{"id":71001,"date":"2022-02-05T02:15:06","date_gmt":"2022-02-05T10:15:06","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=71001"},"modified":"2023-05-12T10:51:34","modified_gmt":"2023-05-12T17:51:34","slug":"black-coffee-5-feb-2022","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id71001-black-coffee-5-feb-2022.html","title":{"rendered":"Black Coffee: Standing at the Crossroads"},"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 another busy weekend ahead of me, so let’s get right to this week’s commentary …<\/p>\n

There are a few times in life when you stand at the precipice of a decision. When you know there will forever be a Before and an After.<\/em><\/p><\/blockquote>\n

— Justina Chen Headley<\/strong><\/p>\n

When you come to a fork in the road, take it.<\/em><\/p><\/blockquote>\n

— Yogi Berra<\/strong><\/p>\n

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

Debit:<\/strong><\/span> Did you see this? On Monday the US national debt exceeded $30 trillion<\/a> for the first time. That’s a $7 trillion increase from January 2020. Even more alarming, $1 trillion of that<\/strong><\/em> came in the last six weeks<\/strong><\/em>. So, yes; the debt is now increasing at a clearly exponential rate. And, no; the fiat US dollar will not<\/strong><\/em> be able to avoid the consequences forever. Confidence in the world’s reserve currency is already beginning to waver – and it will only get worse as the debt continues to grow at an ever-increasing rate of change. Hey … it’s nothing personal, folks; it’s just math. Tick tock.<\/p>\n

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Credit:<\/strong><\/span> In other news, this week the Fed provided market guidance during its latest FOMC meeting. Unfortunately, as economist Dr. Stephen Leeb complained, the Fed’s statement, “was more befuddling than any I’ve ever seen; the message was so confused<\/a> that it’s impossible to read. Half of market analysts concluded the Fed was too dovish in not raising rates despite inflation at a 40-year high; the other half saw the Fed as unexpectedly hawkish.” However, that’s where the disagreement ended; all<\/strong><\/em> of the analysts agreed that the Fed is criminally incompetent. Oh … and speaking of criminal incompetence:<\/p>\n

http:\/\/lenpenzo.com\/blog\/wp-content\/uploads\/2022\/02\/carjack_fail.mp4<\/a><\/video><\/div>\n

Debit:<\/strong><\/span> By the way, Leeb also noted that, “The fact that the Fed’s comments seemingly were more a Rorschach test than a clear statement of intentions is, ironically, likely another important punctuation mark in a transitioning world economy. The Fed’s murkiness in itself does<\/strong><\/em> contain a clear message for investors: Protecting wealth is far more important than seeking more – and that points to gold.” Or as the legendary market analyst Jim Grant famously said, we now live in a period where the return of<\/strong><\/em> investors’ capital is far more important than their return on<\/strong><\/em> capital.<\/p>\n

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Debit:<\/strong><\/span> To be fair, the Fed did<\/strong><\/em> manage to make a couple of things clear. For example, the Fed noted that its bond-buying program would decrease to just $30 billion in February<\/a> – that’s down from $120 billion a month in 2021. They also said that they were terminating all bond purchases in March, which strongly suggests that they will begin raising interest rates at that time. Despite that explicit announcement, many economists and analysts aren’t buying the Fed’s story. And who can blame them?<\/p>\n

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Credit:<\/strong><\/span> Investment advisor Lance Roberts also felt the Fed’s latest guidance left a lot to be desired. He notes that, “there was no specific indication of when the Fed might start reducing its nearly $9 trillion balance sheet. The most significant risk to equities is the contraction of liquidity<\/a> from quantitative tightening (QT); which is what preceded the market rout in 2018. And while the Fed may intend to hike rates and taper their balance sheet, the real question is: can they?” In a word: no. If they couldn’t do it in 2018, how can they do it today with a system that’s even more<\/strong><\/em> fragile?<\/p>\n

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Debit:<\/strong><\/span> Oh, yeah … before getting off the stage, Roberts left us with another question: “With the Fed now reversing monetary accommodation, how long before something breaks<\/a>?” But it’s not just a matter of the markets breaking – it’s the consequence of them breaking. So perhaps a more appropriate question is: When does the collapse<\/strong><\/em> start – and how long<\/strong><\/em> will it last? Hey … I know what you’re thinking: That’s actually <\/em>two<\/strong> questions.<\/em> Yeah, it is … but I think you get my drift.<\/p>\n

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Credit:<\/strong><\/span> Not coincidentally, macro analyst Jim Rickards asked the same<\/strong><\/em> question last week, pointing out that the Fed is “caught in a trap of their own creation, with no easy way out. And they’re about to make things worse<\/a> by tightening into weakness, with tapering and with rate increases. But the market has seen this movie before. They know how it ends — and it ends poorly.” They do?<\/strong><\/em> Well … you could have fooled me.<\/p>\n

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Credit:<\/strong><\/span> On the other hand, macro analyst Bill Holter says any threat by the Fed to raise rates is a bluff. “The financial system has survived on life support<\/a> since 2008; and they want to take the patient off now that the world is far more levered than when the episode began? Give me a break!” Frankly, the monetary policy incompetence displayed by the world’s central bankers is enough to get anyone frustrated. Yes … even more frustrated than this<\/strong><\/em> poor gentleman:<\/p>\n