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.
And the financial crisis rages on, so let’s get right to this week’s commentary …
There is no cholera, no yellow-fever, no small-pox more contagious than debt.
— Anthony Trollope
Will I say there will never, ever be another financial crisis? No, that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes — and I don’t believe it will.
— Janet Yellen, Fed Chair, 27 June 2017
Credits and Debits
Debit: Don’t look now but, after 11 long years, the bull market in stocks is officially dead, with the fastest draw down from market-peak to bear-market in history, and the worst start to any year since 2009. In fact, in the 15 trading days through this past Thursday, the S&P plunged an astounding 27% from the all-time high it established in late February.
Debit: Overall, it was the market’s worst week since 2008, while the small caps’ 20% crash is its worst since 1987 — and its three-week plunge of 30% is the worst ever. And the broadest measure of the US equity market — the NYSE Composite Index — ended the week below its 2007 highs — despite the biggest one-day spike on Friday in 12 years.
Debit: Of the Dow’s eight largest daily point losses, six have occurred since February 24, 2020. Wednesday’s ranked number three, down 1464.94 (-5.9%) and Thursday’s was number one, plunging 2352 (-10.0%). “Black Thursday” was also the Dow’s fourth largest percentage loss in history, right behind Black Monday on 19 October 1987, and 28 & 29 October 1929.
Credit: If you ask asset manager Sven Henrich, he’s warning that, “This is not 2000; this is not 2008 — this is an entirely different beast. And its angry; very angry. These next few weeks, days — and even hours — may be absolutely critical.” If he’s right — and I strongly suspect he is — there will be plenty of scenes like this happening in the coming days and weeks:
Debit: The panic on Wall St. is palpable. JP Morgan is warning that they “see signs of emerging credit and funding stress.” They also noted that if that stress is sustained over the coming weeks and months, then “credit channels might start amplifying the economic fallout from the COVID-19 crisis.” Or, as Zero Hedge put it: “In other words, if you think the equity plunge so far has been bad, just wait until the credit markets fully seize up.”
Credit: By the way, if you’re looking for an optimistic view to soothe your nerves, you won’t get it from asset manager Egon VonGreyerz. He, too, is warning that, “This is it; the world is now facing the gravest economic and social downturn in modern times. The era of money printing and unlimited credit driving asset prices to ever dizzier heights is over.” You’re probably right, Egon — just don’t tell that to the Fed.
Debit: On Thursday the Fed announced a cumulative increase in their cash-injection programs to about $4 trillion total per month, which seems to suggest that a too-big-to-fail bank failed behind the scenes. And now for the punchline: That massive injection by the Fed failed to stop the market carnage on Black Thursday. Uh oh.
Credit: Oh … and if you’re looking for some context on the Fed’s most recent attempt to save the markets — not to mention our fraudulent, bug-riddled and inherently-self-destructive, debt-based monetary system — this tweet sums it up perfectly:
Panic at the Fed. To put the panic into context $1.5 trln in repo operations is larger than QE1 and 2 and just a hair less than QE3…
Michael Lebowitz, CFA (@michaellebowitz) March 12, 2020
Debit: Meanwhile, on Friday a closely-watched indicator of interbank dollar funding stress inexplicably soared above all prior crisis levels hit in the past decade — and back to levels last seen during the 2008 financial crisis. It’s yet another sign that the Fed’s gargantuan liquidity injection on Thursday didn’t fix whatever has broken behind the scenes. It also prompted this response from the governor for the Federal Reserve Bank of Dallas:
Credit: Of course, the Fed is now desperately trying to keep ahead of plunging bond yields. But, as Peter Schiff notes, after taking interest rate hedging costs into account, it no longer makes sense for foreign governments to buy US Treasuries because it overwhelms the pitiful yields now being offered by them, so why would foreign creditors accept these near-zero yields? And if they don’t, how will the US finance its debt? (Answer: By printing more dollars, of course!)
Credit: Here’s what the financial tea leaves are telling David Stockman: “The jig is up. Thirty years of financial and economic fantasy is coming to an end. False economics, unsound money, rampant debt, and speculation is bringing down the entire system. The real disease we’re facing isn’t COVID-19 — it’s runaway financialization, driven by central banks since 1987.” Yes … although the late great George Carlin could have told you that:
Credit: But wait; there’s more. As Jacob Hornberger notes, “The never-ending cycle of monetary crises and chaos shouldn’t surprise anyone. There are no short cuts to prosperity. Resorting to a central bank to ‘stabilize’ or ‘boost’ the economy through monetary manipulation is a fool’s errand.” And with the world facing a critical shortage of good collateral, no amount of additional liquidity can fix that. Well … without destroying the dollar.
Credit: So how do we get out of this mess? Hornberger says ending the Fed is the only way we can return to a society based on real economic prosperity, capital accumulation and free trade because, “The Fed is a socialist institution that centrally plans the monetary affairs for millions of people. (But) it can’t be done — it’s an inherently defective system that’s produced monetary crises and chaos since the Fed was established in 1913.” Truer words were never spoken. Now who’s going to pull the trigger?
By the Numbers
Despite the big day on Friday, the stock market had a horrible week. Here are some facts on the carnage:
-9.4% The Nasdaq’s one-day return on what is now being called Black Thursday.
-9.5% Thursday’s return on the S&P 500; its worst day since Black Monday in 1987.
-9.99% The Black Thursday return on the Dow Jones Industrial Average. That was its biggest percentage decline since 1987.
-18% The four-day decline in the S&P between Monday and Thursday; that was the worst-ever four-day performance for the index.
-17% The Dow’s four day-losses between Monday and Thursday.
-7.0% Gold’s four-day losses between Monday and Thursday.
-48.5% Bitcoin’s four-day losses between Monday and Thursday; that’s not how a so-called safe haven behaves.
Source: Yahoo! Fianance
The Question of the Week
[poll id=”312″]
Last Week’s Poll Result
Which of these hard assets do you currently own? (click all that apply)
- Primary Residence (46%)
- None (34%)
- Land (6%)
- Precious Metals (6%)
- Rental Property (5%)
- Art or Other Collectibles (3%)
More than 2500 (!) Len Penzo dot Com readers responded to last week’s question and it turns out that, when it comes to hard assets, almost half of them have a primary residence. On the other hand, 1 in 3 have none at all. As expected, the number of Len Penzo dot Com readers who own physical precious metals is more than 10 times that of the general investing public. After all these years, I’d like to think that my message is getting through!
This week’s question was suggested by reader Frank. 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: The Mouthwash Salesman
A neatly dressed salesman stopped a man in the street and asked, “Sir, would you like to buy a a bottle of this mouthwash for $200.00?”
Aghast, the man said, “Are you nuts? That’s highway robbery!”
The salesman seemed hurt and then tried again. “Sir, since you’re a bit irate, I’ll sell it to you for half-price at $100.”
Again, the man replied bluntly, “You must be crazy pal; now go away!”
The salesman then reached into his briefcase and pulled out two brownies and began munching away on one of them. He then said to the irate guy, “Sir, since I annoyed you so much, I would love it if you’d have one of my brownies.”
After thinking about the salesman’s offer for a few seconds, the man agreed. The man took a big bite of the brownie, only to spit it out almost immediately. “Hey!” the man said to the salesman, “This brownie tastes like crap!”
“That’s because it is!” replied the salesman. “Would you like to buy some mouthwash?”
(h/t: Salamander)
This Week’s Sponsor: File Taxes Online with H&R Block!
Thank you to those who have been supporting my website by taking advantage of the H&R Block offer below.
The tax deadline is now just one month away, folks! The good news is you can file taxes from anywhere with Block by your side. H&R Block is a leading global consumer tax services provider with over 60 years of tax experience. You can get 25% off when filing online by simply clicking on the banner below.
H&R Block makes filing your taxes easy!
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. New Mexico (2.82 pages/visit) (!)
2. Arkansas (1.93)
3. Maine (1.92)
4. Alaska (1.83)
5. Michigan (1.81)
46. Vermont (1.32)
47. Illinois (1.28)
48. Wyoming (1.20)
49. Hawaii (1.14)
50. Montana (1.11)
Whether you happen to enjoy what you’re reading (like my friends living in New Mexico) — or not (ahem, Montana) — please don’t forget to:
1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!
2. Make sure you follow me on Twitter!
3. Subscribe via email too!
And last, but not least …
4. Please support this website by patronizing my sponsors!
Thank you!!!! 😊
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
Somebody calling himself Gil Wanchai, who supposedly works for a company called “High Speed Delivery Service,” had some really good news for me earlier this week:
“I’m notifying you about a compensation payment of $2,811,041. Please contact us with your name and address to arrange delivery of your money.”
Great. Please make sure it’s in 10s and 20s. (Sheesh. Do people really fall for this stuff?)
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
What does this make possible?
What are the best questions right now?
Is digital currency safer? You dont have to touch it.
What can we learn from farmers and bad crop and market years?
How do we invest all the money we are not spending on low gas prices?
Who gets to say all clear?
Will home projects ramp up? Run on hobby lobby and home depot? The honey do lists will be crazy for kids at home and the spouses that think the other spouse needs something to do?
Great time for a country song. Cause right now my dog dont care, spring flowers and birds dont care and finding love in the drive up virus swab lane.
Think thats enough for now : )
Okay, Duke. I’ll bite. To answer your questions …
There is opportunity in every crisis.
What is real wealth?
The current crop of cryptocurrencies are not real wealth — they are speculative assets; blockchain technology is a better place to focus one’s investments.
Regarding farmers: it’s important to have a hedge.
Right now, I think one should make sure they spend their windfall on more important items (extra food, water, medicine, essentials) before jumping into financial “investments.”
Only trust yourself.
Since most everything else is shutting down, I do suspect home projects and other honey-dos will be ramping up.
Regarding the country song … you first, Duke. I can’t sing.
Hi Len, and what a week, eh?! I have to say, thanks to websites like yours and a few others, my husband and I kind of sat back and relaxed as others panicked this week. Our debts are paid, we left Big City Chaos upon retirement, and we have everything we need (home, garden, security, estate plan in place, even some ‘wealth insurance’.) So thank you for your articles; they’ve made a wonderful difference for us! :o)
I hear ya, Lauren! And thank you. I agree on the importance of having everything in order before a crisis hits: not just financially, but also in terms of preps. While everybody else has been out fighting large crowds and scrambling to buy TP, groceries and other essentials, my family has been at home watching it all unfold from the relative comfort of our home. Although we’ll continue to shop when we need to, it’s comforting to know that being proactive means we’re prepared to shelter in place for many months if need be.
Always be prepared, folks! We can’t account for every contingency, but there is no excuse to not have the basics covered: food and water at a minimum.
Hi Len,
Weeks like this make me more convinced than ever that the dollar is doomed and a new system is coming. What’s strange is all my friends are only worried about the coronavirus than the financial system!
Sara
Sara,
Everything is falling except the value of the Dollar! Stocks, Gold, Cryptos, Everything! It still looks like the same ole BS system to me is alive and well. The supposed safe havens are getting annihilated. I am wondering if I am the fool thinking that we could go back to a Constitutional money standard with so many ignorant sheep nowadays. Im very frustrated because even when I’m thinking about adding to the stack premiums don’t reflect the price annhilation, although silver is $14 you can get an eagle anywhere less then $20!
Ok, I’m finished ranting.
Feeling defeated in Virginia
What you going to do with your kiddos that school is out?
Put that force to work!
Cleaning, delivery, yard work, power washer let them think of a way to make money and invest in that.
Hell car wash is 12 bucks…they can figure out a way to wash cars for 6 bucks and make money.
Elearning, texting, video games is not going to cut it
Jared,
You have to ask yourself why you bought silver/gold in the first place? I keep my sanity by not looking at the dollar value of my silver stack. It’s all about the number of ounces I own!
Sara
Jared: It’s all about strength of conviction, my friend. I sleep like a baby because my conviction is unwavering. I know where this is all headed, so I don’t get caught up in the daily price machinations of precious metals (or the mining stocks, which have utterly decimated my portfolio this week).
Remember, the “price of silver” you are quoting is determined on “paper” silver market — not the physical market. I just checked APMEX, and silver eagles are selling for about $20 each — even though the “official” price of silver quoted by the COMEX is $14.74.
JM Bullion just reported that Thursday and Friday was their two biggest volume days in a long time. APMEX is citing a three day delay just to process new orders. Physical precious metals demand is off the chart right now. I suspect soon people will be stuck with 8 week delays to receive their metal like during the last crisis — if they can get any at all.
Record demand, but prices have been falling. What a scam!
I can buy a one ounce gold eagle for $1613 while the spot price is $1531 which is about right so your argument doesn’t hold up. These metal dealers are gouging the panicked consumer right now and those consumers will discover in a couple of weeks that they have been ripped off.
I gave up reading King news with Eric Von G… and company. Their predictions never come through and their assurance that gold will hit $2000/ounce and higher will never happen. Precious metal prices can easily be controlled (as we see) by several different methods. One is by the government! I bought into the gold/silver “insurance” theory to protect my retirement funds but can see now it is no insurance at all. I predict (like Eric) that precious metals will fall even further over the next few weeks. Time to find a better strategy. Maybe toilet paper.
Rick, there are shortages of some products at many precious metals dealers right now — and that is WITH those rising premiums. Why? Because the price of physical is being artificially held down by naked shorting by the bullion banks on the paper markets. If the price was being fairly determined by the free market, there would be no shortages and premiums would be stable.
Also, I am curious: Did you really buy precious metals for insurance? With all due respect, it doesn’t sound like it to me. Do you cancel your home owners insurance if the premium suddenly changes price? The current dollar price of gold and silver is irrelevant if you have it for insurance purposes; precious metals are insurance that is designed to pay off in a currency collapse. If the dollar implodes, they will enable you to preserve and transfer your wealth — specifically, paper “wealth” that would otherwise be wiped out — to a new currency/monetary system. See this chart for an example how that works: GOLD INSURANCE PAY OUT DURING WEIMAR HYPERINFLATION
I don’t know about you, but the dollar’s purchasing power and position as a viable currency is looking more risky to me with each passing day.
Yeah … the real threat is the potential for the financial system’s implosion. Frankly, my opinion is the coronavirus hysteria is overblown. My tin foil hat says it is intended to be used as the cover story for the coming financial reset. Rather than accept blame, the powers that be will point to the virus as the reason. We’ll see.
Born in 1931. Remember Mom crying as Dad was laid off from job after job – for ten years! – until the WWII boom started.
So, I constructed my life from early on to remain as independent of the economy as reasonably possible and the booms and panics have passed me by.
As you’ve taught us again and again, Dave … there is something to be said for investing in that which can be enjoyed during acquisition and throughout life, as opposed to papers in a drawer, like stocks and bonds. For those who are interested, check out Dave’s writings here: https://lenpenzo.com/blog/grandfather-says
I’ll echo Sara and Lauren. “What a week!” These are the times to realize the most important things in life isn’t net worth – it’s friends and family. This too shall pass.
Well said, Cowpoke.
Anyone remember Warren Buffet’s “financial weapons of mass destruction” aka derivatives? It’s finally here. There is no getting out of this and they know it. It’s no coincidence that the coronavirus “crisis” is now here. That’s going to be their scapegoat when it all comes down.
I think you may be on to something there, DK. A few people have been saying that the big move in bonds has blown up trillions and trillion of interest-rate-swap derivatives, which would destroy the banks that sold them. I completely agree with you on the vius being a scapegoat. It seems obvious to me — but I wear a tin foil hat.
I feel your pain on the mining stocks Len. It was armageddon yesterday! Double digit losses.
Yeah … I’ll be licking my wounds for awhile. 😀
Len, how low do you think the stock market is going to fall? Or is the worst over? That was a pretty impressive run up at the end of the day on Friday.
Kenny, if I had that kind of insight, I’d already be on a beach on my own private island!
The only prediction I will make (and have been making here for several years) is that I expect the Dow:Gold ratio to eventually fall to 1.
“You have to ask yourself why you bought silver/gold in the first place? I keep my sanity by not looking at the dollar value of my silver stack. It’s all about the number of ounces I own!” – Sara
Right on Sara, Additionally, take comfort in the fact that your notion of the “dollar value” of your Gold (falling lately) may be based on DERIVATIVE PAPER GOLD, not the physical metal. Physical metal price is now decoupled from paper gold pricing:
https://www.zerohedge.com/commodities/price-physical-gold-decouples-paper-gold
Fed just cut interest rates to ZERO.
Save your fiat money boys, the Dow will rise again!
More importantly, they announced the start of QE5 … they’re admitting to $700 billion, plus currency swaps with other nations.
The debasement of the dollar is once again in overdrive. The only question now is when does confidence finally go belly up? I suspect sooner than most people think.
The Fed has no more bullets left.
Watch interest rates on the long end … when they start climbing on a steady and sustained basis, we’ll be in the final stages.
Um … S&P futures have crashed limit down.
The Fed is going to need a bigger bazooka. Oh, that’s right … they’re out of ammo. We may be closer to checkmate than even I suspected. Keep watching the long end of the interest rate curve over the coming weeks.
It would seem that the only arrows that the Fed have left in their quiver are rubber tipped. This is looking like a long dark ride ahead.
After today, I wouldn’t be surprised if the markets close for the rest of the week in an attempt to stop the bleeding. Who knows, that would give them time to set up an international conference to discuss a monetary reset — the game is almost over, folks. Now we just need everyone who is in a position to change things to be brave and admit it.
I like the idea 30 year 3% war bonds.
Every one gets those instead of cash.
You can chose to sell or trade for gold
With all trillions of US dollars the Fed is now printing and spreading throughout the world to keep the system from imploding, would you really buy a 30-year bond denominated in US dollars with a 3% coupon? Not me.