Image by kimberlyfaye via FlickrIt was not uncommon for my father, who would have been 83 this year, to walk around on a weekday with $10,000 cash in his pocket. He was not a wealthy man, but ran a small business with approx. 20 employees. However he had the mentality of many others of his, the "greatest" generation, when it came to a healthy skepticism of the dependability of banks. The attitude came honestly as many of that generation had suffered through the great depression, and had lost all their savings when banks went bankrupt.
A good friend told me a story about a favorite aunt who always carried a satchel or briefcase, everywhere she went, all the time. When she died, her family was going to throw out that old satchel as they saw it as an eyesore. Before that was done, someone opened it and discovered it was stuffed with cash! Over $100,000 cash!
The same friend also told me that, when her Grandmother died, (the two elderly ladies were sisters), the family were going to throw out her old mattress when someone laid down for a minute and thought how uncomfortable it was. On further examination, they found it was absolutely stuffed with cash.
Now, we all know that this is not a recommended method of savings because of the dangers of robbery, loss, theft, fire etc. But these veterans of the Great Depression did what they thought was necessary to secure some of their future, rightly or wrongly. As I said, they just did not trust the banks.
Why did they lose their trust in the banks? Well, for the most part, many of those banks were under capitalized and when there was a run on the banks, they collapsed under the weight of so many people trying to retrieve their life savings.
Is that starting to sound somewhat familiar? Here in Canada the 5 major banks are well capitalized and in no danger of such an event. They wisely, for the most part, stayed clear of many of the toxic, derivative assets, that U.S. banks so greedily pursued. This was made clear after the downturn when our top two banks, TD Bank and RBC advanced into the top six banks in the world based on capitalization. They had been (I stand to be correct here) approx. 9th and 20th in the world before the downturn.
If you are reading between the lines, you have no doubt already come to the conclusion that many top banks in the United States were cut down tremendously, some to the brink of life support. The same goes for banks in Britain Germany, Spain (and throughout the Euro zone). Throughout this Spring, we heard bold financial results from many U.S. banks which far exceeded analysts expectations. However, can these numbers be trusted? If you take the numbers from these banks, leave out the Trillions in toxic Derivatives they still hold, add in the billions infused by the U.S. Government, then of course, the numbers will look great.
Once the Government largess is gone, and the Derivatives have to enter into the calculation (and these huge losses will have to be shown at some point) does anyone really think things have gotten better? Many banks in the U.S. and Europe are on life support, and will be for years. Our grandfathers didn't entirely trust the U.S. banking system, (or the stock market for that matter) and for good reason. Now it is our turn to make that determination.
Our problem is, What, exactly, do we stuff into our satchels or mattresses (or home safe). If you use U.S. dollars, you can count on a 20% to 40% drop in your assets over the next 3-4 years, and that's after losing what you have already lost. What holds value in these rocky times? Opinions vary on this, but I cannot help but think that Once the dollar continues it's slide (this weeks renewed strength is only temporary) that the stock market will benefit. It has too! And the part of the market that will benefit most?
1. New Technology companies with a worldwide market and/or valuable intellectual property ( patents ).
2. Generic drug companies (remember the Obama promise of health care reform)
3. Commodities that are valued/traded in U.S. dollars such as
4. Gold and other precious metals (silver is under valued)
5. Oil is traded in U.S. dollars!
6. Natural gas is currently undervalued and will be used extensively for the coming fuel cell revolution in power generation.
No, you cannot put these stores of value in a satchel or in a mattress, but you can spread them throughout your portfolio, either as individual investments or through the purchase of targeted mutual funds. If you're really nervous, a little Gold in the home safe won't hurt, and may give you some piece of mind.
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