Inflation winners and losers

David MoonBlog

By itself, inflation is neither good nor bad. If consumer prices increase ten percent in a year that everyone’s wages increase exactly ten percent, inflation was irrelevant to everyone’s daily budget. Of course, the economy doesn’t work like that – including the fact that for most people incomes don’t rise in lockstep with changes in consumer prices. Neither do corporate earnings or stock prices. And just as the effect of inflation depends on whether you’re buying a home, taking your first job out of college or simply trying to fill your car with gas, the implications of inflation are complicated. … Read More

Fed makes needed rate increase

David MoonBlog

I’m not accustomed to praising the Federal Reserve, but this past week the Fed avoided a tempting opportunity to make (another) major mistake. In an effort to head off worsening inflation, the nation’s central bank raised interest rates a half a percent at its May 4 meeting. After learning that the economy contracted in the first quarter and is already halfway to an official recession, I expected the Fed governors to weasel out and raise rates a more modest – and almost meaningless – quarter-point. They did they right thing. Federal Reserve has painted itself into a corner. Because interest … Read More

Will higher rates kill housing?

David MoonBlog

After increasing for the seventh consecutive week, the 30-year mortgage recently topped 5 percent. These higher rates, combined with the massive increase in home prices in the past 18 months, have some market pundits comparing the current housing market with the end of the last housing boom in 2007 and predicting an impending 2008-style crash. I understand that fear is a popular motivator, but the comparison is more than just a modest stretch. Economic fundamentals matter and the fundamentals of the housing market are completely different than they were during the last boom. In 2007, despite a run up in … Read More

ESG investing mostly for show

David MoonBlog

Investors poured $596 billion into “socially responsible funds” in 2021, bringing the total assets in ESG (Environmental, Social and Governance) funds to $2.7 trillion. That suggests that there are plenty of people for whom socially conscious investing is important. What it really means, however, is that there are a bunch of investors who have fallen prey to another marketing gimmick by the investment industry. “Sustainability” used to refer to a business’s ability to forestall failure. In today’s investment world, the word is a marketing gimmick for investment firms and a shortcut for virtue signaling. According to the Green Clean Guide, … Read More

A 401(k) wolf in sheep’s clothing

David MoonBlog

I am usually more likely to be skeptical than optimistic whenever someone from the government shows up unsolicited, promising to solve my problem, especially when I’m not aware that I have a problem. But when the government shows up arm-in-arm with Goldman Sachs and every other investment firm on Wall Street – all anxious to solve my problem – I know there is more than my welfare in play. Throw in a high-dollar, well-orchestrated behind-the-scenes PR campaign, and I know to lock my doors. A couple of weeks ago, the U.S. House of Representatives almost unanimously passed something called SECURE … Read More

Q1 2022 letter

David MoonUncategorized

April 2022 Dear clients and fellow shareholders: Stock prices generally continued their decline in the first quarter, with the tech-heavy Nasdaq Composite posting the largest loss among the three major U.S. indices.  Our stock portfolio held up well, declining approximately one-half percent. Generally absent from the constant commentary about rising consumer prices is the effect inflation has on the actual value of financial assets, particularly bonds. Conventional wisdom is that including bonds in a portfolio provides a volatility-dampening balance to the unpredictability and risk of owning stocks. That conventional wisdom is naïve. Since 1982, interest rates have been in an … Read More

Some taxing figures

David MoonBlog

Last week’s column about the relationship between inflation, spending and taxation prompted a number of reader emails, some of them humorous in their cyber-meanness. (Sticks and stones, Will Smith.) To the letter writer who blamed my misguided sense of fairness on my being an obvious child of privilege and generational wealth, please know that my first home, 6 Paradise Trailer Court, is now a roadway retention basin. To everyone else, here are some facts about the U.S. tax code that may dispel some myths. There is a difference between income tax and payroll tax. The payroll tax is earmarked specifically … Read More

Inflation gives everyone some skin in the game

David MoonBlog

The nonpartisan Tax Policy Center estimates that 57 percent of all U.S. households paid zero federal income tax in 2021. Even if there is an income level below which a person shouldn’t be required to help finance the operation of the federal government, shouldn’t at least half the people pay something? In the same way that a person is less likely to take great care of an automobile he didn’t purchase, people tend to think about their federal government differently when they don’t pay for it. If I don’t pay for government, I don’t care if it is inefficient or … Read More

Your house is not an investment

David MoonBlog

In last week’s column, I noted that the official Bureau of Labor Statistics method of measuring housing costs was so convoluted that it results in a gross understatement of the true rate of inflation in the U.S. Implicit in my comments was the assumption that few people are fans of record high inflation. Apparently, I was wrong. Several readers, most of whom appear to be related to the residential real estate industry, wrote me, arguing that inflation is good for asset owners, especially homeowners. In one email a title company employee wrote that home ownership was the best way for … Read More

Official inflation figures misleading

David MoonBlog

If you are looking for a house and are shocked at the prices, you are obviously misinformed.  While it might appear that home prices in Knoxville increased 15 percent in the past year, the federal government’s crackerjack statisticians tell us that national home prices increased only 4.7 percent. Both the National Association of Realtors and online broker Redfin report a 16-17 percent increase last year. Who are you going to believe: a bunch of PhDs on the government payroll or your lying eyes? The most recent U.S. Bureau of Labor Statistics (BLS) inflation report tells us that consumer prices increased … Read More