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.
Believe it or not, today is my blog’s 13th anniversary! When I wrote my first post in 2008 I never imagined that Len Penzo dot Com would attract more than 10 million visitors and almost 17 million page views over the following decade – but it has! So I want to thank all of you who occasionally take a minute or two out of your day to stop by and visit – and a very special thank you to those who take the time to share your thoughts and leave comments because, without that two-way dialog, Len Penzo dot Com would be a very lonely place.
I hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …
Moral hazard is the big winner from the rapid-fire succession of rate cuts from the Fed; it projects an impression of central banks, yet again, coming to the rescue of leveraged investors who can’t cope with the slightest collateral damage. This pandering to global markets and homeowners has painted central banks into a corner. But having created over-valued everything through their cheap-money policies, central banks now find themselves as the ringmasters of the three-ringed circus that is cheap money, the hunt for yield, and richly-priced assets.
— Robert Guy
Credits and Debits
Credit: Did you see this? Last week bitcoin plunged from $57,000 to as low as $28,800 on some exchanges – in less than 48 hours. So much for it being a credible currency, let alone a store of value. As Wall Street on Parade opined this week, “The problem with bitcoin is the same problem that all other highly-leveraged trading instruments are having in the new world of Fed tapering. But bitcoin has an additional problem: credibility.” Ya think?
Debit: In other news, the CPI report for November was released on Friday and it shows inflation is now at a 40-year high; officially, it’s now running at 6.9% annually. Never mind that if inflation was calculated using the same methodology the government used in 1980, inflation would be more than double the “official” figure. On the bright side, the average price of a gallon of gas in the US fell four cents this week; it’s now $3.34. In terms of silver, gasoline is cheaper than it was back in 1964 – which, more than anything else, is a testament to the white metal’s ability to preserve wealth.
Credit: Speaking of inflation, the inimitable MN Gordon reminded us this week that the 21st century housing bubble was inflated by Fannie Mae and Freddie Mac, which “relaxed lending standards and, thus, funneled a seemingly endless supply of credit to the mortgage market.” He goes on to point out that while “their stated objective was to make housing affordable for Americans, their efforts did the exact opposite.” Yep. Unfortunately, while you can’t fool all of the people all of the time, you can fool some of the people all of the time…
Debit: On a related note, Mr. Gordon goes on to point out that, with Fannie and Freddie now also “jacking up the limits of government-backed loans to nearly a million bucks in some areas house prices could really jump off the charts.” Sadly, homebuyers’ incomes will not rise fast enough to keep pace – which means it probably won’t be too long before we start seeing 50-year mortgages. Hey … don’t laugh. It wasn’t that long ago when seven-year car loans were also considered a crazy impossibility.
(click to enlarge)
Credit: Meanwhile, the Fed has had its liquidity firehose pumping out dollars for most of the past decade. But despite its recently-announced tapering plan – they’re still flooding the financial system with the hose valve just a notch below full force. But as economic analyst Brandon Smith notes, “without Fed support, stock markets will die.” If what happened the last time the Fed flirted with tapering in 2018 is any indication, Smith is absolutely correct.
Credit: Then again, as financial analyst Bill Blaine noted this week, “The time to cut liquidity – the amount of money sloshing around the financial system – was a long-time ago. That money fueled financial asset inflation and is now pouring into the real economy in terms of buying real assets like property, pushing up real inflation.” That even includes used cars; in the past most new cars were guaranteed to lose as much as half their purchase price the moment they were driven off the lot – but, apparently, not anymore:
Credit: By the way, if you’ve got a holiday party or three to attend this year and you’re looking for a pithy ‘elevator speech’ to jump start a conversation on the economy, may I suggest borrowing investment advisor Lance Roberts’ summation of the current predicament: “The Fed’s monetary policy has screwed Americans.” Er … just make sure you’re not trying to chat up a CNN business “journalist”:
Credit: As macro analyst Paul Wong observed this week, despite a CPI of 6.8%, the 10-year Treasury yield remains below 1.5%. Never mind that at current inflation levels, 10-year yields should be above 8%. As a result, Wong says, “real yields have reached the nadir of the 1970s. If the goal of the Fed is to (reduce) the debt via inflation, it’s doing a remarkable job. However, real wealth is also being eroded in the collateral damage – that’s financial repression at work.” Very true … see for yourself:
Debit: Of course, Roberts also observes that: “For investors who have money invested in the financial markets, the Fed’s actions had one very predictable outcome: By keeping interest rates pegged at zero for nearly a decade, the Fed forced savers to take on more risk for even a marginal rate of return to pace inflation.” Not to mention the Fed’s reprehensible introduction of moral hazard. If only tar and feathers were still in vogue …
Credit: Unfortunately, the blogger known as Roacheforque correctly points out that, “The collapse of the global-debt-as-wealth system is unstoppable, and its creators are frantically trying to deal with it, by extending it to its logical conclusion – tyranny or ‘subjugation of the masses’ as wealth.” Uh huh. Actually both. Oh … and speaking of unstoppable forces …
Debit: For those who are still wondering why the powers-that-be are now openly stooping to such tyrannical behavior, Roachforque explains that “this attack upon rule of law has a purpose: to destroy the dollar system, and bring in central bank digital currencies to control the underclasses, and the SDR for trade settlement internationally.” Yes, yes … I realize there are going to be those who will say that’s yet another “conspiracy theory” – but anybody who has been following current events over the past several years knows that most conspiracy theories eventually turn out to be conspiracy facts.
Credit: So how does this all end? Asset manager Eric Peters was wondering about that this week as well. He said he’s “concerned less by the immediate market risks; but rather, what happens when the next big stock market decline forces the Fed to ease policy while inflation remains robust. Perhaps this will be how our story ends – a run on the dollar takes hold, and the world’s reserve currency collapses.” Perhaps. Then again, if you’re one of the relatively few people out there holding wealth insurance in the form of physical precious metals, how it ends really doesn’t matter.
By the Numbers
To determine where Americans are most susceptible to identity theft, WalletHub compared the 50 states across 14 key metrics, including factors such as identity-theft complaints per capita, and the average loss due to fraud. Here are the five least and most vulnerable states (top ranking being the most vulnerable):
50 Iowa
49 Connecticut
48 Idaho
47 West Virginia
46 Montana
5 Delaware
4 Rhode Island
3 Kansas
2 Colorado
1 Washington
Source: WalletHub
The Question of the Week
[poll id=”402″]
Last Week’s Poll Result
What percentage of your Christmas gift shopping will be done online this year?
- More than 50% (54%)
- Less than 50% (28%)
- 100% (18%)
More than 2300 Len Penzo dot Com readers responded to last week’s question and it turns out that more than 7 in 10 are doing the bulk of their Christmas shopping online. In fact, fully 25% of those holiday shoppers – including yours truly – are buying all of their gifts this year off the Internet.
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: Pink Envelopes
One Sunday morning after the church service, and while counting the money from the weekly offering, the pastor found a pink envelope containing $1000.
Surprised though he was, he thought little of it and just accepted this generous donation gratefully.
However, the following week the same thing happened again; this time the pastor was naturally curious.
So, the following Sunday, the pastor watched closely as the offering was being collected. As he observed proceedings, he noticed an elderly woman put a pink envelope on the plate.
Unsure what to do, the pastor continued to observe proceedings each Sunday over several weeks. Each week the same thing happened.
Eventually, the pastor could no longer contain his curiosity, and so the following Sunday he decided to speak with the woman at the end of the service.
“Excuse me, ma’am,” said the pastor, “I couldn’t help but notice that each week you put $1000 in the collection plate.”
“Why yes, Reverend,” the elderly lady replied. “Every week my son sends me money and I give some of it to the church.”
“That’s wonderful ma’am and very generous of you,” the pastor replied. “However a thousand dollars is a lot of money. Can you afford this? I mean, how much does he send you?”
“He’s a really good son and he sends me $10,000 every week,” the old lady responded.
“Wow!” said the pastor, truly amazed. “Your son must be very successful. What does he do for a living?”
“He’s a veterinarian,” she said.
“Well now, that’s certainly an important profession,” said the pastor. “However I had no idea it was so well paid. Where does he practice?”
The old lady smiled and said proudly, “In Nevada. He has two cathouses; one in Las Vegas, and the other in Reno.”
(h/t: Cowpoke)
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. Maine (2.15 pages/visit)
2. West Virginia (2.14)
3. New Hampshire (2.13)
4. Kentucky (2.04)
5. Wisconsin (2.02)
46. Idaho (1.69)
47. Oregon (1.68)
48. Delaware (1.66)
49. Hawaii (1.58)
50. Wyoming (1.57)
Whether you happen to enjoy what you’re reading (like my good friends in Maine) — or not (ahem, Wyoming) — 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. Just be careful what you say there.
3. Subscribe via email too!
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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 my article explaining why waterbeds are for suckers, Bill Murry left a comment with several sharp counterpoints, including this one:
Your back problem is your opinion.
Interesting. Then I’ll ask you how my back is feeling today – but let me know ASAP because I’m supposed to clean out the garage in a few hours.
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,
Wow, 13 years! I think I’ve been a reader here for about 10 of them.
I enjoy a lot of the article here, but I keep coming back for the coffee! 😉
Happy anniversary!
Sara
Thank you, Sara.
And I love that you stop by each week to say hello! 😀
Happy anniversary! I’ve only been following your blog for about a year, but I’ve learned so much about money during that time. I even started stacking silver for my long term savings (I have almost 80 ounces so far) since I am pretty sure I am too young to ever see a social security check!
Now I am trying to wake up my friends about how fiat money is a sham too, but their eyes usually glaze over. ha ha
That is very gratifying to me, Madison. Glad I could help. Thank you.
So 46% of middle class say they have been moderately or extremely affected by this inflation. I’m going to guess if we check back in a year, that number is going to be much higher. Wanna bet?
Nope. Not unless you give me huge odds.
Congrats on your 13 year blog-versary, Len. Your weekend round ups are the best.
Thank you, Paul!
Wonderful, Len. Here’s to another 13! Have enjoyed your blog for many years. Keeps getting better with age! Like a good wine! Cheers.
Thank you, Ron.
I can definitely say these weekly Black Coffee’s have slowly evolved over the years. When they first started, they were just a handful of “credits and debits” and a weekly reader letter. Then over time I added the “By the Numbers” … then the poll questions … then the weekly joke … then the introductory quotation(s) … then the video clips … and now I am including tweets and memes.
The downside is, it now takes me about five hours to put these together every week, rather than the hour it used to take!
“Hey … don’t laugh. It wasn’t that long ago when seven-year car loans were also considered a crazy impossibility.”
This is such a key point. Since 1971 when Nixon closed the gold window, home prices and other costs have gone up much faster than incomes. Far far faster. Incomes have a lot of catching up to do, otherwise 7 and 10 year car loans and 40, 50 (or 100?) year mortgages will be a necessity. It’s just not realistic, which is why the game can’t go on much longer.
That’s a great observation. I don’t think this can go on too much longer either.
Congratulations, Len! 13 years!
From the chart “The Uneven Fallout from the Inflation Surge”:
The 27 % with less than $40,000 yearly income who are not being hurt by inflation know what they are doing to maintain themselves.
Some of their strategies are reported here on lenpenzo.com:
https://lenpenzo.com/blog/40000-2
I really enjoyed these write-ups when I was in the process of paying off our family debt 2-5 years ago – we were fortunate enough to be able to live off of 50% of our income and dedicate the other 50% to our goal. Now, we can comfortably live off less than $40,000/year as a family of four.
And, congrats to Maine for being #1. I live in its Queen City; glad to see other readers of the blog consuming content in the Pine Tree State.
Hey, Derick!
Please join those of us who live on less than 40K and tell us how YOU do it! See:
https://lenpenzo.com/blog/40000-2
Glad to hear that, Derek!
Thank you, Dave!
And thank you for your awesome “Grandfather Says” contributions. This blog wouldn’t be the same without them.
Congrats on 13 years. I too am kind of new here and I appreciate all your insights.
Thank you, Robert.
If the Fed finishes tapering they will cause a total collapse. Do people forget that they couldn’t even sell off their (much smaller) balance sheet about five years ago and raise rates above 3% before the market started melting down? If they couldn’t do it then, then why does anyone believe they can do it with all the additional debt they’ve piled up since then?
The answer, Oscar, is nobody believes it.
But just like saying inflation is “transitory”, they don’t mind lying one bit if it keeps the game going a bit longer.
It is going to be interesting to see how far they can taper before they have to reverse course.
My thoughts are the next time the Fed reverses course, the markets’ collective “light bulb” will turn on and whatever shred of credibility they have left will be destroyed. That, in turn, will be the spark that destroys confidence in the USD and ushers in a new global monetary system.
One thing you miss, the debt is only a small part of what the government owes. You can inflate away debt, but you can not inflate away inflation adjusted unfunded liabilities (e.g. social security). Inflation may make it easier to payoff the existing debt, but it will break the unfunded liabilities. What is the government end game here?
Cryptocurrency is one use of blockchain, but blockchain technology is a huge change. One blockchain I have bought is being tested for storing medical records (among other uses) – think of the medical record portability promised by Obamacare. One of the big obstacles of the Obamacare era was opening individual system up for everyone to view data – that is solved with blockchain
another use case of blockchain is NFTs – not the million dollar NFTs, but the dollar NFTs – think replacing the Apple music store. How much of a cut does Apple take from each sale? do you think musicians would like to keep more of that?
There are other use cases, the technology is sound, people are figuring out how to use it. Don’t buy squid game crypto unless you want to engage in a very high risk gamble, buying crypto is risky enough.
If the debt is inflated away then the unfunded liabilities are also inflated away because they are denominated in dollars.
Social security payments are adjusted for inflation. Inflation goes up payments go up. Medicare payments will go up if drug/hospital costs go up. Same with SNAP, Medicaid, and a bunch of others
Correction: Social security payments are adjusted for a fraction of inflation by moving the method of calculating the cost of living.
And unfunded liabilities are subject to change at any point.
“We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power.” — Alan Greenspan
They’ll print whatever they need to “pay off” those unfunded liabilities, even if it kills the currency (which it will). In essence, it will be an unofficial default on those unfunded liabilities.
If the dollar’s purchasing power goes to zero, indexing to inflation is pointless because zero times any number (no matter how big it is) is still zero.
Electric vehicles for the masses is a pipe dream. It will take decades. Don’t these people in power have anyone advising them who knows anything? They want to shut everything down first and then worry about replacing whatever they shut down all at once without a feasible plan.
If it weren’t for government subsidies, the EV market would be a fraction of the size it is today because EVs can’t compete economically with internal combustion engines.
Happy Anniversary, Len! I’ve enjoyed reading your blog since about 2009, and still enjoy reading the posts here even though I disagree from time to time (i.e., we paid our house OFF! ;o) My 91 year old dad now enjoys your jokes at the end of Black Coffee, too. Thank you for the knowledge and enjoyment you’ve shared, and I look forward to reading many more posts here!
Thank you, Lauren!
(And give your dad my best!) 😀
I have not been reading here long, but appreciate the human side of the economic story. In other words, at some sites it’s all FED FED FED, with assorted debt tales, inflation, and auto prices. Then commenters just talk about their stocks and other investments. Here the narrative is actually about what individuals can do to improve their economic well being, both short and long term. Not so much advice, but people stating this is what I have done and why. Everyone’s economic story is just so different, from careers chosen to mistakes made. Add in location and and variable opportunities, what can actually transcend the gap? The 5 Ws…who, what, where, why, when……….
Glad you’re part of the community here, Paul. And, as always, I appreciate your pragmatic comments!
13th Cheers Len! Thanks again.
My pleasure, CO2.
Mr. Penzo,
Do you think a Gold/Silver IRA is a good idea (with Noble Gold). It sure seems like a lot of fees, mark ups, and yearly storage fees to pay.
Sincerely, Russell
I can only speak for myself, Russell. I decided against a gold/silver IRA after discovering that the IRS hurdles for owning a qualified self-managed account were very high; I never felt that a custodian-managed gold/silver IRA was right for me.
Congrats on 13 years! I only just found this blog within the last year, but I was instantly hooked on Black Coffee. The topics that you highlight are so important, and so often clearly absurd. You do a great job of shining a light on the BS. It seems much of the world has entered one grand delusion where facts cease to exist just because lies are repeated. I wish that everyone who has a vested interest in the future of the global economy would take time to read the nuggets of wisdom you post here weekly. Thanks
Thank you, Travis!