{"id":45651,"date":"2017-10-21T03:15:36","date_gmt":"2017-10-21T10:15:36","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=45651"},"modified":"2018-11-23T16:32:55","modified_gmt":"2018-11-24T00:32:55","slug":"black-coffee-21-october-2017","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id45651-black-coffee-21-october-2017.html","title":{"rendered":"Black Coffee: The Ongoing ‘Battle’ Between Bitcoin and Precious Metals"},"content":{"rendered":"

\"\"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

Okay, away we go …<\/p>\n

“Price is what you pay. Value is what you get.”<\/em><\/p><\/blockquote>\n

— Warren Buffett<\/strong><\/p>\n

“Don’t be seduced into thinking that that which does not make a profit is without value.”<\/em><\/p><\/blockquote>\n

— Arthur Miller<\/strong><\/p>\n

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

Credit:<\/strong><\/span> I see filings for unemployment benefits plunged last week<\/a> to the lowest level since 1973. Yes, that<\/em> 1973. You can thank all of the returning employees who were previously unable to work due to the recent hurricanes.<\/p>\n

Debit:<\/strong><\/span> Meanwhile, this past week marked the 30th anniversary of Black Monday<\/a>. On that fateful day, the Dow lost 22.6% of its value. A similar plunge today would see the Dow fall more than 5200 points by the closing bell. The good news is there are now circuit breakers in place to slow the rate of descent. The bad news is, those circuit breakers only halt trading for 15 minute periods — so a similar crash is still possible.<\/p>\n

Credit:<\/strong><\/span> For those of you keeping score at home, bitcoin hit $6000<\/a> on Friday. It has since pulled back a bit — but by the end of the day it was still trading near $5950. As recently as January 12th, the cryptocurrency was selling for “just” $802.<\/p>\n

Credit:<\/strong><\/span> Bitcoins are basically nothing but a series of ethereal ones and zeros stored on magnetic hard drives — unlike precious metals, which are tangible items that you can actually hold and measure by weight. That’s why gold and silver were important in Puerto Rico<\/a> after Hurricane Maria wiped out the island’s electrical grid, and bitcoin was not<\/a>. Let that be a lesson for you on the difference between price and value.<\/p>\n

Debit:<\/strong><\/span> Despite what happened in Puerto Rico after the hurricane, a single bitcoin is still four times more expensive than a troy ounce of gold, and nearly 350 times more than a silver American Eagle or Canadian Maple Leaf. The bottom line is this: Speculators are more concerned with price<\/a>, while investors and those worried about counterparty risk are more concerned with value. Which one are you?<\/p>\n

Debit:<\/strong><\/span> Just remember, if you<\/em> own precious metals, make sure they’re in your<\/em> possession. And whatever you do, for God’s sake, don’t<\/em> store it in a bank! This week, asset manager Egon Von Greyerz reported that at least two of his clients in Switzerland are being refused access<\/a> to gold they put in Swiss banks for “safe keeping.” Strange. Say, you don’t think those shady banks took their clients’ gold and … Nahhh.<\/p>\n

Debit:<\/strong><\/span> On a somewhat related note, the US has been living above its means<\/a> for the past 50 years. Not only has America run a real budget deficit every year since 1961, but also a trade deficit every year since 1975.<\/p>\n

Debit:<\/strong><\/span> Of course, those deficits eventually caused Richard Nixon to break the dollar’s anchor to gold in 1971. That, in turn, forced the creation of the petrodollar to prevent runaway inflation in the US. Unfortunately, when the petrodollar system finally dies<\/a>, Americans’ artificially-juiced standard of living will fall sharply. At least temporarily, until the US begins making things at home that it imports today.<\/p>\n

Debit:<\/strong><\/span> It’s also no coincidence that the rise of financialization followed the dollar’s decoupling from gold in 1971. However, Charles Hugh Smith says financialization is like flying into a box canyon<\/a> because, “Once you start down the path of phantom wealth created by debt and leverage, there’s no turning back.” Yep. Our debt-based currency lent out at compound interest is that rock wall — and it’s coming up fast.<\/p>\n

Debit:<\/strong><\/span> Speaking of box canyons and rock walls, Illinois is past the point of no return<\/a>; the state can no longer raise enough taxes or cut spending to reduce its annual bond costs and retiree benefits to a sustainable level. In other words: it’s essentially bankrupt. “Not because of too much bonded debt,” analyst Carl Dincesen notes, “But rather the government promising retirement benefits that aren’t affordable.” Ya think?<\/p>\n

Credit:<\/strong><\/span> And finally … Bernie Sanders continues to push his socialist agenda to anyone gullible enough to believe it. This week, he explained how things will work when he’s in charge<\/a>: “You’re going to be paying more in taxes; everybody will pay more. But you’re gonna get free health care, and maybe you’re gonna get free child care, and maybe your kids are gonna be able to go to college tuition-free.” Really, Bernie? Free<\/em>?<\/p>\n