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?
‘Prices are too high’ is far from synonymous with ‘The next move will be downward.’ Things can be overpriced and stay that way for a long time — or become far more so.
— Howard Marks
The four most dangerous words in investing are: this time it’s different.
— Sir John Templeton
Credits and Debits
Debit: First up … Lest anyone make the mistake of believing we somehow escaped our journey from deep within the proverbial rabbit hole, well … think again: Both the S&P 500 and Nasdaq finished the week at record highs — while the Fed cut interest rates yet again. Talk about cognitive dissonance; I was trying to figure out whether it’s coming from the central bank or Wall Street. Then I realized it’s actually both.
Debit: Despite a soaring stock market and unemployment at an all-time low, the Fed claims that their latest rate cut was “insurance” against “weakness in global growth and trade developments that have weighed on the economy and posed ongoing risks.” Even if true, the trouble is, with rates very close to zero, when the next recession hits the Fed will have even less room to help than they did before.
Debit: On a somewhat related note, the most famous stock market crash of them all, Black Monday, occurred 90 years ago this week. Thankfully, the kind of financial carnage experienced in 1929 across America can never happen again. At least as long as the Fed continues conjuring cash out of thin air with its so-called quantitative easing (QE) program and holding interest rates near the zero bound. Err … I think.
Credit: Then again, overpriced stocks have some investors saying that today’s market is ripe for a similar plunge. As just one example, Simon Black points out that since 2010, Coca Cola’s annual revenue has fallen 10%, earnings per share have dropped 40%, and equity is down 40%. Oh, and Coke’s profits have fallen 70% since 2018 — yet its stock price has nearly doubled. See? Thanks to the Fed, making money in the stock market is all but, um … guaranteed:
Debit: Of course, it’s not just Coca Cola. Black also notes that “the price-to-earnings (PE) ratio of the typical company today is about 50% higher than historic averages — which means that the stock market would have to drop by 33% for these ratios to return to historic norms.” Until then, most investors will just have to continue buying the dips. After all, the Fed has our backs. Nope … no moral hazard there.
Debit: Speaking of historic norms, in the 1960s, the manufacturing sector made up a quarter of the US economy. The sector was in a steady decline until 2017; but since then, there have been 500,000 new manufacturing jobs created. Despite the surge, manufacturing still makes up just 11% of GDP — its lowest share since 1947. Compare that with 13.4% for real estate, and 12.3% for government. Sad.
Credit: Financial analyst Rob Bennett correctly observes that, “The economic crisis of 2008 never ended.” He notes that employment improved and “businesses stopped going under” after the Fed started its QE program, but the economy improved only after company PE ratios returned to their absurd pre-crisis levels. In other words, Bennett says, “We pumped stock prices to make people less fearful of spending, but at the cost of ensuring a follow-up crash.” And a bigger one at that.
Credit: Bennett goes on to say that he believes a crash is inevitable because “at some point markets will insist that prices reflect real value.” As a result, “sooner or later fair-value prices will prevail and the economic pain that follows must be endured.” Now … if only we could all get a little more clarity on the “sooner or later” part. Then I’d feel more confident when I’m buying the dip.
Credit: Another member of the tin-foil hat brigade, Alasdair Macleod, warned this week that despite a decade of unprecedented monetary inflation via QE, “a new credit crisis is becoming increasingly certain.” In fact, he warns that because it’s no secret that the next crisis will require even more QE, “the establishment is confirming that a systemic collapse is becoming more certain by the day.” Well … if only tacitly.
Credit: Financial analyst Dave Kranzler agrees. He says, “The problems leading up to the 2008 crisis were never fixed; just papered over. Furthermore, Dodd-Frank and Consumer Financial Protection Bureau legislation, which was promoted to prevent a repeat of 2008 and protect taxpayers, was nothing more than window dressing that enabled banks to hide their massive fee-generating recklessness.” Uh huh. And if you don’t believe us, just ask this guy:
Credit: Money manager and economist, Dr. Marc Faber, believes stocks aren’t the only assets that are currently overvalued. He says recent events in the repo market indicate that liquidity has become tight for certain market players. As a result, he warns that, if the liquidity crunch becomes widespread, “it will be ‘goodbye asset inflation‘ and ‘(hello) widespread asset deflation.” If so, a repeat of 1929 — not to mention the Great Depression — may not be much of a stretch after all.
Last Week’s Poll Results
Did you, or are you planning to, move after retirement?
- I’m still thinking about it. (37%)
- Yes (33%)
- No (30%)
More than 1700 Len Penzo dot Com readers responded this week’s question and it turns out that when it comes to retirement living, fully 7 in 10 of them either moved when they retired, or are considering a new place to call home when they reach their golden years. As for yours truly, I’m not going anywhere; I plan to live in the house I bought 22 years ago as long as my body will allow me to.
Hey … This week’s question was submitted by our resident grandfather, RD Blakeslee. With that in mind, if you have a question you’d like 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.
The Question of the Week
By the Numbers
The Santa Ana winds have been whipping through southern California this week. With that in mind, I thought I’d share some statistics on the Camp Fire, which started last year on November 8th and destroyed the northern California town of Paradise in short order. It is the deadliest fire in California history.
80 The equivalent number of football fields that the fire spread every minute during the fire’s peak.
67 Patients evacuated from the local hospital, some carrying IV bags, as the flames approached.
4 Hours it took the fire to burn down the entire town of Paradise.
153,335 Total acres burned by the wildfire — that’s approximately the size of Chicago.
18,800 Structures destroyed by the fire.
5000 Firefighters (from multiple states) who were dispatched to battle the blaze.
$8,400,000,000 Losses from the fire reported to the California Department of Insurance.
Useless News: English Class
A linguistics professor was giving a lecture to his students one day. “In English,” he said, “a double negative forms a positive. In some languages though, such as Russian, a double negative is still a negative.”
“However,” the professor continued, “there isn’t any language in the world wherein a double positive can form a negative. Not a single one.”
Just then a voice from the back of the classroom piped up, “Yeah. Right.”
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
Somebody calling themselves Horrified dropped a note in the Len Penzo dot Com complaint box after reading my piece on 13 Yucky Halloween Treats Kids Hate:
You sound like a spoiled brat to me. I’m guessing that you’re labeled as ‘high maintenance’ by your significant other.
And I’m guessing that you’re the guy who handed out the Baby Ruth bars this year. Again.
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