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. I know I am … so let’s get this show on the road.
Nobody wants to put the creditworthiness of the United States in jeopardy. Nobody wants to see the United States default. So we’ve got to seize this moment, and we have to seize it soon.
— Barack Obama
A fool too late bewares when all the peril is past.
— Elizabeth I
Credits and Debits
Debit: Did you see this? I hate to sound like a broken record, folks, but how absurd is the current stock market? Not only have stocks gone 70 days without so much as even a measly 1% decline, but when measured by total market capitalization to US GDP, the stock market would have to fall by one-third just to get back to the ridiculous level we witnessed just prior to the financial crisis of 2008.
Debit: Of course, one of the biggest examples of just how insane the market has become is Telsa. Ever since the Fed launched QE4 in October, Tesla shares have been on the move. In fact, they climbed another 5% higher this week, pushing the market cap of the relatively-tiny electric vehicle manufacturer over $100 billion. That officially makes Tesla the world’s largest automaker.
Debit: So despite never delivering an annual profit, stock market investors say Tesla is more valuable than Volkswagen — even though VW delivered almost 11 million vehicles in 2019, compared to the 367,200 cars delivered by Tesla in 2019. Investors have also determined that Tesla is more valuable than GM and BMW — combined. I know … but I also suspect most investors buying Tesla stock at these lofty levels aren’t Jeopardy! material. Then again …
Debit: To prevent recessions from turning into depression, the modus operandi of central banks has been to print money and lower interest rates by 4% or more in order to increase consumer confidence and and entice them to spend more. Never mind that all this really does is further increase debt levels, thereby making the problem worse — although it does make the bankers richer.
Credit: Now, central banks have graduated to naked debt monetization. The trouble is, as MN Gordon notes, “We’re living on borrowed time. The day will come when the costs exceed any benefits. That’s when those costs will be paid with ruinous price inflation. In the meantime, everything is awesome. Shares of Tesla are trading at over $500. Somebody say ‘amen.'” Amen. And hallelujah too.
Credit: Indeed, in a recent interview with the Financial Times, the outgoing Bank of England governor, Mark Carney, warned that central banks are running out of ammo to combat a downturn: “If there were to be a deeper downturn, then it’s not clear that monetary policy would have sufficient space to jump-start the global economy.” If Japan is any guide, it’s crystal clear, Mr. Carney: there won’t be sufficient space.
Debit: Somewhat curiously, the International Monetary Fund (IMF) is now warning that the global economy could soon find itself mired in a great depression. Hmmm. Now I’m confused. Twas a time when bankers wouldn’t be caught dead in the very-lonely tin-foil hat club that I’ve belonged to for the past ten years. On second thought, I’m not the only one who seems to be all mixed up …
Debit: Of course, at this stage of the economic cycle, the prudent course of action is for the Fed to replenish its policy armory by increasing interest rates to at least 4% — if not higher — while the economy is still in relatively good shape. Then again, such a move would initiate a severe economic downturn — although would also flush the zombie corporations, insane stock market valuations, and other malinvestments from the system.
Debit: On the other hand, stock prices have very little to do with the typical Average Joe living on Main St. — and their participation in the domestic economy — because just 10% of the American population owns 84% of all stocks held by US households.
Credit: However, as money manager Lance Roberts observes, while the Fed talks about wanting higher rates of inflation, they can’t allow rates to rise because the average American requires $3000 in debt annually to maintain their standard of living. And it’s not just Average Joe who would be affected if rates were ever normalized; the US government is so deep in debt that it can no longer afford higher interest rates either.
Credit: Everyone knows the Fed is trapped. They can raise rates, which will decimate the stock market, lower American living standards, and cripple the US economy for a long, painful period of time — or they can continue suppressing rates to keep the charade going until the dollar finally implodes and forces a real solution. The good news is it’s not too late to buy a little wealth insurance. So what are you waiting for?
By the Numbers
Here are some numbers from the completely out-of-touch annual billionaire social-justice-warrior summit in Davos, Switzerland:
119 Number of billionaires in attendance.
$500,000,000,000 The combined wealth of the billionaires in attendance this year.
2000 The number of people in the world who have more wealth than the poorest 4.6 billion combined.
1 Rank the Davos delegates gave to “extreme weather” among the biggest global risks in 2020.
2 Rank the Davos delegates gave to “Climate action failure” among the biggest global risks in 2020.
0 Estimated number of Davos participants who live in a small eco-footprint home with less than 1000 square feet of living space, or flew to the event on a commercial jet airliner.
The Question of the Week
Last Week’s Poll Results
How many times did you go to a movie theater in 2019?
- Zero (39%)
- 2 to 5 (35%)
- Once (20%)
- More than 5 (6%)
More than 1700 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than 2 in 5 Len Penzo dot Com visited a movie theater at least twice last year, unlike yours truly, who didn’t go a single time last year. Since I can see most movies at home on demand within a month of release, I feel the premium to watch flicks at the theater isn’t worth the money. But, hey … I’m an old fogey.
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: Cheap Yardage
Walking up to a department store’s fabric counter, a pretty girl asked, “I want to buy this material for a new dress. How much does it cost?”
The male clerk behind the counter smirked and said, “That material is on special today: It’s just one kiss per yard!”
“That’s fine,” replied the girl. “I’ll take seven yards.”
So, with expectation and anticipation written all over his face, the clerk hurriedly measured out and wrapped the cloth, and then held it out teasingly. The girl grabbed the package and pointed to a little old man standing nearby. “My Grandpa will pay the bill,” she said.
Other Useless News
Here are the top five articles viewed by my 29,111 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- 19 Things the Millionaire Next Door Won’t Tell You
- 8 Finance Rules to Live by in 2020
- 10 Things Most of Us Can’t Live Without Today — But Our Grandmas Did!
- Moron Alert: How One Man Paid $87,500 in Partially Avoidable IRA Fees
- 4 Resolutions That Can Help You Improve Your Finances
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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
After reading a Len Penzo dot Com article explaining the 4 things every homeowner should look for in a pest control company, Tori Raddison left this comment:
Getting rid of a rat’s nest is much more effective than getting rid of a few rats — that includes my soon-to-be ex-husband who left me last month for my best friend.
You know … I’m thinking it may be time for me to start up a therapy blog.
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
Zimbabwe here we come!
Len Penzo says
As long as we are the world’s primary reserve currency that will be difficult, Cowpoke. That being said, I think at some point this decade, the US dollar will lose that position.
Sara King says
Thanks for another great cup of joe! I remember reading a story a year or two ago about the restaurant prices in Davos. Even a hot dog there was something like $50 or $60!
Len Penzo says
According to this article, they were selling $43 hot dogs, $47 burgers and $55 Caesar salads — five years ago! I can only imagine what they cost now.
Many of those billionaires at Davos were born on third base and thought they hit a triple. People think they are smart because they are rich, but they really aren’t any better than you or me. All of those guys put their pants on one leg at a time just like you and me.
Len Penzo says
I can’t argue with that.
Wide Awake says
You are right in shining a spotlight on central banking. We no longer have debt and business cycles we only have central bank intervention. We need to get them from meddling with the economy so we can bring back asset price discovery. Depressions and recessions are inherent to a free market economy. They get rid of the unproductive debt and prevent the creation of zombie companies.
Len Penzo says
I agree prices for just about everything are so manipulated by the excess of credit/currency being foisted into the global economy by the world’s central banks. I believe all of that funny money is also responsible for much of the moral decay that is now gripping society. When the credit spigot is finally shut off, we’re all going to be affected — either directly or indirectly.
The USS Titanic hit the iceberg a long time ago. When the band stops playing and the panic starts, it will be too late to grab a lifeboat. Our bank accounts, 401k and IRA accounts, and brokerage accounts will all be stolen to keep the system from crashing. Many people are going to loose everything.
Sam I Am says
Christian, the Fed is goosing this because they have to keep the pension bubble alive. But it’s costing more and more every month to keep it alive. When the band stops playing, we’ll be in another world.
Len Penzo says
I worry about that too, Christian, which is why I try to minimize the amount of cash I keep in any one bank account to $5000 or less. I can’t really do that with my brokerage and retirement accounts — so I hope you are wrong there. Only time will tell.
Tesla is not a car company. It’s a religion.
Len Penzo says
You got that right. Musk and his accountants are playing a masterful game of three card monte. How long can they keep it up? As long as the Fed’s cheap money spigot remains open.
Mount Woods says
Great post and thanks for sharing this eye opening article with all your readers. Good work keep it up.