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Saturday, June 27, 2015

Greece Invokes Nuclear Option: Tsipras Calls For Referendum

Update: Greek PM Alexis Tsipras has announced a referendum in a televised speech to the nation after another day of fractious negotiations with creditors closed without a deal.

The dramatic move comes after Athens rejected a proposal from the troika aimed at delivering some €16 billion in aid to Greece as part of an extension of the country's second bailout program.

GREECE'S TSIPRAS SAYS CREDITORS POSED ULTIMATUM TO GOVT
GREECE'S TSIPRAS SAYS CREDITORS PROPOSALS ARE AGAINST EU RULES
TSIPRAS SAYS CREDITORS AIM TO HUMILIATE GREEK PEOPLE
TSIPRAS SAYS WILL CALL REFERENDUM ON GREEK DEAL WITH CREDITORS
TSIPRAS GREEK REFERENDUM WILL BE HELD ON JULY 5
TSIPRAS SAYS HE NOTIFIED MERKEL, DRAGHI ON REFERENDUM PLAN
TSIPRAS SAYS GREECE IS, AND WILL STAY PART OF EUROPE
TSIPRAS SAYS GREECE NEEDS TO SEND DEMOCRATIC RESPONSE TO EU

Protothema now says the Greek parliament will meet on Saturday and a referendum will be called as early as next week. Whether this is simply a last minute attempt to put pressure on EU finance ministers ahead of Saturday's Eurogroup meeting remains to be seen, but one thing is for sure: Tsipras is playing a dangerous game with the ECB ahead of a difficult week that could very well see the imposition of capital controls.

Friday, June 26, 2015

Forex brokers again brace for impact

Scared by the recent surprise CHF event that caused many Forex brokers to completely collapse, brokers are taking no chances as Greece sits on the brink. From one broker:

Dear Trader,

Due to uncertainty in the markets brought about by the current situation with
Greece, margin requirements for all EUR pairs will be increased from 1% to 2%
as of 20:00 server time TODAY (June 26th) and will revert to 1% at 22:00 server
time on Sunday (June 28th).

Please monitor your account prior to 20:00 today and adjust your positions (if
required) to avoid potential margin call / stop-out.

As ever, if you have questions or need some assistance, our friendly live-chat
team are standing by.

Regards,

Customer Services

From another:

Due to the current
speculations and the ongoing Greece debt negotiations, there is potential that
an announcement over the weekend will have a significant impact on the market
open on Sunday, June 28th.

With this in mind, we will require at least double the usual margin you
currently have in your account for all EUR currency pairs and for the GER30,
valid from tomorrow Friday, 26.06.2015 15:00 German time. I.e. You currently
have a leverage of 1:200 (0.5% margin requirement) for EUR currency pairs, this
will be changed to leverage 1:100 (1% margin requirement). You currently have a
leverage of 1:100 (1% margin requirement) for the GER30, this will be changed
to leverage 1:50 (2% margin requirement).

For the avoidance of doubt, please ensure that you are comfortable with any
positions you hold and margins required.

If you have any questions, please do not hesitate to contact your Client
Relationship Manager...

Is this another part of the plan to consolidate the market into a single one world currency (ha.. ha), or just another example of broker stupidity? How many more dead bodies will rise to the surface in this next battle in the Currency Wars?

Don't let it be you! Turn off your systems this weekend, monitor the news, and wait for opportunity!

On the other hand, many of these 'last minute' situations turn out to be nothing more than a tool for politicians to gain favor with their constituents, as if they are 'doing something about the problem' thus justifying their huge salaries and lavish accomodations. Is this situation really about testing Tsipras (will he 'buy in' to the global agenda or stand up for his principles and turn Greece into a rogue state) or again a test of the "Northern Europeans" who are financially responsible and the "Southern Europeans" who are lazy and always in debt? Or again is it about cultural differences, that Greeks have another financial view of how life should be lived, compared to the Germans and the Swiss? What does history tell us about the financial overtones of Greek culture?

In 1929 the Harvard economist Charles Bullock published a magnificent essay on a monetary experiment conducted by Dionysius the Elder, ruler of the Greek city state of Syracuse from 407 BC until his death in 367. After running up vast debts to pay for his military campaigns, his lavish court and spectacles for the common people he found himself painfully short of ready cash. No one wanted to lend him any more money and taxes were drying up. So Dionysius came up with a great wheeze. On pain of death he forced his citizens to hand in all their cash. Once all the drachmas were collected he simply re-stamped each one drachma coin as two drachmas. Simple. Problem solved. Syracuse was rich again. Except, of course, it wasn’t. Bullock used it as an early example of why just minting more money out of thin air was seldom a reliable way of creating more wealth. There was, however, another lesson to be learned. When it comes to making a mess of the economy and fiddling the figures the Greeks have been at the top of their game for a very, very long time.

But should the world be surprised? Maybe they know Greeks history of non repayment of debts, and somehow want to teach Greece a lesson in German finance:

After the formation of the modern Greek state in 1829 the country went on to default on its debts in 1843, 1860 and 1893. According to calculations by the economists Carmen M. Reinhart and Kenneth S. Rogoff Greece has spent more time in default to its creditors than any other European country. It has been skipping its repayments for 50 per cent of the years since 1800, compared with a mere 39 per cent of the time for the next worst offender, Russia. Indeed, even if you moved it across to Latin America – generally regarded among bond traders as default central – it would still be among the worst offenders. Only Ecuador and Honduras have a worse record of meeting their debts.

For Forex Traders

If you have existing positions which are unhedged, especially in Euro region currencies, it would be advisable to scale back your positions or protect them with options.

If you have no positions and want to capitalize on the event risk, try a Euro straddle deep out of the money.

Call your broker to discuss their plan and how they are mitigating the potential risks (if at all).

Good Luck!

http://www.zerohedge.com/news/2015-06-26/forex-brokers-again-brace-impact

Saturday, June 20, 2015

Ex-US Intelligence Officials Confirm: Secret Pentagon Report Proves US Complicity In Creation Of ISIS

Two weeks ago, courtesy of the investigative work of Nafeez Ahmed whose deep dig through a recently declassified and formertly Pentagon documents released earlier by Judicial Watch FOIA, we learned that Western governments deliberately allied with al-Qaeda and other Islamist extremist groups to topple Syrian dictator Bashir al-Assad. In his words: "According to the newly declassified US document, the Pentagon foresaw the likely rise of the ‘Islamic State’ as a direct consequence of the strategy, but described this outcome as a strategic opportunity to “isolate the Syrian regime.”

Now, in a follow up piece to his stunning original investigative report titled "Secret Pentagon report reveals West saw ISIS as strategic asset Anti-ISIS coalition knowingly sponsored violent extremists to ‘isolate’ Assad, rollback ‘Shia expansion", Nafeez Ahmed reveals that according to leading American and British intelligence experts, the previously declassified Pentagon report confirms that the West accelerated support to extremist rebels in Syria, despite knowing full well the strategy would pave the way for the emergence of the ‘Islamic State’ (ISIS).

The experts who have spoken out include renowned government whistleblowers such as the Pentagon’s Daniel Ellsberg, the NSA’s Thomas Drake, and the FBI’s Coleen Rowley, among others.

Their remarks demonstrate the fraudulent nature of claims by two other former officials, the CIA’s Michael Morell and the NSA’s John Schindler, both of whom attempt to absolve the Obama administration of responsibility for the policy failures exposed by the DIA documents.

This is Nafeez Ahmed's follow up story, originally posted in Medium

Ex-intel officials: Pentagon report proves US complicity in ISIS

Renowned government whistleblowers weigh in on debate over controversial declassified documen

Foreseeing ISIS

As I reported on May 22nd, the US Defense Intelligence Agency (DIA) document obtained by Judicial Watch under Freedom of Information confirms that the US intelligence community foresaw the rise of ISIS three years ago, as a direct consequence of the support to extremist rebels in Syria.

The August 2012 ‘Information Intelligence Report’ (IIR) reveals that the overwhelming core of the Syrian insurgency at that time was dominated by a range of Islamist militant groups, including al-Qaeda in Iraq (AQI). It warned that the “supporting powers” to the insurgency?—?identified in the document as the West, Gulf states, and Turkey —?wanted to see the emergence of a “Salafist Principality” in eastern Syria to “isolate” the Assad regime.

The document also provided an extraordinarily prescient prediction that such an Islamist quasi-statelet, backed by the region’s Sunni states, would amplify the risk of the declaration of an “Islamic State” across Iraq and Syria. The DIA report even anticipated the fall of Mosul and Ramadi.

Divide and rule

Last week, legendary whistleblower Daniel Ellsberg, the former career Pentagon officer and US military analyst who leaked Pentagon papers exposing White House lies about the Vietnam War, described my Insurge report on the DIA document as “a very important story.”

In an extensive podcast interview, he said that the DIA document provided compelling evidence that the West’s Syria strategy created ISIS. The DIA, he said, “in 2012, was asserting that Western powers were supporting extremist Islamic groups in Syria that were opposing Assad…

“They were not only as they claimed supporting moderate groups, who were losing members to the more extremist groups, but that they were directly supporting the extremist groups. And they were predicting that this support would result in an Islamic State organization, an ISIS or ISIL… They were encouraging it, regarding it as a positive development, because it was anti-Assad, Assad being supported by Russia, but also interestingly China… and Iran… So we have China, Russia and Iran backing Assad, and the US, starting out saying Assad must go… What he [Nafeez Ahmed] is talking about, the DIA report, is extremely significant. It fits into a general framework that I’m aware of, and sounds plausible to me.”

Ellsberg also noted that “it’s pretty well known” in the intelligence community that Saudi Arabia sponsors Islamist terrorists to this day:

“It’s kind of a deal that the Saudis will support various Islamic extremists, all around the world, and the deal is that they [extremists] will not try to overthrow the corrupt, alcohol-drinking clique in Saudi Arabia.”

Ellsberg, who was a former senior analyst at RAND Corp, also agreed with the relevance of a 2008 US Army-commissioned RAND report, quoted in my Insurge story, and also examined in-depth for Middle East Eye.

The US Army-funded RAND report advocated a range of policy scenarios for the Middle East, including a “divide and rule” strategy to play off Sunni and Shi’a factions against each other, which Ellsberg describes as “standard imperial policy” for the US.

The RAND report even confirmed (p. 113) that its “divide and rule” strategy was already being executed in Iraq at the time:

“Today in Iraq such a strategy is being used a tactical level, as the United States now forms temporary alliances with nationalist insurgent groups that it had been fighting for four years… providing carrots in the form of weapons and cash. In the past, these nationalists have cooperated with al-Qaeda against US forces.”

The confirmed activation of this divide-and-rule strategy perhaps explains why the self-defeating US approach in Syria is fanning the flames of both sides: simultaneously allying with states like Turkey who have continued to covertly sponsor ISIS, while working with Assad through the Russians to fight ISIS. Ellsberg added:

“As Assad is the main opponent of ISIS, we are covertly coordinating our airstrikes against ISIS with Assad. So are we against Assad, or not? It’s ambivalent… I think that Obama and everybody around him is clear that they do not any longer as they’ve been saying want Assad to leave power. I don’t believe that that is their intention anymore, as they believe anyone who succeeds Assad would be far worse.”

If true, Ellsberg’s analysis exposes the deep-rooted hypocrisy of the previous campaign against Assad, the current campaign against ISIS, and why both appear destined for failure.

Frankenstein script

Coleen Rowley, retired FBI Special Agent described my report on the DIA document as “excellent.”

Rowley, who was selected as TIME ‘Person of the Year’ in 2002 after revealing how pre-9/11 intelligence was ignored by superiors at the FBI, said of the document:

“It’s like the mad power-hungry doctor who created Frankenstein, only to have his monster turn against him. It’s hard to feel sorry when the insane doctor gets his due. But in our case, that script is constantly repeating. The quest for ‘full spectrum dominance’ and blindness of exceptionalism seems to mean we are doomed to keep repeating the ‘Charlie Wilson’s Frankenstein War’ script… The various neocon warmongers and military industrial complex, most of them inept Peter Principles, just don’t care.”

Also commenting on the declassified Pentagon report, former NSA senior executive Thomas Drake?—?the whistleblower who inspired Edward Snowden?—?condemned “the West’s role in ISIS and threat of ‘violent extremists’, justifying surveillance and libercide at home.”

Wedge strategy

Alastair Crooke, a former senior MI6 officer who spent three decades at the agency, said yesterday that the DIA document provides clear corroboration that the US was covertly pursuing a strategy to drive an extremist Salafi “wedge” between Iran and its Arab allies.

The strategy was, Crooke confirms, standard thinking in the Western intelligence establishment for about a decade.

“The idea of breaking up the large Arab states into ethnic or sectarian enclaves is an old Ben Gurion ‘canard,’ and splitting Iraq along sectarian lines has been Vice President Biden’s recipe since the Iraq war,” wrote Crooke, who had coordinated British assistance to the Afghan mujahideen in the 1980s. After his long MI6 stint, he became Middle East advisor to the European Union’s foreign policy chief (1997–2003).

“But the idea of driving a Sunni ‘wedge’ into the landline linking Iran to Syria and to Hezbollah in Lebanon became established Western group think in the wake of the 2006 war, in which Israel failed to de-fang Hezbollah,” continued Crooke. “The response to 2006, it seemed to Western powers, was to cut off Hezbollah from its sources of weapons supply from Iran…

“… In short, the DIA assessment indicates that the ‘wedge’ concept was being given new life by the desire to pressure Assad in the wake of the 2011 insurgency launched against the Syrian state. ‘Supporting powers’ effectively wanted to inject hydraulic fracturing fluid into eastern Syria (radical Salafists) in order to fracture the bridge between Iran and its Arab allies, even at the cost of this ‘fracking’ opening fissures right down inside Iraq to Ramadi. (Intelligence assessments purpose is to provide ‘a view’?—?not to describe or prescribe policy. But it is clear that the DIA reports’ ‘warnings’ were widely circulated and would have been meshed into the policy consideration.)

“But this ‘view’ has exactly come about. It is fact. One might conclude then that in the policy debate, the notion of isolating Hezbollah from Iran, and of weakening and pressurizing President Assad, simply trumped the common sense judgment that when you pump highly toxic and dangerous fracturing substances into geological formations, you can never entirely know or control the consequences… So, when the GCC demanded a ‘price’ for any Iran deal (i.e. massing ‘fracking’ forces close to Aleppo), the pass had been already partially been sold by the US by 2012, when it did not object to what the ‘supporting powers’ wanted.”

Intel shills

Crooke’s analysis of the DIA report shows that it is irrelevant whether or not “the West” should be included in the “supporting powers” described by the report as specifically wanting a “Salafist Principality” in eastern Syria. Either way, the report groups “the West, Gulf countries and Turkey” as supporting the Syrian insurgency together?—?highlighting that the Gulf states and Turkey operated in alliance with the US, Britain, and other Western powers.

The observations of intelligence experts Ellsberg, Rowley, and Drake add further weight to Crooke’s analysis. They come in addition to comments I had previously received on the DIA document from former MI5 counter-terrorism officer, Annie Machon, and former counter-terrorism intelligence officer, Charles Shoebridge.

The comments undermine the recent claims of disgraced US national security commentator, John Schindler, a retired NSA intelligence officer, to the effect that the August 2012 DIA report is “almost incomprehensible,” “so heavily redacted that its difficult to say much meaningful about it,” “Nothing special here, not one bit,” “routine,” “a single data point,” and so on.

Schindler cites the DIA’s use of ‘Curveball’?—?the Iraqi informant who fabricated claims about Saddam Hussein’s weapons of mass destruction (WMD)?—?as evidence of the agency’s “less than stellar reputation.” But this misrepresents the fact noted by the CIA’s Valerie Plame Wilson that “it was widely known [in the intelligence community] that CURVEBALL was not a credible source and that there were serious problems with his reporting.”

As I’ve documented elsewhere, the WMD threat mythology was not the outcome of an ‘intelligence failure’, as Schindler and his ilk like to claim, but a consequence of the corruption and politicization of intelligence under the influence of dubious vested interests.

Also contrary to Schindler’s misinformation, an IIR provides raw intelligence data from human sources (HUMINT), not simply rumour, gossip or opinion. Before wider distribution, the IIR is vetted to determine whether it is worthy of dissemination to the intelligence community. IIRs then provide a source basis for evaluation, interpretation, analysis and integration with other information.

Far from justifying the dismissal of the relevance of the declassified DIA documents, this shows that urgent questions must be asked:

What happened to this raw intelligence data, described by six US UK intelligence experts as providing damning confirmation of how Western strategy led to the rise of ISIS?

And why did it not lead to a change in policy, despite DIA analysts’ clear warning of the outgrowth of an ISIS-entity from Western allies’ desire to see a ‘Salafist Principality’ in the region?—?a warning which was, in hindsight, quite accurate?

Are intel critics traitors?

Schindler previously characterized NSA whistleblower Edward Snowden as a traitor and “pawn… of America’s adversaries.”

He now declares that those who cite the DIA report as proof the intelligence community “knew more about the rise of the Islamic State than they let on” are at best “fools; at worst, they’re deceivers who have lied to the American people.”

On the contrary, six decorated former senior US and British intelligence officials, many with direct experience of IIRs and their function, agree that the DIA report provides significant insight into the kind of intelligence available to the US intelligence community at the time.

Yet for Schindler, it seems, Ellsberg, Drake, Rowley, Crooke, Machon and Shoebridge are all, effectively, traitors simply for lending their expertise to public understanding of the newly declassified documents.

As Marcy Wheeler points out in Salon, the large corpus of secret DIA documents obtained by Judicial Watch demonstrates, at the least, that:

“The Intelligence Community (IC) knew that AQI had ties to the rebels in Syria; they knew our Gulf and Turkish allies were happy to strengthen Islamic extremists in a bid to oust Assad; and CIA officers in Benghazi (at a minimum) watched as our allies armed rebels using weapons from Libya. And the IC knew that a surging AQI might lead to the collapse of Iraq. That’s not the same thing as creating ISIS. But it does amount to doing little or nothing while our allies had a hand in creating ISIS. All of which ought to raise real questions about why we’re still allied with countries willfully empowering terrorist groups then, and how seriously they plan to fight those terrorist groups now. Because while the CIA may not have deliberately created ISIS, it sure seems to have watched impassively as our allies helped to do so.”

However, Wheeler overlooks that the reliance on foreign allies is a standard proxy war strategy?—?as Ellsberg explained in his interview?—?used by the covert operations arm of the US government to guarantee ‘plausible deniability.’

As I noted in my Middle East Eye analysis of the DIA document, there is extensive evidence against which to contextualize the DIA report’s assertions. This evidence shows that the CIA did not merely watch “impassively” as the Gulf states and Turkey supported violent extremists in Syria, but actively supervised, facilitated and accelerated this policy.

The August 2012 DIA document further corroborates this by repeatedly pointing out that the support to the Syrian insurgency from its allies was itself backed by “the West”?—?despite awareness of their intent to establish an extremist Salafi political entity.

While the DIA document was, indeed, just one data-point, analyzing it in context with the other DIA reports along with incontrovertible facts in the public record, establishes that the Pentagon was complicit in its allies’ support of Islamist terrorists, despite recognizing this could create an “Islamic State” in Iraq and Syria.

These revelations show that the real traitors are not the courageous whistleblowers who sacrifice everything to speak out on behalf of the public interest, but shameless shills like Schindler and Morell who willfully sanitize a dysfunctional and dangerous ‘national security’ system from legitimate public scrutiny.

Dr Nafeez Ahmed is an investigative journalist, bestselling author and international security scholar. A former Guardian writer, he writes the ‘System Shift’ column for VICE’s Motherboard, and is also a columnist for Middle East Eye. He is the winner of a 2015 Project Censored Award, known as the ‘Alternative Pulitzer Prize’, for Outstanding Investigative Journalism for his Guardian work, and was selected in the Evening Standard’s ‘Power 1,000’ most globally influential Londoners.

Nafeez has also written for The Independent, Sydney Morning Herald, The Age, The Scotsman, Foreign Policy, The Atlantic, Quartz, Prospect, New Statesman, Le Monde diplomatique, New Internationalist, Counterpunch, Truthout, among others. He is the author of A User’s Guide to the Crisis of Civilization: And How to Save It (2010), and the scifi thriller novel ZERO POINT, among other books. His work on the root causes and covert operations linked to international terrorism officially contributed to the 9/11 Commission and the 7/7 Coroner’s Inquest.

http://www.zerohedge.com/news/2015-06-08/ex-us-intelligence-officials-confirm-secret-pentagon-report-proves-us-complicity-cre

'It's time to hold physical cash,' says one of Britain's most senior fund managers

It may be time to money under the mattress. High profile fund managers explain how to prepare for a 'systemic event'

The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress.

Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, including the flagship Moneybuilder Income fund, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008, which began in Britain with a run on Northern Rock.

“Systemic risk is in the system and as an investor you have to be aware of that,” he told Telegraph Money.

The best strategy to deal with this, he said, was for investors to spread their money widely into different assets, including gold and silver, as well as cash in savings accounts. But he went further, suggesting it was wise to hold some “physical cash”, an unusual suggestion from a mainstream fund manager.

His concern is that global debt – particularly mortgage debt – has been pumped up to record levels, made possible by exceptionally low interest rates that could soon end, and he is unsure how well banks could cope with the shocks that may await.

He pointed out that a saver was covered only up to £85,000 per bank under the Financial Services Compensation Scheme – which is effectively unfunded – and that the Government has said it will not rescue banks in future, hence his suggestion that some money should be held in physical cash.

He declined to predict the exact trigger but said it was more likely to happen in the next five years rather than 10. The current woes of Greece, which may crash out of the euro, already has many market watchers concerned.

Mr Spreadbury's views are timely, aside from Greece. A growing number of professional investors (see comment, right) and commentators are expressing unease about what happens next.

The prices of nearly all assets – property, shares, bonds – have been rising for years.

House prices have risen by 26pc since the start of 2009, and by 68pc in London. The FTSE 100 is up by 75pc.

Although it feels counter-intuitive, this trend of rising prices should continue if economies remain weak, because it gives central banks licence to keep rates low and to carry on with their “quantitative easing” programmes.

Conversely, if the economy does pick up and interest rates need to rise, the act of doing so is likely to stall the economy and force them to be reduced again. Once more, demand for those mainstream assets would be rekindled and the asset boom continues.

But then there is the shock event. Daily Telegraph columnist Jeremy Warner also captured some of the concerns this week when he wrote that the trigger for an “inevitable correction” could come from “a clear blue sky – a completely unanticipated event”.

How are fund managers preparing for this gloomy possibility?

Mr Spreadbury sticks to bonds because of the remit of his funds. Within that world, he said a shock to the system would cause a flight to safety and the price of British government bonds, or gilts, would rise sharply. He also holds bonds of companies that would be most protected in times of turmoil – water companies, power network operators – and those where the bonds are secured on a solid asset, such as land or buildings.

Examples include Center Parcs and Intu, which owns shopping centres.

Marcus Brookes, another well regarded fund manager who looks after billions of pounds worth of investments, is less constrained in where he invests, because of the different remit of his funds. Schroder Multi-Manager Diversity, for example, can pick and choose between assets.

Mr Brookes said the probability of a major shock event was small but even he holds 29pc of the Diversity portfolio in cash, a huge proportion compared with most funds. This decision is due to his concern that bonds are overvalued and may fall. He aims to deliver returns of 4pc above inflation so can’t afford to put too much in assets that he believes will lose money.

“The problem is that people are struggling to work out how to diversify if QE programmes stop,” he said.

Mr Spreadbury added: “We have rock-bottom rates and QE is still going on – this is all experimental policy and means we are in uncharted territory.

“The message is diversification. Think about holding other assets. That could mean precious metals, it could mean physical currencies.”

• Get a round-up of investmnt ideas sent once a week

• Put a question to the experts: moneyexpet@telegraph.co.uk

http://www.telegraph.co.uk/finance/personalfinance/investing/11686199/Its-time-to-hold-physical-cash-says-one-of-Britains-most-senior-fund-managers.html

Thursday, June 18, 2015

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Friday, June 12, 2015

USD Index Flash Crash Sparks EUR Surge

Another day, another flash crash in the USD Index. As the Sept 2015 USD Index Futures contract suddenly crashed instantly, so EURUSD surged (and TSY yields tumbled)... something broke...

Something Broke...

http://www.zerohedge.com/news/2015-06-12/usd-index-flash-crash-sparks-eur-surge

Is Deutsche Bank The Next Lehman?

Submitted by NotQuant.com

Looking back at the Lehman Brothers collapse of 2008, it’s amazing how quickly it all happened. In hindsight there were a few early-warning signs, but the true scale of the disaster publicly unfolded only in the final moments before it became apparent that Lehman was doomed.

First, for purposes of drawing a parallel, let’s re-cap the events of 2007-2008:

There were few early indicators of Lehman’s plight. Insiders however, were well aware: In late 2007, Goldman Sachs placed a massive proprietary bet against Lehman which would be known internally as the “Big Short”. (It’s a bet that would later profit from during the crisis).

In the summer 2007 subprime loans were beginning to perform poorly in the marketplace. By August of 2007, the commercial paper market saw liquidity evaporating quickly and funding for all types of asset-backed security was drying up.

But still — even in late 2007, there was little public indication that Lehman was circling the drain.

Probably the first public indication that things were heading downhill for Lehman wasn’t until June 9th, 2008, when Fitch Ratings cut Lehman’s rating to AA-minus, outlook negative. (ironically, 7 years to the day before S&P would cut DB)

The “negative outlook” indicates that another further downgrade is likely. In this particular case, it was the understatement of all time.

A mere 3 months later, in the course of just one week, Lehman would announce a major loss and file for bankruptcy.

article-2203390-1504DEE9000005DC-669_634x346

And the rest is history.

Could this happen to Deutsche Bank?

First, we must state the obvious: If Deutsche Bank is the next Lehman, we will not know until events are moving at an uncontrollable and accelerating speed. The nature of all fractional-reserve banks — who are by definition bankrupt at all times – is to project an aura of stability until that illusion has already begun to implode.

By the time we are aware of a crisis – if one is in the offing — it will already be a roaring blaze by the time it is known publicly. It is by now well-established that truth is the first casualty of all banking crises. There will be little in the way of early warnings. To that end, we begin connecting the dots:

Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:

In April of 2014, Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure. Why?
1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount. Why again? It was a move which raised eyebrows across the financial media. The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity. Something was decidedly rotten behind the curtain.
Fast forwarding to March of this year: Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up it’s capital structure.
In April, Deutsche Bank confirms it’s agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR. The bank is saddled with a massive $2.1 billion payment to the DOJ. (Still, a small fraction of their winnings from the crime).
In May, one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors. We guess that this is a “crisis move”. In times of crisis the power of the executive is often increased.
June 5: Greece misses it’s payment to the IMF. The risk of default across all of it’s debt is now considered acute. This has massive implications for Deutsche Bank.
June 6/7: (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company. (Just one month after Jain is given his new expanded powers). Anshu Jain will step down first at the end of June. Jürgen Fitschen will step down next May.
June 9: S&P lowers the rating of Deutsche Bank to BBB+ Just three notches above “junk”. (Incidentally, BBB+ is even lower than Lehman’s downgrade – which preceded it’s collapse by just 3 months)

And that’s where we are now. How bad is it? We don’t know because we won’t be permitted to know. But these are not the moves of a healthy company.

Jürgen Fitschen will step down May 2016. Jain will step down at the end of this month.

How exposed is Deutsche Bank?

The trouble for Deutsche Bank is that it’s conventional retail banking operations are not a significant profit center. To maintain margins, Deutsche Bank has been forced into riskier asset classes than it’s peers.

Deutsche Bank is sitting on more than $75 Trillion in derivatives bets — an amount that is twenty times greater than German GDP. Their derivatives exposure dwarfs even JP Morgan’s exposure – by a staggering $5 trillion.

With that kind of exposure, relatively small moves can precipitate catastrophic losses. Again, we must note that Greece just missed it’s payment to the IMF – and further defaults are most certainly not beyond the realm of possibility.

Not good.

And if the dominos were not adequately stacked already, there is one final domino which perfects the setup.

Meet Tom Humphrey. He heads up Deutsche Bank’s Investment Banking operations on Wall Street.

He was also head of fixed income at Lehman.

Prior history.

History never repeats. But it does rhyme. In market terms, it tends to rhyme just about every 7 years.

* * *

For more read the Zero Hedge piece from April 2014: The Elephant In The Room: Deutsche Bank's $75 Trillion In Derivatives Is 20 Times Greater Than German GDP

http://www.zerohedge.com/news/2015-06-12/deutsche-bank-next-lehman

Wednesday, June 10, 2015

"That’s An Interesting Conspiracy Theory"

One of the reasons we don't mind (and often enjoy) being labeled "conspiracy theorists" is that as consistently happens, the theory becomes fact,usually with a delay of anywhere between 6 months and 6 years.

A great example is one of our very first posts from January 2009: "This Makes No Sense: LIBOR By Bank" in which we first alleged Libor manipulation.

An even better example comes courtesy of the WSJ which reveals that one of the biggest perpetrators of Libor rigging, the same bank that was raided earlier today for reasons still unknown, namely Deutsche Bank had a quick and easy response to allegations of interest rate rigging: call it "conspiracy theory" and promptly sweep it under the rug.

From the WSJ:

A Deutsche Bank AG executive whose employees have been accused of rigging interest rates told a British trade group that such manipulation was nothing more than a “conspiracy theory,” a London court heard on Tuesday.

David Nicholls, who oversaw a group of employees that included some who have been fired for trying to manipulate the London interbank offered rate, or Libor, had a 2008 phone call with a British Bankers’ Association official to discuss mounting concerns about the integrity of Libor.

In the recorded call, which was played to a London jury on Tuesday, Mr. Nicholls repeatedly dismissed concerns that Libor could be manipulated. “Banks do not collude to try to set a Libor rating,” he told John Ewan, the BBA official in charge of running Libor.

“I think I am just hearing a lot of hysteria about Libor that is just misinformed,” Mr. Nicholls added.

When the Deutsche Bank official argued that an individual bank wouldn’t be able to improperly influence Libor, which at the time was set by a group of 16 banks, Mr. Ewan responded: “A cabal of them could.”

“What’s a cabal?” Mr. Nicholls asked.

“A group together could,” Mr. Ewan said.

“That’s an interesting conspiracy theory,” Mr. Nicholls responded.

It was also the truth.

David Nicholls left Deutsche Bank two and a half years ago. According to WSJ's David Enrich, he couldn’t be immediately reached for comment, even though it is quite clear what he would have said: continue denying that anything like a massive, coordinated, market0rigging cabal could ever take place.

And yet, nobody has learned anything.

Just like the first big post-crisis settlement involving Goldman Sachs was blamed entirely on one then-28 year old employee and nobody else, so in the case of the massive Libor/FX settlements, not a single senior banker was implicated.

Which is beyond ridiculous. It is also ironic: as the first man charged with Libor rigging, one who was instrumental in turning and handing the case to the prosecution on a silver platter, UBS' Tom Hayes previously told The Wall Street Journal in a text message “this goes much much higher than me.”

But if Nicholls couldn't see the open fraud taking place literally in front of him simply because he couldn't possibly imagine of such a "conspiracy theory", how are regulators and prosecutors to possibly conceive that the very people who keep the bribe machine well greased, could be guilty of the same.

So to answer our own question: why has nobody "higher" than Hayes been investigated yet? Because the mere suggestion that executives at UBS, and all the other market manipulating banks, are outright criminals themselves would be, you guessed it, just another "conspiracy theory."

http://www.zerohedge.com/news/2015-06-09/that%E2%80%99s-interesting-conspiracy-theory

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