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 an enjoyable week. Without further ado, let’s get right to this week’s commentary …
Stock prices have reached what looks like a permanently high plateau.
— Irving Fisher, Yale economist, 1929
When you’re living in a mad world, sanity is a liability.
— Anthony Burgess
Credits and Debits
Debit: Did you see this? According to Yahoo!Finance, a 12-year-old South Korean boy has become a “new retail trading icon” after earning 43% returns in roughly eight months on an initial investment of $22,400. No, really. The boy says he dreams of becoming the next Warren Buffett. Who knows; it could happen. Then again, if the Fed keeps printing the dollar into oblivion, we’re all eventually going to be billionaires — whether we play the market or not.
Credit: Speaking of stock trading, financial analyst Sven Henrich says that the market “is repeating the same behavior as it did last year before the crash. Except this year it’s even more disconnected from technicals and fundamentals.” For example, market cap to GDP is now at 194.9% – – versus 158% in February 2020, and 150% in 2000. Yikes. I’d ask our 12-year-old “trading icon” what he thinks about this, but I suspect his idea of a market cap is a ‘Dow 30,000’ hat.
“I’ve never seen such confusion in markets in my 3 week career on wall street” -12 year old hedge fund manager
Stalingrad & Poorski (@Stalingrad_Poor) February 9, 2021
Credit: Billionaire investor Stanley Druckenmiller sees other market oddities. He points out that, thanks to enormous fiscal stimulus, “We had the largest increase in personal income in 20 years, despite an economic downturn that saw 11 million people become unemployed.” How enormous? Well … during just three months of 2020 the US deficit increased more than the five previous recessions combined.
Debit: On a related note, last week saw the number of Americans claiming some form of unemployment benefit surge above 20 million — a historically catastrophic total that, until last year, would be considered unprecedented. However, the latest number is roughly one-third less than last summer’s peak, so the economy is clearly continuing to struggle. Well … at least for some people:
Debit: Meanwhile, with bonds in the midst of a 40-year bull market, it shouldn’t be a surprise that the current bond bubble dwarfs anything anywhere ever. In fact, US junk yields hit an all-time low of just 4.09% last week, with yield-starved pension funds and retirees — in a desperate quest to maximize their returns — demanding that dubious companies go even deeper into debt so they can buy their bonds. Yes, the world has truly gone mad.
Debit: Of course, it’s not just retirees and pension funds buying corporate bonds; the Fed now buys them too. This explains why corporate debt — which almost always goes down in a recession — has actually increased $400 billion during the most recent economic downturn. Compare that to the Great Financial Crisis of 2008, when corporate borrowing declined by $500 billion. At least the CEOs are using that debt to improve their businesses. Oh wait …
Of course Musk was going to do this. The pied piper of the biggest bubble stock HAD to “invest” (using public market/debt/secondary offering proceeds) in the biggest mania of all time during the biggest bubble period in history. Thanks Fed! https://t.co/U85YKDDeRU
fred hickey (@htsfhickey) February 8, 2021
Credit: For his part, asset manager Matthew Piepenberg says Fed policies have distorted the bond market to absurd levels, and warns that “bond market (manipulation) through QE is now the greatest and most dangerous asset bubble in history. In fact, fully two-thirds of those bonds are at the bottom of the credit class — so the idea of bonds as a ‘safe haven’ asset is now an open lie.” In other words: sometimes things aren’t always what they seem …
Debit: Despite the constant Fed bond purchases, Treasury yields are creeping upward — thanks to the growing cost of this year’s stimulus — and that could pose a serious problem for the highly-indebted US government in short order. If yield continue to rise, the Fed will eventually have to buy a larger percentage of long-maturity bonds, if not outright yield curve control — and that will push gold, silver, and commodity prices much higher.
Debit: Not coincidentally, the Fed’s QE policy has also resulted in the base money supply increasing by over $6 trillion since 2008, with over $3 trillion of that coming in the last year. Even so, despite all of the new dollars being created out of thin air with no corresponding increase in goods and services to back them up, the government insists that inflation remains tame. Um, okay … but somebody better tell that to the markets:
Josh Womack (@JoshWomack) February 10, 2021
year over year CPI +0%
year over year median home price +14% pic.twitter.com/9TMDWyjLEj
StockCats (@StockCats) February 10, 2021
Credit: It’s no secret that the US dollar’s weakening fundamentals — resulting from America’s growing reliance on the printing press — has spooked other nations who rely on the dollar as a reliable store of value. You can see this in the most recent data published by the European Central Bank and the International Monetary Fund; they show a decline in the US dollar as a percentage of total currency reserves since 2016. See for yourself:
Debit: By the way, financial analyst Bill Campbell warns that falling global dollar reserves don’t tell the whole story: “Countries are reclaiming autonomy in global trade. The implementation of more regional trade agreements with local currency settlements means the dollar’s dominant role in global finance will likely continue to erode.” And that’s economic poison for a nation that hasn’t had a trade surplus in more than 40 years — or runs deficits that exceed tax revenues:
Rubicon crossed. Actual US Fed deficit exceeds tax proceeds. Historically, generally, a precursor to currency collapse. pic.twitter.com/YFxmUHcpxy
Lawrence Lepard, “fix the money, fix the world” (@LawrenceLepard) February 11, 2021
Debit: The good news is that although the world is actively moving to replace the US dollar as the center of global trade and finance — it still hasn’t managed to do so. The bad news is, when they finally do succeed — and they will — the dollar’s reign as the world’s premier reserve currency will come to an inglorious end. Sadly, it will also mean a significantly lower standard of living for most middle- and lower-class Americans.
Credit: Macroeconomist Alasdair Macleod sums up the current situation this way: “Government control over markets has been absolute. It’s complete nonsense — and the same situation the Communists found themselves in 1989. But markets eventually win control over prices. And after decades of (manipulation), and the accelerated rate of monetary inflation now being inflicted on fiat currencies, when the system breaks, it could happen as fast as the fall of the Iron Curtain.” Uh huh. And just as unexpectedly too.
In 12 mos US gov’t #debt jumped $4.6t, up 20%p.a. US gov’t revenue fell -3% & its outlays rose $2.3t to $6.9t, a 50% jump. With the debt limit suspended & record spending expected, could 2021 be the year the feds finally destroy the #dollar? Be sure to own physical #gold #silver pic.twitter.com/9MBMQjHELi
James Turk (@FGMR) February 10, 2021
The Question of the Week
Last Week’s Poll Result
What is your current net worth (excluding home equity)?
- $100,000 to $499,999 (32%)
- $500,000 to $999,999 (22%)
- $0 to $99,999 (21%)
- $1,000,000 or more (20%)
- I’m in the red (6%)
More than 2300 Len Penzo dot Com readers responded to last week’s question and it turns out that 3 in 4 of them are in the black and on the road to eventually becoming members of the millionaire club. Yes, it’s a club that is not as exclusive as it once was, but it is still a financial feather in anyone’s cap — including the 1 in 5 Len Penzo dot Com readers who are already in it.
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 median 401(k) balances by age range as of the second quarter of 2019, according to data recently released by Fidelity Investments:
$4300 Ages 20-29
$16,500 Ages 30-39
$36,000 Ages 40-49
$60,900 Ages 50-59
$62,000 Ages 60-69
Source: The Street
Useless News: Car Trouble
More Useless News
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46. Nebraska (1.17)
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Attention! Important Programming Note
As most of you know, you can catch me most weeks at Joe Saul-Sehy’s multiple award-winning Stacking Benjamin’s podcast, where yours truly is a member of his weekly Friday Round Table group; it’s an extremely funny, fast moving, and very entertaining personal finance podcast that will never be accused of taking itself too seriously. We have a blast every week!
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How to Participate in the GameStonks Craze – Without Risking a Penny
Yahoo! conducted a Harris Poll which found that 28% of Americans traded “meme” stocks like GameStop in January. And while I am definitely not one of those people, I do admire the cajones of those who have a strong YOLO attitude and are willing to recklessly gamble with their hard-earned cash in the hopes of striking it rich.
With that in mind, I found this game called GameStonks from Plays.org that’s shamelessly trying to capitalize on the current GameStonk meme. At first I had no idea what I was doing; but I deduced that the chicken nuggets that kept appearing were good — after all, who doesn’t love chicken nuggets? — so I gobbled them up. Unfortunately, for some reasons those same nuggets would occasionally end up killing me; it was very confusing.
Anyway … then I found the rules.
The aim of the game is to collect cryptocurrency — specifically, dogecoins — while trying to save chicken nuggets that are falling from the sky at the same time, all while simultaneously avoiding any construction signs, bears (get it?), paper hands (get it again?) that appear. So, obviously, if you want to play this game you better be the type who is able to walk and chew gum at the same time.
By the way, while reading the rules I also learned that eating any chicken nuggets from the roadway is an instant death sentence. Ohhhhhhhh… Of course it is.
No, GameStonks isn’t rocket science — but it is an interesting way to entertain yourself if ever you get bored.
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 this week’s featured Len Penzo dot Com article where I “reminisce” about the 10 worst things I ever bought, Buy & Hold Long wrote in to tell me this:
Some of the these are quite funny!
I’m glad you enjoyed them. Unfortunately for me, they weren’t cheap laughs.
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