French Investment
In the diplomacy of the German Empire, 1878 was a year of profound importance.
It was at the Congress of Berlin, convened that very year, that the seeds of the German-Russian rupture were sown.
Unless Bismarck abandons his insistence on prioritizing diplomacy with Britain, the collapse of German-Russian relations is inevitable.
Waldemar regretted Bismarck’s misjudgment, yet he was already calculating how best to turn the coming shifts in the balance of power to his own advantage.
First, though, I should take stock of how many rounds I have left in the magazine.
With John Connor’s assistance, Waldemar reviewed the fortune he had quietly accumulated under his mother’s patronage.
As of the first half of 1878, his holdings stood as follows:
A 12.5 percent stake in Standard Oil.
A 25 percent stake in Siemens.
A 25 percent stake in Branobel.
Twenty percent of the gold from the Klondike diggings—expected to yield more than 12.6 million marks this year alone.
Ten percent of Bayer’s aspirin revenues.
The Congo, still unofficial, but already being secured by quiet, unspoken understanding.
And cash, constantly shifting across accounts in Germany, Britain, and the United States.
Almost without noticing it, Waldemar had come to possess greater wealth than any of Germany’s industrial magnates. He could not yet match the hundreds of millions of marks belonging to the Hohenzollern family as a whole, yet he was confident he would overtake them soon enough.
A few hundred million marks is nothing. I am the man who can make tens of billions.
He began hunting for a fresh target to fatten his purse further. One company caught his eye at once: Union Générale, scheduled for re-establishment in June 1878.
Founded under the leadership of French Catholic interests, the bank would drive railway construction across the Balkans, expanding so aggressively that by 1882 its capital would stand six times larger than at its founding. Even at the outset it was enormous—initial capital of 25 million francs.
Waldemar intended to slip quietly into this generous trough and claim as much of the coming rise as he could.
And when the beast finally falls, I’ll short it until the French weep blood.
When the time came, French investors themselves would attack the stock with short selling; there was no reason Waldemar should refrain. The French government had even abolished regulations to encourage exactly that sort of activity in the markets. Only a fool would stay on the sidelines.
He resolved to watch the period around 3 June 1878, the day of Union Générale’s re-founding, and wait for the right moment to accumulate shares.
I still have time before the real work begins. Might as well look at the other game as well.
He examined the other French bank stocks. Knowing they would climb until 1881 only to crash spectacularly in 1882 made selecting targets almost effortless.
The ones with the steepest rises—Banque de Lyon and Banque de la Loire—and the heavyweight, Société Générale.
Banque de Lyon carried capital of 10 million francs, Banque de la Loire 25 million, Société Générale a formidable 60 million. Even by the standards of the age those were imposing sums. All three would swell violently under the internationalization boom and the bull market in bank shares that 1878 would bring.
If I time the short selling properly afterward, I can take a truly magnificent haul.
Beside these glittering bank stocks, the Compagnie Universelle du Canal Interocéanique de Panama—the company that would bankrupt hundreds of thousands of Frenchmen by selling them a dream—looked like rubbish. It had opened at a public offering price of 500 francs and, even after cooking its books, never climbed higher than 690.
From Waldemar’s perspective it was a chicken-rib of a stock: he knew the rise was coming, yet still hesitated to step in. Of course, when the moment arrived for short selling, that hesitation would vanish.
He scrutinized every bank share he meant to touch, then reviewed his accumulation plan. The capital for the operation would come from the May gold-mine receipts already settled and from the aspirin royalties due from Bayer. Whatever remained would go elsewhere.
“Let us put a little money into French wine as well.”
“Wine? At a time like this?”
John Connor’s expression was frankly puzzled. Europe’s vineyards were being ravaged by phylloxera, the grape-root aphid that had crossed from America. First detected in Britain in 1863, it had erupted in Bordeaux in 1869, Italy in 1875, and Spain in 1878, and was now at the height of its fury.
European grape production had collapsed; wine prices were soaring to the heavens. Everyone from aristocrats to industrialists who possessed any spare capital was scrambling to lay down bottles, knowing that mere storage would make them richer.
“Precisely because it is a time like this that we must buy more.”
“Even if we negotiate directly with the châteaux, the prices will be far above normal.”
“That is acceptable.”
Waldemar was unconcerned. The wines he sought would, in later years, become unobtainable at any price—the finest vintages of all. He handed Connor a carefully compiled list of estates: in Bordeaux, Château Pétrus, Château Mouton Rothschild, Château Lafite Rothschild; in Burgundy, Romanée-Conti, Louis Jadot, Bouchard Père & Fils, Louis Latour; and the great Champagne houses.
He named every wine that would win fame at the 1878 Paris Exposition as well as those already celebrated. His goal was simple: acquire as much as humanly possible.
1878 is the crest of the phylloxera wave. In a few years they will understand what it means when money alone can no longer buy wine.
He added a final instruction.
“One more thing, Mr. Connor. You must not appear in person. Put suitable intermediaries forward to mask the true buyer.”
Connor understood at once. Since the Franco-Prussian War, Germany and France remained bitter enemies. If the château owners discovered a German prince stood behind the purchases they might not refuse outright, but they would certainly inflate the price.
“I understand perfectly, Your Highness.”
Connor stopped in Britain long enough to recruit reliable friends, then crossed swiftly into France and opened negotiations with the estates. Before long a telegram arrived.
“Your Highness. Negotiations in Bordeaux are complete. Château Pétrus is prepared to sell two thousand bottles if the price is met.”
“How much?”
“Two francs a bottle.”
Exactly the figure Waldemar had expected.
“Buy every one.”
Two thousand bottles at four thousand francs total—less than Waldemar earned in a single day from the gold fields. Even the dearer Burgundy wines posed no strain. Most of those estates offered roughly two thousand bottles at around eight francs each; the total remained well within his means.
Sixteen thousand francs is only twelve thousand eight hundred marks.
In the end Waldemar spent eight hundred thousand marks assembling every notable French grand cru he could reach. Purchase, however, was only the beginning. Wine demanded careful storage. While the French houses held the stock for him, he ordered the construction of vast cellars in Germany—an outlay of at least eighty-four thousand marks, with annual maintenance still to come.
Even so, the arithmetic remained profitable. Pure French vines that had never been grafted onto American rootstock were destined to become fabulously expensive. The first great peak would arrive in 1899, when the 1878 vintages would command five hundred francs a bottle—four hundred twenty marks.
“And Romanée-Conti? Nothing at all?”
Romanée-Conti had been famous even before the Revolution as the wine of the Prince de Conti; surviving the phylloxera of 1878 would earn it the title “wine of the gods.” That was precisely why Waldemar had coveted it.
“They sell only to royal houses and noble families already on their list. Revealing Your Highness’s identity might open the door—or it might close it forever.”
“A pity. We shall leave it, then.”
Waldemar knew the difference between what could be seized and what could not.
“Enough of finished wine. Beginning this autumn I want vineyards in the south of France—properties whose owners have abandoned them because of phylloxera.”
He knew that in 1878 alone more than 1.53 million acres of southern vineyards had been destroyed; land would not be scarce.
“Ruined vineyards? What value could they possibly have?”
“If we acquire them cheaply enough, there are any number of ways to turn a profit.”
Waldemar already understood the technique of grafting European vines onto American rootstock. The method preserved the flavor of the grape while conferring resistance to phylloxera. The French themselves had floated the idea as early as 1869, yet conservative growers and academics refused to change their minds until the Bordeaux International Congress of 1881.
Thanks to their stubbornness I have a golden chance to swallow a massive share of an industry whose annual production is about to collapse from five billion liters to under two and a half.
He intended to drink the French farmers’ tears with pleasure.
“Acquisition will not be difficult. But if we gather too many vineyards under our own name, the French authorities will grow extremely uncomfortable.”
“In that case we simply form a few companies in the names of your friends, Mr. Connor. American-registered firms will not alarm the French nearly so much.”
In the twenty-first century, shell companies in third countries were routinely used to protect beneficial owners. Connor accepted the solution at once.
“While you handle the French vineyards, send someone to Chile as well. We must buy land there too.”
“Chile?”
Chilean vineyards enjoyed little international reputation at present. Waldemar knew that would change. Chile would become one of the few places still cultivating pure European vines into the twenty-first century.
“Yes. They grow European varieties there without the slightest fear of phylloxera.”
Connor grasped the plan immediately: a future shortage of European rootstock could be filled from Chilean soil.
“Understood. I shall dispatch agents to Chile at the proper time. Transporting cuttings, however, will be costly.”
“That is no obstacle.”
Measured against the astronomical future value of pure European vines, shipping fees were nothing.
Once I restore these vineyards on a grand scale, even simple resale will make a fortune.
Phylloxera-ruined properties, dumped by bankrupt owners, sometimes fell to a hundred francs a hectare; the average hovered around one hundred eighty. Restoring them would require roughly fifteen hundred francs per hectare for grafting and three or four years of patience, yet the reward was handsome. By 1882, restored vineyards were already valued at about four thousand francs a hectare. Waldemar was certain he could more than double his money on the land alone.
Compared with the French Republic—later mocked as a usury empire—which lent even to shaky Latin-American and Ottoman borrowers at five to nine percent, Waldemar’s vineyard returns would be beyond the wildest dreams of the Paris Bourse.
Short selling, of course, is another matter entirely.
While he and Connor were still deep in conversation about grapes, a footman hurried in with a telegram.
“Your Highness—the French government-bond prices you asked to monitor.”
Waldemar glanced at the figures and raised an eyebrow.
“A hundred-franc perpetual trading at one hundred ten? Trading well above par.”
He read the meaning at once: French finance had fully shaken off the aftermath of the Franco-Prussian War. Connor saw it too.
“Your Highness, competition for the bank shares will be fiercer than we hoped. I shall leave for France at once and begin gathering intelligence.”
“Good.”
Waldemar wanted certainty as well.
“Any further instructions for the moment?”
“Not for now.”
“Then I shall see you again in the autumn.”
“By then I shall have grown a little taller—like the vines.”
Waldemar rose onto his toes as he spoke. Connor, in a display most un-British, laughed aloud. Even that change, he reflected, was something that had come from working with the prince.
“I shall look forward to Your Highness’s growth, then.”
The moment Connor departed, the waiting tutor entered. Waldemar exhaled a long sigh.
Time to become Mother’s dutiful son again.
With resignation he picked up the textbook and pen.