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.
Another glorious week comes to an end. Off we go …
“Gold is money. Everything else is credit.”
— J. Paul Getty
“Gold is honest money, which is why it’s disliked by dishonest men.”
— Ron Paul
“It is much better to have your gold in the hand than in the heart.”
— Thomas Fuller
Credits and Debits
Debit: Don’t look now, but the Millennial generation is no longer taking out loans solely for cars, houses and college expenses. According to MarketWatch, they’re now financing everything — from luxury bed sheets to concert tickets. Yes, bed sheets. No, I don’t understand it either.
Debit: In other news, this week China admitted their version of America’s Plunge Protection Team “stabilized” the Chinese stock market by purchasing $150 billion worth of various company shares. I know. It’s just more proof that legitimate price discovery is dead. The real markets died during the Great Financial Crisis nearly a decade ago.
Credit: China’s declaration prompted Zero Hedge to ask: “If Beijing has to hold ($150 billion) in stocks when the ‘market’ is stable, what will happen when things start turmoiling once again?” That’s easy: they’ll just buy the entire market. But then what?
Debit: On a somewhat related note, this week the European Central Bank chair, Mario Draghi, proclaimed that quantitative easing (QE) — which is a purposely-misleading euphemism for unfettered money printing — has “made the world more resilient.” He has a point, I guess — in the same way that North Atlantic icebergs made the Titanic “more resilient” too.
Credit: Meanwhile, over at the Global Macro Monitor, they see a world powered not only by fake news, but also by “fake economies based on fake demand that’s dependent on asset bubbles, and fake markets dependent on QE and low interest rates. The $75 trillion global-economy question is: When will Truman Burbank realize his world is fake?” It makes you wonder, doesn’t it?
Credit: Thankfully, a recent opinion piece in the UK’s Evening Standard highlighting the systemic fraud within the global financial system and its inherent dangers, suggests that maybe — just maybe — the world is finally beginning to wake up. Hopefully it doesn’t hit the snooze button, turn over, and resume dreaming. (h/t: Ubik Kosmil)
Credit: For his part, Senator Rand Paul (R-Kentucky) says it’s time to audit the Fed. For the first time since the Fed was created in 1913, Paul’s bill would shine a light on Fed agreements with foreign governments and central banks, its discount window and open market operations, Fed members’ bank reserves, and Fed committee directives.
Credit: If I didn’t know any better, I’d say that it’s almost as if Senator Paul no longer trusts the non-federal Federal Reserve Bank — another purposely-misleading euphemism — to put its private banking-cartel interests ahead of what’s best for the United States’ people.
Credit: Speaking of waning trust, this week the Bundesbank announced it finished repatriating 674 tons of German gold stored in New York and Paris, three years ahead of its seven-year schedule. Then again, considering that it’s not a serious logistical challenge to transfer gold in such large quantities, the task shouldn’t have taken even seven months. Er, unless it was missing and difficult to replace.
Credit: With that in mind, perhaps it’s no coincidence that US Treasury Secretary Steven Mnuchin visited Fort Knox this week; supposedly to make sure America’s gold was still there. He’s the first Treasury Secretary to visit the Fort Knox gold hoard in 70 years — which is odd because the US Treasury Secretary is the primary custodian of our national treasure.
Credit: Of course, my tin foil hat is probably on too tight again. To be fair, however, I’m not the only person wondering why, after seven decades of indifference, a US Treasury Secretary would decide to announce that he was going to personally check on the Fort Knox gold hoard now.
Debit: Others are calling it a PR stunt — and an amateur one at that, considering that the Fort Knox visit was announced the morning it took place, and there was no evidence that any media were allowed to participate.
Credit: The good news is, after the tour, Secretary Mnuchin tweeted: “Glad gold is safe!” In other words, put the scales and drills back into storage, place the gold bar lists back in their file cabinets, and call off the assayers. Obviously, any doubts about the sanctity of America’s gold have been thoroughly squelched. It’s settled science. (Um, as my anthropomorphic global warming climate change friends like to assert.)
Debit: Then again, the Secretary didn’t mention how much gold he was talking about, did he? After all, there’s no way he could have verified all 4582 tons of the yellow metal that the US claims to hold there during his brief field trip.
Credit: Frankly, I’d never declare that much gold to be “safe” after merely peeking into a single compartment and eyeballing the contents — or holding a single bar in my hand. But, hey … that’s just me.
Credit: Finally … There’s a reason why I store nearly 200 gallons of potable water in my home: Simply observe the local stores in Texas shortly before the recent arrival of Hurricane Harvey; there were many reports of unprepared shoppers fighting over dwindling bottled-water supplies. Sad. It’s a shame that most folks still look at the fable of the Ant and the Grasshopper as just that — a fable. Don’t be a grasshopper.
By the Numbers
Gold is extremely rare, which is why it’s so valuable. In fact, you have a better chance of finding a 5-carat diamond in the ground than a one-ounce gold nugget. Here are a few more golden numbers to consider:
101,433,250 Troy ounces of gold mined globally in 2015.
5,465,500,000 Approximate troy ounces of gold mined during all of human history.
68 The size of a cube, in feet per side, that could be made from all of the gold ever mined. (In other words, it would comfortably fit inside a baseball diamond.)
261,500,000 Troy ounces of gold the US claims to have stored at Fort Knox, West Point and other vaults across the country. That’s less than an ounce for every American.
$61,500 Approximate debt share for every American based on the $20 trillion National Debt.
$1000 Approximate per capita value of America’s gold stockpile based on the yellow metal’s current “market” value.
$10,000 The implied current approximate non-inflationary price of the yellow metal under a gold standard with 40% backing.
Sources: The Motley Fool; Daily Reckoning
The Question of the Week
[poll id="178"]
Last Week’s Poll Results
Do you prefer spearmint or peppermint?
- Spearmint (37%)
- Peppermint (32%)
- I’m not sure. (31%)
More than 1100 people responded to last week’s question and one thing is clear: There are more than a few people out there who say they aren’t sure of the difference between spearmint and peppermint — almost one in three, in fact. Of those who do have a preference, spearmint got the nod, but just barely. Put me in the spearmint camp too; I prefer its milder flavor. That’s not to say I don’t enjoy the occasional peppermint stick or Christmas candy cane too.
Other Useless News
Here are the top five articles viewed by my 15,891 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- What Credit Karma Won’t Tell You About Their Free Credit Score Offer
- The 15 vs. 30 Year Mortgage Debate: Why a 30-Year Loan Is Better
- My 9th Annual Cost Survey of 10 Popular Brown Bag Sandwiches
- 8 Tips on How to Love Your Life — and Not Focus on the Joneses
- A Layoff Story: The Ant, the Grasshopper and the Honeybee
Hey, while you’re here, please don’t forget to:
1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!
2. Make sure you follow me on Twitter!
3. Subscribe via email too!
And last, but not least …
4. Consider becoming a Len Penzo dot Com Insider! Thank you.
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 a post from the bi-weekly “Grandfather Says” series by R.D. Blakeslee on the best thing about getting old, Ken in NZ added this:
“The best thing about being 60, 70, 80, or 90 is that you’ve made it that far.”
Pro tip: Regular naps actually prevent old age — especially if you take them while driving.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Len,
Did you read the NYT article this week about several people having their “virtual” money bitcoins stolen? Someone found out their cell phone numbers and their identities were hacked and all their accounts were compromised. Makes me really wonder why several of the high profile gold and silver advocates are going whole hog into cryptocurrencies.
No, I didn’t see that. Cryptocurrency advocates insist the technology is impervious to hacking. My opinion is, in the presence of a determined actor with enough resources, nothing is impervious to hacking.
When it comes to cryptos, there are three camps out there among the precious metals crowd:
1. Those who believe cryptocurrencies are the wave of the future, and a store of value
2. People who are on the fence, and may or may not be willing to allocate a portion of their assets into the cryptos for diversification purposes
3. People like me who believe they will not act as insurance during a currency crisis (i.e., they will lose purchasing power)
As far as I am concerned, cryptos will remain a speculative bet until we can see how they perform during — and more importantly — after a dollar currency crisis (i.e., when we will be able to see bitcoin’s value after the dollar loses its reserve currency status).
There is a photo of a guy in the article that lost $1 million in bitcoin!
Yep … saw the article. I’m not surprised.
Readers, here is the story Jack is referring to.
The person who lost that Bitcoin was stupid because they didn’t hold the keys. They were keeping it in an online exchange wallet. If you use a hardware wallet and control the keys, one’s cell phone has nothing to do with it and it isn’t even internet connected.
And in terms of how Bitcoin works in a currency crisis, look at Venezuela. Even smaller cases, like Brexit where even the uncertainty drove up Bitcoin.
David, I equate the NY Times story to having your house robbed by a burglar who found the door key under the porch flowerpot.
As for bitcoin’s performance in a currency crisis … I am talking about a currency crisis involving the US dollar — which all other currencies are measured against. If the dollar hyperinflates, how will bitcoin be valued? In dollars? If dollars become worthless, then what? The logical answer is bitcoin will then be valued in gold (by weight) — but that assumes gold holders are willing to exchange their precious metals for bitcoin. If they aren’t, then bitcoin’s value goes to zero.
If you believe today’s market, one bitcoin is worth a little more than three troy ounces of physical gold. I could be wrong, but when the fit hits the shan and the dollar dies, I don’t think enough precious metals owners will be willing to make that leap. I know I won’t.
Your argument seems to assume a zero sum world economy with the dollar being the crux of the whole thing. Bitcoin isn’t national. While we all compare it to the dollar, that isn’t really any more than an artificial construct so we have something to compare it to. Like any asset, it’s real value is based on supply and demand. Just like gold. Gold is a limited supply and it’s value goes up with demand. However, as you know, gold is a manipulated market because they can create “paper gold”. That is not possible with Bitcoin. Also, one has to look at how we are moving forward. We live in a digital world and the world is moving toward digital money. Not gold which is difficult to use. I think digital is where it’s all heading and dollar collapse won’t derail that. Now, what would we rather have, a fiat crypto which can be manipulated by a central authority?…. or a decentralized one that cannot?
And no, I don’t think Bitcoin’s value in a hyperinflation is dependent on gold holders selling for Bitcoin. A currency is nothing more than an idea backed by common confidence. Gold is a source of confidence, but so is math. All that is needed is confidence and limited supply and value goes up. We’ve seen numerous examples already of people looking at Bitcoin with confidence.
BTW, I think there is already another crypto that is gold backed. Digix, I think? I don’t recall. Point is, Bitcoin isn’t the only game in town. Our future is cryptocurrency, like it or not. But, we’ll likely have a bunch of them competing for market. Which is a great thing. Gold will be just another competing asset, but not the center of the universe.
BTW, I own gold and silver, too. I’m just not naive enough to think that’s the only real asset.
Ouch. Hold on now … I never said gold and silver are “the only real asset.” My position is that only gold (and silver) are money. That’s all. Obviously, there are plenty of assets that aren’t money.
As you know, gold’s value is measured by weight (troy ounces, metric tons, or grams); gold is real — a physical element made of atoms. However, bitcoin is merely an abstraction; as such, its value must be measured in terms of something else, such as a fiat currency or gold — and that is a problem for bitcoin, in my opinion. So, with that in mind, saying bitcoin’s “value is based on supply and demand” is not enough to convince yours truly that it’s a legitimate store of value, or that it will survive after the world’s current crop of fiat currencies (which are also abstractions, by the way) hyperinflate into worthlessness.
The question I am trying to get you to think about is: What are bitcoin and other cryptocurrency’s intrinsic value? I know that precious metals have a 5000-year track record proving their intrinsic value as money. But I have seen no proof of cryptocurrencies being accepted as money, let alone money’s lower-standard derivative — that is, currency!
As far as I can see, cryptocurrencies up to this point are an arbitrary financial unit of measure with a unique identifier that people can use to make a speculative investment. Maybe that will change but, as far as I’m concerned, I want to see definitive proof of the cryptos’ intrinsic value before I jump on the bandwagon. Faith-based assertions and platitudes are not enough.
For me, the bottom line is this: I am 100% sure that gold and silver are money with no counterparty risk. I can’t say the same for bitcoin and other cryptocurrencies.
I gotcha. No need to say “ouch”, BTW. I’m not going after you. I totally agree with you about gold and silver, and I own both. But, my view on cryptocurrency is different, to be sure.
I get the issue with intrinsic value. However, things have value because people think they do. That’s about the essence of it. From that perspective, cryptocurrency has value. As I said, the world is going digital. It can be fiat, or it can be based in cryptography and protected from alteration because it is decentralized. This is where things are going. I understand it is new, though. No argument about track record could ever be won here because crypto is about 7 years old and gold has been around forever.
But, perceived value is a real thing. Intrinsic value, too, is alot about perception. If you were to talk about intrinsic value of a company, for instance, you take into account it’s physical assets, but also things like IP. IP is little more than attention. It is perception. Yet, it has value and it can go up and down depending on how important that attention is at the time. Bitcoin is kinda like that. It has value because people think it does. It’s really that simple. But, when you get right down to it, gold is no different. Human beings have long considered it valuable, and so it is. As a pure piece of matter, it would be no different than a sea shell. But, we look at it differently, and so it is.
Anyway, it gets pretty philosophical, I guess. Seems to me, at the base level, one wouldn’t want to remain stubborn about this. I hold gold, silver and yes… crypto. And crypto has done very well for me. Even if you think it’s world utility is limited, it seems short-sighted not to own some. Perhaps you do. There’s always that possibility that the future will look different than you think.
Good comments, David. And no worries … I appreciate you sharing your views.
Len, this was a HUGE cup of coffee today. Yum!
I think that trip to Fort Knox was all for show. And it did’t prove anything really.
Have a great weekend!
Sara
Well … I think you are absolutely right, Sara.
Mr. Mnuchin said “the gold was safe.” Well, yeah … it is in Fort Knox! We knew that already. The real question is whether we have all the gold we say we do.
Frankly, I think this is a signal that the powers that be in the US government know the dollar’s days are numbered. Then again, I wear a tin foil hat — so take my suspicions with a big grain of salt.
Forget auditing the Fed. We need to eliminate the Fed.
Thanks to the Fed what was once a dollar is now worth 3 cents.
Agree, Oscar.
Woodrow Wilson betrayed the nation when he signed the bill that established the Fed in 1913.
$20 trillion National Debt / 262 million ounces of gold = $76,336 / oz.
If you include unfunded liabilities, then multiply that price by about 5 and you get almost $400,000 per ounce.
And if the US doesn’t hold all the gold it says it does, then the number is even higher. If they lose control and confidence in the dollar breaks, the price for gold will reach those heights.
Sounds good. Until you realize a loaf of bread will cost 10,000 dollars if that happens.
When it comes to purchasing power, you can’t think in terms of dollars, Patrick … you have to think in terms of weight in gold and silver.
In those terms, holders of gold and silver will see their purchasing power increase compared to today. The magnitude of that increased purchasing power will be proportional to the degree of manipulation the central banks have employed to-date in restraining the price of precious metals.
How is financing bed sheets any worse than buying them with a credit card?
The conventional wisdom is that financing small-ticket items usually costs more than using a credit card after taking into account loan fees. In common sense terms, it suggests that more people have maxed out their credit cards and are now turning to an alternative vehicle so they can continue spending beyond their means.
Clearly, most Americans have forgotten the importance of saving. Never mind that, at its core, capitalism depends on savers to function properly. I guess the reluctance to save should be expected in today’s easy-credit based world.
Unfortunately — or fortunately, depending on your POV — the math is finally catching up with reality. Our debt-based monetary system is a Ponzi scheme that requires the accumulation of more and more new debt each day just to keep it from imploding. But it’s getting harder to keep the game going with each passing day because the public is tapped out and cannot afford to take on any more debt — that is, we are nearing the point of 100% debt saturation.
If the central banks cannot keep the amount of debt growing at the exponential pace required to sustain the system — and they can’t — then their only remaining option is to print “helicopter money” that is given directly to the public. This will unleash the final stage of the current monetary system, ending in dollar hyperinflation.
It’s no coincidence that discussions about the goodness of Universal Basic Income are showing up in the press. The ultimate helicopter money.
Len, your last credit, about emergency water storage, touches on a fundamental truth: It is possible to store value in terms of direct support of your life. independently of money – in fact, it has to be, if it is to survive the failure of currency.
In the microcosm; Get a rain barrel to supplement, directly out of nature, your 200 gallons of stored water.
Good advice, Dave.
On a related note, I’ve been meaning to write an article on canned food as an alternative investment option too. If food prices are increasing at 5% annually, then canned food bought today and stored for future consumption delivers a similar return — with the added advantage of doubling as survival preps for future hard times.
Mormons store two year’s worth of foodstuffs as a matter of their catechism, so to speak, although their motivation is like your water storage, not as an investment. Investment’s a bonus, to be sure.
In my situation, its possible to take the hard times insurance concept farther: Reproduce and store some food on the hoof, take firewood from the woods, etc.
Here in SoCal, citrus trees and other fruit trees are a nice investment as insurance for future tough times too. I regret not planting a couple of them when I moved in to my current home twenty years ago.
Len, thanks for the extra long article today!
A cube that contains 68 ft. of gold would only measure approximately 4′ 1″ by 4’1″ by 4’1″.
Forget the baseball diamond, that would fit on an air hockey table.
Are you sure your math is correct?
You are correct, Tom. My wording was clumsy — that’s my excuse and I am sticking to it! It is a cube, 68 feet on each side (length, width and height).
I took the words “cubic feet” out of the description, and replaced it with “feet per side.”
Heck … You’d think I was the dentist and you were the engineer on that one! LOL
Those gold bars like the one Mnuchin is holding in the pic are 400 oz. If it isn’t filled with tungsten, there are still 144M ozs that need to be accounted for.