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:
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:
21.9% Dow Jones Industrials
24.0% Russell 2000
28.4% S&P 500
Source: Zero Hedge
The Question of the Week
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.
This Week’s Sponsor: Lose Weight and Make Money with HealthyWage
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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.
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