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Black Coffee: Well … So Much for Irrational Exuberance

black coffeeIt’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.

Another glorious week has come to an end. A big “thank you” is in order for our very own RD Blakeslee, who took a break from writing his “Grandfather Says” series, to gamely fill in for me here last week while I was away on a much-needed vacation. Thanks again, Dave! You knocked it out of the park!

Okay … and with that, let’s get to it …

“It’s difficult to make predictions — especially about the future.”

— Yogi Berra

“Modern slaves are not in chains; they’re in debt.”

— Anonymous

Credits and Debits

Credit: If there’s one thing we’ve learned over the past decade, it’s that the stock market can’t behave irrationally for long. Oh, wait … This week marked the longest bull market in history: 3453 days. Yep. After bottoming out at the end of the Great Financial Crisis (GFC) in March 2009, stocks have climbed more than 300%.

Debit: Despite the long-running stock market success, a curious problem has emerged: the so-called “wealth effect” is dead. At least that’s what JP Morgan determined after analyzing data that shows higher stock prices no longer result in more consumer spending. And that has to trouble the Fed, because “the wealth effect” was the excuse given to justify its reckless quantitative easing (QE) program.

Credit: Some say the wealth effect’s demise is related to the post-GFC stock market expansion’s strength — or lack thereof: it’s the weakest on record. Why? Perhaps it’s because, as Michael Lebowitz notes, experimental Fed policies, such as QE and near-zero interest rates, have been “complicit in constraining the growth the economy desperately needs.” Ah, who am I kidding? That’s exactly why.

Debit: By the way, don’t bother counting on rising wages to boost consumer’s animal spirits anytime soon — real average hourly earnings last month saw their biggest decline since 2012. Yikes.

Debit: Maybe those falling real wages are why household debt hit a new record high last quarter; it’s currently $13.3 trillion, which is 3.5% higher than last year. It was also the 16th consecutive quarter household debt increased. In case you’re wondering, the latest total is $618 billion higher than the previous peak reached during the height of the GFC, in the third quarter of 2008.

Debit: On a related note, I see the number of US foreclosures increased for first time in three years. In fact, the number of foreclosures compared to a year ago were higher in 44% of the 219 metropolitan markets that were surveyed. I sure hope all the home flippers out there who are furiously working their phones to close the next “deal” are paying attention … unlike these determined market makers:

Debit: In other news, despite trillions upon trillions of US dollars in bank accounts around the world, all signs are pointing to an approaching global greenback shortage. Hard to believe — but true. The dollar shortage is due to financial panic in Argentina, Brazil, Turkey and other emerging markets encumbered with too much dollar-denominated debt — debt which must be paid back in dollars. It’s a vicious cycle.

Credit: Argentina’s collapsing peso is why it had to raise its policy rate to 45% last week. Can you imagine if US banks offered even a small fraction of that impressive figure to their depositors? I can’t either.

Credit: Meanwhile, the Turkish lira has plunged almost 40% in the last four months; and earlier this month it lost more than 20% in a single day. The trouble is Turkish banks and business borrow dollars — but they get paid in lira. As such, if the lira’s value is cut in half, then those Turkish banks and business owners have to earn twice as many lira to pay back their dollar debt. That’s a problem, folks.

Debit: Speaking of problems, Venezuelan President Nicolas Maduro’s decision to redenominate his beleaguered currency last week — by lopping five zeros off of the old one — miraculously stopped the hyperinflation that had been pummeling his socialist paradise since 2016. Hooray! Okay … you got me. Actually, that little trick didn’t work at all. Come to think of it, neither did this one:

Credit: I don’t know … perhaps El Presidente should try some other “bright” economic ideas like, heh, implementing price controls and raising the minimum wage 3500%. Again. Forward, amigos!

Debit: Frankly, we Americans are in no position to look down our noses at Venezuela because the US is actually deeper in debt than Venezuela. And the only thing keeping us from experiencing a similar fate — if not worse, assuming that’s even possible — is the US dollar’s current role as the world’s primary reserve currency. Unfortunately for all of us, that will be coming to an end sooner than most people think.

By the Numbers

Whether you love her, hate her, or are totally indifferent, pop icon Madonna — who turned 60 this month — is a very wealthy woman:

1990 The year Madonna appeared on the cover of Forbes with the headline “America’s Smartest Business Woman?”

$590,000,000 Madonna’s current net worth.

36 Her rank among America’s wealthiest self-made women.

$3,044,574 Madonna’s average gross per concert in 2016.

0 The number of concerts Madonna has played in 2017 and 2018.

Source: Forbes

Last Week’s Poll Results

How much cash do you have set aside for a financial emergency?

  • More than $10,000 (50%)
  • $1000 to $10,000 (40%)
  • Less than $1000 (10%)

More than 1500 Len Penzo dot Com readers responded to last week’s question and I’m happy to see that half of them say they have more than $10,000 saved up for a financial emergency — which is in stark contrast to the general populace, where 2 in 5 say they would be unable to afford an unexpected expense of more than $400.

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: Doctor’s Advice

I went to see the doctor the other day.

He said: “Don’t eat anything fatty.”

I said: “What? Like bacon and burgers?”

He said, “No, Fatty. Don’t eat anything.”

(h/t: Boggs)

Other Useless News

Here are the top five articles viewed by my 20,821 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

  1. 5 Reasons to Carry Life Insurance in Retirement
  2. 18 Fast Facts You Didn’t Know About Your Social Security Number
  3. How I Live on Less than $40,000 Annually: Evan from Pennsylvania
  4. My 10th Annual Cost Survey of 10 Popular Brown Bag Sandwiches
  5. 4 Things You Can Do to Lower Your Homeowner’s Insurance Rates

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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 explaining why smart people aren’t impressed with people who drive luxury cars, Paul sent me this little reminder:

“You can’t take it with you – although the Egyptian Pharohs used to think so.”

True, which is why — as my dear ol’ dad always says — nobody ever sees a Brink’s truck following a hearse.

I’m Len Penzo and I approved this message.

Photo Credit: brendan-c

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