{"id":47029,"date":"2018-01-20T04:15:39","date_gmt":"2018-01-20T12:15:39","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=47029"},"modified":"2023-01-06T13:50:40","modified_gmt":"2023-01-06T21:50:40","slug":"block-coffee-20-january-2017","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id47029-block-coffee-20-january-2017.html","title":{"rendered":"Black Coffee: Beware of Castles in the Air"},"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

“We spend too much, we borrow too much, and we distort the markets. The bigger the distortions, the bigger the bust will be.”<\/em><\/p><\/blockquote>\n

— Ron Paul<\/strong><\/p>\n

“In the kingdom of the blind, the one-eyed man is king.”<\/em><\/p><\/blockquote>\n

— Desiderius Erasmus<\/strong><\/p>\n

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

Debit:<\/strong><\/span> With the petroyuan due to debut on January 18th, the Bundesbank was adding renminbi<\/a> to its currency reserves this week. There’s just one problem: China failed to get its new oil-for-yuan contract off the launchpad this week. Instead, the first contracts are now scheduled to begin trading in late February or early March<\/a>. So King Dollar gets a reprieve — albeit a brief one.<\/p>\n

Debit:<\/strong><\/span> Meanwhile … whether it’s the tea company that put the word “blockchain” in its name only to see its stock rise by several multiple, or the Swiss National Bank, using currency it printed out of thin air to buy stocks, recently selling a portion of its holdings to earn $55 billion in “profits,” or the world mired in $233 trillion worth of debt that can never be paid off, absurdity is the new normal<\/a>.<\/p>\n

Credit:<\/strong><\/span> How absurd? Well, Brandon Smith explains that, “Trillions in uncontrolled central bank stimulus and years of artificially low interest rates have poisoned every aspect<\/a> of our financial system. Nothing functions as it used to. In fact, markets move in the exact opposite manner as they did before the debt crisis began in 2008.” Maybe so, but the stock market bulls aren’t complaining; they’re busy reaping profits.<\/p>\n

Credit:<\/strong><\/span> One blatant example of the markets working in reverse can be seen in the falling US dollar index over the past year, despite the Fed’s tightening campaign. As you can see, the market is completely ignoring<\/a> the Fed’s interest rate hikes:<\/p>\n

\"\"<\/a>

Graphic: Zero Hedge (click to enlarge)<\/p><\/div>\n

Debit:<\/strong><\/span> In other news, I see that bitcoin spent most of this past week tumbling<\/a>, briefly falling below $10,000 — a 50% drop since mid-December — before recovering near $12,000. One thing is certain: Anyone who wishes to dip a toe in the highly-speculative cryptocurrency waters better be sure they have the intestinal fortitude to endure bitcoin’s incredible volatility. No, thanks; I continue to prefer physical gold and silver<\/a>.<\/p>\n

Credit:<\/strong><\/span> On the other hand, stocks are still soaring<\/a>, with higher share prices, rising investor optimism and fresh cash being funneled into the stock market by euphoric investors who fear missing out on gains despite the market’s lofty levels. Buying stocks still seems to be a smart investment strategy — at least until the supply of greater fools finally dries up.<\/p>\n

Credit:<\/strong><\/span> So while most folks are celebrating the big increases in their quarterly 401(k) statements, Jim Rickards is trying to temper expectations by warning that, “The market is especially susceptible<\/a> to a sharp correction, or worse.” What a party pooper.<\/p>\n

Credit:<\/strong><\/span> Rickards is correct, of course. But for now, the US economy seems to be humming along. Despite the labor participation rate near a multi-decade low, the job market is supposedly as tight as ever, with US filings for unemployment benefits plummeting to their lowest level in almost 45 years<\/a>. Hooray!<\/p>\n

Debit:<\/strong><\/span> The tight labor market is one reason why the US Treasury collected almost $400 billion in tax revenue during the month of December. Even so, the government still ran a $225 billion deficit<\/a> — that is an annualized rate of $2.7 trillion added to the National Debt. Can you imagine how bad the numbers will be when the US enters its next recession?<\/p>\n

Credit:<\/strong><\/span> With that in mind, it should be no surprise that China downgraded<\/a> the United States’ creditworthiness this week — as a result, the US is on par with countries like Peru, Colombia and Turkmenistan. Yes, that<\/em> Turkmenistan.<\/p>\n

Debit:<\/strong><\/span> Then again, the US doesn’t care<\/em> what any Chinese rating house thinks. Why should they? Especially with Fitch and Moody’s in its back pocket. As ZeroHedge notes: “China’s move is far more political<\/a> than economic, and sends another shot across the bow as the (US) prepares to launch a trade war. Still, Fitch and Moody’s give the US their top ratings, (despite) their concerns.”<\/p>\n