Black Coffee: Getting What We Pay For

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?

Price is what you pay. Value is what you get.

– Warren Buffett

Credits and Debits

Debit: Did you see this? A new Redfin survey found that nearly 40% of US renters no longer believe they’ll ever own a home. The reason: lack of affordability. For that, you can thank the seemingly-relentless increase in home prices, and rising mortgage rates. In fact, first-time buyers must now earn $119,769 to comfortably afford the median-priced home $332,494. That’s about $45,000 more than the median household income $74,755. Imagine that.

Debit: On a related note, a recent study has determined that the classic middle-class American Dream now costs more than $3.4 million, putting it entirely out of reach for many Americans. For the record, that daunting figure is the estimated lifetime cost of marriage, two children, cars, a home, healthcare, education, and retirement. We just wonder how many young Americans today believe that to be even remotely achievable. How times have changed. It used to be a given that that most American kids would end up better off than their parents – which resulted in young people pondering stuff that was far more mundane. Take this one, for instance:

Debit: In other news, Bloomberg reports that jewelers and pawn shops are seeing a flood of people selling their gold. “People are using gold as an ATM,” said Gene Furman, owner of King Gold & Pawn in Brooklyn. In fact, Furman says that since gold prices started to rally in February, the number of customers selling and pawning their gold jewelry has tripled. It’s likely that those increased sales of the yellow metal are due to Americans’ declining living standard. Sadly, they’re also selling their best defense against spiraling inflation. I hear ya; that’s not very smart. On the other hand, we’re still in an age where stuff like this exists …

Debit: Indeed, last week the International Monetary Fund (IMF) warned that America’s “fiscal (deficits) are out of line with long-term fiscal sustainability” and risks reigniting inflation and undermining long-term fiscal and financial stability around the world by ratcheting up global funding costs. “Something will have to give,” the IMF warned. Ya think?

Debit: Unfortunately, the great majority of what the US government does these days is not authorized by the US Constitution. As a result, it is mostly comprised of completely useless garbage in the form of government programs and agencies that are primarily designed to maintain and grow the vast federal bureaucracy, while simultaneously delivering very little value – if any – for the American people it purports to represent. As for all the currency that has printed out of thin air since the Great Financial Crisis (GFC) in 2008 to pay for it all, well … that has illusory second-order effects too. (Just don’t tell that to the muppets.)

Credit: Speaking of the rapidly debauching US dollar (USD), sagacious macro analyst Franklin Sanders pointed out this week that, “The one fact about the current gold rally that jumps right in your face is that it’s no longer intimidated by a rising dollar or higher interest rates. I really can’t overemphasize to y’all what a huge sea change that is. Inference: the people buying gold are really dumping dollars.” Or more to the point: US Treasury bonds. Hmmm. If you’re wondering why that it is, there are more than a few good reasons … including this one:

Credit: Meanwhile, the US National Debt may be approaching $35 trillion, but Congress keeps spending anyway. The trouble is, as James Howard Kunstler notes, “Debt loses its credibility if there’s no plausible way of paying it back. The US can’t even pay the interest on its Treasury bonds, (which) is running at well over $1 trillion a year. That’s a thousand billion – which is a thousand million; altogether a million million. But it’s impossible to grok how more than $1 trillion gets produced in an economy based on selling chicken nuggets and streamed movies to people with no jobs.” Yep. Which is why life is so much easier for those who refuse to think for themselves.

Credit: Ironically, the breakout in gold prices over the past six weeks has been largely ignored by the mainstream media, with gold rapidly moving from a low of $1993 per ounce on February 13 to $2230 at the end of Q1 to roughly $2350 at this writing. For those of you not counting at home, that’s an 18% move from the yellow metal’s February low.

Credit: For his part, Sprott’s macro analyst John Hathaway says the evidence is clear: “Loss of trust in the USD as a safe asset is no longer a hypothetical concern. Abandonment of the USD is now a reality – and the pace is picking up steam.” What does that mean for the average American? Well … Mr. Hathaway warns that the “repercussions for financial markets and the real economy are unlikely to be negligible, with the breakout in gold bullion signaling the possibility of a significant reset of world financial markets.” Despite this, Hathaway is surprised that “the investment public remains asleep to the risks.” Frankly, we’re surprised that he’s surprised.

Debit: Not surprisingly, Michael Hartnett – who happens to be Bank of America’s chief strategist – says that that waning confidence in the USD, coupled with “the explosion in gold … and its decoupling with real rates, is signaling that … yield curve control (YCC) and the end of quantitative tightening (QT) to prevent a debt crisis is inevitable.” Unfortunately for the Fed, those “solutions” aren’t really solutions at all because they’ll only delay the inevitable. And why is that? Well … we’re pretty sure this will help explain:

Credit: Here’s the bottom line: This week, macro analyst Matthew Piepenburg observed that, yes, “as Warren Buffet says, ‘gold does nothing; it just sits there and stares and you.’ But while this so-called pet rock with no yield sits there ‘doing nothing,’ the currency by which you measure your wealth is in fact quite busy melting like an ice cube – one day, month and year at a time.” Indeed it is. Then again, as Vladimir Lenin reminded the world a century ago, “There are decades when nothing happens – and there are weeks when decades happen.” Uh huh. Just remember, that little pearl of wisdom applies not only to us, but to currencies too.

By the Numbers

The median home is affordable for median earners in just four states (West Virginia, Ohio, Iowa, and Indiana) and only six of the 50 largest US metro areas. Here’s how much breathing room homebuyers in those six cities have, as measured by the gap between the local median home price and the local median income needed to afford the median home in their respective city:

$2026 Birmingham

$2349 Indianapolis

$2426 Memphis

$7788 St. Louis

$8820 Cleveland

$10,688 Pittsburgh

Source: Clever

The Question of the Week

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Last Week’s Poll Results

If you had no choice, what’s the most you’d pay to replace your vehicle (new or used)?

• $20,001 to $30,000 (27%)
• $10,001 to $20,000 (21%)
• More than $40,000 (20%)
• $30,001 to $40,000 (17%)
• Less than $10,000 (15%)

More than 2300 Len Penzo dot Com readers responded to last week’s question and it turns out that for almost half of you, the sweet spot for buying a replacement vehicle for your current car is between $10,000 and $30,000, which strongly suggests most people in that group would be buying a used vehicle.

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: Psych Test

During a visit to the mental asylum, a visitor asked the director, “So … what is the criterion that defines whether or not a patient should be institutionalized?”

“Well,” said the director, “we fill up a bathtub. Then we ask the patient to empty it and we offer him a teaspoon, a teacup, or a bucket.”

“Of course,” said the visitor, with a chuckle. “I totally get it. A normal person would choose the bucket as it is larger than the spoon and the teacup.”

“No,” the director replied. “A normal person would pull the plug.”

(h/t: Salamander)

Buy Me a Coffee? Thank You So Much!

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More Useless News

Here are the top five articles viewed by my 48,633 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. 9 Crazy Tax Deductions That the IRS Eventually Accepted
2. 6 Giant Ads That Can Be Seen from the Sky
3. Mailbag: Should I Contribute to My 401k or Save for a Home?
4. How to Find a Discount Plumber Who Won’t Rip You Off
5. 14 Kitchen Hacks for People Who Can’t Cook

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(The Best of) 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

Stefano wasn’t buying any of my reasons explaining why a 30-year loan is better than a 15-year mortgage. At least I think he wasn’t when he left this comment:

I must say, I can’t concur with you 100%. But that’s merely my opinion, which could be wrong. I don’t know.

Maybe it’s just me, Stefano, but I’m betting you hate it when people ask you to recommend a good restaurant.

If you enjoyed this, please forward it to your friends and family. 😊

I’m Len Penzo and I approved this message.

Photo Credit: public domain