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Black Coffee: A Tale of Loose Credit and Market Cracks

It’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.

I hope everybody is having a great weekend! Okay, away we go …

“A farmer returning home in his wagon, after selling a load of corn, is a better indication of the economy than a nobleman riding in his chariot to the opera.”

— old proverb

Credits and Debits

Credit: Did you see this? The total market capitalization for cryptocurrencies fell by $18 billion over the course of three days last week. In fact, bitcoin ended last week 5% lower, while two other popular cryptos — ripple, and ether — were down 12% and 18%, respectively. According to CNBC, the plunge has left many wondering if bitcoin is really a safe haven — or a risk asset. Psst. Hey, CNBC … It’s a risk asset.

Debit: In other news, events are now being held across America where low-income borrowers with poor credit are being offered no-down payment, low interest rate loans. We’ve been down this road before and — in case anyone has forgotten — it led to the Great Financial Crisis of 2008. I guess bankers have short memories. In the meantime, the credit party rolls on. Although it’s beginning to look a little like these shindigs:

Debit: Unfortunately, all of this loose credit — especially to borrowers with dubious finances — will eventually come back to bite the lenders. Oh, and there’s also a growing risk that dollar credit will seize up globally, devastating countries that rely on borrowed dollars to cover their deficits.

Credit: Of course, loose credit — abetted by the world’s central banks — is the lubricant that is keeping risk asset engines such as stocks and corporate bonds running smoothly (read: constantly increasing in value). But here’s the rub: The global monetary backdrop is only becoming less accommodative. As a result, the markets’ are plagued by growing technical and structural problems, which have led to greater volatility.

Credit: Speaking of growing structural problems, financial analyst Dave Kranzler is warning that market cracks are growing larger with each passing day: “What should frighten market participants, policy-makers and everyone else is that the 10-yr yield soared last (week) despite the big sell-off in the Dow and S&P. That reflects financial market problems that are not superficially apparent.” Uh oh.

Credit: After looking closely at recent macroeconomic indicators, Lance Roberts goes a step further: he believes “something just broke” in the financial system — and the culprit is rising interest rates. In fact, Roberts says because we’re in a rising rate environment, things aren’t as rosy as they seem. “The underlying economic growth story isn’t nearly as strong as reported,” he says. Don’t spoil the illusion, Lance.

Credit: Needless to say, as the world’s central banks continue to tighten the easy-money spigot that, until last year, has been wide open, it’s only a matter of time before the artificial stock market gains that resulted from the ensuing flood of money will evaporate as well.

Credit: Meanwhile, Hungary’s central bank just announced a 10-fold jump in their gold reserves; that’s the first time the Hungarian central bank increased its gold reserves since 1986. But I’m sure that’s not any reflection of their concern about the international monetary system. Nope. Not at all.

Credit: Then again, maybe it is a sign of concern. After all, the International Monetary Fund sounded downright alarmist in its latest Global Financial Stability report, stating that, “Large challenges loom for the global economy to prevent a second Great Depression.” And if you want a second opinion, well … the other arbiter of global risks, the Bank for International Settlements, comes to a similar conclusion. So there.

Debit: By the way, if the warnings make you feel uncomfortable, go ahead and ignore them and focus on the really important stuff — like dressing up your pooch for Halloween. This year, pet owners will spend $500 million on animal costumes this Halloween. I’m sure it’s purely a coincidence that the amount of money spent on outrageous pet outfits has more than doubled since the Great Financial Crisis.

Last Week’s Poll Result

How much will you spend on Halloween candy, costumes and decorations this year?

  • $0 (43%)
  • $1 to $20 (38%)
  • More than $20 (19%)

More than 1500 Len Penzo dot Com readers answered this week’s survey question and it turns out that slightly less than 1 in 5 of them will spend more than $20 on Halloween this year — and fully 43% say they won’t spend a single dime. I’ll be spending less than $10 on candy this year — I just hope there is still some left to hand out by the time the trick-or-treaters come knocking on my door!

If you have a question you’d like to see featured here, please send it to me at [email protected] and be sure to put “Question of the Week” in the subject line.

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.

(The Best of) By the Numbers

The time for summer barbecues has passed, but the World Series gets started in a few days. With that in mind, here are a few facts and figures on hot dogs:

20,000,000,000 Hot dogs consumed by Americans each year — that’s 70 per person annually.

35 Percentage of hot dogs eaten between Memorial Day and Labor Day.

2 European cities that claim to be the birthplace of the modern hot dog. (Vienna and Frankfurt)

1900 Year “hot dog” first appeared in The Oxford English Dictionary.

$2500 Daily revenue for a Big Apple hot dog cart at W. 67th St. and the West Dr. on a typical summer Saturday.

$50 Amount the same NYC hot dog cart brings in on a typical winter day.

$266,850 Annual fee charged by NYC Parks for a hot dog stand at the same location.

$300 Amount Nathan Handwerker borrowed in 1916 to start a hot dog stand at Coney Island.

$82,900,000 Nathan’s Hot Dogs revenue in 2013.

Source: NBC News

Useless News: Drugstore Shoppers

Two young boys walked into a drug store one day, picked up a box of tampons and proceeded to the checkout counter.

The pharmacist at the counter asked the older boy, “Son, how old are you?”

“Eight,” the boy replied.

The man continued, “Do you know what these are used for?”

The boy replied, “Not exactly, but they aren’t for me. They’re for him. He’s my brother. He’s four.”

“Oh, really?” the pharmacist replied with a grin.

“Yes,” the boy said. “We saw on TV that if you use these, you would be able to swim, play tennis and ride a bike. Right now, he can’t do none of that.”

(h/t: RD Blakeslee)

Other Useless News

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

1. Prince Edward Island (2.00 pages/visit)
2. Quebec (1.84)
3. Nova Scotia (1.56)
4. Northwest Territories (1.54)
5. Alberta (1.46)

9. British Columbia (1.23)
10. New Brunswick (1.17)
11. Saskatchewan (1.15)
12. Nunavut (1.07)
13. Yukon Territory (1.05)

Whether you happen to enjoy what you’re reading (like those really crazy canucks on the Prince Edward Island, eh …) — or not (ahem, you hosers living on the frozen Yukon tundra) — please don’t forget to:

1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!

2. Make sure you follow me on Twitter!

3. Subscribe via email too!

And last, but not least …

4. Consider becoming a Len Penzo dot Com Insider! Thank you.

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 me at: [email protected]

After reading my list of 18 tips to consider before buying home, life and car insurance, Olivia left this comment:

“I think that a sign of a good insurance provider is the ability to listen to you. The bad part is nobody ever listens to me.”

Olivia, I think every parent with a teenager knows exactly how you feel.

I’m Len Penzo and I approved this message.

Photo Credit: (coffee) brendan-c

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