Presidents, prices and P/Es

David MoonBlog

by David Moon Last week’s column about the correlation between a president’s political party and stock returns during his term of office generated quite a bit of reader response. Most offered their explanation as to why the S&P 500 has historically performed much better when a Democrat was president. One reader suggested that stocks perform better when a Democrat is president because Wall Street prefers Republicans. I hope this guy gets some help. The most commonly suggested explanation is that the US economy is stronger under Democrat presidents.  That assumption is correct, but the conclusion doesn’t follow from it. Since … Read More

Do Presidents affect stock prices?

David MoonBlog

by David Moon Don’t tell your republican friends, but the US stock market has performed better when a Democrat was president than during Republican administrations.  And it’s not even close.  The difference is too large to ignore, regardless of the time frame. Since 1929, the S&P 500 has produced a total return of 204,398 percent, or 9.2 percent compounded annually. (Yes, that’s correct: 204 thousand percent.) The average annual return when a Democrat occupied the White House was 13.2 percent, compared to 4.6 percent during the 40 years of Republican administrations. When separately compounded over the 40 Republican years and … Read More

Student loan bailout brewing?

David MoonBlog

by David Moon The perverse irony was inescapable.  A March 24 federal court ruling allowed a former law school student to discharge a student loan in bankruptcy—on the same day the US Department of Education disclosing that barely half of all outstanding student loans are being repaid according to their terms. Student loans are generally non-cancellable, even in the event of bankruptcy. Excluding loans to currently enrolled students and those within the six-month post-graduate grace period, barely half of the $855 billion of outstanding direct student loans are being repaid. (Federally guaranteed private sector loans bring the total to more … Read More

Reacting to terror poor investment strategy

David MoonBlog

by David Moon In the hours following the Brussels terrorist attack this past Tuesday, US stock futures immediately declined in pre-market trading. Most media outlets attributed the drop to reaction to the attacks. Asian and European currencies also declined as investors around the world moved money into a perceived safe haven, the US dollar. By the end of the day, however, stock prices had slipped less than 0.25 percent. Discussing the financial reaction to a tragic human event, especially as the details are still developing, is cold and insensitive. It is also a common reaction on Wall Street and Main … Read More

Excess Reserves prevent inflation

David MoonBlog

By David Moon When the Federal Reserve began a three-stage quantitative easing program that would eventually create $3 trillion out of thin air, there was much disagreement about the advisability and risks of the plan. There was one topic, however, in which there was little disagreement: that “printing” that much money would lead to increased inflation. The consensus expectation was reasoned, conservative, based in history—and massively wrong. An explanation requires some background. Quantitative easing grew out of the October 2008 $475 billion Troubled Asset Relief Program (TARP.) TARP was an emergency plan to provide badly needed liquidity in a money … Read More

Adviser Regs allow misconduct

David MoonBlog

By David Moon Lost in the noise of the presidential primaries is a Washington fight that pits Congress and its Wall Street allies against you—and you don’t even know it. Congress is attempting to prevent a regulation that would require retirement plan investment advisers to act in their clients’ best interest. That’s correct; majorities in the House and Senate are trying to stop a proposed Department of Labor regulation that requires advisers to act in the best interests of their 401(k) and IRA clients. Because of the way they choose to organize, some paid financial helpers are legally considered salesmen, … Read More

Auto finance symptom of bigger problem

David MoonBlog

By David Moon A friend of mine recently bought a car, reminding me why the term “car salesman” has, in many instances, earned its pejorative reputation. It’s also a reminder of much larger problems in our economic system. New car dealers sell a completely homogeneous product, identical to those available at other dealerships, yet use a pricing mechanism that is explicitly designed to manipulate the buyer into paying higher prices than necessary. Even though it makes no sense, we all know and accept horse trading as part of the process. What you may not know, however, is that dealerships earn … Read More

Asset allocation in retirement

David MoonBlog

By David Moon A recent column in this paper warned that people who are approaching or in retirement should “get out of stocks.” That advice is overly simplistic and not a universally appropriate plan. In fact, “get out of stocks” isn’t an actual investment plan, any more than “don’t go to Alabama” is a vacation plan. A little more than 25 years ago, you could earn almost ten percent on a ten-year Treasury bond providing $30,000 a year in interest to someone with a $350,000 portfolio. This amount would fully-fund many peoples’ retirement. Today, that $350,000 ten-year treasury generates somewhere … Read More

Stock Market and Economy are different

David MoonBlog

By David Moon One of the least understood and most incorrectly applied relationships in finance is that between the economy and the stock market. The economy is not the stock market. The stock market is not the economy. Although neither directly causes the other, they do share some of the same determinants. Investors err, however, when they use either stock price or GDP observations to draw conclusions about the future of the other. Over the past 25 years, the US stock market increased significantly more than U.S. economic growth, as the S&P 500 increased 441 percent, or more than six … Read More

Payday lender regs meaningless

David MoonBlog

By David Moon The Knoxville City Council recently asked the Metropolitan Planning Commission to draft language restricting the locations of payday lending businesses.  Citing the “predatory nature of some of these institutions,” members of Council argued that payday lenders aren’t healthy for neighborhoods. The location of these businesses does nothing to create loan demand. Research from the Pew Charitable Trusts finds that 12 million Americans use payday loans to take out an average of 8 loans annually, each for about $375. On those loans, the borrower pays an average of $520 a year in interest. Almost 70 percent of first-time … Read More