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.
Okay, away we go …
“Price is what you pay. Value is what you get.”
— Warren Buffett
“Don’t be seduced into thinking that that which does not make a profit is without value.”
— Arthur Miller
Credits and Debits
Credit: I see filings for unemployment benefits plunged last week to the lowest level since 1973. Yes, that 1973. You can thank all of the returning employees who were previously unable to work due to the recent hurricanes.
Debit: Meanwhile, this past week marked the 30th anniversary of Black Monday. On that fateful day, the Dow lost 22.6% of its value. A similar plunge today would see the Dow fall more than 5200 points by the closing bell. The good news is there are now circuit breakers in place to slow the rate of descent. The bad news is, those circuit breakers only halt trading for 15 minute periods — so a similar crash is still possible.
Credit: For those of you keeping score at home, bitcoin hit $6000 on Friday. It has since pulled back a bit — but by the end of the day it was still trading near $5950. As recently as January 12th, the cryptocurrency was selling for “just” $802.
Credit: Bitcoins are basically nothing but a series of ethereal ones and zeros stored on magnetic hard drives — unlike precious metals, which are tangible items that you can actually hold and measure by weight. That’s why gold and silver were important in Puerto Rico after Hurricane Maria wiped out the island’s electrical grid, and bitcoin was not. Let that be a lesson for you on the difference between price and value.
Debit: Despite what happened in Puerto Rico after the hurricane, a single bitcoin is still four times more expensive than a troy ounce of gold, and nearly 350 times more than a silver American Eagle or Canadian Maple Leaf. The bottom line is this: Speculators are more concerned with price, while investors and those worried about counterparty risk are more concerned with value. Which one are you?
Debit: Just remember, if you own precious metals, make sure they’re in your possession. And whatever you do, for God’s sake, don’t store it in a bank! This week, asset manager Egon Von Greyerz reported that at least two of his clients in Switzerland are being refused access to gold they put in Swiss banks for “safe keeping.” Strange. Say, you don’t think those shady banks took their clients’ gold and … Nahhh.
Debit: On a somewhat related note, the US has been living above its means for the past 50 years. Not only has America run a real budget deficit every year since 1961, but also a trade deficit every year since 1975.
Debit: Of course, those deficits eventually caused Richard Nixon to break the dollar’s anchor to gold in 1971. That, in turn, forced the creation of the petrodollar to prevent runaway inflation in the US. Unfortunately, when the petrodollar system finally dies, Americans’ artificially-juiced standard of living will fall sharply. At least temporarily, until the US begins making things at home that it imports today.
Debit: It’s also no coincidence that the rise of financialization followed the dollar’s decoupling from gold in 1971. However, Charles Hugh Smith says financialization is like flying into a box canyon because, “Once you start down the path of phantom wealth created by debt and leverage, there’s no turning back.” Yep. Our debt-based currency lent out at compound interest is that rock wall — and it’s coming up fast.
Debit: Speaking of box canyons and rock walls, Illinois is past the point of no return; the state can no longer raise enough taxes or cut spending to reduce its annual bond costs and retiree benefits to a sustainable level. In other words: it’s essentially bankrupt. “Not because of too much bonded debt,” analyst Carl Dincesen notes, “But rather the government promising retirement benefits that aren’t affordable.” Ya think?
Credit: And finally … Bernie Sanders continues to push his socialist agenda to anyone gullible enough to believe it. This week, he explained how things will work when he’s in charge: “You’re going to be paying more in taxes; everybody will pay more. But you’re gonna get free health care, and maybe you’re gonna get free child care, and maybe your kids are gonna be able to go to college tuition-free.” Really, Bernie? Free?
By the Numbers
After three hurricanes, California’s wildfires and other less-publicized natural disasters, 2017 is shaping up to be one of the worst years ever for costly natural disasters:
15 The number of natural disasters this year that have racked up at least $1 billion in damages.
2011 The year that suffered the most natural disasters with $1 billion or more in damages. (16)
$33,000,000,000 The average annual cost of big disasters.
$6,000,000,000 The high-end estimated cost of this year’s California wildfires.
$222,000,000,000 The estimated combined damages caused by 2017 Hurricanes Harvey, Irma and Maria.
$51,000,000,000 Amount Congress has appropriated to-date towards 2017 disaster relief.
Source: The Hill
The Question of the Week
Last Week’s Poll Result
How much is your monthly rent or mortgage payment (excluding taxes and insurance)?
- Less than $500 (39%)
- $1001 to $2000 (27%)
- $500 to $1000 (24%)
- More than $2000 (10%)
More than 1200 people answered this week’s survey question and almost 2 in 5 are fortunate enough to be spending less than $500 per month on their rent or mortgage payment. At the other end of the spectrum, 37% allocate more than $1000 for their monthly shelter expense. For what it’s worth, the conventional wisdom is that you spend no more than one-third of your monthly income on housing.
Useless News: The Banking Game
Other Useless News
Here are the top — and bottom — five Canadian provinces and territories in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. Manitoba (2.13 pages/visit)
2. Alberta (1.78)
3. New Brunswick (1.76)
4. Quebec (1.45)
5. Newfoundland and Labrador (1.41)
9. Nova Scotia (1.37)
10. Yukon Territory (1.33)
11. British Columbia (1.30)
12. Nunavut (1.25)
13. Northwest Territories (1.00)
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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 me at: Len@LenPenzo.com
After reading my article explaining why Boardwalk is not the most valuable property in Monopoly, Rick asked this question:
Have you ever played Monopoly where a fight at the end hasn’t happened?
Wait … you mean Monopoly actually has an end?
I’m Len Penzo and I approved this message.
Photo Credit: (coffee) brendan-c