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 hope everyone is enjoying their weekend. I know I am … so let’s get this show on the road.
I am the Empire at the end of decadent days, watching the pale tall Barbarians advance …
— Paul Verlaine
The key is not to predict the future, but to prepare for it.
— Pericles
Credits and Debits
Credit: Did you see this? Diamond sales in 2019 declined by $1.4 billion, fueling concerns of oversupplied markets and plunging consumer demand. Even so, De Beers 2019 diamond sales totaled about $4 billion this year — an amazing figure when one considers that people are finally waking up to the fact that diamonds are neither rare or valuable.
Credit: In a world where inflation-adjusted wages have remained virtually stagnant since the dollar’s link to gold was broken in 1971, do you think the diamond industry’s “two month’s salary” campaign is finally starting to backfire? Or maybe those falling sales are due to a smarter public who has finally discovered that perfect diamonds can be manufactured for a fraction of the current natural-diamond market price?
Credit: On Monday, the S&P 500 recorded its eighth record intra-day high in a row — that was its longest winning streak since March 1998, when the S&P managed 14 days of record intra-day highs in a row. And if that wasn’t enough, on Thursday the Nasdaq Composite topped 9000 for the first time ever, and finished in the green for the 11th day in a row. Of course, we all know how this is going to end, eventually …
Debit: Until reality catches up to the markets, you can bet those who are “maintaining their positions” will continue to enjoy the ride. For now, stocks continue to melt upwards, as the S&P and Dow finished the week yet again at new all-time highs. Many will say that, with the Fed continuing to push freshly printed cash into the financial system, it’s a great time to buy stawks. After all, that cash has to go somewhere.
Debit: Meanwhile, as the following graph illustrates, the S&P is up 10 of the past 11 weeks since the Fed launched its “permanent open-market operations” (POMO) — that’s misleading banker-speak for “quantitative easing” (QE) … which is more misleading banker speak for “printing cash.” Curiously, the only week the S&P fell was when the Fed’s balance sheet declined — but I’m absolutely positively super-duper sure that’s just an innocent coincidence.
Graphic Credit: Zero Hedge
Debit: Furthermore, the Fed’s balance sheet is now up more than $377 billion, and considering the Fed may inject another $400 billion in the next month, the Fed’s balance sheet is expected to hit an all time high some time in late January. Despite this, the Fed and its lackeys in the mainstream press still claim that the central bank isn’t conducting QE. Hmm. It’s almost as if they’re afraid to admit QE is actually harmful to most Americans.
Credit: According to Kevin Smith of Crescat Capital, “the Fed is in fight-or-flight mode because there are very real credit bottlenecks in the plumbing of the banking system that have created a US Treasury funding emergency. But the Fed money printing is necessary to fight a repo-market funding shortage that is warning of a systemic financial crisis in the making.” Yes, folks … a systemic crisis even worse than this:
Credit: One thing is certain: the longer the money pumping continues, the bigger the final bang will be. As asset manager John Mauldin astutely observes, the Fed announced “that they’ll offer ‘at least’ $225 billion here and there. But that’s not how debt normally works; lenders give borrowers a credit limit — not a credit guarantee plus an implied promise of more.” So in essence, “the Fed is giving banks negative credit limits.”
Credit: Of course, as Dave Kranzler notes, “Many investors and market observers wonder why central banks just can’t print ‘money’ forever and drive the markets even higher. The answer is in the law of diminishing returns. When central banks print (currency) at a rate that exceeds the amount of wealth produced to ‘back’ that money printed, it diminishes the value of each extra dollar created.” Huh. Imagine that.
Credit: By the way, Kranzler also points out that the central banks’ near-zero and zero interest rate policies, combined with unfettered printing, is no longer generating enough traction to keep the financial system afloat. As a result, he believes “we’re approaching the point where (more) printing won’t produce the intended effects.” If true, the Fed better find a new trick — and fast. Otherwise, Americans should gird themselves for a financial shock of epic proportions.
(The Best of) By the Numbers
While the private sector has been plagued by stagnant real wages for decades, it’s a different story for government employees. If you want to maximize your salary (not to mention simultaneously minimizing your risk of job loss) then you’d probably be better off securing a state or municipal government job:
105,000 The number of state and municipal employees earning $190,000 or more annually — that’s higher than the governor salaries in all 50 states.
8 Number of police officers and detectives for the Port Authority of New York and New Jersey who earned between $300,000 and $783,000 in 2017.
10,000 Approximate number of University of California system employees who raked in more than $200,000 in 2017.
65 Number of University of California system employees who made between $1 million and $3.6 million in 2017.
$106,000 Annual salary in 2018 for Chicago tree trimmers.
$165,000 Annual salary in 2018 for New York City school janitors.
$314,696 Annual salary in 2018 for the City Manager of Stanton, California. (pop: 2600)
$365,000 Salary of the highest-paid lifeguard in Los Angeles County.
$407,000 Salary of the superintendent of a Calumet, Illinois, school district; a district with only 1100 students — and no high school.
$1,000,000,000,000 Annual cumulative cost of salaries for America’s 19,000,000 public employees.
Source: Forbes
The Question of the Week
[poll id="300"]
Last Week’s Poll Results
Was turkey on your Christmas dinner menu this year?
- No (57%)
- Yes (43%)
More than 1700 Len Penzo dot Com readers responded to last week’s question and it turns out that nearly 3 in 5 of them enjoyed something other than a roast turkey for their Christmas dinner this year. As usual, my Italian family had pasta (homemade cavatelli) for our Christmas Day meal; in my house, turkey is reserved for Thanksgiving! 😀
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: The Christmas Gift
A guy bought his wife a very big and beautiful diamond ring for Christmas. After hearing about this extravagant gift, the guy’s friend said, “Wait a minute … I thought your wife told you she wanted one of those sporty four-wheel-drive vehicles.”
“She did,” the guy replied. “But where the hell was I going to find a fake Jeep?
(h/t: Sam I Am)
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Other Useless News
Here are the top five articles viewed by my 28,779 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- How Much Gold and Silver Should People Own?
- 10 Key Characteristics of Debt-Free People
- Why It Pays to Keep It Simple, Stupid
- 10 Things Most of Us Can’t Live Without Today — But Our Grandmas Did!
- 7 Car Maintenance Tips Every parent Should Share with Their Teenagers
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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
Gina wasn’t too happy after reading my article explaining how to know when it’s better to buy or rent:
We just bought a new house. After running the test you suggested, it looks like we should have kept renting. I’m so confused!
Gina … you’re supposed to do the test before you buy!
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,
I hope you have a very Happy New Year. Let’s hope the new decade is when the world wakes up and decides to do a monetary reset so we can all enjoy a fresh start.
Sara
I think that’s a given, Sara. And Happy New Year to you too!
Time is getting short. Whoever makes the first move and creates a gold backed currency will be the world’s next reserve currency.
Oscar, just remember, a “gold backed” currency won’t be worth the paper its printed on unless it can be converted on demand and exchanged for real physical gold at any bank.
“Junk Silver” won’t need to be converted at a bank.
Its image has been coined in base metal for some time and its form is universally recognized. The silver coins will be recognized at real contemporary value and used as currency.
Very true, Dave.
Because of my 401k I have no choice but to remain invested in the stock market. Right now that’s a good thing. I can’t complain because the returns have been very good, but I know it will be a disaster if the stocks ever crack and head in the opposite direction.
You’re right John. Anybody looking at earnings for most stocks will see they are complete crap and don’t support current prices. The ongoing repo crisis is a sign that at least one big bank is in real financial trouble. Based on stock prices, it’s probably Deutsche bank that is the one that’s on the edge.
John: I’m in the same boat you are. All you can do is try and stay as diversified as you can within your 401k. If there is a “stable value” fund you can put a portion into that as an alternative to stocks, or a bond fund too, if it has that.
They keep on pumping trillions into the system to keep this Ponzi scheme going just so the corrupt bankers on Wall St. can plunder even more. When this breaks, Lord help us all.
Yeah, it should be breathtaking — assuming that day ever gets here.
What a bunch of doom and gloom worry warts here. Yellen told us there would never be another financial crisis in our lifetimes. That’s everything you need to know. Enjoy the ride! The good times are here to stay.
That she did. Party on, Dean!
That graph of the S&P500 and the Fed’s balance sheet says it all when it comes to the legitimacy of the stock “market”. Everything is phony today and I don’t know what to believe anymore.
Sad, isnt it? Although I think the fraud is easy to see the problem is, the longer it continues, the more it tempts some people to throw in the towel and play along to their ultimate detriment.
Len,
Enjoy the blog but have a question. Could you describe your vision of how the “big meltdown” will impact your average reader i.e. someone with a strong 401k and few or no major debts? Also, if the “big one” comes, as in the Great Depression, would not those in a relatively good financial position actually be mostly OK since demand for goods would drop drastically leading to lower prices? As background, when I was in school (a long, long time ago) a history teacher said the Great Depression was the best financial time her family ever had since her professor father had a steady job). Thanks for your thoughts.
Thanks, George. I too am one of those people with a decent-sized 401k and little debt. Of course, nobody can say for certain how this will play out, but here is what I am expecting at some point:
It’s hard to say if stocks prices — and by extension, our 401k accounts — will simply continue melting up commensurate with continued central bank money printing, or collapse due to investors waking up to the rotten fundamentals. But, either way, using the Dow as a proxy for the entire stock market, I expect the Dow-gold ratio to fall from its current level of about 20:1 to 1:1. Only time will tell if that means the Dow falls to, say, 5000 and gold meets it at $5000 — or the Dow climbs to 40,000 and gold catches up to it at $40,000. As for people with zero or very little debt — they will have the luxury of being able to assess the situation and use any disposable income to take advantage of the opportunities that will surely present themselves during that time.
The Great Depression was a monetary deflationary event resulting from a lack of money in the economy — and that lack of money circulating within the economy resulted in falling prices. So, yes, it was a great time for those with a steady income as their purchasing power would have increased even if their salary didn’t. Of course, back then the US dollar was tied to gold — so it was effectively as good as gold (and, therefore, real money).
Today, our “money” isn’t gold — nor is it backed by gold (or silver) — so it isn’t money at all. It is a debt-based fiat currency — and the world is drowning in it! As such, I expect that those who are working will, at best, tread water as prices spiral out of control and wages struggle to keep pace with the rising cost of living (due to the rapidly falling purchasing power of the dollar). More likely, their wages won’t keep up and their standard of living will fall sharply.
Regardless, for most people, physical gold and/or silver will act as the financial lifeboat that transfers their wealth (and purchasing power) to the inevitable new monetary system — whether they’re working or not.