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.
Let’s get right to it this week …
“Enthusiasm creates bubbles; it doesn’t keep them from popping.”
— Adora Svitak
“Fear the boom, not the bust.”
— Ludwig von Mises
Credits and Debits
Debit: At $109 trillion, US household net worth is now at an all-time high, but there’s a catch: virtually all of the growth has benefited just a handful of the wealthiest Americans. As a result, the wealthy have never been wealthier, while the bottom half of all American households now own just 1% of the country’s wealth — that’s down from 3% in 1989.
Debit: At least Americans have Social Security to fall back on in their old age, but there’s a catch there too: Social Security requires a high ratio of working young to retired old citizens. That wasn’t a problem back in 1940, when the Social Security system had 159 workers per beneficiary; today, it’s less than three. Yep. Now that’s a problem. On the other hand, there are problems — and then there are problems:
Debit: Of course, even if Social Security fails to live up to its promises, many workers will always be able to fall back on their retirement savings plans. Then again, maybe not so much if the past week happens to be a harbinger of long-term market sentiment. The Dow lost 4.6% this week alone — and the S&P 500 is down more than 10% since September. You may not want to open those fourth quarter 401k statements in January.
Debit: Speaking of the stock market, Warren Buffett’s favorite way to measure stock market value is comparing the US stock market cap as a percentage of GDP. Unfortunately for stock market bulls, it’s at its highest level ever; higher than the stock market crashes of 1929, the Great Financial Crisis of 2008, and even the dot com bubble. Uh oh.
Debit: Perhaps Mr. Buffett’s flashing-red value-indicator is why Bloomberg says this is the worst stock market environment since 1972. It’s not just stocks; there isn’t a single major asset class that’s posted even a 5% return this year. For what it’s worth, money manager Bill Blain notes that 1972 was also the longest year ever; a leap day, plus two leap seconds were added, making it 366 days and two seconds long. Coincidence? Probably.
Credit: Hey … if you think the stock market’s prognosis is bad, check out bitcoin. At one point this week it actually fell as low $3231 before ending the week at $3337. If you believe MarketWatch, the cryptocurrency is close to being worthless, now that its price is near — if not below — the cost of “mining” it. Ouch. And you thought I was a bitcoin pessimist.
Credit: Meanwhile, financial analyst Dave Kranzler says “market mortgage fatigue” is here. Lending standards for qualifying mortgages are now so loose that the pool of potential mortgagees has all but dried up. The government has slashed mortgage insurance costs to keep the ruse alive, but Kranzler says the remaining pool of first-time buyers will have trouble qualifying unless the bar is lowered yet again. Imagine that.
Debit: Did you see this? Apparently, a US Treasury yield curve inverted for first time in 10 years — specifically, the difference between the 3- and 5-year Treasury yields dropped below zero, marking the first portion of the curve to invert in this cycle. However, the one to watch is the 10- and 2-year Treasury spread, as that curve inversion preceded the last seven recessions. It’s currently just 12 basis points away.
Debit: Never mind recessions, if another financial crisis strikes, the system will be on its own because the Fed is trapped. As ZeroHedge notes, with full employment, rising inflation, and corporate and consumer debt as a ratio of GDP hitting new all-time highs, the Fed is unable to lower interest rates. Well … at least without stripping away the thin veneer of confidence that is currently keeping the US dollar afloat.
Credit: Finally … John Rubino says the next financial crisis will be about more than interest rates: “Last time it took tens of trillions of dollars to stabilize the economy. Since then, global debt has risen dramatically, which implies the next bail-out will be even bigger. Will it work, or will the markets recoil from the spectacle of printing presses running forever?” I say the latter — a currency crisis that ends the myth of “the Almighty Dollar.”
Last Week’s Poll Result
Do you think annual inflation for basic living expenses is running hotter than 2%?
- Yes (75%)
- I’m not sure. (20%)
- No (5%)
More than 1600 people responded to last week’s question and it turns out that 3 in 4 of them don’t believe the government’s claim that inflation is running at just 2% annually. The other 25% don’t shop for groceries, buy gasoline, pay rent, send their kids to college, or pay for health insurance.
The Question of the Week
[poll id=”244″]
By the Numbers
There are currently 24 James Bond movies in the 007 catalogue. Here are the ten highest grossing Bond films, adjusted for inflation (along with the year of release and the actor who played the titular character):
1 Skyfall (2012; Daniel Craig; $1.2 billion)
2 Thunderball (1965; Sean Connery; $1.1 billion)
3 Goldfinger (1964; Sean Connery; $1.0 billion)
4 Spectre (2015; Daniel Craig; $935 million)
5 Live and Let Die (1973; Roger Moore; $918 million)
6 You Only Live Twice (1967; Sean Connery; $842 million)
7 The Spy Who Loved Me (1977; Roger Moore; $770 million)
8 Casino Royale (2006; Daniel Craig; $743 million)
9 Moonraker (1979; Roger Moore; $730 million)
10 Diamonds are Forever (1971; Sean Connery; $721 million)
Source: Forbes
Useless News: Ink Blots
A psychoanalyst showed a patient an inkblot, and asked him what he saw. After looking at the picture for a couple of seconds, the patient said: “A man and woman making love.”
So the psychoanalyst showed his patient a second inkblot. After briefly examining the picture, the patient said: “That’s also a man and woman making love.”
Finally, the psychoanalyst decided to show the patient a third inkblot. “That is a man and woman making love too,” said the patient.
Upon hearing the same answer for the third time in a row, the psychoanalyst told the patient: “You’re obsessed with sex.”
“What do you mean I’m obsessed?” said the patient. “You’re the one with all the dirty pictures!”
(h/t: Twizler)
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. West Virginia (2.35 pages/visit)
2. South Dakota (1.86)
3. North Dakota (1.79)
4. Alaska (1.76)
5. Kansas (1.73)
46. Rhode Island (1.19)
47. Connecticut (1.18)
48. New Mexico (1.13)
49. Vermont (1.10)
50. Missouri (1.04)
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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 this piece on concierge doctors, Shorty Love left a long rant which included this:
“Once again the rich get to be healthy and kill off the poor! Just a way around president Obama’s healthcare … What ever happened to the hypocritical [sic] oath?”
Based on what I can see, Shorty, the hypocritical oath is alive and well.
If you enjoyed what you read here, please forward this to your friends and relatives. I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Len,
The stock market is getting pretty scary. Seems like something big is just around the corner. Thanks for another great cup of coffee!
Sara
And thank you, Sara, for stopping by every week to say “Hi.” Yes, the top is definitely wobbling; and wobbling tops make some pretty wild gyrations before they finally topple.
As Len points out above, there are no more tricks left in the Fed’s bag. All they have left id jawboning. There is going to be a plunge but what then? Negative rates? How is the Fed going to induce a recovery? Without issuing more debt, there can be no increase in the money supply.
… and if the money supply stops increasing, our debt-based international monetary system will collapse.
The stock market is a rigged casino and Uncle Warren is in on the game. After the crash he’s going to be there to buy you out for a few cents on the dollar. Then he’ll remind you that, “Price is what you paid, but value is what I get!”
The terrible week for stocks is interesting given that Dec. is historically one of the most bullish months of the year for the market. I don’t think it’s a fluke this time either. A change of sentiment is in the air, or so it seems.
In addition to the 401K and Social Security insecurities, there are the government pension plans’ unfunded liabilities:
https://www.businessinsider.com/us-government-7-trillion-pension-shortfall-2016-4
Evaluating a defined-benefit private pension fund’s liability is iffy, but generally several things are known: there are fewer of them as the years go by, those that remain are mostly underfunded to some degree and the unfunded liability of those that remain increases rapidly if asset prices decline, e.g, during a recession.
http://www.willamette.com/insights_journal/15/summer_2015_8.pdf
Thanks for the links, Dave. Yes, defined benefit plans have been badly abused over the years with overly-generous bennies that are completely unsustainable — which is why it is only a matter of time before most of them will go belly up, or are at least forced to make huge cuts to their original promises. Defined contribution plans avoid those problems, but they have their issues too.
The main issue, I think, is that if the asset prices in the defined contribution portfolio decline, the retirement payout is “underfunded”.
The thing that is so maddening is before the Nov. election, my husband and I actually talked about pulling all of our money out of common stock and waiting to see what happened, but we were too cheap to want t pay the tax on the huge gains we had. So I guess we have only ourselves to blame. Well, ourselves along with the democrat voters. It is a good thing we have substantial preferred stocks and bonds that are holding their own, and all, including the common stocks, are continuing to churn out those dividends and interest payments.
I hear ya, Kathy. Investing would be so much easier if we all had a crystal ball. Remember, there are defensive stocks that perform better in bear markets — companies that offer products or services that tend to be relatively immune from economic downturns — such as utilities, energy companies, medical providers, food companies, etc.
What???? No Bond movies in the top 10 with Pierce Brosnan or Timothy Dalton???? I’m shocked.
Your sarcasm is thick, Nick! Don’t forget one-and-done George Lazenby too. Yes, it turns out that there isn’t a single Bond film with Brosnan, Lazenby or Dalton in the top half of that list. Brosnan’s “Die Another Day” comes in at number 13.
I think we all know Len’s favorite 007 movie. Goldfinger!
LOL! I guess that is a no brainer, Cowpoke.
Hey there, Len. The information you have posted is very useful. The sites you have referred are good too. Thanks for sharing…
Thanks for the article Len.
Unfortunately, we never let companies fail in the last recession and essentially pay for our mistakes. They’ve now compounded the pain and will pay for it hard here soon.
The problem is, your average citizen doesn’t see this as a concern or just doesn’t care– plan and simple. Just look at some of these Black Friday videos showing people trample over each other to buy useless stuff and build credit card debt.
Everything is good as long as they have a job, but as soon as crap hits the fan (like these employees at GM), they’re shocked they lost their job and now don’t know what to do.