{"id":43169,"date":"2017-06-03T05:15:19","date_gmt":"2017-06-03T12:15:19","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=43169"},"modified":"2024-03-03T09:41:42","modified_gmt":"2024-03-03T17:41:42","slug":"black-coffee-3-june-2017","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id43169-black-coffee-3-june-2017.html","title":{"rendered":"Black Coffee: Pay No Attention to the Men Behind the Curtain"},"content":{"rendered":"

\"\"<\/a>It’s time to sit back, relax and enjoy a little joe<\/em> …<\/p>\n

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.<\/p>\n

Off we go …<\/p>\n

Only those who risk going too far can possibly find out how far one can go.<\/em><\/p><\/blockquote>\n

— T.S. Eliot<\/strong><\/p>\n

Risk comes from not knowing what you’re doing.<\/em><\/p><\/blockquote>\n

— Warren Buffett<\/strong><\/p>\n

Credits and Debits<\/strong><\/p>\n

Credit:<\/strong><\/span> Have you checked your credit score lately? Well … maybe you should, because millions of Americans recently got an artificial boost<\/a> to their number. As a result, the average consumer credit score in the US is now 700. The last time it was that high was way back in 2005.<\/p>\n

Credit:<\/strong><\/span> Of course, most people who hear that news assume American consumers are becoming more credit worthy. Too bad it’s really just another financial trick to keep our debt-based financial system<\/del><\/span> Ponzi scheme from imploding due to a lack of “qualified” borrowers.<\/p>\n

Credit:<\/strong><\/span> Amazon got a boost of their own this week, as its shares topped $1000<\/a> for the first time, beating Alphabet to that milestone. Yes, that’s a lot of cash, but investors looking to buy a share or two should be thankful the stock has split multiple times over the years — otherwise, AMZN would cost $12,000 today.<\/p>\n

Debit:<\/strong><\/span> By the way, Amazon’s share price hasn’t been rising in a vacuum. Since May 2013 the Dow has risen 5000 points — which is rather odd when one considers that cumulative US durable goods orders have been unchanged<\/a> over the exact same period. But I’m sure that’s nothing to worry about. Hey … This party’s just getting started!<\/p>\n

Debit:<\/strong><\/span> You want to know what else is odd? This: Despite $10 trillion in deficit spending since 2009, the US economy has never grown at a slower rate<\/a> over a similar period. That’s right — even slower than during the Great Depression. And yet the stock market indices — now at all-time highs — have been steadily climbing for almost the entire time.<\/p>\n

Debit:<\/strong><\/span> If you think the stock market is, er, irrationally exuberant, then don’t even think<\/em> of buying bonds, which are in a 36-year bull market. No, that’s not a typo. By some measures, bonds are so over-valued that 10-year Treasuries are now actually riskier than stocks<\/a>. Talk about an upside-down world. And, no, this will not end well.<\/p>\n

Debit:<\/strong><\/span> Obviously, both the stock and bond market parties will continue as long as the men behind the curtain can keep the charade going. For instance, this week the Chicago Purchasing Managers’ Index was inexplicably revised sharply upward<\/a> an hour after its dismal original report sparked a negative market reaction. Heh. They don’t even try to hide it any more.<\/p>\n

Debit:<\/strong><\/span> Government bureaucrats are doing their part to fool most of the people all of the time too. For example, even though non-profits can pad their operating expenses without actually providing any tangible economic benefits, the US is now adding them to the GDP calculation<\/a>, thereby artificially boosting its first-quarter’s GDP reading — and every one that will follow from here on out.<\/p>\n

Debit:<\/strong><\/span> Meanwhile, China’s incredible growth over the past two decades has been built on so much debt that the Middle Kingdom is now the proud owner of the greatest debt bubble in history<\/a>. In fact, the combined Chinese government and corporate debt-to-equity ratio is currently more than 300-to-1.<\/p>\n

Debit:<\/strong><\/span> Then again, China doesn’t have a monopoly on debt. Most of the world’s developed economies are mired in so much red ink that a tidal wave of debt<\/a> is now threatening to drown everyone without a financial life raft.<\/p>\n

Credit:<\/strong><\/span> In the past, the world was able to avoid the negative impacts of ever-increasing debt because the red ink generated tremendous economic growth. Unfortunately, today the world is almost tapped out — and the new debt that is<\/em> being generated no longer offers any appreciable economic bang for the buck<\/a>. In other words, a day of reckoning<\/a> is fast approaching.<\/p>\n

Credit:<\/strong><\/span> As investment advisor John Mauldin notes, “There are $300 trillion in global public and private debt, plus unfunded pension obligations, that can’t be paid. A time is coming when the market will realize this.” According to Mauldin, when the next recession comes, you shouldn’t be surprised if it results in a complete reset<\/a> of all asset valuations.<\/p>\n

Credit:<\/strong><\/span> For Mauldin to suggest a financial reset may be on the horizon is quite a turn-around. Less than two years ago he was saying there was “nothing to worry about<\/a>.” Welcome to the Tin-Foil Hat Club, John.<\/p>\n

Credit:<\/strong><\/span> If Mauldin is correct, then I suspect that the only asset holders who will be smiling after the reset are the ones holding wealth insurance in the form of physical gold and silver. Frankly, I think you can take that to the bank — just don’t do it literally.<\/p>\n

Last Week’s Poll Results<\/strong><\/p>\n

Are you glad that summer is just around the corner?<\/p>\n