Interest rates aren’t so bad given history

David MoonBlog

In 1987 my wife and I bought our first house, a vinyl-sided starter home off Cedar Bluff Road. We felt almost like mortgage thieves, borrowing 30-year money for a mere 10.15 percent. Clearly, the credit gods had favored us. In 1987, I was focused on the previous few years, especially when mortgage rates had reached 16.3 percent in 1982. But the world didn’t begin in 1982, nor was it about to end in 1987. Or even in 2014. High quality US mortgage rates averaged 5.1 percent in 1900, or only slightly more than today’s average 30-year rate of 4.30 percent … Read More

Will China allow a truly free market?

David MoonBlog

An initial public offering (IPO) is the process by which a company raises equity capital from outside investors. It unofficially signals that a business is in the Big League. An IPO is a symbolic recognition of capital as necessary of factor of production and its role in powering the world’s economic engine. The largest IPO in the history of capitalism now belongs to Chinese e-commerce giant, Alibaba Group. The company raised $25 billion on a single day a little more than a week ago. The previous record holder was the Agricultural Bank of China, which raised $22.1 billion in its … Read More

What are you looking at and why?

David MoonBlog

Almost thirty years ago I stepped onto an empty elevator on the top floor of Knoxville’s 27-story Plaza Tower. Inspired by Alan Funt’s Candid Camera television show, I turned and faced the rear of the car. The elevator stopped at the 25th floor and picked up a second passenger. After about five seconds, she turned around with me, never saying a word. The elevator stopped several times. By the time we reached the lobby, about half of the people on the crowded elevator were facing the wrong way. That seemingly sophomoric prank was an invaluable investment lesson that continues to … Read More

Measuring success is relative

David MoonBlog

If Tennessee’s football team wins eight games this season any reasonable observer would describe it as massive improvement. When the Volunteers won eight games in 2000, fans were generally disappointed. When measuring change, the beginning point matters. The Butch Jones era began in the athletic equivalent of a horrible bear market. Last week I saw an old friend who complimented me on my weight loss. I’ve actually gained a few pounds in the past month, so he caught me off guard. That is, until we realized that our last face-to-face visit was more than 20 years ago—when I was about … Read More

The harsh truth about the NCAA

David MoonBlog

I love college football. I love the pageantry, tradition and passion surrounding the game. But I do not love the game’s governing body. The National Collegiate Athletic Association (NCAA) is among the most morally corrupt organizations in the free world. Society willingly accepts the situation because of tradition, ignorance or outright self-interest. The NCAA’s practically religious mantra is “amateur athletics.” The supporters of the quaint, idyllic notion of “amateur athletics” are quick to defend the cost of a scholarship as fair compensation to college athletes. Once a person accepts that it is morally permissible to exchange tuition, food and a … Read More

Emotional investing is a bad idea

David MoonBlog

Shares of Apple Computer topped $100 a share this past week, eclipsing their previous high of $100.72 in September 2012. Demonstrating an uncanny ability to forecast short-term price movements, I sold my Apple shares in May this year for $85 per share. In the interest of both full disclosure and self-defense, I should also note that I had purchased the Apple shares only 12 months earlier, for $64 share, producing a tidy 33 percent profit in only a year. Some people would argue, however, that by selling in May rather than August, I lost $15 a share. They are badly … Read More

This new pill provides a moral puzzle

David MoonBlog

The Centers for Disease Control estimates there are 3.2 million Americans with chronic Hepatitis C, 17,000 of whom will die this year as a result of the infection—a number that exceeds the annual deaths from HIV/AIDS in the US. Fortunately, Gilead Sciences produces a new breakthrough drug, Sovaldi, which has proven to cure 90 percent of all Hepatitis C patients. The drug costs $1,000 a pill, or $90,000 for the typical three-month treatment. The cost of 90 days of Sovaldi treatment for the estimated 12,000 infected TennCare enrollees would be one billion dollars a year. Combined with the $300 million … Read More

Lower price isn’t always cheaper

David MoonBlog

This past week Dollar Tree announced it was acquiring rival Family Dollar in a deal worth $8.5 billion. Selling stuff for a buck is obviously profitable. The transaction is a perfect example of the Moon Affordable Small Packages Fallacy and Moon Paradox of Poverty, both of which I created this week. The Affordable Small Packages Fallacy describes the inverse relationship between the size of a product’s package and the gross margins it provides a retailer. That is, pizza is more expensive by the slice. And a one-dollar, 24-ounce bottle of ketchup is more expensive than a four-dollar, 114-ounce tub. For … Read More

Hawaii bills, green ink, and other money facts

David MoonBlog

How much do you really know about money? The word “money” derives from the Romans. They made their coins in the temple of Juno Moneta, their goddess of marriage and women. The earliest banks were ancient religious temples where people stored grain or precious metals they used as money. The dime is smaller than the cent and nickel because, at one time, each coin contained an amount of metal approximately equal to the face value of the coin. The dime was originally spelled “disme,” based on the Latin word “decimus,” meaning one-tenth. The five-cent piece is the only US coin … Read More

For richer or poorer, mergers are like marriages

David MoonBlog

This past week, Rupert Murdoch’s 21st Century Fox offered to acquire Time Warner, theoretically posing the prospect of the same entity controlling both CNN and Fox News. Time Warner was previously the target in what is routinely described as one of the worst corporate marriages in history. When AOL purchased venerable Time Warner Communications in 2001, it seemed a bit like Derek Dooley taking control of a storied SEC football program—and with similar results. AOL effectively paid $165 billion for Time Warner, using soon-to-be almost worthless stock as currency. Today AOL is little more than a very expensive footnote in … Read More