Defending the EMH

Continuing on my first post about the efficient market hypothesis (EMH), I believe in a semi-strong version of the hypothesis, which allows for some opportunities to make profit through a process called fundamental drift. It would seem that the EMH’s biggest opponent are from the ‘right’ of the political spectrum (zerOh3dge and Market Ticker type guys) who insist the market is ‘rigged’, which is a view that many on the left also share. In fact, it would seem the EMH has fallen out of favor from both sides of the ideological aisle, leaving only a handful of academics and myself to defend it. Of course, there are always the well-worn ‘violations’ of the EMH that are trotted out, with the sanctimonious belief that EMH doubters have somehow overturned the establishment, when in fact, such counter-evidence doesn’t necessarily refute the EMH. For reference, some violations include the infamous Palm Spinoff snafu, companies’ stock reacting ‘too much’ to the re-release of public information, and those ‘obvious’ bubbles such as the dotcom bubble. Irrational markets and behavior finance in popular now, but I think the EMH can be slightly modified to reconcile perceived ‘irrationality’ and still be consistent with an efficient market.

From The Wikipedia definition of the EMH,

The Efficient-market hypothesis (EMH) states that it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.[1]

Borrowing from the no-arbitrage conditions of option pricing, I would modify this definition to say that the EMH doesn’t necessarily require that stock prices not be predictable, that all information be instantly reflected in the stock price, that bubbles cannot form, or that investors cannot act irrationally – violations of all of these things can happen in an efficient market – it’s just that the frequency and liquidity of such events isn’t consistent or deep enough to allow for a consistent, abnormally high profit. In a random walk, any pattern or outcomes is possible, but under the no-arbitrage condition the aggregate of traders cannot make an abnormally high profit/rate of return from these fluctuations. For every ‘obvious’ bubble where speculators profit betting against it, there are countless situations where traders lose their shirt as the ‘obvious’ bubble proves to be surprisingly resilient or isn’t a bubble at all. Then you have issues like low liquidity, short squeezes, and ‘hard to borrow’ working against the short seller. The same goes for re-release of public information. Yes, sometimes stocks move too much, but this doesn’t happen often enough to allow for abnormal profit. Same for arbitrage opportunities that are too small and too infrequent to allow firms to make an abnormally high rate of return.

Or as I wrote in my earlier article, Irrational Investors Don’t Exist:

Markets are nearly impossible to predict because in retrospect many bubbles like Facebook, for example, now seem rational. It is demonstrably impossible to exploit ‘bubbles’ to achieve excess returns, even during the late 90’s. For a couple reasons: liquidity and timing. It’s hard to find shares to short and if your timing is bad and the stock keeps rising, you’ll get a margin call and be forced out of the position at a large loss, even if your original thesis is correct. A notable example is the Manhattan Investment Fund that lost $400 million shorting tech stocks in the 90’s. He is the real wolf of Wall St., but you won’t be seeing a movie about him because the it makes the government look incompetent being that he got away with it. In 2007, Microsoft purchased a small stake in Facebook , valuing the social networking site at $15 billion. Everyone in the media and blogs (except me and some others) was convinced it was bubble. Fast forward to 2014 and Facebook is worth north of $130 billion. Anyone went on the opposite side of that trade (assuming Facebook was a public company) would have lost 500-700% of their money.

Make that $230 billion for Facebook. And now Uber is next in line to cross the $100 billion threshold, long after pundits were calling it a bubble at < $5 billion valuation. And this happens over and over again. The media and punditry goes to great lengths to tout their ‘bubble radar’, ignoring all the times they were wrong.

Feeling Left Out?

The feeling of being ‘left out’ is something that one normally assumes applies to children and teens – you outgrow it as an adult, but the question, Do you feel like you’re missing out?, that I posed on Hacker Network apparently touched a nerve, as evidenced by all the replies:

It seems like with all this amazing stuff going on in the world (surging web 2.0 valuations, people becoming instantly rich & famous in tech, booming stocks & home prices, new discoveries in physics, twitter debates, viral content and insta-fame) does it ever feel like you’re missing out, like there is a big party going and you’re watching from the sidelines.

I cannot blame anyone for feeling this way, and I go through this, too, which probably motivated me to ask the question and why it went viral on the site. We find ourselves living in incredible, yet very unequal times. The ‘big-fish–little-pond’ effect seems to be at play here, in that we care not so much for our own nominal/absolute prosperity, but our prosperity and status relative to our peers, friends, neighbors…etc. There is so much going on in the world and maybe the internet, which gives us this window to the world, is also a reminder of our quaintness at the individual level. Many want to be not just passive consumers, but also participants – a participation that goes beyond updating a Facebook status or posting a tweet that will not be read.

Part of this blog is not just posting opinions, but trying to better understand the world, how things work, why things are the way they are, and so on.

Related: Winner-Take-All Nation

Uncomfortable Truths

IMHO, one of the most pressing problems in society is this inviolable, pervasive discomfort surrounding the topic of IQ, in that educators, parents, and policy makers can’t come to grip with the reality that individuals below a certain threshold of intelligence are either less valuable to society (everyone is not equal) and or it would be a better use of public resources if such individuals were diverted from public schooling after attaining sufficient rudimentary knowledge and instead trained in vocational or service sector work. Normally, individuals with retardation don’t attend high school, but we think the threshold should be raised to an IQ of at least 90, or maybe the curriculum should be changed to teach the skills that would be most valuable to this subset of the population, who stand to benefit little from trying (and failing) to learn Algebra or world history.

Biological determinism is more relevant than ever in our increasingly competitive economy. If you find yourself falling behind in the post-2008 economic and stock market boom, you may way to get your IQ checked; you may not be smart enough to participate in the recovery. Or you may have majored in something worthless in college. Maybe you should have learned how to code, how to trade stocks, or how to buy real estate that always goes up (but if your IQ is not high enough, you will likely fail at these endeavors). But maybe, you can be a minimalist MGTOW, which is a popular choice for a lot of people these days. In our era of technological abundance and wealth creation, many are voluntarily dropping out. But I don’t mean dropping out like living in a remote cabin in a woods, but by by being alone without literally being alone. These are empirically minded STEM-centric people who value intellect, coding, the truth (even if it’s politically incorrect) and economics more than materialism and keeping up with their dull, uninteresting classmates on Facebook or Twitter. Social Awkwardness and Autism/Aspergers is becoming the ‘new normal’, the new ‘cool’, in America’s INCREASINGLY INTELLECTUALIZED ECONOMY AND CULTURE. Being a frugal, social isolated STEM person who lives a monastic lifestyle and possesses Spock-like logic and rationalism is the new ‘rockstar’ status, especially on sites like 4Chan and Reddit. That’s why I’m frugal to a fault. That’s why I always defer to the academic leteratre when in doubt. T

Everything Keeps Going Up

Aren’t we supposed to be in a bubble, says the media? Why does it refuse to pop? Whether it’s stock prices, web 2.0 valuations, China, or Bay Area real estate, the unending post-2008 asset boom continues with no end in sight.

Those web 2.0 valuations keep rising, especially for companies valued at over $1 billion (unicorns). Uber’s valuation went up another $15 billion this week, on its way to being worth $100-150 billion upon IPO.

My opinion, the valuation for the most prized web 2.0 companies, such as Snapchat, Pinterest, Dropbox, Uber, and Tinder, will keep rising until either IPO or buyout. There will be no 2000-like blowup, or at least not for a very long time. While the first internet boom lasted just 8 years or so (1992-2000), the web 2.0 boom, which began around 2004 or so, is still going strong 10 years later, and I see no reason for it to suddenly burst. You look at companies like like Facebook, Twitter, Air B&B, or Uber, which originally were speculative ideas, become juggernauts that have upended the status-quo, creating multi-billion dollar mobile advertising and big data infrastructures. It’s not like these companies are all hype; no, there is massive growth, profits, and market dominance behind these huge valuations. Right now, as part of the bigger is better theme, the best VC strategy is to invest in the most successful of the unicorn companies rather than speculate on the small stuff. Any app company right now that is worth $2 -5 billion can easily make the jump to $10-20 billion. That right there is a 200-900% ROI in just a year or so.

Related:

There is Absolutely No Bubble In Technology
Billion Dollar Start-Up Club: Separating Winners From The Losers
Snapchat Proves America & Capitalism is Not in Decline
Snapchat’s Huge Windfall : The State of Web 2.0

Stocks keep going up, too, with the S&P 500 making new highs every week it seems. In nominal terms, this is quite possibly the biggest bull market in US history, exceeding even the 1995-2000 boom. Dubbed the ‘idiot maker‘ rally (for all the supposed ‘smart people’ who predicted its demise), the S&P 500 is now up 200% from the March 2009 lows, creating millionaires out of people who ignored the media’s every attempt to elicit fear and panic to scare people into selling too soon. While valuations are not exactly cheap, with rates forever low, cash has to find somewhere to go. A 1-2% CPI and a 5-year bond paying 1 1/3 percent means that you you need to either buy 10-yr (or longer duration) bonds or stocks to not lose money in real terms. Low rates should not be confused with QE, the later which ended awhile ago, which is in response to people who insist that the rally is only due to QE. In spite of the unprecedented magnitude of the post 2008 asset boom, the fed has the luxury of keeping rates low due to the global ‘flight to safety’, as well as other factors. Ultimately, unlike in 2000, 2008, or 2011, there is no compelling reason for stocks to go meaningfully lower, and we’ll probably see the DJIA go to 25,000 with a couple years. Of course, I could be wrong, but I seldom am.

Especially since 2008, we’re also in a STEM/high-IQ boom, of people of above-average aptitude earning more money than everyone else, whether through wages, better employment opportunities, rising valuations for web 2.0 and other start-ups, or investments like stocks or real estate. Like the prior two examples, this boom too will continue for a loooong time. Meanwhile, real wages for people not in STEM have tended to lag inflation. Not all STEM is equal though, and computer science, math, and engineering have seen the biggest inflation-adjusted gains. An advanced degree in computer science pretty much guarantees good employment. Coders in the Silicon Valley can easily command a solid six-figure salary, and many are becoming wealthy overnight after their company gets bought out or gets slapped with a super-high valuation. In today’s economy, being smart is the gateway to prosperity and success, albeit it’s a narrow gate since few are smart enough to become good coders.

And last but not least, there is the Silicon Valley/Bay Area housing boom, now in its third year. Homes prices in that region just keep going up, and will continue to do so. Prices in the most coveted areas are up another 10-20 YOY, AFTER 20% YOY gains in 2013. Homes are being sold at a huge premium above asking price in all-cash bidding wars between high-IQ foreigners, techies and private equity. So much for housing being a poor investment, as some fools insist it is. It’s all about location and a little of timing. Smart people keep making money in real estate year after year, defying the losers who call it a bubble.

Related: Why Bay Area/Silicon Valley Real Estate Keeps Going Up

To quote a famous economist, markets can remain irrational longer than you can remain solvent. But we’re in a special situation where markets are rationally high.

Ignore the News, Part 2

Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility.

This big story from Business Insider, as shown above, is that a fed rate hike in June is ‘off the table’, meaning that it’s not going to happen. No shit. There is not a single forecaster alive who actually thought rates were going to go up in June. Not a single one out of the thousands of people who study this stuff. So this big news story, according to the useless financial media, is that the fed reaffirmed what everyone expected. This is news for the sake of news, but is it front-page news? No. The big question is if the fed will raise rates in September or December. my opinion is that they won’t, but a rate hike is probably priced in if it does happen.

But the problem with the news ultimately boils down to:

Hyping the obvious (like in the example above)
Hyping things that aren’t a big deal (turning molehills into mountains) for ratings, clicks, ad views, etc
Front-running things that won’t happen or haven’t happened yet (the Black Swan that will never arrive)

If you eliminated all three of these things, the news could probably fit on a fortune cookie.

So the best thing average people can do is ignore the news and buy stocks on the dips. 99% of the time, what is supposed to be a bubble or a crisis according to the media – is just nothing. Anthrax, Ebola, SARS, Greece, Swine Flu, Russia, ‘Stocks/housing being too high’,inflation/deflation, fiscal cliff, sequester, debt ceiling…all of these, according to the media, were supposed to doom America and the economy, yet in retrospect were merely speed bumps and great buying opportunities for investors. If there is supposed to be a crisis, just assume high-IQ people will save the day in the last minute – they always do. Just assume America and its economy and stock market will reign supreme.

Related:

Ignore the News
Ignore the Doom and Gloom Media
The Media and Global Warming
Things that I am sick of people complaining about
Ignore the News and Keep Buying Stocks on the Dips

Evidence That America Is Not In Decline (long post)

Rumors of America’s decline have been exaggerated.

Vox Day, in a recent post, writes:

What we are witnessing is nothing less than the gradual demise of the biggest, wealthiest economy in world history. It is truly a privilege and an education to behold. It is rather like being able to witness the death of the last Tyrannosaurus Rex. Regardless of how the fallout from the event may affect us personally, we have seen and experienced something that very few men have ever known.

Vox is right about SJWs (can’t stand em’, too) and other things, but I disagree here. If we call the SJWs on their lies over the imaginary college rape epidemic, we should also hold ourselves to high standards and not fall for the same delusional thinking and demagoguery that plagues the SJW left. That means having to confront and acknowledge empirical reality, even if we don’t necessary like it or agree with it. I like to think of myself as a ‘right-wing’ Penn Jillette, calling ‘bullshit’ on things, but from a right-of-center perspective, and no one is off-limits when they are wrong. Kinda like James Randi, Michael Shermer and Richard Dawkins, but the focus being on economics, finance, and sociology. Anyway, I don’t want to make this too political. But I actually want the economy to do well because when the economy succeeds, so to do the best and the brightest who comprise it, and that is how civilization and living standards advance.

Is America in decline? If so, the rest of the world with the possible exception of China is doing much worse. We’re seeing the rise of the west (America) and decline of the rest, which I will explain in more detail throughout this post.

Right now, we’re in a Goldilocks economy of modest growth, no stagnation, tame inflation, and no meaningful economic headwinds. Some pundits like Summers and Krugman bemoan how America’s economic growth is too anemic, especially compared to the 40’s and 50’s, and that its best days are behind it, but as I show here and in the graph below, US GDP growth has broken from the pack, since 2008 exceeding pretty much all g-20 nations. Yeah, 2-3% GDP growth ain’t great, but compared to pretty much everywhere else that has either no growth (Japan, UK, France) or high-inflation growth (Turkey, India, Brazil) – it’s pretty good.

America is running circles around the rest of the world:

And that is especially impressive for an economy as large as America. We’re never going to get back to 40’s era growth, and that’s fine. Law of large numbers and diminishing returns. It’s harder to grow an economy that is 5x larger at the rate it was growing when it was 5x smaller.

Post-2008 GDP growth is pretty much back to the historical average, or at least back to where it was in the late 90’s and 2000’s. Not hyper-speed growth, but certainty not recessionary.

Recent real GDP (below) doesn’t differ too much from historical performance:

Also, having too much growth isn’t always desirable since it tends to result in interest rates going up too quickly (a flat or inverted yield curve), resulting in bear markets and recessions. It’s better to have a prolonged, slow explanation than bursts of growth followed by severe busts, the later of which characterized the US economy until the creation of the federal reserve, which has had a stabilizing effect on the economy and stock market.

True, Consumer Sentiment Plunge Lowers Odds of U.S. Growth Rebound, but a lot of this data is just noise. Consumer sentiment tends to be very volatile is of little predictive value.

The University of Michigan’s preliminary sentiment index for May plunged to 88.6, the lowest since October, from 95.9 the prior month. It was weaker than even the lowest estimate of 68 economists surveyed by Bloomberg. Another report showed factory production stalled in April.

Hmmm..but the S&P 500 is 4% higher than October 2014. Those who shorted the market based on low consumer sentiment would have lost money. Consumer sentiment was in the low 70’s a few years ago, but that didn’t stop stocks from making huge gains since then. Contrary to the doom & gloom financial media narrative that consumers somehow suddenly stop consuming when they lose confidence, dour consumers have pretty much the same propensity to consume as happy ones.

If you look at the chart above, one can argue that a consumer sentiment indicator below 95 is a bullish signal since bear markets and recessions have typically followed very high readings. We should be welcoming this low reading as good news, not as a reason to fret. Sometimes, the most enduring economic expansions are the ones where the most number of people feel left out, in what I call the un-particpatory economic boom. When everyone gets too happy, too giddy…when everyone starts to feel rich…that’s when the market seems to roll over. Unless you’re among the cognitive and financial elite, you may feel left out of the recovery…and that is OK, even it seems socially undesirable. Sometimes in a recovery, especially this one, as more and more jobs become automated and the wealth gap widens, not everyone will be smart or skilled enough to participate fully in the recovery – or at least they will have to wait longer than usual, and we need to comes to terms with this reality.

Furthermore, consumer spending, like most indicators, tends to be volatile as shown below, but the overall trend is positive:

But back to the topic of America being in decline, the evidence of such a decline doesn’t bear itself out. As of May 2015,The S&P 500 made another high this week. One can argue that maybe this is due to QE, but profits & earnings are also rising in lockstep with stock prices, suggesting that fundamentals, not QE, is mostly responsible. America may be facing moral decay, and I don’t dispute that there are problems, but it hasn’t irreparably hurt America’s economy, global influence, military might, profits & earnings…stuff like that. Look at how some of the biggest, most influential tech companies in the world (Apple, Google, Microsoft, Facebook) are all in America. Same for institutions of higher learning, and so on. America’s most prestigious institutions of higher learning and tech companies are being inundated with foreign applicants. Foreigners keep buying America’s most expensive real estate (New York, Aspen, Southern California, Bay Area) and buying up our debt – something you wouldn’t expect for a country that is supposed to be dying.

Everyone talks about ‘dumbing down’ of America like it’s a fact, yet these people don’t see or are ignoring that curriculum, even for the youngest of students, is getting harder. If there’s dumbing down, you won’t find it in the post-2008 American public school system.

The typical American high school student is taking harder courses and performing better in them, according to a new study released today.The 2009 National Assessment of Educational Progress High School Transcript Study underlines the importance of rigorous curriculum, particularly with higher-level math and science courses, as a key to greater achievement in high school.

America dominates ‘top university’ rankings:

As shown by the global IQ map, if America is dumb, the rest of the world (with the possible exception of East Asia) is dumber:

And from Voxeu The Geography of Academic Research:

…we draw on a database of 76,046 empirical papers published between 1985 and 2004 in the top 202 economics journals (Das et al. 2013). We provide basic facts on the country focus of empirical economics research and the likelihood of publication in top journals for research on the US and on other countries. The newly-assembled dataset first highlights just how little empirical research there is on low-income countries. Over the 20-year span considered, there were four papers published on Burundi, 9 on Cambodia, and 27 on Mali. This compares to the 36,649 empirical economics papers published on the US over the same time-period (Figure 1).

America has the highest per-capita research output of any country:

It’s just a weird, paradoxical situation we’re in, of America doing so well by so many metrics but many Americans being so pessimistic. As Americans gripe about America’s alleged weakness and decline, the rest of the world can’t get enough of America. Compared to the rest of the world, America reigns supreme terms of its rising currency, surging stock market, inflation-adjusted GDP growth, central bank policy, consumer spending, free market capitalism, etc.

Only the Bombay market has outperformed the S&P 500, but that doesn’t account for India’s substantially higher inflation and falling currency.

An an example, Bernanke, as controversial as his policies were, seemed to be a success, and so much so that other countries have adopted QE programs. When Europe’s economy seemed to be going over the cliff in 2011, the major policy makers of Europe ignored the zerohedge people and went strait to Bernanke’s playbook of infusing liquidity to boost confidence, staving off a potential crisis. Now five years later, while growth in Europe is anemic, there is no crisis.

The debt may seem unsustainable, but it actually is because these countries who are buying it have no alternative and they keep rolling it over. It’s not like China wants to redeem its holdings, because that would make things worse for them. As part of American exceptionalism, the dollar is among the safest, most stable place for foreigners to park their surpluses, and I don’t see that changing.

Forbes explains it best, about why China cannot just arbitrarily dump treasuries:

If China does not buy the next Treasury bill… someone else will buy it with dollars, because it can`t be purchased with anything else but dollars. If China sells a T-bill out of its portfolio… it can only sell it for dollars. What does it do with the non-interest-bearing cash it acquires? It can buy goods or services or real property available from the U.S., available only for dollars. If China prefers none of these, its remaining option is to trade them for yen or euros, using that cash to buy stuff for sale in yen or euros. But now, someone or some institution that gave up the yen or euros now has those dollars, and where do they go? They can buy stuff for sale in dollars, or they can buy those interest-bearing T-bills that were just sold by the Chinese. Hmmm.

And from Business Insider:

A large selling of U.S. dollar assets by China will be noticed by global markets and could cause a panic selling of USD across the world. The resulting crash of the dollar would drive interest rates higher and hurt the U.S. economy. The end result? China would be hit hard because of falling OECD demand for Chinese goods.

The system may seem perilously unstable, but it works. The bigger things get, the more effort goes into making them work. The more interconnected the world becomes… the more that is at stake, and this dissuades policy makers from making rash, impertinent decisions. That could explain the ‘Long Peace’ phenomena observed by Pinker in his book, The Better Angels of our Nature. Contra Taleb who argues that large systems are prone to blowing up, a large system may be better because more effort goes into making it work and individuals have less power or incentive to disrupt it. The events of 2008 warped people’s thinking, particularly the punditry, into believing that financial crisis are very common (they aren’t) and that policy is ineffective (it can actually be quite effective). A large system has the resources (R&D, infrastructure, venture capital, markets, consumers, etc) that allows the best and the brightest to thrive whereas millennia ago, without such systems, humans all lived in quaint dwellings and caves, and no one was able to excel because day-to-day survival took precedent over innovation. As a libertarian-leaning conservative, I actually believe there is a role in public policy to create optimal socioeconomic environments for the best and the brightest to live to their fullest cognitive potential, and such policy will pay dividends down the road in the creation of tomorrow’s Teslas, Apples, Ubers, Googles, and Facebooks. It’s not that we need less government spending; we need smarter spending.

However, the hollowing out of the middle is real, as America splits between a rarefied high-IQ elite and everyone else. It may seem contradictory for the economy to be doing so well when so few seem to be participating, but the economy as measured by the actual data (real GDP growth, profits & earnings, etc..) doesn’t show decline. How people feel about the economy or are impacted an the personal level is often much different than the broader picture. Many people still think we’re in a recession, and this is not surprising since the media tends to focus on the negative and it’s true that inflation adjusted wages have stagnated for large portions of the population, but the recession ended a long time ago.

But what about record food stamp usage, stagnant wages, student loan debt, and the high youth unemployment?

I don’t mean to make this too political, but a lot of people on the left who complain about student loan debt being too high oppose programs such as workplace cognitive screening that could replace costly diplomas, on the grounds of ‘disparate impact‘. There is also the element of personal responsibility in that students who do go to college should major in a high-ROI field such as STEM, and that we need better screening to identify students who are smart enough (an IQ > 115 according to Charles Murray) to benefit from college instead of dropping out or failing, and then discourage students who don’t meet the IQ threshold from applying. Part of the problem is that the SAT has becomes less of an IQ test and more of a ‘general knowledge exam’, making it less effective at identifying students who would truly benefit from higher education.

Youth unemployment is high in America, but I don’t necessarily think that problematic. There are a myriad of factors, ranging from possibly Obamacare, the push to raise minimum wages, and automation making unskilled jobs obsolete (structural unemployment). Young people delaying careers for higher education, and living with their parents instead of making landlords rich – may be a good idea, as I mention here:

Despite a poor job market, another possibly is that the millennials, being the smartest and most educated generation ever, are delaying careers, family formation, and home ownership for longer-term investments like education. While worse-off now, when in their 50’s, millennials will be in a superior position than their parents when this tradeoff between short-term gratification and long-term education and planning finally pays off. Millennials that live with their parents are prudently saving money for their future instead of making landlords rich.

Maybe it’s better that young people delay making a pittance through dead-end jobs and instead focus on high-paying, self-actualizing, in-demand skills like coding, publishing, mathematics, writing, entrepreneurship, and finance.

As mentioned in my post, The Smartist Era, we’re becoming a drop-out nation, and I think this has continued to the nascent MGTOW movement:

We’re also becoming a drop-out nation. Adults moving back in with their parents, delaying marriage, leaving the workforce and dropping out of college saddled with debt they have no hope of paying off.

And this confers with an article but the Washington Post about the unappreciated benefits of being alone:

Ratner has a new study titled ‘Inhibited from Bowling Alone,’ a nod to Robert Putnam’s book about Americans’ waning participation in group activities, that’s set to publish in the Journal of Consumer Research in August. In it, she and co-writer Rebecca Hamilton, a professor marketing at the McDonough School of Business, describe their findings: that people consistently underestimate how much they will enjoy seeing a show, going to a museum, visiting a theater, or eating at a restaurant alone. That miscalculation, she argues, is only becoming more problematic, because people are working more, marrying later, and, ultimately, finding themselves with smaller chunks of free time.

The stigma is being alone is going away, in our increasingly competitive economy that rewards rewards intellect and self-determination, as we transition to a nation of salaried employees to a winner-take-all nation of entrepreneurs. The person who likes to spend time in solitude learning to code is or trade stocks is faring much better in this economy than the person who is overeager to please others. That’s not to say social skills are completely obsolete, but like religion, they are becoming less relevant in our post-2008 world. You look at some of the biggest success of our post-2008 economy – namely web 2.0 companies like Snapchat, Uber, Slack, and Tinder – and you see they typically involve introverts who are getting very rich very quickly. Being alone is not just a way to save money or find inner peace, but – in the Silicon Valley at least – a possible pathway to riches and fame.

Also, like normal unemployment (U1 or U2) rate, youth unemployment is also falling:

The empirical evidence suggests that the US economy is doing fine despite record wealth inequality. Record wealth inequality hasn’t hurt key economic metrics such as profits & earnings, consumer spending and exports, and GDP growth, as mentioned earlier, is healthy. What we’ve seen is that real entitlement spending is making up the gap in wages, in that more people are drawing aid from the government.

From Daily Signal, Food Stamp Participation Doubled Among Able-Bodied Adults After Obama Suspended Work Requirement

A new report from the Congressional Research Service (CRS) confirms that food stamp participation doubled among able-bodied adults after the Obama Administration suspended the program’s work requirements.

The welfare reform of 1996 requires that after three months on food stamps, recipients be engaged in some kind of work activity for at least 20 hours a week. Tucked away in the mammoth 2009 so-called “stimulus” spending bill was the suspension of this requirement for able-bodied adults with no children.

The good news is Obama recently signed a $9 billion food stamp cut into law.

Someone rebutts:

How can you say such in support of your position, given the non-participation rate being what it is? For them, wages haven’t stagnated, they’ve collapsed. That, for a large portion working, wages have stagnated is not symptomatic of an economy healing. You say the recession ended a long time ago. That’s easy to show as even I can juggle the books and polish a turd, on paper.

But there will always be some form of economic weakness no matter where you look. Anxieties over the economy are not new, and even in the strongest of expansions there will always skeptics who have litany of reasons for why things will go wrong. I guess my point is that the economy and America may be strong (as measured by the data) even if not everyone can participate fully in the recovery. You look at the role IQ plays in our increasingly competitive economy, and people of lesser intellectual means may be falling behind, but that doesn’t prove the whole economy is weak. That is called the fallacy of composition – to make an inference about a bigger system from one of the smaller parts.

A common theme among the doom and gloomer crowd is to doubt the veracity of the economic data, as if it’s rigged, but there was hardly any conspiratorial talk when things were falling apart in 2008. As mentioned earlier, anecdotal evidence and the economic data can diverge, and the former is often not a reliable indicator for economic health. People who feel like they are not participating in the recovery, who feel like they are being left behind, are more inclined to believe that America is in decline or the economy sucks, regardless of evidence that shows otherwise. The inability to disprove that the government data is fallacious does not prove that it is, so trying to argue on the premise that the data is flawed leaves the opponent with the burden of proving that the data is not fake. The result is a Turtles-all-the-way-down/Homunculus argument, where every piece of evidence is countered with ‘fake data all the way down’. The burden of proof should be on the person who insists the data is false, which is the premise of the Russell’s teapot analogy. If we cannot agree on a uniform set of data for reference, there can be no debate. Part of the problem with the social sciences, of which economics is one of them, is that any argument can be met with an equally convincing counter-argument, if one tries hard enough to find one. I can offer an argument and someone can offer seemingly convincing counter-evidence and this can continue back and forth, of each side dredging more and more counter-evidence. Eventually, we have a situation where there is not a consensuses (except for very few circumstances), but a set of augments that supports/refutes both sides. It’s not like mathematics, which has consensus in the form of proofs. The best you can do in an economics debate is to lay out your evidence/cards, counter some opposing evidence (like a poker round), and leave it at that (the round is over).

The S&P 500 made another high this week. As long as you forget that $10 worth of pre 1965 quarters melt down to $180+ of silver

I’ve heard this ‘dollar losing gold/silver purchasing power’ argument for awhile. On one hand, in a process called bifurcated inflation, real prices for some goods have exceeded inflation, but on the other hand, our dollars buy things that never existed decades ago, new products that have much more utility than old technologies. A $300 iPhone has considerably more utility than a 1960 TV set and rotary phone. Netflix costs $10-20 month, versus 20 cent movie tickets of earlier generations, but the Netflix service much more utility in that you can watch pretty much any movie and show ever produced.

In debating the doom and gloomers, the Homunculus argument also comes into play when discussing the impact of QE on the economy, where every piece of evidence that the shows the economy and stock prices growing due to fundamentals is dismissed as being attributable to QE or some form of intervention. Pretty much everything boils down to either the data being manipulated or fed intervention. Nevermind that companies like Apple, Disney, Google, Microsoft, Netflix, and Facebook keep posting blowout quarters, even in some instances long before 2008. Those millions of people who are buying iPhones were somehow enticed by the fed. Rather than choosing the most parsimonious explanation, let’s instead create increasingly intricate conspiracies.

The fed ended QE a year ago and began the taper two years ago, but the S&P 500 has surged 20% since then. If Wall St. felt that QE and printing were purely responsible for the rise in stock prices, this would not have happened. As shown below, profits & earnings of the S&P 500 have risen in lockstep with stock prices:

As I stated here, QE is not some magical elixir but merely a a monetary stimulus of last resort. Many people overestimate its effectiveness, and in fact, it inflation didn’t surge following QE, as so many predicted it would:

This is not too surprising since QE, unlike a stimulus, is just an asset exchange that replaces long-dated bonds with ‘reserves‘, which are not lend out.

QE helped the economy some extent, but it’s hardly the main reason why stocks and the economy have recovered so vigorously from the depths of 2008 & 2009. The main criticism of QE is that it did more to boost asset prices than economic growth, but since the PE ratio of the S&P 500 is only somewhere between 17-20 despite a huge 200% rally since 2009, the divergence been prices and fundamentals isn’t that great. And given that inflation didn’t budge, it didn’t push the economy into an inflationary overdrive. At this point fundamentals seem to be doing most of the work, not fed policy. Another reason given for rising stocks prices is aggressive buybacks, and this is true to some extent, but only a small factor.

The present bull market is about 100% bigger than the 2002-07 one, but buybacks are only at 07′ levels, suggesting that fundamentals are playing bigger relative role.

The Tobin’s q, on the other hand, shows stocks being richly valued:

But this in itself is not a reliable indicator since in the late 90’s stock valuations wildly diverged from the long-run average, and there’s no guarantee they won’t do it again. If the general public becomes as enamored with stocks as they were a couple decades ago, it we could possibly see the S&P 500 double. I certainly would not want to be on the sidelines or short then.

In conclusion, I hope this exegesis provides a convincing argument for why America is not in decline (or If America is in decline, the rest of the world is doing even worse). Republicans should be more optimistic about America, because America (and especially the Silicon Valley), more so than anywhere else, through its free markets, infrastructure, consumer base, and intellectualism, rewards high-IQ, talent, and merit more so than anywhere else. That’s why high-IQ, ambitious foreigners keep wanting to come here, and I think republicans, who believe in the merits of free markets and capitalism, should welcome this.

Good Tweets

That seems to describe how the left wanted the 2008 financial problem to get worse in order to get Obama elected, who would user in a ‘New Deal’ that would punish the rich and financial institutions. The left seeks crisis as a way to ‘reset’ or reshuffle the system to a more egalitarian state, where their policies can be implemented in the reconstruction.

Let me rephrase that…we were promised by the left Great Depression 2.0 and all we got was this rich, boring 6+ year bull market and web 2.0 boom.

Related: The World is Getting Safer, So Why Does this Make Libs Mad?

In Today’s Economy, It Seems Like IQ Is More Important Than Ever

As the S&P 500 notches yet another high (for the 6th year in a row and counting), it seems like IQ is becoming more important than ever in our post-2008 economy. People are falling behind because of low IQs, in an economy and free market that bestows great riches upon some and not a whole lot for everyone else. Today’s hyper-meritocracy is amplifying the socioeconomic ramifications of individual cognitive differences such that a person with an IQ >110 is much more likely to succeed than someone with an IQ <90 , whereas decades ago the divide wasn't so obvious. The people who are getting rich from the perpetually rising stock market and expensive real estate, in regions such as the Bay Area and New York, are predominantly people of above average IQ. Same for wages, of which smarter people in high-IQ professions are earning more, as everyone else (those who are not of the cognitive elite) have generally seen their wages lag inflation. Some talk about a Silicon Valley secession plan, but – as evidenced by the huge gains in real estate in Palo Alto, Atherton, and the Bay Area, in general – it’s already happening. Washington answers to Silicon Valley, not the other away around, and the 2016 GOP candidates are bending over backwards to appease our new tech elite. As alluded by Charles Murray’s book Coming Apart, the smart and rich will continue to separate from the rest of of America, both culturally and financially, creating enclaves of prosperity, wealth creation, and intellectual enlightenment. Those, especially on the left, who seek another financial crisis to ‘reset’ the system to a more egalitarian state will be disappointed as such crisis, contrary to media hype, are very rare. So what will happen is the future will be like today, but more so. That means stocks will keep going up, higher Bay Area real estate prices, higher web 2.0 valuations, rich getting richer, IQ being more important than ever, more pain at the pump, rising tuition & healthcare, ..etc. Dragging your feet as we cross the Rubicon to our increasingly financialized, technologized, and quantized world will be most unproductive. Thaat’s why I am long stock, that’s why I’m trying to learn to code ,that’s why I’m trying to be a part of the system instead of a pawn of it.

Related: Winner-Take-All Nation

The Pursuit of the Truth

By in large, Ivy League students are smarter in terms of IQ and SAT scores than students from no-name schools. As much as the left whines about cronyism and nepotism in the Ivy League, dull kids typically don’t get into those schools, period (although of course many smart kids don’t go to the Ivy League). Only a tiny, tiny percentage of admissions are legacies and unlike the Harvard of the 30’s, the vast majority of students come from the middle class. They even have very generous financial aid, but the left still wants to believe the Ivy League is an old boy network because the left will never accept that some people are biologically better than others, so they look for environmental excuses (money, cronyism, noepotism) to explain away individual exceptionalism. Like STEM majors, Ivy Leage graduates are more valuable people, and many of them become the technology and business leaders of tomorrow, which goes against the liberal ideal of egalitarianism. The left wants to believe the Ivy League is worthless and or that non-STEM majors are just as important as STEM – not true. I would also lump economics and finance into STEM since both of those majors involve advanced math, have a lot of prestige, and pay well? Speaking of prestige, a Reddit ask-me-anything by three female computer scientists form MIT got a whopping 3,000 comments in just a few hours – more comments and up-votes than even A-list celebrities. Had they been three female SJWs from a no-name school, the post would have been down-voted to oblivion because of the post-2013 backlash against welfare liberalism, with heaps of insults in the comment section. Or if they have been three female psychology majors from a no-name school, there would have been hardly any response. See what happened is up until around 2013 the SJWs had the upper-hand, but then with the 40% 2013-2014 rise in the stock market, combined with a social shift towards neoliberalism and neo conservatism, the SJWs are losing. It also doesn’t help that they fabricate stories (Rolling Stone UVA rape hoax), defend child molesters (Lena Dunham), defame a legendary entertainer beloved by millions (Bill Cosby), attack gamers (Gamergate) or attack a brilliant scientist (Shirtgate). With scientific rationalism making a huge surge since 2013, the SJWs method of lies and outbursts of emotion have become ineffective; everyone sees through the crap, to put it bluntly. People who originally voted for Obama or are apolitical are against Rolling Stone. The good news is Rolling Stone, like the rest of the liberal media, is becoming irrelevant and soon to be extinct. To paraphrase a smart person, anyone who has a future and is smart is not reading Rolling Stone. As opposed to the sentimental and sensationalist MSM, the smartest generation gets the unvarnished truth from sites like Reddit, 4chan, ycombinator (Hacker News) or Pornhub – sites that care more about the pursuit of knowledge and empiricism than disseminating lies dressed up as news stories and opinions (like how smart people are irrational or how IQ is not important) that affirm pre-existing liberal beliefs, but are otherwise completely wrong (wrong about how IQ is not important). On Reddit and 4chan, for example, it’s not taboo to write that Martin Luther king was an adulterer and that Mahatma Gandhi slept nude with 12-year-old girls; in fact, such comments are welcomed because the pursuit of the truth is does not always lead one down the path of political correctness, and the MSM on both the left and the right is suppressing this discomforting information about our most ‘beloved’ heroes, much like how zealots and fanatics whitewash history.

Salvation Through IQ

Americans but especially millennials are eschewing the traditional religions for a new ‘religion’ that celebrates not deities, sacred scriptures, or saints – but intellect, wealth, authenticity, and individualism. While idolatry is not a new concept, what makes this trend different is that unlike the young adults of of earlier generations who fawned over the ‘mainstream’ entertainers of their day, unfailingly gathering around the ‘tube’ to watch Dick Clark and Ed Sullivan, this generation is much more reverential to the high-IQ and wealthy, such as Wall St. power players Warren Buffett, David Tepper and Carl Ichan, quirky ‘niche celebrities’ like Bo Burnham, high-IQ porn star Mia Khalifa and scientists like Charles Murray, Kichio Kaku and Steven Pinker. In this new religion of the post-2008 America, salvation or redemption isn’t through conversion or ‘good deeds’, but by quantifiable accomplishments, such as the accumulation of a lot wealth, or demonstrable cognitive superiority, such as having a high IQ and or being an eminent scientist. Even Kim Kardashian is an example, being that she is an ‘unconventional celebrity’ who is wealthy and exudes intellect and authenticity, setting her apart from celebs of yesteryear who were mostly boobs and no brains.

The millennials, or as I call the smartest generation, unlike their spendthrift baby boomer parents, are minimalists; thus, it is in bad taste to flaunt wealth with ostentatious material possessions such as fancy cars and Rolexes; however, flaunting intellectual accomplishments is not only encouraged, but necessary to gain social recognition and acceptance among other members of the smartest generation, and broader society. If one wants to flaunt wealth, a profit and loss statement showing the amount of money made in a high-IQ endeavor, such as options trading, will suffice. Therefore, the millionaire 20-something quant option trader with a math degree who has a high-IQ and who flouts his wealth by driving a functional but boring, used automobile is an important person, exalted in online communities as thousands of digital disciples and supplicants oversee the coronation of the great one because to be smart and rich is kingliness and to be not makes you a nobody, unworthy of salvation, to be swept into the wastebasket of unimportance and disposed of unceremoniously. More than ever, this is the reality we find ourselves in today where IQ is the sine qua non for socioeconomic advancement.

So, why is an entire generation – from aspiring bodybuilders, to the tweens who take selfies on Instagram, to the millions of 20-something users of Reddit and 4chan – obsessed with intellectualism, or at least so deferential to intellectuals? First, as measured by college completion rates and general knowledge, the millennials are the smartest and most educated generation ever; second, in a world of political correctness, intellectualism is where the smartest generation finds the truth, and because they are smart, they see though the lies, omissions, and sugar coating by the left, rejecting leftist egalitarian platitudes of ‘nurture’ for the ‘nature/biological deterministic’ theories espoused by empirical scientists. The antiquated babyboomer left says IQ doesn’t matter; the smartest generation, deferring to the research data instead of wishful thinking, says it does.

A quote from a Salon article sums this up perfectly:

If our strengths and weaknesses are two sides of the same coin, one strength of introverts is that they have less need for social approval than extroverts and so speak uncomfortable truths when others won’t. (A corresponding down side is that they often exhibit less social finesse and sensitivity in how and what they say.) One of the strengths of nerds, including scientists, is that their obsession with figuring out what’s real makes them less prone to self-delusion than many of us. (A corresponding down side is that they often don’t consider the potential harms of their hypotheses and discoveries.)

In a data-driven world that revolves around STEM, it seems like we’re all becoming economists and programmers now. We’re seeing millions of young people, especially on sites like Reddit and 4chan, take a keen interest in economics, libertarianism, human biodiversity and other topics and point of views that could be deemed taboo by the establishment. The millennials, of which the high-IQ among them constitutes an army of over a million empiricists, are waging war against the the delusions of liberalism and nurture-ism, and are winning.

The smartest generation, as part of the post-2008 Ayn Rand revival, wants policy that rewards high-IQ and talent instead of wasting too much resources on those who are cognitively incapable of contributing to society. The smartest generation sees the war on poverty – a war fought on the shaky premise of nurture – as a failure that can only be fixed by better understanding human biology; hence, this is why science, not redistribution, is the answer. The Democrats and Republicans both get this wrong by believing that nurture based solutions can fix the ills that plague society. From the high-IQ pornstar, to the personal finance guru and former child prodigy Nicole Lapin, to the coder and the options trader, through self-actualization, millennials are resisting the collectivism of leftism and some are becoming fabulously wealthy in the process.

The pertinent question is, do external macroeconomic factors shape thought or is thought shaped by macroeconomics? The evidence suggests the former, in that the post-2008 era of economic prosperity and the bull market (that has accelerated since 2012) is subconsciously and subliminally changing how young people view the world, making them more receptive to the individualist pursuit of financial and cognitive gratification, versus yielding to the collective. When you see headlines of stocks going up all the time, it makes you want to own a piece of it, or otherwise you feel left out. When you have tying times, such as in 2008 or the 1930’s, perhaps people subconsciously behave more altruistically and selflessly (although I have no data to back this up). The bull market demands perfectionism, and people must meet the standards of perfection.

It’s initially unexpected how the pursuit of empiricism and facts makes one misanthropic, because one would assume that having more knowledge is liberating, but it’s not, because being smarter makes you more acutely aware of everything that is wrong with the world and the hopelessness of rectifying it. For example, a characteristic of the post-2008 era – where Dunning–Kruger is the new Freud and Jung – is the loathing of ignorance, because the pursuit of knowledge is how one gains power in an increasingly competitive economy that increasingly rewards intellect, and second, the abundance of information made readily available through technology makes ignorance inexcusable. It’s a weird world we live in where authenticity is celebrated, but in such a way that if you fall victim to Dunning–Kruger, you become pound scum in the public sphere. So if you do wish to impart opinions, be sure that if you are wrong you don’t create the false pretense of being right, and if you’re right, well, then there is nothing to worry about. So that creates a need for prevarication and hedging language, to avoid being a ignorant, pretentious moron versus just a moron.

The smartest generation knows that the unvarnished truth – the good the bad and the ugly – is preferable to the deceptions espoused by political and media lapidaries whose job it is to polish these lies, making them superficially appealing to a public that wants to be told what it wants to hear, such as IQ being less important than hard work, that rich people are to blame for all of the world’s problems, or that 10,000 hours of practice will make anyone an expert at anything. The social sciences – with the possible exception of economics – have become arms of propaganda for far-left liberalism. The left often accuses the right of being anti-science, but it’s actually the the left, in their denial of the science they don’t agree with, such as IQ and the wealth of nations, who are the true ‘creationists’. The left, in an abuse of scientific protocol, has to make up a narrative that agrees with their preconceived biases, instead of changing their biases with the introduction of data.

This thread on Reddit,Guy who invested $90k in Monster Energy drinks 5 years ago now a millionaire after 500% increase and $90k initial investment, is an example of how STEM people, even in non-STEM endeavors, still make more money than non-STEM people. This is not because of STEM per say, but because of high-IQ, in agreement with the data that shows that smarter people do make more money. All else being equal, a high-IQ stock picker will fare better than a low-IQ stock picker. As recently as the 1980’s, the greatest minds tended to toil in obscurity, their contributions typically unappreciated and ignored by the general public as the athletes, musicians and actors hogged the spotlight, but thanks to the smartest generation and their communities like Reddit and 4chan, high-tech entrepreneurs such as Elon Musk, scientists, and other INTJ/INTP-ers have become the new rock stars. And whether it’s the Apple option trader who made $150k in less than a month or the aforementioned example at the beginning of the paragraph, the cognitive elite not only rise to preeminence through raw talent and brainpower, but by a society that in rejection of the ‘old mores’ heaps collective praise befit for a king or a deity on its high-IQ aristocracy.