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Black Coffee: A Financial Market Storm Front Warning

hurricane-flagsIt’s time to sit back, relax and enjoy a little joe …

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.

There’s a lot to cover this week, so let’s get right to it …

“A drop in the ocean has no fear of a hurricane.”

–Aleksandr Solzhenitsyn

“When you’re in the eye of the storm, you are often not aware of the whiplash around you.”

— Hugh Bonneville

Credits and Debits

Debit: The destruction wrought by Hurricane Michael has been grabbing all of the headlines lately, but one should never forget that it’s Fed interest rate policies and the US government Plunge Protection Team that’s responsible for demolishing the free market’s price discovery mechanism. That may sound like hyperbole, but it’s true.

Credit: Ultimately, there’s a very good reason investment portfolio manager Doug Kass reminded everyone last week that, “It’s not the economy. It’s interest rates, stupid.” And before you get too upset at the epithet, for the record, I’m pretty sure Doug was only talking to these people:

Credit: Why pay attention to interest rates? Well … because the most important price in economics is the price of cash, which is reflected by the interest rates we pay for various forms of credit. And one of the most highly influential interest rates is arguably the 10-year US Treasury yield, which seems to have broken out convincingly from its central-bank-orchestrated 36-year (!) downtrend. See for yourself:

click to enlarge

Debit: Then again, for his part, macroeconomist Jim Rickards believes that falling bond yields are more likely than not in the coming months. And since lower yields equate to rising prices, that would mean the long-running bull market in bonds still has a way to go before it finally kicks the bucket. Maybe. But only time will tell.

Debit: Of course, rising interest rates increase government financing costs. For example, with the average 10-year yield near 2.3%, interest on the US National Debt hit a record high of $523 billion for the 2018 fiscal year. Unfortunately, an even larger deficit is expected during the 2019 fiscal year that started on October 1st, with the yield currently near 3.2%; that’s 39% higher than last year — and growing. Ouch.

Debit: Higher interest rates are bad news for the stock market too, as evidenced by this week’s carnage on Wall Street, where the Dow, Nasdaq and S&P 500 all had their worst week since March. And although stock market investors had a bad week, I promise you, this guy’s was even worse:

Credit: Lord knows the stock market doesn’t need any headwinds — especially when you consider that three times as many companies that make up the S&P 500 are at their 52-week lows versus those that are at their 52-week highs. Oh, wait … that was before the week began. Who wants to bet the disparity is even greater now?

Debit: It’s no secret that higher interest rates aren’t kind to the housing market either. With that in mind, I see 30-year mortgage rates have topped 5.0% for the first time since February 2011. You know what that means: It won’t be long before the banksters start pushing 40-year mortgages. Well … at least the financiers whose year-end bonuses depend on growing their bank’s home loan portfolio.

Credit: It certainly doesn’t help that median home prices have increased 76% since bottoming out in early 2012, while average weekly wages have increased just 17% over the same period. With that in mind, it shouldn’t be surprising that a recent study found that most Americans would be better off renting than buying a residential property. At least for now.

Debit: Of course, it’s not a coincidence that, since the US broke the dollar’s anchor to gold in 1971, the median family home has become less affordable. In 1970, the median American family could earn enough to purchase a home in just 2.4 years of work. But by 2016, it took nearly twice the effort: 4.3 years. Behold! Yet another reason why the only proponents of fiat currency are bankers and the government.

Debit: Decoupling the dollar from gold is also why the US workforce has experienced an astounding 55% decline in real wages since 1974. By the way, if you’re curious as to where the lost purchasing power of the “Almighty Dollar” escaped to, take a trip to Washington DC and its surrounding suburbs, where even Stevie Wonder can see that the federal government is bigger and more powerful than ever.

Debit: Meanwhile, bottled water is being rationed in Zimbabwe and the people are stocking up on bread, beef, cooking oil and other necessities as fears of yet another currency crisis there mount. Compounding the problem are wary citizens who don’t believe officials who are promising that their bank savings are safe— unlike their 2008 currency crisis, when the government raided their accounts. Imagine that.

Debit: Speaking of currency crises, Venezuela’s inflation rate is now “just” 4%. Per day. And if you’re wondering how much Venezuelan consumer prices have risen since September 2017, the answer is 488,856%. That, folks, is what hyperinflation and economic collapse looks like.

Debit: Sadly, the terrible economic storm that is currently blowing over Venezuela is threatening to wash across America’s shores — and the gusts are growing stronger. For those of you living it up on the beach and thinking everything is just fine, please … pull your head out of the sand and start paying attention. Your financial well-being depends upon it.

By the Numbers

Are stocks headed into a bear market? Well … here is a look at some of the most staggering stats from Wednesday’s big sell-off:

831 The number of points the Dow lost on Wednesday; that was its worst day since Feb. 8, when it fell 1033 points.

4.1% NASDAQ’s single-day loss at the closing bell on Wednesday.

10.2% The single day loss for Tiffany, which was the S&P 500’s worst-performing stock on Wednesday.

8.5% The single day loss for Twitter, which was the S&P 500’s second-worst performing stock on Wednesday.

28% The percentage of S&P 500 stocks that ended Wednesday’s sell-off more than 20% below their 52-week highs, which officially puts them in bear market territory.

Source: CNBC

Last Week’s Poll Result

Which of these is responsible for most of your net worth?

  • Stocks (53%)
  • Home Equity (28%)
  • Something else (19%)
  • Bonds (0%)

More than 1600 people responded to last week’s question and it turns out that almost 1 in 5 Len Penzo dot Com readers attribute the bulk of their net worth to something other than home equity or their stock portfolio. For the record, five people say the majority of their net worth is due to bonds.

The Question of the Week

Note: There is a poll embedded within this post, please visit the site to participate in this post’s poll.

Useless News: Planting Melons

A prisoner in jail received a letter from his wife:”I’ve decided to grow some melons in the old flower bed. When is the best time to plant them?”

The prisoner, knowing that the prison guards read the outgoing mail, replied in a letter to his wife:”Whatever you do, DO NOT touch the old flower bed! That is where I hid all the gold.”

A week or so later, he received another letter from his wife:”You won’t believe what happened. Some men came with shovels to the house, and dug up the entire flower bed!”

So the prisoner wrote another letter to his wife in reply:”Great! NOW is the best time to plant the melons.”

(h/t: Carrie)

Other Useless News

Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com during the past 30 days:

1. Indiana (1.82 pages/visit)
2. South Dakota (1.79)
3. Minnesota (1.78)
4. Connecticut (1.69)
5. Alabama (1.67)

46. Alaska (1.21)
47. Montana (1.20)
48. New Mexico (1.18)
49. Wyoming (1.17)
50. Rhode Island (1.11)

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Letters, I Get Letters

Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: [email protected]

After reading my article on 18 tips to consider before buying home, auto and life insurance, Sariah shared this story:

“My brother bought an expensive new car and my parents reminded him to also purchase auto insurance. But he didn’t get it and two days later he crashed his car into a tree!”

Was the car a Mercedes? If so, now your brother knows exactly how a Mercedes bends.

I’m Len Penzo and I approved this message.

Photo Credit: public domain

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