House is an asset, not investment

David MoonBlog

Your house is an asset, but it is not investment. It may be exciting for homeowners to see news reports of quick home sales and bidding wars resulting in higher-than-list sales prices. But if you own only one house and you live in it, those real estate price increases are little more than a balance sheet accounting adjustment you will likely never monetize. According to Fannie Mae, the value of the median-priced home in the U.S. increased $35,000 in the past year, essentially equal to the $35,800 increase in home construction costs resulting from increased lumber prices. Zillow tells us … Read More

Don’t drown the patient

David MoonBlog

In three rounds of stimulus programs, the federal government has provided more than $850 billion in direct payments to individuals, including more than 100 million Americans who never suffered a penny of lost wages due to Covid. Indiscriminately sending cash to people at the beginning of the lockdown made sense, but like providing water to a dehydrated athlete, an appropriate remedy is dose dependent. We have moved from rehydrating the patient to potentially drowning him. Screen legend and sex symbol Mae West was right about many of life’s pleasures, but she was wrong about economics. Too much of a good … Read More

Munger is co-star of Warren Buffett Show

David MoonBlog

Berkshire Hathaway held its annual shareholders’ meeting on May 1, with an estimated 2 million people tuning in to watch the second virtual version of a meeting that regularly drew more than 30,000 in-person pre-Covid attendees. The centerpiece of the meeting is always a marathon Q&A session with the company’s CEO Warren Buffett and his partner, Charlie Munger. Buffett is the draw and the star of the show – and deservedly so. His comments from the 5-hour meeting, as always, received much coverage in the general press and are worth reading or watching. But I have always been drawn to … Read More

The little things are the big things

David MoonBlog

In 2008, new Duke head football coach David Cutcliffe abruptly stopped the team’s first workout after only 30 minutes, calling the players together to deliver an unscheduled first impression of his squad. “In 30 years of coaching, you are the fattest, softest football team I’ve ever seen. But this is great! Just getting you into shape will be worth four wins.” In the previous four seasons, Duke had won a total of four games. Five years after Cutcliffe’s excited declaration about his fat football team, Duke won a division championship. The big things in life are simply an accumulation of … Read More

Reinventing a wobbly wheel

David MoonBlog

If you live and invest long enough, silly investment schemes begin to repeat themselves.  One new such example is something called the VanEck Social Sentiment ETF, a new exchange traded fund based on an index of stocks selected for their popularity in social media posts. That is, the more times a kid in his mother’s basement tweets about some pot stock, the more likely this fund is to own it. It’s hard to imagine anything more ridiculous. The impressive marketing materials make liberal use of the newly fashionable term “artificial intelligence.” According to documents provided by the fund’s sponsor, the … Read More

Bezos’ self-serving call for higher taxes

David MoonBlog

Don’t be impressed that Amazon CEO Jeff Bezos favors an increase in corporate tax rates. Now that Amazon is a trillion dollar behemoth with $66 billion of annual cash flow, it can afford to pay increased taxes. For many smaller competitors without economies of scale, already struggling with razor thin margins, a few percentage points of higher business, personal or payroll taxes will be the final nail in their business coffin. For Amazon, those increased taxes would flow back to corporate headquarters, as the company might be the single biggest beneficiary of a boost in infrastructure spending. Amazon has done … Read More

Home prices and toilet paper

David MoonBlog

If you’re wondering how the residential real estate market could surge in a year the unemployment rate doubled, you only need to understand the Great Toilet Paper Crisis of 2020. For two weeks last April, more than half of the nation’s grocery stores were out of toilet paper for part of each day. Small, but abrupt shifts in purchases from commercial buyers to consumers quickly upset a supply chain that was designed to provide a significant percentage of the nation’s TP to institutional customers, while also allowing grocery stores to reshelve residential paper three times a day. When any complex … Read More

First quarter 2021 letter

David MoonClient

April 1, 2021 Dear clients and fellow shareholders: Only 13 months ago, the U.S. stock market was trading at all-time highs, unemployment was lower than economists once thought was possible, small business formation was at record levels and inflation was running at less than 2% annually.  We had just been introduced to the strangely self-contradictory term “social distancing.”  Most of us didn’t use the word “asymptomatic,” nor had we used “zoom” as a noun. Bernie Sanders appeared on his way to securing the Democratic nomination for president – which was irrelevant – because Donald Trump was a virtual lock for … Read More

Picassos or tulip bulbs?

David MoonBlog

In March, Mike Winkelmann’s sold a piece of art titled “Everydays – The First 5000 Days” at a Christie’s auction for $69.3 million.  Even Winkelmann was shocked at the price, tweeting a happy expletive not suitable for publication to a family-oriented website. Unlike old fashioned art that resides on canvas or is chiseled out of marble, “Everydays” is a JPEG file composite of 5,000 tiny memes (yes; that’s really it) that Mr. Winkelmann (@beeple in the digital world) has created over the past 14 years. The lucky buyer, Vignesh Sundaresan, gets something called a non-fungible token (NFT).  An NFT is … Read More

Why tax at all?

David MoonBlog

Rather than debate how much the rich should pay in taxes, perhaps a more appropriate question is why any individual should pay income tax at all? In the past 12 months the U.S. Treasury has borrowed $4 trillion to fund various COVID-relief programs. The new relief package (signed into law on March 11) will add another $1.9 trillion to the national debt. Using the magic of central bank open market operations (don’t even try to understand this), the Federal Reserve has created another $3.4 trillion in COVID-related stimulus money. And this week the Biden administration announced plans for a $3 … Read More