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.
— Anonymous
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.
The $25 trillion question: How far is that red line going to drop if the blue line doesn’t reverse course in short order?
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
[poll id=”320″]
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?”
(h/t: Salamander)
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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!
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
We’re approaching the tip of the hockey stick curve:
6 April 2020 the US federal debt hit 24 trillion
6 May 2020 the US federal debt hit 25 trillion.
(Source: US Treasury website “Debt to the Penny)
207 years to hit the first trillion, now a trillion a month. Wow……….
Yep, Andy. If people put it in perspective, they have to see the writing on the wall here.
The current system is really on its last legs. Just gaze, say, five years out … how many trillions of dollars of debt will be accruing each year by then?
Then consider how much real wealth can be reasonably produced or how many services can be delivered in relation to that all that new debt … there is nowhere near enough.
The value of debt
Guy at checkout bought 3 cash cards. It was a sign. His credit card crashed the limit he set on himself but the cashier already put money on cards what a mess.
All I know is how many times has this happened? She said happened alot crazy! Maybe the Fed could issue credit cards and by pass the bank fee?
Could area 51 be where they store debt and and sell debt to aliens? They get to take it back to their leaders. The bank of the Universe!
Consumer debt 14.2 trillions
FED debt 6.8 trillions
US gover debt is 24 trillions
Business debt?
State Debt?
350 million people
Average household income 72,000 before tax
What is the transaction fee!
Ok time for a funny video!
My gas bill in April $8.90
Guess the Democrats are hosting graduation on May 15 Republicans got caught off guard.
Enough for now.
Duke, believe it or not, I know somebody who used to work at Area 51. I’ll have to ask him if he ever noticed a phalanx of Brinks trucks driving into one of those secret bunkers built into the desert hillsides.
(But if my previous questions to him about his encounters with the aliens there are any indication, I suspect he won’t reveal any info on the debt either.)
Hi Len,
Thanks for another great cup of Black Coffee. I wish a black hole would swallow up the Fed! 😉
Sara
Sarah, I think they’re going to be swallowed up by something much closer to home: the debt!
New reader here. Love the commentary.
You say people don’t understand why there is inflation or what it does to their pocketbook. It’s even worse than that. Most Americans don’t even know the difference between the debt and deficit. But everybody knows how to get the handouts from Uncle Sugar.
Welcome aboard, Rod!
And you’re correct: lots of people have no idea what the difference is between the debt and deficits.
Remember when they said all this new debt being tacked on to our tab wasn’t a problem because we would grow our way out of it? We aren’t growing. We’re contracting more than even the Great Depression.
So now what?
You’ve been a long-time reader/commenter here, Cowpoke. I think you know what the answer is … if you’re ready for what’s coming — as most long time Black Coffee readers should be, then all that’s left is to sit back and watch another chapter of monetary history unfold.
Len, how much longer do you think this can go on?
If I knew that I’d have my own island in the Caribbean by now, Murphy! Frankly, I’m shocked the system has survived this long. That being said, I really do not know how the current system can continue past next year without some sort of monetary reset. I just can’t. The math seems to be too daunting of a challenge to overcome.
If you’re not buying gold you are a complete moron. Only fools believe this sh!t show can go much beyond the next year or two.
I agree that physical precious metals (gold and silver) are the ultimate wealth insurance — not paper ETFs that sell 500 shares of gold for every ounce they keep in their vaults.
Everyone needs to decide for themselves if that insurance is necessary.
The main reason I know the world is about to end financially is my wife, who has put up with my decades of buying precious metals little here, little there, looked at me the other day and say “Don’t you think we should buy some more gold ?”
Yep…..if she finally gets it, the rest of the world can’t be far behind.
That which cannot be paid, will not be paid. Everyone knows what comes next.
I’m not so sure about either of those statements, Oscar.
Why not?
I was splitting hairs, Oscar. That being said:
1. If the dollar ends up going into hyperinflation, then all debts will end up being “paid” — it’s just that they’ll end up being paid in worthless dollars.
2. I don’t think anybody really knows for sure what is coming after the monetary reset — although those who look back in history should have a good idea.
The worldwide monetary and fiscal die is cast and the world seems paralyzed, waiting for the next shoe to drop.
Except for the gamblers on Wall Street, who continue to place their greedy bets according to how much more “house money” thy think the Fed’s casino will supply.
You got that right, Dave. Wall St. is one giant casino, and has been for a long time now. The monetary reset should fix that.
Another entertaining commentary, Len. Enjoyable read.
It’s not just the stock market that is going to hit tax revenues this time around. With all of these jobs vanishing, so will the income tax revenue. That red line in your graph is going to free fall.
Thanks, Jack. And you make a very good point. I should have mentioned that in my commentary!
Serious question. Are you worried for the future?
No, Kerri … We are going to go through some tough times, but America and the rest of the world will get through this eventually. The turn around can’t begin, however, until there is a monetary reset.
Seriously, depends on what hour ask.
LOL. If you say so.