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:
5.5% S&P 500
4.6% Dow Industrials
The Question of the Week
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-