Here's an article we found particularly interesting on the topic, reprinted from The Franklin Prosperity Report in September, 2013 by Sean Hyman, the Senior Financial Editor of the Ultimate Wealth Report.

I’ll admit I’ve probably never been a fan of banks, even though I have one that I use for my checking/debit and short-term savings.

Why do I not like them? When I was younger and needed money in the form of a loan, I couldn’t get it. These days, I own most everything outright and buy things with cash. So I’m able to circumvent the banks for the most part.

The funny thing is now that I hardly need them anymore, they come out of the woodwork to try to give me a loan.

I think many people have had this kind of disgust with a bank from time to time.

However, this year, banks have pulled some pretty wild stunts. To be fair, some of these stunts are imposed from their government or central bank. But here’s some of the “madness” that has happened in 2013.

The first one involved Cyprus’ government and banks overextending themselves and then needing a bailout. Who paid for it? Those with over 100,000 euros in their accounts had their assets frozen and 30 to 40 percent of their money was to be taken through a one-time tax (which I call legal robbery). It’s crazy. How can these people ever trust their banks again? Even those who didn’t lose any money this time around should think twice before putting more money in their banks.

Then there’s Russia. By 2015, Russian citizens won’t be able to pay cash for purchases that cost over 300,000 rubles (which equates to about $10,000). Of course, the excuse offered is that the government wants to bring a halt to the “shadow economy,” which dodges taxation. So they’re looking to bring more money into their treasury.

However, there are transaction fees to use with a debit or credit card, and there are 2 to 4 percent fees to transfer non-cash payments too. So once again, the citizens won’t have say over their own money. Their government will determine this through the banks.

Another instance of banks doing whatever the heck they decide to with your assets within the bank is this — Dutch bank ABN Amro has told its customers that they will no longer be able to take delivery of their gold that is held within the bank. So they can never get their physical gold back. They can simply choose to sell it and get the money for it.

Now how in the world is it right for them to be able to do this when you put your asset with them for “safe keeping?” It’s insane!

But that’s in other countries. We don’t have anything to worry about here about our money in U.S. banks, right?

Well, as of earlier this year, there was $25 billion in deposit insurance, which is supposed to preserve and protect our deposits. That sounds like a lot of money initially. But here’s the problem: There’s around $9.3 trillion in deposits that would need to be covered by a mere $25 billion. So there’s over 371 times more in deposits to be insured than there is in the deposit insurance fund.

Obviously, I know they don’t need to have anywhere near “dollar for dollar” held in reserves for what we have in deposits. But when the deposits are a whopping 371 times larger than the insurance, it does concern me if we were to have a huge round of major bank failures here in the United States. It happened in the last recession and it could be worse in the next recession.

What does this tell me? It tells me that even us Americans need to have a “Plan B” when it comes to our money.

What you decide is up to you. But you might need some money in a safe. You might want to hold some gold or silver coins in your possession somewhere (not at your bank). Additionally, you might want to hold some gold or silver somewhere offshore in a place that can be trusted, like the Perth Mint.

But whatever you decide to do, start thinking about what you need to do in order to protect yourself and your assets from not only a vicious government, but banks that overstep their bounds.

If you're looking for an alternative to the U.S. banking system, consider an Israeli investment account, held in Israel Securities Authority-regulated brokerages in shekels.

The post Why We All Should Be Wary of Banks appeared first on Wise Money Israel.

Question: Ran, what are market conditions like now in the Israeli capital market?

Ran: The capital market is doing well in Israel, especially the corporate bond market. We've seen a recovery over the last number of months.

WMI: Your firm currently manages about 250 million shekels in client assets (portfolios and mutual funds). Question: What sectors do you believe will outperform the overall market in the next 12 months?

Ran: In the stock market, we're recommending exposure to the overall market, for example, through the Tel Aviv 25 index. As the recent natural gas discoveries begin to deliver cheap gas to the Israeli economy (and potential gas exporting), lessening its dependence on imported Arab oil, the economy should see a significant boost to GDP, which should help the large Israeli companies' bottom lines.

Interesting Stock Sectors

Question: What stock sectors would you recommend at this time?

Ran: One specific sector that is of interest to us currently is the Israeli banking sector. The major bank stocks are currently  inexpensive on an historical basis. In most cases, their prices reflect a less than 1.0 Price-to-Book multiplier (which generally is a sign of an undervalued banking sector), and historically has led to price increases for bank stocks (in 2003, 2008 an 2011). Their market capitalization is less than their listed equity, a situation which may reflect the market's recent history fears of economic issues or a global financial meltdown. But, the Israeli banks are in an enviably strong financial condition, with strong balance sheets and consistent earnings (unlike their U.S. bank counterparts). The Israeli banks' strong earnings in 2012 is expected to continue into 2013.

Ran: No Israeli bank failed in the global banking/financial crisis of 2008, and Israeli banks didn't fall into the sub-prime crisis because of strong regulation and conservative loan practices (30% down payment, no undocumented loans, etc.). In 2002, when one small bank did fail due to one employee's embezzlement (Bank LeMizhar), the Bank of Israel returned all money to investors.

WMI: Many of our readers are interested in the oil and gas discoveries happening now in Israel. Question: What is your opinion on the Israeli oil/gas exploration stocks?

Ran: These companies now have positive momentum. In April 2013, one of the largest discovery fields is scheduled to start producing gas and selling it to the national electric company and other large industrial companies. These recent discoveries have revealed a huge potential for gas and oil reservoirs in the offshore drilling taking place now in Israel. One of these discoveries was considered the largest discovery in the world in the past decade. [editor: Zury Ilan, Chief Analyst at Cramim, indicates that the future government royalties (before corporate taxes!) from the recent two discoveries alone could pay off all of Israel's national debt]. The revenue alone from these latest two discoveries is expected to add 1% to GDP.

Ran: The initial investments for these drillings are already paid for, and these companies will soon start to show cash flow of billions of shekels. Their risk is lessening (the spotlight now is on quality of execution, and not on whether they will discover or not), and their future earnings are becoming more secure. This could cause their stocks and bonds to increase in price.

WMI: There are a number of good real estate public companies in Israel. Question: Would you buy those at this time?

Ran: I would invest in those companies with diversification in foreign real estate markets. I would buy them as a small percentage of my portfolio: they've done well, but their prices may be a bit high for now. Rather, I would more likely invest in these company's corporate bonds (those with collateral) and focus on those that weren't invested in Eastern Europe's real estate and industry, as those that survived the 2008 crisis emerged stronger. The profitability of these companies isn't high, so there isn't as much upside for their stock, but because of their financial strength, the chances they'll pay their bond obligations is high.

Corporate Bonds

WMI: Your firm is quite expert in corporate bond investing. Question: How do you select the corporate bonds you invest in?

Ran: Cramim invests in corporations that have strong balance sheets and good cash flow. We meet with the firms approximately once every six months in our offices, and ask their management tough questions regarding their future abilities to fulfill their debt obligation. We have our own in-house analysis department that performs independent, objective works of fundamental analysis on each company.

Ran: We prefer companies with strong, specific collateral and bank covenants, and yields higher than the overall Tel-Bond 60 index. After the 2008 crisis, the banks began demanding stronger collateral, making the current bond series more credit worthy than before the crisis.

Ran: Many Israeli bonds are inflation-indexed, ensuring the investor's buying power is keep intact, even if higher inflation begins to development. Israel's current inflation is around 2% annually.

Question: Would you purchase fixed-rate bonds now or inflation-linked?

Ran: We are currently buying less fixed interest rate bonds now, and keeping our bond durations on these shorter. This lessens the chances of price depreciation when the Bank of Israel raises interest rates, and somewhat lessens the impact of inflation erosion. We're also buying variable interest rate bonds (government and corporate) as we may soon see interest rates hikes by the Bank of Israel. We tend to buy a lot of inflation-linked corporate bonds.

Question: How does Cramim view the credit rating agencies ratings?

Ran: The bond ratings provide one indicator on the credit worthiness of a company or bond series. But this is not the only thing we look for. We rely much more strongly on our in-house research to determine future cash flow and the current value of companies. When we do look at ratings, we look in the BBB+ or above region, or we look at unrated bonds with strong collateral (which sometimes offers interesting investment opportunities overlooked by larger investment houses which don't dedicate their research arms to smaller, unrated bond series).

Convertible Bonds

Question: Are you finding interesting corporate convertible bonds in the Israel market today?

Ran: Currently, there are not many convertible bonds in the market that are close to their stock path. Those that do exist are very much out-of-the-money [editor: and therefore give less bond yield without the possible stock upside]. Some are in risky medical/pharma companies where the risk is too high for us to invest in them. There is one convertible bond series from real estate and gas exploration companies that we do invest in.

Mutual Funds

Question: What do you look for in an Israeli mutual fund?

Ran: Look for corporate bond mutual funds (we have three such funds) with good diversification that outperform their peer groups and overall market. These funds have shown outstanding performance in the past year compared with stocks.

Government Bonds

Question: Do you invest in Israeli government bonds?

Ran: Even though yields on Israeli government bonds are relatively low currently, we invest in these bonds to some extent to add a strong anchor to our portfolios to provide stability. As interest rates rise, we also believe these bonds may provide an interesting investment vehicle unto themselves.

Israeli Elections

Question: How have the recent elections affected the capital market?

Ran: There is a positive atmosphere in Israel because of the surprising results of the January elections. The public showed less interest in national political and security issues. Rather, social and economic issues are now beginning to take center stage. The government will now will be forced to take a hard look at high taxes, equal Army service, and other social issues. This may help the middle class and overall economy, as the burden is spread to more market participants, and more ultra-religious persons enter the workforce. Focus on making housing more affordable may succeed in lowering the average cost of living. Also, the left-wing Labor party, which has traditionally represented unionization and resisting tycoons and big money received less mandates (votes). This may produce a more constructive middle class and competitive business atmosphere.

Disclaimer: Cramim Capital Markets clients currently hold positions in the Tel Aviv 25, gas/oil securities and mutual funds, corporate bonds and banking securities.

The post Israeli Investment House CEO’s Perspective appeared first on Wise Money Israel.