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.
We’re now ten weeks into the Greatest Depression and the markets are still broken beyond repair. Don’t expect that to change because the game is over — however we’re going to be forced to continue playing until the public finally realizes it. On to the commentary …
There are only three ways to meet the unpaid bills of a nation: the first is taxation; the second is repudiation; the third is inflation.
— Herbert Hoover
By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
— John Maynard Keynes
Credits and Debits
Debit: Did you see this? The financial research team at Bank of America expects the corona crisis to ultimately wipe out four years of GDP growth, with BofA expecting real GDP at the end of 2021 to be where it was at the end of 2017. Think for a minute about the ramifications of that. No, really … I’ll wait.
Debit: Now for more bad news: Calculations by Goldman Sachs suggest that if the Fed insists on avoiding negative rates, then Chairman Powell will have no choice but to increase the size of the latest quantitative easing (QE) injections, thereby unleashing yet another debt deluge of freshly printed currency into the financial system. As if a 27% annualized increase in the money supply since February isn’t bad enough already.
Debit: Of course, some people just love QE — like bond investors who benefit from the Fed’s bond buying. But there’s a dark side for them too. As Bloomberg noted this week, with “the threat of inflation amid a global fiscal splurge exceeding $8 trillion, bond investors face toxic risk in the not-too-distant future.” The “threat” of inflation? Apparently, Bloomberg’s writers don’t shop for groceries. Or pay rent. Or have medical bills. Or kids in college. Or …
Credit: Meanwhile, as macroeconomist Alasdair Macleod notes, “Today, through monetary debasement nearly everyone benefits from monetary redistribution. But this is not a costless exercise. Governments are no longer robbing Peter to pay Paul, they’re robbing Peter to pay Peter as well.” On a somewhat related note …
Debit: Unfortunately for the Fed, they’re trapped between a rock and a hard place: they can keep holding down interest rates via QE and let the debt continue to skyrocket; or let interest rates rise, which will increase debt service costs — and force debt to skyrocket too. In fact, the chief researcher for K2 Asset Management, George Boubouras, is warning that at some point “in the medium term” the Fed is going to have to blink — and then the entire scheme “will likely unravel.” Imagine that.
Credit: Somewhat perversely, the global economic shutdown has temporarily delayed our inevitable day of reckoning by sharply — if not conveniently — reducing money velocity. But ironically, as Zero Hedge notes, “this means that an end to the coronavirus crisis is the worst thing that could happen to a world that’s now habituated to helicopter money and virtually unlimited handouts.” The bad news is, at some point that “luck” is finally going to run out:
Debit: Hyperinflation is the endgame for the current monetary regime, which is why you’re excused if you believe anyone in a position of authority who actually understands how our debt-based monetary system works will allow the coronavirus economic lock down to end without a fight. If you ask asset manager James Turk, he believes an early — but important — sign of hyperinflation is already starting to rear its ugly head:
Another chart of approaching #hyperinflation. WTI #crudeoil has risen from near zero to almost $30. Even though there is an #oil glut, the glut in fiat currencies is bigger. In hyperinflation people move from debased currency into useful tangible real things: oil, food, gold, etc pic.twitter.com/ZfMilkmkeS
James Turk (@FGMR) May 18, 2020
Credit: You can bet asset manager Egon VonGreyerz has had enough. He warns that “the whole world is living a lie” thanks to a fake world created by central bankers. How fake is it? Well … as VonGreyerz describes it: “We have fake money, fake markets, fake companies, fake banks, fake interest rates, fake income, fake pensions, fake social security, fake wealth, fake bailouts, fake buildings, fake holidays, and fake cars.” (Psst. Hey, Egon; how could you forget fake boobs?)
Credit: By the way, VonGreyerz also correctly notes the only solution is a return to a monetary system backed by precious metals, even though he acknowledges “that will involve a lot of suffering — but it’s a punishment the world must endure.” Indeed. In the meantime, we wait for the reset. Until then, the insanity will continue, perfectly exemplified by the latest inane edicts from yet another nanny-state authoritarian lording over her hapless constituents. Tennis anyone?
Credit: Regardless of what the inevitable monetary system reset eventually looks like, as the always on-point Sven Henrich notes: “By the time this is all over the poor will be poorer, the middle class will be smaller, the country will be horrifically in debt, and unemployment will be much higher than before — but the top 1% will be largely fine.” Uh huh. Same as it ever was.
By the Numbers
Here is an update on the decimated US restaurant industry, based on the latest survey data of 330 restaurant owners across America:
90 Percentage of restaurant owners who say their establishments are currently closed or only offering severely reduced services.
65 Percentage of owners who believe it will take three months to a year before they can return to normal operations.
85 Percentage of owners who say they expect to be open in some capacity within the next six weeks.
25 Percentage industry revenue increase over last month. Unfortunately, that’s far below normal revenue compared to last year, and not nearly enough to cover the losses of the last two months.
80 Percentage of diners who say they intend to continue ordering delivery or pickup even after restaurants in their areas reopen.
42 Percentage of restaurant workers receiving unemployment who say they’ve avoided returning to work explicitly because the compensation would be less than their unemployment payments.
Source: Eater
The Question of the Week
[poll id="322"]
Last Week’s Poll Results
What percentage of your investment portfolio is in stocks?
- Less than 40% (38%)
- More than 75% (27%)
- 40% – 75% (26%)
- I don’t have any investments yet. (9%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than 1 in 4 of them haven’t been scared away by the recent bear market in stocks — as they still have more than 75% of their portfolio in equities. On the other hand, 1 in 11 have yet to dip their toe in the investment world at all.
This week’s question was suggested by Oscar. 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: Grim Times
News continues to pour in regarding local business failures all across America. For example:
- A bra company has gone bust
- Local dog kennels called in the retrievers
- Roto-Rooter has gone down the drain
- Florists have pruned back business
- A food blender manufacturer was liquidated
- Strip clubs have gone tits up
- A submarine inspection company has gone under
- The paper company supplying origami enthusiasts has folded
- Many excavation companies may never dig out, and …
- Several drilling companies have warned they’ll never get out of the hole
Meanwhile, this week a financially despondent vendor was found dead in his ice cream van covered with nuts and strawberry sauce; police said he had topped himself.
(h/t: Agau)
Other Useless News
Here are the top five articles viewed by my 32,112 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- 38 Secrets for Success: My Personal Finance Manifesto
- 10 Thankless Low-Paying Jobs That People Often Accept Anyway
- Great Tips for Seniors Who Want to Live Frugally
- How to Start a Booming Money Lending Business
- 7 Ways to Save Money on Your Monthly House Expenses
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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 recent article outlining 18 things the millionaire next door doesn’t want you to know, Tina left this comment:
I can’t even begin explaining how awesome this post is!
Aww, come on, Tina — go ahead and give it a try!
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
Well I gave “monatary reset a thought” I went over a minute. Is that a type of inflation? All I imagined was “when I don’t have a sense of humor about it” then it must be bad. There is some irony in a precious metal monatary system. Is there enough gold to go around? Oh anyway during my minute I had a vision! Ruby slippers. The brain is amazing. Is it possible for everyone in the world to think the dollar is worthless and gold is worth everything at the same time? As far as a corner lot. What if you have 2 front doors and two addresses one is real the other is fake? Which lead to another thought. What if the dollar had two sides. One was fiat and backed by faith and the other was backed by gold? Vender has a choice. Accept the gold side or the fiat side.
Memorial Day …..a minute or two.
: )
Is there enough gold to go around?
At the right price, there is always enough gold (and silver) to support a monetary system.
Is it possible for everyone in the world to think the dollar is worthless and gold is worth everything at the same time?
Of course. There have been countless times in history when such a psychological bifurcation between fiat and gold has happened. Remember, hyperinflation is a psychological phenomenon — not a monetary one.
What if the dollar had two sides. One was fiat and backed by faith and the other was backed by gold?
Could very well happen, Duke … a gold-backed dollar for international trade only, and another unbacked fiat dollar for domestic use only — with far less purchasing power.
(PS – I got your email … I haven’t had time to answer it yet!)
” … the top 1% will be largely fine.”
Maybe not.
The French aristocracy wasn’t, after the French Revolution.
Maybe those of our top 1% with hideouts in New Zealand, or multi-million dollar refurbished missile silo fortresses, have that in mind.
RD, the difference in then and now is the majority of We the People lack a spine! They would rather beg for the scraps the central banks and politicians dish out to them.
I actually met and visited somebody who purchased and lived in an old Atlas ICBM silo outside of Cheyenne, WY. It wasn’t cozy, by any means, but it was definitely secure. As a side hustle, he used the missile bay as a garage and rented space to people in the area with antique and other high-value collectible cars.
Hi Len,
Never try to rob a cabbie when a cop is in the car behind you. Talk about dumb criminals!
I noticed silver prices are starting to gain steam. It’s about time!
Have a great weekend!
Sara
Gold-silver ratio is starting to finally come down, Sara. That bodes well for both gold AND silver — but especially silver.
Duke, your “over a minute” thinking resulted in some of the best jibes about our plight I have read in weeks.
Kudos!
Hyperinflation coming? No way. Deflation for the win. Its going to be deflation no matter how much they print.
Wrong. More money being pumped into the system (like today) while the supply of goods is being reduced (like today) can only result in hyper-inflation. (At some point coming to a town near you.)
Production under quarantine is inelastic, so prices must go up.
I disagree. Our debt-based monetary system doesn’t work in a deflationary environment. Once you understand that, then you will realize that central banks have no choice but to print as many dollars as necessary to counteract that debt destruction and keep the system from imploding — and there is a lot of debt being destroyed, with trillions and trillions more coming. Nope … the Fed is going to destroy the dollar (and everyone’s nest eggs) to “save” the system. How perverse is that?
Len,
I put out information on Facebook all the time like this, nothing but crickets though. I’m sad to think of how dumb downed my friends are.
THOMAS JEFFERSON WARNED THIS DAY WOULD COME:
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied.”
— Thomas Jefferson
The Dollar has depreciated 97% since 1913 when the Federal Reserve central bank criminals were created:
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
— John Maynard Keynes
This is what the American people can’t seem to grasp or care to understand! Keynesianism is what your Federal Reserve banking is based on. That’s why it is so hard for people to make ends meet now compared to 50 years ago. Maybe some day We the People will wake up, but looking at the populace today it’s hard to hold out much hope for an uneducated people.
I hear you, Jared. By the time most people figure out what is happening, it will be too late — a lifetime of savings will wiped out for millions of people. As Dave alluded to above, this is how revolutions get started.
Len, put me in the inflation camp. Are inflation linked bonds like TIPS a way to protect against hyperinflation? Asking for a friend.
In a word: no. When a currency dies, bonds denominated in the dead currency are the LAST thing you want to be holding. I don’t care if it is “inflation protected.” Think about it … if a bond is promising to pay you back in a currency that has lost all of its purchasing power — even if the bond pays 1 trillion percent interest to “compensate” for that inflation — what is the bond worth? (Hint: What is zero times any number?)
If hyperinflation is coming, besides tangibles, what about stocks in energy companies, utilities etc…? At least with stocks, unless the company goes bankrupt, you own something instead of a worthless piece of paper.
That’s true, Jack. Stocks are certainly safer than holding cash or bonds during hyperinflation. Stock market indices of any nation with a hyperinflating currency will skyrocket to reflect the currency’s falling purchasing power — that why in nominal terms, the Venezuela and Zimbabwe stock markets both held the titles of best “performing” stock markets at one time. The rub is that, for the majority of stocks, the rising stock price will not increase faster than the currency’s purchasing power falls — so in real terms, most stocks will lose ground versus precious metals. I would think that defensive stocks like utilities, food companies and medical providers and pharmaceutical companies should hold value better than non-defensive companies. Due to leverage, successful gold and silver mining companies typically outperform precious metals by multiples — the trick is in finding the right ones. If you pick the wrong ones, you could lose your shirt!
Len, during my considerable time spent in Alaska, I observed the crustiest, most independent cusses on the planet. Those were the ones living out in what Alaskans call “the bush”, mining gold.
My lifelong practice of investing only in my own enterprise, might propel me to Alaska to mine gold, rather than buying stock in somebody else’s mine, were I a younger man.
If you were younger, Dave, I bet you’d make a fortune too!
We better get wheelbarrows now while they’re cheap. Still not too late!
That’s why we have credit and debit cards now, Art.
Hyperinflation may come one day, but for now the evidence says they can print as long as they want with no repercussions at all. Look at Japan. They’ve been doing this for 30 years!
The US and Japan are apples and oranges, Caleb. They have been able to avoid price inflation after all these years because of their aging demographics, relatively closed society (minimal immigration), and their status as a net exporter. But even they will be unable to escape what’s coming … once one of the major currencies cracks (dollar, euro, yen, yuan or pound), it won’t take long for the others to be dragged down with them.
The Dow is way up this morning and PMs are down. There are reports of “investors” buying “distressed” houses.
PM prices have been manipulated against fiat currencies for years and central bankers have driven the financial “markets” upwardly by fiat money creation, placed mostly at the disposal of “investors”.
Not satisfied with that, the “investors” are now licking their chops at the prospect of taking our houses and further devaluing the only other real hard wealth we may have, our PMs.
Will most ordinary citizens ever wake up to what’s happening to them and why?
Short answer, Dave: no. Although I will say, I was at a family barbecue on Memorial Day and I met someone who said in our conversation that he knows something is up with the system but “couldn’t put his finger on exactly what.” Needless to say, you can bet the two of us had a very excellent discussion after that. His eyes were wide open by the end of the day — he was also a bit shell shocked.