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 …
If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.
– John Paul Getty
The future ain’t what it used to be.
– Yogi Berra
Credits and Debits
Credit: Did you see this? A recent study has found that 72% of Gen Zers – that is, those currently between 12 and 26 – believe they’ll become wealthy one day, making them the most financially optimistic generation. Hey … who says the American Dream is dead and buried? After all, it could be worse. For example, the average German’s standard of living has been in decline for a couple of years now. Then again, It’s hard to see how Germany is much different from America these days.
Debit: Frankly, it’s good for everyone that the latest generation of Americans is so positive about their future finances. And let’s pray that their hopes and dreams come to fruition because – as of right now – the ones who are looking to buy their first home should know that tight inventory and uncomfortably high interest rates mean that the American dream can only be achieved by those with high-paying jobs, lots of money, or rich parents. No doubt that’s why the median age of first-time home buyers has jumped from 29 in 1981 to 36 today.
Debit: Unfortunately, affordability for first-time home buyers has been diminishing for a long time – but especially over the past ten years or so. Even before the pandemic, roughly 1 in 3 first-time homebuyers could only cover at least part of their down payment by tapping rich parents or family members for either a gift or loan. By 2021, that increased to 2 in 5, with the percentage of young adult buyers with a co-borrower over the age of 55 also at an all-time high.
Debit: Then again, as Bloomberg pointed out this week, during the pandemic housing boom, “first-time homebuyers were frequently squeezed out as they competed against people with cash and investors who frequently target starter homes.” In fact, by 2022 the typical household income for first-time buyers soared to $90,000 in 2022; nearly 30% higher than the income required in 2019. And that’s a problem considering the median household income is currently in the neighborhood of $71,000.
Debit: But wait; the bad news for prospective first-time home buyers gets worse. The affordability problem is so bad that – for those without wealthy parents – it now takes roughly 13 years for an individual saving 5% of the median household income every month to set aside enough for a 10% down payment on a typical home. And that’s assuming home prices don’t increase any higher than they already are over the next decade. I know …
Credit: Generation Z’s optimism is based on their plan to become wealthy via the stock market. But as financial analyst Lance Roberts points out, “that hasn’t worked for the generations before them.” That’s because since 1980, there have been three major bull market cycles – each culminating in major bubbles. The first two – the Dot-com bust of 2000 and the Real Estate Bubble collapse in 2008 – ended in tears. As for the third, Roberts says, “We now have the Everything Bubble fueled by a decade of monetary interventions. Yet, 80% of Americans still aren’t wealthy.” Uh huh. Just think how high that number will be when this one pops.
Debit: Needless to say, homes don’t have a monopoly on affordability issues; the Manheim Used Vehicle Value Index, which tracks the auction prices of used cars, increased 4.3% last month. That’s the largest February increase since 2009. Although used car prices are down from record highs last year of more than $28,000, the average price of a used vehicle has clawed its way back up to $26,510. As a result, used vehicle retail sales declined 5% in February, and are down 9% since January 2022. And if you think rising prices for used cars doesn’t make a lot of sense, then you probably haven’t seen this …
Debit: Meanwhile, our fraudulent debt-based fiat monetary system continues to unravel; it’s a process that started when Nixon “temporarily” broke the US dollar’s (USD) anchor to gold in 1971 – and we’ve been paying for it ever since, as any lover of tomato soup can attest. See for yourself:
(h/t: GGSR21.com)
Debit: Of course, when this fraudulent fiat monetary system finally buckles, the banks are going to be first to feel the pain. After the 2008 collapse of Lehman, governments around the world vowed that in the future, bail-ins would replace taxpayer-funded bailouts as the means of rescuing failing banks. And while that’s good news for taxpayers, it won’t be so good for unwitting bondholders and large depositors of any bank in distress, as they’ll be forced to sacrifice their bonds and deposits for equity in any initial emergency attempt to try and recapitalize the institution. Oh, and speaking of unwitting bank depositors …
Credit: As macroeconomist Alasdair Macleod notes, under current banking regulations in the West, large deposits are purposely penalized as available stable funding – most likely due to their risk of being capture in the future via bail-ins. As a result, Macleod says the unfavorable regulations “are the likely reason why US banks are turning down large deposits.” At the same time, depositors who have large bank balances would probably be wise to limit the amount of cash they keep at any one institution – just in case the failure of Silicon Valley Bank on Friday portends the possibility of more – and even bigger – bank failures lurking around the corner. (Spoiler alert: There are.)
Credit: By the way, with Credit Suisse now showing more signs of distress – and in case you’re having trouble reading between the lines – Macleod offers a little help. “The message is clear,” he says. “Rising interest rates and bond yields are beginning to threaten a banking crisis. Gold is the safe haven.” Yep. And it always has been; as 5000 years of human history attests.
(h/t: r/WallStreetSilver u/Quant2011)
Credit: Speaking of gold … Back in 1918, just 45 troy ounces of gold would cover the bill of materials for a modest home from Sears & Roebuck. So, if you include the labor, the total cost of a new home shortly after the turn of the 20th century was approximately 65 troy ounces of gold. Today, it takes approximately 190 troy ounces of the yellow metal to purchase the median priced US home. That begs the question: Is today’s fiat US dollar over valued – or is gold and silver severely undervalued? Well … you tell me.
The Question of the Week
[poll id=”465″]
Last Week’s Poll Result
Where do you keep your cash savings? (choose all that apply)
- Traditional savings account (69%)
- High-yield savings account (9%)
- Money Market fund (7%)
- My mattress (6%)
- Certificates of Deposit (5%)
- Gov’t bills/notes/bonds (4%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that, despite their still-paltry interest rates, 3 in 4 keep at least some of their cash in a traditional savings accounts – or their mattress. On the other hand, just 1 in 4 take advantage of savings vehicles with much higher returns – some better than others – including high-yield savings accounts, money market funds, CDs and US Treasury bills. Frankly, it boggles the mind that anyone would keep their savings in a traditional bank savings account earning less than 0.25% when 4-week T-bills – which are safer than any bank account, money market fund or CD, not to mention free from state taxes – are currently earning more than 4.5%. But, hey … it’s your money.
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
Infidelity in a relationship is heartbreaking. But financial infidelity, including hidden credit cards and undisclosed debts, can be both heartbreaking and break the bank. With that in mind, here are the results from a recent survey of 1000 adults on couples and their finances:
38% The share of surveyed adults who say they typically disclose financial details within the first three months of a relationship.
67% Percentage of surveyed adults who prefer to wait a year before disclosing their financial details to a new relationship partner.
38% The percentage of respondents who admit to lying about their finances.
23% The share of women who admit to lying about their finances.
15% The percentage of men who admit to lying about their finances.
20% The share of men who admit to lying about their investments.
4% The percentage of women who admit to lying about their investments.
32% The share of people who say the main reason they lie about their finances is to avoid an argument.
$60,000 The maximum amount of debt that people consider to be tolerable in a new relationship, saying more than that is a dealbreaker.
2022 Year that the actual per-person debt of Americans exceeded $100,000, according to Experian.
Source: Forbes
Useless News: The Psychiatrist
The psychiatrist was not expecting the distraught stranger who staggered into his office and slumped into a chair.
“You’ve got to help me, Doctor!” the stranger sobbed. “I’m losing my memory. I once had a successful business, a wife, home and family; I was a respected member of the community. But all that’s gone now. Since my memory began failing, I’ve lost the business; I just couldn’t remember my clients’ names. My wife and children have left me, too; and why shouldn’t they? Some nights I wouldn’t get home until four or five in the morning because I’d forget where I lived. And it’s only getting worse. Oh, Doctor … do you understand? It’s getting worse!”
“It’s okay,” the psychiatrist said soothingly. “The good news is this isn’t an unusual form of neurosis. Now tell me: How long ago did you first become aware of this condition?”
“Condition?” the stranger said as he sat up in his chair. “What condition?”
(h/t: Sandy)
More Useless News
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46. West Virginia (1.60)
47. Oregon (1.51)
48. Nebraska (1.50)
49. South Carolina (1.35)
50. Alaska (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
This week, Jack sent me an email with the subject “Black Coffee” — and he got right to the point:
You complain too much.
I’m not complaining, Jack; I’m just trying to tell it like it is.
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
“Of course, when this fraudulent fiat monetary system finally buckles, the banks are going to be first to feel the pain.”
But many banks are now doing what this website recommends it’s readers do, as insurance against that day: They are acquiring physical gold as part of their reserves.
And yet, Dave, almost every Western central bank still refuses to acknowledge why they keep gold as reserves.
Moral of the story: Do what the central banks do, not what they say.
Thanks for another informative cuppa, Len. The real estate market is outrageous here thanks to the pandemic (folks moving to more ‘free’ states). I’m thankful our oldest bought a reasonable home on a couple acres BC (Before CoVid)! As for savings, we keep cash in credit unions in hopes their NCUA insurance is more fully funded than the FDIC.
A couple of acres in beautiful South Dakota sounds like a great plan to me, Lauren!
Until recently, most of our cash was in a credit union too – and a smaller amount in a couple of other institutions too.
Now the bulk of our cash is in 8-week T-bills (laddered). The majority of what’s left is in the CU.
I keep my money in a credit union. Do you think that is safer than keeping a traditional bank account right now?
I also keep my money in a credit union hoping they will manage the assets better. A few years back, however, my credit union opened its doors to non-members and commercial businesses. I am no longer confident that the board of directors will not start taking risks to increase their paychecks which will destabilize the credit union.
I can’t say for sure if CUs are safer or not, Susan. My perception is that they are though mainly because the good ones tend to be more conservative than the bigger banks.
Two banks go under in one week. Where there’s smoke there’s fire. I think this going to play out a lot like it did in 2008. Bear Sterns collapsed in March, and things festered until the wheels completely came off in Sept with Lehman Brothers failure.
I agree. These bank failures are signs of bigger stresses in the system that have been building for a while.
Fed really in a pickle now. What will they do? Lower rates and save the banks but let inflation get out of control, or raise rates and kill the banking system? Place your bets!
We should have a better idea of their short-term thinking this Monday as the Fed is holding an emergency meeting.
Never good news when a bank fails. I wonder how many accounts at SVB were over the FDIC insured limit?
The current estimate is 92% to 97%. That is mind boggling.
That being said, it looks like after this all shakes out, those with uninsured accounts may end up losing no more than 20 cents on the dollar. If true, they are pretty lucky (in a strange kind of way).
Rational people remove their low interest bearing bank deposits, buy Federal Treasuries paying higher interest. Suddenly banks don’t have the reserves or liquidity. Assets, instruments, and loans will get sold early at a loss for the bank. Trying to catch a falling knife. I think I will put my physical gold and silver under my mattress. Thanks for the cup of reality. When will rational behavior end on the magic money tree journey?
This is entirely the Fed’s fault. They pretty much got everybody addicted to free money with their ZIRP policy. And, as Wolf Richter says, “free money makes people do crazy things” (investment wise).
I’m positive everyone who is holding physical gold and/or silver are watching what’s unfolding with more curiosity than anxiety!
Is everybody paying attention? We just witnessed what a bank run would look like in today’s fast paced news/technology environment.
In only 4 days, SVB’s stock dropped 80% and then experienced a bank run before finally getting shut down. Four days.
I wonder if the great depression can be challenged with the speed at which things can occur today.
Good point, Joe. That was pretty darn fast, wasn’t it?
I read a story about SVB that said the bank’s CEO sold millions of shares worth of personal stock in the last 3 weeks!
Not surprised, Madison.
It’s me again, Len! I forgot to say in my last comment that I would NEVER date somebody with $60,000 in personal debt unless it was for a mortgage or (maybe) student debt. But only if they had a good paying job. If they didn’t, forget it!
That sounds completely reasonable to me.
Everybody! Please calm down. Janet Yellen is on this.
HA!! Good one, Nick!
LOL! I’m with Lauren. That was good!
Tomorrow will be interesting.
Bank runs prompted by SVB’s failure had already started yesterday (see several reports on Zero Hedge) and will intensify – the question is, how much and how will it be restrained? SVB’s assets are being auctioned off right now and Janet Yellen is trying thereby to recover as much as she can of the unsecured depositor’s money.
Although “retail” deposits (yours and mine) are insured up
to $250,000, bank runs generate collateral damage throughout the economy. Those who keep their savings under the mattress or in physical precious metals? Comparative peace of mind.
Agree, Dave. I suspect most precious metals holders, and those with their money outside the banking system are sleeping like a baby.
At my age, I wouldn’t even date anyone with debt. I hate debt.
Proverbs 22:7 The rich rule over the poor, and the borrower is a slave to the lender.
Thought for the week: Money and girlfriends have something in common. If you don’t pay enough attention to them, they’ll soon be gone.
A lot of guys learn this the hard way, Bill.
Bank ratings are likley not all that reliable (SVB was in Forbes’ 14th annual America’s Best Banks list issued in FEB). But one has to do the best they can with the available data. Here are a few sites to do some background checking on banks:
bank:https://banks.data.fdic.gov/bankfind-suite/bankfind
https://mapping.ncua.gov/ResearchCreditUnion
https://weissratings.com/en/search?q=type(bank,cu)+green+dot
https://www.bauerfinancial.com/star-ratings/
The problem with banks is that their stability is a function of both hard assets and trust. A run based on a bad rumor can sink an otherwise good bank.
I read today that SVB had a debt to assets ratio of 185/1. Should have been taken over long ago.
Good stuff. Thanks for sharing this, Frank!
I read earlier today that the big depositors at SVB will be paid. The stockholders and bondholders will not. Retirement plans were sizable holders. Vanguard owned 11% of SVB. The public will be hit but the big tech companies and campaign donors won’t.
Yep. Privatize the gains; socialize the losses.
Whatever you call this, it’s not free market capitalism!