Len Penzo dot Com

The offbeat personal finance blog for responsible people.

Black Coffee: Greetings from Crazy Town

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.

I hope everybody had a wonderful week. And with that, let’s get right to this week’s commentary, shall we?

Insanity is rare in individuals; but in groups, parties, nations and epochs, it’s the rule.

— Friedrich Nietzsche

In a free society, one does not have to deal with those who are irrational. One is free to avoid them.

— Ayn Rand

Credits and Debits

Credit: Did you see this? Hedge fund manager David Einhorn recently warned of stock market dangers for retail investors. One of his main examples was a tiny New Jersey deli with sales of $35,748 during the last two years — combined — and yet it has a market capitalization of more than $100 million. Early retirement, here we come! But seriously, this is a prime example of what passes for “wealth” in today’s America. Sad.

Debit: Whether it’s a high-flying stock market that has become detached from reality, an unhinged housing market, or teenagers becoming near-millionaires after using their COVID stimulus checks to buy skyrocketing cryptocurrencies that were originally intended to be a joke at their inception, it’s clear that the true meaning of money is quietly slipping away. Still, most people still see nothing wrong with the dollars in our wallets because rot remains hidden — for now …

Debit: The market lunacy is so out of control now that, from his perspective, Einhorn believes, “the stock market is fractured and possibly in the process of breaking completely.” Correction: The stock market broke a long time ago. Actually … the price discovery mechanism has been utterly destroyed for almost every market — from bonds to housing. And you can thank years of reckless Fed monetary policy for that … and this:

Debit: Of course, the Fed’s uncontrolled money printing is fully responsible for this kind of market insanity. It’s also not a coincidence that margin debt, which allows market participants to lever up their market bets, is also at a ridiculous all-time high as well. Imagine that.

Credit: Retirees should be paying particularly close attention to the Wall Street insanity. Although nobody knows when realistic valuations will reappear, market analyst Dave Kranzler warns that this ever-increasing risk appetite “will not end well — especially for public pension funds, which have increased their average equity allocation to 80% (vs. 40% to 50% historically).” Wait … is he intimating that stock prices can actually fall? Pfft. Heretic!

Debit: Speaking of fractures, recent loan and deposit data from the four biggest US banks reveals that the conventional process of deposit creation via loans is terminally broken, as there are now far more deposits than loans in the system. So where has all of that excess deposited currency been coming from? Where else: the Fed. Just don’t tell that to the MMT crackpots infesting academia and government who insist that only private banking loans can create monetary system deposits.

Debit: In other news, I see that New York City’s wealthiest residents will soon be paying a combined marginal tax rate of 52% among federal, state and local governments — that’s the highest income tax hit in America. In other words, on at least a portion of their earnings, the highest earners will be paying more to the government than they keep for themselves. And why not? Our benevolent politicians know how to spend our money more wisely than us anyway. (Yes; that was dripping sarcasm.)

Credit: The always astute MN Gordon reminds us that “the longer personal livelihoods are funded by government giveaways the more dependent people become. Those who were once self-supporting are now reliant on stimulus and generous unemployment checks. Why work, when it’s much more lucrative to loaf and invite your soul?” Why, indeed. You’d think most people would grasp the folly of relying on government handouts because we’ve all seen that movie before. Er … at least I think we have:

Debit: Fed Chair Jerome Powell wrote a letter to Senator Rick Scott actually admitting that the overheating US economy is going to experience “a little higher” inflation this year. The Fed’s newfound “honesty” is refreshing. But that’s not very comforting when you consider that since 2010 they’ve insisted inflation has been “tame” — despite plenty of evidence showing it’s been consistently running upwards of 10%. And if you’re still wondering why that it, it’s because of this …

Debit: By the way, Powell also noted that any inflation would be “temporary.” Uh huh. In 1971 Nixon assured the public that the government’s decision to close the gold window and remove the dollar’s final remaining tie to the yellow metal was only “temporary” too. In reality, you can be sure the only thing that’s TRULY temporary with the current debt-based monetary system is the US dollar’s continuing ability to act as a long-term store of value. So prepare accordingly.

The Question of the Week

[poll id="369"]

Last Week’s Poll Results

Do you think the US will eventually return to some form of gold standard?

  • No (74%)
  • Yes (19%)
  • I’m not sure (7%)

More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than 4 in 5 of them believe the US will never return to a gold-based currency system — or are at least not confident it will happen. As for me, I’m quite confident it’s going to happen — if only for a little while — because of human nature. History has repeatedly demonstrated that once a currency collapses, the only way to restore confidence is to make the existing or replacement currency convertible upon demand to precious metals.

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

Back in 1969, the late Senator Everett Dirksen is famously quoted as saying “A billion here, a billion there, and soon we’re talking real money.” Today a billion dollars is chump change. With that in mind, here’s why the dollar isn’t as “almighty” as it was back in 1969:

$13 billion Price for America’s newest aircraft carrier, USS Gerald Ford.

$451 million Price in 1969 for the nuclear-powered aircraft carrier, USS Enterprise.

$3 billion Cost of this year’s unmanned Mars mission.

$335 million Cost of the Apollo 11 moon mission that put Neil Armstrong and Buzz Aldrin on the moon.

438 The number of companies that earned at least $1 billion in 2018.

2 The number of companies that earned at least $1 billion in 1969. (General Motors and Exxon Mobil)

0.1% Percentage of US GDP that a billion dollars represented in 1969.

4% Percentage of US GDP that a trillion dollars represents today.

$4 billion On average, amount of cash that the Fed is currently printing every day.

Source: Zero Hedge

Useless News: Drive Safely

A farmer lived on a quiet rural highway, but as time went by, the traffic slowly built up. Eventually, the traffic got so heavy that his free range chickens were being constantly run over by inattentive speeding drivers. So the farmer decided to call the local police station and ask them to put up a sign to slow down the traffic.

The next day the policeman posted a sign that said: SCHOOL CROSSING

That didn’t work, so they put up a new sign: SLOW – CHILDREN AT PLAY.

That didn’t work either, so the farmer asked the police chief if he could put up his own sign. Permission granted.

A month went by and, hearing nothing further, the police chief assumed the farmer’s sign was successful at slowing down the traffic. Curious as to what it said, he went out to look at it. The sign said:

NUDIST COLONY – WATCH FOR CHICKS.

(h/t: RD Blakeslee)

More Useless News

Here are the top five articles viewed by my 37,816 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

  1. 9 Ways to Use Your Money After the Mortgage Is Paid Off
  2. 22 Smart Money Tips Everyone Can Learn by Playing Doctor
  3. My Son’s Free Car: What We’ve Got Here is a Failure to Communicate
  4. Why You Need a Household Strategic Plan (and How to Create One)
  5. 3 Ways to Quickly Bulk Up Your Retirement Savings

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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

After reading an article from one of my staff writers about affordable ways to upgrade an outdated bathroom, Ellis took exception to one of the more novel suggestions:

Propane heating for the floor? I’m all for in-floor heating, but I’ll stick with non-explosive, non-flammable ways to do it.

So I take it this means you won’t be reading my upcoming story on low-cost hydrogen-filled party balloons?

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

    Cowpoke says

    So the Fed is printing enough money to buy almost 10 nuclear aircraft carriers every month. That kind of puts things in perspective!

    • 2

      Len Penzo says

      It certainly gives a feel for just how fast they’re destroying the dollar, Cowpoke.

  2. 3

    Mark says

    My son’s friend has made a small fortune off the Doge Coin. He put $4,000 on it earlier this year and turned it into about $30k now he plans on buying a new car with the proceeds. It’s like winning the lottery.

    • 4

      Len Penzo says

      That’s one way to put it, Mark. The biggest danger I see at the moment is a lot of people are jumping in to these glorified Ponzi schemes due to FOMO; it’s fun and games now, but when the music stops playing there are going to be a lot of people caught without a chair.

    • 5

      Bill D. says

      My sister “invested” a token amount (I think a grand) in Doge Coin and she’s already under water. Many will play. Few will win.

    • 6

      Drater says

      $30K is a small fortune??

      • 7

        Mark says

        For a 21 year old it is!

    • 8

      Frank Anthony says

      Clear example of “poor” thinking. Receive a windfall then buy an asset that will only decline in value over time and raise your ongoing expenses (higher insurance) to seal the deal on a poor decision.

      • 9

        Len Penzo says

        Ain’t that the truth, Frank.

  3. 10

    Madison says

    Len, what was different between the time when FDR banned Americans from holding gold and when Nixon closed the gold window?

    • 11

      Len Penzo says

      When Nixon closed the gold window, that applied to foreign nations. Once he did that, other countries could no longer exchange their dollars at the US Treasury for its vaulted gold.

      The reason Nixon did that is because, after LBJ enacted his “Guns and Butter” policy, other nations saw that the US was printing an excessive amount of dollars compared to its gold holdings. As a result, they began rapidly draining the United States’ gold reserves — essentially, it was an international run on “the Bank of the USA.”

      Of course, closing the window broke the dollar’s last remaining anchor to the yellow metal — and from that point forward the debt was effectively free to expand without any monetary constraints. (Yes, they used to have a statutory “debt ceiling,” but that obviously wasn’t effective as Congress simply raised it each time the ceiling was reached.)

      It’s no coincidence that the death of the single-income American household followed in a relatively short timeframe thereafter. It’s also no coincidence that within a decade, both Wall Street and the government began growing like a cancerous tumor on the American economy — all made possible by a fiat dollar.

      America’s current state of economic and social degradation is the result of 50 years of unchecked malignant growth in government and Wall St.

  4. 12

    M4693 says

    “History has repeatedly demonstrated that once a currency collapses, the only way to restore confidence is to make the existing or replacement currency convertible upon demand to precious metals.”

    Your money is already convertible upon demand to precious metals.

    • 13

      Len Penzo says

      No; it isn’t.

      I assume you believe because I can go to a local coin shop and exchange my dollars for gold it is “convertible.” That is NOT the definition of a convertible currency; a private coin dealer/shop does not have to sell its gold and/or silver to anybody.

      The convertibility must be within the banking (monetary) system. The public must be allowed to enter a bank and exchange the national currency for specie (sovereign gold and/or silver coins) upon demand. This reintroduces the potential for a public run on the “Bank of the USA.” It is the only way to keep the government honest and prevent it from printing the dollar into oblivion.

      Oh, yeah … and over time it will also restore the ubiquity of single-income households.

  5. 14

    RD Blakeslee says

    The Feds money creation, consumption-based policy is now resulting in substantial inflation.

    So, wealth is increasing for the very rich, but the lower middle class can’t buy a house anymore:
    https://wolfstreet.com/2021/04/22/buyers-strike-everyone-knows-the-housing-market-has-gone-nuts-amid-wild-distortions-prices-spike-but-sales-plunge/

    Or even a used car:
    https://www.zerohedge.com/markets/used-vehicle-value-index-smashes-record-used-car-prices-continue-soar

    As for the poor person, go to LA, camp on the street and a Federal Judge will order “”free” housing for you:
    https://www.zerohedge.com/political/la-judge-orders-city-county-offer-all-skid-row-homeless-shelter-fall

    • 15

      Len Penzo says

      The last one is really stupid. 🙄

      Anything the government taxes, you get less of — and anything the government subsidizes you get more of. In this case, the judge has ordered subsidized housing. How do you think that is going to affect LA’s homeless totals?

      Like I said, after 50 years of unrestrained growth, government has become a malignant tumor so big that it’s on the verge of killing its host.