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 …
Credits and Debits
Credit: On Thursday, more than 17.4 million people in Britain bucked expectations — and the prevailing conventional “wisdom” — by voting to leave the European Union. They did it in convincing fashion too; the margin was 52% to 48%.
Credit: The final “Brexit” results saw the pound sterling plummet to a 31-year low against the US dollar and the gold price skyrocket — at one point, the yellow metal was up $100 — almost 8% — before gradually falling back a bit.
Debit: The market turmoil hit financial sector stocks particularly hard. Deutsche Bank, whose beleaguered stock was already reeling before the Brexit vote, saw its share price plunge 17.5% on Friday. (Yes, the decimal is in the right spot.) Keep a close eye on Deutsche Bank because if it goes belly-up there will be lots of collateral damage.
Debit: Deutsche Bank wasn’t alone — stock indices around the world took a beating on Friday: the Nikkei plunged 7.92%, the German DAX slumped 6.82%, the French CAC plummeted 8.04%, the London FTSE declined 3.15% and Shanghai dipped 1.3%. I’d give you more results, but I ran out of synonyms for “fell.”
Debit: On this side of the pond, the Dow opened the day deep in red territory — and by the closing bell it was even deeper, down 611 points; a 3.4% decline. I strongly suspect the fireworks are just getting started. We’ll see on Monday.
Credit: Frankly speaking, the drop in the extremely over-valued US market is a nice start, but it’s got a long way to go before it begins to reflect the economic reality that currently plagues America — and the entire world, for that matter.
Debit: And just how bad is the American economy? Well, the Financial Times reported this week that the US labor participation rate for prime-age workers is near the bottom of the world’s 34 biggest market economies — despite an “official” unemployment rate of 4.7%. I know. Such blatant disconnects between government statistics and reality are usually reserved for banana republics. Daiquiri, anyone?
Debit: Meanwhile, the Commerce Department is busy revising GDP downward by 2% during President Obama’s entire term in office. Why are they doing that now? Well … because this long-running economic illusion is getting harder for the puppet masters to maintain. After all, you can’t fool all of the people all of the time.
Credit: By the way, after learning GDP has been overstated by 2% for years, the stock market didn’t blink — which led financial analyst Bill Holter to ask: “You’re talking about a $300+ billion error; doesn’t this deserve some attention? Doesn’t this bring into question all sorts of other assumptions?” Of course. But most people are too busy watching Dancing with the Stars and debating about Deflategate to care.
Credit: Hey … Bill and I aren’t the only Debbie Downers around here; this week, retired Fed Chairman Alan Greenspan said, “This is the worst period since I’ve been in public service, including October 19th, 1987, when the Dow (dropped) 23%. This has a corrosive effect that will not go away. I’d love to find something positive to say.” Me too, Alan. Me too. Welcome to my world.
Credit: As Zero Hedge notes: “Greenspan was referring to the unprecedented combination of economic stagnation, deteriorating demographics, insolvent entitlement programs, social inequity, wealth division and a historic debt overhang which should have been cleared in the Crash of 2008, but instead was preserved to avoid wiping out the ‘equity’ (of) the Fed’s stakeholders.” Lest there be any doubt.
Credit: As for the Fed’s role in all of this, Holter summed it up with this: “Central banks and sovereign treasuries have destroyed their balance sheets to supposedly create ‘growth.’ And now it turns out that all we got was more debt and no growth.” He’s right … I didn’t even get a lousy “End the Fed” tee-shirt. Did you?
Debit: Oh … and I know what you’re thinking — but any “growth” in your portfolio over the past seven years that’s attributable to central bank printing and stock market manipulation doesn’t count. (Psst. I’m talkin’ about all of it.)
Debit: You know … Upon further reflection, I guess I shouldn’t be surprised so many people are disconnected from the real world — especially since a recent study found that Millennials engage with their Smartphones more than they do actual humans. Uh huh. Then again, the dying Roman Empire had its bread and circuses too.
Credit: Here’s the good news: Although most Americans aren’t ready for the lower standard of living that’s waiting for them just around the corner, they’ll probably be too preoccupied to notice when the reckoning arrives. Well … that is, at least until they can no longer afford their Smartphones.
By the Numbers
In honor of the United Kingdom’s very pragmatic decision to leave the European Union, I thought I’d share a few facts on the EU’s currency, the euro:
17 Eurozone countries that use the euro as its sole currency. In all, those countries represent 326 million people.
1999 Year the euro was introduced as an official accounting currency.
23 Countries that peg their national currencies to the euro. (Sixteen of them are in Africa.)
$1.11 Euro exchange rate at Friday’s close of trading.
$1.60 Euro’s all-time exchange rate high point. (July 2008)
$0.86 Euro’s all-time exchange rate low point. (February 2002)
2 Rank among the world’s reserve currencies. (The US dollar is first.)
Source: Wikipedia
Last Week’s Poll Results
What is your biggest financial worry?
- Outliving your retirement savings (22%)
- Something else (20%)
- Unexpected medical expenses (19%)
- Losing a job (14%)
- Extended unemployment (14%)
- Unplanned financial emergency (11%)
Nearly 1000 people responded to last week’s question and the financial worry that keeps most of them up — by a slim margin — is outliving their retirement savings. Ironically, among the five definitive choices offered, that is the only one that people arguably have the most direct control over. Go figure.
The Question of the Week
[poll id="117"]
Other Useless News
Here are the top 5 articles viewed by my 9877 RSS feed and weekly email subscribers over the past 30 days (excluding Black Coffee posts):
- 7 Modest Wedding Gifts That I’m Still Enjoying 20 Years Later
- How to Stop Annoying Dogs That Bark Constantly
- How Currency Debasement Led to the Collapse of the Roman Empire
- How to Ensure You’re Getting the Most from Your Wallet
- A Quick Lesson on How Currency Moves
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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
Lola dropped me a note that included an observation on all of the negative comments that I received on my recent article explaining why private schools are a rip off:
Wow, Len, you took a lot of flak on this one!
Don’t worry, Lola; I can take it. After 20 years of marriage to the Honeybee, I’m battle-tested.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-
I found the debate on private schools interesting. I went to public schools for k-12 and then on to a private, Catholic university.
I had to chuckle when reading posts about morals and other positive benefits of private schools. I saw what happened to those kids when they went off to college. I couldn’t tell you whether they came from public or private. They all peed in the elevators and punched holes in the walls with the same enthusiasm.
Here’s a good story for you, Len. Half way through one semester, my Biology professor, a Jesuit, told us that he had to change the way he gave tests. His tests were bubble sheet tests, and he apparently gave the same test to every Biology 101 class he had. He said that he received a call from a ticked off mother regarding her son, a student in one of the classes. The mother was mad, because students were telling each other questions on the tests, however, no one would tell her son what was on the tests. This was around 2002/03, and, per year, it cost about $20,000 at the time. I was quite flabbergasted.
I can believe it, Tiffany. Even when I was in college there were a few general ed professors who gave the same exams every single year. It is the absolute height of laziness, if you ask me.
Len,
I have tried to warn sheep (people) about what is going to unfold over the next few years, all I get is your so negative and crazy. Another one is it could never happen here because our economy is to big and other countries depend on us. My wife goes along with it to humor me I guess although with the news lately and metals prices moving up maybe she is starting to believe. How do you convince a nieve population not to trust everything our media is spouting to us. Opinions or answers please?
Jared
All you can do is keep trying to educate them as best you can, Jared. The trouble is, most people prefer to ignore the warnings because the alternative is too frightening for them to comprehend.
Yes, it is scary … but you have to stress the positive (which I can do a better job of myself at times):
1. As long as the status quo continues, there is time to prepare for what’s coming in a way that will minimize the turmoil and protect wealth
2. Although it will be financially painful for those who fail to protect themselves, the world will not come to an end; monetary resets are quite common in world history
3. In the long run, the reckoning should lead to America’s rebirth as a manufacturing powerhouse and that, in turn, will lead to the return of a strong and prosperous middle class
Hey Len,
This could be the beginning of the end for the European Union, the Euro currency, and hopefully big governments around the globe. It’s amazing to me that Central Bankers don’t realize that you CANNOT spend your way out of recessions, especially when your spending money you don’t have (hence, more debt). This is going to be a very LONG process: central banks will continue to print money, interest rates will stay negative and the economies around the world will continue to NOT grow. Once these debts levels get completely out of control (already are if you ask me) and markets/people finally loss confidence in their governments all hell is going to break loose. Own precious metals people.
I agree with everything you say, Doug.
A currency crisis is inevitable now; it’s coming. The math is irrefutable.