{"id":51058,"date":"2018-09-29T05:15:49","date_gmt":"2018-09-29T12:15:49","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=51058"},"modified":"2022-02-05T12:59:28","modified_gmt":"2022-02-05T20:59:28","slug":"black-coffee-29-sept-2018","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id51058-black-coffee-29-sept-2018.html","title":{"rendered":"Black Coffee: What Goes Up Must Come Down"},"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

It’s an abbreviated espresso edition this week, so let’s get right to it, shall we?<\/p>\n

“After this, there is no turning back. You take the blue pill — the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill — you stay in Wonderland, and I show you how deep the rabbit hole goes. Remember: all I’m offering is the truth. Nothing more.”<\/em><\/p><\/blockquote>\n

— Morpheus in The Matrix<\/em><\/strong><\/p>\n

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

Debit:<\/strong><\/span> Dick Cheney is famous for claiming that “deficits don’t matter.” However, it appears as if a storm is gathering<\/a> in the US Treasury market that suggests the now generally-accepted claim may not be true after all. Imagine that.<\/p>\n

Credit:<\/strong><\/span> The brewing storm is courtesy of “Hurricane Fed,” which on Wednesday raised short-term interest rates for the third time this year, increasing its benchmark federal funds rate<\/a>, setting a range of 2% to 2.25% and signaling yet another rate hike in December.<\/p>\n

Debit:<\/strong><\/span> Needless to say, the Fed’s actions have affected 30-year fixed-rate mortgages, which are at their highest level in seven years<\/a>. For the week, 30-year mortgage rates averaged 4.72% — that’s up from 4.65% the week before and the highest level since April 2011. The bad news for the housing market is that if rates are increasing faster than wages, then something has to give — and that something is prices, folks.<\/p>\n

Credit:<\/strong><\/span> With that in mind, nobody should be surprised that, after three years of soaring home prices, the US housing market appears to be slowing<\/a> down. In fact, home sellers are now slashing prices at the fastest rate in eight years — and more than 25% of the homes listed for sale last month dropped their sales price. Uh huh. Something tells me there’s an army of home flippers out there who will soon become unwitting landlords.<\/p>\n

Debit:<\/strong><\/span> Of course, rising interest rates aren’t just a problem for the housing market — they’re also a problem for the Fed because, as the US government continues to expand its ever-increasing deficits, rising interest rates affect the associated borrowing costs. It’s not a coincidence that the US will soon be spending more on interest<\/a> to service the $21 trillion National Debt than the military.<\/p>\n

Debit: <\/strong><\/span> In case you’re wondering, one reason why central banks increase interest rates is to encourage international demand for their currency. Unfortunately, America’s use of the current dollar-based international monetary system<\/a> has had the opposite effect.<\/p>\n

Credit:<\/strong><\/span> JP Morgan strategist Marko Kolanovic agrees: “The current US administration policies of trade wars and sanctions that are increasingly affecting both friends and foes is the biggest risk of bringing major powers of China, Europe and Russia closer, into an alliance which could profoundly impact the USD-centric financial system<\/a>.” Is this guy crazy? Or is he crazy like a fox?<\/p>\n

Debit:<\/strong><\/span> Perhaps that JPM strategist is crazy like a fox, because on Monday, the European Union said that it would establish a special payment channel<\/a> to allow European and other companies to legally continue financial transactions with Iran while avoiding exposure to US sanctions. Yes, that<\/em> European Union.<\/p>\n

Credit:<\/strong><\/span> And although the EU’s proposed special payment system is currently only being established to handle trade with Iran, there are also reports that the same system would likely be open to Russia and China as well. If true, it suggests that the system will also allow the entire global economy<\/a> to trade with each other, fully independent of America’s SWIFT system. Uh oh.<\/p>\n

Credit:<\/strong><\/span> Despite the clear and present danger to the dollar’s reserve currency status, few seem to be paying attention, with all three major stock indices near record highs. In fact, the Dow and Nasdaq ended the third quarter of 2018 with gains of 9% and 7%, respectively, and the S&P 500 finished 7% higher — its<\/em> strongest quarter in five years<\/a>. That’s great news, but it also suggests that most investors are continuing to pop the blue pills in their medicine cabinet.<\/p>\n

The Question of the Week<\/strong><\/p>\n

[poll id=\"234\"]<\/code><\/p>\n

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

How old is your primary car?<\/p>\n