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.
Another busy week is crossed off the list. So without further ado, let’s get right to the commentary …
Drink and dance and laugh and lie, the reeling midnight through — for tomorrow we shall die! (But, alas, we never do.)
— Dorothy Parker
Credits and Debits
Credit: Did you see this? Market-wide short squeezes launched this week by Robinhood daytraders inspired by Reddit’s infamous WallStreetBets forum sent ten of Wall Street’s most-shorted stocks to the moon; Gamestop and AMC being two of the biggest beneficiaries. In a matter of days, the former shot from $20 to $469; as for the latter, it skyrocketed from $2 to $20. Confused? Blame the Fed. Still confused? Well … here’s a slightly more detailed explanation:
BIG JESSE #BLM (@omenrollt) January 27, 2021
Credit: Of course, this latest folly is yet another symptom of a financial system that’s drowning in fiat dollars. And as MN Gordon warns: “How creating money from thin air is supposed to help is unclear. But what is clear is that free money debases the rewards of hard work, saving, and paying one’s way in life. It also propels the economy and financial system to an ever more precarious place where only total catastrophe is possible.” Amen, brother.
Credit: Speaking of total catastrophe, investing legend Jeremy Grantham — who correctly called the last two market crashes — predicts the latest US stimulus plan will push stocks to absurd new highs, followed by an inevitable crash: “We’ll have a few weeks of putting your last desperate chips in the game, and then a spectacular bust. At this level of super-enthusiasm, bubbles have always — without exception — broken within a few months.” Look how overvalued the market was three months ago:
Debit: Not surprisingly, market analyst Sven Henrich says, “We’ve reached the final fantasy stage of markets, with massive stock gains in perpetuity because central banks will keep printing. To the moon, risk free. Santa rally forever. And it’s not that people don’t know it’s a bubble; everybody knows:”
Google trends “stock market bubble”: pic.twitter.com/0PPJ7pIApb
Sven Henrich (@NorthmanTrader) January 26, 2021
BREAKING: Fed says keep buying stocks or have fun staying poor
GreekFire23 (@GreekFire23) January 27, 2021
Credit: Oh …and in case you’re wondering if there are any bears left, the answer is most definitely “yes!” Well … at least one, anyway. But it’s not on Wall Street. (Surprise, surprise.) …
Credit: By the way, Grantham also believes the moral hazard created by the Fed will lead to other devastating consequences besides a market crash: “Interest rates and credit are paper; real life is factories, workers and output — and we’re not looking at increased output. If you think you live in a world where output doesn’t matter and you can just create paper, sooner or later you’re going to do the impossible: bring back inflation.” Imagine that.
Credit: Needless to say, politicians and Keynesian economists will point to data that shows GDP continues to increase year after year, but as macroeconomist Alasdair Macleod observes, “the common perception that increases in (nominal) GDP represent economic growth is entirely false; it represents no more than (currency) growth.” Then again, in a world where everything else is not what it seems, I guess that’s par for the course.
Tesla’s P/E ratio is now back under 1,000. This makes it a deep value opportunity! Very bullish
Dr. Parik Patel, BA, CFA, ACCA Esq. 💸 (@ParikPatelCFA) January 27, 2021
Debit: In fact, the US economy hasn’t grown since the Great Financial Crisis of 2008. That’s right; in inflation-adjusted terms, it has actually contracted by roughly 50%. In other words: the economy is now half as big as it was a decade ago. Don’t believe it? See for yourself:
Debit: Unfortunately, the Fed has another problem: With interest rates already at all-time lows, consumers mired in debt, and wages failing to keep up with inflation, there’s very little juice left to squeeze from the economic-growth lemon. At the same time, interest rates can’t rise by very much either without triggering another massive financial crisis that, this time, will affect not only consumers, but businesses and governments too.
Debit: All of this financial chaos is a direct result of our fraudulent debt-based fiat monetary system, which is in its death throes — and it’s mathematically impossible to save it. Macleod is confident that when the monetary system does implode, nations will have to issue currencies that are convertible on demand to gold from their Treasury reserves because “it’s the only way they can keep collecting taxes and finance state spending.”
Credit: So what’ll be the trigger that moves us back to a gold-backed dollar? Well … financial analyst Victor Sperandeo says it won’t be via debt default, “as that would focus blame on the government. Instead, it will be hyperinflation.” But wait … there’s more: “When hyperinflation hits the US,” he says, “it will happen fast and then be over — which is the only way to go.” In the meantime, the waiting is the hardest part …
Debit: Okay … I know what you’re thinking: Just how fast is fast? You may be surprised. Although hyperinflation is actually a psychological event — not a monetary one — economists declare an official state of hyperinflation when the monthly inflation rate hits 50%. “At that rate,” Sperandeo says, “the $29 trillion National Debt would be washed away in a mere four months.” As would your retirement savings. Heh. And you thought David Copperfield was good.
We’re only 28 days into 2021 and we’ve already checked two boxes on our “Weimar with US Characteristics” Bingo card (from “When Money Dies”): pic.twitter.com/dHTk9IHQ4T
Luke Gromen (@LukeGromen) January 28, 2021
By the Numbers
According to a recent survey, Americans are more insecure about their finances than ever before:
55% Percentage of people who say they’re more concerned about retirement today than they were last year.
75% Percentage of people laid off due to COVID who say they currently have less than $500 in savings.
25% Percentage of Americans in their 60s who say they couldn’t last more than three months off their savings.
44% Percentage of all Americans who worry they’ll never be able to retire; that’s an all-time high.
23% Percentage of Americans who say they don’t have any retirement plan.
51% Percentage of Americans who say they’re going to need a third stimulus check by April.
Source: Simply Wise
The Question of the Week
[poll id="357"]
Last Week’s Poll Results
What did you do with your latest COVID stimulus check?
- Saved it (62%)
- Spent it (16%)
- Paid down debt (12%)
- I didn’t get a check (9%)
More than 2100 Len Penzo dot Com readers responded to this week’s poll and it turns out that, among those who received the latest round of stimulus checks, slightly more than 1 in 6 of them actually used the windfall to stimulate the economy. The rest either socked it away into a savings account or used it to paid down debt. Unfortunately for me, I didn’t get a check. If I did, I would have converted it into physical precious metal.
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: Disappearing Act
A man and a woman were having dinner in a fine restaurant. Their waitress, taking another order at a table a few paces away noticed that the man was slowly sliding down his chair, with the woman acting unconcerned. The waitress continued to watch this couple as the man slid all the way down his chair until he was out of sight and completely under the table.
Still, the woman dining across from him appeared calm and unruffled, apparently unaware that her dining companion had disappeared.
After the waitress finished taking the order, she came over to the other table and said to the woman, “Pardon me, ma’am, but I think your husband just slid under the table.”
The woman calmly looked up at the waitress and replied firmly, “No he didn’t; he just walked in the door.”
(h/t: Susan)
More Useless News
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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 post explaining why I’m not impressed by people who drive fancy cars, Linda Lee felt compelled to share this:
I have zero debt. I have an MBA in Finance. I own three BMWs: a 328i, an X3 and an M3. I also just bought a brand new 28 ft Sea Ray Sundancer power cruiser and a gorgeous 3-bed/3-bath downtown Chicago Loop condo.
Good for you. Now if only you could buy a little humility …
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: stock photo
Hi Len,
I was tempted to try and play the Gamestop game, but only for a few moments. Then I came to my senses. Easy to let greed get the best of you if you’re not careful. Somebody mentioned it last week. It’s like watching a train wreck in slow motion.
Have a great weekend!
Sara
It’s like the Wild West out there right now. Unless you’re quick on the draw, you may get hurt. It’s crazy.
Get ready, Sara. The Reddit crowd is coming after silver next. Should be a great show.
Not holding my breath Sam. But I’ve got my popcorn!
Fresh off of ZeroHedge … https://www.zerohedge.com/markets/reddit-preparing-unleash-worlds-biggest-short-squeeze-silver
Well … silver just gapped up 7% (price: $28.92) at the early Globex market open at 3 pm (Pacific Time) on Sunday.
Looks like something is afoot!
Sam: I suspect silver’s price action on Friday was partly due to the Reddit crowd. At least it sure seemed that way.
If there is any market that could put an end the monetary system charade, it is the physical silver market. There is only so much silver available … and there is nothing the powers that be can do from their keyboards to make more of it.
Great round up this week. If you know that GDP contracted by 50% in 10 years, it’s easy to see why there’s so much unrest everywhere. To me, it makes perfect sense.
Me too. Unfortunately, nothing changes until the current monetary system breaks for good — which means things are going to have to get a whole lot worse before they can begin to get better.
Ironically, Robinhood may be history soon for trying to limit people from buying GME and some of the other shorted stocks. I’ve read a lot of people are getting out entirely and going elsewhere. Seems the big boys don’t like it when the commoners try to beat them at their own game.
Who wants to deal with a brokerage that tells you what you can buy and how much?
If Robinhood does run into financial difficulty, it’ll be interesting to see what happens to clients who still have accounts. Hopefully, those funds are not at risk.
Yea, they better hope they’re not considered unsecured creditors.
Here are the thoughts, observations and questions that swirl through my mind:
I have acknowledged for some time that the “stock market” is overvalued at historic levels. I also know much of this is concentrated in a handful of stocks (tech) and other “woke” companies with little in earnings (Tesla) etc. My portfolio is mostly concentrated in beaten down energy stocks, PM mining companies, physical PM etfs and emerging markets with a focus on emerging market value companies. Looking thought history though, I know that when the market indexes fall, they will pull everything down through the “risk off” trade. Do I cut back on everything given the index overvaluation?? Or just endure the pain a market crash will bring to all stocks.
At one point recently the Zimbabwe stock market was the best performing market on earth (till they shut it down), of course this was a feature of the countries hyperinflation. I do think that the US market would boom during hyperinflation as people grasp for any store of value.
Even if you feel your portfolio is positioned correctly for the future how best do we deal with global interconnectedness of markets and a falling tide sinking all boats??
Just things to ponder….
Your portfolio looks a lot like mine, Steve. We know the next time the market crashes, it will drag everything down with it. Of course, if you are trying to time the market, then that matters a lot.
I’m content with knowing that the defensive sectors I am investing in are likely to bounce back relatively quickly. And keeping a cash position still allows you to add to those positions during the crash.
There is so much corruption and unwillingness to enforce laws today that the entire system has become a giant fraud. Financial markets, government, the courts, elections. Everything everywhere.
First the money is corrupted, and the empire follows. This is how all empires eventually perish; the Roman Empire being the best example.
The question in my mind is this: Will a return to sound money be able to resuscitate America and bring it back to its former greatness, or will it be too little, too late?
They could pay the national debt off quicker than 4 months.
Mint up 30,000 coins out of copper…..plate ’em with platinum to make them nice and shiny….or not…..put a billion dollar face amount on the coins (30 trillion bucks) and declare them legal tender. Coins are laser etched with individual serial numbers and ownership fully tracked to prevent counterfeiting.
Then announce any one holding US bonds must turn them in for coins…..individuals, banks, bond funds, foreign governments, etc.
You get one coin for each billion dollars worth of bonds, and if you hold under a billion, you get a coin, but have two options:
You must make change in gold or silver coin, OR you are allowed to group your bonds with others to come up with the billion level, and ya’ll’s group works out how the members split the coin value.
And all bonds expire in a month…..worthless….so get cracking !
No bonds would ever be issued again. Next time the govt needs money over and above what tax/fees bring in, they mint more coins.
Gold/silver are allowed to float free on the market, with a suggested base of 1million/oz for gold and 50,000/oz for silver.
Put me in charge of the Treasury dept and I’ll show ya’ll how to “climb under the hood and fix it” (to quote Ross Perot)
Radical problems require radical thinking……ahahhaaaaaaaaa
Well … I like your prices for physical. I’d buy in at those prices.
“I have zero debt. I have an MBA in Finance. I own three BMWs: a 328i, an X3 and an M3. I also just bought a brand new 28 ft Sea Ray Sundancer power cruiser and a gorgeous 3-bed/3-bath downtown Chicago Loop condo.”
Well Len…..surely you didn’t miss the opportunity to ask “Yeah, BUT have you got any real wealth ?”
🤪 🤪 🤪
I wouldn’t give you ten cents for a condo in downtown Chicago. The rest are expensive money pits. I would bet they are paying a fortune every month just to park/store those toys.
I suspect the US govt will be verrry hesitant to install a gold-backed currency system like Macleod predicts will happen after a collapse. But do you think it only takes one other nation, like China or Russia to switch to gold, to force every other nation to follow suit?
We shall see! The trouble China has is its currency is pegged to the dollar and so it’s not freely traded. If they peg it to gold, then they need to convince everyone that the yuan will remain freely convertible upon demand for a given exchange rate.
Tesla stock is nuts. They did 2.5 billion in profit this year and see three more years of 50% growth. That means with no appreciation in share price they are still at about 100x earnings 3 years out unless they can seriously improve margins.
I get that the stock is the car company (probably worth about 300 or 350 a share) plus a call option on self driving and batteries, but wow that is high.
Tesla stock is nuts and the company is a money loser without phony carbon credits.
Without the Fed and government subsidies, Tesla would be out of business. That’s my opinion.
The government’s willingness to turn a blind eye to financial corruption is indicative of how much the politicians are gaining themselves. Whether is is in their own pocket or campaign contributions, it is still government corruption.
The government’s willingness to print money to keep voters happy will result in a crash of unprecedented proportions. The longer the can is kicked down the road, the worse it will be when it comes.
Ideally, precious metals are a good hedge against what is coming. The problem I see with it is the willingness of the government to make owning them illegal. It did it with gold during the Great Depression. All citizens were required to surrender all gold currency. The invention of the computer, and internet make it possible for the government to keep tabs on who owns what in precious metals. How will you sell them if it’s illegal to own them?
I believe we will see a greatly reduced lifestyle, extreme regulation of our lives, and European level taxes.