Misleading adviser labels

David MoonBlog

We have written quite a bit about the intentionally misleading ways in which people in various areas of the financial industry describe themselves and their work. Here is a well-done piece from InvestmentNews explaining some of those issues: “Industry needs to rid itself of misleading labels,” InvestmentNews, February 7, 2016

Americans’ savings anemic

David MoonBlog

By David Moon When Bankrate.com recently released a study noting that 63 percent of Americans don’t have $1,000 in easily accessible emergency savings, even the Federal Reserve blamed that dangerously low figure on the 2008 recession. Unless a household experienced a 2008 financial cash flow shock, however, there is little macroeconomic reason for their savings to be depleted. While everyone’s 401(k) balances declined in 2008 that is not why Americans are woefully undersaved. Two-thirds of Americans have almost no liquid assets because they spend too much. Period. Simple. End of story. The granular detail of the Bankrate study has the … Read More

Valuations contribute to stock price drops

David MoonBlog

By David Moon A $2 drop in gasoline pump prices has resulted in an average of an extra $170 per month in the pockets of Americans, 70 to 80 % of which flows into the economy via consumer spending. So why are stock prices around the world declining? It is not as simple as blaming higher interest rates, a Chinese economic meltdown or rapid oil price decline. As tempting as it is to want to find a simple explanation, some things have no simple explanation. Higher interest rates haven’t hurt stocks because interest rates aren’t higher. Since the Federal Reserve … Read More

Equity-linked CDs misleading

David MoonBlog

The week’s Stupid Investment is one that always rears its intentionally complex head after the stock market has dropped and investor anxiety has risen. Index-linked certificates of deposits appear, on the surface, to be safe alternatives to cash, with upside potential if stock prices increase. Of course, lions and grizzly bears appear cute and cuddly until you try to pet one. I recently reviewed a six-year equity-linked SunTrust Bank CD. A cursory glance at the investment sales material leads most people to believe that if the stock market goes up, this CD will provide half of the return of the … Read More

Prices Cure Prices

David MoonBlog

  By Garrett Arms On Wednesday, the price of a barrel of Brent Crude dropped below $27 as the market reacted to the removal of international sanctions against the country of Iran.  With restored access to world markets, Iran eyes output of an additional 500,000 barrels of oil per day.  This may sound significant, but global oil demand is more than 96 million barrels per day.  Iran’s impact from the lifted sanctions will, at best case, add a fraction of one percent to global supply.  To increase additional capacity beyond 500,000 barrels will likely require significant foreign investment, a questionable … Read More

August 2015 comments still pertinent

David MoonBlog

In the first two weeks of 2016, the Dow Jones Industrial Average has dropped 1,600 points. We have no idea if it will drop more from here, but, at 1,880, the S&P 500 is at the level we called fairly valued six months ago—and remains fairly valued today. Even after this huge drop, the market has fallen to where it was in August last year—less than five months ago. At that time David Moon was on the Hallerin Hilton Hill radio show discussing the August market drop. The comments remain relevant: David on Hallerin Hilton Hill Show, August 2015  

Catastrophic risks not always threatening

David MoonBlog

The most threatening risks are seldom the ones that attract attention. In 2013, 8,454 Americans were murdered with firearms. Alcohol and drug-impaired drivers killed 10,076 people, 3,561 of whom were passengers or bystanders. Accidental poisoning killed 38,851 people in 2013. A whopping 75,578 Americans died from diabetes. Yet few people call for mandatory locks on under-sink kitchen cabinets or mandatory blood-sugar tests prior to Hershey Bar purchases. Our DNA is wired to address catastrophic risks at the moment they present themselves, not chronic risks that fall outside our daily consciousness. This phenomenon also prevails on Wall Street. It explains why … Read More

Woes of target date funds exposed

David MoonBlog

One of the more popular mutual fund classes of the past few years is the “target date fund,” a class of funds with a date attached to the name of each fund, ostensibly allowing investors to choose a fund targeted at the person’s expected date of retirement, then let the mutual fund do the rest. The popularity of these funds is growing exponentially. A recent report by the analytics researchers at Cerulli speculates that within two years target date funds will attract 63 percent of all 401(k) contributions and makeup almost half of the 401 (k) assets. It sounds pretty … Read More

Rate increase creates more unintended consequences

David MoonBlog

Although successful in its original purpose of saving the US financial system from Armageddon, $3 trillion worth of quantitative easing has mostly benefitted investment bankers and larger borrowers, at the expense of savers. That is, the Federal Reserve has lorded over perhaps the largest shift in wealth from small savers to large companies in the history of mankind. Surely that trend reversed when, on December 16, the Federal Reserve announced a quarter point increase in its Fed Funds rate target—that is, the rate at which banks lend money to each other overnight. Savers who have seen the rates on their … Read More

Local Experts Review Economy

David MoonBlog

To fully understand the health of the economy, I recently surveyed a group of true financial experts: actual people, not economists. Ricky Sizemore was my 10th grade history teacher and football coach. He thinks the Federal Reserve’s efforts to spur inflation by increasing interest rates will be either futile or counterproductive. His largest worry, however, is that young people today don’t realize the connection between education and prosperity. Mechanical engineer Al Bedinger agrees, explaining that the health of our economy and the existence of our constitutional republic depends on a well-educated population. Sterling Henton, the one-man entertainment conglomerate and creator … Read More