{"id":52078,"date":"2018-12-08T00:15:59","date_gmt":"2018-12-08T08:15:59","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=52078"},"modified":"2022-09-07T14:12:01","modified_gmt":"2022-09-07T21:12:01","slug":"black-coffee-8-december-2018","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id52078-black-coffee-8-december-2018.html","title":{"rendered":"Black Coffee: What’s Gone Up Is Coming Down"},"content":{"rendered":"

\"black<\/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

Let’s get right to it this week …<\/p>\n

“Enthusiasm creates bubbles; it doesn’t keep them from popping.”<\/em><\/p><\/blockquote>\n

— Adora Svitak<\/strong><\/p>\n

“Fear the boom, not the bust.” <\/em><\/p><\/blockquote>\n

— Ludwig von Mises<\/strong><\/p>\n

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

Debit:<\/strong><\/span> At $109 trillion, US household net worth is now at an all-time high<\/a>, but there’s a catch: virtually all of the growth has benefited just a handful of the wealthiest Americans. As a result, the wealthy have never been wealthier, while the bottom half of all American households now own just 1% of the country’s wealth — that’s down from 3% in 1989.<\/p>\n

Debit:<\/strong><\/span> At least Americans have Social Security to fall back on in their old age, but there’s a catch there too: Social Security requires a high ratio of working young<\/a> to retired old citizens. That wasn’t a problem back in 1940, when the Social Security system had 159 workers per beneficiary; today, it’s less than three. Yep. Now that’s<\/em><\/strong> a problem. On the other hand, there are problems — and then there are problems<\/em><\/strong>:<\/p>\n

Debit:<\/strong><\/span> Of course, even if Social Security fails to live up to its promises, many workers will always be able to fall back on their retirement savings plans. Then again, maybe not so much if the past week happens to be a harbinger of long-term market sentiment. The Dow lost 4.6%<\/a> this week alone — and the S&P 500 is down more than 10% since September. You may not want to open those fourth quarter 401k statements in January.<\/p>\n

Debit:<\/strong><\/span> Speaking of the stock market, Warren Buffett’s favorite way to measure stock market value is comparing the US stock market cap as a percentage of GDP. Unfortunately for stock market bulls, it’s at its highest level ever<\/a>; higher than the stock market crashes of 1929, the Great Financial Crisis of 2008, and even the dot com bubble. Uh oh.<\/p>\n

Debit:<\/strong><\/span> Perhaps Mr. Buffett’s flashing-red value-indicator is why Bloomberg says this is the worst stock market environment<\/a> since 1972. It’s not just stocks; there isn’t a single major asset class that’s posted even a 5% return this year. For what it’s worth, money manager Bill Blain notes that 1972 was also the longest year ever<\/a>; a leap day, plus two leap seconds<\/strong><\/em> were added, making it 366 days and two seconds long. Coincidence? Probably.<\/p>\n

Credit:<\/strong><\/span> Hey … if you think the stock market’s prognosis is bad, check out bitcoin<\/a>. At one point this week it actually fell as low $3231 before ending the week at $3337. If you believe MarketWatch, the cryptocurrency is close to being worthless<\/a>, now that its price is near — if not below — the cost of “mining” it. Ouch. And you thought I<\/strong><\/em> was a bitcoin pessimist.<\/p>\n

Credit:<\/strong><\/span> Meanwhile, financial analyst Dave Kranzler says “market mortgage fatigue” is here. Lending standards for qualifying mortgages are now so loose that the pool of potential mortgagees has all but dried up<\/a>. The government has slashed mortgage insurance costs to keep the ruse alive, but Kranzler says the remaining pool of first-time buyers will have trouble qualifying unless the bar is lowered yet again. Imagine that.<\/p>\n

Debit:<\/strong><\/span> Did you see this? Apparently, a US Treasury yield curve inverted<\/a> for first time in 10 years — specifically, the difference between the 3- and 5-year Treasury yields dropped below zero, marking the first portion of the curve to invert in this cycle. However, the one to watch is the 10- and 2-year Treasury spread<\/a>, as that curve inversion preceded the last seven recessions. It’s currently just 12 basis points away.<\/p>\n

Debit:<\/strong><\/span> Never mind recessions, if another financial crisis strikes, the system will be on its own because the Fed is trapped<\/a>. As ZeroHedge notes, with full employment, rising inflation, and corporate and consumer debt as a ratio of GDP hitting new all-time highs, the Fed is unable to lower interest rates. Well … at least without stripping away the thin veneer of confidence that is currently keeping the US dollar afloat.<\/p>\n

Credit:<\/strong><\/span> Finally … John Rubino says the next financial crisis will be about more than interest rates: “Last time it took tens of trillions of dollars to stabilize the economy. Since then, global debt has risen dramatically, which implies the next bail-out will be even bigger. Will it work, or will the markets recoil<\/a> from the spectacle of printing presses running forever?” I say the latter — a currency crisis that ends the myth of “the Almighty Dollar.”<\/p>\n

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

Do you think annual inflation for basic living expenses is running hotter than 2%?<\/p>\n