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 commentary …
There are only three ways to meet the unpaid bills of a nation. The first is taxation. The second is repudiation. The third is inflation.
— Herbert Hoover
The American people have a love-hate relationship with inflation. They hate inflation, but love everything that causes it.
— William E. Simon
Credits and Debits
Debit: Did you see this? With another round of COVID-relief checks in the mail, the latest government-funded spending spree has commenced. Bank of America data shows that, for the first week of the new year, total credit- and debit-card spending was up 10% year-over-year. For the lowest income tier spending was up 22% — which makes sense when you realize that lower-income households have the highest propensity to spend financial windfalls.
Debit: Meanwhile, growing demand for both new and existing homes has pushed house prices to record levels. However, that has also managed to place homeownership beyond the reach of average earners in 55% of US counties — that’s compared to 43% a year ago. Thankfully, the economy is booming — and that’ll ensure that wages continue to keep up with these rapidly-increasing living costs. Oh, wait …
Debit: The truth is, a lot of people seem to think rising prices are a sign of pending economic growth when it’s actually a sign of monetary inflation. And you can bet that home prices aren’t the only thing that’s skyrocketing — commodities are booming too. Then again, when you consider the money supply has been rising uncontrollably for quite a while now, that shouldn’t be a surprise to anyone. Okay … at least to anyone who is paying attention.
Just wow! US M1 Money Supply is up a staggering 70% from a year ago. That is a lot of #USD. pic.twitter.com/vBeqtmmR7F
jeroen blokland (@jsblokland) January 11, 2021
Debit: In case you haven’t noticed, oil and gasoline prices are also on the move, while agricultural commodities are on fire; the latter are up 40% since July. And many other important commodities are at five-year highs. For example, copper — which is an economic bellwether — is up 30% in the last six months alone. Oh … and by the way, it looks like commodities aren’t the only things on fire right now:
Debit: Of course, these sharply rising prices are especially bad news for those who are still looking for a job. Believe it or not, nearly one million people sought unemployment aid last week — that’s the largest number since late August. The good news is that, as long as there’s a stock market nobody needs to work anymore. All you need is a Robinhood app and you’re good to go:
the clarification in the comments tho pic.twitter.com/nUEbqBLNLX
Turner Novak (@TurnerNovak) January 17, 2021
Debit: Speaking of jobs, with a new president now in office, there’s a renewed call in DC for “a national minimum wage of $15 an hour.” Ironically, that will actually end up making it even tougher for the lower class to secure any kind of entry level position, and harder for small businesses to keep their head above water — just don’t tell that to the pols, most of whom have never run a business in their lives.
Credit: But not to worry. After all, the government plans to enact another $1.9 trillion ‘stimulus’ package in the coming weeks. Unfortunately, Peter Schiff says that, rather than stimulating the economy, “the stimulus is going to sedate it. This isn’t a rescue plan. It’s the equivalent of throwing a drowning man an anchor.” And, no, Peter isn’t confused … er, unlike this nice lady:
Debit: The Fed is certainly stuck in a land of confusion — they keep insisting the current debt problem can be fixed with … more debt. The trouble is, after ten years, their strategy still isn’t working. The proof? Well … despite the money supply being nearly four times greater today than it was in 2000, real GDP has grown just 40% over the same timeframe, and nominal GDP has only doubled. (Psst. Just don’t tell that to the stock market.)
No one appears to care, but I’ll keep pointing out the historic distortion: Market cap to GDP 192.9%. pic.twitter.com/I1pBko87rO
Sven Henrich (@NorthmanTrader) January 21, 2021
Debit: So after more than a decade of failure, rather than admit they were wrong, the world’s major central banks have changed the objective of their unfettered currency-printing policy — otherwise known as QE — from stimulating the economy by raising asset prices, to outright monetizing rapidly-increasing government budget deficits. But, hey … I’m sure that change of tack will finally fix things. Or not.
Let this sink in.
In November & December the government issued $505B worth of Treasury notes and bonds.
The largest 2-month issuance ever.
The Fed only bought 1/3 of that.
No way around this.
Monetary policy is clearly becoming a funding tool for the government. pic.twitter.com/3du0SCfekW
Otavio (Tavi) Costa (@TaviCosta) January 18, 2021
Credit: In the meantime, physical gold and silver remain severely undervalued based upon the original government inflation methodology in 1980. In fact, their real value is absolutely breathtaking, with inflation-adjusted 1980 all-time highs of nearly $21,000 for gold and $1000 for silver. No, those aren’t typos. And, yes, it seems impossible today — but when the fiat facade finally fails, those numbers won’t seem crazy at all.
By the Numbers
Here’s a look at the stock market’s record-breaking Fed-induced growth during the four years that Donald Trump was in the White House:
$16,000,000,000,000 Growth in the market value of all US stocks.
230% The increase in Apple’s market cap since January 20th, 2017.
$110,000,000,000 Amount that Amazon-founder Jeff Bezo’s net worth increased.
51% The four-year gain in the Dow Jones Industrials index.
140% How much the tech-heavy Nasdaq has skyrocketed since the previous Inauguration Day.
68% The four-year return that the broader S&P 500 delivered during Trump’s tenure.
Source: Forbes
The Question of the Week
[poll id="356"]
Last Week’s Poll Results
Are you expecting an income tax refund this year?
- No (54%)
- Yes (46%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out slightly more than half do not expect to receive a tax refund this year. I do. At least that’s the plan; I’ve been surprised before.
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: Sad Story
Three writers, Al, Ben, and Carl, who were attending a writing convention, booked a room on the 75th floor of a hotel.
When they arrived back at the hotel from the convention, the receptionist told them, “I’m terribly sorry, but the elevator is broken. In the meantime, you will have to take the stairs.”
Now, Al was a writer of funny stories, Ben was a writer of scary stories, and Carl was a writer of sad stories. The three of them agreed that, to make it less boring, Al would tell the other two his funniest stories while they climbed from floors 1 to 25, Ben would tell his scariest stories from floors 26 to 50, and Carl would tell his saddest stories from floors 51 to 75.
They started to climb the stairs, and Al started to tell funny stories. By the time they reached the 25th floor, Ben and Carl were laughing hysterically.
Then Ben started to tell scary stories. By the time they reached the 50th floor, Al and Carl were hugging each other in fear.
Then it was Carl’s turn to tell some sad stories. “I’ll tell my saddest story of all first,” he said. “There once was a man named Carl who left his hotel room key in the car …”
(h/t: Susan)
More Useless News
After last week’s request, I currently have five followers at Gab. Hey … I realize Rome wasn’t built in a day. After all, it took me 12 years to get more than 6500 followers on Twitter! Thank you cryptoaj, neilc111, Tennessee Andy and Paul N — not to mention Special Ed, who was the very first victim to take the plunge.
Free speech lovers … you can join me at Gab. https://t.co/XRrdR4rSLO pic.twitter.com/2DaJ4G3Gvs
Len Penzo (@LenPenzo) January 11, 2021
Other Useless News
Here are the top five articles viewed by my 36,281 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- The Best Personal Finance Book I’ve Ever Read
- 3 Great Hobbies That Are Investments Too
- 5 Ways to Ring In the New Year By Cleaning Out Your Financial Garage
- Are Gas Clothes Dryers Worth the Extra Money?
- A Simple Test to Know If It’s Better to Buy or Rent a House
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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
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You seem oblivious to the fact that you’re more often than not so very wrong on so many things.
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Hi Len,
Obama added $10 trillion to the national debt in 8 years. Then Trump added another $10 trillion in 4 years. And now it looks like Biden is going to add $5 trillion this year alone!
The debt is out of control and I don’t see how the dollar can survive much more of this. What do you think? Is this the year it all blows up?
Sara
It would be foolish of me to predict the day the dollar implodes, Sara.
What I will say is you have plainly illustrated why the dollar is now, as I like to say, on the business end of the exponential debt curve. Based on that, I think it is clear that the day of reckoning is rapidly approaching.
“the dollar is on the business end of the debt curve”
Don’t you mean the gov’t is on the business end of the curve?
No; I meant what I said. Remember, the dollar is debt — it’s not honest money.
If the dollar was backed by honest money (i.e. gold and silver) then, yes, it would only be the government on the business end of the curve. But because the dollar is nothing but an IOU, it is the government AND our currency.
I think that happy couple in the video is today’s version of the shoeshine boy sharing stock tips with his customers.
Usually happens in final blow off top in a bull market. Most manic phase.
It’s easy to fool yourself into thinking your an investing genius in a bull market. That guy probably thinks he’s smarter than Warren Buffet.
There are plenty of these stories all over the Internet now, Cowpoke.
And if the dollar does hyperinflate, nominal stock prices will continue to soar — although not as fast as the value of the currency they are denominated in fall. (In other words: in terms of purchasing power, there will be a net loss, despite the higher nominal prices.)
Serious question. If they can print as much money as they want with no problems or inflation then why do we have to pay taxes? Why not just print what we need?
I feel the same way. Of course, the reality is, there is no such thing as a free lunch — which means they can’t “print what they need” forever. At some point, the system is going to blow up.
Hey, Len. If your poll is accurate and 60+ percent are saving the cash from those stimmy checks, then the checks are not stimulating the economy at all. Also, if people can save the cash they are getting, maybe they don’t need the checks at all?
We’re saving ours to pay for the taxes on the 14k in stimulus and unemployment money sent us in 2020 which we spent stimulating the American gold industry.
LOL! 🤣
You are correct — and those who are using their checks to pay down debt are not stimulating the economy either. Only people who are spending their windfall are actually doing that.
I didn’t save my stimulus check, I invested it into silver mining stocks! 👍 🏻
Watching the fed juice the stock market day after day is like watching a slow moving train crash.
Tell me about it.
Good stuff Len. I am curious about inflation adjusted gold prices. How exactly is that calculated?
It’s done mathematically by time series deflation. If you want to get into the ugly details, you can read all about it here.
When running the series, the important variable is choice of which inflation index to use. Unfortunately, the US government began altering how they calculated inflation in the 1980s — and so the “official” inflation rate today is based on the CPI, which understates inflation compared to the methodology the government used back in, say, 1980.
John Williams’ Shadow Stats does still measure inflation using the old methodology; that number is hovering around 10%. Not coincidentally, the Chapwood Index, which measures the price of a basket of goods from month to month in the 50 biggest US metropolitan areas also shows inflation consistently running at 10%. At that rate, prices are doubling every seven years. Conversely, the dollar’s purchasing power is being halved every seven years!
Which, of course, is WHY you should support the American gold and silver industry. 😀
They have my full support, Andy!
Len I wasn’t able to vote in today’s poll because there is no box to check to indicate sending the amount of the stimulus check back to the government immediately to pay extra income taxes. I’m assuming that there will be taxes charged on this stimulus money and that the Democrats are going to crank up everyone’s taxes so that those of us who did not go into debt for student loans will pay to forgive the loans of those who did spend loan money in a profligate manner, and other unfair and stupid vote buying programs. They will confiscate more of my money to make everything “free’ like in Venezuela. So why should I hang onto the $600. pretending it is mine?
Well … that’s one way to look at it, Karen — and your comments certainly resonate with me! Although the stimulus money is not taxable.
Not taxable? Thank you for the news Len! My other taxes will go up under the Democrats so they might as well still get this windfall to squander. The Democrat take over is already evident here, gas has gone up 30 cents a gallon in the last few weeks and this is with limited demand as so many still work only from home.
Your question of the week should have also had Donation as a category. I donated the entire check to Pre-born. An organization that helps young mothers that are pregnant and thinking of abortion to see their tiny baby on ultrasound and hopefully make them realize that they have a tiny baby with a beating heart growing in their womb.
That’s a very noble charity, Margaret.
(Technically, donating is spending.)