Ratings agency, Standard & Poor’s this week downgraded the big four Aussie banks.
How did the markets react? Was there massive selling? More ‘short sells’ than normal?
No. By lunch time yesterday, all four big banks were higher.
It was as if traders shook off S&P’s bank ratings cut. And saw it as a reason to buy, buy and buy some more.
Maybe that’s no surprise. We’re always told that Australian banks are the safest in the world.
But there’s an old story the Aussie media overlooked.
And it could mean the banks aren’t as safe as you think…
Our Aussie banks faced a small ‘bank run’ in the weeks after the Lehman Brothers collapse in 2008.
Yet the media only caught the story two years after it happened.
The Australian newspaper wrote in June last year:
‘…the Armaguard vans worked overtime ferrying bundles of $10,000 out to the cash centres, the Reserve Bank’s strategic reserve holdings of $50 and $100 notes started to run low and the call went out to the printer for more. The Reserve Bank ordered another $4.6bn in $100s and another $6bn in $50s. It was the first time it was forced to do this since the Y2K computer bug scare in 1999.’
In the 10 weeks after Lehman’s demise more than $5.5 billion of cash was withdrawn… and stuffed under mattresses. A year later, only $1.5 billion had been ‘returned’ as deposits to the banks.
While it may have been a puny ‘bank run’, the higher than normal withdrawal of funds was ignored by the media.
But at least it explains why the government was so quick to guarantee bank deposits.
We’re sure you remember the media hoopla over the Australian government guarantee.
The media chose to celebrate the backing of cash deposits rather than asking why it was necessary.
As it turns out, the deposit guarantees came in the middle of a ‘bank run’.
There’s no doubting our ‘bank run’ was tiny. It was nothing like Northern Rock in the UK. There, people formed queues in the streets for days. Desperate to get hold of their cash.
And just because the federal government stepped in to prevent a more serious bank run, it doesn’t mean it can’t happen again. And this time it could be much worse.
But for now the market doesn’t care. It washed off the S&P ratings cut. And mainstream investors are buying the banks again.
However, while they’re doing that, perhaps it’s time to re-evaluate just how much cash you’ve got in the bank.
It’d be nice to have piles of cash sitting around where you know it’s safe. But it’s not practical. Physical cash takes up a lot of space. There’s no point stuffing it under the mattress, or floor… or the tool shed.
And you won’t earn interest on it either. In fact, in an inflationary economy, each day, cash in your hand becomes less valuable.
That’s why it’s worth looking for alternatives to cash… and the banks.
You’ve heard mainstream financial advisor’s tell you to diversify, right? Well, maybe it’s time to move away from paper assets like, cash, shares, bonds etc…
Maybe now’s the time to put a little of your cash into bullion.
Greg Canavan, editor of Sound Money. Sound Investments has encouraged his subscribers to buy bullion for some time.
‘One of the safest ways you can hedge against growing corruption and a lack of confidence and trust in the financial system is to own physical gold.’
By owning physical gold, not only are you keeping your cash safe from inflation, but as Greg says, ‘When you own physical gold – and have it stored securely – your assets are outside the financial system’.
This way, no matter what happens in our messy financial markets, you’ll have part of your wealth out of harm’s way.
You can think of it as an insurance policy against meddling governments and inflation. And as an insurance policy it’s one of the best ways to make sure you can access your assets when you need to.
Now is the time to consider moving some of your cash into bullion.
Shae Smith
Editor, Money Weekend
Publisher’s note: Greg Canavan is the foremost authority for retail investors on value investing in Australia. He’s the former head of Australasian Research for a major asset-management group and a regular guest on CNBC, Sky Business’s ‘The Perrett Report’ and Lateline Business. Greg shares his insight, ideas and investment recommendations with readers of his Sound Money. Sound Investments newsletter… to find out more information on Greg’s letter, go here.
Shae Smith
Before joining us here at Money Morning, Shae worked at a leading stockbroker and CFD provider where she specialised in derivative products.
Today Shae writes the weekend edition of Money Morning, spending her time scouring the world markets and global economy for new investment opportunities that could benefit Aussie investors.
To read about her latest discoveries, take out a free subscription to Money Morning here.
Official websites and financial e-letters Shae writes for:
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24 Responses to “The Secret Aussie ‘Bank Run’ is a Sign to Buy Gold”
Roger
DM……I have to agree regarding gaining insight and knowledge from the comments on this site more so than the content of the articles.
I have also enjoyed the links posted here for sites I would not otherwise have found.
The Gold/Shares/Property debate will run forever I am sure.I read an article today which stated that since 2000
Dow Jones………. up 4.7%
S&P 500 ……… down 15.1 %
FTSE 100 ……… down 22.4%
Poperty has won that race so far with increases ( where I live ) of 350%
Gold (1998-2010 ) is right up there too having increased by 332%
Question is where to from here which asset class will continue to perform best ? I suspect in these volatile times the shiny stuff will do better over the next 3-5 years
Hey Drood and PF I reckon that is a wager worth a mars bar. Will gold beat property over the next three years ?
Drood
I just dont get the argument, who cares what did what years ago, right now golds in and property isn,t thats a fact and if you are an investor then gold is what you need now. In 3 years time ( maybe even next month ) it,ll be something else perhaps uranium, but this conversation goes nowhere.
TRB you certainly see the irrational herd here.
We should be discussing what happens if europe falls over, or the US cant pay its debts, ( and i don,t see how it can ).
Malcolm McIntyre
M&M/Peter
The futures market is also used as a means of physical purchase: economicpolicyjournal.com/2011/11/gerald-celentes-gold-confiscated-as.html
MF Global’s theft of client funds has caused a loss of trust a la 2008 post-Lehmann – although most likely when (not if) there’s another run on banks, “commentators” will blame the EU situation.
My recollection is that such theft was facilitated by US regulatory changes in 2007 (maybe early/mid ’08). Warnings were given by some analysts at the time that funds held by brokers were no longer safe. Maybe we’ll read about in the Australian in a couple of years’ time.
As a general rule, now is not the time to be investing in residential real estate. There is a good chance – only my 20c worth, of course
– that when the SHTF the Federal Government will come up with a novel solution: paying to unemployed homeowners with a mortgage the equivalent of what those people would be entitled to in rental assistance if they did not own a home. That won’t be enough to remedy the difficulties that RE investors will be in, though.
To see a comprehensive case for gold, google “Alf Field keynote speech”.
Good luck.
Adam
So, will the repeat when the Government Deposit Bank Guarantee ends at February 2012? And, why hasn’t anyone talked about the guarantee ending in the media yet?