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
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.”
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