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.
There’s a lot to cover so let’s dig in and get right to it this week …
“The one aim of these financiers is world control by the creation of inextinguishable debt.”
— Henry Ford
“You have to know what you own. You have to really do your homework in terms of knowing what supports your bonds.”
— Meredith Whitney
Credits and Debits
Debit: The fuse on the US debt bomb is growing alarmingly short. It is projected that by 2020 — just two short years from now — rising interest rates will result in more than half of all US personal income taxes being used to service the national debt. That’s bad news for a nation that depends on an ever-increasing debt load just to maintain its current standard of living.
Debit: Of course, nations fund their debts with bonds; and as a bond’s duration increases, so does its yield to compensate for higher investor risk. The longest US bond is 30 years. But last year Argentina issued a 100-year bond (!) with a 7.9% yield that was so popular it was over-subscribed by 3.5 times. Yes, that Argentina; the one that has defaulted on its debt seven separate times during the past 200 years.
Credit: Despite Argentina’s poor track record of sound fiscal management, the unabashed enthusiasm for Argentine 100-year bonds has Egon Von Greyerz wondering, “(Who) buys a 100-year bond issued by a country that (repeatedly) defaults on its debt and devalues its currency?” The answer: “Super genius” investors who believe the potential for explosive returns outweigh the risks.
Debit: The bad news is Argentina’s central bank recently raised its benchmark interest rate to 40%! No, I didn’t forget a decimal point. Remember, bond prices fall with rising bond yields — which means those 100-year bond holders looking to add a little nitroglycerine to their portfolio have lost a good chunk of their “investment.” And if you think that’s bad, just wait until Argentina defaults again:
Credit: If central banks have any real purpose at all, it’s twofold: 1) regulating the smooth and orderly operation of private and public banks; and 2) controlling inflation by setting interest rates — which is also known as the cost of money. After all, a healthy private banking system ensures long-term economic strength — and who doesn’t love a strong economy?
Debit: Needless to say, that’s not how it works. At all. As former Wall Street banker Naomi Prins notes, instead of looking after the needs of the economy — and by extension the society that depends upon it — “In reality, central banks have provided money as cheaply as possible to banks in order to keep the private banking system operating.” You know … like those big Wall Street banks in New York City.
Credit: By the way, cheap central bank cash has helped American corporations too. For example, financial analyst Dave Kranzler says, “If the Fed hadn’t printed trillions starting in 2008, Amazon’s grand experiment would have expired. More than any company, Amazon is emblematic of a fiat currency system that’s gone off the rails.” I hear ya, Dave. But truth be told … I’m still keeping my Amazon Prime subscription.
Debit: On a related note, former US Assistant Secretary of the Treasury, Paul Craig Roberts, reminds us that since 2008, “US economic policy has been run for the benefit of a few highly-concentrated financial interests at the expense of the American people.” So it’s important to do your research when investing. Considering that 0.1% of all Americans households hold the same amount of wealth as the bottom 90%, I’d say the plan has been honed to perfection.
Debit: That policy has also been at the expense of other nations holding dollars — which is why China, Russia and more than 30 other nations are making currency swap arrangements to end the US dollar’s role as the premier global reserve currency. Get ready, folks — because once these changes take hold, import prices will begin to skyrocket and almost every American will see their living standard do this:
Credit: Speaking of plunging living standards and soaring prices, in the crumbling hyperinflation-plagued economy of the People’s Socialist Paradise of Venezuela, the proletariat has resorted to bartering for many goods and services. For example, today a haircut there costs five bananas and two eggs. And I’m sure most of you know what that means. Uh huh. Venezuela is now a true banana republic. (h/t: silverer)
Debit: Fortunately, Venezuelans can still buy eggs with bolivars. After all, unlike currency and real money, barter is extremely inefficient and inconvenient because it requires a “coincidence of wants” to work. Unfortunately, it takes 50,000 bolivars to buy a single egg — in a country where the minimum wage is 392,646 bolivars. Per month. That’s enough cash for eight eggs. Or four bananas — which is why obesity isn’t a problem there.
By the Numbers
Believe it or not, the summer movie season officially opens at the end of this month. With that in mind, how many of the 10 biggest movies of 2005 (box office gross) have you seen?
1 Star Wars – Episode III: Revenge of the Sith ($380 million)
2 The Chronicles of Narnia: The Lion, the Witch, the Wardrobe ($291 million)
3 Harry Potter and the Goblet of Fire ($290 million)
4 War of the Worlds ($234 million)
5 King Kong ($218 million)
6 Wedding Crashers ($209 million)
7 Charlie and the Chocolate Factory ($206 million)
8 Batman Begins ($205 million)
9 Madagascar ($194 million)
10 Mr. & Mrs. Smith ($186 million)
Source: Box Office Mojo
Last Week’s Poll Result
When was the last time somebody made fraudulent charges to one of your credit cards?
- More than two years ago. (38%)
- Less than a year ago. (23%)
- Within the last two years. (22%)
- Never! (17%)
More than 1200 people responded to last week’s question and the most surprising finding is that more than 4 in 5 of them have had at least one of their credit card numbers stolen and their account hijacked by somebody else. On second thought, maybe it’s not that surprising. What do you think?
The Question of the Week
[poll id=”214″]
Useless News: Costly Coffee
A Brooklyn cafe was charging $12 for a cup of Ethiopian coffee. The drink didn’t have a name, so The Week magazine asked its readers to do the honors. The best answers:
- Mocha Dinero
- Cost-a-latte
- Brokefest Blend
- Excesso
- Ka-Ching-accino
- Goldbean Sachs
- Cafe au Laitaway
(h/t: rd.com)
Other Useless News
Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. Nebraska (3.13 pages/visit) (!!)
2. Washington (2.75) (!)
3. South Dakota (2.34)
4. Alaska (2.02)
5. Vermont (1.63)
46. New Mexico (1.27)
47. Oklahoma (1.24)
48. Missouri (1.23)
49. Massachusetts (1.20)
50. Wyoming (1.14)
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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
In the comment section of this week’s article about misleading claims people make to close a deal, I wondered out loud if Mark Zuckerberg’s wife reminded him of the two-month salary rule when it came time for him to buy an engagement ring. Of course, our own Tennessee Andy had the answer:
“She did … fortunately for Mark, a diamond big enough hasn’t been dug up yet. ahahahaaaaa”
Well played, sir. Well played.
I’m Len Penzo and I approved this message.
Photo Credit: spreadshirt.com
“Get a rope!” Love that old Pace picante sauce commercial . It brings back some good old memories!
Have a great weekend!
Sara
Thanks, Sara! I love that old commercial too! They don’t make ’em like that anymore.
Amazon PE is pushing 300. Its stock price is $1600. Like Tesla it depends on low interest loans to stay afloat. It looks unstoppable at the moment, but so did Enron at its “peak.”
Yes, it is cuckoo. But as the old saying goes, the market can remain irrational far longer than you can stay solvent.
You gotta admit 100 year bonds are crazy. Next up are 50 year mortgages and 10 year car loans.
People buying those 100 year bonds aren’t worrying about getting their money back 100 years from now. It’s all about the cashflows along the way, which are much higher than you’d get on a 30 year bond.
Cash flow? So I should invest in a bond that I won`t live long enough to see mature. Because your positive that interest rates will never ever rise, thereby lowering the value of my 100 year bond (because that could never happen in the next 100 years). That’s definitely super genius thinking!
“People buying those 100 year bonds arent worrying about getting their money back 100 years from now. Its all about the cashflow …”
Anyone who has recently run the math on the current state of fiat currency understands that said cashflow (that’s worth anything) may very likely only be available on a very short-term basis. The bottom line is that those who intend to buy-and-hold 100-year bonds are going to get their face ripped off in terms of purchasing power loss in the very near future. I believe the only thing these bonds are good for is transferring the 100-year bond holders’ purchasing power to the issuing nation’s politicians.
I thought 7-year car loans were nuts, but they are here. I’m sure 10-year loans aren’t far behind. And 40-year mortgages are here already. If the housing bubble continues to inflate in the face of stagnant wages, they will have no choice but to introduce the 50s.
I thought it was obvious. The needs of the banks come first. Even before the needs of the state. The Fed is not part of the government – it is a private institution!! Assuming bonds of any duration will be safe is naive.
No, I don’t think it is obvious to 99.9% of the population, Andy. Otherwise, as Henry Ford said, there would have been a revolution by now.
I have no sympathy for Venezuelans. They got the government they voted enthusiastically for 20 years ago when they brought Chavez and his free lunch promises to power. Chavez devalued his own economy by seizing everything of value and then running his spoils via ideology rather than economic principles. In other words, “socialism.” What Venezuela has now is the same end result that has happened everywhere else that socialism has been tried – a destroyed economy.
True. America would be in the same boat, but it is fortunate enough to own the world’s premier reserve currency. For now. But that is slowly changing.
Yep…Len is correct. Almost 60% of federal spending goes to socialist programs here…..social security, medicare and medicaid, along with food stamps, welfare, “earned” (it ain’t) income credit, and so on.
The way we’re different from Venezuela is we can fund multi billion dollar deficits (trillion some years recently) by sales of debt in a currency the rest of the world must have for trade…primarily oil trade. When that changes, we’re as screwed as Venezuela.
Oh yeah….and we voted for it too……ahahahaaaaa
That’s an extremely troubling stat about half of personal income taxes going solely toward servicing the national debt, by 2020. Hard to imagine taxes won’t go up again, sooner or later.
Right now, I’m fortunate enough not to have to pay income taxes (my wife and I are spending a few years living in Abu Dhabi). But that won’t always be the case.
Anyone who wants to build wealth needs a plan for minimizing their tax burden.
Don’t move to Illinois if you want to minimize that tax burden:
https://www.zerohedge.com/news/2018-05-12/audible-gasp-was-heard-when-chicago-fed-unveiled-its-solution-pension-problem
I saw that, Ed … I can’t believe the torches and pitchforks won’t be descending on the Illinois state capitol if this plan plays out.
I’ll cover this in next week’s Black Coffee.
My family has a farm in Southern Illinois. They have done nothing but complain about rising taxes for the last few years. This could put the deplorables over the edge. I can seriously see the state splitting up in the near future.
And that estimate is a best case scenario, Brian.