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.
And away we go …
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
— Ernest Hemingway
“The hours of folly are measured by the clock; but of wisdom, no clock can measure.”
— William Blake
Credits and Debits
Debit: As I mentioned last week, hyperinflation in the People’s Socialist Paradise of Venezuela has run its course. The currency there is now so worthless that last week a journalist spent four hours in line, at four different banks, to accumulate 10,000 bolivars — the equivalent US dollar purchasing power of six cents. This is what happens when currency dies, folks.
Debit: One side effect of any hyperinflating currency is inflating stock prices. In fact, Venezuela’s Caracas stock exchange index “soared” 3900% in 2017, far outperforming all of its South American counterparts. And although 2018 is only a month old, the Caracas index is leading the field again. The trouble is, the bolivar’s staggering losses dwarf the gains of Venezuelan stocks, resulting in a net loss of purchasing power.
Credit: Speaking of soaring stock prices, on Wednesday former Fed Chair Alan Greenspan gave a stark warning about America’s exuberant markets: “We have a stock market bubble and a bond market bubble. And, at the end of the day, the bond bubble will be the big issue.” Alan! Shush! You’re going to wake up an unwitting public. On second thought … no, you won’t.
Debit: On third thought … maybe he did. The Dow fell 666 points on Friday — on a nominal basis, that was its biggest one-day dive since December 2008. Friday’s close also led to the Dow’s worst week in more than two years.
Debit: Greenspan’s warning — and Friday’s market plunge — certainly isn’t stopping Illinois’ lawmakers who, according to Bloomberg, are so desperate to shore up the state’s massively underfunded retirement system, that “they’re willing to entertain an eye-popping wager: Borrowing $107 billion and letting it ride in the financial markets.” I’m sure that will end well.
Credit: Yes, the Illinois’ pols are a foolhardy lot — but, as Peter Schiff observes, “The impending economic collapse is hidden from most people; they only see a rising stock market, not the negative underlying factors that will cause the whole system to crash.” The exception are the smug “even a broken clock is right twice a day” crowd — they see the underlying factors, but refuse to acknowledge them.
Credit: Indeed, the current US stock market valuations clearly defy any comparisons to the past. According to Michael Lebowitz, “At over 350% above the mean, stock investors are currently paying significantly more for a unit of economic growth than at any time in the last 70 years.” See for yourself:
Credit: To put that in perspective, Lebowitz notes, “The simple fact is that investors are paying over three times the average, and almost twice as much as the prior peak, for a dollar of economic growth. Furthermore, it is happening late in the economic cycle, (when) the outlook for growth, even if one is optimistic, is well below that required to justify such a level.” I know. Yet more blasphemy for the market bulls.
Credit: More heresy: Look at the following chart of the GS commodity index versus the S&P since 1971; the ratio is at an all-time low. According to Egor Von Greyerz, “This cycle is now turning and the ratio is likely to go well above the 1990 high; that’s a 10-fold increase from here.” We’ll see. Then again, I’m sure this time is different. I know because the bulls keep telling me so.
Debit: Of course, it’s no coincidence that commodity prices are starting to climb again at the same time that the US dollar is off to its worst start since 1987 — a year which started out exactly like this year, with a booming stock market and everybody enjoying the party. Of course, we all know what happened later that year — Black Monday.
Debit: Ironically, we have an extremely weak dollar despite the Fed’s campaign to raise interest rates. As Bill Holter notes, “That ‘should not’ happen.” No, it shouldn’t. According to Holter, the only other time a similar scenario occurred was way back in … wait for it … 1987, when rates climbed from 7% to 10% in nine months at the same time the dollar fell sharply. Yeah, yeah … Correlation. Causation. No relation. I get it.
Debit: In the eyes of tin foil hatters — including yours truly — commodity inflation, rising interest rates, and the falling dollar are all clear signs that even higher inflation and, ultimately, hyperinflation are coming this way. The million dollar question is: when? I wish I knew, but I don’t. If it’s a “bolt from the blue” — as I suspect it will be — there’ll be little time to react. In that case, a broken clock is better than no clock at all.
By the Numbers
Here’s a closer look at some factoids and tidbits about this year’s Super Bowl in Minneapolis between the Philadelphia Eagles and the Evil Empire:
2 Times Minneapolis has hosted a Super Bowl. (The Washington Redskins defeated the Buffalo Bills, 37-24, in 1992.)
6 Times the Super Bowl has been held in a cold-weather city.
41,000 Hotel rooms booked in the Twin Cities metro area during Super Bowl weekend.
$4945 The average cost of a ticket to the past five Super Bowls.
$5700 Average ticket price for this year’s Super Bowl on the secondary market.
$5,000,000 Average cost of a 30-second ad during the Super Bowl; that’s up 87% since 2008.
1,350,000,000 Chicken wings that will be eaten during the Super Bowl.
14,500 Tons of chips eaten during the big game.
8,000,000 Pounds of guacamole expected to be consumed on Sunday.
10,000,000 Pounds of ribs that will be eaten.
Source: Journal Sentinel
Insider Notes: My 2017 State of the Household Report
I’ve said it before and I’ll say it again: When it comes to money management, one of the most important pieces of information anyone can have is a detailed summary of where your household income was spent during the previous year. For the past 20 years, I’ve been diligently using an Excel spreadsheet to track almost every facet of my household expenses — and that discipline has provided me with extraordinary insight into my short- and long-term household spending patterns …insight that reveals priceless spending and saving information that allows me to optimize my personal finances.
Hopefully, this summary of my household expenses and net worth assessment for 2017 will inspire you to track your expenses with the same rigor — so let’s get started!
Unless you need to liquidate all your assets, net worth is a relatively unimportant metric when it comes to personal finances — so I only check my net worth once per year. However, by looking at the annual percentage change it is a good indicator of whether or not your personal finances are improving — or possibly taking a turn for the worse.
Hey! You need to be an Insider to view the rest of this article! To join, please click “Insider Membership” at the top of my blog page.
Last Week’s Poll Results
What’s the smallest coin you’d ever consider picking up off the street?
- Nickel (21%)
- Quarter (20%)
- Dime (10%)
- None (7%)
- Half-dollar (2%)
- Dollar (1%)
More than 1500 Len Penzo dot Com readers responded to last week’s question and it turns out that 2 in 5 say they wouldn’t bend over to pick up a coin smaller than a dime. Even more telling, 7% of those who responded say they wouldn’t bother to pick up any coin — no matter how big it was. Folks … That is an excellent — if not extremely sad — illustration of just how much value the “Almighty Dollar” has lost over the years.
The Question of the Week
Other Useless News
Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.
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Letters, I Get Letters
(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
Here’s an odd message I received in my inbox this week from Joriss:
“Your blog is a total squander of time!”
Are you a professional fortune cookie writer, Joriss?
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c