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.
Let’s get right to it this week …
Whoever is careless with the truth in small matters cannot be trusted with important matters.
— Albert Einstein
Confidence is contagious. So is lack of confidence.
— Vince Lombardi
Credits and Debits
Debit: India’s decision to ban 500- and 1000-rupee notes last week has, not surprisingly, resulted in a cash shortage that is threatening to shut down their entire economy. It also resulted in gold soaring to $2800 per ounce there — well … assuming you could find someone willing to sell it.
Debit: Then again, when 97% of the Indian economy is cash-based, and 88% of all outstanding currency is no longer usable, a panicked populace and supply-chain breakdowns are to be expected. At least they are to those who understand rudimentary economics.
Credit: Meanwhile, the major stock market indices continue to hover near all-time highs. Unfortunately, considering that the S&P 500 is on track for a sixth consecutive drop in year-over-year earnings, the odds are good that irrational exuberance has returned with a vengeance.
Debit: One example of stocks’ absurd valuations is Caterpillar (CAT). Despite a sky-high P/E ratio of 53 — an average P/E is around 15 — shares of the heavy-equipment manufacturer are up more than 35% this year. Buyers haven’t been dissuaded by the fact that Caterpillar has seen 47 consecutive months of declining retail sales either. I know.
Debit: Did you see this? The National debt is on pace to increase by $2.4 trillion this year. Uh huh. If it will make you feel better, let’s call it $2400 billion. On second thought, never mind.
Debit: You can bet soaring US debt is probably why the Saudis and China aren’t losing any sleep over their continuing sales of US Treasury bonds. Hey … they may as well sell them while they’re still worth something.
Debit: In fact, many are calling the latest bond sell-off a bloodbath. Of course, those sales are causing bond prices to fall. And remember, falling bond prices result in rising yields — which is why you probably noticed that interest rates have been moving sharply higher lately.
Debit: The trouble is, there is now simply too much debt to sustain those higher interest rates, which is why you shouldn’t be too surprised if a market crash is right around the corner. But even if a crash isn’t in the cards, higher yields will put a further drag on the economy because they make borrowing more difficult for both households and corporations.
Debit: Just how big of an impact are rising bond yields having on the economy so far? You tell me: Wells Fargo’s rates for a 30-year conforming loan have risen from 3.5% to 4.25% during the past fortnight. To put that in perspective, the monthly payment for a 30-year $300,000 mortgage has increased 10% from $1,347 to $1476 — in just two weeks!
Debit: The proof is in the pudding, as evidenced by a 30% drop in mortgage applications. Needless to say, falling mortgage applications mean fewer buyers, which ultimately lead to falling home prices. And that results in reduced employment due to layoffs in the home building and finance sectors — not to mention the cancellation of countless house-flipping shows on HGTV.
Credit: As financial analyst Bill Holter notes, when confidence in central banks is eventually lost, “The current bond selling will turn into a global panic, and there will be real world ramifications because the entire financial system relies on credit to function smoothly.” Hmmm. You mean decades of market manipulation really does have consequences, Bill?
Debit: For what it’s worth, Bill reminds us that crashing bond prices will decimate pensions and ultimately destroy the currency markets too, which will result in hyperinflation. Oh, relax! Other than that, the global monetary system is fit as a fiddle.
Credit: Holter also claims that there’s no way out of the financial mess the world is in “because ‘broke is broke’ mathematically” and confidence in central banks has only one way to go from here: down.
Debit: The good news is the US has more than 8000 tons of gold to fall back on for just such an emergency. The bad news is the US Treasury seems to be unable to produce an audit trail that verifies America still has all of the yellow metal in Fort Knox that it claims.
Credit: Unfortunately for the US Treasury, when push finally comes to shove — and it will, eventually — they’ll no longer be able to get away with saying “trust us” because the rest of the world will be demanding this:
The Question of the Week
[poll id="138"]
Last Week’s Poll Result
How long has it been since your last traffic ticket?
- More than 10 years (33%)
- I’ve never had one (32%)
- 6 to 10 years (14%)
- 1 to 5 years (13%)
- Less than 1 year (8%)
Nearly 1200 people answered last week’s survey question and I am happy to see that at least 1 out of every 3 Len Penzo dot Com readers can say they’ve never had the bad fortune of being cited by John Law for a moving violation. Not too shabby. And another third of those surveyed said they received their last traffic ticket more than a decade ago. For me, it’s been about seven years since my last ticket. Oddly enough the last two tickets I received were not for speeding — instead, they were both for illegal left turns. Even so, the fines were no less painful than your typical speeding ticket.
By the Numbers
Thanksgiving is my favorite holiday of them all. Here are numbers to know about America’s Turkey Day:
48,700,000 Number of Americans who will travel at least 50 miles to get their Thanksgiving dinner.
1621 The year of the first Thanksgiving; it was a three-day feast.
46,000,000 Number of turkeys killed annually for Thanksgiving.
$22.74 This year’s average cost for a 16-pound turkey.
5 The number of days it takes to thaw a 16-pound turkey in the refrigerator.
4500 The number of calories the average American will consume on Thanksgiving Day.
151,000,000 The number of Americans who shopped in stores or online on Thanksgiving Day in 2015.
Source: USA Today
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 (1.90 pages/visit)
2. British Columbia (1.76)
3. Alberta (1.58)
4. Quebec (1.52)
5. Nova Scotia (1.46)
9. Saskatchewan (1.39)
10. Yukon Territory (1.33)
11. Newfoundland and Labrador (1.28)
12. New Brunswick (1.25)
13. Northwest Territories (1.00)
Whether you happen to enjoy what you’re reading (like those crazy canucks in Manitoba, eh) — or not (ahem, you hosers living on the frozen Northwest Territories tundra) — please don’t forget to:
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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
This week Jonah took some time out of his busy day to send me this:
Greetings from South Carolina, Len! I just wanted to let you know I was reading your blog because I was bored to death at work.
Thank you, Jonah! (Er … that was a compliment, right?)
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Nice quotes Len. It’s easy to get encouraged and discouraged, so I as much as possible surround myself with positive, career-driven people.
Len, as if you didn’t already know, I look forward to reading your Black Coffee ever Saturday morning. I make sure I have a cup of my own coffee in hand when I do!
The Jerry Maguire clip is a nice touch. Spot on too!
Have a happy Thanksgiving!
You too, Sarah! Thank you for kind words. Please be sure to share this with your friends — I depend on referrals from folks like you to expand my reader base.
Len,
Not sure what to make of this huge fall back in the metals. It’s either the central banks last ditch effort to manipulate them down as much as possible or the sheep running to the Dollar because they don’t know any better. Most likely both if them combined. For the first time I feel like we are on the doorstep of this massive worldwide collapse people have been talking about for years. I figure the globalist will try and blame Brexit and Trump for this. If the Italian banks exit in December that could be the catalyst or possibly France exiting early next year. What’s your opinion Len? Do you have a good guess when it might all come down. I’m thinking spring 2017, which will pave the way for the Economist cover of 1988 to be correct in that a new global currency will be formed for 2018.
Just my thoughts,
Jared
Hey Jared – good comments. I think you’re right with respect to gold. I believe USD strength is making performance. As Len mentioned, gold in terms of non-USD currencies is doing very well.
Also agree with your thoughts on Europe. I think the populism trend is just getting started. I’m going to be closely watching the results of the December 4th Italian election.
Separately, the action in bonds the last two weeks is insane. I’m cautiously optimistic that a steeper yield curve will be good for the economy. But also nervous of those rising debt-servicing costs.
Thanks for another great round-up Len!
You’re welcome, Jay!
People need to remember that the bond market is much MUCH bigger than the stock market — which is why a bond market panic will make a stock market crash look like a Sunday walk in the park.
Jared: The fallback in price is due to naked shorting of gold and silver on the COMEX. Here’s the thing, last week the manipulators had to dump paper gold amounting to three year’s worth of global gold production (!) to make the price drop about $65. In the past, they could make precious metal prices drop that much with only a small fraction of that — so it’s obviously becoming increasingly difficult for the powers that be to move price downward. At some point, this is going to become so absurd that the charade will become impossible to ignore. What we don’t know is when that will be. I think we’re close though. I just can’t see how this charade can go on much longer. I really can’t.
I agree that Trump will be blamed for this when things finally crumble for good.
A legitimate and actual audit would involve a real physical inventory of the gold & the purity of the bars. That would prove or disprove its existence and nothing more.
The $64,000 question is “who owns the gold that is there?”
Assuming the gold exists, it very easily could have been sold and the legal owners are only storing it in the US as a matter of convenience.
So, any audit must not only determine how much gold is stored in the US, but also how much of it is (((owned))) by the US.
This is all a result of central bank gold “leasing,” re-hypothecation, and the paper ETF gold and silver markets, which have sold hundred of ounces for every real physical ounce in their possession in order to keep the prices down.
Wide Awake – the paper gold market shenanigans blow my mind!
It is a criminal enterprise that the gov’t allows to continue. Without those paper markets, the price of gold and silver would be multiples of what they are now.
Good point, WA. I wouldn’t be surprised that every ounce of gold has already been rehypothecated multiple times. The bottom line is when the day of reckoning finally gets here, the old saw “possession is 9/10 of the law” will be truer than ever.
There may be some gold in Ft Knox but not a lot and not nearly enough to back up the currency in circulation. All governments are keenly aware that they can just print green paper with pictures of famous people on them and not back it with gold. The last silver coins were made in 1964. Now our coins contain worthless base metals. The only reason paper cash has any value today is because the American people and the general global population still believe the paper in their wallets is actually worth something. This is beginning to change as more and more people are taking a peek behind the curtain and realizing the monetary system is a sham.
Agreed, Hugh. One small point about silver US coins for the readers to keep in mind: Kennedy half dollars actually kept a small amount of silver content from 1965 – 1970, although it was less than the silver half dollar minted up to 1964 (about 0.147 troy ounces per coin from 1965 – 1970; and 0.357 troy ounces up to 1964).
I dont think there is 8000+ tons of gold in Ft. Knox. If there was, those in charge would be happy perform an audit to prove it instead of allowing rumors that it ain’t there to persist.
I’m waiting for the European elections too. The main stream media
are celebrating Merkel’s decision to run again in February. The globalist cheering press is predicting, as they did for HRC, an easy coast to victory, in this case by claiming that Merkel the Communist represents “stability” and the Germans demand “stability”. It’s fascinating that the main stream press considers the tidal wave of rapes of ethnic German women, thefts, violence, “no go” zones where the police only enter in armored vehicles, the “disappearance” of a huge number of the migrants as “stability”? German citizens realize that the press is discouraged by Merkel from reporting on the sorry condition of the German streets and the lack of safety for ethnic German citizens. I think Merkel is out, you heard it here first. Sweden now has one of the two highest incidents of rape per 100,000 population, tied with some obscure African nation whose name I’ve forgotten. Merkel evidently wants Germany to compete for Sweden’s sorry record. I visit Germany six or seven times a year, and the common citizens (yes, those same people who voted for Trump but they eat brats instead of hot dogs!) are voting Merkel out. By the way, if you want to know how bad things are in Germany, you must read the British press, as the American press and the German press are not reporting anything anti globalism or the mess Merkel has made of her country. Obama’s cuddling with Merkel was the kiss of death on an already terminal administration!
Karen, I have a friend who recently visited Sweden and he said that nation is “gone.” He said they have let in so many foreigners who refuse to assimilate (mainly Muslims) that the country has lost its identity and is almost unrecognizable. He doesn’t think it can recover.