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 show on the road? Here we go …
The difference between playing the stock market and the horses is that one of the horses has to win.
— Joey Adams
Debt is the monster. Debt is what’s going to eat us up, and that’s why our economy is on the brink.
–Ron Paul
Things are going to get worse, before they get a lot worse.
— Lily Tomlin
Credits and Debits
Debit: I have to say that, as a member of the Gen X vanguard, I was both shocked and disappointed to see that my generation carries more debt than any other. With all of the talk about student loan debt, I figured the millennials were a lock for that award.
Debit: In other news, California governor Gavin Newsom launched an investigation into why his state has the nation’s highest gas prices. Apparently, the gov forgot that he endorsed a hefty gasoline tax that went into effect last year to “fight” climate change. Newsom apparently also forgot that he opposed last year’s ballot initiative that would have repealed that punitive tax. No, really. And if you think that’s crazy, check out these loons:
Credit: Meanwhile, US economic growth in the first quarter smashed expectations, fueled in part by strong inventory building — $32 billion worth of goods in all. This stockpiling of goods boosted US GDP to a respectable 3.2% annual rate, which was well above most analysts’ predictions. Hooray! … I think.
Debit: The problem with the latest GDP figure is that it’s not obvious where these inventories came from. They had to come from somewhere; either produced by domestic firms or physically imported — but both production and imports fell last quarter. And consumption didn’t fall faster than production or imports to generate inventories either — so the government data is dubious, at best. Heh. Color me shocked.
Debit: As Zero Hedge points out, “The inventory mystery has key outlook implications. If inventory (growth) is real, it might slow production. On the other hand, if it’s somehow revised away, the second quarter (GDP) might not be as weak as some expect.” But with the latest corporate reports showing growing stockpiles of everything from appliances and heavy equipment to oil and even soft drinks, I’d bet on the former.
Debit: Speaking of bubbles (see what I did there?) …. It’s no secret that the Fed panicked in December, caving to Wall St. and allowing the stock market to balloon again to new heights. As a result, their credibility is not only shot, but they’re also caught in a policy trap and quickly losing control. Imagine that.
Credit: As Sven Henrich graphically illustrates, the stock markets are back to their all-time highs less than four months after the Fed infamously reversed course and signaled there would be no more rate hikes until 2020 — tacitly ceding control of monetary policy to Wall Street in the process. In fact, stocks have been on a relentless skyward trajectory ever since. Yeah … I’m sure this is sustainable over the long haul:
2019 pic.twitter.com/KxTZl2BDd4
Sven Henrich (@NorthmanTrader) April 29, 2019
Credit: On a related note, earlier this year, Venezuela’s Caracas stock market index was up 200,000%. No, that’s not a typo. Here’s the catch: that’s the return when measured in nearly-worthless bolivars — not dollars. When a currency hyperinflates, real stock market returns fall, despite skyrocketing nominal values. Last year, the Caracas Stock Index was the world’s worst market performer in dollar terms, falling 94%. Ouch.
Debit: Don’t think the US dollar is immune from hyperinflation; it’s not. Especially when you consider that America is fast approaching its “Minsky Moment” when every last cent of public borrowing will be required just to fund National Debt interest. When, you ask? Well … the US Treasury estimates the big day arrives in 2024. The Fed will then put its printing press into overdrive to cover the tax revenue shortfall.
Credit: This week Hugo Salinas-Price warned that the US dollar’s heyday is over. He also noted that the, “The world is moving toward currencies redeemable for stated fixed amounts of gold, which will be, in the future, the determining characteristic of money.” If it happens, that would be wonderful — but, sadly, I don’t think any government will ever go there, as it would limit their ability to spend cash they don’t have.
Credit: Until then, our dying debt-based monetary system will continue limping along. But as Alasdair Macleod observes, “It will soon become obvious that the world is caught in a debt trap of its own making. The folly of post-Keynesian economic and monetary policies designed to justify governments’ economic existence, will be fully exposed. And the days of the dollar and dollar-denominated debt will be numbered.”
By the Numbers
Just how much euphoria did the Fed pump into the markets after reversing course on normalizing interest rates? Well … as of last week, here was the year-to-date market performance for several select stocks (via David Rosenberg):
+23% Alphabet (Google)
+28% Microsoft
+30% Apple
+30% Amazon
+46% Facebook
Source: Real Investment Advice
The Question of the Week
[poll id="266"]
Last Week’s Poll Results
What is an appropriate cash gift for a graduating high school senior?
- $51 to $100 (38%)
- $26 to $50 (36%)
- More than $100 (14%)
- $25 or less (12%)
More than 1700 Len Penzo dot Com readers responded to last week’s question and it turns out that their almost evenly split between those who think that an appropriate gift for your typical high school grad should be more than $50 and those who think it should be less than $50.
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’s Math Problem
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Useless News: A Trip to the Dentist
A man went to his dentist’s office, because something was wrong with his mouth.
After a brief examination, the dentist exclaimed, “Holy smoke! That plate I installed in your mouth six months ago has nearly completely corroded! What on earth have you been eating?”
The man said, “Well … the only thing I can think of is this: About four months ago, my wife made me some asparagus with this stuff on it; she said it was Hollandaise sauce. Doc, let me tell you — it was delicious!! I’ve never tasted anything like it, and ever since then I’ve been putting that sauce on everything; meat, fish, toast, vegetables — you name it!”
“Okay. That’s probably it,” replied the dentist. “Hollandaise sauce is made with lemon juice, which is acidic and highly corrosive. Unfortunately, I’m going to have to install a new plate — but this time I’m going to use one made out of chrome.”
“Why chrome?” the man asked.
“Well,” the dentist said, “Everybody knows that there’s no plate like chrome for the Hollandaise.”
(h/t: Cowpoke)
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 highlighting the 42 reasons why I’d never give you a loan, Blondie left this comment:
I had a good friend who was going through a divorce who was on the verge of losing her house. I lent her $1000 on the spot and she paid me back with interest. That is very rare.
Obviously, your friend wasn’t a banker, Blondie — they only know how to collect interest.
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
Inventory build up is part of the reason for GDP growth, but the service industry accounts for a lot of it, too:
https://wolfstreet.com/2019/03/21/finance-insurance-hits-it-out-of-the-ballpark-no-slowdown-in-the-huge-services-sector/
“… the US Treasury estimates the (Minsky moment)day arrives in 2024.”
Maybe earlier, if interest rates rise faster than expected. The Fed may be losing control of interest rates:
https://www.zerohedge.com/news/2015-01-11/fed-losing-if-not-already-lost-control
My big complaint with the GDP formula is they include government spending to be as important as spending in the private sector, but there government contribution needs to be discounted. Why? Because government spending diverts resources from the productive private sector of the economy to itself, which uses them less efficiently.
Hi Len,
You are right. No government will ever allow gold or silver to become part of the system again. But we can dream right???
Thanks for another great cuppa!
Sara
Yes, we can, Sara!
It hardly matters anymore how much money the Fed and its other central bank partners in crime pump into the global economy. The problem is they’ve pulled forward so much future demand through debt and balance sheet expansion that consumers can no longer take on more debt. This just creates an even larger divide between the haves and have nots, as only other banks, corporations and the already wealthy will have access to the increased liquidity.
At some point in the near future, the Fed is going to restart QE Round #4. It will be interesting to see how the markets react this time. It will also be interesting to see if the law of diminishing returns finally kicks in.
I’m just happy the Fed has delayed the final meltdown with QE and given me time to stack some gold before the sh*t hits the fan!
Since you put it that way, Cowpoke, I guess the Fed ain’t all bad then. I think they’re running out of parlor tricks though. More and more people are wising up to their financial sleight-of-hand, which is why I don’t expect them to be able to hold things together for more than another year or two.
It’s getting harder and harder for the average joe to survive out there. Anyone working who is earning less than about $80,000 a year would be better off finding a part time job for minimum wage and signing up for every state and federal benefit you can.
You may be right, Steve. And nothing is going to change until the current debt-based monetary system is replaced with one based on real money (precious metals) or reset by revaluing the dollar price of gold sharply higher.
If anyone had any brains in our government, they’d be printing money as fast as they could and buying gold with it. Our dollars are toilet paper and more people are seeing that every day.
Good idea. Best of all, I hear there is plenty of room available to store any yellow metal we may buy in Fort Knox.
True that. The US has refused every audit request since the mid 50s. Only the most naive person would assume that a mere claim of gold reserves means they exist. Until an audit is performed, we must presume that America only has what it can legally account for, which is no gold at all.
“Obviously, your friend wasn’t a banker, Blondie — they only know how to collect interest.”
Unless of course you’e a banker in the EU…where when you buy their debt YOU have to pay to hold it. Negative Rates anyone? LOL
Speaking of Debt….in an economy driven mainly by consumer, is it any wonder that people are actually thinking it’s ok to do a “Debt Jubilee” and wipe out those loans….just so they can BUY more stuff they don’t have the money for anyway? All in the name of Consumerism.
https://www.marketwatch.com/story/voters-have-responded-to-elizabeth-warrens-plan-to-cancel-student-debt-2019-05-03?mod=hp_minor_pos21
I did find and see this OpEd and I have to say, I think she did a fabulous job of really pointing out the challenges and the ills, along with a pretty fab job on where we should go from here.
A seriously good read, I suggest everyone take the time to peruse it.
https://www.wsj.com/articles/republicans-in-a-nation-needing-repair-11556836424?shareToken=sta8947b58d7bc49ec8a59f7e9688c1248
Have an awesome day all. Cheers.
PS…Gold has been beaten down lately, some think it will head to 1260…that being said, pick some up while it’s on sale now.
Thanks, TQ! The low gold and silver prices are definitely a gift that should be taken advantage of, if possible.