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.
Summer is here, but for most people on Main Street, the financial crisis rages on. Meanwhile, for the suits on Wall Street, there’s plenty of money being made — whether it’s legitimate or not.
And with that, let’s get to this week’s financial commentary …
Perhaps it is better to wake up after all, even to suffer, rather than to remain a dupe to illusions all one’s life.
— Kate Chopin
It’s coming. Something frightful, like a kitchen dragging a village behind it.
— Gabriel Garcia Marquez, One Hundred Years of Solitude
Credits and Debits
Debit: Did you see this? As of this April, a record 32 million American adults were living with their parents or grandparents, according to the US Census Bureau — that’s an increase of almost 10% from a year ago. Perhaps even more shocking, it’s also approximately 1 in every 4 households in the United States. Does that officially mean the Boomers are the last generation to be better off than their parents?
Debit: Sadly, American entrepreneurs are struggling too. The Fed’s free-money spigot that’s been flooding the market for more than a decade has led to a gross misallocation of capital into speculative — rather than productive — investments. As a result, the growing debt is being increasingly spent on unproductive businesses — while obligations outpace revenue at an exponentially increasing rate. But the Fed train keeps rolling on anyway. Well, until …
Debit: The Fed’s toxic monetary policy is why the dollar has lost 44.2% of its purchasing power since 2000 — that means that the dollars you saved 20 years ago have lost almost half of their purchasing power. And that means our corrupt debt-based fiat monetary system guarantees the further you’re away from retirement, the less purchasing power you’re actually saving. It also means more people are headed for a lower-than-expected standard of living in their “golden” years.
Credit: Unfortunately, we can’t count on the economy to grow its way out of the mess it currently finds itself in. In fact, a recent analysis by investment advisors Michael Liebowitz and Jack Scott shows that, based on the trends of the past 40 years, “the economy will not regain pre-COVID output levels until sometime in the 2030s.” I know … Apparently, they missed the news that a V-recovery is just around the corner.
Credit: The stock market is certainly all-in on the V-recovery meme. Despite no earnings growth since 2018, the latest Wall Street soiree has become so reckless that asset manager Sven Henrich now refers to the markets as “a liquidity meth lab; an artificial behemoth constructed and subsidized by the Fed. It’s folly to pretend they’re anything else. Call it what you like, but don’t call it capitalism.” Okay. But if you’re expecting me top “liquidity meth lab,” I’m gonna pass.
if you’re new to investing this is how it works – companies magically increase in value overnight while you are sleeping and the stock market isn’t even open
StockCats (@StockCats) July 6, 2020
Debit: Of course, a soaring stock market doesn’t always signal a healthy economy — it can also indicate a failing currency. Before the government shut it down last month, Zimbabwe’s bourse had returned 677% in 2020, despite a GDP that’s expected to contract 10%. Yes, that’s an impressive nominal gain — but ultimately, it’s illusory real wealth with annual inflation in Zimbabwe now pushing 1000%.
Debit: How crazy has the US stock market become? Well … Tesla became the largest automaker in the world last week; even bigger than Toyota — yes, that Toyota, which sold 11 million cars in 2019, compared to Tesla’s 367,500. In fact, after closing Monday at $1371, Tesla became the 15th largest company in the S&P500. Oh, wait … Tesla isn’t in the S&P 500 because — wait for it — the company can’t meet the index’s positive net income requirement. No, really.
Debit: In fact, Tesla’s current market cap now makes it bigger than most companies that actually can turn an annual profit and stand on its own two feet without government support, including: Bank of America, Walt Disney, PayPal, Netflix, AT&T, Verizon, NVidia, and Intel. Does anybody else see a problem here? Or here:
Credit: As macroeconomist Alasdair Macleod noted this week, “We’re now seeing central banks, like some latter-day Aztec priests, trying to appease their gods with human sacrifices. We are the sacrifices, lesser mortals trying to do the best for our families and ourselves, being slaughtered by monetary means.” True. I see an awe-struck monetary minion has already proposed a new monument to honor our Fed overlords … or not:
Credit: By the way, Macleod is also warning that, “Businesses are in arrears as never before, with many unused shopping malls, office blocks and factories, and unpaid rents — and it’s this problem which is likely to tip the banking system over the edge and into an immediate crisis; likely this month.” Wait … this month? That’s a gutsy call. We’ll see …
Debit: So, if the Fed insists on keeping the printing press on hyperdrive during an economic depression, then at some point we’ll find ourselves in a situation with too many dollars chasing too few goods — and that can only result in one outcome: rampant price inflation spreading from financial assets like stocks and bonds into things everyone needs, like food, fuel and medicine. It may not happen tomorrow — but the day is coming. Most likely sooner than later.
By the Numbers
When COVID-19 arrived in America, Uncle Sam was already deep in debt, with a permanent annual budget deficit of at least $1 trillion. But after the most recent three months of frenzied spending, that seems like small potatoes:
$3,600,000,000,000 Amount of emergency government outlays this year directly related to COVID-19.
$2,400,000,000,000 The net impact of the emergency spending on the 2020 deficit.
$2,000,000,000,000 Emergency funding the Fed has printed or loaned so far.
$3,500,000,000,000 Total emergency funding expected to be printed or loaned by the Fed in all of 2020.
$500,000,000,000 Amount in a special COVID emergency fund created for businesses with under 10,000 employees or less than $2.5 billion in revenue.
$25,000,000,000 Portion of the COVID emergency fund allocated to air carriers.
$17,000,000,000 Portion of the COVID emergency fund allocated for businesses deemed to be “critical” to national security.
$4,000,000,000 Portion of the COVID emergency fund allocated for cargo air carriers.
$649,000,000,000 Amount of special small business funds that have been made available for companies with fewer than 500 employees though a newly formed Payroll Protection Program.
Source: Reason
Last Week’s Poll Result
Are cryptocurrencies a legitimate wealth preservation asset?
- No (73%)
- I’m not sure (23%)
- Yes (4%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that just 1 in 25 of them believe cryptocurrencies such as bitcoin are a legitimate wealth preservation asset. I suspect that figure is so low because I’ve been preaching they’re not for many years now — and for many reasons. The biggest being that they are non-tangible products that can only be valued in the very fiat currencies that they supposedly insure against. Gold and silver don’t have that problem because, unlike cryptocurrencies, gold and silver are both rare and real — they’re both part of the periodic table of elements — and can therefore be valued physically; that is, in terms of weight. Think about it: If the dollar’s purchasing power dropped to zero tomorrow, what is a bitcoin truly worth? Mathematically, the answer is “infinity dollars” — but in the real world, the answer would be something far different. Ironically, if the dollar died tomorrow, it would be physical gold holders who would — directly or indirectly — ultimately have the final say on the true value of a bitcoin. (And although I could be wrong, I suspect the great majority of them wouldn’t trade a single gram of gold for any number of bitcoins.)
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=”329″]
Useless News: Horse Trading
A man named Joe bought a horse from a farmer for $250. The next day, the farmer drove up and said, “Sorry mister, but I have some bad news; the horse died.”
The man said, “Well … then just give me my money back.”
The farmer said, “Can’t do that; I went and spent it already.”
“Okay, then,” said the man. “Just bring me the dead horse and I’ll raffle him off.”
The farmer said, “You can’t raffle off a dead horse!”
“Sure I can,” said Joe. “I just won’t tell anybody he’s dead.”
A month later, the farmer met up with Joe, who told him that he sold 500 tickets at five dollars each, making a cool profit of $2495.
The farmer was stunned by what he heard. “Didn’t anyone complain?” he asked.
“Just the guy who won,” said Joe. “So I gave him his five bucks back.”
(h/t: RD Blakeslee)
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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
Somebody claiming to be Les Moonves — no, really — chimed in regarding my controversial assertion that smart people aren’t impressed by expensive cars:
Wow, Pulitzer Prize winning stuff. Life is short. If you’re someone who loves performance vehicles and doesn’t want to drive around in a 94 P.O.S. like a shlub [sic] why not enjoy yourself? Smart people in some cases are haters.
Uh huh. And I don’t need a 60 Minutes expose, Les, to learn that you’re obviously just another intolerant schlub-basher!
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,
Yesterday they announced inflation was “tame” and everybody cheered. Lies, lies, lies! I don’t think they’re ever going to stop.
Sara
It won’t stop until the monetary system resets or goes belly up, Sara.
Thanks for the Cassandra Crossing clip, Len. I totally forgot about that movie. I’m going to have to watch that one this weekend.
They don’t make ’em like that anymore, do they? The 70s was definitely the decade of the disaster flick!
Loved the face shot of the panicking old lady and the scene with where the guy takes a steel girder to the gut. LOL!
Goods and services will only get more expensive as supply dries up. This is econ 101. We’re going to see inflation take off when the demand for products increases, but this beer virus has kept a lid on the demand so far. They have a vested interest in keeping demand down, so expect the lockdown threats to continue.
I’ve been saying that for awhile now, DK. They have to keep the velocity of money as low as possible for as long as possible.
“Perhaps it is better to wake up after all, even to suffer, rather than to remain a dupe to illusions all ones life.”
— Kate Chopin
The epiphany for me was in 1977. It was a wrenching experience, in some ways (more so for my late wife, who was conventional in her attitude toward American life at that time) to pick up and move to the Appalachian mountains.
I’m glad you were able to muster the courage to do it, Dave. It certainly worked out for you.
I think most of us are going to be faced with similar lifestyle decisions in the relatively near future.
I saw one analyst this week saying Tesla is headed to $2,000 or more. I’d say he is smoking crack, but everything is so insane I just don’t know anymore.
The cars made by Tesla may be on the cutting edge (although there are plenty of other competitors out there now giving them a run for their money), but they are going to have to manufacture about 15% of the world’s cars (17M cars per year) to justify their valuation going forward. Not likely, IMO.
When the system finally breaks for good, Tesla will be seen as the Pets.com of this era. The over-valuation of this company is gobsmacking — I suspect the stock price has been benefiting from the tremendous number of short sellers who, although technically correct in their assessment, have been getting squeezed and forcing the price to ever more dizzying heights.
There will be increasing impetus to terminate the lives of older citizens as the world suffers from the current economic depression, whos only precedent is that suffered in the 1930s.
Sweden has, defacto, taken that course of action already:
https://www.zerohedge.com/markets/coronavirus-under-40s-dilemma
My philosophy of separation and independence is the best course I can think of. In any event, persons of all ages will find they can rely only upon themselves and, possibly, close family, in really hard times.
Woe betide the currently fashionable destroyers of traditional families, when the destroyers themselves become aged.
I think you’re right, Dave. As we transition from the previous easy-money economy to reality, family is going to become more important than ever.
Governor Cuomo in NY has already leaped into action to dispose of the elderly and he is having amazing success, Cuomo got rid of more than 12,000 senior citizens in NY in just four months! NY had an empty hospital ship sitting in the harbor, it had the Javits Center converted to a hospital and both were purposely kept empty. In order not to DISCRIMINATE against patients with the corona virus Cuomo ORDERED nursing homes to take the virus diseased patients, and the nursing homes had no choice. As a result the plague swept through NY nursing homes like the grim reaper on steroids. Not to be outdone (It’s hard to top the murder of 12,000+ seniors in a few months but worth a try by another “progressive” Democrat) Governor Murphy issued the SAME executive order. Our Veterans home in Paramus NJ LOST 1/3 OF THE RESIDENTS TO THE VIRUS AS SOON AS MURPHY HAD THE VIRUS INTRODUCED VIA DISEASED PATIENTS TO A HOME FULL OF FRAGILE SENIOR VETERANS. Murphy murdered one third of those brave old men. Murphy committed similar havoc on other nursing homes which were forced to take diseased patients instead of sending them to quarantine elsewhere. After all, we can’t “discriminate” against covid patients.
Sadly for Murphy he has only got 5,000+ senior murders laid at his doorstep, because of NJ’s smaller population he will never catch Governor Cuomo’s record for murder of “now useless” senior citizens. “The coronavirus has preyed on residents of nursing homes in New Jersey with lethal force, claiming 4,953 lives. Deaths at long-term care facilities now account for more than half of the states Covid-19 fatalities, well over the national rate. But nowhere has the devastation been starker than at the New Jersey Veterans Home at Paramus, a state-run home for former members of the U.S. military, where on Tuesday 74 deaths had been linked to virus.” I might add that these people all died denied visits from family members on the trumped up idea that the family might bring in the virus. INSTEAD CUOMO AND MURPHY BROUGHT THE VIRUS INTO NURSING HOMES AND VETERANS HOMES and then denied the dying the comfort of their families. Thank you democrats! It’s a Brave New World.
Yeah … the decision by those — and a couple of other — governors to put COVID-infected patients into nursing homes defies logic and belief. But just as disturbing is the media’s almost unanimous (although not surprising) decision to ignore what happened.
Our society will eventually crumble without an honest media.
Every Friday I’m usually thinking I have enough gold and silver now. Then I read the Black Coffee and it’s “Nope, I need more”.
Luckily I have a good relationship with my local coin shop and he still sells me 90% junk at melt. Still amazes me that when I go in he usually has about $100 face available. I need to ask him if he thinks it’s people taking profits or people that need money that keep selling to him. Unfortunately he hasn’t had much melt or low premium gold since before the virus.
If you can find it, John, I think junk silver is the smartest all-around precious metals option right now. Not only is junk silver perfect money if a currency crisis forces people into a temporary barter scenario — for example, people will learn quickly that a single pre-1965 silver US dime will always buy a loaf of bread, and a pre-1965 silver US quarter will always buy a gallon of gasoline or a pound of chicken — but, by almost any measure, silver is the most undervalued asset on the planet right now. Especially with the gold-silver ratio at nearly 100.
I’m glad I’m not the only one befuddled about Tesla. It just doesn’t make sense. We have a colleague who all he does is talk and invest in Tesla. We worry about him. We could afford a tesla but Mr. P’s red 2012 Prius works totally fine and gets 50 MPG and my Ford CMAX is fine too. People make no sense. I see young MDs with a 1/3 of our income with Teslas and I know they have 200K+ in student debt.
I think the biggest surprise for these Tesla owners is going to come when the time comes to replace the batteries. They’re claiming the cost will be in the neighborhood of $8000 — I suspect it will end up being much higher than that.
Either way, it is a significant chunk of change.