It’s 2008 all over again…except bigger, badder, and bound to be more destructive!
With years of near-zero interest rates, government stimulus packages, massive borrowing by businesses and households, and a series of lockdowns to cripple the global supply chain, these chickens are now coming home to roost.
The news cycle is now awash with stories about the fallout from the collapse of Silvergate Bank, Silicon Valley Bank [NYSE:SVB], and Signature Bank. There’re fears that the broader banking system will be affected as the contagion engulfs other institutions.
While the Biden Administration comes out to say that the financial system is safe (and obviously you should trust them given their track record), the Federal Deposit Insurance Corporation has decided to try to stem the contagion by guaranteeing ALL deposits — even if they’re not insured.
Imagine how an insurance company decides to cover your losses in a disaster even if you didn’t enter a contract with them. You can only conclude either the insurance company is nuts, the disaster was massive, or both.
In the case of this banking crisis, the FDIC recognises that the panic could spread very quickly if those who deposited cash with other banks (especially the larger ones) withdraw in a hurry and cause a liquidity crisis. And it’s the ones with the deep pockets they’re more afraid of…they’ve got their fingers in more pies.
Many have been conditioned to place their trust in banks, so much so that there’s even a saying: ‘As safe as cash in a bank’.
While the subprime crisis during 2007–09 showed that the financial system can collapse from the cascading effect of bank collapses, governments worldwide threw billions into keeping some of them alive. This brought forth the concept of TBTF or ‘too big to fail’.
Something so big and important mustn’t fall, so we’ll do whatever it takes to prevent that fate.
It’s this stupidity that brought us here today.
I could talk in detail about how this all came to be and the moral hazard of what’s unfolding, but I think you’ll find many will be writing about this.
What’s more pressing is how you can ride above this. It’s more important that your boat is afloat before you delve into the story of what’s going on. We can certainly moralise over this crisis later down the track, but from a more advantageous financial position.
No safety in banks, seek real assets
Those who understand how the financial system works realise that it’s not just money (or its counterfeit cousin, currency) that makes the world go round. It’s physical assets — land, real estate, widgets, commodities, and even us.
In the past few decades, we’ve seen a massive financialisation of the global economy. In other words, there’s been a shift from conducting the trade of goods and services to transacting in financial contracts for profit.
Just as that famous saying goes about how you can’t eat gold, we certainly can’t eat share certificates, interest rate options, government bonds, and credit default swaps.
There’s no doubt that governments are going to have to stump up cash to rescue collapsing banks. But with the exposure of scandals involving nefarious dealings with the convicted paedophile Jeffrey Epstein, and dodgy risk management or lack thereof within and between banks, governments may step aside and force these institutions to die a well-deserved death.
Or we see the central banks step in and do the mopping up. It may be the world’s lenders who end up having to bail out their own.
I see this as the more likely case.
You can imagine what that’d do to the prices of real assets.
If you thought the boom in land, real estate, commodities, and companies after March 2009 was mind-blowing, this one will take it to a new level.
You may’ve missed out back then, but I think there are opportunities for you ahead.
Mining: Phase One is coming…past performance…as we always say…is not a rock-solid guide to the future.
But if you’re a student of the markets…you’ll know that mining stocks can perform very well at junctures just like this one.
Last month, some of you may have watched our event ‘The Gold Power Play Summit’, where Woody and I discussed how the scene was setting up for a major rally in gold…and how that could deliver massive gains for gold explorer stocks.
I’m sure that some of you are looking for similar set ups in other commodities. After all, it won’t just be gold and precious metals enjoying the potential tailwinds of a post-crisis liquidity free-for-all! Think about all the rebuilding that global society needs after the last three years of debacle by the governments, the healthcare and medical establishment, and their mainstream media bullhorn.
I know in the past I’ve warned about the World Economic Forum and its ‘Great Reset’ agenda to usher in The Fourth Industrial Revolution, a nightmarish regime of control under artificial intelligence.
My view now is that they’ve overplayed their hand and are likely to be exposed (thanks to the ‘Twitter Files’ release) and dealt with when all is said and done. The future could be brighter, though not without a period of unprecedented volatility.
And this rebuilding will require a lot of commodities. That’s why you’ve noticed there are many companies seeking to find copper, lithium, cobalt, rare-earth elements (REE), and other minerals. Just because ‘The Great Reset’ is going to flop, doesn’t mean society is going to stop in its tracks towards cleaner energy.
So expect that a lot of capital will shift toward companies exploring and mining these minerals. It’s already started. Exploration expenditure in Australia is up 28% over the past year. You can bet that will continue.
But which company should you choose? You know the deal with explorers; they can hit the jackpot, or their owners could take your money for a spin, leaving you with nothing!
This is where my colleague, James Cooper, can step in and help you filter out the good from the bad.
Since launching his Diggers and Drillers service last November, we’ve encountered many happy readers who want more from James. His experience as a geologist involved in the discovery and development of several mines in and outside of Australia is just what you need to help you pick the companies that could deliver rich rewards.
He’s now about to launch a premium trading service, Mining: Phase One, where he’ll showcase his favourite commodities explorers. James will use his geological knowledge to help identify the companies with the potential to discover new deposits, obtain the funding to develop these deposits, and bring them to production.
So we’re talking the small end of the commodities market…very, very small. Companies at the most precarious but exciting point in their mining life cycle. If there’s anyone who can spot a hidden gem in this part of the market, it’s James.
Stay tuned here for more information on this brand-new trading service in the coming days.
Editor, The Daily Reckoning Australia