Black Coffee: Down the Rabbit Hole

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 …

Nothing would be what it is because everything would be what it isn’t. And contrariwise, what it is, it wouldn’t be, and what it wouldn’t be, it would. You see?

– Lewis Caroll, Alice In Wonderland

Credits and Debits

Debit: Did you see this? Inflation may be cooling a bit, but by any historic measure it remains high. Even so, the market is not convinced the Fed will raise rates next month when it is scheduled to decide whether to increase, drop, or leave rates unchanged. One thing is certain: Whatever decision the Fed makes will be the wrong one. Now who wants a marshmallow peep?

(h/t: @LawrenceLepard)

Credit: Meanwhile, last quarter saw the Nasdaq’s best quarterly performance since the second quarter of 2020 – and before that, the first quarter of 2012 – aided by its 8% gain last month. That was the Nasdaq’s biggest March advance since 2010. The S&P 500 ended the same quarter up 4%; although just eight companies – Meta, Apple, Amazon, Netflix, Alphabet, Microsoft, Nvidia, and Tesla – account for all of the S&P’s return for this year. As for the other 492 stocks, collectively they’re down 1% for the year. Yeah; that’s totally healthy.

Credit: Somewhat curiously, stocks are rising while the US money supply – which includes the nation’s overall stash of cash, coins, bills, bank deposits, and money market funds – is falling at its fastest rate since the 1930s. So how to explain the dichotomy of falling money supply with rising stocks – and price inflation? Well … just as there was a time lag in the appearance of price inflation after the massive injection of central bank liquidity during the COVID crisis, there will be a similar lag in the appearance of price deflation in the form of crashing asset prices. At least the employment picture looks like it will continue to be stable. Oh, wait …

(h/t: r/WallStreetSilver u/Zootleblob)

Credit: Of course, inflation data has been purposely understated by the government for more than 40 years now – a practice that has resulted in more than a decade of monetary policy errors. As macroeconomist Alasdair Macleod notes, “The moves to conceal rising prices ended when central banks suppressed official interest rates to zero. Not only did this create the illusion that inflation was not a problem, but it also encouraged policy makers to more aggressively suppress interest rates to get an apparently flatlining CPI to rise to the 2% target.” Mission accomplished – assuming 14% is the new 2%.

Debit: The truth is, more than a decade of near-zero rates allowed state and local governments to borrow cheaply to fund economically dubious projects. For example, San Francisco spent $1.95 trillion on its brand new 1.7-mile Central Subway; the trouble is, it carries fewer than 3000 riders daily. Critics assert the dearth of passengers is a result of the boondoggle’s absurd design: Riders have to walk the equivalent of three football fields to connect to companion transit lines, and take three lengthy escalators to reach platforms 12 stories underground. Ironically, follies like this are only possible when currency has little value.

Debit: At the same time, the Fed’s reckless quantitative easing policy has artificially inflated asset values and pushed both private-sector and government pension funds to pile into riskier investments in the hopes of eking out higher returns. But now the music has stopped and the bills are coming due, as the balance-sheet risks for mismanaged states and municipalities that were hiding in plain sight just as they were at Silicon Valley Bank are becoming painfully apparent. Imagine that.

(h/t: r/WallStreetSilver u/BoatSurfer600)

Debit: Unfortunately, the continued Fed-induced financial-market turmoil and a prolonged economic downturn will continue to put increasing pressure on municipal pension funds. Some to the point of collapse, while the affected cities are forced to declare bankruptcy. Needless to say, the taxpayers will invariably get the bill for politicians’ bad financial bets. Frankly, it’s no wonder that the public’s lack of confidence in the Fed and the banking system it oversees is now worse than ever. As for me, I ain’t gonna worry until I see something like this outside my window:

Credit: Sadly, there isn’t a lot taxpayers can do to escape the financial pain that they are going to be forced to bear – either through higher taxes or via sharply lower living standards via inflation – and that can spell bad news for those in charge. As JB Shurk notes, “Perhaps most dangerous for Western stability is governments’ absolute refusal to accept any accountability. (Taxpayers) didn’t empower central banks to … create a ticking financial time bomb that will almost certainly unleash the world’s worst economic depression – governments did.” Then again, does at this point, does it really matter?

Credit: In the meantime, three of the very few libertarian politicians in Congress are trying to restore some stability into the system with the Gold Standard Restoration Act (HR 2435), which would peg the rapidly depreciating US dollar (USD) to a fixed weight of gold bullion. But wait; it gets better. If the bill is signed into law, both the Treasury and the Fed will have 24 months to publicly disclose all gold holdings and gold transactions, after which time the USD would be formally pegged to a fixed weight of gold at its then-market price. However, that would force the government to live within its means. So consider this bill is DOA. Meanwhile …

Debit: Speaking of Western stability, it seems to be crumbling at an ever-quickening pace. Last year the US rallied its G7 allies behind a $60-a-barrel cap on purchases of Russian crude oil – but that alliance has fractured, as Japan is now buying oil at prices above the cap in order to maintain its access to Russian energy. The concession shows Japan’s reliance on Russia for fossil fuels. It’s also a glimpse into what course the European G7 nations will be forced to take if their dependence on Russia energy becomes critical in the coming months. With that mind, does anybody else see a problem here? Okay … then how about here:

Credit: The good news is, those who are so inclined can still protect themselves from the financial insanity. John Hathaway, who is the senior portfolio manager for Sprott points out that, “there is likely no safer asset than physical gold. The metal has no counterparty risk – unlike all other financial instruments including bank deposits and government bonds – is highly liquid, and has an unbroken record of retaining value in absolute terms and relative to financial assets.” Just remember, being a precious metal, there isn’t a lot of physical gold to go around – which is why you have to have in hand before you need it. And not a second later.

By the Numbers

While salaries increased 5.1% between December 2021 and December 2022, wage growth couldn’t keep up with inflation, which averaged 8% in 2022. With that in mind, a recent study determined the minimum after-tax income currently needed to live comfortably in America’s 25 largest metropolitan areas. Here are the five most and least affordable metro areas, based on the basic cost of living for a single person with no children:

25 San Francisco (Basic living cost: $84,026)

24 San Diego ($79,324)

23 Boston ($78,752)

22 New York ($78,524)

21 Seattle ($77,634)

5 Charlotte, NC ($62,110)

4 Philadelphia ($61,678)

3 San Antonio ($59,270)

2 Detroit ($58,358)

1 St. Louis ($57,446)

Source: Yahoo!Finance

Last Week’s Poll Result

Are you planting or expanding a food garden this year?

No (51%)
Yes (49%)

More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than half of you are putting your green thumbs to work this year in the veggie garden. Of course, not only is a veggie garden a great way to increase your family’s food security, it can also help reduce your grocery bill too – and who doesn’t like lower food bills?

Last week’s question was suggested by Lauren P. 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.

The Question of the Week

[poll id=”469″]

Useless News: The Gamblers

Two guys at a casino had lost everything but after looking through the loose change in their pockets they found they had $10 each. Desperate to recoup their bankroll, they decided to pool their remaining cash and use it to make one last long shot bet.

After thinking about which number to place the bet on the roulette table, the first guy asked his betting partner how many times he had made love to his wife the previous night. The fellow answered “Three times.”

He then asked his buddy the same question. “Four times,” was the reply.

So the men decided to put the last of their cash on number 7.

The croupier then gave the roulette wheel a mighty spin. The two men watched the little ball spin round and round until it finally it came to rest.

“Zero!” the croupier announced to the players.

As they watched the croupier take their $20 bet off the table, the first guy dejectedly looked at his buddy and said, “Serves us right. If we had been honest we would have won.”

(h/t: Peter Pan)

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. North Dakota (2.43 pages/visit)
2. Tennessee (2.26)
3. Arkansas (2.24)
4. Pennsylvania (2.15)
5. South Dakota (2.14)

46. Vermont (1.63)
47. Nebraska (1.58)
48. Oregon (1.46)
49. Alaska (1.40)
50. West Virginia (1.30)

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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 past week’s article highlighting 34 tricks for achieving early retirement is getting a lot of attention. After reading the piece, JD had this to say regarding my repeated references to the high cost of kids:

Kids aren’t cheap. But, neither is my darn dog.

No kidding, JD. Just be glad we don’t send our pooches to college.

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

Comments

1

Sara King says

Hi Len,

Loved my Easter cuppa today!

Isn’t it funny how the banking crisis suddenly just disappeared now? It’s back to business as usual on CNBC and the rest of the MSM. The Fed patched a hole in the roof, but they did nothing to fix the rotting foundation.

Have a great weekend everybody!

Sara
- 2
  
  Len Penzo says
  
  You and I both know the crisis didn’t go away, Sara; it’s on a short hiatus. The worst is yet to come.
3

Cowpoke says

So St. Louis and Detroit are the two cheapest metro areas to live.

The only trouble is they are located in St. Louis and Detroit.
- 4
  
  Paul says
  
  Ain’t that the truth. On the other end of the scale is San Fran. Used to be a beautiful city. Now it’s a $hithole. Moral: you don’t always get what you pay for.
- 5
  
  Susan says
  
  LOL!
- 6
  
  Len Penzo says
  
  Good point, Cowpoke.
7

Madison says

The picture of the shrinking airline peanuts made me laugh. So what does that mean, instead of 5 peanuts in the pack there are only 4 now? ha ha ha ha!! (I can’t believe people notice that stuff!)
- 8
  
  Len Penzo says
  
  I’m surprised anybody actually caught that too. But as somebody said, that’s still a 5% change. Not insignificant.
9

RD Blakeslee says

I notice these “Best (or worst) places to live stories all “measure” quality of life in urban areas.

Dumb, IMO.

Take a REAL HARD LOOK at countryside places, ignorant, lazy “reporters”.
- 10
  
  Len Penzo says
  
  Dave, your comment makes me think about how people who travel across country by car almost always stay on the Interstates, and avoid taking the two-lane back roads. Most people have no idea how different America is when they get off the main highways.
11

Victor says

Rates have gone up but still aren’t high enough. Going to be interesting to see which method of execution the Fed chooses for itself next month. Death by currency collapse or death by depression.
- 12
  
  Len Penzo says
  
  I’m going with death by currency collapse. I think they already showed their hand when they started reducing the size of interest rate increases.
  
  I don’t know about you, but my grocery bill continues to soar at a rate that’s far higher than the 6% being reported. Far FAR higher. Inflation is nowhere near under control and yet they are on the verge of ending their rate hikes – so they are going to save their fellow banks rather than the USD.
13

Robert says

You can’t print food, medical supplies, other commodities and productive jobs. This three card monte game has been working for many years – but not this time. There is no printing our way out of this one.
- 14
  
  Len Penzo says
  
  You’re correct. But they’re going to try anyway!
15

Lauren P. says

Happy Easter, Len, and thanks for the Coffee! Over the last week I’ve seen several articles talking again about our soon-to-be insolvent social security and Medicare systems. What I DIDN’T see was anyone in Congress or the Admin talking about it, as usual. I just don’t get how our nation can afford such generous welfare programs when the programs people worked and paid into are going belly up. I also struggle with the irony that if the welfare recipients WORKED, Social Security, etc. would be more solvent!
- 16
  
  Len Penzo says
  
  Happy Easter, Lauren! I am sure Congress will put the SS problem off until the very last minute. Only then will they do whatever they have to in order to make sure SS doesn’t go belly up. Until then, they are only going to gnash their teeth and wail about the issue.
17

bill says

People are looking at the horrific government spending, the fed printing, and China/Russia buying gold. What nobody mentioned is that in 1967 the Federal government guaranteed to keep the Saud family on the throne in return for Saudi Arabia tying the price of oil to the US dollar.

Now, Russia, China, several other nations, and Saudi Arabia are discussing a new currency. As soon as the petrodollar ends, trillions of dollars will flood the USA. The government can’t print us out of the economic collapse or tax us enough to make up the difference. A day of reckoning is coming, and it will be worse than we can all imagine.
- 18
  
  Len Penzo says
  
  I agree, Bill. There are going to be a lot of shocked people. I suspect it will lead to civil unrest in some of the poorer large metro areas.

Question of the Week

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