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 see another week has come and gone — so without further ado, let’s get this show on the road.
(QE) eased financial conditions in the past and, so far, looks to be effective again … Lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
— Ben Bernanke, Washington Post op-ed, 2010
There are some ideas so absurd that only an intellectual could believe them.
— George Orwell
Credits and Debits
Debit: Did you see this? October was the first month of fiscal 2020, and the US deficit shortfall hit $134 billion — that’s 34% higher than the $100 billion deficit in October 2018. In fact, last month’s deficit was the biggest in five years — just shy of the $136.5 billion in October 2015 — and sets the US on the path to surpassing a $1 trillion deficit for the first time in eight years. Imagine that.
Credit: Meanwhile, the major stock market indices continued making new all-time highs throughout the entire week on their relentless climb to the sun — despite dismal earnings and deteriorating economic data. Why? Well … it’s because the Fed is expanding its balance sheet at the fastest pace since the peak of its last round of fradulent money-printing scam better known as quantitative easing (QE).
Debit: Needless to say, most other central banks have active money-printing campaigns too, so it’s no wonder stock markets are on a tear. Take the Swiss National Bank (SNB), for example; it has been buying stocks with no regard for price or cost. But it doesn’t really matter when you own a printing press and can conjure cash out of thin air — pecuniary subterfuge not much different than this:
Debit: Of course, the SNB’s motive was to boost market confidence by sending stock indices to new highs; and it’s obviously working. The SNB’s latest 13F showed total holdings of US stocks are up 1.5% since last quarter and at an all-time high of $94 billion. Compare that to five years ago, when the SNB owned “just” $26 billion worth of US equities. Wow. So … how many of you still think the markets reflect true price discovery?
Debit: Oh … and in case you’re wondering, last quarter the SNB boosted their portfolio by buying 1.3 million shares of Alibaba, 1 million shares of Fidelity National Information Systems, approximately 500,000 shares of both Juniper Networks and Global Payments, and more than 250,000 shares of Microsoft. What a racket; the banks get to print as much counterfeit money as they like — and then buy real assets with it.
Credit: On Friday, asset manager Sven Henrich neatly demonstrated why the US stock markets are once again clearly afflicted with yet another acute case of central-bank induced irrational exuberance:
Nov 2019:
US GDP: $21.5T
US market cap:$31.5T or 146.5%/GDPDec 2018:
US GDP: $20.9T
US market cap:$25.5T or 122%/GDPUS markets have added $6 trillion in market valuation in 2019 YTD on no earnings growth.
All it took was 3 rate cuts, some not QE and lots of trade optimism.
Sven Henrich (@NorthmanTrader) November 15, 2019
Debit: Here’s one last disturbing thought concerning these overpriced stocks: 97% of S&P 500 companies used non-GAAP metrics — up from 59% in 1996. That had Zero Hedge asking two questions: “Is every financial report nothing but fake financial news? And what will happen to the trillions in market capitalization built upon otherwise fake (accounting) foundations when the veil is finally lifted?” [Answers: 1) Pretty much … and 2) nothing good.]
Debit: Maybe that’s why Fidelity Investments has a new report warning baby boomer retirees that their portfolio risk has never been higher; as a result, they face being wiped out in a market meltdown. In fact, more than 33% of Fidelity’s boomer clients exceed their recommended equity allocation, including 10% who have every last penny of their life savings allocated into stocks. Sadly, we all know how that strategy will probably end:
Credit: In other news, the latest data from the Bureau of Economic Analysis shows the US personal saving rate for September was 8.3% — that’s the highest level in nearly six-years. Hooray!
The Greatest Economy in American History!
Donald J. Trump (@realDonaldTrump) October 30, 2019
Debit: By the way, check out the following chart. The personal saving rate typically increases sharply when the economy is in — or drifting toward — a recession, and declines when the economy is strong. Curiously, America’s saving rate has been steadily climbing since March 2017. Hmm. Say … you don’t think “the greatest economy in American history!” is actually … Nahhhh.
The personal saving rate typically increases in tough economic times, as evidenced by the recessionary periods indicated by the dark bars on this chart. (click to enlarge)
Debit: A recent Wall Street Journal article noted that some economists actually believe saving can be a bad thing. They base that on the so-called Keynesian “Paradox of Thrift,” which posits that economic growth is restricted whenever saving outstrips investment opportunities. It’s also why Brown economist Gauti Eggertsson claims, “Rather than being a virtue, saving becomes a vice.” Uh huh.
Credit: In reality, more saving doesn’t stifle economic growth because, as Ryan McMaken points out, over the long run, the “increasing stock of capital makes it easier for entrepreneurs to deliver new and more goods and services to consumers.” And despite what today’s ivory tower academic economists would have you believe, savings are the lifeblood of any healthy economy. It’s the “capital” in capitalism!
Credit: Unfortunately, we no longer have free market capitalism. The central banks began taking over in earnest after the dollar’s anchor to gold was broken in 1971. As McMaken reminds us, “The failure of central planning and wealth redistribution is inevitable because without (honest) markets and prices, there can be no planning — and without planning, no wealth creation.” Sadly, most people are going to have to find this out the hard way — including the wealthy.
Credit: Investment strategist Bill Blaine is clearly worried. This week he warned that stock prices are too high and bond yields are too low because there’s too much central bank funny money in the system. “Ultimately,” he says, “it gets messy. The poor people will set up a very sharp razor in the capital and teach the few people with too much money and too many assets that these are essentially worthless if their heads are cut off.” Don’t laugh; it’s happened before.
By the Numbers
Black Friday is still a few weeks away, but on November 11th Chinese e-commerce giant Alibaba completed its 11th edition of Singles’ Day, setting a new record in the process. In fact, Alibaba ended up selling in 24 hours more than half of what Amazon sells in an entire quarter. With that in mind, here are a few more numbers on Alibaba’s big day:
$38,400,000,000 Alibaba’s final 24-hour 2019 Singles’ Day sales total.
26 The percentage increase in total sales compared to last year’s Singles’ Day.
200,000 The number of brands that participated in the event.
1,000,000 The number of products offered.
78 The number of countries represented by the participating brands.
$12,000,000,000 Alibaba’s Singles’ Day sales total after the first hour.
68 Seconds it took for Alibaba to ring up the first $1 billion in Singles’ Day sales.
Source: Forbes
The Question of the Week
[poll id="294"]
Last Week’s Poll Result
How long has it been since your last traffic ticket?
- More than 5 years (64%)
- I’ve never had a ticket! (18%)
- 1 to 5 years (12%)
- Less than 1 year (7%)
More than 1700 Len Penzo dot Com readers answered last week’s poll question and it turns out that almost 1 in 5 of them have received at least one traffic ticket in the last five years — that’s essentially the same amount as those who have never been issued a citation. As for yours truly, it’s been nearly a decade since my last driving infraction — for an illegal left turn on a nearly-empty city street. Of course, I deserved it; I knew I was breaking the law when I made the turn. Unfortunately, I failed to notice the only other vehicle in the vicinity — a motorcycle cop on the opposing street!
If you have a question you’d like to see featured here, please send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.
Useless News: Police Stop
A blonde was speeding in a 35 mile per hour zone when a local police officer pulled her over and walked up to the car. The officer also happened to be a blonde and she asked for the blonde driver’s license.
The driver searched frantically in her purse for a while and finally said to the blonde policewoman, “What does a driver’s license look like?”
Irritated, the blonde cop said, “You dummy! It’s got your picture on it!”
So the blonde driver frantically searched her purse again until she found a small, rectangular mirror at the very bottom. She held the mirror up to her face and, thinking she had found her driver’s license, handed it to the blonde policewoman.
The blonde cop looked in the mirror, handed it back to the driver and said, “You’re free to go. And, just for the record, if I had known you were a police officer too, we could have avoided all of this.”
(h/t: Salamander)
Other Useless News
Here are the top — and bottom — five Canadian provinces and territories in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. Alberta (1.84 pages/visit)
2. Yukon Territory (1.81)
3. British Columbia (1.73)
4. Manitoba (1.69)
5. Newfoundland & Labrador (1.60)
9. New Brunswick (1.47)
10. Nova Scotia (1.25)
11. Prince Edward Island (1.20)
12. Saskatchewan (1.10)
13. Nunavut (0.00) !
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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 me at: Len@LenPenzo.com
For some reason, I received this rather strange request from Kate in my inbox:
Hi, Len! I’m doing a homework assignment on snakes. Do you know the most important snake?
I’m tempted to give you an answer, Kate — but I’m tired of making an asp of myself.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: (coffee) brendan-c
Hi Len,
Lots of good info this week to chew on! I refuse to put any of my savings into paper assets because of all the phony money in the system. The prices just seem so unbelievable right now. The stock market isn’t supposed to always go up – but that’s all it does any more.
Sara
Keep stacking your silver, Sara! Remember, at some point the stock market’s gains will no longer be able to keep pace with the declining purchasing power of the currency. We may be at that point now for all I know.
Zimbabwe and Venezuela’s stock markets had tremendous “gains” too when their currencies were being printed into oblivion. True, the US dollar is a different beast, but that wil change when the world stops accepting US Treasuries to the degree required to fund our deficits — and the current global ennui toward the greenback suggests that day is closer than many people realize.
If you give a man a gun he’ll rob a bank. But give a man a bank and he’ll rob the world.
Brilliant!
The popuation of Switzerland is 8.5 million. So if my math is right, the Swiss national bank has bought more than $11,000 worth of US stocks for every man, woman and child in their country. Can you say fraud?
Yeah … the markets have been so distorted by central bank money printing that when this thing finally implodes and reality finally gains the upper hand and reveals the true value of assets — both lower and higher — it’s going to leave everyone breathless.
It’s no secret that the Swiss National Bank and the Bank of Japan are major stock market supports. Now, picture in your mind what the real picture truly is after including the stock holdings of all the OTHER national banks. There is a reason why most national banks refuse to publish them, let alone admit they even buy stocks.
They really have no choice at this point, DK. But the numbers are now getting so large, so fast, that it’s getting harder and harder with each passing day to sell all of the financial subterfuge. I really find it hard to believe they can keep the charade going for more than a couple more years at best. Then again, I never thought the central banks could keep the game going this long!
I hope the Swiss bank loses all its money!
Never happen; they have wealth insurance in their vault — in the form of gold, of course — that will offset their eventual paper losses.
With that in mind, if the central banks have wealth insurance backing their paper assets, you need to ask yourself whether it’s prudent for you to have some too.
Two of the world’s arguably most important central banks, those of China and Russia, are going beyond gold reserves as backup. They are actively moving away from the dollar and Putin has recently bluntly predicted its failure in five words;
https://www.zerohedge.com/geopolitical/vladimir-putin-sums-new-world-order-5-words
Yes … saw this, Dave. Can you imagine any world leader openly predicting a dollar collapse 15 or 20 years ago? It’s just more evidence of the obvious and inevitable.
I’ll be covering this next week.
I think the ‘paradox of thrift’ is wrong. I save more when times are good, not bad. It’s hard to save money if you aren’t making any!
I don’t know for certain, Nancy, but I’d bet most people who don’t automatically set aside a little cash every week into a savings account(s) actually save less when times are good. I say that only because saving requires some semblance of discipline and when times are flush, it seems to me that the undisciplined would spend most of their excess. That’s my hypothesis anyway!
In addition to Russia and China moving their reserves out of the dollar into gold, Europe is openly using currencies other than the dollar in its trade with Iran, to avoid U.S. sanctions on Iran.
The world is becoming emboldened to throw off its yoke!
Slowly but surely.
Hi, Len. A friend of mine turned me on to your blog a couple weeks ago and I just want to say I love your weekly Sunday posts. You do a great job of informing and making a dry subject interesting. Keep it up.
Thank you, Peter!
I can’t believe the US Savings rate is only 8%! At some point we were at 70% but then I realized that was just silly so we are usually 30-50%.
Wow! 70% is a prodigious set aside, Dr. P!