It’s time to sit back, relax and enjoy a little joe …
I hope everybody had a great week!
Okay, off we go …
Credits and Debits
Debit: Let’s face it, folks: Greece is broke. In fact, Greece is so broke they couldn’t scrape up enough spare euros on Friday to make a scheduled 300 million (with an “M”) euro payment to the IMF. That’s especially troubling considering Greece owes more than 320 billion (with a “B”) euros overall.
Credit: As the old saying goes: If you owe the bank 1 million euros (with an “M”), then YOU have a problem — however, if you owe the bank 1 billion euros (with a “B”), then the BANK has a problem.
Debit: So it should come as no surprise that the bankers are now bending rules to pretend Greece isn’t insolvent. After all, the fallout from an official default would instantly destroy the European Central Bank’s financial charade — and perhaps, eventually, the ECB itself.
Debit: Even so, you can bet the bankers won’t continue bending the rules forever. Especially since EU regulators gave 11 countries just two months to adopt bank “bail-in” rules designed to hose depositors. Hey, somebody has to pay for this — it just won’t be the banks.
Credit: In the good old days, banks that made poor lending decisions paid the price for those poor choices by eating the losses and — if the losses were big enough — going out of business. No, really.
Credit: The Lone Star State has clearly lost confidence in the banking system. They’re now considering an official Texas Bullion Depository to store its gold, including $1 billion (with a “B”) in gold bars housed at a New York bank owned by the University of Texas Investment Management Co.
Credit: Of course, more people lose faith in our economic system every day — which is understandable since today’s central bank stewards naively believe wealth is generated by a printing press, rather than productive labor.
Debit: Anyone wanting proof that money printing doesn’t create wealth need look no farther than last quarter’s US GDP figure, which was recently revised downward to a negative 0.7% — or this Zimbabwe food market back in 2008:
Yes, the “M” on those price tags stands for “million.”
Credit: Then again, it ain’t all bad in the US. According to the Bureau of Labor Statistics, last month the nation experienced its biggest hiring wave since December; in fact, more than 280,000 new jobs were created. Woo hoo!
Debit: Unfortunately, two out of every three new positions were the low-paying variety: jobs such as waiters, retail clerks, hospital orderlies, and temporary help. I’m sure if they just increase the minimum wage to $15 per hour everything will be fine.
Debit: But wait — if you look closer at the data, there’s more bad news: the numbers don’t add up in the face of declining productivity figures. Well, unless, as Zero Hedge noted, “companies have, incredibly, forgotten how to profitably project and conduct business.” Right.
Debit: Did you see this? In a bit of poorly-executed satire, this week the Wall Street Journal wrote an open letter to “stingy American consumers” asking why they’re not spending more. I know.
Debit: I guess the Journal didn’t read the latest Fed report that found more American families than ever are facing financial catastrophe. How bad is it? Well, 47% don’t have enough spare cash on hand to cover an emergency expense of just $400. Yikes.
Debit: Just wait until those folks find out that dozens of health insurers selling Obamacare plans in 2016 are asking for huge premium increases — some as large as 30%. I guess that means we’ll all finally get that annual $2500 decrease we were promised in 2017. Or not.
Debit: In other news, it was announced this week that the widely-anticipated Ferrari IPO was delayed until later this year. At least Ferrari is profitable — unlike 78% of all companies that have put out IPOs this year. That’s worse than during the height of the Dot Com bubble.
Credit: And finally … Remember last week when I mentioned China’s Shenzhen Composite stock index was up 100% since January 1st? Well, it climbed another 14% this week — so it’s now up more than 114% year-to-date. That kind of gives a new meaning to the term “bull market,” don’t you think?
By the Numbers
Bubbles? What bubbles? Here are more stunning figures for China’s hyperbolic stock markets:
1 Current rank of the Shenzhen Composite among the world’s top performing stock indices.
191% Annual return of the Shenzhen Composite index at the closing bell on June 5.
54% Best all-time annual return for the S&P 500. (1933)
$29,000,000,000 IPO money raised by companies in Chinese stock markets this year.
$15,000,000,000 IPO money raised by US companies in 2015.
2011 Last year that China led the US in IPO value through early June.
15.4 Historic long-term price-to-earnings (P/E) ratio of the S&P 500.
21.5 Current P/E of the S&P 500. (That’s 40% above the historic average.)
63 Current P/E of the Shenzhen Composite Index.
Source: Wall Street Journal
Last Week’s Poll Results
Do you think the housing market where you live is in a bubble?
- No (47%)
- Yes (38%)
- I’m not sure. (15%)
More than 400 Len Penzo dot Com readers responded to last week’s question and just under half say the housing market in their neighborhood isn’t in a bubble. Almost 2 in 5, however, say their neighborhood is overheated. A house next door to me recently sold for its asking price after only a few days on the market. Does that indicate a bubble? I’m not sure — but I suspect that the answer is “yes.”
The Question of the Week
[poll id="64"]
Insider Notes: Why The Economic End Game Is Finally Upon Us
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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
Stefano wasn’t buying any of my reasons explaining why a 30-year loan is better than a 15-year mortgage. At least I think he wasn’t when he left this comment:
I must say, I can’t concur with you 100%. But that’s merely my opinion, which could be wrong. I don’t know.
Maybe it’s just me, Stefano, but I’m betting you hate it when people ask you to recommend a good restaurant.
I’m Len Penzo and I approved this message.
Photo Credits: (coffee) brendan-c; AP Photo/Tsvangirayi Mukwazhi
Looking at the central banks in Europe and the USA and I am at a total loss that this charade is still going on. I am going to enjoy my summer because I truly believe this Fall and heading into 2016 things are going to get really ugly unless these folks can somehow keep this charade going. What’s your thoughts Mr. Penzo?
Jared, I’m not sure how much longer they can keep the game going, so I hate to give an exact date. If I was a betting man though, I’d guess this all comes to a head before the end of the year. Then again, never underestimate the bankers’ ability to kick the can down the road a little farther.
Good news for folks is that precious metals are being hit hard now and are at bargain prices for those that have no monetary insurance! Have tried to figure out how they(central banks) manipulate the metals down. I’m thinking it might be like paper IOU to people who want precious metals, but I’m not sure. Len, Do you have an explanation for how they do it?
They do it by something called “naked shorting” — which is illegal, by the way; we would get tossed in jail if we tried it. Naked shorting is selling “shares” of something that doesn’t exist.
In this case, the banks sell paper shares of non-existent gold and silver (via ETFs), which lowers the price. Since there is a buyer on the other side, it’s also why there are now more than 100 shares of paper gold outstanding for every ounce of gold in the bullion bank vaults (similar story for silver) — and that is why those who buy gold or silver ETFs, rather than physical metal, will be hosed when the system finally fails.
Doesn’t the Bankers realize they are making things very cheap for China and Russia gold purchase? Therefore speeding up their own demise once China and Russia are backed by gold and dedollarize the world! Guess they are to busy screwing the western people to worry about that!
One word: greed.
I recently saw a graphic representation of the amount of physical gold compared to paper gold and it was stunning to say the least. I can’t imagine the number that will be hosed thinking they have purchased gold, but have nothing.
We’ve gone from an economy with a foundation of sand to one with a foundation of hot air. Wonder when the cold front’s coming through?