The Bear Market Blog

By Ken Knight, MBA

Where to stash your cash.

So have I made sense so far?  I am not making this stuff up.  First let's look at some history.  A Russian economist named Nikolai Kondratieff  in 1924 studied economic cycles and found that they repeated about every 56 years (The K Wave Report).  After publishing his work, he became one of the victims of Stalin's purge of "intellectuals" and was executed in 1930 by firing squad.  Here's his findings:

The periods can also be seen as P=Summer, R=Fall, D=Winter, and E=Spring.  How about that! All part of nature's plan.

So as we head into Winter, we need to be prepared.  I mentioned that Cash Will Be King.  Joan and I visited an interesting museum in Florida that was the original mansion of a newspaper owner by the name of Otto Lightner (Lightner Museum) who was one of the few who did well during the Great Depression, newspapers selling at 5 cents a copy.  It is a stunning example of the "Gilded Age".  In it contains treasures from around the world that were purchased at auctions during the 1930's depression at a fraction of their purchase prices from owners who went bankrupt.   

The depression of the 1930's was typical of a deflationary depression.  Will we go through the same thing?  I don't know.  But we WILL go through another downturn.  It's in the cards.  I will explain why I think so in an upcoming blog.

During the recession of 2008, and previous recessions, we saw numerous banks fail.  If you remember, the savings and loan crisis of the 1980s and 1990s (commonly dubbed the S&L crisis) was the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995 caused by the recession of the early 1980's. (Wiki).  Luckily the government's FSLIC insurance returned most of depositors' money.  That had to be done with a bankruptcy of the FSLIC and a bailout of 3 billion of our tax dollars.  When this all happens again, and I do mean WHEN not IF, banks will owe so much money that there is no way the "new and improved" FDIC insurance can pay back the losses that will be incurred by major banks that are now gambling with depositors' money.  And I do mean gambling!  There are still many banks that hold questionable mortgages and  derivatives. Here's the bad news.  The FDIC has on deposit 3.9 billion dollars.  This has to cover 6.5 trillion dollars of deposits in banks.  It actually went into the red for 1 1/2 years after the 2008 debacle (Fox Business).  You do the math.  

Here's one more tidbit that will blow your mind!  Many European banks and Japan's banks now have NEGATIVE interest rates!  That means that the banks charge you to keep your money in their savings accounts!  Can it happen here in the U.S.?  Why not? We'll see.

Which brings us back to the question of where to put your money so it will be safe in a major downturn.  There is a company that rates the safety of banks based on how they conduct their business and how safe they are relative to their investments and mortgage holdings.  They used to provide this info for free but now charge a nominal amount.  Weiss Ratings does have a free trial period for their "Platinum Service" but also has a regular service for $4.95 a month which rates your bank and lists the most safe banks and insurance companies (yes they are in the same predicament) in your area.  You can cancel at any time. I found that my credit union and local bank both have "A" ratings.  Also it wouldn't hurt to have some ready cash on hand for emergencies.  Where to put this is up to you.  Think "safety".

I hope all this helps.  My Boy Scout motto was "be prepared"!  Or "Hope for the best, plan for the worst"(Lee Child).
Next time I'll discuss:

Brexit, what's up with that?

Best regards,

Ken Knight