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.
Let’s get right to this week’s financial commentary …
It is extraordinary how many emotional storms one can weather in safety if they’re ballasted with ever so little gold.
— William McFee
Gold is money. Everything else is credit.
— JP Morgan
Credits and Debits
Debit: Did you see this? Just three stocks make up more than 16% of the S&P 500 and over a third of the Nasdaq 100: Apple, Amazon and Microsoft. These three behemoths now have a combined value of nearly $5 trillion — that’s larger than Germany’s entire economy, and almost as large as Japan’s economy. Does anybody else see a problem here?
Credit: This week Peter Schiff reminded us that US prices fell by approximately half between the 19th and 20th centuries. Even so, he notes that the US economy still managed to expand at a tremendous clip that ultimately culminated with the Industrial Revolution. I know what you’re thinking: How could prices fall amid such a massive economic expansion? You can thank the monetary system in place at the time, which was backed by — wait for it … precious metals.
Debit: Meanwhile, the coin shortage continues with one Wisconsin bank paying a 5% premium for coins. No, really. And while millennials and Gen Z will probably find this hard to believe, there was a time when the banks routinely offered a similar rate of return on their customers’ saving accounts too. If you don’t believe me, ask your mom. Or Dad. Wait … on second thought, just ask Mom.
Credit: By the way, I read an interesting theory that postulates the current coin shortage is an intentional prelude to replacing the US dollar with a brand new devalued currency. Why? Because replacing the coins is costly. And since their denomination would remain the same after the change-over, the coins would also hold their original value. It’s definitely something to ponder …
Debit: Speaking of devalued currency, Deutsche Bank’s chief US economist, Matt Luzzetti, believes the Fed could add as much as $12 trillion more to its balance sheet over the next few years. For those of you counting at home, that would increase the Fed’s balance sheet to $20 trillion. Yikes.
Credit: Of course, the best hedge against all of this central bank insanity is precious metals; especially gold. Which begs the question: Why are the bullion banks finally allowing the price of gold and silver to run to the moon? Macroeconomist Alasdair Macleod seems to think those banks may not be doing it willingly:
Re gold and silver, it feels like the fall in USD is not the full explanation. Something must be going on behind the scenes that only close insiders know. Bank failure?? China pulling the rug on the dollar?
Alasdair Macleod (@MacleodFinance) July 27, 2020
Credit: You can bet the rising gold price is why billionaire investor Ray Dalio recently expressed concern about the US dollar’s purchasing power. This week he said, “You can’t continue to run deficits or print money and sustain that over time. If we aren’t productive, earn more than we spend, and build a stable currency, then we’re going to decline.” Psst. Hey, Ray … we’ve been in a slow decline for the last 20 years.
Credit: By the way, Dalio isn’t the only one worried about the dollar; Goldman Sachs’ chief commodity strategist, Jeffrey Currie, says the “the Fed’s shift towards an inflationary bias,” combined with massive debt growth, means that “real concerns about the longevity of the US dollar as a reserve currency have started to emerge.” As for the dollar’s potential replacement? Currie says, “it’s gold.” Yes, the choice is obvious. At least it is for most people …
Credit: Unfortunately, to keep the illusion alive, the Fed is buying increasingly low-grade bonds; if enough go into default, the Fed will become insolvent. So, as macroeconomist Luke Gromen notes, the only antidote is to let the gold price rise until they can engineer a complete credit reset by buying all bad US debt and then writing it off. How high will the yellow metal have to go? Well … at least this high — but probably more:
Add a zero to gold’s price, and recalculate how much the gold on Central Bank balance sheets will collateralize the sovereign debt (and increasingly junk debt and other credits) on Central Bank balance sheets… https://t.co/pp8jhBaogZ
Luke Gromen (@LukeGromen) July 24, 2020
Credit: A debt-fueled monetary reset is neither the end of the world, or an unprecedented event. Then again, as Jim Kunstler remarked this week: “The world has gone broke before — but never broke like this; or had so many people who are going to suffer from being broke.” The good news is nobody has to drown in this vast sea of red ink because the monetary life boats are still available. So … are you going to grab one? Or go down with the ship?
The Question of the Week
[poll id="332"]
Last Week’s Poll Results
How do you dress up your favorite hot dog? (Click all that apply.)
- Mustard (25%)
- Onions (18%)
- Relish (17%)
- Ketchup (16%)
- Chili (10%)
- Cheese (8%)
- Sauerkraut (7%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that 3 in 4 of them actually don’t include mustard as a condiment component of their favorite dog. Surprised? I am. My very unscientific survey result is in sharp contrast to a poll from RetailMeNot which found that mustard (71%) is the preferred hot dog topping followed by ketchup (52%), onions (47%), chili (45%) and relish (41%). As for those of you who think it’s bad etiquette to put ketchup on a hot dog, don’t tell that to 16% of my respondents who put it on their wieners.
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
Hey, look at this — EatThisNotThat! decided to rank their top 100 fast-food menu choices. Frankly, their list gave me indigestion. (For example, McDonald’s french fries came in at #100. Really?) How does their top 10 stack up against your favorites?
10 Taco Bell Burrito Supreme
9 Starbucks Pumpkin Spice Latte
8 McDonald’s Happy Meal
7 Wendy’s Frosty
6 Sonic Cherry Limeade
5 Arby’s Roast Beef Sandwich
4 White Castle Sliders
3 KFC Original Recipe Chicken
2 Five Guys Cheeseburger
1 Burger King Whopper
Source: EatThisNotThat!
Useless News: More Soviet Humor
Two Russians playing chess and drinking vodka. The first one says, “Comrade, if you had two houses, would you give me one?” The other Russian says, “Of course. In Communism, we share everything.”
The first guy continues: “Comrade, if you had two cars, could I have one?” His friend responds, “Absolutely! That’s the way the system works. ‘From each according to his ability, to each according to his need.’ So, yes, you could have my car.”
Finally, the first guy says, “Comrade. If you had two chickens, would you let me have one?”
The other Russian gets angry and says, “Hell no.”
“But why not, Comrade?”
“Because I have two chickens.”
(h/t: Greg)
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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 I got this question from 69GTO:
Did you ever wonder why the people who we’re supposed to invest our money with are called ‘brokers’?
Probably because there’s a truth-in-advertising law.
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,
I love my weekend cup of joe!
You know the USD is on its last legs when people like Ray Dalio are openly talking about it. The clock is definitely ticking now!
Sara
The dollar may survive, but its artificially-high purchasing power will eventually come to an end. The world will decide when.
Obviously, I’ll take the gold. But if that ain’t available I’ll have the bong and a blintz. LOL!
Does anybody still smoke with those old fashioned pipes (I’m not talking about the bong, Sam)? I love the smell of good pipe tobacco. My junior high school American history teacher, Mr. Baldwin, used a pipe. He was a great teacher too — he made learning about history fun.
Speaking of history, because of Mr. Baldwin, I also took an American Civil War history class in college. My professor was another history lover who would come in every Friday as a character from the period — dressed in historic garb! He also taught “in character” on those days with an accent. Amazing.
That was back in the late 70s and early 80s.
There truly are ways to make learning fun — but the teachers have to care.
My return is very positive because I’m in gold, silver and bitcoin investments! 👍 🏻
Heavier weighted in precious metals then crypto however, but both are performing Great!
Yes, it’s been a good year so far for those holding precious metals, and gold and silver mining stocks.
Len: I enjoy your blog. I’ve only been following for a few weeks though. Which would you rather have right now, gold or silver?
Well … historically speaking, the current gold-silver ratio suggests that silver is undervalued at the moment relative to gold.
Thanks!
Pretty heavy in gold/silver here…around 3/4 of our non-real estate net worth, but I don’t consider them an investment…..just money….real money versus the paper stuff that keeps depreciating against it, and almost everything else real. And in accordance with Gresham’s Law, (people horde good money, spend the bad) I’ll spend every last paper dollar I have before tapping into that horded, good money.
On the FED: “…the Fed is buying increasingly low-grade bonds; if enough go into default, the Fed will become insolvent.”
Don’t know how the FED can go insolvent when they have the ability to create currency at the stroke of a keyboard. And really, what difference does it make what their phony ‘balance sheet’ number is ? The currency that matters to us mere mortals is that which floats out into the real flow of commerce. That, I think, is the additional currency chasing real goods/services, causing them to bid up in price (in fiat terms)….and thus inflationary.
The trillions the FED created in the last financial fiasco (c. 2008) mostly went to prop up the phony balance sheets of banks/etc…..it was more bookkeeping entries than real currency. But THIS time around, a whole lot of what they create from thin air IS getting spent into the economy, and has to result in the dilution of the rest of the currency already in circulation. Hence, the rise (in fiat terms) in the price of gold/silver is pretty much as close to a sure bet as you will ever see.
Yes, I should have said, “technically” insolvent, Andy. Of course, the Fed can print as much currency as it needs. However, it is clear that the Fed will eventually be forced to print so much currency that the dollar’s purchasing power will be driven to essentially zero. And if their currency is worthless (or almost worthless) then, for all intents and purposes, the Fed is insolvent.
“…for all intents and purposes, the Fed is insolvent.”
Agreed…..but so is everyone using/saving/investing via fed notes……which is most folks in this country and lot out of this country (more $100 bills circulate outside the US than inside, for example) or countries holding US debt (like China, Japan, etc).
THEN it really will get interesting !!
We’ve never had (at least in semi-modern times) a nation our size/influence go completely “Weimar” , so the ramifications are almost too huge to even grasp.
Never trust a prophet making a profit…are you listening ?
Which prophet are you referring to, Mik? The ones on Wall Street who have a vested interest in steering people away from anything related to precious metals, the precious metals dealers themselves, or yours truly who for the past eight years here has said that precious metals are wealth insurance and responsible people should own some — regardless of market action?
Looks like the revenge of the gold bugs is finally here.
Every dog has its day, Cowpoke. The thing is, I don’t think the gold bugs have been vindicated yet.
Maybe “vindication” is nigh.
The Consumer Confidence Board finds consumer confidence sharply down in July …
https://conference-board.org/data/consumerconfidence.cfm
… and posits reasons for it, but citizen’s trust in the dollar is not explicitly asked about. It’s apparently assumed, there as elsewhere, that the dollar is sacrosanct, but there is, rather suddenly, enough talk here and there to suggest that the dollar’s trustworthiness is starting to be to be questioned in the public’s mind.
We’ll see.
How did you go bankrupt? Gradually … and then suddenly.
Hi Len. That is so interesting that the stock market is made up so much by those 3 companies, (apple, microsoft and amazon). I was doing our finances and the amount that goes out into our budget (mostly spent by Mr. Plastic Picker) to apple, microsoft and amazon and internet services/audible ect is astounding. I was telling him none of it is tangible and we could go without if push went to shove. It’s crazy.
Great point, Dr. P.
It’s so hard to read the true state of the economy today because price discovery has left the building thanks to all of the central bank currency printing during the past decade.