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! In the meantime, why don’t we get this show on the road? Then I can start mine …
He who questions much, shall learn much.
— Francis Bacon
You have to ask these questions: Who pays the piper? And what is valuable in this life?
— Robert Plant
Credits and Debits
Credit: Did you see this? The US economic recovery that began in June 2009 is now in its 127th month, which is a record. Even more impressive is that for the first time since the signing of the Declaration of Independence in 1776, the US just completed the first calendar decade without a recession. Hooray!
Debit: Ironically, last week’s ISM manufacturing index was extremely poor. How poor was it, you ask? Good question! It was so terrible that, to see another print that low, one has to go all the way back to June … of 2009. Just don’t tell that to the stock market, which is continuing its amazing — and seemingly improbable — flight to the sun.
Debit: With that in mind, you can’t be blamed for also asking about the reason behind the stock indexes’ steady run of all-time highs; it’s another good question. Well … this chart tells you all you need to know:
Debit: Meanwhile, on Tuesday the Fed injected another $99 billion to keep the financial system afloat, confirming that the repo market remains paralyzed — and further trapping the Fed into a currency-printing regime it can clearly no longer stop without imploding the entire financial system. As such, the stock market, fueled purely by financial crack, will continue melting up — courtesy of those monthly $100 billion injections from the Fed.
Debit: During the past six weeks, the Fed has doled out approximately $6.2 trillion in cumulative loans to Wall St. trading houses. As a point of reference, during the Great Financial Crisis, the Fed funneled a total of $29 trillion in cumulative loans to Wall St. and their foreign counterparties between 2008 and 2010. At the current pace, that dubious figure will be eclipsed by July. Hey … relax! I’m sure the Fed has this under control.
Debit: With the Fed’s printing presses in overdrive, it should be no surprise that the year-over-year US money supply growth (M2), which was growing at 3.2% in November 2018, is now growing at an annual rate of 7.6%. Unfortunately, the economy isn’t growing fast enough to absorb the extra currency being generated — and that means one thing: inflation is coming. Only this time, it’s going to be much tougher to hide.
Credit: As asset manager Sven Henrich notes, the fear of missing out on the relentless, seemingly risk-free, run up in stocks is “a mockery of capitalism and the markets. It’s made people reckless by force. And I won’t even bother making a point about valuations; nobody cares. You can’t argue with drunks at the bar, or desperate people wanting to jump on a wagon, even if that wagon is heading toward a cliff.” You’re right, Sven … you certainly can’t:
Debit: Apparently, when it comes to the stock market, no price is too expensive anymore. In fact, the average US worker must now work 126 hours to buy one share of S&P 500. That’s the highest total ever. Now compare that to 1982, when it only took the average American about 15 hours of labor to buy the entire S&P 500. No, really:
Credit: As Zero Hedge notes, “During Fed Chair Powell’s next Congressional hearings, perhaps someone will actually have the guts to ask the only question that matters: Why is the Fed now monetizing US debt, and pretending it isn’t doing so just because it grants its (partner banks) a three-day ‘holding’ period, for which it then rewards them generously?” Or perhaps Congress can simply pass a law to end the Fed. I know … but I can dream.
Credit: Speaking of dreams, here’s Question #4: Now that the Fed is clearly monetizing government debt, why is the IRS still bothering to collect income taxes? After all, if they’ve decided that the only way to keep our debt-based financial system “working” is to inflate the US dollar’s purchasing power away — and it is, aside from outright default — then taxes become irrelevant. Oh … and while you’re pondering that … here’s another good question:
Debit: By the way, all of this financial system duress and naked debt monetization is being done in the twilight of America’s so-called economic salad days, at the end of a decade-long recovery, when tax revenue for paying the government’s bills should be at its peak. Of course, that begs today’s final question: How much more debt will have to be monetized after the economy finally hits the proverbial wall?
By the Numbers
Based on the following numbers, the jury is still out on whether or not the current US economic recovery can continue for much longer:
127 Months since the official end of the last recession.
6 Consecutive months the Purchasing Manager’s Index for manufacturing has been below 50, indicating a contraction in sales.
2.4% The Atlanta Fed’s US GDP estimate for 4Q 2019.
2.5% The average rate of GDP growth during expansions since 2001.
4.8% The average rate of GDP growth during expansions from 1950 to 2000.
2 The current number of consecutive quarterly declines in physical investment spending.
6 The number of times over the past 220 quarters (dating back to the mid-1950s) when two consecutive quarterly declines in investment spending did NOT herald a recession, or occur in the middle of one.
2 The number of times over the last 220 quarters with three consecutive declines in investment spending; the Fed is predicting the data will show a third decline in 4Q 2019.
Source: Forbes
The Question of the Week
[poll id=”302″]
Last Week’s Poll Result
Do you think the Dow will finish 2020 with a positive return on investment?
- Yes (48%)
- I’m not sure (31%)
- No (22%)
More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out that just under half of them are expecting positive returns from the Dow Jones Industrial Average this year. If I had to guess, I too believe it will be higher … it’s hard to believe the index will be able to fall as long as the Fed continues pumping fresh currency into the economy. Of course, over the long run that will be at the expense of the US dollar — which isn’t good for anybody except the heavily indebted.
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: Welcome Aboard
One day at a busy airport, the passengers on a commercial airliner were seated, waiting for the cockpit crew to show up so they could get under way. Eventually, the pilot and co-pilot finally appeared at the rear of the plane, and began walking up to the cockpit through the center aisle; both appeared to be blind. In fact, the pilot was using a white cane, bumping into passengers right and left as he stumbled down the aisle, and the co-pilot was using a guide dog.
At first the passengers didn’t react, thinking that it must be some sort of practical joke.
However, a few minutes later the engines started spooling up and the airplane started to move. As the plane began moving down the tarmac, the passengers looked at each other with some uneasiness, whispering among themselves and looking desperately to the flight attendants for reassurance. As the airplane rolled down the runway, its rate of acceleration increased rapidly and the passengers began panicking. Some prayed and, as the plane got closer and closer to the end of the runway, their voices become more and more hysterical until, with just 20 feet of airstrip left, those screams of panic reached a crescendo before turning into a chorus of wild cheers as the airplane became airborne.
Meanwhile, up in the cockpit, the co-pilot breathed a sigh of relief and said to the captain, “You know … one of these days the passengers aren’t going to scream and we’re gonna get killed.”
(h/t: Cowpoke)
More Useless News
Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. New Mexico (3.52 pages/visit) !!!
2. Idaho (2.03)
3. New Hampshire (1.85)
4. Ohio (1.83)
5. Indiana (1.74)
46. Alaska (1.19)
47. Rhode Island (1.13)
48. Vermont (1.11)
49. Illinois (1.07)
50. Wyoming (1.06)
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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
Michelle had a suggestion regarding my article from last week highlighting 19 things the millionaire next door won’t tell you:
You forgot #20: He’s a cheap bastard who doesn’t tip well or pay his service tradesmen what they worked for.
Sounds to me like somebody needs a hug.
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,
As you know I put all of my savings into silver, but I have to admit even though I know it is a sham I sometimes get those FOMO pangs when I see what is happening with stocks. I’m only human!
Sara
“Fear of missing out” is a powerful force, Sara.
Sara, I would recommend you diversify by adding some gold too. You may think silver is the better metal to hold, but even if that is true, the timing may be off. The future is not always like the past and these are weird times.
I sleep soundly knowing the top minds at the Fed are wisely managing our economy.
😂
Wolf Richter makes the point that the media treats repo injections like permanent creation of capital to banks, ignoring the paybacks from the banks. While the injections are larger than the paybacks over time, the net “permanent” injections are less than the hyped injections.
https://wolfstreet.com/2020/01/10/the-wall-street-journal-and-other-media-should-stop-lying-about-repos/
IMO, “… the year-over-year US money supply growth (M2), which was growing at 3.2% in November 2018, is now growing at an annual rate of 7.6%. Unfortunately, the economy isnt growing fast enough to absorb the extra currency being generated …” is a more accurate measure of the Fed’s profligate behavior.
Meanwhile, the “Super Rich” and central bank’s gold hording is accelerating:
https://www.rt.com/business/476400-worlds-super-rich-hoarding-gold/
https://www.zerohedge.com/geopolitical/why-central-banks-are-rushing-buy-gold
Hmm. I wonder what the world’s central banks know that most people don’t?
Len,
I have recently been reading about Brent Johnsons Milkshake theory, which could allow this crap show to go on for quite awhile longer. It seems the rest of the world screwed itself after the Great crisis in 2008 by drowning itself in Dollar denominated debt and thats why nothing severe is happening with all this printed money because the world needs tons of Dollars to supply for their debt. Sounds reasonable, but who really knows anymore?! If were lucky maybe it will push it off a little longer to allow more time to prepare, but in reality can you really ever prepare enough for whats coming?!
Sad situation indeed!
Jared
I agree with Johnson’s “Milkshake Theory” … the title is loosely adapted from a scene in the excellent movie There Will Be Blood — although he applies it to the US dollar rather than oil.
Brent says a shortage of dollars — not unlike what we are seeing now in the repo market — will result in a demand for dollars that feeds on itself. This will cause the value of the dollar (in relation to other currencies — not purchasing power) to soar. But only for a while. Of course, the Fed will need to print more and more dollars to keep demand satiated and the system from seizing up — but eventually, so many dollars will be printed that the dollar will become toast.
Again, it’s just the inevitable math, for those who want to see it. Peter Schiff and a few other smart macroeconomists I greatly respect disagree with Brent — they believe the dollar is simply going to collapse first — although they agree that the end-game is the same (destruction of the dollar — along with virtually every other fiat currency).
If I had to guess, I think Johnson’s version of events is more likely.
Then the question is, how long will the global system last with all these Dollar’s being pumped into it?! Truly our stock market could look like Venezuela in a few years! Then what?
With each passing day, I am becoming more convinced that it will get that far, Jared. I’ll explain next week.
“Now that the Fed is clearly monetizing government debt, why is the IRS still bothering to collect income taxes?”
I’ll second that!
Great! It looks like the motion is up for a vote … or not.
That is crazy how many hours it takes to buy S&P now vs. 40 years ago. Do you think that is more a factor of high price to earnings ratio or is it because wages have not kept up with inflation over the years?
Yes.
Jared, there has been quite a lot of speculation recently (including here on Len’s site) about the Fed’s motivation.
I personally believe none of the Fed’s governors, nor any of their crybaby cronies on Wall Street, would welcome the presidency of any of the “woke” democrat candidates and are doing their level best to keep the financial balloon afloat at least until November.
I read somewhere a while back that Powell was on the same page with Trump regarding his thoughts on gold and central banks (that is: anti-central bank). I’ll cover my thoughts on this in next week’s Black Coffee.
Then blow this crap show up and lets start the Healing! Whats Trump and Powell waiting on?
Getting a new system in place is going to require the involvement of all the major developed nations. If they aren’t working on the dirty details now, I suspect they will soon.
Your black coffee series always scares me! We are good. We are learning how to cook soup and propagate plants. At least those are real! Thanks Len for the info and laughs. Dont know why people are so mean to you.
I don’t mean to scare anybody, Dr. P.
Monetary resets have happened throughout human history and the world has always carried on. Hopefully, the powers that be will not wait for a crisis to force their hand, but if they do, make sure you are prepared with at least a few months of food and other essentials in case supply chains temporarily break and remain down until the new system is put in place.
It sure feels like there is a certain desperation in the air. It’s been getting increasingly worse for the past several years now. There are silly things happening and even more ridiculous explanations for why they’re happening. This country has been slipping the hangman’s noose since at least 2008 but it now seems to be on the verge of spiraling out of control.
I can almost smell the desperation, can’t you?
Well, Max … I do believe the system is getting close to the end of the road. The math has almost run its course; as such, the Fed and the other global central banks are hopelessly trapped and I think most of them know it. It is now a matter of them getting together and deciding on a new system.
Why worry and save when you can just vote yourself money from the treasury…those who sacrifice will be left with nothing when the world economy resets from debt …party on Garth !!
I think China recognized the current dollar-based system was toast right after the Great Financial Crisis, which is why they have been printing like mad ever since. The thing is, unlike the US, China used its freshly-printed cash to build new infrastructure and manufacturing centers that will benefit it for several generations. The US, on the other hand, squandered most of it on maintaining our artificially-high standard of living.
More particularly, increasing the wealth of the most wealthy. See the chart, from 1994 onward:
https://20somethingfinance.com/the-top-1-percent-and-income-inequality-united-states/
Len, would u plz explain in detail the difference in pms as an investment and pms as wealth insurance?
Joe, the answer is in the eye of the beholder. I’ll give you my view as simply as I can: If you believe, as I do, that keeping 10% of your net worth (excluding home equity) in physical precious metals will keep you whole in the event of a currency meltdown, then I think it is fair to say that the decision to buy anything more than that amount should be considered a speculative investment (albeit one with the added benefit that it can never go to zero). I’ll leave it at that.