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.
Are you ready? After my vacation in Maui, I know I am!
Off we go …
“No State shall … make any Thing but gold and silver Coin a Tender in Payment of Debts.”
— The US Constitution (Article 1; Section 10)
“A national debt, if it is not excessive, will be a national blessing.”
— Alexander Hamilton
‘How did you go bankrupt?’ Bill asked.
‘Two ways,’ Mike said. ‘Gradually, and then suddenly.’
― Ernest Hemingway, The Sun Also Rises
Credits and Debits
Credit: Is the iPhone hype finally over? Maybe. Despite all of the pre-sales hoopla for the iPhone8, demand for Apple’s latest offering has been, shall we say, less than brisk. At least it is if the smaller crowds outside stores and a muted customer reaction are any indication.
Credit: The astonishing lack of enthusiasm was so pronounced that only two people showed up for the most recent iPhone debut in Hangzhou, China. Not surprisingly, Apple’s iPhone proponents called that fake news. To be fair, they noted that if you count the security team hired to keep the, er … “crowd” from storming the doors, there were actually five people on hand for the iPhone8 debut:
Debit: In other news, US productivity growth peaked in 1972, the year after the US decoupled the dollar from gold in 1972 — and it’s been essentially downhill ever since. However, it’s been particularly dismal since 2002; believe it or not, US productivity growth since then is only on par with the agrarian economies from two centuries ago. Is this a classic case of a nation resting on its laurels — or something else?
Credit: For his part, Paul Craig Roberts wonders how American wages can be stagnant if one believes the US unemployment rate is just 4.4%, which is generally considered to be full employment. Good question. (Psst. Obviously, somebody has been “massaging” the unemployment data — and it’s one of those “deep tissue” massages.)
Debit: Then again, although real incomes have gone nowhere after more than 40 years, for most people it has continued to feel like their living standard has indeed remained stable. Why? One word: debt. And lots of it.
Debit: In fact, as financial analyst Dave Kranzler point out, when it comes to debt and “massaged data,” it’s 2007 all over again. At least it is if you consider the financial shenanigans by the usual jackals that led to the Great Financial Crisis of 2008 are back and bigger than ever. Let the good times roll, baby!
Debit: Meanwhile, 10-year Treasury bonds are currently yielding 2.36%. At the same time, the average yield of corporate junk bonds denominated in euros hit a new all-time record low of 2.30%. Um … does anybody else see a problem here? Anyone? Bueller?
Credit: Well … Wolf Richter does. He calls that perverted yield-dichotomy, “The central banks’ ultimate accomplishment: The total destruction of the market’s risk-pricing mechanism at the expense of other people’s money, including funds that play a large role in pension systems.” Why? Because those yield-starved funds have to buy those mispriced corporate bonds.
Debit: Richter continues: “And then there’s the comforting thought that when markets can no longer price risks, they can’t price anything at all because the price of risk underlies all financial market prices.” That it does. An economy without accurate price signals is really no different than an airliner flying in the dark without any instrumentation — and blindfolded pilots. The end result will be the same too.
Debit: Speaking of pension funds … I see that Kentucky’s 365,000 teachers and other public employees are now demanding that taxpayers contribute $5.4 billion to their pension funds — and that’s just during the next two years. As Zero Hedge notes, $5.4 billion equates to $3200 for every Kentucky household — and 25% of the state budget. Uh huh. This, folks, is why these Ponzi schemes can’t won’t go on forever.
Debit: As mega-millionaire publisher Bill Bonner notes, America is broke and nobody cares. But, Bonner says, Americans should care — especially her top 1% who, thanks to the Fed, have seen their wealth soar more than 230% since the Great Financial Crisis of 2008 at the expense of the lower and middle class.
Debit: One thing is certain: When the next financial crisis hits, the rules will change; they always do. The big question is how will those rule changes affect people’s attitudes toward the ruling class?
Debit: A potential answer can be seen in Catalonia’s most recent drive for independence from Spain. That movement is the result a hollowed-out middle class, brought about by 10 years of relentless central bank printing — spurred by a desperate financially-strapped government promising more than it can legitimately deliver. Will America will see similar movements when public pensions begin failing en masse?
Credit: I’ll let Mr. Bonner sums things up: “It’s all very well for the feds to use crises to take more wealth from the lumpenproletariat, and arm the local police with tanks and assault helicopters to keep them in line. Still, every elite eventually goes too far. Every empire dies. And, in the final act, every jackass gets what he’s got coming.” Amen. And if you think Catalonia can’t happen here, folks … you better think again.
Last Week’s Poll Results
Have you ever filed for a personal or business bankruptcy?
- No (91%)
- Yes (9%)
More than 1700 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 11 of them have filed for bankruptcy at least once in their lives — either on a personal basis or on behalf of their business. According to the American Bankruptcy Institute, there were 794,960 bankruptcy filings in 2016, with only 3% of them being for businesses.
The Question of the Week
[poll id="183"]
By the Numbers
The Fed says there’s very little price inflation; that’s a good one! Here are the average prices for select goods from 1970, which is the year before the US dollar’s anchor to gold was broken:
$0.06 A postage stamp
$0.25 One loaf of bread
$0.36 One gallon of gasoline
$0.39 Five pounds of sugar
$0.59 One dozen eggs
$0.62 One gallon of milk
$1.55 A movie ticket
$1.90 One pound of coffee
$3450 A new car
$23,450 A new house
Source: King World News
Insider Notes: Why Simply Saving Should Be Enough (But It’s Not)
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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 seeing pictures of the $24,000 master bathroom remodel we did a few years ago, Rudy gave this review:
Great job! It looks like a 4-star hotel bathroom!
Yep. Unfortunately, unlike those 4-star hotel bathrooms, I still have to pay for the hot water every morning.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Next time you’re in the coffee section of the grocery store, look at those “1 lb” cans. Most of them are now 14 oz!
I’m glad your back Len!
Sara
Thanks, Sara. No kidding on the shrinking package sizes. When I got back from vacation I went grocery shopping and noticed that the polska kielbasa I usually buy dropped from 15 ounces to 14 ounces. And to think it came in a full pound (16 oz.) link just a few years ago …
Someone smarter than me mentioned that Apple’s has figured out that people are willing to treat disposable consumer electronics with a planned obsolescence of 18 months as a premium status symbol. Imagine if Rolex convinced people they needed to junk their old watch every two years.
I know a lot of people mistakenly think their smart phones, like luxury cars, reflect how well-off they are to others, but I just can’t wrap my head around that kind of thinking.
I’m surprised you didn’t mention the unemployment rate falling to 4.2%. If the job market is so hot, I wonder why wages are not exploding higher?
I did mention it … well, at least I mentioned that Paul Craig Roberts mentioned it. LOL
At the time his article was published the rate was still 4.4%. What is interesting is that on Friday the BLS announced a contraction of more than 30,000 jobs in September– at the same time they announced the unemployment rate fell from 4.4% to 4.2%.
How did that happen? It happened because the current unemployment rate methodology concluded that more than a million conveniently “dropped out of the workforce.” Consider that said methodology considers people to have “dropped out of the workforce” after they have been on the unemployment roles for more than a year. Meanwhile, the labor force participation rate is the lowest it’s been since the late 1970s. It’s all a sham.
All govt data is suspect today and has been since the 2008 crisis. The old Soviet Union claimed it had “full employment” and a strong ruble right up until the point it finally went belly up too.
The room for bond yields to fluctuate becomes smaller and smaller. When the bond market cracks, and it has to crack at some point, then all hell is going to break loose.
I agree. I’m not sure when that crack will occur (it should have occurred long ago, IMO), however. Remember, the bond market is much bigger than the stock market. I think it is close to three times larger.
Here’s a thought experiment: When the bond market does crack, where will all of that safe-haven investment cash go? (Hint: Most of it will logically go to another safe haven asset.)
“The rules will change.”
In my humble opinion, the areas that are most susceptible to this are retirement vehicles. I’m thinking Roth IRAs (they’ll tax them again when you try to pull out money) and 401ks (they will add new restrictions for pulling out your money).
Yep. Another potential scenario: I suspect it will get even harder to withdraw cash from your bank accounts. If you need to withdraw large amounts of cash for any reason, you’ll be even more stymied than you are today. Think daily withdrawal limits of a $100 or less — at least until the current corrupt financial system finally dies.
Housing lending IS out of control again. A long time ago, 20% down was standard when buying a home. That kept everyone honest, but didn’t make real estate agents or the banks happy. It did keep prices stable though, because people had to actually save for the down payment. Today it’s different. I’m surprised we don’t have 50-year mortgages yet.
Hey … they routinely offer car loans of 7 years or longer now. Governments have no trouble selling 100-year bonds too — Austria had no trouble selling out their 100-year bond offering at a yield of just over 2% last month. Two percent!!! (Link)
The financial world has gone mad. The historians are going to have a field day looking back at the folly of just how insane things got before the coming “Great Financial Collapse.”
Welcome back. Len.
Well. my neighbors just brought a load of firewood and stacked it in the woodshed for me. We will be warm this winter, no matter what the Jackals and Jackasses do.
We barter alot around here – in this case, firewood for hunting rights. Much of the commerce in our everyday lives is independent of any money system.
Thanks, Dave.
Nothing wrong with barter! It works beautifully as long as two parties have mutually-desirable goods and/or services for sale. And for times when that isn’t possible, there is gold (for large transactions) and silver (for the smaller ones).
As you know, Len, right on for the silver!
North Korea, Harvey, Maria, Nate, Catalonia. Yet the stock market just keeps on climbing without skipping a beat. (smh)
“The market can stay irrational longer than you can stay solvent.”
— John Maynard Keynes
Can somebody explain to me where the bond market gets its cash from?
For every bond sold, is there an equal amount of real hard cash turned in?
Let’s answer the question pre-2009 / pre-QE just to keep things “simple”.
Im really curious.
I mean, I can understand that a municipality is low on cash flow. Then, it creates a debt obligation and takes in cash to pay somebody or build a bridge. But what are the ways in which the bond market can fake it? (again, pre-QE. Post QE … I can understand how everything is fake …)