Retiree benefits threaten state finances

David MoonBlog

Despite the stated national debt having passed the $21 trillion level, the most imminent public debt crisis is at the state level. It is a joke when governors (and gubernatorial candidates) brag about having produced balanced state budgets. Forty-nine states legally require a balanced budget. But “balanced budget” can be defined a lot of different ways, especially with respect to the fastest growing category of state debt: unfunded retiree benefits. The federal government has up to $120 trillion of unfunded liabilities (in addition to $21 trillion of official debt,) but unlike state governments, the U.S. has can borrow its way … Read More

GDP growth yields egg on face

David MoonBlog

When the Bureau of Economic Analysis (BEA) announced 4.1% second quarter Gross Domestic Product (GDP) growth, I was reminded of then-presidential candidate Jeb Bush’s 2015 claim “there is no reason in the world why we can’t grow at a rate of 4% a year.” Writing in an op-ed piece, one financial analyst was skeptical, noting that the underlying economic conditions are muted compared to the 1950s and 1960s – our last sustained period of 4%-plus growth. Going forward, slower population and workforce growth would dampen economic growth, as would declining improvements in productivity. Not only was the analyst skeptical, he … Read More

HCA, Greenlight, share buybacks

Garrett ArmsBlog

A common theme among many of our portfolio companies is that management is opportunistically allocating excess capital toward the repurchase of shares. While capital allocation one of management’s most important responsibilities, many CEOs focus solely on their operating businesses and fail to allocate capital effectively.  In our portfolio, we hold a number of companies with managements that have demonstrated a strong understanding of capital allocation.  This is not by accident; it is part of our selection process.  In the most recent quarter, Group 1 Automotive, Jefferies Group, Synchrony, and HCA all actively repurchased significant amounts of their own shares. While … Read More

Newspaper newsroom staffs -45%

David MoonBlog, Uncategorized

In the past 10 years, newsroom employment across all outlets declined 23%, with the largest drop, 45%, in traditional daily newspapers. Since 2008, the number of newspaper employees working in newsrooms has fallen from 71,000 to 39,000. Pew Research has the details: Pew: Newsroom employment drops nearly a quarter in ten years.


David MoonBlog

For two months, a bank in New Zealand, Perpetual Guardian, allowed its employees to work four days a week while being paid for five. The company found that its employees accomplished the same amount of work in four days as they previously had in five. John McFetridge, the company’s General Manager, questioned why they hadn’t considered the workweek sooner. He might also question why his employees waste 20% of their time at work. There are plenty of studies supporting Perpetual Guardian’s trial. A 2004 report published by the Center for Disease Control summarized 52 applied psychology studies, all of which … Read More

Be careful using mental shortcuts

David MoonBlog

Prior to President Trump’s selection of Brett Kavanaugh for the Supreme Court, Democrats had organized campaigns against the unnamed nominee. It didn’t matter who he picked; Trump’s foes were going to object. Politics is one area where seemingly otherwise smart people cede their thinking to others. How else can you explain the near perfect correlation between the average person’s opinion on climate change and his opinion on completely unrelated positions like gun control or abortion? Republicans are no better. For three years, the Department of Labor has tried requiring all investment advisers to act in their clients’ best interests, but … Read More

Yield curve flattened, not inverted

David MoonBlog

One historically accurate leading indicator for recessions has been an inverted yield curve – that is, a situation in which short-term interest rates are higher than long-term rates of similar credit-quality bonds.  The Treasury yield curve was most recently inverted in 2006 and 2000, each time within months prior to a recession.  (See Figure 1.  Recessions are noted in gray.)  Since 1950, the U.S. has suffered 10 recessions, seven of which began within a year of the yield on 90-day Treasury bills exceeding that of 10-year Treasury bonds.   In 2006, it was difficult for large businesses to borrow for … Read More

U.S. China Trade Math

Garrett ArmsBlog

In 2017, the total value of exported U.S. goods was $1.57 trillion; the total value of imported goods was $2.44 trillion, leaving a U.S. trade deficit in goods of around $870 billion. The U.S. ran a surplus of about $300 billion in services, for a net deficit of roughly $570 billion.  While this deficit raises some cause for concern, most economists agree that maintaining open trade is likely to do more for U.S. prosperity than would managed trade.  Furthermore, given the structural budget deficit of the United States, it is difficult to balance the accounts without running a structural trade deficit. Closing one … Read More

Trade nuanced, not simple

David MoonBlog

While in Milwaukee last week, everywhere I turned, I saw and heard criticism of President Trump and his position on foreign trade. The city of Milwaukee voted overwhelmingly for Hillary Clinton in 2016. It is also home to the headquarters of Harley-Davidson, a company on whose motorcycles the European Union just implemented a retaliatory 31% import tariff. In the abstract, most people rightly see trade and tariffs as a black-and-white issue, but international trade doesn’t occur in the abstract. It is complicated and nuanced. In the abstract, unimpeded and untaxed international trade creates the most positive overall economic benefit for … Read More

A declaration of economic independence

David MoonBlog

Sixteen years after the Second Continental Congress approved a resolution of seccession from Great Britain 24 businessmen, sitting in the shadow of the tallest “structure” in the lower Manhattan skyline (a tree) signed another agreement that what would eventually give birth to the New York Stock Exchange. This imperfect and much maligned system of capital allocation became an integral part of improving the economic conditions around the world. American socialists can take pride in the fact that the term “capitalism” was originally used by those who rejected its virtue. The English word “capital” derives from the Latin word for “head”; … Read More