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 …
There is no magic wand that can resolve our problems. The solution rests with our work and discipline.
— Jose Eduardo dos Santos
There’s a bit of magic in everything, and some loss to even things out.
— Lou Reed
Credits and Debits
Debit: Don’t look now, but the latest Case-Shiller home price index report shows that aggregate US housing prices have finally surpassed their previous peak, which occurred right before the 2007 housing market collapse. Uh oh.
Debit: It’s too bad that wages aren’t tracking on a similar trajectory to the housing market. In 1986 the median home price and median household income were $92,000 and $51,000, respectively. Thirty years later, the median home price is hovering near $300,000 — while median income is $56,000. Hey … that’s quite a trick, don’t you think? (hat tip: vq1)
Debit: The truth is, today’s skyrocketing home prices are directly attributable to central bank hocus pocus — but instead of waving a magic wand, central bankers simply hit “CONTROL-P” on their keyboards and — abracadabra! — conjure trillions of dollars out of thin air. Then they inject those dollars into the economy, driving up the prices of things we all need to survive.
Debit: Of course, bubbles created by the prestidigitators at the Fed and other central banks eventually burst — usually with devastating results. In fact, over the past several years, soaring rents spurred a furious apartment boom — but that appears to be over now that the rental market is decelerating in Denver. And moderating in Miami. Oh … and stalling in San Francisco too.
Debit: With bubbles everywhere, it’s probably no surprise that the Citigroup Inflation Surprise Index (CISI), which measures unexpected price increases around the world relative to expectations, is at its highest level in more than five years. (Psst. That little trick is how the bankers make our purchasing power disappear.)
Credit: As financial analyst Dave Kranzler points out, the surging CISI is, “A difficult feat, given all of the hedonic adjustments plus other various gimmicks the Government statisticians inflict on the data in order to mute the ability of the index to measure true inflation.” True … but elaborate illusions always take lots of practice.
Credit: You’re deluding yourself if you don’t believe the Fed’s economic magic show isn’t affecting the stock market too. For example, although the Dow is hovering near all-time highs, Wolf Richter notes that total aggregate revenue for the index’s 30 companies was actually — presto change-o! — lower in 2016 than they were for every year between 2011 and 2015.
Debit: Meanwhile, the Chinese bankers are putting on their own display of economic alchemy, which they depend upon with increasing frequency to generate spellbinding GDP figures. After all, as Jim Rickards notes, China’s billion dollar train stations and rail lines count toward GDP whether the railroads ever make money or not. Likewise for their myriad ghost cities.
Credit: Needless to say, the secret to China’s phantom “growth” is lots of cheap credit, but that game can only go on for so long — even for sovereign nations, believe it or not. According to Rickards, “China’s real debt-to-GDP figure is easily 500%. That’s like owing $100,000 on a credit card when your salary is $20,000 per year. That’s a sure recipe for bankruptcy.”
Debit: For now, markets everywhere continue to be completely mesmerized by central bank sleight-of-hand tricks, mistaking debt-fueled bubbles and malinvestment for gains in real wealth based upon honest economic growth. As Rickards notes, “The perception is happy days are here again. But it’s just a matter of time before (markets) are jolted back to reality.” Up to now, the wait has been interminable.
Credit: The good news is, none other than Bank of England magician Governor Mark Carney admitted this week that “We’re coming to the last seconds of central bankers’ fifteen minutes of fame.” No, really.
Debit: Clearly, the central bank warlocks are only coming clean because they’ve got no more tricks up their sleeve. Hopefully, everyone enjoyed their magic show — because when it’s done we’ll be paying the bill.
By the Numbers
According to Media Life Magazine, “It was a weak year for Super Bowl ads, which featured less humor, lots of celebrities and a few political statements.” I agree — aside from this Skittles ad, I thought they were unremarkable. Here’s a closer look at the big game’s advertisements:
111 Total number of ads run during the Super Bowl game (including four during the overtime period).
4 Ads for online games.
4 Movie advertisements.
5 Ads that could be construed as political statements.
18 Ads featuring celebrities.
0 Ads featuring Budweiser’s famous Clydesdales.
57% Positive feedback for Budweiser’s Super Bowl ads, according to iSpot.tv
27,500,000 Online views for Budweiser’s “Born the Hard Way” ad.
1 Ad whose ending aired online. (84 Lumber.)
6 The total running time, in minutes, of the 84 Lumber ad. Their site crashed when it was overwhelmed by visitors immediately after the ad ran.
Source: Media Life Magazine
Last Week’s Poll Result
Has the winter where you live been colder or warmer than usual?
- Warmer (47%)
- Colder (28%)
- About the same. (25%)
More than 1100 people chimed in for last week’s question and almost half of them say their winter has been warmer than usual. Not here in Southern California. Frankly, I can’t remember the last time we had a winter with so many days that failed to reach 60 degrees F; since December 21st, my city has recorded 24 days that failed to reach that temp. That’s a lot, considering we normally see less than ten sub-60 days here per year — and springtime is still a long way off!
The Question of the Week
[poll id=”150″]
Other Useless News
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5. Idaho (1.77)
46. Minnesota (1.27)
47. New Mexico (1.26)
48. Wyoming (1.25)
49. Massachusetts (1.24)
50. Utah (1.23)
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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
After reading my article explaining why waterbeds are for suckers, Tom Wipperfurth wrote in to complain about his:
I’m 203 pounds and I hit bottom when getting into bed. I didn’t when the bed was new and I was the same weight.
Tom, before you replace the waterbed, you might want to buy a new bathroom scale.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Len,
Did you catch Trumps comments a few days ago? He said all currencies will someday be on equal footing and that day is coming sooner then people think. Obviously he knows something is in the works and the only way all currencies can be on equal footing is through a precious metals backed monetary system. Correct me if I’m wrong.
Getting Giddy!!!
Jared
I did, Jared, and they were intriguing. I hope you’re right. However, I’m not sure we should read too much into it. He could be inferring a return to a gold standard — but he could also simply be using very loose language to describe his stated desire for a weaker dollar … heck, I even heard somebody say he was calling for SDRs, which I think is preposterous since that flies directly in the face of his “America first” policy.
By the way, there is another alternative to the gold standard, known as “bancors” that could also keep international currencies on a relatively equal footing. I say “relatively” because the only way all national currencies could be on equal footing (even with a gold standard) is if they used gold exclusively to settle trade imbalances — but that doesn’t always happen, which leads to different currency values.
Unfortunately, lending requirements for mortgages are going back to what got people in trouble to begin with. Liars loans, little or no money down required. I don’t understand why no one learns their lessons from the last time, but I assume banks are still under the same pressure to lend to “underprivileged” people.
Regarding the super bowl ads, we only look for the Budweiser on and when we heard it was going to be political, we decided not to watch for it. Companies need to keep their politics out of their business. Either way they go they end up getting boycotted by one group or the other. They need to just shut up, especially if they are a publically held company. If an individual business owner and are willing to lose business due to political statements, go for it.
It’s even worse than the run-up to 2008 now, Kathy. This time the extremely loose lending standards have spread to auto and student loans too — which is to be expected because the Ponzi scheme requires more and more debt to sustain itself over time. They had no choice in order to keep the game going.
As for the Super Bowl ads, I’m with you. Budweiser needs to bring back the Clydesdales; I saw the “Born the Hard Way” ad as pandering to the political left, which fails to recognize the difference between legal and illegal immigration — and the differing effects on society between the two.
Kathy, they learned their lesson very well. They lied, cheated, and stole until it all came crashing down only to be bailed out completely by the government that should have arrested them.
Len, you pulled a rabbit out of the hat with this edition! If the central banks are out of tricks how do you see the bills getting paid? I only ask because the world is broke!
Have a great weekend!
Sara
I should have said the central banks have one trick left — actually, it’s the grand finale: That’s the one where the central bankers make everyone’s purchasing power completely disappear via hyperinflation. Well … at least for those who didn’t buy wealth insurance.
It is a crime that a privileged few people have the right to print fake paper fiat cash with no intrinsic value and buy our goods and services with it, while we are left to slave away, punching a time clock day in and day out, to earn that identical worthless cash. How many people know that the French Revolution began after a similar scheme finally collapsed? Considering the quality of today’s education system I’m guessing very few.
You’re right, WA. I suspect many public schools mention the French Revolution as part of the history curriculum, but they only discuss the event itself and the eventual outcome — Storming the Bastille, Robespierre and the Reign of Terror, followed by the rise of Napoleon. What I am certain they do not cover is the financial crisis that precipitated it (caused by a combination of high debt brought about by years of war, coupled with high taxation). This led to the creation of assignats — a purely fiat currency — which were supposed to eliminate the public debt, but only made the financial crisis worse. The first assignats were printed in December 1789 and by early 1796, they were completely worthless.
The crisis of 2008 was a result of too much debt. I’ve read the world was literally hours away from the financial system imploding. How did the central banks try to fix things? By encouraging us to take on even more debt.You can’t make this up. Your right, the game is almost over.
Thank you, Peter. Although most people think I have my tin foil hat on too tight, I am 100% certain I am right. It’s easy to sleep at night when your strength of conviction is unwavering.
Those Chinese ghost cities are unreal. What a waste.
Yes, it is. That’s what happens when the price of money (i.e., the interest rate) is essentially free — people lose their fear of risk and, because of that, often use that cash unwisely.
Len ,
My head is spinning and I am trying to keep up. Are you saying you think we are going into hyperinflation and if so, what are the safest things to do? My gut tells me you are right in that it will collapse but I do get lost in the what to do part with my paltry understanding of finances- but I am persevering and thank you for your work !!
Kim, to be clear, hyperinflation is a psychological phenomenon that occurs when the people lose confidence in their currency. It is a mathematical certainty that this is going to happen because the central banks must continue piling on more and more debt to keep our debt-based monetary system — which is a Ponzi scheme — from imploding. The only question is the point where the markets realize the system is unsustainable and confidence is finally broken.
There is plenty of evidence suggesting that we’re almost there … if I had to guess, the current system won’t make it past 2020 — although nobody can say exactly when with 100% certainty.
My strategy is to focus on return OF investments, rather than return ON investments. For me, that means keeping the amount of cash I keep in my 401(k) and the banking system to a minimum, and buying physical gold and silver as wealth insurance. For more tips, check out this article on how to prepare for what’s coming:
http://lenpenzo.com/blog/id18329-economic-collapse-101-ten-ways-to-prepare-for-the-unknown.html
Ok thanks. I think I get that and will read that article post haste!
But one question I hope isn’t stupid… if you want return of investment, which I take to be safety oriented, why wouldn’t cash be a good way?
for example, because I have this gut sense we are in for a major collapse, I have not really invested after the shocking feeling of losing so much in 2008. So I have most of my nest egg in a BOA IRA or vanguard money market or roth in MM only so no risk – it doesn’t go up or down. is that wise in our current scenario ? I will definitely buy gold or silver – I have been procrastinating on this. But does hyperinflation just make the cash worthless for a while ?
The primary reason is that hyperinflation will eventually render that cash worthless; as a reminder to myself, I have several Z$100,000,000,000,000 bills from Zimbabwe on my desk that bought a dozen eggs in their heyday to prove it.
Also, when the next currency crisis hits, it will probably happen too fast for you to pull out all of your cash before the authorities impose bail-ins and capital controls.
I no longer contribute to my 401(k). Until we get a new monetary system, all of my retirement saving goes toward physical precious metals.
ok, that’s really sobering to me. thanks for your blog. I don’t think about this stuff, then feel paralyzed and confused when I read things like this and tend to do nothing. I need to really start reading and thinking about how to prepare and be wise and BUY the METALS! ugh – but thank you really for your clarity on this without being apocalyptic!
Kim
I boycott all companies which shove Left Leaning politics down my throat with ads. I skip the ad as soon as the Leftist philosophy starts, and THEN I put the company on the “do not buy from them” list. Starbucks, Target, Budweiser (Management reasons, “Everyone loves the Clydesdale commercials which bring such a grand feeling about Budweiser, therefore we should dump the Clydesdales and flog illegal immigration as the wave of the future, screw the legal applicants for citizenship and current American citizens!”), the list goes on and on so I vote with my dollars. Leaning hard left got the NY Times on life support, every few months it seems they are firing more fellow Leftist writers and editors, because The Times has alienated more than half the population of this country who now refuse to buy their product. I’d fire every corporate head who damages his/her brand by injecting his/her Communist views into ads for the company product. It’s easy to flog the joys of socialism / communism when you’re a member of the 1 %. Why is it that the elites who benefit most from capitalism (people who lie for a living (actors), people who lie for a living (politicians) and people who live for a living (advertising agencies) and are filthy rich so intent on making the rest of us poverty stricken in the name of “fairness”?”