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

Bond investors shocked

David MoonBlog

  In the past week, two bond funds have suspended withdrawals after rapidly declining more than 30 percent, and are in the process of liquidating. I am afraid it may just be the tip of the iceberg. These two funds invest in junk bonds, although you would never know it by their names. The Third Avenue Focused Credit fund and Stone Lion Capital Partners are barring redemptions, preventing investors from accessing their money until the funds can liquidate their holdings. The intersection of $37 per barrel oil and a reckless Federal Reserve interest rate policy set the stage for this … Read More

Chasing Past winners is poor strategy

David MoonBlog

It’s not particularly logical, but many investors evaluate their investments once a year—and they do it each December or January. Other than December 31 being a contrived date with no particular investment importance, annual specific investment reviews too often more heavily depend on recent performance, particularly the performance of the previous calendar year. That is, many investors sell their losers each December and switch to the winners of the preceding 12 months. That’s a pretty good recipe for selling low and buying high. The top performing S&P 500 sector in 2014 was utilities, with that portion of the index increasing … Read More

Bill Belichick, Terrorists and Investment Risk

David MoonBlog

This past Sunday evening, the New England Patriots were leading the Denver Broncos by 7 points with 5:31 remaining in the third quarter. The Patriots were looking at 4th and 1, with the ball on their own 47-yard-line. Statistically, the next play call wasn’t even a difficult decision. New England should have gone for it. A punt would likely result in a touchback, netting the Patriots only 33 yards on the punt. Even if New England had downed the ball inside the 20 yard line, the odds of the Broncos scoring were only marginally greater than if the Patriots had … Read More

Bet the Farm on a Rebound

David MoonBlog

  When temporary bad news hits a well-run leader in an industry with outstanding long-term prospects, compelling buying opportunities can occur.  Such is the case with the agricultural equipment business and John Deere. U.S. farm income is expected to decline 38% this year to $55.9 billion, the lowest level in more than a decade.  Blame it on the weather—it remains nearly perfect.  But ideal growing conditions aren’t always ideal for farmers.  Until last year, the farm industry had been minting money.  Crop prices soared for much of the past decade, driven by drought and rising demand for corn from ethanol processors … Read More

The silly things investors say

David MoonBlog

About once a day I hear an investor (both professionals and individuals) say something completely nonsensical. Here are a few. “It’s a blue chip company; it has to be safe.” (Ask the American Express investors who’ve lost 24 percent this year.) “It’s already gone down 75 percent; it can’t go down much more.” (Wrong; it can go to zero.) “I’m going to wait until it starts going up before I buy any of that stock.” (You’d prefer to pay a higher price?) “They say this stock is going up.” (Who is…“they?”) “This investment guarantees me 8 percent, and I can’t … Read More