Black Coffee: The Fed Is Moving from Denial to Bargaining

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 everybody had a great week! What do you say we get this party started? Off we go …

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

— Ludwig von Mises

It may be too late to save the dollar, but it’s not too late to preserve wealth. We live in an ersatz monetary system that has reached its end stage.

— James Rickards, from The Death of Money

Credits and Debits

Debit: In the People’s Socialist Paradise of Venezuela, continuing power blackouts have left household water taps dry because municipal pumps require electricity to operate. The good news is bottles of water and bags of ice are still available there for as little as $3. The bad news is the monthly minimum salary in Venezuela is the equivalent of $5.50.

Credit: By the way, do you know what socialists used for light before candles? Answer: electricity. Hey … it’s true. Forward!

Debit: As if being forced to endure a 19th Century living standard isn’t bad enough, today’s Venezuelans are also being forced to endure an inflation rate of 2,000,000% — forecast to reach 10,000,000% by December. With prices often doubling daily, Venezuelans who withdraw cash from a bank immediately spend it out of fear it may become worthless at any moment. It happens. Just ask any Zimbabwean:

Credit: Despite the economic troubles in Venezuela, stocks worldwide had their best quarterly performance since 2012. It’s true. And US stocks had their best quarterly performance since 2009. As for the S&P, it is enjoying its best start to a year since 1998. Hooray!

Debit: The problem is, continuing economic fears by a large segment of the investing public have resulted in plunging bond yields this quarter, leaving the outlook of stocks and bonds extremely decoupled from each other. Of course, only one of those markets can be correct — but which one? Here’s a hint: Ask any financial professional and he — or she — will tell you that it’s the bond market that’s the “smart money.”

Credit: Meanwhile, the wealthiest American households are hoarding cash at record levels. The top 1% have three times more readily available cash than the bottom half, with holdings jumping from $15 billion in 2008 to more than $303 billion today. When it comes to the disconnect between stocks and bonds, I guess we know which market the wealthy believe. Oh … and for what it’s worth, here’s another big disconnect:

Credit: Did you see this? A new study has found that getting rid of debt doesn’t just ease personal-finance burdens, it also takes a weight off the mind that clears up cognitive functioning, lessens anxiety and improves impulse control. Imagine that.

Debit: In other news, the US government spent $1.8 trillion in the first five months of fiscal 2019 — that’s the most it has spent in the first five months of any fiscal year since 2009, when the US enacted a $700-billion law to bailout the banking industry, as well as a $787-billion law to stimulate an economy then in recession. Thankfully, the economy is supposedly booming, so there should be plenty of tax revenue to cover it …

Debit: … or not. The trouble is, at the same time that federal spending was hitting this ten-year high, federal tax revenues in the first five months of the fiscal year were hitting a four-year low of $1.3 trillion. Then again, I’m sure the lack of new funds coming into the US Treasury is just an innocent accounting mistake. I know this because the stock market is telling us the economy is all rainbows and lollipops.

Debit: Needless to say, that falling tax revenue is bad news for the federal government because, the true size of the US debt is $222 trillion— unfortunately, this won’t stop until the system collapses. And collapse it will. At some point, enough people will realize that such an enormous pile of debt can never be paid back — especially when one considers the system is already drowning in a hopeless sea of red ink.

Debit: Believe it or not, even the Fed realizes the dollar’s days are getting short; its Chairman, Jerome Powell, recently admitted the Fed is preparing to inflate away debts — and, by extension, your dollar-based savings and other paper assets — but only after they get, as Powell puts it, “widespread societal acceptance.” Frankly, that shouldn’t come as a surprise to anyone; it’s how all fiat-currency monetary systems end.

By the Numbers

The first quarter of 2019 saw the stock market have its best quarterly gains in a decade. Here is this year’s first three-month scorecard for some selected assets:

16.5% Nasdaq

14.2% Russell 2000

13.1% S&P 500

11.2% Dow Jones Industrials

1.1% Gold

– 2.3% Silver

Source: MarketWatch

The Question of the Week

[poll id="262"]

Last Week’s Poll Results

When was the last time you bought a lottery ticket?

• More than a year ago. (30%)
• Never. (27%)
• Within the last year. (21%)
• Within the last week. (18%)
• Within the last month. (3%)

More than 1600 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than 2 in 5 say they’ve purchased a lottery ticket within last year. And although I can’t be certain, I think it’s a good bet that 100% of them didn’t win the jackpot.

If you have a question you’d like to ask the readers here at Len Penzo dot Com, please send it to me at Len@LenPenzo.com — and be sure to put “Question of the Week” in the subject line.

Insider Notes: The Fed Dilemma

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Useless News: Decisions, Decisions

An angel appeared at a faculty meeting and told the dean that in return for his unselfish and exemplary behavior, the Lord would reward him with his choice of infinite wealth, impeccable wisdom, or incredible beauty.

Without hesitating, the dean selected impeccable wisdom.

“Done!” said the angel, who then disappeared in a cloud of smoke and a bolt of lightning.

And with that, all heads turned toward the dean, who was now surrounded by a faint halo of beautiful light.

After a few seconds of uneasy silence, one the dean’s colleagues implored him to say something.

The dean gave a heavy sigh and said, “I should have taken the money.”

(h/t: Mikey)

Other Useless News

Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.

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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 only suckers buy whirlpool bathtubs, Mike Smith had a message for all of the Jacuzzi defenders who left comments explaining why I was wrong:

For all the folks here who are supporting the use of these tubs, that’s great and I’m glad for you. But my wife will not sit in a tub of water with chunks of dark crud floating around her.

Have you tried dimming the lights, adding some rose petals, and burning a few candles?

If you enjoyed what you read here, please forward this to your friends and family. I’m Len Penzo and I approved this message.

Photo Credit: brendan-c