United Kingdom: Historic Perspective

"In 1918 the UK was the richest most powerful country in the world. Within three decades they will bankrupt and they were bailed out by the IMF…it was not a pretty sight." - in RT

Jim Rogers is a legendary investor that co-founded the Quantum Fund and retired at age thirty-seven. He is the author of several books and also a financial commentator worldwide.

Stock-Market Crashes Through the Ages – Part III – Early 20th Century

The 20th century could be categorized as THE century when communications took off and we started living in each other’s pockets. Lives had been ruined by war, trouble and strife. Wealth had been redistributed beyond belief. There were no longer just a few that were making the profits, but there were growing classes of people that wanted recognition.

They might not have got it until the second half of the 20th century, but the way things unraveled in the first half meant that people were not prepared to sit back and let things go into the hands of the rich landlords and the factory owners.

Rights had been acquired and they were being demanded. Women, workers, whoever they were, everybody wanted a piece of the cake. It wasn’t until the second half of the twentieth century that dabbling and buying shares, thinking you could strike it lucky and make a million, was going to become part and parcel of most people’s lives. Maybe that’s the whole problem. People betting on investments as if that was nothing more than a couple of whippets running round the race track on a Saturday afternoon, bag of chips in one hand and a pint of ale in the other. Flat cap and everything.

The markets don’t act like that. But, we allowed people to think that they could make a quick million bucks by investing what they had hidden under the mattresses for decades. Why did they need to worry anyhow, social security had been invented, we were looking after the destitute and not locking them behind the gates of Victorian workhouses and mental asylums. There was a safety net that had been created in society by the advent of the National Health Services (1948 in the UK) that we pride ourselves for inventing or the retirement schemes that we say will make pensioners’ lives better (Dankeschön, Mr. Bismarck).

As time went on in the 19th century the number of stock-market crashes increased.

That number increased even more in the 20th century. Information was accessible. Telecommunication technology was entering our lives as a daily piece of equipment. I could start to be absent and yet present at the same time. I didn’t have to be literally somewhere physically; I could be there almost in person via the transmission of my voice or an image. It was reserved for the elite at the start, but as the century progressed, it became more and more democratized. Later in the century, it would be possible to be completely present, and yet physically absent and I would be able to do it from the comfort of my own living room. Education was becoming more and more widespread. Newspapers were being read even by those that had not been able to read in the previous century (total circulation was at over 27 million in 1920 and households had papers delivered both in the morning and in the evening). Access to information meant the learning of events almost in real-time.

Stock Markets: Interconnected

Stock Markets: Interconnected

The 20th century saw an explosion in the number of stock market crashes. Here are a few of them. The ones that bit us from behind as we scrambled out of the markets sometimes to be left without a cent. One thing about it all was that the dream of the self-made man, the entrepreneur, the idea of striking it rich had really come into its own in this century! This is just the first half of the 20thcentury!

1. Panic of 1901

We entered the 20th century with a panic. The turn of the century has always been equated with great change, either good or bad. The Panic of 1901 was due to some extent to the fight for the control of the Northern Pacific Railway.

Stock Market: Edward Henry Harriman

Stock Market: Edward Henry Harriman

  • The Northern Pacific was a transcontinental railway (1864-1970).
  • Edward Henry Harriman who was the Chairman of Union Pacific attempted at all costs to monopolize the railway sector.
  • He attempted to buy stock en masse belonging to Northern Pacific Railway to take control of the company.
  • The NYSE was said to look more like a football field as the panic started and prices began to fall as people started to sell in sheer panic.
  • The market crashed and brought down with it the majority of US railway companies (Burlington and Missouri Pacific, for example).
  • The only one that was left still standing was the Northern Pacific. The run on their shares by Harriman had meant that people were selling all other shares like they were going out of fashion and attempting to buy into Northern Pacific.
  • One company’s loss became another companies gain and Northern Pacific increased by 16.5 points.

The crash spread to other companies. It brought the country into recession and was the first stock-market crash of the 20th century.

2. Panic of 1907

The Panic of 1907, is the Bankers’ Panic. The NYSE dropped by 50%. The reasons? Lack of confidence in the market and retraction of market liquidity by NY banks. The banks had lent out too much money in an attempt to purchase the United Copper Company and this caused loss of confidence and bank runs ensued.

  • The US had no central bank that would act as a lender of last resort at the time. President Andrew Jackson had let the charter of the Second Bank of the United States lapse in 1836. Money supplies fluctuated only in line with agricultural cycles. Money left NY in the autumn to purchase harvests and the only thing that made that money come back was a raise in interest rates.
  • J.P. Morgan shored up the banks and bailed them out; otherwise there might have been an even worse situation.
  • There was an attempt to corner United Copper, by purchasing large quantities of the stock of the company in a bid to be able to manipulate the price of copper afterwards.
  • Shares rose in the beginning from $39 to $52 per share. They reached $60 before they began to collapse.
  • Within just a few days, they ended up at $10.

J.P. Morgan had managed to shore up the banks for a while as they were suffering from lack of liquidity, but he was unable to do so indefinitely. The bankers tried to call a press meeting to persuade the papers that they were controlling everything. Even the city of New York needed $20 million otherwise it would go bankrupt.

Morgan said “if people will keep their money in the banks, everything will be all right”.

The banks were not willing to make loans (short-term) to brokers to carry out daily trading, worried that the stock would fall even more. Prices fell as a consequence on October 24th 1907. The President of the NYSE requested that the stock exchange be closed early to halt more losses. Closing the NYSE would mean even greater loss of confidence. So, J. P. Morgan decided to call the banks to a meeting. He requested $25 million and it was raised in 10 minutes flat! Not bad, really! But, it didn’t stop the free-fall.

  • 1907 caused the highest number of bankruptcies to that date in the US.
  • Production was estimated to have fallen by 11%.
  • Imports were down by 26%.
  • Even immigration dropped. The US was no longer the land of plenty (fall from 1.2 million immigrants to just ¾ of a million in one year).
  • Unemployment rose to over 8%, whereas it had been at under 3%.

3. Wall Street Crash 1929

Probably the most famous stock market crash of the entire history of the economy (apart from the one that we are living right now). The Wall Street Crash is also known as Black Tuesday. Since this date we have used Black days throughout our stock market crashes (Black Monday in 1987, or Black Wednesday in 1992, for example).

Just like in the period that preceded the stock-market crash of 2008, there was a time of wealth, success, making money, sandwiched in between World War I and just before World War II. The roaring twenties. Innovation, dynamism, liberation, freedom.

Motion pictures abounded, the automobile became commonplace, electricity entered the homes of the middle-classes. Culture and lifestyles changed drastically. Everything became possible. Modernity had arrived. It’s strange that the period that preceded the stock market crashes of the 21st century was also a time of great change. We had invented and democratized communications to a point where we could carry it around in our pockets. We had changed the way we accessed information and we had it at our finger tips like no other generation had had before via Internet.

Speculation became the order of the day in 1929. The world investors were on a roll and it wasn’t going to end. Money could be had and it was short-time financial gain that was important. Making money and making it fast. But, even though we might not always apply the same knowledge today, what goes up must come down.

  • On March 25th 1929, it began with a mini-crash. This was only an omen of what was to come.
  • The National City Bank tried to shore up the losses by injecting $25 million into the market, stopping is descent into hell. But, it was all temporary.
  • The USA was showing signs of waning economically. The steel market was on the slippery slope and construction wasn’t anything more than just sluggish. The peak had been reached.
  • There were already 20 million cars on the roads, for example in 1929 in the US. Automakers sold 4.5 millioncars in the US market alone in that year before the crash.
  • General Motors had a net profit of $248 million. But, the peak had been reached, 1929 saw a dramatic drop. It was only selling 1/3 of the cars it had been selling prior to the crash on the domestic market. It took ten years to come back to the same level of profit and the number of car sales as in the period before the crash of 1929.
  • Although, it has to be said, even then, it was the shareholders that counted. The shareholders got dividends every single year from GM between 1929 and 1939.

The roaring twenties had roared on from 1920 until 1929. The Dow Jones Industrial Average had been multiplied by ten. Some even said that it was a “permanently high plateau” in September 1929. Very few are able to predict what the market will do, but nobody today, at least, would suggest for a second that we are going to be on a permanent high. That lesson has been heard loud and clear. The Dow jones reached its peak at 38.17 on September 3rd 1929.

The London Stock Exchanged collapsed when a British investor (Clarence Hatry) became the most hated man in the UK when he was jailed for fraud. Hatry was a London insurance clerk that had amassed immense wealth by profiteering during WWI. He was about to merge his companies into a $40-million affair called the United Steel Companies. But, the Stock Exchange Committee discovered that he had been borrowing ($1 million) without anything to back it up.

  • It was on October 24th 1929 that Black Thursday occurred. The NYSE plummeted 11%. Bankers managed to stop the landslide and purchase large quantities of stock well above the market price in blue-chip companies. It halted the free-fall. But, temporarily. The NYSE closed at -6.38 points.
  • The newspapers managed to report the news and Monday 28th became known as Black Monday.
  • Black Monday saw the DJIA spiral out of control. The US market lost 12.8% as trading opened up on the NYSE. It plummeted 38.33 points and closed at 260.64.
  • Black Tuesday, October 29th had 16 million shares being traded. The DJIA fell 30.57 points, to just 23.07. It lost 11.7%. In three days of trading the DJIA had lost over 30%.

What went horribly wrong? Speculation and certainly the belief that things would never end. Brokers were lending 2/3 of the face value of stocks that they were purchasing and that meant that in 1929 there was more money that was on loan than the entire currency in circulation in the USA ($8.5 billion). That smacks of something familiar when we think about the sub-prime crisis. The belief that housing prices could never fall and that we would always be on an upper, lending money left, right and center.

One other thing that we learned is that our worlds were interconnected. Falls in London, Tokyo and New York happened at the speed of light in 1929. What one did the other followed suit with. Only 16% of the US population had money invested in the stock market in 1929, but it was probably those that had the companies that employed the people that worked. The knock-on effect was enormous.

But people like Joseph Schumpeter and Nikolai Kondratieff believed through their economic-cycle theories looking at the way the market reacted that the 1929 crash was just acceleration in the cycle and it enabled moving towards the next one.

Stock Market: Nikolai Kondratieff

Stock Market: Nikolai Kondratieff

Stock Market: Joseph Schumpeter

Stock Market: Joseph Schumpeter


4. Recession 1937

Spring 1937 saw the US economy get back on its feet and the levels of economic activity were similar to pre-1929 ones. Unemployment was still relatively high, but that was nothing compared to the vertiginous heights of 1933 (25%!). In 1937 things went haywire for just over a year causing an economic recession in the US, with a knock-on effect in the rest of the world.

  • Unemployment was at 14.3% in 1937. It increased to19%.
  • Manufacturing output fell by 37%.
  • Spending decreased and incomes fell by 15%.
  • GDP fell by 11%.

Economists fail to agree on the reasons (nothing surprising) as to the economic recession of 1937. Depends where you stand. If you are a Keynesian, you will believe that federal spending cuts brought about the recession, coupled with increased taxation. If you are a Milton-Friedman  man then it’s the money supply and the Federal Reserve’s tightening of it that is the instigator.

The 1937 recession was called the ‘Recession within the Depression’.


Some might say that the benefits of what we have gained over the past century are far better than the relatively few times that we had to wade through the nightmares on Wall Street and the Stock Market crashes that hit us full in the face at times.

Some might say that it was worth it as the market generated the wealth on which we prospered in the 20th century. But, they also resulted in depression, recessions and slumps. Recessions that brought about the rise to power of some of the worst dictators that the world had seen.

Recessions that brought about a fight for greed and a closing in upon ourselves in protectionist fear. But, the 1st half the of the century was nothing compared to the stock market crashes that were waiting in store for us once we would become really industrially connected and inter-connected. When we went global, when we reduced our barriers, when we travelled from point A to point B at supersonic speed, and when one push of a fat finger on a keyboard sent millions across the other side of the planet.

Stock markets were going to run in the second half of the 20th century at supersonic, virtual speed. We would enterthe Big-Bang world of deregulation of the financial markets, abolishing fixed commission charges. But, behind the big bang was a black hole…

What reasons do you think could explain the stock-market crashes of the 20th century?

Take a look at the Stock Market Crashes Through the Ages – Part I – 17th and 18th Centuries.

Take a look at the Stock Market Crashes Through the Ages – Part II – 19th Century.

In the next installment, we’ll take a look at the historical stock-market crashes in the 2nd half of the 20th century.

Originally Posted: Stock-Market Crashes Through the Ages – Part III – Early 20th Century

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Guest Post: The Real Story Of The Cyprus Debt Crisis (Part 2)

Perfectly timed given the Cypriot President's call for better terms, we look at what really went on to crush this tiny island nation...

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Not only is the bail-in a direct theft of depositors' money, the entire bailout of Cyprus is essentially a wholesale theft of national assets.

Here is Part 2 of our comprehensive account of the banking/debt crisis in Cyprus. As noted yesterday, the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter for two reasons:
1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises.
2. The official Eurozone resolution of the crisis may provide a template for future resolutions of other banking/debt crises.
It also matters for another reason: not only is the bail-in a direct theft of depositors' money, the entire bailout is essentially a wholesale theft of national assets. This is the inevitable result of political Elites swearing allegiance to the European Monetary Union.
I am honored to present Part 2 of Cyprus resident John H. Morgan's report.

The Cyprus Bank Deposit Bail-in

On 16 March 2013, the noose was tightened around Cyprus. Emergency Liquidity Assistance (ELA) was cut off. Banks remained closed while the Government negotiated with the Eurogroup of European finance ministers to save the Cyprus banking system. President Anastasiades announced the first proposal to the nation: he would tax all bank deposits in Cyprus to fund the recapitalisation of Laiki Bank. This plan was rejected by the Cypriot Parliament as it infringed the guarantee on all insured deposits up to €100,000. The Minister of Finance visited Russia to ask for financial assistance, to no avail.

On 25 March 2013, as Greece celebrated Independence Day, it was announced that Laiki Bank would be wound up and Bank of Cyprus would be restructured. All Cypriot depositors in Laiki Bank and Bank of Cyprus who held more than €100,000 would be forced to pay for Cypriot bank losses and withdrawals, mostly sustained in Greece (the so-called “bail-in” of depositors). Bank of Cyprus would be responsible for paying back Emergency Liquidity Assistance provided by the European Central Bank to Laiki Bank. It would also assume liability for all Laiki insured deposits up to €100,000.

The value of uninsured deposits over €100,000 held by Cypriot Banks came to €38bn (billion) out of a total €68bn in deposits. The governor of the Central Bank of Cyprus stated that 70% of all uninsured deposits were held by foreigners. There are an estimated 60 000 British citizens, 30,000 Russian citizens and 10,000 other European nationals living in Cyprus. Together with Cypriot-domiciled foreign firms (such as German shipping companies), they had deposited €30bn in Cypriot banks.

Cypriot Banks were closed for 10 days to prevent a bank-run. Their overseas branches stayed open to preserve a semblance of normality and avoid triggering a bank-run on Greek banks. Cash was rapidly withdrawn from the British, Greek and Russian branches of the Cypriot banks. The value of the assets held by the Greek branches of the Cypriot Banks was €23bn. These assets received huge haircuts as they were traded for €9.2bn of Emergency Liquidity Assistance (ELA). The ELA was provided by the European Central Bank to replace money withdrawn from Cypriot Banks via their Greek branches. To prevent further losses in Greece, the Central Bank of Cyprus was ordered to sell the Greek operations of the Cyprus Banks in a fire-sale.

Piraeus Bank of Athens paid €524m (million) for the remaining Greek assets of Laiki Bank, BoC and Hellenic Bank. The purchase was funded by the European Central Banks’ European Financial Stability Fund (EFSF), using Piraeus shares as collateral. The boards of Laiki Bank and BoC resigned immediately as they had been kept out of negotiations. The governor of the Central Bank of Cyprus confirmed that the deal was stitched together by the Cypriot and Greek governments and the Eurogroup of finance ministers. Piraeus Bank of Athens was even awarded a €3.1bn write-back on the purchase price for buying impaired assets. It recorded its first profit in years.

This massive mark-down of assets owned by Cypriot bank shareholders and bondholders (worth 75% of Cyprus’ annual GDP), was hushed up. Once again, Cyprus banks had been forced to make crippling sacrifices to support Greece’s ailing economy. Within weeks of the deal, the CEO of Piraeus Bank of Athens was in Cyprus touting for business.

In a radical departure from accepted practice, two major groups of creditors, financial institutions and government agencies, were exempted from the bail-in haircuts. This meant that Central Banks were refunded their liabilities ahead of uninsured depositors. The ECB would get 100% of its €9.2bn ELA and the Bundesbank would get 100% of its €7bn TARGET2 liability.

These loans had been given to Cypriot Banks to replace the cash withdrawn when depositors moved their money elsewhere, especially to Germany. Technically, ELA is no different from a bank bailout, apart from costing 4% interest compared to 2.5%. The TARGET2 component of the Eurosystem shifts Euros back to European banks whose deposits have been depleted by interstate transfers, in effect giving them a loan.

Under the Troika deal, the liquidity provided by the European Central Bank and Bundesbank would be refunded first. Uninsured depositors would receive worthless bank shares to replace the cash and assets confiscated to cover Central Bank liabilities. It would have caused massive scandal in the EU if Cyprus commercial banks defaulted on the liquidity assistance provided by European Central Banks. Politically, it was much easier to raid the uninsured deposits of Cyprus account-holders after accusing them of money-laundering.

This ruthless action by the Eurogroup reassured taxpayers of Germany, Finland, Netherlands and Austria, who saw Northern economies carrying ever-increasing risks of default by Southern European banks and governments. Currency controls were put in place to staunch the movement of capital out of Cyprus. Nevertheless, billions of Euros are leaving Cyprus on a monthly basis.
As a reward for its compliance with the conditions set by the Troika of lenders, the government of Cyprus was granted a soft loan of €10bn by the European Stability Mechanism and IMF. €4.1bn was made available to roll over Cyprus external sovereign debt; €3.4bn was given to President Anastasiades to spend on governance; €2.5bn could be used to re-capitalize Cyprus’ smaller banks, Hellenic Bank and the Co-op Bank.

The Cyprus government must start repaying the loan and interest back after 10 years. The interest bill will exceed €3bn. This will be enough time to fund loan repayments from offshore gas revenues, expected to be earned from 2018 onwards.

External bond-holders of Cypriot Government debt will be repaid 100% of their investment, courtesy of Cypriot taxpayers. This vindicates the promise made by EU Economic and Monetary Affairs Commissioner Olli Rehn of Finland. In a January 2013 interview with Handelsblatt daily, Rehn reassured financial markets that there would be no haircuts on Cyprus Government Bonds.
However, President of the European Central Bank, Mario Draghi, announced in May 2013 that Cyprus banks may use Cyprus Government Junk Bonds “guaranteed by the Cyprus Government, with the agreed haircuts” as collateral for ECB funding.

This means that uninsured depositors will pay off much of the Cyprus Government debt as the value of Cyprus Government Bonds has been written down. The ECB has agreed to accept lower quality Asset-Backed Securities as collateral. Uninsured depositors will lose yet more of their funds in order to pay out the billions of Euros of insured deposits that are being painstakingly withdrawn within the constraints of capital controls.

Slowly, brick by brick, the last remaining wealth of Cyprus is being wrung from its soil and auctioned off. Central banks are extracting every ounce of gold from an island that was once renowned for its copper in Roman times.


Economic Effects of the Cyprus Bank Deposit Bail-in

Cypriot businesses have seen their working capital plundered. The country is increasingly reverting to a cash-economy with a consequent dive in tax revenues. Provident funds, including those of bank-employees, have been severely impaired.

Most companies have cut wages, leading to severe distress among families who are paying off housing loans. This is intended to achieve the Troika’s goal of “internal devaluation”. By cutting labour costs, it is hoped to make Cyprus as competitive as countries like Germany.

Cyprus Airways is undergoing restructuring. Half of its staff have been retrenched. €20m in severance pay will be paid out of future airline revenues as the European Commission has barred the state from subsidising a commercial airline. The three Lufthansa consultants in charge of the restructuring are set to receive €1.3m. The remaining staff will suffer a 25% salary cut.

Even charities have not been spared a deposit haircut. Soup-kitchens for the legions of unemployed rely on constant donations of food from the public. The Cyprus Olympic Committee has lost €600,000 from the bail-in.

In an act that beggars belief, the Cypriot Parliament has levied a 30% tax on the interest earned from bank deposits. This has made Cypriot banks totally uncompetitive and deposits are tapering off. Money is being deposited offshore and ELA requirements of the Bank of Cyprus are increasing. The Central Bank of Cyprus announced that €6.34bn or 9.96% of deposits were withdrawn from domestic banks in April 2013. Deposits had dropped by €14.23bn or 19.87% since April 2012. (This fall, in one year, is equivalent to 80% of Cyprus’ annual GDP.)

In another measure which defies logic, a property tax was insisted on by the Troika of international lenders. The government aims to extract maximum tax revenue by inflating property prices by the annual rate of consumer price inflation since 1980. Currently, property prices are at an all-time low. This tax will further depress the property market and withdraw large amounts of liquidity from the battered economy.

The reasons are not hard to fathom. A week after the Memorandum of Understanding was signed with the country’s lenders, President Anastasiades apologised to State employee unions that he had been forced to cut their salaries and pensions. He assured them that there would be no further cuts. The Minister of Finance assured government employees that their benefits would be maintained by reducing state expenditure on infrastructure. The opening of a new medical faculty at the University of Cyprus, costing €100m, would be funded, as it formed part of an election pledge.

Between January and May 2013, unemployment in the Cyprus private sector increased from 52,000 (11.8%) to 71,000 (16.1%), the steepest increase in the European Union. The EU has warned that Cyprus runs the greatest risk of social upheaval of all European countries.


Economic and Political Prospects for Cyprus post-2013

Unable to devalue its currency to remain competitive, unable to print money to buy its citizens’ assets and stimulate its moribund economy, the Republic of Cyprus has come to realise that membership of the Eurozone is a poisoned chalice. The island has been cast adrift from Europe and left to sink or swim.

NATO continues to frame the geopolitical agenda of the Eastern Mediterranean, as it did when Turkey was allowed to invade the island in July 1974. In May 2013, two months after the Cypriot government had ceded control of its economy to the Troika of international lenders, Prime Minister Erdogan of Turkey listed 5 demands to President Barack Obama of the USA. One of those demands was that none of the estimated €200 billion of Cyprus offshore oil and gas reserves be sold to Russia. A week later, the Secretary General of NATO, Anders Fogh Rasmussen, warned the leaders of Cyprus that the island must settle the Cyprus Problem before it drills for oil and gas.

There is no need to bribe NATO member Turkey with trillions of cubic feet of hydrocarbons from the Levantine Basin to facilitate settlement of the Cyprus Problem. Turkey can use its military superiority to seize the island and its gas reserves. Despite reassuring noises that America will defend American energy companies drilling for hydrocarbons off the Cyprus coast, it is likely America would support its strategic ally Turkey, rather than side with insignificant Cyprus. In a display of solidarity, NATO allies in Europe have moved Patriot missiles to Turkey’s border with Syria.

Europe and Turkey are about to sign the aptly named “European Readmission Treaty” whereby Turkey has agreed to become a dumping ground for illegal migrants who have entered the EU through Turkey from countries to its east. This goes a long way towards reassuring German and French voters that the European Empire is spreading eastwards, rather than the Ottoman Empire spreading westwards.

During 2013, in a sign of Europe’s softening stance on Turkey, the European Court of Justice accorded Turkish Law primacy in settling all land restitution claims on the island of Cyprus.
Greek and Turkish speaking Cypriots have been promised a €200 billion bonanza from the discovery of hydrocarbons off the Cyprus coast. The use of most of the gas revenues to bankroll multinational energy conglomerates and to offset State “borrowings” will go largely unnoticed: a drop in the vast ocean of political corruption.

copyright 2013 by John Henry Morgan; all global rights reserved in all media

John Morgan is the director of a company based in Larnaca, Cyprus. He owns property in Cyprus and has lived there since 2004. He comes from the United Kingdom. He has also worked in Europe, Africa and the Middle East.


The 2013 Cyprus Deposit Bail-in: POSTSCRIPT

"I run a Cypriot marine & diving company operating in the UAE in the Middle East. We have had €400,000 (a 90% retention) frozen by the Bank of Cyprus which was all the money we had to finish mobilizing for the final stage of a project. We desperately need that money to finish our mobilization and complete the project. We must finish the project in order to receive payment for all the work we have already done. We are now without funds in an Arab country that imprisons debtors and we have debts. We can't pay the salaries and wages of our people, and soon won't have enough money to feed them. We stand to lose our marine and equipment assets if we can't pay our debts. We are in very serious trouble and all the pleading and demands that at least some of our funds are released are ignored. We are desperate. We are the only company in this sort of trouble according to the Cypriot Ambassador. There is no protection for foreign nationals in this country. We need our money, we need help. Can you help us please by investigating or publishing our story?"Christopher M Penny

Bank of Cyprus starts process of turning uninsured deposits into stocks

Dubai Business Directory Listing for COMBINED DIVING & INSPECTION SERVICES

Allegations of Fraud, 20% Drop In Stock Price, Market Manipulations, Internal Investigations: Nothing To See Here, Move On…

On Wednesday, 17 April 2013 I queried "What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors?" In such query, I levied some heavy accusations at the Bank of Ireland. Its worth a read if you haven't done so already. Well, two months later, I read in the Irish Independent the following: Internal probe at Bank of Ireland

AN inquiry is under way within Bank of Ireland's private banking division, as the bank's internal auditors investigate what have been described as "possible irregularities".

The Sunday Independent has learned that Bank of Ireland's auditors have been inside the division, which counts many of Ireland's most wealthy and powerful individuals among its clients, at various stages over the past six weeks, conducting what one source described as a "thorough examination" of its activities.

Hmmmm. Now, that's interesting. Six weeks ago would have been about two weeks after I dropped my bomb of a scorching missive on sheeple who are to this day, much too trusting of the banking system. That two weeks is just about the amount of time it would have taken a big corporation to act on the information that I levied (if it was in a rush). Wholly a coincidence, I'm sure!

The bank's audit team is seeking to establish if any of its private banking clients' affairs have been handled in any way improperly.

The bank's management is understood to be treating the matter "very seriously". Commenting on this, one well-placed source said: "The investigation isn't complete yet. It's difficult to say when it will be complete. We are obliged to follow due process before we come to any conclusions."

Asked if Bank of Ireland had brought in any third parties to assist with the investigation or if it had made contact with gardai even on a preliminary basis, the source said: "No, the matter is being dealt with internally and all appropriate procedures are being followed.

... The source stressed that clients of the division that is under investigation would be notified immediately in the event that the bank uncovered any evidence to show that their affairs had been inappropriately managed.

I have to be honest, I hate it when people ask me for free advice. After all, if my advice/opinion/knowledge was thought to be worth something, then people ought to act like it, no? Well, methinks one should make an exception to the rule this one time and offer some free advice to the "internal audit team" at the Bank of Ireland. I know, I know... Nobody asked me, but since they haven't bothered to bring in any third parties yet, why not invite myself and crash the party?

Let's, once again, reference my post from two months ago - What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors? wherein I will update the ADR performance chart for the bank if Ireland.


As you can see, there was a significant and material loss taken by ADR holders during the time in question at BoI. But, following the auspices of this story in the Independent, yet using our BoomBustBlog investigative resources, there's much more here than meets the eye. A document that I made available to professional/institutional subscribers details how the Bank of Ireland sought and received an exemption from SEC rule 102 of Regulation M (click here to brush up on your US securities law). In short, this exemption allowed the bank to literally trade in its own securities, provided it wouldn't abuse the privilege. See an excerpt below...

bank-of-ireland-060711-1-4 Page 01bank-of-ireland-060711-1-4 Page 01bank-of-ireland-060711-1-4 Page 02bank-of-ireland-060711-1-4 Page 02

This letter worked literal wonders for the Bank of Ireland stock within days of being issued. Even more miraculous is the fact that it wasn't public information at the time yet the public somehow knew to bid the shares up by nearly 100%. Hmmmm! Coincidence, eh?


Even more damning is the fact that the alleged historical trading volume in the shares in question (a pertinent fact used as an argument to get the Reg M exemption in the first place) spiked by nearly 5X!!!


...Bank of Ireland Private Banking is, according to its website, "Ireland's largest and oldest private bank. The country's leading entrepreneurs, business leaders, professionals and families trust us to manage their wealth with discretion and integrity."

 If the private banking client's capital was used to churn these shares, then.... Oh Boy~~~

Per Wikipedia: Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for a securitycommodity or currency. Market manipulation is prohibited in the United States under Section 9(a)(2)[1] of the Securities Exchange Act of 1934, and in Australia under Section s 1041A of the Corporations Act 2001. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradable security.


  • Churning: "When a trader places both buy and sell orders at about the same price. The increase in activity is intended to attract additional investors, and increase the price."

If the stock was churned, the price would have increased temporarily until the performance numbers of the loss making bank would have came to fore. But then again, what would management have to gain by manipulating the stock in such fashion. After all, bankers aren't incentivized or measured by share prices, bonuses, year and reviews, etc., right???

I have released information that has apparently caused quite a bit of high level C-suite types to head for the hills, reference BoomBustBlog Hard Hitting, Bleeding Edge Research Results In 2nd High Level Ouster/Resignation In The UK & Euroland

If you believe that the information above actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convey my message


Those of you in Ireland who may not want to get "Cyprus'd", ie. have your bank accounts fund another bailout, should contact the Office of the Director of Corporate Enforcement. Click this link, and tell them Reggie from NYC sent 'ya. Seriously! The reason why Irish banks haven't been reformed was because not enough light has been shown on the activities. See a valid attempt at such here. This is the time, for the tea leaves foretell the next bank collapse & bailout will be funded directly out of your bank accounts, reference Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You for those who don't believe me. See Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" for an example of a bank statement of a Cypriot who didn't take the regulation of his bank seriously!!!

G8 Summit: Just How Effective?

Lough Erne. Should read more like Laugh Erne! The G8 summit opens today in Ireland under the Presidency of Prime Minister of the UK, David Cameron. Beyond the fact that now given that the G20 exists and even the G77 (the more the merrier?), questions are raised as to whether the G8 is still willing or even capable of doing very much in the world today. Except perhaps of spying, that is. As the world reels back from the shock of US-spying tactics and the world also revels in the fact that the 2009 was marred by then-PM Gordon Brown’s interception foreign communications from politicians to heads of state and the setting-up of fake internet cafes just to collect information ahead of the summit, we ask what are they doing in Lough Erne? Isn’t it laugh-able?

G8: Lough Erne

G8: Lough Erne

The summit opens today for two days of public display of back-slapping and hand holding, championing the things that the west does best. The summit was preceded yesterday by the parading of 8 life-size puppets with huge heads to draw attention to poverty levels in the world. But, while some are starving in the world, the G8 will be bringing to the forefront of its agenda the question of tax evasion in tax havens around the world. Despite the fact that the majority of the countries present actually have their own tax havens, in fact. All very well to criticize and condemn, but when you live in glass houses, you know what you shouldn’t be doing.

But, just how effective is the show of camaraderie in changing world events? Recall the moment when the world collapsed and the markets imploded at the start of the financial crisis. In 2008, the G8 held an extraordinary summit to solve the world’s problems. Remember that the statement began by:

“We, the leaders of Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States of America, and the President of the European Commission, are united in our commitment to fulfill our shared responsibility to resolve the current crisis, strengthen our financial institutions, restore confidence in the financial system, and provide a sound economic footing for our citizens and businesses.”

Half of those countries have gone under since then, buckling under the weight of the financial debts that they ended up ladening the taxpayer with. France has officially been declared in recession. Italy has sunk like the Doge’s Palace in Venice. The United Kingdom is as about divided as you can get on whether to stay in or get the hell out of the EU and run as fast as they can. But, where? The US is printing money like it is going to go out of fashion and the EU is propping itself up as hard as it can, and half the countries are heading for the failed-state checklist these days.

So, we were told in 2008 that they would “resolve the current crisis, strengthen our financial institutions, and restore confidence” [Laugh]. The plan was called the G7 Plan of Action. Simple.

There were five points:

1.       “Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.

2.       Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.

3.       Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.

4.       Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.

5.       Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.”

All of these were promised to be actions that would “protect the taxpayer”. How far does that hold true? Has the taxpayer in the EU been protected in paying for failed Eurozone countries? Has the taxpayer in the US been protected from bailing out the banks?

The banks cost the United States $700 billion in recapitalization through the Capital Purchase Program (CPP). But, there was no investigation of the banks’ financial plans. There was no tailor-made plan for each bank. The banks just got the money thrown at them. The Federal Reserve got $211.5 billion back (of the initial payment that was made of $204.9 billion). So, they made a profit. Although, not all the banks have paid the money back. Just under half (48%) used other Federal-Reserve money to pay the Federal Reserve back. Goes round in circles so much that it makes you dizzy! So, the banks that got the money from the Federal Reserve (that got the money from the taxpayer at the time), paid the Federal Reserve back with extra money that the Federal Reserve gave them (from the taxpayer again). I thought the taxpayer was supposed to have been spared in all of this. The big banks have managed to pay back using that money. The smaller ones haven’t. Either they didn’t get the money from the Community Development Capital Initiative program or they are not turning a profit. There are still $16.7 billion outstanding. Some even asked for the bill to be written off by the Federal Reserve. That would have been openly making the taxpayer pay, wouldn’t it. Above board, at least.

Now the Federal Reserve is buying $115-billion worth of Treasury Bonds a month. But, the money is not getting out there to the people. It’s filling the coffers of the banks. Deposits are growing far faster than the bank can actually give the money away. That’s because the economy is not growing at the same rate as the money that is being injected. It’s being left unused and it seems like the only thing we are using is the ink on the printing presses. The deposit growth rate has been increased by roughly 9-10% since QE3. But growth of loans has been at about 3.5-5% per year. That means there is surplus money sitting somewhere unused at the expense of the taxpayer. Loan demand just can’t absorb the deposits because the Federal Reserve’s dollar-pumping policy is injecting money into markets, boosting stock prices higher, but the ‘wealth’ is not trickling down to the economy, because it is lying dormant and is unproductive today.

G8 UK 2013

G8 UK 2013

So, as the G8 leaders are seated in Laugh Erne today they might learn that words are essential, but action is even better. There was certainly some action when faced with growing derelict buildings and unemployment, there was an action-decision taken to create false shop-fronts and hide the misery that is part and parcel today of Lough Erne.

G8 False Shop-Front, Lough Erne

G8 False Shop-Front, Lough Erne

Getting rid of tax havens and bringing them into line with the rest of the world’s taxpaying community is laughable some might say. Remember that the ‘taxpayer must be protected’. But, it seems that there might be two different types of taxpayer that we are talking about. Which one do you belong to?

Originally Posted G8 Summit: Just How Effective?

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Frontrunning: June 17

  • Obama prepares for chilly talks with Putin over Syria (Reuters)
  • G8 opens amid dispute on Syria arms (FT)
  • Economists Blame Fed for Higher Bond Yields (WSJ) - wait... what? Isn't the "stronger economy" to blame?
  • What a novel concept - In the Czech Republic, a spying scandal has forced the PM to resign (BBG)
  • Rigged-Benchmark Probes Proliferate From Singapore to UK (BBG)
  • Economists Wary as Fed's Next Forecast Looms  (Hilsenleak)
  • Banks Balk at New Rules for Small Loans (WSJ)
  • Sporadic clashes in Turkey as Erdogan asserts authority (Reuters)
  • India Holds Rates as Rupee Drop Risks Fueling Inflation (BBG)
  • Smithfield Pressed to Carve Itself Up (WSJ)
  • Bank Profits Seen Buffeted by Rates Rising Without Growth (BBG)
  • Bank of England says foreign banks made UK’s credit crunch worse (FT)
  • Apple got up to 5,000 data requests in six months (Reuters)
  • Airbus on Track to Double Profit Margin by 2015 (WSJ)
  • West to Press Iran on Nukes (WSJ)
  • Suntory Shows Caution on IPO Price (WSJ)


Overnight Media Digest


* The United States and Europe plan to push for nuclear talks with Iran following the surprise victory of centrist Hassan Rohani in presidential elections.

* Airbus is on track to more than double its profit margin by 2015 through greater efficiency and restructured management, said Chief Executive Fabrice Bregier.

* Large banks are pushing back against regulators' plans to toughen rules on short-term, high-interest consumer loans.

* Starboard Value LP, a large activist investor in Smithfield Foods Inc, is pressuring the company to explore a break-up rather than go ahead with a planned $4.7 billion takeover by Chinese meat producer Shuanghui.

* Home-improvement retailer Lowe's Cos Inc agreed to buy Orchard Supply Hardware Stores for $205 million, potentially throwing a lifeline to the struggling West Coast hardware-and-garden chain.

* Co-op Bank is expected to unveil plans this week to fill a capital hole, estimated at 1.25 billion pounds ($1.96 billion), by imposing losses on bondholders and selling loan portfolios, a person familiar with the plans said.

* General Electric Co is expanding its ability to produce ceramic-based parts for its jet-engine business, betting that the risks of using a novel material are outweighed by the expected fuel savings.

* Liberty Media Corp Chief Executive Greg Maffei recently met with Time Warner Cable Inc Chief Executive Glenn Britt to discuss the benefits of mergers in the cable sector, said a person familiar with the situation, the latest sign that Liberty is interested in sparking consolidation in the industry.

* Congress is gearing up to tackle an issue that Washington has mostly ignored for nearly five years: What to do with Fannie Mae and Freddie Mac, the bailed-out but now-profitable mortgage companies.



The United Kingdom's biggest shareholders such as Schroders , pension funds and charities are looking at setting up a joint investor forum to check boardroom excesses and in turn improve performance and returns of companies.

The car market in western Europe will not begin to grow until at least 2019, according to a report to be released by AlixPartners on Monday, raising fears of further plant closures. The total capital raised on Brazil's stock exchange during the first half of 2013 is set to cross $10.6 billion this week when the country's largest cement producer, Votorantim Cimentos lists on Wednesday.

Private equity owners of Germany's Grohe, Europe's biggest bathroom fittings maker, have appointed bankers to evaluate strategic options including an initial public offering or sale, that could value the company at 4 billion euros, including debt.

Co-operative Bank is close to agreeing a rescue package with the Bank of England that will plug a capital shortfall of up to 1.5 billion pounds ($2.35 billion) without state help. EADS, Finmeccanica and Dassault - three of Europe's biggest defence companies - have called up governments to set up a European drone programme to compete with U.S. and Israeli companies that dominate the sector.



* A record seven million students will graduate from universities and colleges across China in the coming weeks, but their job prospects appear bleak - the latest sign of a troubled Chinese economy.

* Only months before Americans start buying coverage through new state insurance exchanges, it is becoming clear that choices will vary sharply depending on where people live.

* A long-running economic policy debate over austerity versus stimulus was expected to be muted at the Group of Eight summit as participants concentrated on addressing the escalating civil war in Syria.

* After posting a loss in the first quarter, Martha Stewart Living Omnimedia redesigned its print and digital offerings in hopes of returning to profitability.

* Boeing Co's full-court press to address the risk of battery fire on its flagship 787 Dreamliner jet this year has not slowed progress on the company's other planes in development, including a revamped version of its popular 777 wide-body, Raymond Conner, chief executive of Boeing's civil aircraft division, said on Sunday.




* New Mexican President Enrique Pena Nieto wants ties with Canada to be a priority in the country's foreign policy, rather than the on-again, off-again interest of two countries distracted by relations with the United States, Mexico's ambassador says.

* Canadian Prime Minister Stephen Harper is lashing out at Russian President Vladimir Putin over his support for "thugs" in Syria, a public sign of the divisions that have broken out between Russia and the other G8 members over the future of the Middle East country torn by civil war.

Reports in the business section:

* The proposed Northern Gateway pipeline project has spurred a fierce national debate about whether heavy oil spilled in sea water floats or sinks, how much disaster insurance pipeline projects should carry and the economic rewards of shipping oil sands bitumen across the ocean to foreign markets.

* The growing debt burdens of Ontario and Quebec look alarmingly large compared to most other regional and local governments around the world. But a report to be released Monday by Moody's Investors Service argues that the two provinces' unique fiscal and economic characteristics mean they can carry heavy debt loads while still enjoying relatively high credit ratings.

* Montreal's pharmaceutical industry has been hit hard by lab closings and layoffs, but the Canadian CEO of French drug giant Sanofi sees a possible cure.


* Justin Trudeau, the leader of the Liberal Party of Canada, is promising to compensate all groups that paid him hefty speaking fees to participate in fundraising events since he became an MP.


* The International Monetary Fund sees the Federal Reserve maintaining large monthly bond purchases until at least the end of this year and urged the central bank to carefully manage its exit plan to avoid disrupting financial markets.

* Yoga wear giant Lululemon Athletica Inc is on the hunt for a new chief executive whose credentials include holding a "headstand for at least 10 minutes", fluency in Sanskrit and the ability to do "wheatgrass and tequila shots" on Fridays.




- A report published by the Institute of Economic Research of Renmin University forecast that the GDP growth rate this year will reach 8.1 percent, while the consumer price index would rise 2.3 percent.

- China will put forward new electricity price subsidies on the solar industry as soon as end-June, sources said.


- The People's Bank of China will promote cross-border yuan settlement to facilitate trade and investment for personal businesses, said an official with the PBOC's Monetary Policy Committee.


- Fujian should seize the opportunity of national support in the economic zone and promote economic and trade exchanges and cooperation across the Taiwan Straits, said Yu Zhengsheng, the head of Chinese People's Political Consultative Conference, during a visit to the province.


- The Chinese embassy in France strongly condemned an attack on six Chinese students in the Bordeaux region which France's Interior Ministry described as an "act of xenophobia".

Fly On The Wall 7:00 AM Market Snapshot



CIT Group (CIT) upgraded to Buy from Hold at Drexel Hamilton
CYS Investments (CYS) upgraded to Buy from Hold at Wunderlich
Century Aluminum (CENX) upgraded to Equal Weight from Underweight at Morgan Stanley
CubeSmart (CUBE) upgraded to Strong Buy from Outperform at Raymond James
Extra Space Storage (EXR) upgraded to Strong Buy from Outperform at Raymond James
Fidelity Southern (LION) upgraded to Outperform from Market Perform at Keefe Bruyette
Heartland Payment (HPY) upgraded to Overweight from Neutral at Piper Jaffray
Philips (PHG) upgraded to Buy from Hold at Deutsche Bank
ProLogis (PLD) upgraded to Outperform from Market Perform at Wells Fargo
Public Storage (PSA) upgraded to Outperform from Market Perform at Raymond James
Ryman Hospitality (RHP) upgraded to Overweight from Neutral at JPMorgan
Spectra Energy Partners (SEP) upgraded to Outperform at Raymond James
TIBCO (TIBX) upgraded to Outperform from Market Perform at Wells Fargo
Transmontaigne Partners (TLP) upgraded to Buy from Neutral at BofA/Merrill


American Capital Agency (AGNC) downgraded to Equal Weight from Overweight at Barclays
CYS Investments (CYS) downgraded to Equal Weight from Overweight at Barclays
Encore Capital (ECPG) downgraded to Neutral from Overweight at Piper Jaffray
Health Management (HMA) downgraded to Neutral from Buy at Mizuho
Infinera (INFN) downgraded to Hold from Buy at Jefferies
JAVELIN Mortgage (JMI) downgraded to Underweight from Equal Weight at Barclays
MICROS (MCRS) downgraded to Neutral from Buy at Compass Point
Novo Nordisk (NVO) downgraded to Neutral from Buy at BofA/Merrill
Time Warner Cable (TWC) downgraded to Market Perform at Raymond James


Blackstone Mortgage Trust (BXMT) initiated with an Overweight at JPMorgan
ChannelAdvisor (ECOM) initiated with a Buy at Goldman
IHS Inc. (IHS) initiated with a Hold at Deutsche Bank
Synergy Pharmaceuticals (SGYP) initiated with a Buy at Citigroup
T-Mobile (TMUS) initiated with a Neutral at RW Baird
Teradata (TDC) initiated with an Underperform at Cowen
Tesla (TSLA) initiated with an Overweight at Global Equities
U.S. Silica (SLCA) initiated with an Outperform at Wells Fargo
Ubiquiti Networks (UBNT) initiated with an Outperform at BMO Capital


Weyerhaeuser (WY) to acquire Longview Timber (BAM) for $2.65B, intends to increase dividend
Weyerhaeuser (WY) to explore strategic alternatives for WRECO business
Brookfield (BAM) to sell Longview Fibre Paper and Packaging to KapStone (KS) for $1.03B
Boeing (BA), Qatar Airways announced agreement worth up to $2.8B for nine 777-300ERs
Lowe's (LOW) entered $205M purchase agreement with Orchard Supply Hardware (OSH)
ING (ING) to sell Mexican mortgage business to Banco Santander (SAN)
Elan (ELN) announced Royalty Pharma bid lapses in accordance with terms
Royalty Pharma expressed disappointment in letter to Elan (ELN) board
Transition Therapeutics (TTHI) announced exercise of TT-401 rights by Eli Lilly (LLY)
Netflix (NFLX) to premiere DreamWorks Animation (DWA) brand slate of new original TV series


  • Activist investment fund Starboard Value LP,  a major Smithfield Foods (SFD) investor, is pressuring the company to explore a breakup rather than follow through with its planned takeover by a Chinese meat producer, according to a letter reviewed by the Wall Street Journal
  • Large banks are pushing back against regulators' plans to toughen rules on short-term, high-interest consumer loans. Wells Fargo (WFC), the largest bank to offer "deposit-advance loans," told regulators that it will discontinue the loans if plans for tougher rules are completed, the Wall Street Journal reports
  • Apple (AAPL) received over the last six months between 4,000 and 5,000 requests for customer data from U.S. law enforcement authorities relating to criminal investigations and national security matters, Reuters reports
  • Telefonica (TEF) said it had not received any indication of interest from AT&T (T), following an El Mundo newspaper report that the government had stopped a $93B offer from the U.S. company, Reuters reports
  • Brazil’s Vale (VALE) said further local currency depreciation could counter cost rises and a slowdown in Chinese iron-ore demand as it seeks to regain market share from Rio Tinto (RIO) and BHP Billiton (BHP), Bloomberg reports
  • Rising bond yields are typically indicators of stronger economic growth and higher profits for banks (JPM, BAC). That might not be the case this time, as a 30-year bull market in U.S. government debt shows signs of coming to an end. Higher long-term interest rates can discourage mortgage lending and cause losses in the securities portfolios of banks, Bloomberg reports


Eastman Chemical (EMN) could rise over 35%
BB&T (BBT) looks ready to regain favor with investors
AMD (AMD) could double from entry into 'microserver' market
Amgen (AMGN) still looks attractive
Big Lots (BIG) shares look cheap
Linn (LINE) deal with Berry (BRY) in jeopardy (LNCO)
Iron Mountain (IRM) could drop towards the teens


DCP Midstream (DPM) files to sell $300M of common units
Intercept (ICPT) files to sell 1.73M shares of common stock
OPKO Health (OPK) files to sell 24.76M shares of common stock for holders
PVR Partners (PVR) files to sell $150M of common units
SL Green Realty (SLG) files to sell 68,973 shares of common stock
Weyerhaeuser (WY) files to sell 28M shares of common stock
WhiteWave Foods (WWAV) files to sell 29.91M shares of Class A common for holders

Iran Sends 4,000 Troops To Aid Syria’s Assad

While the world awaits Russia's formal response to last week's US escalation in Syria (as Putin demonstratively arrived an hour late for talks on Syria with UK PM David Cameron) another country: Iran - fresh from an election in which moderate candidate Hassan Rohani became the new president - is taking matters into its own hands. The Independent Reports that "a military decision has been taken in Iran – even before last week’s presidential election – to send a first contingent of 4,000 Iranian Revolutionary Guards to Syria to support President Bashar al-Assad’s forces against the largely Sunni rebellion that has cost almost 100,000 lives in just over two years.  Iran is now fully committed to preserving Assad’s regime, according to pro-Iranian sources which have been deeply involved in the Islamic Republic’s security, even to the extent of proposing to open up a new ‘Syrian’ front on the Golan Heights against Israel."

If it was the west's desire all along to drag Iran into the Syrian escalation, and thus shoot two birds with one cluster bomb, Iran may have just happily obliged.

So while we now await for Israel in turn to ratchet up the war rhetoric one more time, perhaps while punctuating its sentences with the occasional bomb over Syrian soil, here is the Independent with a comprehensive analysis on how America, courtesy of its now formalized support of the Syrian mercenaries rebels, suddenly finds itself in uncharted territory: "For the first time, all of America’s ‘friends’ in the region are Sunni Muslims and all of its enemies are Shiites. Breaking all President Barack Obama’s rules of disengagement, the US is now fully engaged on the side of armed groups which include the most extreme Sunni Islamist movements in the Middle East."


In years to come, historians will ask how America – after its defeat in Iraq and its humiliating withdrawal from Afghanistan scheduled for  2014 – could have so blithely aligned itself with one side in a titanic Islamic struggle stretching back to the seventh century death of the Prophet Mohamed. The profound effects of this great schism, between Sunnis who believe that the father of Mohamed’s wife was the new caliph of the Muslim world and Shias who regard his son in law Ali as his rightful successor – a seventh century battle swamped in blood around the present-day Iraqi cities of Najaf and Kerbala – continue across the region to this day. A 17th century Archbishop of Canterbury, George Abbott, compared this Muslim conflict to that between “Papists and Protestants”.


America’s alliance now includes the wealthiest states of the Arab Gulf, the vast Sunni territories between Egypt and Morocco, as well as Turkey and the fragile British-created monarchy in Jordan. King Abdullah of Jordan – flooded, like so many neighbouring nations, by hundreds of thousands of Syrian refugees – may also now find himself at the fulcrum of the Syrian battle.  Up to 3,000 American ‘advisers’ are now believed to be in Jordan, and the creation of a southern Syria ‘no-fly zone’ – opposed by Syrian-controlled anti-aircraft batteries – will turn a crisis into a ‘hot’ war.  So much for America’s ‘friends’.


Its enemies include the Lebanese Hizballah, the Alawite Shiite regime in Damascus and, of course, Iran. And Iraq, a largely Shiite nation which America ‘liberated’ from Saddam Hussein’s Sunni minority in the hope of balancing the Shiite power of Iran, has – against all US predictions – itself now largely fallen under Tehran’s influence and power.  Iraqi Shiites as well as Hizballah members, have both fought alongside Assad’s forces.


Washington’s excuse for its new Middle East adventure – that it must arm Assad’s enemies because the Damascus regime has used sarin gas against them – convinces no-one in the Middle East.  Final proof of the use of gas by either side in Syria remains almost as nebulous as President George W. Bush’s claim that Saddam’s Iraq possessed weapons of mass destruction.


For the real reason why America has thrown its military power behind Syria’s Sunni rebels is because those same rebels are now losing their war against Assad.  The Damascus regime’s victory this month in the central Syrian town of  Qusayr, at the cost of Hizballah lives as well as those of government forces, has thrown the Syrian revolution into turmoil, threatening to humiliate American and EU demands for Assad to abandon power.  Arab dictators are supposed to be deposed – unless they are the friendly kings or emirs of the Gulf – not to be sustained.  Yet Russia has given its total support to Assad, three times vetoing UN Security Council resolutions that might have allowed the West to intervene directly in the civil war.


In the Middle East, there is cynical disbelief at the American contention that it can distribute arms – almost certainly including anti-aircraft missiles – only to secular Sunni rebel forces in Syria represented by the so-called Free Syria Army.  The more powerful al-Nusrah Front, allied to al-Qaeda, dominates the battlefield on the rebel side and has been blamed for atrocities including the execution of Syrian government prisoners of war and the murder of a 14-year old boy for blasphemy.  They will be able to take new American weapons from their Free Syria Army comrades with little effort.


From now on, therefore, every suicide bombing in Damascus - every war crime committed by the rebels - will be regarded in the region as Washington’s responsibility. The very Sunni-Wahabi Islamists who killed thousands of Americans on 11th September, 2011 – who are America’s greatest enemies as well as Russia’s – are going to be proxy allies of the Obama administration. This terrible irony can only be exacerbated by Russian President Vladimir Putin’s adament refusal to tolerate any form of Sunni extremism. 

In short: meet the new world axis and allies, conveniently split by the Syria proxy war (h/t Xue):

1994 Redux? But Not In Bonds

In UBS' view, 1994 is critical for guiding investing today. The key point about 1994 was not that US bond yields rose during a global recovery. But that the leverage and positioning built up in previous years, on the assumption that yields would remain low, then got stressed. The central issue, they note, is that a long period of lacklustre growth, low rates and easy money induces individual investors, funds, non-financial corporates and banks to reach for yield. In many cases, they gear up to do it. And as Hyman Minsky warned; in this way, stability breeds leverage, and leverage breeds instability.



Via UBS: 1994 Redux?


Sebastian Mallaby has written an excellent account of the 1994 bond market blowout in ‘Hurricane Greenspan’, chapter eight of his book ‘More money than God’ (Bloomsbury press, 2010). In his depiction of the legendary hedge fund trader Michael Steinhardt – he describes how hedge funds, and a range of other financial institutions, chased convergence trades from 1990-1993.

They played term carry (borrowing short term to buy long dated bonds within the US). They ran cross regional carry trades (borrowing in Germany or the US to buy Italian & Spanish bonds as these countries prepared for EU membership).

And they rushed to buy assets that were priced off convergence trades; emerging market property, peripheral banks. They even bought defensive growth stocks (with the idea that the PE on a defensive growth stock should converge to the inverse of the 10 year yield).

We argue below that the set-up today is very similar to that in early 1994.

The danger in these trades is that a cyclical recovery, especially a global cyclical recovery, will cause yields to rise and compel policy makers to withraw accommodation. And that this can induce an outsized reaction in all the convergence trades ultimately priced off treasuries, as leverage is removed.

This is why the central lesson from 1994 is that, after a long period of easy money, when a cyclical recovery kicks in and policymakers are setting to remove accommodation, at all costs avoid convergence trades and avoid assets that are priced off convergence trades.

And the popular convergence trades of the past months have been;

  • Emerging market credit
  • Emerging market property
  • Southern European sovereign debt
  • Peripheral European sovereign debt
  • US mortgage backed securities
  • US and global high yield debt
  • Global defensive growth stocks.

So what brings us to think that we can use 1994 as a guide to investing for the rest of 2013?

In the section below we highlight several key developments from 1990-1995 and the comparison with the current situation;

1990-Feb 1994

The Fed ran a very easy monetary policy from 1990-early ’94 in an attempt to reflate the US economy in aftermath of the S&L crisis. We have seen lower rates & even easier monetary policy since 2009.

US growth remained lacklustre throughout 1990-1993, going through a series of moderate ‘mini-cycles’. We have seen even more lacklustre growth over the past four years.

US 10-year treasury yields fell from 9% to 5% from 1990-early 1994, as a recession and then disinflationary pressure pushed down inflation expectations. Treasury yields fell from 4.3% in 2007 to 1.4% in the summer of 2012.

US banks hoarded treasuries.

Lending remained lacklustre.

Corporates hoarded cash & paid back debt.

From 1990-1994 Capital flowed into emerging markets. Asia boomed. The former USSR saw large inflows also. Capital flowed heavily into emerging markets from 2009-11, although it then slowed in 2H11 & 2012 as the Fed ended QE2.

Credit spreads tightened from 90-94, and from 09-13.

Commodities remained in the doldrums from 1990-1994. This was unusual, given the strong capital flows into emerging markets. But the implosion of the military/industrial complex in Russia from 1989 saw domestic demand for commodities collapse. Russia then exported nickel, aluminium, palladium, platinum, copper and oil to get hold of hard currency. Commodity prices came under intense pressure. This contrast is with the 2009-13 period – where capital flows & restocking drove commodity prices higher from 2009-11, but where capital outflows, destocking and new supply drove prices lower in 2011/12.

Headline CPI trended down, persuading many that there was no cause for rate hikes. We have seen a similar trend from mid-2001.

The dollar trade weighted index range traded between 80 & 95 from 1990-1995. An interesting development was that the dollar weakened while the US economy recovered through 1994, and while the Fed raised rates 225bps. The DXY has been range trading in a similar manner, broadly between 75 and 90 since 2009.

The extended period of low rates and strong capital flows into emerging markets induced a huge build-up of leverage across financial & non-financial institutions on a global basis.

The strong flows of capital into emerging markets set off the procyclical growth dynamic we have described regularly.

Capital inflows induce central banks to print their own currency to buy the dollars coming in. Bank deposits rise, and banks lend to construction and engineering companies. Growth & inflation pick up. And with nominal rates sticky, real rates fall. That in turn incentivises procyclical gearing up to buy & build houses, inventory and general fixed capital formation.

The Asian tigers grew aggressively, and their stock markets boomed going into 1993. Emerging markets recovered in 2009/10, struggled into 2011/12 and then saw a patchy recovery until recently.

The problem with the reflationary process in emerging markets is that it sows the seeds for its own destruction. Because the low real rates in EM induce excessive gearing & fixed capital formation – compared to a more balanced allocation of capital, had real rates stayed steady above zero. This leaves misallocated capital, and the latent potential for bad loans to emerge when credit becomes scarce. It also causes a deterioration in the trade balance. Both make emerging markets increasingly dependent on capital flows to stay afloat.

In many cases, emerging market governments will react to rising inflation by attempting to restrict credit growth (rather than raising rates). The problem with this is that it incentivises US dollar borrowing.

Emerging market business finds it attractive to borrow in dollars when domestic inflation is rising, the domestic currency is appreciating, and domestic borrowing costs are higher than dollar funding. And it is even more attractive when the activity the loans are funding – from inventory building to FCF – sees price/cost rises.

But when the trends reverse – the domestic currency depreciates, the dollar funding becomes more dear, the inventory values fall – then emerging market corporates can find themselves squeezed. Very rapidly.

But it is not just EM. In the long history of financial crises, the ‘reach for yield’ during a slow growth and low yield environment has on multiple occasions set up the conditions for financial stress when yields eventually rose.

The book ‘More money than God’ by Sebastian Mallaby (Bloomsbury, 2010), gives an excellent description of the leverage and yield enhancing structures that built up in the 1990-1993 period, and the carnage inflicted upon that leverage in 1994. Some examples include:

  • Bank & hedge fund carry trades – borrowing at the short end to purchase long dated bonds.
  • Borrowing in USD and German marks to buy Italian and Greek long term debt
  • Borrowing to buy high yield corporate debt.
  • he use of interest rate swaps to generate yield enhancement.
  • Leverage purchases of buy-to-let properties

We have also seen a significant build up in leverage over the past four years. Buy-to-let investment has risen strongly in the US/UK/Switzerland/Scandinavia. Retail investors have become heavily exposed to credit through mutual funds and credit ETFs.

Investors became very overweight long duration defensive growth and dividend yielding equities, at the expense of cyclical exposure.

Investors have left themselves highly exposed to any kind of cyclical rally outside the US, as well as within it. Valuations (as we noted here) are extremely varied.


As macro activity in the US accelerated, corporates stopped hoarding cash and started to seek to borrow to expand their businesses.

US banks, which had been hoarding treasuries, sold them to make way for increased corporate loans. Treasuries started to sell off.

The Fed then responded to the steepening curve and the improving macro conditions by raising rates by 25bps in February 1994. This came as a surprise to the market, which was not aware of the Fed’s internal deliberations. The transcript of the February meeting indicates that Fed members were wary of a 1988/89 style spike in inflation if they did not start the process of tightening.

Greenspan believed that the curve would flatten, as markets anticipated tighter policy moderated inflation expectations in the future.

But that’s not what happened.

The rise in rates instead dented the derivative trades predicated on no rise in yields, and it squeezed carry traders. That induced a more aggressive unwinding of treasury holdings, as leveraged carry trades unwound. And the Banks accelerated the sell off as they sold treasuries to make space for increased corporate lending. So the yield curve steepened over the year, with 10-year yields rising 306bps vs the 225bp rise in Fed funds.

An array of casualties ensued, from Orange county, California, that went bankrupt due to its exposure to a series of exotic interest rate swaps. To a number of prominent hedge funds – which saw extreme losses in February 1994.

Then there was the international fallout. The sharp increase in domestic demand for credit, combined with the increase in real rates induced powerful capital flows back to the US. This sucked liquidity out of several emerging markets, whose central banks had to retire domestic currency to repay the dollars exiting their countries. Soon, countries that had seen the most aggressive investment booms, which had done the most aggressive US dollar borrowing, and which suffered the largest current account deficits, came under intense duress. The Mexican peso crisis erupted, and the seeds were sown for a sustained deterioration in Asia, before the full collapse of the Asian crisis in 1997.

One of the conundrums of 1994 was the US dollar. It would be logical to think that, with a sharp rise in US growth, in rates & yields that the US dollar would have rallied. But it didn’t. It fell.

An important reason was that the US recovery, while stronger than expected, was not a big surprise. But what was a surprise was the European recovery – after the sustained post-unification funk in Germany, and the Scandinavian banking crisis in 1992. In our view in commodity strategy – it was the relative surprises – which made Europe’s recovery much more unexpected, that triggered the currency move.

This is particularly interesting today – with the broad consensus that the US dollar is going to rally, due to the more robust recovery in the US and the potential for tapering.

But it is always worth keeping an eye on relative macro surprises.

We see the potential for a counter trend fall in the US dollar.

Now there are clearly some stark differences between today and 1994. Back then interest rates were much higher. So 300bps on treasuries increased rates by three fifths. The same rise from the July low would treble rates. And certainly, the authorities are first talking about an extended period of QE tapering. We are still a distance away from actual rate hikes.

The Fed is also much more transparent than it was under Greenspan in the early 1990s.

Where conditions are similar is that a very large structure of leverage has built up on the back of low rates, from leveraged property & credit buying, large retail exposure to yield enhancement products (high yield ETFs etc), earlier dollar leverage driven investment booms in emerging markets.

So where are we now. It looks to us very similar to February 1994.

The Fed’s continued insistence on talking tapering despite the recent rollover in US macro surprises has started to unsettle leveraged yield enhanced positioning.

The US high yield ETF has come under severe pressure. The US mortgage spread has blown out relative to the US 30-year treasury yield. South African and Indian currencies are under pressure. India has responded by raising taxes on gold imports.

In 1994, Mexico was the first to feel the brunt. Followed by South Korea in 1997. In 2013, South Africa is feeling the pressure. Although other emerging markets, notably China, continue to benefit.

The next big question is; can the US withstand a higher cost of capital, like it did from 1994-98.

In short, no!

In the mid-late ‘90s, the US coped with a higher cost of capital in several ways. It enhanced productivity through a rapid adoption of tech. Corporates geared up, which ensured strong liquidity growth and ‘efficient’ balance sheets. Corporates went through a second round of ‘just in time’ inventory management and outsourcing. Consumers benefited from the strong dollar and falling commodity prices – seeing their disposable incomes improve. And the disinflation in EM translated to a downtrend in yields from 1994, which allowed for an acceleration in the housing market and an expansion of household debt.

But we have a number of concerns that hint at vulnerability.

The first is that the potential for sustained disinflation over multiple years is less, because yields are already low. Consequently, there is less scope for a sustained recovery in housing – beyond the initial flurry of demand from rising household formation. The sharp rise in mortgage spreads is one hint that this transition may be more difficult. The spread on mortgages may be particularly important for the leveraged buy-to-let investors, who have been heavily involved in the recent surge in housing sales.

Because we understand that a large part of the buying is from investors then seeking to rent out the properties, we suspect that the follow-through consumer demand may not be as aggressive as previously imagined. If a household buys a house, taking on debt, it opens the floodgates to increasing debt fuelled buying of cars, household furnishings and white goods. A very different psychology comes from paying a month up-front on a rental. You are much more likely to cut back, to be more frugal.

Government debt levels are clearly extended, and the deficit needs to be cut to prevent further deterioration

A more subtle point is that the extended expansion of government spending as a share of GDP in response to the financial crisis is crowding out the private sector, and reducing the productive potential of the US economy. This stands in stark contrast with the tight control of government debt in the early 1990s under the Clinton administration.

These suggest that it is much less likely that we see the US enter a ‘high plateau’ of growth as we saw from 1995-98, where the US saw a powerful productivity & credit fuelled boom while the emerging markets deflated. And it makes it more likely that the US stays on a lower trajectory, interspersed with periodic recessionary slowdowns in the years ahead.

The point at which the market realises this would likely herald a significant risk-off event.

Hard Hitting, Bleeding Edge Research Results In 2nd High Level Ouster/Resignation In The UK & Euroland

For the past two months I have been releasing heretofore unseen documentation, proof-backed allegations and logical assertions throwing light on what I view to be gross misrepresentations, attempts at financial reporting prestidigitation and what I consider to be outright fraud in the Irish and UK banking system. BoomBustBlog has been the only source of such information and except for a few outliers, the MSM has literally refused to run stories on this. 

Alas, even though mainstream editors, producers and reporters are trying to ignore what the BoomBust has done, massive shock waves have shaken loose those at the very top of the power structure. Unfortunately, much of what is going down is beyond the ken of the hoi polloi due to the taboo nature of the most important message that I convey. 

Remember what happened when I initially dropped the Irish bomb on the unsuspecting Irish public? The head of the Irish Central Bank Regulatory Authority unexpectantly resigned...

reggie middleton on irish banksreggie middleton on irish banks



So, what happens when you bring the Fiery Sword of Economic Truth to the UK and Ireland???



Here's the answer to that question in the form of another surprise (not) to all BoomBustBloggers. After my multiple expose's on RBS...

  1. I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!
  2. Who is RBS? Royal BS... or the Royal Bank of Scotland
  3. Taxation Without Representation: UK Taxpayers Schooled on What US Students Are Taught In 3rd Grade

We see Reuters reporting: RBS shares slump after shock ousting of CEO Hester. Surprise! Surprise!

 Royal Bank of Scotland shares fell seven percent on Thursday after the surprise ousting of CEO Stephen Hester left investors questioning who would steer the part-nationalized bank through to an eventual privatization.

Isn't this just one helluva string of coincidences that as I uncover dirt and grime, we get these "unexpected" and "unforeseen" ousters and resignations days and weeks afterward. If I didn't know better, I'd think someone busted these guys doing something naughty... Nahh! Couldn't be!

I know more than a couple of UK taxpayers who'd much not rather pay Irish bad debts. I decided to rub a little salt in the UK wound by throwing some arithmetic illumination on the situation via an embedded Irish bad bank tax calculator...

The app below allows the UK Taxpayer to calculate for themselves exactly what their individual contribution (pro rata) is to the government bailout of RBS.

I've taken the liberty of pre-populating the input fields for you, but if you don't agree with the numbers then by all means insert your own!

Then there's still that Cyprus'd thingy... 

While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.

While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.

The Irish presidency of the European Council is hoping to reach a common position by the end of next month.

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???



Other hard hitting pieces on the resurgent EU banking crisis

Frontrunning: June 11

  • Citigroup Facing $7 Billion Currency Hit on Dollar, Peabody Says (BBG)
  • World has 10 years of shale oil, reports US (FT)
  • ECB prepares to defend monetary policy in German court (FT)
  • BOJ Holds Its Ground (WSJ)
  • European Stocks Sink to Seven-Week Low as Treasuries Fall (BBG)
  • Fitch warns on risks from shadow banking in China (Reuters)
  • Riot police move in on anti-G8 UK protesters (Reuters)
  • Obama administration to drop limits on morning-after pill (Reuters)
  • ACLU asks spy court to release secret rulings in response to leaks (MSNBC)
  • U.S. Relies on Spies for Hire to Sift Deluge of Intelligence (WSJ)
  • SEC Nets Win in 'Naked Short' Case (WSJ)
  • SoftBank Raises Offer for Sprint to $21.6 Billion (WSJ)
  • Chinese rocket launch marks giant leap towards space station (FT)
  • Skyscraper Prices Head North (WSJ)


Overnight Media Digest


* The leaks by Edward Snowden reveal a vulnerability in U.S. intelligence since 9/11, triggered by a surge of information collected on people around the world and the proliferation of private government contractors to store it.

* U.S. regulators are stepping up scrutiny of overdraft fees charged by banks, a big revenue stream that is helping the industry lessen the hit caused by low interest rates and the sluggish economy.

* SoftBank said it had agreed with Sprint Nextel to raise its offer for the U.S. wireless carrier by $1.5 billion to $21.6 billion from $20.1 billion.

* S&P raised its outlook on the United States' credit rating but markets ignored the surprise endorsement, the latest sign of ratings firms' waning influence in some arenas.

* Yoga-wear maker Lululemon Athletica said Chief Executive Christine Day is stepping down after a 5 1/2-year tenure.

* An SEC judge ruled that a former Maryland banker perpetrated a short-selling fraud aided by one of the biggest stock-options brokers in the United States.

* The Bank of Japan refrained from taking any new measures to stimulate growth and ease market volatility, citing signs of economic recovery, but disappointing investors.

* Apple sought to recapture its authority as a tastemaker, unveiling the biggest redesign in iPhone software since the smartphone was introduced in 2007 and stressing that the company hasn't lost its cool.



Politicians and public sector unions have criticised Thames Water for reporting on Monday that it paid no corporation tax last year.

Almost all of American Airlines' senior executives are going to leave the company upon its merger with US Airways, the carriers said on Monday.

Private equity firm Terra Firma is hoping to raise over 1 billion euros ($1.3 billion) from a Frankfurt share listing of Deutsche Annington, Germany's biggest residential property company.

U.S. prosecutors in the SAC Capital case are finalising negotiations with the University of Michigan to gain access to computer files linked to an insider trading case against an ex-SAC employee.

Punch Tavern's restructuring plans - to reduce 2.4 billion pounds ($3.7 billion) worth of net debt - on Monday were rejected by bondholders for the second time this year.

Luxury brand Burberry Group's Chief Executive Angela Ahrendts was paid 16.9 million pounds in 2012 - more than any other FTSE-100 chief executive.



* Federal authorities and consumer lawyers say banks play a key role in giving questionable Internet merchants access to the financial system, enabling them to prey on consumers.

* Apple Inc introduced a major redesign of its mobile software system, as well as upgrades for some Mac computers.

* As mobile phones become all-in-one tools for living, suggesting where to eat and the fastest way to the dentist's office, the map of where we are becomes a vital piece of data. From Facebook Inc to Foursquare, Twitter to Travelocity, the companies that seek the attention of people on the go rely heavily on location to deliver relevant information, including advertising.

* Michalis Sallas has thrived in Greece's freewheeling business culture as head of Piraeus Bank SA, but financial oversight is increasing and may complicate his dealings.

* Two longtime friends - Jens Weidmann, the president of the Bundesbank and Jörg Asmussen of the European Central Bank - will appear before Germany's highest court on Tuesday to argue opposite sides of a fateful question: What if the promise that holds the euro zone together is unconstitutional?

* As investors rely increasingly on Finra's database to vet Wall Street professionals, some brokers and executives are trying to remove complaints.

* Veterinary drugs commonly administered to horses would render their meat adulterated under New Mexico law, meaning it would not be fit for human consumption.

* SoftBank Corp of Japan agreed late on Monday to sweeten its takeover bid for Sprint Nextel Corp to $21.6 billion, seeking to block a rival bid by Dish Network Corp .




* The Conservative government is putting public-service unions on notice that sick days will be targeted in the next round of collective bargaining. Treasury Board President Tony Clement said the government wants to move away from the current rules, where workers can use up to 15 paid sick days and five family days a year, in addition to vacation time.

* Hubert Lacroix, the president of Radio-Canada and the Canadian Broadcasting Corp, said the broadcaster shouldn't have changed its name to "Ici" so abruptly last week, dropping "Canada" from its public image and raising the ire of Canadians confused by the move away from a name that has served the broadcaster for decades.

* A 78-year-old woman dubbed the "Black Widow" for her criminal past with other men has admitted to slipping tranquilizers into her newlywed husband's coffee while they were on a honeymoon last year.

Reports in the business section:

* The finance ministers and central bankers who set the World Bank's agenda had just signed off on World Bank President Jim Yong Kim's request to set a deadline - 17 years from now, in 2030 - for the elimination of extreme poverty, defined loosely as subsistence on less than $1.25 a day.

* Japan's central bank ended a two-day policy meeting on Tuesday with an upbeat assessment for the world's No. 3 economy and a pledge to persist with its aggressive monetary easing policies aimed at ending years of growth-sapping deflation.

* Canada's biggest city already tops the list for the most high-rises and skyscrapers under construction in North America. It was also Toronto's frothy condominium market that helped push Finance Minister Jim Flaherty into his fourth round of mortgage restrictions almost a year ago.


* Ontario's Opposition accuses Premier Kathleen Wynne of being complicit in the mass deletion of emails on canceled gas plants by senior Liberals in former premier Dalton McGuinty's office.

* Senior figures in the Conservative movement are warning that unless Stephen Harper moves his House Leader, Peter Van Loan, and the Government Whip, Gordon O'Connor, more MPs will follow the unlikely rebel, Brent Rathgeber, out of the caucus door.

* An open booze bar, impromptu golf games, and a live dance band don't add up to value for taxpayers' money, says a Toronto District School Board trustee who has openly criticized a recent three-day gathering of some 200 public school board trustees held at a posh Muskoka resort.


* Air Canada says it is aiming to eliminate its multibillion-dollar pension solvency deficit by 2020 as part of a broader effort to cut costs ahead of a major international expansion.

* Canada's efforts to combat international tax evasion will be in the spotlight when Prime Minister Stephen Harper joins other world leaders next week at the G8 summit in Northern Ireland, with tax watchdogs worried Canada is already balking at some major reforms.

* Total SA is pressing its partner Suncor Energy to take a final investment decision on the Fort Hills project before the end of the year, according to its chairman.


Fly On The Wall 7:00 AM Market Snapshot



AmerisourceBergen (ABC) upgraded to Outperform from Market Perform at Leerink
Arthur J. Gallagher (AJG) upgraded to Buy from Neutral at Goldman
Catamaran (CTRX) upgraded to Buy from Neutral at UBS
Catamaran (CTRX) upgraded to Sector Outperformer from Sector Performer at CIBC
Disney (DIS) upgraded to Outperform from Neutral at Macquarie
Fly Leasing (FLY) upgraded to Buy from Neutral at Citigroup
Navistar (NAV) upgraded to Market Perform from Underperform at BMO Capital
Pinnacle West (PNW) upgraded to Buy from Neutral at UBS


Everest Re (RE) downgraded to Neutral from Buy at Goldman
Kinross Gold (KGC) downgraded to Hold from Buy at Canaccord
Kosmos (KOS) downgraded to Market Perform from Outperform at Raymond James
Moody's (MCO) downgraded to Hold from Buy at Benchmark Co.
XenoPort (XNPT) downgraded to Underweight from Equal Weight at Morgan Stanley
lululemon (LULU) downgraded to Neutral from Buy at UBS


Alnylam (ALNY) initiated with an Overweight at Morgan Stanley
BioAmber (BIOA) initiated with an Outperform at Credit Suisse
Casey's General Stores (CASY) initiated with a Buy at Benchmark Co.
Diamondback Energy (FANG) initiated with a Buy at Topeka
ING U.S. (VOYA) initiated with a Market Perform at Wells Fargo
ING U.S. (VOYA) initiated with a Neutral at Citigroup
ING U.S. (VOYA) initiated with a Neutral at Goldman
ING U.S. (VOYA) initiated with a Neutral at SunTrust
Marketo (MKTO) initiated with a Buy at Canaccord
Marketo (MKTO) initiated with a Neutral at Goldman
Marketo (MKTO) initiated with a Neutral at UBS
Marketo (MKTO) initiated with an Outperform at Credit Suisse
Restoration Hardware (RH) initiated with a Buy at Jefferies
Tableau Software (DATA) initiated with a Buy at UBS
Tableau Software (DATA) initiated with a Market Perform at BMO Capital
Tableau Software (DATA) initiated with a Neutral at Credit Suisse
Tableau Software (DATA) initiated with a Neutral at Goldman


Sprint (S), SoftBank (SFTBF) amended merger agreement, cash for Sprint holders now $5.50/share
Sprint (S) said DISH (DISH) proposal not likely to lead to superior offer
Sallie Mae (SLM) in new $6.8B credit facility, eliminated conduit financing
Kinross Gold (KGC) to cease Ecuador project development, take $720M charge
Royalty Pharma urged Elan (ELN) shareholders to vote against proposals
Texas Instruments (TXN) said Q2 tracking consistent with expectations, orders strong
GE Healthcare (GE) to invest $2B in software development over next five years
CEO David H. Murdock offered to acquire remaining 60% of Dole Food (DOLE)
Timken (TKR) retained Goldman Sachs (GS) to evaluate separation of steel business
lululemon (LULU) CEO Christine Day to step down
Cigna (CI) entered 10-year strategic PBM partnering agreement with Catamaran (CTRX)
Urban Outfitters (URBN) to open 35-40 new stores in FY14


Companies that beat consensus earnings expectations last night and today include:
Diamond Foods (DMND), Stewart Enterprises (STEI), Annie's (BNNY), Synergetics (SURG), lululemon (LULU), Limoneira (LMNR)

Companies that missed consensus earnings expectations include:
Pep Boys (PBY), Majesco (COOL), Coastal Contacts (COA)


  • The Consumer Financial Protection Bureau is increasing scrutiny of overdraft fees charged by banks, a big revenue stream that is helping the industry lessen the hit caused by low interest rates and the sluggish economy, the Wall Street Journal reports
  • S&P’s Ratings Services (MHFI) joined the bullish voices on the U.S. economy. But markets ignored the surprise endorsement, the latest sign of credit-ratings firms' waning influence over investors in large, heavily traded markets, the Wall Street Journal reports
  • The EU plans to lodge a case with the WTO against Chinese duties on specialized steel tubes, sources say, opening another front in a rapidly escalating trade conflict with Beijing. Reuters reports
  • The U.S. Navy plans to sign this week a five-year contract valued at near $6.5BB to buy 99 new V-22 Osprey tilt-rotor aircraft built by Boeing (BA) and and Bell Helicopter, a unit of Textron (TXT), Reuters reports
  • Apple’s (AAPL) move into the online-radio business may not turn out to be a Pandora Media (P) killer after all. The service shares many features with other Web-radio products, Bloomberg reports
  • Fannie Mae (FNMA) and Freddie MAC (FMCC) shareholders sued the U.S., alleging that the 2008 by the Federal Housing Finance Agency takeover of the housing lending giants was illegal and cost investors billions of dollars, Bloomberg reports


Atlas Resource Partners (ARP) 13M share Secondary priced at $21.75
Bright Horizons (BFAM) files to sell 8.5M shares for selling stockholders
Crosstex Energy LP (XTEX) 6M share Spot Secondary re-offered at $20.33
Himax Technologies (HIMX) files to sell 22.09M American Depositary Shares for holders
Portland General Electric (POR) to offer 11.1M shares of common stock

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