Black Coffee: Food for Thought

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.

Well … another busy week is behind us. So with that in mind, let’s get this party started …

If everyone is thinking alike, then somebody isn’t thinking.

– George S. Patton

Credits and Debits

Debit: Did you see this? Another Burger King franchisee – this one with 172 stores – declared bankruptcy last week. We say “another” because it’s the third one in recent months. Burger King is struggling with weak sales nationwide, while costs for labor and food have climbed steadily. That’s definitely not a recipe for business success. Oh, well. I guess people are getting tired of paying $20 for the typical cold burger, soggy fries and a soda – all while waiting ten minutes for their “fast” food. Frankly, it’s hard to believe that there was a time when fast food was cheap, convenient, freshly-cooked, and actually pretty darn good too. Not so much anymore.

Debit: Meanwhile, here in California the “helping hand of government” is pouring gasoline on a house fire, as it recently passed a new law that will increase the minimum hourly wage at fast food restaurants to $20. Amazing. Apparently, there are no longer any “entry level” jobs whose main purpose is to provide pocket change to teenagers and foster a strong work ethic; today, even the lowest-skilled workers are entitled to a “living wage.” Besides, it’s probably time everyone begins focusing on making healthy great-tasting meals we can make at home because fast food is quickly becoming unaffordable for most people.

Debit: On a related note, Americans’ inflation expectations for November 2024 is 4.4%, and their 5-10 year inflation expectations rose to 3.2%. Optimists. Even so, that’s the highest medium-term inflation expectation since 2011. Overall, lower-income consumers and younger consumers exhibited the strongest declines in sentiment. Oh … and the share of consumers blaming high interest rates for lousy home, vehicle, and durables buying-conditions are at their highest level since 1982. It ain’t all bad news though; according to the latest government CPI data, healthcare costs are not just down, but down sharply. (Insert laugh track here.)

Debit: Speaking of inflation, US home prices have soared 162% since 2000, while income has only increased 78%. As a result, the average house-price-to-income ratio is now 5.8 – that’s more than double the 2.6 that many experts recommend. That’s not surprising. What is surprising is the falling price of gasoline in much of the US – despite the current hostilities in the Middle East. There are only two ways this makes any sense: 1) the US has ended its war on the oil industry and sharply increased domestic production again; or 2) the economy is so bad that consumer demand has collapsed. So … which one would you place your bet on?

Credit: Last week’s jobs report was clearly gamed. Thankfully, there are people who dig into the raw data to see what’s really going on. For instance, macro analyst Peter Schiff  that, “All this talk about the revitalization of manufacturing is just a bunch of BS; we lost 35,000 manufacturing jobs last month. Those are productive … good-paying jobs. Instead, we’re replacing them with more IRS agents. Last month we added 51,000 government employees to the payroll, but they only produce red tape.” Well … that’s true for politicians and bureaucrats. But there are a few people paid by the taxpayers who actually do have valuable skills …

Credit: Then there’s macro analyst Ryan McMaken who says the continuing robust jobs report is at odds with other government data. As Exhibit A, he points to “federal revenue, (which) is now heavily reliant on income taxes and payroll taxes. So, if wages and job growth were truly surging as the Bureau of Labor Statistics insists, we’d be seeing more growth in taxes on wages and income. The fact federal revenues are falling suggests household incomes aren’t exactly soaring.” True. Then again, I guess that depends on who is signing your paychecks  …

Credit: Then again, if the Fed can conjure unlimited currency from thin air with absolutely zero consequences, then why does the citizenry have to pay any taxes at all? (Hint: The answer is only slightly more difficult than the answer to this question …)

Debit: In other news, I see Moody’s Investors Service lowered the US ratings outlook from “stable” to “negative” last week, pointing to rising risks concerning the nation’s fiscal strength. As for those higher risks, Moody’s says, it’s because “in the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues … the US’ fiscal deficits will remain very large, significantly weakening debt affordability.” Imagine that. The only surprise here is the time it took Moody’s to finally reach such an obvious conclusion.

Credit: By the way, the Fed has printed $4.8 trillion out of thin air over the past several years. However, after turning the printer off they have since only managed to remove $1.1 trillion of it from the economy. This leads financial analyst Wolf Richter to ask, “Could it be that so much liquidity was created during and before the pandemic that conditions can’t meaningfully tighten until this liquidity gets burned up? And could it be, with so much liquidity still out there, that it might take a lot more and a lot longer to tighten conditions enough to remove the inflation fuel?” Mr. Richter, I think you may be on to something.

Debit: Back here in the real world, the US Treasury will soon be stuck shelling out $1.5 trillion a year just to service its ballooning debt – and the debt service cost will only continue climbing. Just a few years ago, the federal government’s total debt service expense was only $400 billion. The bottom line is that debt service has quadrupled, and there are no more tricks in the bag. So, going forward, the only way left for the US to manage its growing debt load is through inflation. The corollary is that, contrary to the inflation-fighting rhetoric, both the Fed and the US Treasury need inflation in order to keep the wheels from falling off the financial system.

Credit: According to macro analyst Luke Groman, since 1991, all 18 other governments with deficits exceeding 11% of GDP and debt to GDP ratios exceeding 110% defaulted within two years. With that in mind, financial commentator Franklin Sanders was kind enough to check on the latest US status on those two indicators. He says, according to the Fed, the numbers are 5.3% and 119.5%, respectively. Tick tock. And I can say that with confidence because the math doesn’t lie.

Credit: So how can people protect themselves from a monetary system that is melting down before our eyes, and the relentless sharp rise in prices that come with it? Well … Schiff recommends “gold and silver as an alternative store of value, and investing in real assets and other investments that will maintain their real value and preserve purchasing power so you can stay even or one step ahead.” Besides, gold and silver are the only financial assets with zero counterparty risk; all others are someone else’s liability. Maybe that’s why …

By the Numbers

None of the 50 most-populous metros in the US have a home-price-to-income ratio below the recommended maximum of 2.6. However, of the 50 most-populous metros, these are the ones with most affordable home-price-to-income-ratios:

4.2 Hartford, CT

4.1 Indianapolis

3.9 Cincinnati

3.9 Louisville

3.7 Oklahoma City

3.7 Detroit

3.6 St. Louis

3.5 Cleveland

3.5 Buffalo

3.2 Pittsburgh

Source: Homebay.com

The Question of the Week

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Last Week’s Poll Result

Are you having Thanksgiving at home this year?

More than 1900 Len Penzo dot Com readers answered last week’s poll question and it turns out that almost 1 in 3 of you plan on braving the holiday traffic and letting somebody else cook Thanksgiving dinner this year. So … are they crazy – or crazy like a fox?

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: Who’s the Dummy?

Little Johnny was always teased by the other neighborhood boys for being stupid. Their favorite joke was to offer Johnny his choice between a nickel and a dime – because Little Johnny always took the nickel.

One day, after Johnny took the nickel, a neighbor took him aside and said, “Johnny, those boys are making fun of you. Don’t you know that a dime is worth more than a nickel, even though the nickel is bigger?”

Johnny grinned and said, “Well, if I took the dime, they’d stop doing it, and so far I’ve made $20!”

(h/t: Susan)

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 — and bottom — five Canadian provinces and territories in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:

1. British Columbia (2.16 pages/visit)
2. Saskatchewan (2.15)
3. Yukon (2.00)
4. Nova Scotia (1.96)
5. Alberta (1.88)

9. Quebec (1.64)
10. Manitoba (1.61)
11. New Brunswick (1.54)
12. Newfoundland & Labrador (1.43)
13. Nunavut (1.33)

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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 me at: Len@LenPenzo.com

After my article highlighting the top 40 ways to improve your credit score, Ken Thomas left this comment:

There’s an old saying that, ‘If you’re depressed, you’re living in the past. If you’re anxious, you’re living in the future. And if you’re at peace, you’re living in the present.’

Okay … but I’m hungry. So that old saying isn’t a lot of help right now.

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: stock photo