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 …
Hitting rock bottom is an opportunity to rebuild.
We have come to the edge of the abyss. Now it’s time to take a bold step forward.
— Ed Balls
Credits and Debits
Credit: Did you see this? Both the Nasdaq and S&P 500 hit new all-time highs this week. Yes, yet again. And while the seemingly relentless upward trajectory of the stock market is great for 401(k) and other retirement accounts, just remember that the underlying reasons for those rising stock prices has less to do with the state of the economy than it does with the printing presses at the Fed.
Sven Henrich (@NorthmanTrader) December 3, 2020
Credit: Speaking of high prices, economist Joseph Carson notes that, “Houses would be one of the most important measures to gauge inflation because their price cycles include three key ingredients of rising prices: easy credit, excess demand, and inflation expectations.” With that in mind, if actual house prices were used instead of rents, core CPI this year would have registered nearly twice the reported gain of 1.6%. Imagine that.
Debit: As part of its
indefinite permanent quantitative easing (QE) counterfeiting program, the Fed said it plans to print $960 billion in 2021 — although many economists suggest it may have to print at least double that figure to keep the monetary system from seizing up — and that’s just for next year.
WhataTimeToBeAlive (@majida_knows) December 2, 2020
Debit: So why is the Fed willingly debauching its own currency? It’s simple: Since the value of financial assets in our highly-financialized economy is at a record 620% of GDP, the Fed now sees capital markets as a proxy for the US economy. And why is that, you ask? Because they know that means if the markets crash then the US economy will collapse in tandem — and that is verboten. Yes, even if that means destroying the dollar. If only that was as fun as destroying this stuff:
Credit: With more than $1 trillion in US Treasuries in their possession, the Chinese are well aware of what’s happening to the US dollar, which is why they’re selling them to buy and stockpile commodities. With that in mind, macroeconomist Alasdair Macleod notes that, “The most profound effect on a currency’s purchasing power comes when both foreign owners and domestic users realize debasement will continue and accelerate.” Uh huh. So we’re half way there.
Debit: How concerned are the Chinese and, presumably, other foreign nations? Well … ever since the Fed told the world on March 23rd that there was no longer a limit on how many dollars they will print to keep the monetary system from imploding, China has been dumping their Treasuries — their holdings recently hit a four-year low — while ramping up purchases of iron ore, copper, oil, wheat, cooking oil, and soybeans. Coincidence? You tell me.
Debit: You can be sure of this: It’s definitely not a coincidence that the seeds of the current monetary mayhem were planted in 1971, when the US dollar was decoupled from gold. Unfortunately, it’s that corrupt international system of currency which — for now — continues to determine the totality of life on this planet …
Credit: Of course, what makes all of this central bank monetary-malpractice so sinister is its ultimate impact on society. This week MN Gordon highlighted that fact when he noted that “the money you’ve saved, in addition to being property, also represents time and the sacrifices made to earn it. When the Fed inflates (the dollar) away it not only steals your money — it steals your life.” Sadly, if not somewhat ironically, it’s the middle class that’s affected most of all.
Credit: The good news is everyone can protect themselves from what’s coming. As asset manager Egon Von Greyerz reminds us, “It doesn’t really matter which currency wins the race” to lose all of their purchasing power first because every fiat currency has gone to zero over time. Here’s the undisputed truth: The only money that’s maintained its purchasing power throughout 5000 years of human history is gold. Okay … and silver too.
Credit: By the way, for those of you who are only thinking about the short term, keep in mind that gold is closely correlated with real — that is, inflation-adjusted — bond yields. As long as that correlation has not been recently invalidated, it at least suggests that the dollar price of gold (and silver) most likely reached a bottom last week. Then again, that and a silver quarter will get you a cup of coffee at Starbucks.
Historically, real yields & gold have a strong correlation. Note how gold took off near gold’s 2018 bottom as real yields fell. The recent drop in real yields may partially explain recent 3-day surge in gold mining stocks (even as gold kept falling). Time for gold to catch up?
fred hickey (@htsfhickey) November 30, 2020
Credit: This week, billionaire investor Ray Dalio warned that the intensifying conflict and degrading financial situation within America has the US “at a tipping point” thanks to “excessive debt and widening wealth- and political-gaps.” That being said, if central banks could dial back their reckless monetary policies, we’d have a shot at stepping away from the abyss — but they can’t. So over the edge we’ll go. The question is: Are you making plans to cushion the fall?
The Question of the Week
Last Week’s Poll Results
How much is your Christmas gift budget this year?
- Less than $500 (47%)
- $500 – $1000 (30%)
- More than $1000 (23%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that just over half of them will be spending more than $500 on Christmas presents this year. That comports with yours truly, who expects to spend just under $1000 on gifts this holiday season.
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
Here are the price increases for select assets since March 23rd, when the Fed announced it was going all-in on quantitative easing:
57% S&P 500
94% Oil (West Texas Intermediate)
Source: King World News
Useless News: The Birds and the Bees
A young boy asked his father, “Dad, how were people born?”
His father said, “Adam and Eve made babies, then their babies became adults and made babies, and so on.”
The child then went to his mother, and asked her the same question. She told him, “Well, Honey … We were monkeys; then we evolved to become like we are now.”
The boy, who was now completely confused, quickly ran back to his father and said, “Dad! You lied to me! Mom said we started out as monkeys.”
The father smiled, and then replied, “I didn’t lie to you, son. Your mom was talking about her side of the family.”
(h/t: Sam I Am)
More Useless News
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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 my article on Why You Should (and Shouldn’t) Use a Credit Card, Laddester L. Conyers shared this observation:
The credit card industry calls people like us who never carry a balance, ‘dead beats.’
Uh huh. But that’s mild compared to what most people call the credit card industry.
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Photo Credit: public domain