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’ve got another busy weekend ahead of me, so let’s get right to this week’s commentary …
Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: ‘Account Overdrawn.
– Ayn Rand, Atlas Shrugged
If he knew one thing about life, it was this: Look out for yourself. No one else would do it for you. If you were cheated or tricked, it was your own fault, and a lesson best learned before the world devoured you.
– Kelly Armstrong, Omens
Credits and Debits
Debit: Did you see this? After a brief cool down, US home prices rose again in the midst of high inflation and mortgage rates. As a result, first-time homebuyers are once again facing the highest home prices in years, as the average sale price of a typical starter home is $243,000 – that’s 2.1% higher than June 2022, and 45% above pre-pandemic levels. It also means first-time buyers now need to earn $64,500 per year to afford a home – that’s $7200 more than last year, representing a 13% increase. That being said, the big mystery is: Where in the US can you still buy a starter home for $243,000? Maybe if it’s a refrigerator box.
Credit: Meanwhile, as we all wait for the expected unveiling of a new gold-backed currency at the next BRICS conference later this month, skeptics abound. However, as macro analyst Luke Gromen points out, any debate around the purported introduction of a new BRICS currency misses a critical point: All that’s needed is for the world’s biggest energy exporter and importer – Russia and China, respectively – to establish a gold-oil settlement ratio above the ratio that is currently determined by the West. Once they do, the free market will take it from there. (h/t: Bently)
Credit: Then again, any attempts to end the dollar’s global superiority won’t be easy. Why? Well … as the macro analysts at Cross Border Capital point out, “the dominance of the US dollar parallels the dominance of the US financial system. Thus, the end of the US dollar as international money first requires the demise of US finance. And that would require far more than merely displacing the dollar as the dominant currency – itself no small feat – because the current global dollar-based monetary system is built upon the stability of the very large and liquid US Treasury market.” Er … and debt. Lots and lots of debt.
Debit: On a related note, it turns out that in fiscal 2022 the federal government spent $6 trillion of the nation’s $30 trillion nominal GDP – that’s 20%! Of that total spending, $5 trillion was paid with federal revenues; however, the other $1 trillion was funded through debt. For those not counting at home, 88% of all federal expenditures are comprised of social welfare and interest on the debt – and those payments require $5.3 trillion of the government’s $5 trillion revenue stream. Talk about things that make you say “hmmm.” So … does anybody else see the problem here? Okay … then how about here:
Debit: Unfortunately, in 2013 the US crossed the rubicon where debt became economically constructive. Since then, every dollar of debt has only served to divert increasing amounts of dollars from productive assets to debt service. As a result, it now requires $3 of debt to create just $1 of real economic growth – and that gap is growing. Despite this, Fitch waited until this week to downgrade the US’s long-term default rating from AAA to AA+ due to “expected fiscal deterioration, an erosion of governance and a growing general debt burden.” In other news, Fitch also announced that they’re changing their name to Winkle. As in Rip Van Winkle.
Debit: By the way, when you borrow from others to pay obligations you can’t afford, it’s known as a Ponzi scheme. And the US is doing a lot of borrowing at the moment. How much, you ask? Well … the US Treasury estimates it will borrow $1 trillion. No; not this year. This quarter.
Credit: In order to combat currency debasement, governments around the world are desperately trying to reduce their unsustainable debt burden by manipulating the interest they pay on their bond interest below the rate of inflation. As macro analyst Nick Giambruno points out, this strategy “allows them to borrow in dollars and repay in dimes,” thereby screwing borrowers in the process. Somewhat curiously, central banks have created a surprisingly-honest term for this practice: financial repression. Thankfully, the American consumer is resilient – so they can handle that additional financial burden. Oh wait …
Credit: By the way, for those who haven’t figured it out already, debt debasement via financial repression is a futile strategy. That’s because you can’t reduce your debt burden by creating more of it. And yet, our fraudulent debt-base monetary system is designed such that any increase in the quantity of dollars requires the debt to increase by an equal amount. So the only way to truly debase dollar-denominated debt requires something objective against which to debase – and that something is gold.
Debit: Of course, as Mr. Giambruno points out, financial repression “makes bonds a worthless promise. Bondholders are all but guaranteed to receive a negative real rate of return over the long term – and possibly be wiped out. However, that wealth will not just evaporate; financial repression transfers it to the US government. The investment implications are profound. Treasuries are no longer risk-free but rather the opposite.” Or as respected long-time macro analyst Jim Grant says: bonds now offer “return-free risk.”
Credit: Speaking of financial repression, sagacious financial commentator Franklin Sanders points out that “‘Unbanking’ has now reached the United States and will contribute new feet to the crowds already fleeing the banks. Make no mistake: Your money is neither safe nor yours in their hands.” As proof, he points out the plight of one Dr. Joseph Mercola, whose entire immediate family was banned from Chase Bank; apparently because the financial institution was offended by his politics. No, really. We can only assume the person who officially made that decision for the bank is a distant cousin to this guy …
Debit: According to Dr. Mercola, “JP Morgan Chase Bank informed me they’re closing all of my business accounts, along with the personal accounts of my CEO, my CFO and their respective spouses and children. My CEO was informed his young children also will never be allowed to bank with Chase in the future. This is what the new social credit system looks like, and what every soul on the planet can expect from the central bank digital currencies (CBDCs) that are being rolled out. Go against the prevailing narrative of the day, and your financial life will be deleted.” Very true … but a centrally-controlled digital currency would be really really convenient!
Credit: If you don’t believe the government’s number-one concern is the well-being of its citizens – after all, there’s plenty of evidence to suggest governments around the world are primarily worried about their best interest – then you may want to limit your exposure to the corrupt global monetary system. Wealth insurance in the form of physical precious metals is among the very best ways to do that.
By the Numbers
With June 30th well behind us, companies are finally beginning to announce their second-quarter earnings. Here is a broad market sample of ten companies’ immediate stock performance after their earnings were announced this week:
-15.1% Opendoor Technologies (real estate)
-10.2% Redfin (real estate)
-5.5% Block (cash app)
-4.6% Weight Watchers (health)
-3.2% Corsair Gaming (Internet gaming tech)
-2.6% Apple
-1.6% Coinbase (cryptocurrency exchange)
-0.8% Airbnb Inc.
+10.0% Amazon
+11.0% Draft Kings (sports betting)
Source: Walter Bloomberg (@DeItaone)
The Question of the Week
[poll id="486"]
Last Week’s Poll Results
How old is your primary car?
- 10 or more years (47%)
- 4 to 6 years (22%)
- 7 to 9 years (17%)
- 1 to 3 years (11%)
- Less than 1 year (3%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that almost 2 in 3 of you drive a primary car that is at least seven years old. As for me, I bought my first – and only – brand new car in 2013; a Honda Accord. Of course, it’s still my primary vehicle and I’m happy to say it has just 75,000 miles on it – and I plan on driving it for another decade, if not longer!
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.
Useless News: Hair of the Dog
A woman noticed that her dog seemed to be losing its ability to hear, so she took it to the veterinarian. The vet discovered that the problem was due to excessive hair in the dog’s ears, so he cleaned both of the dog’s ears and dog’s hearing returned immediately. The vet then told the lady that if she wanted to keep this from happening again, she should go to the store and get some ‘Nair’ hair remover and rub it in the dog’s ears once a month.
So the woman went to the drug store and got some ‘Nair’ hair remover. At the checkout stand, the druggist said, “If you’re going to use this under your arms, don’t use deodorant for a few days.”
“I’m not using it under my arms,” the woman said.
“Well, if you’re using it on your legs” said the druggist, “then make sure you don’t shave them for a couple of days.”
The lady said, “I’m not using it on my legs either. If you must know, I’m using it on my schnauzer.”
“Ohhhh, I see,” said the druggist. “In that case you’ll definitely want to stay off your bicycle for a few days.”
(h/t: Steve)
More Useless News
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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 the results of my margarine taste test, Ramona had this to say:
Hee hee. I wouldn’t eat margarine if I was paid to do it.
Maybe so, Ramona — however it’s butter than nothing.
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
Hi Len, and thanks for the ‘coffee’. A CNN headline this past week proclaimed, “Middle Income Americans Say They’re On Track to Thrive Financially”?! Not only do we have policy-making that’s utter nonsense, we have many in the press joining in, adding to the hypocrisy and confusion! It’s all ‘bread & circuses’ to distract from the truths of financial ruin, political oppression, etc.
Any aliens near earth probably lock their doors and keep on going!
I read that one too, Lauren. I could only shake my head.
These days the job of the press is to paint “reality” for us so we know how to think. No more reporting the news straight down the middle.
Hi, Lauren! Bread & circuses is right. And they’re so very effective too, unfortunately. I’m afraid the only way to break this downward spiral is a severe devaluation of the USD.
Home prices are still crazy here in the Northeast. I don’t think I’m ever going to be able to afford my own house. 🙁
But I try to keep my head up because renting has its advantages too.
Keep biding your time, Maddy. The average home used to cost 3 times the avg income. When it takes an avg of 6 times income to buy a home like it does today, pulling the trigger on a house at these prices is a big mistake.
^^^ This.
For what it’s worth, Madison, I’m encouraging my kids to stay on the sideline at the moment. I don’t want them to make the same mistake I did by buying at the top of the market in my 20s and then being upside down on my mortgage for the net seven years. Not fun!
1. Never depend on rating agencies to determine if a company is sound or not. They only issue a credit downgrade after it is too late.
2. USA credit rating should be three or four steps lower than it is.
3. Individuals’ credit ratings are held to a much higher standard than any corporation.
4. Corporation ratings are held to a much higher standard than nations.
I like this!
Poor Peter Schiff. While he will eventually be proven correct, his calls are always too early and he constantly gets mocked for it. He predicted the last housing bubble bust in 2005. That was a 4 years early. He warned that the COVID stimulus would lead to high inflation. Nobody believed him. But the biggest one is he’s been calling for a dollar crash since around 2015. One day he’ll be right about that. But it’s still not here.
Peter is a narcissistic moron! He’s a lying idiot. He loves the sound of his own voice.
He DOES love the sound of his own voice. But he’s not an idiot. Paul Krugman is an idiot. Peter Schiff is smarter than 95% of all economists. His biggest flaw is he’s usually very early with his calls which gives detractors plenty of ammo to mock him. When he finally proven right, all of those detractors disappear into the woodwork.
Krugman is far from an idiot. His New Trade Theory (which is what won him the Nobel Prize) was a major improvement over Mundel’s models (Mundel is also a Nobel Prize winner for trader theory, but far more famous for his anti-tax/supply side arguments).
His work on Liquidity Traps–and the model’s specific prediction at how the 2008-2012 stimulus would mostly fail are significant contributions to our understanding of macroeconomics and the impacts of fiscal and monetary policy.
He’s certainly made a few incorrect predictions (especially when his emotions dominate), but he owns up to them. In particular he was wrong, and has later apologized to Weber over attacking her on price controls.
I also admit to no longer reading Krugman with any regularity, so perhaps he’s lost the plot more recently? However,vif you want to hate on a centrist Economist, I suggest you direct your ire towards Larry Summers.
MP2C: I’ll be kind and say Krugman receives far more credit than he is due. Any economist who believes price controls can be an effective economic policy has instantly discredited himself (or herself in the case of Isabella Weber). Yes; they “work.” If you are unconcerned with supply shortages, and believe that a handful (or even one) human beings make market decisions for an economy better than society as a whole.
As for Krugman’s New Trade Theory, 30+ years later, the nasty fruit of his advocacy of a “wild west” for globalized free trade, and unfettered offshoring of our industrial base have come home to roost. America is a much weaker nation now that it is forced to import so many items critical to our national well-being and security. Not to mention all of its high-paying manufacturing jobs.
Krugman was arguing against price controls rather than for them.
I always ask folks. When they think the US will even remotely attempt to even discuss a plan to pay back the principal on any debt instrument. Then ask the same of any other debtor. Don’t look behind the curtain dorthy. Soon everyone will realize this at once.
Unfortunately – and as you know, CO2 – our debt-based monetary system makes it impossible to pay off the debt because the scheme is designed such that the only way a USD can be born is via new loans (i.e, debt: either via commercial banks, or by government borrowing).
Even more alarming is that not only can the debt never be retired, even a relatively small decrease in the number of USDs in circulation can’t be tolerated for any significant length of time without imploding the entire system.
This means the game will continue until the entire system collapses under the exponentially-growing debt load.
We’re almost there.
It’s been eerily quiet this summer. I guess the banking crisis and other problems have been contained.
I suspect by September or October, the next banks to blow up will reveal themselves.
“Butter than nothing.” ha ha
Spread the word, Susan! 🙂