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 …
No man’s credit is as good as his money.
— EW Howe
The worst hunger is the hunger for more.
— Bert McCoy
Credits and Debits
Debit: Did you see this? According to the Wall Street Journal, state and local governments have borrowed $10 billion to shore up pension funding this year, which is more than in any of the previous 15 full calendar years. Keep in mind that this occurred despite record bull markets in both stocks and bonds. It makes you wonder how much trouble these pension funds would be in during a bear market.
Debit: Here’s the logic: Typically, a city or county issues pension obligation bonds to cover its missed pension payments and then invests the remainder to bolster the pension fund. In a perfect world, those investment returns will be higher than the bond rate, and the resulting investment gains are then used to lower the city or county’s pension contribution obligations. Yep. Easy peasy!
Credit: Then again, we don’t live in a perfect world, do we? And here’s another pearl of wisdom for those who are willing to listen: Responsible investors don’t borrow money to buy stocks and other securities — that’s what speculators and gamblers do …
Credit: As market analyst Mish Shedlock points out, the reality is that in the midst of “the most insanely overvalued market in history, the higher the market goes, the less likely the maneuver is going to work.” In fact, he says the only hope for these government pension fund managers is that: 1) The stock market rises forever, or at least long enough to cover the borrowing costs without a huge drawdown; or 2) a stock market plunge inspires Congress to bail them out.” Imagine that.
Credit: Unfortunately, governments are making this pension fund gambit at a time when the whole US equity market is insanely overvalued with the total stock market capitalization relative to GDP that have soared to previously-uncharted heights. This has market analyst Kevin Smith warning that, “When this market bubble finally pops, there will be hell to pay.” Well … that’s one way to put it. I guess.
Debit: How broken are the markets today? Well … 85% of the US junk bond market has a yield below the current rate of inflation. While that proportion has been elevated for a few months now, it had never been above 10%, and rarely been much above zero. In fact, at the end of last year it was less than 4%. See for yourself:
Debit: In other news, I see the NY Fed has suspended its GDP tracking model, supposedly due to too much economic uncertainty affecting the results. More likely, it’s because it’s harder for those running the show to pretend everything is coming up roses when the monetary data says otherwise. Oh well … such is life in the dying empire we find ourselves in today.
Credit: Not surprisingly, Zero Hedge thought “it odd how the NY Fed didn’t suspend its model in 2020 when a similar level of pandemic confusion was present but all of the adjustments were in the upward direction.” Odd? Not really, if you realize the utopian illusion must be maintained at all costs. And so here we are; stuck in this alternative reality, where the truth becomes harder to come by with each passing day.
Credit: By the way, the Fed’s balance sheet has increased 10-fold in the last 13 years, which has Charles Hugh Smith asking, “Isn’t it remarkable that, decade after decade, the US economy continually expanded with the Fed balance sheet far below $1 trillion — but now the economy needs the Fed to create $7.5 trillion and throw it on the bonfire of speculative bubbles to keep the economy from imploding?”
Debit: The problem, as Smith keenly observes, is that we’re experiencing in real time the illusion of stability and the inevitability of collapse. For now, the only thing staving off that collapse is the Fed printing press. Never mind that so many dollars have been conjured out of thin air, that they are quickly becoming worthless, as evidenced by the bundle of 101 cartoon ape NFTs that sold at Sotheby’s this week for $24.4 million. No, really:
Debit: There are murmurs that the Fed will begin tapering their QE program next month. If true, it won’t last long because tapering would precipitate a financial crisis in relatively short order. Of course, the right thing to do would be to go even further and stop QE outright, obliterating markets — but correcting years of monetary policy mismanagement in the process … which is precisely why the Fed won’t do the right thing. So enjoy watching them continue to do the only thing they’re truly good at: printing currency (otherwise known as “more cowbell”) …
By the Numbers
Credit card debt in the US had been on the rise for eight straight years until the COVID-19 lockdowns and subsequent relief efforts suddenly reversed the trend. With that in mind, here are the states with the ten highest credit card delinquency rates:
10 Mississippi (delinquency rate: 9.66%)
9 New Mexico (9.81%)
8 New York (10.35%)
7 Oklahoma (10.36%)
6 California (10.41%)
5 Texas (10.49%)
4 Arkansas (10.74%)
3 Arizona (10.93%)
2 Florida (11.94%)
1 Nevada (13.32%)
Source: Self Inc.
The Question of the Week
[poll id=”389″]
Last Week’s Poll Result
Do you know how to play chess?
- Yes (72%)
- No (28%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly less than 3 in 4 of them know how to play chess. As for me, I’ve been playing since I was 8 years old. I love the game, but I’ve never spent the study time required to become a superior player.
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: The Bounty Hunters
Two cowboys came into a town that was having nothing but problems with Indian attacks. They saw a sign that offered to pay one ounce of silver for every scalp collected.
They double checked with the sheriff and, sure enough, it was true! They packed up their gear and headed out into Indian territory.
Later that night they set up camp and fell asleep under the stars and dreamt of all the silver coins they were going to collect.
The following morning the first cowboy woke up, looked to the east, and saw nothing but Indians.
Then he looked north, west, and south and saw … the same thing.
Realizing they were surrounded by thousands of Indians, the first cowboy poked his partner in the ribs and said, “Hey, Cody. Wake up! It’s our lucky day!”
(h/t: GoldHermit)
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. Vermont (2.26 pages/visit)
2. Arkansas (2.25)
3. Minnesota (2.13)
4. Wyoming (2.05)
5. Wisconsin (2.04)
46. California (1.29)
47. Illinois (1.27)
48. Oregon (1.26)
49. Alaska (1.25)
50. Iowa (1.14)
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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
From Saul:
Why are you always so negative?
I don’t know. Heck, even my blood type is negative … so let’s blame that.
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
Hi Len,
We definitely don’t need more cowbell. We need to break up the band and start over with a brand new sound because this one has lost its mojo!
Sara
🤣
You should be the next host of Breaking the Band.
Or maybe I should say, “Breaking the Bank” …
The pension problem is only going to get worse over time. Most private companies no longer offer them. The only new employees coming into the workforce that are still being offered a pension are government workers.
Same deal with the forced vaccination mandates. Private businesses affected, but Congress is exempt. Rules for thee …
Yeah … private company pensions are as rare as chicken teeth these days. That’s because private companies realize with bonds yields artificially held down at the zero bound, pensions are no longer sustainable.
I have a pension coming to me but, like most private company pensions, it doesn’t come with a cost-of-living adjustment — unlike government pensions. So I expect my pension to be pretty much worthless over time due to the continuing debasement of the dollar.
Frankly, government pensions will end up in the same boat anyway because the funds will not be able to keep up with the COLAs — and taxpayers will not tolerate the amount of taxation required to keep them whole. Never mind that those gov’t pensions are technically insolvent Ponzi schemes now anyway.
I wish my job offered a pension! My friend’s dad has one and he is getting a monthly pension payment along with his SS checks. I’ll be lucky to get SS one day.
My company grandfathered in the longtime workers who were originally offered pensions, but newer hires haven’t had that benefit for many years.
Same at my place, Steve.
Never say never, Madison. If we ever return to a monetary system based upon sound money, company pensions can realistically return.
I find it interesting that Florida, Arizona and Nevada have the most credit card defaults. They are also the top retirement states. I wonder if there is a connection there.
I kind of doubt it, but maybe you’re right. Who knows?
The financial reaper is coming. I don’t know exactly when, but I feel like he’s getting close.
LOL! (I see what you did there.)
Um … in the highly unlikely event you are the real Buck Dharma, let me just say I think you are THE most under-rated guitarist of all time. In my book, definitely one of the five best ever. (Page; Gilmour; Dharma; Satriani; Schon)
Dharma *** is *** underrated and BOC should be in the Rock n Roll Hall of Fame.
Yep. That they are not in the HoF after all of these years is a travesty.
Those in charge have their jack boots on the neck of both gold and silver at the moment. With all of the inflation and inflation adjusted interest rates deep in negative territory the precious metals prices should be through the roof. I’m sensing panic by the powers that be. They can’t lose control of gold and silver prices.
Agreed. Silver is their true Achilles heel because the market is so small. It can be overwhelmed by the public in the blink of an eye.
Lucky for the-powers-that-be, most people remain completely clueless as to how the system works.