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 had a good week. We’ve got a lot to cover, so let’s get right to it …
Mathematics allows for no hypocrisy and no vagueness.
In math, either you’re right or you’re wrong.
— Katherine Johnson
Fiat money eventually always goes back to its intrinsic value: zero.
Credits and Debits
Debit: The government pension crisis in Illinois continues to deteriorate. It’s so bad now that roughly 25% of all state revenue goes towards pensions and other pension-related debt; never mind that more than 50% of revenue is the actual amount required to keep those pensions solvent. It’s even worse in Chicago, where 34% of revenue is being consumed by those payments — even though they need to allocate 60%.
Debit: The “good” news for Illinois government retirees is their politicians’ are proposing a new $3.4 billion state income tax increase on high earners. Yes, that’s on top of the 33% rate increase they passed two years ago on all residents living in the Land of Lincoln. Even so, that’s still about $7 billion short — and that’s just at the state level. Does anybody else see a problem here? No? Okay … then how about here:
Debit: Of course, raising taxes never works to fill a funding gap because most state governments have a spending problem — not a revenue problem. It’s the same story for the federal government: Despite an economy that is supposedly booming, deficit spending is grossly outpacing economic growth. As a result, America’s debt is increasing about four times faster than nominal GDP. Imagine that.
Debit: In other news, house flipping is back to levels last seen during the 2006 housing boom peak; in fact, more than 1 in 10 homes sold in the US during the fourth quarter of 2018 were flips. I know what you’re thinking, but one analysis suggests that today’s flips are not as risky as those in 2006 — no, really! — making them less likely to cause market volatility when prices decline. Uh huh. We’ll see about that.
Credit: One thing is certain: The number of US home flippers today is peaking just as the shift to a buyer’s market has started to accelerate. In fact, 75% of current listings are projected to sell below their list price this current quarter. You know what that means: With programs like “Fixer Upper” and “Flip or Flop” dominating HGTV’s line-up, they better start focusing on more shows related to gardening. And soon.
Debit: Meanwhile, I see that President Trump asked the Fed this week to restart quantitative easing (QE). Huh? With job claims supposedly at their lowest level in nearly 50 years, and interest rates still historically near all-time lows, the big question everyone should be asking is: What would motivate him to request that when he said this back in 2011:
The Fed’s reckless policies of low interest and flooding the market with dollars needs to be stopped or we will face record inflation.
Donald J. Trump (@realDonaldTrump) September 29, 2011
Credit: Hey … I’m not the only one shaking my head at all of this. Sven Henrich not only questions the call for more QE, he’s also befuddled by stocks retesting record highs, arguing that, “S&P Q1 earnings are projected to be negative, and yet markets are ignoring all bad economic surprise data, presuming the slowdown to be over. Welcome to the theater of the absurd.” You got that right, Sven. It’s even more absurd than this:
Credit: As MN Gordon observes, more QE will, “take an economy and financial markets that are already extremely distorted, and disfigure them beyond recognition; this is the mad world we live in. A world that will only get madder as policies of desperation are rolled out in earnest to keep money cheap, asset prices high, and the government swindlers flush with money borrowed on the backs of the unborn.” He nailed it, folks.
Credit: So why would anyone call for such previously-failed and frantic measures? Well … John Rubino says, “It’s possible that a garden variety recession would blow up the financial markets; that’s the terrifying stuff they’re hearing. They’re so worried, they’re willing to experiment with monetary policy again in order to prevent the crash that could make them this generation’s Herbert Hoover.” Too bad nobody was worried in 1999.
Credit: At least Italy’s ruling pols understand that fighting the math is a fool’s game; they know the piper will soon be paid, which is why they pushed ahead this week on a plan to seize control of their central bank’s gold reserves. Of course, ECB President Mario Draghi egged them on by issuing an edict requiring central bank approval of any gold operations within euro zone countries. Heh. I see Mario is good at math too.
Debit: The death of the petrodollar has long been predicted, but the US dollar’s exorbitant privilege remains. Now, its status is being threatened by none other than Saudi Arabia because they’re upset that the US is considering a bill that would expose OPEC members to antitrust lawsuits. Needless to say, they’re being cheered on by many nations who are also tiring of the rapidly-failing dollar-based international monetary system.
Credit: Alasdair Macleod observes that, with the dollar’s free ride at foreigners’ expense wearing thin, domestic US investors need to start pricing US debt realistically as foreign divestment increases. Yes, QE will buy the Fed more time — but only a bit. As Macleod warns, “It’s shaping up to be a collapse of fiat-money arithmetic, the end of the fiat-money delusion, when the denial of gold in preference for an unbacked dollar finally ends.”
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.
Last Week’s Poll Result
How do you like your steak?
- Medium Rare (35%)
- Medium (29%)
- Medium Well (16%)
- Rare (12%)
- Well Done (8%)
More than 1600 Len Penzo dot Com readers responded to last week’s question and it turns out that almost half of them prefer their steak medium rare, or rare. I like mine rare too; the rarer the better, in fact — if it’s not mooing, it’s over-cooked.
By the Numbers
How many of the top 10 movies of 2009 have you seen?
10 Sherlock Holmes (US box office gross: $206 million)
9 Alvin and the Chipmunks: The Squeakquel ($220 million)
8 The Blind Side ($256 million)
7 Star Trek ($258 million)
6 The Hangover ($277 million)
5 Up ($293 million)
4 The Twilight Saga: The New Moon ($297 million)
3 Harry Potter and the Half Blood Prince ($302 million)
2 Transformers: Revenge of the Fallen ($402 million)
1 Avatar ($750 million)
Source: Box Office Mojo
Useless News: Who’s the Boss?
Two men were digging a ditch on a very hot day. One said to the other, “Why are we down in this hole digging a ditch when our boss is standing up there in the shade of a tree?”
“I don’t know,” responded the other. “I’ll ask him.” So he climbed out of the hole and went to his supervisor.
“Hey, boss!” said the ditch digger, “Why are we digging in the hot sun while you’re standing here in the shade?”
“Intelligence,” the boss said.
“What do you mean, ‘intelligence’?”
The boss said, “Well … I’ll show you. I’ll put my hand on this tree and I want you to hit it with your fist as hard as you can.” So the ditch digger took a mighty swing and tried to hit the boss’ hand — but the boss pulled it away and the ditch digger ended up punching the tree instead.
The boss said, “That’s intelligence!”
And with that, the ditch digger, with his hand throbbing, went back to his hole.
When he got back, his friend asked, “Well? What did he say?”
“He said we’re down here because of intelligence.”
“What’s intelligence?” asked the friend.
“Let me show you,” the ditch digger said. Then he put his hand on his face and told his friend, “Take your shovel and hit my hand.”
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 over the past 30 days:
1. North Dakota (2.50 pages/visit) !
2. Connecticut (2.48)
3. South Dakota (1.89)
4. Arkansas (1.71)
5. North Carolina (1.67)
46. Oklahoma (1.22)
47. Illinois (1.18)
48. New Mexico (1.17)
49. Vermont (1.12)
50. Wyoming (1.00)
Whether you happen to enjoy what you’re reading (like my friends in North Dakota) — or not (ahem, Wyoming … for the second month in a row!) — please don’t forget to:
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(The Best of) 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]
If I’m to believe everything I get in my email inbox, The FBI has apparently been keeping tabs on me — and they don’t like what they see:
Sir: We have logged your IP address on more than 40 illegal websites. We need you to answer the questions in this attachment.
I don’t think so. In fact, why don’t you just cut out the middleman and go directly to the NSA?
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: brendan-c