Black Coffee: For the Fed, It’s the Frying Pan or the Fire

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?

We stand today at a crossroads. One path leads to despair and utter hopelessness; the other leads to total extinction. Let us hope we have the wisdom to make the right choice.

— Woody Allen

Credits and Debits

Debit: Did you see this? A recent Harris Poll suggests that the picture is grim for new homebuyers. In fact, 64% of Americans say they are “ready for a recession” if they are better able to afford to buy a home. Keep in mind that this survey was conducted in June – and housing affordability has only gotten worse since then. Of course, you can always rent – as long as your willing to comply with the landlord’s covenants. Or not …

Debit: In other news, according to Bloomberg, it takes now “somewhere between $3 million and $5 million” to retire comfortably. I don’t know about that. Although I guess that might be true if you plan on living to be 101-years-old. Or you’re a dedicated beer connoisseur …

Credit: On the other hand, a new study by Moneyzine has found that the average American will have to save $658,883 to retire with the standard of living they’re currently accustomed to. According to the study authors, this should take the average American 22 years to save with compound interest. As for those who plan on living to the oldest recorded age of 122, they say one needs to save $2,963,879 in today’s dollars. Maybe; maybe not. As one Zero Hedge commenter deftly points out, “where you retire is 100 times more important than how much money you have saved up.” Yes; because everything is relative. I think.

Debit: Indeed, US Treasuries are in the midst of their worst drawdown in the last five years. In fact, for longer-duration Treasury debt, the maximum drawdown is approaching 50%; that’s huge for an asset that is supposed to be “risk free.” Now for the punchline: Selloffs in Treasuries are compounded by inflation-induced purchasing power loss of the US dollars (USD) they are denominated in. Although you’d never know inflation was still a problem if you followed the government’s official data …

Debit: Meanwhile, long-term Treasuries are pushing 5% and as a result, there are many people out there who believe the Fed is finally losing control of interest rates – at least until they restart the printing press again, which will pour gasoline on the inflation fire that is currently raging, not to mention drive yet another nail into the USD’s global reserve currency status. I don’t know if the Fed has lost control, but they are definitely in rough waters. How rough? Would you believe this rough?

Credit: Financial analyst Wolf Richter says there is really no mystery for those rising Treasury yields. He observes that it’s all due to “a tsunami of debt issuance,” coupled with the Fed’s quantitative tightening (QT), skittish foreign and US buyers demanding to be compensated for the risks of out-of-control deficits in an inflationary environment. “And so,” he says, “the share of foreign holders of the US debt held by the public has plunged; they’re still adding, but not nearly fast enough to keep up with the growth of the US debt. And other buyers have to be enticed with higher yields to fill the gap.” Uh huh. Who can argue with that?

Credit: Macro analyst Bill Holter says it goes a bit deeper than that – and the world’s central banks know it. He says the Fed and other sovereign banks know that the West’s “financial system is broken and it can’t survive the math. Once we got to 0% interest rates, the debt continued to pile up. Now they have to keep rates up; otherwise, the USD will be sold. That’s why you’re seeing interest rates spike as hard as they have. So the US Treasury is going to be paying $1.5 trillion a year just in debt service; but the debt service has quadrupled, and there are no more tricks in the bag.” True. But maybe they can borrow one from this guy:

Credit: Frankly, the empty bag of tricks may not matter. That’s because China announced last week that it’s considering the issuance of gold bonds. This is a not-so-subtle attack on US Treasury bonds’ dominance as global reserve asset. According to Reuters, Chinese officials now say that, “In a war with the US over Taiwan, China would need to create a global network of companies under US sanctions, seize American assets within its borders, and issue gold-denominated bonds.” Hey … it beats another government currency alternative:

Credit: As macro analyst Vince Lanci points out, “There’s a lot going on and gold is finally reacting to it. What’s different? Here is precisely what has changed: The world is waking up to gold as a formal replacement of US Treasuries as the world’s global reserve asset. This explains why gold is rallying, why Treasuries are selling off, and why China continues to dump them along with the rest of the world at an accelerated pace. This shows China is serious and not waiting anymore.” Then again, although China and the rest of the world are waking up to gold – my home state of California certainly isn’t. Trust me …

Debit: The bottom line is this: Holter says, “We’re in the biggest bear market in credit in the history of the world. In other words: We’ve had more losses in the credit markets than there has ever been in the history of history. The credit bubble has popped.” Okay. Now can somebody tell that to the credit-card holders?

Credit: As macro analyst Matthew Piepenburg observes, “Eventually a choice will have to be made between saving the system – of which sovereign bonds are the foundation – or sacrificing the currency. In other words: Get ready for more dollar-destroying ‘state action’ from that private enterprise known as the Fed. And all of it will be in the form of direct magical mouse-click money.”

The Question of the Week

[poll id="498"]

Last Week’s Poll Results

How much cash do you have in your wallet right now?

• $20 to $50 (37%)
• $51 to $100 (23%)
• More than $100 (23%)
• Less than $20 (10%)
• $0 (7%)

More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly less than half of you keep had more than $50 in your wallet. On the other end of the spectrum, just 1 in 14 had nothing but moths in their billfold. As for me, I try to keep at least $40 on me at all times; it used to be $20 … but inflation.

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.

By the Numbers

The average American cusses 85 times a day, or about five words every waking hour. Taking this a step further, BonusFinder.com analyzed the top posts for key state subreddit pages to determine which states have the worst potty mouths on the Internet, measured by average cuss words per post:

4.2 Idaho

4.3 Oklahoma

4.7 Louisiana

4.8 Indiana

5.2 Iowa

6.1 Missouri

6.2 Tennessee

6.5 Florida

6.7 Ohio

6.9 Texas

Source: BonusFinder.com

Useless News: Rules and Regulations 

On the first day of college, the dean addressed the students, pointing out some of the rules: “The female dormitory will be out-of-bounds for all male students, and the male dormitory will be off limits to the female students. Anybody caught breaking this rule will be fined $50 the first time. Anybody caught breaking this rule the second time will be fined $100. Being caught a third time will cost you $300. Are there any questions?”

One student raised his hand and asked, “How much for a season pass?”

(h/t: Stevie)

Buy Me a Coffee!

For the best reading experience, I present all of my fresh Black Coffee posts without ads. If you enjoyed this week’s column, buy me a coffee! (Dunkin’ Donuts; not Starbucks.) Thank you so much!

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More Useless News

Here are the top five articles viewed by my 47,192 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. How 6 Tiny Money Leaks Cost Me $2802 Annually
2. The 5 Worst Store-Brand Grocery Products
3. 8 Ways to Make Money on Your Morning Commute
4. My 13-Year-Old Daughter Shares Her Financial Fears
5. 7 Great Careers That Don’t Require Experience to Start

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Letters, I Get Letters

After reading last week’s article warning about the nine biggest home repair scams, Jason left this comment:

Coincidentally, for the introductory price of $109.99, I’m offering a complete carpet cleaning package that kills roaches and termites while it cleans your carpets! Heck, it’ll even keep your mother-in-law away! I can’t offer this deal all day though, so hurry up and send an order to “notashyster @thepersistentitch.com.”

Um … I’ll take two.

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Photo Credit: public domain