Financial Crash

Article I sent on Sept 27th

Dear Friends,
With the incredible movements in the financial markets over the past 2 weeks, and with your financial safety in mind, I feel that it is important that I share with you our views on the banks and on fiduciary deposits.

We are extremely concerned with the current risk our clients are taking when they have deposits with global banks. There exists a substantial risk that new bankruptcies take place. As you have seen, in the past 2 weeks we have witnessed the disappearance of Fannie Mae, Freddie Mac, AIG, Merrill Lynch, Lehman and last night Washington Mutual. This will not stop there and European banks are not immune. We have stopped placing fiduciary deposits with UBS for the past 6 months, Dexia for the past week and now Fortis since Thursday night. We feel that these institutions may be unable to raise sufficient liquidity to continue to run their operations and could go bankrupt. The Credit Default Swaps on these banks are extremely high, indicating that the chances that UBS, Dexia or Fortis default, are very high. Fortis, in particular, looks extremely vulnerable.

Given the overall uncertainty of the financial system, we have encouraged our clients to take their money out of fiduciary deposits and to place the funds in high quality AAA government bonds. Indeed, if you hold bonds or stocks in an account of a bank that goes bankrupt, these assets are ring fenced, while your deposits and your cash goes into the general pool of assets that get distributed in the bankruptcy proceedings.

We have also told all of our clients who hold gold certificates to convert those in physical gold. Again, in case of bankruptcy, physical gold is a lot easier to get to than securities.

I realize that this picture is rather dark, but at this stage we are extremely concerned about wealth preservation and taking all measures to ensure that our clients are safe.

I strongly recommend that you limit your exposure to the institutions I mentioned and that you reduce your fiduciaries and buy high quality AAA government bonds.I remain at your disposal to discuss this further.

All the best, Gilles