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 …
If you call the tune, then you also have to pay the piper when he begs his due.
— Nick Cutter
You’re only as good as your last haircut.
— Fran Lebowitz
Credits and Debits
Debit: Did you see this? A cryptocurrency dubbed “Squid Game” rocketed in price from $0.01 on October 26th to $38 the day after Halloween. On November 2nd, the high-flying cryptocurrency surged again; this time to $90. From there, it quickly skyrocketed to $2861 — no, really — before plunging into the abyss a minute later for the “bargain” price of $0.003. Yes; three-tenths of a penny. Heh. This is where I usually try to add a final observation or witty comment — but sometimes the jokes just write themselves.
Credit: Speaking of worthless currencies, with an annual inflation rate of 5500%, the Venezuelan bolivar has lost 73% of its value since January – which is why gold has become the currency of choice in some parts of the socialist paradise, with commodities and services being quoted in grams of the yellow metal. For instance, a hotel room is 0.5 grams of gold per night, and a restaurant meal for two is 0.25 grams. Meanwhile, a barber appointment costs 0.125 grams of gold, which is about $6; or roughly the melt value of a silver US quarter. More to the point: That means, in real money terms, a shave and a haircut is still two bits. Give or take.
Debit: Of course, Venezuela’s inflation troubles are the result of too much debt, courtesy of the politicians there who refuse to control their spending. Then again, to be fair, that’s a worldwide problem that really came into vogue back in 1970, when global debt was “just” $5 trillion. Since then, global debt has exploded to $300 trillion – for the mathematically challenged, that’s a staggering 60 times more debt than what existed 50 years ago.
Credit: A lot of that debt has gone to share buybacks. In fact, market analyst Lance Roberts points out that, without share repurchases, the S&P 500 would be closer to 2700 than its current level of 4600. To put that into context, he says rather than the approximate 190% gain in the S&P between October 2007 and today, it would have “only returned 3% annually — or 42% in total.” Yes. And if you remove the other ancillary Fed effects, those S&P returns would be even lower …
Credit: As macroeconomist Alasdair Macleod noted this week, ever since the dollar was decoupled from gold, “central banks have run a propaganda campaign to convince the (public) that gold’s historic role as the money of last resort had been made redundant through the magic of monetary progress – a campaign that’s now 50 years old and encompasses the entire working lives of employees in all financial sectors. The dollar myth as the ultimate money is now fully institutionalized.” Sadly, it will probably stay that way until the Almighty Dollar falls into the abyss – and takes most people’s life savings with it.
Debit: In other news, I see the Fed’s favorite inflation indicator remains near 30-year-highs. Which indicator is that, you ask? Well … it’s something called the personal consumption expenditures (PCE) deflator — and the September number rose 4.4% year-over-year (YoY) – that’s up from 4.2% in August. It’s also the highest level since 1991. Is it understated? Of course. Even so, at a constant rate of “just” 4.2%, the purchasing power of your savings would be cut in half in roughly 16 years.
Debit: By the way, there’s a big difference between today’s rising prices and the inflation experienced in the 1970s. Forty years ago the Fed did everything in its power to fight inflation; today, the same central bank is actively fanning the inflation flames by holding short-term rates at the zero bound via its quantitative easing (QE) program.
Debit: Then again, Fed Chair Jerome Powell doubled down on Wednesday when he reassured everyone that the Fed was indeed working to keep prices under control. Okay … but with inflation running at levels not seen since 1991, why are today’s Treasury yields significantly less than what was being offered 30 years ago? For example, the 10-year T-bond was 8.0% in 1991; today it’s in the neighborhood of 1.6%. As for the 3-month T-bill, it was 5.75% in 1991; today, it’s hovering near 0.05%. (Psst. Hey, Jerome … if you continue to insist on dancin’ around reality — then, please … take some lessons from this guy):
Debit: Meanwhile, wages for private workers failed to keep up with price inflation, as they increased just 1.7% YoY – that’s the lowest gain since March 2021. On the other hand, government worker salaries climbed 6.8% year-over-year. Imagine that.
Debit: The Fed announced it would begin tapering its QE program later this month. However, Macleod warned that we’re witnessing “the early stages of an inflation that threatens to become a terminal cancer for fiat currencies because the inevitable rising bond yields and falling equity markets can only be alleviated by increasing QE, not tapering.” If you want a second opinion, Macleod also notes that eventually, “Central banks will have to choose between crashing their economies or letting their currencies slide.” And, no; ignoring the problem won’t make it go away.
Credit: And so when faced with the choice of protecting either the currency or the markets, Macleod says that the Fed will counter-intuitively choose the latter. Then the “the public will reject the currency entirely as it rapidly becomes valueless, as once the process starts there is no hope.” Indeed. The good news is we can then reboot the system with a new currency backed by precious metals, thereby opening the door to a reborn economy focused on domestic production and local commerce, as well as a thriving middle class.
Credit: Regardless, we still must pay the piper — and he will be paid. As asset manager Bill Blaine solemnly observed this week, “Fourteen years of central bank experimentation and regulatory overkill will have consequences … and they’re about to bite us hard. It’s a madness of crowds, driven largely by (central bank) actions. The trick is going to be recognizing what’s real and what is not.” Amen. Of course, most people won’t figure that out until it becomes blindingly obvious — but by then it will be too late.
By the Numbers
Take a look at how high commodity prices have increased over the past year – and then look at gold and silver. If I didn’t know any better, I’d say somebody — or some entity — has disconnected the monetary inflation “smoke” detectors, better known as gold and silver. Now who do you think has the opportunity, means and motive to ever do such a thing?
123% Oil (West Texas Intermediate)
101% Coffee
81% Natural Gas
67% Cotton
44% Aluminum
43% Corn
41% Copper
33% Sugar
-3% Silver
-6% Gold
Source: Charlie Bilello
Last Week’s Poll Results
What percentage of your investment portfolio is in stocks right now?
- 60% to 90% (39%)
- Less than 30% (19%)
- More than 90% (18%)
- 30% to 59% (17%)
- I don’t have any investments yet. (8%)
More than 2200 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than 5 in 9 have at least 60% of their investment portfolio dedicated to stocks — and with the Fed seemingly providing permanent support to the markets, who can blame them?
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.
The Question of the Week
[poll id="397"]
Useless News: Meet the New Boss
On his first day in the office, a new CEO who was hired to turn a struggling company around was determined to let the workers know that he meant business. So, after doing a quick review of the company’s dreadful financial position, he decided his first act would be to reduce costs by getting rid of every employee who wasn’t adding value to the business.
Later that day, while he was taking a tour of the company’s facilities, there were workers everywhere — but his eyes were immediately drawn to a young man leaning against a wall, apparently doing nothing in particular.
Seeing this as his chance to make an immediate impact, the CEO walked over to the guy and asked, “How much money do you earn each week, son?”
The guy was immediately taken aback by the question, but he politely responded to the CEO anyway: “Sir, I make around $400 per week. Why do you ask?”
“Four hundred a week? Is that so?” the CEO asked in a slightly mocking tone. Then the CEO said to the young man, “You just wait right here!”
The CEO then disappeared into the Finance Department. Five minutes later the company chief reappeared with a bundle of cash. He then handed the young man $1600 and said, “Take it! That’s four weeks’ pay. Now get out! You’re time with us is done; don’t let me see you here ever again!”
Shocked at what had just happened, the guy took the money from the CEO and then ran out of the building as fast as he could.
Feeling like a real power boss, the CEO looked around at the rest of his workers and said to no one in particular, “So! Does anyone want to tell me what that sorry slacker did around here?”
A couple of seconds later a loud voice from the back of the room responded, “He was the pizza delivery guy!”
(h/t: Roy)
More Useless News
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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
This week Jonah took some time out of his busy day to send me this:
Greetings from South Carolina, Len! I just wanted to let you know I was reading your blog because I was bored to death at work.
Thank you, Jonah! (Wait … that was a compliment, right?)
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
The Fed says tapering is going to start later this month. I think this is going to be their last hurrah. When the stock market starts to plunge they are going to reverse course again and that will be the end for the Fed.
I think you may be right. If they reverse course a second time, even the most casual observer should be able to figure out that the monetary system can only be sustained by destroying the dollar.
Hi Len,
Thanks for another great cuppa Joe!
Hubbard stole my thunder! I was going to say once the Fed starts to taper and then is forced to restart QE again their bluff will be called and the dollar will be toast. This is it! The next 6 months are going to be interesting to watch.
Have a nice weekend.
Sara
You would think so, Sara.
“The good news is we can then reboot the system with a new currency backed by precious metals, thereby opening the door to a reborn economy focused on domestic production and local commerce, as well as a thriving middle class.”
From your lips to God’s ears. Len. Well said! Why do those in charge refuse to see this?
Because they get paid a lot of money not to.
Hi Len! I bought 10 more ounces of silver on Tuesday. I’m just going to keep adding to my stack on a monthly basis until the reset.
Have you considered Bitcoin? It’s a much better store of value!
Yes, for sure.
Silver, 3000 years or so (I have a small Greek coin from around 2500BC).
Bitcoin: 10-12 years of speculation.
You’ve got nothing but hope to base your love on. Get back to me in a 100 years.
Yes I have considered it. But I agree with TnAndy!
Good for you, Madison! I’ve been steadily stocking up on mining stocks for the past several months. The sentiment for them is absolutely at rock bottom. I can’t see how it can get any worse.
I’ve been thinking of purchasing mining stocks myself. Would you feel comfortable sharing the names of any you’ve purchased?
Hi Lee. I currently hold shares of the following: Kirkland Lake Gold, First Majestic Silver, Wallbridge Mining, Defiance Silver, and the four major gold and silver mining ETFs (GDX, GDXJ, SIL, and SILJ).
DISCLAIMER: This is not investing advice!
Strange. Fed announced they will start tapering this month and 10 year bond yield fell and stock market climbed. Makes no sense.
Markets are broken.
Sam, I stopped trying to make sense of the markets awhile ago. It’s like trying to get your bearings in a fun house full of mirrors. Nothing is as it seems. You know it’s bad when prices for everything have increased sharply over the past year — and I mean everything — except for the dollar price of gold and silver, which has actually fallen.
The stock market is insane. Nothing seems to be able to stop it. I got out last year thinking it was a bubble that was ready to be popped and I’ve left a lot of money on the table in the process.
It’s always a tough decision, Paul. Do you play in the casino knowing the game is rigged and the rug can be pulled at any time, or do you sit it out and wait?
I’ve heard much of those commodity price increases still need to be passed on to the consumer. How many people are seeing those kind of raises in their paychecks? I know my last raise was in January. That means those price increases are a pay cut to me.
I suspect people are muting the effects by reducing their discretionary spending for now. The rubber will meet the road when they are forced to begin cutting non-discretionary expenses.
I cut and split another cord of oak for the winter of 23-24 last couple days. Figured out a long time ago what real wealth looked like.
You got that right, Andy. Do you usually go through more than one cord in a typical Tennessee winter? When I was a kid my dad used to load up his pickup truck with one-quarter cord of eucalyptus wood and that would last us all winter. Of course, that was in Southern California, where the winters are mild to non-existent.
I heat with firewood too, Andy – have for 42 years, so far. It won’t matter one whit to us if energy prices go through the roof, so far as household space heating is concerned.
Nothing better than a nice wood fire in the fireplace on a cold winter’s day!