Some readers here were shocked when I suggested that US banks are not a safe place to park your life’s savings. Let me ask for a moment: why do you feel safe? Have you done any research on the safety of your bank? Have you looked at their balance sheet, for example, or related financial reports, to see how much capital they have compared to liabilities? Most US banks are in precarious positions compared to many strong overseas banks, operating at much higher risk than they should be. If a few more of their loans go sour, or if a few more customers decide to take their cash out, many US banks could be in big trouble. Banks can fail. Customers can suddenly find their accounts restricted, frozen, closed, or “taxed” to pay for someone else’s mistakes. Why be complacent about this?
A while ago I called our US bank in Wisconsin and asked for their financial statement. Many banks publish this somewhere on their website, but I couldn’t find a link on my bank’s website so I called to inquire. The customer service people didn’t know anything about that and couldn’t find it either. They asked around. This was a question they didn’t get very often. Perhaps never! So they finally transferred me to their VP over finance. He told me that he had never been asked for this before by a customer, but would email it to me. Their situation was better than most, I’m happy to say, and we still have funds there, but I learned something valuable in this experience: nearly all of this bank’s customers have failed to even ask about the financial stability of the bank. If any of you have made a serious inquiry into your bank’s stability, please let me know what you did and what you found.
America’s banks have changed little since the tremendous problems a decade ago. The derivatives and junk that nearly brought our banking system down has not been cleared out of the system. The problems may be even bigger now. Yet in 2006 and 2007, before the collapse really began, our nation’s top banking experts were telling us that everything was fine. No problem. They are highly motivated to be blind. Your job, as the person responsible for your future, is not to be blind, nor to trust the silly statements of blind guides. Your job is to protect your wealth and your future and not rely on possibly bailouts from sources that may perish before you get your share.
Right now we are in a giant economic bubble driven by artificially low interest rates, massive consumer debt, massive corporate debt, and insane government debt. This will not end well. It never has. Food storage is essential. You also need some cash on hand for times when ATMs and credit fail. Having some assets outside of a bank and outside of the US would also be wise, for in the US it takes one crazed official to, say, accuse you of being a drug dealer or terrorist or Russian sympathizer or something to see your accounts frozen. It happens far too easily. There is risk that needs to be managed. Hopefully all will be well and 20 trillion dollars of debt will just go ahead from a generous gift from Putin or somebody and the stock market will just keep going up no matter how bad earnings are. But in case reality kicks in some day, it would be wise to make some preparations.
As for the market bubble we are in now, here is an excerpt from the SovereignMan.com newsletter I receive:
May 16, 2017
Reno, Nevada, USA
There’s something completely ridiculous happening around the world right now.
We can start in the United Kingdom, where the FTSE-100 stock market index hit an all-time high yesterday of 7454.
Simultaneously the British government released statistics yesterday showing that debt judgments and bankruptcy filings across the UK soared 35% in the first quarter of 2017 to the highest level in a decade.
British consumers are on a debt binge, borrowing (and now defaulting) at record levels.
This all sounds pretty sustainable.
Across the pond in the Land of the Free, the US stock market also hit a record high yesterday.
Simultaneously, consumer credit (i.e. DEBT) in the US is also at an all-time high of $3.8 trillion.
Even more specifically, margin debt, which is the amount of money that investors borrow to buy stocks, is at an all-time high.
Think about that: investors are borrowing record amounts of money to buy stocks at all-time highs.
This sounds like a fantastic trend!
If you look deeper, the numbers become even more bizarre; let’s go back in time a few years and I’ll show you.
In 2012, Coca Cola reported $48 billion in revenue for the year, and $9 billion in profit. That was as pretty good year for Coca Cola shareholders.
For 2016, however, Coca Cola reported revenue of $41.8 billion, and $6.5 billion in profit.
So when you compare 2016 to 2012, revenue declined 13%, and profit declined 28%.
Given those dismal figures you’d think that Coke’s stock price would be a LOT lower today than it was back then.
After Coca Cola reported its 2012 earnings on February 12, 2013, its stock price was around $37.50.
When Coca Cola reported its 2016 earnings earlier this year, its stock price was $41.25. And today it’s even higher at $43.50.
Even more curious is that Coke’s 2012 report shows long-term debt of $14.7 billion. By 2016, long-term debt had more than doubled to $29.6 billion.
So Coca Cola is basically telling the world that its business is declining and they’re going deeper into debt. Yet investors continue to push the stock higher.
Makes perfect sense, right?
Now let’s look at ExxonMobil, whose 2010 annual report showed $383 billion in revenue, $30 billion in profit, and $12 billion in debt.
The company’s most recent annual report from 2016 posted $226 billion in revenue (42% decline), $7.7 billion in profit (74% decline), and $28 billion in debt (133% increase)!
Once again a rational person would think that the price of ExxonMobil’s stock (XOM) would be dramatically lower.
Wrong again. XOM is up from $78 to $83 over that period.
Then there’s Netflix, which has been one of the top-performing stocks over the last several years.
Bear in mind that Netflix actually LOSES money; it’s operating business lost nearly $1.5 billion in 2016, and the company continues to pile on more and more debt.
Earlier this month Netflix closed another $1.4 billion in debt financing, which is the third time in two years that the company has raised more than a billion in debt.
Netflix’s total long-term debt and content liabilities (the amount of money they’re legally required to pay to content owners) is approaching $20 billion, and rising.
Lose money, go into debt. Not exactly a recipe for success.
Yet curiously the stock price is at an all-time high.
Companies are losing money, declining in business value, and having all-time highs in their stock valuation. The bubble of cheap credit in the US is being used by companies to buy back stock and pay dividends, massively increasing corporate debt to drive up the stock price. This does not end well. Are you ready? It could be years before reality kicks in, or it could be next week. Please consider preparing, wisely and steadily, for trouble ahead