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 had an enjoyable week. Without further ado, let’s get right to this week’s commentary …
The government is not the owner of its citizens’ income and, therefore, cannot hold a blank check on that income. The nature of proper governmental services – the police, the armed forces, the law courts – must be constitutionally defined and delimited, leaving the government no power to enlarge the scope of its services at its own arbitrary discretion.
– Ayn Rand
Credits and Debits
Debit: Did you see this? In today’s economic climate where every dollar counts, American homeowners are making difficult choices about home maintenance, with new data revealing that 59% are postponing essential repairs due to cost concerns. Unfortunately, that’s not the only problem many Americans are now dealing with …
Credit: The good news for struggling homeowners is that Congress is working to extend the 2017 tax cuts, which are set to expire this year. If the cuts aren’t extended, the average taxpayer would see a 22% tax hike. Putting that in real-world terms, an American family of four making $80,610 – the median US income – would see a $1695 tax increase. And if you think that’s the craziest good-news bad-news story you’ve ever heard, then you haven’t heard this:
Debit: Meanwhile, California’s unemployment fund runs a $2 billion structural deficit every year. But even more astounding is a recent audit found that 66% of benefit recipients may have received ineligible payments of $200 million in 2023. That’s two out of every three people getting checks. There’s more: Because California’s unemployment fund is paid for by payroll taxes, those taxes must rise 20-fold to cover that annual $2 billion deficit; from $42 per employee to $889. We guess that if there’s any lesson to be learned here, it’s that breathtaking bureaucratic ineptitude affects government employees at every level …
Credit: On Wall Street, Friday’s closing bell capped a wildly volatile week with a series of breathtaking daily moves – in both directions. In the end, the bulls came out on top, as the S&P 500 completed its best week since November 2023, up 5.7%. It was a similar story for both the Nasdaq – which had its best week in three years – and the Dow; they finished the week up 7.3% and 5.0%, respectively. Now … let’s just hope the tariff situation resolves itself soon – before this market chaos begins creeping into everything …
h/t: @RealStockCats
Debit: For those of you complaining that your paychecks don’t buy as much as they used to, you may – or more likely, may not – be comforted in knowing that even former Fed chair Alan Greenspan admits that, “In the two decades following the abandonment of the gold standard in 1933, the US consumer price index nearly doubled. And, in the four decades after that, prices quintupled. So monetary policy, unleashed from the constraint of domestic gold convertibility, allowed a persistent over-issuance of (fiat currency).” Uh huh. But even more infuriating is almost all of that over-issued currency ends up being completely wasted …
Credit: In other news, macro analyst Alasdair Macleod warned this week that, “The inevitable recession will … intensify the federal government’s debt trap, requiring higher interest rates and bond yields to stabilize the US dollar (USD). But that is unlikely to be permitted by the Fed.” As result, Macleod says the result will be that the purchasing power of the USD will sharply “decline against gold – and possibly silver – which since ancient times have been money without counterparty risk.” Wait … “possibly” silver? Hmm. Regardless, the Fed’s juggling act is getting harder to maintain with each passing day. Then again, we bet this guy can help …
Credit: We know what you’re thinking: Why is anybody uncertain about silver’s ability to protect one’s wealth? Well … its probably because last week’s 15% silver price plunge sent the gold-silver ratio above 100. The only other time that happened was for a very brief period during the 2020 pandemic. But market analyst Michael Oliver says that’s just “a sign that the market occasionally makes mistakes” – unless silver has somehow lost its monetary properties. (Pro tip: It hasn’t.) As such, Mr. Oliver believes silver is extremely undervalued at the moment. For that reason, he also expects silver prices to rise sharply before the end of the year.
Credit: According to Sprott market analyst, Paul Wong, gold’s surge is most likely “a result of investors hedging against the unraveling of trust in the US-led global financial system.” As a result, Wong says that “America’s allies are wondering if they can still rely on the USD. If the US … undermines the rule of law and politicizes monetary policy, central bank reserve managers and sovereign wealth funds may begin reducing their exposure out of self-preservation.” Ya think?
Credit: James Howard Kunstler amplifies Mr. Wong’s observation, pointing out that the skyrocketing price of gold is a sign that capital is slowly moving away “from hedge funds and other rackets that exist to play games with evermore abstract layers of things that only pretend to represent money. As that occurs, a lot of pretend money will vanish. Don’t be too shocked by this. That’s what happens when a society bends back toward reality: You start sorting out the real money from the fake money.” Yep. And just to be clear, that also includes the fake versions of fake money …
Credit: Macro analyst David Jensen got to the heart of the matter earlier this week when he noted that, “Operating a hybrid market-based economy with centrally-planned debt currency creation and interest-rate manipulation by central banks is now at its practical limit.” Indeed it has. But that hasn’t stopped America from continuing to export its green confetti in exchange for real products and commodities it receives from other nations. The question is: How much longer will this go on?
Credit: A potential sign of the those growing limitations of current system is that US Treasury (UST) bonds have been falling (i.e., yields are rising) in tandem with stocks. As market analyst Jesse Columbo notes, this is “a rare and concerning divergence that has fueled speculation that USTs may be losing their safe-haven status. If this trend continues, it would force the Fed to step in with another round of … money printing to stabilize the UST market – a move (that) would send gold and silver soaring.” Not that they haven’t been for more than a year now.
Credit: So where do we go from here? Well … we believe Mr. Jensen’s conclusion to be the most likely. That is, “Higher interest rates will initiate the termination of the (fiat currency) age and its abuse by central planners. The currency and trade conflict may escalate very quickly from here and lead to currency, bank, and debt restructuring – and much pain for those who do not own gold and silver. Then comes the hangover and (ensuing) recovery from the multi-decade central bank