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.
Well … another glorious weekend is upon us, so let’s get this party started, shall we?
We spend our way to the poorhouse. We buy giant TVs and iPads. Our children wear nice clothes thanks to high-interest credit cards and payday loans. We purchase homes we don’t need, refinance them for more spending money, and declare bankruptcy, often leaving them full of garbage in our wake. Thrift is inimical to our being.
— JD Vance
When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.
— Bill Gross
Credits and Debits
Debit: A new study found that US GDP per capita would plunge into negative territory if consumers couldn’t borrow, with annual income per capita cratering from $66,900 a year to negative $4857. In other words: if the credit markets ever dry up, total economic collapse is assured. Of course, this would all be moot if Americans still saved money to buy things — but in today’s credit-based world, saving has become a lost art.
Debit: Speaking of negative territory, it won’t be long before the spread of negative interest rates reach the US — at least according to former Fed Chair Alan Greenspan. “It’s only a matter of time,” he says. More like a matter of trust — something central bankers no longer have.
Debit: By the way, although the Fed hasn’t made an official announcement yet, according to market analyst Chris Hamilton, the latest data suggests the Fed has already started implementing the next round of QE — kicking off the inevitable march towards negative rates here in the US. Okay … I take it back — I guess we can trust Mr. Greenspan this time. But that’s it!
Credit: According to Alasdair Macleod, if the US goes to negative rates, the move “will almost certainly lead to a flight out of the dollar and into commodities.” It will also significantly reduce the dollar’s purchasing power. After all, accepting negative rates for US Treasuries would be like paying your irresponsible spendthrift neighbor to borrow cash from your retirement savings. Um, or something like that …
Credit: Frankly, all this talk about negative rates has Bloomberg’s Richard Breslow openly pondering “if the cure has become worse than the disease.” Um … does a ten pound bag of flour make a really big biscuit?
Credit: Money manager Bill Blain goes a step further, opining that “central banks are no longer a solution — they’re the risk. There’s nothing healthy about the mutual dependency between central banks and markets. More easing will further distort bubbilicous asset market prices. And if they don’t, then markets will throw a tantrum, forcing (more) intervention.” Yep. At least until this finally happens …
Debit: The bottom line is that negative interest rates continue to represent a threat to the financial system because they adversely impact banks, pension funds and, by extension, the economy. In short this is because banks are punished for extending credit, savers go into hiding, and pension funds are unable to generate enough income to meet their obligations. Other than that, they work just fine.
Credit: As Bill Holter remids us: “All of today’s currencies are credit-created — so they’ll fail when credit fails. This is mathematically provable. The most hilarious thing of all is the scramble into negative yielding bonds where investors earn no interest and receive less at maturity — in grossly devalued currency! With negative rates, bonds offer only risk, with no possibility of reward.” Sadly, the insanity won’t stop until the entire system is reset — or implodes.
Credit: Meanwhile, money manager Sven Henrich has a reality check of his own: “After 10 years of nonstop intervention and record debt expansion we’re right back where we started: Without more stimulus, rate cuts, and coming QE, everything falls apart. What’s that tell you about the true state of economies and financial markets?” That’s a rhetorical questions, folks.
Credit: One thing is certain: Even the mainstream media is waking up to the coming demise of the dollar’s nearly 100-year role as the world’s reserve currency — and the ensuing decline in American living standards. No, really. In fact, this week the Hill observed that “tentative measures that countries are taking to reduce their dependency on the dollar show they’re anticipating a post-America era is in the making.”
Credit: For his part, Ron Paul said this week that “Until we admit we’re bankrupt both financially and morally, there can be no answers.” He also said that the Fed understands the catastrophic path we’re on, saying they’re “more aware of what’s happening than they’re willing to admit.” Amazingly, Paul predicts that ultimately, “the Fed will get rid of itself because it’s not viable.” I doubt that. But we can always hope.
By the Numbers
There were fewer announced dividend cuts in August, compared to July, which is a positive for you dividend market investors out there. However, there were also fewer announced dividend increases. With that in mind, here’s a summay of the August 2019 dividend metadata for US stocks:
3540 US firms that declared dividends in August 2019.
3552 US firms that declared dividends the previous August.
34 US firms that announced they would pay an extra dividend to their shareholders in August 2019.
125 US firms that announced they would boost cash dividend payments to shareholders in August 2019; that’s three fewer than in August 2018.
20 Publicly traded companies that cut their dividends in August 2019; that’s five more than the number recorded the previous August.
4 US firms that omitted paying their dividends in August; that’s two more than the total recorded in August 2018.
Source: Seeking Alpha
The Question of the Week
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Last Week’s Poll Results
Do you keep an extra refrigerator or freezer in your home?
- Yes (60%)
- No (40%)
More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out that 3 in 5 do indeed have a spare refrigerator and/or freezer in their home. I asked the same question exactly three years earlier and the results were more even; back then 52% said they kept a second appliance.
Hey … If you have a question you’d like me to ask your fellow readers here, send it to me at Len@LenPenzo.com — and be sure to put “Question of the Week” in the subject line.
Useless News: Lucky Day
A frog telephoned the Psychic Hotline and was told, “You’re going to meet a beautiful young girl who will want to know everything about you.”
“This is great!” the frog said, barely able to control his emotions. “I can’t wait! When will I meet her? Will it be at a party, or what?”
“No,” the psychic said. “Next semester. In her biology class.”
(h/t: Susan)
More Useless News
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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 home monitoring systems aren’t all they’re cracked up to be, Thomas left this comment:
Burglars know that police respond relatively slowly.
You got that right, Thomas. Everybody knows that when seconds count, the cops are always minutes away.
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
Len,
You can hardly blame anyone for saving because your saving in a devaluing currency. Although I do have currency I’m funneling some of that currency into Real Money (Gold and Silver). Kind of like the part in the Bible where God refines everything by fire, when everything burns at the end of this monetary Ponzi scheme all that will be left is Biblical/Constitutional Money, Gold and Silver. The central banksters will pay their dues in the here after! 👍
Stacking Accordingly,
Jared
They’re definitely going pay, Jared. But not before the new bail-in law is applied that makes innocent depositors pay up first. The paper will burn shortly after that.
It’s clear from many sources such as this blog, plus our personal experiences in the marketplace, that the world’s financial system is a mess.
But one in five of us are debt-free (As usual, it’s stated as those in debt – you have to do a subtraction.):
https://www.fool.com/retirement/2018/02/15/its-official-most-americans-are-currently-in-debt.aspx
As Wolf Richter says: “They (the debt-free) will do just fine”.
Not sure I entirely agree with that, RD. There are debt-free people out there who are relying on large retirement nest eggs consisting of almost entirely stocks and bonds that are unprotected with wealth insurance (gold and silver).
Those people will not be in debt after the current financial system is reset, but the nest egg they were counting on to maintain a comfortable retirement will look like the Abaco Islands after Hurricane Dorian passed through it this week.
Hi Len,
Ron Paul is a great man! It’s too bad his presidential runs didn’t work out in 2008 and 2012. I was really pulling for him but seems like very few people were interested.
Have a great weekend!
Sara
Me too, Sara. I miss Ron Paul’s presence on the House Financial Services Committee. When it comes to macroeconomics, he really knows his stuff — he comes from the Austrian School — and was a formidable opponent whenever Ben Bernanke was testifying.
What a scam. Savers and retired people are getting so screwed with these low interest rates! How I wish for the days when banks paid 5% for the cash in your savings account.
Why anyone has a bank savings account is beyond me.
Let’s face some facts. Putting money in any bank is a defacto money scheme. You get some 1s and 0s entered into a computer that pay a puny interest rate and the bank gets to gamble your deposit for much higher returns before you leave the premises.
If it is any consolation, when the dollar’s fast-approaching day of reckoning — and by extension, America’s — finally gets here, I suspect the bankers will have it worst of all.
Dear bankers,
If you don’t pay me to save, I won’t put my money in your bank. Instead, when I have money to save, I’m going to buy gold or silver.
Sincerely,
Cowpoke
For long-term savings, that makes perfect sense to me, Cowpoke!
The past couple of days stock market action suggests to me that a hyperinflationary collapse is in the cards. What do you think, Len?
Believe it or not, I’m not sure, Sam. The powers that be can still bring the system down in a more controlled fashion if they choose to do so by an overnight devaluation of the dollar against the price of gold.
Only time will tell.
Appears to me Will Rogers has been reincarnated on this site, Len are you learning
to use a rope and get on the evening talk show circut?
Far as I know a sharpie will fix any graphic or enhance it. Think the Fed needs a good sharpie.
Thanks for the dog cartoon. Will show that to my middle school boys…this is why you dont gamble.
As J. Carson would say. Good stuff!
LOL! Thank you for the kind words, Duke.