Black Coffee: Buying High and Selling Low

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?

If you don’t know where you’re going, you might wind up someplace else.

–Yogi Berra

Credits and Debits

Credit: Did you see this? Global demand for silver is expected to rise 16% this year to 1.2 billion ounces, creating the biggest deficit in decades. That could mean higher producer prices for the automotive and green energy industries, as automakers and solar panels account for 5% and 10% of global silver demand, respectively. That being said, the automotive industry doesn’t need any more reasons to raise prices:

Debit: In other news, the cost of home ownership just got a lot tougher in October for those looking to buy, as higher rates pushed the monthly mortgage payment to record highs. How much higher? Well … the median monthly payment in the US increased more than 3% since September, from $1941 to $2012, marking a new higher for the survey. More alarming, the median mortgage payment is now 46% higher than it was in October 2021 – and and $650 higher through the first 10 months of this year. Obviously, that means most new home buyers have to end up cutting elsewhere to compensate for these higher prices.

Debit: Needless to say, decreasing home buyer affordability was a big reason why US existing home sales in October plunged 5.9% from the previous month, making it the ninth straight monthly decline for the housing market. The decline pushed the year-over-year drop in existing home sales to negative 28.4% – that’s the worst level since 2008. The trouble is: nobody can say for sure when the housing market is going to hit rock bottom. Then again, if you ask your local realtor, they’ll tell you that it’s never been a better time to buy. Just as it was last year, or the year before that, or the year before that, or …

Debit: Of course, it’s not just home buyers who are beginning to lose confidence in the markets. A new study has found that recent declines in the stock market, surging inflation and rising interest rates have eroded investors’ confidence about their retirement. In fact, 86% of survey respondents are concerned or very concerned about inflation, and 79% are concerned or very concerned about the stock market. With that in mind, it’s no wonder that 45% of surveyed investors also said they’re no longer confident that they’ll have enough money to live comfortably in their golden years. To be sure, that’s an eye-opening admission, although clearly not as surprising as this:

Debit: Curiously, despite investors’ concerns about the stock market, that same survey found that just 13% of investors have moved money out of stocks or bonds and into cash. Instead, investors preferred to tighten their budgets, as nearly half (49%) said they’ve either reduced their spending or plan to reduce spending as a result of both rising inflation and asset underperformance – or outright losses – in their investment portfolio. After all …

Debit: Speaking of SBF, there has been plenty of negative press out there ever since the collapse of FTX crypto exchange and subsequent downfall of its once-venerated founder, Sam “the Sham” Bankman-Fried. After all, when measured in terms of gold, the purchasing power of his “FFT” crypto token has plunged 98% from its September 2021 high. That being said, The New York Sun points out that when it comes to currency devaluation, SBF and the Fed are two peas in a pod – it’s just that the Fed has destroyed the US dollar (USD) at a far slower pace. In other words: SBF wouldn’t have been caught if he was as clever as the Fed. Or these two gentlemen:

Credit: Just because the Fed has destroyed the USD over a longer time period, economic commentator Franklin Sanders refuses to give those central bankers a pass. He keenly observes that, “Since 1971 when the USD was worth 0.0286 ounces of gold, it has sunk to 0.0006 ounces, a loss of – look at that – 98%. The fact is, SBF did nothing more or less than banks have been doing since their inception – that is, converting depositors funds to their own use for betting purposes. What happened to FTX was a classic bank run. As the Preacher says, ‘There’s nothing new under the sun.'” Imagine that.

Credit: On a related note, macro analyst James Rickards is warning that a huge market crash is coming at some point during 2023. He also says the recent FTX crypto currency exchange meltdown will eventually “jump the fence into the broader financial world, but it can take six months or more to play out. (Even) if FTX never existed, we’re staring at a worse financial crisis than 2008. Throw FTX on top of that, and it’s like throwing gasoline on a fire.” Umm … ya think?

Credit: Not coincidentally, global central banks, including the Fed, have transitioned from the largest buyers of Treasury notes and bonds over the past two decades into the largest net sellers. As of the beginning of October, the Japanese have sold $114 billion in coupon Treasuries since July, 9.2% of their holdings. Even more alarming is that Japan has dumped almost 16% of its holdings in the last 12 months.

Debit: As Zero Hedge noted last week, “If the Fed is forced to step in and finance the US Treasury as they did en masse with the COVID rescue packages or help in the rollover of Treasury refinancings, the economy will be set on a path of high inflation for many years to come.” Well .. somebody is going to have to buy the US Treasury’s bonds – because the rest of the world has become sellers now.

Credit: For his part, macroeconomist Alasdair Macleod says everyone should be on guard for “another round of currency destruction” that will be far bigger than anything seen so far. In particular, Macleod warns that not only will central banks use more currency printing “and quantitative easing (QE) to fund government deficits, while supporting financial markets by firmly suppressing interest rates and bond yields, but they’ll also be tasked with underwriting insolvent commercial banks.” Translation: Central banks will soon be destroying the remaining 2% of their respective currency’s purchasing power.

Credit: By the way, Macleod predicts that the time is fast approaching when, “the inversion of monetary reality will change” with the emergence of a new global monetary system based on real wealth instead of debt. Specifically, he says that instead of legal money – gold and silver – being priced in fiat currencies, “fiat currencies will be priced in legal money. And that will be the death of the fiat swindle.” Indeed it will. As for the timing, nobody knows for sure – but we can almost certainly expect the end to unfold as quickly for the central bankers as it did for SBF.

By the Numbers

Now that Thankgiving is over, the Christmas season officially begins. In fact, the popularity of Christmas is growing by leaps and bounds; so much so that, according to Statista, Christmas is now being enjoyed by an increasing number of non-Christians. With that in mind, here is some more data on Christmas and the holiday shopping season:

85% Percentage of Americans who said they celebrated Christmas in 2021.

10% The share of Americans who say they won’t be celebrating Christmas this year.

$850 billion Total holiday US retail sales in 2021.

1 Amazon.com’s rank among Americans’ favorite holiday shopping e-commerce websites.

4% Increase in the number of Americans who say they plan to do most of their holiday shopping in-store this year.

40% Percentage of shoppers who say they start their Christmas shopping before November.

$880 Average amount Americans said they spent on Christmas gifts last year.

Source: Statista

The Question of the Week

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Last Week’s Poll Results

Which of these natural disasters are most likely to affect your residence? (Pick all that apply)

More than 2200 Len Penzo dot Com readers responded to last week’s question and it turns out that a plurality of people are more susceptible to tornados than any other natural disaster. Here in my neck of Southern California, for the past 25 years my home has been tested by two wildfires and too many earthquakes to count.

This question was suggestion 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: IRS Audit

The IRS returned a tax return after the taxpayer answered one of the questions in a manner that was not acceptable to the auditor. Specifically, it was the taxpayer’s response to question 23: “Do you have anyone dependent on you?”

The taxpayer’s original response was: “Yes. Five million illegal immigrants, 1 million crack-heads, 4 million unemployable scroungers, 80,000 criminals in over 85 prisons, plus 650 idiots in Washington DC who call themselves politicians.”

On the returned form, the IRS auditor had attached a Post-it Note with an arrow and the words: “Your response to question 23 is unacceptable.”

So the taxpayer sent back the form to the IRS with his reply scribbled on the bottom of the auditor’s Post It Note: “Who did I leave out?”

(h/t: RD Blakeslee)

More Useless News

Here are the top five articles viewed by my 44,192 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. 9 Great Gift Ideas for People Who Have Everything
2. The End of the Dollar: Exponential Functions and the Illusion of Safety
3. I-Bonds Are Now Paying 6.89%; Here Are Their Pros and Cons
4. How to Avoid Fees on Your Cash App
5. How I Fought My Parking Ticket and Beat City Hall

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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 my article highlighting the top 40 ways to improve your credit score, Ken Thomas left this comment:

There’s an old saying that, “If you’re depressed, you’re living in the past. If you’re anxious, you’re living in the future. And if you’re at peace, you’re living in the present.”

Okay … but I’m hungry. So that old saying isn’t a lot of help right now.

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