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 …
“When you see that trading is not done by consent, but by compulsion; when you see that in order to produce you need to obtain permission from men who produce nothing; when you see money flowing into those who deal not in goods, but in favors; when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them but protects them against you; when you see corruption being rewarded and honesty becoming a self-sacrifice — then you know your society is doomed.”
— Francisco’s “Money Speech” from Ayn Rand’s “Atlas Shrugged”
“All paper money eventually returns to its intrinsic value: zero.”
— Voltaire
Credits and Debits
Credit: Did you see this? A recent Gallup poll found that the percentage of Americans who are actually satisfied with how things are going in the United States was just 38%! And while that may seem low, that number is actually the highest satisfaction rate in 12 years. No, really.
Credit: As Gallup notes, the national satisfaction index, which was first measured in 1979, is now back to its historical average of 37%. However, this pales in comparison to the satisfaction levels reached during the economic boom periods in the mid-1980s and late 1990s. Imagine that.
Debit: There’s a good reason why a significant majority of Americans have been in a relatively sour mood for the past two decades — and most of them don’t even know it: the “Almighty Dollar” is dying. Yes, that seems like a crazy claim — but for those who are willing to open their eyes, the supporting evidence is everywhere.
Debit: Let’s look at Exhibit A: whether it’s houses, stocks, government bonds, fine art, or collectible cars, almost everything is in a bubble. That’s because the Fed has been forced to create trillions of additional dollars — which have to go somewhere — via its so-called “quantitative easing” program in order to keep the Ponzi scheme better known as the debt-based international monetary system from collapsing.
Debit: In fact, Centricus Asset Management Fund Manager Ralph Jainz says we’re seeing the greatest asset inflation bubble in 20 years — and he’s warning that it could pop sooner than many people expect. Although I’m sure the Plunge Protection Team will probably have something to say about that.
Debit: Those who aren’t convinced that a housing bubble exists should consider Exhibit B: a two-bedroom, one-bath, 900 square-foot cottage in Palo Alto that some realtor has decided is worth $2.6 million. I know — but it comes with granite countertops and stainless steel appliances.
Credit: By the way, if you think the housing market bubble is enormous, well … check this bubble out:
Debit: Then there’s Exhibit C: With trillion-dollar budget deficits projected to be the norm in the coming years, the US government desperately needs buyers of its debt. However, foreigners are clearly losing their appetite for US debt; Russia, in particular, recently cut its Treasury holdings by 50% — in essence, reducing America’s credit limit at a time when it’s looking to increase it.
Debit: Russia’s reduction of T-bills was so dramatic that, for the first time ever, the dollar value of its gold holdings now exceeds the dollar value of their US Treasury holdings. Aside from a total lack of confidence in the future of the greenback, can anybody suggest an alternative reason why Russia is now dumping its dollar reserves in favor of the yellow metal?
Debit: Of course, the blooming trade war between the US and the rest of the world is Exhibit D. As Robert Triffin correctly predicted, the cost of having the world’s reserve currency is ever-expanding trade deficits — and by extension the continued erosion of US manufacturing jobs. Now some fear the resulting tariff tit-for-tat will lead to China’s gradual — or sudden — liquidation ofits $1.2 trillion in Treasury holdings.
Credit: Finally, behold Exhibit E: The US dollar has been a fiat currency since 1971 — and history has proven that fiat currencies always end in collapse. Period. End of story. Which is why I strongly suspect the next crisis coming down the pike will be a currency crisis of epic proportions.
Credit: As Franklin Sanders notes, “Nothing structural has been fixed since 2008, other than public relations: same rotten banks, same derivatives mess. Debt levels are (much) higher. I’m not predicting this will happen tomorrow, but the cannon is loaded, merely awaiting a match. And when the match lights, it will be too late to scramble for a safe position.” Truer words have never been spoken.
By the Numbers
This week the 2018 BP Statistical Review of World Energy was released, which covers energy data through 2017. Here are some of the highlights:
92,600,000 Barrels of oil the world produced per day last year. That’s a new record.
8 The current number of consecutive years that global oil production has increased.
1 The United States’ rank among the world’s top oil producers in 2017.
13,000,000 The average daily barrels of oil the US produced last year.
12,000,000 The average daily barrels of oil produced by the second ranked nation. (Saudi Arabia)
1 The United States’ rank among the world’s top natural gas producers last year.
51 Percentage of the world’s coal consumed by China in 2017.
35 Percentage year-over-year increase in global solar power consumption in 2017.
17 Percentage year-over-year increase in global wind power consumption in 2017.
Source: Forbes
The Question of the Week
[poll id="220"]
Last Week’s Poll Results
Do you think it’s better to buy or rent a home?
- Buy (66%)
- I’m not sure. (20%)
- Rent (14%)
More than 1300 Len Penzo dot Com readers responded to last week’s question, and 2 in 3 say that, despite the crazy housing market prices present in many places, it’s still better to be a home buyer than a renter. Count me among the 14% who believe it’s better to rent — at least until the housing bubble pops.
Useless News: Salesman of the Year
A young guy from Idaho moved to Florida and went to a big “everything under one roof” department store looking for a job.
So the Manager asked, “Do you have any sales experience?”
“Yeah,” said the young man, “I was a vacuum salesman back in Idaho.”
Well, the boss was unsure, but he liked the kid and figured he’d give him a shot, so he gave him the job.
“Okay. You start tomorrow. I’ll come down after we close and see how you did.”
The young guy’s first day on the job was rough, but he got through it. After the store was locked up, the boss came down to the sales floor.
“How many customers bought something from you today?”
The kid frowned and looked at the floor and muttered, “One.”
“Just one?” said the boss. “Our sales people average sales to 20 to 30 customers a day! That will have to change, and soon, if you’d like to continue your employment here. We have very strict standards for our sales force here in Florida. One sale a day might have been acceptable in Idaho, but you’re not on the farm anymore, son.”
The kid took his beating, but continued to look at his shoes, and the boss felt bad for chewing the kid out on his first day. “So, how much was your one sale for?” the boss asked.
The kid looked up at his boss and said, “$101,237.65.”
The boss, astonished, said, “$101,237.65! What the heck did you sell?”
The kid said, “Well, first, I sold him some new fish hooks. Then I sold him a new fishing rod to go with his new hooks. Then I asked him where he was going fishing and he said down the coast, so I told him he was going to need a boat, so we went down to the boat department and I sold him a twin engine Chris-Craft. Then he said he didn’t think his Honda Civic would pull it, so I took him down to the automotive department and sold him that 4×4 Expedition.”
Astonished at what he just heard, the boss said, “You’re telling me that a guy came in here to buy a fish hook and you sold him a boat and a TRUCK!?”
“No,” the kid said, “The guy came in here to buy some tampons for his wife and I said, ‘Dude, your weekend’s shot! You should go fishing!”
(h/t: RD Blakeslee)
Other Useless News
Here are the top five articles viewed by my 20,202 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- The 7 Deadly Sins of Personal Finance
- Dear Diary: What I Did On My Summer Vacation
- Gas or Charcoal Barbecues: Which Is More Cost Effective?
- The Ethics of Found Money: How and Where Do You Draw the Line?
- How to Save for Retirement When You Don’t Make a Lot of Money
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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
This week, Michele disagreed with my article explaining why extended warranties for new tires are a waste of money:
” I seem to have a knack for getting nails in the sidewalls of at least two tires for every set of tires I own.”
Pro tip: Sidewall failures rarely happen when the tires are installed with the tread-side down.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Len, I think it would be interesting if the locale of the voter could be correlated with the vote.
I suspect folks living in the worst bubble areas are likely to vote “rent”, while those living in relatively low priced housing areas vote “buy”.
Of particular interest would be the fraction of bubble-area voters who would buy, regardless. The would give some indication of the persistence of the home ownership dream in our country.
You’re right, Dave. It would be interesting since real estate markets do vary quite a bit by locale. Unfortunately, the voting software doesn’t give me a way of figuring out where the voters are coming from!
Can somebody please explain why oil is still so expensive? We have record production and are exporting 5 times more oil than in 2016, but a barrel of crude is selling for $70 instead of $30.
Blame that phenomenon on Exhibit F: the fiat dollar’s continued loss of purchasing power!
By the way, according to AAA, the average price of gasoline today is $2.83.
And the current melt value of a 1964 silver US quarter — which bought a gallon of gasoline that same year — is $2.98. Imagine that.
Len,
Love the video of that bubble on the beach!
Thanks for another great Black Coffee. I can’t start my weekend without it!
Sara
Isn’t that amazing? That bubble is almost as large as the 900 square foot house being sold for $2+ million in Palo Alto!
Len,
I saw the news this week about Russia and India dumping half their treasuries, but then I look at the Dollar strengthening?!?!? Can they really rig this to where nothing sound economically matters? It seems they have found a way to keep this clown show going forever. Then I see where Lynette Zang shows evidence of insiders getting out of the stock market into tangible assets and I think they are just waiting until all their rat friends are off the boat before they light the fuse.
I try to share things with friends on Facebook about whats coming, but nobody ever replies or even asks a question:(
Tired of trying to inform the sheep!
Jared
Jared … the dollar isn’t getting stronger in terms of purchasing power — only in terms of the dollar index, which measures the buck against a basket of other global currencies. In those terms, the US dollar is simply the best looking horse at the glue factory.
I’ve owned 3 homes in my lifetime in rural ND and MN and sold each of them for MUCH less than the purchase price. Figuring in all the maintenance costs, would have been a lot better off renting. For me, a house is not an asset. As Martin Armstrong says, the problem with a home is it’s not portable. In the high debt states like Illinois, California and lots of others, unless they figure out a way out of the pension problems, they will simply keep jacking up property costs until folks just leave. It’s already happening. In ancient Rome people just left their homes and walked away.
It’s hard for me to argue with you, Jack. There does come a point though where property taxes become so high that home prices begin adjusting downward to compensate — so there are limits .
That makes sense, Len. The Illinois plan to raise everyone’s property taxes by 1% above what they are already paying for the next 30 years might not get them anywhere.
I call BS on the lady who says she gets nails in her tire sidewalls AT LEAST TWICE per set. If that’s true the only logical explanation is she has a neighbor who really dislikes her.
That was my thought too, Gramps.
I’ve had a hole in my sidewall tire before. It happens.
Not two times for every set of tires you buy, it doesn’t!
Great post, Len. Russia has already explained why it is dumping dollars.
“The more aggressive the Americans are, the sooner they will see the final collapse of the dollar and by getting rid of the dollar this would be the only way for victims of American aggression to stop this onslaught. As soon as we and China dump the dollar, it will be the end of the US military might,” Sergey Glazyev said in an interview with TASS.
http://tass.com/politics/942643
Great find, Sam — although this is really no secret to anyone who understands how the international monetary system works (which seems to exclude most of our politicians in Washington DC).
Russia’s US treasury holdings are less than a week’s trading volume. The damage would be temporary and the market would recover. China’s holdings of $1.2 trillion is an entirely different story though.
Yes, China is the linchpin. They can kill the dollar overnight if they wanted to. When they believe they have enough gold reserves, you better believe they will do so — if the financial system doesn’t implode of its own accord before then.
Which one do you think will happen first?
I think the system will fail first, Sam. China will avoid doing it on their own if they can help it because they won’t want to be seen as the nation “responsible” for bringing down the system.
China also has a vested interest…..1.2 trillion bucks….. that would be reduced to near nothing if they dumped their US debt overnight. In fact, they may simple be stuck between a rock and a hard place…..don’t want ’em, but can’t really get rid of ’em.
I’ve been watching their holdings for years, thinking when they start to back away from the table, it would show as a trend they are easing out of the game, but haven’t seen it so far. Good website for foreign holders of US debt is:
http://ticdata.treasury.gov/Publish/mfh.txt
Gives a month by month of holdings for the last year, usually current to within about 2 months back.
Another thing this website does is show which shell the FED is using to hide the pea…..that being purchases of US debt the FED is actually funding, and hiding in off shore banks. The current shell is Ireland….”they” hold 300 billion in US debt, which is total BS for a country whose main exports are Riverdance and whiskey. A year ago, it was Belgium….same thing….they held hundreds of billions of our debt…..couple times their yearly GDP. Now it has shifted to Ireland, next year to somebody else. The pea keeps moving.
Then there are the perennial favorites: Cayman Islands, Hong Kong and Luxembourg. Between them, they hold 600 billion bucks of our debt….1/2 what the Chinese hold….and export almost nothing to justify that.
What all 3 have in common is they are banking centers with tight lips. My theory again is THAT is where the FED stuffs a lot of green peas. The reason the FED does this is they are the buyers of last resort of debt issues….to keep interest rates from seeking their natural level in the market…..which would be many times the 3% current IF real buyers were to be enticed to buy our debt.
All a big shell game. But it also explains how they have managed to keep the game going.
Great comment, Andy.
China has been ramping up its gold accumulation since the Great Financial Crisis as a hedge against the loss of US dollar purchasing power. I believe there will come a point in time where China will decide it has enough gold to counterbalance even a rapid erosion in the value of a dollar that would occur if they decided to dump their Treasuries in one fell swoop.