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.
For as bad as the state of the economy and the monetary system that supports it is at this very moment in time, the real trials still lie before us. Sadly, I know most people have absolutely no idea about the financial challenges that almost everyone will be forced to confront in the coming months — if not years.
If, before every action, we were to begin by weighing the consequences; first the immediate consequences, then the probable, then the possible, then the imaginable ones, we should never move beyond the point where our first thought brought us to a halt.
— Jose Saramago
Cheer up; the worst is yet to come!
— Mark Twain
Credits and Debits
Debit: Did you see this? According to Gallup, nearly one in three Americans have experienced a temporary layoff, permanent job loss, reduction in hours, or reduction of income as a result of the COVID-19 shut down, and 18% have experienced more than one of these disruptions. Sadly, the real economic impacts of crippling the economy for a virus with a death rate essentially equivalent to the flu haven’t been felt yet — and won’t be for months.
Credit: If there is any good news at all, it’s that the malaise has resulted in lower US fuel prices. In fact, gasoline is selling at its lowest price in a decade — and in some cases, even longer. Right now, Oklahoma stations have the cheapest average gas prices at $1.35 per gallon, with Wisconsin not far behind. Not surprisingly, Hawaii and the People’s Socialist Utopia of California are bringing up the rear at $3.06 and $2.74, respectively.
Credit: Of course, those low fuel prices are, as the following chart shows, due to the breathtaking plunge in US oil consumption. It turns out that shutting down the economy — not just nationally, but around the world — has led to a global oil supply glut; so much so that the entire planet is suddenly having trouble finding places to store the world’s excess crude. Imagine that.
Does this look like the sign of an ordinary recession to you?
Debit: And while everyone loves low gas prices, there’s a looming downside too: The entire oil production industry is shutting down. After all, why should they stay in business if they have to pay buyers to hold the oil they’re producing? Again, while everything seems fine now, the ramifications of stalled production and the ensuing lost jobs won’t be felt for months, which is why Shell Oil cut its dividend to shareholders this week — for the first time since World War II. Hey … speaking of lost jobs:
Debit: On a related note, thanks to the widespread coronavirus shutdown, falling quarterly earnings almost certainly mean equities’ forward P/E ratios are higher now than they were before the market crash began in late February. No, really. See for yourself:
More evidence that the latest round of Fed currency printing is “fixing” the economy!
Debit: Unfortunately, the apparent financial damage that has been inflicted on the public by panicked local politicians has reached stunning proportions. How bad is it? Well … it’s almost impossible to believe, but 42% of San Diego’s population reportedly turned to food banks last month, which begs the question: What will things look like when the ramifications of shutting down the economy that are still to come take hold later this year? Just don’t expect a good answer from these folks …
Debit: You can bet the state politicians who have ordered businesses to close indefinitely are still getting their paychecks. But it won’t be long before the other shoe finally drops: As business activity grinds to a halt and consumers stay home, the two biggest sources of revenue for most states — sales and personal income taxes — have fallen off a cliff. At some point, those pols will have to wake up and change their tune. Or not.
Credit: This week Egon VonGreyerz asked a salient question: “If the Fed really believes that they’re solving all problems by printing money, then why not print the annual GDP? But why then stop at $21 trillion which is the current GDP? Why not print $43 trillion to double the standard of living. Or why not go to $100 trillion so everyone can really get wealthy?” If only it were that easy …
Debit: This week Bloomberg said the Fed must do more to limit “the recession” (sic) and speed the recovery by “extending QE, easing credit to troubled businesses, and making a long-term commitment to 0% rates.” Curiously, they overlooked other alternatives with even better odds of success such as: minting a quadrillion-dollar coin; starting a GoFundMe campaign to retire the debt; and burying chicken entrails under the Eccles building.
Credit: The truth is, the only solution is a monetary reset because, as Sven Henrich stated this week, “the system is completely broken and can’t be sustained without evermore monumental interventions by the Fed. (It’s) intellectual bankruptcy.” In fact, the system is so broken, price discovery is dead — as evidenced by negative oil prices, tiny Tesla with a market cap larger than every car manufacturer but Toyota, and a wicked stock market rally in the midst of an unfolding economic catastrophe:
Yep … it’s all perfectly rational. Everybody in the pool!
Credit: So … with the Fed continuing to buy trillions of dollars in worthless stocks and other assets, what does that say about the value of a greenback? China knows — which is why this week they again called for the dollar to be replaced in favor of a new global reserve currency outside the control of any nation. The obvious contender is gold; regardless, a new system is coming. Soon. And when it does, US living standards will plunge. At least for a little while.
By the Numbers
Instead of regaling you with the latest unemployment figures, let’s take a different route with a few cool facts about timepieces:
57 The number of complications in the world’s most complicated watch, the Vacheron Constantin Ref. 57260.
2800 The total number of components in the Vacheron Constantin Ref. 57260.
102 The number of continuous years the Baselworld watch and jewelry fair has been held. Well … that is until this year, when it was canceled due to the coronavirus epidemic.
200 The minimum amount of water resistance in meters required for a watch to be considered a scuba diving watch.
12,800 The depth rating, in feet, of the Rolex Oyster Perpetual Deep Sea Sea-Dweller.
249,000,000 The number of times the balance wheel in a standard mechanical watch oscillates back and forth over the course of a year.
$17,700,000 The highest price paid for a Rolex wristwatch. The watch was actor Paul Newman’s Rolex Daytona, at a Phillips auction in 2017.
30,700,000 The number of Apple smartwatches sold in 2019 worldwide.
21,100,000 The number of traditional Swiss watches exported globally in 2019. Yes, that means smartwatches are now outselling traditional watches.
Source: Yahoo!
Last Week’s Poll Results
Universal basic income: good idea or bad?
- Bad (76%)
- I’m not sure. (19%)
- Good (5%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and I’m happy to see that slightly more than 3 in 4 of them say it’s a bad idea. As for the 19% who are still on the fence, hopefully you’ll eventually come around and realize that the only people who ever benefit from currency printing are those who are closest to the spigot — and believe me, that select group doesn’t include any of us.
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.
The Question of the Week
[poll id="319"]
Useless News: Tennis Anyone?
While in the park one morning, a handsome jogger found a brand new tennis ball laying on the ground. So he stopped and, seeing nobody nearby who it might belong to, decided to slip it into the pocket of his shorts.
Later on, near the end of his run, he stopped at a pedestrian crossing, waiting for the light to change. A blonde woman standing next to him eyed the large bulge in his shorts.
“What’s that?” she asked, her eyes gleaming with lust.
“Tennis ball,” came the breathless reply.
“Oh,” said the blonde sympathetically, “that must be painful. I had tennis elbow once.”
(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
After reading my article explaining why everyone should be able to make ends meet on an annual salary of $45,000, Kim sent this message to the Len Penzo dot Com Complaint Department:
You are a pretentious ass.
Maybe so, Kim — but at least I’m a pretentious ass who speaks the truth.
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
Hello Len
Gave myself 20 min this morning for Penzonian Reflection. Gotta shine my rolex today.
Looked up the word curency. The oxford dictiomary sentence is …the dollar used to be a strong currency. Must be printed in China?
There may have been more food at the food bank. Or we can think beyond drive up.
As far as watches. With the shut down I dont even know wha darn day it is?
Guess the price of rolexes is rigged to. All I know as a diver a 120 feet is a 10 min dive and then a few min at 15 feet so I dont get the bends.
So is the dollar over engineered or over valued?
My 20 is up. Man I was on a role!
: )
Hey Duke, I noticed some pretty nice cars waiting in those foodbank lines. You mean to tell me people driving BMW’s and Range Rovers are among the majority of Americans who don’t have $400 in savings?
Is that Rolex real or is it Memorex, Duke? LOL
(I’m only asking because my Dad used to have one of those knockoff versions he received as a gag gift. He would wear it at times to “impress” our friends and family. )
Hi Len, I’m sure glad you’re sharing all this with us (forewarned is forearmed.) I’m also glad silver prices are still relatively low! :o)
My pleasure, Lauren! I agree the price of paper silver is still low — but you have to pay about double that for the real stuff, assuming it’s available.
What is interesting is if you take the prices for physical gold and silver being advertised, as opposed to paper, the gold-silver ratio isn’t as bad as it seems. Yes, it’s still historically high, but it isn’t insane!
Paper GSR: ~114
Physical GSR: less than 80
That’s yet another example of our broken monetary system.
Hi Len,
We’re living in historic times for sure. I have a friend who insists there is going to be a debt jubilee. But if they do that, the savers will be screwed while the borrowers will make out like bandits again.
Sara
If there is going to be a debt jubilee, the only way it can happen without messing up the books is a de facto jubilee via hyperinflation. The other way will never work because those debts are also somebody else’s asset — so canceling them would wipe out both parties.
A debt jubilee can work if your monetary system is based on real wealth — unfortunately, in our system, money is debt. So destroying all of the debt in a jubilee would completely implode the system.
“Debit: You can bet the state politicians who have ordered businesses to close indefinitely are still getting their paychecks.”
So is your friendly local banker. Just takes a little out of your income, for his bank. For example, an email from a bank I have used until this week:
Thu 4/30/2020 2:01 PM
Dear —- Bank Customer,
— Bank is wishing you and your family comfort and health during these unprecedented times. We, too, are faced with challenges as we navigate our way through these unusual circumstances. It is because of the change in our current rate environment that we are writing to inform you of a change we are making to our Kasasa® Cash Checking account.
Beginning on May 1, 2020 the following changes will occur regarding your Kasasa® Cash Checking account:
Annual Percentage Yield (APY): Will change from 3.00% to 2.50%*
Interest Rate: Will change from 2.956% to 2.469%
That’s still a very respectable interest rate by today’s standards, Dave. I’m going to have to look into that!
40 years ago, before the debt got out of control, America considered a Constitutional amendment requiring a balanced budget. Too bad it never got off the ground. Today a balanced budget is impossible. The only debt option left is to continue piling it on, full speed ahead.
Talk of “requiring” a balanced budget was never anything more than talk. The very reason for coming off the gold standard was that the use of real money was restraining TPTB from running the deficits that they wanted. The idea of trading paper for goods was just too enticing and the chance of going back to some semblance of monetary restraint was zero after Nixon took us “temporarily” off the gold standard.
A balanced budget amendment would never be allowed because the government must spend more each year for the purpose of borrowing more each year to create enough currency so that the existing debts can be paid the following year.
Because we have a debt-based monetary system with — and this is important: an interest component –there aren’t enough dollars in existence to balance the budget. And there never will be.
And this is why the bankers have the citizenry by the throat. We must continually work to generate interest to service the debt — otherwise the system would implode. The trouble is, there is a mathematical limit to how much debt can be realistically generated before the whole system blows up anyway (because there is only so much good collateral) — and we are at that point now. What you are seeing is the system in its death throes.
So when does the system finally kick the bucket for good? Asking for a friend.
When hyperinflation occurs. What is hyperinflation? It is a loss of confidence in the currency used by society. At some point, the public is going to recognize the emperor has no clothes and lose confidence in the dollar (and by extension, all fiat currency). There are lots of events conspiring right now to tip the balance from confidence to non-confidence.
Macroeconomist Alasdair Macleod, who understands monetary systems better than almost anyone, expects confidence to begin crumbling by the end of this year. Only time will tell …
Len, gotta call you out on this:
“Sadly, the real economic impacts of crippling the economy for a virus with a death rate essentially equivalent to the flu haven’t been felt yet — and won’t be for months.”
I don’t know if the economic shutdown was justified or not….we will be arm chair quarter backing that one for many years to come, no doubt.
But looking at what happened in places like Italy, or NYC, I’m disappointed to see you be one of the “this is just a flu” crowd.
It may be my aging memory, but I can’t EVER remember a past April in which 60,000 people died of ‘the flu’…..and we’ll likely never know what the total would have been had the shutdown not happened.
Was the economy operating on fumes before Covid ? Yep…..a lot of the statistics were fudged, the stock market was insanely overpriced, and so on.
Did the ‘lockdown’ add to that problem ? (or maybe give ‘someone’ a reason for the prior problems if you’re into that theory) Sure…..without a doubt in the world.
I have few answers or whatever, but I’m fairly sure this wasn’t “just a flu”
I believe you are right, Andy.
Interesting analysis on cost-benefit of the shutdown:
https://www.wsj.com/articles/coronavirus-kills-people-an-average-of-a-decade-before-their-time-11588424401
(If you are not a subscriber to WSJ, you can read the full article by clicking on its link in the Drudge Report,)
It’s okay! I welcome dissenting opinions here, Andy. This is a blog, after all!
I urge you to read the link in that opening Debit. I was referring to the death rate — not the number of deaths — which now appears will be somewhere in the range of 0.1% to 0.5%. Even so, when it comes to total deaths, please check out this link from the CDC — over the past decade, the number of flu season deaths in the US ranged from 15,000 to 61,000 per year. And there is plenty of evidence to suggest that the number of COVID-19 deaths that are being cited do not take into account people who had underlying conditions, and the fact that the hospitals are being asked to list COVID as the cause of death regardless of those underlying conditions.
Finally, regarding the death rate, I think the best evidence we have of it being overstated are the data from the quarantined Diamond Princess cruise liner, which is very enlightening because it essentially acted as a closed system that offers almost pure statistical data. You can see the results in this link, but here is a summary — and remember, this is in relatively tight quarters (and I think therefore also reasonable to consider this better-than-average conditions for becoming infected):
Passengers: 3711 (33% over age 70; average age 58) [source]
Infected: 712
Infected with no symptoms: 311 (44% of those infected)
Total infection rate: 19.2%
Dead: 13 (death rate: 1.8%)
So, yeah … while it is obviously not “the flu”, it sure seems to behave like a flu with respect to the death rate (i.e., nothing to panic over). At least to me! 😀
Most of the people who die from the flu have underlying
conditions as well, Len.
Fair enough, Jack#2. That doesn’t change the fact that the death rate is low, and is only continuing to drop as more people are tested and we find out that COVID is more widespread than anybody believed because of the number of asymptomatic individuals out there.
The Newlywed Game was the best! They don’t make game shows like that anymore.
You got that right, Sharon!
Len,
Many of the people I know are beginning to wake up to the fact that this whole virus thing was an unconstitutional power grab. I guess the only good thing about this is that it’s hastening the demise of our fiat criminal system. It does seem though like the Dollar will never die when you see the stock market shooting up like fireworks meanwhile the real economy is collapsing into the grave. I will just continue to stack and keep the faith and hopefully soon we can begin a new system. It would really be nice though for it to happen soon since I turn 43 this month.
I’m going to tighten my tin foil hat, Jared, and say I believe the authorities are using this virus as an excuse to shut down the economy to keep inflation from spiraling out of control as a result of the unprecedented currency printing now underway by the Fed. Think about it: it’s hard to generate significant inflation when the velocity of money remains depressed.
They could very well be using the next lockdown in the Fall for the reset. The powers that be are saying this coming fall and winter will be much worse for the spread of the virus, so I see another lockdown at that time. That is a very ideal time for them to transfer into another system. This first lockdown was just a test run I believe.
Your joke LOL! Thanks for being there for all your readers. Your thoughts on coming hyperinflation have prompted me to get a bread machine. Also rice porridge in an instapot is a great deal. It’s $0.04 a serving. We will be able to stretch out rice for a long time. Also instapot oatmeal is really good too. Our tomatoes look like they’ll do fine.
Hey, Dr. P … I have a bread machine and have used it for years. I love mine!
Great discussion. It is funny how some states are refusing to relax their restrictions even though the number of hospital admissions for the infection have fallen and deaths aren’t near what was predicted. It makes me wonder why.
I gave my tin foil hat answer above, Bill. That being said, I don’t think it’s “funny” at all — in fact, I think it is terrifying.
My home state of Maine is one of those states. As of this morning, we have 311 active cases with about 30 hospitalizations. In addition to that, we have a true unemployment rate that is likely in the 35-40% range. Every day I hear of businesses that were forced to close that will never reopen. As tnandy said, we can armchair quarterback this all we want, but I wonder how things would’ve played out had we followed the lead of Sweden or some of the other countries that didn’t lock down.
So whats the financial play here for someone with a significant amount of cash on sideline? Tangible Gold/Silver ?
Disclaimer: I am not a licensed financial professional so I can’t give investment advice, Matt. You’ll need to make your decisions.
Now for my observations: If you believe as I do that fiat currency is going to lose significant purchasing power in the coming months, then the logical answer is to gravitate toward real goods and tangible items. While it is not the only option, physical precious metal (not paper ETFs) is the obvious choice, assuming you can find it.
Outside of tangible goods, “defensive” stocks for things that people buy regardless of how the economy is performing also makes sense (think: food/agriculture companies, utilities, pharmaceutical and medical companies, etc.).
If you believe the dollar is destined to fail, then bonds are a death trap.
Believe it or not, I am also increasing my stores of canned food as well — as I believe price inflation for food is coming. If I am correct, those cans of food bought today will deliver a rate of return equivalent to the amount of inflation that is realized down the road.
So what do you recommend a person do before consequences start?
Luke: See my response to Matt. Get ready for a sharp fall in the purchasing power of the dollar.
Len, thanks to you, I scratched an itch. I bought 1/10 ounce of gold! I will buy three and save them for my three daughters. I concentrate on silver due to my fixed income, but gold was calling my name. Thank you for keeping us informed.
Good for you, Della!
I was told that the purpose of this shut-down was to flatten the curve, so as to not overwhelm the hospitals. Well….. we did (and many cities never came close to exceeding their hospital capacity). So why are we still closed?
Good question, Frank.
I agree-in most places When your mother is in the hospital you will get it . But if there are no cases in your area, there is no reason to be shut down
A good choice of companies/stocks and commodities to consider investing in are what was deemed essential plus what was hiring during the shutdown. Add to that having a REAL pantry that can carry your family for about 9 to 12 weeks. Add health and all cleaning and food prep and I would scout out a way to have a clothesline and enough solar panels to power lights and fans.
Totally agree, Debbie!
In fact, if you can afford it, I would increase your food stores even longer than that. I currently have enough calories in my food stores to feed my family of four for a minimum of about nine months (based on 2000 calories per person per day).