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 most people on Main Street, the financial crisis rages on — just don’t tell that to the suits on Wall Street, where everything seems to be lollipops and rainbows again. So let’s get right to this week’s commentary …
Black hole sun, won’t you come and wash away the rain?
— Chris Cornell
When your outgo exceeds your income, your upkeep becomes your downfall.
Credits and Debits
Debit: Did you see this? Astronomers have discovered a black hole in a constellation just 1000 light-years away — that’s the closest black hole to our solar system ever found. And while 1000 light-years seems distant, astronomer Thomas Rivinius says, “On the scale of the Milky Way, it’s in our backyard.” Thankfully, the good scientist hasn’t recommended a global economic shutdown to reduce the risk of planetary annihilation. Yet.
Credit: In other news, this week Bill Blain wondered why anybody continues to buy financial assets. He says, “The repression of interest rates to zero and negative real yields has become an absolute disincentive to invest in them. This has made businesses less efficient as they grow flabby on cheap debt, while pushing up their stock prices through buy-backs.” You can say that again. By the way, Blain isn’t the only guy who hates inefficient flabby losers …
Credit: Meanwhile, as macroeconomist Alasdair Macleod points out, “The Fed has embarked on an exercise in inflation, designed to uphold the state by maintaining the value of its debt — and therefore all other financial assets. If the Fed fails — and they will because the task is too great — then the currency will fail as well, and remarkably quickly.” The good news is, if he’s wrong, we’ll all get to keep pretending we’re rich for a little while longer.
Credit: Mike Maloney points out that, for the past two decades, US tax revenues have been highly correlated to stock market performance. If the bear market continues and the correlation continues to hold, then we can expect US deficits to end up exploding in the coming months and years, which will exacerbate the National Debt, and the put even more pressure on the dollar’s viability.
Debit: You can bet the government knows their tax receipts are closely tied to the stock market’s performance — as well as robust property valuations — which is a big reason why the Treasury announced it is borrowing $3 trillion this quarter. Yes, this quarter! Remember, it took America 207 years to accrue its first $1 trillion in debt; now, it’s $3 trillion in a quarter. If there’s a clearer sign that we’re in the terminal phase of exponential debt growth, I’d like to see it.
Credit: Unfortunately for the government, concentrating most assets in the hands of the wealthiest individuals results in a self-reinforcing feedback loop — which is why Charles Hugh Smith warns that “once housing and real estate valuations fall, that will trigger a decline in the value of all costly assets.” Think: the so-called “wealth effect” in reverse.
Debit: Of course, very few people seem to realize that the coronavirus isn’t the reason for the collapsing world economy — it’s only the trigger. In other words: COVID-19 is the pin that popped the global financial bubble. And therein lies the rub, folks — since the coronavirus didn’t cause the financial crisis, eliminating the coronavirus won’t solve the financial crisis.
Credit: Then again, conjuring more currency out of thin air won’t fix the crisis either. In fact, Macleod notes that by trying to prop up asset prices by papering over our failing and corrupt monetary system with more worthless fiat currency, “the world’s central banks are repeating the mistakes John Law (made) in France 300 years ago almost to the letter — but this time on a global scale.” Maybe so … but at least all this corruption is for the children:
Debit: The trouble is, most people don’t understand how debauching a currency undermines their long term real savings, and transfers earning power from the individual to the state via inflation. And that economic illiteracy is what allows politicians to continually finance their extravagant and wasteful spending without raising taxes and riling up the electorate. Sadly, it’s also going to eventually kill the US dollar.
Credit: Speaking of debt, Bill Holter warned this week that, “The global financial and economic system is working its way to no bid; meaning activity has collapsed, which means the cash flow required to service the greatest amount of debt in human history is no longer there. Debt has become the pillar holding everything up — but what will prop up debt?” Well … if you watch the Fed, the answer is obvious: more debt. Makes sense. Er, I think.
Debit: After all, in today’s hyper-financialized world, it appears both debt and the real economy are completely overrated. How else can you explain the stock market’s absurd Friday melt-up — the same day the US reported 21 million jobs were lost in April? That’s the biggest drop ever, and 10 times the 2 million jobs lost at the peak of the Great Depression. So just imagine how wealthy stock market investors are going to be when everybody is unemployed.
By the Numbers
April 2020 was one of the worst single months for dividend-paying firms in stock market history. In fact, the number of dividend reduction announcements exceeded the number of dividend increases in the month, the first time that has occurred since the last financial crisis in 2008.
3092 US firms that declared dividends last month; that’s 777 fewer than March 2020.
32 US firms that announced they would pay a special dividend to their shareholders in April 2019.
11 US firms that announced they would pay a special dividend to their shareholders in April 2020; that’s the second lowest total ever. (8 in August 2009)
53 US firms that announced they would boost cash dividend payments to shareholders last month; that’s 81 less than the number for March 2020, and 104 fewer than the increases declared in April 2019.
120 The number of publicly traded US companies that cut their dividends last month.
29 The number of publicly traded US companies that cut their dividends in April 2019.
155 US firms that suspended dividend payments in April 2020.
23 US firms that stopped paying their dividends in March 2020.
1 US firms that suspended dividend payments in April 2019.
Source: Seeking Alpha
Last Week’s Poll Result
How many siblings do you have?
- 1 (40%)
- 2 (21%)
- None (18%)
- 3 (15%)
- 4 or more (6%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that, slightly more than 1 in 5 of you out there have at least three siblings — while slightly less than 1 in 5 say they have no brothers or sisters at all — at least that they’re aware of. For comparison purposes, the number of US families with a single child reportedly climbed from 11% in 1976 to 22% in 2015.
By the way, this week’s question was suggested by reader Roberta. 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
Useless News: Brains for Sale
A doctor noticed a sidewalk stand that said ‘brains for sale.’ So he went over to investigate and noticed that physician brains were selling for $8 a pound, paramedic brains were going for $12 a pound, and nurse brains $15 a pound — but lawyer brains were priced at $90 a pound.
Slightly miffed at the prices, the doctor asked the man behind the counter, “Hey! How come physician brains are only worth $8 while a lawyer’s brain is worth $90?”
The man replied, “Do you know how many lawyers it takes to make a pound of brains?”
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Other Useless News
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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, Gael decided to share her thoughts on my extremely well-researched article explaining why only suckers buy waterbeds:
This post is utter rubbish!
Let me guess … you’re from Texas.
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