Black Coffee: Pawns on the Chessboard

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’ve got a busy weekend to attend to, so let’s get right to this week’s commentary …

Tactics is knowing what to do when there is something to do; strategy is knowing what to do when there is nothing to do.

— Savielly Tartakower

In life, unlike chess, the game continues after checkmate.

— Isaac Asimov

Credits and Debits

Debit: Did you see this? While most homes aren’t castles, they can be just as costly these days. How costly? Well … the national median rent has increased by 11.4% since January 1st. Yikes. For comparison, over the same time period each year from 2017 to 2019, rent growth from January to July averaged just 3%. Even worse, rents are currently rising much faster in historically affordable cities, thereby giving people fewer options to escape the impacts on their housing budget.

Debit: According to a survey by Magnify Money, 40% of all investors have taken out debt to invest in the stock market. Then again, who can blame them. It’s become ridiculously apparent over the past 12 years or so — but especially the last 18 months — that stocks generally move in only one direction: up. And when they do drop, they don’t stay down for any appreciable length of time.

Credit: But as investment advisor Lance Roberts reminds us, “One of the significant benefits of a bull market is that it ‘forgives’ investing mistakes. Investors have taken on personal debt, and according to the survey, would do it again because the result has been profitable. The problem comes when it isn’t.” That being said, I’m sure the following chart is nothing to worry about. After all, everybody keeps telling me it’s different this time …

Debit: By the way, it’s not just consumers taking on excessive debt; the government is too. For example, in 2019, more than 95% of all revenue collected was being used to just to cover social welfare and interest on the debt. But that was then. This year, for the first time ever, the US Treasury is issuing debt to cover the mandatory spending. In case you’re wondering: No — this is definitely not going to end well for us pawns on the chessboard.

Debit: Of course, all of the debt required to cover the additional spending is being covered by central bankers, which artificially suppresses interest rates. Unfortunately, while financial engineering can play the white knight by temporarily propping up asset prices, there is plenty of evidence showing that it always leads to negative economic consequences in the long run. And very perverse ones at that; inflation being just one of many:

Credit: In other news, this week Mexican billionaire businessman Hugo Salinas-Price predicted that the world won’t be returning to the gold standard anytime soon. Why not? He says that although the current global debt-based monetary system is clearly in its death throes, the world just isn’t ready for a new system based on the yellow metal because “too many people depend on debt and government largess for their survival.” Yep … and Costco too:

Credit: Salinas-Price says that a more realistic alternative to the gold standard would be to extend the life of the current monetary system with a sharply-devalued dollar relative to gold — at least until society can better cope with the adjustment. Veteran money manager Mark Mobius agrees; he’s warning that, “Currency devaluation will be quite significant next year given the incredible amount of (cash) that’s been printed.” Thankfully, we now have NFTs to save the day …

Debit: Needless to say, a devalued dollar will decimate retirement nest eggs and lower the living standard of most Americans who fail to insure their wealth with precious metals. But as Salinas-Price correctly points out, it will also have “the immediate effect of reducing the amount of imported goods coming into the US, immediately reviving local industry and putting millions of Americans back to work.” So there’s that.

Credit: As author Stephen Leeb notes, “The decision to delink the dollar from gold in 1971 had momentous consequences on America’s life and economy. One was the ascension of the financial industry — it became the receptacle into which money poured and poured.” And poured. And poured some more — to the detriment of Main Street and America’s manufacturing sector. Although the financial bishops on Wall Street will never admit it. If you don’t believe me, just ask this kid …

Debit: But wait, there’s more. (Unfortunately.) Leeb also explains that “the financial industry consumed other industries through mergers & acquisitions, and erected a Rube Goldberg-like financial infrastructure whose major purpose was to spend money and provide ever-greater rewards for corporate chieftains; profits rather than productivity became the overriding financial goal.” Uh huh. Thankfully, the central bankers who enabled this mess still care. No, really:

Debit: Regrettably, as time progressed and the financial sector became an ever bigger part of the overall US economy, its actual contributions continued to be small. I’m sure the Wall Street toadies vehemently disagree with that assessment; but you can bet most Americans who live on Main Street don’t. That being said, everybody should be able to agree that the Fed has financially engineered itself into a corner. Then again, it’s not just the Fed. The European Central Bank is in a bind too …

Debit: The Fed must keep printing dollars to keep the markets elevated. But they’ve printed so much that banks are parking $1.2 trillion nightly at the Fed via reverse repos — and it’s a total that keeps growing, threatening the Fed’s scheme to keep short rates from going negative. Yes; tapering might relieve the pressure … but then long rates would explode, which would cause the cost of servicing the debt to eat up the majority of US government revenue.

Debit: So the Fed has two choices, both of which are catastrophic: Keep “printing” via QE and kill the dollar … or begin tapering, which will increase rates and eventually cripple the government financially. In chess, this untenable position is known as ‘zugzwang.’ An honorable player in zugzwang will usually tip their king over and resign … but this is the Fed. So expect them to drag things out and keep playing until the market finally checkmates them.

The Question of the Week

[poll id="388"]

Last Week’s Poll Results

Which would you rather find?

• $10 million (52%)
• True love (48%)

More than 2300 Len Penzo dot Com readers responded to last week’s question and it turns out that a very slight majority would rather find $10 million than true love. As for me, I’d take true love over the money … assuming they were mutually exclusive. If not, I’d grab the money — and take my chances on finding true love later.

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

How hot is the stock market right now? Here’s how you could have turned $10,000 invested on New Year’s Day this year into $109,333 on August 31st. All you had to do was invest the entire balance at the end of each month into the best performing S&P 500 stock at the beginning of the following month. Of course, the trick was knowing which stock would be the best performing stock at the beginning of each month. Easy; right?

Here are the monthly returns for the best performing S&P stocks, in order, from January (Discovery Coms.) through August (Paycom):

37.7% Discovery Communications (symbol: DISCA)

53.3% Marathon Oil (MRO)

34.2% Nucor (NUE)

26.6% Equifax (EFX)

28.0% Norton LifeLock (NLOK)

29.5% Biogen (BIIB)

50.5% Moderna (MNRA)

22.2% Paycom (PAYC)

Source: Investor’s Business Daily

Useless News: The Barber and the Kid

A young boy entered a barber shop and the barber whispered to his customer, “This is the dumbest kid in the world. Watch; I’ll prove it.”

So the barber put a dollar bill in one hand and two quarters in the other. Then he called the boy over and asked, “Which one do you want, son?”

The boy immediately took the two quarters and left.

“What did I tell you?” asked the barber. “Happens every time! That kid never learns!”

Some time later, after the customer left, the barber noticed the same young boy coming out of the ice cream shop across the street. “Hey, son!” he shouted. “Hold on a second! I need to talk to you.”

The barber waited for traffic to clear and then met the boy in front of the ice cream shop. “May I ask you a question?”

“Sure, mister!” said the boy, licking his cone.

“Why do you always take the quarters instead of the dollar bill?”

The boy looked at the barber and took another lick off his ice cream cone. Then he replied, “Because the day I take that dollar, the game is over!”

(h/t: Cowpoke)

More Useless News

Hey, while you’re here, 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 my new favorite quick-chat site, Gab — oh yeah, and Parler too! Of course, you can always follow me on Twitter too. Just be careful what you say there.

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

After reading the note that Chas dropped into the Len Penzo dot Com Complaint Box last weekend, I can only assume that he decided to visit my About page:

My fat sister looks better than you.

I’m sure she does. Then again, it could be worse … I could be you!

If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.

Photo Credit: (flags) public domain; (cartoon) Investing.com