<h2>Weekly Blog #9</h2>
&#8220;There is nothing either good or bad, but thinking makes it so.&#8221; William Shakespeare 
Let’s start with a question: What does your credit score really say about you? If you’re like most people, you might assume that it measures financial responsibility, discipline, or even moral worth. After all, banks, insurance companies, landlords, and sometimes even employers use it to size you up. But here’s the uncomfortable truth: your <a href="https://www.wasatchfinance.com/glossary">FICO</a> score is less a reflection of who you are, and more a snapshot of how well you play Fair Isaac’s game.
The Fair Isaac Corporation—now commonly known as FICO—launched the first general-purpose credit scoring system in 1958. The idea was simple: assign a numerical value to a borrower’s likelihood of repaying a debt. And it worked. Lenders needed a standardized, non-emotional method to evaluate applicants, and Fair Isaac delivered.
Today, the FICO score remains the gold standard in credit risk assessment. It ranges from 300 to 850, although hitting the upper end is about as common as a unicorn riding a Harley. While there are other scoring models, most lenders (especially mortgage underwriters) still rely on FICO.
The irony? FICO doesn’t measure wealth, income, or even savings. You could have $10 million in the bank and still end up with a lower score than a college sophomore with a $500 secured card and good habits. Why? Because the algorithm rewards behavior, rather than balance sheets or six-digit incomes.
Anatomy of a Credit Score. Your FICO score is a composite of five weighted components:
<ul>
<li>35% Payment History: Have you paid your bills on time? Nothing drags your score down faster than a missed or late payment.</li>
<li>30% Amounts Owed: This includes not just how much debt you have, but how much of your available credit you’re using (aka “credit utilization”).</li>
<li>15% Length of Credit History: Longer is better. Creditors like to see long-term relationships.</li>
<li>10% Credit Mix: A variety of credit types (mortgage, auto loan, credit cards, etc.) reflects well on you.</li>
<li>10% New Credit: Opening too many accounts in a short period can make you look desperate—or reckless.</li>
</ul>
What doesn’t Fair Isaac consider? Your income, your assets, your net worth, and your investment portfolio. In Isaac’s eyes, a debt-free, cash-paying minimalist might be invisible—or worse, unworthy of credit.
Which brings us to the central question: Is Isaac fair? Well, it depends on what you expect from the system. If you believe a credit score should assess a person’s holistic financial health, then no—it’s wildly incomplete. But if your goal is to predict whether someone will make their payments on time, it’s a pretty reliable tool.
Still, there are some clear shortcomings:
<ul>
<li>Debt Avoiders Get Penalized: If you’ve always paid cash, have no loans, and never needed credit? Congratulations—you’re financially prudent and systemically punished.</li>
<li>Mistakes Linger: A single missed payment can haunt you for seven years. Context doesn’t matter.</li>
<li>Gamification Is Real: People make financial decisions to game their score rather than build long-term wealth. That’s like skipping lunch to weigh less at your doctor’s appointment.</li>
</ul>
Perhaps the most glaring flaw is this: FICO doesn&#8217;t reward financial success; it rewards predictable debt behavior. There&#8217;s no bonus for owning your home free and clear, amassing a seven-digit 401K account, or avoiding consumer debt entirely. The system wants you to borrow—just not too much—and to pay faithfully—just not too early.
If you want to play the game effectively, here are a few rules to follow:
<ol>
<li>Always Pay on Time: Set reminders, automate payments. Just don’t miss it.</li>
<li>Monitor Your Utilization: Try to keep balances below 30% of your total available credit, even if you pay in full each month.</li>
<li>Keep Your Oldest Accounts Open: Credit age matters. Closing your first credit card can lower your average account age.</li>
<li>Open New Credit Sparingly: Every new inquiry dings your score, and opening a dozen retail cards at holiday time isn’t helping.</li>
<li>Check Your Report Annually: Use <a href="https://www.annualcreditreport.com">annualcreditreport.com</a>. It’s the only federally authorized site. Review all three bureaus (Equifax, Experian, TransUnion).</li>
<li>Dispute Errors Promptly: Mistakes are more common than you’d think. Correct them before they cost you.</li>
<li>Don’t Chase Points for Points’ Sake: Credit card rewards are great, but applying for cards just to get the signup bonus is a short-term play.</li>
</ol>
And here’s a subtle strategy most people miss: if you’re planning a major loan—say, buying a house—don’t touch anything for at least 90-days beforehand. No new accounts, no major purchases, no surprises. Think of it as a financial quarantine before your big exam.
As of today, the median FICO score in the U.S. is around 715. A score above 740 gets you most of the best rates and terms. Anything above that is just bragging rights. Lenders don’t offer bonus rates for an 830 versus a 780. There’s no black card reserved for the perfectly scored.
That’s why the real goal isn’t the highest score—it’s wealth creation. Credit, if used wisely, is your best friend. Your credit score should serve to increase your wealth, not the other way around. Sometimes, building wealth means using credit strategically: refinancing, investing, or consolidating at lower rates. Other times, it means ignoring the score entirely in favor of building assets and reducing liabilities.
Your credit score matters. It can impact your mortgage rate, your insurance premium, even your job prospects. But it’s not a character test. It’s not a substitute for sound financial planning. And it certainly isn’t worth obsessing over.
So… is Isaac fair? He’s efficient. He’s influential. But fair? Only if you know the rules—and play by them.
At Wasatch Finance, we believe credit is a tool—not a trophy. Used wisely, it can help build lasting wealth. Used carelessly, it can create lasting regret. Either way, the score is just a number—what matters is how you leverage it.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™

Is Isaac Fair?

<h2>Weekly Blog #8</h2>
“Price is what you pay. Value is what you get.” Warren Buffett 
Adam Smith’s invisible hand tells us that in a free market, prices are set by what a buyer is willing to pay and a seller is willing to accept. And for many goods and services, that’s true enough. But real estate is different. A buyer may be willing to pay $500,000 for a home, but if the bank won’t finance 80% of that amount, the deal’s dead in the water. Unlike a pair of shoes or a share of stock, the value of a property often depends on more than just market sentiment—it depends on lending standards, appraisals, income potential, and cold, hard math.
So, what’s a house really worth? It depends on who’s asking—and why. From comps to replacement cost, from cap rates to <a href="https://www.wasatchfinance.com/glossary">discounted cash flow</a>, there’s more than one way to size up a property’s value. Let’s break it down.In residential real estate, the most common method of valuation is a comparative market analysis (CMA), or “comps.” This approach compares recent sales of similar homes in the same area—adjusting for variables like size, condition, lot, location, and upgrades. It’s the real estate equivalent of pricing a used car on Kelley Blue Book.
But comps are only as good as the market they&#8217;re based on. In a hot market, buyers may overpay because they&#8217;re emotionally driven or fearful of being priced out. In a cold market (think 2009–2011), even desirable homes may sit unsold. In other words, comps reflect what someone was willing to pay—not necessarily what something is intrinsically worth.
If you’ve ever heard someone say “a house is worth what someone’s willing to pay for it,” they’re quoting the comps model. But that’s a bit like saying a donut is worth $20 because someone on a hunger strike finally cracked. Not exactly an objective measure.
Another method is replacement cost—how much it would cost to rebuild the property from scratch, using current labor and material prices. This is the method used by insurance companies when underwriting homeowners’ policies. It’s especially useful in post-disaster situations where the land value is unchanged but the structure must be replaced.
Here’s the catch: replacement cost ignores land value and market demand. A custom-built log cabin on the edge of nowhere might cost $500K to recreate, but if nobody wants to live there, good luck selling it for anything close.
For investment properties, valuation is typically driven by the income approach. This method assesses what a property is worth based on the income it generates. The most common metric used to analyze investment properties is the <a href="https://www.wasatchfinance.com/glossary">Capitalization Rate</a> (Cap Rate). The formula is simply; Cap Rate = Net Operating Income (NOI) ÷ Market Price
A rental property producing $70,000 in net annual income and priced at $1 million has a 7% cap rate. Higher cap rates mean higher yield—but often higher risk. Lower cap rates usually reflect stronger locations or more desirable properties.
Cap rates are a function of interest rates, and historically run 250–350 basis points above the 10-year Treasury note yield. This 2.5–3.5% <a href="https://www.wasatchfinance.com/glossary">spread</a> reflects the required <a href="https://www.wasatchfinance.com/glossary">risk premium</a>. Real estate investors require in order to take the risk of investing. As of today, the 10-year yield is ~4.5%, which means a prudent investor should seek a cap rate north of 7%.
This model is especially relevant for investors focused on cash flow. If a property’s net income doesn’t justify the price tag—especially when compared to other investments with similar risk profiles—it’s overpriced.
The DCF method attempts to model the present value of future cash flows, discounting them at an appropriate risk-adjusted rate. Think of it as the cap rate model on steroids. It&#8217;s ideal in theory—and often a mess in practice—because it&#8217;s highly sensitive to assumptions about rent growth, vacancy rates, exit cap rates, and discount rates.While models and math provide the scaffolding of valuation, real estate—especially residential real estate—is emotional. A young couple might stretch their budget for the perfect backyard. A retiree might pay a premium to be near grandkids. A tech exec might drop $5 million on a teardown in Palo Alto just because it’s Tuesday.
Scarcity also plays a role. In markets like Boise, Austin, or Salt Lake City—where housing supply lags population growth—prices are driven higher not because homes are worth more, but because there simply aren’t enough of them.
And let’s not forget the biggest wildcard of all: interest rates. A home priced at $500,000 with a 3% mortgage feels very different than the same home with a 7% mortgage. Housing affordability isn&#8217;t just about price—it’s about monthly payment.
So… What’s it worth? It depends who’s asking.
<ul>
<li>To the buyer, it’s worth what they can afford—and justify.</li>
<li>To the appraiser, it’s worth what the comps suggest.</li>
<li>To the insurer, it’s worth the replacement cost.</li>
<li>To the investor, it’s worth the present value of future cash flows.</li>
<li>To the market, it’s worth whatever clears the transaction.</li>
</ul>
Real estate value isn’t fixed—it’s a moving target shaped by macroeconomics, local market trends, interest rates, and emotion. It’s part science, part art, and part psychology.
At Wasatch Finance, we believe valuation should be grounded in fundamentals, not hype or emotion. Whether you&#8217;re buying a primary residence, flipping a property, or analyzing a rental deal, our job is to help you ask the right questions—and run the right numbers. Because in real estate, as in life, knowing what something is really worth makes all the difference.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™

What’s it Worth?

<h2>Weekly Blog #7 </h2>
“I’d gladly pay you Tuesday for a hamburger today.” Wimpy
Washington bureaucrats would like the rest of us to believe that government accounting is somehow different—and more complicated—than personal or corporate accounting. They suggest that managing the federal coffers requires the knowledge and expertise of the managerial class. Nothing could be further from the truth.
While the federal government doesn’t publish a complete balance sheet, it does issue an annual <a href="https://www.fiscal.treasury.gov/reports-statements/financial-report/government-financial-position-and-condition.html">Statement of Financial Position</a>, which provides explicit values for federal assets such as student and other government loans, tax and trade receivables, deposits and currency, and official reserve assets. The government also has non-financial assets, such as real estate (buildings and land), mineral and energy resources, military equipment, infrastructure, and intangible assets. However, it doesn’t assign a market value to these assets. As a result, there is no “Net Position” or clear picture of Uncle Sam’s net worth.
That said, the Congressional Budget Office does provide regular accounting of the government’s income statement. Below is an excerpt from the <a href="https://www.cbo.gov/system/files/2025-01/51118-2025-01-Budget-Projections.xlsx">CBO</a>’s projections issued this January:
<figure id="attachment_441" aria-describedby="caption-attachment-441" style="width: 844px" class="wp-caption alignnone"><img loading="lazy" decoding="async" class="wp-image-441" src="https://backend.wasatchfinance.com/wp-content/uploads/2025/05/CBO-Projections-300x124.jpg" alt="" width="844" height="349" srcset="https://backend.wasatchfinance.com/wp-content/uploads/2025/05/CBO-Projections-300x124.jpg 300w, https://backend.wasatchfinance.com/wp-content/uploads/2025/05/CBO-Projections.jpg 591w" sizes="auto, (max-width: 844px) 100vw, 844px" /><figcaption id="caption-attachment-441" class="wp-caption-text"><a href="https://www.cbo.gov/system/files/2025-01/51118-2025-01-Budget-Projections.xlsx">Congressional Budget Office</a></figcaption></figure>
Virtually all reports and publications addressing fiscal policy tend to focus on several key metrics: the federal deficit, the national debt, and debt-to-<a href="https://www.wasatchfinance.com/glossary">GDP</a>. Policy wonks who follow discussions regarding the national budget debate may hear conflicting metrics at time. For example, debt-to-GDP (federal outstanding debt divided by gross domestic product) is often cited as 100%. Similarly, the federal deficit (federal tax revenues minus expenditures) is said to be approximately $1.9 trillion. Both of those numbers are wrong.
Remarkably, Washington’s bean counters quietly omit intragovernmental obligations—held by agencies such as the Social Security and Medicare Trust Funds. The rationale? Since the government doesn’t remit interest payments on these bonds, they claim it’s not technically “debt”—just an accounting obligation.
The total amount of intragovernmental debt is currently $7 trillion—no small sum. This explains the oft-told narrative that Social Security is insolvent because “the government is stealing from it,” which is patently false. However, what the federal government is doing is more akin to borrowing money from a family member—and then conveniently omitting that loan from his financial statements when applying for a mortgage. In this case, the lender would be future Treasury bond investors. That’s not creative accounting; it’s borderline fraud.
I uploaded the CBO’s data into <a href="https://chatgpt.com/">Chat GPT</a> and asked it a simple question: if the US government was applying for a mortgage, would you approve or decline the loan? Here’s the response:
Underwriter Decision: DECLINE. 
Reason: The borrower exhibits insufficient debt service coverage, negative free cash flow, and an unsustainable debt trajectory—this is a high-risk borrower already deep in debt, spending beyond their means, with no clear repayment plan. Even with appreciating “assets” (i.e., economic output), they’re structurally overleveraged.
From a private lender’s perspective, no prudent underwriter would approve a mortgage (or even a home equity line) for a borrower whose financials mirror the U.S. government’s adjusted balance sheet.
Proper underwriting focuses on the Four Cs of Credit: character, capacity, capital, and collateral. When we fail to adhere to traditional lending guidelines it always ends badly. Every credit bubble (and subsequent bust) starts with a departure from traditional underwriting guidelines. The 2007–2009 housing crisis wasn’t the fault of the Monopoly Man (AKA the Wall Street investment banker), but rather <a href="https://www.hud.gov/">HUD</a> and its reckless stated-income/<a href="https://www.wasatchfinance.com/glossary">subprime loan</a> program.
To be clear, credit, if used judiciously, is your friend. Borrowing for the purpose of making a prudent investment—one with a return that sufficiently exceeds the cost of credit—is a proper use of credit. However, borrowing for the sake of increasing consumption isn’t just folly—it’s dangerous.
As of today, the government’s cost of funds is roughly 4%. However, if the CBO’s forecasts are correct, in just ten years the total national debt will be nearly $60 trillion with annual net interest exceeding $2 trillion/year—roughly the size of Canada’s current annual GDP.
Absent a major fiscal epiphany and subsequent course correction, the trajectory of the US’s finances is unsustainable. Presently, the world is still purchasing Treasury bonds and the US dollar is still the primary reserve currency. However, if Washington bureaucrats don’t come to their senses soon, the global markets will eventually shun dollar-denominated assets.
To that point, the famous investor, Ray Dalio, recently opined that the US was just three years away from what he termed a <a href="https://www.businessinsider.com/ray-dalio-bridgewater-us-government-debt-deficit-treasury-markets-dollar-2025-2">debt heart attack</a>. If/when that day comes, US bonds will no longer be considered risk-free and Uncle Sam may find the only credit option open at that time would be a hard money lender.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™
&nbsp;

Creative Accounting

<h2>Weekly Blog #6 </h2>
“Markets can remain irrational longer than you can remain solvent.&#8221; John Maynard Keynes
If it seems like markets are backward, sideways, and upside down these days, you’re not imagining things.
We’ve officially reentered the realm of the <a href="https://www.wasatchfinance.com/glossary">Fed Put</a>—that bizarre world where bad news is interpreted as good news because it might coax the Federal Reserve into cutting rates. Markets aren’t reacting to fundamentals; they’re reacting to what they expect the Fed will do about the fundamentals. So, when inflation comes in soft or jobless claims tick up, the market doesn’t panic—it rallies. Not because the economy’s improving, but because investors believe the Fed will intervene. Powell sneezes and traders run for Kleenex.
Meanwhile, something strange is happening in the bond market. Since the beginning of April, the yield on the 10-year Treasury has surged by 40 basis points. That’s not a rounding error. That’s a full-on spike. Under normal conditions, a move like that would push mortgage rates significantly higher. But so far? Mortgage rates haven’t moved much at all. The opposite, in fact—they’ve been surprisingly stable.
Contrary to what CNBC would have you believe, mortgage rates don’t track the Fed’s short-term (<a href="https://www.wasatchfinance.com/glossary">fed funds</a>) policy rate. Instead, mortgage rates are priced off the 10-year Treasury note, or the long end of the yield curve, which makes sense since the average duration of a 30-year loan today is 8–9 years. So, when Treasuries sell off, and the yield rises, mortgage rates should follow. The fact that they haven’t—yet—is worth watching.
Adding to the weirdness is the behavior of the broader market. Usually, when uncertainty rises—whether from geopolitical risk, economic slowdowns, or erratic trade policy—investors go <a href="https://www.wasatchfinance.com/glossary">risk-off</a>. They sell stocks and move their money to safe-haven assets like Treasuries. That pushes Treasury prices up and yields down. But not this time. Right now, investors are selling both stocks and bonds. That means there’s no traditional flight to safety—just a broad, correlated sell-off of everything. Which explains why Treasury yields are higher despite elevated uncertainty. It’s not just bad news—it’s confusing news. And markets hate confusion.
The other puzzle is why mortgage rates haven’t followed Treasuries upward. Part of the answer lies in mortgage-backed securities (MBS). Unlike Treasuries, MBS <a href="https://www.wasatchfinance.com/glossary">spreads</a> haven’t widened much, which is keeping mortgage rates from rising in tandem with the 10-year. But that may not last. If MBS investors start demanding more compensation for volatility—or if broader market conditions deteriorate—those spreads could widen, and mortgage rates would be next in line for a bump.
On the inflation front, there’s a glimmer of optimism. Since the start of the year, inflation has been trending lower. The Fed’s preferred measure—the PCE, or Personal Consumption Expenditures index—is currently sitting at 2.2%. That’s just above the Fed’s stated 2% target. Not enough to pop champagne, but enough to potentially ease off the monetary brakes.
And the Fed may be getting ready to do just that. Futures markets are pricing in about an <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">80%</a> chance the Fed holds rates steady at the May meeting. But come June? There’s a decent probability of the first rate cut. Whether they follow through depends on how inflation data, job growth, and consumer spending shape up over the next few weeks. But the possibility is real—and so are the implications for long-term rates and mortgage pricing.
All of this puts mortgage professionals in a bit of a bind. Clients are reading headlines about inflation cooling and the Fed possibly cutting rates. But those headlines haven’t yet translated to cheaper mortgages. The 30-year fixed mortgage is still hovering near recent highs, and many borrowers are wondering when the break comes—or if it ever will.
What we’re seeing is a tug-of-war between competing narratives. On one hand, inflation is moderating, which supports lower rates. On the other hand, persistent economic uncertainty, sticky wage growth, and unpredictable trade policy are spooking both bond and equity markets. The result is a higher yield environment with surprisingly calm mortgage pricing—for now.
It’s also a reminder that rates don’t move in a straight line, and they don’t always behave rationally in the short term. Markets are driven by expectations—of <a href="https://www.wasatchfinance.com/glossary">monetary</a>/fiscal policy, trade policy growth, inflation, and global stability. When those expectations shift, pricing adjusts—sometimes violently. That’s what we’re seeing right now: the market trying to divine which narrative to believe.
For mortgage brokers and loan officers, this environment demands proactive, judicious communication. Clients need help separating noise from signal. Just because Treasury yields spike doesn’t mean mortgage rates will immediately follow. And just because the Fed is considering a rate cut doesn’t mean borrowers should wait around hoping for a unicorn deal. The bond market is volatile, the MBS market is twitchy, and lenders are adjusting pricing cautiously.
If the Fed does cut in June, and inflation continues to cool, there’s a reasonable chance that mortgage rates will trend lower in the second half of the year. But if uncertainty persists—or if the bond market starts pricing in long-term fiscal imbalances or geopolitical risk— rates could remain elevated longer than expected. Either way, mortgage professionals should buckle up—it’s going to be a ride.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™
&nbsp;

Return of the Fed Put?

Weekly Blog #5 
&#8220;Trade protection accumulates riches for a few while the many grow poorer.&#8221; Adam Smith 
A tariff is, at its core, a tax on imported goods. While taxes on income and property are familiar to most people, tariffs tend to operate more quietly in the background, much like Europe’s ubiquitous VAT tax, hidden in the price of goods and the cost of doing business. But despite their quiet nature, tariffs have played a significant and often contentious role in shaping economic policy and global trade for centuries.
In the early days of nation-building, tariffs were a practical necessity. Developing and non-advanced nations—particularly those with limited domestic production capacity—relied heavily on tariffs as a primary source of government revenue. In the absence of a sophisticated tax system, imposing duties on imported goods was a straightforward way to generate the funds needed to build infrastructure, support national defense, and establish a functioning state. For the United States, tariffs were the government’s main source of revenue for well over a century. Between 1790 and 1914, tariffs accounted for roughly 80% of federal income. Alexander Hamilton, the nation’s first Secretary of the Treasury, argued that tariffs were not only a means of raising revenue but also a way to protect fledgling American industries from more established European competitors.
Things began to shift in the early 20th century. The introduction of the federal income tax in 1913 under the 16th Amendment provided a more stable and efficient way for the government to collect revenue. Unlike tariffs, which indirectly tax consumers through higher prices on imported goods, income taxes could be adjusted to reflect economic conditions and the government’s financial needs. As the federal income tax system matured, tariffs gradually took on a different role. Rather than serving as a primary revenue stream, tariffs became a tool of economic strategy—a lever to protect domestic industries, influence trade balances, and, at times, punish bad behavior by trading partners.
At their best, tariffs can be a useful bargaining chip. When one country imposes unfair trade practices—currency manipulation, protectionist subsidies, dumping products at below-market prices, or engaging in restrictive trade barriers—tariffs can serve as a form of economic retaliation. Ronald Reagan famously used this approach in the 1980s when Japan was flooding the U.S. market with underpriced semiconductors. The Reagan administration imposed 100% tariffs on certain Japanese products, which ultimately forced Japan to negotiate more balanced trade terms. In this sense, tariffs can be viewed as a cudgel—a blunt instrument to compel trading partners to play fair.
But tariffs are not without their downsides. At their core, tariffs are a tax on consumers. When the government imposes a tariff on imported goods, the cost doesn’t disappear—it gets passed on to businesses and, ultimately, to consumers in the form of higher prices. If a 25% tariff is placed on Chinese steel, for example, domestic manufacturers using that steel will face higher input costs, which leads to higher prices for finished products. In the short term, tariffs can create scarcity, increase prices, and reduce purchasing power. In the long term, they discourage innovation and capital investment by creating artificial barriers to competition.
Tariffs also have a tendency to trigger retaliation. If the U.S. imposes tariffs on European automobiles, the EU may respond with tariffs on American agricultural products, escalating into a full-blown trade war. The <a href="https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act">Smoot-Hawley Tariff Act</a> of 1930 is the classic cautionary tale. In an effort to protect American farmers and manufacturers during the Great Depression, Congress passed one of the most restrictive tariff bills in U.S. history. The result? Trading partners responded with tariffs of their own, global trade contracted, and the Depression deepened. Protectionism backfired, and the cure was worse than the disease.
Free and fair trade is one of the greatest engines of prosperity the world has ever known. Ricardo’s theory of <a href="https://en.wikipedia.org/wiki/Comparative_advantage">comparative advantage</a>—where nations specialize in producing what they do best and trade for the rest—has created wealth on an unprecedented scale. It’s no accident that the explosion of global trade in the latter half of the 20th century coincided with an extraordinary rise in global living standards. When markets are open, competition drives down costs, encourages innovation, and increases choice. Free trade promotes efficiency by directing resources toward their most productive use, maximizing output, and enhancing overall wealth.
Tariffs, by contrast, distort market forces; they interfere with price signals, create artificial scarcity, and limit consumer choice. Subsidies—the inverse of tariffs—are no better. When governments prop up domestic industries with direct payments or tax incentives, they encourage inefficiency and misallocation of capital. When the state picks winners and losers, the people suffer. Ultimately, economic freedom—not protectionism—creates prosperity.
That said, free trade only works when all parties play by the same rules. And that’s where tariffs can be strategically useful. If one country manipulates its currency to make its exports cheaper or subsidizes key industries to undercut foreign competitors, imposing tariffs can serve as a corrective measure—a way to level the playing field. The goal isn’t to build a permanent wall around domestic industries but to use tariffs as a negotiating tool to secure freer, fairer trade terms. Ideally, tariffs should be temporary, targeted, and tied to specific policy objectives. The endgame isn’t <a href="https://www.wasatchfinance.com/glossary">autarky</a>—a self-sufficient economy cut off from the world—but a trading system where market forces, not political distortions, determine outcomes.
Autarky, after all, is a fool’s game. North Korea is a textbook example of the poverty that results from isolation. Compare that to South Korea, which embraced global trade and became an economic powerhouse. The lesson is clear: open markets create prosperity; closed markets create stagnation and poverty.
At the end of the day, tariffs should be viewed not as an economic strategy but as a means to an end—a tool to compel other nations to engage in open, fair, and reciprocal trade. The ultimate goal isn’t more tariffs; it’s no tariffs. A world where goods, services, and capital move freely across borders creates more output, lower costs, greater innovation, and more abundance. And that’s a win for everyone.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™
&nbsp;

Tariffs: Friend or Foe?

<h2>Weekly Blog #4 </h2>
 &#8220;The price of admission to higher returns is volatility.&#8221; Morgan Housel
Every investor wants to make money. But making money is not the same thing as making money wisely. The difference? Risk. More specifically, the <a href="https://www.wasatchfinance.com/glossary">risk premium</a>—the extra return an investor demands for taking on uncertainty. If you don’t demand a sufficient risk premium for a given investment, you’re not being sufficiently compensated.
We’ve all heard the old saying, “risk versus reward,” implying that investment returns should be commensurate with the risk. But how does an investor know if they’re being fairly compensated? That’s where the Capital Asset Pricing Model comes in. <a href="https://www.wasatchfinance.com/glossary">CAPM</a> provides a framework for estimating the expected return on an investment based on its risk relative to a risk-free asset—typically US Treasury securities because the market believes Uncle Sam is good for the money.
CAPM is expressed as: rm = rf + β(rm − rf), where rm = expected return of the market, β = volatility (risk), and rf = the risk-free rate. This formula tells us that investors’ required return isn’t determined by risk alone, but also by the risk-free rate and the expected return on the overall market.
The Treasury Bill is typically the risk-free rate starting point. Why? It’s highly liquid and considered free from default risk. Treasury securities have terms between one-month and thirty years, and you should match the term of the Treasury security to the holding period. For example, if the investment term is a decade, you would use the 10-year Treasury note.
In any given year, the Capital Asset Pricing Model is wrong—but conceptually it’s right because it quantifies the required risk premium—the extra return an investor needs over the risk-free rate to justify an investment.
Historically, different asset classes have provided the following <a href="https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html">returns</a> (1928-2024):
<table>
<tbody>
<tr>
<td>Asset Class</td>
<td>Return</td>
</tr>
<tr>
<td>Treasury bills</td>
<td>3.31%</td>
</tr>
<tr>
<td>Real estate</td>
<td>4.23%</td>
</tr>
<tr>
<td>Treasury notes</td>
<td>4.50%</td>
</tr>
<tr>
<td>Gold</td>
<td>5.12%</td>
</tr>
<tr>
<td>Corporate bonds</td>
<td>6.62%</td>
</tr>
<tr>
<td>Stocks</td>
<td>9.94%</td>
</tr>
</tbody>
</table>
The concept of risk premium is central to smart investing. While CAPM uses beta (a statistical measure of volatility) as a risk proxy, wise investors consider all forms of risk, including:
<ul>
<li>Market risk—The loss of some or all of your principal.</li>
<li>Liquidity risk—Inability to sell an asset quickly.</li>
<li><a href="https://www.wasatchfinance.com/glossary">Inflation</a> risk—The risk that price levels rise faster than your investment value.</li>
<li>Interest rate risk—Rising interest rates reduce the price/value of your investment.</li>
<li>Credit risk—The risk of default by the borrower/issuer of debt.</li>
</ul>
Historically, banks pay depositors a rate that lags the rate of inflation (<a href="https://www.wasatchfinance.com/glossary">CPI</a>). While everyone should keep a reasonable amount in savings—generally equal to 3–6 months’ expenses—long-term money should be positioned in a manner that provides a <a href="https://www.wasatchfinance.com/glossary">real</a> return.
While investments like Treasury notes and corporate bonds have historically outpaced inflation, they tend to be poor long-term growth vehicles. This is where riskier assets, such as stocks and real estate, are generally better wealth building vehicles.
Over time, stocks have delivered ~10% annual returns. With low purchase minimums and transaction costs, stock mutual funds have been a great investment vehicle for retirement plan participants. Jack Bogle, founder of Vanguard, often recommended low-cost index funds—and history has demonstrated the wisdom of his sage advice.
Real estate, another proven long-term asset, has historically appreciated ~4% annually, with rental properties providing steady monthly income. A well-managed rental property with a 6% cap rate could generate total returns comparable to stocks (~10%).
Between 2008 and 2022 (post financial crisis), the Federal Reserve artificially suppressed interest rates through quantitative easing (<a href="https://www.wasatchfinance.com/glossary">QE</a>), driving short-term rates to near zero for nearly 14 years. This Fed policy—extraordinarily accommodative interest rates—acted as a hidden tax on savers and investors, pushing the risk-free rate to zero and compressing required returns across asset classes.
Before the Great Financial Crisis (GFC) and QE, investment real estate typically provided 7–8% cap rates. However, post-COVID stimulus (<a href="https://www.wasatchfinance.com/glossary">monetary</a> and <a href="https://www.wasatchfinance.com/glossary">fiscal</a>) drove inflation to over 9% at its peak. The Fed&#8217;s primary medicine for rising price levels is tighter monetary policy so, not surprisingly, interest rates surged. To that point, the 3-month T-bill jumped from 0.06% in November 2021, to over 5% by May 2023.
Although rates have eased slightly since then, the risk-free <a href="https://fred.stlouisfed.org/series/TB3MS">rate</a> remains significantly higher than it was three years ago, meaning investors should rethink required returns—especially for real estate.
In summary, every investment should be evaluated against the risk-free rate. Similarly, the longer and riskier the investment, the bigger the premium you should demand. At the end of the day, investing isn’t just about making money—it’s about making risk-adjusted money. Understanding required return and the risk premium is what separates smart investors from speculators.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™

Risky Business

<h2>February 2025</h2>
“Owning a home is a hedge against rising rents.” Warren Buffett
For decades, the American Dream has centered on home ownership as a fundamental pillar of financial security. Conventional wisdom has long held that renting is simply a stepping stone to owning, with homeownership viewed as the wiser long-term financial decision. But soaring mortgage rates, insurance premiums, property taxes, and maintenance costs are giving first-time home buyers pause, and a valid reason to question the whether home ownership is still attainable.
The post-pandemic housing market has been a rollercoaster. In 2021, buyers locked in historically low mortgage rates below 3%, fueling a surge in home prices. Fast forward to today, and mortgage rates hover around 7%, making the cost of borrowing dramatically higher. A home that once carried a $2,000 monthly mortgage payment at a 3% rate now costs $3,000 or more to finance at current rates.
At the same time, homeowners&#8217; insurance costs have skyrocketed due to hurricanes, wildfire risks, supply chain disruptions, and inflation-driven repair costs. States like Florida, California, and Texas have seen double-digit increases in premiums, further adding to the cost of ownership. Property taxes, particularly in high-demand markets, have also climbed as home valuations surged over the past few years.
For potential buyers, affordability is a serious hurdle. Many who once saw homeownership as the next step are now questioning if it’s even feasible. But renting isn’t exactly a bargain either. Over the past three years, rents have surged due to inflation, supply constraints, and a shortage of affordable housing. The median rent in many metro areas is now at record highs, making rental affordability a major issue.
However, unlike homeownership, renters avoid the burden of property taxes, homeowners&#8217; insurance, and major repairs. While landlords often pass along some costs in the form of rent hikes, renters remain insulated from large, unpredictable expenses like a new roof or HVAC replacement.
Still, there’s a crucial distinction: Renting pays for shelter; homeownership builds equity. The real question is whether the long-term financial benefits of ownership still outweigh its rising costs.
Consider a $500,000 home with a 20% down payment ($100,000). With a 7% mortgage rate, the monthly payment (including property taxes and insurance) is roughly $3,500–$4,000. Compare that to renting a comparable property for $2,500–$3,000 per month. On paper, renting looks like the better short-term deal, especially when factoring in maintenance costs and surprise expenses.
However, long-term wealth accumulation tells a different story. Additionally, homeowners benefit from tax advantages, such as the mortgage interest deduction. For example, the annual interest on a $400,000 mortgage at 7% interest rate would be approximately $28,000. For a homeowner in the 25% tax bracket, this could translate to a tax savings of about $7,000 per year, effectively reducing a monthly mortgage payment by nearly $600. This can result in significant savings, further offsetting the higher upfront costs of homeownership.
Beyond tax savings, homeownership builds equity. Even at a modest 3% annual appreciation, a $500,000 home could be worth over $675,000 in 10 years, significantly boosting the homeowner’s net worth. Renters, unless they invest aggressively elsewhere, miss out on this powerful wealth-building advantage.
Who Should Rent, and Who Should Buy?
Renting Makes Sense If:
<ul>
<li>You anticipate moving within 3-5 years.</li>
<li>You don’t have sufficient savings for a down payment and closing costs.</li>
<li>You prefer flexibility and don’t want to deal with maintenance.</li>
<li>You’d rather invest in assets other than real estate.</li>
</ul>
Buying Makes Sense If:
<ul>
<li>You plan to stay in one location for at least 5-7 years.</li>
<li>You want to build long-term wealth through home equity.</li>
<li>You can comfortably afford not just the mortgage, but taxes, insurance, and upkeep.</li>
<li>You are financially prepared for potential housing market downturns.</li>
</ul>
The rent vs. buy decision is more complicated than ever in today’s high-rate, high-cost environment. While homeownership remains a proven wealth-building strategy, short-term affordability concerns make it a tougher leap than in past decades. Buyers need to be strategic, ensuring they have adequate savings and a financial cushion to weather unexpected costs.
Renting, on the other hand, provides flexibility and frees up cash flow that can be invested elsewhere. With both rents and homeownership costs climbing, making the right decision requires a close analysis of financial goals, market conditions, and personal circumstances.
At the end of the day, neither renting nor buying is a once-size-fits-all answer. The right, best choice is one that aligns with your timeline, finances, and long-term objectives. What worked for previous generations doesn’t necessarily apply today—but with careful planning, you can make the right move at the right time.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™
&nbsp;

Rent Versus Buy-2025

<h2>Weekly Blog #3 </h2>
&#8220;An investment in knowledge pays the best interest.&#8221; Benjamin Franklin
Real estate has long been a cornerstone of wealth building. Unlike stocks or bonds, it offers investors a tangible asset with inherent value. Furthermore, while stocks have historically provided double-digit growth, the average dividend yield is a paltry <a href="https://www.morningstar.com/indexes/spi/spx/portfolio">1.43%</a>—meaning stocks tend to generate minimal income. Conversely, bonds can provide consistent income, but lack the potential for long-term appreciation. Real estate, however, offers the unique advantage of both substantial long-term appreciation and reliable monthly income.
However, successful real estate investment requires more than instinct or enthusiasm—it demands a disciplined approach grounded in financial analysis. This week’s blog explores some of the most important metrics investors should use to evaluate opportunities and highlights the critical role of leverage in amplifying returns.
Cap Rate: Investment Property Yield–The capitalization rate, or <a href="https://www.wasatchfinance.com/glossary">cap rate</a>, is one of the most reliable metrics for evaluating real estate. It represents the relationship between a property’s net operating income (NOI) and its purchase price or market value. Simply put: Cap Rate = NOI / Purchase Price.
For example, a property generating $70,000 in NOI with a purchase price of $1,000,000 has a cap rate of 7%. Higher cap rates typically indicate greater potential returns, but they may also signal higher risk. While cap rates provide a quick snapshot of potential performance, they are not foolproof. Factors such as location, property condition, and market trends must also be considered.
Cash-on-Cash Return: A Measure of Efficiency–Where cap rate measures a property’s income relative to its value, <a href="https://www.wasatchfinance.com/glossary">cash-on-cash return</a> evaluates an investor&#8217;s return on their actual cash investment. This metric is especially useful for leveraged properties, as it accounts for financing costs: Cash-on-Cash Return = Annual Cash Flow / Total Cash Invested.
If you invest $200,000 in a property and generate $14,000 in annual cash flow, your cash-on-cash return is 7%. Unlike cap rate, this metric reflects the reality of leverage and financing costs and is a better indicator of the property’s immediate profitability.
Gross Rent Multiplier (GRM): A Quick Comparison Tool–The gross rent multiplier is a straightforward way to compare properties by dividing the property price by its gross rental income: GRM = Property Price / Gross Rental Income.
For example, a property costing $600,000 with annual gross rents of $50,000 has a GRM of 12. Lower GRMs generally indicate better value, as they suggest a faster payback period. However, like cap rates, GRMs have limitations—they do not account for operating expenses such as maintenance, property taxes, or insurance.
The 1% Rule: A Quick Screening Tool–The 1% rule is a quick guideline to assess whether a property’s rental income justifies its purchase price. The rule states that monthly rent should be at least 1% of the purchase price. For instance, a $200,000 property should ideally generate $2,000 per month in rent. While useful for initial screening, the 1% rule is a blunt tool and should be supplemented with deeper analysis.
The Role of Leverage: Amplifying Returns–One of real estate’s most compelling advantages over other asset classes is the ability to use leverage. With a relatively small down payment, investors can control an asset worth many times their initial investment. Consider this example:
<ul>
<li>You purchase a $1,000,000 property with $200,000 in cash and $800,000 in debt.</li>
<li>If the property appreciates by 5%, its value increases to $1,050,000.</li>
<li>Your equity grows from $200,000 to $250,000—a 25% return on your cash investment.</li>
</ul>
However, leverage is synonymous with risk; while it can amplify your returns it can equally magnify losses. In an upward market, leverage is your best friend. In a downward market—as many speculators learned the hard way during the Housing Crisis—it’s your worst nightmare, as property values may decline faster than equity can absorb, leading to significant losses. Prudent debt management is essential to mitigate risks and sustain long-term profitability.
Real Estate vs. Stocks: The Leverage Factor–Unlike real estate, stocks are rarely purchased with substantial leverage due to margin requirements and volatility. This fundamental difference means real estate offers opportunities to magnify gains that stocks typically cannot match. However, with leverage comes responsibility: an overleveraged property can become a liability if rents fall or expenses rise.
Other Considerations: Beyond the Numbers–While these metrics provide a solid foundation for evaluating investments, they do not capture the full picture. Factors such as location, market trends, and the property’s condition play crucial roles in determining success. Additionally, tax benefits, such as depreciation and 1031 exchanges, can enhance after-tax returns and should be incorporated into your overall strategy.
Conclusion–Real estate investing is as much an art as it is a science. While intuition, common sense, and experience play a role, applying key metrics (cap rate, cash on cash return, GRM, 1% rule, etc.) and evaluating properties based on proven fundamentals exponentially increases the likelihood of success. Disciplined investors who focused on fundamentals as opposed to falling victim to the <a href="https://www.wasatchfinance.com/glossary">Greater Fool Theory</a> during the 2003–2007 housing bubble, came out unscathed.
Equally important is recognizing the power—and risks—of leverage. When used wisely, it can transform modest investments into significant wealth.
Success in real estate doesn’t require a graduate degree in finance, but it does demand discipline, objectivity, and a commitment to fundamentals. Investors who follow a thoughtful, long-term approach and hold properties through full market cycles position themselves for lasting success.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™

By The Numbers

&#8220;Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.&#8221; Franklin D. Roosevelt
Between 2000 and 2007, annual housing starts soared from 1.6 million to 2.3 million. Cheap money combined with ubiquitous sub-prime lending, created perverse incentives for developers and speculators to overbuild—a phenomenon known as malinvestment.
<img loading="lazy" decoding="async" class="alignnone wp-image-329" src="https://backend.wasatchfinance.com/wp-content/uploads/2025/01/Housing-Starts-300x102.png" alt="" width="1359" height="462" srcset="https://backend.wasatchfinance.com/wp-content/uploads/2025/01/Housing-Starts-300x102.png 300w, https://backend.wasatchfinance.com/wp-content/uploads/2025/01/Housing-Starts.png 625w" sizes="auto, (max-width: 1359px) 100vw, 1359px" /> 
<a href="https://fred.stlouisfed.org/series/HOUST">Federal Reserve St. Louis</a>
Surprising no one, after the housing bubble the pendulum swung in the opposite direction. Within two years, housing starts plummeted to just 500,000 units annually.
The scrappage rate (teardowns, fires, floods, hurricanes, tornadoes, etc.) is about 1.5 million homes/year; a number home builders exceeded only three times since 2007. This figure doesn’t even account for population growth and household formation. Put it all together and the US is currently facing a shortfall of <a href="https://zillow.mediaroom.com/2024-06-18-The-U-S-is-now-short-4-5-million-homes-as-the-housing-deficit-grows?utm_source=chatgpt.com">4.5 million</a> homes, meaning demand far exceeds supply.
After falling to a 4.05 million annualized rate in 2024, home sales are expected to tread water in 2025. Unlike builders of new homes, who can adjust by offering smaller or less expensive models, existing homeowners often have little incentive to sell. Many locked in ultra-low mortgage rates in 2020 and 2021 and are reluctant to give up that financial advantage, further exacerbating the supply shortage.
If demand is greater than supply, why aren’t homes selling like hotcakes, you might ask? Mortgage rates have surged from the historic lows of the pandemic era. Most would agree that the market is facing an affordability crisis.
The affordability crisis is about more than just home prices and mortgage rates. Rising costs for homeowner’s insurance are stretching budgets thin. Property taxes have climbed as local governments seek additional revenue, and maintenance costs have surged due to inflation in labor and materials. All of this adds up to a fundamental issue: housing is becoming too expensive for a growing segment of the population.
Meanwhile, restrictive zoning laws and other regulatory hurdles continue to derail new potential projects and constrain new construction. Developers face a litany of challenges—from density caps to lengthy and costly permitting processes—that make building affordable housing difficult, if not impossible. In many cases, even where new housing is technically feasible, local opposition, fueled by “not in my backyard” (NIMBY) attitudes, can derail projects before they begin. 
Despite these challenges, housing is far from a bubble. Prices are underpinned by strong fundamentals, including persistent supply-demand imbalances. However, the market is at a crossroads; without significant changes to zoning and permitting practices, or a concerted effort to address affordability on multiple fronts, the crisis will only deepen.
One potential solution is for policymakers to focus on increasing supply—not through heavy-handed government intervention, but by making it easier for the private sector to build. Streamlining the permitting process, easing zoning restrictions, and reducing impact fees could go a long way toward encouraging development. While some argue for more public housing, history has shown that government-directed projects always and everywhere come with inefficiencies and higher costs.
Another avenue is to address the cost pressures that make homeownership unaffordable. Encouraging competition in the insurance market, advocating for property tax reforms, and finding ways to reduce maintenance costs could all provide some relief to homeowners. 
The housing market is a study in contrasts. On one side, you have higher interest rates, rising costs, and stretched affordability. On the other, you have a chronic shortage of supply that supports prices and keeps the market from collapsing. These opposing forces mean that housing will likely remain a critical issue for policymakers, developers, and homeowners alike.
To summarize, residential housing is not in a bubble, as prices are supported by strong fundamentals, including a persistent supply/demand imbalance. Even if the US economy experiences a mild recession—which would all but guarantee lower interest rates/mortgage rates—housing prices would likely remain stable due to these underlying dynamics. Overall, expect modest improvement in the housing market, characterized by gradual increases in sales and new construction, even as broader economic growth slows.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™

Housing Market Outlook 2025

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.” Vladimir Lenin
<a href="https://www.wasatchfinance.com/glossary">Inflation</a> is one of those things that everyone thinks they understand but few can define precisely. Today, it’s commonly used to describe rising prices—the cost of groceries, gas, or just about anything creeping higher over time. Ask the average person, and they might shrug and say, “Inflation just happens.” But this wasn’t always how we understood it.
A century ago, the Federal Reserve—and economists at large—defined inflation differently. Back then, it referred not to rising prices but to an expansion of the <a href="https://www.wasatchfinance.com/glossary">money supply</a>. Price increases, if they occurred, were considered the result of inflation, not inflation itself. This might seem like semantics, but the distinction is significant because it changes how we perceive the phenomenon. A rise in prices feels like a natural, almost inevitable occurrence in a growing economy. But inflation, as originally defined, was a monetary policy action—central banks creating money faster than the economy produces goods and services, or what is often referred to as <a href="https://www.wasatchfinance.com/glossary">printing money</a>.
Over time, the shift in meaning wasn’t accidental. Framing inflation as a noun—a general increase in prices—rather than as a monetary phenomenon takes policymakers off the hook. Rising prices start to look like a natural or even healthy sign of economic growth. And when inflation is viewed as inevitable, it feels less like the Fed’s monetary chicanery and more like the price of progress. But beneath the surface lies a more devious scheme: encouraging us to spend today and devalue yesterday’s debts.
Consider the incentives at play. If you believe prices will be higher tomorrow, you’re more likely to buy that house, car, or washing machine today. Central bankers welcome this because it keeps money flowing through the economy. Meanwhile, inflation’s devious second effect is eroding the real value of debt. Uncle Sam currently owes <a href="https://www.crfb.org/press-releases/gross-national-debt-reaches-36-trillion">$36 trillion</a>, a number that is projected to increase <a href="https://www.cbo.gov/system/files/2024-06/51118-2024-06-Budget-Projections.xlsx">$2 trillion/year</a> over the coming decade. By making those dollars worth a little less over time, inflation works like a slow, silent debt reduction plan—one that doesn’t require cutting budgets or raising taxes. It’s a win-win for the big players, though not always for the rest of us.
We measure inflation in several ways, each with its own quirks and limitations. The most common yardstick is the Consumer Price Index, or <a href="https://www.wasatchfinance.com/glossary">CPI</a>, which tracks the average price changes for a basket of goods and services over time. It’s a useful measure but not without flaws. For one, it doesn’t necessarily reflect your personal experience, so your perception (of price changes) may be vastly different than the headline number reported.
Inflation doesn’t treat everyone or everything equally. For asset owners, it can feel like a tailwind. Real estate, stocks, and even gold tend to rise in nominal value during inflationary periods. If you own things that hold or increase their worth as the dollar weakens, you might even cheer a little. On the flip side, liabilities—like debt—become easier to bear. Borrow $100,000 today, and in ten years, you’re repaying it with devalued dollars. For governments swimming in debt, this is a feature, not a bug.
But for the average person, inflation often feels more like a tax. Your paycheck might grow, but if your grocery bill grows faster, you’re losing ground. And unlike most taxes, inflation doesn’t require legislative approval. It works in the background, quietly eroding purchasing power and transferring value from savers to borrowers.
The Fed’s current inflation target is <a href="https://www.federalreserve.gov/faqs/economy_14400.htm">2%</a>, however, the latest Bureau of Labor Statistics CPI report indicates prices have increased <a href="https://www.bls.gov/news.release/cpi.nr0.htm">2.7%</a> over the past year. Consider this; one of the primary definitions of a proper medium of exchange (money) is that it is a store of value; meaning your money should have roughly the same purchasing power in the future as it does today. But even if the Fed ultimately achieves its goal of 2% inflation, over the course of ten years a dollar is worth just 80-cents, hence the notion that inflation is simply an implicit tax.
It&#8217;s important to understand that inflation doesn’t create wealth. Rather, it increases the supply of money without a corresponding increase in <a href="https://www.wasatchfinance.com/glossary">output</a>. <a href="https://www.wasatchfinance.com/glossary">Printing</a> more money simply spreads the same amount of economic value over a larger pool of dollars. Wealth comes from innovation and the associated increase in productivity/output—building more/better products, innovating, and growing the economy. Inflation is just the illusion of prosperity, a reshuffling of the deck that usually leaves the middle and lower classes holding fewer high cards.
The way we talk about inflation today obscures its true nature. It’s not just some natural byproduct of economic growth but a deliberate ploy used by policymakers to encourage spending and manage debt. A century ago, even the Federal Reserve would have called it what it is: inflating the money supply. Perhaps it’s time to revisit that definition.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.wasatchfinance.com/">wasatchfinance.com</a>

Inflation: It’s Complicated

&#8220;Interest rates are to the economy what gravity is to the physical world: they control everything.&#8221; Warren Buffett
While Wall Street obsessively scrutinizes the Federal Reserve’s speeches and statements for clues about future policy, it’s focus—the <a href="https://www.wasatchfinance.com/glossary">federal funds rate</a>—is merely a short-term, interbank lending rate with little connection/correlation to long-term market rates, like the 30-year mortgage. This disconnect explains why mortgage rates surged <a href="https://fred.stlouisfed.org/series/MORTGAGE30US">75 bps</a> following the Fed’s ½% rate cut on September 18th.
To be clear, the fed funds rate is not market-driven; it’s contrived. Entirely made up by a group of central bankers, who believe they can manage the economy by way of monetary stimulus/restraint. This isn’t just arrogant; it’s stupid. Yes, interest rates are important, but when the Fed manipulates them, either below or above the <a href="https://www.wasatchfinance.com/glossary">neutral (market) rate</a>, it always and everywhere leads to misallocations of capital and risk—as was evident after the housing bubble collapse. The Fed’s <a href="https://www.wasatchfinance.com/glossary">quantitative easing</a> scheme pushed long-term interest rates below the rate of <a href="https://www.wasatchfinance.com/glossary">inflation</a>, which simultaneously led to a feeding frenzy in the housing market, and sent prices to the moon.
If not the Fed, what then drives fixed mortgage rates? In a nutshell, the 10-year Treasury note. While the Fed’s policies influence short-term interest rates, the 10-year Treasury yield better reflects long-term market expectations, including economic growth and inflation. Why does this matter? Mortgages are inherently long-term commitments, and lenders use the 10-year Treasury as a benchmark for pricing mortgages due to its stability and duration alignment. 
<img loading="lazy" decoding="async" class="alignnone wp-image-243" src="https://backend.wasatchfinance.com/wp-content/uploads/2024/12/fredgraph-3-300x102.png" alt="" width="1147" height="390" srcset="https://backend.wasatchfinance.com/wp-content/uploads/2024/12/fredgraph-3-300x102.png 300w, https://backend.wasatchfinance.com/wp-content/uploads/2024/12/fredgraph-3-1024x349.png 1024w, https://backend.wasatchfinance.com/wp-content/uploads/2024/12/fredgraph-3-768x262.png 768w, https://backend.wasatchfinance.com/wp-content/uploads/2024/12/fredgraph-3.png 1320w" sizes="auto, (max-width: 1147px) 100vw, 1147px" /> 
<a href="https://fred.stlouisfed.org/">Federal Reserve St. Louis</a>
As this chart illustrates, historically the spread between the 10-year Treasury and the 30-year mortgage has generally been between 1 ½ and 2%. However, post COVID the spread widened … a lot! Last November the spread widened to over 3%. The mortgage market received a double whammy; the benchmark Treasury more than doubled from its five-year average, and the spread widened by a point. Hence, a $350,000 mortgage payment went from $1,671 in 2019 to $2,371 today, or 42% higher. Is it any wonder buyers are experiencing sticker shock?
If mortgage rates are correlated with the 10-year Treasury, what determines Treasury yields? The primary driver is inflation. A rational investor demands a real return, or a yield higher than the rate of inflation. The previous chart depicts a fairly constant spread of roughly 2% between the <a href="https://www.wasatchfinance.com/glossary">Consumer Price Index</a> and the 10-year note—that is until 2008, when Ben Bernanke and the Fed “came to the rescue,” with QE, which at times drove the 10-year Treasury below the rate of inflation. This isn’t just abnormal; it’s a glaring symptom that something is seriously wrong. Normal market spreads were obliterated after 2008, and went off the rails post-COVID due to massive fiscal and monetary “medicine.” Yet well over a decade later, we’re still grappling with theunintended consequences of shortsighted policy cures.
Where do rates go from here? Several factors influence the 10-year Treasury yield, including:
<ol>
<li>Inflation expectations–general price level increases</li>
<li>Economic growth–growth in output/GDP</li>
<li>Federal Reserve policy–specifically, interest rates and money supply</li>
<li>Fiscal policy–Federal tax and spend policies</li>
<li>Global markets–international trade, geopolitical events, and foreign central bank policies </li>
</ol>
While forecasting interest rates remains a daunting challenge, markets tend to be rational and efficient, and the astute observer knows where to look. Historically, mortgage rates run about 2% above the 10-year Treasury, and the benchmark Treasury runs about 2% above the CPI. Logic dictates that if we can discern the rate of inflation over the next decade, we can estimate the 30-year mortgage rate. How do we do that? By looking at a little-known data point known as the <a href="https://www.wasatchfinance.com/glossary">Breakeven Inflation Rate</a>—the spread between the 10-year Treasury note and the 10-year Treasury <a href="https://www.wasatchfinance.com/glossary">TIP</a>, or inflation protected security.
Currently the BE rate is <a href="https://fred.stlouisfed.org/series/T10YIE">2.3%</a>, which reflects the market’s expectation of inflation over the coming decade. Based on historical spreads, one might estimate that the 10-year Treasury will average 4.3% over the coming decade and, thus, the 30-year mortgage 6.3%; 2.3% + 2% + 2%.
Forecasting interest rates is far from an exact science. Yet, markets often reflect collective wisdom and rational expectations. By focusing on key indicators—such as inflation expectations and historical spreads—while filtering out the noise, one can gain valuable insights into the future trajectory of interest rates. Understanding these dynamics won’t provide a crystal-clear answer, but it equips us with the tools to make more informed assessments in an ever-changing economic landscape.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.wasatchfinance.com/">wasatchfinance.com</a>
&nbsp;

Higher or Lower?

Weekly Blog #1

<h2>The Gilded Standard </h2>
&#8220;Gold is money. Everything else is credit&#8221; J.P. Morgan 
For centuries, gold served as the foundation of Western economic systems due to its intrinsic value, scarcity, and role as a reliable store of wealth. The gold standard, formalized in the 19th century, ensured that every dollar issued was backed by a tangible reserve of the shiny metal. Tethering currency to gold created a stable, predictable financial system and imposed fiscal discipline on governments, restraining their ability to print money recklessly and maintaining the public&#8217;s trust in the value of their money. It was a model of accountability that limited the influence of policymakers on monetary systems, economic cycles, and national debt.
Gold played a pivotal role in trade and commerce, particularly in settling international accounts. In a pre-<a href="https://www.wasatchfinance.com/glossary">fiat currency</a> era, nations used gold to balance <a href="https://www.wasatchfinance.com/glossary">trade surpluses</a> and <a href="https://www.wasatchfinance.com/glossary">deficits</a>. If a country imported more than it exported, it would need to settle the difference by transferring gold to its trade partners. This mechanism provided a natural check on <a href="https://www.wasatchfinance.com/glossary">trade imbalances</a> and discouraged prolonged deficits, as nations sought to avoid depleting their gold reserves. The system ensured that trade operated within sustainable limits and aligned with the underlying economic realities of the participating nations.
In the early 20th century, this standard began to unravel, and its eventual abandonment in the 1930s can be traced to John Maynard Keynes&#8217; seminal work, The General Theory of Employment, Money, and Interest. Keynes argued that governments could and should manipulate the economy through deficit spending, <a href="https://www.wasatchfinance.com/glossary">monetary expansion</a>, and demand-side interventions. Interventionist/<a href="https://www.wasatchfinance.com/glossary">central planning</a> theories gave policymakers the intellectual cover to decouple from the gold standard and embark on reckless fiscal experiments. Far from spurring economic growth, FDR’s <a href="https://en.wikipedia.org/wiki/New_Deal">New Deal</a>, hailed by many as a bold economic strategy, was in reality a demand-side spending scheme marked by an unprecedented expansion of federal power. This included vast welfare programs and attempts to centralize economic control through interventionist policies (central planning) and government overreach.
Proponents of <a href="https://www.wasatchfinance.com/glossary">Keynesian economics</a> claim the New Deal rescued the U.S. from the Great Depression. But if that were true, why did it take over a decade to emerge from the economic slump? The answer lies in the fact that the economy didn’t fully recover until the nation entered World War II, which reopened factories and employed millions to produce weapons and supplies. The gold standard’s restrictions were wrongly blamed by academics and bureaucrats alike, but its dismantling failed to deliver the promised results. Instead, it ushered in a new era of profligate spending that fundamentally changed the trajectory of both monetary and fiscal policy.
Under a gold-backed currency, policymakers faced natural constraints—they could only spend what their gold reserves allowed. A gold standard acts as a mechanism of accountability that serves to both curb inflation and foster monetary and fiscal stability. A fiat currency, on the other hand, allows profligate central bankers to print money at-will, severing fiscal policy from any tangible restraint. Advocates of fiat systems argue this flexibility improves economic growth and adaptability, but history paints a different picture. Fiat money enables rampant deficit spending, devalues currencies, and contributes to unchecked debt accumulation. Furthermore, Keynesian interventions distort market signals, misallocate capital, and mask the true costs of bad fiscal policies—at least temporarily.
Keynesians argue against a precious metal standard, claiming it limits their flexibility and hinders their ability to respond during a crisis. In truth, this limitation is a feature, not a bug. And for the record, everything is a crisis to bureaucrats.
While there is much to be said in support of a gold standard, it is not without flaws. A fiat currency can grow commensurately with the economy, whereas if output (goods and services) increases faster than a gold-backed <a href="https://www.wasatchfinance.com/glossary">money supply</a>, the law of supply and demand dictates that prices will fall. In other words, <a href="https://www.wasatchfinance.com/glossary">deflation</a>, which discourages capital investment, encourages delayed consumption, and increases the burden of debt repayment (both personal and national).
The cornerstone of Keynesian theory is the illusory <a href="https://www.wasatchfinance.com/glossary">multiplier effect</a>—the claim that every dollar of government spending generates additional economic growth. In reality, the result has been closer to a fractionalization effect. For nearly a century, western governments have operated under the false premise that endless spending leads to prosperity. This has produced ballooning national debts, inflationary pressures, and economic inefficiencies, leaving us worse off than before.
Economic growth stems not from borrowing and spending, but from innovation and the resulting increase in productivity and output. The abandonment of the gold standard was not a leap toward efficiency or recovery but a surrender to expediency. Western leaders have spent decades chasing the illusion of wealth through reckless fiscal policies, only to burden future generations with unsustainable debt.
The gold standard represented discipline, restraint, and accountability—qualities sorely lacking in today’s monetary systems. Though a return to the gold standard may be unrealistic, the principles it embodies—stable monetary system, fiscal responsibility, and growth through efficient allocation of resources and innovation—remain vital. Absent an economic epiphany and subsequent course correction, the world will continue down a path of mounting debt and eventual economic collapse. It’s time for policymakers to recognize the abject failure of Keynesian economics and rediscover the wisdom of sound money.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.wasatchfinance.com">wasatchfinance.com</a>

December 2024

<h2>Cause and Effect</h2>
&#8220;Nothing good can come from the Federal Reserve. It is the biggest taxer of them all. Diluting the value of the dollar by increasing its supply is a vicious, sinister tax on the poor and middle class.” Ron Paul 
Among the many topics debated going into the November election, <a href="https://backend.wasatchfinance.com/index.php/glossary/inflation/">inflation</a> stood out as a key issue. Price levels have increased <a href="https://www.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htm">21%</a> over the past four years, but wages haven’t kept up. <a href="https://www.wasatchfinance.com/glossary">Real wages</a>—nominal wages adjusted for inflation—have actually <a href="https://fred.stlouisfed.org/series/LES1252881600Q">declined</a> over the past four years, meaning the average person’s standard of living is less today than it was in 2020.
It’s worth noting that the definition of the word, inflation, has changed drastically over the past century. An excerpt from the Federal Reserve Bulletin in 1919 described inflation as an increase in the <a href="https://www.wasatchfinance.com/glossary">money stock</a> without a commensurate increase in the production of goods and services. In other words, when central banks inflate the money supply faster than the rate of <a href="https://www.wasatchfinance.com/glossary">output</a>. Since price is simply the function of two variables; supply and demand, when the money stock increases faster than the production of goods and services, prices increase. But today inflation has become synonymous with increasing prices. What was once a verb has since become a noun.  Funny that.
When questioned about the rapid and extreme post-COVID surge in general price levels, the two most prominent figures in the global economy, Jerome Powell and Janet Yellen, proved incapable of providing a clear and cogent explanation. During numerous testimonies, they cited obscure economic technobabble, such as <a href="https://www.wasatchfinance.com/glossary">demand-pull</a>, <a href="https://www.wasatchfinance.com/glossary">cost-push</a>, <a href="https://www.wasatchfinance.com/glossary">supply chain dislocations</a>, labor disruptions, and similar jargon. However, these intelligent-sounding terms weren’t the cause, but the effect. The cause was simple; too much money chasing too few goods.
The chart below illustrates why price levels rose so rapidly; the Fed  increased the money supply more than <a href="https://fred.stlouisfed.org/series/WM2NS">40%</a> between 2020 and 2022, during a time when output, due to COVID lockdowns, fell by nearly <a href="https://fred.stlouisfed.org/series/INDPRO">17%</a>. Why was this so difficult for the experts to understand?
<img loading="lazy" decoding="async" class="alignnone wp-image-210" src="https://backend.wasatchfinance.com/wp-content/uploads/2024/11/M2-Industrial-Output-300x91.jpg" alt="" width="1329" height="403" srcset="https://backend.wasatchfinance.com/wp-content/uploads/2024/11/M2-Industrial-Output-300x91.jpg 300w, https://backend.wasatchfinance.com/wp-content/uploads/2024/11/M2-Industrial-Output-768x232.jpg 768w, https://backend.wasatchfinance.com/wp-content/uploads/2024/11/M2-Industrial-Output.jpg 1317w" sizes="auto, (max-width: 1329px) 100vw, 1329px" /> 
<a href="https://fred.stlouisfed.org/">Federal Reserve Bank</a> 
The Fed’s myopic perspective—that monetary policy is the panacea for all economic woes—isn’t just wrong; it’s dangerous. Their misguided notion, that they are wiser than the collective wisdom of the markets, is absurd, and a fairy tale only an academic elite could believe.
<a href="https://www.wasatchfinance.com/glossary">Business cycles</a> are a normal and healthy part of the economy; however, the Fed’s oft ill-advised and reckless actions exacerbate the extreme swings in growth and contraction. While any economist can cite data points and speculate about the current stage of the economic cycle, the reality is no one knows. Why? There are far too many variables at play—geopolitical events, legislative changes, monetary policy shifts, fluctuations in consumer confidence, weather events, and other factors—to know with certainty the future direction of the economy. Yet the voting members of the Federal Reserve boldly go where angels fear to tread. Their arrogant and misguided belief that they can both manage the economy and solve all economic woes with the right elixir of monetary stimulus/restraint is a fool’s errand, and the nation is far worse off because of it.
Sadly, the Fed hasn’t just been wrong in their views and policies; historically, it has been catastrophically wrong. Though stimulus schemes like quantitative easing (<a href="https://www.wasatchfinance.com/glossary">QE</a>) and zero interest rate policies (<a href="https://www.wasatchfinance.com/glossary">ZIRP</a>s) may provide short-term relief, the long-term costs of these bad ideas are immense. In 1981 the debt-to-GDP ratio was <a href="https://fred.stlouisfed.org/series/FYGFD">30%.</a> Today it has soared to <a href="https://fred.stlouisfed.org/series/FYGFD">120%</a>. Over the past four decades the Fed has enabled a profligate government (both parties) by masking and deferring the true cost of unsustainable fiscal and social policies.
Monetary stimulus such as manipulating interest rates below the market or <a href="https://www.wasatchfinance.com/glossary">natural rate</a>, quantitative easing, <a href="https://www.wasatchfinance.com/glossary">printing money</a>, and manipulating credit spreads make the economy feel better in the short run. This <a href="https://www.wasatchfinance.com/glossary">Keynesian</a> approach—reducing the cost of financing, boosting asset prices, and reducing government debt service—is the monetary equivalent to pumping an accident victim full of morphine; it doesn’t heal the injuries but merely masks the pain.
True economic growth doesn’t come from monetary shenanigans, but, rather, from innovation, capital investment, entrepreneurship, risk-taking, and a government that promotes free market principles and protects property rights.
While (former) senator Paul’s calls to abolish the Fed are extreme, he’s not wrong in his criticism of the overreach of prevailing monetary policy. The incoming administration should refrain from politicizing or attempting to control the Fed, but should curtail its power and influence. A revision to its Congressional charter would be a meaningful first step. The Fed’s role should return to its original purpose: overseeing the banking system and serving as a lender of last resort, rather than allowing a select group of Ivy League academics to manipulate the economy.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.wasatchfinance.com/">WasatchFinance.com</a>
&nbsp;

November 2024

<h2>Economic Alchemy </h2>
“We’re all Keynesians now.” Richard Nixon 
Undergraduate econ students are typically introduced to several schools of monetary theory, such as Classical, Keynesian, and Modern—although in good conscience I hesitate to refer to the last one as a legitimate academic theory. Here’s a quick summary of each:
<ul>
<li>Classical Theory–Milton Friedman was a leading advocate of Classical Monetary Theory (CMT), which states that prices are determined by the balance of supply and demand. Classical economists argue that if the money supply grows faster than output (the very definition of inflation; inflating the money supply), price levels will rise.</li>
<li>Keynesian Theory–John Maynard <a href="https://pathwaytoprosperity.com/glossary/keynesian-economics/">Keynes</a> proposed that policymakers could actively manage the economy by manipulating interest rates and the money supply. Prior to Keynes, the prevailing approach was <a href="https://pathwaytoprosperity.com/glossary/laissez-faire/">laissez-faire</a>, which allowed markets to self-correct. His theories, however, gave bureaucrats permission to abandon the <a href="https://pathwaytoprosperity.com/glossary/gold-standard/">gold standard</a>, deficit spend, and <a href="https://pathwaytoprosperity.com/glossary/money-printing/">print money</a> to influence economic outcomes.</li>
<li>Modern Monetary Theory–<a href="https://pathwaytoprosperity.com/glossary/modern-monetary-theory/">MMT</a> contends that sovereign governments that issue their own currency can never run out of money because they can always print more. This fantastical notion has gained traction with some contemporary policymakers, such as Jared Bernstein, President Biden’s lead economic advisor, who attempts to explain his views in the following <a href="https://twitter.com/i/status/1786050601236779078">video</a>.</li>
</ul>
One of Keynes’ central ideas was a concept that he referred to as the <a href="https://pathwaytoprosperity.com/glossary/multiplier-effect/">multiplier effect</a>. In a nutshell, during economic downturns, he argued, the government should borrow money and inject it into the economy via <a href="https://pathwaytoprosperity.com/glossary/demand-side-economics/">demand-side</a> spending schemes. Examples include the <a href="https://en.wikipedia.org/wiki/Inflation_Reduction_Act">Inflation Reduction Act</a>, <a href="https://en.wikipedia.org/wiki/Car_Allowance_Rebate_System">Cash for Clunkers</a>, and <a href="https://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009">American Recovery and Reinvestment Act</a>. Keynes suggested that for every extra dollar spent by the government, there was a $1.50 to $2.50 increase in total spending. If true, the multiplier effect was the magic economic elixir policymakers had been seeking.
From 1921 to 1930, the US ran a budget surplus of roughly <a href="https://fred.stlouisfed.org/series/FYFSD">1%</a>, with annual economic growth around 2%. By the end of the Depression, deficits exceeded <a href="https://fred.stlouisfed.org/series/FYFSD">3%</a>, yet the economy experienced negative economic growth. Despite Keynesian recommendations for deficit spending, the U.S. didn’t officially exit the Depression until the start of the WWII—when virtually every boarded-up factory was reopened to support the war effort. If Keynes was correct, why did it take twelve years and a global conflict to revive the economy? Shouldn&#8217;t the massive deficit spending and its supposed multiplier effect have led to a faster recovery?
Between 1947 and 1969, the US ran a balanced budget. But starting in 1970, the government began to consistently run deficits. Since then, every president, with the exception of Bill Clinton between 1998–2001, has ran a budget deficit. Barack Obama effectively doubled the national debt during his eight-year term, increasing it from $10 to $20 trillion. Donald Trump added $8 trillion in just four years, and by the time President Biden leaves office in January, he will have matched that increase, adding another $8 trillion in debt.
US economic output has always far exceeded the national debt. However, in 2015 the lines crossed, and in nine short years, public debt now stands at over <a href="https://fred.stlouisfed.org/series/GFDEBTN">$35 trillion</a>, or <a href="https://fred.stlouisfed.org/series/GDPC1/">46%</a> higher than GDP. According to Keynes, deficits boost economic growth. But, despite record deficit spending, <a href="https://fred.stlouisfed.org/series/GDP/">growth</a> has fallen below the long-term average over the past nine years.
<img loading="lazy" decoding="async" class="alignnone wp-image-177" src="https://backend.wasatchfinance.com/wp-content/uploads/2024/10/Debt-to-GDP-300x93.jpg" alt="" width="1339" height="415" srcset="https://backend.wasatchfinance.com/wp-content/uploads/2024/10/Debt-to-GDP-300x93.jpg 300w, https://backend.wasatchfinance.com/wp-content/uploads/2024/10/Debt-to-GDP-1024x318.jpg 1024w, https://backend.wasatchfinance.com/wp-content/uploads/2024/10/Debt-to-GDP-768x238.jpg 768w, https://backend.wasatchfinance.com/wp-content/uploads/2024/10/Debt-to-GDP.jpg 1306w" sizes="auto, (max-width: 1339px) 100vw, 1339px" /> 
<a href="https://fred.stlouisfed.org/series/GFDEBTN">Federal Reserve St. Louis</a>
Keynes’ work was lauded by fellow academic elites, who had little or no real-world experience. However, it failed to account for a number of consequential factors, including <a href="https://pathwaytoprosperity.com/glossary/diminishing-marginal-return/">diminishing returns</a>, <a href="https://pathwaytoprosperity.com/glossary/inflation/">inflationary</a> pressures (rising price levels), the <a href="https://pathwaytoprosperity.com/glossary/crowding-out-effect/">crowding-out effect</a>, sustainability of debt, inefficient allocation of resources, and currency valuation.
Keynesian theory gave legitimacy to imprudent fiscal policies, allowing profligate bureaucrats to claim the moral high ground. If the multiplier effect were real, recessions would be impossible as bureaucrats could simply spend their way to prosperity—the more they spend, the richer we are! Yet nearly a century of evidence demonstrates the opposite: deficit spending produces a fractionalization effect, where every dollar spent at the federal level grows the economy by some number less than one dollar
Akin to telling children that they can live on gum drops and cookies forever, Keynesian theory is a fairy tale for spendthrift politicians that excuses wasteful and irresponsible spending. Economic growth doesn’t come from piling on debt and printing money, but from innovation and advances in technology that enable companies to increase output with fewer inputs.
For nearly a century, western leaders been seduced by the Siren’s song of prosperity through endless spending, only to find ourselves buried under mountains of debt. Like the fabled King Solomon’s Mines, the promise of wealth through reckless fiscal policies is a perverse myth that has lured policymakers into actions ultimately leaving the world poorer. It’s time to declare Keynesian economics the failed experiment that it is and toss these theories into the scrapyard of bad ideas, doused in kerosene, and set on fire, never to return.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.wasatchfinance.com">wasatchfinance.com</a>

October 2024

<h2>Price Controls</h2>
“As president, I will go after the bad actors. And I will work to pass the first-ever federal ban on price gouging on food.” Kamala Harris
Between 1965 and 1968, Lyndon Johnson’s <a href="https://en.wikipedia.org/wiki/Great_Society">Great Society</a> social welfare programs increased government spending (<a href="https://pathwaytoprosperity.com/glossary/demand-side-economics/">demand-side economics</a>) by 60%, which, not surprisingly, increased <a href="https://pathwaytoprosperity.com/glossary/price-level/">price levels</a> over <a href="https://www.thebalancemoney.com/u-s-inflation-rate-history-by-year-and-forecast-3306093">5%</a> per year. Due to Johnson’s economic mismanagement and the Vietnam War, his approval rating fell to between 35-40%, prompting him to withdraw from the 1968 presidential race.
Richard Nixon, who went on to win the election, campaigned on tackling <a href="https://pathwaytoprosperity.com/glossary/inflation/">inflation</a>, stabilizing the economy, and bringing American troops home. While Nixon is credited with ending the war, his economic policies, which centered around two ideas, were largely unsuccessful. The first was to end the <a href="https://pathwaytoprosperity.com/glossary/bretton-woods-agreement-and-system/">Bretton Woods system</a>, which pegged the value of the U.S. dollar to gold. Removing the dollar from the <a href="https://pathwaytoprosperity.com/glossary/gold-standard/">gold standard</a> allowed the central bank to effectively <a href="https://pathwaytoprosperity.com/glossary/print-money/">print money</a>. The second idea was <a href="https://pathwaytoprosperity.com/glossary/price-controls/">price controls</a>. Nixon believed he could suppress inflation by simply capping prices.
In his first two years of office, the <a href="https://pathwaytoprosperity.com/glossary/consumer-price-index/">CPI</a> remained in the 5% range, but by 1973 had risen to <a href="https://www.thebalancemoney.com/u-s-inflation-rate-history-by-year-and-forecast-3306093">9%</a>, and <a href="https://pathwaytoprosperity.com/glossary/gross-domestic-product/">GDP</a> fell into negative territory in the same year. Thus, <a href="https://pathwaytoprosperity.com/glossary/stagflation/">stagflation</a> was born—a sluggish economy coupled with high inflation. This represented the worst of both worlds. The question policymakers should have been asking is, “How can general price levels increase during a period of economic decline?”
Classical economics teaches us that price is the function of two variables; supply and demand. Therefore, the only way to decrease the cost of a good or service is to increase the supply/output faster than rate of demand. <a href="https://pathwaytoprosperity.com/glossary/supply-side-economics/">Supply-side</a> economic policies aim to reduce tax and regulatory burden, which leads to increased <a href="https://pathwaytoprosperity.com/glossary/capital-investment/">capital investment</a>  and efficiency-improving innovation, that increases output.
Logically, if the <a href="https://pathwaytoprosperity.com/glossary/money-supply/">money supply</a> is increased faster than the rate of <a href="https://pathwaytoprosperity.com/glossary/output/">output</a>, price levels will increase. Until recently, it was understood in the academic community that the term inflation referred to the central bank policy of increasing (inflating) the money supply faster than the rate of economic growth. The definition of has since been changed to mean an increase in general price levels. This semantic sleight of hand was done to absolve the Federal Reserve from the responsibility of eroding the value of the dollar and reducing Americans’ purchasing power.
Price controls neither limit cost nor increase output. Rather, they simply impose price limits. In order to remain solvent a company must make a profit. If the government imposes a price limit below the <a href="https://pathwaytoprosperity.com/glossary/marginal-cost-of-production/">marginal cost of production</a>, the company would simply halt production as it would lose money on every additional unit sold. Price controls discourage production, which creates scarcity (shortages). A perfect example is Nixon’s <a href="https://en.wikipedia.org/wiki/Odd%E2%80%93even_rationing">odd-even gas rationing</a>, which did nothing to reduce price or curb consumption, but did a fine job of creating disruptions and long lines at the gas pump.
In response to concerns over a 25% increase in food prices, Kamala Harris, the Democrat presidential candidate, is <a href="https://thehill.com/opinion/finance/4842512-harriss-call-for-price-controls-on-groceries-is-all-mixed-up/">advocating price controls</a> as a way to address “price gouging.” Which begs the question; Are “greedy” grocery chains responsible for soaring food prices?
Price gouging, by its definition, results in excess profits. However, as illustrated in the table below, over the past years, the net profit margins of the largest grocery companies have remained relatively stable, averaging about 2%, despite rapidly rising food prices.
<table width="347">
<tbody>
<tr>
<td width="64">
Store
</td>
<td style="text-align: center;" width="64">Walmart</td>
<td style="text-align: center;" width="64">Kroger</td>
<td style="text-align: center;" width="64">Costco</td>
<td width="91">
Albertsons
</td>
</tr>
<tr>
<td width="64">
2020
</td>
<td style="text-align: center;" width="64">2.42%</td>
<td style="text-align: center;" width="64">1.95%</td>
<td style="text-align: center;" width="64">2.40%</td>
<td width="91">
1.22%
</td>
</tr>
<tr>
<td width="64">
2021
</td>
<td style="text-align: center;" width="64">2.39%</td>
<td style="text-align: center;" width="64">1.19%</td>
<td style="text-align: center;" width="64">2.56%</td>
<td width="91">
1.79%
</td>
</tr>
<tr>
<td width="64">
2022
</td>
<td style="text-align: center;" width="64">1.91%</td>
<td style="text-align: center;" width="64">1.50%</td>
<td style="text-align: center;" width="64">2.57%</td>
<td width="91">
1.63%
</td>
</tr>
<tr>
<td width="64">
2023
</td>
<td style="text-align: center;" width="64">2.39%</td>
<td style="text-align: center;" width="64">1.43%</td>
<td style="text-align: center;" width="64">2.60%</td>
<td width="91">
1.41%
</td>
</tr>
<tr>
<td width="64">
Average
</td>
<td style="text-align: center;" width="64">2.28%</td>
<td style="text-align: center;" width="64">1.52%</td>
<td style="text-align: center;" width="64">2.53%</td>
<td width="91">
1.51%
</td>
</tr>
</tbody>
</table>
<a href="https://finance.yahoo.com/">Yahoo Finance</a>
If rapacious retailers weren’t the reason for the massive jump in food prices, what was? No, Jerome Powell and Janet Yellen, it wasn’t <a href="https://pathwaytoprosperity.com/glossary/demand-pull-inflation/">demand-pull</a>, <a href="https://pathwaytoprosperity.com/glossary/supply-push-inflation/">supply-push</a>, or temporary supply dislocations. Rather, it was the Fed, which increased the money supply more than <a href="https://fred.stlouisfed.org/series/M2SL">40%</a> between 2020–2022, or 20% per year.
To ease the pain of business closures and, consequently, the forced layoffs of <a href="https://www.federaltimes.com/federal-oversight/congress/2023/09/28/are-you-essential-what-happens-to-your-job-in-a-government-shutdown/">non-essential</a> employees, the Fed printed money, which it used to purchase Treasury debt issued to finance $5 trillion in <a href="https://www.nytimes.com/interactive/2022/03/11/us/how-covid-stimulus-money-was-spent.html">stimulus programs</a>. The Fed dramatically increased the money supply at the same time that output collapsed due to lockdowns. It was the very definition of too much money chasing too few goods. Is it any wonder the CPI exceeded 9% in 2022?
When will bureaucrats, central planners, and managerial elites learn that they can manage the economy about as effectively as they can control the weather—or anything else, for that matter? Price controls have never succeeded and in every instance have resulted in lowered living standards. It’s time to lay the failed notion of price controls to rest in the graveyard of bad economic ideas. Policymakers must recognize that the only way to control or reduce prices is by unleashing the productive capacity of a free market system.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.pathwaytoprosperity.com">pathwaytoprosperity.com</a>

September 2024

<h2>Fast Nickels </h2>
“The first object of taxation is to secure revenue. But if the rates on large incomes are so high that they disappear, the small taxpayer will be left to bear the entire burden.” Calvin Coolidge
The U.S. national debt is currently <a href="https://fred.stlouisfed.org/series/GFDEBTN/">$35 trillion</a>. The federal deficit—the difference between tax revenues and expenses—is projected to average over $2 trillion annually over the coming decade, at which point federal debt outstanding will surpass <a href="https://www.cbo.gov/system/files/2024-06/51118-2024-06-Budget-Projections.xlsx">$56 trillion</a>, or approximately 137% of future GDP. Houston, we have a problem.
In 2023 the federal government paid <a href="https://www.cbo.gov/system/files/2024-06/51118-2024-06-Budget-Projections.xlsx">$658 billion</a> in net interest. By 2035 annual interest will exceed <a href="https://www.cbo.gov/system/files/2024-06/51118-2024-06-Budget-Projections.xlsx">$2 trillion</a>, or triple last year’s amount. These numbers are both staggering and terrifying.
Progressive pundits claim that the problem is simple; corporations and the rich aren’t paying their fair share, and we must increase tax rates on both. In stark contrast, conservatives argue that Uncle Sam has a spending as opposed to a revenue problem, and lay blame at the feet of profligate bureaucrats and an out-of-control federal government.
Who is right? Let’s first look a breakdown of who pays taxes. The top 1% of income earners pay <a href="https://taxfoundation.org/data/all/federal/latest-federal-income-tax-data-2024/">46%</a> of all federal taxes collected. The top 10% pay 76%, the top 25% pay 89%, and the bottom 40% effectively enjoy a negative tax rate, meaning they receive a refund larger than their withholdings. It would be hard to argue that the U.S. tax Code isn’t extremely progressive, or that the poor and middle-class shoulder most of the tax burden.
What about corporations? Prior to 2017 US corporate tax rate was 38.9%, however the <a href="https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act">Tax Cut and Jobs Act</a> reduced it to <a href="https://www.taxpolicycenter.org/briefing-book/how-do-us-corporate-income-tax-rates-and-revenues-compare-other-countries">25.8%</a>, or nearly identical to the <a href="https://www.taxpolicycenter.org/briefing-book/how-do-us-corporate-income-tax-rates-and-revenues-compare-other-countries">26.1%</a> average rate for <a href="https://en.wikipedia.org/wiki/G7">G7</a> countries.
In 1962 Democratic President John F. Kennedy made his case for lower taxes, stating, “it is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now.” He went on to explain that “efforts to avoid tax liabilities” make “certain types of less productive activity more profitable than other more valuable undertakings, which inhibits growth and efficiency.” Therefore the “purpose of cutting taxes” is “to achieve the more prosperous, expanding economy.” Truer words have never been spoken.
The objective of tax policy should be twofold: maximize revenue and promote economic growth. At first blush, those two goals appear to be mutually exclusive, but with sensible, impartial policy they’re perfectly aligned—fast nickels versus slow dimes. How do we know this? The <a href="https://www.investopedia.com/articles/08/laffer-curve.asp">Laffer Curve</a> perfectly illustrates the relationship between tax rates and revenue. At the point where tax revenues become unduly punitive, capital investment and risk-taking activities decrease, and so too do earnings and taxes.
<img loading="lazy" decoding="async" class="alignnone size-full wp-image-147" src="https://backend.wasatchfinance.com/wp-content/uploads/2024/08/Laffer-Curve.png" alt="" width="271" height="196" />
Put another way, every percent increase in tax rates decreases the investor’s net return, or what is known is <a href="https://pathwaytoprosperity.com/glossary/diminishing-marginal-utility/">diminishing marginal utility</a>. In the same way that increased risk requires a commensurate increase in potential return, higher taxes require a proportionate after-tax return to entice investors to put their capital at risk.
There’s a similar scenario presently playing out at the state level, where high income earners are fleeing high tax states and moving to low or no tax states, with California being the poster child for tax flight. The Golden State is currently facing a massive budget shortfall of $37.9 billion, as both personal and corporate tax revenues have collapsed due to an exodus of high-income earners and corporations relocating to Florida, Texas, Tennessee and other more tax-friendly states.
Ask any business owner what would happen if the corporate tax rate increased and the immediate response is, “We’d raise retail prices.” No different than cost of goods, labor or rent, corporate taxes are simply a line-item expense on a profit and loss statement. Companies must generate a profit in order to continue operations, consequently if any expense increases, companies simply raise retail prices to maintain their required margin of profit.  As the old saying goes, “Companies don’t pay taxes—their customers do.” Companies are merely the middle man.
While individuals and corporations can freely move to different states, moving to another country is a more complex and challenging proposition. When taxes become punitive, very few people will relinquish their citizenship and relocate to another country. They will, however, as President Kennedy explained, curtail their investment and entrepreneurial activities.
Capital projects, such as commercial real estate, public transit systems, airports, and energy infrastructure all require funding. Private and public entities alike all rely on the capital market to loan the funds for those projects. But capital markets require surplus savers, and if the savings is hoovered out via onerous taxation then the funding will become both scarce and costly. And when the cost is too great, those projects die out, and all of the associated jobs and trickle-down economic benefits die with them.
Contrary to the whimsical image of the Monopoly Man holding a bag of cash, wealthy people invest their money; in businesses, real estate, stocks, bonds, precious metals, and non-traditional assets. Every additional dollar taken from them must first be liquidated from some productive asset/investment, reducing available capital, increasing the cost (of capital), and redirecting productive assets into present consumption, with a corresponding loss of all future growth, revenue, and associated taxes.
History is crystal clear in that punitive tax rates always and everywhere discourage risk-taking and entrepreneurial activity and result in lower tax revenues, not higher. But sensible austerity combined with pro-growth economic policies could quickly turn the deficit into a surplus. The solution is faster nickels, not slower dimes.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.wasatchfinance.com">WasatchFinance.com</a>
&nbsp;

August 2024

<h2>NIMBY</h2>
“Contrary to the vision of the left, it was the free market which produced affordable housing—before government intervention made housing unaffordable.” Dr. Thomas Sowell
Home ownership has long been considered the American Dream. However, since 2020 U.S. home prices have risen <a href="https://fred.stlouisfed.org/series/ASPUS">34%</a>, and mortgage rates surged from <a href="https://fred.stlouisfed.org/series/MORTGAGE30US/">3.72%</a> to 6.89%; an 85% increase. Put the two together and the average homebuyer is paying 91% more for their mortgage than they did just four years ago. Not surprisingly, home affordability has fallen <a href="https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor">37%</a> since July 2020 and is at the lowest level since the Atlanta Fed began tracking it.
The push for “affordable housing” has been growing over the years, and for good reason; home ownership is <a href="https://www.statista.com/statistics/201568/change-in-the-composite-us-housing-affordability-index-since-1975/">less affordable today</a> than at any time since the index was started twenty-four years ago. The solution universally demanded by progressives is more public housing. The argument is a <a href="https://pathwaytoprosperity.com/glossary/keynesian-economics/">Keynesian</a> one; “The market isn’t meeting demand, therefore, Uncle Sam must fix it.” But is that the right answer? Let’s look at the challenges facing a government solution to the housing issue.
First, public agencies aren’t real estate developers and lack the expertise and competence to build housing projects efficiently. If there’s any doubt as to whether the government can compete with the private sector, consider the U.S. Postal Service and UPS. In 2022 the Postal Service lost <a href="https://about.usps.com/newsroom/national-releases/2023/1114-usps-reports-fiscal-year-2023-results.htm">$6.5 billion</a>, whereas UPS boasted a net income of over <a href="https://finance.yahoo.com/quote/UPS/financials/">$11 billion</a>. Another example would be <a href="https://en.wikipedia.org/wiki/California_High-Speed_Rail">California’s High Speed Rail project</a>, which was approved in 2008, projected to cost $35 billion, and begin operation by 2020. The Golden State now expects the rail to begin operation by 2033, 13-years later than originally forecast, and with a cost overrun of <a href="https://www.latimes.com/california/story/2024-03-21/high-speed-rail">$100B</a>. By contrast, Union Pacific nets over <a href="https://finance.yahoo.com/quote/UNP/financials/">$6 billion</a> per year.
Second, where does the government get the money? While the private sector is awash in cash eagerly seeking a worthy return, the government doesn’t have any money; only the power to tax and borrow. This is true at the state and local levels, but especially so for the federal government, which is currently carrying <a href="https://fred.stlouisfed.org/series/GFDEBTN/">$35 trillion</a> in debt and paying nearly <a href="https://www.cbo.gov/system/files/2024-06/51118-2024-06-Budget-Projections.xlsx">$1 trillion</a> annually in net interest, which equals 18% of all federal tax revenue. That number increases to 23% in ten years, by the way.
Lastly, local building restrictions prevent most housing projects from ever getting off the ground as they are either impossible to get approved or the cost simply doesn’t pencil out. Developers face a variety of challenges, such as zoning restrictions, which curtail density, housing type, and height limits. Additionally, setback rules, onerous infrastructure requirements, impact fees, inspection costs, and oftentimes a lengthy and pricey permitting process further exacerbate the problem.  And while local residents almost unanimously espouse their support of “low-cost housing,” it’s always and everywhere accompanied by the one exception; just not in my backyard.
Low-cost public housing is an illusion created by progressive bureaucrats, special interest groups, and proponents of big government. Bureaucrats use various tricks to accomplish the illusion, such as pleasant-sounding terms, catch phrases, and government accounting sleight of hand. It only appears to be low-cost to the buyer/renter because someone else is writing the check. Government subsidies, tax credits, donation of public land, municipal bonds, and special grants all serve to make the actual cost appear lower, but make no mistake; the cost is always and everywhere higher than the market price, and therefore, the value.
Until we come to understand that price is simply a function of supply and demand, the siren song of government intervention will always sound enticing. But, if you want to reduce the cost of anything, simply increase the supply. This is classical economics 101, that, prior to Keynes, was universally understood.
Which begs the question, how can housing be made more affordable? The answer is simple; eliminate the barriers preventing developers from doing what they do best; produce more housing. No special funding is required, no municipal bonds, no land donations, no subsidies. Just simplify the process and ease zoning restrictions that make it difficult and costly, if not impossible, for developers to build a project. This isn’t to say there shouldn’t be proper city planning and zoning enforcement. There absolutely should. But when city governments and local neighborhoods use lawfare to stifle development, then the private sector will bow out, and the only solution left is a government one; which is always more costly, less efficient, and less desirable.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
<a href="http://www.pathwaytoprosperity.com">pathwaytoprosperity.com</a>

July 2024

<h2>Pathway to Poverty </h2>
“The only way in which a durable peace can be created is by world-wide restoration of economic activity and international trade.” James Forrestal
President Biden recently announced a wave of new tariffs on Chinese imports: 100% on electric vehicles, 50% on semiconductors, 50% on solar panels, 25% on EV batteries, 25% on steel and aluminum, and 25–50% on medical equipment. In his speech, the President asserted that government subsidies give foreign manufacturers an unfair advantage. Later that day, he <a href="https://x.com/POTUS/status/1790385220983677016">posted</a>, “China is determined to dominate these industries. I&#8217;m determined to ensure America leads the world in them.&#8221;
In sharp contrast to the President’s current position on tariffs, in 2019, he slammed then-President Donald Trump for raising taxes on Chinese imports. Biden stated, &#8220;Trump doesn&#8217;t get the basics. He thinks his tariffs are being paid by China. Any freshman econ student could tell you that the American people are paying his tariffs.&#8221; He went on to declare that, if elected, he would remove Trump’s tariffs.
Biden was 100% correct on two key points: (Chinese) subsidies give foreign manufacturers an unfair advantage, and the consumer always pays the price for trade tariffs. Which begs the question; if tariffs were bad then, why are they good now?
To be clear, any policy that restricts or impedes free trade, such as subsidies, embargoes, <a href="https://pathwaytoprosperity.com/glossary/quota/">quotas</a>, regulatory barriers, <a href="https://pathwaytoprosperity.com/glossary/dumping/">dumping</a>, intellectual property theft, and currency manipulation, diminishes prosperity. For centuries politicians foolishly perceived <a href="https://pathwaytoprosperity.com/glossary/protectionism/">protectionism</a> as a magic economic elixir that would boost domestic production, exports, and wealth. Nothing could be further from the truth. To illustrate, Trump’s tariffs on foreign steel and aluminum (25% and 10%) in March 2018. Over the course of the next 3 ½ years, the price of steel and aluminum increased by 64% and 57%, respectively, and his tariffs had a <a href="https://taxfoundation.org/research/all/federal/impact-of-tariffs-free-trade/">deleterious effect</a> on domestic GDP, jobs, and wages. Protectionist trade policies may sound patriotic, feel good, and increase bureaucrats’ political capital, but they inevitably make a nation poorer.
Subsidies are the inverse of tariffs and equally destructive. In 2009, President Obama funneled $570M into Solyndra, a U.S. solar manufacturing company. At the time, he declared, “The true engine of economic growth will always be companies like Solyndra—It&#8217;s companies like these that will help lead us towards a brighter, more prosperous future.&#8221; Less than two years later, Solyndra filed for bankruptcy.
When Uncle Sam attempts to pick winners, everyone loses, including the favored industry or company. Protectionism distorts market dynamics by favoring certain industries or companies, which leads to inefficiency and a misallocation of capital and resources. Furthermore, protectionism creates dependency and a welfare state among recipients, hindering innovation and competitiveness, and encouraging overproduction (which leads to dumping). Lastly, it creates scarcity and reduces consumer choice.
There are times, however, when restrictive trade policies can and should be employed. One such example is when a trading partner poses a national security risk. Food, energy, technology, and military equipment are essential to national sovereignty and public safety, and policymakers would be prudent to ensure the U.S. isn’t sacrificing long-term prosperity and security for short-term gain.
Furthermore, restrictive trade policies can and should also be used as a temporary cudgel to punish bad actors. Both Biden and Trump were right to declare China a pernicious and untrustworthy trading partner. But the goal should be to maximize free and fair trade, which would, in a perfect world, mean zero tariffs, and zero domestic subsidies. In other words, reciprocal trade agreements with no direct or indirect government interference. Companies should live and die based on their ability to create value, rather than rely on the government teat.
History has proven that protectionism doesn’t enrich a nation. Rather, it makes it poorer. Policymakers must learn that free trade is not a zero-sum game and, if done correctly, everyone wins. Rather than promote policies that produce negative economic consequences, policymakers should instead seek to remove impediments to trade, which would boost global prosperity and pay an invaluable associated peace dividend.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™ 
Wasatch Finance, LLC 
<a href="http://www.pathwaytoprosperity.com">pathwaytoprosperity.com</a>

June 2024

<h2>The Fed Put</h2>
“The U.S. government can’t go bankrupt because we can print our own money.” Jared Bernstein
In the 1970s, Federal Reserve chairman, Arthur Burns, a Keynesian economist, attempted to rescue an economy hobbled by price controls, protectionist trade policies, and misguided fiscal policies, with monetary stimulus. Burns’ loose money scheme not only failed to achieve the desired result, but instead created an economic environment later coined stagflation; low growth accompanied by high inflation.
Surprising no one, President Carter replaced Burns with Bill Miller. Mr. Miller’s term lasted a scant two years. He was succeeded by Paul Volker, a monetarist, who was tasked by President Reagan with snuffing out inflation once and for all. Volker took his job seriously; his monetary chemotherapy resulted in an unprecedented 22% federal funds rate which, not surprisingly, collapsed aggregate demand—in other words, produced a severe recession. But Volker accomplished what he set out to do, and the CPI dropped from a high of 13.5% in 1980 to just 1.1% by 1986.
Volker’s term ended in 1987, and he was replaced by Alan Greenspan. Greenspan took his place in the big chair at a time when the economy had expanded by an average annual rate of 4.57% over the prior five years, and inflation had averaged just 3.32% during the same period. With price levels under control, Greenspan really had one goal; don’t screw it up.
Mr. Greenspan’s term lasted nearly 19-years; the second longest in Federal Reserve history. Under his watch, the economy and wages grew significantly, inflation was subdued, and the stock market averaged 10% annual returns. Rising stock and real estate prices amplified the wealth effect, and both household wealth and wages grew at an unprecedented rate.
This uniquely prosperous period led many to perceive Mr. Greenspan as a genius. A magic man with the Midas touch. Central bankers were supposed to be introverted, stuffy, academics, sporting drab Brooks Brothers suits. Yet, within a handful of years Greenspan achieved near celebrity status, and his iconic visage was equally likely to be found in pop and culture publications as economic journals. Sebastian Mallaby even penned a book about him entitled, “The Man Who Knew.” Mr. Greenspan enjoyed near cult-like status during his reign at the largest, most powerful financial institution in the world. When his term ended in 2006, he went out on top, as they say.
Greenspan is remembered for two things in particular. The first being Fed speak, or his remarkable ability to talk for hours on end in vague, cryptic, nuanced language, which typically left market pundits scratching their heads as to what he actually said, and the direction of monetary policy.
The second thing being the “Greenspan (Fed) put.” In a nutshell, the Fed put refers to the point at which the central bank will take action to support asset prices (the stock market) by shifting to easy money policies. The notion of a Fed put is generally attributed to the bank’s reaction to Black Monday, when the stock market dropped an unprecedented 22.6% percent in a single day. Greenspan’s dovish response set a dangerous precedent for central bank intervention to calm financial markets.
Subsequent events, such as the S&amp;L meltdown, Gulf War, Asian currency crisis, Long-Term Capital Management collapse, and dot-com bubble implosion, resulted in a similar Fed response. The most notable being the tech bubble, which burst in 2000, after which Greenspan applied a heavy dose of monetary salve to stabilize the stock market.
While investors cheered, objective pundits understood this was a perilous, if not reckless path. Applying monetary morphine every time stock prices dropped would both reward and increase risk-taking; a phenomenon known as morale hazard. And why shouldn’t investors do so? If the Fed was committed to indirectly insuring investors against significant loss, then one should go all-in and enjoy the upside, knowing the Fed will support the markets when the poop hits the fan.
Less than two years after Greenspan handed the reigns to Ben Bernanke in 2006, the US, along with most of the western world, was in the middle of the Great Financial Crisis. While there were a number of culprits who contributed to the meltdown, the Fed was certainly among them, and likely in the top three. Excessively loose monetary policy always and everywhere creates distortions, inflating risk asset prices, incentivizing leverage and therefore risk, and punishing savers with artificially low returns on traditional bank products.
While the economy has thus far avoided a widely expected recession, unprecedented monetary and fiscal stimulus both during and after the pandemic have muted or distorted traditional economic indicators, leading to significant uncertainty regarding economic outlook. As the Fed navigates the challenges of maintaining stability and supporting growth, investors face a period of heightened volatility and uncertainty. With election years historically favoring investors, the question arises: if stock prices retreat between now and November, will the Fed maintain its independence and resist the temptation to deliver a Powell put? Only time will tell.
Mark Lazar, MBA 
CERTIFIED FINANCIAL PLANNER™

May 2024

Introduction: Private lending has emerged as a compelling alternative for real estate investors seeking flexible financing solutions beyond traditional avenues. In this blog post, we delve into the distinct benefits that private lending offers to investors navigating the dynamic landscape of real estate investment.
<ol>
<li>Greater Flexibility:
<ul>
<li>Unlike conventional lending institutions, private lenders often offer greater flexibility in terms of loan terms, repayment schedules, and collateral requirements. This flexibility allows investors to tailor financing solutions to their specific needs and investment strategies.</li>
</ul>
</li>
<li>Expedited Approval Processes:
<ul>
<li>Private lenders are known for their streamlined approval processes, which can significantly reduce the time it takes to secure financing. With 24-hour approvals and efficient underwriting procedures, investors can seize time-sensitive opportunities with confidence and agility.</li>
</ul>
</li>
<li>Customized Loan Structures:
<ul>
<li>Private lending enables investors to negotiate customized loan structures that align with their investment goals and risk tolerance. From adjustable interest rates to interest-only payment options, investors have the flexibility to craft financing arrangements that maximize returns and mitigate risks.</li>
</ul>
</li>
<li>Access to Non-Traditional Properties:
<ul>
<li>Private lenders are often more willing to finance non-traditional or unconventional properties that may not meet the strict criteria of traditional lenders. Whether it&#8217;s a fix-and-flip project, a distressed property, or a unique investment opportunity, private lending offers access to a broader range of real estate assets.</li>
</ul>
</li>
<li>Enhanced Investment Opportunities:
<ul>
<li>By leveraging private lending, investors can expand their investment horizons and pursue a diverse range of opportunities in the real estate market. Whether it&#8217;s acquiring new properties, funding renovation projects, or consolidating existing debt, private lending provides the capital needed to fuel growth and maximize returns.</li>
</ul>
</li>
<li>Personalized Service and Support:
<ul>
<li>Private lenders often offer personalized service and dedicated support throughout the lending process. Investors benefit from direct communication with decision-makers, responsive assistance, and tailored guidance, fostering a collaborative partnership that enhances the overall borrowing experience.</li>
</ul>
</li>
</ol>
Conclusion: In summary, the benefits of private lending for real estate investors are multifaceted and compelling. From greater flexibility and expedited approval processes to customized loan structures and access to non-traditional properties, private lending offers investors a strategic advantage in navigating the complexities of the real estate market. By embracing private lending as a valuable financing tool, investors can unlock new opportunities, optimize their investment strategies, and achieve greater success in their real estate ventures.

The Advantages of Private Lending for Real Estate Investors

In the realm of luxury real estate financing, borrowers face a unique set of considerations and challenges. Understanding the intricacies of borrowing for high-value properties is essential for making informed decisions and securing favorable loan terms. Here&#8217;s what borrowers need to know:
<ol>
<li>The Importance of Preparedness: Before embarking on the borrowing journey, luxury property investors must ensure they are financially prepared. This includes having a clear understanding of their creditworthiness, financial standing, and investment goals. Lenders often prioritize borrowers who demonstrate a strong financial profile and a clear plan for property acquisition or investment.</li>
<li>Navigating Loan Options: Luxury borrowers have access to a range of loan options tailored to their specific needs. From traditional mortgages to private lending solutions, understanding the pros and cons of each option is crucial. Private lending, in particular, offers flexibility, expedited approval processes, and customized terms, making it an attractive choice for many luxury investors.</li>
<li>Understanding Terms and Rates: When considering loan options, borrowers must carefully evaluate the terms and rates offered by lenders. While competitive rates are essential, borrowers should also consider factors such as loan duration, repayment terms, and any associated fees. Working with a lender who offers transparent fee structures and flexible underwriting can help borrowers make confident decisions.</li>
<li>The Role of Collateral: Luxury real estate loans often require substantial collateral to secure financing. Borrowers must be prepared to provide detailed information about the property being purchased or used as collateral. Understanding the role of collateral and its impact on loan approval and terms is critical for borrowers navigating the lending process.</li>
<li>Communication and Collaboration: Effective communication between borrowers and lenders is key to a successful lending experience. Borrowers should be proactive in providing necessary documentation, responding to lender inquiries, and seeking clarification on any aspects of the loan process. Building a collaborative relationship with lenders can lead to smoother transactions and more favorable outcomes.</li>
<li>The Value of Professional Guidance: Navigating the complexities of luxury real estate financing can be daunting, especially for first-time borrowers. Seeking guidance from experienced mortgage agents or real estate professionals can provide valuable insights and support throughout the borrowing process. These professionals can offer personalized advice, help borrowers explore their options, and negotiate favorable terms on their behalf.</li>
</ol>
In conclusion, navigating luxury real estate financing requires careful consideration and proactive engagement from borrowers. By understanding their financial readiness, exploring loan options, evaluating terms and rates, and fostering open communication with lenders, borrowers can confidently navigate the borrowing process and secure financing for their high-value property investments.

What Borrowers Need to Know

Understanding the Essence: In the realm of luxury real estate financing, the first deed of trust stands as a beacon of security and assurance. This legal instrument, often heralded as the cornerstone of high-end property transactions, plays a pivotal role in shaping the landscape of real estate investment.
Delving Deeper into First Deeds of Trust: At its core, a first deed of trust serves as a binding agreement between a borrower and a lender, wherein the property in question is pledged as collateral to secure a loan. What distinguishes it within the luxury financing sphere is its ability to confer a priority position to the lender, offering unparalleled protection in the event of default or foreclosure.
The Allure of Priority Position: For luxury investors, the allure of holding a first deed of trust lies in the assurance of priority. In a competitive market where high-value properties are at stake, this precedence ensures that investors maintain a paramount position in the hierarchy of creditors. This not only enhances the investor&#8217;s confidence but also incentivizes lenders to offer more favorable terms, including lower interest rates and expanded loan amounts.
Tailored Solutions for Discerning Investors: Luxury real estate is characterized by its diversity and complexity, often necessitating bespoke financing solutions tailored to the unique needs of each investor. With first deeds of trust, investors gain access to a realm of flexibility and customization previously unseen in traditional lending practices. From adjustable interest rates to extended repayment periods, the versatility offered by first deeds of trust empowers investors to craft financing arrangements that align perfectly with their investment objectives.
Navigating the Path to Expedited Success: In the fast-paced world of luxury real estate investment, timing is of the essence. The streamlined approval processes facilitated by first deeds of trust enable investors to navigate the complexities of financing with unparalleled efficiency. By expediting transactions and providing faster access to funds, these instruments empower investors to seize lucrative opportunities with confidence and agility.
In essence, the first deed of trust transcends its role as a mere legal document; it embodies the very essence of luxury real estate financing. By embracing its significance and harnessing its power, investors can unlock a world of possibilities and embark on a journey of unparalleled success in the realm of luxury real estate investment.

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