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 …
A smart man makes a mistake, learns from it, and never makes that mistake again. But a wise man finds a smart man and learns from him how to avoid the mistake altogether.
– Roy H. Williams
Credits and Debits
Debit: Did you see this? A Citigroup attempt to credit a client’s account with just $280 went wildly wrong, with the financial services giant crediting it with $81 trillion instead. Yes; that’s trillion with a “t.” To put that $81 trillion figure in perspective, consider that the current M2 measure of US money supply is “only” $22 trillion. Hey … the error is completely understandable. I mean, we all make data entry errors of 11 additional significant digits from time to time. Besides, there are mistakes out there that are far more dangerous …
Debit: For those of you who aren’t counting at home, this followed the accidental transfer of $900 million to Revlon in 2020. Yes; that’s million with an “m.” Never mind that that’s nearly $1 billion – with a “b.” Regardless, it’s extremely gratifying to learn that Citigroup has been diligently working over the past four years to correct obvious flaws with their technology and errors in their quality control policies.
Debit: In other news, this week the Fed forecast that GDP would finish the first quarter of this year at a negative 2.8%. That contraction estimate marks the worst forecast since the 2020 pandemic. That shouldn’t be too surprising because the Fed can’t seem to learn from its own mistakes. As macro analyst Jesse Columbo points out, “In general, the Fed raises rates until something breaks – and that something is typically industries or speculative booms that flourished in the prior low-rate environment.” Then they print even currency to paper over the carnage.
Here’s a historical look at the Fed Funds Rate since 1975. Notice that every Fed hiking cycle has led to financial crises of varying degrees. (h/t: Jesse Columbo)
Coming soon …
Debit: A big reason for the Fed’s poor outlook on GDP is due to stagflationary signals that became more obvious this week. First it was slower consumer spending. That was followed by the latest PCE price index showing inflation is running at 2.5% annually. Meanwhile, consumer sentiment is only worsening amid these economic pressures, with most Americans reporting their incomes aren’t keeping up with the latest spike in inflation – and that is holding down household savings and discretionary spending. In other words: the economy is a mess.
Source: Incrementum via @IGWTReport
Debit: Despite the Fed’s worsening economic sentiment – not to mention US government and private sector plans to reduce payrolls at the fastest pace since the 2020 pandemic – major American stock market indices are only now starting what appears to be a noticeable pullback from their all-time highs … which just goes to show that, upon a quick glance, things aren’t always as they seem.
Debit: Although it may seem like it, the price of everything isn’t climbing. The highly-speculative asset better known as bitcoin fell 17% in February, marking the cryptocurrency’s worst monthly performance in nearly three years. It could have been worse – after topping at $109,000 the crypto coin traded below $80,000 on the last day of the week before staging a late rally. Oh, well … live by the scam, die by the scam.
Credit: On a somewhat related note, US Treasury Secretary Scott Bessent says he expects that by July of next year, DOGE could ultimately root out $300 billion in federal waste, fraud, and abuse; that’s about 1% of GDP. Bessent added that the cost-cutting agency has already uncovered substantial inefficiencies – along with a staggering amount of outright fraud. He admitted that, when in comes to waste, fraud, and abuse most people think in terms of waste and abuse, but “I’ve got to tell you that I’m slightly shocked at the fraud we’re finding.” Really? Because we’re not, Mr. Secretary. At all.
h/t: @LibertyPillMeme
Debit: Unfortunately, 50 years of price suppression in the world’s only true safe haven from our debt-base fiat monetary system – that is: physical gold – will ultimately manifest in a much bigger spike in food price inflation over the coming years. In fact, precious metal analyst David Jansen warned last week that, “as capital continues to move from intangible investment assets, into which monetary inflation was temporarily diverted, and into real goods like gold and food stuffs, we will increasingly see food poverty and famine show its face – in the West.” And you thought tariffs were going to be a problem. Or not …
Credit: Fortunately, the world is finally waking up to the fact that gold is currently undervalued. How much? Well … according to macro analyst Egon VonGreyerz, “at $2920, all the gold officially held by the world’s central banks amounts to approximately $3 trillion. At the same time just one US stock – Microsoft – has a market cap of $3 trillion. (So) a single company equals the total value of all central bank gold holdings.” Now … I know what you’re thinking: What, exactly, is going on inside the brains of people who actually believe that these absurd numbers make sense? Well … if we had to guess, probably something like this:
Credit: By the way, VonGreyerz also had this observation about the yellow metal this week: “Whether the gold is or is not in Fort Knox, it could be seen as a sideshow. After all, it accounts for only 2% of all the gold ever mined in history. But on the other hand, either little or no gold there, results in no confidence in the US or in the USD.” For now, the USD remains the strongest currency in the world, but gold is gaining quickly. In fact, if the currency wars were a footrace, it would probably look a lot like this, where the USD is represented by the runner in green:
Credit: Macro analyst Alasdair Macleod believes the current economic situation is eerily familiar to another infamous time: “The combination of a credit bubble coupled with punitive tariffs is promising to collapse global trade and repeats the conditions that led to the Wall Street crash and the Smoot-Hawley tariff Act of 1930 which fueled the 1930s depression. (But) this time the combination could be even more vicious, undermining credit values considerably more than those reflected in the dollar’s 1934 devaluation against gold.” It’s a historical lesson we should all be paying close attention to. Oh, and speaking of tough lessons …
Credit: The good news is, Macleod points out that there are still ways to protect ourselves from a catastrophic economic downturn. “With the prospect of extreme financial value destruction, safety in terms of wealth conservation is to get out of credit into real money, which is gold, and to just ride it out.” Absolutely. In fact, truer words have never been spoken.
By the Numbers
With many Americans struggling to build a financial safety net, a recent survey was completed that highlights the biggest obstacles to saving for a rainy day and American’s financial expectations in 2025. Here were some of the key findings:
25% The share of people who are forecasting their emergency savings to decrease over the next nine months.
19% Americans who say they couldn’t come up with $1000 in cash within 24 hours to save a loved one’s life.
26% Survey respondents who admit to never having an emergency fund.
51% The percentage of Americans who say they don’t have an emergency fund because their income is too low.
44% The share of respondents who blame inflation for their lack of an emergency fund.
34% Americans who point to their debt load as the main reason why they lack an emergency fund.
40% The share of those who say paying off debt is their top financial goal, prioritizing it over building an emergency fund and their retirement savings.
22% The percentage of respondents who expect someone else to bail them out if they run out of money.
Source: Wallet Hub
The Question of the Week
Last Week’s Poll Result
Have you ever flown on a helicopter?
- Yes 41%
- No; but maybe some day 34%
- No; and I never will 25%
More than 1900 Len Penzo dot Com readers answered last week’s question and it turns out that almost 3 in 5 of you have never flown on a helicopter. Nor have I; the risk factor is just too high for me, which is why I’ll never get on one. Well … at least voluntarily. 😉
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: Construction Site
An old nun who was living in a convent next to a busy construction site couldn’t help but notice the coarse language of the workers. Eventually, she finally decided that she would spend some time with them to correct their offensive ways.
So the next day she made herself a brown bag lunch. She then walked over to the worksite with the intention of sitting down with the workers and introducing them to the Lord. As she approached a small group of men in hard hats, she gave a big smile and asked, “Do you men know Jesus Christ?”
The bewildered crew looked at each other, and they all shook their heads. Just then, the foreman looked up into the steelwork and yelled, “Hey! Does anybody up there know Jesus Christ?”
One of the steelworkers on the girders above shouted back, “No! Why?”
The foreman yelled, “Because his wife is here with his lunch!”
(h/t: Sam I Am)
Squirrel Cam
A new female squirrel found the walnut buffet this week and decided to strike a happy pose for the camera with a kernel in her mouth.
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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 out to me at: Len@LenPenzo.com
After reading this article on my blog explaining why a college degree isn’t necessary to succeed, Jimmy Ekwere left this comment:
Your [sic] 65% right. For me i [sic] believe that if one is able to read and write than [sic] your [sic] good to go. Hence if we could teach our children how to communicate and enroll than [sic] on an handwork [sic] it could help reduce unmployment [sic].
You definitely made your point, Jimmy!
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Photo Credit: stock photo
Hi Len,
I love my weekend cuppa!
The stock market is looking pretty shaky. When is the last time people were fearful of investing in the market? Seems like a long long long time ago!
I just don’t think the people behind the scenes are going to let the stock market have a proper crash or even a mild correction. Am I wrong?
Have a great weekend everybody!
Sara
I think the people behind the scenes already bailed from the Market and put their money in safe places like T Bills and other cash instruments.
Gold looks good, obviously, but so does debt free land in a low property tax area. No debt always looks good, imho. So does a secure job.
Re the 2008 crash…..Buffett explained the sheer scale of the panic: “Thirty-five million Americans at the start of September [2008] thought $3.5 trillion of their money was safe in money market funds. Then, in one week, they got worried about it.”
Got Popcorn? This could be far far worse as the new tariffs take hold. That, and the constant uncertainty.
Buffett explained the sheer scale of the panic: “Thirty-five million Americans at the start of September [2008] thought $3.5 trillion of their money was safe in money market funds. Then, in one week, they got worried about it.”
Increased Tariffs:
The Smoot-Hawley Act raised tariffs on foreign imports to the U.S. by about 20%, aiming to protect domestic industries.
Retaliatory Tariffs:
Over 25 countries responded by increasing their own tariffs on American goods, triggering a “trade war”.
Global Trade Collapse:
The tariffs led to a dramatic decline in international trade, with U.S. exports falling from $7 billion in 1929 to $2.5 billion in 1932.
Exacerbated the Great Depression:
Economists and economic historians agree that the act and subsequent retaliatory tariffs worsened the effects of the Great Depression.
Impact on U.S. Economy:
The Smoot-Hawley Act raised the price of imports, decreased the amount of exported goods, and contributed to bank failures, particularly in agricultural regions.
Foreign Policy Consequences:
The tariffs also had foreign policy consequences, such as the overthrow of the U.S.-friendly government in Cuba, which had depended on sugar sales to the U.S.
Good luck. The next month should be critical.
The Fed sure made a quick turnaround on their GDP estimate didn’t they? Funny how one day everything is coming up roses and now the economy is falling apart. Looks like now that a new president is in office they’re ready to start telling the truth.
More likely they know that the only thing that was keeping economy afloat was massive govt deficit spending and creating worthless govt jobs. That mirage is ending now.
Hi Len, another good cuppa Joe. U.S. debt is now $36+ TRILLION and EVERYONE on The Hill knows that. Sara, I’ve been fearful of investing in the Market since Obama used the word “trillion” re: the U.S. budget! THAT’s when hubby and I began fast-tracking our plans to get through tough times.
I think we’re all gonna feel the pain of bringing this debt under control, and no doubt our new Administration will be blamed for the pain instead of all the Congress Critters who took our debt up, up, up over the years!
That said, after a few month’s of higher inflation due to new policies, Argentina’s new President managed to bring their debt and inflation under control in under a year. I’m hopeful we can do the same. But no matter what, it’ll be an interesting year and I’m thankful for PMs and for Len supplying good reads through it all. 🙂