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 has come to an end. A big “thank you” is in order for our very own RD Blakeslee, who took a break from writing his “Grandfather Says” series, to gamely fill in for me here last week while I was away on a much-needed vacation. Thanks again, Dave! You knocked it out of the park!
Okay … and with that, let’s get to it …
“It’s difficult to make predictions — especially about the future.”
— Yogi Berra
“Modern slaves are not in chains; they’re in debt.”
— Anonymous
Credits and Debits
Credit: If there’s one thing we’ve learned over the past decade, it’s that the stock market can’t behave irrationally for long. Oh, wait … This week marked the longest bull market in history: 3453 days. Yep. After bottoming out at the end of the Great Financial Crisis (GFC) in March 2009, stocks have climbed more than 300%.
Debit: Despite the long-running stock market success, a curious problem has emerged: the so-called “wealth effect” is dead. At least that’s what JP Morgan determined after analyzing data that shows higher stock prices no longer result in more consumer spending. And that has to trouble the Fed, because “the wealth effect” was the excuse given to justify its reckless quantitative easing (QE) program.
Credit: Some say the wealth effect’s demise is related to the post-GFC stock market expansion’s strength — or lack thereof: it’s the weakest on record. Why? Perhaps it’s because, as Michael Lebowitz notes, experimental Fed policies, such as QE and near-zero interest rates, have been “complicit in constraining the growth the economy desperately needs.” Ah, who am I kidding? That’s exactly why.
Debit: By the way, don’t bother counting on rising wages to boost consumer’s animal spirits anytime soon — real average hourly earnings last month saw their biggest decline since 2012. Yikes.
Debit: Maybe those falling real wages are why household debt hit a new record high last quarter; it’s currently $13.3 trillion, which is 3.5% higher than last year. It was also the 16th consecutive quarter household debt increased. In case you’re wondering, the latest total is $618 billion higher than the previous peak reached during the height of the GFC, in the third quarter of 2008.
Debit: On a related note, I see the number of US foreclosures increased for first time in three years. In fact, the number of foreclosures compared to a year ago were higher in 44% of the 219 metropolitan markets that were surveyed. I sure hope all the home flippers out there who are furiously working their phones to close the next “deal” are paying attention … unlike these determined market makers:
Debit: In other news, despite trillions upon trillions of US dollars in bank accounts around the world, all signs are pointing to an approaching global greenback shortage. Hard to believe — but true. The dollar shortage is due to financial panic in Argentina, Brazil, Turkey and other emerging markets encumbered with too much dollar-denominated debt — debt which must be paid back in dollars. It’s a vicious cycle.
Credit: Argentina’s collapsing peso is why it had to raise its policy rate to 45% last week. Can you imagine if US banks offered even a small fraction of that impressive figure to their depositors? I can’t either.
Credit: Meanwhile, the Turkish lira has plunged almost 40% in the last four months; and earlier this month it lost more than 20% in a single day. The trouble is Turkish banks and business borrow dollars — but they get paid in lira. As such, if the lira’s value is cut in half, then those Turkish banks and business owners have to earn twice as many lira to pay back their dollar debt. That’s a problem, folks.
Debit: Speaking of problems, Venezuelan President Nicolas Maduro’s decision to redenominate his beleaguered currency last week — by lopping five zeros off of the old one — miraculously stopped the hyperinflation that had been pummeling his socialist paradise since 2016. Hooray! Okay … you got me. Actually, that little trick didn’t work at all. Come to think of it, neither did this one:
Credit: I don’t know … perhaps El Presidente should try some other “bright” economic ideas like, heh, implementing price controls and raising the minimum wage 3500%. Again. Forward, amigos!
Debit: Frankly, we Americans are in no position to look down our noses at Venezuela because the US is actually deeper in debt than Venezuela. And the only thing keeping us from experiencing a similar fate — if not worse, assuming that’s even possible — is the US dollar’s current role as the world’s primary reserve currency. Unfortunately for all of us, that will be coming to an end sooner than most people think.
By the Numbers
Whether you love her, hate her, or are totally indifferent, pop icon Madonna — who turned 60 this month — is a very wealthy woman:
1990 The year Madonna appeared on the cover of Forbes with the headline “America’s Smartest Business Woman?”
$590,000,000 Madonna’s current net worth.
36 Her rank among America’s wealthiest self-made women.
$3,044,574 Madonna’s average gross per concert in 2016.
0 The number of concerts Madonna has played in 2017 and 2018.
Source: Forbes
Last Week’s Poll Results
How much cash do you have set aside for a financial emergency?
- More than $10,000 (50%)
- $1000 to $10,000 (40%)
- Less than $1000 (10%)
More than 1500 Len Penzo dot Com readers responded to last week’s question and I’m happy to see that half of them say they have more than $10,000 saved up for a financial emergency — which is in stark contrast to the general populace, where 2 in 5 say they would be unable to afford an unexpected expense of more than $400.
The Question of the Week
[poll id="229"]
Useless News: Doctor’s Advice
I went to see the doctor the other day.
He said: “Don’t eat anything fatty.”
I said: “What? Like bacon and burgers?”
He said, “No, Fatty. Don’t eat anything.”
(h/t: Boggs)
Other Useless News
Here are the top five articles viewed by my 20,821 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- 5 Reasons to Carry Life Insurance in Retirement
- 18 Fast Facts You Didn’t Know About Your Social Security Number
- How I Live on Less than $40,000 Annually: Evan from Pennsylvania
- My 10th Annual Cost Survey of 10 Popular Brown Bag Sandwiches
- 4 Things You Can Do to Lower Your Homeowner’s Insurance Rates
Hey, while you’re here, please don’t forget to:
1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!
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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 smart people aren’t impressed with people who drive luxury cars, Paul sent me this little reminder:
“You can’t take it with you – although the Egyptian Pharohs used to think so.”
True, which is why — as my dear ol’ dad always says — nobody ever sees a Brink’s truck following a hearse.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Welcome back Len. Looks like l’m first this week! I thought the stock market bull run was going to end this past Feb but somehow it managed to recover and here we are.
Sara
Thanks, Sara. You can thank the central banks around the world for flooding the world with cheap money and a healthy serving of the US “Plunge Protection Team” for keeping stocks elevated. How much longer can this go on is the big question.
Lots of talk this week from other countries about de-dollarization. Your right. It is coming.
The never ending monetary sanctions and tariffs are speeding up the process. More and more countries are getting tired of the U.S. being able to bully them with the dollar system.
Cowpoke and WA: Both of you are spot on. I will be using the overt de-dollarization chants as the focus of next week’s Black Coffee.
So since the stock market obviously is setting up for a fall, where do responsible investors put their hard-earned money in anticipation of tough times ahead?
I am not so sure the stock market will fall anymore, Muk — simply because the powers that be can’t afford to see it fall. Any significant drop over a period longer than a few months will cause pension funds to implode.
Disclaimer: I am not a certified financial planner — I am only speaking for myself. That being said, as I have stated here many times, with our long-in-the-tooth failing debt-based fiat monetary system on its last legs, I believe we are living in a period of time where return OF your investments is more important than return ON your investments.
As such, I focus on minimizing my financial exposure to counterparty risk. In my opinion, the best way to do that is via physical precious metals.
I have a question. So why did Argentina, Turkey, etc, etc, borrow so many dollars in the first place? Seems like it is/was a pretty stupid idea.
It’s a strategy that works very well as long as the dollar is losing value relative to other currencies — and it was while the Fed printing press was going hog wild from 2009 through 2015 (as it was during its QE programs). But the Fed has been tightening its monetary policy for awhile and, as a result, dollars are beginning to become scarce, and that is making the buck stronger against other currencies.
I would love banks to offer 5% on my savings but I have lost hope it will ever get there again. The banks have destroyed savers with their piddly interest rates.
Our monetary system is broken, Susan. Savers will have their day in the sun again, but not until the current system is overhauled.
Venezuela annual inflation rates (official)
2011-16%
2012-21%
2013-46%
2014-57%
2015-112%
2016-254%
2017-1,088%
2018-46,305% (Aug)
Prices double annually if inflation is 70% per year.
Im May, Venezuelan prices were doubling every 18 days. I suspect that they’re doubling closer to every 10 days now.
“… experimental Fed policies, such as QE and near-zero interest rates, have been ‘complicit in constraining the growth the economy desperately needs.’ – Michael Lebowitz
Liebowitz is a socialist and elsewhere he points out that cheap money finances concentration of wealth. He thinks the worker’s plight can be solved by their ownership of the means of production.
I worked for all three of what were “the Major” U.S. auto manufactures in the early 1960s and saw the United Auto Workers union come close to destroying the U.S auto industry.
Fact is, workers are no less greedy when they have the upper hand than any other group in society.
Our constitutional system of checks and balances is about the best we can do, IMO.
Too bad it is being destroyed by the ant-like lawyering of radical utopians.
I agree, Dave, that Leibowitz has a utopian/socialist bent (but I repeat myself); I don’t think he hides that fact. I also agree with your assessment on unions. I grew up in a steel town and saw firsthand how the unions killed that industry.
I love and hate my union. It’s absolutely necessary to protect against our supervisors, who manage by taylorism and govern by fear. It makes me furious when the service pays grievances to settle “crossing crafts,” or people doing other people’s jobs. We should all be serving the customer. I’d love to think we could become employee-owned we would all have the same vested interest. But I don’t think I can trust my co-workers to put collective long-term gain over personal short-term gain. Tragedy of the commons, and the short-term bias is a tragedy too.
Sarah,
Is there any way you can plan to get out of your situation?
You are trapped now, as I might have been, had I stayed in Detroit.
Dave, thanks for the reply, I’ve been mulling it over as a needed shove in the right direction. I’ll be debt-free except for mortgage in 6 years if I stay in this job (I have $90k in student loans!). We’re working to develop a side business – plant nursery and raising heritage birds. I don’t have numbers or dates yet, but I think that will be a safe way out within 10 years. Thanks.
Len,
Thought I saw something about Trump telling Italy we would buy their debt! I hope I was having a nightmare or it was fake news, things just get more ridiculous and insane by the day. How can we buy their debt when we are one if not the most indebted country on the planet?! Hell, maybe this insanity can go on forever.
Jared in Wonderland
I saw that too, Jared. It just goes to show what a farce the entire international monetary system is at the moment.
Just watched the release of Usawatchdog interview with Jim Sinclair and Bill Holter, it was spectacular! Its going to be scary when this crap show blows.
Taxpayer funded entitlements without working destroy a persons will to live. Less free time reduces crime too! Call me a racist !!!
You’re a funny guy, Mik.
A big thank you is in order … -Len
Thank YOU, Len.
It’s not as easy as I would have thought.
Lurkers on Blogs: It takes more work than you might think to keep you “fed up”, so to speak …
*chuckle*
My pleasure, Dave. And, yes, it takes time to crank this stuff out every week — but I enjoy it immensely! I hope you all enjoy reading it as much as I enjoy putting it together.
Thanks Len, an interesting take on the current bull run. The wealth effect is also bull….run. QE has simply resulted in a growth in the asset bubble. The fed would have done much better physically giving money to the people rather than effectively giving money to the banks to lend to people. All that’s happened is that the banks have felt comfortable taking greater amounts of risk, lending to asset owners/purchasers and not to consumers or small businesspeople. I’m certain that history will prove that QE was a mistake