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:
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
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.”
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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