The US government may ‘restrict your right’ to pull money out of banks as panic escalates — here’s what he likes for protection. Plus 2 other shockproof assets
From Silicon Valley Bank’s collapse to the demise of First Republic, the U.S. banking crisis may not yet be over.
Hedge fund manager and macroeconomic expert Hugh Hendry recently voiced concerns that the government could step in to prevent American bank withdrawals in an interview with Bloomberg Markets.
“I would recommend you panic,” says Hendry, pointing to what he calls “the biggest waterfall decline” in the M2 money supply — which consists of cash, checking deposits and other types of deposits that can be easily converted into cash, such as a certificate of deposit.
“That could reach a crescendo where the Treasury and the Fed may have to come in and actually restrict your right as a U.S. citizen to pull money out of the U.S. banking sector.”
Here’s why he’s concerned — and what he recommends you put your money in.
Why the government might step in
Hendry believes the panic and “capital flight from the banking sector” is in fact warranted and fears the Fed and Treasury officials may consider a “gate” or “lock” on banking deposits.
To be sure, the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per insured bank, per ownership category. But Hendry believes it doesn’t solve the problem of deposit flight because people are “seeking yield” with their cash.
Hendry says, “I can actually conceive of a Federal or Treasury rule coming in, saying, ‘For the next 180 days, you can’t pull your money out of the banking sector.’”
Hendry compares this to the Gold Reserve Act of 1934, which banned private ownership of monetary gold to raise its price, control the dollar’s value and put more money into circulation.
Hendry says it’s time to turn to “the most reviled security in the universe”: the ultra-long Treasuries. He explains that ultra-longs, T-bonds with longer maturities — around 20 to 30 years or longer — are trading two to three standard deviations below bond ETFs, which invest in various fixed-income securities, including T-bonds.
Treasuries are also considered more reliable and safe, since the government backs them and comes with a fixed interest rate for the life of the bond.
Hendry adds that Bitcoin could be a potential winner as well, predicting it could trade three or four times higher in the next five years. “There is no other asset class that I could make that determination.”
Here are 2 other shockproof assets
1. Real estate
Real estate has long been an excellent hedge against inflation — and it could be a safe bet when other financial assets face turmoil.
While you could become a landlord and rent out a spare room for some passive income, there are other ways to invest in real estate that don’t come with the hassles of hosting.
For example, real estate investment trusts (REITs) own various properties such as apartment buildings, shopping centers and cell towers, and many are publicly traded on the stock exchange
You could also look into crowdfunding platforms, which allow investors to own a percentage of physical real estate, instead of, say, purchasing a second home — which typically comes with a hefty down payment and a mortgage.
People have hoarded this precious metal for thousands of years — and now there are several ways for you to bank on gold while cash could veer out of reach.
The first tried-and-true method is to just buy sold gold, of course, whether that’s in jewelry, bars or coins. Just keep in mind that prices can be notoriously difficult to predict and if you’re keeping your gold with a special custodian or broker, you’ll also need to pay extra fees.
Your next option is to buy gold mining stocks or invest in gold ETFs through an investing app or broker.
Or consider gold futures, contracts in which you agree to buy a set amount of gold at a specific price sometime in the future. However, futures typically require a minimum purchase of 100 ounces of gold — which greatly increases your level of risk, since you’re borrowing a large amount.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.