Black Coffee: Walking on Eggs

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 an enjoyable week. Without further ado, let’s get right to this week’s commentary …

No man’s credit is as good as his money.

– EW Howe

It’s not curiosity that killed the goose that laid the golden egg, but insatiable greed that devoured common sense.

– EA Bucchianeri

In the long run we shall have to pay our debts at a time that may be very inconvenient for our survival.

– Norbert Wiener

Credits and Debits

Credit: Did you see this? The number of signs pointing to a cooling housing market continue grow. As the latest data reveals that last month 42% of sellers offered at least one concession to buyers, typically in the form of cash credit for things like repairs, mortgage rate buy downs, or closing costs. This is the highest rate since the start of the housing market frenzy that began in July 2020. In fact, last year only 31% of sellers were willing to offer any concessions.

Debit: By the way, housing analyst Angela Cherry says the boost in seller concessions helps explain why the advertised list prices haven’t fallen faster. Then again, if the market continues to wane, sellers will find themselves on the slippery slope that will come when they’re finally forced to start making the most enticing concession of all: lowering their asking price. The only question is: Will that slope be as steep as this…

Credit: Of course, the biggest reason for the cooling housing market is the sharp increase in mortgage rates. As one housing market analyst put it, “After more than a decade of rates under 5%, we’re finally going to see how a more ‘normal’ mortgage rate will impact the housing market. It’s finally time to detox, and we don’t get to come down easy – we’re going cold turkey.” Gobble, gobble!

Debit: Needless to say, there are too many instances where the “official” data not only fails to capture the true state of the US economy, but it also conveys the exact opposite of what’s happening in the real world. For example, the media lauded the December jobs report which showed 678,000 new net jobs were created last month. The punchline: The number of part-time workers exploded by 679,000 while the number of full-time positions declined by 1000. Reading between the lines, Americans are losing full time jobs and filling the void by taking multiple part-time positions, which presumably pay less and offer no benefits. As for those of you looking for a silver lining, well …

Debit: On a related note, the latest US inflation numbers came in this week and they show that service costs are now rising at the fastest clip in more than four decades, while real wages have now declined for 21 consecutive months. And while goods inflation is slowing, it’s still at running extremely hot. If you believe the official CPI figure, inflation was “only” 6.5% last month. Then again , if you buy groceries – or follow Shadowstats, which uses the original CPI methodology last used in 1980 – then you know that inflation is currently running closer to 17%. Either way, most Americans’ living standards are continuing to fall.

Debit: In other news, the British government announced this week that it’s launching a new study on the feasibility of introducing a CBDC in the United Kingdom. Many people are wary of CBDCs because they give governments de facto power to “tax” deposits using negative interest rates and CBDC expiration dates. Never mind the other downsides from the public’s perspective including facilitating the government’s ability to easily track, trace, and tax every transaction, no matter how small or large. Although that’s not surprising when you consider the existing relationship between the government and taxpayers …

Debit: Then there’s this: Chinese researchers are claiming they’ve found a way to break encryption using quantum computers. However, claims aren’t proof. In the meantime, experts are assessing whether the method, which was outlined in a recent scientific paper, could result in a sooner-than-expected turning point in the technology. But if the claim does indeed turn out to be true, that would pose a catastrophic problem for CBDCs – not to mention the rest of the global financial system. How catastrophic? Well … I think this would be a fairly accurate representation:

Credit: The good news for the international financial system is that, when it comes to monetary transactions, real money – physical gold and silver – isn’t vulnerable to quantum computers. True; transactions made today in cash are just as secure. The trouble is, today’s cash is fiat currency, which has its own set of fatal problems. Now for today’s monetary system quiz: What significant event happened back in 1971 that transitioned America’s National Debt from a multi-century benign flat growth curve to a catastrophic relatively short-term exponential one?

Debit: Speaking of fiat currency, the US money supply is contracting at a record rate. According to macroeconomist Alasdair Macleod, “this is bound to soften Fed rate policy” in the form of lower interest rates, thereby forcing the Fed to pivot from their current quantitative tightening (QT) program to quantitative easing (QE). Unfortunately for the Fed, Macleod says “that won’t resolve the Fed’s difficulties.” Instead, he says the shift is likely to make them even worse than they already are. But that’s to be expected since Fed policy makers are hopelessly stuck in the monetary system equivalent of a Chinese finger trap.

Credit: Meanwhile, a bill introduced in the Missouri Senate for the 2023 legislative session would take several steps to encourage the use of precious metals as money in the Show Me state, including making gold and silver legal tender, eliminating the state capital gains tax on them, and establishing a state bullion depository. As financial commentator Franklin Sanders notes, “The bill would set up currency competition which makes possible the reverse of Gresham’s law: good money driving bad out of circulation” – which is the exact opposite of what we have today, where the far-less valuable fiat US dollar has driven both gold and silver into hiding.

Credit: In 1970, total US debt was 1.5 times GDP; today it’s nearly four times America’s productive capacity. In fact, asset manager Egon VonGreyerz points out that “without credit and printed currency there would be no real GDP growth. So US economic growth is an illusion manufactured by bankers and the Fed.” More alarmingly, he goes on to warn that the US is now at the point where its GDP can only continue to grow if the debt that supports it increases at an exponential rate. For those who prefer pictorial representations, this graph illustrates the problem before us so clearly that even Stevie Wonder can see it:

Credit: This week Sprott market analyst John Hathaway warned that with “the dynamic of falling tax receipts, rising deficits and untamed inflation, it appears the US fiscal situation may be spiraling out of control. (Therefore) we believe the Fed will be forced to abort its anti-inflation crusade sooner rather than later.” So what to make of this? Well, for those who are paying attention, VonGreyerz says the answer is obvious: “the US is living on both borrowed time and money.” Which is why it’s important to ensure that when the bill finally comes due, you aren’t among the millions of Americans who will be stuck holding the bag.

The Question of the Week

[poll id=”457″]

Last Week’s Poll Result

How do you think the S&P 500 will perform in 2023?

• I’m not sure. (50%)
• It will finish with a negative return. (26%)
• It will finish with a positive return. (24%)

More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that half of them say they aren’t sure whether the S&P 500 stock market index will finish in the red or the black this year. As for the other half, their almost evenly split between those who say the stock market index will finish with a positive or a negative return.

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

Last year was one of the most consequential years on record for cryptocurrencies. After an extremely bullish 2021, the market saw a dramatic reversal. With that in mind, here are six figures that defined the crypto market in 2022:

$1.46 trillion The drop in crypto’s total market capitalization in 2022.

86.3% Last year’s decline in the stock value of the Coinbase crypto exchange.

1,150,000 The number of unique active wallets participating in blockchain-based games; this was a 65% increase from 2021.

$100,000 The amount Sam Bankman-Fried, founder of the bankrupt FTX crypto exchange scam, claims he has left of his ill-gotten $26 billion fortune.

$3 billion The amount of cryptocurrency that was stolen in 2022 by hackers and fraudsters.

15 The number of Congressional hearings held in 2022 that focused on cryptocurrency and blockchain policy.

Source: Fortune

Useless News: Small Talk 

As the trip was a long and quiet one, a lady stopped the car and asked an old Navajo woman who was walking if she would like a ride.

With a silent nod of thanks, the woman got into the car.

Resuming the journey, the lady tried in vain to make a bit of small talk with the Navajo woman. The old woman just sat silently, looking intently at everything she saw, studying every little detail, until she noticed a brown bag on the seat next to the lady.

“What’s in bag?” asked the old woman.

The lady said, “It’s a bottle of wine; I got it for my husband.”

The Navajo woman was silent for another moment or two. Then speaking with the quiet wisdom of an elder, she said, “Good trade.”

(h/t: Freddy Finn)

More Useless News

Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:

1. Wyoming (3.00 pages/visit) (!!)
2. Hawaii (2.43)
3. Alaska (2.25)
4. Connecticut (2.21)
5. Alabama (2.17)

46. Virginia (1.64)
47. Maine (1.63)
48. Oregon (1.52)
49. West Virginia (1.40)
50. South Carolina (1.19)

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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 article discussing tip inflation, Jeff shared this:

In Japan there is NO tipping and the service is excellent — a point of pride, or service. It’s like the server is saying, ‘If I take no money from you, then you know my service was sincere.’ A tip is an insult.

You can bet there are servers in America who often consider some of their tips to be insulting too.

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: public domain