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 this week …
“Modern banking manufactures currency out of nothing. The process is perhaps the most astounding sleight of hand that was ever invented. If you want to be slaves of the bankers, and pay the cost of your own slavery, then let the banks create currency.”
— Lord Josiah Stemp
“Before bitcoin, I was just waiting around for the singularity.”
— Roger Ver
Credits and Debits
Credit: This week the CEO of JPMorgan, Jamie Dimon, turned more than a few heads when he said that nobody should be surprised if the 10-year Treasury hits 5%. Wow. If he’s correct, you can expect significantly higher mortgage rates and auto loans. You can also bet those ubiquitous home flippers won’t be happy.
Debit: Higher interest rates would be welcomed by retirees who, after a decade of paltry Fed-engineered returns, are looking to earn some income from their dwindling nest eggs. Then again, it may be too little too late, as the New York Times just published a piece that discussed the fact that the bankruptcy rate among retirees is three times higher than it was in 1991.
Debit: Speaking of retirement nest eggs, this week a former Fed economist suggested that Japan’s Government Pension Investment Fund — the world’s largest — should step out of its comfort zone and buy more high-yield bonds and alternative assets such as real estate. Unbelievable. In case you’re wondering, “high-yield bonds” are more accurately known as “junk” bonds. There’s a reason for that.
Debit: On a related note, last quarter the Swiss National Bank (SNB) bought 4.9 million shares of AT&T, 673,000 shares of Microsoft, 305,000 shares of Apple, 272,000 shares of Facebook, 46,000 shares of Amazon, and 423,000 shares of Exxon-Mobile. As a result, its portfolio now generates $1 billion worth of dividends — or as @SheepleAnalytics notes, “They print money and we ship them our profits.”
Debit: For those keeping track at home, with the latest purchases, the Swiss central bank boosted its total holdings of US stocks to almost $88 billion. Those equities join more than $20 billion of European stocks in the SNB portfolio — and all of it was bought with “money” created out of thin air. I know … I should have been a banker. You should have been one too.
Credit: I guess somebody has to buy these artificially-inflated stocks, since the general public has clearly been losing interest in the market since the Great Financial Crisis, as Steve Henrich neatly sums up here:
The dying US stock market.
August average daily trading volumes for $SPY
2018 so far: 48M
Sven Henrich (@NorthmanTrader) August 9, 2018
Debit: In other news, bitcoin’s use as a medium of exchange has cratered, falling 85% in the past year across the top 17 crypto merchant-processing services. In May, just $60 million worth of transactions were conducted worldwide. Yikes.
Debit: For those who bought bitcoin at $19,783 last December, the cryptocurrency — which is currently in the low $6000 range — hasn’t been a reliable store of value either. And if you think that’s bad, then just wait until the dollar goes belly-up; bitcoin’s Achille’s heel is that its value is not self-referential because it’s physically ethereal — unlike gold and silver, which can always be valued in tangible weight.
Debit: Meanwhile, prices in Venezuela are doubling every 18 days; in fact, the IMF now projects inflation will hit 1,000,000% (!) this year — which is why Venezuela has been the world’s largest seller of gold during the past two years. Hey … I wonder if Ben Bernanke knows this; it certainly would be a teachable moment for him, if only because he isn’t sure why central banks hold the yellow metal in the first place:
Debit: By the way, Venezuela’s bolivar and bitcoin aren’t the only crashing currencies out there. The Turkish lira’s purchasing power fell more than 20% on Friday, and Iran’s currency is imploding too, which has prompted desperate citizens to grab as much gold as they can to stave off total ruin. Well … assuming they can find any. (Psst. There’s a reason why gold and silver are called precious metals.)
Credit: Folks … write this down: The time to buy wealth insurance is before a currency crisis — not after it starts.
Debit: Anyway … with Iran’s economy in shambles, nobody should be surprised that a past President, Mahmoud Ahmadinejad, is complaining about US dollar hegemony. Again. Yeah … it’s good to be the King (Dollar). Until your subjects say you’re not.
Debit: According to recently released data, the US will fork out a stunning half-trillion dollars just to service its debt in 2018. Unfortunately, as US interest rates rise, along with ever-expanding public debt, the cost to service the debt will continue to increase. In fact, US interest payments on the debt now exceeds the GDP of 167 nations. Meh. I’m sure that’s nothing a little creative accounting can’t fix:
Debit: If, as Jamie Dimon predicts, 10-year Treasuries revert to their multi-century mean rate of 5%, then the annual interest payment on the National Debt — which is currently at $21.3 trillion, and climbing quickly — will be more than $1 trillion (and growing quickly too), which is problematic considering annual US tax revenue is “only” $3 trillion and change. Or less, if the US slips into a recession.
Credit: Of course, most people believe the game can go on forever, but it can’t — because our debt-based monetary system is subject to exponentiation laws that guarantee its demise. It’s no coincidence that central bank hocus pocus and economic financialization have been increasing since at least 1980 to keep the system stable. But we’re clearly on the wrong end of the curve now — and time is growing short.
By the Numbers
If you’re less-educated with fewer skills in demand, you’re more likely to be out of a job. Here are the latest unemployment rates by education:
5.5% Less than a high school diploma
4.2% High school diploma, no college
3.3% Some college or an associate degree
2.3% Bachelor’s degree or higher
The Question of the Week
Last Week’s Poll Result
Universal basic income: good idea or bad?
- Bad (66%)
- Good (18%)
- I’m not sure. (17%)
More than 1300 people responded to last week’s question and I’m happy to see that 2 in 3 Len Penzo dot Com readers believe that the ultimate handout — otherwise known as “universal basic income” — is a bad idea. Sadly, almost 1 in 5 readers disagree. I suppose they believe in the magic of perpetual motion machines and the tooth fairy too.
Useless News: Traffic Stop
An Amish lady driving her horse and buggy on the local thoroughfare got pulled over by a traffic cop.
“I’m not going to cite you,” said the officer. “I just wanted to warn you that the reflector on the back of your buggy is broken and it could be dangerous.”
“I thank thee,” replied the Amish lady. “I shall have my husband repair it as soon as I return home.”
“Also,” said the officer, “I noticed that one of the reins to your horse is wrapped around his testicles. Some people might consider this cruelty to animals so you should have your husband check that too.”
“Again I thank thee. I shall have my husband check this when I get home.”
True to her word, when the Amish lady got home, she told her husband about the broken reflector; he said he would put a new one on immediately.
“Also,” said the Amish woman, “the policeman said there was something wrong with the emergency brake.”
(h/t: Dr. Jerome)
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. South Dakota (2.07 pages/visit)
2. Minnesota (1.79)
3. Arkansas (1.71)
4. West Virginia (1.69)
5. Idaho (1.67)
46. Nebraska (1.25)
47. South Carolina (1.24)
48. Wyoming (1.22)
49. Vermont (1.16)
50. Oregon (1.13)
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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 10th annual sandwich cost survey, Willow dropped this complaint:
“I like lettuce and tomato on my baloney sandwich, so this doesn’t help me.”
Well … duh. The article is good, Willow — but when it comes to making a tasty sandwich, it can’t compete with fresh lettuce and tomatoes.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c