Your Bank Account is Frozen – How to De-link Your Future by David Disraeli

If you read that headline would you really be surprised?

Imagine waking up one day, logging into your bank account only to find that the site is inaccessible. You call the bank and the lines are busy. You go to the ATM and there is a line of cars. The bank lobby is full of panicked customers and police trying to keep order.  This is sure to happen in your lifetime!

I am not a doomsayer or alarmist.  I am a 30 year financial markets veteran and observer. My experience and observations are for your enlightenment or entertainment depending up which part of the continuum (from completely indifferent to overly paranoid) you sit.  

Have you ever considered the real possibility of not being able to get to your money, if even for a few days? What if it took longer? This is a real possibility. Some believe the Chinese already have access to our power grid. It is not unthinkable that a rouge nation or terrorist organization could bring down our banking system, starting with the fed and working its way down to simple credit card processing. Perhaps its not due to a terrorist attack but a bank crises fueled by fear, war or Marshall law.  No one knows.  The FDIC does not have a fraction of the funds to meet mass redemptions any more than an insurance company could cover all the traffic accidents of all their policy holders. Many businesses base their policies on assumptions – what if they are wrong?

The only way to protect wealth is to de-link. An extreme version of this may be to put your money in gold or silver and hide it. Other less fatalistic approaches are to simply move money into instruments that DO NOT track the stock market and do not involve bank accounts.

Personally I am a conservative Christian and I believe God is in control.  However I buy insurance, watch where I am going and taught my kids to look both ways before crossing the street.  I was given common sense and I try to use it.  Common sense tells me something is very wrong.  Every day now we wake up to bizarre news stories of unspeakable human acts.  I grew up when this was not the case, but the exception.

How is it that the stock market continues to float a lofty levels with all the threats we are facing?  The national debt is enormous,  the GDP is growing at a lethargic pace. we have tension with Russia, a cook running nuclear North Korea and the Middle East is in chaos.  The reason the market seems to ignore bad news is two fold in my estimation: 1.  Money is pouring into stocks from the $billions of 401(k) contributions each pay period and 2.  There simply is no other vehicle with the promise of returns.  CD’s are not an option, bonds pay slightly more.  How long can this last?

I still believe in America, although I do not trust the government.  I believe in Amazon.com, Dell, Home Depot, Sams and many great companies.  I am convinced that they will continue to grow, open new stores and increase revenues.  The problem is the value of their stocks can move dramatically in a matter of hours without regard to the underlying reality of these company’s fundamentals.  If you are close to or in retirement, a major crash will affect all companies, good and bad and this will affect your lifestyle. others.

What do I mean exactly by “De-link”?  First lets talk about the problems with the financial advice industry and the financial media.

  1. The vast majority of investment advisers and brokers see the world from a limited point of view.  They primary work with stocks and bonds.  They never tell their clients to fire them and buy real estate or private notes, or hard assets.  Also, most of American’s net worth is in retirement plans that do not allow access to rental property or other hard assets.
  2. The media reports on the “markets”, which in the grand scheme of things is a microcosm of what is available.  Therefore the public is bombarded by messages that vary 180 degrees from one pundit to another.
  3. Both the media and the industry promote long term, buy and hold philosophies.  Some are calling for a complete crash and advise selling everything.  Both extremes are wrong.

The term “linked” as used in this post means anything you owned that is tied to or directly affected by the stock market, the banking system and the U.S. Dollar.  If an alien came to earth and said he had a million dollars to invest, would put 100% or any of his money in U.S. Dollar denominated investments?  Not if he had any sense.  So so do we?  Its a good question and I will let you answer it.  Examples of assets that are de-link are gold, commodities like oil, copper, grain, real estate, life insurance cash values and many others.  Commodities are traded all over the world and therefore not based on the Dollar.  Life insurance companies are insulated from the banking system.  Real estate is obviously not tied to the financial markets, but more importantly it never goes to zero – some stocks do.  God is making more people, but not more real estate.  What dictates the price of anything?  Supply and demand.

Regarding stocks, if company x opens at $40 per share and goes to $41 by lunch, has the value of the company real changed in a few hours?  Of course not.  The humans who are buying and selling that stock are controlling the price based on their collective behavior which has nothing to do with the company itself or its prospects for the future.  This is why a 20% drop on the market or a 50% drop is very possible and has happened many times in the past.  The buy and hold crowd says if you buy quality and hold, eventually you will recover from whatever correction (a nice way of wording the process of getting clobbered).  Well what if the market does not come back during my lifetime?  Sure my grand-kids will be fine.  Plenty of Japanese investors who invested from 1986 to 1990 are STILL UNDER WATER – that is 30 years of zero return.  So what do my comrades mean by eventually?  This philosophy is either motivate by commissions, fees, or ignorance – or maybe a combination.  At the other end of the spectrum are the doomsayers.  In my  thirty years, I have continually heard the market is too high, better get out while you can.  When I started the Dow was at 2000 and my whole office just sat at their desks shaking their heads.  Surely the market can’t go above 2000, son you better find another job.

Well I didn’t have enough sense to find another job and today the market is over 18,000.  So what is the answer?  If both the buy and holders and the doomsayers are both wrong, what is one to do?  No one knows the future, but most people are nervous and rightfully so.  The answer is to de-link some or all of your assets.  The market dropped 38% in 2008.  If you had the bad luck of retiring then, you may have had to spend principal to pay bills and miss out on some of the rebound.  We are facing the possibility or probability of a major financial earthquake with the markets, the dollar, the banks, or some of each.  The specific answers as to how to de-link will depend on each person’s individual situation.  Should you buy gold bars, gold stocks, or silver, or platinum, or copper?  Every form of de-linking has multiple variations.  Should you buy rent houses, strip centers, raw land, stocks that hold real estate?   Clearly sorting this out is a challenge, one we are prepared to sort out.

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