Black Coffee: Battle Stations!

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 …

Damn the torpedoes; full speed ahead!

— David Farragut

Change is the essential process of all existence.

— Mr. Spock, Star Trek

Credits and Debits

Debit: Did you see this? The typical down payment for US homebuyers hit a record high of $67,500 in June – that’s almost 15% higher than the same time last year, when the average down payment was just under $59,000. Sadly, even that amount was still too high. What America needs is a very sharp housing market correction; think a minimum of 50% lower from here. The trouble is, as long as the Fed keeps the currency spigots wide open, the chances of that type of downturn occurring are slim and none.

Debit: Of course, the rising cost of living – despite government claims to the contrary – is a big reason why a growing number of Americans are struggling to makes ends meet in the current economy. And now a new survey has found that two-thirds of us believe that the American Dream is unattainable. Imagine that.

Debit: By the way, another survey found that the average family needs more than $150,000 to live “the American Dream.” For example, on the high end it takes an annual income of $261,000 for a family of four in Hawaii, while on the low end that same family needs “only” $110,000 in Mississippi to live the American Dream. The good news is the government has finally developed a plan to stop inflation in its tracks …

Debit: On a related note, a new survey has found that 46% of Americans said they view credit-card balances as higher than usual. Ironically, that percentage was even higher (68%) among those with an annual household income of more than $150,000. Not to mention people like this …

Debit: Ironically, Dollar General reported a catastrophic earnings drop last quarter, blaming a “financially constrained core consumer” for their sales woes. The losses were so bad that by the end of the day its stock fell more than 32% on the news. Meanwhile, back at company headquarters …

Credit: Curiously, on the same day that Dollar General reported their dismal earnings for last quarter, the government reported that US GDP “beat expectations,” growing 3% in the second quarter. Hooray! Now for the punchline: Ironically, officials admitted that the GDP figure was revised upward solely due to an increase in “personal consumption.” In other words: something doesn’t add up.

Credit: In other news, wealth manager, Dr. Robert McHugh, observed last week that, since the Fed’s inception in 1913 there have been 20 rising interest rate cycles – and every single one eventually triggered an economic recession. “Not once,” says the good doctor, “did a soft landing follow. The Fed has never been able to pull off a soft landing. Never. So, why should we expect them to do that now?” (h/t: The Moneychanger) Hmm. That is a good question – assuming you believe that assertion. Although, when it comes to questions, it’s not quite as good as this:

Debit: Meanwhile, the US Treasury is expected to issue more than $3 trillion in new Treasury bonds over the next two years, which means Wall Street is going to have to find additional investors willing to take on as much as $400 billion in new debt issuance. The problem is that if that isn’t possible – which is becoming increasingly likely – then some of the biggest banks in the US will be on the hook to pick up the slack. Never mind that those so-called “primary dealers” are already stuffed with more Treasuries than they can handle. Yes … that’s a problem. Let’s just hope the Fed is able to step up their game …

Credit: Needless to say, the cracks in the global financial system are growing rapidly. In fact, it seems like nearly every facet of it is leaking oil – but which one is most likely to fail first? For his part, macro analyst Alasdair Macleod believes that “of all the dangers that threaten the global financial system, the one most likely to topple it is the US Government’s debt trap.” More alarmingly, Macleod says a global financial system collapse is a situation that is “becoming inevitable.” Frankly, it’s hard to argue with him. Although many believe the derivatives bubble – rather than the debt – will be the proverbial straw that breaks the camel’s back …

Credit: In the meantime, we see that the price for a 400-ounce gold bar is now $1 million. It reached $1 million on August 16, 2024 – 53 years and 1 day after the US government broke the US dollar’s (USD) utility as a reliable store of value by decoupling the USD’s anchor to the yellow metal. For the record, back then a 400-ounce bar could be had for just $14,000. And while we know many people blame the Fed for this, the real culprits are the ones who have worked tirelessly to pass laws that interfere with the free market and ensure the unfettered expansion of the federal government. In other words:

Credit: Here’s a fun fact: Prior to the pandemic, the price of gold was strongly correlated to the inflation-adjusted interest rate set by the Fed. However, these days the yellow metal is marching to the beat of its own drummer. In fact, even Bloomberg was forced to admit this week that the current gold bull market is a result of a growing number of people recognizing the precious metal as “fallback money” in a time of ever-increasing monetary system distress. Indeed they are – and that includes the ever-growing BRICS economic bloc led by Russia and China.

Credit: Not coincidentally, macro analyst Chris Marcus reported this week that, “As we approach this year’s BRICS meeting next month in Kazan – with reports of a 40% gold-backed ‘Unit’ payment settlement currency continuing to emerge – Russia just announced that they’re allocating $1.9 billion for gold and foreign currency purchases over the next month.” That means, like it or not, it appears that the world is methodically returning toward a global monetary system based upon gold. If true, the prognosis for the USD’s continuing role as the premier world reserve currency can be summed up thusly:

By the Numbers

A new study reveals that low-income Americans are still struggling – but now the cracks are starting to show for higher-income ones too:

80% … of all surveyed households say they’ve cut their spending this year.

50% … of surveyed households with incomes up to $150,000 report that they’ve been spending cautiously this year.

46% … of all surveyed households say their credit card balances are “higher than usual.”

68% … of surveyed households making more than $150,000 say their credit card balances are “higher than usual.”

60% … say they reduced restaurant spending compared with six months ago.

36% … plan on increasing the number of store-brand groceries over the next six months.

24% …of consumers said they’ve depleted their savings account.

Source: MarketWatch

The Question of the Week

[poll id="552"]

Last Week’s Poll Results

Which asset class has provided your highest investment returns?

• Stocks (44%)
• Real Estate (24%)
• Precious Metals (13%)
• Bonds (9%)
• Something Else (7%)
• Cryptocurrency (3%)

More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that, not surprisingly, a strong plurality of you have relied on the stock market to build most of your wealth. Somewhat curiously, 9% of you actually say bonds have been your ticket to prosperity. Very interesting indeed. If so, I have to assume it was due to active trading, rather than holding those bonds to maturity. Either that or junk bonds? Maybe some of you who voted for bonds can share the actual avenue.

This week’s question was once again submitted by reader Frank. Thanks again, Frank! 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: Fore!

Three golf clubs went into a bar.

The putter asked for a beer.

The wedge ordered tequila.

And the third?

The third said, nothing for me, thanks. I’m the driver.

(h/t: JohnAZ)

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More Useless News

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“Thanks for the advice! I think your blog deserves more attention than it’s getting. I’ll probably be back again to read more.”

Aww, thank you so much, Carroll! Hey … wait a minute. What do you mean, “probably”?

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