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 see another week has come and gone — so without further ado, let’s get this show on the road.
The more enlightened our houses are, the more their walls ooze ghosts.
— Italo Calvino
Fear the boom, not the bust.
— Ludwig von Mises
Credits and Debits
Debit: Did you see this? A new survey has found that 97% of CFOs queried believe either an economic slowdown or recession will occur before the end of 2020 — that’s up from 88% one year ago. Let’s just hope those CFOs are better at managing their company’s finances than they are at predicting recessions.
Debit: Maybe that CFO pessimism is because they know that the percentage of listed companies in the US that were unable to earn a profit over the past 12 months is close to 40% — that’s the highest level since the late 1990s, outside of post-recession periods. Let’s see … what else was happening in the corporate world during the late 1990s? Oh, yeah … that’s right. Lot’s and lots of this:
Debit: Here’s something else you can bet those CFOs surely know: US corporate earnings have been down for four consecutive quarters. That’s a full-blown earnings recession, folks. Even so, the S&P was up almost 30% in 2019. And if you think that makes sense, perhaps you can also explain this:
Credit: Needless to say, despite this fact the stock market is continuing to soar, with indexes continuing their seemingly never-ending run of weekly closes at or near all-time highs. And why not? I’m sure this kind of behavior — exemplified on the extreme side by the latest action we’re seeing in Tesla stock — can go on forever. Just imagine how high TSLA will climb if it ever manages to turn an annual profit!
TSLA stock performance 2010 – 2020. (Source: NorthmanTrader.com)
Credit: By the way, if you’re rightly wondering why stocks only go up anymore, asset manager Sven Henrich offers an apt — if not colorful — explanation: Central bank “liquidity is overwhelming (the markets). And the Fed, all too eager to toss cash around like drug-dealer coke packets at a frat party, doesn’t appear to want to stop. In the process, they’ve now created a massive asset bubble.” Imagine that.
Debit: Of course, the Fed doesn’t want to stop because it can’t stop. After soaking up trillions of freshly-printed dollars — thanks to a decade of central bank quantitative easing (QE) — Wall Street now dwarfs Main Street, with America’s financial assets almost six times larger than US GDP; that’s an all-time record. As a result, the entire market is now officially “too big to fail” — and the Fed knows it.
Credit: Egon Von Greyerz notes that, “The $425 billion expansion of the Fed’s balance sheet since QE started in September of 2019 has been like manna from heaven for stock investors. The Dow has gained 2400 points since then.” Unfortunately, if the Fed can’t stop its printing presses, at some point that financial manna is going to turn into monetary manure.
Credit: Investment advisor Lance Roberts says the Fed has a problem: “The Fed is not only caught in an economic liquidity trap, where monetary policy has become ineffective in stimulating economic growth, but they’re also captive to a ‘market’ liquidity trap, (where) the market has become addicted to QE.” That became apparent in 2018 when the Fed hiked rates and reduced their balance sheet — and the market promptly plunged 20%.
Debit: Roberts also laments America’s move from a productive economy to a financial one, with booming stocks, corporate bonds and real estate, while Main St. struggles to survive. It’s why the world’s 500 richest people got $12 trillion richer in 2019, while 45% of Americans have no savings. Then again, financialization is only a symptom of the real problem: our dying debt-based monetary system, which is fast approaching its mathematical limit.
Credit: This brings us to the crux of our debt-based financial system’s current problem: As Ellen Brown points out, “The (Fed’s) stated purpose is to increase spending by increasing lending by banks, which are supposed to be the vehicles for liquidity to flow from the financial to the real economy. But this isn’t working, because consumers are tapped out.” In other words: the Fed is out of, well …
Credit: Even if the Fed does have one bullet left, Roberts worries that “the longer the Fed avoids normalizing monetary policy, and weaning the crack-addicted markets off their liquidity drug, the bigger the reversion will be when — not if — it occurs. The only question is how much longer can (Fed chairman) Jerome Powell continue pushing on a string.” How long, indeed …
Credit: If I were a betting man, I’d say that, despite the overt tension between President Trump and Powell, it’s all political theater. I believe the two are working together to keep the financial machine limping along until sometime after the election — then the Fed can pull the plug, which will lead to an overhaul of the monetary system at some point thereafter. The only question is: Can the Fed keep the machine from imploding before November gets here?
By the Numbers
Another sign of the dollar’s diminishing value is the number of movies surpassing $1 billion in earnings; there have been 46 in history — and nine of those were released in 2019, including The Rise of Skywalker, which surpassed that milestone this week. Here’s the complete list of billion-dollar movies released in 2019, and their global box office take. How many did you see?
9 Star Wars: The Rise of Skywalker ($1.000 billion)
8 Aladdin ($1.051 billion)
7 Joker ($1.069 billion)
6 Toy Story 4 ($1.073 billion)
5 Captain Marvel ($1.128 billion)
4 Spider-Man: Far From Home ($1.132 billion)
3 Frozen 2 ($1.373 billion)
2 The Lion King ($1.657 billion)
1 Avengers: Endgame ($2.798 billion)
Source: Forbes
The Question of the Week
[poll id="304"]
Last Week’s Poll Result
How would you characterize your local economy?
- It’s steady. (51%)
- It’s booming! (41%)
- It’s slowing down. (7%)
- It’s depressed. (1%)
More than 1900 Len Penzo dot Com readers answered last week’s poll question and it turns out that just 8% of them say the economy in their neck of the woods is either slowing down or depressed. Here in Southern California, judging by the commuter traffic, the local economy is as strong as it’s ever been.
If you have a question you’d like to see featured here, please send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.
Useless News: Psych Test
During a visit to the mental asylum, a visitor asked the director, “So … what is the criterion that defines whether or not a patient should be institutionalized?”
“Well,” said the director, “we fill up a bathtub. Then we ask the patient to empty it and we offer him a teaspoon, a teacup, or a bucket.”
“Of course,” said the visitor, with a chuckle. “I totally get it. A normal person would choose the bucket as it is larger than the spoon and the teacup.”
“No,” the director replied. “A normal person would pull the plug.”
(h/t: Salamander)
Other 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. British Columbia (3.10 pages/visit) !!
2. Yukon Territory (2.00)
3. Alberta (1.81)
4. Quebec (1.75)
5. Manitoba (1.72)
9. Saskatchewan (1.34)
10. New Brunswick (1.31)
11. Northwest Territories (1.25)
12. Nunavut (1.13)
13. Prince Edward Island (1.00)
Whether you happen to enjoy what you’re reading (like those crazy canucks in British Columbia, eh …) — or not (ahem, all you hosers living on the frozen Prince Edward Island tundra) — please don’t forget to:
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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 me at: Len@LenPenzo.com
My article on 19 Things Your Millionaire Neighbor Won’t Tell You is still eliciting feedback. In fact, it inspired The Money Babe to share a tip of her own:
I believe in pretending you’re poor so no one will ask you for money or sue you.
Wait a minute … Who’s pretending?
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: (coffee) brendan-c
Hi Len,
I am pretty sure you’re right. The Fed really is in a bind. Seems like they have no good choices left. In the meantime I will continue saving each month by converting the funny green paper they pay me with into real money.
Have a nice weekend!
Sara
Thank you, Sara!
Trump and Powell working together is an interesting theory. But I don’t buy it.
Agree. I say the Fed stops propping up the markets just before the 2020 elections.
Fair enough. It’s only a theory, gentlemen.
I think the conventional wisdom is that it’s now in the best interest of the Fed to keep pumping dollars into the system to keep the stock market from imploding, otherwise their very existence could be threatened.
” … despite the overt tension between President Trump and Powell, its all political theater. I believe the two are working together to keep the financial machine limping along until sometime after the election … ”
There’s quite a lot of evidence (circumstantial, to be sure) that ‘s true:
https://www.zerohedge.com/markets/beware-unholy-alliance-trump-powell
Yes! And the last line from that article is the key:
“The Fed may come to regret the liquidity monsters it has unleashed, for the Fed will ultimately take the blame blowing the largest asset bubble since 2000.”
Len, if they do go to a new system what will it look like? I assume you think we will go back to the gold standard.
Actually, I am not sure what the new system will be. Although I think it would fail in a relatively short amount of time, I wouldn’t put it past them to wipe the slate clean and try to start over with a new debt-based monetary system.
A gold standard is obviously better than the fiat system we have today, but it has has a flaw in that the government can always surreptitiously print more currency than there is gold in the Treasury to back it up. Yes, the gold standard is a yoke that makes it a lot harder for the government to over-print — but the government can simply pass laws that reduce the gold backing of its currency (effectively, removing the yoke).
The best solution would be to allow both gold and silver prices to float with the amount of currency that is printed — this is called Freegold. The benefit of Freegold is that it provides two distinct avenues for spending and saving: 1) people could save and build/supplement their retirement nest eggs in precious metals; and 2) at the same time, the printed currency would only be used for everyday transactions. In this system, the government can print as much cash as it wants, but at the expense of the currency’s purchasing power. Savers would be protected because as the value of the currency declined, the market value of physical gold would increase. (The current system that prices gold and silver is controlled by paper contracts — not the actual exchange of physical metal. As such, the system is heavily manipulated.)
But gold and silver must first be widely recognized as money again by the government (and their gains in dollar terms not subjected to taxation) so that they once again behave as cash.
Len: A friend introduced me to your Black Coffees a couple weeks ago. I’m glad he did. I agree with you.
The central banks are keeping the gold price low to accumulate as much of it as they can before they hit the reset button. I believe we’ll go back to a gold standard of some sort only after gold and silver can’t be printed out of thin air to manipulate physical metal prices.
The time is coming when the Comex won’t be able to deliver because of naked shorting. That’s when physical gold and silver will see their true price.
Welcome aboard, Nathan.
And I agree with you; at some point the COMEX will fail. I believe right now they have issued more than 100 shares of gold for ever ounce they claim to have on hand in their vault — which many believe is pledged to multiple parties anyway (so the disparity is probably even great than that).
From last week’s Black Coffee:
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 aloft at least until November. – RD Blakeslee
Ironically, the central banks are not necessary in a true free-market capitalism-based economy. They are necessary to support socialism and governments that insist on living beyond their means (i.e., spending more revenue than it takes in).
The trouble is government is far too big compared to the rest of the economy. Not just in the U.S. but most countries. Even at 0 % interest, the principal on a humongous debt load is suffocating. That’s where the U.S. is almost at today.
Yes. That is why interest rates have been trending down since the early 1980s — and why they can never return to normal. At least without blowing up the system.
Powell verified this yet again after the Fed was forced to begin dropping interest rates last year from an already-low rate of under 3% — even though we are supposedly a decade into an economic recovery. Just wait until the next recession gets here; they had to drop rates from 5% to 0% to jump start the economy in 2009.
We’re under 3% today and the recession hasn’t started yet.
Regarding the current monetary system: The game isn’t over, but the clock is winding down and the outcome is not in doubt.
It’s toast.
Len,
I’ve been watching a lot of Mr. Gammon videos lately, he is great! I think this latest one is really explanatory of whats coming.
https://m.youtube.com/watch?v=kT02_IaeEk8
Jared
Yes, I have too, Jared. He does a great job breaking down complex topics into something more understandable.
I remember reading somewhere that Pets.com failed because no one had accounted for shipping costs in the pricing model.
Hard to believe but, if true, that’s quite a blunder!
Happy New Year Len
After reading this piece I am wondering if monatary standards evolve.
My thought is the gold standard transitioned to the oil barrel standard and now the
oil barrel standard is turning into the gigabite standard.
As far as savings. Could it be that 40% of American’s don’t have long term or short term goals?
The future? I was at grocery store. There are 8 tesla charging stations in the parking lot four were filling up, I looked over ar gas station across the parking lot one was car filling up. Is this a sign?
I think the magic moment will be when 44% of the American population and the government cannot pay there debt for 3 months.
: )
Happy New Year, Duke. Technologies and standards may change to fit the times — but there is one economic law that never changes: There is no such thing as a free lunch.
It may take a awhile, but the piper always gets paid. It’s taken 50 years for him to get here, but he’s now on the porch and getting ready to knock on the front door.
Hi Len! If you could choose your citizenship, would you have chosen Canadian or American? Just curious.
American. Despite an ever-growing government — and ridiculous restrictions on our freedoms increasing on an almost daily basis now — for those who believe in individual liberty, self-reliance and personal responsibility, it’s still the freest nation in the world.
Me too. Even California. I know everyone rants about california, but I’m willing to stay and fight. My grandfather fought the communist and when he was half demented and in restraints when he was older in his 80s, he would yell “Freedom! Freedom!!” Scared the lights out of his nurses. Removed his restraints, and he became the docile older man again.
I’m a native Californian, and still live here to this day. The tyrants are firmly in control at the state level now, but as long as Prop 13 stays in place I’m not going anywhere either. However, if that domino falls (and the pols in Sacramento are trying hard to topple it), then I will have to consider alternatives if my property taxes begin spiraling out of control. My hope is that, at some point, things will get so bad at the state level before then that the pendulum swings the other way.
The good news is, I live in a county where the majority of local politicians still believe in smaller government and personal liberty. Well … at least that’s the case today.
Nobody asked me where I’d go, but, if I were younger …
I’d borrow lots of fiat dollars, buy a cheap, big old boat, load it with firewood, hunting and fishing gear, sail it North on the Bering Strait to Siberia and settle there.
If I were me, I wouldn’t believe me either, but you never know …
Siberia is too cold for me, Dave!