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 still plenty of money being made — whether it’s legitimate or not.
And with that, let’s get to this week’s financial commentary …
The man who promises everything is sure to fulfill nothing. And anyone who promises too much is in danger of using evil means to carry out his promises — and already on the road to perdition.
— Carl Jung
Credits and Debits
Debit: Did you see this? The latest government data shows shows just how reliant many Americans have become on the government. It shows that government-sourced income such as unemployment benefits and welfare checks is still responsible for the income of more than a quarter of all Americans. No, really.
Debit: Meanwhile, If you’re holding your pension with the Bank of Ireland, you’re now officially being charged to keep it there; the bank is now imposing negative interest rates on all pension cash. In fact, the bank is currently charging minus 0.65% on all pension pots. By the way, if you think this will never happen in the US, then you probably think this is real too:
Debit: Speaking of oppressive interest rates, the rates on “high-yield” savings accounts are near all-time lows. Popular brands such as Ally and Marcus offered rates in July of 1% and 1.05%, respectively. Oh … and in case you’re wondering, that’s fully one-half the rate that was being offered a little over a year ago, when the Fed cut rates for the first time since 2008.
Credit: You can bet those small returns being offered for high-yield savings accounts is why Bloomberg is reporting that a growing number of people are raiding their savings accounts to load up on assets that have been showing higher returns such as bitcoin, stocks and — wait for it … precious metals. If the world wasn’t already upside down, it certainly is now.
Debit: You’d think returns on savings accounts would be higher considering that last Friday — with bond yields at record lows — Fitch Ratings revised its US credit outlook from “stable to negative,” citing “ongoing deterioration in US public finances and the absence of a credible fiscal consolidation plan.” Imagine that.
Debit: Needless to say, Fitch lowered America’s credit outlook because the US borrowed $2 trillion last quarter — and intends to borrow another $1 trillion this quarter, which will push the deficit to more than $4 trillion for the fiscal year ending on September 30. And if that’s not bad enough, those deficits have continued to grow at a noticeably increasing pace for more than two decades. See for yourself:
Debit: Peter Schiff, who is among the most knowledgeable macroeconomists around, isn’t surprised by Fitch’s credit outlook. In fact, he believes the US financial situation is so dire that US Treasuries are essentially junk bonds — but with lower yields. Never mind that the returns on today’s higher-yielding corporate junk bonds are already far too low relative to their risk.
Debit: By the way, CNBC is reporting that the Fed is on the verge of formerly announcing that they plan to ramp up inflation soon. Heh. The reality is: After decades of gross mismanagement, the dying debt-based monetary system is calling the shots now. The Fed — along with their chicken entrails and tea leaves — have utterly failed. And, yes, they know that. But they certainly aren’t going to admit it.
When this all blows up be sure to join me and blame these guys. pic.twitter.com/z2y3g94Zbk
Sven Henrich (@NorthmanTrader) August 6, 2020
Credit: This week, Schiff said the Fed’s coming commitment to higher inflation is a “direct threat” to the American public. “What they’re saying is: ‘We’re going to wipe out the value of your savings, and we’re going to increase the cost of living.” He’s right, you know. As usual.
Credit: I know what you’re thinking: If the Fed is unwilling or unable to discourage the government’s growing reliance on deficit spending, then where is this headed? Well … the answer should be obvious. In fact, it’s so obvious, metals analyst Craig Hemke notes that even the Cartoon Network figured it out:
It appears the The Cartoon Network understands things far better than the @WSJ @business @FT and the rest of the “mainstream” financial media.pic.twitter.com/MqsVBktlAu
TF Metals Report (@TFMetals) August 2, 2020
Debit: Clearly, the current monetary experiment, which began after the dollar’s anchor to gold was broken in 1971, is starting to spin out of control. Eventually, the amount of currency debasement required to keep the system on life support is going to end with a sharp reduction in the dollar’s purchasing power and — sadly — a significantly-lower living standard for most middle- and lower-class Americans.
Credit: So, will the world really return to some form of gold standard? Well … asset manager Bill Blaine sums it up this way: “Who knows where it all eventually leads; but if you’re trying to understand where today’s markets are headed, then understand the reality: Massive consequences are coming. Desperate distortion will remain as central banks keep playing whatever cards are left to stay in the game. But at some point … the dam will burst.”
By the Numbers
Here are some year-to-date performance numbers for select assets through the month of July:
-7.4% Dow Industrials
1.2% S&P 500
22.7% Nasdaq
24.3% Jr. Silver Miners
29.2% gold
35.7% silver
43.3% Jr. Gold Miners
43.8% Gold Miners
44.8% Silver Miners
Contributing Source: The Moneychanger
Last Week’s Poll Result
What is the current return on your overall investment portfolio this year?
- Positive (49%)
- About even (37%)
- Negative (14%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than half of them say their portfolio performance this year is underwater or, at best, about even. As for yours truly, I’m happy to say I am solidly in the black this year, thanks largely to the performance of precious metals and precious metal mining stocks.
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=”333″]
Useless News: Traffic Stop
A senior citizen drove his brand new Corvette convertible out of the dealership. Taking off down the road, he pushed it to 80 mph, enjoying the wind blowing through what little gray hair he had left. Amazing, he thought as he flew down the highway, pushing the pedal even more.
Looking in his rear view mirror, he saw a state trooper behind him, lights flashing and siren blaring. He floored it to 100 mph, then 110, then 120. Suddenly he thought: What am I doing? I’m too old for this. So he pulled over to await the trooper’s arrival.
Pulling in behind him, the trooper walked up to the Corvette, looked at his watch, and said, “Sir, my shift ends in 30 minutes. Today is Friday. If you can give me a reason for speeding that I’ve never heard before, I’ll let you go.”
The old gentleman paused. Then he said, “Years ago, my ex wife ran off with a state trooper. I thought you were bringing her back.”
“Have a good day, sir,” replied the trooper.
(h/t: Dr. J)
Other Useless News
Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. Hawaii (2.10 pages/visit)
2. Arkansas (1.95)
3. West Virginia (1.83)
4. California (1.81)
5. Iowa (1.68)
46. Connecticut (1.23)
47. Rhode Island (1.21)
48. Vermont (1.15)
49. Alaska (1.07)
50. Illinois (1.05)
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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 recently-updated Star Wars themed article on the power of compounding growth, Ray added this caveat:
The way interest is at banks today, you’ve got to have the lifespan of Methuselah to double your money.
Actually, when you consider that today’s real interest rates are negative, then even Methuselah can’t win.
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
Who knew that you could still get away with telling the truth on the Cartoon Network? I guess TPTB sleep in on Saturday morning.
Did you notice the superhero at the end of the clip says there will be no gold standard on his watch? It just goes to show how the bankers on Wall Street have demonized gold in the minds of most people over the years.
Give ’em time, Ed.
And, Cowpoke, I too noticed the one pushing for the gold standard in the cartoon was actually portrayed as “the bad guy.”
“Credit: This week, Schiff said the Feds coming commitment to higher inflation is a ‘direct threat’ to the American public. What theyre saying is: Were going to wipe out the value of your savings, and were going to increase the cost of living.’ Hes right, you know. As usual.” – Len
There may be increasing awareness of this, if the upward explosion of gold and silver prices this mid-week is any indication.
I’m not sure if the public is waking up yet, or if the bullion banks have just reached a point where they can no longer keep naked shorting the gold and silver market to suppress prices because so many people are taking delivery on the exchanges.
Hi Len,
Silver is on fire! Did you see it almost got to $30 this week? It’s finally starting to move like I knew it would.
Have a nice weekend!
Sara
I know, right? Silver was up 14% this week and 127% since the March low. (!)
That being said, it’s more important to measure your stack by the number of ounces you own, rather than the number of fiat dollars it can fetch.
The average guy in the street doesn’t know how money is created, or why it’s fake, or the difference between fake money and real money. He also doesn’t understand why it’s important to hold tangible assets and have at least some long term savings in gold and/or silver in the world of fiat.
You’re right. Our education system has failed us.
Wow Len. Maybe it’s because I did not take any economics in college (too busy with premed) or maybe it’s because I’m a pediatrician, but that Cartoon Network clip seriously helped me understand what you’ve been talking about for a decade LOL. It’s super scary.
Whatever I can do to help, Dr. P! Cartoons help me understand things better too.
I find it infuriating that the Fed has been punishing savers like me since 2009 with their tiny interest rate policy. And now inflation is only going to get worse.
The annual rate of return, in paper dollars, on gold held since 2005 is 11.4% (source: Goldprice.org). Better than CDs, bonds, and a lot of stocks. This is one of those years upping the average of course, but at the start of 2020, it was 10.5% over that 14 years.
Warren Buffet says “Gold pays no interest”….apparently Warren, IT DOESN’T HAVE TO !
And as an added bonus, gold also has absolutely no counter-party risk!
That is why you need to keep your long term savings in gold or silver.
The cartoon didn’t go back far enough to explain WHY Nixon closed the gold window. He was stuck with LBJ’s “Guns and Butter” strategy to fund the war and buy votes with welfare payments. Johnson started to inflate the money supply until other countries noticed and started cashing ion dollars for cheap gold. Now would you want to be the president that had to lose a war for fiscal responsibility or would yourather curtail direct welfare payments? Which choice would get you re-elected?
“I’ll have those n****rs voting Democratic for the next 200 years.” [Touting his underlying intentions for the “Great Society” programs, LBJ confided with two like-minded governors on Air Force One]
― Lyndon B. Johnson ― (D)- 36th President of the United States
Absolutely correct, Buck. Although the pressure had been building even prior to LBJ — as evidenced by the huge draw down of American gold from Fort Knox — his Guns & Butter program was the straw that broke the camel’s back. Nixon was merely the fall guy.