Byron King shows you the best way to ensure you keep what you earned. [The Rude Awakening] March 16, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Biden Bucks or Pounds in the Ground - Byron King commandeers the Rude for a day!
- The Harvard-educated geologist gives a wonderful history lesson.
- Biden Bucks or pounds in the ground? It’s the question of our time. [URGENT! The Truth About Bidenâs Role In the Nord Stream Attack?]( [Click here to learn more]( This presentation has SHOCKING evidence about who ordered the attack on Russia's Nord Stream pipeline... And that we KNEW it would cost Americans BIG. [View it here now.]( [Click Here To Learn More]( [Sean Ring] SEAN
RING Good morning from a lovely Northern Italy. Good friend, ace energy and ores expert, and Rude reader Byron King is taking over the Rude today. Yesterday, Byron sent over the piece you’re about to read. But instead of waiting for his monthly contribution to Jim Rickards’ Strategic Intelligence, I asked him if we could print it in the Rude. There’s no better way to learn about finance than through reading financial history. And I don’t think there’s a better storyteller in all the markets than Byron. Although this column is slightly longer than you’re used to with me, I can assure you it’ll go by quickly. I hope you enjoy it as much as I did. All the best, [Sean Ring] Sean Ring
Editor, Rude Awakening Solid as a Rock: Another Form of Deposit Insurance By Byron King Lately, you’ve heard much about the term “deposit insurance.” As in, how U.S. bank accounts are insured to $250,000 by the Federal Deposit Insurance Corp. (FDIC). Most of the discussion has been in the context of the failed Silicon Valley Bank (SVB) of Santa Clara, California, the second-largest bank failure in U.S. history. Let’s discuss bank failures for a moment. Then, I’ll tell you about an entirely different way to look at deposit insurance; meaning a form of deposit insurance that is solid as a rock. Indeed, this other kind of deposit insurance goes way beyond the political whims of federal bureaucrats and monetary policymakers. But let’s not get too far ahead. First, here’s some quick background. The idea of traditional deposit insurance is that your bank accounts are… well… “insured.” It goes back to the Great Depression of the 1930s, when thousands of U.S. banks failed. That is, a bank would encounter a “run,” in which large numbers of people wanted their money back all at once. Of course, that couldnât be it. It had to be Trump! [SJN] Customer ârunâ on American Union Bank, New York, 26 April 1932. National Archives. [Warning: Will âBidenflationâ Destroy Your Retirement?]( [Click here to learn more]( If you’re like most Americans, you’ve worked hard for decades to build your financial legacy. And now, as a result of Biden’s disastrous money printing policies, that’s all at risk. According to one top retirement expert, “Bidenflation” threatens to destroy your retirement and make your hard-earned savings worthless. That’s why you must take action right away to protect yourself… [Click here now to get the simple, step-by-step actions to survive “Bidenflation.”]( [Click Here To Learn More]( Unless the bank was flush with cash (which was almost never), it could not pay everyone back; not all at once, anyhow, and definitely not in a panic scenario. So, lacking sufficient funds, the bank would close its doors and, in essence, go out of business. The depositors’ money was gone. Poof. Nothing. In the early days of the Depression, large numbers of bank failures were a nationwide financial calamity. Entire groups of people – even entire regions – were left broke and impoverished. So in 1934, Congress established the Federal Deposit Insurance Corporation (FDIC), to backstop deposits to a certain amount. Under the original 1934 law, FDIC covered $5,000 per account, which was not bad for those days but by no means overly generous. By 1980, the limit had moved up to $100,000. And today it’s $250,000. The idea has long been to protect large numbers of small and modest-scale depositors up to some level, more or less appropriate to the economic tenor of the era, whether the Great Depression, or 1980s, or currently. If a bank fails, depositors will have access to funds up to the insured limit, with almost no questions asked. With that background, you’ve likely followed the news of how SVB failed. Headquartered in the heart of the South Bay Area, it has branches as far away as New York, Wellesley, Massachusetts, and even a subsidiary in Great Britain. I’ll skip the gory details of why and how SVB failed. Suffice it to know that [management was a petting zoo of incompetent boneheads]( emblematic of our era. They totally failed at Risk Management 101, and their business cratered. In the immediate hours after SVB went under, word quickly spread that depositors were limited to “only” $250,000 under FDIC guidelines. Whoa! Suddenly, an entirely new element of the story cracked open, namely that [over 97% of SVB deposits exceeded that $250,000 limit](. Huh? Wait a sec… Think about that… Who has over $250,000 in the bank? Well yes, wealthy people. And one heck of a lot of them banked at SVB, which [catered to customers seeking “wealth management”]( services. Now step back and think about your own life, or about people you know; people with whom you went to school, or with whom you work or associate. Who has over $250,000 sitting in a bank account? Okay, some people have big bucks in the bank. But certainly not most American families. Indeed, the average American has more or less zero savings. You’ve probably seen stories about how [most Americans cannot afford $500]( to repair their car or move from one apartment to another. That’s the general, sad state of the U.S. economy these days. At any rate, it’s fair to say that these well-heeled, over-$250,000 clients of SVB were not exactly Joe the welder down at the factory, or Nancy the single mom who works at a diner. Not to put too fine a point on it, but there’s no SVB branch in East Palestine, Ohio. Indeed, per news accounts, most SVB customers included the very top of the proverbial One Percent of American society. Okay, more like the top one-fiftieth of the One Percent. People like uber-wealthy television celebrity [Oprah Winfrey]( and the privacy-seeking duet of [Harry & Meghan]( who deposited their multi-million-dollar book advance into SVB. Of course, SVB also catered to businesses, many of which are Bay Area or national-scale tech companies with money in the kitty, working on the next big thing, if not one of those “killer apps.” That’s the type of business customer that SVB cultivated, along with an intriguing [sub-category of high-end wineries in California’s Napa Valley]( one of which is owned by [Nancy Pelosi and her husband](. And another by [California governor Gavin Newsom](. Basically, SVB dealt with people who control a lot of money, mostly in accounts with many zeroes at the end of the numbers. Which made facing that $250,000 FDIC upper limit a truly frightening moment. For Joe at the factory or Nancy at the diner, that $250,000 limit is plenty to cover any loss. But for Oprah? Well, she was looking at a loss of over $500 million, per news accounts. While Harry & Meghan were looking at tens of millions up in smoke, if British tabloids are to be believed. There are many more SVB customers whose names we don’t know and likely never will. Some of them could be seen in photos in news accounts, [lined up outside the doors of numerous SVB branches]( obviously hopeful to withdraw their funds from the ruins of the institution. And these customers could be anybody, although likely not the above-mentioned Joe or Nancy. Think of well-compensated tech bros, Silicon Valley executives, and the entire ecosystem of people who swim in those kinds of ponds: well-off lawyers, doctors, accountants, investors, and trust fund recipients. And here’s where it gets dramatic. This modern SVB bank failure presented an old-fashioned heart attack to the wealth system in this country. In a matter of hours after SVB failed, many people went from being bank account millionaires to having a claim on a mere $250,000. They transitioned from being rich, to “about to be” poor. But to borrow a famous phrase, “don’t cry for me, Argentina.” Because by Sunday evening, about 60 or so hours after word broke that the feds were taking SVB into receivership, President Biden and Treasury Secretary Yellen announced that the $250,000 limit was no longer in effect. [Everybody would have access to “all” of their money](. Indeed, with a hasty, history-defying policy decision, the Biden administration magically transformed the 90-year-old, Depression-era, FDIC deposit insurance backstop into a total, 100% guarantee. That is, no losses for anyone. [Everyone gets back every dime](. According to the [publication American Banker]( “In a stunning decision, federal regulators issued a systemic risk exception to protect uninsured customer deposits at (SVB) in the wake of the bank's sudden failure.” And somehow, it’s not a “taxpayer bailout” said the president, because the money will come from an assessment on the rest of the banking industry. Well, are you reassured yet? Something tells me that we’re not getting the entire story from our government functionaries. We’re still in the midst of a massive risk event within the banking sector, and of course the U.S. economy at large. It’s the early innings of this new ball game in banking and insurance. Whether it’s merely pencil-whipping new bank policies over a Sunday afternoon, or routinely spending the U.S. Treasury into astronomical levels of debt, in so many ways the U.S. government is just plain out of control. Over 70% of the budget is entitlements like Social Security and Medicare, essentially growing on an open throttle. And the other 30% of the budget is also exploding. Meanwhile, U.S. monetary policy simply tosses dollars into the spending furnace, stoking the economy with quantitative easing while working to contain inflation with interest rate increases. The bottom line is that the federal government is blowing the roof off of the economy, as just illustrated within the banking sector and certainly the FDIC insurance program. It cannot end well. This brings me to the point with which I began, “solid as a rock” deposit insurance. No, I don’t mean some new government program, subject to change by the U.S. president whenever a large collection of political donors run into a financial brick wall. This other version of “deposit insurance” is far more down to earth, both figuratively and literally. The idea is to focus on minerals and ore deposits. Think in terms of how many million ounces are confirmed as recoverable in a gold deposit, or how many millions of pounds are confirmed as recoverable in a copper deposit. When exploration geologists map and drill, and engineers calculate the resource, they come up with measured numbers of grams per tonne, ounces, pounds, or whatever other metric. All of these are locked up in the rocks, in ore zones amenable to mining over time. That’s what I call rock-solid deposit insurance. It’s a real, tangible substance of value, sitting in a deposit in the ground, awaiting mining and extraction, then refinement into something that people will buy in whatever currency holds value in the years ahead. Name your material: gold, silver, platinum groups, copper, nickel, zinc, uranium, lithium, cobalt, rare earths, tin, tungsten, antimony, and many more. Much of the Periodic Table, in fact. Sure, it’s good to have money in the bank. Well, most of the time, and not when we’re in the midst of panics and runs against cash. And yes, there’s FDIC insurance, although now, post-SVB and the new policy of open-ended access to funds, what does that even mean anymore? Looking ahead, if you want real, rock-solid deposit insurance, find an exploration, development, or mining play with pounds in the ground. Start thinking in terms of real, tangible things that hold value in an economy and political system that clearly has gone nuts. That’s all for now… Thank you for subscribing and reading. Best wishes… [Byron W. King] Byron W. King In Case You Missed It⦠The SIVB Bailout Just Keeps Getting Worse [Sean Ring] SEAN
RING Good morning on this Ides of March from a sparklingly sunny Asti! Yesterday, I let Jim Rickards do the talking for me. Today, I’ll summarize the latest information I’ve found and try to chart a path forward. Funnily enough, there’s a kernel of truth in what everyone says. It’s the deeper dive that proves them wrong. For instance, Senator Elizabeth Warren is partially correct in saying that Jay Powell started this mess by hiking rates as fast and far as he has. (The Rude has long said Powell had a savior complex.) But what Chief 1/1024th misses is that the Fed left rates on the floor for too long. Fourteen years too long! She wasn’t complaining then. They never do, do they? Remember, the boom comes before the bust. The manipulation of interest rates far below their natural level causes incorrect incentives and accompanying malinvestments. That’s what started this mess. But it felt so good, didn’t it? Jim Grant has long gone on about how the Fed destroyed the pricing mechanism through this malpractice. This is part of the reason the US Treasury market crashed all last year. When rates go from 0.25% to 4.75%, you’ve increased rates 18x in less than a year! And even when entrepreneur David Sacks and hedge fund manager Bill Ackman are talking their books, they’re partially correct. This is a government and central bank-induced mess. Again, if you’re bitching when the Fed is raising rates too fast, then you really ought to have started shouting when the Fed put its foot on the yield curve. But they’re wrong when they say depositors over the $250,000 insurance level must be protected. No, they must get burned. And yes, this may cause contagion (though I think, in this case, it’d be minor). As I’ve written before, unless and until the government’s poor decisions start burning The Lax Rich, the government will continue to make poor decisions. And what about the soft stuff, like how we view those who’ve been bailed out? Last night [I tweeted]( I honestly feel for VCs now. Last week, they were the world’s great innovators. This week, and forevermore, they were in the right place at the right time, benefitted from the largest credit expansion in human history, and bought the right politicians. In other words, they got lucky. It would’ve been better for them to take the “L” and remain respected. I mean every word of that. Now, let’s get to the business of finding out more. The FDIC Nixed a Free Market Merger The Wall Street Journal Editorial Board isn’t having any of it. They inserted this little nugget into their piece titled “[Biden’s Bank Bailout Whoppers]( The Federal Deposit Insurance Corp. says it couldn’t find a private buyer for SVB, though a source tells us Treasury and the Federal Reserve favored one. FDIC Chairman Martin Gruenberg nixed it owing to hostility to bank mergers. How the FDIC gets to overrule the Fed and the Treasury on a bank merger is beyond me. Perhaps it’s because [Janet Yellen is MIA due to “migraines.”]( [Zero Hedge]( reported: Kevin Hassett, former Chairman of the Council of Economic Advisers under Trump, told Fox Business that "there were buyers who were willing to step in & buy [SVB, but] the radicals at the @FDICgov basically weren’t going to allow that to happen ... the Biden Admin had a whitelist of companies that were allowed to buy the failed bank & companies that weren’t." "If this is true," said Grabien founder Tom Elliott, "then this is another Biden scandal." Great, so we’ve got microwaved Soviets running the FDIC. Of course, that couldnât be it. It had to be Trump! [Will This Companyâs Breakthrough Give New Hope To Millions?]( [Click here to learn more]( If You Or Somebody You Know Suffers From Arthritis, Pay Close Attention [>> Click Here For All Of The Urgent Details <<]( [Click Here To Learn More]( No, Trump’s Deregulation Didn’t Cause This Mess The Wall Street Journal Editorial Board smacked Joke Biden in the mouth over blaming Trump’s 2018 deregulation for this mess. Before I get to Trump, let’s just say we were correct that ordinary folk are financing this bailout (bolds mine): The White House says special assessments will be levied on banks to recoup these losses. That means bank customers with less than $250,000 in deposits will indirectly pay for this through higher bank fees. In other words, this is an income transfer from average Americans to deep-pocketed investors. As for “Trump’s Deregulation” being the cause of this mess, that’s about as real as “Putin’s Price Hike.” For clarity, the Barney Frank (of Dodd-Frank fame) you see quoted below is indeed the former Chairman of the House Finance Committee and sat on the board of Signature Bank before its nationalization. Again, from the Journal’s Editorial Board: As he so often does, the President also blamed the bank panic on the Trump Administration—in this case for modifying some 2010 Dodd-Frank Act rules. He seems to be referring to the 2018 bipartisan banking law, which raised the threshold for systemically important financial institution (Sifi) classification to $250 billion from $50 billion in assets. But not even Barney Frank, the Dodd-Frank co-author, believes that is to blame. The point of the 2018 law was to ease costly compliance burdens on mid-sized banks that made them less competitive with the giants, which benefit from a lower cost of funding owing to their implicit government backstop. Excessive Dodd-Frank regulation was driving more deposits to big banks. Before the 2018 law, most mid-sized banks had to comply with the same regulations as big banks. But these wouldn’t have prevented either bank’s failure from their risk-management mistakes. The 2018 law didn’t absolve mid-sized banks of the requirement to conduct quarterly liquidity stress tests to ensure they could weather “adverse market conditions” and “combined market and idiosyncratic stresses” such as interest-rate shocks. They also must hold a liquidity buffer of “highly liquid assets” such as Treasurys and government agency mortgage-backed securities. Dodd-Frank encouraged banks to load up on these assets, which were especially sensitive to the rapid rise in interest rates. Yet somehow regulators failed to monitor this interest-rate duration risk. And what will happen because of this bailout? Now, the Fed wants stricter rules on mid-sized banks. And more deposits will go to the biggest banks. It’s not ideal if you want a genuinely free market banking system. What the Fed Will Probably Do In short: they’ve got to hike. The President unleashed an inflationary storm. That’s thanks to a blank cheque he signed on behalf of the taxpayer for the banking system. It’s an expansionary policy totally at odds with your contractionary story. You’ve got to signal you haven’t lost sight of the inflation story. The CME FedWatch Tool puts the probability of a 25-bp hike at 85.6%, while unchanged currently sits at 14.4%. [SJN] Credit: [CME FedWatch Tool]( This makes sense to me. Fifty basis points would have been too much at this time. How the Market Will Probably React But I still think the stock market will react badly to a 25-bp hike. Something tells me the yahoos over in the equity department think the hiking cycle is over. If they believe that, they’ll surely be disappointed. But one place that should do well is gold. If you were on the March 3rd Rickards Uncensored call with Byron King and me, you would’ve heard us shouting to buy gold. If you read the [2023 Daily Reckoning Gold Buying Guide]( Byron and I published on March 9th and bought some gold, you’d be in a great position now. [SJN] Yesterday, Jim Rickards wrote in the [Daily Reckoning]( regarding future dollar weakness (bolds mine): As payments move from dollars to other currencies, the exchange value of the dollar should decline, and the exchange value of the other currencies (mostly the euro) should go up. This means that the dollar price of commodities will go up as the exchange value of the dollar goes down. This is basically inflationary. Still, inflation can be a good thing if you’re the owner of hard assets including gold. The U.S. dollar value of those assets should rise. While gold and silver are money substitutes (or actual money), this does not mean that the commodity price inflation will be limited to gold and silver. We’ll see it in: Gold, silver, oil, natural gas, water, copper, strategic metals, agricultural produce, farmland, and other commodity assets. Mining stocks are definitely in the mix. Byron gave away five “golden” opportunities in our Rickards Uncensored talk. Wrap Up The FDIC is the new Soviet on the block. No, this mess has nothing to do with The Donald. The Fed will almost certainly hike only 25 basis points next week. The stock market will probably hate it, but gold and other commodity assets look good. And there you have it. Have a wonderful day ahead! All the best, [Sean Ring] Sean Ring
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