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.
Another busy week is crossed off the list. So without further ado, let’s get right to the commentary …
Don’t you see that the whole aim of Newspeak is to narrow the range of thought? In the end we shall make thoughtcrime literally impossible, because there will be no words in which to express it.
— George Orwell, 1984
In our country the lie has become not just a moral category, but a pillar of the State.
— Aleksandr Solzhenitsyn
Credits and Debits
Debit: Did you see this? According to a new survey, the average American says they need to earn at least $128,000 per year to feel financially secure. Wow. When you consider that’s nearly double the median US household income, that six-figure income milestone is more than a bit problematic. Then again …
Debit: In other news, it turns out that there’s never been a worse time in the last 30 years to buy a vehicle, as cars have gone in the last two years from being the largest depreciating asset one can own, to a moneymaker that has outperformed most stock portfolios. The good news? Prior to 2020, when the car market was sane, auto loan delinquencies hovered around 2.5%; but today it’s 8.7% in California, 10% in Texas, and 23% in Washington, DC – which means if we continue on the same trajectory, we could see an 18% decline in used car prices next year. And a lot of crying by those who should have never got a car loan in the first place …
Debit: Speaking of rising car loan delinquencies, the Los Angeles Times reports that, nationwide, the number of auto loans that were more than 60 days late were 30% higher in May compared to a year earlier. Even more shocking: The auto market is so twisted now that cars are being repoed and immediately resold – for more than the balance of the previous loan. Wait … what?
Debit: Meanwhile, on Thursday the Commerce Department announced that US GDP contracted for the second consecutive quarter in 2022, signaling that the nation is now in its second economic recession in the past two years. More specifically, the data showed a 0.9% annualized decline in economic growth for the three-month period that ended on June 30. If that’s got you depressed, you’ll be happy to know that my local realtor assured me that it’s still the best time ever to buy a new home! And apparently, she’s not the only one …
Debit: By the way, the generally-accepted definition of an economic recession has been set in stone for decades. That definition is: A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Well … at least it was until this week, when the White House proclaimed that definition to be officially null and void. And so, just like that, an economic recession has been avoided. Hooray! Heck … that was so easy, I don’t see why the National Debt can’t be “eliminated” in short order too. Now where are those ruby slippers?
Credit: For his part, famed economist Nouriel Roubini said that not only are we indeed in a recession, but also that those who think the downturn is going to be mild are – to put it nicely – guilty of wishful thinking. Why? Because, according to Roubini, the current Fed policy of tightening its monetary policy into the face of a slowing US economy makes a hard landing inevitable. “We have no fiscal space,” he warned, “so the idea that this is going to be short and shallow is totally delusional.” Maybe so – but that doesn’t mean when space is tight, you can’t get creative …
Debit: The only reason the US dollar is the best currency horse in the international fiat glue factory is because the Fed is in the middle of a deliberate rate-hiking campaign. And while the stock and bond markets can’t tolerate a rising rate environment for any sustained period of time, this isn’t the early 1980s when the debt-to-GDP ratio was a very manageable 30% – in fact, it’s more than 125% today. Don’t think Wall St. investors aren’t aware of this, which is why the markets have yet to capitulate. Here’s the irony: The Fed will keep raising rates until the markets decide to raise the white flag. Only then will the money spigots be turned back on.
Credit: Of course, as economist Daniel Lacalle reminds us, whether it’s stock, bonds, real estate – or any other market – “when bubbles burst, interventionists never blame the artificial lowering of interest rates or printing money – they blame the market.” Then again, losers always blame someone else when eager buyers suddenly become hard to find – especially when it comes to real estate …
Credit: While the Fed has become a popular punching bag for the failing monetary system, the inimitable MN Gordon notes that, ultimately, it’s “government that sows the seeds of economic ruin. Economies can’t grow when they’re choked by the weeds of regulations and confiscatory taxes, (or) where property rights aren’t protected by the rule of law. So, too, economies can’t effectively function when printing press money is sowed into wasteful activities by central planners. The fact is, any prosperity you’ve enjoyed isn’t because of government – it’s in spite of it.” Uh huh. Just don’t tell that to the ivory tower academics.
Credit: Today America’s debt-to-GDP ratio is 125% and its budget deficit is forecast to be 7% of GDP in 2022; and the Fed raising short terms rates to 3% should increase the deficit to 11% of GDP. With that in mind, fund manager Brian Hirschmann is warning that since 1991, all 18 governments that had deficits exceeding 11% of GDP and a debt-to-GDP ratio exceeding 110% defaulted within two years. As such, he says the Fed is in a pickle. Why? Because “raising rates could trigger default – but not raising them allows inflation get worse. Similar dilemmas in Argentina, Brazil and Venezuela caused severe crises; and the US may soon join the club.” Tick tock, people.
Credit: Unfortunately, ever since the Great Financial Crisis of 2008, the Fed has been using artificially-low rates and unlimited money printing to maintain a “prosperity” charade, rather than let the system flush itself out. But the chickens are finally coming home to roost. As asset manager Marcel Kasumovich observes, “Cheap financing is now a curse. Globalization is now working in reverse with a focus on security in food, energy, and technology. Monetary regimes change under stress – and inflation has the world racing to a new system with an unknown finish line.” What is certain is that, for most people, the race will end in a torrent of wealth destruction.
Credit: For those who are curious as to what’s waiting for us at the finish line, macroeconomist Alasdair Macleod says that when the next crisis hits, “central banks will underwrite the entire commercial banking system. The consequences of letting Lehman go bankrupt in 2008 had the world staring into a systemic abyss – and that mistake won’t be repeated. But this time it will take unprecedented currency and credit creation to ‘save’ the financial world – and that debasement will end up collapsing fiat currencies.” Okay … then let’s get it over with already, because the shameless lies and gaslighting won’t stop until we return to a monetary system based on honest money.
By the Numbers
The first half of 2022 was brutal for investors, with the S&P 500 falling more than 20% and notching its worst performance since 1970. With that in mind, here were the 10 worst performing stocks in the S&P 500 during the first half of the year. How many of these are in your portfolio?
– 54.6% Royal Caribbean Cruises
– 54.9% Ceridian HCM Holding
– 55.9% EPAM Information Systems
– 57.0% Carnival Cruise Lines
– 59.0% Caesar’s Entertainment
– 61.1% Bath & Body Works
– 63.0% PayPal
– 64.0% Align Dental Technology
– 66.6% Etsy
– 71.0% Netflix
Source: Business Insider
The Question of the Week
Last Week’s Poll Results
How long have you been living at your current address?
- 1 to 10 years (40%)
- 11 to 20 years (25%)
- 21 to 30 years (19%)
- More than 30 years (12%)
- Less than a year (4%)
More than 2000 Len Penzo dot Com readers responded to this week’s poll and it turns out that almost 1 in 3 of them have been living in the same home for more than 20 years. That includes yours truly, who bought our home when it was brand new way back in 1997. Time sure does fly!
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: A Drinking Family
A cowboy, who just moved to Montana from Texas, walks into a bar and orders three mugs of Bud. He then sits in the back of the room, drinking a sip out of each one in turn.
When he finishes them, he comes back to the bar and orders three more.
The bartender approaches and tells the cowboy, “You know, a mug goes flat after I draw it. It would taste better if you bought one at a time.”
The cowboy replies, “Well, you see, I have two brothers. One is in Arizona, the other is in Colorado. When we all left our home in Texas, we promised that we’d drink this way to remember the days when we drank together. So I’m drinking one beer for each of my brothers and one for myself.”
The bartender admits that this is a nice custom, and leaves it there.
The cowboy becomes a regular in the bar, and always drinks the same way.
He orders three mugs and drinks them in turn.
One day, he comes in and only orders two mugs.
All the regulars take notice and fall silent.
When he comes back to the bar for the second round, the bartender says, “I don’t want to intrude on your grief, but I wanted to offer my condolences on your loss.”
The cowboy looks quite puzzled for a moment, then a light dawns in his eyes and he laughs.
“Oh, no, everybody’s just fine,” he explains. “It’s just that my wife and I joined the Baptist Church and I had to quit drinking. It hasn’t affected my brothers though.”
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 suggestion regarding the smartest way to eliminate credit card debt, Walt shared a long list of his own personal finance tips and observations, including this one:
The evil cable company has lost its grip on me.
Me too, Walt. Unfortunately, I’m now in the clutches of the satellite company.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: stock photo