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.
Here we are, more than a fortnight into the ongoing financial market meltdown. I wish I could say otherwise, but the reckoning is finally here; the piper is at the door and it’s time to pay up.
We’re now entering into an economic depression that I believe will ultimately be deeper than the Great Depression that kicked off in 1929. Returning to a monetary system based on sound money is the only way we’ll get out of the current mess that has taken us five decades to get into. The sooner our politicians can make that happen, the sooner our prosperity — and previous standard of living — will return.
A financial panic is a very bad thing, but a government panic can do far greater damage in a far shorter time.
— Tom McClintock
Credits and Debits
Credit: This week’s kick-off question is posed by macroeconomics guru par excellence, Bill Holter: “What happens when the most over-levered global economy in history shuts down for a month or more? Global bankruptcy. It’s over folks; the system is coming apart at the seams and the promises’ are being laid bare. Which promises? All promises. This is not a drill folks — Humpty Dumpty has fallen and the supply of super glue is gone.” Egg-zactly. Ahem.
Debit: Did you see this? Last week YahooFinance claimed that “gold has been stripped of its safe haven status.” Sure it has. Folks: Don’t be misled by these clueless financial journalists posing as macroeconomic “experts” — they wouldn’t recognize Exter’s pyramid if it smacked them upside their empty skulls. Paper gold contracts have never been a safe haven — but physical gold will always be a secure port that provides shelter from any monetary storm.
Debit: Speaking of dubious safe havens, despite massive cash injections from the Fed, the US Treasury market is no longer functioning properly. In fact, recent Treasury market moves have been staggering, and belie just how illiquid they’ve become. On Monday, 30-year yields had the biggest intra-day decline since October 1998. Folks, that’s what happens when the wheels come off the clown car known as the global financial system. Let’s go to the tape:
Debit: Meanwhile, the Fed has replaced fractional reserve banking with no reserve banking — that’s right; zero, zip, nada, none — and 0% interest rates. What does that mean — aside from the fact that the Fed is in outright panic mode? It means thousands of banks are now free to create limitless loans, regardless of cash deposits. Apparently, the Fed is so desperate that it is now stealing pages from the Zimbabwe Central Bank’s monetary policy playbook.
Credit: As Peter Schiff notes, completely eliminating the banks’ already-paltry reserve requirement would never be possible without the moral hazard provided by FDIC insurance. After all, if people knew their deposits weren’t going to be backstopped by the government, they’d do their due diligence before turning over their hard-earned cash to any bank. And that, in turn, would force banks to be more responsible. At least those that wanted to remain in business.
Credit: For his part, asset manager Sven Henrich wonders, “How fragile must our financial system be that it requires 0% rates, $700 billion in QE, $500 billion in repos and it’s still not enough? Just four weeks after all time highs in markets America is again turning into bailout nation. We’re supposed to be prepared, with savings and great balance sheets. Is that really too much to ask?” Apparently it is, Sven.
Debit: Oh, and this just in … Please be sure to read it twice. That daily number is not a typo. Incredible!
NEW YORK FED SAYS IT WILL OFFER $1 TRILLION IN DAILY REPO OPERATIONS FOR REST OF THE MONTH
*Walter Bloomberg (@DeItaOne) March 20, 2020
Credit: This week Franklin Sanders observed that, “The Fed and the government are wholly, utterly terrorized. That’s what these never-before-seen (monetary and fiscal) policy moves mean, but they won’t help. What they do mean is that the Fed and the US government are going to destroy the dollar trying to ‘save’ the economy. It won’t work.” No; it won’t. The “good” news is when they do finish destroying the dollar, they can blame it on the coronavirus.
Credit: It’s not just the Fed and the pols in DC who are in crisis mode; Wall Street is too. After eight consecutive days of 1000-point minimum closes on the Dow — both up and down — the market took a breather on Thursday after it gained a relatively measly 188 points. Then, just when some thought the wild volatility might finally be calming down, on Friday the Dow promptly plunged 913 points.
When you think you’ve figured out the market’s rhythm, but then the market does something completely unexpected.pic.twitter.com/DE7Tb3tkdV
Sven Henrich (@NorthmanTrader) March 20, 2020
Debit: For the week, the Dow was down 17.4%. (That’s not a typo, folks.) It also just completed its worst four-week run since 1929, continuing the sharpest stock market selloff in history. And yet the market is still over-valued, with total market cap to GDP now just retesting the peak levels of the housing bubble that was raging in 2007. Imagine that.
Debit: Of course, as macroeconomist Alasdair Macleod notes, the root of the current market crash lies with central banks that propped up asset markets and hollowed out the real economy. And artificially low interest rates led to massive capital misallocation. The US shale oil industry is just one example — WeWork and Tesla are others — but the oil market crash suggests that the era of runaway malinvestment is about to meet a disastrous end.
Debit: By the way, there are $19 trillion worth of corporate debt maturities coming due this year — a good portion of which is very malodorous bad debt. With that in mind, will banks even have the liquidity to make new loans to these dubious corporations? If the banks begin worrying that a run on them is in the cards, then probably not.
Credit: Macleod continues to warn that we’re now “into the final act of a financial global market tragedy: the destruction of a financial system built on the sands of fiat currency expansion and debt financing. It’s a drama that has run on hope for 100 years, and it appears to have an unexpectedly sudden ending.” Hey … does anybody remember when the dollar was as good as gold?
Credit: The amount of “temporary” cash the Fed is now pumping into the system to keep it from imploding is astronomical; it has committed to at least $13.5 trillion — that’ s more than half the National Debt accrued over 250 years — just through April 13th! With numbers like that, it’s no wonder that asset manager Egon VonGreyerz announced that, “The end of the financial system as we know it is guaranteed.” It’s hard to disagree.
Debit: On Thursday alone, the Fed injected more than a month’s worth of previous QE in one day. So buckle up and watch the show folks. The coming months are sure to be full of more shock and awe: trillions in QE, corporate bailouts and even helicopter money for the proles on Main Street, followed by a wicked devaluation of the dollar — at best — and the end of our artificially-high standard of living. And you can take that to the bank. Assuming it can stay open.
By the Numbers
Bear markets of the past do provide a roadmap of sorts for the types of declines investors can expect. The S&P 500, at its bear market closing low Monday, was 29.5% below its record high. And through Thursday, the median stock was down 50% from its highs. Here are the six biggest bear markets, as measured by the S&P 500:
-28% 1961 – 1962 (duration: 6 months)
-33% 1987 (3 months)
-36% 1968 – 1970 (18 months)
-48% 1973 – 1974 (21 months)
-56% 2007 – 2009 (17 months)
-86% 1929 – 1932 (34 months)
Source: CNBC
The Question of the Week
[poll id="313"]
Last Week’s Poll Result
Has the recent stock market plunge affected your retirement plans?
- No (80%)
- Yes (11%)
- Maybe (9%)
More than 2300 (!) Len Penzo dot Com readers answered last week’s poll question and it turns out that, for 4 in 5 of them, the recent stock market plunge has not affected their retirement plans. That’s great news. On the other hand, 1 in 9 readers have indeed had their retirement plans altered, presumably in the form of a delay.
If you have a question you’d like to see featured here, please send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.
This Week’s Sponsor: File Taxes Online with H&R Block!
The tax deadline has been pushed back a few months — but if you’re expecting a refund, why wait? Remember, 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. And you can get 25% off when filing online by simply clicking on the banner below.
H&R Block makes filing your taxes easy!
Useless News: Reminiscing
A woman became impatient while sitting in the car waiting for her husband to collect his tuba from a storage locker. Eventually, she decided to go in and find out what was taking so long.
Inside the locker she found her hubby sitting on an old sofa, deep in thought, with his head down, staring at an old photo of his first car.
Then she saw him wipe a tear from his eye.
“What’s the matter, Honey?” she asked.
He said, “Do you remember 20 years ago when we were dating and you were only 16?”
“Of course.”
“And do you remember when your father caught us in the back seat of my car?”
“I do.”
“Do you also remember how your father shoved that shotgun in my face and told me, ‘You’re either going to marry my daughter or spend the next 20 years in prison!'”
“Yes.”
Her husband then looked up before wiping another tear from his eye. “Well … I would have gotten out today.”
(h/t: Sam I Am)
Other Useless News
Here are the top — and bottom — five Canadian provinces and territories in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. Newfoundland & Labrador (1.60 pages/visit)
2. Nunavut (1.50)
3. Alberta (1.49)
4. Manitoba (1.42)
5. Quebec (1.38)
9. New Brunswick (1.25)
10. Northwest Territories (1.20)
11. Prince Edward Island (1.11)
12. Saskatchewan (1.05)
13. Yukon (1.00)
Whether you happen to enjoy what you’re reading (like those crazy canucks in Newfoundland & Labrador, eh …) — or not (ahem, all you hosers living on the frozen Yukon tundra) — 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 me at: Len@LenPenzo.com
Hel Stone left this comment on my article explaining why college students take loans they can’t repay:
It’s a disaster how expensive education is today. A lot of smart students can’t afford college because they have no money. It’s absurd.
Well … the good news is a lot of smart students avoid college even if they do have the money.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: stock photo
Hi Len,
I think you’re right. The system is definitely on the heart/lung machine and even that is starting to sputter. I’m glad all my savings are in silver and not in paper money.
Sara
You are going to have to wait several months from for your precious metals now. I suspect it will be that way until just before the fiat system kicks the bucket. Then it won’t be available at any price. Be thankful you have what you have!
Len, Thursday APMEX had junk silver in bags, minimum $2000 per order, for delivery in three days
Good to know, Dave!
RD:
Might note the size of that “bag”. Used to be, a bag meant $1,000 face amount of 90% US coins. But as silver price has increased, they’ve resorted to various sizes down to $50 in coin.
I see as of this evening (Sunday), they are out of ALL bags, says more to come in 25 March. Price: 16,316 FRN. A $1,000 face has 715oz of silver in it, so that puts the price per ounce at 22.82 FRN……9.99 FRN premium over spot price of silver !
Last time I bought bags (2006), they were around 3,500 FRN….(and I thought that was outrageous )AND they were selling for 50 cents/oz discount to spot !!
It’s just like you said Len. Now that the fed is out of bullets all that’s left is the printing press. And they are printing like mad now. $1 trillion a day??? $1 trillion???????? How long can that go on before everyone sees the king has no clothes?
I don’t know, Oscar. I wish I did. I do see a few people going out on a limb though; Alasdair Macleod, who understands macroeconomics as well as anyone, said this week that he thinks the current fiat system will be toast by the end of the year.
On the other hand, there are many more “mainstream” economists out there who believe this is just part of the business cycle and are still not questioning the integrity of the monetary system.
Frankly, I think they are blinded by normalcy bias. But we’ll see.
“The coming months are sure to be full of more shock and awe: trillions in QE, corporate bailouts and even helicopter money for the proles on Main Street, followed by a wicked devaluation of the dollar at best and the end of our artificially-high standard of living.”
You forgot to add high unemployment.
Yes. It’s hard to catch everything, Sam!
Nice Joke Sam I Am!
Up above, not your comment… that’s not funny at all!
Thanks, Brian! Sometimes I get lucky and pull a rabbit out of my hat.
Some of my kids are getting bored, being home-bound and all.
I told them to watch the Dow chart wiggle up and down and pretend they’re watching the Northern lights.
“After eight consecutive days of 1000-point minimum closes on the Dow — both up and down …”
LOL. That is so funny Grandfather. I will tell my children you said that.
” … the end of our artificially-high standard of living.”
Depends who “our” encompases, Len
Those who have been relatively self-reliant in low population-dense places in the country will live even more frugally, but not as much differently as urban and suburban dwellers will have to.
The good news is that the fiat money system is for a short time left, still relatively high-flown. Rural land is unfashionable and cheap. There’s still time to bail out with what’s left of your fiat “fortune” and live better with the proceeds.
I was specifically referring to those of us living in the United States of America, Dave.
I think 2020 is going to be one of those historical demarcations — especially here in the US — with respect to our living standards. The end of the era of “Living on Cheap Credit” is going to affect all of us — even those of us who live within our means and spend less than we earn. It’s just that we’ll be affected indirectly … and in many many ways. Many of which I can envision, and many more that I can’t.
Folks like Tennessee Andy and I live in the U.S.
I believe we have agreed that we will have an easier time of it than folks living in denser environs. Even though we raise a good deal of what we eat and manufacture much of our hard goods at home, we won’t get away scott free – there will be plenty of adjustments for us, too. Indirectly, as you say.
I miss Tennessee Andy. He hasn’t shared his wisdom with us on the comment board in a long time. 🙁
As Mark Twain once said “The reports of my death have been greatly exaggerated”
Life IS good here on the homestead, but we’ve had many decades to get ready for what was clearly to come.
Even we will feel the pain however….many things we use here and purchase thru the supply chain are going to go way up in price in the future, or simply not be available.
The ability to grow food I think will be critical in the coming months and years….just as it has been for thousands of years.
Hooray! And welcome back, Andy!! Glad to hear you’re doing well.
A less robust supply chain is one of those “indirect” effects I was referring to when I said this depression was going to affect even the most financially prudent among us.
Official PAPER silver is $12.59 but you can’t buy physical silver from any of the big bullion sellers without having to wait for months to get it – assuming you DO get it. You also have to pay $22 – $25 an ounce for it. PAPER price of silver AND gold has broken free from PHYSICAL price.
Actually, the physical price is beginning to free itself from the paper price — but your point is taken. Right now it is most pronounced in physical silver, but premiums are climbing for physical gold too.
Typical human nature. Now that the monetary system wildfire is knocking on their door, a rush of people have finally decided to buy their wealth insurance. Hope they’re not too late; and if they’re not, they’re going to pay a premium for it.
I just realized if this bear market is as bad as the worst one ever the Dow will be near 5,000! That’s crazy!
If you understand that much of the Dow’s gains were a result of cheap debt, that kind of plunge is not that crazy at all.
I told my dentist a few months ago the DOW and the price of gold would cross at some point, and he looked at me like I was nuts.
His office is now closed, BTW.
You say this depression is going to be worse. In what way? Appreciate your weekly insights. I’m sure a lot of people think you are a doom porn guy, but what separates you from the other personal finance bloggers I follow is that you seem to have a handle on whats going on under the financial system hood.
The saving grace during the Great Depression was that the monetary system was based on real money. The dollar was anchored to gold and therefore it was as good as gold. So falling asset and commodity prices were a boon to people who saved — and even more so for those who managed to stay employed, as their steady income meant their purchasing power increased with each passing day.
On the other hand … Since 1971, the dollar has not been linked to gold. It is a pure fiat currency; it is an IOU backed by nothing but faith. As a result, falling asset and a couple of key commodity prices (primarily oil) can’t be tolerated for very long without imploding the financial system. Looking back, I think it’s no coincidence the pin was pricked after oil plunged to $20 per barrel a couple of weeks ago.
It is my belief that the Fed has no choice but to print more to keep the system from collapsing on itself. Eventually, I think the massive printing is going to turn what is currently a temporary deflationary condition into a full-blown inflationary depression, brought on by a lack of confidence in the US dollar.
Unlike the Great Depression, this time people’s saved dollars will not be able to purchase more as the depression drags on — instead, they will see their saved dollars purchase less and less with each passing day. If it gets out of hand, it will continue until they are completely wiped out.
At some point, the Fed and the government must sharply devalue the dollar against gold to re-liquify their balance sheet. It is the only way out.
Thanks. That makes a lot of sense to me.
I believe in the power of the narrative as it grounds the mind and soothes the soul. The stories I tell myself are sometimes true and sometimes false. I wonder why we are always anchored to the great depression?
We really don’t understand the power of a balance sheet do we? Just keep the scales fair,
What struck me this week:
All the food I am supposed to eat was on the shelves.
If the average American did not have 400.00 for an emergency than what the heck did they use use to buy groceries and ammo?
What is more essential now? Keeping liquor stores open or schools? Who is essential? We find we all are!
I notice the rich get tested for the virus the poor do not.
Let me tell you there are some dark conversations behind closed doors. Do we use our parks for mass grave sites?
The Amish narrative looks pretty darn smart from where I am sitting.
Now for the climax.
What the heck was our privious standard of living?
Falling Action
Country music returns so we get our dogs and trucks back
We come to grips with an unpleasent narrative and create a new one
We chuckle at the big three saying we are hear to help with 0 down and 84 months. The American way lives on!
Its really tough to keep the beat on an off beat blog. Please be sure your tin foil hat has a silver lining?
: )
Thanks for your observations as always, Duke. They are a welcome counter balance to my weekly commentary.
Even though I assume your questions are rhetorical, I can’t help replying to a couple of them …
If the average American did not have 400.00 for an emergency than what the heck did they use use to buy groceries and ammo?
We’re only two weeks into this. And credit has not collapsed yet. Another answer is people are spending cash that has been redirected from businesses that were forced to close (restaurants, sporting events, amusement parks, etc.)
Please be sure your tin foil hat has a silver lining?
Long time readers know I have steadfastly maintained that monetary resets are temporary events; living standards tumble for most people and the uninsured see their paper wealth greatly diminished, but society eventually recovers. If we replace our debt-based monetary system with one based on gold (and Lord willing, silver too) — as it was prior to 1971 — then I expect most manufacturing jobs will return to America, the age of the Mom & Pop business will return (because most “big box” stores will be forced to shut their doors; local over global will be the new paradigm), and most people will once again be able to support a family on one income.
How’s that for a silver lining? 😀
: )
Spot on. No pun intended.
Basement worthy!
Len,
I’m at a loss of words!!! They are printing trillions of dollars yet the dollar is strengthening and now over 102 on the index. Meanwhile you can barely find any physical Silver anywhere and although it’s near $25 an ounce you can only sale it for about $12.50. It looks like these Banking Bastards are still in control to me or these insane prices wouldn’t be like this. I was thinking 2008 lows, but now I think this market is going to turn and make all time highs. Maybe then and only then when inflation hits will the masses finally wake up and realize the Dollar is just monopoly currency. Like I said the People or should I say Sheep are so very ignorant!
Sure Len will have words of wisdom. It happens every cycle. Just like used cars. Do the banking guys control mama at the store swiping her credit card she has not paid off? The joke is on each one of us because we thought we had a solution. Now we are all upset because our model forcast hinged on metal. Len you remember those guys runnin up the price of silver when we were kids? Silver dollars were goin for 20 bucks we all thought we were rich. Then we had all the 10 cent bottle deposit bottles and they quit paying deposits. Jared dont sell it to the guy buying at 12.50 find the guy buying for 25.00. I bought all my gold at 300 still have not sold it. Bought my house at 100,000 have not sold it for 250,000. Think you missed Len’s point its just a place to store wealth its insurance. Hopefully you did not over ensure your portfolio.
As Len said our standard of living will drop 30-50 percent. Just got to let the ole brain get off the high. As far as loss for words you will have them next cycle and be able to share them. Do you think the oil guys like giving their oil away for half price too? The guys that are setting pretty are ones with net worth in all weather portfolio. They were getting 4%-7% a year on there wealth while the market was getting 15-30. The banks dont want your cash or gold. They want you for 30 yrs for life. Len is correct about Fed an no choice. This virus is a different type of war we all lose. Some will lose family and friends some will loose wealth. Always enjoy your thoughts on here.
Prices cant be insane. Price is the truth in the moment. Amen
First off, now is NOT the time to be selling any precious metals.
That being said, if you must sell now … you’ll get your best price by selling on eBay and (possibly) at your local coin shop. For people who want to sell, I have noticed the American Silver Eagles are fetching closer to $18.00 at the moment at JM Bullion — they will only pay close to spot for generic rounds. That makes sense to me, since people always pay a premium for the government issued bullion when they buy.
Look … premiums are already at 100% over and above the fraudulent paper contract price. At some point, the spread will become so big that somebody is going to call COMEX’s bluff and ask for delivery at their quoted price, and they will be unable to deliver the goods. That’s when gold and silver’s true value will be revealed — and you’ll regret selling your silver for even $25 an ounce.
I just don’t see how the Dollar is showing so much strength at 102 when they are printing trillions every day!? What are people thinking????
Jared, the dollar is the world’s reserve currency — so demand for it is greater than all the other currencies at the moment (since most of the margin calls are in dollars). The dollar index (DXY) is at year-long high, but it is only a relative measure of the dollar against a basket of other fiat currencies; trash being compared to trash — it is not a measure of the dollar’s purchasing power against what is truly important: gold!
Len. Thank you for the post. The video was hilarious. Yes, it is the day of reckoning. I still try to understand your posts and monetary policy you explain. It has never been my strength. But just from high school Micro/Macroeconomics I remember learning that the concept of money is really fictional, it is what you or I decide something is worth. I feel so bad for the world, but I do have to say – our household feels a bit justified in how we’ve financially planned. I remember thinking, wow – if there is an apocolypse , folks who have actual skills are useful. If the end of the day, if I drained some kid’s abscess – maybe someone would give me potatoes? And then you can’t make more land, and half of our wealth has been in solid residential real estate. Always things that we would live in and I always got 30 year fixed morgages and put >30% downpayment and held for the long haul. So we are okay and in medicine busier than ever. Stay well and thank you for lowering my stress hormones /cortisol level with your great post and funny video!
Thanks, Dr. P. I have been telling my kids those who will do well in the coming years are those with the truly valuable skills others will be demanding even during bad times: carpenters, plumbers, electricians, doctors, dentists, and farmers.
Gold (and silver) is and will always be money; humans have determined that through 5000 years of history.