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.
I hope everyone had a terrific Thanksgiving. By the way, if you enjoy what you’re reading, please share this with your friends and family. Thank you!
And with that, another glorious week comes to an end, so off we go …
“Affirmation without discipline is the beginning of delusion.”
— Jim Rohn
“Money has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked their existence upon the turn of a piece of paper.”
— Charles Mackay
Credits and Debits
Credit: Did you see this? Investment fund manager, John Hussman, recently lamented that there are three popular delusions currently being embraced by financial bulls everywhere: the delusion of paper wealth, the delusion of a booming economy, and the delusion that is bitcoin. He’s right; let’s take a closer look at all three, starting with bitcoin …
Debit: On Tuesday, bitcoin briefly dropped to $4000 per coin, which marks an approximate 80% pullback from its all-time high near $20,000 last December — and nearly 30% in the last week! I guess bitcoin holders can take solace in the fact that 80% drops have transpired twice before, in 2011 and 2014 — but its market cap was far less both times, which suggests another such recovery will be much tougher this time.
Credit: For some reason, a lot of bitcoin holders are surprised at its continuing plunge; they shouldn’t be. Despite proponents’ claims, bitcoin is backed by nothing tangible. It’s ephemeral too — unlike physical gold and silver, which can be valued by weight. Cryptocurrencies are also difficult — if not impossible — to use if the grid goes down. Cryptos aren’t scarce either; they’re created out of thin air almost daily.
Credit: Today, cryptomania is clearly in its death throes. Remember when Long Island Iced Tea Corp. shares rose 289% last year after the company rebranded itself Long Blockchain Corp? Well, after topping out at $6.01 in December during the height of the tulip crypto hysteria, the stock has been in a steady decline. So much so that shares of Long Blockchain Corp on Friday were selling for as low as … wait for it … 12 cents. Ouch.
Debit: Another delusion that’s still going strong is the so-called booming economy. Yes, government figures show unemployment is at multi-decade lows — never mind that the rate keeps dropping because more people have given up on finding work and therefore are no longer counted as either working or unemployed. But if everything is so rosy, why did American household debt hit a record high last quarter?
Debit: The truth is, the current economic “boom” is a debt-driven mirage, as evidenced by the 28% of all holiday shoppers who are entering this Christmas season still paying down debt they accrued during last year’s festivities. But, hey … if you’re looking for a so-called “gift” that keeps on giving, debt is the easy answer to everyone’s economic troubles out there — including the world’s central banks. Go figure. No, really:
Credit: The final delusion is blind faith in paper wealth. Take home equity, for example. Or stawks. Despite the conventional wisdom, buy-and-hold is not a surefire investment strategy — especially now that the coordinated eight-year central-bank quantitative easing campaign that artificially pumped all markets to their current over-valued levels is being put into reverse. Bye, bye bubbles.
Debit: We’ll see how committed Facebook shareholders remain to a buy-and-hold strategy as the social media giant’s myriad troubles continue to mount; the stock has lost 25% in 2018, which includes a current run of three straight months in the red and its longest losing streak ever.
Debit: Meanwhile, macroeconomist Peter Boockvar notes that while US Treasuries rallied during the previous week’s stock market selloff, last week’s decline in the S&P saw no such bond rally. “Something is different,” says Peter. Yes, it is … more and more people are recognizing the delusion of bonds as a safe haven. How can they be today in the presence of so much debt?
Debit: The lack of a bond market rally in spite of broad-based sputtering equities is largely due to foreigners who are wisely dumping US Treasuries at the same time they’re selling off their shares of American companies — which isn’t helping those who hold bonds as a hedge against stock-market declines. It also threatens the US dollar’s reserve currency status and its ability to export its inflation abroad.
Credit: On a related note, lest you have any doubts about the dollar’s world reserve currency status being inexorably tied to the 1974 petrodollar agreement with Saudi Arabia, listen carefully to what President Trump said about breaking away from the dubious desert kingdom.
“It’s America first for me,” Pres. Trump says.
“We’re not going to give up hundreds of billions of dollars in orders…Saudi Arabia, if we broke with them, I think your oil prices would go through the roof.” https://t.co/pyOq1DFtLX pic.twitter.com/oMtCJtqpPJ
ABC News (@ABC) November 20, 2018
Credit: Of course, the President — and everyone else in Washington who makes the real decisions on US monetary policy, on both sides of the aisle — know such a move would not only send oil prices through the roof, but prices for everything else too. In fact, without the petrodollar, the greenback would become just another two-bit currency, and American living standards would drop sharply — at least for a little while.
Debit: Then again, the “Almighty Dollar” is the most dangerous delusion of all. As Alexander Trigaux notes, “Imagining a day when all the dollars you have in the bank or stock market, or stuffed under your mattress become nearly worthless overnight is extremely difficult, (which is why) investors, during times of global uncertainty, still flock en masse into the seeming safe harbor of the US dollar (to) wait out the storm.”
Credit: And as Trigaux observes, “This has worked time and time again. Until it won’t.” The only question is when this illusion of prosperity supported by enormous debt that can never be repaid will finally fail. Sadly, the world’s central banks will continue their absurd attempts to diffuse the ticking debt time bomb they created by pursuing their debt-addicted policies until something breaks. And it will — let there be no delusions about it.
By the Numbers
As “cord-cutters” grow in number — that is, those who are canceling their traditional cable and satellite services — the outlook for traditional TV seems to be going from bad to worse. Or is it?
186,700,000 The number of Americans who will watch pay TV in 2018.
30% The increase in the number of Americans who decided to cut the cord this year.
33,000,000 The number of Americans who will have officially “cut the cord” by the end of this year.
58% The percentage of people between 18 and 34 who have no intention of cutting the cord.
69% The percentage of people between 35 and 49 who say they won’t stop watching cable or satellite TV.
80% The percentage of people older than 49 who say they won’t be cutting the cord.
71% The percentage of all people who have no intention of cutting the cord, thank you very much.
97% The percentage of people who say they have no intention of dropping their pay TV service.
Source: Forbes
The Question of the Week
[poll id="242"]
Last Week’s Poll Results
Where did you have your Thanksgiving dinner this year?
- Home (48%)
- At a friend/relative’s house. (47%)
- At a restaurant. (5%)
More than 1700 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 20 had their Thanksgiving meal in a restaurant. The rest were split evenly between those who cooked their’s at home and those who enjoyed their meal at a friend or relative’s place. As for me, yours truly stayed home to cook. Thankfully, the turkey was cooked to perfection.
Useless News: The Talking Dog
A guy spotted a sign outside a house that read: “Talking Dog for Sale.” Intrigued, he decided to check it out.
Once inside, the dog’s owner encouraged the guy to ask the dog a question.
So the guy asked the dog, “What have you done with your life?”
“I’ve led a very full life,” the dog said. “I lived in the Alps rescuing avalanche victims. Then I served my country in Iraq. And now I spend my days reading to the residents of a retirement home.”
After hearing the dog, the guy was absolutely flabbergasted. So he asked the dog’s owner, “Why on earth would you want to get rid of an incredible dog like that?”
The owner said, “Because he’s a liar! He never did any of that!”
(h/t: Mickey T.)
Other Useless News
Here are the top five articles viewed by my 21,222 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- 10 Unique Halloween Treats That Kids Love – But Rarely Get!
- The Pros and Cons of Paying for an Aging Life Insurance Policy
- 3 Quick Tests That Predict If You’re Irrational About Money
- My Margarine Taste Test: Which Brand Tastes Most Like Butter?
- Early vs. Delayed Retirement: Which Path Is Harder?
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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 the results of my margarine taste test, Ramona @ Personal Finance Today had this to say:
“Hee hee. I wouldn’t eat margarine if I was paid to do it.”
Maybe so, Ramona — but I still think it’s butter than nothing.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Informative blog! Thanks for sharing it.
Glad you enjoy it, Nagesh. Thanks for stopping by to say “hi.”
Len, I thought of you when I read this article earlier. : https://www.rt.com/business/420596-collapse-currencies-gold-ten-thousands/
I hope you refresh and re-post some more article about PMs as wealth insurance soon; it’s looking more and more like we’ll need them! Thanks again for a good cup of ‘Coffee’ and Happy Thanksgiving!
Hi Lauren, you know the world has turned upside down when we have to go to RT to get the truth, but that is the case. You won’t see this story in the mainstream media, which carries the water for Wall Street and Big Government politicians.
I’m sure you saw the article I published this week about the inevitability of a new gold standard (or gold exchange standard). More will be coming in the future as our current debt-based international monetary system gets closer to its last breaths.
Re RT: Agree!
Also, Len, The British press carries more real news in much greater depth than our media.
For example: This morning:
https://www.thesun.co.uk/news/7817676/police-bombarded-with-fireworks-fight-back-with-tear-gas-as-mass-riots-turn-paris-into-warzone/
There might be a few column inches on this story in the NYT.
It may be hard to believe for some folks, but almost all of the unrest in the world today stems directly or indirectly from our fraudulent global monetary system.
Yep. That’s true too, Dave. Sad, isn’t it?
I did see your article, and I appreciate that you’re on top of this stuff. Meanwhile, hubby and I have paid ALL debts, and continue to learn and prepare for the future as best we can (so keep these articles coming and THANKS! :o)
Len,
Thanks for the extra big cup of joe today! Really enjoyed the Rain Man guy. I have trouble multiplying 2 x 2.
Sara
Thank you. I encourage you to watch that entire video. (It should play in its entirety the second time around.) The guy is pretty amazing.
If buy and hold is the way to play stocks and bonds, why are most pension funds on the verge of default?
I think the pension funds’ main issue — especially state government pensions — is primarily due to laughably unrealistic and unsustainable promises made to present and future retirees.
Demonstrably false. Single employer plans had their assets recovered (“stolen” is such a loaded word, especially in the state of Indiana [as a random example] where “theft” is illegal but “stealing” is not) by the employers when interest rates were dropped and raised the value of the assets and left them temporarily overfunded.
The case of public pension plans is much more complicated. Iowa has always had a contributory plan and a law that mandates full actuarial funding. It also does not have a funding problem. Illinois’ and Chicago’s problems were caused because Generally Accepted Governmental Accounting allows pension plans to be footnoted with no accounting and no actuarial studies to let anyone know that there’s a bazillion dollar liability. So to keep taxes down for this election cycle, politicians could promise benefits that some other politician has to keep. Nice job if you can get it. Detroit had cool system that if the cash flow was positive enough, they’d include an extra paycheck (with bump to your retirement plan, based on average salary), but not based on actual accounting data.
As opposed to Social Security, which I am convinced that Mitch McConnell (and a few others) want to gut as “entitlements” but still keep the FICA so that 15% of your paycheck can go to the US Government. You just won’t get benefits from it.
So you are inferring that as long as the government can increase taxes there is not a problem? If so, that is not true; there is a real limit to how much you can tax the citizenry. And just because pension funds use mark to fantasy accounting doesn’t mean people are in the dark regarding the reality of them being underfunded. Government pensions are doomed to fail because they allow people to retire at age 50, thereby allowing them to earn far more in retirement than they ever contributed. There is no such thing as a free lunch — and many government retirees will find that out in the next downturn.
The US pension system is not based on creating a viable “Superfund” (Like Canada does for example) It simply takes new money from taxpayers and passes it to the pensioners while stealing from it through deficits and impossible promises. There is no growth component. That is why it has fallen into a massive deficit. IMO the Singapore pension model is the the one most countries should adapt.
I think understandably a lot of US citizens think that it works like a massive stable kind of hedge fund. It does not.
Timing is everything when it comes to buy and hold. It all depends when you were born and when you start investing. Since 1980 stocks have been on a steady uptrend with just three minor interruptions, so buy and hold has made sense for the current generations of investors.
Exactly, DK. The starting valuation of your investment timeline is very very important! If you start investing and employ buy and hold at the end of a bull market, you’ve got your work cut out for you. This is because in a bear market you pay dearly for the compounding effect of losses as you hold on to stocks in steady decline (all things being equal and assuming you are contributing the same amount every week or month).
Remember, if your stocks end up losing 50% during a bear market decline, you need a 100% gain just to get them back to even. So the knife cuts both ways!
Bitcoin crashed. The stock markets are next. Are you ready?
We’ll see how far the stock markets fall once things really get started, Mike. I suspect the Fed is going to panic at some point and restart their QE program to reinflate the markets. Not sure what their pain threshold is though.
Len, there are thousands of PF blogs out there and I can honestly say yours is truly unlike any other. For that I thank you.
Bill
Thanks, Bill.