Black Coffee: A Financial System In Jeopardy

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black coffee
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 everyone is enjoying their weekend. I know I am … so
let’s get this show on the road.

Nobody wants to put the creditworthiness of the United States in
jeopardy. Nobody wants to see the United States default. So we’ve
got to seize this moment, and we have to seize it soon.

— Barack Obama

A fool too late bewares when all the peril is past.

— Elizabeth I

Credits and Debits

Debit: Did you see this? I hate to sound like a
broken record, folks, but
how absurd is the current stock market
? Not only have stocks
gone 70 days without so much as even a measly 1% decline, but when
measured by total market capitalization to US GDP, the stock market
would have to fall by one-third just to get back to the ridiculous
level we witnessed just prior to the financial crisis of 2008.

Debit: Of course, one of the biggest examples
of just how insane the market has become is Telsa. Ever since the
Fed launched QE4 in October, Tesla shares have been on the move. In
fact, they climbed another 5% higher this week, pushing the market
cap of the relatively-tiny electric vehicle manufacturer over $100
billion. That officially makes Tesla
the world’s largest automaker
.

Debit: So despite never delivering an annual
profit, stock market investors say Tesla is more valuable than
Volkswagen — even though VW delivered
almost 11 million vehicles
in 2019, compared to the 367,200
cars delivered by Tesla in 2019. Investors have also determined
that Tesla is more valuable than GM and BMW —
combined. I know … but I also suspect most investors buying Tesla
stock at these lofty levels aren’t Jeopardy!
material. Then again …

Debit: To prevent recessions from turning into
depression,
the modus operandi of central banks
is to print money and lower
interest rates by 4% or more in order to increase consumer
confidence and and entice them to spend more. Never mind that all
this really does is further increase debt levels, thereby making
the problem worse — although it does make the
bankers richer.

Credit: The trouble is, as MN Gordon notes,
We’re living
on borrowed time
. The day will come when the costs of debt
monetization exceeds any benefits. That’s when those costs will
be paid with ruinous price inflation. And, as it happens, ruinous
price inflation is very costly. In the meantime, everything is
awesome. Shares of Tesla are trading at over $500. Somebody say
‘amen.’” Amen. And hallelujah too.

Credit: Indeed, in a recent interview with the
Financial Times, the outgoing Bank of England governor, Mark
Carney, warned that central
banks are running out of ammo
to combat a downturn: “If there
were to be a deeper downturn, then it’s not clear that monetary
policy would have sufficient space to jump-start the global
economy.” If Japan is any guide, it’s crystal
clear, Mr. Carney: there won’t be sufficient
space.

Debit: Somewhat curiously, the International
Monetary Fund (IMF) is now warning that the global economy could
soon find itself
mired in a great depression
. Hmmm. Now I’m confused. Twas a
time when bankers wouldn’t be caught dead in the very-lonely
tin-foil hat club that I’ve belonged to for the past ten years.
On second thought, I’m not the only one who seems to be all mixed
up …



Debit: Of course, at this stage of the economic
cycle, the prudent course of action is for the Fed to replenish its
policy armory by increasing interest rates to at least 4% — if
not higher — while the economy is still in relatively good shape.
Then again, such a move would initiate a severe economic downturn
— although would also
flush the zombie corporations
, insane stock market valuations,
and other malinvestments from the system.

Debit: On the other hand, stock prices have
very little to do with the typical Average Joe living on Main St.
— and their participation in the domestic economy — because
just
10% of the American population owns 84% of all stocks
held by
US households.

Credit: However, as money manager Lance Roberts
observes, while the Fed talks about wanting higher rates of
inflation,
they can’t allow rates to rise
because the average American
requires $3000 in debt annually to maintain their standard of
living. And it’s not just Average Joe who would be affected if
rates were ever normalized; the US government is so deep in debt that it can no
longer afford higher interest rates either.

Credit: Everyone knows the Fed is trapped. They
can raise rates, which will decimate the stock market, lower
American living standards, and cripple the US economy for a long,
painful period of time — or they can continue suppressing rates
to keep the charade going until the dollar finally implodes and
forces a real solution. The good news is it’s
not too late to buy a little
wealth insurance
. So what are you waiting for?

By the Numbers

Here are some numbers from the completely out-of-touch annual
billionaire
social-justice-warrior summit
in Davos, Switzerland:

119 Number of billionaires in attendance.

$500,000,000,000 The combined wealth of the
billionaires in attendance this year.

2000 The number of people in the world who have
more wealth than the poorest 4.6 billion combined.

1 Rank the Davos delegates gave to “extreme
weather” among the biggest global risks in 2020.

2 Rank the Davos delegates gave to “Climate
action failure” among the biggest global risks in 2020.

0 Estimated number of Davos participants who
live in a small eco-footprint home with less than 1000 square feet
of living space, or flew to the event on a commercial jet
airliner.

Source:
Forbes

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 Results

How many times did you go to a movie theater in 2019?

  • Zero (39%)
  • 2 to 5 (35%)
  • Once (20%)
  • More than 5 (6%)

More than 1700 Len Penzo dot Com readers responded to last
week’s question and it turns out that slightly more than 2 in 5
Len Penzo dot Com visited a movie theater at least twice last year,
unlike yours truly, who didn’t go a single time last year. Since
I can see most movies at home on demand within a month of release,
I feel the premium to watch flicks at the theater isn’t worth the
money. But, hey … I’m an old fogey.

If you have a question you’d like me to ask
the readers here, send it to me at
Len@LenPenzo.com — and be sure to put
“Question of the Week” in the subject line.

Useless News: Cheap Yardage

Walking up to a department store’s fabric counter, a pretty
girl asked, “I want to buy this material for a new dress. How
much does it cost?”

The male clerk behind the counter smirked and said, “That
material is on special today: It’s just one kiss per yard!”

“That’s fine,” replied the girl. “I’ll take seven
yards.”

So, with expectation and anticipation written all over his face,
the clerk hurriedly measured out and wrapped the cloth, and then
held it out teasingly. The girl grabbed the package and pointed to
a little old man standing nearby. “My Grandpa will pay the
bill,” she said.

(h/t: Sharon)

Other Useless News

Here are the top five articles viewed by my
29,111 RSS feed, weekly email subscribers, and
other followers over the past 30 days (excluding Black Coffee
posts):


  1. 19 Things the Millionaire Next Door Won’t Tell You

  2. 8 Finance Rules to Live by in 2020

  3. 10 Things Most of Us Can’t Live Without Today — But Our
    Grandmas Did!

  4. Moron Alert: How One Man Paid $87,500 in Partially Avoidable IRA
    Fees

  5. 4 Resolutions That Can Help You Improve Your Finances

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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 out to me at:
Len@LenPenzo.com

After reading a Len Penzo dot Com article explaining the

4 things every homeowner should look for in a pest control
company
, Tori Raddison left this comment:

Getting rid of a rat’s nest is much more effective than
getting rid of a few rats — that includes my soon-to-be
ex-husband who left me last month for my best friend.

You know … I’m thinking it may be time for me to start up a
therapy blog.

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

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