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.
There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
— Ludwig Von Mises
The hardest thing to explain is the glaringly evident, which everybody has decided not to see.
— Ayn Rand
Credits and Debits
Debit: Well … the Tesla clown show continues. Last Monday, Tesla’s stock price rose 14%. By Tuesday, it was up another 24% to close at $969 — a 129% gain since the new year started just five short weeks ago. Keep in mind that Tesla’s 2019 revenues were a paltry 2.2% — and they reported a net loss of $862 million. Oh, yeah … did I mention that Tesla has lost money every year since 2008 when it began reporting results? It’s true.
Credit: On the other hand, it’s not all unicorns and rainbows. The stock price of credit-card issuer Discover plunged 11.1% last Friday — despite beating earnings estimates. According to Dave Kranzler, “the dagger was Discover’s loan charge-offs, which jumped to 4% of the outstanding balance; that’s the highest rate since it peaked at 5% during the financial crisis.” Hey … you can’t win ’em all:
Debit: Meanwhile, German banks are now holding triple the amount of cash they had on hand in May 2014; that’s when the ECB went to negative interest rates — a de facto tax on deposits — thereby increasing pressure on those already-beleaguered institutions. In fact, German banks have been stuffing their vaults with so many euro notes that they’re actively searching for additional storage facilities. Attention German bankers: I have a spare closet available. Maybe two.
Debit: Although the central banks won’t admit it, those negative rates are why debt has displaced savings as the primary means of economic advancement. Unfortunately, as you can see below, since 2008, new debt has provided a rapidly diminishing economic “kick” before taking on its long-term role as an economic millstone that gets heavier by the day. Even worse, since 2015 each dollar of new debt has actually resulted in less than a dollar of new GDP:
Debit: So mathematically, it’s “game over” for the current monetary system. One investment strategist summed up the central bankers’ refusal to admit defeat — while encouraging even more debt — with a Snickers bar analogy. To wit: Only an undiscerning doctor would think his Snickers bar prescription — intended to increase his patient’s energy — has nothing to do with the subject’s follow-on weight gain and subsequent growing malaise.
Debit: Speaking of denial, the US Bureau of Labor Statistics reports that the value of a new vehicle rose by only 0.6% since 1997. No, really. Even though the average price of a new car rose 124%, from $16,400 to $36,718. And now you know why Shadowstats and the Chapwood Index say annual price inflation is running at roughly 10%, even though the government consistently reports it to be under 2%.
Credit: As Alasdair Macleod notes, those phony inflation statistics give the illusion that real GDP is positive when, in reality, if it were properly adjusted for price inflation it would be negative. Of course, the government has a strong incentive to hide the inflation because, since the advent of the Fed in 1913, the US dollar has lost nearly 99% of its purchasing power relative to gold. Oh … and if you think that’s a sneaky monetary trick, check this out:
Credit: The financial subterfuge hasn’t affected Americans’ mood regarding their current finances — at least if the latest Gallup poll is any indication. It shows that Americans’ views on their personal financial situation are now at or near record highs. In fact, 59% of Americans now say they’re better off financially than they were a year ago — that’s up from 50% last year. Hooray!
Credit: By the way, those Americans who say they’re better off financially than they were a year ago surpassed the previous all-time high of 58% in January 1999. What’s more, three in four US adults predict they’ll be better off financially a year from now — and that is the highest satisfaction rate since 1977.
Debit: Then again, as Zero Hedge warns, the Fed’s “ongoing problems with the repo market means that the liquidity crisis that’s clogged up critical plumbing within the US financial system — and continues to percolate just below the surface — is getting worse, not better.” Sadly, the Fed is eventually going to lose control and a financial crisis will bubble to the surface that will cause most Americans to reassess their financial situation, albeit in a much dimmer light.
Last Week’s Poll Result
How much money do you think you’ll need to retire comfortably?
- More than $2 million (34%)
- $1 million to $2 million (29%)
- $500,000 to $999,999 (27%)
- Less than $500,000 (10%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that 5 in 8 of them believe they’ll need at least $1 million to retire comfortably. Frankly, that number depends on a lot of personal factors. For example, according to Lance Roberts at Real Investment Advice, someone just starting their working career who wants to retire comfortably in 30 years with the equivalent income of $60,000 in today’s dollars would need to save $2.85 million over that time frame in order to account for inflation and taxes.
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.
The Question of the Week
[poll id=”307″]
By the Numbers
If you plan on watching the 92nd Academy Awards this week, here are some numbers to keep in mind while you’re being lectured by the social justice warriors who are lucky enough to get on stage:
$72,000 The cost to run an ad on page one of The Hollywood Reporter during Oscar season.
$105,000 The price a couple will pay to attend the Vanity Fair after-party.
$215,000 The value of this year’s gift bags, which are delivered in multiple suitcases to Oscar nominees before the ceremony. Among other items, the gifts include an Antarctic cruise, and $25,000 worth of cosmetic treatments, rejuvenation procedures, lip fillers and chemical peels.
$1,500,000 The cost to get the average actress camera-ready for her walk down the red carpet.
$10,000,000 Amount to get an A-list actress camera-ready for the red carpet.
$18,100,000 The cost it took to get Cate Blanchett camera-ready for her walk down the red carpet in 2014; yes, that’s the most expensive in Oscars history.
$100,000,000 Amount Hollywood spends on award season lobbying.
Source: Forbes
Useless News: The Sausage King
A man went into a store and asked the clerk behind the counter for five pounds of Polish sausage.
The clerk looked at him and asked, “Are you Polish?”
The guy, clearly offended said, “As a matter of fact, I am — but let me ask you something. If I asked you for some Italian sausage, would you ask if I was Italian? Or, if I asked for German bratwurst, would you ask if I was German? Or if I asked you for a kosher hot dog, would you ask if I was Jewish? Or, if I asked you for a taco, would you ask if I was Mexican? Well? Would you?”
The clerk nervously looked away from the customer he so clearly offended and said, “Well … no.”
Not satisfied, the offended man decided to drive his point home. “Well, all right then!” he said. “So why would you ask me if I’m Polish simply because I asked for Polish sausage?”
The clerk said, “Because this is Macy’s.”
(h/t: Johnny J.)
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Other 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. Alaska (2.23 pages/visit)
2. Maine (2.06)
3. North Dakota (2.03)
4. Connecticut (1.87)
5. Kentucky (1.82)
46. West Virginia (1.20)
47. Rhode Island (1.18)
48. Montana (1.17)
49. South Dakota (1.13)
50. Illinois (1.09)
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(The Best of) 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
Christina wrote in after reading my post explaining why people who can’t live on $40,000 per year have nobody to blame but themselves:
Len, I have a small problem with this post.
Uh huh … Get in line, Christina.
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
” … three in four US adults predict they’ll be better off financially a year from now and that is the highest satisfaction rate since 1977.”
1977 was a good year to predict that our family would be better off the next year. That’s the year we moved from the Washington DC exurbs and started building a life as independent of the financial system as was reasonable – then and now. So we have become better off year after year, ever since.
I didn’t answer this week’s quiz, because I use HRBlock “fill-in-the-blanks” software and that’s somewhere in between doing your own taxes and hiring a pro, I guess.
Thanks for plugging my sponsor, Dave!
(Frankly, I don’t think H&R Block would mind if you gave yourself credit for doing it on your own.)
Hi Len,
I stopped watching the Oscars a long time ago. Why these actors insist on alienating half their fans is a mystery to me!
Sara
Me too, Sara.
Len,
The ignorance of the populace is remarkable! The media/politicians are doing a great job of hiding the mass cancer in our financial system. I just wonder if it will stay hidden until the election? If it doesnt materialize until 2021/22 will our streets look like those in France with the yellow vests wanting Trumps head just the same as Macron? These next few years are going to really be interesting, Im glad I live out in rural Virginia, which is sad to say looking more like California every day .
Keep Stacking!
Jared
That is the big unknown: will the Fed hold the system (and the stock market) together until after the election.
After correctly calling out the market for being artificially pumped up by the Fed’s QE programs, Trump stupidly changed his tune after he got elected and took credit for the rising market. As a result, there is a good chance his reelection chances will live and die with the stock market’s performance through October.
Tesla is a great example of a company that would have gone bankrupt years ago if credit wasn’t handed out like candy and interest rates were normal.
Imagine how high the stock would be if it had a year where it actually made money.
Lots of other unicorn companies out there that are still around despite consistent negative cash flow. Uber, Spotify, Blue Apron, even Netflix.
All of this B.S. with the Fed and the stock market and people wonder why young Americans prefer socialism? You’ve got to be kidding. We can blame crony capitalism. Money for nothing to the politically connected, Wall Street and financially irresponsible, and “cake” for the fiscally responsible and the little guy.
I see a run on pitchforks coming.
You may be right, Jack. But I hope the powers that be implement a preemptive overhaul of the monetary system before it gets to that point.
Here is all you need to know. When you take out a credit card, the bank is the unsecured creditor and the debt is unsecured and they charge up to 29%, and yet when we loan the bank our cash via savings and checking deposits, the rate that we unsecured creditors receive is almost 0%.
Yes, and it is a total scam, Oscar.
It’s no wonder so many people are angry at the current state of affairs.
Well, you can refuse to pay your credit card bill (and suffer the consequences).
The bank pretty much cannot refuse to return your money.
Near zero risk gets near zero reward.
Though i think i do understand your underlying dissatisfaction w.r.t the encouragement of saving, expansion of credit, etc
The rub is that the credit card companies are not lending their own cash — they are conjuring it out of thin air — so the exorbitant interest rates they are charging are not commensurate with the risk.
It is indeed a scam of biblical proportions.
The approximate weight of a bill, regardless of denomination, is 1 gram. A $100 bill weighs the same amount as any other denomination of U.S. paper currency, because they are all the same size. Since there are about 454 grams in 1 U.S. pound, a pound of $100 bills is worth $45,400.
Does not say how much inflated dollars weigh.
Has anyone heard of a new remake of King Kong?
Maybe next week Homer shots Tesla and gets his money back. Then most viewers go…How did he do that again?
Great stuff.
Thanks, Duke.
I always enjoy your unique commentary! Please keep it coming.
Regarding personal finances, I’ve found that a person earning $60,000 a year and saving $20,000 is much happier than someone who earns $100,000 a year and saves nothing.
A sage observation, Miller.
Post was great Len. Wow that is the greatest hypocrisy to accept Antarctic cruises, so not environmentally friendly, yet eat vegan. Thanks for being truly shining light of truth. Ive never written a Snickers prescription! Im telling people go to sleep, get off your phone, eat fruits/veggies and go to the 🏖 beach.
Thanks, Dr. P!