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.
The market turmoil continued this week, but the weekend has mercifully arrived. So relax and enjoy it — because Monday will be here before you know it.
Let’s get started, shall we?
If money isn’t loosened up, this sucker could go down.
— George W. Bush, 25 September 2008
We can guarantee cash benefits in any size and any duration you want. What we can’t guarantee is the purchasing power of those benefits.
— Alan Greenspan
Credits and Debits
Debit: Did you see this? Illinois wants to play catch-up with its rainy day fund at the worst possible time. Unlike the other 49 states that can run operations for a median of 28 days, using the combined $75 billion from those accounts, Illinois has just $58,655 in its emergency fund, which will keep the state running for, oh … about an hour. Heh. It’s hard to believe there are many households out there with bigger rainy day funds than Illinois.
Debit: Unfortunately, it looks like those rainy day funds will come in handy soon, as strategists are warning that US growth could come to a halt this year, with Treasury yields dropping below zero for the first time ever. In fact, Scott Minerd, the CIO of Guggenheim Partners, says even the 10-year Treasury yield could eventually hit zero this year. He may be right; it ended the week at just 0.77%. Wow.
Debit: Those rapidly-falling interest rates are a big reason why the Fed felt compelled to issue an emergency 0.50% rate cut of its own; and although they won’t admit it, the stock market was another. Now for the punchline: Soon after the Fed announced the emergency rate cut, the stock markets fell, while the gold price skyrocketed. Uh oh. You can bet that’s not what the Fed had in mind.
Debit: Despite the emergency rate cut, it was another difficult week for the major stock market benchmarks, as the Dow, S&P, and Nasdaq all saw their corrections deepen. They’ve now plunged nearly 15% from their respective highs less than a month ago. Then again, there were some high flyers this week: for example, Costco was up 6%. Imagine that.
Credit: So … After decades of unquestioned power, could the markets’ collective reaction mean the Fed is finally losing its grip on the markets? It sure seems that way. As Dave Collum notes, one thing the Fed certainly has lost is the last shred of any credibility it may have had left:
Totally serious: That the Federal Reserve is explicitly stating their job is to support the asset markets shows how unmoored to reality they have become. No price discovery? No fear of losing all credibility? No problem. That ship has sailed anyway. You guys are feckless.
Dave Collum (@DavidBCollum) March 3, 2020
Credit: For his part, Peter Boockvar, the CIO of Bleakley Advisory Group, says: “The so-called ‘central bank put’ is now worthless. The economic fundamentals have taken over and that’s what will drive markets.” On the other hand, as long as the Fed can keep fooling the math wizards in the mainstream media, the perception that the Fed still has control of the markets will continue …
One way to get rich is to keep asking Brian Williams to give you two tens for a five. https://t.co/wOncG9FckQ
Frank J. Fleming (@IMAO_) March 6, 2020
Debit: Of course, maybe the Fed is still in charge here. But as Sven Henrich warns, “Central banks are still at risk of losing control, having left themselves vulnerable, always intervening at the first sign of trouble, and now they have precious little ammunition to deal with a real emergency if coronavirus is turning into something much more serious.” After all, it only takes a second to go from being in control to, well … not:
Credit: Speaking of something serious, Alasdair Macleod says that despite the recent rush into US Treasuries that’s led to record-low yields, at some point yields will get so low that foreigners will dump the bonds, spiking yields and leaving the Fed as the only buyer. Macleod warns that those rising yields are “likely to destroy US financial assets and the dollar, as well as all other fiat-currencies and their financial markets.” But he’s an optimist.
Debit: By the way, in case you haven’t noticed, the system actually died way back in 2008, hastened by the absurdly stupid repeal of the Glass-Stegall Act in 1999, which had banned productive banks from making speculative investments. Sadly, despite all of the so-called reforms that were implemented after the Great Financial Crisis, the system was never fixed. But even Stevie Wonder can see that now.
Credit: So with the Fed having panicked into using 50 of its final 175 available basis points earlier this week, what’s the status of our sputtering debt-based monetary system now? According to Mr. Henrich, “The situation is unprecedented and concerning. We’ve never faced a global recession with so much debt and so little ammunition. And so all this may just turn out to be the last hurrah.” Yes. But then comes the hangover …
Debit: Last hurrah, indeed. I’ll let Franklin Sanders have the last word this week, as he summed up the current situation perfectly: “Like Krakatoa, the next financial crisis has erupted. But all this is no more than the first smoke rising through the fissures. The big explosion is yet to come.”
Last Week’s Poll Results
Is the 10-year bull market in stocks finally coming to an end?
- I’m not sure. (45%)
- Yes (35%)
- No (20%)
More than 1900 Len Penzo dot Com readers responded to this week’s question and it turns out that 1 in 5 of them believe the long-running uptrend in stocks is just taking a breather. On the other hand slightly more than 1 in 3 think the stock market bull has finally been gored. Only time will tell … although I believe the answer is completely dependent on how much more funny money the Fed is planning to inject into the economy.
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
By the Numbers
Tax season officially opened on January 27, 2020 — but federal taxpayers still aren’t rushing to file, based on the latest statistics released by the Internal Revenue Service (IRS):
28,662,000 Tax returns received through February 7th of this year.
0.4% Percentage decrease in returns compared to the same period last year.
7.0% Percentage decrease in returns compared to the same period two years ago.
39% Percentage of processed tax returns through the first two weeks that resulted in a refund.
42% Percentage of processed tax returns through the first two weeks of 2019 that resulted in a refund.
59% Percentage of processed tax returns through the first two weeks of 2018 that resulted in a refund.
$1952 The average federal tax refund among qualifying returns so far this year.
0.2% Increase in the average tax refund compared to the same period last year.
Useless News: Television Shopping
A blonde walks into Best Buy looking for a television. While carefully inspecting a floor model that she decided was exactly what she was looking for, a salesman walked up to her and told her that the store didn’t serve blondes.
Undaunted, the next day the blonde walked back into Best Buy; but this time she wore a red wig. She then flagged the same salesman and asked him if she could buy the television. Once again he said, “We don’t serve blondes.”
Disappointed, the blonde took off her wig and asked the salesman how he knew she was a blonde.
The salesman replied, “Because this is a microwave oven.”
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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 my article highlighting 18 facts about ATM machines, Rose left this comment:
Thank you for sharing all these … they really help those of us without the knowledge gene.
Speaking of genes, I’m still trying to figure out if there’s any truth to the rumor that DNA editing was invented by Gene Hackman.
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