Tanks Outside Banks?
The market brushes off Biden's COVID positive... Tanks outside banks?... Someone stole the money... The warning this story gives us... Robinhood is offering 'stock lending'... A disaster waiting to happen... Don't miss Doc's new presentation...
Before we get into what we were planning to write about today...
We must first address the headline news of the day... President Joe Biden has tested positive for COVID-19. The news broke this morning about an hour after the U.S. markets opened.
Biden is now the second president in a row to contract the virus and, given his age and health, we can't say with much certainty what the outcome will be. But he will likely get the best care and treatments possible, much like his predecessor Donald Trump.
When Trump got COVID in October 2020, the stakes were high with the presidential election the following month... I (Corey McLaughlin) looked back today at what we wrote then...
The uncertainty rattled the markets, with all three major U.S. indexes selling off sharply. Remember, this was before vaccines were available, and Trump was sent to Walter Reed Medical Center.
Today, after the news of Biden's positive test went public around 10:30 a.m. – along with a report he was experiencing "very mild symptoms" – there was a slight drop in the major U.S. indexes into negative territory, but not a significant one...
The benchmark S&P 500, tech-heavy Nasdaq Composite Index, and Dow Jones Industrial Average each traded higher the rest of the day and closed slightly positive. The Nasdaq led, up nearly 1%.
You could chalk up the ho-hum market reaction to the fact that we know more about COVID-19 than we did two years ago... or maybe that Biden's popularity ratings are at historic lows... or maybe just the timing. After all, we're not a month before a presidential election.
The mood would change, though, if Biden's health takes a turn for the worse.
Moving on to a startling image we saw last night...
A shocking video of tanks rolling down the street in a Chinese city has garnered millions of views so far. And for good reason (kind of)...
The video circulating on social media and picked up by websites like India.com claims that the Chinese government has deployed tanks to protect several banks and prevent their customers from getting inside and demanding their savings be released to them...
We can't confirm whether the video is authentic. Some observers following the story closer than us suggest it is old footage from a routine training exercise in a different city. This wouldn't surprise me.
For some, the video brought to mind scenes from Tiananmen Square in 1989. But whether this video is real or not, it got people's attention – which was probably the point.
It's the latest in a true story that's been happening for a while…
But which is largely underreported in the U.S...
Several banks in rural China have frozen deposits after a fraud scheme was uncovered. And what sounds like millions or billions of everyday folks' savings – and banks' liquidity – has disappeared from the Chinese banking system...
And angry customers worried about their savings have taken to the streets in several Chinese cities, including Zhengzhou, the capital of China's central Henan province. As the South China Morning Post reports...
Deposits at four rural banks in Henan province and one in neighbouring Anhui have been frozen since mid-April, leading to protests from disgruntled customers. The value of frozen funds is estimated at 40 billion yuan ($5.9 billion), with some depositors fearful they have lost their life savings.
Authorities have accused a private financial group of misleading members of the public with promises of high-return wealth management products.
According to the Morning Post – Hong Kong's longtime newspaper of record that does good work – China's small rural banks have often partnered with online platforms that promise a higher return on deposits than larger banks.
In this case, it's unclear if the cash customers handed over was actually deposited with the banks.
In other words, someone stole the money...
And not just someone, but a "criminal gang" led by a suspect who had controlled the banks in question since 2011, according to authorities and local media reports. As Bloomberg reported last night, an official probe into the case found...
A private investment firm with stakes in the five lenders, colluded with bank employees to take deposits and marketed financial products via online platforms, before transferring the money by fabricating lending agreements.
Police have taken suspects into custody and seized or frozen at least some funds involved in the case. But the ringleader has not been caught yet, as the Morning Post reported...
As part of an ongoing investigation, Henan police said that a criminal suspect, Lu Yi, had used the Henan Xincaifu Group to carry out the scandal, although his whereabouts remains unknown.
In the meantime, thousands of regular people want their money back but can't get it... and there's fighting in the streets. Video shared by global news outlet Reuters last week showed police and other unidentified men beating protestors.
We don't know for sure whether the tanks have been deployed, but the foundation of the story is true. (And the fact that a viral video can so easily spread potential misinformation is yet another commentary on our world today.)
Authorities have said they've begun to repay some of the money, starting with customers with deposits of up to 50,000 yuan (around $7,400). They've promised to begin repaying up to 100,000 yuan (close to $15,000) starting next week. But those with larger balances are still left without a resolution...
It sounds like this is an isolated, yet large-scale scam.
We share the story for a few reasons.
For one thing, the tank video was startling enough that we wanted to know the details. Some of you thought the same... We got a few reader comments about this story as we were writing today.
And second, it shows what can happen if you put your money to work in a business that goes bad... and how "contagion" crises can start and spread. As our colleague and Asia-based analyst Brian Tycangco shared on Twitter last night...
Investor education is something still sorely lacking in China, which I hope they would address even on a rural level. If it's too good to be true, it probably is.
Chinese regulators are now suggesting small banks take on capital, including from overseas, to strengthen their balance sheets. The story has increased scrutiny on the Chinese banking system amid an already shaky climate stemming from Beijing's zero-COVID policy.
It also makes me think about what could happen here – or anywhere.
Here's another example... and an early warning...
Regular readers are no doubt familiar with online brokerage Robinhood (HOOD). It was founded in 2013 and, over the past decade, has changed the brokerage business as we know it with its model of offering totally free trades and, more recently, fractional trading.
But the business has come under fire over the past year or so, starting with its role in the GameStop (GME) and AMC Entertainment (AMC) saga early last year.
At the height of the frenzy, Robinhood and a few other brokerages prevented customers from trading in certain "meme stocks," as we wrote in the January 28, 2021 Digest...
Today, no-fee brokerage Robinhood and several other major brokerages either banned users from buying new shares of GME, movie-theater chain AMC Entertainment (AMC), and a few of the other stocks that have been "short squeeze" targets of the Reddit WallStreetBets crowd... or restricted how much they could trade "on margin."
This move didn't go over very well with customers and observers, who thought this gave Wall Street hedge funds a break at the expense of new, small-time traders. And it turns out the situation was worse than it sounded at the time, as it often is...
Robinhood received what was essentially an overnight bailout – a waiver from a trading clearinghouse – because its collateral obligations increased 10-fold during the saga and it could not meet them, according to a recent 138-page report from the House Financial Services Committee.
Robinhood's stock price has taken a massive tumble over the past year, too... Shares of HOOD are down 86% since their all-time high last August, shortly after its initial public offering. And today, Robinhood is a takeover target...
In short, business isn't going great. And from what I can tell, the company is now turning to gimmicks to try to turn a profit.
Consider this e-mail customers received from Robinhood recently...
I have a small amount of money in the platform, in part because I like to keep tabs on what the company is doing and offering. I got this e-mail last week...
Yes, you're reading this right. They'll take your shares and lend them out in exchange for some income for you... Just sign up, they say, and we'll take care of the rest.
We have so many questions and concerns.
First off, what's the point? Just buy some great dividend stocks instead and enjoy the compounding over time.
Secondly, who is "we"? Do you want some unknown person or algorithm lending out your cash? I signed up for the program just to see if I could find some more detail, but all I found was a tab saying that Robinhood had not chosen to loan out any of the stocks I owned yet...
If we loan out any of your stocks, they will be listed here.
This is a disaster waiting to happen...
Our more experienced readers know to stay away from too-good-to-be-true products like this. But if you are any of the 215,000 customers signed up for "Stock Lending," please reconsider it... and know what you are and aren't getting into...
What could possibly go wrong?
This offering sounds like exactly the same business behavior that just led cryptocurrency platform Celsius to freeze clients' deposits and file for Chapter 11 bankruptcy after being caught red-handed and overleveraged amid the recent "crypto winter" in the sector...
(While we're on the subject of cryptos, be careful and follow a good guide like our Crypto Capital editor Eric Wade. He always recommends making sure you really own your cryptocurrency via a secure wallet. He wrote an entire guide on this here for subscribers.)
To me, what Robinhood is advertising is taking your deposits and treating it like the company's cash... no matter how it might show up on the front end to you (like holding a stock, or in the case of Celsius, income-producing cryptocurrencies).
This might be OK if you have confidence in your broker and they have a strong track record of treating customers right...
But Robinhood doesn't. And it's acting like it's doing people a favor by offering them a great "new passive income opportunity." (That's what it said in the e-mail subject line.)
Don't be fooled. The brokerage is just taking your money and doing whatever it wants with it. Read the announcement again...
You start earning interest immediately if we find a borrower for your stocks. The value of your shares is fully protected, and you can still sell them whenever you want.
Then read the fine print in the footer of the e-mail from Robinhood (we highlighted for emphasis)...
Said another way, good luck getting your money back if things go wrong...
Considering Robinhood got out over its skis and didn't have enough collateral to back up trades during the GameStop saga, I'm skeptical in the promise that anyone's funds are "fully protected" this time.
The practical takeaways are these... Don't forget to read the fine print when you are doing something with your money... know what you own and make sure you really own it... and stay away from offers that sound like this. The risks are high, and you can find better rewards elsewhere anyway...
Speaking of that, here is a little more about Doc's new presentation...
The response to Dr. David "Doc" Eifrig's presentation – which he debuted on Tuesday – has been overwhelming. That's why I want to make sure anyone who hasn't yet seen it has a chance.
Here is a direct link to the video.
As we've mentioned, Doc shares all the details of what he's calling the biggest story in 40 years and a "shock" that will take millions of people by surprise in the years ahead.
It's something that reaches well beyond inflation... war... or anything else going on today, which we know is a lot. Part of the solution to this shock, Doc says, is a group of stocks that could help you grow your wealth by 20% or more per year – with relatively low risk.
What I haven't mentioned yet is that our colleagues Tom Carroll and John Engel join Doc in the presentation about halfway through.
Digest readers should know Tom from his occasional essays in this space and from our former Cannabis Capitalist newsletter... And John has done excellent work with Stansberry Innovation Report for years.
Together, they give a full picture of the retirement shock and opportunity for massive gains that Doc is talking about. As John says in the video...
This is truly a "dream team" of pooled experience and expertise... and an incredible opportunity today for people watching.
We concur. To hear what they have to say, be sure to watch Doc's latest presentation – for free.
And Stansberry Alliance members, feel free to give it a watch. I think you'll find it informative and enlightening to hear Doc's latest thoughts on the world today. But know that you also have access to the new research he is talking about already. You can find it here.
Tucker: Expect 'Something Crazy' in the Next 90 Days
Popular guest E.B. Tucker, the bestselling author of Why Gold? Why Now? tells Stansberry Research editor-at-large Daniela Cambone that the U.S. dollar cannot be this strong forever... and that "something crazy" will break in the markets "in the next 90 days." Watch for the details...
Click here to watch this video right now. And to catch all of our videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 7/20/22): Booz Allen Hamilton (BAH) and Texas Pacific Land (TPL).
In today's mailbag, more feedback on the House speaker's husband trading 20,000 shares of chipmaker Nvidia (NVDA) ahead of a congressional vote on a semiconductor industry bill... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Nancy [Pelosi] is planning a trip to Taiwan where most of the chips are made today. Will she come home with more chip industry inside information for Paul?" – Stansberry Alliance member Mike K.
"Regardless of the legalities, this stinks to high heaven and our elected congress people should remember who the hell they work for. They are NOT Crown Princes and Princesses.
"Politicians in general only care about two things: 1) Getting re-elected and 2) Getting as much of our cash into their pockets as possible. They show no signs of caring about the country or right vs. wrong." – Paid-up subscriber David P.
All the best,
Corey McLaughlin
Baltimore, Maryland
July 21, 2022