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 think it’s fair to say it has been a pretty tough week for most people’s investment portfolios this week. That being said, I hope everybody is having a wonderful weekend.
You can ignore reality, but you can’t ignore the consequences of reality.
— Ayn Rand
If you want to see the sunshine, you have to weather the storm.
— Frank Lane
Credits and Debits
Debit: Did you see this? A recent survey of US consumers on Corona beer found that 38% “would not buy Corona beer under any circumstances.” And 16% of the respondents said they were “confused about whether Corona beer is related to the coronavirus.” In other words, roughly 1 in every 7 Americans is officially an idiot.
Credit: On a related note, until last week, Wall Street markets had gone full retard too — they were on an almost-constant upward trajectory, with little to no regard for earnings and other basic business and macroeconomic fundamentals. In fact, things were so bad that I was actually beginning to entertain thoughts that perpetual motion machines were real — and that there really was such a thing as a free lunch.
Credit: Then again, I also knew that until recently the markets were only going up because they had been feasting on a daily diet of currency injections that were being pumped into the economy by the Fed. And why was the Fed doing that? Because, as asset manager Sven Henrich noted earlier this month:
If central bankers don’t intervene every single daypic.twitter.com/I0FnNz9K4b
Sven Henrich (@NorthmanTrader) February 19, 2020
Debit: Fast forward to this week; it’s a much different story. Despite the constant liquidity injections by the Fed, the US equity market is now in the midst of its worst start to any year since 2009. In fact, the plunge in global equities has wiped out more than $5 trillion in value — equivalent to Japan’s annual GDP. And that was only through Thursday. Uh oh.
Debit: Over the six trading days between February 20th and 27th, the Dow officially entered a correction — falling nearly 11%, from its record high and losing more than 3000 points. Somewhat ominously, the only other time the Dow entered a correction that fast from an all-time high was in 1928, just before the start of the Great Depression. That’s probably why frustrated asset-managers are now hearing this from many of their clients:
Debit: Ahem … sadly, there was no relief for shell-shocked investors who couldn’t get out on Friday, as the markets ended in the red for a seventh straight day. For the week, the S&P was down 9.3%, the Dow lost 10.5% and the Nasdaq shed 6.8%. On an historic basis, the S&P suffered its third-worst February since 1960, while the Dow limped in with its third-worst since 1930, and the Nasdaq endured its fifth-worst since 1972.
Credit: For those wondering just how much more pain the Fed is willing to take, Mr. Henrich offers his answer: “Virtually none. The economy isn’t the stock market, but the stock market is the economy. Or rather the stock market is the biggest threat to the economy and (therefore) must be protected at all costs.”
Debit: Unfortunately, after a decade of foisting their reckless cheap credit policies on the rest of us, the Fed and other global central bankers have nobody to blame but themselves for the resultant moral hazard and the giant asset bubbles they created. Now for the really bad news: the central banks are hopelessly cornered with no way out. At best, they may be able to delay the inevitable reckoning that has been a long time coming. If they’re lucky.
Credit: As Bill Holter warns, “We have a massive credit event directly in front of us because cash flows are rapidly becoming impaired. Credit is in the process of breaking down like a domino chain being tipped. The result will be none left standing.” As you can see, it won’t take much to get it all started either …
Credit: By the way, for those on the sidelines who have cashed out of the stock market — waiting to scoop up bargains after the, um, last domino falls — Mr. Holter has news for you too: “Because all fiat currencies are debt based, when the credit markets become impaired, so will the currency markets — and anyone sitting in cash for ‘safety’ reasons will be sorely disappointed because they’re in the same frying pan.”
Debit: So, will the Fed initiate a coordinated central bank bailout this weekend? If they intervene — to the extent they can — will confidence return? And if it does return, then what? Because the Fed can’t stop the corona virus’s effect on the global economy, supply chains, and domestic businesses — effects which are still ahead of us. So buckle up, folks … this is only the leading edge of a very big storm.
By the Numbers
The initial damage reports from the market storm centered over Wall Street isn’t pretty:
7 Consecutive days the S&P has closed in the red; its longest losing streak since Nov. 2016, its worst month since Feb. 2009, and its worst week since Oct. 2008.
7 Consecutive down days for the Dow; its longest losing streak since June 2018, its worst month since Feb. 2009, and its worst week since Oct. 2008.
$780,000,000,000 The market cap decline of the so-called “MAGA” stocks (Microsoft, Apple, Google, Amazon) over the last seven days.
$5,000,000,000,000 Reduction in the global stocks’ market cap over the last seven days.
11 Number of years since bank stocks saw such a large weekly decline. (March 2009)
-21% Decline in airline stocks this week; the worst performance since March 2009.
39 Basis point decline in 2-year Treasury note; that’s the biggest yield drop since Nov. 2008.
-6.0% Silver’s decline for Feb 2020; that’s its worst monthly performance since May 2016.
-3.6% Gold’s decline on Friday; that was its worst day since June 2013.
-11.0% Bitcoin’s decline for the week.
Source: Zero Hedge
The Question of the Week
[poll id="310"]
Last Week’s Poll Results
Do you have a bumper sticker on any car you own?
- No (86%)
- Yes (14%)
More than 2000 Len Penzo dot Com readers responded to this week’s poll and it turns out that 1 in 7 of them have a bumper sticker on at least one of their vehicles. When I’m driving, it seems like I see more than that. As for yours truly, I’ve never had a bumper sticker on any of my vehicles; I have, however, had a couple of cars with window stickers.
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Useless News: Facing Reality
Finding one of her students making faces at others on the playground, Mrs. Smith stopped to gently reprimand the child. Smiling sweetly, the Sunday school teacher said, “Bobby, when I was a child, I was told that if I made ugly faces, it would freeze and I would stay like that.”
Bobby looked up at her and replied, “Well, Mrs. Smith, you can’t say you weren’t warned.”
(h/t: Sharon)
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
This week I got the following comment from Nick regarding a review for some foreign exchange currency trading software:
Tried forex trading for a few months. Lost my ass.
I’m sorry to hear that — but I don’t think you’ll get much sympathy from folks who were invested in any market this week.
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
Im at disbelief of how Gold and Silver acted this week. They were demolished right along with the market! It seems everyone ran back into cash (dollar) like always. Im guessing this will be a repeat of 2008 and the Fed will come in with a .5 rate cut in March along with QE infinity! More rate cuts will happen throughout the year and we will be back to 0, just like after 2008. It looks like the sheep continue to do the same thing over and over. Maybe it can last forever?! Dow 50,000 here we come!!!
When the margin calls start, cash has to be put in from any source, including stashes of PMs.
Then what good are they?!
A lot, if one doesn’t have to use them to meet margin calls or for some other satisfaction of debt, which defeats the use of PMs as monetary insurance.
Dave nailed it, Jared.
TPTB dumped massive amounts of paper on the PM market Friday. The goal is to drive down the price to discourage investment in precious metals. They have done this for years. It will not matter in the long run and actually helps people to get a better deal buying the dip.
Agree with that too, Ed. The naked shorting has been plaguing the precious metals market for a long time.
The good news is the law of diminishing returns is getting more obvious with each passing month; it’s taking the banking criminals more and more money to get smaller and smaller corrections! And those corrections, which used to stay in effect for months, are now rapidly being bought. So their shelf life is diminishing too.
I understand your frustration, Jared. but you’ve got to look at the big picture and remember that your gold and silver is insurance. In that regard, the number of ounces you own is the only number that matters — and I know for a fact that that number hasn’t changed since last week (unless you added to your stack).
The writing is on the wall; our fiat dollar-based monetary system is headed for a reset. The math does not lie.
Your conviction on where the fiat game is headed should give you the mental fortitude required to ride out the wild (and irrelevant) price swings that are going to happen between now and the reset. I know it does for me.
Hi Len,
I don’t know about you, but I slept like a baby last night! I know the game is coming to an end and when it does, the silver I’ve been stacking for the last 5 years is going to carry me to the next system, whatever it may be!
Sara
Wait until everybody’s Schwab statements for Feb show up in the mail. That’s when the panic will really start.
And to think we’re barely in correction territory. Not even close to a market “crash.”
I slept like a baby too, Sara — even though my mining stocks took it in the shorts.
I don’t remember that old J.G. Wentworth ad ending like THAT. **LOL!**
I know, right?
I think those with wisdom split the difference. 24 months in cash for operating expenses to ride out the election and virus.
Lock in a HELOC at a low rate so I can build me one of them tax shelters if Bernie gets elected. May be cheaper to run on credit than pay the investor tax.
Wall steet narrative of sectors not tied together just got tested.
I like a good test now and then to shake things up.
As far as gadgets. How about a gold coin machine. You put in the coin and it gives you a pre paid debit card. 3.33% fee. Maybe placed on a brinks truck and pulls up to the house once a month. Do those guys still carry machine guns?
Like always we here in Penzonia will find a way to live long and prosper. We know the world has ended when you can’t get a cold beer and model train parts.
: )
Duke: No HELOC for me, but I am waiting to pull the trigger on refinancing my mortgage into a new 30-year loan to get my payment even lower than it is now ($640). I heard an ad on the radio earlier this week advertising a no-cost 3.375% APR/APY 30-yr mortgage — which would take my payment down to about $530 per month. The thing is, I think rates are going to fall much lower than that over the next month or so. If I play my cards right, I believe I can get a payment around $490 or less before the Fed loses control and these ridiculously low interest rates disappear forever. Not bad for a nice home in a nice Southern California bedroom community, folks!
As for model train parts (you obviously listen to me on the Stacking Benjamins podcast!), I have enough of those in my closet to open my own hobby shop.
This blog for responsible people shows instance after instance where people who are in financially sound condition are able to exploit opportunities to enhance their condition.
Exactly RD. Thats why I call it Penzonia.
Penzonia-the state or condition where one has reached a point to exploit the exploiter and enhance there own and others lifestyle.
Tom Sawyer new that so well. Alot of folks paying to paint the fence!
Well the FED showed its hand this week. Guess you played your cards and got an early bonus.
Regarding refusal to buy Corona beer: I’d love to see a picture of the 18% cohort!
I had a couple of cold Corona’s with lime today, Dave.
“So buckle up, folks this is only the leading edge of a very big storm.”
We’re living in interesting times, aren’t we?
That we are , Cowpoke. That we are.
Looks like the BOJ stepped in instead of the Fed today. A dead cat bounce was bound to happen anyway but the BOJ stimulus didn’t hurt.
Yes … big day today. Biggest point gain (+1294) for Dow in its history.
It’s most likely a bull trap.
One of my favorite quotes. You can ignore reality, but you cannot ignore the consequences of ignoring reality.
Ayn Rand was a very wise woman.