McCoach: Bank Failure? Buy This Miner

By Travis Johnson, Stock Gumshoe, February 10, 2008

This is a teaser that has been around before, but the whole lead and urgent emotional appeal have changed quite a bit — so I thought it worthy of some comment.

This is for Greg McCoach’s Insider Alert … and they want you to be very afraid (“afraid” is particularly good for precious metals investors).

The headline is frightening, indeed: “FDIC Gearing Up For a Large Bank Failure. Here’s What to Do.”

“What to do” is, of course, subscribe to McCoach’s new uber-exclusive Insider Alert service that will run you two thousand clams for the first year. And when you do, he’ll tell you his seven best picks that are too risky and exciting for his main Mining Speculator readers.

He throws out the thrilling “exclusivity” language that we love so much, too: “The Greg McCoach Insider Alert isn’t like any other investment advisory I offer. In fact, giving away information this sensitive is still unheard of in my industry.”

Ooooooo, what a maverick!

The only sad thing about this teaser letter — aside from the fearmongering — is the fact that he only teases us about one of his stocks. It’s a silver miner (or will be someday, they hope), owner of the legacy of the Hunt Brothers who tried to corner the silver market back in the last century. I already wrote this one up, back in December when I first saw it, and if this is an investment that you have a particular fondness for you’re in luck — the shares are way down since this teaser campaign began.

Anyway, if you want to know about the silver miner, go here and read up on the Rupert’s Paradise mine — you might have missed it if you haven’t been with the Gumshoe long, or if you were too busy with your Christmas shoppping in mid-December. McCoach is still saying that this one “could easily launch from $0.92 a share to $92.21.”

Of course, it was a while back, while colored leaves were still on the trees, that it was at .92 a share — currently, you can pick it up for more like .65 if you’re so inclined. And back then, of course, McCoach was just selling it as a great idea for a bull run in silver, not particularly as a defensive play against cataclysmic bank failures.

But for those of you who already know this one (you still here?), I just wanted to blather on a bit more about the FDIC business. Wait, come back!

Now, to be fair, that “gearing up for a large bank failure” bit came from a Marketwatch article, McCoach didn’t invent it out of whole cloth. The way I read the situation it’s more that they’re preparing for modern-era (read, “bigger banks, electronic transactions”) bank failure. But I’m not a banking analyst, that’s just my perspective and opinion.

McCoach, who undoubtedly has more experience in investing than I do, disagrees. And he wants you to be very worried: “One bank failure could cause a domino effect across the entire economy that would result in a cataclysmic vortex of wealth destruction.”

“Cataclysmic vortex” — now that’s a nicely turned phrase.

Not to panic you, but we have had one bank failure so far this year, on January 28 — yeeks!

Sorry, just having a little fun — we get a few bank failures most years, I can’t imagine that the Douglass National Bank’s failure is a particularly relevant harbinger of the apocalypse.

The letter also notes that, “The last time the FDIC made an update of this nature was nearly 10 years ago, in 1999.”

True — but, keep in mind that “update of this nature” means a revision to the procedures for planning for and handling bank failures, mostly rules about how banks should keep records. Updating regulations once every ten years isn’t that crazy a schedule in the federal government, to my knowledge.

It doesn’t mean that it’s the first time in 10 years that the FDIC has updated us on banks that are troubled — they do that once a quarter, every quarter.

And there’s a quote from the Marketwatch article, too, which also helps to skew the facts a little bit. McCoach’s ad pulls this quote: “‘FDIC data indicate… 65 institutions with assets of $18.5 billion on its list of ‘problem’ institutions.'”

The actual quote? “The number of institutions on the FDIC’s “Problem List” increased for the fourth quarter in a row, from 61 to 65, but the assets of ‘problem’ institutions declined during the quarter, from $23.8 billion to $18.5 billion.”

That’s right — a few more banks on the list, but the assets at problem institutions actually went down at the last report. That’s not to say that they haven’t gone back up again since then, we won’t know until they release the next report, which should be sometime in the middle of February for the December quarter.

If you want to read the proposed new rule, you can certainly do so — here’s a link to the pdf file from the Federal Register. Heck, you can even comment if you want (this is one part of democracy where comments usually even get read … ignored in the end, maybe, but at least read. The few comments already submitted are here, they’re not exactly red hot).

Here’s the actual Marketwatch article that is cited. It basically reports the FDIC data, which is from the September quarter, and says that there is some concern about troubles with big banks. The article quotes a few people who certainly know more than I do, so you can just read that if you want the background.

Clearly, everyone should be careful about bank deposits that are over $100,000, especially in riskier banks or banks on those “problem” lists, but $18.5 billion just isn’t that much money. By comparison, Bank of America, the market leader, had something like $700 billion in deposits as of last fall … and even Countrywide Financial’s bank (just the retail bank, nothing to do with the mortgage portfolio) had $55 billion according to an announcement made around the time of the acquisition. So of course there may be problems, but pay attention to the scale in terms of impact on the economy. Countrywide depositors panicked for a little while, but the bank certainly didn’t fail — are there that many banks of any size that are in worse shape than CFC was?

There probably will be some bank failures (there are a few most years — there have been about 20 in the last seven years, with about half of those during the economic slump of 2001-2002). But unless you’re investing in relatively small banks, or are depositing more than $100,000 in your local bank, it’s probably not going to be something that will change your investment philosophy in a big way. As far as I know, there has been no credible suggestion that there will be a real bank failure at one of the mega banks — and generally, the steepening yield curve and the constant fed rate cuts should be very good for banks and help them become more profitable (on average, of course).

And the jury’s probably out on whether bank failures mean anything for gold and silver prices. The price of gold, for example, did go up a bit in that 2000-2003 period following the tech bubble when we had a somewhat-above-the-recent-average number of bank failures, but it certainly didn’t move nearly as dramatically as it has in the past couple of years. Personally, I would imagine that there is no causality here — bank failures and gold prices might go up at the same time because the economy stinks for a while, but one doesn’t necessarily cause the other, nor is one necessarily a particularly good indicator of the likelihood of the other.

That’s not to say that commodities won’t continue their bull run — they might, and I certainly have some commodity exposure in my portfolio. But I don’t think the FDIC’s warning (which is announced every quarter) is flashing a green light for silver to suddenly double. Maybe McCoach really thinks so, maybe this is just a clever advertising ploy …

… OK, enough of my blathering. What do you think?

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19 Comments on "McCoach: Bank Failure? Buy This Miner"

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G IMBURG
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G IMBURG
February 10, 2008 8:37 pm

In sum,I agree with your analysis,but the recent downgrade of the bond insurers may forecast more bad news for the U.S. economy. The real lurking problem may be in the closet because few of us can see with any clarity, the entire magnitude. We hear words like transparency,but the magnitude of the problem is uncertain until the subprime resets and total foreclosure rate runs its course. I dont think the eternal optimists or the doom and gloom purveyors know any more than they imply due to the transparency problem. Who said hope springs eternal?(Byron?)

Dividends4Life
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February 10, 2008 9:18 pm

> There probably will be some bank failures
> But unless you’re investing in relatively
> small banks, or are depositing more than $100,000
> in your local bank, it’s probably not going to be
> something that will change your investment
> philosophy in a big way.

You are spot on here. I have been through several, with NetBank last year being the latest. It was barely a blip on the radar. In the case of NetBank ING purchased the assets and they merged my NetBank account into my existing ING account.

Best Wishes,
D4L

Wayne
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Wayne
February 11, 2008 10:00 am

Does the $100,000 limit on FDIC-insured funds apply to an individual – or can an individual have more than one $100,000 account and be insured for each?

Gravity Switch
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February 11, 2008 10:15 am

Hi Wayne — you should ask your bank for the specifics, but my understanding is that the limit is per depositor per insititution — the FDIC explains it at http://www.fdic.gov/deposit/deposits/insured/index.html

The way I read it, that means a depositor can have as many $100,000 accounts as he likes, as long as they’re at different banks. But I’m not a financial advisor and you shouldn’t consider my assessment to be personal advice.

Wayne
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Wayne
February 11, 2008 10:20 am

Thank you, Gumshoe. I’ll start with the fdic link you provided…
Wayne

Gravity Switch
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11
February 11, 2008 10:21 am
And G Imburg, I don’t mean to imply that the economy isn’t going to hell in a handbasket — it might be. But that doesn’t necessarily mean lots of big banks are going to fail — and if they do fail, that doesn’t necessarily mean that a risky miner trying to open a mine that has been closed for years and years will be the “safe” bet if that happens. These are all judgement calls — my main point is that we should look at all the facts before we invest. Copywriters spin a web that seems to make perfect… Read more »
streek53
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0
February 11, 2008 10:25 am

Hope springs eternal is Alexander Pope’s. He has a whole slew of famous quotes, eg, “A little learning is a dangerous thing,” generally interpretted as a know-nothing attitude, but actually a “warning” against the addictive power of learning. Check him out in any good quote book: he will have a long section.

Tom
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February 11, 2008 11:40 am
When the derivitives bomb finally implodes, bank failures will be too numerous to insure. Investing in risky miner stocks is not a sane ploy to survive and prosper. If you believe, as I do, that fiat money is about to self destruct, then you should own precious metals and either take delivery or fully trust the storage company. Perth mint comes to mind. When the hundreds of trillions in derivatives implodes and banks fail enmass, it is a very good plan to have intrinsic value objects and materials in a safe and private place. Not an FDIC insured bank. Can’t… Read more »
Brian
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Brian
February 11, 2008 12:00 pm

Derivatives implodion…? What is this risky banking package? Don’t banks have smart bean counters that spell out the risks (whatever they are) to the rewards? An even smarter person(‘s) to judge (Bankers or Bank Boards Members)and decide how much exposure to derivatives to take on? Just a bit skeptical of Tom’s sumation.

G IMBURG
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G IMBURG
February 11, 2008 1:41 pm

I dont recall predicting anything. I simply look at risk variables and my read is its not totally predictable because the magnitude is not visible. As far as ignorance versus learning, wallowing in ignorance is a choice we all have.

Gravity Switch
Admin
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February 11, 2008 3:15 pm

Sorry Imburg, didn’t mean to imply that you had made a prediction. I got the impression that you’re concerned about the economy given the current situation and I share that concern — my point was just that I think there’s not a simple stock market or banking reaction that can be predicted based on the current economic unease and risks.

Thanks for your reliably thoughtful comments.

ALAN
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ALAN
February 11, 2008 3:43 pm

Say, you never did say what was the identity of the silver mine stock!!!!!

Gravity Switch
Admin
11
February 11, 2008 4:28 pm

Sorry, it was in the other writeup I did about this company — http://www.stockgumshoe.com/2007/12/mccoachs-best-idea-ruperts-paradise.html

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Admin
11
February 11, 2008 4:28 pm

And if you don’t feel like clicking, it’s Canadian Zinc.

G IMBURG
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G IMBURG
February 11, 2008 7:44 pm
Most of my comments come from trading forex and commodities,and these experiences have developed my trading viewpoints.I guess its the teacher in me that tries to stimulate risk management which we all should gauge before we enter the markets. I am not trying to come off as a guru,but open a few eyes to the risk factors which weigh heavy on my personal trading habits. I have been in the markets for ten years with both wins and losses, and guaging risk is the most important factor. I always give my reasons for my thinking which is designed to stimulate… Read more »
Gravity Switch
Admin
11
February 11, 2008 8:47 pm

Amen to that, G.

Brian
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Brian
February 13, 2008 10:10 am

I guess Derivative Investments are not a topic that FDIC insurers want to make widely known. Weiss’s newsletter goes into it briefly by stating the amount of derivative investing by banks has gone up exponitially since there inception. And then goes on about the doom and gloom of this. Any balanced reasoning to this out there?

G IMBURG
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G IMBURG
February 15, 2008 8:53 pm
A note for Brian. Derivatives is just a fancy name for options for the most part. Most markets have available options. An option gives the holder the right, but not the obligation, to exercise the right to call the underlying security away from the seller of the security. The security may be a bond, stock, or commodity. IN other words,the seller of the option is required to give the underlying instrument to the option holder, if excercised. The alternatives are to sell the option in the traded market before the expiration date. This is the last day for delivery,and absent… Read more »
Doug
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Doug
July 26, 2008 12:02 pm

Greg McCoach has just put ALL his buys on hold.
Junior miners will be the last place to be….
He recommends CEF Central Fund of Canada for exposure to Gold and Silver.
Be carefull of his newsletter Most of his stocks have b0mbed badly.
In the event of a meltdown Gold and Silver will be hit aswell before emerging from the dust THEN miners will come good after soaring PM prices…My opinion only.

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