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.
So with that, let’s get right to it …
Bubbles have quite a few things in common, but housing bubbles have a spectacular thing in common: every one of them is considered unique and different.
— Jeremy Grantham
It isn’t the economy that bursts a bubble, but investor psychology.
— Jay Samit
One day, market forces will crush the Federal Reserve.
— Mark Faber
Credits and Debits
Debit: Is a cashless society getting closer? Perhaps. One in three people in the US and Europe say they’d be happy to rely solely on electronic payment forms if they could, and 20% already pretty much do so. Hmm. I guess they don’t mind the loss of freedom and anonymity that cash provides. Sad.
Debit: In other news, the stock price of Canada’s biggest non-bank mortgage lender, Home Capital Group, fell 61% on Thursday. Apparently, stockholders got skittish after finding out that Home Capital secured an emergency liquidity arrangement for a $1.5 billion credit line to counter evaporating deposits at terms that may soon leave them insolvent. Imagine that.
Credit: Compared to bank lenders, Home Capital Group is relatively small potatoes — but the fact that any mortgage provider would require an emergency $1.5 billion loan while home prices continue to hit all time highs is a flashing-red idiot light on the dashboard of the Canadian housing market. Let’s see if anybody is paying attention.
Debit: In case you’re wondering, Canadians avoided the steep price declines American homeowners endured after the US housing bubble popped in 2007. Unfortunately, as a result, housing prices north of the 49th parallel are arguably now more over-valued than in the US.
Credit: As for America’s housing market, the US is currently experiencing its strongest housing sellers’ market ever. Yes, even stronger than the one that occurred right before the peak of the last housing bubble. Meh. I’m sure it’s different this time.
Credit: Not coincidentally, the US stock market is in bubble territory too — and still rising at a torrid pace. No, it’s not solely because heavy-machinery manufacturer Caterpillar just showed its first year-over-year retail sales increase in 51 months. Although I’m sure that didn’t hurt. (Psst. Thanks, Fed.)
Credit: Amazon exemplifies just how hot the stock market is at the moment; their shares are quickly closing in on the $1000 benchmark. Please … quit sniveling. After all, one share of AMZN is a bargain compared to the $247,000 you need — give or take a grand — to purchase a single certificate of Berkshire Hathaway (BRK.A).
Debit: Speaking of Amazon, although the giant online merchant isn’t solely responsible for the 8640 brick-and-mortar retail stores closing this year, it’s pretty clear that the Internet is a big reason for the decline — not to mention the collateral economic damage that’s going to result, in the form of lost jobs.
Debit: The soaring US stock and housing markets inexplicably continue to fly in the face of ugly GDP data. Looking at the stocks, you’d never guess that, with GDP at 0.7%, the national economy barely registered a pulse last quarter. Oh … And by the way, that GDP figure is annualized — so the actual quarterly number was less than 0.2%.
Credit: Financial analyst Michael Pento is certainly scratching his head. According to him, “The mystery here is why the Fed is raising rates when Q1 GDP growth is (minuscule), net Non-Farm Payroll job growth is (anemic), and core consumer price inflation is negative.” Good question, Michael.
Debit: The Fed’s sudden urge to raise rates — after years of declining to do so when the economy was growing at a much faster, if still paltry, rate — is even more confusing when you consider that their own analysts are now forecasting GDP to flatline this quarter at 0.2% too.
Debit: On second thought, it’s really no mystery at all; the markets are broken. The Fed’s misguided policies are now driven entirely by the stock market. Unfortunately, with roughly 85% of all trading volume now controlled by computers, there are few living, breathing traders left who are able to take a step back and see the absurdity of the trading that’s now taking place.
Debit: If you feel like you’re on a runaway train, well … you are. So strap yourself in and hold on tight, because there’s a bridge out at the end of the line.
By the Numbers
Stocks have started the second quarter of 2017 on a tear — but they’re not as hot as last quarter. Here’s how various investment alternatives performed during the first three months of 2017:
16.9% Palladium
14.4% Silver
9.8% NASDAQ
8.5% Gold
5.5% S&P 500
5.2% Platinum
4.6% Dow Industrials
Source: MarketWatch
The Question of the Week
[poll id="161"]
Last Week’s Poll Results
Heads or tails?
- Heads (53%)
- Tails (47%)
More than 1100 people responded to last week’s question and when asked to “call it in the air,” a slim majority went with “heads.” Being the contrarian that I am, more often than not, I call “tails.” The only advantage I can see to calling “heads” is if somebody tries to get cute by pulling out one of those two-headed coins. For what it’s worth, you can buy phony two-headed and two-tailed coins on the web. However, thanks to protections in how coins are made, it is impossible for a two-headed — or two-tailed — coin to be mistakenly struck by the US Mint.
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
After reading about the factors that influence your credit score, Leanna left this comment:
I really like your website, Len. I can’t stop reading it!
Thanks, Leanna. There’s 1500 articles on this website — so you’re going to be awake for a long long time.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-
I still think you should pay more attention to cryptocurrencies. You started off talking about the lack of freedom and anonymity of cashless society, but crypto provides exactly that. Digitization isn’t evil. It is just a matter of who is doing it. Crypto is decentralized. And, in terms of alternative investments, I’ve made far higher returns than with any of the others you mentioned.
Just my 2 cents.
Thanks for the comment, David. To me, the biggest advantage of cryptocurrencies is their ability to transfer wealth across national borders — nothing is better for getting money out of a country that has imposed capital controls on its citizens. As an investment, Bitcoin has been extremely volatile — even more than silver. That doesn’t necessarily make Bitcoin a bad investment — it just means those who hold it need a cast-iron stomach, especially if their intent is to hold it for the long-term.
Thanks for another great weekend roundup Len. I always enjoy this Saturday morning update. The Home Capital Group implosion this week certainly was a shock, it’ll be curious to see if the Canadian real estate market finally does take a tumble (particularly Vancouver and Toronto)
It certainly is an ominous sign, Jay. Kind of like how the implosion of American Home Mortgage in 2007 presaged the popping of the US housing market and the collapse of Countrywide soon after that.
Good morning Len
Just how I see things on a couple of points:
The incessant need for instantaneous gratification, as well as becoming just plain lazy, may be two of the many contributing factors that American people desire a cashless society, as well as for the demise of brick and mortar stores. We’ve been warned about the what the forfeiture of freedom for the promise security brings. And it may also explain why many Americans have a keister large enough to land a 747 on it with room to spare.
It really is a shame.
I agree, Peter. I’m afraid the current nanny-state attitude that now infects most parts of America won’t change until after economic collapse comes and the monetary system returns to one backed by real-money, rather than fiat backed by empty promises and easy credit.
National attitudes are a reflection of a nation’s monetary system. Honest money begets discipline, self-reliance and a strong work ethic. Debt-based currency does the exact opposite.
A world without cash is too scary to comprehend. As the bible predicted it’s one step closer to everyone having the mark of the beast on their forehead or right hand!
Have a great weekend Len!
Sara
You too, Sara. It does seem we are headed that way.
I’m out of the casino and I have been for a long time. It makes no difference if Google is a $1000 stock or a $10 stock. Most people are no longer buying stocks because its now a totally fixed casino, even though they’re earning only .05% on their money somewhere else. High frequency trading computers at the fed and elsewhere are already bidding against themselves in a thin market. When the market finally starts selling off, any mom and pop investors won’t stand a chance. They don’t now.
Remember those “investment clubs” prior to the dot com implosion? Back then, everybody was an investor. Since 2008, it’s been almost impossible to find people who still actively invest in individual stocks — as you say, it’s because they learned the hard way that the current system is rigged against them. High frequency trading is another scourge that needs to be eliminated.
I don’t think it’s a mystery that the Fed is raising rates now. Now that Trump is in office they have the all clear to crash the economy.
That’s quite possible, ND. They had many better opportunities to raise rates between 2009 and 2015 and for whatever reason they refused. It is beyond comprehension that they would try to do so now.
Although the rate increases are going to ultimately result in the end of the dollar and terrible short-term economic pain, I’m all for it. It will allow us to get back to economic reality, and give our kids a future — at least for those who are willing to embrace the change that’s going to come.
Lens blog is one of the most informative I have found on the web and I am aware of the (my perverted version) biblical injunction: Tithe and you will become wealthy
I think Ive found a secular backup: Give a little to keep Lens site up and pay attention to the observations there.
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For those aloof bastards like me who arent joiners and mostly give advice and enjoy Lens site for that (and recreation): Do option 2.