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.
And away we go …
“Gold is an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters, upon an account which is not theirs, upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.'”
— Francisco’s “Money Speech” from Ayn Rand’s Atlas Shrugged
“Pizza makes me think that anything is possible.”
— Henry Rollins
“Don’t give me timing. Give me time.”
— Jesse Livermore
Credits and Debits
Debit: Did you see this? The most recent consumer sentiment survey by the University of Michigan found that young Americans are less optimistic than their parents. That’s the first time in the survey’s 60-year history that Americans younger than 35 said they actually have less consumer confidence than those aged 55 and over.
Debit: Perhaps younger Americans are pessimistic because they’re simply overreacting to rising gasoline prices. After all, the cost to fill up one’s tank is up across the country, and inching toward the highest pump prices in three years. California currently has the highest average pump price in the US at $3.51 per gallon. At the other end of the spectrum, Oklahoma’s motorized prairie schooners are currently paying just $2.37.
Debit: Then again, maybe millennials are feeling blue because the stock market finished the first quarter of 2018 in the red, ending a nine-quarter win streak. (See what I did there?)
Debit: That’s bad news for the Swiss National Bank (SNB) because, at the beginning of last quarter, it owned $11,589 worth of American stocks for every man, woman and child in Switzerland. That wouldn’t be so alarming if Switzerland’s population was 217, but it’s not — it’s more than 8 million.
Credit: So … how absurd is the SNB’s meddling? Well, as Zero Hedge observed: “If the Fed decided to invest $11,589 in the US stock market for every American citizen, they’d need to buy $3.75 trillion of stocks; almost doubling their already-inflated balance sheet.” The good news is, when it comes to raising cash, the Fed has never failed. That’s because it only costs 12 cents to print a hundy!
Debit: By the way, it’s not just the Swiss National Bank that is interfering with the markets by propping them up; the Bank of Japan (BoJ) and European Central Bank (ECB) are doing it too. In fact, the BoJ owns 77% of all ETFs (!), while the ECB has been buying Euro corporate bonds, thereby driving yields into the ground. Does anybody else see a problem with this? Anyone? (Aside from me and my tin foil hat brigade.)
Credit: As Charles Hugh Smith notes, “The current stocks-and-bonds game is for all the marbles (because) the status quo depends on valuations and interest rates remaining near their current levels for the system to function. If rates soar or stocks plummet, the game is over: pension funds collapse, tax revenues drop, debt defaults, and employment craters.” Meh. I ain’t gonna worry until I see something like this outside my window:
Debit: Meanwhile, the US just had its largest trade deficit since the 2008 financial crisis. How big was it? Godzilla big — in February the US had to borrow $57.6 billion. Ouch.
Credit: With that in mind, it’s no wonder that Chris Hamilton says the Q1 2018 was an economic disaster for the US. In fact, he calls it, “One of the worst quarters on record. Incurring over $621 billion in new debt to produce just over $100 billion in new economic activity is something only government could achieve.” Uh huh. And if you think American deficits are bad now, just wait until the economy enters a recession.
Credit: Actually, Hamilton underestimates the government’s penchant for “miraculous achievements.” For example, Mike Maloney aptly demonstrates how Big Government politicians provide an endless supply of “free” lunches for their clueless constituents:
Credit: Speaking of miraculous government achievements, Bill Holter has another one for you: “In (the last) six months the US borrowed an amount in dollars equivalent to six years worth of total global gold production!” Yep. And the only logical explanation is that the true price of gold in US dollars is actually significantly higher than it sells for today. Or, to put it another way: the US dollar is extremely over-valued.
Debit: Of course, Americans’ current artificially-high standard of living is being sustained by the over-valued US dollar — and America’s addiction to credit — which is exactly why China announced this week that it intends to soon begin paying for oil in yuan. In other words, the United States’ primary credit card company will be curtailing America’s credit line. And when enough credit eventually dries up, so will most Americans’ cushy lifestyle.
Credit: One thing is certain: Although our debt-based monetary system requires an ever-expanding debt load — and by extension, larger and larger annual deficits — America’s growing debt burden is now visibly straining the system. As a result, more people are realizing that there’s far more dollars out there than real assets available to buy. A tipping point is approaching; the only unknown is the day it finally gets here.
By the Numbers
Here are a few financial figures for the Masters — golf’s premier professional tournament — which was played this weekend in Augusta, Georgia:
$35,000,000 Estimated revenue from last year’s ticket sales.
$1214 The average ticket price for Sunday’s round during the past five years.
$1948 The cheapest available ticket in the marketplace on April 5th for Sunday’s round.
$5372 The average resale price for a ticket to this year’s Super Bowl.
$250 Price of the green jacket awarded each year to the tournament champion.
$682,000 The price that past-champion Horton Smith’s green jacked fetched at a 2013 auction.
$1,980,000 Prize money awarded to 2017 champion Sergio Garcia.
$198,000 The winning cut for Garcia’s caddy.
Insider Notes: The Gold-Silver Ratio
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Last Week’s Poll Results
Which price target for bitcoin is more likely to happen first?
- $2000 (63%)
- It’s a toss up. (27%)
- $20,000 (11%)
More than 1500 Len Penzo dot Com readers responded to last week’s question and more than 3 in 5 think more pain is in store for bitcoin investors — at least in the short term. Only time will tell, but I agree.
The Question of the Week
Useless News: A Gorgeous Woman Walks In to a Bar …
A 77-year-old man was having a drink in a bar when a gorgeous woman entered and sat down a few seats away. The girl was so attractive that he just couldn’t take his eyes off her.
After a short while, the girl noticed him staring, so she approached him.
Before the man could apologize, the girl looked him deep in the eyes and said to him in a sultry tone: “I’ll do anything you’d like. Anything you can imagine in your wildest dreams. It doesn’t matter how extreme or unusual it is; I’m game. But I want $100, and there’s another condition.”
Completely stunned by the sudden turn of events, the old man replied, “What’s the condition?”
“You have to tell me what you want me to do in just three words.”
So the man took a moment to consider the offer from such a beautiful woman. He then whipped out his wallet, put ten $10 bills in her outstretched hand, looked her square in the eyes, and said slowly and clearly: “Paint my house.”
(h/t: RD Blakeslee)
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
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 highlighting 9 things people routinely overpay for, Warren left this rebuttal to one commenter’s claim that “flying coach gets you there just as fast as first class”:
“Unless you have a short connection — then being able to exit sooner matters.”
I think there’s a bad joke in there somewhere, Warren, but I’ll just nod my head and agree with you.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Yeah Len….for 25-30 years I’ve been watching the financial shenanigans and thinking “they just can’t keep doing this”. Thus we’ve lived a financial conservative lifestyle (which has been great, no regrets), trying to position ourselves to ‘go Amish’ if need be when the world collapses due to financial lunacy.
Well, my late 60’s now, and I’m starting to come around to the idea “Yes….maybe they CAN keep doing this forever if no big player calls BS” At this point, I hope to live to 120 or so, just out of plain curiosity as to how it all plays out….ahahahaaa
The Chinese are likely going to be the next dominant ‘super power’ on the scene, but then they keep right on taking our paper for real things, along with their own version of internal financial lunacy, so to really buck the system is to commit suicide on their part. Or maybe they are simply playing a longer game than I’m going to be around to see. They aren’t accumulating all the gold they have simply because it looks pretty.
I think the change was made just a few weeks ago. China and Russia have prepared for over a decade and have now moved the chess piece on the board to checkmate! As the years go by things will get uglier and uglier, the bottom will most likely not be in for over a decade. People should have been preparing for this day years ago, unfortunately our government and media have lied to us and kept us in the dark:(
Len Penzo says
My wake up call came after the second round of QE was announced by the Fed, Andy. By late 2012 I was convinced the system was on its last legs. It still is … but it is clearly taking an increasing amount of manipulation, leverage, financial hocus pocus — as well as the continued willingness of other nations to look the other way and pretend US dollars are still worth what the uniformed general public thinks it is — to keep the debt-based financial system Ponzi scheme from collapsing. If this game continues for another two years, I will be surprised too.
It is not so hard to understand why the system is still running.
The sociopaths we call banksters and politicians throw some free stuff (sometimes literally, most of the time figuratively) at the people. As always those receiving it do so willingly, the excuse being “what will it matter what I do?”, and then close their eyes to what the sociopaths are doing to others. The only alternative ‘we’ can offer to change things for the better, isn’t very attractive at all. That is, eliminate the sociopaths, learn to provide for oneself without abusing others, learn to be happy without the need to see others who have it worse than you, etc. etc. etc.
RD Blakeslee says
Andy and I have similar lifestyles and often “sound off” here – but really, there are millions of us who share dismay at the current state of affairs in the world and have so arranged our lives as to live “under the radar” so to speak, and avoid some of the travail, at least for now.
Most genuine (as opposed to “tax avoidance”) farmers are that way, I think. We are sometimes called “the American heartland” and sometimes “the deplorables”. Sure, we voted to upset the apple cart in the last election but, I ask you, what else could we do to express our dismay?
Len Penzo says
I agree, Dave. Another thing I have been slow to learn is that aside from a dozen or so true Libertarians in the US Congress, the rest of the politicians there are essentially playing for the same team (Big Government) and, therefore, have a vested interest in maintaining the Fed and our debt-based monetary system for as long as possible.
Funny thing….I gave my CongressCritter a $5 US Note…..one of the red seal bills I bought at a coin shop (For those that don’t know about these, research 1963 US Notes & John Kennedy’s plan to end the Federal Reserve…..you’ll come to understand why he was killed) and suggested he look into why we have to use Federal Reserve Notes at interest instead of US Notes the US Treasury could print and use as our money.
Said “he would look into that”…..no doubt he bought a cup of coffee and never gave it another thought. He is one of those ‘go along to get along’ types……not qualified to shine Ron Paul’s shoes.
David @ VapeHabitat says
Pizza makes me feel alive!!
RD Blakeslee says
(See what I did there?) – Len
“There’s a joke in there somewhere” – Len
Sara King says
Another great episode of Black Coffee. Lots to chew on this week. The stock market can’t make up its mind if wants to rally or crash!
Have a great weekend!
Len Penzo says
I think the volatility is signaling that a long-term change from a bull to a bear market is in the works, Sara.
Wide Awake says
America has a problem. To reduce the deficit, the U.S. needs to cut spending (not going to happen) or produce more of the things it buys at home by becoming a net exporter again. But that won’t happen either because to go cold turkey for dependence on U.S. production would break the economy so badly that it would take 10 years to recover from the economic misery (and it would be misery worse than anything experienced during the Depression). It looks like the U.S. will keep riding the debt-based horse it’s on until it collapses and dies.
Len Penzo says
Maybe I’m wrong, but I don’t think the financial pain will last an entire decade if we have to begin making the majority of the products we buy here in America again. However, I won’t be surprised if the transitionary period is worse than what America endured during the Depression, if only because most Americans today have been living beyond their means for so long that they will have trouble adjusting to a lower standard of living.
RD Blakeslee says
Also, many Americans possessed subsistence skills during the great depression that have been forgotten in subsequent generations. For example, how many Americans today have a simple hand grinder and access to grain to grind, to make flour?
I think a lot longer than 10 years Len. As RD points out, almost no one has real skills anymore. Too much of “work” is simply pushing paper around or keys on a keyboard. Way too few folks know how to fix things or are willing to get their hands dirty or work up an honest sweat. THAT is why we have an immigration problem Can’t tell you how many farmers I know that say the same thing: “IF we could offer twice the pay , still would not find enough locals that are sober, drug free and willing to show up to get the work done”
Plus our money system will be a disaster, unlike the last Depression when at least silver circulated, and gold paid international debts. (After FRD stole it from the public) When the faith finally flees paper, what are we going to replace it with ? Barter ? Seashells ?
Then there is the energy problem. Recovery from economic lows requires lots of energy to build stuff. Last Depression, we used a LOT less, and produced most of our needs…..fossil fuels. Now, we just flat don’t…..despite the shale oil debacle (lose a little on each barrel, make it up on volume)…and the world ain’t gonna ( if they even have it) sell us our needs for paper promises.
IF it ever hits, it will take another WWar to pull us out (just like last time), AND/OR a generation or two of honest, belt tightening, hard work to ever claw our way back to anything like normal.
Len Penzo says
Andy … I agree many people today have an aversion to honest work to make a living. In most cases I think that is for one of two reasons: 1) government assistance aids and abets sloth; 2) parents who are reluctant to kick their otherwise able-but-unmotivated unemployed adult children out of the nest.
I also agree most people today no longer have the skills required to feed themselves if the current social fabric completely unraveled.
However, I just don’t believe that the end of the current monetary system is going to result in such a dire scenario.
That being said … Do I expect supply chain disruptions if the financial system is allowed to collapse in a disorderly manner? Yes; that is why I keep six months of storable food, 40 days of potable water, a couple of water purifiers, and other non-edible essentials on hand.
Maybe I am being naive, but monetary system collapses have been a relatively common occurrence throughout history, and society has carried on. Yes, people were more agrarian and self-reliant in the past, but I also think today’s technology can implement a new monetary system relatively rapidly and minimize any rips in the social fabric. Although the pain will be spread across the entire middle class, I think the biggest pain on the other side of a dollar-collapse will be placed on those who were receiving government assistance — which is why I suspect there will be quite a bit of social unrest for awhile — but I believe there will be plenty of opportunity for unskilled labor for everyone, as there should be a large demand for workers who will be required to begin rebooting an American economy that will be required to produce more domestically.
If I am wrong, and the social fabric becomes frayed beyond repair, then it will not matter how much prepping people do. In that case, only those like yourself and RD who live a truly self-reliant lifestyle will have any chance.
Len, Long time lurker. First time commenter. The Godzilla reference drew me out of hiding!
My Dad always loved Godzilla, and owned the old movies from the 60’s and 70’s . He was a kid when most of them came out. Ever since I was little, he’d watch them, and it captivated me. From the atrocious vocal dubbing to the awesome action and the fearsome foes, it is something that I love to this day.
Len Penzo says
I love those old Godzilla movies too, Sailor.
Thanks for finally “coming out of the closet” (so to speak) and saying hello!
Paint my house.
You made me laugh loud here.
Len Penzo says
That one made me laugh out loud too, Leasi. Hope you and your family are well.
Next month I plan to rerun the post detailing your first-hand experience with hyperinflation while living in Brazil.
Paul N says
Not the three words I would have chosen… Not a fan of VR, I like tangible assets.
Len Penzo says
Oh man … don’t leave me hanging on the three words you would have picked.
Oh, wait. On second thought … better not!
As always, it is not enough to say we run too high deficits. We need to be clear about what we bring to the chopping table.
What are we suggesting to cut? Military? Social Security? Medicare? Medicaid? Crop subsidies? Food Stamps? Rest of Welfare?
Len, it would be really nice if you took the time on a post on your take of the US Federal Budget and how it should look.
It will be painful to cut htings. But anything we do or don’t do will be painful to get out of this mess. Sooner we get started, the better it is.
And as long as the US votes for short term interest over long term interest, you get policies like these ….. (and Im talking about decades of voting like this. Not just one or 2 elections).