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.
Off we go …
“The track record of economists in predicting events is monstrously bad. It is beyond simplification; it’s like medieval medicine.”
— Nassim Nicholas Taleb
““I would rather get a PhD than stand to reach for toilet paper. Though some might emphasize the similarities between the two activities.”
— Rhoda Janzen
“He that lives upon hope will die fasting.”
— Ben Franklin
Credits and Debits
Debit: As I mentioned last week, Illinois has $14.6 billion in unpaid bills and, without a budget, the state is now left to deal with the consequences: tens of thousands of lost jobs, a roadwork shutdown, and looming bankruptcy — among other things.
Debit: It doesn’t take a genius to see that Illinois is on the brink of falling into a financial death spiral. Needless to say, that’s what happens when 25% of the state budget is used to fund gold-plated government pensions. No, really.
Debit: Things are so bad in the Land of Lincoln that, for now, lottery payouts over $25,000 are being delayed and the nationwide Powerball lottery is pulling out of Illinois. Well … there goes the Illinois’ legislature’s best solution for finding the cash it needs to settle its bills.
Credit: Did you see this? A study by the University of Washington has found that Seattle’s recent mandatory minimum wage hikes backfired by crushing its job market. The decision by Emerald City politicians to interfere with the free market has resulted in the equivalent of 6500 lost jobs. So far. Imagine that.
Credit: Has the bitcoin bubble popped? After seeing the cryptocurrency gap downward 8% on Monday — and then end the trading day 15% lower — legendary trader Bill Flekenstein thinks so. Since bottoming at $2363 on Tuesday, the price has stabilized somewhat and is now trading around $2450. But that’s no comfort to those who bought bitcoin at its all-time high of $3019 on June 11.
Credit: Meanwhile, financial analyst Dave Kranzler believes that multi-billion-dollar investment-fraud king Bernie Madoff is jealous because Tesla and Amazon are “the greatest Ponzi schemes in history.” Kranzler’s research shows that both companies rely on dubious accounting practices that effectively hide their true financial condition from casual investors.
Debit: In other news … Am I the only one who wonders how many people are actually out there clamoring to buy Prada “paper clips” for $185? Each. Yes, they’re imported from Italy, made from silver, have the Prada logo embossed on the side, and are designed to hold currency — but still …
Credit: Then again, those Prada paper clips are nothing compared to the ultimate symbol of financial excess: the McMansion. I see the market for those annoying ersatz manors is heating up once again — just like it did prior to the bursting of the last housing market bubble.
Debit: Of course, some people never even recognized the last housing bubble until it finally popped. Retired Fed Chair Ben Bernanke — who earned a PhD in economics from MIT — certainly didn’t. In fact, back in 2005, Mr. Bernanke told people that a housing bubble was “a pretty unlikely possibility.” Apparently, statistical analysis isn’t one of Ben’s strong suits.
Debit: Speaking of central bankers, managers at the central banks’ central bank — better known as the Bank for International Settlements (BIS) — said a financial crash in emerging markets is brewing that could hit the rest of the world with “a vengeance.” There — now you can’t say they didn’t warn you.
Debit: On the other hand, America’s top central banker, Janet Yellen, apparently didn’t get the BIS memo. This week the Fed chair told the world that she doesn’t “believe” another financial crisis will occur “in our lifetime.” Heh. Silly statements like that usually signal a market top is close at hand. Usually.
Credit: Oh, I know what you’re thinking: Obviously, Ms. Yellen knows her stuff because she has a PhD in economics from Yale! That’s true; so did Irving Fisher. He’s the Roaring 20s economist who proclaimed that, “Stock prices have reached what looks like a permanently high plateau” — three weeks before Black Tuesday. Uh huh. Now you know why PhD stands for “piled higher and deeper.”
By the Numbers
On July 4, 1776, the Continental Congress approved the Declaration of Independence, setting the 13 colonies on the road to freedom as a sovereign nation.
2,500,000 The estimated number of people living in the newly independent nation in July 1776.
323,100,000 The estimated current US population.
65 The percentage of Americans who own an American flag.
$5,400,000 The value of US flag imports in 2016.
$27,800,000 The value of US flag exports in 2016.
94 The percentage of all US flag exports that went to Mexico in 2016.
$1,000,000,000 Estimated beer sales for this year’s holiday weekend.
150,000,000 The number of hot dogs that will be consumed on July 4th weekend this year.
16,000 The number of public fireworks displays this year.
23,959,441 Americans who claimed English ancestry in the most recent US Census. That ranked third behind those claiming German (45,526,331) and Irish ancestry (32,713,324).
Source: CtPost
Insider Notes: A Lesson (or Three) on How Bonds Work
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Last Week’s Poll Results
Are you eligible to receive a pension from a current or past employer?
- No (67%)
- Yes (33%)
More than 1200 Len Penzo dot Com readers responded to last week’s question, and it turns out that in two in three of them are not eligible for a pension. They probably shouldn’t feel so bad since the odds are good that most pension funds aren’t going to survive the next market downturn anyway.
The Question of the Week
[poll id="170"]
Other Useless News
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(The Best of) 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
I can only assume that Fish decided to visit my About page after he dropped this brief message in my inbox:
Nope! Your [sic] still ugly!!!!
I guess this means you won’t be asking me out for a date any time soon?
I’m Len Penzo and I approved this message.
Photo Credit: Community Coffee
Len,
I find it Ironic that Illinois, the land of Lincoln is going to be the first, but certainly not the last casualty in this fiat circus from our massive government! It was basically Lincoln and his war on the South that installed this pathway for our massive federal government. The South was fighting for States rights and the idea of a Republic posed in the Constitution by our Founders, where is the Lincoln administration treated the south just as Britain treated the colonies almost 100 years earlier. By the way I am totally against slavery, but that didn’t even become an issue in the war until 1863 when the north was clamouring for just one military victory! Yes Virginia, your Constitution was lost in 1865 at Appomattox courthouse, because the Federal government has grown like a Tick ever sense. I guess our media today would call this fake news since the only thing our public schools teach the Civil War was about is slavery. It was most likely 10% slavery and 90% economic, all wars throughout history have been for the most part over economic agendas.
Had to get that off my chest, but 1865 was where the rubber met the road in this present day mess we are in!
Jared
Len,
The reason I know Lincoln never gave a hoot about slavery is that the Emancipation never freed the slaves in the north, only the ones in the south???? What a coincidence that it only freed the slaves in the south! If he really cared about the slaves why wouldn’t you free them throughout the land! Our public schools have basically brainwashed us into thinking our Federal government can do no wrong. The Founders warned us this would happen!
Jared
It is sociopolitically fashionable right now to desecrate the history of the 19th century American South.
It is also fashionable to give lip service, at least, to the American revolution.
It is not fashionable (read: “politically correct”) to compare the birth of the Confederacy with the birh of the Union.
Each can be thought of as an attempt to establish liberty – the Union from English rule, the Confederacy from a dictatorial, increasingly centrist government in Washington.
I agree, Jared. The Civil War was, first and foremost, a conflict over states’ rights; Southern states’ resentment sprung from being heavily taxed to support Northern interests.
Lincoln admitted that if he could have saved the Union without freeing the slaves he would have done so. And his Emancipation Proclamation came several years after the Civil War began; its main purpose was to cripple the South economically.
I’m glad to hear others know the Truth other then the propaganda our massive Federal government feeds our children in public schools.
I made an effort to “deprogram” my kids at the dinner table every evening to “correct the record” on lots of things they were being taught that were complete BS. Unfortunately, most parents don’t do that — which is why kids today are so misinformed.
Len, thanks for explaining the bond lessons in a way amatures like me can figure out. I think I actually understand how they work now.
Have a great weekend!
Sara
Thank you, Sara.
Maybe Janet Yellen believes we’ll all be dead by the end of the year.
Well … that’s a sobering thought. It’s as good an explanation as any, Mike.
A friend turned me on to your weekly posts about a month ago. Great stuff. When the next financial crisis hits it will take our entire monetary system with it. Everything blows up next time including the banks, pension funds and bonds.
Yep … the next great financial crisis will be a currency crisis, James. It doesn’t get any worse than that.
I found your blog by accident last week. Dumb question. Whats a currency crisis?
There are no dumb questions, Becky. A currency crisis occurs when people lose faith in the perceived value of their currency (for example, the US dollar, Mexican peso, etc.). When that happens people try to get rid of their currency as fast as they can by exchanging it for goods and services, which results in sharply rising prices.
The only way to stem a currency crisis is by restoring confidence in said currency, usually via a sharp increase in interest rates — if that fails hyperinflation takes root and the currency dies (that is, becomes worthless). When a currency dies, everybody’s savings are wiped out in short order; that is especially catastrophic for retirees or people who have slowly built-up a large nest egg over decades, and did not insure their wealth with physical gold or silver.
The last US currency crisis occurred back in the late 70s / early 80s and was contained only after the Fed raised interest rates to nearly 20%. The trouble is, the US no longer has that option because it has too much debt on the books; the cost of servicing the National Debt at even 5% interest today would cripple the country.
Short of reducing the size of the US government and its associated expenditures by two-thirds or more — which is politically impossible — the only other solution is the introduction of a new currency.
The irony of Yellen’s “all is well” comment in light of the meltdown in IL is juicy. Nero fiddling while Rome burns. What is happening in Illinois is coming to the rest of the US. Too many financial promises have been made that cannot be kept and that includes the banks that have issued far too much credit that is not backed by enough collateral. Cracks are appearing everywhere now. CT , KY and CA are next. Like an avalanche, the speed with which this unfolds will increase until it hits a point where the entire system seizes up.
People who take the time to do the math, can see the inevitable failure of the current system. Everyone else is sticking their head in the sand and hoping the music doesn’t stop playing while they’re still alive — and/or smearing the rest of us as “tin foil hatters” simply because they haven’t personally experienced the financial system’s coming denouement yet.
Just remember folks, when the house of cards finally falls, you’ll realize it was better to have prepared several years early than be one minute late.
Len, Besides physical gold and silver, where do you suggest people with a few extra dollars put that money to prepare for the inevitable crash?
It ‘s interesting to watch Illinois where cutting the bloated government pensions in half for all retired workers, and immediately putting all current and new workers on 401 K plans would solve the situation. Firing a lot of those “non essential” government workers would help too. The Democrats always want to hire more and more government “workers” who then kick back campaign contributions to politicians’ campaign funds. It is an incestuous, vicious cycle which penalizes the private sector workers who actually produce things.
Karen, I think everybody should have six months of food stored up, and a water filter, just in case supply chains temporarily break down. (Yes, folks, I said “temporarily”! I am not predicting, nor do I believe, the world will end up in a “Mad Max” scenario when the system seizes up. ) For those with a little more money, anything tangible that holds value; the wealthy focus on fine art and other collectibles, and farmland and other real estate that can provide a steady income.
I can’t resist sharing with your readers the most recent escapade of our totally clueless, soon to be ex, Governor of the once great State of NJ. The man stands at a press conference yesterday, lying blatantly to the public as the press gently leads him down the garden path to expose his lie. I add this because NJ (Thank you for nothing Governor Christie except the seven bond downgrades you have accomplished!) and Connecticut are soon to be in the same distress as Illinois due to our clueless, blowhard leader who accomplished NOTHING positive in his two terms of office. My goodness he didn’t even manage to land a job with the Trump administration!
HEADLINE: New Jersey Governor Chris Christie lounges on beach that he shut to public
I didnt get any sun today, Republican says, though photo shows him relaxing on beach that was closed as part of budget standoff New Jerseys Island Beach state park was closed on Sunday due to a budget standoff with the exception of Governor Chris Christie, his family and friends. While others were reportedly turned away by police, New Jersey Advance Media took a picture of Christie with his wife Mary Pat and others on the otherwise deserted public beach. Christie later traveled by helicopter from the beach in Berkeley to the state capital Trenton to hold a news conference about the shutdown. Asked if he got any sun, Christie replied: I didnt get any sun today. When later told of the photo showing him relaxing on the beach, Christies spokesman Brian Murray said: Yes, the governor was on the beach briefly today talking to his wife and family before heading into the office.But that did not mean Christie got any sun. He had a baseball hat on, Murray said.
I saw that, Karen, and I have to say I was greatly disappointed.
This is just more proof — along with those crazy government pensions, among other examples — that our government no longer exists to serve the people. Rather, the people exist to serve their government masters.
Thomas Jefferson is rolling in his grave right now.
Thank you for identifying that spinning sound!
If they can’t raise interest rates, the Fed can also devalue the dollar against gold.
That’s true … although, by definition, devaluing the dollar against gold offers no hope of saving the dollar’s purchasing power, and does nothing to shore up confidence (it usually does the opposite) — but it may buy a little time. In fact, it is a mathematical step function that simply speeds up the price-inflation process and ticks off those who are holding the currency. It instantly makes everyone holding those dollars poorer by the amount it is devalued.
Of course, physical gold (and silver) holders’ purchasing power would not be affected by such a devaluation — and it would probably increase in the gray and black markets.
Hi Len,
I’m new to your blog and even saving money in general. It’s sad I’m learning all of this in my late( turning 27 next month) but better late than never! I appreciate all the knowledge you’ve given.
I’d like to know if it is worth consolidating my cc loans if such a crisis will happen. How can someone even begin to do right if this is headed our way? Should I just start putting my money away? I’m scared to put in the bank. This is all so troubling.
Hi, DeeGee! Welcome aboard! First off, there is no need to be sad– you have a huge advantage that many adults don’t: you are young and have plenty of time to recover from any financial crisis that comes your way (whether it is related to your personal finances, or the international monetary system). So chin up!
I am not a certified financial planner, so you need to take my comments with a grain of salt regarding you personally. That being said, one of the cardinal rules of personal finance is to “pay yourself first.” That means you set aside something for your future before paying your creditors a penny.
If you believe the financial system will be fine going forward, then make sure you set aside contributions to your 401(k) — and hopefully, get a company match — before you write any monthly checks to pay your credit card bills.
On the other hand, if you believe there is a high risk that the dollar is going to implode at some point in the medium- to short-term, then you may be better off allocating cash you’re setting aside for retirement into physical silver on a monthly basis. It is my opinion that silver is the most undervalued commodity in the world and you can buy an ounce of it for under $20!
No matter what you decide to do, being young gives you the luxury of having plenty of time to recover from any serious financial pitfalls that may come your way — unlike older folks like yours truly.
Len, I, thanks to you, have been buying silver coins when I can…..from Apmex. Thank you!
Need your advice. I can’t afford gold, but would it be wise to try 1/10 oz? I can buy that much gold or six silver coins. Tempted to buy the gold….just because.
I will do what you suggest.
Good for you, Della! I always recommend that people who wish to begin buying precious metals for the very first time, start with silver. Ounce for ounce, it is much cheaper to buy and, therefore, allows folks to dip their toe in the water while they gain experience and knowledge.
The best silver to buy, in my opinion, for those just beginning to “stack” is so-called “junk” silver — pre-1965 US dimes, quarters and half-dollars. Junk silver is instantly recognizable, and great for small-scale barter (a silver quarter will always buy a gallon of gasoline and a silver dime will always buy a loaf of bread). One-ounce American silver Eagles are also a good choice.
When folks like yourself feel they are ready to “graduate” to gold, I strongly recommend sticking with one-ounce coins, preferably American Gold Eagles or Gold Buffaloes because the premiums for smaller gold coins (half-ounce, quarter-ounce or tenth-ounce) increase as the coin weight gets smaller. You can also save premiums by buying generic gold rounds, but they may be harder to exchange in the future because some people may not trust them as much as sovereign coins.
For the newbies reading this: here is a first-time buyers’ guide for silver and gold.
That UW study has a really neat data advantage over most previous studies (Washington actually collects hourly wage data, which isn’t true in most places). Unfortunately, they reject valid controls (comparing the change in low-wage worker hours to similar cities) out of hand, which limits my confidence in their results. I’ve only had time to skim the paper, but I hope to give it a more thorough read eventually.