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 an enjoyable week. Without further ado, let’s get right to this week’s commentary …
Every time I hear a politician mention the word ‘stimulus,’ my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch.
— Robert Kiyosaki
It’s not easy being green.
— Kermit the Frog
Credits and Debits
Debit: Did you see this? Consumer goods companies are raising prices of ‘essential everyday’ items as inflation soars to multi-decade highs. For example, in 2019 the average price of leading toothpaste brands in the US was between $5 and $6 per box as recently as last year – but this week Colgate-Palmolive announced that its new Optic White Pro Series will cost a whopping $10. And you thought gasoline was expensive. The good news is that will all be changing very soon as I hear Congress has a solution in the works for lowering fuel prices. Oh, wait …
Credit: Not coincidentally, the Doomberg blog noted this week that “wheat traded limit up for (five) days in a row, and prices are reaching levels that condemn vast swaths of the global population to (starvation).” Doomberg then goes on to remind us all that, “Food inflation is the catalyst for many uprisings, and the path from empty shelves to the guillotine has historically been a direct one.” Well, folks … they ain’t lying. In the meantime, it’s probably a good idea for those of you with a tight grocery budget to switch your breakfast menu from wheat Chex to rice Chex:
Debit: Speaking of uprisings, New York City’s struggling small businesses are dealing with one of the worst spikes in retail theft rates in recent memory. How rotten has the situation gotten in the Big Apple? Well … shoplifting complaints are up 16% over the past year, while arrests have fallen. In case you’re wondering, one reason for the drop in arrests is that there are now more crews targeting small stores with little or no security. Imagine that.
Debit: Meanwhile, Sprott market strategist Paul Wong’s said this week that “the sharp increase in energy and food prices is an outright risk for a stagflationary environment that’s ripe for an equally sharp decline in economic output.” Wong goes on to note that the first quarter US GDP forecast for 2022 “has been free-falling since early January” and is currently hovering at only 1.6%, making it quite possible that the number could be negative before the end of March. So, to sum up: We’ve got skyrocketing inflation coupled with a faltering economy that’s on the verge of contracting. Hey …what’s not to love?
Debit: Of course, since 2009 central banks have been scrambling to keep our fraudulent debt-based monetary system alive by conjuring trillions of dollars out of thin air while holding interest rates and bond yields at the zero bound – thereby punishing savers. And as the inimitable MN Gordon notes, next week Fed Chair, Jerome Powell, will “be proposing a 25 basis point rate hike. What gives? Is this some kind of joke? How’s a 0.25% rate hike supposed to rein in inflation that’s officially raging at 7.5%?” Good question. Gosh. If only there was a highly-paid government bureaucrat out there who had a way to actually fix this terrible financial mess …
Credit: Needless to say, the Fed’s latest monetary policy blunder is enough to make anyone throw their hands up in utter disbelief – which is why this week asset manager Egon Von Greyerz said that “if the Fed studied and understood Austrian economics, they’d know that the real inflation rate is a function of money supply growth rather than consumer prices.” Uh huh. Alas, they don’t – and now we’re all paying for their incompetence. Or is it cowardice?
Debit: By the way, ever since 1971, when the US dollar’s last remaining link to gold was finally broken, the M2 currency supply has grown roughly 7% per year. The trouble is: M2 entered the “business end” of the exponential curve in March 2020; since then it has been increasing 19% annually. And because the majority of that currency was printed without a corresponding increase in goods and services, we don’t need a rocket scientist to explain to us where the rampant price inflation we’re now dealing with is coming from; a simple graph will do. See for yourself:
Debit: And while wages are increasing at the fastest pace in years, they’re not increasing fast enough to overcome inflation – so living standards are declining for lower- and middle-class Americans. But wait … it gets worse: this week the Wall Street Journal reported that those “rapidly rising wages could reinforce inflation; a phenomenon known as a ‘wage-price spiral.’ As wages rise, businesses try to offset those costs by raising prices. Workers then demand higher wages to afford those more expensive products, leading to even more price increases.” Uh oh.
Credit: On a related note, this week macro analyst Alasdair Macleod keenly observed that “a Ponzi scheme is a fraud that pays existing investors with funds collected from new investors. And at its root, the Fed, the Bank of England, and the European Central Bank have been running a currency Ponzi scheme by issuing additional currency for their government’s benefit while also claiming it’s for the benefit of the people.” Now … I know what you’re thinking. But, to be fair, those bankers are definitely not lying – it’s just that the “people” they’re actually referring to are the bankers themselves.
Debit: In other news, this week the US essentially kicked Russia out the fiat US dollar-based global monetary system. But Macleod warns that, by suspending access to that system, “the West has made the mistake of proving to Russia – and other (nations) – the ultimate uselessness of currency reserves, and the benefits of gold. As a result, this financial war could end up with a de facto gold standard for the rouble and call an end to the entire fiat currency Ponzi scheme.” That’s very, very, true. But, hey … nothing lasts forever, as one iconic US brewer reminded us many years ago:
Credit: Like it or not, Von Greyerz warns that everyone will soon be forced to accept a very inconvenient economic truth: “When tens of trillions of dollars are created with no labor, goods or services being produced, that currency clearly has zero value – which means that investors’ assets are actually only worth a fraction of the imaginary value they have today. Eventually, physical gold and silver will reveal this delusion.” Indeed it will. And only then will the markets recognize that the emperor has no clothes, thereby passing the monetary system torch to a new heir:
Credit: Now here’s the punchline: Although China won’t admit it, it’s all but certain that they own far more gold than the United States. And that’s unfortunate for Americans who have grown accustomed to being the big dog on the world’s financial and monetary stage. Why? Because the old adage that “he who owns the most gold makes the rules” still applies. The good news for prudent Americans who have insured their wealth with precious metals is, the same adage applies domestically too. Unfortunately, most middle class Americans are going to end up learning that lesson the hard way.
Last Week’s Poll Result
At what price does gasoline become so expensive that it affects how often you drive?
- $5 per gallon (30%)
- $4 per gallon (23%)
- $6 per gallon (22%)
- $8 or more per gallon (19%)
- $7 per gallon (6%)
More than 2300 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than half of them say their pain threshold for gasoline prices is $5 or less. On the other end of the spectrum, 1 in 4 say it’s $7 or higher. Here in California, gasoline is already above $6 per gallon in many places – and $7 in a few. It’s skyrocketing in my neighborhood (see photo below, taken on March 8th of a local gas station a short drive from my house). Yes … it’s painful. Eventually, even the station owners are going to feel it; they’re going to have to invest in new electronic signs when gas climbs above $9.99.
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
By the Numbers
Russia is a major supplier of key raw materials. Here is a breakdown of Russia’s major exports as a share of global production:
6.2% Natural Gas
Source: JP Morgan
Useless News: Talking Frog
(h/t: RD Blakeslee)
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
After reading my article highlighting four things every homeowner should look for in a pest control company, Tomas, left this comment:
I didn’t realize that a pest control service offers flea removal. That’s something my brother could use for sure.
I’m very sorry to hear that. Perhaps your brother could try saving a few bucks by wearing a flea collar first.
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Photo Credit: public domain