{"id":83118,"date":"2024-05-11T01:00:25","date_gmt":"2024-05-11T08:00:25","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=83118"},"modified":"2024-05-16T07:39:24","modified_gmt":"2024-05-16T14:39:24","slug":"black-coffee-11-may-2024","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id83118-black-coffee-11-may-2024.html","title":{"rendered":"Black Coffee: A Light in the Tunnel"},"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 hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …<\/p>\n

There is only one kind of shock worse than the totally unexpected: the expected for which one has refused to prepare.<\/em><\/p><\/blockquote>\n

– Mary Renault<\/strong><\/p>\n

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

Credit:<\/strong><\/span> Did you see this? Despite declining consumer sentiment and depressed sales, the stock market continues to hold up well and volatility remains subdued. As such, at least one analyst is insisting that there is still “little evidence<\/a> of market stress.\u201d Patience, Grasshoppa; patience. That being said, it’s important to remember that the nominal stock market gains for most<\/strong><\/em> stocks aren’t quite as good as advertised, as they fail to accurately reflect losses in the US dollar’s (USD) purchasing power due to inflation. Just sayin’.<\/p>\n

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(h\/t: @NorthmanTrader)<\/p><\/div>\n

Credit:<\/strong><\/span> So … just how well have<\/strong><\/em> stocks been performing lately? The Dow was up 0.3% on Friday, which extended its winning streak<\/a> to eight trading sessions. The S&P 500 has been on a tear too. On Thursday it gained 0.5%, moving back above 5200 for the first time since April 9. Even so, we’re fairly certain that this is how the average investor would sum up their<\/strong><\/em> personal experience with the equities market …<\/p>\n

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Debit:<\/strong><\/span> Stocks aren’t the only market that’s soaring. Skyrocketing cocoa prices has been the norm for most of the past year – and now coffee is perking up. While cocoa prices are at a 50-year high<\/a>, a supply crunch now has coffee prices at a 45-year high – with spot prices across key markets surging 17% in just the past month. You know what that means: It won\u2019t be long before people stop calling Starbucks coffee \u201cSixbucks\u201d and start calling it \u201cSevenbucks.\u201d<\/p>\n

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(h\/t: @thedajoco)<\/p><\/div>\n

Debit:<\/strong><\/span> On a related note, Bloomberg<\/em> reports that the term “sticky inflation<\/a>” surged to a record 17 mentions in corporate earnings calls this quarter. Not coincidentally, Newell Brands -which owns Rubbermaid, Yankee Candle, Coleman, Paper Mate, and many others – warned last week that, “Consumers are continuing to carefully manage their discretionary spending as the cost of food, energy and housing inflation has outpaced wage growth.\u201d Heh. Ya think? Hey … does anybody remember when both Fed Chair Jerome Powell and Treasury Secretary Janet Yellen assured us that inflation was transitory? We do.<\/p>\n

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Debit:<\/strong><\/span> By the way, the obsession with inflation isn\u2019t surprising when you consider that 29% of US households – that\u2019s 40 million families – are categorized as ALICE<\/a>. For those of you not up on the current lingo, “ALICE” stands for “asset limited, income constrained, employed.” The term was created by United Way to describe American households whose income exceeds the government’s so-called “poverty line,” but still can’t meet their basic needs. In other words: families that are one crisis from financial ruin – and maybe severe domestic strife …<\/p>\n

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Debit:<\/strong><\/span> Needless to say, American households aren\u2019t the only ones in trouble; so is the US banking system. In fact, there is still $12 billion in Fed loans<\/a> filling holes in bank balance sheets that need to be repaid from its emergency Bank Term Funding Program (BTFP). Yeah … nothing to see here, folks.<\/p>\n

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Debit:<\/strong><\/span> Although foreign demand for US debt all but dried up after the start of the Ukraine war, US Treasuries (UST) demand was maintained via the Fed’s Reverse Repo Program (RRP) account – but that account is almost depleted. So where will future UST demand come from? Will the Fed restart QE? Is so, inflation expectations will soar, causing investors to demand higher yields for their long-duration USTs – which the US government can’t afford. Translation: The debt is a ticking time bomb can’t<\/strong><\/em> be defused. And the fuse is clearly getting shorter, as US Treasuries are already paying out $2 million in interest<\/a> every minute<\/strong><\/em>.<\/p>\n

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\nCredit:<\/strong><\/span> Believe it or not, twas a time when USTs were considered the ultimate financial safe haven; even better than gold, because USTs offered a real yield. However, as macroanalyst Andy Schectman notes, “Who who’d be stupid enough to buy any USTs of 10-year or greater (today)? Who in their right mind would do that? It’s counterparty risk on top of brain-dead monetary policy<\/a>; as irresponsible a fiscal policy as you could ever imagine.\u201d He’s absolutely correct – if you believe, as we do, that a reckoning isn’t too far away. As for those of you who insist there’s a light at the end of this very dark financial tunnel, you’re right too. But for the wrong reason:<\/p>\n