Black Coffee: Welcome to the Fun House

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?

Numb the dark and you numb the light.

– Brene Brown

Every window on Alcatraz has a view of San Francisco.

– Susanna Kaysen

You can ignore reality, but you can’t ignore the consequences of ignoring reality.

– Ayn Rand

Credits and Debits

Debit: Did you see this? American cities are crumbling under the weight of high taxes, a growing homeless population – and the inevitable crime that comes with it. Nowhere is this becoming more evident than downtown Seattle, where both Amazon and Nike have recently abandoned that once-beautiful city, as well as a major 16-screen cinema and lots of smaller businesses. In fact, Seattle’s retail vacancy rate is currently 13.5%; that’s up from 2% just four years ago. Imagine that.

Credit: In other news, it turns out that used car prices, which nearly doubled during the pandemic, actually fell for most of 2022. Even so, used car prices are still much higher than their pre-pandemic lows. And there are signs prices are set to fall even further as lax pandemic-era auto loan lending standards are coming back to bite lenders. That’s because the percentage of car loans that are at least 60 days delinquent is at its highest point in more than a decade – which may explain why carpools like this are now growing in popularity … (h/t: The Honeybee) 

Credit: Meanwhile, December saw US existing home sales fall for the 11th straight month, leading to a record 34% decline year-over-year. As a point of comparison, that’s even worse than the biggest monthly sales decline experienced during the Great Financial Crisis (GFC) in 2008. The December pullback also makes this the longest monthly streak of sales declines in history. As a result, the median US home for sale last month remained on the market for 67 days, up from 56 days in November 2022, and 31 days last May.

Debit: Despite falling American home sales, the median price is 2.3% higher from a year earlier to $366,900, reflecting higher prices in all regions of the US. On the bright side for new homebuyers, the median price has been falling on a monthly basis since last July. Unfortunately, that’s been only a moral victory up to this point.

Debit: Of course, what’s good for homebuyers isn’t so great for home builders. In fact, KB Home – one of the nation’s largest home builders – reported a 68% cancellation rate in the fourth quarter of 2022. In case you’re wondering, on a historic basis, a 68% cancellation rate is off the charts. Yes, even higher than during the darkest days of the 2008-era crash when the average builder cancellation rate topped out at 47%.

Credit: By the way, in 2008 the Fed started buying private-sector mortgage-backed securities (MBSs); $1.7 trillion of them, to be exact. And why would the central bank ever decide to meddle in such an important market? Well … financial commentator Ryan McMaken points out that the Fed did it in order “to prop up banks and other firms that had bet on the lie that ‘home prices always go up.'” At least they do in artificially manipulated markets, as the Fed action ultimately proved.

Debit: Unfortunately, once the Fed started directly meddling in the housing market, it couldn’t stop. As McMaken points out, “The Fed attempted to sell its portfolio in 2019, but by then the market was already so addicted to Fed money that the economy slowed and a liquidity crisis ensued. So the US government began a spending spree, and the Fed hoarded even larger amounts of assets, bringing the MBS portfolio to $2.7 trillion.” For those of you counting at home, this currently represents almost 25% of all US household mortgage debt. Now … where do you think US home prices would be today if this percentage was zero?

Credit: Last summer macro analyst Luke Gromen of FFFT wrote, “the US government’s debt to GDP ratio is 120%. Since 1991, all 18 governments with deficits exceeding 11% of GDP and debt-to-GDP ratios exceeding 110% defaulted within two years.” With that in mind, the US Federal deficit as a percentage of GDP climbed to 11.9% in October 2022. Oh, I know … “we owe the debt to ourselves!” – as if that makes the debt irrelevant. The thing is: “Ourselves” consists of borrowers and lenders, which means if the US defaults, “ourselves” will be made up of winners and losers, as this dramatic recreation illustrates: (h/t: Franklin Sanders)

Credit: On a related note, last week famed economist Kenneth Rogoff warned that “We were very fortunate that we didn’t have a global systemic event in 2022, and we can count our blessings for that, but rates are still going higher and the risk keeps rising.” He also says global debt has risen to massive levels since the pandemic and now the risk of over-tightening by central banks “is nothing less than catastrophic.” As a result, “the debt bubble can pop anywhere” and at any time. Now where have we heard that before? I’d offer Mr. Rogoff one of my tin foil hats, but he is a chess grandmaster, so the man probably knows what he’s talking about.

Credit: Then again, none of these dire economic warnings should come as a surprise to anybody. After all, asset manager Egon VonGreyerz noted this week that “the final phase of empires always includes excessive deficits, inflation, a collapsing currency, decadence and war – and the US, EU and Japan have now reached the stage when no one wants their debt. But when you live on borrowed time and borrowed money, it becomes increasingly difficult to keep up appearances.” He can say that again. Oh, and speaking of collapsing currency …

Debit: Keep in mind that before our fraudulent debt-based monetary system finally kicks the bucket, many Western nations – most likely led by Japan – will hold nearly 100% of their own bonds because the usual cadre of willing foreign buyers are gone now. And who can blame them? After all, the writing is on the wall. Anyway … at that point, it will finally become apparent to the slow learners that precious metals are the only true safe haven. That’s when the gold price will skyrocket – while bond rates approach infinity, making them all but worthless. And when a nation’s bonds become worthless, its currency becomes worthless too. In the meantime …

Credit: Speaking of gold, it should be noted that Switzerland processed and delivered nearly 1200 metric tons of the yellow metal last year to just six countries: China, Thailand, Singapore, Turkey, Saudi Arabia and India – that means that those six nations imported an astounding one-half of all global gold mining output in 2022. What does that mean for us? Beats me. But it does illustrate just how rare the precious metals truly are – as well as a reminder that the time to purchase wealth insurance is when nobody else is interested in it. Because the day that changes, you can bet gold and silver will disappear faster than a fart in a wind tunnel.

By the Numbers

Fo the first time since the Great Financial Crisis of 2008, the minimum net worth required to make the Forbes list of the world’s 400 wealthiest people fell, by $200 million, to $2.7 billion. Here are the current top ten – although the top spot may be up for debate (see article box at the end of this list):

10 Jim Walton (current net worth: $58 billion)

9 Michael Bloomberg ($77 billion)

8 Steve Ballmer ($83 billion)

7 Sergey Brin ($89 billion)

6 Larry Page ($93 billion)

5 Warren Buffett ($97 billion)

4 Larry Ellison ($101 billion)

3 Bill Gates ($106 billion)

2 Jeff Bezos ($151 billion)

1 Elon Musk ($251 billion)

Source: Forbes

The Question of the Week

[poll id="459"]

Last Week’s Poll Results

The last time you bought a dozen eggs, how much did you pay?

• $3 – $4.99 (49%)
• $5 – $7 (30%)
• I don’t buy eggs. (8%)
• Less than $3 (7%)
• More than $7 (6%)

More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that, among those who buy eggs, 2 out of 5 say they paid $5 or more for their last dozen. You can put yours truly in that camp, as I had to, ahem, shell out $5.73 for a dozen eggs. I’m just hoping that the price doesn’t crack the dollar per egg barrier later this year. (I’m here all week, folks!)

If you have a question you’d like to see featured here, please send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.

Useless News: The Big Break

A young unknown actor who spent his first several years playing minor background characters in more than two dozen plays, got the news that he had landed yet another bit part; this time as a Roman spear carrier.

However, rather than being dejected, it turned out that the young actor was extremely excited because this particular role was the big break he had been patiently waiting for.

You see, unlike every one of his previous roles, this one included actual dialogue! And while it was true the young actor had just one very short line, it was all his. The line was: “Methinks I hear a cannon.”

So for weeks, he diligently rehearsed his line, trying it out in every possible way. Subtle changes of inflection. Changes in tempo and timing. On the subway, on the street, and between taking orders at his restaurant day job, others would hear him muttering, “Methinks I hear a cannon!” “Methinks I hear … a cannon!” “Me thinks I hear … a cannon?” “Methinks I hear? A cannon!” and so on.

Finally, after a month of relentless practice, opening night arrived and the theater was standing room only. The scene unfolds, and the actor’s big moment is near. There’s a loud boom offstage, and he says … “What the hell was that?”

(h/t: rrinquen)

More Useless News

Here are the top five articles viewed by my 44,832 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. Scientists Say This Clever Trick Can Help You Break Your Overspending Habit
2. Dear Friend: Here Are 41 Reasons Why I’m Not Lending You the Money
3. When Is the Right Time to Use Your Wealth Insurance (Gold & Silver)?
4. The Thermostat Isn’t the Only Tool for Saving Money on Your Utility Bills
5. 4 Online Shopping Mistakes You’re Making and How to Avoid Them

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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

This week, Michele disagreed with my article explaining why extended warranties for new tires are a waste of money:

” I seem to have a knack for getting nails in the sidewalls of at least two tires for every set of tires I own.”

Pro tip: Sidewall failures rarely happen when the tires are installed with the tread-side down.

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