Black Coffee: All That Glitters

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 a wonderful week. And with that, let’s get right to this week’s commentary, shall we?

Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort.

— Antony C. Sutton

If you don’t trust gold, do you trust the logic of taking a beautiful pine tree, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?

— Kenneth J. Gerbino

Eventually, fiat currency always returns to its intrinsic value: zero.

— Voltaire

Credits and Debits

Debit: Did you see this? While nominal wages are on the rise, they aren’t keeping up with higher living costs due to rampant inflation, which is growing at the fastest annual pace in more than 40 years. How pinched are American households today? Well … a new survey found that 61% of Americans are still living paycheck to paycheck. Perhaps even more astounding, among households with six-figure incomes, 42% said they too are currently living paycheck to paycheck. Yikes.

Credit: In other news, Michael Maharrey observed this week that “in 2006, the Fed owned zero mortgages. Today, the central bank holds $2.6 trillion in mortgage-backed securities (MBSs) – that means 24% of all outstanding residential mortgages in the US reside with the central bank, making the Fed, by far, the largest savings and loan institution in the world. And the result was entirely predictable: skyrocketing prices.” No kidding. In fact, for the last two years the Fed has continued to foolishly ramp up its MBS purchases, despite runaway housing prices. See for yourself:

Debit: Just how crazy is the housing market right now? At the end of 2021, the average sales price of a US home was $477,900; compare that to $403,900 at the end of 2020 and $384,600 in 2019. In other words: The average sale price increased by $93,300 in just two years – which is the biggest increase ever recorded in a 24-month period. Even so, realtors are still saying now is still a great time to buy. After all, why would they make such a claim if it wasn’t true? Oh, wait …

Debit: According to the Federalist, the housing bubble that developed from 2002 to 2007 peaked at a 47% price increase before plummeting 20% over the next two years. They estimate that if a similar pattern emerges for the current bubble, we could see housing prices drop 40% over a similar two-year period. The Federalist goes on to conclude that, “Whatever the final numbers end up being, the evidence is clear: Based on six decades of data, America appears to be on the verge of an epic real estate crash.” For new homeowners, the actionable advice can be summed up in two words: pucker up.

Credit: Speaking of bubbles, this week macro analyst Tavi Costa noted that, “For the first time in history, the US is experiencing a confluence of three macro extremes all at once: the debt problem of the 1940s; the rising inflationary environment of the 1970s; the excessive financial asset valuations of the late 1990s.” Other than that, things are pretty good. Right? Can I get a witness?

Credit: Okay, so maybe things aren’t so great. So what’s going on? Well, as the inimitable MN Gordon points out, “Up and down, in and out of the economy, the numbers don’t pencil out. And for the first time in over 40 years, the Fed can’t reconcile them with lower interest rates and fake money. In short, the point of diminishing returns has been passed, where greater inputs of credit no longer stimulate the economy. Rather, they stimulate rising consumer prices.” Uh huh. And while were on the topic of things that are difficult to reconcile, let’s not forget this:

Credit: With rising prices everywhere, market analyst Doug Noland warns that “from the 90s tech bubble to the grander mortgage finance bubble to the unbelievably colossal global government (debt) bubble, bubble inflation made it to every nook and cranny around the world. Wild excess that went to the very foundation of global finance: central bank credit and government debt. This is it; we’re nearing the end of the road. And there’s no fledging bubble waiting to heroically save the day this time around.” Yep. Which is why they’re now working very hard to find a scapegoat …

Debit: By the way, Noland also ominously warns that with the Fed and other central banks now contemplating raising rates high enough to rein in inflation, all of the existing asset “bubbles are in danger, (with) the existing global order one serious catalyst away from a mega-quake.” No doubt. Or at least something eerily similar …

Credit: Before the current monetary system takes its final breaths, macro analyst Bill Holter says, we’ll experience “hyper-stagflation,” which he defines as “hyperinflation of the things you need” like food and fuel, and “deflation of the things we have like stocks, bonds, housing and other assets.” Holter says our current financial predicament was inevitable for a simple reason: “Our monetary system no longer has a sound foundation as it did in the 1930s when the dollar was anchored to gold; today, the foundation is debt. And debt promises are made to be broken.” As many co-signers will ruefully attest.

Credit: For his part, financial analyst and business consultant John Ing said this week that, “There was a time when gold was money because of its permanence and longevity. In today’s uncertain world with the ongoing pandemic and geopolitical tensions deepening a worldwide inflation problem, gold is back in fashion. Part of the allure is its role as a store of value at a time of persistently high inflation and when everything else seems too risky.” Imagine that.

Credit: Well … I guess “back in fashion” is a relative term. As Egon Von Greyerz points out, “with only 0.7% of investors holding gold, almost nobody is prepared for what’s coming next. What the Fed doesn’t understand, is that higher interest rates will eventually kill the US economy. Instead, the Fed will be forced to do unlimited QE to try to save the country – but this time, the new worthless dollars will also make the old dollars worth zero and this will be the end of another empire. That will be no surprise, of course, for students of history.” Or basic economics.

Credit: I’ll let Bill Holter sum things up. This week he reminded us that “gold and silver are the only two forms of money on the planet that can’t default when the world goes bankrupt because they have no liabilities against them. And what you are watching now is the world going bankrupt. In fact, there’s so much debt now that central banks are hyperinflating their currency supplies just to service the debt. So which would you rather own?” The answer should be obvious. The good news is a portfolio allocation of just 5% to 10% in physical gold is typically adequate to insure 100% of your wealth.

By the Numbers

Among the 2572 biggest cities an towns in the US, here are the municipalities with the five best – and worst – ratios of total resident credit-card debt to income:

8.81% McComb, MS (worst ratio; rank 2572)

8.59% Green Cove Springs, FL

8.56% Richmond, TX

8.49% Ooltewah, TN

8.47% Livingston, TX

1.48% Cupertino, CA

1.22% La Mirada, CA

0.52% Niagara Falls, NY

0.45% Lafayette, IN

0.28% Watertown, WI (best ratio; rank 1)

Source: WalletHub

The Question of the Week

[poll id="413"]

Last Week’s Poll Results

How long have you been working at your current job?

• I’m retired (34%)
• 1 to 10 years (28%)
• 11 to 20 years (16%)
• More than 20 years (12%)
• Less than a year (8%)
• I’m in between jobs (4%)

More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that the readership is about evenly split between those who have been employed in their current job for more than 10 years, those who have been in the same place for less than 10 years, and those who are retired. Another 4% said they are in between jobs which, coincidentally, closely mirrors the “official” US unemployment rate … for what that’s worth.

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: If Cars Were Computers

Many years ago at the COMDEX computer expo, Bill Gates reportedly compared the computer industry with the auto industry and stated: “If GM had kept up with technology like the computer industry has, we would all be driving $25 cars that got 1000 miles to the gallon.”

In response to the comments from Mr. Gates, General Motors issued a press release stating: “Yes, but would you want your car to crash twice a day?”

Before long, others added their own comments. For example:

1. Every time they repainted the lines on the road you would have to buy a new car.

2. Your car would occasionally die on the freeway for no reason, and you would just accept this. You’d then restart and drive on.

3. Executing a maneuver such as a left turn would occasionally cause your car to stop and fail and you would have to re-install the engine. For some strange reason, you would accept this too.

4. Apple would make a car that was powered by the sun, was reliable, five times as fast, twice as easy to drive, but would only run on 5% of the roads.

5. The oil, gas and alternator warning lights would be replaced by a single “general car fault” warning light.

6. Before deploying, the airbag system would ask “Are you sure?”

7. If you were involved in a crash, you’d have no idea what happened.

8. For no reason whatsoever, your car would occasionally lock you out and refuse to let you in until you simultaneously lifted the door handle, turned the key, and grabbed hold of the radio antenna.

9. All car buyers would be required to also purchase a deluxe set of road maps, even though they neither needed nor wanted them. Attempting to delete this option would immediately cause the car’s performance to diminish by 50% or more.

10. Every time a new car model was introduced, car buyers would have to learn how to drive all over again because none of the controls would operate in the same manner as the old car.

(h/t: Carol)

More Useless News

Here are the top five articles viewed by my 41,736 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. Tip Inflation: We’ve Got Nobody to Blame But Ourselves
2. 4 Frugal But Unconventional Dining Spots Most People Never Consider – But Probably Should!
3. The Marriage Conundrum: Joint or Separate Accounts?
4. Why Time Is More Valuable Than Money
5. Grandfather Says: A Few Words on Religious Conviction

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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

After reading my article highlighting unconventional frugal dining spots, Charlene left this comment:

My brother says the four major food groups are: cow, pig, chicken, tater!

You sure? I thought it was beef, bacon, beans and beer.

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