You won’t have been able to escape the news of the week long bank holiday or rather bank shut down in Greece this week.
Read on for some of the lessons to be learned from this.
Not just how to read the hints (of which there were many) that were given in advance of this happening, but also what options we have ourselves to protect us from anything similar happening (however remote it may seem).
[Note: New Zealand does have similar rules in place already for shutting down troubled banks, freezing deposits and even giving depositors a “haircut”. Here’s some more on this topic:
By Nick Giambruno
For the unprepared, it happens like a mugging…
When you hear a central banker or politician deny that something is going to happen to bank depositors, you can almost be certain that it will happen. And probably soon.
Coming from a government official, the real meaning of “No, of course not” is “Could be tomorrow.”
There’s a reason for the dishonesty. The government needs to take the public by surprise. Otherwise they won’t get the results they want from capital controls or a bank holiday.
The term bank holiday is a politician’s euphemism. When one happens, you won’t be celebrating. You won’t be able to access your bank account, and you’ll be worried.
How will you get by, and how long will the lockout last? And when it ends, will all your money still be there? Will any of it remain?
Calling the experience a bank holiday is like calling a street mugging a surprise party.
Once the banks are closed – or on “holiday,” as the government puts it – the politicians are free to help themselves to as much of the customer deposits (including yours) as they want. It’s like an all-you-can-steal buffet.
A bank holiday usually dovetails with capital controls, which are restrictions on the free flow of money out of the country. Capital controls make it hard for the country’s remaining wealth to dodge a future mugging.
Bank holidays and capital controls are all about the government maximizing the amount of money available for them to confiscate during a crisis. Pen up the sheep, and they’re easier to shear.
It’s a common pattern… 1) country in financial trouble, 2) government denials, 3) surprise bank holiday, 4) wealth confiscation, and 5) capital controls.
It’s a pattern we’ve seen repeated in many countries in economic crisis.
We saw it in Cyprus during their banking crisis of 2013. The trap slammed shut without warning on an otherwise ordinary Saturday morning. The government declared a surprise bank holiday. Capital controls and a bank deposit confiscation followed. It occurred despite repeated promises from the highest Cypriot politicians that bank deposits would be safe.
And now we are seeing the same pattern in Greece.
For the past month, Greece’s government has been denying that it intends to impose capital controls. Yesterday, Sunday morning, the Greek Finance Ministry repeated the denial yet again. Then on the same day – a few hours later – the Greek government declared a weeklong bank holiday. And they would impose capital controls after all.
But don’t worry. The Greek Prime Minister promised that bank deposits would be “completely safe.”
Rather than being “completely safe,” they are far more likely to be harvested by the Greek government, which is free to do as so many troubled governments have done… take the money and run.
Given Greece’s years of chronic financial weakness, none of this should come as a surprise.
There was ample time for any Greek citizen to protect himself from what the government is now doing. But now, with the bank holiday in place, it’s too late.
Moving money into something that Greek politicians can’t steal with a couple taps on a keyboard – like a Greek bank account – would have bought a large measure of protection.
A bank account in another EU country like Austria, a piece of real estate in South America, some physical gold in Singapore or a brokerage account in Hong Kong would have been just what the doctor ordered.
Most people understand that it’s foolish to keep all their eggs in one basket. Yet they fail to go far enough in applying the principle. Diversification isn’t just about investing in multiple stocks or in multiple asset classes. Real diversification – the kind that keeps you safe – means holding assets in multiple countries, so that you’re not overexposed to the economic and political risks that are present in every country.
The problem is, despite having options available to them, many Greeks had a “this can’t happen here” mentality. So they did nothing to prepare. The reality is, what happened in Greece can happen in any country, as it has happened throughout history.
But could it really happen in the US? According to Judge Andrew Napolitano, the troubling answer is YES. The judge is a legal expert. He knows all about bank holidays, capital controls, and other shenanigans politicians pull. The judge has said, “People who have more than $100,000 in the bank are targets for any government that’s looking for money to shore up its own inability to manage its finances.”
The whole ordeal in Greece is yet another example of why international diversification is so important. It’s a prudent strategy because it frees you from absolute dependence on any one country. Achieve that independence, and events or policies where you live can never dominate your life.
Wealthy families have been doing it for centuries. Today, with modern communications, international diversification is within everyone’s reach.
International Man’s mission is to help you protect your personal freedom and make the most of financial opportunity around the world. Global diversification is at the heart of it. Discovering the best investment opportunities around the world is another. And, ironically, the best opportunities often show up after a government has done its worst to a country. For example, in places like… Greece.
Investor sentiment in Greece is nearing the point of maximum pessimism… the point at which almost nobody wants to buy. Prices of Greek stocks have already crashed headfirst into the pavement, so we may be getting close to the best time to buy. As Baron Rothschild advised: Buy when the blood is in the streets.
That’s what crisis investing is all about, and it’s enormously profitable.
Seeking out home runs in crisis markets is exactly what Doug Casey and I do in each monthly issue of Crisis Speculator.
Back in 2013 there was another crisis in a Mediterranean country… Cyprus.
Doug and I put our boots to the ground in Cyprus to search the rubble for investment bargains that would be too good to resist. And we found them.
Despite all the ugly headlines, sound, productive, and well-run Cypriot businesses continued to produce earnings and pay dividends. Anyone with a little money and a cool head could have bought their stocks on the ultra-cheap.
One of the Cyprus companies we recommended has more than tripled as of this writing. Another has more than doubled. Two others have come close to a double. Our readers have loved the experience.
We expect that even bigger bargains are emerging nearby, in Greece.
The financial crisis in Greece is not going to destroy the solid companies operating there. But it is going to make their stocks extremely cheap. And that could mean huge profits for you.
For full coverage of this rich profit opportunity, be sure to check out Crisis Speculator by clicking here.