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 another busy weekend ahead of me, so let’s get right to this week’s commentary …
There are a few times in life when you stand at the precipice of a decision. When you know there will forever be a Before and an After.
— Justina Chen Headley
When you come to a fork in the road, take it.
— Yogi Berra
Credits and Debits
Debit: Did you see this? On Monday the US national debt exceeded $30 trillion for the first time. That’s a $7 trillion increase from January 2020. Even more alarming, $1 trillion of that came in the last six weeks. So, yes; the debt is now increasing at a clearly exponential rate. And, no; the fiat US dollar will not be able to avoid the consequences forever. Confidence in the world’s reserve currency is already beginning to waver – and it will only get worse as the debt continues to grow at an ever-increasing rate of change. Hey … it’s nothing personal, folks; it’s just math. Tick tock.
Credit: In other news, this week the Fed provided market guidance during its latest FOMC meeting. Unfortunately, as economist Dr. Stephen Leeb complained, the Fed’s statement, “was more befuddling than any I’ve ever seen; the message was so confused that it’s impossible to read. Half of market analysts concluded the Fed was too dovish in not raising rates despite inflation at a 40-year high; the other half saw the Fed as unexpectedly hawkish.” However, that’s where the disagreement ended; all of the analysts agreed that the Fed is criminally incompetent. Oh … and speaking of criminal incompetence:
Debit: By the way, Leeb also noted that, “The fact that the Fed’s comments seemingly were more a Rorschach test than a clear statement of intentions is, ironically, likely another important punctuation mark in a transitioning world economy. The Fed’s murkiness in itself does contain a clear message for investors: Protecting wealth is far more important than seeking more – and that points to gold.” Or as the legendary market analyst Jim Grant famously said, we now live in a period where the return of investors’ capital is far more important than their return on capital.
Debit: To be fair, the Fed did manage to make a couple of things clear. For example, the Fed noted that its bond-buying program would decrease to just $30 billion in February – that’s down from $120 billion a month in 2021. They also said that they were terminating all bond purchases in March, which strongly suggests that they will begin raising interest rates at that time. Despite that explicit announcement, many economists and analysts aren’t buying the Fed’s story. And who can blame them?
Credit: Investment advisor Lance Roberts also felt the Fed’s latest guidance left a lot to be desired. He notes that, “there was no specific indication of when the Fed might start reducing its nearly $9 trillion balance sheet. The most significant risk to equities is the contraction of liquidity from quantitative tightening (QT); which is what preceded the market rout in 2018. And while the Fed may intend to hike rates and taper their balance sheet, the real question is: can they?” In a word: no. If they couldn’t do it in 2018, how can they do it today with a system that’s even more fragile?
Debit: Oh, yeah … before getting off the stage, Roberts left us with another question: “With the Fed now reversing monetary accommodation, how long before something breaks?” But it’s not just a matter of the markets breaking – it’s the consequence of them breaking. So perhaps a more appropriate question is: When does the collapse start – and how long will it last? Hey … I know what you’re thinking: That’s actually two questions. Yeah, it is … but I think you get my drift.
Credit: Not coincidentally, macro analyst Jim Rickards asked the same question last week, pointing out that the Fed is “caught in a trap of their own creation, with no easy way out. And they’re about to make things worse by tightening into weakness, with tapering and with rate increases. But the market has seen this movie before. They know how it ends — and it ends poorly.” They do? Well … you could have fooled me.
Credit: On the other hand, macro analyst Bill Holter says any threat by the Fed to raise rates is a bluff. “The financial system has survived on life support since 2008; and they want to take the patient off now that the world is far more levered than when the episode began? Give me a break!” Frankly, the monetary policy incompetence displayed by the world’s central bankers is enough to get anyone frustrated. Yes … even more frustrated than this poor gentleman:
Credit: Meanwhile, financial commentator Franklin Sanders isn’t buying the Fed’s most recent guidance either. He says the “the Fed is blowing smoke about three to five interest rate boosts and tapering. I reckon they’re pettifogging and blustering to fool the public into believing they intend to do something to rein in inflation – managing inflation expectations instead of inflation. They’re plumb skairt; when the time comes, they won’t pull the trigger.” Then again, I’m pretty sure doing nothing at all on the inflation front would be far preferable to what the Fed is actually doing now …
Credit: On a related note, this week the inimitable MN Gordon warned that “the Fed’s central planners are working overtime to somehow bring heaven to earth. Alas, their efforts stimulate greater chaos and distortions while concentrating wealth and power for the elites. These extreme interventions in the name of coronavirus salvation have doomed the earth’s creatures to a decade or more of misery that will dwarf the 1970s.” The good news is, if we transition to a new monetary system based upon precious metals, I’m quite certain the pain – while great – will subside within a short few years, and the economy will blossom.
Credit: Last week, legendary investor Jeremy Grantham reminded us that, when it comes to the stock, bond and housing markets, “everything has consequences. If valuations across all of these asset classes return even two-thirds of the way back to historical norms, losses will be on the order of $35 trillion in the US alone; and if this negative wealth and income effect is then compounded by inflationary pressures from energy, food, and other shortages, we’ll have serious economic problems.” Heh. As if our current economic problems aren’t bad enough.
Debit: So how did the Fed get us in such a terrible mess? Well … here’s how Grantham sums it up: “The only ‘lesson’ the establishment appears to have learned from the rubble of 2009 is that we didn’t address it with enough stimulus. We didn’t learn that we should’ve actually taken precautions to avoid the crisis in the first place. So we settle for more lifeboats rather than iceberg avoidance; and we forgive incompetence and fail to punish outright malfeasance. Iceland (population 300,000) sent 26 bankers to prison, while the US (population 300 million) sent zero.” Uh huh. Unfortunately for the bankers, the next crisis is almost certainly going to change that.
By the Numbers
If you’re thinking of moving to a new locale, you might be interested in knowing the US cities with the most – and least – expensive rents, based on the median price of a one bedroom apartment in the 100 largest metropolitan areas:
100 Wichita, KS ($620)
99 Akron, OH ($650)
98 Lubbock, TX ($670)
97 Shreveport, LA ($700)
96 Laredo, TX ($770)
5 Miami, FL ($2340)
4 San Jose, CA ($2390)
3 Boston, MA ($2720)
2 San Francisco, CA ($2850)
1 New York, NY ($3260)
Last Week’s Poll Results
Should the US return to some form of gold standard?
- Yes (65%)
- I’m not sure. (21%)
- No (14%)
More than 2200 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than 1 in 3 either don’t want to return to some form of gold standard — or aren’t sure if it is a good idea. The good news is, that means almost 2 in 3 believe that forcing the government into a new monetary system that would limit spending and make it accountable for breaking its budget would be beneficial. It would be interesting to see how those numbers will change once the currency debt-based system implodes and wipes out most people’s nest eggs.
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
Useless News: Love & Money
On their wedding night, the young bride approached her new husband and asked for $20 for their first lovemaking encounter. In his highly aroused state, her husband readily agreed. This scenario was repeated every time they made love, with him thinking it was a cute way for his wife to afford new clothes and other incidentals she needed.
One particular afternoon many years later, the wife had arrived home after running a few errands. When she opened the door, she was surprised to find her husband on the couch in a very drunken state. Over the next few minutes, he explained to her that his investment company had undergone a corporate downsizing, and he had been let go. He then told her that it was highly unlikely that, at the age of 55, he’d be able to find another position that paid anywhere near what he’d been earning, and therefore, they were financially ruined.
After listening to her husband’s devastating news, the wife handed him a bankbook that showed 30 years of deposits and interest totaling nearly $1 million. Then she showed her husband stock certificates worth more than $2 million, and informed him that they were the largest stockholders in the bank. She went on to explain that all of those savings and stock investments were from the money he paid her every time they had sex over the past 30 years.
The husband was astounded to see that his wife was able to accumulate cash and investments worth more than $3 million. In fact, he was so stunned that he could barely speak … but after a minute or so, the husband finally found his voice and blurted out, “If I had known you were doing this sooner, I’d have given you all my business!”
(h/t: Just the Facts)
More Useless News
(h/t: RD Blakeslee)
Even More Useless News
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(The Best of) 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, Tom Wipperfurth wrote in to complain about his:
I’m 203 pounds and I hit bottom when getting into bed. That didn’t happen when the bed was new and I was the same weight.
Um … Tom. Before you replace the waterbed, you might want to buy a new bathroom scale.
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Photo Credit: (flags) public domain; (cartoon) Investing.com
First! The stock markets keep wobbling and it seems to be getting worse as tapering progresses. Does anybody think market will still be standing by the time QE is completely finished in March?
Len Penzo says
Well … when QE was running full blast, the Fed was buying $120 billion of assets per month. Today they have tapered that figure down to $30 billion per month, but that is still a net addition – and the market is now wobbling. It will be interesting to see what happens when the taper ends in April. Also, keep in mind, this is before they begin raising the Fed Funds rates, which will be still more headwinds for stocks, bonds and housing.
Sara King says
I totaled up my grocery bill for Jan yesterday. It has gone up about 13% in the last 6 months! I haven’t changed what I buy every month, so I know it isn’t me buying more stuff.
The inflation monster is still out there.
Len Penzo says
It certainly is, Sara.
That poor man at the toll booth! I hate toll roads. They are cash cows for the states that have them though.
Len Penzo says
The few here in SoCal do not have toll booths; they are all collected electronically.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I,
I took the one less traveled by,
And that has made all the difference.
– Robert Frost
Len Penzo says
After being so wrong for so long, you would think the Fed might be willing to try that philosophy – but no luck so far.
Mr. Dave, no traffic jams, pollution or “Why me all the time?”.
We’re in a fake economy,with fake money. Everything is a lie. Almost nothing the gov’t reports is based in truth any more. A balanced budget is impossible. The U.S. has to run trillion dollar deficits every year now to avoid falling into a depression.
Bitcoin fixes this!
Sam I Am says
I see you are back. Almost like clockwork whenever Bitcoin gets over $40,000. I wonder if the suckers who bought at $70,000 a few months ago still agree with you.
Len Penzo says
No, it doesn’t. Gold fixes this. (And gold will also be the only way to fix bitcoin if the USD hyperinflates.)
Len Penzo says
Yep. The good news is … aside from those problems, we’re in good shape! 😉
You too could spend $30 Trillion if you spent over $30,000 per day since the dawn of humanity.
Len Penzo says
I think none of us can truly grasp the enormity of such large figures.
See once we hit trillion, we reset to low digits, i.e. 1T, 5T, etc. Thus everyone thinks, heck, 10 or 40T, that’s nothing, it used to be 900 billion, 40 sounds a lot better 900!!!
Len Penzo says
I remember when people thought the $700 billion TARP program in 2008 was the height of reckless money printing. Little did any of us know what the Fed had in store after that.
It took a 20% interest rate to break inflation in 1981. That is not an option this time. Price controls are looking to be the most likely option that the authorities will take.
Len Penzo says
Let’s hope not. The only thing price controls accomplish is creating shortages.
Price controls were put in place with wage freezes. Why is it most proponents don’t mention the wage freezes?
Len Penzo says
I think because the price controls resulted in consequences (shortages; especially for fuel) that left scars on a lot of people. I was a kid at the time and I remember those terrible gas lines!
I have a theoretical question, Len. Who is to say the system can’t keep going even if the national debt gets to $100 trillion or $200 trillion?
Len Penzo says
At some point, the US debt will be so much bigger than the American economy in real terms that even the most hardcore USD fans will recognize that the dollar is hopelessly over-valued, if not all but worthless.