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 Dr. Copper has a PhD in economics, and is an expert on the business cycle, then gold is a professor with a Nobel Prize in monetary debasement.
Either the State ends public debt, or public debt will end the State.
Credits and Debits
Debit: Did you see this? The 30-year mortgage rate is 6.90%, with the average lender now offering their highest rates since early March. If this doesn’t change, the pressure on the housing market will continue into summer, as buyers are struggle to afford homes because prices haven’t declined enough to make up for those rising mortgage rates. Adding salt to the wound is a very stoic Fed, which continues to insist that they have no plans to lower interest rates any time soon. And we all know that the Fed doesn’t just talk the talk – it walks the walk too. Oh, wait …
(h/t: @MishGEA)
(h/t: r/WallStreetSilver u/silverpatriot7)
Debit: For what it’s worth, three years ago, the 30-year mortgage rate was 3.24% and the median US home price was $284,000. Today, the 30-year mortgage rate is 6.39% and the median US home price is $389,000. As a result, the average down payment is now $21,000 for those who put 20% down, and the average monthly payment has increased from $987 to $1944. The good news is, there’s a cure for that. Well … even if it is only temporary:
Debit: Needless to say, those rising monthly mortgage payments are resulting in higher debt-to-income (DTI) ratios for today’s homebuyers. Before the turn of the century, lenders recommended a DTI of no more than 33%. That figure rose to 40% during the housing bubble run-up that led to the Great Financial Crisis (GFC) in 2008. Today, those same lenders consider a good debt-to-income ratio to be 43% or less – although DTIs as high as 50% are sometimes acceptable depending on the loan. Because it’s all about closing that loan deal.
Debit: Not surprisingly, rising DTIs have increased the popularity of high-risk adjustable rate mortgages (ARMs); they’ve climbed from 2% of all mortgages two years ago to 13% today. Oh, and speaking of high risk …
Debit: In other news, while many people are aware of the gold-silver ratio, the gold-copper ratio is a gauge that many analysts use to assess the health of the economy. “Dr. Copper” is known for its ability to signal when the economy is unwell because copper is an industrial metal that performs well during economic expansion. Gold, on the other hand, is a safe-haven asset that investors turn to during crises – which indicates market fear. Add it all up and the doctor’s chart, combined with the gold price, is telling us we’re about to head into some very tough economic times. Then again, you think we have problems? Bud Light says “hold my beer” …
(h/t: @Michael_Haz)
(h/t: @TaviCosta)
Debit: Speaking of economic downturns, first-quarter commercial real estate (CRE) prices fell for the first time in more than a decade. Moody’s said courthouse records of transactions revealed CRE market dropped about 1% in the quarter, led by multi-family residences and office buildings. This prompted Moody’s Analytics chief analyst Mark Zandi to warn that “(many) more price declines are coming.” Just how deep will the correction be? According to Lisa Shalett, chief investment officer for Morgan Stanley Wealth Management, we should expect “a decline of as much as 40% – worse than during the GFC.” Uh oh.
Debit: Of course, the downturn in CRE is an ominous sign as the regional bank crisis developed late in the quarter and has since sparked credit tightening in the second quarter. And here’s another ominous sign: Last week, the US Treasury confirmed that the federal deficit for the first six months of the fiscal year is a staggering $2.06 trillion – on an annualized basis, that will consume 101% of federal tax revenue. In the meantime, the cost of servicing all this additional debt is going up too.
Debit: On a related note, while America’s economy continues to burn, Congress is still squabbling over the debt ceiling. For what it’s worth, the political theater for raising the debt ceiling is nothing new, as it has been raised 78 times since 1960 – and you can rest assured that it will be raised again soon, despite all of the drama. Why? Because politicians would rather spend money they don’t have than make painful cuts in government programs and the bureaucracy – and the only way that can happen is by raising the debt ceiling yet again. It’s an old trick, just like this one – although nowhere near as impressive:
Credit: Although the debt ceiling drama will end as it always has, inflation is nowhere close to being tamed, and the National Debt continues to grow at an exponential pace. You can bet that’s why a recent Bloomberg survey has found that, for investors, there are few places to hide other than the oldest hedge in the book: gold. Not US Treasuries. Not bitcoin. Gold. In fact, the yellow metal is the top pick – by far – for those seeking protection if the US defaults on its debt in the coming weeks or months. As usual, the cream always rises to the top. It just takes some people longer to recognize it than others. Right, Adam?
(h/t: r/WallStreetSilver u/BoatSurfer600)
Credit: For his part, sagacious financial commentator Franklin Sanders: “The debt ceiling farce has investors holding their breath. Talk about silly – there’s no way the Republicans won’t cave in and raise that debt ceiling and agree to more deficit spending. All our money is borrowed into existence, so if the borrowing stops, the money supply collapses. Besides, the carotid artery of the Big Brother state is deficit spending, so there’s no way they’ll stop. It would be the end of their gravy train and their control.” Even better, it would also return us to those halcyon days when the federal government worked to serve its citizens, not vice versa.
(h/t: mediacloud.theweek.com)
Debit: By the way, Mr. Sanders also dispels the myth that the US has never defaulted on its debt. “Wrong,” he says. “The US defaulted on its Revolutionary war debt before 1790, on greenbacks. Then in 1862 the yankee government defaulted on greenbacks and bonds, refusing to redeem them in gold or silver as was promised. Then in 1934 Roosevelt defaulted on paying Liberty Bonds in gold, and gold certificates. Fact is, the US government has been a lousy debtor over the years – but after defaulting, the world, strangely, kept on going.” Imagine that.
(h/t: Blockworks Macro)
Credit: Curiously, the US is one of the few countries worldwide with a debt ceiling. Probably because most other nations understand that a debt ceiling is pure folly under a global debt-based monetary system that can only function when there is a growing sea of rapidly-expanding red ink. The bad news is the system is mathematically destined to eventually self-destruct. The good news is the system is mathematically destined to eventually self-destruct. Well … at least it is for those who insure their wealth beforehand.
By the Numbers
The rental market is in a state of flux right now, with just as many cities seeing declining year-over-year median rents as those with rents still climbing. With that in mind, here are the five cities with the largest declines in rental prices – and the largest rent increases:
-14.3% Austin, TX
-9.6% Phoenix, AZ
-7.1% Las Vegas, NV
-6.4% Oklahoma City, OK
-6.0% Chicago, IL
+9.7% Cleveland, OH
+10.5% Charlotte, NC
+10.9% Indianapolis, IN
+12.4% Raleigh, NC
+16.0% Providence, RI
Source: Zero Hedge
The Question of the Week
[poll id="476"]
Last Week’s Poll Results
What grade would you give the current state of your personal finances?
- B (45%)
- A (31%)
- C (16%)
- D (4%)
- F (4%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and I’m happy to say turns out that fewer than 1 in 10 of you say your current personal finance situation is below average. But what’s even better is that fully 3 in 4 of you say the state of your finances is above average. Those results are almost identical to the last time I asked this question in 2020. I also asked this question in 2016; back then 68% rated their personal finances above average and 8% below average.
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: Memorial Day
One Sunday morning, the pastor noticed a young boy was staring up at the large plaque that hung in the church foyer.
The seven-year-old had been staring at the plaque for some time, so the pastor walked up, stood beside the boy, and then said quietly, “Good morning, son.”
“Good morning, pastor” replied the young man, still focused on the plaque. “Sir, what is this?” the boy asked.
‘Well, son,” replied the pastor, “these are all the people who have died in the service.”
Soberly, they stood together, continuing to stare at the large plaque.
After a few more seconds, the boy’s voice barely broke the silence when he asked quietly, “Which service, sir? The one at 9:30, or the one at noon?”
(h/t: Sharon)
More Useless News
Here are the top five articles viewed by my 45,999 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- How to Fix Your Finances Without More Money
- 34 Financial Tricks to Help You Retire Early
- Why Coffee Drinkers Waste More than Just Money at Starbucks
- Effective Negotiating Tactics Everyone Should Know
- How Couples Can Save Money By Gaming the System
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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 reviewing my article highlighting tips to consider before hiring a concrete contractor, Mrs. Wilson wrote:
You rock, Len!
Heh. I see what you did there, Mrs. Wilson. Thank you for the sediments.
If you enjoyed this, please forward it to your friends and family. 😊
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Photo Credit: public domain
Another good cuppa Joe, Len. Always such theatrics at debt-ceiling time. In past Gov’t. shut-downs, the Feds would tell ‘non-essential employees’ to stay home, and we’d wonder, “if they’re non-essential, why are they employees?”
In 2013 when Obama shut down the Nat’l. parks over budget impasse, local businesses took turns “adopting” Mt. Rushmore to keep it open. Solved the issue in a day and kept tourism going.
You got it Lauren. 90% of all gov’t employees are non-essential. Maybe more than that. If they all went away tomorrow nobody would notice and life would go on as usual.
Hi Lauren! The last thing the government wants to do is shut themselves down because the public will quickly find out they’ll never miss them because it don’t do anything useful. In fact, they’d probably discover life got much easier – with more freedom for everybody!
Nice way to start the day.
My son is like Chris in the cartoon. Electrician. 39. This morning I am helping him install a filtration system in his rental property. Just sayin’.
I have this discussion often with my (American) sister as she believes that a liberal arts education is worth every penny because it teaches people ‘to think’ and reason. My response is that knowledge is free, especially these days, and people do not have to attend some over-priced program to think. My recently passed father in law did not complete high school due to WW2 relocation and bombing. He became a ‘pressman’, retired early with a paid for home in a beach town on Vancouver Island, was an excellent artist, taught himself to speak Japanese, and was a fly fishing fanatic. He built a sailboat and lived in the south seas in the early 60s. My wife’s early years were spent there. Our local friends always thought his Manx accent was ‘plummy’, when any Brit could hear ‘working class’ and hardscrabble.
Good for your son! I’m pretty sure they are underestimating an electrician’s salary in that meme. I know an electrician who is making 6 figures. I think most of them probably do.
Congratulation on your son’s career choice. More and more people are waking up and seeing that most college degrees are scams. Getting into a vocational trade like electricians, plumbers and carpentry is the where the money is these days. People with real skills.
Thanks for sharing those stories, Paul!
The trouble with most most institutions of “higher learning” theses days is they don’t teach students the process for HOW to think – they teach them WHAT to think. As such, they are pretty much useless, save for the STEM degrees they offer. (And I’m seeing evidence that even those classes have been infected by ideologues.)
Hi Len,
I found this week’s By The Numbers to be pretty interesting. Who da thunk there would be a time went rents were falling pretty steeply in beautiful Austin, Texas while they are RISING in Cleveland, OH? Are we talking about the same Cleveland that’s on a burning lake?
Anyhoo, I guess the unexpected is to be expected these days.
Have a great weekend everybody!
Sara
Hi, Sara. These markets are so twisted, it’s hard to determine what is going on anymore. The Fed has completely broken the price discovery mechanism.
The Bud Light display made me LOL. They’re having trouble giving it away.
I have a friend who tossed a case of it in the trash and switched to Miller Lite. Then Miller Lite decided to put out a woke video. So he tossed what was left of his Miller Lite case in the trash.
I told him to switch to hard liquor because it seems like all of these beer companies would rather preach than sell product to their customers.
All the big beer companies are compromised. People need to switch to specialty beer companies or Yeungling (which sounds Chinese but is a private American company that’s been around since the 1800s).
Yes; I noticed the same specials here where I live. And they’re STILL having trouble moving their product. Imagine that.
There were a lot of comments from various Federal Reserve governors this week and they are all making a lot of noise about raising rates again in June. I guess the banking crisis really is over. I think they are probably getting too far over their skis. It’s just more jawboning of the markets if you ask me.
We’ll see, Robert. I know this: as soon as they pivot to lower rates, gold and silver are going to skyrocket.
Always a great weekend read, Len. Thanks.
Thank you, Terry ! 🙂
The U.S. mainline media functions like Pravda and Izvestya did in the defunct Soviet Union – as a propaganda organ of the government.
For example, current “newsleaks” say there’s a deal with the Congress to agree to a government spending decrease of point two (.2) percent.
The truth: It’s not a DECREASE in spending at all! It’s an INCREASE in spending of ninety nine point eight(!) percent.
Indeed, Dave.
By the way, Pravda means “truth” in Russian. Izvestya means “news” in Russian.
The Soviets had a saying about their two newspapers: “In Pravda (truth) there is no news (Izvestya). In Izvestya (news) there is no truth (Pravda).”
Just like our mainstream media today; it’s all propaganda designed to tell you what to think.
Len if I’d done today’s survey question I’d have added a category of “0”. Next category would be $1.-$500. That would tell exactly what percent of people have paid off their house, condo or apartment in full giving an even clearer picture.
Hi Karen. You’re right! I’ll do that next time.
Evidence that understanding the utility of gold as a store of real wealth is growing: https://www.zerohedge.com/personal-finance/americans-rank-gold-second-best-long-term-investment