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 …
“We spend too much, we borrow too much, and we distort the markets. The bigger the distortions, the bigger the bust will be.”
— Ron Paul
“In the kingdom of the blind, the one-eyed man is king.”
— Desiderius Erasmus
Credits and Debits
Debit: With the petroyuan due to debut on January 18th, the Bundesbank was adding renminbi to its currency reserves this week. There’s just one problem: China failed to get its new oil-for-yuan contract off the launchpad this week. Instead, the first contracts are now scheduled to begin trading in late February or early March. So King Dollar gets a reprieve — albeit a brief one.
Debit: Meanwhile … whether it’s the tea company that put the word “blockchain” in its name only to see its stock rise by several multiple, or the Swiss National Bank, using currency it printed out of thin air to buy stocks, recently selling a portion of its holdings to earn $55 billion in “profits,” or the world mired in $233 trillion worth of debt that can never be paid off, absurdity is the new normal.
Credit: How absurd? Well, Brandon Smith explains that, “Trillions in uncontrolled central bank stimulus and years of artificially low interest rates have poisoned every aspect of our financial system. Nothing functions as it used to. In fact, markets move in the exact opposite manner as they did before the debt crisis began in 2008.” Maybe so, but the stock market bulls aren’t complaining; they’re busy reaping profits.
Credit: One blatant example of the markets working in reverse can be seen in the falling US dollar index over the past year, despite the Fed’s tightening campaign. As you can see, the market is completely ignoring the Fed’s interest rate hikes:
Graphic: Zero Hedge (click to enlarge)
Debit: In other news, I see that bitcoin spent most of this past week tumbling, briefly falling below $10,000 — a 50% drop since mid-December — before recovering near $12,000. One thing is certain: Anyone who wishes to dip a toe in the highly-speculative cryptocurrency waters better be sure they have the intestinal fortitude to endure bitcoin’s incredible volatility. No, thanks; I continue to prefer physical gold and silver.
Credit: On the other hand, stocks are still soaring, with higher share prices, rising investor optimism and fresh cash being funneled into the stock market by euphoric investors who fear missing out on gains despite the market’s lofty levels. Buying stocks still seems to be a smart investment strategy — at least until the supply of greater fools finally dries up.
Credit: So while most folks are celebrating the big increases in their quarterly 401(k) statements, Jim Rickards is trying to temper expectations by warning that, “The market is especially susceptible to a sharp correction, or worse.” What a party pooper.
Credit: Rickards is correct, of course. But for now, the US economy seems to be humming along. Despite the labor participation rate near a multi-decade low, the job market is supposedly as tight as ever, with US filings for unemployment benefits plummeting to their lowest level in almost 45 years. Hooray!
Debit: The tight labor market is one reason why the US Treasury collected almost $400 billion in tax revenue during the month of December. Even so, the government still ran a $225 billion deficit — that is an annualized rate of $2.7 trillion added to the National Debt. Can you imagine how bad the numbers will be when the US enters its next recession?
Credit: With that in mind, it should be no surprise that China downgraded the United States’ creditworthiness this week — as a result, the US is on par with countries like Peru, Colombia and Turkmenistan. Yes, that Turkmenistan.
Debit: Then again, the US doesn’t care what any Chinese rating house thinks. Why should they? Especially with Fitch and Moody’s in its back pocket. As ZeroHedge notes: “China’s move is far more political than economic, and sends another shot across the bow as the (US) prepares to launch a trade war. Still, Fitch and Moody’s give the US their top ratings, (despite) their concerns.”
Debit: Let’s just hope Congress doesn’t try to close their revenue gap by following Seattle’s lead. Residents of the Emerald City are now “enjoying” a 1.75 cents per ounce (!) sweet-drink tax passed by their uber-liberal city council. After the tax took effect, the price of a case of Gatorade skyrocketed from $15.99 to $26.33. Thankfully, that extra tax revenue will be put to really good use. On second thought … no, it won’t.
By the Numbers
The US economy definitely improved in 2017 from previous years — but the employment figures are still sending mixed signals:
4.1% The US unemployment rate at the end of 2017; that’s down 4.7% in January 2017.
4.0% Rate traditionally considered by economists to be full employment.
62.7% The US labor participation rate which measures the percentage of people who are either employed or actively looking for work.
2,100,000 The number of new jobs created in 2017; that’s the lowest annual figure in seven years.
184,000 The number of new manufacturing jobs created in 2017.
Source: Houston Chronicle
The Question of the Week
[poll id="198"]
Last Week’s Poll Result
How many cars do you currently own?
- 2 (37%)
- 1 (31%)
- 3 (16%)
- 4 or more (13%)
- None (3%)
More than 1300 people answered this week’s survey question and it turns out that 3 in 8 Len Penzo dot Com readers own two cars. Another 1 in 8 have at least four autos — and hopefully a very big garage to keep them in!
Useless News: Irish Parents
A man in Ireland called his son in London the day before Christmas Eve and says, “I hate to ruin your day but I have to tell you that your mother and I are divorcing; forty-five years of misery is enough.”
“Dad, what are you talking about?'” the son screamed.
“We can’t stand the sight of each other any longer,” the father said. “We’re sick of each other and I’m sick of talking about this, so you call your sister in Leeds and tell her yourself.”
The son was frantic and dutifully called his sister, who exploded. “Like hell, they’re getting divorced!” she shouted at her brother. “I’ll take care of this.”
So she immediately called Ireland and when her father picked up the phone she screamed, “You are NOT getting divorced! Don’t do a single thing until I get there. I’m calling my brother back and we’ll both be there tomorrow. Until then, don’t do a thing! DO YOU HEAR ME?” and hangs up.
The old man hung up his phone and then turned to his wife.
“All done! The kids are coming for Christmas — and they’re paying their own way!”
(h/t: abguy4)
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. British Columbia (4.36 pages/visit) (!!)
2. Manitoba (2.38)
3. Alberta (2.07)
4. Saskatchewan (2.03)
5. Quebec (1.87)
9. Prince Edward Island (1.50)
10. Ontario (1.49)
11. Nova Scotia (1.19)
12. New Brunswick (1.08)
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
My article explaining why Miracle Whip doesn’t belong on a tuna sandwich received a lot of comments from those who disagreed, including this one from Deb in SD:
I currently use a mixture of MW (or mayo) and Greek yogurt on my tuna. Works on egg or chicken salad too.
If you don’t mind, Deb, if I ever come to your house, I’d prefer peanut butter and jelly.
I’m Len Penzo and I approved this message.
Photo Credit: (coffee) brendan-c
Len gets more worked up about folks liking Miracle Whip salad dressing than he does about their failure to buy precious metals!
Wonder whether Chinese delay launching their gold-backed petrofiat is to use it as a “sword of Damoclese” while negotiating against U.S. economic pressure politics.
Yeah, Dave. I definitely draw the line when people substitute MW for mayo!!
You could be right. The start-date delay for the petro-yuan contracts may be due to some behind-the-scenes horse trading with the US, although I don’t think there is really anything the US can do to stop it. There is a market that doesn’t like paying for their oil in US dollars and that market will eventually be filled.
Never ever trust a prophet making a profit !!!
You should probably trademark that phrase, Mik.
Triffin’s Dilemma is that it is impossible to have a global reserve currency and maintain yearly trade surpluses. If the US ran surpluses there would not be enough dollars to meet demand.
Exactly. Which is why the majority of US manufacturing jobs that left these shores will never return until the US dollar implodes — or at least loses its world reserve currency status.
The US credit rating is a farce. America’s private sector has been insolvent since GAAP changed from mark-to-market to mark-to-model in 2009. The public sector has been insolvent since Tricky Dick closed the gold window in 1971.
Agree, Jeff. The international monetary system completely failed during the Great Financial Crisis of 2008 and it is now on life support. The mark-to-fantasy GAAP standards are now being used to keep the doors of companies that have no right to still be in business, open. I’m not just talking about the major banks, I’m also talking about supposedly “sound” companies such as Tesla, Twitter, and even Amazon.
The official unemployment rate is a joke if compared to the labor participation rate, which shows more folks NOT working than at any point in decades. Well, as someone once said” (Mark Twain quoting Disraeli ??) “There are three kinds of lies: lies, damned lies and statistics”.
You got that right, Andy. It is laughable that we are told the unemployment rate is at “full capacity” when: 1) the labor participation rate is as low as it was in the 1970s when most households still had a single breadwinner, and 2) wages measured in inflation-adjusted terms are at the same level they were in the early 1970s. If the labor market is as tight as they say, wages should be skyrocketing as employers try to fill demand.
It’s all a sham … how much longer these guys can keep the charade going is anybody’s guess, but I don’t think it can go on much longer. I just don’t see how it can.
Yeah….I’ve been thinking that for 20 years now. Seems there are a nearly unlimited number of rabbits to be pulled from the hat. Now I hope they have lots more rabbits….I’m getting too old to put up with social chaos.
If the powers-that-be change the system, for example, by having a monetary conference to define the new rules — similar to the Bretton Woods Conference held during WWII — then they could greatly minimize the risk of potential social chaos. The US could also do this unilaterally by devaluing dollar relative to gold, as FDR did in the 1930s.
Monetary resets can be relatively painless if they’re implemented in a controlled fashion.
Jerry Goodman, a.k.a. Adam Smith wrote in The Money Game:
“We are at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know at some moment the black horsemen will come shattering through the terrace doors wreaking vengeance and scattering the survivors. Those who leave early will be saved, but the ball is so splendid no one wants to leave while there is still time. So, everyone keeps asking–what time is it? But none of the clocks have hands.”
Great quote, Jack. And it nails the current situation. Unfortunately, all of us who can see the black horseman coming certainly sound foolish at the moment — and even more so as stocks, bitcoin and other markets are now in their melt-up euphoria phase.
Of course, diversification is always the best protection. My fear is most people consider themselves to be “diversified” by holding a mixture of stocks, bonds and cash; in a currency crisis, none of those assets will be safe, which is why they also need to have precious metals and other hard assets in the mix.
Stocks will provide protection in a currency crisis. They don’t automatically go to zero. Look at Venezuela’s stock market.
That’s half-true; most stocks will only provide partial protection. Yes, stock prices will increase as the currency they are denominated in fails — but the stock price will not increase faster than the rate of the currency’s decline, so the stockholders will end up losing purchasing power (although not as fast as bonds and cash). On the other hand, physical precious metals will not only maintain their owners’ purchasing power during a currency crisis, in most cases they will actually end up increasing it.
Thanks to you and all the commenters for making my Saturday mornings so enjoyable Len!
Have a nice weekend!
Sara
And thank you for stopping by every week, Sara!
If you make it to SD I would gladly make you a PBJ Len. With homemade bread and jelly. But don’t knock that yogurt thing ’til you try it 😉.
You got it, Deb! By the way, I love SD … it is a very beautiful state!
(And if SD is San Diego, well … that’s beautiful too.)