Black Coffee: Digital Castles in the Air

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?

The hustler knew that all people ever wanted in the world was what they couldn’t have, and what they had already lost.

— Stuart Stromin, Wild Cards

Credits and Debits

Debit: Did you see this? The crypto universe is imploding, with the crypto crashes occurring at an ever-accelerating pace. How bad is it? Well … bitcoin has plunged more than 70% over the last seven months, while other crypto “assets” like ethereum and dogecoin have fared even worse. Meanwhile, a so-called digital “stable” coin known as TerraUSD essentially became worthless last month, wiping out the life savings of many investors. And those aren’t the only only failures in the crypto space – as crypto investors with the Three Arrows Crypto (3AC) fund, and the Babel Finance crypto exchange will tell you.

Credit: Despite the claims of cryptocurrency proponents, macro analyst Bill Holter wonders how bitcoin, or “anything else that has moved 45% in seven days can ever be used as a currency? And even if you don’t believe that cryptocurrencies are ‘digital air’ with no intrinsic value, then you still have to worry about the sanctity of the crypto exchanges.” The reality is, most people holding crypto are vulnerable to being blindsided by counterparty risk. Speaking of which …

Credit: Somewhat ominously for those seemingly-ubiquitous “laser-eyed” crypto enthusiasts, Zero Hedge points out that “just as Bear Stearns’s hedge funds were among the first to reveal problems from the subprime mortgage crisis, the Cockroach Theory springs to mind: If you see one of those nasty bugs scurrying across the floor, chances are there are plenty more roaches are behind the fridge or under the sink.” Ya think?

Debit: By the way, it’s not just cryptocurrencies and exchanges that are being decimated – crypto-mining stocks are too, with some losing as much as 85% of their value. Celsius Network happens to be the latest implosion; they halted all withdrawals after they could no longer find the money to pay its customers. In the meantime, a group of 26 scientists and engineers has released a letter to Congress warning that cryptocurrencies are a sham. Sadly, it comes far too late to save many unwitting investors who were lured by the potential for huge profits over a short period of time – which, uh, might explain this guy’s surly disposition:

Credit: Not surprisingly, cryptocurrency investors are now faced with $1.5 trillion in losses, and they’ve responded with a blizzard of class-action lawsuits – including some against celebrities who pimped dubious digital coins that have failed to deliver. In fact, two prominent class-action lawsuits are already in the works, as Kim Kardashian and Floyd “Money” Mayweather Jr are being sued for alleged false statements promoting ethereumMax. After all, who knew that getting investing advice from inane reality television stars and boxers who are past their prime wasn’t a good idea?

Credit: In other news … economist Keith Weiner noted last week that, desperate US pols are now claiming “that inflation is caused by ‘greedy’ corporations, and they’ll solve this problem by making the corporations pay. Whether it’s a windfall profits tax, more regulation, or antitrust enforcement, the idea’s the same: Harm the corporations that produce the things we need, which will somehow cause prices to drop. They think that hurting producers will (benefit) consumers. This blatant zero-sum, win-lose view is the essence of socialism.” Aha! So that’s what you call it. You know … I thought I smelled something malodorous.

Credit: For those who are still unclear why we’re suffering with chronic case price inflation, go ask high-school student, Ranen Aschemann – because he certainly knows what’s going on. In an impressive article for the Mises Institute, he explains that “the true offender behind record inflation is the US government. The Fed has inflated the money supply by over 40% since 2020, allowing Congress to hand out checks to the public and driving an unhealthy initial spike in disposable income. And as consumers spent off this superficial wealth, prices soared and disposable income tumbled.” Yes, folks; that’s really a teenager.

Debit: Unfortunately, it appears that some consumers are in more financial trouble than others, as a new study has found that retirees are spending down their retirement savings at an alarming speed. As a result, many older Americans are at risk of emptying their accounts by 85. The good news is life expectancy in the US has dropped from 79 two years ago to 76 today. So there’s that. On the bright side …

Debit: Then again, the retirement crisis may be even worse than advertised. Especially now that the results of a new study have been released which found that four in ten people had less than $50,000 saved for retirement – and almost three in ten people between 55 and 67 years old have less than $10,000 saved for retirement. Translation: Most older Americans are wagering on the continued solvency of Social Security as their primary means for avoiding a steady diet of cat food in their so-called “golden years.” Talk about a risky bet. What’s that? You say you can always get by on PB&J? Perhaps … if it’s not on brioche:

Credit: As for the central banks, they’re in deep kimchee too. As economist Alasdair Macleod points out, because “central banks have bought loads of bonds as part of QE, rising yields have undermined the asset values on their balance sheets and so they’re, in effect, insolvent. Yet they have the responsibility for picking up the pieces when things go wrong in a commercial banking network with assets-to-equity ratios in the 70s. I mean you can’t make this up.” Typically, banks with ratios that high suggest they’ve taken on substantial debt merely to remain its business. Aside from that, there’s nothing to fear. Then again …

Debit: Speaking of central banks in deep kimchee, the BoJ’s latest spate of bond buying has resulted in them now owning more than 50% of the Japanese Government Bond (JGB) market. As a result, Bloomberg warns that the BoJ has “crossed the Rubicon. However you slice or dice it now, the BoJ is the JGB market, and they could eventually find themselves as the lone bag-holder of the world’s third-largest bond market.” True. But ultimately, the true bag holder won’t be the BoJ, but most of the Japanese citizenry who the BoJ is supposed to protect from financial annihilation. I said most. That goes for us Americans too:

Credit: If you find yourself struggling to discover the moral of this story, macro analyst Matthew Piepenburg sums it up this way: “All rigged, debt-soaked, currency-debased systems fail. All of them. And while timing market tipping points and speculating upon central bank policies has its imperfect role and place, in the end, history and gold always get the last say (and laugh) at politicized financial systems and a ‘capitalist’ economy as openly broke – and broken – as (ours).” In other words: It’s not different this time. Currency failures always destroy the middle class financially. And time is clearly running out.

The Question of the Week

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Last Week’s Poll Results

How old were you when you bought your first home?

• 25 to 29 (42%)
• 24 or younger (22%)
• 30 to 34 (15%)
• 35 or older (11%)
• I’ve never owned a home. (10%)

More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 4 say they bought their first house in their 30s or later. With today’s home prices at nosebleed levels, I suspect that percentage is much higher for adults who are still waiting to buy their first house.

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.

By the Numbers

A recent survey asked more than 5000 American adults which brand names they trust the most. Here were the top 10 answers:

10 Home Depot

9 Colgate

8 The Weather Channel

7 Cheerios

6 Visa

5 CVS

4 UPS

3 Clorox

2 Lysol

1 Band-Aid

Source: Yahoo!Finance

Useless News: The Gutter Truth

Although my daughter wasn’t much of a bowler, when her friend’s bowling team was down a player, my daughter agreed to fill in.

“So how’d you do?” I asked a few days later.

She rattled off her scores: “One sixty, one sixty-seven, and one fifty-five.”

“Wow! Thats great.”

“Not really. One game was 60, one was 67, and the other was 55.”

(h/t: Ruth Saarela)

More Useless News

Here are the top five articles viewed by my 42,888 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. Dealing with a Deceased Person’s Money and Property
2. 10 Big Reasons Why I Love (and Hate) My Credit Cards
3. 7 Tips for Finding a Reliable Used Car at the Lowest Price
4. A Memorial Day Tribute from Aunt Doris: Shaken – Not Stirred
5. 3 Easy Ways to Save Money on Organic Foods

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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 this piece on how to find a low-cost pest control company that won’t rip you off, Arya in Iowa left this comment:

“Great article!!! I came here because of the termites in our barn house.”

That’s awesome! It’s great to know that termites are reading my blog.

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