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.
Off we go …
Only those who risk going too far can possibly find out how far one can go.
— T.S. Eliot
Risk comes from not knowing what you’re doing.
— Warren Buffett
Credits and Debits
Credit: Have you checked your credit score lately? Well … maybe you should, because millions of Americans recently got an artificial boost to their number. As a result, the average consumer credit score in the US is now 700. The last time it was that high was way back in 2005.
Credit: Of course, most people who hear that news assume American consumers are becoming more credit worthy. Too bad it’s really just another financial trick to keep our debt-based financial system Ponzi scheme from imploding due to a lack of “qualified” borrowers.
Credit: Amazon got a boost of their own this week, as its shares topped $1000 for the first time, beating Alphabet to that milestone. Yes, that’s a lot of cash, but investors looking to buy a share or two should be thankful the stock has split multiple times over the years — otherwise, AMZN would cost $12,000 today.
Debit: By the way, Amazon’s share price hasn’t been rising in a vacuum. Since May 2013 the Dow has risen 5000 points — which is rather odd when one considers that cumulative US durable goods orders have been unchanged over the exact same period. But I’m sure that’s nothing to worry about. Hey … This party’s just getting started!
Debit: You want to know what else is odd? This: Despite $10 trillion in deficit spending since 2009, the US economy has never grown at a slower rate over a similar period. That’s right — even slower than during the Great Depression. And yet the stock market indices — now at all-time highs — have been steadily climbing for almost the entire time.
Debit: If you think the stock market is, er, irrationally exuberant, then don’t even think of buying bonds, which are in a 36-year bull market. No, that’s not a typo. By some measures, bonds are so over-valued that 10-year Treasuries are now actually riskier than stocks. Talk about an upside-down world. And, no, this will not end well.
Debit: Obviously, both the stock and bond market parties will continue as long as the men behind the curtain can keep the charade going. For instance, this week the Chicago Purchasing Managers’ Index was inexplicably revised sharply upward an hour after its dismal original report sparked a negative market reaction. Heh. They don’t even try to hide it any more.
Debit: Government bureaucrats are doing their part to fool most of the people all of the time too. For example, even though non-profits can pad their operating expenses without actually providing any tangible economic benefits, the US is now adding them to the GDP calculation, thereby artificially boosting its first-quarter’s GDP reading — and every one that will follow from here on out.
Debit: Meanwhile, China’s incredible growth over the past two decades has been built on so much debt that the Middle Kingdom is now the proud owner of the greatest debt bubble in history. In fact, the combined Chinese government and corporate debt-to-equity ratio is currently more than 300-to-1.
Debit: Then again, China doesn’t have a monopoly on debt. Most of the world’s developed economies are mired in so much red ink that a tidal wave of debt is now threatening to drown everyone without a financial life raft.
Credit: In the past, the world was able to avoid the negative impacts of ever-increasing debt because the red ink generated tremendous economic growth. Unfortunately, today the world is almost tapped out — and the new debt that is being generated no longer offers any appreciable economic bang for the buck. In other words, a day of reckoning is fast approaching.
Credit: As investment advisor John Mauldin notes, “There are $300 trillion in global public and private debt, plus unfunded pension obligations, that can’t be paid. A time is coming when the market will realize this.” According to Mauldin, when the next recession comes, you shouldn’t be surprised if it results in a complete reset of all asset valuations.
Credit: For Mauldin to suggest a financial reset may be on the horizon is quite a turn-around. Less than two years ago he was saying there was “nothing to worry about.” Welcome to the Tin-Foil Hat Club, John.
Credit: If Mauldin is correct, then I suspect that the only asset holders who will be smiling after the reset are the ones holding wealth insurance in the form of physical gold and silver. Frankly, I think you can take that to the bank — just don’t do it literally.
Last Week’s Poll Results
Are you glad that summer is just around the corner?
- Yes (72%)
- No (20%)
- I’m not sure (8%)
More than 1300 Len Penzo dot Com readers responded to last week’s question, with almost three in four of them saying they’re looking forward to summer. I’m looking forward to it too. Not everyone is excited for summer though; one in five people say they’re enjoying spring too much.
The Question of the Week
[poll id="166"]
Insider Notes: The Four Best Inflation Strategies
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By the Numbers
In case you missed it, the National Spelling Bee finals were held on Thursday. Here’s a brief look at the famous contest:
1925 Year of the inaugural National Spelling Bee.
9 The number of letters in the first National Spelling Bee’s winning word. (gladiolus)
291 The number of qualifying contestants for the 2017 National Spelling Bee.
40 The number of 2017 finalists.
20 US states represented among this year’s spelling bee finalists.
7 The number of finalists from California this year, which was more than any other state.
6 The age of kindergartener Edith Fuller, who is the youngest qualifier ever.
25 The percentage of 2017 Spelling Bee contestants who have qualified for the National Spelling Bee multiple times.
24 The percentage of this year’s contestants who learned English as a second language.
Source: CNN
Other Useless News
Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.
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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
After reading about the 10 worst things I ever bought, Buy, Hold Long dropped this note:
Some of these are quite funny!
Thank you. Unfortunately for me, most of them aren’t cheap laughs.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Always appreciate these weekend updates Len! So thank you very much for sharing. I’m doing my best to close my eyes and keep riding this bull market higher. There is lots to worry about but the Nasdaq just keeps going up! At some point Mauldin and co will be right, but it’s not here quite yet if you ask me.
Have a great weekend!
Jay
Thanks, Jay. The only certainty is nobody knows for certain the exact day the markets will finally break. For those who think they will be able to get out in time, staying in the market seems like a no-brainer.
I think most people will be trampled getting to the exit door. It’s all a question of how much risk one is willing to take. That is, are the expected gains from this point forward significantly greater than the potential losses?
Well, if you keep being consistently negative eventually you’ll be correct.
It’s not a matter of being negative or positive, Mike. It’s about facts — and then evaluating the risks based on those facts. How much risk one decides to take is a personal decision.
Of course, choosing to ignore or deny those facts is a personal decision too.
Sure – but what the facts are “saying” has yet to pan out.
But like I said, you’ll get it right sooner or later.
I sleep peacefully every night, Mike. How about you?
When the debt bubble pops, it’s going to happen quickly with little time to react. That means it’s better to be way too early than a day late. People like Mike will find that out the hard way.
Isn’t it interesting that Americans credit scores are supposedly higher than ever but more than half of them don’t have $400 in savings to cover a minor car repair?
It’s ironic, to be sure, Wilson — and I don’t believe it for a minute.
I’m with Jay! I look forward to my Black Coffee every Saturday Len.
Have a great weekend!
Sara
You too, Sara.
By the way, folks … this was recently posted on Zero Hedge: 93% of all jobs “created” since 2008 are due to the birth/death model.
That’s just more “Weekend at Bernie’s” economic hocus pocus!
“Most of the worlds developed economies are mired in so much red ink that a tidal wave of debt is now threatening to drown everyone without a financial life raft … (If there is a financial reset) … I suspect that the only asset holders who will be smiling after the reset are the ones holding wealth insurance in the form of physical gold and silver.”
Len I don’t think there can be a viable FINANCIAL reset, in a so-called “worst case scenario”.
The life raft for those of us prepared for it (incidentally, this preparation DOES NOT have to include a diminished quality of life) will be independent of money systems – more akin to the “prepper’s” philosophy, without their propensity for a minimalist lifestyle.
Arable land, livestock and tools, water and electricity and fuel independent of public supplies, all well away from a large population center are, IMO, better than gold and silver. Most farmers are already prepped.
Believe it or not, I agree with you for the most part, Dave.
I’ve always advocated that physical precious metals should only be acquired after one has secured the basic necessities first (food and water stores, weapons for self-defense, medicines and other preps). I also agree that those who have arable land, livestock and well water are at a great advantage to those in the cities and suburbs. No doubt about it!
That being said, financial resets have happened many times in history without ushering in a worst case scenario. If the system implodes unexpectedly this time, I expect temporary supply chain disruptions — six months max — but I also expect a new system to be ushered in that will reset the system, restore financial order, and allow true economic growth to begin again.
Of course, the trouble is, aside from those who own their own productive land and/or businesses, and/or precious metals, everyone will have to rebuild their wealth from scratch.
Adding non profit corps to the GDP calc is misleading. Also misleadingly is the government spending component since all government spending is simply wealth redistribution using dollars created from previous GDP generation that it receives from taxation, borrowing and/or the sale of national assets.
I totally agree with that — but there are those out there who argue otherwise, saying if a government builds a bridge or highway that is still an increase in production.
Once upon a time stocks and bonds generally moved in the same direction only over short periods of time. In a market downturn, investments flowed from stocks to bonds. In good times, bonds to stocks.
Thanks to the Fed this hasn’t been the case in many years. It will be interesting to see where all the cash in stocks and bonds flow on the next downturn. It has to go somewhere. Gold and silver is a logical answer.
I think when bond bull market finally dies and prices begin to crumble, that fleeing bond money will flood into the precious metals because bonds and PMs are both considered to be “safe haven” investments. When the bonds finally fail in that capacity, gold and silver will be the natural escape hatch.
Stocks are NOT in a bull market. We’re in a long term bear market dating back to the dot-com crash. Lower lows than the March 9, 2009 low are coming.
Interesting observation, Tony. Time will tell how low stocks will fall during the next downturn.