The Virus, Banking, Investing and Some good news.

I want to share some insights and information about the virus and points about the U.S. economy and financial system.

And also share some good news.

The economic data comes first. It is communicated from the viewpoint that the more knowledge a person has, the more responsibility and control he can exercise over a situation

INTEREST RATES / MORTGAGE RATES

Mortgage rates are a function of the Federal Reserve’s benchmark interest rate – the Federal funds rate.

A few days ago, the Fed cut that rate down to 0%-.25%.

A few weeks ago, with mortgage rates way down in the mid 3s, I suggested people check with their broker or bank and see about the possibility of refinancing at a lower rate.

Then when the Fed cut their rate further I assumed mortgage rates would fall even further and was about to issue a bulletin encouraging people to look closely at a refi.

But rates did not fall. Indeed, mortgage rates spiked. When trying to get to the bottom of this apparent contrary fact, I found that the rates went up because bankers assumed given a sharp decline in economic activity, there would be a dramatic increase in the unemployment rate and that would be followed by some people not paying their mortgages resulting in foreclosures.

Thus, the banks raised their mortgage rates rather than lowered them even though the banks themselves will have access to essentially interest-free money.

GOLD AND SILVER

Another anomaly has been that despite the crash in the stock market, the current chaotic financial scene would normally have driven up the price of gold and silver. But in fact, that didn’t happen. The price of precious metals dropped along with stocks.

When searching for an answer to this anomaly, I found that money – from here and abroad – was pouring into U.S. dollars. The dollar has long been the strongest currency on the planet but this current financial chaos has driven even more investors to dollars rather than precious metals as a safe haven.

Regardless of the current lowered metal prices, it is my considered opinion that precious metals will bounce back and bounce back heavily.

Personally, I don’t think there is a better time to buy silver than now.
In fact, as I write this on a little after midnight on Friday the 20th of March, the precious metals markets are soaring back in front of my eyes. Gold is up, $37 an ounce and silver is up, $0.71 an ounce. It would appear that investors have realized that the precious metals are indeed a safe haven in times of economic uncertainty.

BANKING

It is an unfortunate fact that with the country essentially shutting down economically, there will be many that will lose their jobs and not be able to pay a loan. For banks that are illiquid (not a lot of reserves to cover losses and withdrawals), this will result in insolvency.

If you have less than $250,000 in your account at a bank you are covered by FDIC insurance.

That said, bear in mind that it takes time for the FDIC to verify account balances and get depositors their money. Typically some days.

Additionally, if there are massive bank closures (not an impossibility given the current circumstances), the FDIC does not have near enough money to cover all the insured deposits. The FDIC has $25 billion in its deposit insurance fund and they have a $100 billion dollar line of credit with the Treasury. So $125 billion to cover depositors. But total deposits are $11.9 trillion (that’s a T, not a B). The FDIC covers about 60% of those deposits or $7.1 trillion,

If this scenario happens they will turn to the government for a bailout which I would think the and administration would the administration and the Federal Reserve would accommodate.

What I’m saying here is that unless you have more than $250,000 in an account, you are likely to be paid eventually.

There is one more possible scenario, your bank is insolvent and invokes “Bail in” policy.

Those of you that follow my writing know that I’ve spoken about “Bail ins” frequently over the last couple of years. This is a policy whereby “troubled banks” have the right to take some of their depositors’ money and convert that money to bank stock.

“During the next banking crisis, any ‘money’ that you and I have in the bank may be ‘bailed-in’ after a financial collapse. If you think that your money is protected with your bank account’s FDIC backing, think again.
During the recent G20 meeting (mid-November), the member nations decided that your bank deposits will become the property of the bank if a crisis takes it down.
This means that the bank will be able to pay off their creditors first (if there’s any left to pay) and the money will no longer be yours. The new rules essentially change the status of you as a depositor (of your money) to that of an investor in the bank. And as with any investor in the stock market (for example), you will be subject to losing your money.

The rules have completely changed…”

I don’t like having to communicate this kind of information but it’s important that you know that banks can implement such policies. You want to be sure that you’ve got a strong bank.

(If you want an analysis done of your bank’s strength send me an email to bruce@brucewiseman.net. [I have been a senior credit officer at two banks]. Give me the name of your bank. I do have to charge for this service because it takes time to pour through a bank’s financial statement and determine its strengths and weaknesses. There are various elements of a bank financial statement that are unique to that industry.)

Now here’s some good news sent to me by long-time business contact and friend, Willard Michlin (kisemetrei@earthlink.net).

Give it a read, it will lift your spirits:

• China has closed down its last coronavirus hospital. Not enough new cases to support them.
• Doctors in India have been successful in treating Coronavirus. Combination of drugs used: Lopinavir, Retonovir, Oseltamivir along with Chlorphenamine. They are going to suggest some medicine, globally.
• Researchers of the Erasmus Medical Center claim to have found an antibody against coronavirus.
• A 103-year-old Chinese grandmother has made a full recovery from COVID-19 after being treated for 6 days in Wuhan, China.
• Apple reopens all 42 china stores
• Cleveland Clinic developed a COVID-19 test that gives results in hours, not days.
• Good news from South Korea, where the number of new cases is declining.
• Italy is hit hard, experts say, only because they have the oldest population in Europe.
• Scientists in Israel likely to announce the development of a coronavirus vaccine.
• 3 Maryland coronavirus patients fully recovered; able to return to everyday life.
• A network of Canadian scientists is making excellent progress in Covid-19 research.
• A San Diego biotech company is developing a Covid-19 vaccine in collaboration with Duke University and National University of Singapore.
• Tulsa County’s first positive COVID-19 case has recovered. This individual has had two negative tests, which is the indicator of recovery.
• 

-All patients who were getting treated for at Safdarjung hospital in New Delhi have recovered.
• Plasma from newly recovered patients from Covid -19 can treat others infected by Covid-19.

All for now.

Keep your powder dry.

Best,
Bruce