris en Fiscalist (voormalig Deloitte), Nederland.<br />22) Richard Rockefeller, 66, achterkleinzoon elitebankier John D. Rockefeller, Amerika<br />23) Mahafarid Amir Khosravi (Amir Mansour Aria), 45, bankeigenaar, zakenman en derivatenhandelaar, Iran<br />24) Lewis Katz, 76, zakenman, advocaat en insider in de bancaire wereld, Amerika<br /><strong>25) Julian Knott, Directeur Global Operations Center JP Morgan, 45, Amerika</strong><br />26) Richard Gravino, IT Specialist JP Morgan, 49, Amerika<br /><strong>27) Thomas James Schenkman, Managing Director Global Infrastructure JP Morgan, 42, Amerika</strong><br />28) Nicholas Valtz, 39, Managing Director Goldman Sachs, New York, Amerika<br />29) Therese Brouwer, 50, Managing Director ING, Nederland<br />30) Tod Robert Edward, 51, Vice President M &amp; T Bank, Amerika<br />31) Thierry Leyne, 48, investeringsbankier en eigenaar Anatevka S.A., Israël<br />32) Calogero Gambino, 41, Managing Director Deutsche Bank, Amerika<br />33) Shawn D. Miller, 42, Managing Director Citigroup, New York, Amerika<br />34) Melissa Millian, 54, Senior Vice President Mass Mutual, Amerika<br /><a href=""><span style="text-decoration: underline;"><strong>35) Thieu Leenen, 64, Relatiemanager ABN/AMRO, Eindhoven, Nederland</strong></span></a><br />36) Geert Tack, 52, Private Banker ING, Haaltert, België</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="198" height="198" alt="" src="" /> </div> </div> </div> AIG Australia Belgium Capital Markets Citigroup Corporate Finance Deutsche Bank Goldman Sachs goldman sachs Hong Kong Iran Netherlands Real estate Wall Street Journal Sun, 25 Jan 2015 02:15:40 +0000 Tyler Durden 500918 at Get Ready For Negative Interest Rates In The US <p>With Fed mouthpiece Jon Hilsenrath warning -<a href=""> in no lesser status-quo narrative-deliverer than The Wall Street Journal </a>- that The ECB's actions (and pre-emptive collapse in the EUR) means the <strong>U.S. economy must deal with a rapidly strengthening dollar that will make American goods more expensive abroad, potentially slowing both U.S. growth and inflation</strong>; and Treasury Secretary Lew coming out his crypt to mention "unfair FX moves," it appears The Fed (and powers that be) are worrying about King Dollar. This suggests, as <a href="">Mises Canada's Patrick Barron predicts,</a> the Fed will start <strong>charging negative interest rates on bank reserve accounts as the final tool in the war on savings and wealth</strong> in order to spur the Keynesian goal of increasing “aggregate demand”. If savers won’t spend their money, the government will take it from them.</p> <p>&nbsp;</p> <p><a href=""><em>As The Wall Street Journal explains,</em></a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The European Central Bank’s launch of an aggressive program this week to buy more than €1 trillion in bonds<strong> poses important tests for the U.S. economy and the Federal Reserve.</strong></p> <p>&nbsp;</p> <p>Europe’s new program of money printing—and the resulting fall in the euro—means the<strong> U.S. economy must deal with a rapidly strengthening dollar that will make American goods more expensive abroad.</strong></p> <p>&nbsp;</p> <p><strong>The stronger dollar could slow both U.S. growth and inflation, giving the Fed some incentive to hold off on its plan to raise short-term interest rates </strong>later this year from near zero.</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>A stronger dollar has three important implications for the U.S. economy, markets and policy makers.</strong></span> First, it tamps down inflation just as the Fed is trying to raise inflation closer to 2%. Second, it hurts exports and therefore economic growth. Lastly, the attraction of U.S. financial assets could heat up markets just as regulators keep watch for dangerous asset bubbles.</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p>U.S. officials have been playing down that scenario, and, more broadly, resisting talk of a global currency war—competitive devaluations by countries eager to keep their currencies as low as possible to protect exports; but <strong>“The Fed faces a challenge having to navigate some pretty intense cross currents,”</strong> said Bruce Kasman, chief economist for J.P. Morgan Chase.</p> <p>&nbsp;</p> <p><strong>The U.S., in effect, is importing some of the world’s downward inflation pressure through currency movements.</strong></p> </blockquote> <p>Treasury Secretray Lew pipes in...</p> <ul> <li><strong>*LEW SAYS UNFAIR FX MOVES TO DRAW SCRUTINY FROM U.S.</strong></li> <li><strong>*LEW SAYS STRONG DOLLAR IS GOOD FOR AMERICA</strong></li> </ul> <p>*&nbsp; *&nbsp; *</p> <p><a href="">And Patrick Barron predicts (via Mises Canada)...</a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>I predict that the Fed will start charging negative interest rates on bank reserve accounts, which will ripple through the markets and result in negative interest rates on savings at banks.</strong></p> <p>&nbsp;</p> <p>I make this prediction only because it is the logical action of the Keynesian managers of our economy and monetary policy.</p> <p>&nbsp;</p> <p><strong>Our exporters will scream that they can’t sell goods overseas, due to the stronger dollar.</strong></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>So, what is the Fed’s option?</strong></span> Follow the lead of Switzerland and Denmark and impose negative interest rates in order to drive down the foreign exchange rate of the dollar.</p> <p>&nbsp;</p> <p><strong>It is the final tool in the war on savings and wealth in order to spur the Keynesian goal of increasing “aggregate demand”.</strong></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>If savers won’t spend their money, the government will take it from them.</strong></span></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="183" height="169" alt="" src="" /> </div> </div> </div> Federal Reserve Monetary Policy Switzerland Wall Street Journal Sun, 25 Jan 2015 01:30:28 +0000 Tyler Durden 500916 at The US-Saudi Relationship (Summed Up In 1 Cartoon) <p>With President Obama shunning Bibi and cutting short his India trip (along with Michelle) to meet new Saudi Arabian King Salman (dementia and all), we thought this cartoon summed up the relationship between America and its oil-exporting ally...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="597" height="435" /></a></p> <p>&nbsp;</p> <p><a href=""><em>h/t ForexLive</em></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="597" height="435" alt="" src="" /> </div> </div> </div> India President Obama Sun, 25 Jan 2015 00:45:09 +0000 Tyler Durden 500915 at How Mario Draghi Unleashed A $1.4 Trillion Negative Interest Rate Tsunami <p>Once upon a time, everyone was shocked when one after another central bank adopted what previously was unthinkable: a Zero Interest Rate Policy, or ZIRP. Then, on June 5, the <a href="">ECB added "awe" to the equation </a>when it became the first major central bank to push rates negative. The move was meant to shock depositors into pulling their money out of banks and into risk assets. It failed, which is why 2 days ago the ECB took awe to the next level when it added QE to NIRP. It did however succeed in one thing: pushing $1.4 trillion in Euro area government debt into negative interest rate territory and right into an abyss that screams <em><strong>deflation</strong></em>.</p> <p>As JPM nots, the chart below shows an estimate of the amount of Euro area government bonds with longer than 1-year maturity <strong>trading at negative yields over time. </strong>Around €1.4tr of Euro area government bonds are currently trading with negative nominal yields, almost all of them of core euro governments of up to 5 years maturity. <strong>Back in June, before the ECB’s shift to negative depo rate, the amount of euro area government bonds with longer than 1- year maturity trading negative was virtually zero</strong>.</p> <p><a href=""><img src="" width="500" height="522" /></a></p> <p>So yes: the ECB has failed to boost inflation in a controlled fashion, at least the type measured by seasonally-adjusted CPI metrics (if not by the <a href="">price of hotdogs in Davos</a>) for now and "controlled-fashion being the key word, because as <a href="">Russell Napier warned this week</a>, the next step in the process of fighting deflation is literally dropping money out of helicopters, one whose outcome on fiat money should be quite clear, and whose QE will further lead to an outright market collapse (as <a href="">explained earlier</a>), but it has certainly achieved one thing: <strong>sending 20% of Europe's universe of government bonds (according to JPM, the universe of government related securities of around €7 trillion) into negative territory</strong>. </p> <p>The good news: there is still some 80% of Euro bonds that are still trading with positive coupons, if not for much longer.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="747" height="780" alt="" src="" /> </div> </div> </div> CPI Davos Sun, 25 Jan 2015 00:25:16 +0000 Tyler Durden 500922 at Repeat After Us: "Correlation Isn't Causation" <p>But if it walks like an idiot, and talks like an idiot...?</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="273" /></a></p> <p>&nbsp;</p> <p><em>h/t @RudyHavenstein</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="657" height="299" alt="" src="" /> </div> </div> </div> Sun, 25 Jan 2015 00:00:29 +0000 Tyler Durden 500917 at Spot The Difference: Money Printing, Then And Now <p>It&#39;s different this time..<a href=""> and just remember Draghi&#39;s perspective - hyperinflation hasn&#39;t happened yet, so what&#39;s the harm?</a></p> <p>&nbsp;</p> <p><a href=""><img height="191" src="" width="600" /></a></p> <p><em>h/t @macroymercados</em></p> <p>The global central bank balance sheet is even more concerning.</p> <p>*&nbsp; *&nbsp; *</p> <p><a href=""><strong><em>As to the hyperinflation question,</em></strong></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Draghi&#39;s answer is simple: we have now thrown the kitchen sink at the deflation problem and there has been no inflation (he conveniently forgets to mention that the world is now caught in a vicious spiral in which every <strong>single central bank </strong>is printing money just to export deflation to its peers, with more and more printing necessary each year just to stay in one place). In other words, just because hyperinflation hasn&#39;t materialized so far, it never will.</p> <p>&nbsp;</p> <p><strong>Or, as Bernanke would say: &quot;Hyperinflation is contained.&quot;</strong></p> <p>&nbsp;</p> <p>As for Draghi&#39;s comment at the end, one can respond just as snydely: for the people who say printing money will create growth, yes &quot;when&quot; please. And for those who say that money printing will lead to economic improvement, &quot;<em>tell me, within what</em>?&quot;</p> <p>&nbsp;</p> <p>As for Draghi&#39;s &quot;statute of limitations&quot; comment, he may be right, but one thing is also becoming clearly obvious: as central banks are poised to monetize a record amount of debt this year, 7 years into the &quot;recovery&quot;, and as the amount of eligible collateral dwindles to a point where the functioning of the entire market is becoming impaired (see the <a href="">TBAC&#39;s complaints from the summer of 2013</a>), <strong>the moment of &quot;hyperinflationary containment&quot; is coming to an end.</strong></p> </blockquote> <p><em>*&nbsp; *&nbsp; *</em></p> Central Banks Hyperinflation recovery Sat, 24 Jan 2015 23:15:25 +0000 Tyler Durden 500919 at What Crispin Odey, And His $12.4 Billion In AUM, Thinks Are The 6 Risks Underpriced By The Market <p>We have some good news: we have found one more of the many, many hedge funds who bought into the biggest bandwagon trade of 2014, namely that the world is recovering and it is time <em>- yet again </em>- the short Treasurys. That fund is Crispin Odey's Odey Asset Management (which as <a href="">Bloomberg reported recently </a>had its AUM soar from $8.3 to $12.4 billion in 2014, leading to $271 million in profits to its LPs), which despite its massive growth generated just 5% in P&amp;L, despite "having been on average 27% net long equities." The reason for the underperformance: the same reason most other hedge funds also were on the other side of one of the best trades of 2014: long Treasurys.</p> <p>To wit: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>It was a frustrating year, where we felt we gave unnecessary performance away... the short 10-year Treasury (-4.87%) and Gilt positions (-2.95%) were costly and clearly a bad call given how things have developed. We don’t mind losing money when the market is just taking a different short-term view to us, in fact we quite like this, but we hate losing money when we are wrong.</p> </blockquote> <p>The bad news: one of the biggest bulls of this particular central bank artifical-bull cycle is turning bearish, and in its latest letter is warning about what he thinks are the biggest risks underpriced by the market. Here is the breakdown:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>6 years into a bull market, with multiples above their long-term averages, we do feel there are certain risks that are under-priced by the market:</p> <ol> <li><strong>Sovereign QE not working in Europe</strong></li> <li><strong>Emerging market capital flight</strong></li> <li><strong>Political risk/popularist governments</strong></li> <li><strong>US wage inflation</strong></li> <li><strong>Increased currency volatility</strong></li> <li><strong>Insurance against natural catastrophes</strong></li> </ol> <p>1. It feels that the market has and is placing high hopes on Mario Draghi delivering a silver bullet with regards to European QE. <strong>To us, European QE is broadly a red herring apart from the weakening effect it has on the currency (which may in fairness be mainly what Draghi has in mind). </strong>For us the difference with US sovereign QE, in terms of its potential effectiveness, is stark. US banks were less leveraged and had cleaner balance sheets. Europe still has material unre-solved structural issues with regards to labour markets and encouraging investment that only governments can resolve. Bond rates were at a much higher level when US QE started: the 10-year rate on the US bond was 3.11% in November 2008, compared now to 0.45% on the German 10-year and 1.52% even on the Spanish 10-year. <strong>European equity multiples are higher than US multiples were at the time. </strong></p> <p>&nbsp;</p> <p>2. Although expectations of the first US rate rise have moved out, and bond yields have reduced recently, <strong>dollar strength could be a problem. </strong>Foreign debt to GDP in emerging markets is below the peak seen at the Asian crisis of 1997-8, but remains &gt;40% of GDP (predominantly dollars). Meanwhile the dollar has appreciated 16% against the JPMorgan EM Currency Index since last May. <strong>The flip side of local currency debt is that developed market savers are taking on the currency risk, leading to potentially material losses from what is meant to be a ‘safe’ asset class</strong>. Below is the Ashmore local currency sovereign emerging market debt fund as an example of how disillusioned developed market savers could get. </p> <p>&nbsp;</p> <p><img src="" width="578" height="381" /></p> <p>&nbsp;</p> <p>On top of this, <strong>liquidity in emerging market bonds has dried up following the tightening of banking regulations </strong>(mainly due to leverage ratio constraints and the Volcker rule), so it may only take a small spook to cause a stampede. We have already witnessed on Oc-tober 15th a “six-sigma” movement in some portions of the US yield curve. Treasuries should be the most liquid asset class in the world.</p> <p>&nbsp;</p> <p><strong>3. Political and policy risk is often surface froth, but there are periods when its effects run deep and can change valuations of multiple asset classes</strong>. 2015 requires careful attention through this lens.</p> <p>&nbsp;</p> <p>The electoral cycle brings instability to Europe, particularly in Greece, Spain and the UK. German domestic politics sinks its teeth into ECB decision-making. US politics is particularly important for the hardened stance it threatens to bring against Russia and possibly Iran, whilst a fight is engaged in Washington as to whether the US attempts to ring-fence the Middle East as a “quagmire” or gets more deeply involved there once again, with the impacts that could have on the oil price and terrorism back home.</p> <p>&nbsp;</p> <p><strong>Basic concepts are being challenged, yet to date QE has partially dampened potential instability</strong>. ISIS contests the concept of nation states; Mr Putin contests the West’s concepts of a multi-lateral and UN-focused world without spheres of influence; China’s rise continues to require further international ‘adjustments’; and the peoples of numerous countries want more independence, more identity politics, and are less content to belong to large political groupings. What we see in Greece and Spain we see in the UK.</p> <p>&nbsp;</p> <p>The UK is in a moment of national, constitutional and party argument, where centrifugal and splinter forces test their strength against forces of stability and history. The General Election could go either way, very different economic and social policies could result, and even under scenarios offering continuity at the fiscal level, such as the permutations of a Conservative government, an EU referendum delivers instability as its counter-punch.</p> <p>&nbsp;</p> <p>4. Although recent hourly wage inflation has fallen short of expectations, and the falls in commodity prices reduce the probability, there is a risk that US wage inflation accelerates, causing unit labour costs and rates to rise ahead of expectations. <strong>What is interesting is how differently private sector wages are growing in America for unionised labour forces and non-unionised.</strong></p> <p>&nbsp;</p> <p><a href=""><img src="" width="579" height="395" /></a></p> <p>&nbsp;</p> <p><strong>This suggests that there is huge value in being in a union at the moment, and that non-union private sector workers in the US do not appreciate the negotiating leverage they have with companies. </strong>With unemployment falling almost every month at the moment, and currently sitting at 5.6%, there is a risk of a sharp catch-up in this ‘underpaid’ dynamic. The chart below represents a margin threat to the S&amp;P 500. The shape of the chart cannot be sustainable or else it ends with social unrest; certainly it fits Obama’s recent State of the Union speech on closing the ‘US income gap’.</p> <p>&nbsp;</p> <p><img src="" width="586" height="416" /></p> <p>&nbsp;</p> <p><strong>5. Currency volatility has picked up markedly from historical lows. </strong>We have recently seen some extreme examples with regards to the Swiss franc, where companies such as Swatch, FXCM and Global Brokers have been caught out. With further dollar strength, internationally-exposed US companies will also face headwinds. First, they face the translation impact of lower revenues coming from outside the US. Secondly, it makes US companies less competitive. Thirdly there can be a transactional impact (margin squeeze) where there is a mismatch between a dollar cost base and international revenues. Lastly, where there is an asset-liability mismatch, such as US dollar debt matched against cash or revenues in a foreign currency. <strong>This last phenomenon is going to be more common this cycle for US companies which have taken on dollar debt with cash trapped offshore due to repatriation taxes. </strong>Amazing as it is, the market is quite poor at pricing in these movements.</p> <p>&nbsp;</p> <p><strong>6. Although insurance of natural catastrophes is a niche area, it is one we have taken a position in by shorting some of the insurance companies. </strong>After three years of rate reductions, real property reinsurance pricing has fallen to the lowest level in fifteen years post the 2015 January renewal season. Large cat losses have been very low recently (2014 and 2013 were 50% and 30% below the 10-year average), which has propped up reinsurers’ results. We believe the market is far too complacent on the sustainability of this level of earnings. Judging from historic patterns, current pricing supports a normalised, interest-rate adjusted, combined ratio of 105%. Therefore, we expect the 2016 normalised earnings for the large European reinsurers to halve from the 2013 reported numbers (EV/EBIT 2013 10.6x vs 2016E 17.0x).</p> <p>&nbsp;</p> <p>Reinsurers’ earnings were also flattered by marking to market unrealised gains from falling bond yields – for example, around 20% of Munich Re’s TNAV is unrealised gains on fixed income assets (P/TNAV less unrealised gains is 1.4x vs 1.1x spot). <strong>When bond yields stop falling, this premium over par value starts to unwind: given a typical asset duration of 3 years, we expect a 10% book value drag per annum </strong>(pre-tax). It is only a matter of time before large losses normalise, higher bond gains drop away, <strong>and the severe deterioration of underlying margins is revealed</strong>.</p> <p>&nbsp;</p> <p><img src="" width="598" height="919" /></p> </blockquote> <p>Odey's summary:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>... we see more risks to the market this year, and are currently about 20% beta-adjusted net long. We have materially reduced our short government bond positions given that the facts as we see them have changed and there is an increased risk that the downward pressure on inflation from commodities has more than a transitory impact. </p> </blockquote> <p>That means that one of the two <a href="">most crowded trades of 2015 </a>(the other being the USD-long of course), <em><strong>the US Treasury-short, </strong></em>is just a little less crowded now. Which also means that when the epic short squeeze puke finally hits, it will be just a little less brutal.</p> Bond Book Value fixed Greece Insurance Companies Iran Middle East Swiss Franc Unemployment Volatility Yield Curve Sat, 24 Jan 2015 22:55:36 +0000 Tyler Durden 500920 at "Oil Drillers Are Going To Die" In Q2, Conway Mackenzie Warns "Expect Outright Liquidations" <p><em><strong>&quot;The second quarter is going to be devastating for the service companies,&quot;</strong></em> warns Conway Mackenzie - the largest U.S. restructuring firm - adding that, despite slashing thousands of jobs, delaying (or scrapping) billions in capex amid the prolonged rout in oil prices, &quot;there are <strong><em>certainly companies that are going to die.&quot;</em></strong> As Bloomberg reports, oil drillers will begin collapsing under the weight of lower crude prices during the second quarter and energy explorers who employ them will shortly follow with oilfield-service providers are facing a &quot;double-whammy.&quot; <a href="">As we noted here, there are more than a few candidates for this &#39;death&#39; list</a> as it appears increasingly clear that <strong>what was considered an &quot;unambiguously good&quot; narrative for the nation is anything but</strong>...</p> <p>&nbsp;</p> <p><a href=""><em>As Bloomberg reports,</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Companies that drill wells and manage fields on behalf of oil producers will be the first to fall</strong> after the benchmark American crude, West Texas Intermediate, lost 57 percent of its value in seven months, said John T. Young, whose firm led the city of Detroit through its 2013 bankruptcy.</p> <p>&nbsp;</p> <p>Oil companies have slashed thousands of jobs, delayed billions of dollars in projects and dropped or scaled back expansion plans in response to the prolonged rout in crude prices. <strong>For oilfield service providers that test wells and line the holes with steel and cement, the impact of price reductions forced upon them by explorers will start to pinch hard during the second quarter, </strong>Young said Thursday.</p> <p>&nbsp;</p> <p><strong>&ldquo;The second quarter is going to be devastating for the service companies,&rdquo;</strong> Young said in a telephone interview from Houston. &ldquo;There are certainly companies that are going to die.&rdquo;</p> <p>&nbsp;</p> <p><strong>Oilfield-service providers are facing a &ldquo;double-whammy,&rdquo;</strong> he said. Even as oil companies are demanding 20 percent to 30 percent price reductions, they&rsquo;re also extending wait times before paying their bills, enlarging cash-flow gaps for the drilling and equipment firms, he said.</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><u><strong>The amount of projected 2015 oil and natural gas output a company has hedged is a strong indicator of whether they&rsquo;ll be able to pay their bills, he said. Another important metric is how much is drawn on revolver loans, Young said.</strong></u></p> <p>&nbsp;</p> <p>&ldquo;I&rsquo;m telling them they really have to keep an eye on this stuff and you&rsquo;ve got to be the squeaky wheel,&rdquo; he said.<strong> &ldquo;You&rsquo;ve got to start filing liens if you see a company starting to go down.&rdquo;</strong></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>Wondering who is top of the list? <a href="">As we detailed previously,</a> there are plenty...</p> <p><strong>Readers will be most interested in the &quot;restructuring/bankruptcy&quot; option, most applicable for Group 4, because these are the names which,&nbsp; all else equal, will file for bankruptcy first.</strong></p> <p>This is what Goldman&#39;s Jason Gilbert has to say:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>We believe oil market weakness presents H&amp;Y E&amp;P management teams with difficult decisions. For certain stronger companies, the challenge may be one of deciding if and when to high grade the portfolio through M&amp;A. For some weaker companies, the decisions may be more stressful, with many lower-quality names being forced to consider (1) selling themselves, (2) restructuring/filing for bankruptcy protection, and/or (3) bolstering liquidity through asset sales and/or second lien debt issuance.</p> <p>&nbsp;</p> <p>We have created a 2x2 matrix, shown in Exhibit 1, where we classify E&amp;Ps according to both asset quality and balance sheet strength. In Exhibit 2, we provide the backup data on each company that justifies its classification in the chart below.</p> </blockquote> <p>The matrix in question:</p> <p><a href=""><img height="561" src="" width="600" /></a></p> <p>&nbsp;</p> <p><strong>Group 4: Weak balance sheet/weak assets</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>This group includes companies with leverage above 2.5x and assets we rate &ldquo;B-&ldquo; or lower. Names we highlight are Approach Resources (NC), Exco Resources (NC), Goodrich Petroleum (NC), Halcon Resources (IL), Magnum Hunter (NC), Midstates Petroleum (NC), Rex Energy (NC), Sabine Oil &amp; Gas (U), Samson Investment (NC), Sandridge Energy (IL), and Swift Energy (U).</p> <p>&nbsp;</p> <p>We view management teams in this group as facing the most difficult decisions. Given the general lack of &ldquo;core&rdquo; assets, we believe strategic interest from a larger acquirer is less likely than for Group 3. Furthermore, with the bonds in this group generally trading below $80, we believe 101% change of control provisions act as de facto &ldquo;poison pills&rdquo; for acquirers.&nbsp;</p> <p>&nbsp;</p> <p><strong>Given high leverage and the lack of strategic interest, we believe many companies will need to seek alternative sources of capital. </strong>While the options here will vary case by case, we note that most of these names have secured debt baskets that can be used to bolster liquidity. Based on the phone calls we receive, investor interest in this type of security remains high, which suggests to us we will see robust second-lien issuance as soon as the conclusion of 1Q earnings. <strong>The bottom line is that, for now, we think investors should tread lightly in this group, despite the average bond yield of 19% (excluding obviously distressed names Swift Energy, Samson Investment, and Sabine Oil &amp; Gas).</strong></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>As Conway McKenzie&#39;s John Young concludes:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><u><strong>&quot;When I saw WTI hit $65, I thought we&rsquo;re going to be really busy with restructurings,&rdquo; Young said. &ldquo;When it hit the $40s, I knew we were looking at outright liquidations.&quot;</strong></u></p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="412" height="500" alt="" src="" /> </div> </div> </div> Bond Crude Detroit Natural Gas Secured Debt SWIFT The Matrix Sat, 24 Jan 2015 22:31:21 +0000 Tyler Durden 500914 at With Syriza Leading By 7 Points, Greek Incumbents Fear-Monger Looming "Toilet-Paper-Run" <p><strong>Left-wing anti-EU party Syriza has extended its lead over incumbent Nea Dimokratia (ND) to 7 percentage points</strong> in the polls ahead of tomorrow's crucial Greek election. <a href="">As Keep Talking Greece reports, </a>To Potami and Golden Dawn <em>(the neo-Nazi party that is facing charges for being a "criminal organization")</em> are running 3rd with 6-7% of the vote (Syriza 33.5%, ND 26.5%) and with 20% admitting they had changed their opinion about which party to vote for in the pre-election period, it appears ND incumbents have taken up the "Scotland" strategy - fearmongery. <strong><a href="">Speaking on Greek TV,</a> just 48 hours before the elections, ND-candidate Sofia Voultepsi implied that if Syriza wins the elections and forms a government on Monday Greeks will run out of toilet paper.</strong>.. and with JPMorgan noting that deposit outflows hit EUR8bn last week (double the previous 2 weeks combined), the "bank run" could easily morph into Venezuelan "toilet paper runs."</p> <p><a href="">As Keep Talking Greece explains</a>,</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>If SYRIZA wins the elections and forms a government on Monday Greeks will run will run out of toilet paper. This is what ND-candidate Sofia Voultepsi implied just 48 hours before the elections.</strong></p> <p>&nbsp;</p> <p>“bank run”&nbsp; vs “toilet paper run”?</p> <p>&nbsp;</p> <p>Speaking to Mega TV on Friday morning, former government spokeswoman Sofia Voultepsi claimed:</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>“People believe that bankruptcy is what we experience now. Bankruptcy is when imports, fuel, raw materials and medicines are being immediately stopped.&nbsp; This is something we have seen in Cyprus,&nbsp; in Venezuela, in Argentina.”</strong></span></p> <p>&nbsp;</p> <p>When one of the news magazine anchors intervened and commented that “what you say sounds as if we will not have toilet paper,” Voultepsi replied:</p> <p>&nbsp;</p> <p><strong>“No, there is no toilet paper in Argentina and Venezuela. Therefore, I recommend, you do your supplies.”</strong></p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p>In spite of the Nea Dimokratia fear-mongering elections strategy of “SYRIZA = default”, it is not helping the party of PM Antonis Samaras to raise its rates in polls, ND seems to have run out of convincing arguments and keeps chewing the same old candy...</p> </blockquote> <p>And JPMorgan is seeing the other type of "run" accelerating...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="text-decoration: underline;"><strong>As election looms, Greece sees large €8B deposit outflow this week vs €4B in first two weeks of January and €.3B in December.</strong></span></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p><em>As Bloomberg notes,</em> <strong>Syriza's success (or failure) will foreshadow the future of anti-austerity movements elsewhere in Europe.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>The Greek vote is being closely watched in Spain</strong>, where the anti-austerity Podemos party is now running ahead of Prime Minister Mariano Rajoy's party before a general election later this year. Podemos leader Pablo Iglesias even joined Tsipras at a rally in Athens this week. The government in Madrid has been scrambling to reassure markets that the situation in Greece won't spread to their country. Spain and Greece are "totally different," Spanish Economy Minister Luis de Guindos told Bloomberg Television today in Davos.</p> <p>&nbsp;</p> <p><strong>The bailed-out economies of Ireland and Portugal also have growing anti-austerity movements. </strong>"If a new Greek government wins concessions, then Ireland and Portugal would be first in the queue looking for similar treatment, and other countries would be looking for leeway in meeting EU targets," columnist Cliff Taylor wrote in the Irish Times earlier this month.&nbsp; But leaders of those movements will have a hard time making their case to voters&nbsp; if Tsipras, Europe's No. 1 anti-austerity poster boy,&nbsp; steps back from confrontation.</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="442" height="520" alt="" src="" /> </div> </div> </div> Bank Run Davos Greece Ireland Portugal Sat, 24 Jan 2015 21:45:17 +0000 Tyler Durden 500913 at