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.
Welcome to Week 4 of the new era we now find ourselves in — one which will soon be known as the Greatest Depression. However, unlike the Great Depression of the 20th century, I believe this economic depression will come with significant price inflation, thanks to a rapidly-depreciating fiat dollar.
That being said, it’s not the end of the world; life will go on, although it’s going to be a lot tougher in many ways. For everyone.
The more their plans fail, the more the planners plan.
— Ronald Reagan
Everybody’s got something to hide except for me and my monkey.
— John Lennon
The future ain’t what it used to be.
— Yogi Berra
Credits and Debits
Debit: Did you see this? The recent stimulus bill repeals the sunshine law for the Fed’s meetings until the President says the coronavirus threat is over or the end of this year. That new law makes any future FOIA lawsuits that are intended to reveal what’s really happening behind the scenes with our national currency — and the private central bank that controls it — nearly impossible. Let’s hope they’ll still tell us if we ask nicely.
Debit: Then again, they probably won’t tell us. Why? Because, as Bloomberg’s Jim Bianco writes: “Unlike the 2008 financial crisis, the US Treasury, not the Fed, is now buying all securities and backstopping loans, the Fed is providing the financing — and investment management firm BlackRock Inc. will purchase and administer these securities on behalf of the Treasury.” Nope. No incentive for any kind of corruption there.
Debit: According to Bianco, “In essence, the federal government is nationalizing large swaths of the financial markets, and essentially merging the Fed and Treasury into one organization.” And although the Fed and US Treasury were de facto merged when Nixon closed the gold window in 1971, the big difference this time around is that the Fed is essentially giving the Treasury direct access to its printing press. Yeah … this will end well.
Credit: Franklin Sanders can certainly see what’s going on. He notes that, “The Fed has practically nationalized the credit markets. They’ll bail out every mismanaged bank, corporation, and snow cone stand, and send checks to everybody they call poor. This is the American way; socialism without the nameplate. It’s an irredeemable train wreck.” I couldn’t have said it any better myself. (Er … which is why I quoted Mr. Sanders).
Credit: Meanwhile, Kentucky Congressman Thomas Massie sarcastically noted this week — before being pilloried by almost everyone in DC — that all this new stimulus begs the question: “If $6 trillion of debt doesn’t matter, then why not $350 trillion more so we can give a $1 million check to everyone in the country?” Apparently, Massie isn’t aware of what they do to fiscal conservative pols who insist on sticking to their principles:
Debit: By the way, most of that $6 trillion stimulus isn’t going to Main St. for one simple reason: Its primary job is to provide corporate welfare and an avenue for future helicopter money that can be monetized by the Fed in order to (hopefully) keep interest rates from skyrocketing. Which begs another question: Why are we still paying taxes if the Treasury can just print whatever it needs, and the Fed can buy it?
Debit: The good news is that the latest round of QE shouldn’t be inflationary in the near term because the Fed is currently only replacing dollars vaporized in the collapse. In other words: until that monetary hole is filled, deflation will temporarily rule the roost. Oh … and if you’re wondering whose playbook US monetary officials are following, just ask America’s esteemed Treasury Secretary, Steve Mnuchin:
Okay, you got me — it’s a doctored photo. But the message is definitely on-point.
Credit: They bottom line is the Fed can print as much cash as they want, but they can’t fix what’s broken. As investment manager Lance Roberts notes, “The Fed’s no longer just a ‘last resort’ for financial institutions — now they’re the lender for the broader economy. There’s just one problem — they keep trying to stave off an event that’s a necessary part of the economic cycle: a debt revulsion.” That won’t stop them from trying, Lance.
Credit: Of course, as Charles Hugh Smith noted this week, “Central bank free money doesn’t create collateral or creditworthy borrowers — and without those foundations, the decayed, rotted shack will collapse.” Very true. The only two quibbles I have with that statement is: 1) central banks print currency — not money; and 2) that currency certainly isn’t “free” — it costs all of us in terms of lost purchasing power.
Credit: Macroeconomist Peter Schiff says Americans are in for a rude awakening if the world stops using the dollar as its reserve currency. If that happens — and he believes that day is not far off — the debt will suddenly matter, and “Americans will have to abide by the same economic rules that govern everyone else. That means if we want to consume, we’ve got to produce. And if we want to borrow, we’ve got to save.” Imagine that.
Credit: Schiff says losing the reserve currency would sharply reduce the dollar’s purchasing power — meaning retirement will no longer be an option for many people. “Most Americans who are already retired will have to go back to work. And those who were planning to retire are going to have to keep working until they’re dead.” Peter is correct, of course — but I suspect this kid probably speaks for lots of retirees who are hearing that for the first time:
Debit: Unfortunately, finding work in the immediate future could be a real problem if the latest jobless claim numbers are any indication — with a record 10 million people added to the unemployment rolls in the last two weeks. The bigger question is how society in general will cope — not just retirees and near-retirees — if the skyrocketing unemployment numbers not only keep growing, but turn into a chronic Depression-era condition that lasts for years.
By the Numbers
The first quarter of 2020 officially ended on Tuesday, and it will forever be known as the first quarter of the Greatest Depression. So how bad was it? This bad:
$18,500,000,000,000 The combined quarterly capitalization loss for stocks and bonds. (Bonds gained $1.1 trillion — but stocks lost $19.6 trillion)
42 The number of months since bonds last saw back-to-back monthly losses, as they did this February and March.
-19% The first quarter performance for the S&P; that was its worst quarter in 82 years.
-24% The first quarter performance for the Dow; that was its worst first quarter ever.
-31% The first quarter performance for the Russell 2000.
-34% The first quarter performance for the S&P Restaurant Index.
-41% The first quarter performance for Bank stocks; it was their second worst quarter ever. (Q1 2009 was -44%)
-50% The first quarter performance for the S&P Airlines Index.
-58% The first quarter performance for the S&P Hotels & Cruise Lines Index.
-66% The first quarter’s decline in the price of oil; that is the worst quarterly performance ever.
Source: Zero Hedge
The Question of the Week
[poll id="315"]
Last Week’s Poll Results
How would you characterize the overall reaction to the coronavirus?
- I’m not sure (36%)
- Pragmatic (34%)
- Overblown (30%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out of that 2 in 3 of them feel the general reaction to the coronavirus is either overblown or possibly overblown. While not minimizing the virus’ impact, you can count me among the minority who believe the reaction to the virus will ultimately prove to be more catastrophic than the virus itself — as well as a convenient scapegoat for the Greater Depression that we now find ourselves in.
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 Golf Outing
One day Moses, Jesus, and an old bearded guy were out playing a round of golf.
Moses stepped up to the first tee and proceeded to strike a long drive that hit the fairway but then began rolling toward a large pond guarding the green. So Moses quickly raised his driver and the water parted, allowing the ball to safely roll to the other side of the pond and onto the green.
Jesus then strolled up to the tee and hit a similarly long drive that also found itself heading directly toward the same pond. His ball rolled into the center of the pond, but hovered over the water. Jesus then casually walked onto the pond and chipped the ball onto the green.
The old bearded guy then teed up his golf ball and hit it as hard as he could. Unfortunately, the ball veered sharply to the right, zooming over a fence and into the oncoming traffic of the local street, where it bounced off a truck and hit a tree, which caused the ball to springboard onto the roof of a nearby house. The ball then rolled into the rain gutter and fell into the downspout, which deposited the ball onto a very steep driveway. From there the ball rolled back under the fence and onto the fairway — directly toward the aforementioned pond. However, on the way to the pond, the ball caromed off a broken sprinkler head, which redirected it toward a large stone that caused the ball to bounce onto a lily pad in the middle of the water, where the ball finally came to rest.
Suddenly, a large bullfrog jumped on the lily pad and snatched the ball into its mouth. But a few seconds later an eagle swooped down, grabbed the bullfrog, and flew away.
Then, as the eagle soared over the green, the bullfrog squealed with fright, causing the ball to drop from his mouth and fall directly into the cup for an epic hole-in-one.
Moses then turned to Jesus and said, “I hate playing with your Dad.”
(h/t: Cowpoke)
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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
This week I found this message in my inbox from Anya — well … at least the part I could publish:
Lots of single Russian women want your attention!
Not if they see what happened to my retirement account last quarter, Anya.
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
Starting in 2018, I established a plan and set foot on a journey of debt repayment and better financial health. I paid off $56k in debt, while still managing to add a bit to savings (taking advantage of company matches to 401k and HSA), and adding some metals along the way. This required allocating 50% of take home pay to this effort, as a family of 4 in the northest of the Northeast. We still have some debts to go, but they’re home and vehicles that we’re not upside down on (still debt we want gone, though!). I’m typing this feeling slight relief that we achieved what we did before this current crisis hit, and to thank this community because I’ve been reading along since I started. While I’m not completely free of concern, I sleep a lot easier than I would have had I’d not adopted better habits. So, thank you again.
Very happy for you Derrick! Len’s blog opened my eyes too (these Black Coffee posts are gold – no pun intended) on how the dollar system really works and the danger of putting our faith entirely in paper wealth. So I feel I am in a good position to come out of this storm in much better shape than most people.
That’s awesome, Derrick!
The only debt I have is a small mortgage. Between 1997 and 2010 I aggressively paid it down, but then I figured out that the dollar was headed for oblivion and I changed my strategy to only make minimum payments and wait for inflation to pay most of it for me. Since then, I have used those surplus payments for savings and investments.
Hi Len,
I found some silver this week, so I was able to add to my stack and keep my monthly savings plan on track for another month. I’m so happy! I hope the situation eases soon, but I think its only going to get worse.
Sara
ps – congats to you Derrick!
Yes, it is available — but you have to look around. One place had 68 tubes of 20 1-oz American Silver Eagles available on Friday.
“Debit: By the way, most of that $6 trillion stimulus isn’t going to Main St. for one simple reason: Its primary job is to provide corporate welfare …”
“Since the beginning of this bailout shebang three weeks ago, the Fed created $1.5 trillion and handed it to Wall Street either as loans or to purchase financial instruments. If the Fed had sent that $1.5 Trillion to the 130 million households in the US, each household would have received $11,538. But no. That $1.5 trillion was helicopter money for Wall Street.”
Wolf Richter’s blog – “Wolf Street”
Financial Instrumnet design. New career? I put a bunch of words and fancy art and sell it for millions? Then we can put these on the PBS road show as collectables. We have taken snake oil to a new level. Think I need to go on shark tank with one of these and see it I get an investor.
Speaking of “fancy art”, I wonder how that guy feels who spent $125,000 for that banana nailed to a wall? You think he wishes he spent it on 75 gold Eagles now?
Well Len you gave me some homework and a laugh. I have three pages of notes and reached cognative dissonance. So many terms and concepts to get my head wrapped around. I found great pleasure in the side walk chalk art on my morning walk with my dog before coffee. The future aint what it used to be. Powerful line. Little disapointed in pole. You did not add charity as a choice. Compare and contrast this depression food line and last! Folks did not have their SUVs running on their cell phone eating takeout waiting in line at a school! I have to bite my tongue not to shame others. As far as inflation. Nothing weighs 16oz any more its 12 or 14 oz. Inflation is here. Guess the new cell phones will have a digital scale.
So whats my answer. Have another cup of coffee. Go out and tell my crazy neighbors the virus is attaching to pollen from spring flowers and trees so social distance from that! What struck me is why is the word “stock pile” so inflamatory to the liberal press? Do you believe their are 3 financial sectors. Private, public, and underground? If I diversify in all these I should be fine. Cant wait till 60 minutes does a documentary on. Do we need to pay taxes any more. Maybe let Ken Burns handle that one.
Enough for now
Thanks, Duke. Shrinkflation is out of control. The worst offenders are polska kielbasa (now comes in 14 oz package instead of 1 lb, and egg noodles; although not impossible, it’s getting hard to find the latter in 16 oz packages any more — mainly 12 oz.)
When you come right down to it, charity is spending, is it not?
Yes, the underground economy (black market) is going to grow as supply chains break and/or the dollar continues to lose purchasing power.
Welcome to the USSA! We are now on the same level as the USSR once was. I’m afraid our collapse could be just as severe as theirs was. It seems the Russians learned from their mistakes and now have hardly any debt and have went back to Real money (Gold)! It seems they are now in control as Trump was groveling at Putin’s feet this week for them to please cut their oil output. My how things have shifted since the New Year! It’s time for the USSA to take her medicine, unfortunately I think it’s going to be much worse then the most sickening chemo. I can’t help, but wonder if the Coronavirus wasn’t a judgement from God to the West! Europe and the USSA seems to be taking the brunt of the cases and deaths.
Before this is all over, Jared, I believe the US will definitely be knocked down a peg or two on the economic totem poll — at least temporarily.
Yes charity is spending. Thanks for the loan Len I will spend the minimum and let inflation pay it off. Hum wonder if that is the FED and treasuries game. Inflate my retirement date to pay for the 1200 tip?
GDP Grand Dilusion Paradox.
FED Funny Economic Decision
GOLD God’s omniscient lending department. ( How much does life cost over/after death?)
Remember don’t by silver and gold coins with ridges. That’s how they make them weigh less.
; )
Hi Len. It’s a hard world right now. Thanks for your insight about hyperinflation. Maybe we should get more land and plant potatoes. In the end, I could probably rip up our aritificial turf and make a bigger garden. Potatoes keep their value right? As a physician I wish that we had more testing earlier on. And the testing that is there is generally not that accurate anyway. We would never usually use a point of care testing with only 70% sensitivity. Not much to do about it now. Anyway, seems like everyone is relearning how to garden. We are sprouting potatos, and my mother-in-laws garden is going crazy with lettuce, lemons and figs. Figure food you plant you can eat, and that is real. It’s scary to think about hyperinflation the way you describe it. Land is real, food is real. Hope you and your loved ones are well.
The virus statistics we are being given are very misleading. The rising numbers are a function of the increase in testing — and completely overlook almost everyone who had/has the virus, but were/are asymptomatic.
The models are garbage because they’re based on faulty inputs — so it’s no wonder the predictions of their impacts here in the US have been off by nearly an order of magnitude so far. And yet, we’re willing to shut down almost the entire economy based on that faulty data.
If an engineer designed something using requirements based on such faulty models, he’d be run out of town by his peers.
I agree Len. MIT/Harvard had this combined MD program that only 30 kids would get into called HST. That matched up engineering minded undergraduates that went into medicine, and they had a very different take on medicine. You need that rigor in public health. Even the ventilator issue, I figure they would figure it out. Everyone is running around like chickens with their heads chopped off.
“Which begs another question: Why are we still paying taxes if the Treasury can just print whatever it needs, and the Fed can buy it?” – Len
Great question. Why don’t they just stop withholding taxes from my paycheck? As always, us little guys who work for a living continue footing the bill for everyone else!
Yes. We pay for it all. I sometimes give advice to younger MD colleagues who are usually horrible with money. Someone asked me, “do you think my accountant is right? That I have to pay xx in taxes?” I asked her what her total income for the year was, and she has no deductions. I told her, honey – that is about right because your effective tax rate would be 30%. This is why people become conservative when they start paying for things. Easy to spend other people’s money. And I told her you have to tax plan.
Bingo, Dr. P!
Dollars days are numbered. Get ready.
I am ready. Well … at least as ready as I can be. I’ve been preparing and sounding the alarm for more than a few years now.
I hope most of my readers have listened and are ready too.
Thanks, Len.
The poor will not notice the collapsing dollar.
Yes they will, Mikey. Broken supply chains and inflated food prices are going to be noticed by almost everyone.
Reuters reported this morning:
“I felt like this one was well-sized for the situation,” St. Louis Federal Reserve Bank President James Bullard told CBS’ “Face the Nation” when asked if further legislation would be needed.
Of course no further legislation is needed!
All the big-money interests have had there bets covered.
The little guy will get screwed again, Dave. Same as it ever was.