Black Coffee: War of the Worlds

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 …

In this new pandemonium, the best of us will remember what has been best about us: liberty, the rule of law, freedom of speech and the press, the dignity of work, our sense of obligation to a common good, and the decorum of truth-telling. For now, strive to stay sane against all the inducements of the wicked.

— James Kunstler

Credits and Debits

Debit: Did you see this? The average rate on the 30-year fixed mortgage has been rising significantly higher lately. In fact, it closed the week on March 26th at 4.95%. More importantly, with both rates and prices now considerably higher, the median mortgage payment is now more than 20% higher than it was a year ago. With that in mind, here’s a fun math fact: When a 30-year mortgage rate exceeds 5.31%, the amount of interest paid over the life of the loan exceeds the amount of principal that is borrowed. Will that be the trigger that reverses homebuyer sentiment?

Credit: Needless to say, interest rates have a real effect on the housing market. As macro analyst Bill Holter points out, rising rates are reducing the pool of qualifying homebuyers who are depending on a mortgage to get into a new home, assuming their credit scores and incomes don’t change. This will eventually put pressure on housing prices – and if rates continue rising, Holter says that at some point it is going to “bust the housing bubble.” The only question is: What’s that magic number?

Debit: As mortgage rates continue rising, it’s only a matter of time before everyday American homeowners begin finding themselves in the same situation of soccer mega-star Cristiano Ronaldo, who recently sold a tawny New York City condo for $8.8 million – after paying almost $19 million for it in 2015. The big difference is that Renaldo, who is worth a billion dollars, won’t miss the $11 million he lost on his real estate deal.

Credit: By the way, Holter warns that we are rapidly heading toward a world with price inflation in everything people need to live, and price destruction in the assets we own. In essence, this is the final act in the death of our current fraudulent debt-based monetary system. Even so, most people are going to be caught by surprise when the system finally kicks the bucket and their nest egg – representing a lifetime of diligent saving – goes up in smoke. Only then will it become apparent to them that there really is no such thing as a free lunch – whether they’ve worked their tails off to earn an honest living … or not:

Debit: In what is becoming a common refrain, the IMF’s first deputy managing director, Gita Gopinath, warned that Western sanctions on Russia, and more specifically, the confiscation of dollar- and euro-denominated reserves held by the Russian Central Bank, could backfire by making other foreign central banks more reluctant to hold such a large amount of their own foreign reserves in dollars and euros. After all, you can’t confiscate the dollar- and euro-reserves from one of the world’s largest oil producers and energy exporters and not expect rippling repercussions, as the European Union is now finding out:

Credit: As if right on cue, less than 24 hours after the West discussed ways to stop Russia utilizing its gold reserves to maintain some stability in an increasingly chaotic economy, the Bank of Russia announced plans to begin buying gold from its banks at a fixed price, which serves two purposes: 1) provide a path to liquidity for SWIFT-constrained banks; and 2) centralize more of Russia’s gold as Putin accelerates his de-dollarization plans. Well … whatever you think about Putin, at least he had the good sense to have a plan.

Credit: Speaking of plans – or lack thereof – Franklin Sanders observed last week that “it seems to me that the Fed is shooting itself in the foot. Foreigners don’t want to buy US treasury securities, banks are stuffed full of them, and the Fed has monetized about half the new ones issued in the last two years – so who’s going to buy securities with a sinking price so the US government can continue running deficits? Beats me. ‘Santy’ Claus maybe – unless the Fed monetizes even more of ’em, which might (boost) inflation. The snake that’s our monetary system may be eating its own tail.” Whatever it’s doing, its fate is sealed.

Credit: Meanwhile, hell has officially frozen over. Scoff all you want, folks … but I know its true because the mainstream media financial website, MarketWatch, just published a piece claiming that there is “a strong argument for adding some gold bullion to your retirement portfolio right now.” Now do you believe me? As for why it happened, I’ll bet this has a lot to do with it …

Credit: For his part, macroeconomist Alasdair Macleod said this week that, “Both the BOJ and ECB have been (ambushed) by price inflation and will be forced to raise rates sharply higher, or else the market will do it for them. But rising rates are bankrupting the central banks, and the most highly leveraged commercial banking systems are the Eurozone’s and Japan’s – so a full-scale banking crisis, from their currencies on down, is in prospect. And a collapse of two major world currencies promises to be dramatic and a major threat to the whole fiat currency architecture.” Uh huh. The only question is: When do the dominos start falling?

Debit: Of course, it’s not just nations that act in their own self-interest against the wishes of others; the the public does too. Which is why central bank digital currencies (CBDCs) are now on the drawing board. Think about it: If governments are willing to deny other sovereign nations the ability to make monetary transactions – despite the obvious workarounds – what’s to stop them from denying their own citizens the same right? Especially since CBDCs will almost certainly be paired with digital IDs that will be tied to accounts that include personal data, credit history and other information. So remind me again why a cashless society would be a good thing?

Credit: The bottom line is that CBDCs are nothing more than programmable money that can be tracked, turned off or eliminated by decree. On second thought, it’s actually even worse than that. Macro analyst DC Lyons warns that CBDCs, “if not deliberately and carefully constrained in advance by law, have the potential to become even more than a technocratic central planner’s dream – they could represent the single greatest expansion of totalitarian power in history.” Ya think? That being said, believing that a law would somehow prevent CBDCs from being abused in a land where the rule of law has been usurped by the rule of men is pure folly.

By the Numbers

You’d think taxes would be irrelevant now that the government is printing as many dollars as it needs to “pay” its bills … but, no. So for those wondering which states tax their residents most aggressively, the 50 states were recently compared based on three components – property taxes, income taxes, sales taxes and excise taxes – as a share of total personal income. Based on those criteria, here are the states with the five highest and lowest tax burdens:

50 New York (12.75%)

49 Hawaii (12.70%)

48 Maine (11.42%)

47 Vermont (11.13%)

46 Minnesota (10.20%)

5 New Hampshire (6.41%)

4 Wyoming (6.31%)

3 Delaware (6.22%)

2 Tennessee (5.75%)

1 Alaska (5.06%)

Source: Wallet Hub

Last Week’s Poll Results

Which of these hard assets do you currently own? (select all that apply)

• Primary Residence (39%)
• Precious Metals (21%)
• Gemstones or Jewelry (12%)
• Land (10%)
• Rental Property (8%)
• Art or Other Collectibles (8%)
• None (2%)

More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that just 1 in 50 do not have some form of hard assets in their possession. As for everybody else, slightly more than 5 in 9 have some form of real estate, whether it’s their primary residence, rental property or land.

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

[poll id="418"]

Useless News: Doctor’s Advice

I went to see the doctor the other day. He said: “Don’t eat anything fatty.”

I said: “What? You mean stuff like bacon and burgers?”

He said, “No, Fatty. Don’t eat anything.”

(h/t: Boggs)

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 about the paper towel experiment I conducted to figure out which brand was superior, The Woe sent me this follow-up question regarding his coffee maker:

Can I clean my Bunn (coffee maker) with Kirkland paper towels?

Of course! After all, clean Bunns are happy Bunns!

If you enjoyed this edition of Black Coffee and found it to be informative, please forward it to your friends and family. Thank you! 😀

I’m Len Penzo and I approved this message.

Photo Credit: (flags) public domain; (cartoon) Investing.com