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.
Well … another glorious weekend is upon us, so let’s get this party started, shall we?
Insanity in individuals is something rare — but in groups, parties, nations and epochs, it’s the rule.
— Friedrich Nietzsche
There is no salvation in becoming adapted to a world which is crazy.
— Henry Miller
Credits and Debits
Debit: Several years ago, a Canadian man attempted suicide by throwing himself in front of a bus after he lost his life savings at a casino. And although he was seriously injured, the man survived. Incredibly, he somehow also managed to receive a hefty insurance payout due to his self-inflicted injuries. I guess I need a new insurance company; mine seems to hassle me for even the smallest of claims.
Debit: Anyway … despite the man’s good fortune, he used his windfall to fund another massive gambling loss; this time to the tune of $260,000. As a result, the man is now suing the Caesars Windsor Resort & Casino as well as the Ontario Lottery & Gaming Commission for his losses — plus roughly $381,000 in punitive damages. Heh. In today’s upside-down world, that makes perfect sense. He’ll probably win too.
Debit: Speaking of upside down, after its stock hit $433 per share last week, Tesla’s market cap surpassed Hyundai, Ford, General Motors, BMW, Toyota, and Daimler. It’s true. And if you believe the stock market, Tesla is now also “bigger” than Hyundai and General Motors combined, which sold 7.6 million cars between them in 2018. By the way, Tesla only sold about 350,000 cars in 2019. I know; but I’m sure there’s a good explanation why investors value Tesla so richly. Or not …
Credit: Of course, Tesla isn’t the only company with an absurd market valuation. Asset manager Sven Henrich observes that the market cap of Apple and Microsoft exceeds the entire market cap of Germany. Yes, that Germany; the fourth-largest economy in the world. And that’s why just five stocks (Apple, Microsoft, Amazon, Facebook and Google) were responsible for half of the Nasdaq’s big returns in 2019. Yep. Perfectly normal.
Credit: So much cash has flowed into Apple stock that it has also been the single largest contributor to the gains of every stock market index in which it is included — but none more than the Nasdaq, where Apple stock alone has contributed nearly 20% to the technology index’s gain:
$NDX $QQQ 1 yr rolling attribution. Top 2 stocks attributed 35% of the gain and top 5 over 50% of the gain. pic.twitter.com/xfnTYzbKZ3
Thomas Thornton (@TommyThornton) December 24, 2019
Debit: Ready for more market insanity? According to Bloomberg, 40% of public stocks quoted in the US today lack enough tangible assets to repay all their debt — so, technically, those stock certificates aren’t worth the paper they’re written on. Even so, a ‘negative-value’ fund, composed of companies with negative tangible book value, would have beaten the US stock market by 24% over the last 20 years. Imagine that.
Debit: Needless to say, the lunacy isn’t just limited to the stock market; it infected the entire financial system a long time ago, culminating in the Great Financial Crisis (GFC) in 2008 — which is when the madness really began to hit its stride. The Institute of International Finance (IIF) says global debt passed $255 trillion in 2019 — and they expect it to continue growing. (Psst. Hey … IIF. It has to … otherwise our debt-based monetary system would implode.)
Debit: In fact, our post-GFC world has been racking up debt so rapidly that, from 2010 to 2018, the debt-to-GDP ratio of developing countries has risen by more than half to 168% — that’s a faster pace than during the Latin American debt crisis of the 1980s. Keep in mind that chronic debt-to-GDP ratios of 80% were typically reserved for banana republics. Then again, using that criterion, the US has been a banana republic for quite a while now. (Insert your own joke here.)
Debit: Meanwhile, the weight of America’s massive debt has crippled the US economy’s ability to create enough high-paying positions to appreciably expand its middle class. It’s so bad that more than 2 in 5 private sector jobs in America currently pay less than the average weekly US wage of $793 — and many of those don’t offer health care or other benefits either. Sadly, that won’t change until our current monetary system dies.
Credit: For his part, macroeconomist Alasdair Macleod is warning that although “market participants don’t realize it yet, the dollar-based monetary system is spinning out of control. This will become obvious (during) the crisis stage of the credit cycle, which we now appear to be entering.” It sure seems that way — although one should never underestimate the central banks’ ability to keep the monetary-system plates spinning longer than anyone expects …
By the Numbers
With the Fed printing money like there’s no tomorrow, investing has become so easy that even a caveman could do it. Here are the total returns for select asset classes in 2019:
15.5% Silver
18.6% Gold
21.9% Dow Jones Industrials
24.0% Russell 2000
28.4% S&P 500
35.0% Nasdaq
94.4% Bitcoin
Source: Zero Hedge
The Question of the Week
[poll id="301"]
Last Week’s Poll Results
What is your current annual household income?
- More than $120,000 (37%)
- Less than $60,000 (32%)
- $60,000 – $120,000 (31%)
More than 1900 Len Penzo dot Com readers responded this week’s question and it turns out that their financial status is pretty evenly split, which a very slight plurality going to the households earning more than $120,000 per year. As a point of comparison, the US median income in 2018 — that is, the midpoint-income among all American households — was $61,937.
Hey … 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.
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Useless News: The New Year’s Party
After a night of toasts and heavy drinking during a wild New Year’s Eve party at a local bar, Jerry was clearly in no shape to drive, so he sensibly left his van in the parking lot and walked home. Unfortunately, as he was stumbling along the street, Jerry caught the attention of a local policeman, who promptly pulled up alongside the very drunk man.
“What are you doing out here at three o’clock in the morning?” asked the cop.
“I’m on my way to … uh … a lecture,” Jerry slurred.
“Oh, really?” inquired the constable sarcastically. “And who on earth, in their right mind, is going to give a lecture at this time on New Year’s Day?”
“My wife,” said Jerry.
(h/t: Cowpoke)
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
With every new year comes a time for resolutions and reflection. Perhaps that’s why Bella dropped this curious note into my inbox the other day:
I’ve got an iPhone. I’m beautiful. I wear expensive clothes. I’m smart, humble, and sexy. I drive myself to school. Yet he still doesn’t want me. Why?
Beats me, Bella. Maybe he’s a Samsung guy.
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
Hi Len,
“So easy a caveman can do it”! Nope.
More like “Never confuse a bull market with being an investing genius”.
Have a nice weekend!
Sara
Indeed, Sara. Funny you should say that, as that saying was mentioned while I was on the Stacking Benjamins round table this week.
“I guess I need a new insurance company; mine seems to hassle me for even the smallest of claims.”
Me too, Len. What I want to know is why mine won’t honor a claim on some water damage to my house but another company decides to pay out a claim to a guy who literally throws himself in front of a bus. Now THAT is an insurance company I want to do business with!
It is amazing, isn’t it? Another thing that chaps my hide with auto insurance companies is how they jack up your rates after paying out a claim — even if it’s the first one in a long long time.
Insurance companies are your best friend … as long as you don’t make a claim.
Tesla is the mascot for this central bank sponsored Ponzi scam. This joke of a stock market can’t be considered legit until Tesla, a company that sees huge annual losses and depends on a constant stream of capital to stay afloat, is bankrupt.
As long as the Fed is backstopping the market, Sam, then Tesla will still be around.
But as soon as the easy credit dries up, the business will implode because it is not economically viable.
And it’s not just Tesla … there are gobs of zombie corps out there that would have been put out of business in a normal interest rate environment (i.e., prior to 2008).
It may be that Elon Musk’s persona is causing more skepticism than is warranted.
https://bgr.com/2020/01/03/tesla-model-3-sales-2019-new-quarterly-record/
Amazon was not much respected as it grew out of a bookselling niche in the twentieth century, either.
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.
(Readers: For those who missed it, George’s comment, and the following reply, is a re-post from last week’s Black Coffee. I added it to this thread because George submitted it very late in the week, on Thursday … and it was a pertinent and interesting question. — Len)
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.
As for the Great Depression, it 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 during the next crisis, 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.
Len, just to circle back around wanted to say thanks for your thoughtful response. I’m just now catching up on your columns.
Thanks, George.
Len’s reader’s income distribution:
More than $120,000 (37%)
Less than $60,000 (32%)
$60,000 $120,000 (31%)
US median income in 2018 :
$61,937.
First impression: This being a blog for financially responsible people, Greater than “normal” income is to be expected.
Upon reflection: The expectation is a result of outsized respect for money.
For a deeper appreciation of “financial responsibility”, see:
https://www.lenpenzo.com/blog/id1283-if-you-cant-live-on-40000-per-year-its-your-own-fault.html
I agree, Dave. These polls are not scientific, by any means. And the results are skewed by the behavior-type of people who choose to visit personal finance blogs.
Plate spinning. That’s a lost art.
Seems that way, Sharon … other than the Fed, I don’t know if there is anybody still out there plying the trade.
Nice blog, Len. First time here. Found you on a Google search for using spreadsheets. Good info from what I’ve been reading over the last half hour or so. Although the subject matter isn’t the typical personal finance blog I’m used to seeing. lol
Thanks, Chad. I do describe it as “offbeat.” Welcome aboard.
As always, the most sensible and enlightening of the week, every week. Way to go, Len. I cherish your thoughts, — and humour! And I should add: I do enjoy the comments the other readers leave. Cheers for 2020.
Thank you for the kind words, Ron.
And I appreciate the readers’ comments too … we have a growing, very knowledgeable, and engaging community here!