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 …
The desire of gold is not for gold. It is for the means of freedom and benefit.
— Ralph Waldo Emerson
Liberty means responsibility. That is why most men dread it.
— George Bernard Shaw
No state shall … coin money; emit bills of credit; or make any thing but gold and silver coin a tender in payment of debts.
— US Constitution, Article I, Section 10
Credits and Debits
Credit: Did you see this? Target, Walmart, and other retailers say they have so much inventory that it’s costing them too money to store it. The situation is so dire that stores are now considering new policies that will give customers their money back – while letting them hang onto the stuff they don’t want. Huh. So apparently, all of that “pent up demand” we were told was coming never materialized. I guess the economy was never really as strong as the pols in DC and the central bankers at the Fed have been telling us. Imagine that.
Debit: You can bet most stock investors and 401k participants will certainly get a jolt when they open their quarter-end statements next week. That’s because as of June 30th, both the Dow and the S&P are officially down almost 21% for the year – that’s their worst first-half performances in 52 years. And if you think that’s bad, a proxy index for the US 10-year Treasury bond had its worst first-half since 1788. The good news is investors will be more than eager to continue buying the market dips as soon as they realize that the American consumer actually still feels as financially secure as ever. Oh, wait …
I know … when you read “1788”, you thought it was a typo.
Debit: The trouble is, since the Great Financial Crisis in 2008, the entire global economy – not to mention stock, bond and housing markets around the world – have been artificially propped up by central bank currency printing. Perhaps the biggest example of this is the Australian real estate market, which is so absurd that residential land down under is now worth more, relative to GDP, than residential land in Japan at the peak of their epic 1980s bubble. I wonder if anybody out there wonders how that worked out for Japan. (Hint: It didn’t.)
Debit: Meanwhile, here in America, today’s first-time homebuyer now has has to shell out an average of $27,400 – that is, 7% of the sales price – as a down-payment on the median-priced house. Sadly, this means 92% of people looking for their first home are officially on the outside looking in because they lack sufficient funds. Just how lacking are they? It turns out that the median savings of all US renters is currently just $1500 – and dropping like a rock with each passing month. In other words: Most people still hoping to buy their first home are just going to have to, well …
Debit: By the way, the same economists, academics and politicians who used to insist that inflationary risk was a loony conspiracy theory, are now insisting that runaway prices can be solved with more government spending. In other words: We really can print our way to prosperity. Heh. I’m sure it won’t be long before they also start telling us that NFTs are risk-free investment opportunities:
(h/t: r/cryptomarkets)
Credit: Meanwhile, back in the real world, the Fed reaffirmed its commitment to its ongoing too-little-too-late rate-hiking campaign. But as the inimitable MN Gordon warned this week, “When interest rates rise, explosive things happen. There are financial blow ups; Long Term Capital Management, for example, in 1998. Or Lehman Brothers in 2008. Sometimes the stock market crashes … like the Black Monday crash of 1987.” Uh huh. It’s only a matter of time. Kind of like this fireworks show, where a technical glitch caused 15 minutes worth of explosions to occur in just 15 seconds:
Debit: Of course, most people who have been paying attention know that the Fed can’t increase rates to anywhere near the level they would be right now if we had a truly free market because doing so would increase interest payments to unsustainable levels for for debt-ridden consumers, businesses, and the federal government – which is why the Fed will be forced to capitulate their rate hiking campaign once the markets finally crash. If not sooner than that.
(h/t: JSMineSet.com)
Credit: Needless to say, debt-ridden consumers can expect no help from the banking industry. Why? Because, as financial commentator Franklin Sanders explains, “If inflation is boiling at 8.6% and the one-year bank CD rate is 0.37%, you’re gaining 0.37% on your money while you’re also losing 8.6% to inflation. So after inflation, the real interest rate is negative 8.23%. That makes gold and silver a far more attractive refuge from falling stocks and bonds.” This, in turn, leads him to ask, “Isn’t it better to take your chances on gold and silver rising than stick with a sure loss in dollars and other assets?” Well … at least a small position. But you think about it.
Credit: For his part, economist Kristoffer Mouston Hansen is warning that “the longer a new round of rate hikes is delayed, the more radical the purge of malinvestment and clown-world finance will be. In all likelihood, the Fed is not going to stay the course. Pressure from (Wall St.) and government is likely to force it back into inflation; in that case, Weimar, here we come.” That’s the conventional wisdom among a growing number of sound money economists anyway. Oh … and speaking of clown-world finance:
Credit: For some reason, too many people out there seem to believe that you can create more wealth simply by printing more currency – but that’s patently untrue. In fact, as sound-money advocate Ron Paul notes, money printing “is counterproductive, and yet it’s what nations have always done: Borrow money; print more money to pay off the money you already borrowed; repeat ad collapsum.” He can say that again. As an example, the debauchery of the US dollar is clearly evidenced by the melt value of any copper American penny minted prior to 1983, which is now almost three times its face value. Honest, Abe.
(h/t: reddit/r/wallstreetsilver)
Debit: Unfortunately, there are too many dreamers out there who naively believe that wealth can be created with little more than green ink, paper, and a printing press. But they fail to realize that – in a fiat currency world – ‘more money’ in the form of a government handouts doesn’t result in more purchasing power. Anyone who doubts this can ask any Zimbabwean; they’ve suffered for years with both high inflation and hyperinflation, thanks to unrestrained government spending printing. The good news is Zimbabwe’s government has finally thrown in the towel by reintroducing gold coins to its monetary system.
Credit: The bottom line is that gold and silver are both money; as such, their purchasing power is immune to the currency devaluations that invariably result from spendthrift governments. As Mr. Paul reminds us, “That has made gold a hedge against inflation for centuries. Gold can’t be printed. It can’t be devalued. It can’t be hacked. In fact, gold and silver are just about the only things you can buy today that will still be worth something 25 years from now.” Well … at least when it comes to the currencies that most people today mistakenly believe to be ‘money.’
The Question of the Week
[poll id="431"]
Last Week’s Poll Results
Are cryptocurrencies a legitimate wealth preservation asset?
- No (80%)
- I’m not sure. (16%)
- Yes (4%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that just 1 in 25 of them believe they are an asset that is a guaranteed store of value. The truth is, nobody will know for sure until the cryptocurrencies are tested by a catastrophic monetary system meltdown. Until then, it’s all speculation.
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
The US has already had at least one record-setting lottery jackpot worth over $600 million in 2022. With that in mind, a recent survey asked more than 1100 Americans about their lottery playing habits, and how much they would give (or keep) if they won the jackpot. Here are some of the more interesting findings:
80% The share of those who said they would keep it a secret if they won the lottery.
70% The percentage of Americans who said they would take their lottery winnings in a lump sum.
41% The percentage of people who said they’d be worried about misspending their winnings.
89% The share of Americans who said they would give away some of their lottery winnings.
60% Of those who said they give away some of their winning, the percentage who said they’d allocate a portion to charity.
$52,646 Of those who said they give away some of their winnings to charity, the average amount people said they would donate if they had won a $1 million jackpot.
4% The percentage who said they’d give a portion of their winnings to their coworkers if they had won a $1 million jackpot. ($2344, on average)
$158,233 Of those who said they’d give away some of their winnings, the average amount people said they would dole out to family members if they had won a $1 million jackpot.
$283,573 The average amount people would hand over to their spouse if they had won a $1 million jackpot.
2% The percentage of people who said they’d leave their spouse if they won the lottery.
Source: PlayPennsylvania
Useless News: Night on the Town
I told my wife that, since today was her birthday, I was going to take her out tonight and spend some of our hard earned money.
She flashed a really big smile. Then she asked me where I was taking her.
I said, “It’s a surprise, Sweetheart. Just know that I’m taking you out tonight to a very expensive place!”
That really got her excited! Anyway … about an hour later she came back and demanded that I tell her where we were going.
At first I told her that I wasn’t going to spoil the surprise. But, she kept on hounding me until I finally gave in.
“Okay,” I said, “If you really want to know. Tonight we’re going to the Quik Trip to fill up the pickup truck on Pump #3. I figure the tab will come to around $160 bucks.”
(h/t: Cautiously Pessimistic)
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
Saul dropped this note into the Len Penzo dot Com complaint box:
Why are you always so negative?
I don’t know; but even my blood type is negative. So I’ll blame that.
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
Oh Saul, Len is not negative – just realistic.
^^ This. As a long time reader, I can say Len was early, but everything he has been warning about is now happening. Anyone here the past 5 years can’t say they weren’t warned and didn’t have time to prepare. What’s the saying? It’s better to be 3 years early than 1 minute too late.
Thank you, Liz. I think so too. (And let the record show … people joke about me living in “my bunker”, but I have never claimed there is going to be some sort of Mad Max scenario when the system resets. Supply chains may break making life difficult for a few months, and there may be pockets of unrest and rioting – especially in the big cities – if that comes to pass, but I do not believe society will crumble and we’ll end up in the Dark Ages again. Monetary resets are fairly common events in human history; it’s up to the powers that be to decide whether it will happen in an orderly or chaotic fashion.)
Thanks for the cuppa, Len. We’re trying hard to find the GOOD news these days, and I can say with certainty that our garden is providing a better return that most other investments. ;o) Enjoy your Independence Day weekend!
Good for you, Lauren! Are you doing anything to keep the wildlife from enjoying your garden more than you -or is that not a real problem where you are? I stopped growing tomatoes a while back because the squirrels were getting more of my tomatoes than I was! (And wasting most of them … they’d take a bite or two out of each one and then toss the rest away. I felt like they were mocking me! Grrrr.)
The garden is fenced to keep the deer & rabbits out (they’re everywhere here). I also lay chicken wire over the garden beds to deflect hail, and that worked even for the baseball sized stones that destroyed our metal roof last month!
But at least our squirrels aren’t EVIL, so there’s that. ;o)
Happy Independence Day to you and your family, Len!
Hi Len,
The Fed is getting squeezed harder and harder every day. Is that sweat on Jerome Powell’s brow? I’ve got my popcorn, waiting for the day they finally cave in.
Sara
I think J-Pow is definitely feeling the heat, Sara. The real fireworks begin when he reverses course and starts cutting rates and restarts QE.
I’d advise anybody who is hoping to win the lottery to do it before a loaf of bread cost $500 million.
🤣 Now that was funny, Cowpoke.
“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it.”
Congressman Louis Thomas McFadden
Private housing, Early 20th century America:
https://www.oldhouseonline.com/house-tours/kit-houses/
Private housing, early 21st century America:
Churches Across US Build Tiny Home Villages Amid Worsening Affordability Crisis | ZeroHedge
That was a very fascinating read, Dave. Thanks for sharing the link! Keep in mind, that 1008 sq ft home in 1915 that Sears sold for $785 was equivalent to about 36 ounces of gold. That’s about $65,000 today. Granted, you still had to pour a foundation and erect it – and plumbing, electrical and heating were extra – but that’s still a great value. Especially if you could do a lot of the work yourself!
One final point: in 1980, when gold and silver were at their highest points ever in inflation-adjusted dollars, you could buy the median-priced home in the US for less than 75 ounces of gold, or 1288 ounces of silver. Of course, these homes were fully assembled and included the plumbing, electrical and HVAC. I expect you’ll be able to buy the median US home for far less than that when the system resets – at least for a short amount of time.
Since silver was on sale this week I went ahead and traded some of my paper dollars for a few more rolls of silver quarters. It’s a comfort to watch my stack slowly getting bigger. Happy 4th of July everybody!
Good for you, Madison!
“The trouble is, since the Great Financial Crisis in 2008, the entire global economy – not to mention stock, bond and housing markets around the world – have been artificially propped up by central bank currency printing.”
The Fed has been propping up the housing market since the early 2000’s by holding rates lower than they should have been.
Yes … although back then they actually had nations and citizens willing to fund the government’s debt at those lower rates. Now the Fed is forced to buy most of that debt themselves.
The Federal Reserve doesn’t care about inflation. They’re all about robbing us of every last penny. With inflation getting worse every day, it won’t be long till they get there.
I agree, Peter; they are screwed.
Just bought a Wendys burger the other day. Was the size of my palm (I don’t have big hands). Old timers my remember when the meat corners of the square patty would extend beyond the bun – no more. All for just under $5. Still, a great two bites 😀
Standard can sizes are also shrinking, e.g. 14 to 13.5oz.
They are also adding sugar (corn syrup actually) to everything, even a can of beans???
Yep. I think all the fast food chain burgers have gotten smaller over the years.
Cans of tuna fish have gone from 7 oz when I was a kid (long ago) to 5 oz. now. So many other examples …
Crypto “currencies”:
https://wolfstreet.com/2022/07/04/the-wolf-street-report-leverage-interconnectedness-are-blowing-up-crypto-defi/
I quit buying tuna. Im not paying good money for a 5 oz can of fish. I cant help but get pissed off every time I try to go shopping at the local Safeway. I look at the so called new price of everything and it makes me angry! Or I should just quit going too Safeway. Ha Ha.!!