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
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!”
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
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