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.
Let’s get right to it, shall we?
“Those have a short Lent who owe money to be paid at Easter.”
— Benjamin Franklin
Credits and Debits
Debit: Bitcoin investors who filled their Easter baskets anywhere near its $19,000 apex last December are probably thinking they got stuck with a bunch of rotten eggs right now. The plunging cryptocurrency closed the first quarter of 2018 at a price south of $7000. That’s a 60% decline in a little more than three months. Ouch. Oh, I know … Just HODL, baby!
Credit: After a couple of frustrating postponements, China’s new crude oil futures exchange got off to a roaring start on Monday, with brisk contracts trading for September and the months beyond. In fact, more than 62 million barrels of oil changed hands on Monday for a notional volume approximately 27 billion yuan — that’s the equivalent of $4 billion. Not bad!
Debit: One thing is certain: China’s crude futures exchange threatens the international primacy of the dollar. Remember, the petrodollar is backed by Treasuries, which are used to fuel US deficit spending. Take that away, and America is in trouble because dollars that would normally be kept off shore by foreign nations to buy oil are more likely to return to America, thereby stoking much higher inflation here.
Debit: By the way, the timing couldn’t be worse; the United States sold roughly $294 billion of debt this week — that’s the highest weekly borrowing binge since the 2008 financial crisis. On second thought, meh. Million, billion … what’s a few more zeroes when the National Debt is $21 trillion?
Debit: Meanwhile, the Socialists in Venezuela outlined their monetary “rescue plan” to end the hyperinflation that has completely collapsed their economy. As the Washington Post notes, “In a country where a dozen eggs costs 250,000 bolivars amid worsening inflation, President Nicolas Maduro wants to chop three zeros off the currency, arguably bringing the price for those eggs down to 250.” Heh. No, really. Forward!
Credit: Henri Falcon, a former governor who is running against Maduro in the next election, is proposing a far more radical fix: chop four zeroes off the price. Just kidding! Actually, Falcon wants to follow in the footsteps of Ecuador, Panama and Zimbabwe by dollarizing the Venezuelan economy. He claims it would revive their moribund socialist economy by preventing the printing of new bolivars. (Psst. And he’s correct.)
Credit: In other news, strong stock-market performance and rising real-estate valuations increased the ranks of American millionaires by 700,000 people. Then again, that’s really not so impressive when you realize that when the Fed prints trillions of dollars and then hands it to Wall Street, there’s always going to be a lot of new millionaires. If you think about it, everybody in Venezuela today is a “millionaire” too.
Debit: Speaking of Fed-minted American millionaires — or should I say, billionaires? — Simon Black says the recent $50 billion (!) pay package Tesla shareholders approved for CEO Elon Musk indicates that “Tesla, without any doubt, is on the verge of bankruptcy.” Perhaps stockholders are beginning to feel the same way — Tesla’s stock price has plunged more than 25% in the last month. Oops.
Credit: Says Black: “As a reality check, Tesla is worth twice as much as Ford, yet Ford made six million cars last year at a $7.6 billion profit while Tesla made 100,000 cars at a $2 billion loss. Ford also has $12 billion in cash for ‘a rainy day’ while Tesla will likely run out of money in three months. I’ve never seen anything so absurd in my career.” Well, Simon … I don’t know about that. Apparently, you never saw this:
Debit: Speaking of reality checks, I saw that Los Angeles homes alone are currently valued at $ 2.7 trillion. To put that in perspective, that’s more than the GDP of the entire United Kingdom. Needless to say, housing values across America are at all-time highs too. According to Zillow, the total value of every US home is $31.8 trillion — that’s 1.5 times US GDP and nearly three times China’s GDP. Nope. No bubble there.
Credit: Then again, those home prices may be coming down soon if mortgage delinquencies — or mortgage interest rates — keep rising. Yes, applications did increase last week. However, the average 30-year rate is now 4.75%; two years ago, it was 3.3%. That means since March 2016, the monthly payment on a $250,000 mortgage has climbed from $1095 to $1304. You think wages climbed that fast? Neither do I.
Debit: Mortgage payments aren’t the only debts with distressed borrowers. Missed payments on credit cards at small banks — that is, those outside the 100 largest, measured by total assets — have risen sharply over the past year too, with charge-off rates above 7%. The last time there was a similar surge in the average charge-off rate at small banks was right before the onset of the Great Financial Crisis. Uh oh.
(click to enlarge)
Credit: On the other hand, real personal spending was unchanged last month, after a 0.2% drop in January — that’s the biggest two-month decline since … wait for it: the 2008 financial crisis. Not coincidentally, the personal savings rate is climbing, bucking a two-year downtrend; last month it ticked from 3.2% to 3.4%. Too bad the interest that banks pay savers is still virtually nil, guaranteeing lost purchasing power.
Debit: So there you have it: higher prices, stagnant wages — the perfect stagflation recipe — coupled with rising savings, maxed out credit cards, and plunging spending plans, and topped off with a rapidly-inverting yield curve, illustrated by the chart below. It’s a cocktail that strongly suggests the nine-year economic “recovery” and the bull market in stocks are coming to an end. Take that Easter basket to Grandma’s house.
(click to enlarge)
The Question of the Week
[poll id="208"]
Last Week’s Poll Results
How much credit card debt are you currently paying interest on?
- $0 (88%)
- $1 – $5000 (10%)
- More than $5000 (3%)
More than 1200 people responded to last week’s question and, I’m happy to say, almost 9 in 10 Len Penzo dot Com readers pay off their credit cards in full at the end of every month — assuming they have any credit card charges at all. I guess I shouldn’t be surprised!
By the Numbers
With Easter Weekend upon us, here are a few facts and figures on this Spring holiday:
84% Americans who will be celebrating the holiday in some way.
57% Americans who will take part in an Easter Egg hunt.
55% Americans who say they will color eggs this year.
73% People who say they intend to give gifts to others.
51% Americans who intend to attend church services on Easter Sunday.
Source: Forbes
Useless News: How Smart Is Your Right Foot?
You have to try this! It’s from an exercise from an orthopedic surgeon — and it will confuse your mind. You can try to outsmart your foot — but you won’t! It’s pre-programmed in your brain!
- While sitting at your desk in front of your computer, lift your right foot off the floor and make clockwise circles.
- Now, while doing this, draw the number ‘6’ in the air with your right hand. Your foot will change direction.
See? I told you! And there’s nothing you can do about it! It’s stupid, but before the day is done I know you’re going to try it again!
(h/t: billhilly)
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 reading my article explaining why corner lots are for suckers, RHW shrugged off the additional fence costs that come with such properties:
I love my corner lot! Why would I need a fence? If people are close enough to see what I’m doing, they are trespassing and I can shoot their dumb ass!
Call me crazy, but I’ll bet you don’t have many neighbors who ever stop by to borrow a cup of sugar.
I’m Len Penzo and I approved this message.
Photo Credit:Teresa Whitaker
Len,
Thanks for another fantastic cup of joe! You’re right. That monkey video was really crazy!
Hope you have a great Easter!
Sara
Thank you. You too, Sara!
If you look at a Bitcoin chart, it keeps making lower highs and lower lows. It is a bear market and everyone who jumped in after Thanksgiving is under water now. The worm has turned. Bitcoin will eventually return to its intrinsic value of zero just like fiat.
I believe bitcoin will eventually return to its intrinsic value of zero as well, Cowpoke — but it could take years to get there.
Countries like Zimbabwe and Venezuela can dollarize their dead economies to get them working again. If the dollar ever begins to hyperinflate the U.S.A. won’t have that luxury.
Correct. When the dollar finally fails, a new currency will have to be created to replace it. Hopefully, it will be one that is backed by precious metals.
In a normal world, Tesla wouldn’t exist. But we don’t live in a normal world anymore. We haven’t since central banks began distorting what real money is with their funny paper backed by nothing but debt. This is how Tesla survives. With debt from suckers who buy their bonds, or the naive who buy their stock despite the reality check pointed out by Simon Black. The internet is full of stories showing how the cars are severely lacking in quality and cost a fortune to maintain. When those warranties expire, they will no longer be affordable to drive. In the real world, there would be no market for electric cars because THEY CAN’T COMPETE with the economics of the internal combustion engine. Not now anyway. The only reason they are around right now is government subsidies.
“In the real world, there would be no market for electric cars because THEY CAN’T COMPETE with the economics of the internal combustion engine.”
You nailed it. Cheap credit and government subsidies keep these cars on the highway right now. When they disappear, so will most electric cars.
Give us a flat tax or even better a Fair Tax. That will keep the economy growing more than the latest tax cuts.
If by “growing” you mean “living beyond our means for a little while longer,” then I agree with you, Shane.
But the piper is still going to be paid.
Here comes the petro yuan! The USA may still have gold in Fort Knox but most or all of it is not unencumbered. The new petroyuan contract indirectly backs the yuan with gold and the USA can do nothing about it.
Higher interest rates are coming as a result of this alternative, and with $21 trillion in debt and $200 trillion in unfunded liabilities, the US can’t afford 5% interest rates. Depression and default are coming.
The only question is when.
I’ve never understood how a paper currency could be ‘indirectly’ backed by gold. Either you can swap paper for gold some where, or you can’t.
I think Jimbo is talking about the financial “two-step” where countries that sell their oil in exchange for yuan can then take those yuan to buy physical gold on the Shanghai gold exchange.
But I agree with you, Andy. For a currency to be truly backed by gold, anyone should be able to walk into a bank and exchange the currency in their wallet for gold (or silver). Ideally, a nation would issue undenominated 1 oz, 0.5 oz, 0.25 oz and 0.1 oz gold coins and banks could give them to anyone on demand in exchange for paper currency — the amount of currency required to receive the gold coins would fluctuate daily, based upon the daily market price of gold.
For the moment, the dollar is, de facto, so to speak, “convertible” into gold. It can be bought at any of many precious metal dealers.
The difference is, availability is not guaranteed by the government – as a matter of fact, in a crisis, precious metals will disappear from the market. Governments themselves will be hoarding it.
“Bad money drives out good” Greshams law.
The most obvious example of Gresham’s Law is the disappearance of nearly every silver US dime, quarter and half dollar shortly after the US began minting those coins without silver in 1965. Everybody saved them out of circulation!
I saved quite a few of those myself, Len, in the first few weeks they were still to be found in the change you got from paying for groceries with paper bills.
They now are in a drawer, functioning exactly according to economic theory: as a store of value priced currently higher than their face value, established back in the day.
Even the penny is subject to Gresham’s law. I took a photo of a random pile of pennies from loose change in the mid 90’s…..about 40% of them were pre-1982 pennies…..which are 95% copper, 5% zinc. After that time, the penny changed to 97.5% zinc with a 2.5% copper outer cladding to fool ya.
About 5 years later, did the same thing….less than 1/4 were pre-82 because people were actually sorting pennies out for the copper value. There were machines sold for the sole purpose of sorting ‘real’ pennies from the later variety.
My guess is today, if you dumped a 1,000 pennies on a table and sorted by date, less than 10% would be real copper.
I suspect that is probably true too, Andy.
Another great coffee time. I just don’t understand the Bitcoin ,I’ve “lost” too many things in my computer to trust something that can go away . As for gold and silver been putting it back for awhile now. But should I get 1oz gold or smaller .5 ,0.25 and 0.10
I prefer the 1 oz gold coins, Medic, because the premiums are lower.
https://www.congress.gov/bill/115th-congress/house-bill/5404
Len, whats your opinion of this? Wishful thinking?
Jared, great idea but it will never pass while the Fed is still around.
That video!
LMAO!!😂😆😲
I know, right? ahahahaha!!!!
There is a strong future around bitcoin, at least that’s what I see. That’s why I do not stop buying this currency that I keep at my broker Exagon. With the increase of its value, I will quickly resell them.