By MoneyMorning.com.au
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In the 10 weeks after Lehman’s demise more than $5.5 billion of cash was withdrawn… and stuffed under mattresses.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.