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.
Happy New Year! I’ve got a hangover to attend to, so let’s get right to this week’s commentary …
You have to run as fast as you can just to stay where you are. So if you want to get anywhere, you’ll have to run much faster.
— Lewis Carroll
Credits and Debits
Debit: Did you see this? Data from Q3 shows American private-sector workers saw their pay improve by 4.6% year-over-year (YoY). Now for the punchline: If you believe the latest CPI figures, that means those same workers actually saw their purchasing power decline over the past year by at least 2.3%. But considering how understated government inflation statistics are, the standard-of-living decline is almost certainly far bigger than that. Hopefully, our government overlords will put an end to this inflation by listening to the media hacks who are now calling for price controls. Oh, wait …
Debit: Of course, there is no better example of the disconnect between wages and prices than the housing market. October home prices in America’s 20 largest cities rose 18.4% YoY, slowing from the 19.09% YoY gain in September – even so, that’s still faster acceleration than the peak of the last housing bubble in 2005. Oh … and in case you’re wondering: Phoenix, Tampa, and Miami reported the highest year-over-year gains among 20 cities surveyed. Then again, looks can often be deceiving:
Debit: Just how understated are the government’s inflation numbers? Well according to ShadowStats, which measures consumer price increases consistent with the methodologies of pre-1980 headline CPI, the true inflation rate is now 14.9% – which means the real yield on the 10-year bond is currently negative 13.5%! What does that mean? It means 10-year Treasury buyers are locking in a significant amount of lost purchasing power. Remember that the next time you’re told gold doesn’t pay a yield; although it’s true, over an extended time period you’ll always maintain your purchasing power – at a minimum.
Debit: One company that can tell you just how understated the government’s inflation numbers are is Dollar Tree, which reluctantly capitulated last month to the withering price pressure by finally marking some goods above the $1 mark. And now a growing number of Manhattan’s $1 cheese pizza slice vendors are following suit. The famous New York City “dollar slice” has held for two decades due to the fiercely competitive nature of the Manhattan market – but now at least one vendor recently raised it to $1.50. Too bad. But expecting pizza slices to remain a buck in perpetuity was always a pie-in-the-sky idea.
Debit: In other news, JPMorgan Chase Bank, is sitting on 62% of all stock derivatives held at nearly 5000 federally-insured US banks with a face amount amount of $3.3 trillion. If that isn’t bad enough, 74% of those stock derivatives aren’t centrally-cleared, regulated contracts. Rather, they’re opaque, over-the-counter (OTC) contracts, which suggests they’re most likely beyond the scrutiny of bank regulators. Hey … what could possibly go wrong?
Credit: This stunning news has Wall Street on Parade asking, “Why is any taxpayer-backstopped bank in the US allowed to own anything near a trillion dollars in stock derivatives, let alone a bank like JPMorgan Chase that has admitted to an unprecedented five criminal felony counts brought by the Justice Department in the past seven years, with three of those felony counts for rigging markets?” Oh, I’m sure these bankers have everything under control, folks. So no need to panic …
Credit: As macroeconomist Alasdair Macleod explains, the boxed-in Fed is in a position very similar to, “that faced by John Law in 1720. To sustain his Mississippi bubble, he supported the share price by freely issuing French livres to buy stock in the market – which he could do as controller of the currency – until the livre’s purchasing power was undermined entirely.” Which is why Macleod is also warning that we can expect “the dollar’s purchasing power to decline similarly to the livre of three centuries ago.” If he’s correct, that doesn’t bode well for anybody holding paper assets denominated in US dollars.
Debit: Many people can’t fathom the US dollar imploding to the point of being worthless – but there is no doubt that the Fed has been creating an alarming amount of currency out of thin air. For example, in the seven short years between 2008 and 2014, the Fed printed $3.5 trillion – triple what they created in their first 95 years of existence. Put another way: 300 years of money growth was unleashed in a few short years. And since 2020 the Fed has created more money than the entire GDP of Japan. The trouble is, we don’t have much to show for it. As a result, prices are now climbing; a classic case of too many dollars chasing too few goods.
Credit: By the way, financial blogger Larry MacDonald also points out that, in just the last two years alone, the US deficit has grown by “a mind-blowing $6 trillion, while federal debt has reached $29 trillion – and $32 trillion if you add state and local debt. Where did all the money go?” Good question. Although you can find a lot of it simply by driving almost anywhere within a 50 mile radius of Washington DC.
Credit: Meanwhile, financial reporter Michael Snyder has a question of his own: “There are ‘help wanted’ signs all over America as the number of people who are actually working is still close to four million below the pre-pandemic peak. What happened to all of those extra workers? They aren’t on unemployment, because unemployment claims are the lowest in decades. So where are they?” Actually, I’m pretty sure that mystery has been solved …
Debit: The “good” news is, for now, stocks continue their relentless ascent towards the sun, despite the fact that the stock market is still grossly overvalued – which means a reversion to the mean that would bring the market back to reality is growing with each passing day, just as it did when the dot-com bubble burst. What would that look like? Well … as of today, that would be a drop of approximately 60% – if not more. Ouch.
Debit: Perhaps the answer to both questions lies in the following observation by Macleod: “The remarkable recovery from the collapse in GDP in 2020 was not an economic recovery; it was simply a reflection of ramped-up unproductive government deficit spending. And the savings ratio which shot up was no more than a temporary reservoir of stimmy-inflated bank deposits. What should worry us all is that no one in charge of economic and monetary policy, let alone the wider public, appears to understand this basic error.” Probably because they have no interest in doing so. At least for the time being.
By the Numbers
Kentucky Senator Rand Paul published his annual Festivus Report highlighting the biggest examples of government waste. In all, the senator identifies almost $53 billion worth of mind boggling expenditures from the past year. Here are ten examples:
$337,500 For a program to fatten eels for human consumption.
$352,000 For a study that found kids crave junk food and gain weight if they’re exposed to it.
$465,339 For a study to watch pigeons play slot machines.
$1,300,000 For a study that verified hearing bad news decreases happiness levels.
$2,100,000 For a tax credit incentivizing California residents to uninstall their fireplace.
$14,000,000 Funding for the Wilson Center to put on parties for Congressmen.
$179,000,000 Funding for green energy programs in Africa.
$250,000,000 For constructing border walls in the Middle East and North Africa.
$400,000,000 For tree planting in New York City.
$36,000,000,000 Improper payments for Covid-related (CARES Act) unemployment benefits.
Source: The Office of Senator Rand Paul
The Question of the Week
Last Week’s Poll Results
What’s the longest vacation from work that you’ve ever taken?
- 2 weeks (34%)
- 1 week or less (21%)
- 3 weeks (17%)
- 4 weeks (16%)
- 5 weeks or more (12%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that just about 4 in 9 of them have taken a vacation from work that lasted at least three weeks. Believe it or not, after a career that has spanned nearly 35 years, three weeks is the longest consecutive break I’ve ever taken – and I only did that once!
For the second week in a row (!), this week’s question was suggested by reader Frank. Thank you, sir!
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: Interior Design 101
(h/t: The Honeybee)
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
Ozzy574 wrote in to tell me why he refuses to buy precious metals:
Hasn’t anyone told you that you can’t eat gold?
Many times. Then again, something tells me you don’t have any Federal Reserve Note recipes you’d like to share either.
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
Sara King says
Here’s to a Happy New Year! Let’s hope 2022 brings the changes needed to end the corrupt system we are now stuck with.
Len Penzo says
Yes, fingers crossed. Let’s suck it up and take our medicine so we can get better.
So now they are telling us price controls will fix inflation. How did the media get to be so stupid?
Len Penzo says
Is that a rhetorical question? 😉
A half mil to watch pigeons play slots? I could have done that study for half the cost! Where do I sign up to get one of these crazy “studies?”
Happy New Year, Len!
Len Penzo says
I’m not sure, but I’ll bet you there is a government website somewhere that takes proposal applications for all of those ridiculous studies. I’m just as sure anybody can apply for them; it probably helps to have one of those K St. lobbyists in your back pocket though.
Sam I Am says
If I had a dollar for every tweet that goes out by some fool saying “Bitcoin fixes this!” I’d be a millionaire. Pumpers are going to keep pumping until the last fool is scammed.
Len Penzo says
They sure will, Sam. They love to parrot slogans and share memes, but when you ask them to explain their reasoning, they can’t … which is why I regularly challenge them on Twitter. My hope is that I can open the eyes of those who are truly looking for wealth insurance, rather than making a quick buck.
Happy New Year, Len! Here’s a toast to the metals making record highs in 2022!
Thank you for all you do here. The best is every weekend with Black Coffee. I learned a lot last year!
Len Penzo says
Thank you, Madison! 😀
If the Fed raises interest rates, won’t the cost to service the national debt be astronomical?
Len Penzo says
Well, Shane … it won’t take much for the debt service to overwhelm tax revenue.
I wouldn’t pay $1.50 for those NY City dollar slices. Garbage. You get what you pay for.
Len Penzo says
I’ll take your word for it. The rat in that video clip didn’t seem to mind though.
Years ago, when the Kiplinger family still owned the mag, an article was posted about an attorney who had worked for Bank X named A.F. She was blocked at every turn by multiple government agencies from exposing the banking nightmare, and the corrupt grand scale theft by some of the major banks. Bank X wasn’t alone.
She is the one who raised the alarm constantly about the unscrupulous practices of her employer in the mortgage debacle. People on the diligence team were bullied into approving bad loans. One that stands out is for a manicurist claiming an annual income of $117K. In fact, a no email policy was put into place to prevent an electronic paper trail. The corrupt lending program helped set up the housing crash in 2008.
Many of these bad loans were bundled, and sold to pension plans. They were sold to Credit Unions. They were sold far and wide. It resulted in massive losses.
The attorney general of the US, Eric Holder refused to bring formal charges. If he had, and she’d testified, massive charges would have had to have been brought against the banks. People could have been sent to prison, and their wealth seized. Instead, secret deals let them pay chump change. They used their billions to bury it all. Bank X only paid $9 billion not the $13 billion originally reported. If federal penalties had been allowed to automatically kick in, oh the joy of it all. Once again, Holder.
Two of the hotshots who represented the bank in some of the cases were promoted to the top two positions at the SEC. Aww why didn’t we hear anything else about the bank corruption? SURPRISE!
This could not have happened if Congress had not granted Bill Clinton’s request to repeal the Glass-Steagall Act. It had been in place since 1933. It prevented depository banks from acting as investment banks.
Now, the rest of the post. The Fed is not going to greatly raise rates except in desperation. By then, it will be too late. The banks are paying depositors chump change, and making fat profits on the point spread.
Nobody wants to lose power, and the public blames whoever is in office when the pain is felt.
Banks, Hedge Funds, and private capitalists, make huge contributions to PACS.
The politicians are not going to bite the hand that feeds them. It’s part of why certain people do whatever they can to ensure Bernie Sanders will not be nominated. I disagree with him on a huge amount, and I do not want him as president.
However, I do agree that the Glass-Steagall Act needs to be reinstated.
Len Penzo says
Agree with you, Bill. Although I think it has been “too late” to raise rates for many years now. The time to do it was in 2011 or 2012, back when Obama was still in office.
Personally, I think they shouldn’t have cut them. Let the chips fall where they may. It’d have brought people back to reality.
Len Penzo says
I’m with you.
RD Blakeslee says
Bill, I believe it is no exaggeration to say that ALL of the legal structure which used to protect the financial well-being of non-wealthy citizens has been dismantled by the ant-like persistence of the lobbying industry and congress’ willingness to fill their own pockets.
I agree 100% Mr. Dave.
The public keeps on blaming the party they don’t support. Well, I don’t like either one of the organized looters of America.
“In other news, JPMorgan Chase Bank, is sitting on 62% of all stock derivatives held at nearly 5000 federally-insured US banks with a face amount amount of $3.3 trillion. If that isn’t bad enough, 74% of those stock derivatives aren’t centrally-cleared, regulated contracts. Rather, they’re opaque, over-the-counter (OTC) contracts, which suggests they’re most likely beyond the scrutiny of bank regulators. Hey what could possibly go wrong?”
This is exactly why the Glass-Steagall Act was passed. The major banks similar behavior in the 1920’s was blamed for the banking collapse, and severity of the depression.
Len Penzo says
Yes. The repeal of Glass-Steagall did more to undermine our financial system than any other move except for the US “temporarily” closing the gold window in 1971.
Why is it we didn’t see a large inflation spike in the price of fruitcake?
(one last hurrah Len)
Len Penzo says
Because nobody ever buys it!
If those peeps aren’t crooks, hell ain’t hot. That one’s for Mr. Dave, and other peeps past 50.
They should be put in prison and forced to eat fruitcake until the end of their lives.
I’m hoarding fruitcake instead of gold. Nobody will steal it, and it’ll last forever.
Len Penzo says
Ounce for ounce, fruitcake may be more expensive than silver at the moment.