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 …
When you put clowns in charge, don’t act surprised when a circus breaks out.
— Anonymous
Credits and Debits
Credit: Did you see this? For only the fourth time since 1973, this April saw the S&P 500 fall more than 5% and US Treasuries fall more than 2%, which led Deutsche Bank research head, Jim Reid, to conclude that if inflation carries on for a prolonged period of time we should prepare for more periods when both asset classes are down, which will be the demise of 60-40 portfolios. In fact, April was the worst month for this classic bond & stock portfolio since Feb 2009. See for yourself:
Debit: If you think the S&P had a bad month, the NASDAQ was even worse; it plunged 13% in April – that was its biggest monthly drop since Lehman’s collapse in 2008. And making matters worse for wobbling stock prices in all of the indices is that labor costs surged 11.6% last quarter, while productivity plunged 7.5% – which is the largest decline since 1947. For those of you counting at home, that’s 75 years ago. No; I didn’t drop a decimal point. As for the Dow, it gained 900 points on Wednesday before losing more than 1000 points on Thursday – so if you’re thinking about buying the dip, be careful …
Debit: On a positive note, Americans can take solace that incomes were up 0.5% in March. After all, that’s a solid monthly gain – er … until you factor in rising prices, which were up 0.9% over the same period. That means real incomes were down 0.4%, as price increases ate up income gains – and then some. That also means your standard of living is falling. Just don’t blame the federal government, which continues to spend like a drunken sailor on shore leave. And don’t blame the Fed either, which enables the spending by keeping its printing presses on overdrive and holding interest rates near the zero bound.
Debit: Think about this: GDP fell 1.9% last quarter, while the official inflation rate as measured by the woefully-understated CPI was 8.5%. This amounts to a real loss of 10.4% in economic activity compared to the first quarter of 2021 when we were still in the midst of a self-imposed economic shutdown. But, hey … nothing to see here. The good news is: the Fed is finally getting serious about putting the inflation genie back in the bottle. Or so they say …
Debit: They also say a 1000-mile journey begins with a single step, and so it is that the Fed raised its Fed Funds Rate to 1% this week – which is about 16% below the actual inflation rate. Then again, if the FFR ever got to 10%, then servicing the National Debt would cost at least $3.1 trillion annually, which was 76% of federal tax revenue in 2021 – assuming the US doesn’t slip into a recession, in which case servicing costs would exceed tax revenue. Either way, the welfare-warfare state would disappear overnight. So … do ya think that’s why the Fed was still buying Treasuries and mortgage backed securities in April, even though they were supposed to have stopped?
Credit: By the way, it’s not just the US that can’t tolerate higher interest rates. Macroeconomist Alasdair Macleod says neither can the Bank of Japan and the ECB, “but when you see Germany’s producer prices rising at over 30% and even Spain’s recorded at 46%, you know the jig is up.” Well … he knows the jig is up. And we know the jig is up. But until the European public recognizes the jig is up, it really doesn’t matter.
Debit: Meanwhile, real wages are collapsing. But somewhat ironically, personal spending in March was up 1.1%. Now, I know what you’re thinking: So where did that big increase in spending come from? Well … rather than coming from higher wages, it turns out that consumers dug into their savings. As a result, the savings rate in March fell to 6.2%; savers haven’t been that stingy since 2013. And thanks to inflation, investment manager Peter Schiff says the savings rate will hit an all-time low by December because “consumers are dipping into a very shallow saving pool to keep their economic necks above water.” Imagine that.
Debit: Speaking of wages, I see that Jerome Powell expressed concern this week about rising labor costs – which is simply a nice way for the Fed Chair to say that he’s not happy about workers getting larger paychecks from their employers in an effort to keep up with inflation. Uh huh. That should put things into perspective for those of you out there who still believe that the Fed’s first priority is the people living on Main Street.
Credit: For those of you out there who still aren’t paying attention, asset manager Egon VonGreyerz reiterated this week that, “The dollar is a totally failed currency reflecting the bankrupt state of the US economy. Future historians will write many books on a system of smoke and mirrors with fake money, fake paper and grossly overvalued assets, all creating the most colossal asset bubble in history.” In other words: we’ve been suckered. (And nobody likes to be suckered, including man’s best friend …)
Credit: Not surprisingly, this week we received yet more evidence that the current USD-centric fiat monetary system is in its death throes, as the Secretary of Russia’s Security Council, Nikolai Patrushev, said that Russian experts are working on a project to back the Russian ruble with gold and other commodities. Of course, this should be earth-shaking news for most Americans if only because our artificially-high standard of living depends on the US dollar remaining the world’s premier reserve currency – but you’d never know it if you only followed the mainstream financial media. Sad.
Credit: Unfortunately, as investment researcher, Nick Giambruno, observed this week, “The vast majority of humanity doesn’t understand what makes for good money. Instead, they’ve been hypnotized into believing something inferior – that is, the scraps of paper or digital entries that governments can create with no effort – is good money. It’s a sad state of affairs and one of the biggest swindles in human history.” Unlike this much smaller one …
Credit: I’ll let macro analyst Bill Holter wrap things up this week. Last Monday he warned that “our (previous) way of life is over. No matter who – or how wealthy or connected – you are, life will change dramatically, and it will certainly become more difficult going forward. So you can either blissfully enjoy the precious little time left in Fantasyland, or prepare for the impact that’s mathematically coming. It’s (almost) here, and nothing you do will prevent it; your only alternative is to do your best to prepare. Now.” I agree. Hopefully, you’re already prepared for what’s coming. But if you haven’t … what are you waiting for?
By the Numbers
A recent analysis was completed of the 100 US cities with the largest 65-and-older populations revealed where Social Security makes up the largest and smallest percentage of total retirement income. Here are the five cities that were found to be the most and least dependent:
100 Miami, FL (the least dependent)
99 Washington, DC
98 Baton Rouge, LA
97 Glendale, CA
96 Anchorage, AK
5 Tulsa, OK
4 Indianapolis, IN
3 Wichita, KS
2 Hialeah, FL
1 Fort Wayne, IN (the most dependent)
Source: SmartAsset
The Question of the Week
[poll id="423"]
Last Week’s Poll Results
What brand is your smartphone?
- Apple (45%)
- Samsung (35%)
- Something else (11%)
- Motorola (9%)
- LG (1%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 5 readers have a smartphone that isn’t made by either Apple or Samsung. US market share is dominated by Apple and Samsung, which respectively held 56% and 22% of the US smartphone market as of the fourth quarter of last year.
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: The Heckler
A young ventriloquist was touring the clubs. One evening he found himself doing a show in a small club in a small Arkansas town.
With his dummy on his knee, he was going through his usual dumb blonde jokes when a blonde woman in the fourth row stood on her chair and started shouting: “I’ve heard enough of your stupid blonde jokes. What makes you think you can stereotype women that way? What does the color of a person’s hair have to do with her worth as a human being? It’s guys like you who keep women like me from being respected at work and in the community and from reaching our full potential as a person, because you and your kind continue to perpetuate discrimination against, not only blondes, but women in general … and all in the name of humor!”
Clearly embarrassed, the ventriloquist started apologizing, only to be immediately interrupted by the blonde who yelled, “You stay out of this, mister! I’m talking to that little jerk on your lap!”
(h/t: billhilly)
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 entitled 18 Facts You Didn’t Know About ATM Machines, edogg decided to contribute one of his own:
Here’s another fun fact: Calling it an “ATM Machine” is redundant.
So … does this mean you’re going to report me to the Department of Redundancy Department?
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
Len, your opening quote about the circus nailed it. Some of this info leaves me speechless! Fed buying 2BN in MBS per day this month, real wages vs. inflation, Fed presidents’ timing of personal stock sales, etc. Meanwhile, the media creates their own ‘truths’ and Fearless Leader works on student debt ‘forgiveness’, so apparently loan contracts no longer matter. SMH…
Forgiving student debt will result in some serious blowback from those who worked their tails off to pay off their student loans, or who never took out a student loan and paid their own way. For that reason, I think it is all talk.
The GDP number factors in inflation. If it is not specified it is real GDP generally, they also usually specify nominal GDP.
Yep. The paragraph was based on the assumption that the CPI was undervalued by half (i.e., that inflation was actually double the “official” rate). I pointed that out in the following paragraph, which originally came first, but I swapped it during editing. I should have just left the original order alone! 🤪
Hi Len,
I’m always entertained by your weekly Black Coffees. Can’t start my weekend without it!
Sara
Thank you.
And thank you for stopping by to say hello every week too!
Anybody know when/if used car prices will ever go down? My car is almost 22 years old and it’s on its last legs. I feel like I’ve been priced out of a reliable car. It’s been stressful trying to ride the storm out. (no pun intended)
I think I read an article that said there is evidence used car prices are starting to soften, although they are still outrageous. Then again, the same article noted that the pull back was going to be short lived.
Falling living standards is right. By my calculations, all of this inflation has wiped out the last TWO years of raises at my job.
Yikes. I’m sure that is probably true for a lot of people, Steve. This is how living standards decline – and the impact is much harder for those at the bottom end of the socio-economic ladder.
Happy Mother’s Day Len!
Uh huh. Considering the source, let me just say … I get the joke. 😉
The Fed can paper this thing over and over and over to prevent any market panic. However, they can’t print real money (physical gold and silver). That’s the only place left where true value lies right now.
Unfortunately, they can’t print more oil, or baby formula, or used cars either.
If bonds are down only 2% at the same time stocks are down 5% then rather than indicating the end of the 60-40 portfolio I’d think it would portend a leaning toward balanced porfolios. The net loss in a pure equity portfolio of 5% is far worse than the 3.8% drop shown by a balanced portfolio. I’d much rather lose the lesser amount. Which is why I’m at 53% stocks and the rest bonds and cash. I do get the outlook for bonds isn’t peachy but stocks look even worse to me. Time to check the expiration dates on the food in the bunker!
It is going to be very interesting to see how far bonds fall. I think the Fed is going to implement yield curve control before bonds fall off the cliff, which will limit bond losses … at least until the recent resurgence of the bond vigilantes reappear en masse – or the currency fails.
I sense that the Fed is starting to panic.
Who knows, Robert.
Very funny joke. My wife is blonde and I’m sure she”ll enjoy it. Won’t she?
Well … that depends on her sense of humor, doesn’t it? If she has thin skin, and you hate sleeping on the couch, then I wouldn’t share it with her. 🤪