Wednesday, January 18, 2012

Time to Bunker In With Phyzz

As my thinking has evolved from trading paper to owning some and then more silver and gold, my conclusions are changing, shifting from the potential investment value of silver and gold and it rise in price, even if it was only 10-15% a year, to the literal reasoning that our banking system is not secure.

Being a former banker I watched nearly 1,000 banks fail from 1990 to 1993. The hundreds of banks that failed in the early 1980s was just a prelude to the 1990's
I am most certainly uncomfortable with the rising tide of European banks leveraged at 30 to 1 with the potential of complete failure in that system.
With 6 months of intensive work I've studied these banks and concluded the Euro Union and these banks will end badly. They are not only weaker than US banks in their leverage, they are all linked to a common currency that appears to be headed to failure.

The bonds of the peripheral and southern tier of countries, including Greece, Italy, Spain and Portugal are quickly assuming the glide ratio of a lead brick with ratings to boot. How do you get comfortable with a sovereign bond that yields 7%, has a BBB rating, negative forward review and can only be bailed out by more debt, much of which will come from the uber leverages bank, the FED. At 7%, these bonds are completely unaffordable.
If any one of these banks fails and drags down another and another bank our banks will suffer gravely. The EURO bonds themselves total $500 billion invested with our money market and investments. The derivatives total in the trillions.
This could crush our system, cause a system- wide bank holiday that only the Fed can reboot, if they are willing and able.
FDIC has no capital to cover the trillions in deposits. They are offering IOUs to banks that take over failed banks. SIPC has $1 billion to cover the entire investment spectrum

If a cascade started with the failure of Unicredit or another large bank and it flows across the Atlantic to B of A, Citi, WFB or one of more of the other large US banks, the run on capital or more likely, the capital controls imposed by bank holidays, restrictions as to how much we could withdraw, limitations on ATMS and difficulty in clearing credit cards, then our $700 billion in TARP would be small in comparason to the cram down of accounts and our ability to access them. Italy already has very restrictive capital controls. This austerity could easily be imposed here.
With those thoughts in mind, I am working to winnow down my bank accounts to a minimum needed to handled expanses and put the rest of my available capital in silver and gold. This might not be the best thing to do or work for someone else. My thinking has evolved to 'bunkering in' for the duration.