Black Coffee: Living on Borrowed Time

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 an enjoyable week. Without further ado, let’s get right to this week’s commentary …

Time is the coin of your life. It’s the only coin you have, and only you can determine how it will be spent. Be careful lest you let other people spend it for you.

– Carl Sandburg

Credits and Debits

Debit: Did you see this? A new study has found that raising a child in the US is more expensive than ever. (Surprise, surprise.) It turns out that adding one child to a two-adult household increases required annual expenses by an average of $22,000 – that’s a 40% increase in expenses. As for families with two kids, the financial impact nearly doubles, with costs rising by $39,000 on average – and that’s an increase of more than 70%. It’s just too bad that’s also encouraging more than a few naive people out there to clamor for a nanny state – and we mean that literally:

Debit: In other news, we see that the recent flood of new inventory in the US housing market has brought the number of homes sitting vacant and waiting for a buyer close to levels previously seen only during the 2008 housing bubble. Despite this fact, for-sale speculative (spec) homes are being built at the second highest rate ever. The only other time there has been more builder spec inventory was right before the 2008 housing bubble crash. And on a somewhat related note …

Debit: You’d be forgiven for believing that, despite soaring 30-year fixed mortgage rates, US home prices would be falling – but they just hit another all-time high. Yes; that’s good news for people looking to sell. But it’s a nightmare for first home buyers struggling to enter the market. So just how high are home prices today? Well … they’re now almost 55% higher than they were five years ago – and a whopping 142% higher since 2012. We know what you’re thinking: Who, exactly, is responsible for the obviously-broken housing market? Well … there are plenty of suspects. And if they’re ever held to account, they’ll know who to call:

Debit: Hey … it’s not just the middle class that is struggling with high prices. Believe it or not, even the wealthy are beginning to feel the inflation pinch as rising gold costs are rippling through luxury markets. Rolex says it is increasing their prices in 2025, with all of their gold watches increasing 14% while their steel versions will see just a 3% increase. For instance, Rolex’s gold GMT-Master II that went for $42,550 in 2024 now has a price tag of $45,950. The large price increase gap between Rolex’s gold and steel models primarily reflects surging precious metal costs. The good news is, even the steel models can result in a very fine return on investment.

Credit: On other hand, while used Rolex watches can greatly appreciate in value over time, most models have been on the decline; prices fell nearly 5% last year. But that’s an improvement from 2023 when used Rolex watches fell more than 8%. Even so, it must be said that used Rolex watches in good shape are still very expensive for most people as they typically sell for more than $10,000 … lest anyone get the urge to tack one of those dreaded community-notes onto this credit. For instance …

h/t: @FiboInvest1

Credit: If only government-issued bonds were able to preserve purchasing power as well as a Rolex. With that in mind, it’s no wonder that macro analyst Matthew Piepenberg asked the following question this week: “How does a central bank keep its sovereign bond market alive when fewer nations and investors trust or want those bonds, given the nation’s embarrassing bar tab? It’s simple: Central banks can mouse-click their currency out of thin air to pay for the debt. (So) the bond market is ‘saved’ at the expense of the currency’s purchasing power.” Uh huh. But unfortunately for them, people notice. Oh, and speaking of central banks …

Debit: Not coincidentally, the dollar’s share of global reserve currencies has dropped by 8.6 percentage points since 2015 and is currently at a 30-year low. If this pace of decline continues, the dollar’s share will fall below 50% by 2034. That being said, the rate of decline has been much steeper since the US weaponized the USD against rival nations in 2022, which suggests the USD’s share will dip below the 50% point long before that. In the meantime, the “Almighty Dollar” train keeps on rolling. Well, at least until it gets around the bend …

Debit: One of the biggest reasons for the USD’s dwindling share of the world’s foreign exchange reserves is China’s decision to begin dumping its US Treasury holdings, which have been declining since reaching an all-time high in 2013 – although the pace picked up markedly since 2022. See for yourself:

h/t: Dave Kranzler @InvResDynamics

Credit: Of course, almost all of the USD’s share of global reserve currencies is going to its main competitor: gold. And it doesn’t help the USD that the yellow metal is a far better store of value. For example, an ounce or a gram of gold today purchases the same amount of crude oil as it did way back in the 1950s. On the other hand, those who have chose to hold their reserves in USD need to pay an average of 15 times more dollars for an equivalent amount of oil. As for why that is, well … the outgoing US Treasury Secretary knows the answer:

In case anybody still needs to be convinced why gold is the world’s premier store of value. (h/t: King World News)

Credit: On a related note, financial analyst Wolf Richter noted this week that, “Central banks had spent decades unloading their gold holdings. But 10 years ago they started rebuilding their stash. Central banks’ gold holdings have surged over this decade to 1.2 billion troy ounces – roughly $3.1 trillion, compared to $12.3 trillion in foreign (currency) reserves.” This begs the question: What could have caused this policy change? Well … the most logical reason is this: Central banks realized that the risk of their fraudulent debt-based monetary system imploding is growing with each passing day, and there’s nothing they can do to stop it.

Credit: We’ll close this week with macro analyst James Turk, who reminded us this week that, “Gold and silver are always good value in a broken monetary system because despite their daily, monthly and annual fluctuations, they preserve purchasing power over long periods.” Indeed. Nothing is better – especially when you consider that unlike many other assets that are technically capable of storing wealth, the yellow metal’s value can never go to zero.

By the Numbers

Before we get any farther into the New Year, let’s take a look at one last look at performance of select asset classes. But this time it’s over the past 25 years, between 30 December 1999 and 31 December 2024:

247% Dow Utilities

272% Dow Industrials

302% S&P 500

378% Nasdaq Composite

431% Silver

436% Dow Transports

470% Nasdaq 100

808% Gold

Source: The MoneyChanger

The Question of the Week

Last Week’s Poll Result

Is it financially smarter to buy or rent a home right now?

• Buy 41%
• Rent 32%
• I’m not sure 27%

More than 1900 Len Penzo dot Com readers answered last week’s question and it turns out that a plurality of you believe that buying a home today is a better financial strategy than continuing to rent. I have to respectfully disagree; I think home prices are significantly over-priced at the moment. The only exception I would make is if you were 100% certain that you would not be selling your home for at least 10 years; in that case, the ramifications of holding an underwater mortgage should the housing market crash would be irrelevant.

If you have a question you’d like 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: Horse Trading

A man named Joe bought a horse from a farmer for $250. The next day, the farmer drove up and said, “Sorry mister, but I have some bad news; the horse died.”

The man said, “Well … then just give me my money back.”

The farmer said, “Can’t do that; I went and spent it already.”

“Okay, then,” said the man. “Just bring me the dead horse and I’ll raffle him off.”

The farmer said, “You can’t raffle off a dead horse!”

“Sure I can,” said Joe. “I just won’t tell anybody he’s dead.”

A month later, the farmer met up with Joe, who told him that he sold 500 tickets at five dollars each, making a cool profit of $2495.

The farmer was stunned by what he heard. “Didn’t anyone complain?” he asked.

“Just the guy who won,” said Joe. “So I gave him his five bucks back.”

(h/t: RD Blakeslee)

Squirrel Cam

In case you missed last week’s edition of Black Yes … we have a squirrel cam on the front porch too! Say hello to Junior:

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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

One of this week’s featured posts entitled 11 Ways to Make Your Retirement Savings Grow Faster, inspired Nicholas to ask the following:

Look, it’s not a home run at work every day, but why live like a poor person so you can quit your job and live like a poor person?

Well, Nicholas, it’s because … Wait … Is that a trick question?

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.