Len Penzo dot Com

The offbeat personal finance blog for responsible people.

Black Coffee: Playing a Losing Game

By

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.

Now that springtime is in full swing, I hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …

You’ve got to be very careful if you don’t know where you’re going, because you might not get there.

— Yogi Berra

I don’t mind losing, but I don’t like losing to cheats.

— Pete Waterman

Credits and Debits

Debit: Did you see this? A California home in a Sacramento suburb received 122 offers in a single weekend amid a skyrocketing US real estate market. The modest 1400-square-foot home was listed at $399,900 and received at least one offer above $500,000. No, really.

Debit: On a related note, this week an unopened Nintendo game that was originally purchased in 1986 — and then forgotten in a desk drawer — sold at auction for $660,000. In case you’re wondering, the same game sold for roughly $60 when it was introduced 35 year ago.

Debit: By the way, a similar copy of Super Mario Brothers sold for $114,000 just last summer. Oh … and for those of you keeping score at home, that marks a nearly six-fold price increase since just last year. Nope — nO SiGn of InfLaTiOn THeRe! (Psst. And if you don’t believe me, just ask the Fed.)

Credit: Frankly, I’m still trying to figure out how anybody could be so stupid to pay $660,000 for an unopened 40-year-old video game. Especially when they could have paid the same price for 1650 blockchain-validated (!) digital farts. And for all you “inflation is tame” proponents who continue to believe everything the Fed says, I’m almost certain that before this year the price of a digital fluffer-doodle was less than a dollar. (Please, folks; no nasty-grams … I said “almost.”)

Credit: Meanwhile, Credit Suisse and Japanese bank Nomura are licking their wounds after last week’s $30 billion implosion of the highly-speculative Archegos hedge fund. In fact, Credit Suisse is rumored to be on the hook for as much as $5 billion and may have to raise capital. The good news is their depositors can rest easy knowing that their cash is safe in the bank’s vault and probably hasn’t been used to fund those speculative investments. Oh, wait …

Debit: Of course, with the Fed holding interest rates near zero, there are plenty of speculative highly-levered hedge funds out there gambling with the Fed’s green confetti. And why not? If a casino was giving away its chips at no cost to the players, I’d grab as many as I could carry and lug them over to the high-roller table too. After all, that strategy isn’t as risky as when you’re playing with your own cash …

Credit: In other news, asset manager Egon VonGreyerz is warning that, with $1.4 quadrillion in derivatives out there, the Archegos disaster is just a small taste of what’s to come: “When this unravels, the massively over-leveraged financial system will be paralyzed as stock, bond and property values evaporate. Then the world will the realize that all the credit and printed money that backed these assets had zero value.” One would hope … but I’m not so sure anymore.

Credit: Speaking of worthless currency, VonGreyerz also reminds us that when the dollar crisis finally unfolds, physical “gold and silver owners will be able to get assets for five cents on the dollar. It sounds impossible — but people familiar with the Weimar Republic know this actually happened then, as well as during other major (currency) crises.” Don’t scoff; you thought tyrannical government decrees forcing small business owners to shutter their doors were unfathomable too.

Debit: The day of reckoning may be closer than we think, as government debt is increasing at a record pace. In fact, $650 billion of new Treasuries must now be created every month to not only support stimulus spending, but also roll over old T-bills. Yes, the Fed is buying much of that debt, but the slack that private investors are being asked to cover is absolutely staggering. The bad news is Treasury issuance will only increase over time — and they’re running out of suckers. Talk about playing a losing game …

Credit: As macroeconomist Alasdair Macleod observed this week, “Spendthrift governments have taken it upon themselves to finance virtually all economic liabilities which are not being financed by bank credit. It has become a circularity with no meaning to it other than hidden costs: taxes and inflation take away from production and consumption in greater amounts to provide the capital and stimulus in lesser amounts.”

Debit: Making matters worse, Macleod says because “the state is clueless about how the diminished quantity of input is best spent, the direction of inflated currency is inevitably aimed at supporting government and political interests to the detriment of a free-market economy.” In other words, folks: the private sector now exists to serve our leviathan government and its employees — not the other way around.

Debit: Unfortunately, in an attempt to assuage the public, the US is disbursing multiple checks under the guise of “COVID relief.” But continuing to dole out currency without a corresponding increase in the production of goods will eventually result in too much money chasing too few goods. And the only way to correct that is via higher prices — or rationing. So get ready — because if you think inflation is bad now, well … you ain’t seen nothing yet.

By the Numbers

After a banner year in 2020, gold and silver have gotten off to a rocky start in 2021. Here is the 1Q performance overview of gold and silver versus other major asset classes:

23.4% Crude oil

12.2% Commodities (COMT)

7.8% Dow Jones Industrials

5.8% S&P 500

2.8% Nasdaq

-5.9% Bonds (10-year US Treasuries)

-9.4% Silver

-10.6% Gold

Source: GoldSilver

The Question of the Week

[poll id=”367″]

Last Week’s Poll Result

What is the best way to pay for new road infrastructure and highway maintenance?

  • Gasoline tax (80%)
  • A combination of both (14%)
  • Vehicle miles traveled tax (5%)

More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that 4 in 5 say using the number of miles a vehicle travels is the wrong way to pay for infrastructure improvements and highway maintenance. Okay … but there has to be some way to make electric vehicle owners pay their fair share too. A miles-traveled tax seems like an equitable solution. Why not a miles-traveled tax for electric vehicles and a gasoline tax for vehicles with internal combustion engines? As for hybrids …

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: Doctors’ Conference

Five surgeons from big cities are discussing who makes the best patients to operate on.

The first surgeon, from New York, says, “I like to see accountants on my operating table because when you open them up, everything inside is numbered.”

The second, from Chicago, responds, “Yeah, but you should try electricians. Everything inside them is color coded.”

The third surgeon, from Dallas, says, “No, I really think librarians are the best. Everything inside them is in alphabetical order.”

The fourth surgeon, from Los Angeles, chimes in: “You know, I like construction workers. Those guys always understand when you have a few pieces left over.”

The fifth surgeon, from Washington DC, “You’re all wrong. Politicians are the easiest to operate on. There’s no guts, no heart, no balls, no brains and no spine. Plus, the head and the ass are interchangeable.”

(h/t: RD Blakeslee)

More 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. South Dakota (1.78 pages/visit)
2. West Virginia (1.74)
3. Indiana (1.67)
4. California (1.60)
5. Pennsylvania (1.57)

46. Connecticut (1.16)
47. Utah (1.15)
48. Wyoming (1.14)
49. Montana (1.12)
50. Vermont (1.00)

Whether you happen to enjoy what you’re reading (like my friends in South Dakota) — or not (ahem, Ben & Jerry in Vermont) — please don’t forget to:

1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!

2. Make sure you follow me on Twitter — oh, and Parler too!

3. Subscribe via email too!

And last, but not least …

4. Please support this website by patronizing my sponsors!

Thank you!!!! 😊

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

Etep wrote in this week to dispute my claim that waterbeds are overrated as a platform for sex:

What are you talking about? They’re great! Push once and coast for two!

I bet you’re a riot on the dance floor.

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

Comments

  1. 1

    Sara King says

    Hi Len,

    For a moment there I thought you didn’t put out a Black Coffee this week. Then I remembered I had to click on the masthead to get the latest version of your site!

    The people in charge are openly killing the dollar, don’t you think? They aren’t even trying to hide it. And almost nobody seems to care!

    That’s OK because I have my wealth insurance.

    Have a nice weekend everyone!

    Sara

    • 2

      Len Penzo says

      Thanks, Sara. Yes, you have to click on the masthead to be sure you’re getting the most up-to-date home page version — otherwise you may be getting the cached version that may be up to 42 hours old.

      And yes, I think the powers-that-be are purposely working to kill the dollar.

      • 3

        Duane says

        Why are they doing this Len?

        • 4

          Len Penzo says

          It’s the only way to usher in that “new world order” Papa Bush 41 introduced us to back when he was president.

          The globalists are firmly in control — the-powers-that-be abhor nationalism. The most effective way to limit individual liberty, kill US sovereignty, and give the globalists full control is to kill the dollar.

          Ironically, those politicians who are espousing the “diversity” mantra are simultaneously destroying the biggest minority of them all: the individual.

          “The smallest minority on earth is the individual. Those who deny individual rights cannot claim to be defenders of minorities.” — Ayn Rand

  2. 5

    Tabby says

    The reckless spending and hand outs going on right now is surreal. It’s like I woke up one day and I’m living in another world. How do I get back home?

    • 6

      Len Penzo says

      I agree, Tabby. The illegal alien hand-outs are beyond the pale; it’s almost like they are mocking us.

  3. 7

    RD Blakeslee says

    Wolf Richter (very good at digging up genuine data and comparing it to, for example, the Fed’s lies) has documented that consumers are now accepting and paying surging prices for vehicles and businesses report they can now pass on higher prices from their wholesale suppliers to their customers.

    Some of us peons will get willingly shorn for awhile yet.

    • 8

      Len Penzo says

      I think this show is just getting started … the headliner known as the Fat Lady is still chillin out in her dressing room. I’d say we’re still on the first warm-up act, and there are a couple more waiting before we get to the main event.

  4. 10

    Cowpoke says

    Remember when nothing was safer than holding a US savings bond? Those days are long gone.

    The Fed will soon be buying ALL of them because more and more people are realizing Treasury bond owners are going to be the bag holders when this whole thing blows up.

    • 11

      Len Penzo says

      Yep … I remember back in the early ’90s my old employer used to have savings bond drives every year. The people pushing them would always say they were an investment in America and “backed by the full faith and credit of the US Government.” That would be a much harder sell today.

  5. 12

    M4693 says

    Gold and silver is good but I’m really surprised at your lack of faith in Bitcoin. I’ve worked hard, sacrificed, gone without a lot of want, and saved to be financially secure. But the Fed is devaluing dollars everyday. Bitcoin fixes all of this! It is the ultimate store of wealth that can’t be touched by the government.

    • 13

      Len Penzo says

      Bitcoin doesn’t fix that. At all. What if the government shuts down the Internet? Will people still have faith in bitcoin if the main conduit for blockchain authentication is compromised?

      Bonus question: How will you know how much your bitcoins will be worth if the dollar’s value goes to zero? (Hint: that will be determined by gold holders.)

      • 14

        David Risley says

        That’s your best argument? What if the govt shuts down the internet? Come on.

        IMO, you dismiss Bitcoin at your own risk. Look up. Your own numbers show that gold/silver have dropped in value against the dollar while other commodities have gone up due to inflation. You conveniently left out Bitcoin, I noticed.

        Gold bugs have a bit of a religion on it, at this point. I see Peter Shchiff, and I think it is hilarious to watch his tweets. Almost to the point where I think he is just towing that line as a marketing ploy now. But, gold bugs are so busy cheering on economic collapse… because it is the only way gold will go up in value.

        • 15

          Len Penzo says

          I think you’re projecting when it comes to religious fervor, David. 😄

          And when it comes to monetary stores of value, performance timelines aren’t measured quarterly — they’re measured in decades and centuries. (With bitcoin being around for barely 10 years, it’s easy to overlook that.)

          My biggest argument is not that bitcoin is dependent on the Internet — that is the most elementary argument. My biggest argument against bitcoin was the bonus question I asked and you failed to answer; that is, bitcoin is non-tangible. Therefore it must be valued in terms of something else — unlike physical gold and silver, which humans have been valuing in terms of weight for thousands of years. To put it another way, unlike gold and silver, bitcoin is incapable of being valued in terms of itself.

          If the dollar’s value goes to zero, you’re going to tell me a bitcoin will be worth infinity dollars. Mathematically, that’s correct — gold will be worth the same. But infinity is an undefined value that becomes meaningless in the real world. And this is where gold and silver have an insurmountable advantage over any cryptocurrency.

          I know that a loaf of bread will always be worth about 0.1 grams of gold (or one silver US dime). But how many bitcoins will a baker require for that same loaf? To answer that question, you’ll need to know how many grams of gold (or silver) precious-metal owners will pay per bitcoin. I strongly suspect it will be a mere fraction of what “the market” says the equivalence is today — if not zero.

          So it’s no surprise that the answer to that question always makes the bitcoin zealots’ heads explode.

      • 16

        David Risley says

        It doesn’t make my head explode. 😀 And this isn’t a religious argument. It is more even-handed. To be clear, I own both gold and silver. I’m not so attached to one world view that I don’t see other views.

        The bigger conversation here is the nature of value. You think something can only have value if you can hold it in your hand. I don’t agree. Gold is just one of many earth elements. It is just one of the other arrangements of atoms. The ONLY thing that gives it any value is human consideration. Value is a human construct. Gold has zero innate value merely. because you can hold it… anymore than a tree branch. But, since people consider gold to be of value, hence it is. It is only human AGREEMENT that gives anything value.

        The value of Bitcoin only increases because more and more people recognize and assign value to this asset. And it is reaching escape velocity. More and more retail people own it now, but you’re seeing major corporations buy it as a treasury reserve. As that network effect increases, Bitcoin therefore gains value.

        Just like gold. It has network effect. That’s it.

        If dollar goes to zero, BTC has its own value. BTC doesn’t gain it’s value through comparison to the US dollar. That’s just how we measure it. Other countries use their own. Comparing two assets relative value is not what gives anything value. Just… human consideration. And I would argue… if dollar drops to nothing, both gold AND Bitcoin will rise tremendously in value.

        But, this is a religion. Not literally, but because… what we’re really doing here is talking about fundamental philosophy of what VALUE actually is. You think something has value because you can hold it. I think it is higher up the chain than that. If people don’t really want gold as much, gold becomes less valuable. All the atoms remain unchanged, but if people don’t want it, it has no value. Just like Bitcoin. But, right now, people really want Bitcoin. More than gold. And I tend to think that won’t change anytime soon. We live in a digital world. And nobody is going to unplug the internet. Gold bugs seem to almost relish in the idea of a mad max world so they can feel right about themselves, but in the end, that’s not likely to happen. Even in a big economic crash, the internet will still be there. And the decentralized nature of the whole thing means no government can simply unplug or ban it.

        • 17

          Len Penzo says

          You think that because I don’t ascribe to your view on bitcoin, I am incapable of seeing other viewpoints. That is a lazy way to defend your argument — especially when I provided a well-reasoned explanation for why I believe bitcoin is not equivalent to gold.

          You need to consider your viewpoint on “value.” I have 5000 years of human history that proves gold and silver are the ultimate form of money and store of value. Yet you dismiss that fact by trying to assert that gold is still no different than a tree branch. That is intellectually dishonest. Replace “tree branches” with “dog feces” and your attempt at making a reducto absurdum example fails completely.

          Ironically, your argument is actually more apropos to bitcoin, which has only been around for several years; how can you say with any confidence that bitcoin’s run-up in price isn’t merely a speculative mania? You are conflating price with store of value; I could have made the same argument during the tulip craze of the 17th century.

          As for your assertion that, “The value of bitcoin only increases because more and more people recognize and assign value to this asset,” you aren’t proving that bitcoin is equivalent to gold as a store of value. You are describing, at best, a speculative investment. I could have made the same argument about Pets.com stock back in the late ’90s.

          And one last point: Nobody relishes a mad max world. That is just another lazy strawman argument. It is quite possible to reset the monetary system with a gold anchored currency relatively painlessly — the question is, will the powers that be do so willingly, or wait for the system to collapse first and then be forced to do it on the fly (and amidst the chaos that would bring)?

      • 18

        David Risley says

        There’s no contesting the history of gold. But, I do think Bitcoin will take over that role in finance that gold has historically had. I mean, people used horses for millennia to get around… until the car rolled around. And I think that’s the more appropriate comparison.

        And, I’m not sure how you still think I’m conflating price with store of value. My entire point was the opposite of that.

        Anyway, hard to do a full back-and-forth on everything in your blog comments. 🙂 You seem to think I’m saying things I’m not, and perhaps vice versa. Tough medium for debate. 😉

        To be clear, though, I don’t think you’re wrong about gold. It is why I own it. It is my “sh*t hits the fan” insurance. But, to be dismissive of Bitcoin is, I think, short-sighted. It goes way beyond market price. I truly hope you own some.

        Bitcoin does have hype cycles. And it has had numerous price crashes. But, on the average, it keeps going up. And it will continue to. And, keep in mind, gold doesn’t have to fail for that to happen. This isn’t an either/or scenario.

        • 19

          David Risley says

          BTW, I think it is more likely that BTC becomes a world reserve asset than gold returns to that status. I know that seems outlandish now. And, I think we’re probably going to go to a new fiat system first (backed by the SDR). But, it was the scarcity of gold that gave it the ability to function financially. Bitcoin has those same properties, yet it can be stored and moved for practically nothing – and instantly. For a world economy, it clearly has numerous advantages over gold.

          The other thing is that… in a world of cryptos, there is. clearly a role for a gold-backed cryptocurrency. It already exists, in fact. So, I think the world we’re looking at here is one of multiple currencies. All digital. With various backings. It will not be a return to pre-1971.

        • 20

          Len Penzo says

          I know Jim Rickards has been pushing the “SDR next” narrative for almost a decade, but I’m not sure how the SDR will fix things; it is merely a basket of the same worthless fiat that we currently have (dollar, pound, euro, yen and yuan). It may fool the public for a very short while, but it won’t last long because a basket full of rotten apples is no better than individual rotten apples.

          “Gold backing” has no meaning. Bankers and/or cryptocurrency managers can say anything is “gold backed” and lie about it. The only way to have a currency that is legitimately anchored to gold is to have gold convertibility — that is, provide the ability for the public to go into any bank and exchange paper currency for specie (sovereign gold coins).

          Anyway … good discussion, David!

        • 21

          Len Penzo says

          I wish I had bought a few bitcoins when it was under $100. I was following it that long ago. I only have a couple of pure-speculative investments in my portfolio, and bitcoin isn’t one of them.

        • 22

          David Risley says

          I personally don’t care about a gold-backed crypto, but one exists. And it is convertible, with third-party audits. It is called PAX Gold.

          And yes, I think the SDR system would fail eventually. It is still fiat. Plus, the move toward decentralized, digital money has moved quickly and that genie never gets put back in the bottle.

  6. 23

    Chance says

    These weekly summaries are great reads. Thank you.

    • 24

      Len Penzo says

      Thank you, Chance.

  7. 25

    RD Blakeslee says

    The bitcoin “movement” is pretty fervent, isn’t it?

    Awhile back, Wolf Richter (“The Wolf Street report”) canned a bitcoin advocate; said religion was not allowed in his commentary

    • 26

      Len Penzo says

      Yeah, and it gets more so with every big jump in price. The mistake is they are conflating “price” with “store of value.”

      • 27

        Special Ed says

        Bitcoin is the new Tulip.

  8. 28

    TnAndy says

    Personally, I think Bitcoin has been allowed in order to siphon off excess paper dollars that would have normally bid gold and silver on upward. It will perform that function until the central banks put forth their own crypto currencies, then it will be banned, which would be easy to do. IF they can ban gold (ala 1933) because it was too popular with the public, they can, and will, ban Bitcoin.

    WHAT is the value of any crypto if you can’t use it ?

    All the Bitcoin advocates will be running around with a flash drive “but…but….but…..I’ve got THIS much on it !!”……..yeah, wait and see how that works out for ya.

    • 29

      Len Penzo says

      I couldn’t agree with you more, Andy. When the fiat system collapses, up will once again be up, black will be black, and almost all of the otherwise impossible economic and social oddities that were permitted and/or sprouted up under that fraudulent system will disappear. Will people still be willing to pay a princely sum for an ephemeral digital coin when that time finally arrives?

      I don’t think so, but only time will tell.

  9. 30

    Paul N says

    If you want people to follow you on Parler, you need to put some content there. Growth on new tech does not happen by magic. Otherwise another good Black coffee…

    • 31

      Len Penzo says

      You’re right, Paul. In my opinion, Parler’s user interface leaves a lot to be desired though, which is why I haven’t been there in a long time.