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.
I hope everybody had a good week. Without further ado, let’s get to this week’s financial commentary …
The first principle is that you must not fool yourself — and you are the easiest person to fool.
— R. Feynman
Never confuse genius with a bull market.
— J. Bogle
I would as soon leave my son a curse as the almighty dollar.
— Andrew Carnegie
Credits and Debits
Debit: Did you see this? Tesla’s 2021 earnings projections have fallen 20% since August 2018. Yet Tesla shares have increased 600% this year alone and the company is worth more than the next four most valuable carmakers combined — despite producing only 500,000 vehicles per year versus 10 million at Toyota and Volkswagen. Huh. Makes sense.
Tesla Market Cap: $609 Billion
Volkswagen: $96 bil.
Audi: $83 bil.
Daimler: $74 bil.
GM: $63 bil.
BMW: $58 bil.
Ferrari: $52 bil.
Honda: $51 bil.
Ford: $37 bil.
Fiat Chrysler: $33 bil.
Peugeot: $22 bil.
Porsche: $20 bil.
Combined Total: $589 bil.
Charlie Bilello (@charliebilello) December 8, 2020
Debit: Here’s another thing to think about: After nearly 17 years of being in business, Tesla still doesn’t earn a profit selling cars — and yet the company’s stock is currently trading northward of 1400 (!) times its earnings. Now compare that to GM: they still produce millions of cars profitably, while trading at less than ten times earnings. Does anybody else see a problem here? Anyone?
Debit: Sadly, Tesla is a symptom of the US stock market in general, which continues to soar despite terrible economic data; a dichotomy that’s allowed to persist because the Fed opened the money spigots in March — and then broke the control valves — in order to keep the spendthrift US government functioning and the faltering economy afloat. As a result, much of that liquidity continues to drain into stocks — as it has for more than a decade now.
Debit: It’s not just the Fed. Did you know the Bank of Japan has been has been directly buying ETFs and REITs for more than 10 years now? They have. And last week they became the biggest owner of Japanese stocks, with holdings surpassing $434 billion. Needless to say, without the BoJ and Japan’s second largest equities holder, the national Public Pension Fund, the Nikkei and other Japanese stock indices would be a fraction of their current value.
StockCats (@StockCats) December 3, 2020
Credit: Of course, the BoJ has repeatedly claimed that the stock purchases are needed as part of monetary stimulus to reach their stated inflation target. But as Zero Hedge notes, “that’s an excuse which is as laughable as it is stupid now that even shoeshine boys know the only mandate central banks have is to make sure stocks never drop and the business cycle remains dead.” Make that: very rich shoeshine boys. At least for now.
Debit: Meanwhile, as Scott Powell notes, “The US financial balance sheet is in its weakest condition in 200 years. Between 1960 and 2000 the total national debt-to-GDP ratio averaged between 35-55%. By 2010 debt-to-GDP rose to 90%. Today, the national debt is nearly $28 trillion and the US debt-to-GDP stands at 128% — a ranking shared with countries like Mozambique and Eritrea.” True. But the good news is we’ve pretty much got nowhere to go but up.
At precisely what point is it appropriate to question the structural soundness of a financial/economic construct that requires this much intervention to stay afloat?
I’m asking for a friend. https://t.co/9akON5ttfw
Sven Henrich (@NorthmanTrader) December 7, 2020
Debit: And it’s not just the US — the entire world is hopelessly mired in a debt bog of more than $258 trillion. That debt acts as an anvil around the neck of the world economy. Unfortunately, it’s an anvil so big that it will remain there until the debt is paid back by inflating away the purchasing power of all fiat currencies.
Credit: Big Government economists insist that perpetual bonds can “solve” the global debt problem. But as blogger Tom Luongo points out, “the problem is that there is no principal repayment; you simply pay the interest in perpetuity. It’s the path to perpetual debt slavery.” Indeed. Perpetual bonds are a ruse that won’t fix anything. Which is why, now more than ever, it’s important for honest-money advocates to maintain our strength of conviction — or else:
Credit: With all that in mind, it shouldn’t be a surprise to learn that so-called financial “tail risks” — that is, catastrophic economic events — are growing. In fact, this week financial analyst Paul Wong warned that “because of the compounding of past excesses, the zero bound, and diminishing returns on central bank liquidity injections, both a debt jubilee and uncontrolled money printing have moved up the probability curve.” Uh oh.
Debit: Now, I know what some of you are thinking. But before you get too excited about a debt jubilee, you should know that in a debt-based monetary system, debt jubilees and money printing are a distinction without a difference. That’s because there’s a creditor on the other end of every debt who ends up taking the hit, resulting in a de facto “asset jubilee” — and that would cause the system to implode without … wait for it … even more currency printing.
Credit: So what are the odds of a tail risk actually occurring? Wong says that, before the Great Financial Crisis of 2008, “the probability of (hyperinflation) was remote at best, akin to science fiction; possible, but unlikely. Today, with the world at its highest leverage-to-debt ever, that’s now firmly possible. And if there’s another deflation shock, then the probability curve shifts higher again.”
#gold #silver We cannot B politically free if we R not also economically free. We cannot B economically free if we’re not also monetarily free. We lost our monetary freedom in Aug.1971, when the US dollar was severed from its gold backing & convertibility. Fiat leads 2 despotism.
David Blair Macrory (@SilverPlusGold) December 6, 2020
Credit: It’s not a coincidence that, after a long hiatus, central banks have been net buyers of gold for two years running because they know gold is the ultimate protection from monetary tail risks, regardless of whether it’s catastrophic deflation or inflation — although emeritus Fed Chair, Ben Bernanke, will never admit it. In order to sell his fiat-currency snake oil, he needs you to believe central banks buy the yellow metal for an entirely different reason:
By the Numbers
Here are the 10 states with the highest average student debt burden:
10 South Carolina ($35,500 per student)
9 Oregon ($35,600)
8 Alabama ($35,600)
7 California ($35,600)
6 Illinois ($35,900)
5 New York ($36,200)
4 Virginia ($36,600)
3 Florida ($36,700)
2 Georgia ($39,700)
1 Maryland ($41,000)
Source: Zero Hedge
The Question of the Week
Last Week’s Poll Result
Do you have a job that allows you to work from home at least some of the time?
- Yes (44%)
- I’m retired or unemployed (34%)
- No (22%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that 4 in 9 of them are stuck with a job that doesn’t allow them to work from home at least part of the time. The big question still to be answered is what percentage of them are perfectly fine with that.
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.
Useless News: Same As It Ever Was
The madam opened the brothel door in Elko County, Nevada, and saw a rather dignified, well-dressed, good-looking man in his late forties or early fifties.
“May I help you, sir?” she asked.
“I want to see Valerie,” the man replied.
“Sir, Valerie is one of our most expensive ladies. Perhaps you would prefer someone else,” said the madam.
“No,” he insisted, “I must see Valerie.”
Just then, Valerie appeared and announced to the man she charged $10,000 a visit.
Without hesitation, the man counted out $10,000 in crisp $100 bills and gave them to Valerie. Then they went upstairs and, after an hour, the man calmly left.
The next night, the man appeared again, once more asking to see Valerie.
Valerie explained that no one had ever come back to see her two nights in a row, as she was so very expensive. She also told the man that there were no discounts and the price was still $10,000. But the gentleman didn’t blink an eye. Again, he pulled out a wad of cash, gave it to Valerie, and they went upstairs.
After an hour, he left.
The following night the man was there yet again. Of course, everyone in the brothel was absolutely astounded that he had come to the Elko County brothel for a third consecutive night. For her part, the madam was certain the man was on the verge of setting a new record in the history of brothels in Nevada, which dated back to the early 1800s. And so it was — without hesitation this mystery man paid Valerie another $10,000. Then off they went, upstairs for another hour of bliss.
After their session, Valerie said to the man, “No one has ever been with me three nights in a row. Where are you from?”
The man replied, “Billings, Montana.”
“Oh, really?” she said. “What a coincidence — I have family in Billings.”
“I know,” the man said. “I regret to tell you this, but your sister died. I’m her attorney, and she instructed me to give you your $30,000 inheritance.”
As for the moral of the story, it’s that three things in life are certain: death, taxes and being screwed by a lawyer.
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. Idaho (1.84 pages/visit)
2. West Virginia (1.72)
3. Massachusetts (1.67)
4. New Mexico (1.62)
5. Florida (1.59)
46. Nebraska (1.18)
47. Mississippi (1.14)
48. Nevada (1.11)
49. Montana (1.08)
50. Rhode Island (1.06)
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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
I want to thank John, who took some time to drop the following comment in my inbox about this weekly Black Coffee column:
I’m officially an addict. To me, the way you break down what’s going on in the financial world reads like Shakespeare.
Thanks, John — but I really think you’re making much ado about nothing.
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