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 continues to be lollipops and rainbows. So let’s get right to this week’s commentary …
The greatest shortcoming of the human race is our inability to understand the exponential function.
— Albert A. Bartlett
Because gold is honest money, it is disliked by dishonest men.
— Anonymous
Credits and Debits
Credit: Did you see this? The theme for the 2021 Davos conference is “The Great Reset.” No, really. At least I can say I’ve been proudly wearing my tin foil hat for the past decade. Now almost everybody seems to be wearing one — including the smart money guys.
Credit: You shouldn’t be surprised. As asset manager Keith Dicker notes, the effectiveness of Keynesian economic theory is over now that the world’s central banks have collectively cut interest rates to zero. But because the world’s policy makers continue to embrace Keynesian economic theory, Dicker says, “we should expect to see even more deficit spending and bailouts, even lower negative rates, and even more money printing to support credit markets.” Ya think?
Debit: People who say the Fed has everything under control need to explain how that can be when it took the Fed seven years to add $3.7 trillion to its balance sheet during and after the Great Financial Crisis of 2008 but only 10 months to add nearly another $3.7 trillion since the repo market broke last September. Does anybody else see a problem here? Anyone? Anyone?
Debit: Considering the Fed has shown that they will never be able to shrink its balance sheet again, it’s now painfully obvious to anyone who is paying attention that the law of exponents is beginning to catch up with all central banks. If you don’t believe me, the following graph should convince anybody — even those who aren’t very good with numbers:
Debit: It’s not just the Fed that’s plagued with that dreaded math problem. The US government has math troubles too, with debt-to-GDP at 130% — and that’s before the 55% decline in GDP expected this quarter. In fact, as Peter Schiff notes, US expenditures-to-revenue is so out of whack now that the Treasury just added $2 trillion to the National Debt in a period of 2 months and 2 days. Unfortunately, America’s debt engine is just getting warmed up.
Debit: By the way, the National Bureau of Economic Research finally declared on Monday that the US is officially in a recession. Heh. Better late than never I guess.
Debit: Of course, the soaring stock market belies the dismal economic data showing that year-over-year, US factory orders are down 22%, heavy truck sales are down 37%, and corporate bankruptcies are up 48%. Yes, investors are clearly displaying a total lack of situational awareness, but one could argue that they’ve still got nothing on this guy:
Credit: Despite all of the terrible economic news, the Nasdaq hit an all-time high this week. I know. By the way, the Dow and S&P have recovered a big chunk of what they lost after their earlier plunge too. But as financial analyst Fred Hickey warns, “the Fed’s (printing press) is causing these unimaginable market distortions.” As a result, he says that “markets are no longer recognizable.” Well … that’s one way to put it.
Debit: The stock market is so manic that, at one point, Hertz’ stock was up almost 10-fold after hitting a record low of 56 cents on May 26. Yes, that’s the same Hertz that declared bankruptcy on May 23rd. I guess these investors fail to understand that the owners of common stock shares are last in line for a share of the firm’s liquidated assets. Then again, the Fed has screwed up markets so badly, maybe that no longer matters.
Credit: For his part, asset manager Sven Henrich says, “The Fed is setting markets up for another crash. Why? Because they’ve set in motion a stock market mania we have not seen since the 2000 tech bubble — but this time while we’re still in a recession.”
BR478 (@Reutabega) June 5, 2020
Debit: You can bet the absurdity in the financial markets and endless central bank currency printing is why the former chairman of Morgan Stanley Asia — and Yale faculty member — Stephen Roach, believes that a crash in the dollar is coming and, as a result, “living standards are about to be squeezed as never before.” Too bad most Americans remain completely unaware of what’s coming.
Credit: I’ll let market analyst J. Johnson sum things up for this week: “Nothing can be done for a monetary system created to fail. Those who have prepared by buying physical precious metals are still way ahead of the game. What other asset can be held in hand and outside the currency makers’ game, that doesn’t have any counterparty risk?” Indeed, Mr. Johnson. Indeed. And if you don’t believe us, just ask a central banker … or not:
The Question of the Week
[poll id=”325″]
Last Week’s Poll Result
Have you ever filed for a personal or business bankruptcy?
- No (92%)
- Yes (8%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that, roughly 1 in 12 of them have filed for bankruptcy at least once in their lives. I have never filed for bankruptcy — but I am married to a former bankruptcy paralegal!
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.
By the Numbers
Bankruptcy is typically a financial remedy of last-resort — and it affects all walks of life and all income levels. Here are some statistics for the year 2016 that shed a little more light on the topic:
24,114 Total number of business filings.
770,946 Total number of non-business filings.
46 Percentage of bankruptcies related to medical debt.
$30,000 Annual income of the average filer.
45 The median age of all people who file for bankruptcy.
19 Percentage of filers under age 34.
8 Percentage of filers over age 65.
14 Percentage of filers who earn more than $50,000 per year.
5 Percentage of filers with a graduate degree.
Source: The Balance
Useless News: The Daily Special
A Texan, a Russian, and a New Yorker go into a restaurant in London. The waiter walks up to their table and says, ”Excuse me, gentleman. The chef says if you wanted the steak it’s not available because there’s a shortage due to Mad Cow Disease.”
The Texan says, ”What’s a shortage?”
The Russian says, ”What’s a steak?”
The New Yorker says, ”What’s excuse me?”
(h/t: Cowpoke)
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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
Tara had something she wanted to get off her chest this week, so she dropped this note into the Len Penzo dot Com Complaint Box:
Yeah, you’re full of hot air. Another blogger who thinks he’s a big shot and is going to tell the world how it is.
Let me assure you, Tara; the only big shot around here is the Honeybee, and she reminds me of how full of it I am every day.
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
Hi Len,
When it comes to the markets being messed up this Hertz stock episode is the icing on the cake. I wonder how many clueless Robin Hood investors became millionaires overnight buying a bankrupt stock? It’s so maddening!
Sara
I suspect very few, Sara. The bigger folly now is that a bankruptcy court has actually allowed Hertz to sell $1 billion of their inherently worthless stock. Yet another example of how the world has truly lost its marbles. (Source.)
“Credit: Did you see this? The theme for the 2021 Davos conference is The Great Reset. No, really. At least I can say Ive been proudly wearing my tin foil hat for the past decade. Now almost everybody seems to be wearing one including the smart money guys.” – Len
The last line of the article cited (click on “No, really) reads as follows:
“The 2021 summit will be held both in-person and online, and will focus on reducing humans’ impact on the planet and how to move past the pandemic.”
Hope springs eternal, but it does not appear that the elite’s use of the word “reset” has anything to do with money. To the contrary, it appears to be just more politically correct, virtue-signalling pie-in-the-sky BS.
Uh huh. Dave, do you really think it’s just a coincidence that the theme for next year’s Davos Conference — which is conducted by the World ECONOMIC Forum — happens to be based on a term that has been widely used by us tin foil hatters for a long time now to describe the end of the current financial system? I don’t.
Then again, I guess that’s why I wear a tin foil hat! 😉
I cant help but see this charade continuing for years because of the stupidity of our population. How does that Henry Ford saying go?
The manipulation in Gold and Silver can be seen clearly because of its sluggish movement the last few months, meanwhile constant currency printing continues to blow this bubble to infinity and beyond.
However if you look at the charts Gold, Silver and even Bitcoin are consolidating Bigtime for what I think is something Big on the horizon. However if the Banksters are successful in papering over everything until calm arises then I can see them doing this for a few more years to come, just not sure they can do it another decade.
I can say Im a holder of Precious metals, Bitcoin and cash for now. 👍
You can’t go wrong with physical gold, Jared.
It seems to me that cash is a safe play, but only until the dollar loses its reserve currency role. The scary part is the dollar is a ticking time bomb that I believe is subject to imploding at any time.
I still think bitcoin is a scam. That being said, I can’t fault people for holding a little as a speculative play.
It’s a crazy world right now and it’s going to get worse before it gets better. Thanks for shining a light on how it is affecting our financial system every week.
Thank you, Marc!
” … investors are clearly displaying a total lack of situational awareness … “
Len, I don’t think the controlling interests in the casino which used to be called “the market”, are unaware. I believe the opposite: They are aware of the fix the Fed is in and are wringing “free” money out of it as fast as they can. Pure greed, Len.
Our citizenry IS unaware and likely to remain so until unbridled rage for their condition takes over, because the elite “own” the media, the educational system top to bottom, etc.
You may be right, but I’ve seen several articles that have shown “mom and pop” investors are now jumping into the market en masse — and that a lot of people are compounding the problem by buying on margin. That being said, I have no idea what percentage of those people buying on margin are the so-called “smart money.”
Hey, Len. It’s not just Hertz. I’d guess there are scores of stocks of totally worthless zombie companies selling at record high prices today.
Very true, Sam. Although Hertz is beyond a “zombie” company at this point — it is officially bankrupt. But I’m sure somebody or some group will come in and buy it for pennies on the dollar, and then resurrect it as a leaner and more efficient business.
If the dollar explodes. What comes next? Do you think the S.D.R. or another global currency backed by gold or a basket of commodities will replace it?
I don’t know, Sharon. The SDR is a joke; it may fool the public for a while, but it’s just another fiat currency that is nothing more than basket of existing failed fiat currencies (dollar, yen, yuan, pound, and euro).
Ideally, we would get a new monetary system that lawfully requires the US Treasury to hold some percentage of currency in physical gold. If not, then the next best option would be to devalue the US dollar relative to gold.
Forget defund the police. End the Fed!
Another great edition of Black Coffee Len. The question of the week concerning a mortgage that exceeded the value of the property brought to mind an interesting comparison. Anyone who buys a new car by financing the cost finds them self in that situation as soon as they drive that new shiny acquisition off the lot.
Ain’t that the truth, Steve. And many people are now taking out 7 year loans to buy that car! It’s crazy, IMO.
Exception?
If the loan carries a zero interest rate?
Of course.
Youre not taking into account the fact that by 1971 most of the rest of the worlds economies had recovered from the devastation wrought by WW2. It literally took two decades for most of Europe to fully recover to the point that their ability to export goods and compete with US industries on the world market had become such a troublesome matter as to impact the profits of the American ruling class.
The fact is, the 1950s and 1960s period of prosperity was predicated upon the destruction wrought in WW2, which eliminated all of the US major rivals in the area of heavy and (to a lesser extent ) light manufacturies. These in turn fuel prosperity by bringing in foreign currency (though mercantilism is not really the basis of todays economy as we can see in the issues related to the gold standard.
The abandonment of the gold standard is inextricably linked to the Cold War and the need to finance ever increasing military budgets which had since 1946 continued to increase at unsustainable rates once US world-market share began to erode by the production of cars (e.g.) in Japan and later Korea for example. And we saw this in all industries of note, where the US corporations were forced suddenly to compete on markets that they had dominated for almost a generation (1946-1971).
The problem is that everyone has got it in their head that this exceptional period of prosperity was a normal period and when you try to judge a boom as Normal its going to mess up all of your other standards of measurement.
(also, if you want to discuss 1971 without discussing the 1948 Bretton Woods treaty, youre not really even going to get close to figuring any of this out.]
Actually, I am very aware that the destruction of Europe from WWII certainly contributed to the post-war US economic boom, but it’s not as if the US wasn’t already the world’s fastest growing economy in the decades before WWII; US ascendance as the world’s premier power was still in its adolescence.
The bottom line is that the only reason our debt is so large today is because the gold window was closed in 1971 (thereby all but nullifying the Bretton Woods agreement). If it wasn’t closed, the accumulation of debt would have stopped when the last ounce of gold was removed from Fort Knox (and West Point, and the Denver Mint).
As for standards of measurement, gold is the yardstick that ultimately everything else financially must be measured against.
Thanks for your comment.