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. I know I did. Of course, I love weekends even better, so let’s dig right in and then I’ll get mine started.
‘The time has come,’ the Walrus said,
‘To talk of many things:
Of shoes, and ships, and sealing-wax.
Of cabbages, and kings,
And why the sea is boiling hot,
And whether pigs have wings.’
— from Alice’s Adventures in Wonderland by Lewis Carroll
The more the plans fail, the more the planners plan.
— Ronald Reagan
Credits and Debits
Credit: Did you see this? The average age of cars and trucks in the US is now at an all-time high: 11.8 years. The oldest vehicles are in the Western states (12.4 years), while in the Northeast the average age is 10.9 years. Montana has the cars with the oldest average age (16.6 years), while Vermont has the youngest (9.9 years). The bad news is the age of the average car loan is also at an all-time high: 5.8 years.
Debit: In other news, last weekend President Trump declared that the ability to demote Fed Chair Jay Powell was his prerogative. He then followed that up with a couple of tweets explaining his thoughts as to how the Fed — but more specifically Powell — has hurt the US economy:
….Think of what it could have been if the Fed had gotten it right. Thousands of points higher on the Dow, and GDP in the 4s or even 5s. Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!
Donald J. Trump (@realDonaldTrump) June 24, 2019
Debit: Despite the President’s protests, the Fed all but promised to begin cutting rates as early as next month— which, by the way, is just more conclusive evidence that our fraudulent debt-based international monetary system is in an irreversible death spiral.
Credit: And it’s not just the Fed that is hinting lower interest rates are right around the corner — the ECB, BoJ and others are too, which led Richard Breslow to opine that, “It’s hard to tell whose bluff was called last week, but the end result is that almost every systemically important central bank did more than blink. They caved.” Yes, but that’s what happens whenever you find yourself in a situation eerily similar to this:
Credit: Of course, the Fed — and the rest of the world’s central banks — are hopelessly cornered. After nearly fifty years, there are very few palatable options left to keep the “Almighty Dollar” illusion alive — if any — and the markets know it. As a result, it’s getting easier and easier to show that the emperor has no clothes:
The incredible of Jay Powell, Fed Chair:
October: Balance sheet on autopilot, rate hikes in 2019.
December: Holy shit balls
January: Flexible on balance sheet & patient
March: End balance sheet rolloff & no rate hikes till 2020
June: We are ready to act (cut rates).Sven Henrich (@NorthmanTrader) June 4, 2019
Credit: As financial analyst Dave Kranzler notes: “In 1989 the Fed Funds Rate was nearly 10%; in 2000 it was 6.5%; in 2007 it was 5.25%; (today) it’s 2.5%. See the problem? The Fed has very little room to take rates lower relative to previous financial crises. When this bubble pops it will be devastating. Once ZIRP and more QE commences, the dollar will be flushed down the toilet.” Uh huh. The only question is: Will it take one flush, or two?
Debit: Speaking of dubious dollars, I see that Zimbabwe has banned the use of foreign currencies and is reintroducing its “world famous” dollar. Yes, the same one it abandoned in 2009 after years of reckless deficits, economic upheaval and devastating hyperinflation. But don’t worry: The finance minister says the move will once again allow Zimbabwe’s central bank to influence monetary policy. So there’s that.
Debit: You know the wheels are clearly coming off the financial system wagon after the ECB asked Italy this week to remove a reference to the Bank of Italy holding 2451 metric tons of gold reserves as an “exclusive title of deposit” Why? Because if Italy declares it isn’t the title owner, then Italy’s gold belongs to the ECB. Imagine that.
Credit: For his part, Jeff Deist is certain how the Keynesian era of central banking and debt-based fiat money backed by nothing but promises will ultimately play itself out: “Debt and entitlements are unsustainable. The Fed’s swollen balance sheet in unsustainable. Moving toward socialism is unsustainable. (Austrian School economists) will be vindicated, but will they be heard?” I think we all know the answer, Jeff:
Credit: As Sven Henrich notes, unfortunately, socialism is already here: “Our market system is broken. Central banks, created to save economies from disasters, have become the prime movers in preventing so much as a cold, propagating free-money socialism for the top 1%. They manage markets full time, and have become the primary point of price discovery. Central banks aren’t saving capitalism. They’re ruining it.” Actually, it was ruined years ago. But point taken.
By the Numbers
Are the following years of the last all-time high for various assets telling us something? You be the judge:
1989 The Nikkei
2008 Oil
2011 Gold
2011 Silver
2012 Corn
2017 bitcoin
2018 DAX (German Stock Index)
2018 Russell 2000
2019 NASDAQ 100
Source: Bull Markets (via Zero Hedge)
The Question of the Week
[poll id="274"]
Last Week’s Poll Results
Do you think you could be doing something better with your life right now?
- Yes (52%)
- No (35%)
- I’m not sure. (14%)
More than 1600 people responded to this week’s poll and it turns out that slightly more than half believe they could be doing something better with their life. Another 14% are on the fence. The result, while disappointing, are an improvement from the last time I asked this question in 2015. Four years ago, 68% thought their current situation was less than optimal, while another 10% said they weren’t sure.
Useless News: Hair of the Dog
A woman noticed that her dog seemed to be losing its ability to hear, so she took it to the veterinarian. The vet discovered that the problem was due to excessive hair in the dog’s ears, so he cleaned both of the dog’s ears and dog’s hearing returned immediately. The vet then told the lady that if she wanted to keep this from happening again, she should go to the store and get some ‘Nair’ hair remover and rub it in the dog’s ears once a month.
So the woman went to the drug store and got some ‘Nair’ hair remover. At the checkout stand, the druggist said, “If you’re going to use this under your arms, don’t use deodorant for a few days.”
“I’m not using it under my arms,” the woman said.
“Well, if you’re using it on your legs” said the druggist, “then make sure you don’t shave them for a couple of days.”
The lady said, “I’m not using it on my legs either. If you must know, I’m using it on my schnauzer.”
“Ohhhh, I see,” said the druggist. “In that case you’ll definitely want to stay off your bicycle for a few days.”
(h/t: Steve)
Other Useless News
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(The Best of) 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
Justine Mee didn’t like my recent article explaining how people can avoid paying a mandatory gratuity for lousy service. Here’s just a small sample of a lengthy diatribe she sent to the Len Penzo dot Com complaint box:
You should actually call that (article) ‘How to be a cheap F***!’ There’s always one a$$hole with every party! I’m a waitress, not your royal wench!”
I agree, Justine. You’re a waitress … and an overpaid one at that.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
“… almost every systemically important central bank did more than blink. They caved.
Part of the theory upon which the Federal Reserve was established: Independence from exactly the kind of pressure now being applied by Trump.
Paul Volcker may have been the last Fed Chairman to act independently. When the economy needed it, he raised rates ruthlessly until price hikers squealed and gave up. Runaway inflation was averted.
R.D., the difference is the U.S. has way more debt today than it did back in Volcker’s day. Raising rates to 10 percent would make the debt service over $2 trillion.
Steve, I don’t believe the debt will ever be liquidated nor serviced for very long. It will be abrogated, one way or another.
So I don’t advocate Volker’s approach to today’s problem, just his independence and courage as a leader.
Perhaps best applied as Len and others have suggested: A restructuring of money per se by something akin to the Bretton Woods agreements post WWII.
If real courage were present: based once again on historically recognized precious metals which would self limit the money supply.
R.D., we are in agreement then!
Hi Len,
Thanks for another tasty cup of Black Coffee. Too bad they don’t make movies like Butch Cassidy & the Sundance Kid anymore.
Sara
Yes, that was a good one, Sara!
Powell is trapped, and he knows it, but he’s not trapped by the market, as you say Len, he’s trapped by the federal debt and the deficit.
Pension funds have been taking on water for the last 10 years. If they lower rates from this low level they will finish destroying the pension industry.
I’d say he’s trapped by both, Christopher. If the Fed lowers rate, it speeds up the end of the dollar’s reserve currency status. If the Fed raises rates, the stock market will experience a massive sell-off. It’s a lose-lose proposition, but saving the currency is more important than a deep bear market in stocks — then again, the currency is in a death spiral anyway as the debt levels are now on the sharply rising portion of the exponential curve.
There is really no way out other than sharply devaluing the dollar against gold.
Re comment #4 supra:
Steve, nothing along the lines of a valid correction in money is in the immediate offing. Just saw this morning:
“Yes, good chance Trump might try to fire (Powell) or demote him.
“Kashkari, ridiculously failed and utterly incompetent gubernatorial candidate in California before he parleyed that run into a job at the Fed, is brown-nosing up to Trump with talk of 50 basis-point cuts. He is trying to get Powells job. So now we have elements of a palace intrigue” – Wolf Richter
Trump should follow in the footsteps of Andrew Jackson — a president he says he admires a great deal — and focus on finding a way to get rid of our central bank.
The Fed will continue to be Wall Street’s lap dog. They always have been, but it’s just more obvious now. Everything is going according to the plan, which is to clean out Mom and Pop on Main Street. The Fed will continue to crush savers, pensioners, investors. The Federal Reserve (which isn’t federal) and .gov love the banksters.
It sure looks that way, Cowpoke.
Good commentary. I think this will all come to head by the end of the year.
We live in interesting times.
Yes, we do, William. I’m not sure when the whole thing is going to implode, but we’re clearly getting close.
If lowering interest rates is the panacea for economic growth then why is Japan experiencing the opposite for decades with zero percent rates ??
I think that was a rhetorical question … but just in case it wasn’t, the answer is: because lower rates are not a panacea for healthy economic growth — it is simply a parlor trick that only works for so long.
Hello Len,
I’ve been following your newsletter/blog for as long as you have published it. Given the wisdom you dole out and the marvelous timing you have, I must say your is the one spot that is a real breath of oxygen in an ecosystem deprived of such sage advice. Sure, there are other blogs which have strong and important reads but yours is the one that truly holds the candle to all the half-truths in which we are being smothered.
I do have one question: I am eight years away from retirement and am thinking of fully investing (25,000) in my 401k annually. Should I do that or buy physical gold and silver? This is a one or other proposition. Is there a halfway point where I can still put money in a 401k (and get my employer match) and still buy metals? Any advice would be gratefully accepted.
Ronald, thanks for your comment. Keep in mind that I am not a certified investment or financial planner. That being said, I will share some thoughts/opinions with you via email by the end of the day.