{"id":69527,"date":"2021-11-06T02:15:29","date_gmt":"2021-11-06T09:15:29","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=69527"},"modified":"2021-11-08T15:54:51","modified_gmt":"2021-11-08T23:54:51","slug":"black-coffee-6-nov-2021","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id69527-black-coffee-6-nov-2021.html","title":{"rendered":"Black Coffee: Onward and Upward"},"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 to, so let’s get right to this week’s commentary …<\/p>\n

If you call the tune, then you also have to pay the piper when he begs his due.<\/em><\/p><\/blockquote>\n

— Nick Cutter<\/strong><\/p>\n

You’re only as good as your last haircut.<\/em><\/p><\/blockquote>\n

— Fran Lebowitz<\/strong><\/p>\n

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

Debit:<\/strong><\/span> Did you see this? A cryptocurrency dubbed “Squid Game” rocketed in price<\/a> from $0.01 on October 26th to $38 the day after Halloween. On November 2nd, the high-flying cryptocurrency surged again; this time to $90. From there, it quickly skyrocketed to $2861<\/strong><\/em> — no, really — before plunging into the abyss a minute later<\/strong><\/em> for the “bargain” price of $0.003. Yes; three-tenths of a penny. Heh. This is where I usually try to add a final observation or witty comment — but sometimes the jokes just write themselves.<\/p>\n

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

Credit:<\/strong><\/span> Speaking of worthless currencies, with an annual inflation rate of 5500%, the Venezuelan bolivar has lost 73% of its value since January – which is why gold has become the currency of choice<\/a> in some parts of the socialist paradise, with commodities and services being quoted in grams of the yellow metal. For instance, a hotel room is 0.5 grams of gold per night, and a restaurant meal for two is 0.25 grams. Meanwhile, a barber appointment costs 0.125 grams of gold, which is about $6; or roughly the melt value of a silver US quarter. More to the point: That means, in real money terms, a shave and a haircut is still<\/strong><\/em> two bits. Give or take.<\/p>\n

Debit:<\/strong><\/span> Of course, Venezuela’s inflation troubles are the result of too much debt, courtesy of the politicians there who refuse to control their spending. Then again, to be fair, that’s a worldwide problem that really came into vogue back in 1970, when global debt was “just” $5 trillion. Since then, global debt has exploded<\/a> to $300 trillion – for the mathematically challenged, that’s a staggering 60 times<\/strong><\/em> more debt than what existed 50 years ago.<\/p>\n

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

Credit:<\/strong><\/span> A lot of that debt has gone to share buybacks. In fact, market analyst Lance Roberts points out that, without share repurchases, the S&P 500 would be closer to 2700<\/a> than its current level of 4600. To put that into context, he says rather than the approximate 190% gain in the S&P between October 2007 and today, it would have “only returned 3% annually — or 42% in total.” Yes. And if you remove the other ancillary Fed effects, those S&P returns would be even lower <\/strong><\/em>…<\/p>\n

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

Credit:<\/strong><\/span> As macroeconomist Alasdair Macleod noted this week, ever since the dollar was decoupled from gold, “central banks have run a propaganda campaign to convince the (public) that gold’s historic role as the money of last resort had been made redundant through the magic of monetary progress – a campaign that’s now 50 years old and encompasses the entire working lives of employees in all financial sectors. The dollar myth<\/a> as the ultimate money is now fully institutionalized.” Sadly, it will probably stay that way until the Almighty Dollar falls into the abyss – and takes most people’s life savings with it.<\/p>\n

Debit:<\/strong><\/span> In other news, I see the Fed’s favorite inflation indicator remains near 30-year-highs<\/a>. Which indicator is that, you ask? Well … it’s something called the personal consumption expenditures (PCE) deflator — and the September number rose 4.4% year-over-year (YoY) – that’s up from 4.2% in August. It’s also the highest level since 1991. Is it understated? Of course. Even so, at a constant rate of “just” 4.2%, the purchasing power of your savings would be cut in half in roughly 16 years.<\/p>\n

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

Debit:<\/strong><\/span> By the way, there’s a big difference between today’s rising prices and the inflation experienced in the 1970s. Forty years ago the Fed did everything in its power to fight inflation<\/a>; today, the same central bank is actively fanning the inflation flames by holding short-term rates at the zero bound via its quantitative easing (QE) program.<\/p>\n

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

Debit:<\/strong><\/span> Then again, Fed Chair Jerome Powell doubled down on Wednesday when he reassured everyone that the Fed was indeed working to keep prices under control<\/a>. Okay … but with inflation running at levels not seen since 1991, why are today’s Treasury yields significantly less than what was being offered 30 years ago? For example, the 10-year T-bond was 8.0% in 1991; today it’s in the neighborhood of 1.6%. As for the 3-month T-bill, it was 5.75% in 1991; today, it’s hovering near 0.05%. (Psst. Hey, Jerome … if you continue to insist on dancin’ around reality — then, please … take some lessons from this<\/strong><\/em> guy):<\/p>\n