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.
Merry Christmas, everyone!
I hope everyone is enjoying their weekend! In the meantime, why don’t we get this show on the road? Then I can start mine …
Many delight more in giving of presents than in paying their debts.
— Sir Philip Sidney
Forgetfulness is a gift of God, bestowed upon debtors in compensation for their destitution of conscience.
— Ambrose Bierce
Credits and Debits
Debit: Years of central banks’ goosing the stock market have failed to rekindle Main St investors’ love affair with equities. But even more ominous are retirees’ growing disinterest in snapping up US Treasuries as part of their retirement strategy. You can thank a combination of laughably-low interest rates and — even more importantly — ma and pa investors’ lack of spare cash to buy any Treasuries at all.
Debit: Interest in Treasuries by foreign governments is waning too. The lack of buyers is now woefully apparent, as the Fed’s primary dealers and banking partners are actually having trouble financing the federal debt on their own. But fortunately for US politicians, Christmas came early because the Fed agreed to effectively monetize the government’s budget deficits. At least for now.
Debit: So how much of the debt is the Fed is currently monetizing? Well … try 90%. Even so, I strongly expect interest rates to remain subdued as long as the monetization rate is less than 100%. If the monetization rate does exceed 100% for any significant length of time, the control loop that has helped the Fed keep a lid on rates should start losing its effectiveness. Then the real “fun” will begin.
Debit: The good news is Fed is “only” expected to buy an estimated $420 billion in Treasuries in 2020, or 40% of net issuance — but that assumes foreign demand for US debt picks up in 2020. The bad news is that if it doesn’t pick up, then America’s long-coming day of reckoning will be that much closer to reality. Hey … don’t scoff. If something like this can happen, then almost anything is possible:
Credit: It’s no coincidence that, as asset manager Sven Henrich notes, “Rarely has failure been celebrated so much, (with) all asset classes rising in 2019 — despite slowing growth and flat to declining earnings. In religious debates it’s often asked: Why is there something instead of nothing? In financial markets, it’s: Why are markets higher on nothing? The answer is central bank liquidity.” Yes, and, unfortunately, lots of it.
Credit: Mr. Henrich is one of the few mainstream financial experts apparently smart enough to recognize — not to mention the professional integrity to admit — the very scary truth: “Central banks can’t extract themselves from the monstrosity they’ve created and made markets dependent upon.” Don’t think the Wall Street crowd doesn’t know this — which is why they expect the free-money train fueling their portfolios to continue.
Credit: For his part, the always astute MN Gordon succinctly summed up the latest Fed plan to print $500 billion in the 30 days between mid-December and mid-January this way: “If the Fed’s $500 billion madness is needed just to get to January 14, what madness will be needed come January 15? Our guess: Take the current number and double it. Then double it again.” If true, that’s quite a stocking stuffer.
Debit: Of course, this latest $500 billion printing spree is the Fed’s way of keeping short-term interest rates from hitting double digits again — as they did in September — which begs the question: How is it even possible that overnight rates can ever trade as high as 10% when many 30-year bonds around the world are trading at negative rates? It’s magic! Oh … and here’s something else that will leave you shaking your head:
Credit: By the way, Bill Holter has a few questions of his own: “If everything is so wonderful, why does the Fed need to provide even $1? (It’s) because the leverage in the system is now too large, and there are few unencumbered assets left. Also, what if $500 billion isn’t enough? How much more next time? And if $500 billion can be conjured in a moment’s notice, then what’s a dollar really worth?” (Psst. Here’s a hint: It rhymes with ‘hero.’)
Debit: So after 10 years of holding interest rates close to the zero bound, there really is no turning back without sending the world economy into a deflationary abyss because every debt-backed asset today is priced at the artificially-low rate of 0% — or at least very close to 0% — which is why the money printing must continue at an ever-increasing rate. As a result, it’s only a matter of time before central banks destroy their fiat currencies.
Debit: So …. just how broken is the global debt-based monetary system? The fact that the “work of art” shown in the following photo was sold last week for $120,000 strongly suggests that it’s broken beyond repair. No, really:
Debit: Clearly, the financial system has far too much worthless currency circulating within it. After all, what does it say about the true value of the “Almighty Dollar” when an overripe banana duct-taped to a wall can fetch 120,000 of them? Yes, it’s comically absurd. And, yes, the funny-money facade will continue until the public finally wakes up and recognizes the joke is on them. I suspect that day is closer than most people think.
Credit: Hey … let’s end this week’s edition of Black Coffee on a positive note. I hope everyone has a Merry Christmas this year — regardless of whether it’s white or green!
By the Numbers
Does anyone anywhere really send their “true love” all the items from the “12 Days of Christmas” song? This year, those who do will spend $38,994. And if you really get into the spirit and do it exactly how they do it in the tune, repeating the gifts during the entire 12 days — that’s 364 in all — then your cost explodes to $170,298. Here are the official gift prices for 2019, rounded to the nearest buck:
$210 A partridge in a pear tree
$300 Two turtle doves
$182 Three French hens
$600 Four calling birds
$825 Five golden rings
$420 Six geese-a-laying
$13,125 Seven swans-a-swimming
$58 Eight maids-a-milking
$7553 Nine ladies dancing
$10,000 Ten lords-a-leaping
$2749 Eleven pipers piping
$2972 Twelve drummers drumming
Source: WROK NewsTalk 1440
The Question of the Week
Last Week’s Poll Result
How long have you been working at your current job?
- 1 to 10 years (34%)
- I’m retired! (25%)
- 11 to 20 years (19%)
- More than 20 years (15%)
- Less than 1 year (8%)
More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 12 of them have been employed at their current job for less than a year. On the other hand, just a tad over 1 in 7 have been working for their same employer for more than 20 years. As for yours truly, although I have been employed as an engineer for 33 years, I’ve been working almost 23 years for the company that currently signs my paychecks. Looking back, I’m still trying to figure out how the time flew by so darn fast!
If you have a question you’d like me to ask the 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: Insurance Claim
One evening a man’s barn burned down. Since it was too late to call his insurance agent, and he had to catch a plane early in the morning, he asked his wife to call the insurance company the following day.
So the next day the wife spoke to the insurance agent and said, “The barn burned down last night. We had that thing insured for fifty thousand, and I want my money.”
The agent replied, “Whoa there! Hold on! Insurance doesn’t work quite like that. First, an independent adjuster will assess the value of what was insured, and then we’ll provide you with a new barn of similar worth.”
There was a long pause. Then the wife replied, “If that’s how it works, then I want to cancel the life insurance policy on my husband.”
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More 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 (1.58 pages/visit)
2. Saskatchewan (1.55)
3. Ontario (1.49)
4. Manitoba (1.45)
5. Quebec (1.41)
9. New Brunswick (1.22)
10. Yukon Territory (1.20)
11. Prince Edward Island (1.13)
12. Northwest Territories (1.10)
13. Nunavut (1.00)
Whether you happen to enjoy what you’re reading (like those crazy canucks in Alberta, eh … for the second month in a row!) — or not (ahem, all you hosers living on the frozen Nunavut tundra … for the second month in a row too!) — please don’t forget to:
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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
After reading my critically important article explaining why Miracle Whip should never ever be placed on a tuna sandwich, Spencer F disputed my claim that fish is meat:
According to the Ron Swanson Pyramid of Greatness, fish is for sport only — fish meat is practically a vegetable.
I’d like to argue with you and Ron Swanson, but I’ve got a splitting haddock. (Yes, I said that on porpoise.)
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credits: brendan-c; (banana) CNN