{"id":59770,"date":"2020-03-07T02:15:29","date_gmt":"2020-03-07T10:15:29","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=59770"},"modified":"2022-07-31T08:54:20","modified_gmt":"2022-07-31T15:54:20","slug":"black-coffee-7-mar-2020","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id59770-black-coffee-7-mar-2020.html","title":{"rendered":"Black Coffee: The Financial Noose Tightens"},"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

The market turmoil continued this week, but the weekend has mercifully arrived. So relax and enjoy it — because Monday will be here before you know it.<\/p>\n

Let’s get started, shall we?<\/p>\n

If money isn’t loosened up, this sucker could go down.<\/em><\/p><\/blockquote>\n

— George W. Bush, 25 September 2008<\/strong><\/p>\n

We can guarantee cash benefits in any size and any duration you want. What we can’t guarantee is the purchasing power of those benefits.<\/em><\/p><\/blockquote>\n

— Alan Greenspan<\/strong><\/p>\n

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

Debit:<\/strong><\/span> Did you see this? Illinois wants to play catch-up with its rainy day fund<\/a> at the worst possible time. Unlike the other 49 states that can run operations for a median of 28 days, using the combined $75 billion from those accounts, Illinois has just $58,655 in its emergency fund, which will keep the state running for, oh … about an hour. Heh. It’s hard to believe there are many households out there with bigger rainy day funds than Illinois.<\/p>\n

Debit:<\/strong><\/span> Unfortunately, it looks like those rainy day funds will come in handy soon, as strategists are warning that US growth could come to a halt this year, with Treasury yields dropping below zero<\/a> for the first time ever. In fact, Scott Minerd, the CIO of Guggenheim Partners, says even the 10-year Treasury yield could eventually hit zero this year. He may be right; it ended the week at just 0.77%. Wow.<\/p>\n

Debit:<\/strong><\/span> Those rapidly-falling interest rates are a big reason why the Fed felt compelled to issue an emergency 0.50% rate cut<\/a> of its own; and although they won’t admit it, the stock market was another. Now for the punchline: Soon after the Fed announced the emergency rate cut, the stock markets fell<\/strong><\/em>, while the gold price skyrocketed<\/strong><\/em>. Uh oh. You can bet that’s not<\/strong><\/em> what the Fed had in mind.<\/p>\n

Debit:<\/strong><\/span> Despite the emergency rate cut, it was another difficult week<\/a> for the major stock market benchmarks, as the Dow, S&P, and Nasdaq all saw their corrections deepen. They’ve now plunged nearly 15% from their respective highs less than a month ago. Then again, there were<\/strong><\/em> some high flyers this week: for example, Costco was up 6%. Imagine that.<\/p>\n

Credit:<\/strong><\/span> So … After decades of unquestioned power, could the markets’ collective reaction mean the Fed is finally losing its grip on the markets? It sure seems that way. As Dave Collum notes, one thing the Fed certainly has<\/strong><\/em> lost is the last shred of any credibility it may have had left:<\/p>\n

\n

Totally serious: That the Federal Reserve is explicitly stating their job is to support the asset markets shows how unmoored to reality they have become. No price discovery? No fear of losing all credibility? No problem. That ship has sailed anyway. You guys are feckless.<\/p>\n

Dave Collum (@DavidBCollum) March 3, 2020<\/a><\/p><\/blockquote>\n