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 …
“The ultimate result of shielding men from the effects of folly is to fill the world with fools.”
— Herbert Spencer
“We stand today at a crossroads: One path leads to despair and utter hopelessness. The other leads to total extinction. Let us hope we have the wisdom to make the right choice.”
— Woody Allen
Credits and Debits
Credit: Don’t look now, but the yuan-crude contract debuts this Monday. This is the biggest credible threat to the US dollar since the 2008 Great Financial Crisis (GFC), as it threatens the status of the petrodollar, which is the mechanism that keeps the US dollar as the global reserve currency — and hyperinflation at bay in America.
Debit: In other news … If you believe the Fed and the Bureau of Labor, the US job market is at — or beyond — full employment. Then again, it’s hard to take that seriously when you realize that a Toyota plant in Plano, Texas, recently received 100,000 job applications in response to a call for 1000 posted positions. No, really.
Credit: Let’s be honest. If the labor market was really and truly as tight as we’re being told it is, then there’s no way Toyota would have received an average of 100 applicants for every position they posted — which is why you’ll be forgiven for wondering if the Bureau of Labor’s unemployment reports are actually being compiled by Baghdad Bob. Ahem:
Debit: The $20 trillion national debt milestone was crossed on September 8th. Since then, the US has run up an additional $1.2 trillion deficit. For the math challenged, that’s just six months. As a result, the National Debt is now more than $21 trillion, which is 106% of the US GDP. That much debt used to be common only to banana republics. On second thought … it still is.
Debit: Speaking of debt, the relationship between corporate debt and default rates on that debt have, historically, always moved in the same direction. For example, higher debt levels have always led to higher default rates because an increasing debt load implies looser borrowing standards for less creditworthy companies. But the mainstream media seems to think its different this time. Imagine that.
Credit: Of course, as John Rubino notes, it’s definitely not different this time. In fact, he argues that the correlation between corporate debt and defaults has not been broken for good. Rather, it’s a temporary anomaly courtesy of the central banks’ so-called quantitative easing campaigns. Hmm. So, John, are you saying we really can’t print our way to prosperity? But it’s been working so well in Venezuela:
Source: ZeroHedge (click to enlarge)
Debit: On a somewhat related note, before the ’08 GFC, no-money-down mortgages ensured a steady stream of “qualified” homebuyers were available to support the ever-expanding housing bubble of the day; the practice eventually led to a real estate crash. Today, housing is in another bubble and desperate lenders are experimenting with them again. I’m sure the return of NINJA loans isn’t far behind.
Debit: The surging London Interbank Offered Rate (LIBOR) is stressing global credit markets. The LIBOR and the LIBOR-OIS spread — which measures short-term funding costs — have climbed for 32 consecutive days and is at its highest point since May 2009. The last time the LIBOR behaved like this was shortly before the ’08 GFC. Uh oh.
Credit: So why is a skyrocketing LIBOR so important? Because short-term funding rates impact everything from bank lending costs to the marginal cost of floating rate debt. And as those costs increase, the liquidity that has been keeping the global economic engine humming begins drying up. If that liquidity becomes extremely scarce, then it can cause the entire global financial system to seize up, as it did in 2008.
Credit: By the way, on Thursday, technical analyst Todd McClellan shared this interesting observation about the stock market:
Tom McClellan (@McClellanOsc) March 23, 2018
Credit: Hey … I’m certainly not going to argue with Todd’s tweet. After all, it’s not as if stocks are being weighed down by newly-implemented tariffs, an escalating international trade war, skyrocketing debt and rising interest rates. Oh, wait …
Debit: One thing is certain: the stock market losses are gathering steam. For the week, the Dow lost 1400 points — and is now at its lowest point since November 22. And if that wasn’t bad enough, the S&P sank 5.9% capping off its worst week in more than two years, while the Nasdaq plunged 7.3% — finishing its worst week since August 2015. Stay tuned; Monday could prove to be very interesting. Or not.
Debit: Finally … Did you see this? An ex-security guard who won a $19 million lottery jackpot in 1998 pleaded guilty this week to four counts of bank robbery. After his ex-wife took half the jackpot, the man was left with a lump sum of $6 million in the bank — but he squandered it all and was living in a garage when he was arrested. Is it just me, or does the guy seem like he’d make a good Congressman?
By the Numbers
The fourth nor’easter in less than three weeks slammed the East Coast on Wednesday, bringing snow and gusty winds to major Northeast cities. Here is a closer look at the latest storm by the numbers:
4400 The number of flights that were canceled within, into or out of the United States on Wednesday.
10,000+ Number of weather-related flight cancellations to-date in March.
408 Number of car crashes Maryland state police responded to during a 24-hour period between Tuesday and Wednesday morning.
28,000 Tons of salt that Boston has on hand to treat snow-covered roads.
Source: ABC News
The Question of the Week
[poll id="207"]
Last Week’s Poll Results
Did you wear green for St. Patrick’s Day this year?
- No (66%)
- Yes (34%)
Of the more than 1400 Len Penzo dot Com readers who responded to last week’s question, only 1 in 3 said they wore green for St. Patty’s Day this year. As for me, I did have a green shirt on — but it was purely coincidence. I know. When it comes to St. Patrick’s Day, I’m a party pooper. In fact, I didn’t even cook corned beef and cabbage this year.
Other Useless News
Here are the top five articles viewed by my 19,169 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- A Simple Trick for Getting Credit Card Interest Charges Waived
- 6 Good Habits You Can Employ to Improve Your Finances
- 8 Really Useful Money Saving Tips Every Family Should Consider
- 4 Ways Duct Tape Can Fix Your Personal Finances
- Why Insurance Companies Don’t Want You to Know About Concierge Doctors
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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
After reading about the paper towel experiment I conducted to figure out which brand was superior, The Woe sent me this follow-up question regarding his coffee maker:
“Can I clean my Bunn (coffee maker) with Kirkland paper towels?”
Of course! After all, clean Bunns are happy Bunns!
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Well, g’mornin’ to you, too, Len. It’s amazing how you can sound so cheerful when the world’s falling apart. Speaking of falling apart, I have a comment about the chart on Venezuela. I get that their inflation is almost off the chart, but if Prof. Hanke’s rates are as accurate as his dates, it’s no wonder they’re having problems. Or maybe he’s being prophetic in his next job?
Lynette Zang recently came out and shared how Venezuela just revalued their gold price last month to an outrageous amount, gee didnt hear that on the news!
Good morning, Jean!
There is no secret why Venezuela’s bolivar has collapsed: they have printed their currency at a level far in excess of the actual wealth being generated by their economy. The US has been doing the same thing since the 1960s, and then it got even worse after they broke the dollar’s anchor to gold.
As I mentioned above, the only thing keeping the US from looking like Venezuela at the moment is the dollar’s reserve currency status. When that begins to crumble, it will be the same story here.
“The ultimate result of shielding men from the effects of folly is to fill the world with fools.” Herbert Spencer
Orange County, California has agreed to “recognize the civil rights of homeless people” by temporarily providing 400 motel rooms and creating 700 permanent homeless shelter beds. Local cities agreed to join the community effort to adding 2,700 transitional housing units.
California public education being what it is, the countys pols have probably never heard of Spencer.
In any event, this responsible blogger thanks California for attracting local ner-do-wells to California.
Yep. California now has taxpayer-funded hotels for the homeless — in Orange County of all places too. Of course, that will only feed on itself. Sadly, I am certain the only way to stop these policies here is via a massive collapse that makes such folly impossible.
Could California’s massive collapse be limited mostly to that state? A tsunami of productive people leaving? That may be starting already.
Yes, California has had negative net migration the last two years — and everything I have read suggests most of those people leaving are middle class. Those coming in tend to be poorer and less educated — over time, that’s not a sustainable recipe for a thriving economy.
Len,
I think its telling how the media is so quiet on the Petro Yuan being born thus week. I have only heard it reported in the alt media like RT news, etc. I have heard some voices out there say this will not hurt the Petro Dollar in the least, but I would think it would have to. However maybe the FED can manipulate their way around this issue also, criminals are very good at these things!
Most in the alt-media seem to believe the new petro-yuan contract will cause problems for the dollar almost immediately. I don’t; I believe it will take a year or two for the results to really begin biting … but we’ll see.
Len, while I kind of dread reading your ‘Black Coffee’ these days, it really helps us to keep up with what’s happening. But I’m surprised there’s nothing about this week’s $1.3 trillion budget deal. I guess everyone else in America is richer than I thought…
Unfortunately Lauren this much government spending has become the norm:(
Thanks, Lauren. I don’t mean to scare anyone; I just try to highlight issues that the mainstream media rarely cover or brush aside.
As I have said many times before. Monetary resets do not mean we are headed for a Mad Max scenario; it simply means the standard of living for most Americans will be sharply adjusted downward.
The good news is, there is insurance available (physical precious metals) for those who wish to preserve the wealth they have accumulated up to this point. Of course, once the crisis hits, the opportunity for buying that insurance will no longer be available.
Well, unless our increasingly Orwellian Police State outlaws all transfers of Precious Metals & even declares Bank Holidays whereby the Feds go in and raid Bank Deposit Boxes of all PM. That won’t affect the smarter Folks, but they will then have to trade their PM on the Black Market, at risk of robbery and physical harm, both by corrupt Police (who are already happily confiscating cash LEGALLY under Civil Asset Forfeiture Laws),or Criminals who will happily kill you.
These Socialists won’t be stopped short of armed Revolution & we are actually heading the other way. Most Millennials & Gen Z’s actually prefer Socialism now as reported by many recent studies. No wonder, as they are taught this at all Grade Levels & @ University. Additionally, all Americans are bombarded with overwhelming MSM Government Propaganda to even put a smile on the Late Reich Minister of Propaganda. You know, the one who came up with the Concept of the “Big Lie”. Look it up.
Len, It is hard to believe 100,000 applicants applied for 1000 jobs in Plano, TX! Too many people that have jobs are getting paid minimum wage, so the unemployment numbers are very misleading in that regard too.
Thanks for another great cup of Black Coffee! I can’t start my Saturdays without them.
Sara
Thank you for being a loyal reader for all these years, Sara! Yes, the deception is easy to see for those who are willing to look.
If I had to guess, the rising Libor rate and Libor-OIS spread is due to:
1. a meltdown in derivatives going on behind the scene
2. US corporations repatriating their funds from overseas now that the US has overhauled the tax code and encouraged corps. to bring that money home, which results in eurofunding shortages which causes the libor to rise
Something has snapped somewhere and the final results have yet to unfold. Hold on tight!
Here’s another smoke signal, WA: Duetsche Bank stock fell 12% this week. Could they be the entity that is in trouble behind the scenes?
That lottery winner also had a $1000/mo. heroin habit. He was set for life and threw it all away. Why??????? It is hard for me to feel sorry for people like that.
I hear you. By the way, while a $1000/month drug habit may seem like a lot — and it is — the fact is, that over a 20 year period, that comes to only a million bucks. That barely puts a dent in a $6 million nest egg! I really would like to know what else he blew his good fortune on.
After the big drop in the stock market in 2011, I got out, which proved to be extremely bad timing. Just to provide a little bit of balance here, Martin Armstrong is still saying the market could go to 40,000 or higher. His track record has been spot on. His computers have been uncanny in picking the highs, lows, and reversals to the day.
Jack, if hyperinflation strikes the dollar the Dow could, ironically, easily reach 40,000 — however the value of those stocks would not rise as fast as the purchasing power of the dollar falls, resulting in a net loss. That is, the real return would be negative.
I can see that. Zimbabwe had the best stock market in the world during their hyperinflation. I think the point Armstrong and others are making is that if the bond market crashes, you get nothing. Cash loses it’s value or becomes worthless, but with stocks, companies can come back after and you at least get something. Precious metals are crucial to own in a hyperinflation.
Odd though that Armstrong is so negative on precious metals and high on the Dollar?!?! Maybe he is just high on other things? 😂
Jack: I agree that if there is a currency collapse, stockholders will still be left with something of tangible value. Bondholders will not be able to say the same thing!
I don’t think the current correction will turn into a bear market. The stock market and economy move in sync over the medium-long term. The economy continues to grow at a healthy rate and corporate earnings are surging
“The ultimate result of shielding men from the effects of folly is to fill the world with fools.” – Herbert Spencer
http://www.breitbart.com/california/2018/03/25/la-city-council-may-operate-tent-encampments-for-34000-homeless/
Thirty-four thousand won’t fill the “need”, because the “need” will grow larger and larger and larger …