Banking health different than 2007

David MoonBlog

In August, the economy added 96,000 new private jobs, well below the expected monthly gain of 150,000. It was another rationale for superficial analysts to warn that the economy is on the brink of repeating the 2007-2009 carnage of the Great Recession. Those analysts are wrong. We may or may not be on the brink of another recession, but the underlying fundamentals of the economy are much different than those of a dozen years ago. Some are better; some are worse. However, almost every measure of the health of the banking system is stronger today than immediately preceding the Great … Read More

Low rates change risk expectations

David MoonBlog

If you’re buying bonds to reduce the risk in your 401(k) or other investment account, you might want to rethink your concept of risk and exactly what you’re trying to achieve. If your goal is to accumulate long, or even intermediate, term wealth, bonds will – in my opinion – almost certainly increase your odds of failure over the next 5 or 10 years. The yield on a 30-year U.S. Treasury bond has dropped to 1.9 percent, less than the 2.03 percent average rate of inflation for the past 3 years. The inflation-adjusted yield is less than zero. Investing in … Read More

Knoxville is full of rich people

David MoonBlog

In my experience, the majority of people consider themselves to be some degree of middle class. If asked if they were rich, most people reading this column would answer no. And by almost any objective definition, most of them would be wrong. We first must define “rich.” Most surveys seeking to compare financial wealth (as opposed to standard of living) use some sort of income definition. If you earn above a certain dollar amount, you are rich. In reality, there is a significant difference between being rich and having a high income. Financial wealth (being rich) is about net worth … Read More

Tweeting, Economic scapegoats and Fed independence

Harold Black, PhDBlog

Being old, social media mystifies me. I cannot fathom why anyone would be on Facebook providing information to hackers, thieves and predators about their family, activities and possessions. To me, Facebook “friends” are equivalent to be being friends with Harvey the 6-foot white rabbit. During my final years at the University my doctoral students persuaded me to join Twitter because the regulators I researched tweeted information days earlier than it appeared in their press releases. Still I shuddered at the thought of following someone and having someone following me. But I learned to hate Twitter because the news is now … Read More

Recession talk misleading

David MoonBlog

Talk about an impending recession dominates recent news. Google searches for the word “recession” have increased ten-fold in the past month. (Searches originating from the District of Columbia exceed those from all 50 states; Tennessee ranks 36th in recent searches for the word.) According to the Federal Reserve Bank of New York, the probability of a U.S. recession is now the highest since 2008. The questions I’ve recently been asked expose how little many people know about recessions. It should be no surprise there are so many misconceptions about recessions; many Americans have only experienced one meaningful recession in their … Read More

U.S./China trade war is complex, non-traditional

David MoonBlog

In the most recent monetary missile exchange in the U.S./China trade war, President Trump announced a 10% tariff on an additional $300 billion in Chinese imports. In retaliation, China “requested” that state-owned companies stop buying U.S. agricultural products. Trump then backed down a bit, postponing some previously announced tariffs and cancelling others. All politicians want to retain power – Trump via the ballot box next year and China President Xi Jinping via control of the country’s military and Communist Party. Trump cannot afford to wreak economic hardships on the voters he needs next fall; Xi cannot afford to appear weak … Read More

College football and investing similarities

David MoonBlog

Near the end of this college football season, many schools will fire their coaches and clamor over a handful of hot young coaches who have enjoyed 1 or 2 successful seasons. Most of those hot young coaches will be replaced with other hot young coaches in 3 or 4 years. When much-ballyhooed health technology company Theranos was discovered to be a fraud, I was reminded of Kevin Sumlin, Charlie Weiss and Larry Fedora. (Unless you’re a passionate college football fan, you don’t know these former hot coaches – which is exactly the point.) If you don’t – or can’t – … Read More

Student loans by the numbers

David MoonBlog

As you listen to politicians discuss the issue, keep in mind that “student loan” is an overly broad term, suggesting a homogeneity that simply doesn’t exist. There are massive differences between traditional public colleges vs. for-profit schools, graduate degrees in medicine vs. fine arts and students who complete school vs. those who don’t. Here are some actual figures, however, offered with as little commentary as possible. Forty-four million Americans owe a total of $1.5 trillion in student loan debt, or an average of $34,000 per borrower. (Both the average wedding and a used, 2017 Ford F-250 pickup truck cost about … Read More

Don’t blow smoke up your portfolio

David MoonBlog

At least once a week, someone asks me about investing in marijuana. Three years ago, if someone had even hinted at investing in pot I would have considered it a joke. I still consider it a joke, even though the questions are never intended as such. Observers tell us that full-fledged marijuana legalization is coming. The libertarian in me is reluctantly ambivalent about it, while the investor in me sees it as another avenue for scoundrels to separate people from their money. Presumed smart people project annual marijuana sales in 2025 to be as much as $150 billion. Given that … Read More

“Best Interest” regulation creates more investor confusion

David MoonBlog

The key to understanding almost any human interaction is to understand the incentives at play. Whether it involves a disagreement between spouses, buying a car, trying to increase church attendance, treating drug addiction or preparing a football team to play, if you can identify the reward structure and preferences for each person or group, you can avoid mistakes and reach better outcomes. Financial news programs, for example, don’t sell investment advice; they give that away for free. They are in the business of selling viewers – that is, you – to advertisers. They only need to keep viewers engaged with … Read More