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!
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)
The Question of the Week
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.”
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