And Fear No Darkness

This is going viral: And Fear No Darkness

Despite its length, it’s not very convincing. It’s more like a belief than an argument. It’s just the author’s hunch based on some 4th turning ‘theory’ that there is a 50% chance there will be some sort of civilization-ending crisis in the 21st century. Falsifying it is like trying to prove a negative. Such eschatological predictions go back centuries, and despite crisis such has ww1 & 2 and 911, civilization caries on anyway. Marx predicted 150 years ago that capitalism would doom society..still hasn’t happened.

If you think there will be crisis, why not put your money where your mouth is, such as by betting against the stock market and then making the prediction and bet public….if a mere 5% decline in 2008 of GDP growth can cause a 50% decline in the stock market, civilization need not have to collapse very far to realize a substantial profit…easy, huh. (I’m not advocating anyone do this, but opinions and hunches are a dime a dozen; much rarer is someone who puts up skin in the game.)

Now look at the seventy years since 1945, the close of this last crisis. Once again the population has tripled. This time all over the world, pushing up against food, water and political limitations and cracking the facade of the nation-state lines drawn after the Great Wars. The waves of immigration have just begun and already they are breaking down the great peace of the second half of the 20th Century. Just wait until millions of refugees balloon into tens or hundreds of millions displaced by climate change, famine and civil disorder.

Since 2013 or so, immigration is THE issue that separates the ‘mainstream right’ from the ‘dissident right’. Immigration, particularly Islamic immigration in to Europe, is on the minds of millions of people right now…it is the most important issue, and is why Trump won and Brexit happened. I underestimated the importance of this issue until only recently. London Mayor Sadiq Khan is right that ‘terror attacks are part and parcel of living in a great global city,’ only because the leadership is powerless/unwilling to do much about it, so there will be more terrorism. So what does this have to do with collapse? Mass Islamic immigration and terror is symptomatic of the collapse of leadership of France, Ireland, Germany, and Britain, and this may spread to other countries, too. Eventually, leadership collapse may lead lead to economic collapse, or at least a radical change in demographic and the transformation of much of Europe into a quasi-Islamic state. It will probably take the equivalent of another 911–or worse–for the leaders of Europe to get their act together. But in disagreement with the author, this doesn’t mean total civilization collapse. China, Russia, and America will fill the void of a dying/fading Europe. Economically, this is happening already, as China and America continue to pull ahead of the rest of the world.

Trump and Neocons

Libertarian-leaning pundits are complaining about Trump.

Another Four Years Of Pointless War Under The Trump Administration

On Military and Spending, It’s Trump Versus Trump

Trump Is the Enemy of Neocons, But He’s Not Our Friend

Is McCain Hijacking Trump’s Foreign Policy?

Trump ran (or at least was perceived) as being anti-neocon, and his voters saw him as being a repudiation of ‘politics as usual’ and the back-to-back disappointments of Bush and Obama. But dissonance between voter expectations and Trump’s policies may lead to disillusionment.

How different from neocons are Trump and Bannon really. As the articles above suggest, probably not that much. Trump and neocons agree on defense spending, hawkish foreign policy, closeness with financial industry, deregulation, low taxes, and so on. Trump and necons differ to some degree in terms of immigration and protectionism, but time will tell if Trump implements substantive reform–or if this is all just smoke, mirrors, and ‘symbolic gestures’ that get a lot of media attention but don’t move the needle much. Some say Trump is anti-globalist–I would say he’s doing a good job acting or conveying anti-globalist sentiment; doing is harder.

This is the problem with politics: people equate talk with action, and then decades later wonder why nothing has really changed or keeps getting worse. The purpose of politics is to create the illusion of change.

Also, as many already know, Trump appointed several Wall St. guys to his cabinet, and there may be some dissonance in having to reconcile Trump’s anti-establishment public imagine with his pro-establishment cabinet. For example there is former Goldman COO Gary Cohn, who leads Mr Trump’s National Economic Council. And Steven Mnuchin, a hedge fund millionaire. Trump’s choice of cabinet picks may impede the ability to pass sweeping trade reform, assuming Trump really wants that (it’s hard to know what Trump really wants…he seems to be shooting all over the place…going after immigration on one week; Obamacare and wiretapping on another, etc.).

Trump’s rationale is that he chose appointees whom he knew personally, that are competent enough to carry out their designated jobs, and have private sector experience, versus academia.

The media always exaggerates how high the stakes really are. Contrary to the media and pundit narrative of Trump and neocons being locked in some of sort comic-book-like epic battle to the death, neocons are probably blase to Trump trying to restrict immigration…they are happy just to have more defense spending, lower taxes, and a Republican in the Oval Office instead of a Democrat.

Politics is mostly a waste of time…Every few years, it’s another healthcare bill. And if Trump loses in 2020 or 2024, the dems will undo it and try to reinstate their own healthcare again, ad infinitum. The NRx position is that politics is the problem, not the solution. [1] Politics creates problems that leads to even more politics to try to fix the prior problems created by politics. And this is anther reason why democracy is a waste: so much money and time is wasted undoing changes made by the ‘other’ party, instead just ‘formalizing’ everything. The only guarantees are that healthcare costs will rise and a lot of people will be unhappy, regardless of whose plan is implemented.

Same for the news…another waste of time. Every year it’s the same stories, only the names occasionally change. If the people who normally don’t talk about the news are suddenly talking about the news, then the story is probably important; otherwise, it’s just noise. If you surround yourself with ‘news people’, everything will seem important. People who read celebrity gossip may be ignorant, but they aren’t really missing anything either. The auto-pilot, deterministic American economy and society means minimal individual input is necessary.

Neoconservatism and neoliberalism succeed because they are amorphous, adaptable, and can latch onto or hijack any preexisting ideology or movement. Most governments, given enough time, will resemble something similar to neoconservatism or neoliberalism (this is what Fukuyama alluded to in End of History, but I don’t think it has to be liberal democracy–it can also be a right-wing republic, theocracy, technocracy, or oligarchy. Whatever you call it, the mixed-economy system tends to prevail to varying degrees. It’s not ‘The End of History’, but more like ‘The End of Economics’).

By subscribing to wishful thinking, you willingly deprive yourself of understating. If knowledge is power, you become weaker. This is why the ‘fake news’ movement has been so successful and is hurting the left so badly, because after many decades of the public being fooled, the liberal media’s veneer of ‘impartial, objective journalism’ has been peeled off, revealing the media as an apparatus for liberalism (or what some call the ‘deep state’) that it really is. But we also shouldn’t engage in own versions of fake news.

Trump is not too much different from your typical Republican…he doesn’t have special powers that many ascribe to him, to single-handedly undo decades of history and economics. . Its not defeatism to be realistic about what a president can and can’t reasonably do. Time to stop looking for Messiahs and instead start looking to ourselves for the answers. One solution is minimalism and self-sufficiency, which is why personal finance is important.

[1] It’s a source of confusion for some the differences between the alt-right and NRx. NRx is post-politics, which is why NRx blogs typically don’t follow day-to-day political developments such as Trump, instead focusing on ‘deeper’ topics such as economics, theology, and political philosophy. The alt-right actively engages in politics. The alt-right sees politics as a vehicle for change, which is why they follow politics so intently and also why they have more more ‘faith’ in Trump, versus NRx. NRx seeks to remove the underling fabric that is democratic society; alt-right wants a different type of fabric. NRx and the alt-right agree on many issues, but the NRx approach/implementation to attaining such goals is different.

Stocks vs. Real Estate Debate, Part 3 (answering objections)

It’s amazing how much discussion there is about personal finance…a thread about finance on Reddit’s Slate Star Codex thread got over 80 replies.

In parts 1 & 2, I make an argument for owning real estate over stocks. I assume that someone, hypothetically, has a sum of money saved up (such as $40,000) or as a gift or inheritance, and is deciding whether to rent and invest the $40k in stocks–or–put the $40k on a down payment.

Part 1: The Advantages of Real Estate over Stocks

Part 2: Real Estate vs. Stocks, Part 2 (why homes win, and why rent sucks)

I updated Part 2 to include simulations of how, over the long-run, real estate and no stocks is better than a combination of stocks and renting.

Some objections:

1. Costs of maintenance:

This is correlated with the size, initial condition, and age of the home. Small new homes tend to have less maintenance than big old homes. Maintenance costs are more of an issue if you rent the property out instead of using it as a main residence. In my simulations, I assume the property is a main residence.

2. Inflation going up:

In my simulations, I assume a 30-yr fixed-rate mortgage. The fixed rate is a hedge against higher inflation, although 30-year fixed-rate mortgages may not be available in all countries, such as Canada.

3. Property taxes:

Property taxes are offset by mortgage interest deduction, which is an adequate approximation.

Using a property tax calculator, I obtain a yearly cost of around $4,500:

Using the Bankrate mortgage interest deduction calculator, I obtain a yearly savings of around $4500-6000, depending on state tax rates and income tax:

4. Capital gains taxes:

Long-term capital gains for the sale of real estate is 20%. A roth IRA has the advantage of being untaxed.

5. Capital losses:

An objection:

You aren’t risk-adjusting your estimate. What if the city turns into Detroit? What if your home gets hit by an uninsured disaster? What if you get toxic mould in the brickwork and have to replace the walls?

Real-estate might provide better average returns but for most people it’s going to be a huge percentage of their capital. That means there’s a huge downside – they could lose everything if disaster strikes on that one investment. That’s something the stock market protects against. It allows diversification to mitigate those kinds of scenarios.

You are also making a false comparison – you’re comparing the whole property market to the stock market, when you should be comparing average volatility per property. If I own a single house, the volatility on its price is going to be way higher than the general market and there are a lot more lose-everything scenarios.

Real estate has higher risk-adjusted returns than stocks (a higher sharpe ratio):

Stocks also have risks: fraud, bankruptcy, loss of market share, recession, disaster, crisis, etc. Because a home has tangible value, it can’t go to zero, unlike individual stocks. The worst I have seen is a home fall 50%, which was in certain areas in 2008-2011 (but the typical decline was more like 25-30%), but individual stocks fall 50-90% very often, and sometimes never recover. The S&P 500 lost 50% of its value in 2000-2003 and again in 2007-2009. It lost 20% of its value in 2011 and 15% in early 2016, although it quickly recovered in both instances.

But, yes, the leverage of real estate can magnify losses, but being able to pay the mortgage is what matters. Often, many will ‘walk away’ (strategic default) if the home becomes too far underwater, although this will hurt credit score. When stocks go underwater, however, there are far fewer options than when homes go underwater. The use of long-duration mortgages and small down-payments lessens risk, because less initial capital is at risk.

Home insurance is much cheaper than ‘stock insurance’ (put options).

6. Real estate has poor liquidity:

Obviously, it takes longer to sell a home than to sell a stock, but some real estate markets can close pretty quickly. In the Bay Area, for example, there is often a long list of waiting buyers. Sales can be competed in weeks.

7. Lack of diversity:

As shown in #5, although the S&P 500 is diversified it can still sustain large losses during bear markets and recessions. My simulations assume excess wages are invested in the S&P 500, boosting diversity.

Scott Adams is Wrong about Snapchat

My Snapchat Prediction

Snapchat’s Future

Snapchat continues to dive (SNAP)

This premature cerebration of Snapchat’s stock price decline reminds me of 2012 when Facebook stock fell from $38 to as low as $20, and everyone was certain that Facebook was a bubble and doomed, and now it’s at $139.

Bought some Snapchat shares in the low 20′s…target $100 (although I think targets are almost meaningless; expected payouts matter more, as I will describe). Nearly everyone between the ages of 15-30 uses Snapchat, and they aren’t going to defect and stop using the service, as many are predicting. The major categories are ‘boring’ social networking for older people (Facebook), and then for the younger demographic there’s Instagram (owned by Facebook), What’s App (also owned by Facebook) and Snpachat. All categories and demographics are covered just by owning Snapchat and Facebook stock.

Twitter fizzled because its growth stalled and they were unable to sufficiently monetize the users. Twitter has low engagement and too many fake users. Many millennials who used Twitter in 2009-2012 have moved to Instagram and Snapchat and don’t use Twitter as often. I don’t see a similar fate for Snapchat. Of course, I have no way to be certain about this, but the potential payoff is huge should Snapchat become as successful as Facebook. If Snapchat fizzles like Twitter, the stock price will probably settle at $10, a loss of 50% from the present price. But Facebook is already a $400 billion company. If Snapchat becomes just 1/4 as successful as Facebook, Snapchat goes to $100 [1], a gain of 400%. Assuming 50% odds of either, the expected value is $60. This is return on capital of 200%. These are much better payouts than in Las Vegas.

[1] At $20/share, Snapchat is worth $20 billion.

Malcom Gladwell: poster child of mediocrity

Malcom Gladwell interviewed by Tyler Cowen of the Mercatus Center, appropriately titled Malcolm Gladwell Wants to Make the World Safe for Mediocrity

Gladwell says:

So, if your problem is that you’re facing a series of stereotypes about how you are intellectually inferior, how you have a broken culture, how you have . . . I could go on and on and on with all of the stereotypes that exist. Then how does playing brutally violent sports help you? How is an association, almost an overrepresentation in these various kinds of public entertainments advance your cause? I’m for those things when they’re transitional, and I’m against them when they seem like dead ends.

Related response:

Malcolm Gladwell on Race

His point is that while other minorities were over-represented in sports and entertainment for short periods of time, African-Americans have been over-represented for a long time, which is a sign of an inability to penetrate into other fields. This thought had never occurred to me.

That’s because you’d have to be a moron to conceive such a thought, in which case Malcolm Gladwell is overqualified.

It never occurs to him that:

1. Africans Americans in professional sports leagues are only a tiny percentage of the total African American population. Only in Gladwell’s imagination have black athletes become representative of all blacks.

2. Professional sports pay better than most professions, so it’s rational for African Americans who have exceptional athletic talent to pursue sports.

3. If American Americans ‘transition’ out of sports, who will replace them? Why would recruiters and coaches, who are looking for the best talent, as well as paying fans, who expect top ability from players, settle for second-rate athletes when blacks not only want to compete but are better. Trying filling the NBA and NFL with only Hispanics, East Indians, and Chinese and see how far that goes.

4. These stereotypes are reality, backed by decades of data. Blacks score 1/2-1 SD lower on IQ tests (even ‘culture neutral’ ones) than whites, have lower educational attainment, higher rates of poverty, higher rates of social dysfunction, etc. Blacks from wealthy families score as low on the SAT as poor whites. That’s just the reality.

Blacks are over-represented in football and boxing, which can be violent, but blacks also excel at baseball, basketball, and track, which aren’t violent. As some noted, although MMA and professional wresting are violent, the fans and participants aren’t predominately African American. Gladwell, in his usual self, ignores the examples that refute his thesis and expects the readers and audience to nod along.

Here is another example of Gladwell stupidity from the interview, in which he says that Harvard grads should not be able to disclose that they went to Harvard. The obvious question is, if an employer asks a Harvard grad where he went to college, what is the grad supposed to say? The very absence of an answer would imply Harvard. Gladwell is incapable of thinking two steps ahead to see the obvious flaws of his logic. Maybe it’s a joke…because no one can possibly be that stupid.

Malcom Gladwell, as others have noted, is the very poster child of mediocrity, who pretends to be otherwise, and like Obama, his supposed elocution and ‘storytelling’ is a substitute for not having anything insightful, intelligent, or original to say. Even Pinker called him a ‘minor genius’, which is a nice way of saying he is not one at all.

Jordan Peterson Discusses IQ

Jordan Peterson over past year has become something of a internet phenomena and celebrity, his videos watched by hundreds of thousands of fans and have thousands of up-votes and positive comments. He also has some interesting videos about IQ.

The first video is spot-on:

Politicians, both for the ‘left’ and the ‘right’, in terms of constructing policy, default to the same tired, failed solutions that ignore the role of IQ. Peterson understands this.

The second is kinda iffy (I think he makes too many assumptions, and there is only paucity of data to support them, or there are too many confounding variables):

Having a high IQ raises economic mobility, all else being equal, but measuring the top 5% of IQ is hell of a lot easier than measuring the top 5% of wealth, because the latter is so hard to quantify. For the former, it’s as simple as taking an IQ test. For the latter, wealth is affected by a multitude of variables and varies depending on how you measure it: such as tax rates, location of residence, income, number of siblings, etc. Being the only child of a 3-person family that makes top 5% of national income and has top 5% of national wealth, while living a low-cost neighborhood, is a lot better than growing up in a 10-person household in a very high-cost-living neighborhood also making top 5% of income. A person who has a $300k home paid-off and makes $20k/year (bottom 5% of income) is ‘wealthier’ than someone who makes $150k a year (top 5%) but has no home equity and a negative monthly cash flow due to large family, car, and other upkeep expenses. A person who makes $25k a year for 30 years strait and pays minimal taxes will be wealthier than someone who makes $100k for only three years and pays half of that in taxes.

The part about longer life expectancy and better health is suspect…Those people on the “world’s oldest” lists, who live to 110-115, never strike me as being terribly bright…usually they are just simple, average or below-average IQ people. Yes, the IQ/life expectancy correlation is about averages, not extremes, but an explanation for the possible diminishment between IQ and life expectancy is that average-IQ jobs in the past tended to involve manual labor and difficult work environments, but many of those jobs have been replaced by technology and thus occupational hazards have lessened. Also, medical technology, which benefits people of all IQs, is improving and is attainable by everyone, regardless of ability to pay. I would like to see a study of IQ for the very oldest of people; my hypothesizes is that high IQ is not overrepresented among the exceptionally aged (>90 yrs). And of course, there is also the confounder of race regarding IQ and life expectancy.

Regarding industriousness, smarter people are able to work smarter by finding shortcuts to compensate for possibly not working as hard. They understand the subtleties that elude the less intelligent, although this is no guarantee of success. A smart person who tries to invent a perpetual motion machine, is doomed to failure, no matter how hard he tries or how smart he is. The problem is when smart people rationalize ‘dumb’ things, as you often see with professors who espouse Marxian/Foucault dogma. The part about abstract ability (such as choosing specific letters in a string of random letters) is correct.

I was unable to find any info to corroborate the part about adult head size and IQ, although there are a handful of studies involving children. Microcephaly, characterized by a head circumference of two standard deviations or more below average, is almost certainty associated with mental impairment, and is often congenital and thus diagnosed very early in life.

Also agree that ‘multiple intelligences’ theory is rubbish…by creating enough types of ‘intelligences’, anyone can be a genius at something.

Shared Experiences

From the study of ‘intellectualism culture’, which is a branch of ‘social theory’, arises the concept of ‘shared narratives’, discussed on this blog many times already. Shared narratives are beliefs, areas of inquiry, and values held by–and unique to–high-IQ people that bring such individuals together regardless of political or socioeconomic backgrounds.

But then there are also ‘shared experiences’–events and activities that are unique to smart people, that also bring such individuals together regardless of politics. Going to a football game is not a shared experience, because it’s not exclusive to high-IQ people. For example, this ‘meme’ I have a test tomorrow and I’m staring blankly at my book went massively viral on Reddit a couple weeks ago and is an example of a ‘shared experience’, which is why it was so viral–thousands of smart people can relate to the experience of being unchallenged in high school, only to find college coursework work more difficult. The ‘college experience’–whether it’s majoring in a STEM subject, economics, quantitative finance, or philosophy (all of which are high-IQ majors)–is ‘glue’ that holds smart people together regardless of their politics.

One of the benefits of completing college, besides higher wages due to ‘signaling theory’, are the social and bonding aspects the ‘college experience’ among other graduates. That’s one reasons why, despite being on the ‘right’, I no longer ‘bash’ millennials who go into debt to study cognitively-rigorous subjects such as STEM, philosophy, or economics and are unable to find good-paying jobs afterwards, or simply choose not to work, because intellectualism, in and of itself, has value. A decade ago, before the anti-college movement became a ‘thing’, yeah, telling students to not major in liberal arts was considered novel advice, but now it’s become repetitive and hectoring. Nowadays, many students who go into the liberal arts already know the pay and job opportunities are not going to be as good as a computer science degree, but they do so anyway, for reasons besides money. Other shared experiences induce: high school being too easy, dealing with insufferable low-information people and politics, work being boring and tedious, and bosses being inept and clueless.

The idea of work and wages being a virtue is a leftist one based on Protestantism and populism. For communists and socialists, work is always a virtue, regardless of economic value (which is why the far-left supports wasteful stimulus and make-work programs).

For smart people, who may be underappreciated by a less intelligent collective society, playing videos games (playing video games being the shared experience) is a form of escapism, which is why this story by 1843 Magazine (a subsidiary of The Economist) Escape to another world, about how unemployed men are playing video games instead of working, went hugely viral on Reddit, Hacker News, and 4chan. For smart people, video games provide autonomy and fun, in contrast to a boring job where their talents may be ignored. Low-information society wants smart people to conform to consumerism and political correctness, and smart people are responding in silent protest by ‘dropping out’, whether it’s going their own way (MGTOW) to live a life of minimalism, playing videos games, or living with their parents to avoid having to waste money on rent and ‘adult responsibilities’.

Going back to the meme, here are some of the most highly up-voted comments:

For the first comment “thats normal.. whats your topic?” the phrase ‘that’s normal’ connotes familiarity, hence the experience or ‘shock’ of difficult college coursework is ‘shared’ between the commenter and whoever posted the meme and, as well as shared by the thousands of people who up-voted both the meme and the comment.

The second most up-voted comment is both a shared experience and a shared narrative (the experience and narrative of how high school is dumbed-down and how teachers and administrators neglect the smartest students, in favor of trying to bringing the slowest up to speed, in which I agree: Too much taxpayer money is wasted on special ed and other ineffective programs. We need better policy in America that doesn’t neglect its best and brightest. Majoritarianism fails America’s smartest).

SJW/liberal Cathedral vs. Tehnocommercialism Cathedral

Perhaps there are two ‘cathedrals’–the SJW/liberal one, which we are all familiar with, and a technocommercialist one (Nick Land alluded to something similar year ago, but I don’t remember the post), and the two are at odds with each other. Technocommercialism seeks to secede from the former, a process some call ‘exit’. The latter is probably preferable to the former and, IMHO, more likely to ‘win’ than the former, but technocommercialism has its own drawbacks–it tends to be globalist, supports high-IQ immigration (which boosts GDP growth, but over the long-run will change the national demographic), and believes in the supremacy of capitalism and science, subscribing to a materialistic and positivist view of the world and rejecting forms of idealism and mysticism.

Characteristics of the SJW/liberal cathedral:

In general, it’s bigger; has a larger coalition as measured by legions of low-information Democratic voters, SJWs, and BLM; controls media, entertainment industry, universities, and much of national government; low-IQ, dysgenic; slow growth and dying industries (such as TV media, publishing houses, and newspapers); relies on masses for support (power in numbers); neoliberal and social democracy; social justice is very important; nepotistic; very old and established institutions (such as Washington DC, New York Times, CNN, etc.); NYU, Brown, Dartmouth, and Pen; low-IQ immigration for cheap votes; George Soros, Bernie Sanders, Noam Chomsky.

Tehnocommercialism cathedral:

Smaller, but very powerful and influential relative to its size; massive growth and booming industries with high profit margins (Amazon, Google, Facebook, Netflix, Palo Alto Networks); very wealthy per capita, insular; high-IQ, eugenic; elitist, pragmatist, and consequentialist: 19th century progressive-liberalism; classical liberalism, neoliberalism, neoconservatism, techno-libertarianism; meritocratic; highly individualistic; high-information voters and supporters; skeptical of democracy or opposes it; high-IQ immigration for technology, but also low-IQ immigration for cheap labor; free trade, globalization; Harvard, MIT, Caltech, and Stanford; Peter Thiel, Marc Andreessen, Ayn Rand, Paul Graham, George Gilder.

The first one is bigger but it’s slowly dying and or being subsumed by the second one, which is why I think tehnocommercialism will win in the end. Amazon is taking over left-wing retail (dumb stores such as Target, for example). Economically, Southern Europe and South America, which are social-democratic and low-IQ, are falling behind America and China. Facebook, Google, and Instagram are making ‘old media’ (such as Time and CNN) obsolete. Major TV networks have falling ratings and are losing money. University enrollment (except Ivy League) is falling, probably because parents and students are tired of going $100,000+ into debt to be lectured about ‘white male privilege’. BLM and SJWs are losing support, especially online. And, of course, Trump won, but he alone probably won’t undo decades of damage, but its a step in the right direction. Silicon Valley and Manhattan on a per capita basis are much wealthier than much of the nation and much smarter, which makes up for their small size. Despite Trump, Washington DC is a major bastion of far-left liberalism and will likely remain so unless the far-right is able to make greater inroads.

Real Estate vs. Stocks, Part 2 (why homes win, and why rent sucks)

As discussed in Part 2, in recent years, there has been a ton of interest online in finance. Everyone, but especially millennials, want to know how to make more money quickly, whether to rent or buy a home, who to save for retirement and how much you need to retire, index funds vs. individual stocks, and how to get rich quick…or slowly.

In Part 1, I outline some of the benefits of home ownership versus stocks. If you buy a home for $240k outright, versus paying rent, you effectively double your money in a decade in terms of money saved by not paying rent. But is it really as good as it sounds.

Many people in their 20′s and 30′s are in a situation where they have some money saved up and a job that pays a decent wage, and they are wondering if they should put the cash in an index fund while renting — or — instead of renting, using the cash for a down payment on a home.

Let’s crunch some numbers…

Let’s assume starting in year ‘X’ you earn $2,000 in after-tax income every month, and wages grow at 3% a year. Hypothetically, you also have $43,000 cash, which can either be invested in the S&P 500 or on a down payment. You can either put this $2,000/monthly income into stocks or in a mortgage. Historically, stocks have returned 10%/year (including reinvested dividends). Rent is $2k/month and grows at 3%/year as well. Home prices rise 2%/year. Let’s assume a rent/price ratio of 18, which is the national average (12 months * 18 * $2000/rent~$430k home). A 10%-down mortgage on a $430k home means you put down $43,000. For simplicity, let’s also assume the mortgage interest deduction is offset by property taxes.

Case A: $43,000 initial in S&P 500 + $2000/month invested, compounded 10% a year for a decade. However, gains in rent offset gains in wages, so all after-tax income goes to rent. Total profit is simply 43k*(1.1^10-1)=$68k.

Case B is more complicated. Initial home equity $43,000. Initial home value: $430,000. After a decade, at 2%/year, the home is worth $525,000. Profit: $52,000. The mortgage payment is $2,000/month (adding $150/month extra to take into account other fees), which is offset by income. But wages are growing at 3% a year, which is invested in the S&P 500 like above.

Between years 0-1, total yearly wages are $24,000, all of which goes to the mortgage, so 0$ leftover and 0$ total

Between years 1-2, total yearly wages are $24,700 (wages rise 3%/year), leaving $700 leftover, which is put in the S&P 500

Between years 2-3, total yearly wages are $25,460, $1460 leftover and put in S&P 500; the $700 grows to $770; total= $2230

This is a recurrence relation… Wolfram Alpha is used to tabulate the remaining years. The end of the 10th year shows $46,000 of capital accumulated due to a combination of wage increases and S&P 500 reinvestments.

But this is an underestimate…let’s assume the wage increase is in 10 discrete chunks spread throughout the year in equal intervals, and each chunk is immediately invested in the S&P 500.

So for year 1, wages increase 3% by year-end to 720, so each chunk is $72. We have: 1.1*72 (the first chunk gets all of the S&P 500 gains) + 1.09*72…1.01*72 (the final gets the least). Adding up .1+.9+.8 … .01 gives (n^2+n)/(200). For n=10, the sum is .55, which times 72 is $40, which represents a 5.5% gain after a year on top of the $720, for a total of $760 after one year.

The new recurrence relation, which when evaluated gives $62,000 profit after the 10th year. Total profit $52k+$62k=$114k

$114k beats the $68k by 67%. One of the reasons why home ownership does well is because the mortgage is fixed at $2,000 a month, whereas the rent in the first example keeps growing. This allow the excess income to be invested in the market.

Josh Barro’s Bad Day

It’s war:

EXCLUSIVE – Michael Savage Following Alleged Assault: ‘It Is Clearly Open Season on Prominent Trump Supporters’

The left was correct in 2016 when they predicted that if Trump won there would racism and violence–only it is against Trump supporters, but that doesn’t count as violence…those Trump supporters ‘deserve it’, according to the far-left’s ‘logic’.

left-wing elitist Josh Barro missteps (Josh did not realize that the MacDonald’s account, which made the anti-Trump tweet, was hacked):

The NRx critique here is that Josh is technically correct (about the elites) and is conveying an anti-democratic view, although tactlessly; but his first tweet is wrong, because as noted by Chris Arnade, inner-city minorities consume McDonald’s as much, if not more so, than Whites.

Both neocons and neoliberals, such as Josh Barro, tend to be be elitist, pragmatic, and consequentialist, in contrast to the far-left (social democrats, welfare liberals) and far-right (nationalists, traditionalists), that are more populist.