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:
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
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