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