It’s time to sit back, relax and enjoy a little joe …
Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.
Let’s get right to it this week …
Economists create their own worlds. We’re like little gods with our artificial economics, wanting to see what happens.
— Edward C. Prescott
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense that gold and economic freedom are inseparable.
— Alan Greenspan
Credits and Debits
Debit: The US is supposedly in its 90th straight month of economic expansion, which is quite a feat when you consider that core durable goods orders in September fell for the 21st consecutive month. That’s the longest non-recessionary contraction streak ever. Strange, isn’t it?
Credit: I’m sure there’s a good explanation for the dichotomy between the economic data and the party line that says the economy is not in recession. Well … that is, if you consider fraud and deception “a good explanation.”
Credit: For his part, financial analyst Andy Hoffman claims “everything’s rigged and everyone knows it.” You can bet the “smart money” knows it, Andy.
Credit: In the world of finance, the bond market is recognized as the “smart money” because it’s almost always the first one to recognize changing economic reality. With that in mind, could rising interest rates be signaling the end of the 30-year bond bull market is finally coming to an end? I’m just askin’.
Debit: Something is afoot in the bond market. Bank of America Merrill Lynch said government bond funds saw their largest outflow of 2016 last month; it was the biggest in four years — although economist Stephen King of HSBC Bank doesn’t believe this is the beginning of a large bond sell-off and follow-on bear market. He better hope not.
Debit: One thing is certain: Since 2009, the long-term government bond market has more than doubled, to about $6 trillion. So it should be no surprise that even a modest bond sell-off resulting in a measly one percentage point increase in interest rates would lead to $2.1 trillion in losses for global investors. Ouch.
Debit: Of course, those government bonds support the $20 trillion — and rising — US national debt. Unfortunately, the debt burden is now so large that it can never be paid back — at least not in dollars with today’s purchasing power. Sadly, the only realistic ways out are either via outright default or hyperinflation.
Credit: It’s no secret that the majority of economists who infest government and academia quickly dismiss anyone who advocates returning to the gold standard. Why? Because it’s very hard for any nation to spend more than it earns when it anchors its currency to precious metals — and that keeps a yoke on government expansion. It’s also bad for the economist job market.
Credit: Frankly, when the majority of a nation’s wealth isn’t being siphoned off to fund parasitic government bureaus, bureaucrats, and boondoggles, everyone is better off. In fact, the greatest period of US growth and prosperity occurred between 1870 and 1913 — a period when the US lacked a central bank and the US dollar was backed by gold and silver. No, really.
Debit: If the US was on a gold standard, you can bet financially-disastrous government endeavors such as Obamacare would never be possible. Just don’t tell that to ivory tower academic and Obamacare architect, Jonathan Gruber — he said this week that the “Affordable” Care Act is working exactly as it was designed. Uh huh. That’s what Germany said about the Hindenberg too.
Credit: Then again, maybe I’m being too hard on Mr. Gruber. Higher premiums. Absurd deductibles. Fewer choices. Compulsory participation. Hey … what’s not to love about Obamacare? Forward!
Debit: By the way, while Mr. Gruber maintains that Obamacare doesn’t need fixing, he did recommend an enhancement that would make it even, um, “better”:
Credit: You know, with moron statist economists like Mr. Gruber architecting destroying the American healthcare system, it’s really no wonder that your dog probably has better healthcare than you do.
By the Numbers
With Americans spending more on Halloween in 2016 than last year, here’s a closer look at some of the numbers:
$82.93 Amount the average American will spend on Halloween this year.
13 Percentage increase in Americans’ Halloween spending over last year.
171,000,000 Number of Americans who plan to partake in Halloween festivities this year.
30 Percentage of Halloween spending on candy this year.
37 Percentage of Halloween spending that is going to costumes in 2016.
2 Ranking for “pirate” among the year’s most popular costumes. (Witch is ranked number one.)
32 Percentage of women’s Halloween costumes in 2016 that are labeled as “sexy.”
Source: USA Today
The Question of the Week
[poll id="135"]
Last Week’s Poll Results
How long have you been living at your current address?
- More than 20 years (27%)
- 1 to 5 years (23%)
- 11 to 20 years (23%)
- 6 to 10 years (15%)
- Less than 1 year (12%)
More than 1300 Len Penzo dot Com readers responded to last week’s question and it turns out that half of them have been living in their current home for at least 11 years. I’m in that group as well. In fact, this December will be 20 years at my current address. Man … it seems like only yesterday that the Honeybee and I were watching our home being built from the ground up.
Other Useless News
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Letters, I Get Letters
Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com
This week’s note is from Sara King:
Do you think this (letter) is good enough to get air time in this week’s Black Coffee?
Not a chance, Sara.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-
Another great Black Coffee. And I’m not saying that because you printed my letter either! hee hee
Have a great weekend Len!
Naahh. You too, Sara!
Len,
With the bond market on the precipice of blowing I am trying to put as much money into the metals as possible. In your opinion what percentage should a person be into the miners compared to physical metal? I’m just wondering what the government might do in confiscating metals and or taking over mines. One doesn’t really know where to run because I don’t see any currency being worth putting wealth into, so any further advice would help.
Thanks
Jared
Jared, I don’t give investment advice; I can only speak to what I feel is right for me. At the moment, I don’t have any investments in miners or any other paper-backed instruments outside of my 401K. While the performance of mining stocks moves five times or more — in both directions — in relationship to the price of gold and silver, I believe they are also more susceptible to a windfall profits tax than physical metal (for several reasons). I suspect there is an extremely good chance that the miners would be nationalized as well, which would further affect ultimate returns.
For me, I am still diversified, but my percentage of precious metals is becoming a larger and larger share of my nest egg with each passing day. Right now I am more interested in insuring my wealth, rather than seeing it grow — because I don’t believe growth in the current environment is realistic with today’s failing monetary system in its death throes. For me, it’s more about return OF investment, rather than return ON investment.
I am diversified approximately: 40% gold, 20% silver, 25% stocks, and 15% bonds. I’m gradually replacing my bond holdings with precious metals, which I believe will be the new dominant safe-haven retreat in the coming decades.
Central Bankers are all trained to think the same way. They all push in the opposite direction of a gold standard. Politicians bask in the so-called independence of Fed and its ability to print print print and devalue on any whim that suits them. That is why politicians, being power seekers and control freaks, will surely never sign on to the degree of financial self-control required by a gold standard.
Agree 100%. At least not willingly.
I’m already in the gold standard. It’s called the central bank of Jim.
Keep stacking!
Yep … we should all strive to be our own central bank, Jim. If central banks insist on holding physical gold and other precious metals in their reserves, then it only makes sense that we should too.
Great blog coffee edition. I wish I had taken economics in college. I would have known all these concepts and how each works in economy especially in investment.
It’s never too late to learn, Jayson. There are plenty of great resources on the Internet. Start with Mike Maloney’s Hidden Secrets of Money series, and then branch out from there.
“Economists create their own worlds” This really sums up so much of what is wrong with the world! I can’t believe how much money has been loaned, based on unrealistic expectations. I think the world would implode if it ever went back to the gold standard. Hope you had a great weekend!
The world would implode and there would be a lot of pain. But it’s the only way out, Jay. The piper is going to be paid, one way or the other. One thing is certain: the party is over.
The good news is the implosion would be followed by an economic rebirth.
I was struck by that quote too, “Economists create their own worlds”. There was an article this past week on how underfunded state and local government pensions are. Their pensions were all based on imaginary R.O.I.’s. The returns are no where near what was promised.
There was a federal government study a while back on how much it costs to raise a child. Many PF blogs used the info in an effort to get people saving more for their kid’s futures. The only problem? The “median” household income the govt. used was $75,000 to $125,000 a year. In actuality, the median US household income is around $50,000. A household earning double the median will of course spend more on their kids. Policy is based on the government study in handing out welfare, food stamps, housing and the like. These unreal “needs” encourage coveting for those who make less or are on welfare. When people think they “need” more from the government they will vote that way. Anger and resentment are prodded along. Thrift and resourcefullness are discouraged. It’s not just about economics, it’s about controlling people’s thinking and actions.
Maybe, if there isn’t massive social unrest and destruction of physical property when the economy fails, we’ll revert to the barter system.
You know how the sea sucks back, just before a tsunami? That’s what this feels like.
Good comments, Olivia!
I have no idea how the inevitable financial crisis is going to unfold. It’s up to the powers that be — they can preempt a financial collapse right now and minimize impacts to supply chains by implementing a debt jubilee, or revaluing gold to accurately reflect the current currency supply, thereby sharply devaluing those currencies in the process. Of course, that is political suicide.
More likely, I fear they will take the coward’s way out and wait until the international monetary system dies and finally seizes up — virtually assuring broken supply chains and mass social unrest. Barter will then very much be the order of the day until they can establish a new gold-backed currency that is trusted by the people.
He’s right. Obamacare IS working as designed. Affordable health care was never its’ intent. Driving other insurance companies out of business was its’ prime directive. Making such demands on insurance companies that make it unprofitable for them to remain in the system or even as an operating business eventually would allow the government to step in and take over as a single payer system. Just another way to control the population. When the government holds your health hostage it of course have the ability to force you to do whatever it wants.
Yes, Kathy, many people believe that Obamacare was purposely designed to fail.
I don’t think the socialist “braintrust” — and I use that term very loosely — that devised Obamacare had that in mind at all.
I think the arrogant fools truly believed their plan was workable.
Len Penzo dot Com,
What do you think of inverse bond funds for diversification? The ETF is shorting bonds, bond futures, etc. Thus, when interest rates rise, so does this ETF.
I can see how it makes sense if you believe the 30-year bull market in bonds is coming to an end.
Len,
What’s your take on goldmoney account? I feel better about it since Schiff has joined the venture, still don’t like the fact there isn’t another person on the other end to talk to. Have you thought about opening an account with them or maybe you have? Just trying to get folks opinions about the situation.
Thanks,
Jared