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.
Don’t be fooled by this week’s market rebound — the monetary system is flat-lining and the Fed and Congress will not be able to revive it. The only question now is how long the US government and its increasingly impotent central bank remain in denial. Their refusal to acknowledge reality could go on for many many months — so don’t be surprised if they foolishly decide to look the other way until hyperinflation rears its ugly head.
Gold is an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters, upon an account which is not theirs, upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account Overdrawn.’
– Ayn Rand, Atlas Shrugged
All paper money eventually returns to its intrinsic value: nothing.
Credits and Debits
Debit: Did you see this? Economists for Credit Suisse are saying that because there’s no blueprint for the economic shock we’re now experiencing, future economic data won’t just be bad — it’ll be unrecognizable. They say “anomalies will be ubiquitous and old statistical economic relationships between market and macro data won’t always hold.” Then again, most economists couldn’t agree even when the data was highly correlated.
Credit: Market analyst Dave Kranzler notes that whenever the most reckless hedge funds have the rug pulled out from them as they did during the market crash of 1987, and the Long Term Capital Management Crisis in 1997, then “the biggest charlatans of modern money management start crying for the Fed and the government to bail them out.” Funny how that works. It’s part and parcel of a fraudulent system that’s in its death throes.
Debit: Unfortunately, the Fed’s decision to continually step in and reward that kind of reckless financial behavior has finally backfired. In case you haven’t noticed, those daily $1 trillion repo operations are, as Zero Hedge notes, “nothing more than the Fed preemptively bailing out all those over-levered hedge funds that would have otherwise imploded.” Oh … speaking of reckless behavior that backfired:
Debit: So the hedge funds now have the bankers over a barrel. In fact, the BIS — the central banks’ central bank — is warning that “any sustained disruption in the repo market could quickly ripple through the financial system.” Ain’t that great? Essentially, the BIS is admitting that the fiat currency printing presses must remain on overdrive forevermore to keep asset prices from falling into the abyss.
Debit: Meanwhile, in addition to endless repo support, the Fed announced this week that it would also purchase an unlimited amount of US Treasuries and mortgage-backed securities in order to prop up the financial market. Officially, the Fed said it would “buy assets in the amounts needed to
stave off economic collapse support smooth market functioning and effective transmission of monetary policy.” So relax, folks. The Fed’s got this. No, really.
Debit: I know what you’re thinking: So how can we quantify the Fed’s unlimited purchases? Well … the Fed says its new QE program will print $125 billion per day — and that’s just for starters. For perspective, QE3 was $85 billion per month. If that much cash can be conjured out of thin air every single day, what does that say about the true value of the US dollar? Hey … I’ll bet this guy knows:
Debit: Now here’s another question for you: If the Fed has no choice but to become a major player in the markets to keep them from imploding — yet again — then what is the point of having markets at all? Take your time answering. Just remember, for every second you take, the Fed will have printed another $1446.76 so it can buy assets “to support smooth market functioning.” What a clown show.
Debit: Of course, this week Congress assembled a $2 trillion “stimulus”package of its own. Now combine that with the near certitude of plunging tax revenue during the coming months and it’s not unreasonable to expect the current budget deficit to approach $6 trillion. Unbelievable.
Credit: By the way, putting $6 trillion in perspective isn’t easy — but Bruce Fenton does a pretty good job:
How much is $6 trillion?
If Christoper Columbus came to America in 1492 and burned a pile of cash worth $20,000…then burned another a minute later, and another, 60 piles an hour, every hour of every day, 24/7, through the centuries…it still wouldnt amount to $6 trillion.
Brrrrruce Fenton (@brucefenton) March 25, 2020
Debit: In a perfect world, that $6 trillion would be covered by a combination of tax revenues and the wealth generated by legitimate economic growth of the United States — but it won’t. Instead, almost all of it will end up being debt that’s monetized by the Fed. And you thought Monopoly was just a game. Well … think again:
Credit: It’s no coincidence that the stock market had an historic three-day rally as the stimulus details were being finalized — only to see almost 25% of those gains disappear on Friday. Economic realists weren’t surprised; as bear markets are loaded with these periodic “bull traps” that only end up spreading the pain to overly-optimistic investors, egged on by the usual financial media cheerleaders at the Wall Street Journal:
I wonder if any of the three reporters behind this article have ever experienced a structural bear market. https://t.co/AAYpvJrUip
Sven Henrich (@NorthmanTrader) March 27, 2020
Credit: For his part, macroeconomist Alasdair Macleod notes that the Fed’s emergency response to save a financial system saddled with $253 trillion in debt is “eerily similar” to John Law’s attempt to save the Mississippi bubble 300 years ago: “The massive printing of livres and expansion of credit failed — first by reducing the purchasing power of his currency to zero measured against gold, and then by failing to prevent a collapse in his Mississippi venture.” Imagine that.
Credit: History says the Fed’s latest attempt to save the fiat monetary system will be futile. As investment manager David McAlvany observes: “All the king’s horses and all the king’s men can’t put $253 trillion together again. The crisis isn’t COVID-19; its COVID-253 — a $253 trillion Ponzi scheme that began unraveling seven months ago.” McAlvaney expects physical gold to become unavailable when people finally wake up and flee the bond market. I agree. Hopefully, you already have yours.
The Question of the Week
Last Week’s Poll Results
How long do you think the current bear market in stocks will last?
- 6 months to 1 year (36%)
- 1 to 2 years (25%)
- More than 2 years (21%)
- Less than 6 months (19%)
More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out that more than half of you believe the current bear market will be over in less than a year. Pay attention to all of the additional currency being conjured into existence by the Fed for bailouts and QE; if the majority gets into the real economy, then a rapidly depreciating dollar will result in higher stock prices. Ironically, the value of those stocks will continue falling, as the purchasing power of the dollar drops faster than the increase in stock prices.
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.
By the Numbers
The Dot Com bubble popped in 2000. Here were the top grossing movies that year. How many of these have you seen?
10. Erin Brockovich (box office gross: $125 million)
9. Dinosaur ($138 million)
8. What Lies Beneath ($155 million)
7. Scary Movie ($157 million)
6. X-Men ($157 million)
5. Meet the Parents ($161 million)
4. The Perfect Storm ($183 million)
3. Gladiator ($187 million)
2. Mission: Impossible II ($215 million)
1. How the Grinch Stole Christmas ($251 million)
Source: Box Office Mojo
Useless News: The Old Timers’ Bar
An old man sees a sign that reads: “Old Timers’ Bar. All drinks 10 cents.”
He goes inside and the bartender says “What’ll it be, sir?”
The man orders a martini and the bartender serves one up and says, “That’s 10 cents, please.”
The man buys another, but his curiosity gets the better of him. He’s had two martinis and hasn’t spent a dollar yet and he says, “How can you afford to serve a martini for a dime?”
“I’m a retired tailor from Jersey,” the bartender says, “and I always wanted to own a bar. Last year I hit the lottery jackpot for $125 million and decided to open this place. Every drink costs a dime. Wine, liquor, beer it’s all the same.”
Noticing seven other people at the end of the bar who don’t have any drinks in front of them, the man asks “What’s with them?”
The bartender says, “They’re retired people from Wall Street. They’re waiting for Happy Hour when drinks are half-price.”
(h/t: RD Blakeslee)
Other Useless News
Here are the top five articles viewed by my 30,002 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- Economic Collapse 101: 10 Ways to Prepare for the Unknown
- How Much Gold and Silver Should People Own?
- Are Gas or Charcoal Grills More Cost Effective?
- How I Live on Less Than $45,000 Annually: Matt from Massachusetts
- 9 Tips for Getting the Most from Your Groceries
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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
Ted wrote in to the Len Penzo dot Com Complaint Department to say he’s had enough bad news about the economy. He then signed off with this:
But I’m wasting my time telling you this because people like you never think you’re wrong.
Now hold on, Ted; that’s a bit unfair. When I finally get something wrong, I promise I’ll admit to it. 😉
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: public domain
Sara King says
The gold silver ratio is still crazy! I’m beginning to think it will never return to normal. How about you?
Have a great weekend!
Len Penzo says
Well … it all depends on your definition of normal, Sarah.
Long ago the ratio was about 16 to 1. Silver comes out of the ground at about 9 to 1 compared to gold. During the last price run up in precious metals the ratio fell from its highs to about 30:1.
I have no way of knowing, but I think the next run up will see the GSR fall below 30.
RD Blakeslee says
At Apmex, relatively large gold bars are unavailable, as they are everywhere else (wealthy folks need them to stash their fiat money cashouts). But coins, both gold and silver, can still be had.
Better for us peons anyway; they will be spendable directly in commerce.
BTW, I believe silver will be part of the reset. There’s a lot more of it than gold; Enough that each of us peons can have some currency.
So basically we are returning to the CONSTITUTION! Constitutional money Gold and Silver. ❤️
Len Penzo says
I received an email from Apmex yesterday that said their shipping times are currently only two days longer than their historical average — assuming they have product available.
However, from what I can see, they still have very limited stock available and they noted refiners have shut down. That should only make the long waiting list times for product even longer.
Still trying to wrap my head around $20,000 per minute every minute since 1492 – and it’s still not enough to equal $6,000,000,000,000! So why am I only getting $1,200?
Bad Brian says
Good question. If you assume 350 million people in US, $1,200 per person is about $420 billion. Where is the other $1.58 trillion going?
Len Penzo says
I hear you, Cowpoke. On the other hand, that’s $1200 more than I’m getting!
I’m in that unloved zone between the banks/corporations and those people who are safely under the stimulus’ income eligibility limits.
I’m in that minority who aren’t getting any kind of relief.
I’m having a hard time understanding where the massive inflation is that we should be seeing with the printing of trillions of dollars. Yes, I have seen a small increase in groceries etc. the last few years, but some things are cheaper like tech stuff and gas. Has the Fed found a way to hide this? (Maybe they are Masters of the Universe after all!)
I have to admit they are doing an excellent job of keeping the price of precious metals under raps although hardly any can be found. Whatever happened to the Supply and Demand economics they use to teach decades ago?
The Fed has to be incredibly Evil and Conniving to pull this show off!
I guess the reason I’m confused is because the economics I learned back in the 1990s doesn’t match up with what I’m seeing today.
Len Penzo says
There are currently a couple of reasons why the inflation isn’t “showing up.” I put “showing up” in quotes because the reality is, there is inflation — but you don’t get an accurate representation from the government’s official CPI. Imagine that. Consider:
1. The Chapwood Index clearly shows that inflation in the 500 most basic goods people buy is running at about 10% in most US cities. This comports with my spending data, which most of you who follow my blog, know I have been tracking faithfully for more than 20 years now.
2. The US dollar is the world’s primary reserve currency, which allows us to export the great majority of our inflation overseas — and it will stay there as long as foreigners maintain faith in the dollar.
3. For the initial QE rounds, the money being printed by the Fed was ending up being stored as reserves in the Primary Dealer’s bank accounts at the Fed. And although those PD’s could lend against those reserves, they didn’t for the most part. As a result, the cash was “sterilized” or “quarantined” from the real economy.
4. Domestically, confidence in the US dollar has continued to be strong.
I am not sure yet if this newest QE will be able to sterilize the new cash being conjured out of thin air so effectively. There are so many funding vehicles this time around that I am still trying to figure out how it will work.
Right Len. There is inflation if you look a bit. My favorite corn chips were $2/bag for quite a while…BIG $2 on the front….now, slightly smaller $2.29 bag. That’s a 15% increase over fall. At least they didn’t cut the bag size, which is the way many manufacturers hide inflation. Look at vehicle prices or housing….clearly suffering from inflation.
But MASSIVE inflation has been held off because the past actions of the FED have simply been bookkeeping entries…..the Repo market injections are merely balancing of books…..imaginary numbers.
Once you start passing out lots of actual cash to folks, businesses, etc, THAT money becomes real, and will chase goods/services (the definition of inflation).
Len Penzo says
Don’t get me started on shrinkflation, Andy! It’s so common now, it is beginning to affect some of my recipes, so I have to buy two of one item to ensure I have enough of what’s required.
Martin Armstrong says when the bond market collapses, all that money will rush into stocks. Do you agree? The bond market is many times bigger than the stock market. He says the Dow could go to 40,000 or even as high as 60,000.
Special Ed says
The Dow will explode higher once hyperinflation truly sets in. Cash will stampede in as people look to put their fiat anywhere as there will be no other assets available for purchase. As bad as this fiasco is now, we are just starting what will inevitably be very painful times for everyone.
Len Penzo says
I agree, Ed. I think the next time we see shortages at the grocery stores it will be because of a dollar currency crisis.
Len Penzo says
Jack: I think once confidence in the dollar breaks, a lot of that bond money will go into the stock market, thereby driving it to record highs in nominal terms — but not real terms, which are adjusted for inflation. The rest of it will go into anything real: real estate, precious metals, collectibles, clothing, food, computers, etc. as people try to flee the dollar as fast as they can.
It’s no secret that during their hyperinflation periods this century, both the Caracas and Zimbabwe stock indices were the top performing markets in the world on a nominal basis. The trouble is, the purchasing power of their failing currencies dropped faster than the increasing price of the stocks. Even so, holding stocks in a hyperinflation is a better option than holding cash, whose value essentially can disappear into nothing.
Sam I Am says
I don’t think most people understand the magnitude of where this is all headed. Most people I talk to are giddy about getting their $1,200 checks.
Well, Sam….remember what George Carlin said: “The average person today is pretty stupid…..which means 1/2 of them are on the low side of that !”
RD Blakeslee says
Welcome back, Good Buddy!
Len Penzo says
Len Penzo says
I’m with you, Sam. They don’t feel it yet, but for most people, living standards in the US are going to get worse — and stay that way for many years.
As I said last week, 2020 is going to be a demarcation year that we’ll use to describe life before and after.
Len, I love these Black Coffee articles. I have an honest question..
Don’t you think that when the world’s confidence in the dollar collapses, the powers that be will just transition into a new global reserve currency using some sort of blockchain tech? Things like SDR’s already exist and the transition could happen overnight. And the mainstream media will pump propaganda to the masses supporting the move.
The dollar would lose value but more subtly.
I just find it hard to believe that people in power will allow any new currency to be influenced or backed by precious metals, because they will lose control.
Len Penzo says
I don’t disagree with you, Kevin. I am certain the central banks are working on blockchain-enabled digital currencies — which scares the crap out of me. This is the key: Will they allow paper currency to exist beside it? If not, governments will have total control over us and all privacy will be gone — and those who don’t “behave” can have their digital wallets suspended; so unless you have precious metals, there will be no way to transact in the marketplace.
Regarding SDRs: they’re not a solution. I know Jim Rickards has been saying that might be used as the “solution” — and it might — but the SDR is simply a currency whose value is based on a basket of the five major fiat currencies. A basket of trash is still trash.
Jim Sinclair believes there will be two resets — an initial man-made one (perhaps based on SDRs, or a half-hearted revaluation of the dollar against gold) that will fail shortly after it is implemented … and then the actual reset that is imposed by “Mother Nature” (i.e. the market).
Good read Len (in the sense that it’s informative, not that it’s, well, good news) I think you’re missing one answer on your survey about the pandemic response – “completely F’d up”.
Len Penzo says
I am too, Becky! I think this whole thing was completely overblown and is being used as a cover for the failing financial system — which everybody knew was going to implode in short order.
Now the pols and bankers are all blaming the virus for this collapse, rather than the entire rotten debt-based monetary system — and the plan worked!
Prankster, after his radio controlled toy gets beat to smithereens … “Hey! What are you doing man!”
Old golfer … “I’m teaching you a lesson in golf. That’s what I’m doing!”
Love it! Old guys rule.
Len Penzo says
Yeah, I thought that was pretty funny too, Steve.
RD Blakeslee says
When I put an approach shot up on the green years ago when I was young, I thought “birdie coming up”.
I was right, only it was not the birdie I expected. A damned crow took of with the ball!
He barely got airborne – looked like Howard Hughes’ Spruce Goose’s on its one and only flight.
Len Penzo says
I believe it, Dave! One time I drove a ball down the middle of the fairway and then saw what I thought was a dog walk up to the ball, pick it up, and then run into the brush. As I got closer, I saw it wasn’t a dog that picked up my ball — it was a coyote!