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.
The summer doldrums seem to have hit the financial markets. I assure you this is only temporary, so let’s enjoy them while we can.
Okay … on to the weekly commentary.
Never spend your money before you’ve earned it.
— Thomas Jefferson
To contract new debts is not the way to pay old ones.
— George Washington
‘How did you go bankrupt?’ Bill asked.
‘Two ways,’ Mike said. ‘Gradually … and then suddenly.’
— Ernest Hemingway, The Sun Also Rises
Credits and Debits
Debit: Did you see this? According to Bloomberg data, no less than 13 US companies sought bankruptcy protection last week, matching the peak of the global financial crisis. The filings, led by the perennially weak consumer and energy sectors, were the most for any week since May 2009. I know. But I’m sure it’s probably nothing to worry about. After all, I’m told we’re in the initial stages of a V-shaped recovery. Ahem. Or not.
Debit: Hey … for all you true believers out there of this so-called V-recovery, keep in mind that the Wall St. Journal recently reported that 106 million people have “enrolled in deferment, forbearance or some other type of relief since March 1.” Folks, this isn’t something that is just going to go away with no long-term ramifications — the reality is we’re sitting on an economic time bomb.
Credit: And as market analyst Jeffrey Snider notes, “106 million people in the default pipeline can only mean the clock has started ticking; the output of that pipeline is bankruptcy and loss, and wide distribution of both because a consumer who wins bankruptcy relief doesn’t extinguish their obligation — they’ve simply redistributed the loss to the bank or financial firm who first extended the loan.” Imagine that.
Debit: Meanwhile, many baby boomers don’t have nearly enough money to retire; that’s because the median amount they’ve saved for their golden years is just $144,000, according to a recent survey. You know what that means: When the money runs out, many of them will end up working with these guys just to maintain their current standard of living …
Debit: Of course, it was only recently that the stock market experienced what was termed “the greatest 50-day rally in history.” No, really. In fact, the S&P 500 index did that by skyrocketing 47% from its intra-day low on March 23 to the close on June 8. Hooray! It’s just too bad that record-setting rally wasn’t as “organic” as some people would like to believe.
Credit: As asset manager Sven Henrich notes, “The risk factors may be currently ignored by liquidity soaked markets, but reality keeps knocking at the door and one day may suddenly open it.”
Wild if true.
Global Dow Jones index.
Largest liquidity driven bear market rally since 1929 creating the largest asset bubble inside of the worst global recession in decades.
“If” central banks lose control history, fundamentals and technicals suggest new lows coming. pic.twitter.com/YZLTVCpRZ7
Sven Henrich (@NorthmanTrader) June 19, 2020
Debit: So just how much fresh currency has been pumped into the markets by central banks over the past few months? Well … since March 11, the Fed’s balance sheet alone has exploded 67% — from $4.3 trillion to nearly $7.2 trillion. The figures are absolutely stunning — and yet almost nobody seems to notice. Or care. Eventually, everybody will notice — but by then it will be too late.
Credit: As David Stockman warns, “What this means is that honest price discovery in the canyons of Wall Street is deader than a doornail. We now have a putative capitalist economy in which the prices of financial assets are pegged, rigged, and manipulated by the central banking agents of the state.” In other words, our economy is a complete illusion. And it will stay that way until the central bankers’ hocus pocus finally stops working. You know … kind of like this:
Debit: The amount of total global stimulus, both fiscal and monetary, is now a staggering $18.4 trillion in 2020, consisting of $10.4 trillion in fiscal stimulus and $8 trillion in monetary stimulus for a grand total of 21% of global GDP — almost all of it injected in just the past three months. This begs the question: If massive currency printing is truly the cure for what ails us, then why does anybody still need to pay taxes? Or even work?
Credit: Unfortunately, as Robert Gore warns, the reality is that “a government undermining its own debt is idiocy on par with a government disbanding its police department. Historically, debasement becomes debauchery — followed by downfall. A government that offers the honest and productive citizens nothing but its own worthless promises has one foot in the grave.” Yep … and the other foot on a banana peel.
Credit: It’s no secret that every fiat currency not tethered to gold or silver has eventually collapsed. Macroeconomist Alasdair Macleod says, “it will happen to the dollar too. The pattern is always the same: a prolonged period of falling purchasing power, followed by a sudden collapse — with the latter phase usually lasting about six months.” I guess it could be worse; those months could be in dog years.
Debit: By the way, Macleod believes the six-month clock — in human terms — started ticking for the dollar on March 23, as evidenced by the rapid escalation of food, commodity and equity prices after that point. Frankly, I think Macleod’s timeline is a bit short. At least I hope so. Nevertheless, whether he’s right or not, that’s quite a bold prediction, coming from such a widely-respected analyst:
Credit: The bad news is, even if the dollar does survive, investment advisor Michael Liebowitz notes that, “Years of monetary policy which has driven both yields and economic growth lower have left investors nowhere to hide from risk because the potential upside in most Treasury bonds is now marginal at best.” The good news is, there’s still one safe haven out there that people can take advantage of: physical precious metals. At least for the moment.
Last Week’s Poll Results
What is your employment situation right now?
- Full time (62%)
- Retired (16%)
- Part time (12%)
- Unemployed (10%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than 1 in 5 of them are currently either unemployed or working only part time. Although these polls aren’t scientific by any stretch of the imagination, I’m going to ask this question again in a few months just to see how those numbers change.
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
By the Numbers
How the “mighty” have fallen. With the controversial workspace-rental company known as WeWork struggling to find profitability, here’s a look at some of the numbers:
800 Number of global WeWork locations. Until last year, WeWork was growing at breakneck speed, guaranteeing leases to landlords to secure an ever-growing portfolio of office space.
20 Percentage of leases WeWork may reportedly exit as it looks to cut costs.
$1,300,000,000 The amount of long-term debt WeWork held when it issued its 2019 prospectus.
2650 The number of employees WeWork has laid off since November — that’s 18% of its workforce.
$47,000,000,000 WeWork’s peak market valuation prior to its botched IPO in 2019.
94 Percentage decline in WeWork’s market valuation from its all-time peak.
0 The number of original co-founders still at the company.
Source: The Real Deal
Useless News: Wichita Lineman
Many years ago, a Kansas farm wife called the local phone company to report that her telephone failed to ring whenever her friends called. She also noted that on a few occasions, when the phone did ring, her dog always moaned right before she received the call.
So a telephone repairman was dispatched to the scene, curious to see whether the lady was senile — or whether she had a psychic dog.
When he arrived, the lineman climbed the telephone pole, hooked his test set to the wire, and dialed the subscriber’s house.
Sure enough, the dog moaned and then, several seconds later, the telephone began to ring.
Climbing down from the pole, the telephone repairman — who was now quite intrigued by what he had just witnessed — continued his investigation. Upon further inspection, he found that:
- The dog was tied to the telephone system’s ground wire with a steel chain and collar.
- The wire connection to the ground rod was loose.
- The dog was receiving 90 volts of signaling current every time somebody dialed the lady’s phone number.
- After a couple of jolts, the dog would start moaning and then urinate.
- The wet ground would complete the circuit, thus causing the phone to ring.
This brings us to the obvious moral of the story: Some problems actually can be fixed by pissing and moaning.
Other Useless News
Here are the top five articles viewed by my 32,673 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- How to Incorporate Gold Into an Investment Portfolio with ETFs
- 21 Reasons Why Corner Lots are for Suckers
- Is It Really Worth Trying to Retire a 30-Year Mortgage in 15?
- Contrarian Shopping: 20 Things I’m Willing to Pay More For
- When Good Personal Finance Practices Go Too Far
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(The Best of) 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 the results of my latest brown bag sandwich price survey, Francis had this to say about the eggs at my local grocery store selling for $4.92 per dozen:
Where the heck do you shop for eggs?
Um … Would you believe New Yolk City?
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
Sara King says
WeWork was a scam company. A lot of shady things going on. I think the original CEO was buying properties and then having WeWork lease his properties from him.
Have a great weekend!
Sam I Am says
I agree, Sara. Their business model depends on never ending economic growth, but the Covid virus killed that. Even if it didn’t screw things up, the company is basically fashioned as a pyramid scheme. The number of tenants and buildings have to keep growing to keep the bottom line from falling into the red.
Len Penzo says
Companies like WeWork would never be possible in a world with an honest monetary system backed by precious metals.
RD Blakeslee says
“Credit: Unfortunately, as Robert Gore warns, ‘the reality is that a government undermining its own debt is idiocy on par with a government disbanding its police department.'”
Incredibly, both are now an actuality:
The Minneapolis City Council on Friday unanimously advanced a proposal to change the city charter to allow the police department to be dismantled
Sam I Am says
Len Penzo says
These loons who wish to sow the wind, will eventually have to reap the inevitable whirlwind.
You are right. It is obviously time to move some of your cash into gold. But gold is called a precious metal because there ain’t much to go around. It’s already harder to find now than it was a few months ago. When it’s unavailable (or unaffordable) the only choice left will be gold miners.
Len Penzo says
My guess is that the next time the markets experience a significant crisis situation like we saw in March and April, further opportunities to acquire precious physical metal in any amount other than drips and drabs will be over.
The Dark Knight says
I think McCloud got too far out in front of his skis. As long as money velocity stays at record lows like it is today, the buck is not in danger of going bust.
Len Penzo says
That’s what the math says too.
Like you, I am sure the worst is yet to come. This is only the eye of the hurricane. The backside of the eye wall will be here by the end of the year. Nothing changes until all of the deadwood is allowed to burn.
Len Penzo says
I think many people would disagree with me if I told them what some of those “deadwood” companies are; Tesla is one of the biggest.
Talking about the Fed and printing $3 trillion in a few months. Most people don’t comprehend just how big a trillion is. If you were born on Jan. 1 in 0 A.D., you could live forever, and were given a million dollars a day every day, as of today you still wouldn’t have earned a $1 trillion.
Len Penzo says
Oscar, to be honest, that is such an incredible claim, I didn’t believe you. So I calculated that for myself — and you are right!
As of Sunday, there have been 737,970 days since January 1, year 0. At $1 million per day, that would be only $737 billion!
RD Blakeslee says
Reuters reports that the fed announced this morning (Sunday) that it has purchased bonds issued by major corporations, including a utility subsidiary of billionaire Warren Buffetts Berkshire Hathaway holding company.
By contrast, which implicitly reveals the Feds lack of concern for all but its big-time crybaby cronies:
The Feds Main Street Lending Program, only recently opened its doors and has yet to make a loan even though the crisis is seen as hitting small and medium sized companies the hardest.
Len Penzo says
Yeah, it’s criminal and infuriating, Dave. The Fed needs to go; but nothing is going to change until the current debt-based monetary system finally implodes.