Episode 400: Inflation and Debt Are Looming Over the U.S. Economy
On this week's Stansberry Investor Hour, Dan and Corey welcome Frank Trotter to the show. Frank is the president of Battle Bank, which is looking to revolutionize the digital-banking industry.
Frank kicks off the show by sharing how he got his start in banking and how interest rates have changed over the decades due to various crises and bear markets. That leads to a discussion about the U.S.'s 10-year Treasury yield and why it has soared since the Federal Reserve cut rates. Frank also dives into EverBank, the direct-to-consumer online bank he co-founded in 1998 that amassed $28 billion in total assets...
We really looked out at the market and thought, "Well, people are not getting value. They're not getting service. They're being charged high fees. Maybe there's a slot for us to slide into." As it turned out... there was.
Next, Frank explains what the current regulatory environment is like and how EverBank survived the dot-com bust. He then goes in depth on Battle Bank, which is focusing on the national direct-to-consumer branchless market. Frank covers Battle Bank's conservative strategy for lending money, whether environmentalism and politics have had any impact on lending to natural resource companies, and the specific advantages Battle Bank has over larger banks...
We kind of like to give the money back to the clients and provide them with service by phone, chat, e-mail that's coming from people that know what the hell they're talking about. It's not a call center where you got somebody fresh out of college reading off a script. It's somebody who might've worked in Manhattan as a branch manager for 20 years and got tired of [the] one-hour-each-way commute.
Finally, Frank talks about crypto acceptance at Battle Bank, "eCash" being ahead of its time in the 1990s, and the larger limitations of bitcoin that will impede it from becoming a reserve currency. He also gives his thoughts on Elon Musk's Department of Government Efficiency and its lofty goal of cutting $2 trillion in federal spending. And he closes the episode out by urging listeners to think about the future and ask themselves some tough questions...
We spend all this time looking at portfolios. We spend all this time looking at individual stocks we might want to buy. What's going on in your debt life? Should you be paying that mortgage down or borrowing more?
Click here or on the image below to watch the video interview with Frank right now. For the full audio episode, click here.
(Additional past episodes are located here.)
This Week's Guest
Frank Trotter has been in the banking business since 1981. From 1981 through 1997, Frank served Mark Twain Banks in various capacities, including vice president of commercial lending and president of Mark Twain International Markets. In 1986, Frank created the WorldCurrency deposit product for Mark Twain Banks and operated this business through 1997. In 1998, he co-founded EverBank.com, a national direct-to-consumer bank. He held many positions at the company over the years, including chairman of EverBank.com, president of EverBank Direct, and chairman of EverBank Wealth Management. Now, he is president of Battle Financial's Battle Bank.
Frank holds a Bachelor of Arts from St. Olaf College in Northfield, Minnesota, and a Master of Business Administration from Washington University in St. Louis.
Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today we're going to talk with Battle Bank co-founder Frank Trotter.
Dan Ferris: I've known Frank for decades now. He's taught me more about banking than any other single person in the world. I always look forward to running into him at conferences because I know he's going to teach me something else. So, let's talk with Frank Trotter. Let's do it right now.
Corey McLaughlin: For the last 25 years, Dan Ferris has predicted nearly every financial and political crisis in America, including the collapse of Lehman Brothers in 2008 and the peak of the Nasdaq in 2021. Now he has a new major announcement about a crisis that could soon threaten the U.S. economy and could soon bankrupt millions of citizens. As he puts it, there is something happening in this country, something much bigger than you may yet realize and millions are about to be blindsided unless they take the right steps now. Find out what's coming and how to protect your portfolio by going to www.americandarkday.com and sign up for his free report. The last time the U.S. economy looked like this, stocks didn't move for 16 years and many investors lost 80% of their wealth. Learn the steps you can take right away to protect and potentially grow your holdings many times over at www.americandarkday.com.
Dan Ferris: Frank, welcome to the show. It's always a pleasure to see you.
Frank Trotter: Dan, it's fabulous to see you. And you too, Corey.
Dan Ferris: All right. I was just looking at your – I think for our listeners' sake, just so they get a better idea of who you are and what you're about, I was looking at your LinkedIn page and I noticed you've been in banking since 1981. That –
Frank Trotter: I know.
Dan Ferris: That's a long –
Frank Trotter: Is that ancient history or what?
Dan Ferris: I know. It's a long time. My wife was saying – the other day she was saying, "Were the '80s 40 years ago?" It's just a weird moment because I'm 63, but I – the time goes by so fast you still feel like you're in the mentality of being 43 or something. But '81. What was it in 1981 that you did? What got you into banking? Why banking? Why then?
Frank Trotter: Well, it's interesting. I finished up my MBA at Washington University and had this vision I was going to go to Bain or one of the consulting groups and make a billion dollars a year and – or Goldman Sachs. And I interviewed with all those folks and did well, was invited back, but there was a little banking organization in St. Louis called Mark Twain Banks, and it was hyper entrepreneurial. And they sold it really well, so I joined in there.
And banking at that time was interesting. My first job I was – the way they did it was the MBAs were attached to a senior executive and really with the instructions to try to learn his or her job. And I was attached to the chief credit officer. And you may not remember, you have this graph in your head, but at that time prime was 21.5%. The 30-year note was 15%-ish. Short-term T-bills were 18%. And so, we weren't making many loans, we were collecting loans, and we were running from project to project to see if we could clean stuff up. So, we had – the first year and a half to two years was fantastic experience in what could go wrong. All these developers of residential properties had been sitting there before Paul Volcker woke the markets up, thinking that they had a great deal at 6% or 7% prime, building houses, selling them. Life was good. And then, pretty much overnight it was 21.5% and everybody was underwater.
So, that was where it began. And of course we've had pretty much of a one-way trip for rates since then. There's been volatility, there's been ups and downs, but getting there to your famous 2006, '07, '08 where it became zero. So, that's really what banking was like in the '80s, and we really didn't get into business till the mid- to late '80s as the markets kind of cleared and life started to come back together and some of the Reagan policies started to work. So, it was an interesting time to get started.
Dan Ferris: Yeah, trial by fire year after year for the first, what, six, seven, eight years or so.
Frank Trotter: Yeah. And just getting in time for the rolling recession in the late '80s and early '90s. So, we had practice.
Dan Ferris: Well, you picked the bottom in bonds to get into banking. That is very interesting to me that you had all these –
Corey McLaughlin: Yeah, 20% interest rates. Not what I'm used to, that's for sure.
Frank Trotter: And when people – when you read in the news that "Oh, rates are incredibly high today" – and they're higher than they were – they're not incredibly high today. I remember sitting in an Alco meeting or two, thinking, "Well, gee, what if prime goes to 30? What if prime goes to 40?" And it didn't, thank you. But it's an interesting world. And so, over those 40 years, as you've said, Dan, we've seen quite a few different environments, had some things that were opportunities turned into the trash heap. And it's interesting how the world turns.
Dan Ferris: It sure is. Especially those particular 40-odd years because it was the peak in interest rates. And we've just been through the wringer, it feels like, with crises and various bear markets and episodes since then, speculative episodes. It's been a real roller coaster. Has it felt like a real roller coaster in banking all that time the way it has in financial markets?
Frank Trotter: I think obviously they interact. So, if you're running a bond portfolio, if you're putting a loan portfolio together, sure, yeah, it's been up, down, and sideways. It was – it's interesting. And regulation, of course, had changed markedly in that time frame. Back in Mark Twain we would start a product line or start a new initiative and maybe six months later ring up our friends at the [Office of the Comptroller of the Currency ("OCC")] or the Fed and say, "Oh, we're doing this." And of course it's gotten tighter these days. And regulations and laws are always built to cover the last crisis. It's a Maginot line all over again. But that's been – the ups and downs in banking have been interesting, but if you stay in sectors that aren't speculative – I don't want to have Jamie Dimon's job trying to put several trillion dollars to work, thank you very much. I hope he does a great job and carries on. But we like to focus on secure markets, things we understand, and not have to put out 50 different verticals or 500 different verticals or 5,000 different verticals that a big bank has to do.
But we had the rolling recessions in the late '80s, early '90s. Of course, we had the tech bubble in the late '90s. You accurately predicted the disasters of 2008 and '09. You certainly know about that. And I'll allege we had a depression except for the Fed monetary easing and policies in that interim period. And now we're kind of –
Dan Ferris: Zero rates sure looks like a depression, doesn't it?
Frank Trotter: Last I checked.
Dan Ferris: Yeah. That's kind of a big hint about what was really happening during that time despite the market falling in love with zero rates.
Frank Trotter: Well, if you want to borrow, that's a great thing. And I think $35 trillion in government debt sort of speaks to that at this point in time, which personally kind of terrifies me, but very few people in the seat of power seem to care that much.
Dan Ferris: Yeah. And I have to admit they don't seem to care a lot and I would have thought a few trillion ago that it would have become a massive crisis already. But here we all are. We still have jobs and unemployment is still low. And I feel like we've yet to see it really explode. And it makes you wonder how long – how much longer can this go on? I remember the big promotion that the old newsletter company I used to work for, Agora Financial, they ran in the '80s called "The Plague of the Black Debt." It's like, you don't know the plague of the black debt. You don't –
Frank Trotter: You ain't seen nothing yet.
Dan Ferris: You ain't seen nothing. So yeah.
Frank Trotter: And it is kind of interesting. If you look at the 10-year notes across a number of different countries, normally we've seen a situation where the U.S. is sort of the leader and everybody is a spread above that. Right now, we're the highest rate around. And maybe that's a warning sign out there. In Australia, New Zealand you have the same 10-year rate essentially that we do as well as the UK, but everybody else is below that.
Dan Ferris: I just saw –
Frank Trotter: And it doesn't mean they're wonderful credit, but –
Dan Ferris: Right. I just saw – Frank, I'm sorry to interrupt but –
Frank Trotter: – there's a message.
Dan Ferris: There is a message I think. And I just saw on Twitter some guy posted, he said, "Ten-year yield up a hundred basis points since the Fed lowered a hundred basis points." And that really –
Corey McLaughlin: Yeah, exactly.
Dan Ferris: That seems like –
Corey McLaughlin: Since September.
Dan Ferris: Yeah.
Corey McLaughlin: Yeah. Since the middle of September, as soon as they cut. I just was looking at that same thing today with the yields coming up again today as we're speaking. Yeah, a hundred basis points since the middle of September.
Frank Trotter: Four seventy. It's not the highest it's been in the last few years at 490-ish but it's getting there. And it's up and up and up. And if you look at the yield curve, as us wonky bankers do, it's – the short rates have dropped, yes, but the long rates have recognized that there's an inflation potential still out there as well as this debt overhang. You get a financing – and it's interesting. Obviously, Japan since the mid-'90s has essentially had this gigantic debt overlay, and they've survived. But there's a breaking point, a tipping point when people are – I used to work with Hy Minsky, who you're probably pretty familiar with, the "Minsky moment." And it's everybody in the room, you and your wife, your partner, whatever at a party and everybody stays, everybody stays. One person leaves and the room empties. That's the Minsky moment in the market, and that's what happened in 2008 when just all of a sudden, all betas went to one on the down rate side.
Dan Ferris: Yeah. That taught us a lot, didn't it? It taught us about what is really a crisis hedge and what isn't, and what will really protect you and what won't.
Frank Trotter: What did you find was the best protection?
Dan Ferris: There's – nothing beats cash.
Frank Trotter: That's right.
Dan Ferris: When everything – when absolutely everything is plummeting, cash is extremely difficult to beat. Even gold took some hits, but eventually from the top in October '07 to the bottom in March '09 you wanted to own gold, but boy, it wasn't easy during that time. But if you had cash, you were ready for anything. And it was a good time to be ready for everything, I want to tell you.
Frank Trotter: Exactly.
Dan Ferris: It was one of the great buying moments of our lives in early '09 especially – late '08, early '09. So...
Frank Trotter: It's interesting, our colleague at EverBank, a guy named Blake Wilson, had a saying around that time, which was "Liquidity only matters when it's the only thing that matters."
Dan Ferris: Right. Yep.
Frank Trotter: And that's exactly what you're saying there, Dan. Cash is king at the right moment.
Dan Ferris: Right. You're punished for it all the rest of the time in terms of returns. You're punished for it. But when it becomes like oxygen, the oxygen is leaving the room and you have it all and you've got a nice big tank of it, then it's a different story. And –
Frank Trotter: Exactly.
Dan Ferris: The only other thing – I know people including myself who basically tail risk hedge. You say, "Look, I'm going to through, whatever, 50 bps or 100 bps or something, whatever, however aggressive you want to be with it, out of the money puts, leaps, leap puts two years out. And I'm going to forget about it and it's insurance. And it won't pay 80% of the time and then it'll amortize all that loss and then some, times 10 or 20 or whatever."
Frank Trotter: No, exactly.
Dan Ferris: So, you could do that too but that's – people don't like to see that loss year after year until it pays off. So, cash, I just – I can't beat it. It's hard to beat.
Frank Trotter: Makes sense.
Dan Ferris: The futures, the managed futures guys can do OK at those times.
Frank Trotter: Sure.
Dan Ferris: But that's an active –
Frank Trotter: You've still got to be on the right side of the trade.
Dan Ferris: Exactly.
Frank Trotter: The right side of which tech –
Dan Ferris: Right. Right. So, it's not about an asset. It's you've got to be good and you've got to be right. So, if you don't want to have to be right, it's cash or it's nothing, as far as I can tell. But gold, God –
Frank Trotter: Gold's not bad. And it does – it's still there and you have good returns. And last year was a wonderful year for gold for good reasons.
Dan Ferris: Absolutely. Yeah, absolutely.
Frank Trotter: But monetizing that, selling it sometimes is hard to do. We all kind of want to hang onto that with our grimy little hands and not get rid of it. But cash and hard assets of whatever it is – we had a client at Mark Twain years ago that was a timber guy and he had stacks of timber piled up all over the world. Now, we did occasionally remind him that if he happened to show up in Indonesia and wanted his timber, he might be shot, in a bad situation. But he felt that this was his store of value. But hey, he was a timber guy.
Dan Ferris: Yep. Timber is interesting because the idea of Mother Nature doing the compounding on the stump is not something you get with a pile of copper or gold or something. It's interesting.
Frank Trotter: That's right.
Dan Ferris: All right. I want to talk about banking in general and then what you're doing at Battle Bank now. Maybe – what was it, what was happening in the world? When you started EverBank what was happening in the world that Frank Trotter said, "This is my moment. I need to do this now"? Why start EverBank when you did?
Frank Trotter: When you look back, we started putting the bank together in 1998. It launched at – essentially at the beginning of 2000. And actually, very much like today, the big banks were paying very little on deposits. That's part one. We launched with a 601 checking account. At the time, big banks were paying nothing. And guess what? Big banks are also paying nothing today. They were charging high fees that we felt we could reduce our cost by being direct to consumer and not building branches, something that turned out to be absolutely correct.
In the service levels – this was kind of in an era where people still went to the teller line. We launched eight years before the iPhone, is kind of a way to put a mark on it, and people weren't that used to being online. It pretty much was all desktop or laptop. But service levels at the banks with branches, there were lines out the door if you had to do a transaction, if you had to get something done. And they were just not willing on average to support that.
And of course, we like access to the global markets, so we also launched with our foreign currency deposits, our precious metals dealings, and some other things that spoke to our client base. And we have the experience from guys like David Galland, our initial director of marketing. Robbie Forder had been in similar business before. And Vinnie Amato of course is co-founder of EverBank and of Battle Bank. On the operations side everybody knew how to deal remotely and manage that type of workforce.
And so, we really looked out at the market and thought, "Well, people are not getting value. They're not getting service. They're being charged high fees. Maybe there's a slot for us to slide into." As it turned out over the next 17 years there was. I think, as you know, Dan and Corey, that we ended up running the bank. It ran up to about $28 billion in total assets and then sold to TIAA in June of 2017. And it was a great ride. We had help with the currency markets in the early 2000s. We had a lot of help with the precious metals markets in the interim and of course we were a big mortgage lender throughout that period as rates dropped, which is a great business to be in at the time.
So, all of those things sort of combined. We saw an opportunity. We felt we were early to the game in direct banking, remote banking, not having branches. And it worked out. We were very pleased with the result.
Dan Ferris: I bet you were.
Corey McLaughlin: Yeah.
Dan Ferris: What was the move in assets from start – at the finish you said it was $28 billion when you sold. What did you start with?
Frank Trotter: Zero.
Dan Ferris: Zero. OK.
[Laughter]
Frank Trotter: And it's funny, if you – you've been in the business so long – I think you started in 2000, if I vaguely recall. We did our first direct mail piece in the fall of 1999. It was literally direct mail. It was a beautiful piece. It explained everything. We got exactly zero clients. But then, we figured the online marketing out and of course hooked up with your old shop at Agora and were able to introduce it to people who wanted to listen. But it was pretty funny starting at zero and still having zero after our first marketing plan – pitch. But yeah, we came back in and were able to introduce it to a lot of people who loved it.
Dan Ferris: Yeah. You know, Frank, one of the tidbits that I most frequently reel off about banking is that you get to a certain level of assets and you need another billion or two to pay for it, is what you had told me once upon a time.
Frank Trotter: Yeah.
Dan Ferris: And I was wondering, what is the – and so, therefore it just creates – the regulations, in other words, create a kind of competitive advantage once you get over that, you get past that hurdle. You can pay for it and maybe your smaller competitors can't pay for it as well. So – and that's one of the many ways – this is a typical thing in regulation. The biggest incumbents of course love regulation because it limits their competition and you see this in lots of industries. And from the inside out – I can research it online and find out, but you're in the business. You've been in it for decades. From the inside out, what does that look like right now? Is it worse? Is banking – I know things like, for example, Glass-Steagall has gone away. I don't know how that impacts your side of things. But you mentioned that there are more regulations now than there were in the distant past. What does that look like? You've got a new bank. You've got Battle Bank now that you're trying to grow. I just want to know what the regulatory situation looks like to you now in terms of competing and dealing with regulations.
Frank Trotter: It's a great question, Dan. And I think a lot of the regulations are what we were doing at EverBank before, and then finally the market was kind of forced into this. And we tend to view that the markets do a pretty good job of doing this, but regulation is what it is. It's a lot more communication with your regulators. We found our colleagues at the OCC, for example, to be incredibly professional, well informed, and good partners. If you're going to have regulators, that's what you want.
The process has elongated massively. As I mentioned, way back in Mark Twain we would start something and then all of a sudden just ring them up later and say, "This is what we're doing."
Dan Ferris: "Oh, by the way…"
Frank Trotter: Now there's a different process. I remember when we launched e-cash in the 1990s I got a call the next morning from the president of the St. Louis Bank with basically a "WTF" question: "What are you guys doing?" And we had a nice drive downtown to chat with them but they – we left and everybody was happy. But that was kind of it. Nowadays you propose things and they do what's called a non-objection letter. So, we want to lend to the Dan and Corey types. OK. And you send them a letter and they say, "OK. That sounds OK." You say, "We'd like to lend to Russian oligarchs" and they'll – we'll send them a letter and they'll say, "No, let's not do that."
So, it's – there is a restriction on that. Is it positive for banks? Great question. I tend to think that the market takes care of that better. But again, we have regulators, and that's what we deal with. But it's a lot more now than it used to be, there's no question.
Corey McLaughlin: I've got a question about – starting in 1999, the two big things stand out there, the dot-com bust and 2007, '08, '09. How did you guys survive those periods? You said you were involved in a lot of mortgages leading up to the financial crisis.
Frank Trotter: Well, it's interesting. The way we did business worked out very well and I'll credit our credit folks, our risk management folks, who were super at doing that. I believe – the statistic may be off by a little bit but we were probably initiating about $20 billion in mortgages a year and servicing $70 billion, $80 billion of mortgages at that point in time. And I would hope to say that this was by our risk and credit teams' hard work, but we got through all that very well. We did not take [the Troubled Asset Relief Program ("TARP")]. We did apply because it was politically correct to do so. I think our OCC – or at that time [Office of Thrift Supervision ("OTS")] regulators might not have – they might have called us 10 times a day until we applied.
Well, you sort of put that together with regulation. If you took TARP there was a number of restrictions that were placed on you. And what we talked about when we were rejecting TARP was that we expected that the big banks who were now handcuffed by these new regulations would make sure everybody else had to abide by them. And sure enough, those changed over the next couple of years. But that was a tough period.
And it's one of those things where particularly in terms of land we had very little of this on our books. You have a development property – it all of a sudden becomes nothing. It might have been worth $5 a foot two years ago – it's now worth zero because there are no buyers. And it sort of felt a little bit like 1981 to me for a little while, just from a different perspective.
But coming out of that, it just – by our – our asset team, our credit team, and others were able to purchase high-quality assets from other people who were scrambling to get out of them. Back to what Dan said, cash. Some of these big institutions needed cash and they were selling unbelievably good stuff at big discounts. And our team was able to go in and buy those and we profited very well and ultimately purchased a failed bank in Florida under the [Federal Deposit Insurance Corporation ("FDIC")] assistance program. And that worked out great as well. So, by luck, hard work, and great work by our credit folks and risk folks we worked through that very well.
And back to the 1999, yeah, we were raising capital at the time. That was not fun. So, as everybody all of a sudden had 40%, 50% less money, we had to beg a little longer to get that thing done.
Corey McLaughlin: Got you.
Dan Ferris: Right. But it sure is good to be the one – it sure is good to be the one that doesn't need TARP, doesn't need a bailout when things are going wrong, isn't it. I cannot understate – I can't overstate enough how many times in just analyzing equities and meeting people in all kinds of different industries – mining, just anything, just anything – how that has been not only a part of their strategy but the part of their strategy that made them. Just being safe. Not being too levered up. Having the capital. Having access to capital when other people didn't, whether it's cash on the balance sheet or whatever it is. You can't say a good enough – you can't say enough good things about that. So, I imagine you're running Battle the same way.
Frank Trotter: We're planning to. And of course, with Rick on board we have two people at sort of the top of the heap that kind of like cash and the resource availability. And so, that's our viewpoint, is we're going to be conservative. We're going to lend money to markets we understand. We're going to lend money to markets where we feel we're going to get the money back. These are basics, but not get too far afield. We have a lot of different clients we expect to serve. A lot of our clients are entrepreneurs and have interesting businesses and will ask us for loans and we'll accommodate some of those. But we're not going to go chasing every deal just because it's out there. And sometimes the local bank might be the better place to do it.
But – and a lot of the ways we think about things is we're not going to try to race out there, put all the money out the door day one. Let's walk into this. We have some great lending products. I think you're probably aware of what we're lending against precious metals holdings. From a banker perspective, what could be better? Twenty-four hours a day –
Dan Ferris: But not all bankers think that.
Frank Trotter: I understand.
Dan Ferris: Right?
Frank Trotter: If you walked to your local bank, they'd probably say, "Sure, we'll put the gold in the safe and lend you some money." But there's no mechanized way to do it. That's our delight, frankly. And 24 hours a day, 365 or 366 days a year I can sell that in 15 seconds if need be. And I don't expect to have to but – and it allows people – as I said earlier, we like to hold on to our gold and silver with our sticky little hands. And this gives people an ability to do that deal, that – really cash as opposed to selling their precious metals, which they view as the bedrock of their portfolio. They want to put a deck on the back of the house, they want to buy a property, they want to do a deal, or if the crash comes they might want to load up on equities at pennies on the dollar. It's up to them. But this gives them the opportunity to have that liquidity and maintain their bedrock, which I think is important.
Dan Ferris: That is very cool. Very important. I remember talking to Rick Rule one time and we – this was not too long ago, it was within the past year or so, and we were talking about how politics and environmentalism has affected industries like – extractive industries, natural resources, oil and gas, and that some institutions are actually shying away from lending these people money and giving them capital. And that – does that kind of thinking inform the kind of lending that you'll be doing at Battle Bank?
Frank Trotter: I love that. When people leave a market or whole groups of people leave a market, that's an opportunity. And we can debate energy and planet temperature and everything else, but I think we've got a good hundred years of carbon-based power coming. We've got almost three billion people today that don't have power, and it's going to take – if we do it all renewably, more power to us. It's less junk in the air no matter how you look at it.
But yeah, we'll take a look at a lot of those things. We will have people on staff that understand that. Some of it's pretty basic. But obviously with Rick onboard we have a huge resource to get us started.
Dan Ferris: Yeah. He knows what that collateral is worth.
Frank Trotter: Yep. Exactly. And when you talk about who has the opportunity, we can do deals where we know two or three other people want that well or that mine or that whatever. And that makes it a different trade than the old definition of a mine, which is a hole in the ground with a liar stranding at the top. It's a – we get some high-quality stuff and can be able to make a loan against it and also have a takeout if need be.
Dan Ferris: Yeah, he's been involved in lending to them and in reinsuring them, –
Frank Trotter: Exactly.
Dan Ferris: – so he knows them inside and out.
Frank Trotter: But I think there's some real opportunities there. There's a variety of different verticals where people have abandoned the market for a couple of reasons. Sometimes it's that [environmental, social, and governance ("ESG")] thing. It's up to them. It's their business. I don't care what they do. But sometimes it's too small for them. We kind of joke that we can't compete with JPMorgan Chase and they can't compete with us. They've got to have a book of business in any particular vertical that's going to be double or triple digits larger than our entire balance sheet. And so, we love to go into stuff that can be secured, has a good yield on it, and serves a purpose. And that's where we're looking to put money out the door and also to get it back.
Dan Ferris: Will Battle be completely virtual? Will there be branches, physical branches?
Frank Trotter: Well, you may know we've entered into a contract to purchase a small bank as part of this process. And so, we will have that operation. But our primary focus will be on the national direct-to-consumer branchless market. Our headquarters is down here at the base of the hill here in Edwards, Colorado, right around the corner from Vail Mountain. So – and it's a 12-by-12 office. I've got one of my old dining room tables in it and two folding chairs. So, that's HQ. And I haven't been in the office for a couple months but I'll probably stop by later. Overhead. As Rick will keep saying, a regular branch costs 125 to 150 basis points to run. And if you're selling a lot of high-markup products, you're not paying people on their deposits, if you're charging fees, that works. We kind of like to give the money back to the clients and provide them with service by phone, chat, e-mail that's coming from people that know what the hell they're talking about. It's not a call center where you've got somebody fresh out college reading off a script. It's somebody who might have worked in Manhattan as a branch manager for 20 years and got tired of a one-hour-each-way commute up from Long Island. This is how we like to do it. It's so much better for the client and we think it's better for us.
Dan Ferris: So, besides loans, is there any other type of product that you – that you're excited about? Outside of lending?
Frank Trotter: Well, in this market, of course the precious metals dealing is going to be great. We've done that since the middle '80s in Mark Twain Bank, in EverBank, and now we'll be doing it at Battle Bank. And again, that's, as you mentioned, that's kind of unique things for banks to do. There are a couple that trade in it but it's kind of a sidecar business. You'll be able to buy or sell or – either allocated or unallocated metals. And if you want them delivered to the house, great. If you want us to hold on to them, we'd be happy to do that. And as I mentioned, the lending program will not only be to the direct Battle Bank clients but we're partnering with a number of the big dealers to provide liquidity at that side.
The foreign currency deposits – currency has been pretty flat since I left EverBank in 2017. The euro, I think, was $1.08 when I left. It's, what, $1.03 this morning and headed in the wrong direction. But people like to diversify their portfolios. And of course we'll be doing market index deposits. Maybe you and Corey have an idea of a market you're kind of interested in but you're not a hundred percent. "I think this is going to be really good but there's a big downside to it." So, what we'll do is we'll create a deposit that has a hundred-percent principal protection but a percentage on the gain of that index. We've done stuff in our past as simple as the S&P. Your former colleague, Steve Sjuggerud, we did one on Japanese [real estate investment trusts ("REITs")]. And we've done a lot of commodities and precious metals and currencies and other things along the way.
So, it's really something – it's a great thing for a retirement account, of course with the hundred-percent principal return, but you get the upside. If you had a gold one over the last year, obviously you might not have gotten 27%, but you might have gotten 15% with a hundred-percent guarantee. So, that's not so bad.
But simple stuff, like actually paying people on a checking account. We haven't done a survey in the last week or so, but it's probably 3.80% today for checking. I emphasize the word "checking," not savings, not money market. Checking. And I think the average right now in the country is about 0.02%. Every once in a while I'll survey JPMorgan and Wells Fargo and those guys and it never changes. And JP, I think, charges $25 a month if you keep less than $20,000 in the bank. I don't know if you want to walk into the bank and hand the teller $25 a month but it's not something I want to do.
Dan Ferris: No.
Frank Trotter: So, just putting all these different things together. And we have really one other thing that's super exciting that's new for us, is really truly self-directed retirement accounts. I think most people think about that as going to Schwab or Fidelity and building a 60/40 portfolio, but as you know there are a lot of other eligible assets. Maybe it's multifamily housing. Maybe it's hard money loans. Maybe it's crypto. Whatever. You'll be able to open a retirement account and much cheaper than some of those big trust companies that charge a lot of money to have you do this. And we'll help you set that up and propel you into doing your own investing for those things that are legal, which in IRS terms are not ineligible. It's a nice double negative in the regulation. But as long as the asset's eligible you can do it, and we're going to give you a platform for that.
So, we're really kind of speaking to that independent investor, that self-directed investor who may have a 60/40 portfolio out there somewhere, but they've also got a big chunk of money in things that they are interested in. They're listening to folks like yourselves and adding onto that sort of passively managed portfolio in a way that they find is better for their long-term success.
Dan Ferris: Well, Frank, you mentioned crypto before I did, and I was getting there. There's no way we can talk to a – talk to anybody about banking these days without talking about crypto, and especially bitcoin. And so, I can put – if I'm a Battle Bank customer I can put crypto, it sounds like, in my account, my 401(k).
Frank Trotter: IRA account, yeah. If we actually offered crypto custody or anything in our applications we would not ever open.
Dan Ferris: OK. I see.
Frank Trotter: As you know, the regulatory environment is there, but if somebody in a self-directed IRA wants to open an account, so be it. That's up to them.
Dan Ferris: I see.
Frank Trotter: It's an eligible asset. I don't know if you remember, but we led the introduction of e-cash in the early 1990s, which was really the first direct online irrevocable, instantaneous, peer-to-peer payment system. And it was way too early. It was 15 years too early, so it sort of died a slow death. But it was a brilliant system from – and really, it should have been the one that won instead of Venmo and PayPal, but it didn't. And a lot of the same folks – I used to sort of traffic in the cypherpunk world – probably are the ones that developed bitcoin. Of course, we don't really know who did that.
And I think this completely independent currency is pretty interesting. There are technical issues that probably prevent it from being the reserve currency of the world at this point. If I get the numbers right, I think you can only do six transactions per millisecond, and you can't run a global economy on that. But maybe the next generation of crypto and block will allow you to do that. I don't know. But I know a lot of the coders are working feverishly behind the scenes to see if they can make that work. But it's interesting. An independent currency, it's a little too volatile to be a reserve currency yet, –
Dan Ferris: A little.
Frank Trotter: – but maybe by how many standard deviations? But yeah, it's fascinating. It's interesting. More power to them.
Dan Ferris: Absolutely. More power to them. I completely agree. Competition in money is essential, and we don't – we haven't had it.
Frank Trotter: That's correct.
Dan Ferris: So, it's good – I'm glad to see them doing it but at the same time it's already been sort of financialized and broadened to the mainstream through ETFs and futures and these things. And I'm like "Well, that kind of –" those things seem great because they give more people access to it but they sort of negate the whole point of it to me, which is to be outside the financial system. So, it's like are these things, are ETFs and futures that great? I don't really know if they are in bitcoin.
Frank Trotter: It's going to be an interesting question, I think, because it's nice – it should eventually settle in at some arbitrage price, –
Dan Ferris: Right. We're all waiting for that, aren't we?
Frank Trotter: – which we're nowhere near now. And that arbitrage price should be the lowest cost of mining because every tick above that, miners should just jump in and mine until it goes up. And everything below that, they should shut down. But we're nowhere near that at this point in time. And maybe those – that extra volume where the Street comes flying in with huge trades might be moving in that direction. But that's years off as far as I can see.
Dan Ferris: But George Gilder, who we spoke to on the show a while back, had an interesting comment about this. He said one of the problems with bitcoin and the reason it's so volatile is because the supply is restricted the way it is. In other words, gold can grow – as a currency, gold can grow with an economy because the economy grows, there's more capital for bringing it out of the ground, etc. But bitcoin is just – it's very strict. And considering how much is just sort of held, it's almost like – it reminds me of these closely held stocks where it could be a billion-dollar company and somebody owns 90% of it, so it's really like a $100 million –
Frank Trotter: Trading, yeah, float.
Dan Ferris: Right. So –
Frank Trotter: Well, I think that's a big issue. I agree with you, Dan. And down the road, is that the right way to do it? I think we've now had almost 20 years of experience with it. Maybe the next generation, as I said, will have something a little different that is better for the overall market.
Dan Ferris: Right. As a matter of fact, if I'm not mistaken, I think to the day we are coming up on the 15-year anniversary. I thought it got started –
Frank Trotter: Is it?
Frank Trotter: – in January 2009. I could be wrong about that. The first –
Frank Trotter: Yeah, it could be.
Dan Ferris: Let me just Google while we're sitting here. "First bitcoin trade." Yeah, January 2009.
Frank Trotter: OK.
Dan Ferris: Yeah, so – I don't have the exact date, though. The 3rd of January 2009 the bitcoin network came into existence. All right. So, we are just a few days past that anniversary date. So, it's a little younger than gold.
Frank Trotter: Slightly. We'll see if it plays out.
Corey McLaughlin: Still a teenager. But it is fascinating. To your point, Dan, about – oh, and Frank – about it wasn't created to be part of – I don't think – it was created to be part of ETFs. I don't think this is what whoever – Satoshi Nakamoto – had in mind when he created this thing way back in the day, but it's still – it found its way into – or the system found its way to bearhug it a bit, it seems like.
Dan Ferris: Yeah.
Frank Trotter: Exactly.
Dan Ferris: Yep. Let's face it, politics sort of – it corrupts everything. It touches everything. But I'm just – just looking at the abstract, it says, "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution," which is exactly what you're doing when you buy ETFs and futures. So, yeah, we'll see.
Frank Trotter: And that's what – that's actually what e-cash did. And I think if you could – it kind of combines the two without the public block. E-cash didn't have a public block. It had a mint. We were a mint at Mark Twain Bank. We were proposing ultimately the Fed be a mint for all the banks. But it was a peer-to-peer payment. I would send you, Dan, $500 or €6,000, whatever it was, and instantly you collected that in your wallet.
But if you could kind of merge those two – and it had an anonymity feature that was pretty spiffy. David Chaum held the patent on it for many years – but between the two of them, there's already sniffers out there that can pretty well tell who's doing trades in block. So, it kind of combined these two. And again, I don't know what the next generation is going to bring, otherwise we'd all be rich figuring that out. But combine a little bit of those characteristics, add a little more liquidity, faster transaction process, and now you've got something that could work.
Dan Ferris: Yeah. I almost hate to say – or, I do hate to say it but right at this moment my Visa card works great and my – writing checks works OK for me when I pay the folks who, whatever, clean up the yard or whatever –
Frank Trotter: Venmo.
Dan Ferris: Yeah. Venmo. Those guys live on Venmo. Their whole business is on Venmo. And the current system, it works for me. It works great, in fact.
Frank Trotter: Yeah. Well, it does. And it does for most of us. If you look at the numbers, about – first of all, checks looks like it's a downhill skier's run. It's getting to be less and less. And [automatic clearing house ("ACH")] and other direct payments that we all create are skyrocketing. And credit cards are taking over, whether that's through Apple or Google Pay or Direct Line.
Dan Ferris: OK. I'm glad you brought this up. Now, when you cite those things – ACH, credit cards, and those things – one word comes to mind that continues to sort of baffle me and I still continue to scratch my head, and that word is "settlement." It still seems to take eons. In modern terms it's eons to settle these things. Days. Right?
Frank Trotter: Yeah. It typically takes a couple days to do an ACH. There's sort of a file that goes out day one that says, "Hey, does Dan have the money?" And the bank replies, "Yep, Dan's got the money." And then the next day it moves. And I think the protocols are coming closer. I think it's one day mostly and now it should be pretty close to real time.
[Crosstalk]
Dan Ferris: Yeah. And you're credited pretty – usually credited instantly just about, I hear. Anyway.
Frank Trotter: Yeah. Which is an interesting – there's a couple Wall Street Journal articles recently about some of the fraud that goes on, mostly with paper checks but a little bit with ACH as well, because if you actually give somebody a paper check, you've got your routing number and your account number at the bottom of that. Thank you very much if I'm a –
[Crosstalk]
Dan Ferris: That's right. Yeah.
Frank Trotter: And so, there's stuff you can do with that. And banks have to watch for it. There's these fascinating questions about whether or not we're actually responsible if you screw up. But we tend to be, unfortunately. So, we got hanged out to dry a number of times because somebody was – the grandmother forgot to – the grandson was a full-time hacker and all of a sudden drained her account. The grandmother comes looking to us and we're like, "Wait a minute. You gave him the password." But that's kind of how the business works and it's part of life.
Dan Ferris: All right. So, I guess ultimately, though, my question would be shouldn't settlement already – I know you're saying it's getting faster and it's getting there –
Frank Trotter: Yeah. It should be.
Dan Ferris: – on credit, but you agree that it should be faster by now. And I –
Frank Trotter: It should be instant. There's no reason for – wires are the only thing that you want to do for commercial transactions, which is irrevocable and formal but everything else should be instant settlement like a Venmo. They're really running the book inside that. They're taking the float on one side and giving it away on the other. It's kind of like a little bank.
You may recall the original managing director of Venmo was a gentleman that is now running a company called X and Tesla. They started the X bank way back when and it shut down pretty quickly but I think they're going to go back to that. It'll probably be interesting. He's always had this vision that they're going to be a bank, so maybe he combines Twitter/X and the old Venmo to – PayPal is really what he was running at the time – but put those together and make a bank out of it. It'll be interesting. And that gets you to zero-day settlement.
Dan Ferris: All right. Well, come on, Elon. Tick tock, buddy. We're waiting for you. We're waiting for –
Frank Trotter: Time's a-wastin'.
Dan Ferris: He's got other things to fix but I –
Frank Trotter: Oh, tell me about it.
Corey McLaughlin: A couple other things at the moment as well, yeah.
Dan Ferris: That's right. Actually, now that we have brought Elon into the conversation, just for giggles, do you think this DOGE organization will do anything good?
Frank Trotter: It's hard to predict. I'd love for him to do it. They're not taking the Argentine way, as your former colleague, Bill Bonner, mentioned in his letter this morning. He just said "OK, that department's gone."
Dan Ferris: Yep. "Afuera!"
Frank Trotter: "I'm not going to sign any budget that has a deficit. End of discussion." So, it'll be interesting. Obviously, the Reagan team sort of ran into – Stockman and everybody ran into trouble after six or eight months. And sort of looking at even the continuation bill, all 1,500 pages of it, it's not like things have changed a lot. And that's not – that was a Republican congress that put that up there. And yeah, there's some good back benchers that are trying to push that away but I'm hopeful that something happens. But we'll see. It's all proof in the pudding.
Dan Ferris: Right. I've looked at it just in the sort of large numbers. And I – if you look at what was spent in fiscal 2024, I can't figure out where in the world he says he can cut $2 trillion from because you're not going to cut any of the mandatory stuff. That's 60% of it. And you're not going to cut defense. I don't – and there's not a trillion left. After you get through all the mandatory and all the transfer payments that no politician would agree to cut and defense, you're left with not very much. And it's certainly not $2 trillion.
Frank Trotter: No, that's right.
Dan Ferris: So, I don't know.
Frank Trotter: Well, I think there's the political sales pitch and then there's the reality. And again, I wish him well.
Dan Ferris: Right. It's worth hoping.
Frank Trotter: I don't have a lot of – I've heard a lot of pitches over the years, being around for a long damn time, and some of them come true.
Dan Ferris: Yeah. It's hard to save money if you're talking about buying Greenland, though.
Frank Trotter: Yeah. And of course, increasing the military, which is the traditional Republican stronghold. And maybe they get rid of the F-35. Great. That may make sense. But that's just one thing. You've still got a lot of $5,000 toilet seats to pay for.
Dan Ferris: Yeah. All right. Well, I don't necessarily want to go down that rabbit hole too far.
Frank Trotter: No, we don't – we're not going to go down a political path too far.
Corey McLaughlin: The Greenland purchase, Dan? You don't want to – ?
Dan Ferris: Yeah, no.
Corey McLaughlin: Yeah.
Frank Trotter: I don't know enough about it. Great, we get some more oil and gas and that's a wonderful thing.
Dan Ferris: All right. In fact, let's – we've actually been going at it a while here. Let's do our final question and see what you do with that. It's the same question for every guest no matter what, no matter what the topic. Even if it's a nonfinancial topic it's the identical question. And if you've said the answer already, feel free to repeat it. And the question is simple. Really, I just want you to provide our readers with a takeaway. So, the question is if you could leave our readers with a single thought today, what would it be?
Frank Trotter: Well, I think it's really spend time looking at all aspects of your financial life. It's – we sort of forget about many pieces. Obviously, we're in banking and people – there's trillions of dollars in the big bank, and there shouldn't be. Everybody rationally would move it out. I have two people on there with a big bank account. But also, look at all the different aspects of your life. In your personal life, yeah, we can cover that. That's what you really should focus on all day every day. But we forget about aspects. We spend all this time looking at portfolio. We spend all this time looking at individual stocks we might want to buy. What's going on in your debt life? Should you be paying that mortgage down or borrowing more? Should you be looking at all the different accounts you have and assessing whether they're a good thing or a bad thing?
And ultimately, it's where do you want to be a few years down the road? Is it getting out of the city, like we have up here in the mountains? Or is it – and how are you going to get there? What's your pathway? Do a little bit of planning that the businesses do every year, but do it for yourself and your family – a friend used to say, "I work for –" his name was Jack Stapleton – "Stapleton Inc." And then, I worked for EverBank at the time. So, you work for your family and yourself. And you happen to do it through Marketwise of other. But what are you planning for the family business? How are you going to move that forward and how are you going to – you're never going to optimize. There's no such thing in the real world. But how are you going to make it just a little bit better, save a few bucks here or make a few extra bucks there, and do it without having to spend all day thinking about it? That's my thought.
Dan Ferris: All right. Excellent. Yeah. Wise words.
Corey McLaughlin: Love it.
Dan Ferris: Frank, it's been a pleasure to talk with you. It's always a pleasure to talk with you when I see you around at conferences and things over the years. And thanks for being with us and talking with us today.
Frank Trotter: Looking forward to catching up with you again, Dan. And Corey. Great to see you. And as we say around Vail, it's always onward and upward.
Dan Ferris: All right. Sounds good. Thanks a lot, Frank.
Frank Trotter: Thanks, guys.
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It's great to talk with Frank. I've known him for many, many, many years and – at least 20 years. More than that, I think. Yeah, actually more than 25 years now. And he's taught me more about banking than anybody else I know, Everything I – all the really good stuff that I know about banking that I got from an insider I got from Frank. So, it's great to hear an insider talk about the industry and to know that there are people – isn't it good to know that there's a banker who's actually thinking about what's best for their customers and what would reduce their expenses and things?
Corey McLaughlin: Yes. It was cool to hear just kind of the elevator pitch on Battle Bank too. It seems like customer service is a big deal. And $3.80 on a checking account sounds appealing to me. I've got to look into that myself. It's – because, yeah, checking accounts have offered nothing – most of the big places. So, yeah, he kind of doing what he was doing in 1999, it sounds like, from that perspective. Just picking up –
Dan Ferris: Yep, they're doing it again.
Corey McLaughlin: That's low-hanging fruit there. Yeah.
Dan Ferris: That's right. Yeah. Yeah. I don't know. The only thing – I didn't get into this but part of the time I was thinking, "Boy, I really –" it sounds like I want to put some money in Battle Bank. But banking is so sticky. It's like "Well, I've got everything. Everything's fine where it is. Do I really need to move it? Do I really need to move my checking account over there?" Which shows you sort of the difficult nature of the banking industry. But I'll tell you, if I was going to move it anywhere, that's the first place I would think about moving it to, certainly. I'm glad you and I are big enough that we don't pay those fees that we're talking about. But –
Corey McLaughlin: I remember the first time I got one of those fees. I was so pissed. I had taken some money out for – I don't know what it was, some payment, and all of a sudden on my statement I was like "What is this – I still have money in this account. What's going on here?" I was so angry. I called up –
Dan Ferris: And –
Corey McLaughlin: I called up the bank and they gave me it back. They were like "Oh, since it's the first time it's fine." But I imagine most people don't take the time to do that.
Dan Ferris: Yeah, it's like "You have my money. You're not paying me jack squat on it. And you're penalizing me because now you don't have enough of it? Wow." It's just – it's a little – what a wonderful business, I guess, from their perspective. But wow, it really – and even – I notice still that even in my regular checking account, which has – always has way more money than they'll charge fees for, but they still take the fee off every month and put it back on. It's on the statement. It's like minus – I think it's $6 or $7 – minus $6 and then plus $6 right after that. Boy. Are they trying to remind me "Don't get less than $1,000" or whatever it is – I don't even know. I don't know. It's just good to see – it's sort of like – a guy like Frank being in the banking business, isn't it sort of like somebody successfully fighting City Hall or something? It's heroic. I don't know.
Corey McLaughlin: Yeah. It was a fun conversation too. Glad I – I can see why you've learned a lot from banking from him over the years.
Dan Ferris: Oh, yeah. Yeah. I look forward to – I'll probably see him – he was – the last time I saw him was last July at Rick Rule's event in Florida, in Boca Raton. They invited me again this year, so I'm going to that and I'll probably see him again. I should really start going after him for more information. He's taught me so much but it's always been these random things at a cocktail party he'll say. "Oh, that's interesting." But I should go – when I know I'm going to see Frank I should go with a list of questions and corner him. Maybe I'll remember to do that this year.
Anyway, that's another interview and that's another episode of the Stansberry Investor Hour. We hope you enjoyed as much as we very much enjoyed it. We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @InvestorHour. On Twitter, our handle is @Investor_Hour. Have a guest you want us to interview? Drop us a note at feedback@investorhour.com or call our listener feedback line, (800)381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week, I'm Dan Ferris. Thanks for listening.
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