Black Coffee: Something Evil Is Stirring

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?

People will buy snake oil from anybody who seems to be selling it in a persuasive way.

– Frederick Buechner

There was money to be made giving all these people what they thought they wanted.

– Robert Shiller, Animal Spirits

Three groups spend other people’s money: children, thieves, and politicians. All three need supervision.

– Dick Armey

Credits and Debits

Debit: Did you see this? As of May 13th, there were approximately 6281 common stocks from A to ZYXI listed in the US. Now for the punchline: Not counting delisted stocks, mergers or name-changes, nearly 1 in 6 of those stocks is at least 80% off its high. That’s an astounding statistic. Then again, I’m sure it’s probably nothing.

Debit: It’s not just stocks that are struggling. Bloomberg reports that, “Everywhere you turn, the biggest players in the $24 trillion US Treasuries market are in retreat.” Uh huh. It’s so bad that entities that were once lining up to get their hands on US government debt – such as Japanese pensions and life insurers, foreign governments, and US commercial banks – are no longer interested. In fact, demand for Treasuries is so depressed that even the Fed is now offloading them from its bloated $9 trillion balance sheet – to the tune of $60 billion a month. Even so, that’s hardly put a dent in it. See for yourself:

Debit: Meanwhile, over on the other side of the pond … the United Kingdom is still trying to recover from their recent gilt crisis; ‘gilts’ are the name given to UK government bonds. Unfortunately, the crisis directly impacted the UK’s pensions. How bad was it? Believe it or not, many financial experts are saying it was nearly catastrophic. But was it really? Well … as macroeconomist Daniel Oliver points out, “It seems incredible, but a large chunk of UK pensions was just hours from being completely vaporized.” Yeah, that would definitely be catastrophic.

Credit: For those who are tempted to pooh-pooh the recent UK gilt crisis as hyperbole from the tin foil hat crowd, financial commentator Franklin Sanders reminded everyone this week that, globally, “bond markets are far, far bigger than stock markets – and more important. Government securities are supposed to be the ‘safest’ possible investment, so when they begin to go bad, governments, currencies and financial systems fail.” Sanders then concluded with this: “Something evil is stirring in Mordor.” There sure is. Thankfully, the good guys are coming to save the day. Er … or maybe not:

Credit: Macroeconomist Daniel Oliver offers his own chilling perspective on the gilt crisis: “If the UK pension money was about to vanish, where was it going? Partly to the bankers, of course. But mostly, as with any bubble, the value was illusory. In 2001, Argentina forced private pensions to purchase $2.3 billion in government bonds so that it could pay its debts. The following day, the pensions listed those bonds as an asset – but the value was gone.” Imagine that.

Debit: Sadly, Oliver goes on to note that, “Western countries have effectively done the same thing, only subtlety, without even the players knowing. The pension capital is already spent; consumed by the state. And all that remains is the realization that it’s gone.” Needless to say, some people are aware of that fact – which is why many workers on the verge of retirement are at least considering cashing out their hard-earned pension benefits for a lump sum payout. And who can blame them? After all, there are always consequences for not doing your due diligence.

Credit: On a similar note, macroeconomist Alasdair Macleod warned this week that “the (derivatives) problem that British pension funds have got themselves into isn’t unique, as the entire $600 trillion derivatives complex is beginning to unwind. And as it does there are going to be accidents along the way.” Unfortunately, Macleod says the derivatives time bomb is not only a problem for the UK, but “throughout Europe, where the repo market is far, far larger. And it’s a problem in the US and Asia as well.” The good news is, it looks like the South Pole is still considered to be a safe haven. At least for now.

Credit: According to asset manager Ben Hunt, “The real problem is that every pension fund in the world has implemented some sort of Wall Street concoction, intentionally designed to use short-term leverage against long-term obligations (that) obfuscate the risks of a regime change not found in the past 30 years. Wall Street has infected all pension funds with their words of risk-free return through the magic of securitization and leverage.” But why would they ever willingly sell such financial snake oil to their customers, you ask? Mr. Hunt says the reason is simple: “Because that’s what Wall Street does.”

Debit: By the way, Hunt also says he has “no idea” where the next bond crisis will come from. “All I know,” he says, “is that leverage is being repriced globally – and it’s a wrecking ball around the world, through both interest rates and currencies. What happened in the UK is the first shock, not the last. And all the massive pension funds that have turned themselves into shadow hedge funds – full of swaps and leverage through the sweet whispers of Wall Street Worm Tongue – will be our undoing.” Yes, it will. But not until the world’s central banks lose control of the markets. Until then, the game will continue.

Credit: On a related note, Bob Michele, the outspoken CIO of JP Morgan Asset Management, is telling everyone that “the relentless dollar (surge) could forge a path to the next market upheaval. Financing costs have gone up and it’s creating tension in the system. I’m concerned that a much stronger US dollar (USD) is creating a lot of pressure, particularly in hedging USD assets back to local currencies – because when central banks step on the brakes, something goes through the windshield.” In other words: At some point, the panic that hit UK gilts is going to strike US Treasuries too. Yes … those US Treasuries.

Debit: This growing fear among industry experts of a collapsing financial and monetary system is precisely why the coming Fed pivot will have nothing to do with whether the Fed hits – or doesn’t hit – its inflation target. Instead, it will have everything to do with the devastation unleashed by the soaring dollar on the rest of the world. In fact, in some parts of America, the devastation is well underway. Or is it?

Credit: As financial commentator Doug Noland points out, it’s “obvious” that currency printing “is the problem, as years of unprecedented monetary inflation created false realities, and the perception of endless cheap ‘money’ distorted our market, economic, financial, political and social systems.” That relentless currency printing has sharply reduced the living standards of everyone around the world – some more than others. If only there was a trustworthy form of money out there that could: 1) put a yoke on spendthrift politicians and; 2) maintain savers’ purchasing power over long periods of time. Oh, wait …

Debit: Of course, if you want to know why the entire monetary system is now melting down, the answer is: because the USD’s anchor to gold was broken in 1971. That’s when the clock started ticking and the USD’s demise became a foregone conclusion. However, if you’re looking for who put the process into overdrive – rather than fix the problem while there was still a chance – the answer is clear: Ben Bernanke. That’s right; the same guy who was just awarded the Nobel Prize for economics – and a payout of nearly $300,000. Yes; it’s absurd. But that’s life in today’s clown world. And it’s all courtesy of our fraudulent debt-based monetary system. (h/t: GoldSilver.com)

By the Numbers

The “official” inflation rate in the US is currently running at an annualized rate of 8.4%. However, if inflation was calculated using the same CPI methodology that the government used between 1929 and 1980, then the official rate would be 16.4%. With that in mind, here are the ten years with the highest inflation rates in the US since 1929, using the original CPI methodology:

8.9% 1981

9.0% 1978

9.0% 1942

9.9% 1941

12.3% 1974

12.5% 1980

13.3% 1979

14.0% 2021

16.4% 2022

18.1% 1946

Sources: ShadowStats; The Balance 

The Question of the Week

[poll id="445"]

Last Week’s Poll Results

How many of your siblings are financially responsible?

• All (41%)
• Some (34%)
• None (19%)
• I have no siblings (7%)

More than 2200 Len Penzo dot Com readers responded to last week’s question and it turns out that 2 in 5 say all of their brothers and sisters are good with their money.

For the second week in a row, this week’s question was submitted by reader, Frank! 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: Proud Papa

A Texan was drinking in a New York bar when he got a call on his cell phone. He hung up, grinning from ear to ear, and ordered a round of drinks for everybody in the bar. Then he announced that his wife had produced what he claimed was “a typical Texas baby boy” weighing 25 pounds.

Of course, nobody could believe that any new baby could weigh in at 25 pounds, but the Texan just shrugged it off. “That’s about average down home, folks’ he said. “Like I told ya, my boy’s a typical Texas baby boy.”

And with that, congratulations showered the new papa from all around, along with many exclamations of “Wow!”

Two weeks later the new dad from Texas returned to the bar and ordered a beer. The bartender immediately recognized him and said, “Say … you’re the father of that Texas baby boy that weighed 25 pounds at birth! You know, everybody’s been making bets about how big he’d be in two weeks. So how much does he weigh now?”

The proud father answered, “Seventeen pounds!”

Upon hearing that, the bartender was puzzled and concerned, if not a little suspicious. “What happened? Your son already weighed 25 pounds the day he was born!”

The Texas father took a slow swig from his bottle of Lone Star, wiped his lips on his sleeve, leaned into the bartender, and proudly said: “I had him circumcised!”

(h/t: RD Blakeslee)

More Useless News

Here are the top five articles viewed by my 43,925 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. 10 Unique Halloween Treats Kids Love – But Rarely Get!
2. 19 Products That Get Deep Retail Discounts In Autumn
3. Are You Frugal or Cheap? Here’s How to Know the Difference
4. Perfection When Managing Money: When Is Close Good Enough?
5. 6 Ways to Make Sure You’re Not Spending Too Much On Your Home

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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 post on why corner lots are for suckers, Social Butterfly left a long and haughty commentary that included, among other things, this little pearl:

I envy people in the flyover states with huge lots and plenty of room. Here in West Los Angeles you’d have to knock down an adjacent house to have a decent sized lot.

Well … For your neighbors’ sake, I hope you don’t believe it’s better to beg forgiveness than ask permission.

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