{"id":68067,"date":"2021-08-07T02:15:19","date_gmt":"2021-08-07T09:15:19","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=68067"},"modified":"2021-08-10T09:25:13","modified_gmt":"2021-08-10T16:25:13","slug":"black-coffee-7-aug-2021","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id68067-black-coffee-7-aug-2021.html","title":{"rendered":"Black Coffee: A Mouse In the Pocket"},"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

I’ve got a busy weekend to attend tom so let’s get right to this week’s commentary …<\/p>\n

There are no markets; only interventions.<\/em><\/p><\/blockquote>\n

— Chris Powell<\/strong><\/p>\n

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

Debit:<\/strong><\/span> Did you see this? In the old days, when markets were free from central bank meddling and the dollar was a credible — if still imperfect — substitute for real money, stocks and bonds regularly ebbed and flowed like the tides. Not any more. In fact, it’s now been 191 days without a 5% drawdown<\/a> in the S&P 500, which happens to be one of the longest uninterrupted stretches in the last 100 years. Imagine that.<\/p>\n

Debit:<\/strong><\/span> Of course, central bank currency mismanagement is also the reason why inflation is now running at 13%<\/a> based upon the methodology the US used prior to 1980. That means if you aren’t earning returns of at least that much on your savings and portfolio investments, then you’re losing purchasing power. The good news is employers are increasing wages to keep their workers’ standard of living from declining. Oh, wait …<\/p>\n

\"\"<\/a><\/p>\n

Debit:<\/strong><\/span> Speaking of portfolios, traditional portfolio theory<\/a> says that bonds are a diversifier for equity market investments. Indeed, this strategy has allowed cross-asset traders to diversify excess equity risk into bonds for more than a century — but not any more. After several decades of gross monetary mismanagement by the Fed, this basic premise of modern portfolio construction no longer works, as bonds and stocks now tend to move in lock step.<\/p>\n

Credit:<\/strong><\/span> The reason for this is the Fed has pushed so much liquidity into the markets via its decade-long QE<\/a> program that everything is being bought. And as JPMorgan credit strategist Eric Beinstein warns, “the implications are interesting, with the risk being that (the correlation) remains when the equity market sells off.” Translation: In the next crash, everything<\/strong><\/em> will plunge at the same time, with few places to hide<\/a>. True. Then again, I doubt many physical precious metal holders are losing sleep over this.<\/p>\n

\"\"<\/a><\/p>\n

Debit:<\/strong><\/span> Don’t think the Fed is unable to see the dwindling lack of correlation between stocks and bonds, because they most certainly do. It’s yet another reason why the stock, bond and housing bubbles have gotten so large that the Fed can no longer risk anything<\/strong><\/em> popping it — so they won’t. Why?<\/strong><\/em> Because they know that popping the largest asset bubble ever<\/a> would ultimately result in a monetary system reset that could put them out of business.<\/p>\n

\"\"<\/a><\/p>\n

Credit:<\/strong><\/span> Financial market analyst Sven Henrich knows this too. This week he warned that, “debt levels have so exploded during the past 13 years that any pre-crisis-type interest rates — which were historically low then — would collapse the entire system<\/a>. They know it. I know it. You know it. The entire system is predicated on debt expansion and cheap money to sustain it. That’s it.” Uh huh. And to think I thought these<\/strong><\/em> guys had cornered the market on bad ideas …<\/p>\n