Charley Ellis: Six Nuggets Of Investment Wisdom

Charley Ellis: Six Nuggets Of Investment Wisdom

Posted by TEBI on March 24, 2023

Charley Ellis has been a voice of common sense in the world of investing for more than 50 years. His book, Winning the Loser’s Game, which explains why low-cost, buy-and-hold indexing is the rational choice for all investors, has become a classic. He’s now aged 85 but still working. Charley recently spoke to Cameron Passmore and Benjamin Felix at the Rational Reminder podcast, and we’d strongly urge you to listen to the whole episode.

The interview contains a wealth of wisdom about investing, but here are six lessons that caught our attention.

1. Success is all about minimising mistakes

“A loser’s game is any competitive activity, where the outcome is not controlled by the winner, but it’s actually controlled by the loser. Golf is a good example. People that are really good at golf will shoot less than par, by two or three strokes on a regular basis. A lot of other people are proud to be able to shoot 90. There are some people who’ve never broken a 100. Well, the difference between the two groups is the mistakes of the people who’ve never broken a 100 and make all the time.

 “Another loser’s game is tennis. If you look at your game, or at least my game, how many times do you win a stroke, instead of hitting it at the net, hitting it out of bounds, laying it up so easily for the other person hit it back, that you’ve essentially forced yourself into a loss? If you could cut back on the number of mistakes and let the other guy increased the number of mistakes he made, you’ll come out the winner of a loser’s game.

“That’s what investing is all about. Most of the activity that most of us spend our time engaged in, in investing actually doesn’t help. It actually does harm. Our long-term results are impoverished by the mistakes that we’ve made along the way.

“In investment management, if you could just reduce the number of mistakes you’ve made, you would come out as a winner. The easy summary of all that is, if you index, you won’t be making any mistakes. You have to choose the right index, that’s fair. If you index, you won’t be timing the market, you won’t be trading too much, you will get excited about something you just heard from a friend of yours who heard from a friend of his that looks like it might be a really great idea.”

2. Active managers do more harm than good

“It’s gotten harder and harder and harder to be an active manager, and successful at the same time. More and more people have accepted indexing is a perfectly rational way of taking advantage of the realities of the market, then not getting suckered into doing things that actually do you harm. It does take a sense of humour, and it does take an appreciation for history to realise. I know you’re wonderful. I know you’re terrifically talented. I know you work very, very hard. But you’re actually not helping yourself, or your clients.

“The perception is, you’ve got brilliantly talented people working hard for you all the time, that’s true. That perception is that they’re going to be able to make a real difference to your economic situation. That’s very unlikely to be true. What’s very, very likely to be true is you’re going to make a wonderful difference to their economic situation.”

3. Outperformance gets harder as aggregate skill increases

To continue reading, please go to the original article here:

https://www.evidenceinvestor.com/charley-ellis-six-nuggets-of-investment-wisdom/

Experts: 4 Safest Places To Keep Your Savings

Experts: 4 Safest Places To Keep Your Savings

Brought To You By BASK Bank  - GoBankingRates

If you have reached a certain point in your career, you may have a little bit of extra money set aside. While you know that storing your savings in the freezer is not the best idea, you may not be too sure where you should keep it to get the biggest bang for your buck.

We reached out to financial experts nationwide to find out the safest (and smartest) places to keep your savings. We came up with four tried and true methods for protecting your money and maybe even watching it grow.

Certificate of Deposit (CD)

If you have some extra money that you won’t need in the next few months, a certificate of deposit can be a great option for reliable earnings, especially right now with interest rates soaring.

“A great thing about CD accounts is that your rate is locked in,” said Morgan Gray, SVP, Head of Bask Bank and Consumer Segmentation. “When rates are high, as they are right now, you are guaranteed that interest rate through the length of your CD term. So, no matter what the rate environment looks like over the course of that term – six months, a year, or longer – you’re still going to earn the rate you did when the account was opened.”

Bask Bank’s CDs offer some of the highest rates available, with APYs (annual percentage yields) ranging from 4.00% to 4.85% depending on your preferred term length. You can choose from four different term lengths — from six to 24 months — so you can customize your CD to fit your financial situation. All Bask Bank CDs come with APYs well above the national average. For example, Bask Bank’s six-month CD has a 4.85% APY*, while the national average is 0.65%, according to the FDIC. All Bask Bank CD accounts require a $1,000 minimum to open.

Gray says another added benefit of choosing a CD is that it encourages responsible saving.

“If you don’t want to be tempted to spend your savings, CDs are a great option to ward off impulse spending and reward you with high interest returns at the end of the account term. By choosing to open a CD account that’s FDIC insured, you’re also adding an additional level of security to your savings.”

The annual percentage yield is effective as of Monday, March 20, 2023. APY is fixed and a $1,000 minimum balance is required. Bask Bank will pay this rate and APY through CD maturity date. Early withdrawal penalty and fees may reduce account earnings. Must fund within 10 days of account opening. Bask Bank is a division of Texas Capital Bank, Member FDIC.

High-Yield Savings Account

To continue reading, please go to the original article here:

https://www.gobankingrates.com/money/financial-planning/safest-places-to-keep-your-savings/?utm_term=incontent_link_7&utm_campaign=1216166&utm_source=yahoo.com&utm_content=9&utm_medium=rss

7 Reasons Nobody Writes Checks Anymore

7 Reasons Nobody Writes Checks Anymore

Andrew Lisa   Thu, March 23, 2023

A check is written, signed and dated instructions for a bank to transfer funds. To mail one, you have to wrap that piece of paper in a second piece of paper and then stick a third piece of paper on the outside to prove you paid to have it travel to its destination on at least one gas-burning vehicle.  If that sounds like a primitive way to move money, you’re in good company.

According to a GOBankingRates survey of 1,000 American adults, 45% haven’t written a single check in the last year — another 12% wrote fewer than six.

It’s nothing new — the writing was on the wall for checks long before COVID forced a shift from in-person to app-based banking. Like manual transmissions and fax machines, paper checks aren’t quite gone yet, but the museum has a spot all picked out. Here’s why.

The Paper Check Is a Victim of History

In 2012, the Federal Reserve Bank of Philadelphia predicted paper checks would be extinct by 2026 — but according to Business Insider, the clock had been ticking since 9/11.

Until that day, physical checks worth billions of dollars were packed onto trucks, shipped to sorting facilities and then loaded onto airplanes every single day. When the FAA grounded all flights on Sept. 11, 2001, the Check 21 Act allowed banks to verify funds with images of checks instead of physical paper.

There was no turning back.

More than a decade later at the time of the Philadelphia Fed report, nearly all bank-to-bank transactions were settled electronically. According to the Atlanta Fed, the number of consumer checks declined by 63% between 2000 and 2015.

Electronic Transfers Are Cheaper and Easier for Banks and Their Customers

At the time of the Philadelphia Fed report, the shift away from physical checks was already saving the banking industry $1.2 billion annually. Faster processing was saving consumers and businesses $2 billion a year.

That was more than a decade ago and the trend continues today.

The 2022 Payments Cost Benchmarking Survey from the Association of Financial Professionals (AFP) showed that the ongoing shift from checks to ACH transfers saves money, lowers fees, reduces fraud and saves time.

When It Comes to Security, Tech Beats Checks

To continue reading, please go to the original article here:

https://news.yahoo.com/7-reasons-nobody-writes-checks-220015363.html

Being Poor vs. Feeling Poor

Being Poor vs. Feeling Poor

By Lawrence Yeo

Growing up, I knew our family didn’t have much money. Our apartment was small, my mom prepared food for a tiny catering company, and my dad was abroad trying to get his small business off the ground. By all financial measures, we were poor.

But here’s the thing: I never felt poor.

Part of the reason was that I never got sucked into the comparison game of material wealth. Many of my friends lived in large homes, but to me, that was a source of joy rather than jealousy. I figured that my friends having large houses just meant that we would have a lot of fun hanging out there. And when it was time to go home, it was simply a return to the warm space that I shared with my family.

The other reason was the neighborhood I lived in. Many of my neighbors also worked in the same catering company as my mom, which meant that there was an aura of familiarity that connected us all. My mom’s friends had kids that were roughly around the same age as I was, so we hung out all the time. We went to play basketball at the nearby park, we would watch movies at each other’s places, and would enjoy Korean BBQ dinners together on various nights.

When I think back on this time, I recall it with fondness. Even though we were under financial stress, my parents and my neighborhood never made it feel like we were. I had everything I needed and wanted. I had all the resources I required to do well at school too, so I never felt underprivileged there either.

This highlights the distinction between being poor and feeling poor. One is a factual claim that could be made using a number and its relationship to the poverty line. The other is something that can’t be quantified in any rational way, and is entirely dependent on one’s state of mind and its connection with others.

One interesting phenomenon that’s been occurring in the United States is that poverty has been decreasing while incomes amongst the wealthiest have been increasing. At first glance, this may seem like a win-win. If more people are escaping poverty and the wealthy are earning more, doesn’t that seem like a non-zero-sum game?

Well, the answer is no, and there are two reasons for this.

The first reason is obvious: the gap between the rich and poor has never been higher, so it doesn’t matter if the poorest are earning more. Wealth is rarely defined in absolute terms; it’s always relative. If you make $10 more each day but the person next to you is earning $100 more, then you will feel poor, irrespective of the fact that you’re making more.

The second reason is not-so-obvious, but plays according to the same dynamics as the first one. It turns out that that wealth disparities among the top 5% of richest Americans has never been higher either. In essence, the gap between the merely rich and the filthy rich has widened to an alarming extent. So if you were making $100,000 more each day but the person next to you is earning $1,000,000 more, then you will feel poor, irrespective of the fact that you’re still making a ton of money.

In this situation, it doesn’t matter that you’re not poor in any absolute sense. No one with a sound mind would say that a person making $100,000 a day is poor. But if you’re making that much and doing so next to someone making 10x that amount, then you will feel poor. In other words, the difference between being and feeling is all about environmental context.

The psychologist Nico Frijda made an interesting distinction between emotions and feelings. He said that emotions were the unconscious processing of events, whereas feelings are the conscious interpretation of them. An example of an emotion might be fear, whereas a feeling may be withdrawal.

This maps pretty well onto the being vs. feeling delineation I was making. To be something is to accept the facts of what is, similar to how an emotion is simply the unconscious processing of an event. If you make a million dollars a year, you’re rich. If you lose your eyesight, you’re blind. And so on.

But to feel something is to overlay the facts with your interpretation of them. This is how a millionaire can feel poor instead of rich, and a blind person can feel empowered instead of depressed. The way you feel about something is the result of your conditioning, your values, and perhaps most importantly, your framing of the situation.

Much of what I write about money is informed by this realization. We often view the problems of money through the lens of data and numbers, but the reality is that they’re driven by the narratives we tell ourselves. “Who is making what? How much do I need to attain that goal? What will money accomplish for me in the first place?”

What seems like a “money” question is actually a “story” question. And like any story, there are obstacles to overcome, characters to meet, and realizations to have. It’s the marriage of these three things that form the foundation of your narrative, and the way they interlink will reveal how you’ll feel about money.

In my case, the obstacle in my story was that my family was poor. The characters in my story were my neighbors and friends, all of whom formed a warm community that fulfilled my emotional needs. The realization was that I already had everything I wanted, despite a bank account balance that might suggest otherwise. All this wove together to form the conclusion that there’s a difference between being poor and feeling poor, and it was ultimately up to me to choose the right frame.

To continue reading, please go to the original article here:

https://moretothat.com/being-poor-vs-feeling-poor/

Two Key Lessons From the Banking Crisis

Two Key Lessons From the Banking Crisis

By Chris Mamula  March 20, 2023

Investing & Taxes, Uncategorized

The failure of Silicon Valley Bank (SVB) and the general health of banks has been all over the news recently. There are many fascinating aspects of this story. One is parsing out the roles different parties and policies played in the bank’s failure. Another is the short and long-term implications as to how this crisis is being dealt with.

While interesting at policy and societal levels, these issues are out of our control and generally irrelevant from a personal planning perspective. However, there is one aspect of this story that every reader of this blog planning for or navigating their retirement should be paying close attention to: risk management.

How did SVB’s poor risk management lead to its failure and set off the ensuing cascade of events? Are you making similar mistakes in your own retirement portfolios and plans, setting yourself up for catastrophic outcomes.

Volatility and Liquidity Risk

Too often, the terms volatility and risk are used interchangeably when discussing investments. This is incorrect. Volatility is only one investment risk.

During your accumulation phase, volatility actually works to your advantage when asset prices drop. Most successful investors develop a systematic way of deploying their money as they get it.

A common example is dollar cost averaging the same amount of money each pay period into retirement accounts. When asset prices drop, the same amount of dollars buy you more shares of the same asset than they did the prior cycle.

As you approach retirement, and especially once you are in it, the opposite is true. Volatility becomes a massive risk. A dramatic drop in asset prices when you need to sell those assets means you will need to sell more to produce the same amount of income.

This brings us to liquidity risk. This is the risk that you will be unable to meet your short-term obligations when you need to do so. An investment may lack liquidity because you can’t access your money or because the value of the asset has dropped in the short term due to volatility.

SVB could not meet customers’ rapid withdrawal demands and became insolvent in a day. In the case of individual retirees, if you have to sell too many assets too quickly, especially early in retirement, you will deplete your portfolio to the point where it can not recover.

This is basic risk management 101. Yet those charged with managing risk for the 16th largest bank in the nation fell victim to it. We should all be humble enough to recognize our own potential risk management blind spots. Let’s learn from this risk management failure.

Duration Mismatch

Why was SVB in a position to be vulnerable to a bank run? SVB was a bank that catered to venture capitalists and start-up companies. When times were good, they had an abundance of deposits.

Part of the reason times were so good for this bank was because interest rates were so low. This spurred record levels of investment in the start-ups and left those companies flush with cash to deposit.

As every bank does, SVB was looking for ways to make money off of these deposits. In a low interest rate environment, the bank bought U.S. government treasuries with intermediate to long durations to try to squeeze a little extra yield out of their investments.

These are extremely safe investments IF you can hold them to maturity. This wasn’t a repeat of the subprime mortgage induced banking crisis. SVB wasn’t using customer deposits to buy Bitcoin or other highly speculative investments out of extreme greed.

Under anything but outlier conditions, SVB would have gotten away with their poor risk management. However, these were not normal circumstances. Interest rates increased rapidly. This led to a considerable loss in the value of bonds with longer durations.

Despite the paper losses, SVB would have still been OK if they could have held onto these assets until they matured and could be redeemed for full face value. However, they were not able to do so.

Depositors caught wind of SVB’s precarious situation. They started withdrawing their money. They then told others who quickly followed suit. This created a bank run.

In a single day SVB customers made $42 billion of withdrawals. SVB couldn’t meet demands and was out of business the next day.

Lesson 1: Limit Volatility Risk and Maintain Liquidity

To continue reading, please go to the original article here:

https://www.caniretireyet.com/retirement-risk-management-bank-lessons/

What Happens to My Mortgage If My Bank Fails?

What Happens to My Mortgage If My Bank Fails?

Nicole Spector   Mon, March 20, 2023

Since the abrupt collapse of Silicon Valley Bank, questions around the safety and integrity of all things banking have been swarming. One of those questions is: “What happens to my mortgage if my bank fails?” There’s good news here. If the bank that holds your mortgage goes under, the status of your loan won’t change because it will be acquired by a new lender, according to reporting from The Wall Street Journal. So there’s no cause for stress. That said, you do need to be diligent and take certain steps to protect your finances in the event that your mortgage lender goes belly up.

Check Your Mortgage for a Section on ‘Sale’ or ‘Assignment’

According to Freedom Law Firm, you’ll want to check your mortgage loan for a section that explains what happens in the case of a “sale” or “assignment.” This document should state that the terms of the mortgage remain in force regardless of bankruptcy of the lender.

Keep Up With Monthly Payments as Usual

If your lending institution goes bankrupt, that doesn’t mean you get a break from your obligation to your mortgage. You must continue payments as normal. Do not miss a month.

Maintain Diligent Records

If your mortgage provider is in trouble, its customer service wing will probably take a beating, making it difficult to get a hold of someone to walk you through the goings on. Make sure you have all your ducks in a row by keeping track of all documents your lender is sending you to keep you in the loop. Keep a paper or digital record of your mortgage payment history just in case an issue arises down the road (e.g., your bank hasn’t been paying off the loan properly on your behalf).

Check That Your Payments Are Clearing

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/happens-mortgage-bank-fails-120514492.html

What Is the State of Women & Money in 2023?

What Is the State of Women & Money in 2023?

Gabrielle Olya GoBankingRates

Women have been making major strides in the worlds of personal finance and careers. A recent LendingTree analysis found that single women now own more homes than single men. And in January, Fortune reported that women CEOs run more than 10% of the Fortune 500 companies for the first time in history. Still, the gender pay gap persists and women continue to be less likely to invest than men — even though data has shown that they tend to be better investors.

To get a complete look at women’s financial standing in 2023, GOBankingRates surveyed over 1,000 American adults who identify as female about their financial obstacles and goals, career priorities and attitudes about money. Here’s a look at what we found.

Women’s Primary Financial Goal Is Covering Basic Expenses

Over the past year, women have shifted their financial priority from saving for the future to getting by right now. In 2022, the majority of women (30%) said their primary financial goal was saving for retirement. Now, the majority (26%) said their primary goal is covering basic expenses, with an additional 20% prioritizing paying off debt.

Nearly half of women (47%) said that a lack of money is the biggest obstacle to reaching their financial goals. Additionally, the majority of women (39%) cite inflation/not being able to afford everyday expenses as their biggest financial stressor. This percentage is slightly higher among women who are parents — 41% cite everyday expenses like groceries as the cost they are most overwhelmed by.

Most Women Are Not Actively Investing

The GOBankingRates survey found that 57% of women are not actively investing. When asked why they are not investing, one-third of women (33%) cited a lack of money.

The most popular investment vehicle among women is work-sponsored retirement plans (16%). Less than 10% utilize a brokerage account, IRA or investing app.

Women Are Dissatisfied With Their Career Opportunities

To continue reading, please go to the original article here:

https://www.gobankingrates.com/money/financial-planning/what-is-state-of-women-money-now/?utm_term=incontent_link_6&utm_campaign=1215480&utm_source=yahoo.com&utm_content=7&utm_medium=rss

The US Government Has Doubled In Size. Are You Better Off?

The US Government Has Doubled In Size. Are You Better Off?

March 21 2023  Simon Black, Founder  Sovereign Research & Advisory

If you’re old enough to remember— think back to the year 1999.

Some of the year’s most popular movies included The Matrix, Fight Club, and Star Wars: The Phantom Menace. The euro made its international debut. Vladimir Putin became Prime Minister of Russia. And over in the US, President Bill Clinton narrowly escaped conviction in the Senate for obstruction and perjury charges related to his sex scandal.

1999 was also one of the last years of an unprecedented economic boom in the United States; the economy was so strong, in fact, that the federal government managed to run a significant budget surplus of around $128 billion (worth roughly $230 billion today).

Total federal spending for FY99 was $1.7 trillion; that’s about $3.1 trillion in 2023 dollars. I bring that up because, recently, the guy who shakes hands with thin air released his latest budget proposal for the next fiscal year.

It calls for nearly SEVEN TRILLION DOLLARS in federal spending.

So, even after adjusting for inflation, the Big Guy’s budget is more than TWICE as big as the federal budget was in 1999.

What exactly are taxpayers receiving in exchange for all that extra spending?

You’d think that if the government is spending twice as much, that taxpayers would be receiving AT LEAST twice as much benefit… or would see twice as much government service.

Are there twice as many federal highways? Is the military twice as strong? Is Social Security twice as solvent?

After SVB, are you worried about that your bank could be the next one to collapse suddenly?

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Quite the contrary, actually. The highways are crumbling, the military has grown weaker, and Social Security is set to run out of money in a few years.

And this trend doesn’t just apply to 1999. If we fast forward to 2013— 10 years ago— we can see, for example, that Defense spending totaled roughly $520 billion. That’s around $650 billion in today’s money.

The Big Guy’s new budget proposal, however, calls for nearly $900 billion in Defense spending. And that doesn’t include all the money they’re shoveling out the door to Ukraine.

That’s an almost 40% difference in Defense spending, after adjusting for inflation. But is US national security 40% better than it was in 2013? Is the military 40% stronger today than it was 10 years ago?

Probably not.

In 2016, Obama’s last year in office, federal spending was $3.2 trillion… which was considered an outrageous sum at the time. Adjusted for inflation, that would be $4.1 trillion today. This means that the Big Guy is proposing to spend nearly 70% more than his former boss.

What’s really incredible is that if the government had merely held spending constant (in real terms, after adjusting for inflation) from 2016, the US would have had a $1 TRILLION SURPLUS last year.

This is nuts. The government was already way too big in 2016. And if they had done nothing else but kept it the same size, the US would already be on the road to fiscal recovery.

Yet somehow they can’t manage to do that. They can’t find anywhere to cut. They only know how to spend more… even though they having nothing positive or tangible to show for it.

All we know for sure is that they’ve created a lot more rules, regulations, and bureaucracy. In fact back in 1999, the entire Code of Federal Regulations consumed about 130,000 pages. Today it’s closing in near 200,000 pages.

That’s an almost 50% increase in the amount of regulations in the Land of the Free since 1999… which is pretty amazing when you think about it—

It’s not like the US was on the verge of anarchy in 1999; America wasn’t some lawless society full of criminals and vigilantes. Life was pretty orderly and civilized.

Now the rules that we all have to follow have increased by nearly 50%. Is society 50% better off? 50% safer? 50% more civilized?

Absolutely not.

It’s ironic that, out of the ~70,000 new pages of regulations since 1999, 849 of those pages came from the Dodd-Frank banking reform that was supposed to prevent another bank crisis. So, many of the regulations are clearly pointless and ineffective.

So is the excessive spending. However high and noble their intentions, these people just keep making things worse.

The good news is that the solutions shouldn’t be difficult.    Again, all they have to do is go back to 2016-levels of government spending and there would be a big surplus. That’s hardly a radical proposal. But don’t hold your breath for them to figure it out.

To your freedom,  Simon Black, Founder  Sovereign Research & Advisory

https://www.sovereignman.com/trends/the-us-government-has-doubled-in-size-are-you-better-off-146473/

5 Things You Should Discuss During Your First Meeting With a Financial Advisor

5 Things You Should Discuss During Your First Meeting With a Financial Advisor

Gabrielle Olya   Mon, March 20, 2023

A financial advisor can be an excellent resource to help you make a plan for your money both now and in the future. But if you’re new to this world, you might not know how to make the most of your time during an initial meeting. In today’s “Financially Savvy Female” column, we’re chatting with Jane Voorhees, CFP, director of financial planning at ALINE Wealth, about how to prepare for a first meeting with a financial advisor and what topics you should be discussing.

What To Do Before Your Meeting

Before an initial meeting with a financial advisor, do some research into who they are and how they work.

“Go to the advisor’s website and read through it,” Voorhees said.

She recommends looking for the answers to the following questions:

What are the advisor’s credentials (education, professional designations and licenses)?

What is the overall wealth management philosophy that is coming through or being portrayed?

Does the advisor have a team and if so, what role does each team member play?

Does the advisor work as a registered investment advisor (RIA) or do they work under the umbrella of a brokerage firm?

“Understand that RIAs operate under a higher fiduciary standard than broker-dealer firms,” Voorhees said.

What To Bring to an Initial Meeting

Once you’ve done some basic research to ensure you feel confident about the advisor you are meeting with, it’s time to set up the meeting. To make the most of this first meeting, come prepared with the proper financial documents.

“Bring investment and bank account statements, insurance policies, statements/details on debts you owe, your most recent tax return and a budget (if you have one),” Voorhees said.

What To Discuss During Your First Meeting With an Advisor

To continue reading, please go to the original article here:

https://news.yahoo.com/5-things-discuss-during-first-130017129.html

Get Ready for the Distressed Equity Bonanza

Get Ready for the Distressed Equity Bonanza

March 20, 2023  Simon Black, Founder  Sovereign Research & Advisory

This isn’t over yet.  Last week after Silicon Valley Bank went poof in a matter of hours, I wrote that this financial catastrophe is just getting started:

“Like Lehman Brothers in 2008, SVB is just the tip of the iceberg. . .”

Within days, several other banks were on the verge of collapse. And now today, of course, major banks in the United States (including JP Morgan) are rallying to save the troubled First Republic Bank. 

The amazing thing about this rescue plan is that JP Morgan, Bank of America, etc. have pledged to deposit $30 billion of their customers’ funds at First Republic.

In other words, the big Wall Street banks have promised to transfer their customers’ money to another bank that everyone acknowledges is insolvent.

This is not only extremely unethical, it’s a major violation of the big banks’ fiduciary obligations to safeguard their customers’ savings.

It also strikes me as borderline illegal; JP Morgan can do what it likes with its own money. But it shouldn’t bail out a failed bank using its customers’ money.

This bank panic has also spread beyond the US.

Over the weekend in Switzerland, banking giant Credit Suisse had to be taken over. And I can only imagine the calamity that will ensue if depositors start to scrutinize the weak, under-capitalized banks in Italy.

(Perhaps that’s why Italy’s Economy Minister, Giancarlo Giorgetti, said last week that he hopes European authorities will intervene if there are more bank runs.)

Anyhow, let’s pretend for a moment that the bank runs are over for now. There are still a lot of risks lurking in the financial system, and it’s easy to understand why.

Last week I explained that Silicon Valley Bank had been insolvent for months. And they didn’t keep it a secret. SVB provided the Federal Reserve and FDIC with regular financial reports on their solvency and capital.

And they published their annual financial report back in mid-January, announcing their insolvency to the world.

For two months, nobody seemed to care about SVB’s massive unrealized losses. Then, practically overnight, a worldwide banking crisis began.

This sudden, dramatic change in market behavior is the critical issue here; in the field of ‘chaos’ mathematics this is known as bifurcation-- the point at which a small change causes an entire system to shift from stable to unstable.

That’s what happened with SVB; the global financial system was perfectly stable until about 10 days ago, when SVB made a minor announcement that they had sold some bonds at a loss.

Then suddenly everything fell into chaos. It was a minor change that led to major instability.

But bifurcation isn’t limited to commercial banks-- there are plenty of other potential bifurcation events lurking out there.

Think about it-- if investors and market participants can suddenly shift from CONFIDENT to PANICKED about commercial banks, why can’t they react the same way about sovereign governments, central banks, or even businesses?

With hundreds of billions of dollars in its own unrealized losses, even the Federal Reserve is insolvent.

(I’ve written numerous times about this, stating that the Fed “will eventually engineer its own insolvency.” Well, mission accomplished.)

At the moment, however, the market doesn’t seem to care that the Fed is insolvent… just like no one cared about Silicon Valley Bank’s insolvency back in January.

But who can guarantee that investors won’t suddenly care about the Federal Reserve’s horrific balance sheet? Just imagine the consequences that would trigger.

The same goes for US government finances. After all, the Treasury Department’s own annual report shows a NET financial position of MINUS $34 trillion. Sure, today, nobody really cares. Can we be so sure they won’t care next month? Or next year?

The larger point is that these potential bifurcation events are everywhere, and the system can shift from stable to unstable very quickly.

There are also key issues beyond these bifurcation points.

One obvious consequence of the SVB fallout is that banks are going to have to slash their loan and bond portfolios… starting now. This is normal practice when banks are in trouble.

Remember that, according to the FDIC, banks across the US have already suffered more than $600 billion in unrealized losses on their bond portfolios. And now that this has turned into a mini-crisis, banks will likely respond by slashing their lending and investing activities in order to conserve cash.

That’s bad news for most companies; even healthy, successful businesses often rely on loans, credit lines, and bond issues to fund their operations or major investments.

Businesses are already having to deal with the negative impact of significantly higher rates. But if banks suddenly reduce lending, that’s going to leave countless businesses in a really tough spot.

That means canceled projects, job cuts, and possibly financial distress, forcing many businesses to raise capital by issuing new shares at fire sale prices.

Objectively speaking these distressed equity opportunities can be incredibly lucrative for investors who are willing to pounce-- the chance to load up on high quality assets at deeply discounted prices.

But this distressed equity bonanza might not last.

I’ve argued before that the Federal Reserve will soon find itself between a rock and a hard place, i.e. they’ll have to choose between inflation versus financial catastrophe. And we’ve just witnessed the opening measures to financial catastrophe.

It will probably take them time to figure out; after all, it took the Fed more than a year before they finally realized inflation was a problem. And it’s probably going to take them time to realize that their rapid interest rate hikes are creating financial catastrophes.

But once they figure it out, the Fed is likely going to start cutting interest rates again (and allowing higher rates of inflation) in order to prevent full blown economic catastrophe. And that will put an end to the distressed equity bonanza.

So keep an eye out for this one, because it might not last long.

To your freedom, Simon Black, Founder  Sovereign Research & Advisory

https://www.sovereignman.com/trends/get-ready-for-the-distressed-equity-bonanza-146467/

6 Reasons To Spread Your Money Around Multiple Banks

 6 Reasons To Spread Your Money Around Multiple Banks

Andrew Lisa    Mon, March 20, 2023

Although you should always look for ways to declutter your financial life, it sometimes makes sense to have accounts scattered across more than one bank.

The following is a look at situations where you’d be wise to divide your money among two or more financial institutions simultaneously. If any of these scenarios apply to you, consider spreading your money around, even if it means keeping track of another routing number.

Banks Incentivize Bundled Services

Like insurance companies, banks offer better rates, deals and discounts for customers who partake in more than one of their offerings. In many cases, all you need is a free checking account to access the incentive that interests you.

“There are times when a bank may offer a special deal on a home equity line of credit for existing customers,” said 20-year lending industry veteran Eric Jeanette, president of Non-Prime Lenders. “In just that one example, you may miss out on an opportunity if you did not have an account with that bank.”

There are many other scenarios — including the pursuit of cheaper loans, higher savings yields or better CD rates — that could spur you to open a new account that you don’t really need.

“Some banks also have different fees for services like wire transfers or safe deposit boxes,” Jeanette said. “If you have a relationship with more than one bank, you have an opportunity to choose.”

Different Banks Excel at Different Things

Keeping all your accounts with one institution is convenient, but that’s not always what’s best for your money. For example, you might want a checking account that gives you early access to direct deposits and free peer-to-peer (P2P) transfers to friends at different banks. But the bank with the best savings rates might not offer those features to its checking customers.

In that scenario, the only way to get all of what you want is to join two banks, and that’s fine — decide where to stash your cash based on the merits of the account, not the institution that hosts it.

“One bank may provide higher interest rates on savings accounts, while another may offer superior credit card rewards programs,” said Andy Flynn, vice president of finance and treasury with a medical device company called SpryLyfe. “By maintaining accounts at many banks, you can maximize your financial status by taking advantage of various incentives.”

You Might Want To Establish a Hometown Branch If You Move

To continue reading, please go to the original article here:

https://news.yahoo.com/why-accounts-multiple-banks-130203107.html