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 dive right in this week …
“Anyone can be confident with a full head of hair. But a confident bald man — there’s your diamond in the rough.”
— Larry David
Credits and Debits
Debit: On Friday, June 9th, the Dow closed at a new all-time high while the Nasdaq dropped 2%. The only other time in history when that happened was April 14, 1999; the Nasdaq crash was 11 months later, on March 11, 2000. But I’m sure that’s just a coincidence. Er … at least I’m pretty sure.
Credit:In other news, believe it or not, summer gasoline prices haven’t been this low since 2005. Yep. You won’t find lower pump prices than South Carolina — they average $2.02 per gallon there. As for the most expensive, well … it’s California and Hawaii, where a gallon of gas is $3.06.
Debit: Of course, Hawaii’s high gas prices can be explained by its remote location. As for California’s excuse: high demand. Plus the fact that the Golden State has one of the highest gas tax burdens in the US — and it will soon be getting worse, thanks to another increase recently approved by their tax-and-spend state legislators. Forward!
Credit: As if low gas prices in the rest of the US isn’t bad enough for Tesla, the electric car company is trying to prove that it really can compete on a level playing field after Denmark cut subsidies for so-called “green” vehicles and Tesla’s sales plunged. Imagine that.
Debit: In fact, without subsidies, it looks like Tesla struggles mightily to find anybody willing to buy their vehicles. For example, two years ago Tesla sold a total of 2738 subsidized cars in Denmark. But after taxpayer subsidies were phased out in 2016, that number dropped by 94%, to just 176 units. (Psst. Don’t tell that to the company’s stockholders — at least until after you sell all of your shares.)
Debit: Speaking of enterprises on dubious financial ground, only 35% of the companies which make up 80% of American businesses are profitable. Of course, that also means that 72% of all US businesses are not profitable. Funny … you’d never know that looking at the major stock market indices, which are all still near their all-time highs.
Credit: As financial analyst Dave Kranzler points out, the news on Tesla is only getting worse, but its stock price continues to rise anyway. After a highway loss data study revealed that Tesla’s vehicles have higher claim numbers and repair costs compared to other vehicles, the American Auto Club is raising its insurance premiums on Tesla cars by up to 30%.
Debit: So why do stocks continue their seemingly relentless climb? No, it’s not because investors have lost their collective minds. Instead, look towards the world’s central banks, as the five largest — including the Fed — have poured $1.5 trillion of printed currency into the markets since the beginning of the year. Hey … all that cash they’re printing has to go somewhere.
Debit: By the way, the world’s central banks have also been busy buying bonds too — so much so that they now own 33% of the entire $54 trillion market. Add it all up and global central banks are on track to purchase an astounding $3.6 trillion in stocks and bonds this year. And if you still think markets are capable of providing true price discovery, I’ve got some beachside property in Arizona I’d like to sell you.
Credit: Needless to say, all of that central bank interference in the bond market has Zero Hedge curious about how the resulting debt on central bank balance sheets will ever be sold without crashing the market. For their part, Zero Hedge isn’t afraid to admit they don’t know the answer. That’s okay, though — neither do the central banks.
Debit: Finally … As a follicly-challenged male, I couldn’t help but notice that authorities in Mozambique are saying bald men are now being killed there, allegedly because crackpots have been led to believe that their victims’ heads contain gold. No, really. Suddenly, a cheap toupe doesn’t seem like such a bad idea after all.
By the Numbers
While almost everyone in the US is celebrating low summer gas prices, the Alaska Pipeline celebrates its 40th anniversary this month. Here are a few facts on the famous fuel conduit:
48 Diameter of the pipe in inches
800 Length of the pipeline in miles
4739 In feet, the highest elevation reached by the pipeline
380 Miles of buried pipeline
17,000,000,000 Barrels of oil that have moved through pipeline to date
2,030,000 Most barrels per day to ever move through pipeline, in 1988
557,539 Average barrels of oil moving through the pipeline in 2017 that’s 50,000 more than last year
38 Months it took to build the pipeline
70,000 Estimated number of workers to construct the pipeline
8,000,000,000 Dollars needed to build the pipeline
Source: ADN.com
Last Week’s Poll Result
How old were you when you got your first “real” job?
- 15 or younger (39%)
- 16 or 17 (36%)
- 18 or 19 (16%)
- 22 or older (6%)
- 20 or 21 (4%)
More than 1300 people answered this week’s survey question and it turns out that 3 in 4 Len Penzo dot Com readers had their first real job before reaching 18 years of age. Only 6% waited until they were 22 or older. It seems to me that kids these days are waiting longer and longer to get their first “real” job; whether that is due to the pitiful employment opportunities is up for debate.
The Question of the Week
[poll id="168"]
Useless News
I see that the good folks over at Insuranceopedia included me in their list of the Top 25 Personal Finance Bloggers to Follow on Twitter. Very cool! Thanks, guys!
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. New Brunswick (1.89 pages/visit)
2. Ontario (1.88)
3. Nova Scotia (1.81)
4. Prince Edward Island (1.74)
5. Quebec (1.72)
9. Alberta (1.57)
10. Quebec (1.41)
11. Yukon Territory (1.33)
12. Nunavut (1.25)
13. Northwest Territories (1.00)
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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
After reading about 5 common money mistakes new grads need to avoid, Steve from Arkansas had this to say about the accompanying photograph:
How cool, a 1955 double die (penny)! I collected coins as a kid and always wanted one but could never afford it.
I know what you mean, Steve. When I was young I tried collecting $100 bills, but could never afford them either.
I’m Len Penzo and I approved this message.
Photo Credit: (coffee) brendan-c
“Anyone can be confident with a full head of hair. But a confident bald man — there’s your diamond in the rough.”
Correction, diamond in the smooth …
I see what you did there, Dave.
If the money being printed by the Fed and others didn’t go into stocks and bonds it would go into real assets driving up inflation there.
It is: http://www.businessinsider.com/billionaire-doomsday-preppers-escape-plans-2017-6
You mean like houses, real estate, and fine art, Wilson?
I think I read that there is so much fiat floating around out there that if Gold was released from its manipulation that if you go by the M2 money supply an ounce of gold would be $67,000! That would also make Silver around $4,000 if you go by historic ratio of 15-1 silver to gold.
Yep, Jared. I noted that here last week.
Isn’t it funny that, despite all of the currency printing, proven stores of value like precious metals are the only real assets that seem to have not risen in price as fast as homes, real estate, and fine art?
And silver is 80% less expensive today than it was back in 1980! Of course, only those of us with tin foil hats believe the silver (and gold) market are manipulated.
Wow. Mass hysteria has spread from the mainstream media to Africa!
Have a great weekend Len!
Sara
LOL! That it has, Sara. That it has.
I remember gas here in California (Bay Area) was pushing $6 per gallon right before the last financial crash. Some SUV owners couldn’t afford to fill up their tank!
I remember too, Nick. I also remember people with larger tanks who used credit cards had to “pay twice” because the credit cards at the time, were only preapproved for $50 transactions — then the pumps shut off and they had to go back to the attendant and run the card again. I think that number has since been raised to $75.
The CB bond buying spree will continue until their interventions lose the respect of the market. Only then will the currency crisis come that leads to hyperinflation.
Well … the bond market isn’t buying Janet Yellen’s recent rate increases. She’s raised the Fed funds rate 75 basis points and yet the long bond has fallen. All she has managed to do is accelerate the flattening of the yield curve.
Tesla has never made a profit. It is a great example what happens when the Fed provides easy money that results in malinvestment. Then the government adds gas to the fire by subsidizing that malinvestment. High interest rates would put Musk out of business.
Higher rates will put the US government “out of business” too!
I’m not sure that the TSLA story actually contains any useful predictive value. The subsidy (in the form of not having a 180% tax applied) meant that the Model S was priced the same as a well equiped Camry, Mini Cooper or a poorly-equiped 1 series or A1 (cars that it clearly outclasses). Hence the demand would have been very inflated. Without the subsidy (with the tax applied) the prices in Denmark will be over $200k, which is an area where very little demand exists. (Also, consider that the final quarter of tax-free prices probably had many additional orders for people trying to beat the deadline).
We’ll know a whole lot more when we see what demand is for the Model 3, which will cost the same without the subsidy as the Model S and X did with it.
Tesla can set the sales price of their cars at whatever level they want. The trouble is, Tesla has been selling their cars at a loss — with the subsidies. From Zero Hedge: “On a GAAP basis, the company reported a loss of $330 million, or $2.04 per share, compared with a loss of $283 million or $2.13 a share in the year-earlier quarter. This amounts to a loss of over $13,000 for each of the 25,051 cars delivered in the quarter.” Wow!
The Model 3 may have a smaller price tag, but will the sale price allow Tesla to make a profit on every car? I doubt it.
If Tesla sets the price of their Model 3 low enough, demand for that vehicle may indeed turn out to be greater than their other offerings. Nevertheless, it reminds me of the old joke about the company CEO who, when confronted with the fact that they were losing money on every widget they sold, said there’s nothing to worry about because they planned to make it up on volume.
My point was just that the impact of that tax, which is 180%!!, is so big that we can’t actually infer anything about the shape of the demand curve for their cars from it. If it was a 10% or even 20% change, then there would be some signal in there, but not when the price is nearly tripled.