Why So Many Millennials Are Struggling

From The Daily Dot: The real reason young people are the poorest generation in 25 years

The kids are not all right. As the millennial generation starts to reach its 30s, many of these ‘80s and ‘90s kids are having kids of their own, and recent surveys show one in five millennial parents is living in poverty. That’s the result of a combination of rising costs for raising children, falling wages, increased unemployment, and high debt—mostly college related. But the boomer generation seems to think otherwise: Millennials are to blame for their own financial situation, thanks to wasting time on the Internet and being too lazy to find jobs.

Millennials were promised that if they followed the American prescription for success, starting with a college degree, they’d be on a track to profitable careers and respected roles in American society. Instead, they entered college precisely at the moment tuition was skyrocketing, endowments were falling, and interest on student loans was climbing. College loans are a major contributor to millennial debt, so much so that there are legitimate fears of a college debt bubble that could be as devastating as the tech bubble of the 1990s (boomers) or the recession (boomers again).

Millennials, raised in the 90′s and early 2000′s – a era of participation trophies, an unusually strong labor market, and the ‘self-esteem movement’ – were in for a rude awakening when 2008 rolled along, and suddenly the panglossian promises made by teachers, parents, and society in general, of ‘good jobs’ and the attainment of the ‘American dream’ was, for many millennials, pulled away.

So what happened? Economic reality – that’s what happened. But the problem is multi-fold:

1. Millennials, for much of the 90′s and 2000′s, were coddled and fed affirmations by teachers, parents, and society and culture (such as networks like MTV) about how ‘great’ they were, about how they were the ‘future’, and so on. Their boomer parents, having had for decades of post-war prosperity dropped on their lap, assumed that the good times would continue for their children too, and we (millennials) believed it too.

2. Then the financial and housing crisis came. The economy became more efficient and productive, with employers using the 2008 crisis an excuse to thin the herd, which has persisted to this day even as profits, earnings, and stock prices are at record highs. The economy became much more competitive – and many Millennials, lacking the tenacity and grit due to being coddled and their self-esteem artificially boosted, were unable to adapt.

3. But credentialism has become a major problem, leading to a vicious circle of increased college attendance and then more student loan debt, as BA degrees, which become devalued, are replaced by Masters, and those, eventually, are replaced by PHDs, and so on. As I discuss in Fixing the Student Loan Debt Crisis and Reforming Edcuation, one solution is to replace costly, time-consuming college diplomas with cheap, easy-to-administer IQ tests (and proxies like the SAT and Wonderlic) that can signal competence to employers. A college degree, unless it’s specialized, is just a very expensive way of signaling ‘general competence’.

The result: more debt

4. The economy has also become more hollowed-out and bifurcated, with a proliferation of low-paying service sectors jobs, some good-paying ‘creative class’ jobs (coding, advertising), and professional service job (doctors, lawyers), but not enough jobs for those in-between, who have neither superior intellect nor the time to acquire a high-paying, specialized skills. This is due to the decline of manufacturing (ongoing since the 80′s, with the decline of unions) and the decline of ‘middle-income’ jobs such as banking and real estate jobs – jobs which paid well during 90′s and 2000′s during the real estate boom, but have since seen major and permanent cuts due to the 2008 crisis.

I mention IQ because the cold, harsh reality as elucidated by by Charles Murray in Coming Apart and The Bell Curve is that IQ has – in our era of outsourcing, automation, and efficiency – become something of a ‘sorting mechanism’ for those who succeed or fail in America’s increasing competitive economy. Whereas coding, finance and other high-IQ jobs have done very well, seeing only small dips in 2002 and 2008, ‘blue collar’ jobs – manufacturing, energy (drilling, fracking, oil exploration), mining, landscaping, and construction – have seen much more volatility and large dips in employment, first in 2008 during the housing bust, and then, in 2014, due to the energy/oil bust as oil plunged from $100 a barrel to just $30, resulting in the loss of hundreds of thousands of energy jobs.

5. Despite courses being ‘dumbed down’, the college dropout rate still stands above 50%. Parents and guidance counselors are to blame, too, in conscripting millions intellectually unfit students to a decades of debt, with noting to show for it. Charles Murray wrote that the minimum IQ to benefit from a ‘liberal arts education is around 110, which seems accurate (from Para Pundit):

There is no magic point at which a genuine college-level education becomes an option, but anything below an IQ of 110 is problematic. If you want to do well, you should have an IQ of 115 or higher. Put another way, it makes sense for only about 15% of the population, 25% if one stretches it, to get a college education. And yet more than 45% of recent high school graduates enroll in four-year colleges. Adjust that percentage to account for high-school dropouts, and more than 40% of all persons in their late teens are trying to go to a four-year college–enough people to absorb everyone down through an IQ of 104.

6. Students are to blame, too, in majoring in ‘worthless’ subjects. In the 90′s, when the job market was more tilted in favor of workers, those with useless degrees found work, but nowadays ‘social justice’ or ‘oppression studies’ are not skills employers are looking for. That’s why majoring in STEM is still the best path to prosperity. That’s not to say other degrees are a total waste, but research shows STEM has the best ROI.

7. Related to number 2, the labor market seems perpetually crummy, and for many jobs the supply of labor vastly exceeds the demand. During a 2011 national hiring day, McDonald’s received over a million job applications, and only 62,000 people were hired. The rise of the ‘gig’ economy, is an example of employees being paid for the economic value they produce, in our era of increased productivity and efficiency. Legions of millennials, with liberal arts degrees in tow, find themselves with jobs (assuming they can even find work) that are not commensurate with their academic credentials and expectations.

Overall, it’s apparent the problem is multi-faceted, and decades in the making. Solutions will be hard to come by. The first step is ‘unlearning’ the indoctrination, followed by learning skills employers are seeking.

The Genius of Ross Douthat

Ross Douthat may be the most talented columnist alive, and by perusing some of his most recent articles, for instructional purposes, we can get a better understanding of his style and why it’s so effective.

When reading a Douthat column, typically the first paragraph sets the scene, almost like a panorama, giving a bird’s-eye view of the protagonists and scenery before delving into more detail.

From The Myth of Cosmopolitanism:

NOW that populist rebellions are taking Britain out of the European Union and the Republican Party out of contention for the presidency, perhaps we should speak no more of left and right, liberals and conservatives. From now on the great political battles will be fought between nationalists and internationalists, nativists and globalists. From now on the loyalties that matter will be narrowly tribal — Make America Great Again, this blessed plot, this earth, this realm, this England — or multicultural and cosmopolitan.

Notice how he lists the ‘actors’ all at once, and in the first sentence: Republican Party, European Union, left and right, liberals and conservatives, etc.

Another characteristic is repetition and redundancy. ‘Left’ and ‘liberals’ are tautological, but listing both gives ‘weight’ to the sentence.

And when he writes ‘Make America Great Again, this blessed plot, this earth, this realm, this England’…note the repetition, and the emphasis on ‘Make America Great Again’ in reference to Donald Trump, and all capitalized. Also the assonance (repeated ‘ea’ sound) in ‘earth’ and ‘realm’. He also uses the ‘rule of three‘, but often he extends it to five or more items.

Another characteristic is the use of contrast, from The Donald Trump Show:

USUALLY political conventions are attempts to tell a story — a story about what a party stands for, a story about where its presidential candidate came from, a story about what kind of chief executive he would be.

The Donald Trump National Convention in Cleveland (technically the Republican National Convention, but let’s be real) wasn’t really much for storytelling. Its messages were muddled, its shared agenda boiled down to hating Hillary Clinton, many of its speakers didn’t want to talk about the candidate and one declined even to endorse him.

Note how he contrasts a typical political convention, which is supposed to tell a story, to the Donald Trump convention, which didn’t.

The parenthetical statement ‘technically the Republican National Convention, but let’s be real’ adds a conversational tone to the writing.

Also ‘one declined even to endorse him’ is in reference to Ted Cruz. But by not mentioning his name, it adds wryness to the writing in reducing Ted Cruz to the gender-neutral pronoun ‘one’. It’s subtle, but little details like that matter.

Back to Cosmopolitanism, although the sentence belongs to Peter Mandler, it’s still effective:

They can’t see that what feels diverse on the inside can still seem like an aristocracy to the excluded, who look at cities like London and see, as Peter Mandler wrote for Dissent after the Brexit vote, “a nearly hereditary professional caste of lawyers, journalists, publicists, and intellectuals, an increasingly hereditary caste of politicians, tight coteries of cultural movers-and-shakers richly sponsored by multinational corporations.”

Note the use of lists again, and the attention to detail: ‘Increasingly hereditary caste of politicians’…not just any politicians, but a hereditary caste.

They can’t see that paeans to multicultural openness can sound like self-serving cant coming from open-borders Londoners who love Afghan restaurants but would never live near an immigrant housing project, or American liberals who hail the end of whiteness while doing everything possible to keep their kids out of majority-minority schools.

Again, the use of contrast: ‘Londoners who love Afghan restaurants but would never live near an immigrant housing project,’ to show the hypocrisy of the elite.

They can’t see that their vision of history’s arc bending inexorably away from tribe and creed and nation-state looks to outsiders like something familiar from eras past: A powerful caste’s self-serving explanation for why it alone deserves to rule the world.

The writing is rich with indignation, with words and phrases like ‘self-serving’, ‘it alone’, ‘their vision’, ‘caste’, and ‘rule the world’ – all packed into one sentence.

Figurative language such as ‘history’s arc bending inexorably away’ produces images in the reader’s mind of a curved trajectory such as that of a cannonball. Also, the adverb ‘inexorably’ modifying ‘away’ adds more detail and specificity to the sentence.

Also, the phrase ‘they can’t see that’ is repeated (anaphora), adding rhythm and emphasizing how the elite are blinded by their hubris.

Note his extensive vocabulary: ‘paeans’ and ‘coteries’, words that usually don’t come up in everyday conversation, and adding richness to the writing and boosting Douthat’s own credibility as a highly educated expert. In The Trump Show, he uses synecdoche in a sentence, another ten-dollar word. Yeah I know there’s a widely-shared ‘study’ that shows how using ‘big’ words doesn’t make you sound smarter, and I can tell you it’s bunkum. Ceteris paribus, someone who uses bigger words will sound smarter than someone who doesn’t. Also, specialized, well-targeted words that have a specific meaning can add both variety to writing and succinctness, instead of having to use six words when one may suffice.

Now that we’ve focused on the structure, it’s also worth asking: Why are Ross Douthat’s articles so well-received, both by liberals and conservatives, and always go viral, whereas Paul Krugman’s articles do not?

Paul Krugman and Ann Coulter are like opposite sides of the same coin, and although I am partial to the latter, they are stalwarts of what I call ‘pre-2013′ online journalism, which is partisan and emotive. By contrast, as I discuss in Solvent Part 1, post-2013 journalism is more nuanced and intellectual, and focuses on ‘shared narratives/themes’ that transcend the left-right political divide, rather than just browbeating your readers with your political opinions. This new intellectual style as epitomized by sites like Vox.com, Priceonomics, and WaitButWhy is seeing rapid growth, whereas traffic and readership for opinionated political blogs peaked years ago. This is possibly due to readers growing weary of angry partisanship and yearning for more evolved discourse that touches on existential/humanistic matters and ‘shared narratives’ such as:

-anomie and ennui arising from rapid societal (both economic and social) changes and the breakdown of the ‘family structure’

-distrust of elites and central planning

-anxiety about the economy

-existential questions such as ‘What if we’re all living in a computer simulation?’

-how to find meaning in life

-how to afford healthcare, tuition, etc.

and so on…

These are questions and issues that are vexing to everyone, beyond the ‘left’ and the ‘right’, and Ross Douthat frequently addresses them, especially the first two items.

Importantly, Douthat makes an effort to empathize with his subjects and his readers, despite being a member of the ‘elite’ himself, to understand and be mindful of why there is resentment against the elite, and to understand why people make the choices they do or hold the beliefs they have, as described by Scott in his recent post: HOW THE WEST WAS WON:

This is true in every case except with the cultures we consider our outgroups – in the US, white Southern fundamentalist Christian Republicans; in the UK, white rural working-class leave voters. In both cases, their ignorance is treated as worthy of mockery, their religion is treated as stupidity and failure to understand science, their poverty makes them “trailer trash”, their rejection of economic-growth-at-all-costs means they are too stupid to understand the stakes, and their desire to protect their obviously inferior culture makes them xenophobic and racist.

Rather than ridicule or belittle the ‘outgroup’, Douthat lends an ear. But it’s not so much about trying to being right or wrong – rather it’s about understanding why the stakes have become so high, and why there is so much passion about these issues. Like why there so much resentment towards the elite (a common criticism is that the elite are insulated from the consequences of their actions), not so much whether the elite are right or wrong policy-wise. Douthat explores the meta-discussion and the humanistic angle to issues, not just the issue itself isolated in a vacuum removed from the human condition. For example, instead of explaining why ‘guns are good or bad,’ Ross implores, ‘why do people care so much about this issue, and what is says about America and society.’ He takes it to the next level, the meta level.

Although Paul Krugman is a Nobel Laureate, which lends a lot of credibly (even though he has been wrong on many occasions), he can’t elicit the necessary visceral reaction, the meeting of the minds, that is necessary to make readers actually like him and want to share his ideas. Yes, Paul Krugman is still popular, but his columns read like a shill rant, hammering the same partisanship over and over again and devoid of worldly introspection.

Post-2008 Wealth Creation: A Guide, Part 5

Edit: Part 3 contained a mistake in the integration that has been fixed

Part 4 discusses the allocation and the past performance of the strategy. In the fifth and final section, I’ll show how to place the orders.

To recap, the the method involves using 50% of the capital to short TMV and the other 50% to short SPXU or SPXS (they are identical except for price). Note: margin account and option trading ability is required for this to work.

As of 7/25/2016, SPXU is trading at $23.70 and TMV is trading at $16.60. For a $50,000 account, about 1050 shares of SPXU must be shorted and 1500 TMV.

However, the shares may be hard to borrow, so you may see a message like this:

Or you may have to pay an annual fee (usually around 2-3%) to short them. There is a way around fees and hard-to-borrow, by using options, which is to sell the collar to create a synthetic short. This means you buy an in-the-money put and sell an out-of-money call.

Here is what the order execution screen looks like for 10 collars of SPXU for 35 strike, March 2017 expiration:

The 35 put and purchased and the 35 call is sold, forming the synthetic short.

This is also done with TMV:

The nice thing about TMV is because is it typically has much less extrinsic value than SPXU, so only buying in-the-money puts is necessary to create a decent short. In the screenshot above, I chose the 28 puts that expire in Feb. 2017. Because there is extrinsic value of around 20 cents per contract, the total ‘fee’ is around $300. This can be mitigated by selling the out-of-the money call at the 25-28 strike, but I find that it’s not worth the loss of buying power.

The total annual ‘fee’ is around 1% (due to commissions, slippage and other factors), which is why the performance is not quite as good as the screenshot in part 4, but it’s very close.

But this a pretty good way to make money on autopilot. In early 2015 I had someone put $30k into something similar to this and the account balance is at $50k now, a gain of 66% vs. a 6% gain for the S&P 500. The newest version, as described in this 5-part series, is better.

RE: History tells us what may happen next with Brexit & Trump

Interesting article: History tells us what may happen next with Brexit & Trump

This passage stood out:

Indeed, many takes on the effects of the Black Death are that it had a positive impact in the long term. Well summed up here: “By targeting frail people of all ages, and killing them by the hundreds of thousands within an extremely short period of time, the Black Death might have represented a strong force of natural selection and removed the weakest individuals on a very broad scale within Europe

Too bad America has a system of ‘reverse Darwinism’ where billions of taxpayer dollars are spent every year keeping the least fit alive.

This article was recommended 5,000 times on Medium , which is a huge amount, indicating that topics of such as euthanasia and eugenics can gain wider acceptance if they are presented as an extension of Darwinism or in some sort of historical context, as a way of improving society.

Mugabe is a very good case in point. He whipped up national anger and hatred towards the land owning white minority (who happened to know how to run farms), and seized their land to redistribute to the people, in a great populist move which in the end unravelled the economy and farming industry and left the people in possession of land, but starving. See also the famines created by the Soviet Union, and the one caused by the Chinese Communists last century in which 20–40 million people died.

Between the Holodomor, Pol Pot’s killing fields, and Mao Zedong’s Cultural Revolution, Communism has a significantly higher death toll than fascism, but the left tries to dust this inconvenient truth under the rug. To borrow from Land, liberalism (specifically, welfare-liberalism and revolutionary forms of liberalism) is inherently entropic in that it results in disorder, versus the ‘natural’ order of the strong and productive rising above the weak and lazy. Liberalism seeks to invert this hierarchy to create equal outcomes, even if society is worse-off as a result. Classical liberalism, although it’s still liberalism, is predicated on equal opportunity instead of equal outcomes, and is not (in theory) entropic. The reactionary argument is that classical liberalism is a stepping stone to full-blown welfare/revolutionary liberalism, and this is a valid point.

That was Hitler, but it was also Mussolini, Stalin, Putin, Mugabe, and so many more. Mugabe is a very good case in point. He whipped up national anger and hatred towards the land owning white minority (who happened to know how to run farms), and seized their land to redistribute to the people, in a great populist move which in the end unravelled the economy and farming industry and left the people in possession of land, but starving. See also the famines created by the Soviet Union, and the one caused by the Chinese Communists last century in which 20–40 million people died. It seems inconceivable that people could create a situation in which tens of millions of people die without reason, but we do it again and again.

[...]

Trump is doing this in America. Those of us with some oversight from history can see it happening. Read this brilliant, long essay in the New York magazine to understand how Plato described all this, and it is happening just as he predicted. Trump says he will Make America Great Again, when in fact America is currently great, according to pretty well any statistics.

The article however falls apart when the author tries to equate Trump’s populist support with mass-murdering genocidal dictatorships. That’s a pretty huge leap to make…and one that almost borders on paranoia, as in the case of Ross Douthat a couple days ago when he had meltdown on Twitter over Trump.

The author’s thesis is that Trump will doom the economy, but Trump will never have enough power to do that. Despite the incompetence and ineptitude of Obama, I remained bullish on the US stock market all through 2011 and up until now, because of the strength of the private sector, the efficacy of the fed, and the ingenuity of America’s best and brightest, to overcome eight years of Obama, and I was right. Not to only pick on the ‘left’, the consensus is that George W. Bush was a lousy president, but the economy survived him, too. Companies Facebook, Google, Amazon keep reporting blowout numbers quarter after quarter. The federal reserve is actually more powerful than the executive branch, and fed policy moves the markets whereas Obama almost never moves the market. Also, unless there is crisis that demands urgent action, it takes years to get policy passed through the house and senate.

But for those at the sharp end — for the thousands of Turkish teachers who just got fired, for the Turkish journalists and lawyers in prison, for the Russian dissidents in gulags, for people lying wounded in French hospitals after terrorist attacks, for those yet to fall, this will be their Somme.

The author seems confused. He is right about Mugabe’s famine, but fails to realize that liberalism is also to blame for terrorist attacks in Europe, too.

So I feel it’s all inevitable. I don’t know what it will be, but we are entering a bad phase. It will be unpleasant for those living through it, maybe even will unravel into being hellish and beyond imagination. Humans will come out the other side, recover, and move on.

If history is so certain, there is something called the NYSE and there are many people happy to take the opposite side that bet.

Here is how I would play it: if there is global upheaval, the US will still come out ahead, and yields on all duration treasury bonds will plunge to zero, so one can make money regardless of the outcome by going long America (S&P 500) and shorting Europe and emerging markets, while also going ‘long’ treasuries. Even if there is peace (which I think is still the mostly likely outcome) the S&P 500 should still outperform Europe (which is weakened by Brexit), and treasuries should do well too.

Peter Thiel

There has been a lot of discussion about Peter Thiel in light of his speech at the RNC.

This tweet about Thiel possibly being an ally of ‘neoreaction’ (NRX) also went slightly viral:

Thiel’s popularity could be part of the recent backlash against democracy, as he is most famous for his 2009 post on the Libertarian ‘Cato Unbound’ blog, where he wrote about freedom and democracy being incompatible. In the same article, he goes on to say “Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of ‘capitalist democracy’ into an oxymoron.” In light of Islamic terrorism, surging entitlement spending, SJWs, and other ills wrought by democracy, his warning proved prescient and prophetic. Democracy gives power to the uninformed masses to vote in wasteful, dysfunctional policy that hurts the most productive members of society, as well as weakens national security. Thiel has also gained fame and popularity for his role in taking down the internet’s biggest bully, Nick Denton of Gawker.

Is Thiel a neoreactionary? Maybe he could have been labeled as such in 2013, but not now, as NRx, in merging with the ‘alt right’, has become more focused on nationalism, Christianity, and traditionalism, rejecting laissez faire capitalism and libertarianism, which some have argued is too similar to liberalism.

Trump, as suggested by comments and China and Mexico, favors protectionism.

But is Thiel anti-China? Most libertarians want to expand markets, not restrict them, whereas Trump wants to build a wall. There is possibly some ideological conflict in having to be both nationalistic and libertarian. Thiel, on social social economic issues, seems closer to Tyler Cowen than Trump. Although NRx opposes democracy, opposing democracy is necessary but not sufficient in and of itself to be a reactionary. However, in 2008, Thiel donated $1 million NumbersUSA, anti-immigration lobbying group. But that was a long time ago. Because Thiel keeps a low profile, with the exception of some comments he made a long time ago, there isn’t much known about him policy-wise, except that he leans libertarian.

Also kinda amazed at the ebullient reaction of the crowd after Thiel proudly proclaimed being gay…this is certainly not the GOP of 20 years ago, that’s for sure. It’s weird how tolerant or indifferent the ‘alt right’ is of homosexuality, whereas it’s the boring ol’ ‘cucks’ like Sean Hannity and Bill O’Reilly that are still fighting ‘culture wars’. From his speech, Thiel’s ‘vision’ is that everyone can rise above personal differences, in a united goal of ‘making America great’. But the problem is the far-left is ruthless, so the ‘right’, unfortunately, has to enter the trenches rather than focus on more transcendent, ambitious goals such as space exploration.

Although investing in Facebook in 2005 was a genius move that made Thiel the billionaire he is today, some of his more recent initiatives have been duds. After significant losses starting in 2009, Clarium dropped from $7 billion in assets in 2008 to around $350 million in 2011, due to incorrect bets on inflation and the US dollar. Instead of high inflation, inflation has remained low due to the ‘flight to safety’ caused by weakness both in Europe and emerging markets. On the opposite side of the political spectrum, George Soros has lost billions of dollars since 2009 on repeated failed bets against the S&P 500, and he was also wrong in his prediction that the Brexit would cause an economic crisis (instead, the US stock market has surged).

Part of the reason why the super-rich are often lousy investors and bad economic prognosticators is they assume that the knowledge that made them so rich and successful is transferable to unrelated domains, or they become too confident, believing that they can time the stock market or predict the economy based on ‘hunches’ or hubris instead of quantifiable data and empirical evidence. Investing in tech start-ups, which is Thiel’s expertise, does not apply to understanding the treasury bond market. They are entirely different fields. As the exception that proves the rule, Warren Buffett became a multi-billionaire through investing in individual stocks, so he has a much better understanding of the economy than someone who became a billionaire through, say, retail, and explains why Buffett didn’t fall for the doom and gloom and hyperinflation hype of 2008-2013, because he knew based on many decades of experience that the economy and stock market would recover, and it did.

Also the Thiel Fellowship has been kinda dud, too:

In September 2013, Vivek Wadhwa wrote that the Thiel Fellowship had failed to produce any notable successes to date, and even its limited successes were instances where the Thiel Fellows were working in collaboration with more experienced individuals.[17]

On October 10, 2013, former Harvard University President Larry Summers was reported as having said at the Nantucket Project conference: “I think the single most misdirected bit of philanthropy in this decade is Peter Thiel’s special program to bribe people to drop out of college.”

The problem is the high failure rate for startups and the fact that $100k doesn’t get you very far these days. To pay for advertising, insurance, legal stuff, research and development, prototypes, coding, rent, and other expenses, you probably need at least a million to cover the first few years of expenses. $100k isn’t even the yearly salary of a competent Silicon Valley coder. Yeah, maybe $100k would have been sufficient 20 years ago, when everything was much cheaper and less competitive, but not anymore. Those winners would have been better-off sticking the $100k in an index fund, staying in college to major in STEM, and then returning the principle to Thiel afterwards.

How it’s Possible for the US Economy to Be Strong Even if Many are Not Fully Participating

Republicans Need To Chill: Life In The United States Is Really Good On A Historical Perspective

With the exception of his obvious partisan jab against republicans, he’s right about the economy and America, but with some caveats. It’s worth keeping in mind that, until 2008 or so, the GOP was the party of economic optimism (Reagan, Bush, etc.) – and democrats, with the exception Bill Clinton, were the party of pessimism. Reagan had his 1984 Morning in America campaign ad, which was oozing with optimism, in contrast to the dour Mondale. Carter, in 1979, had his ‘malaise’ speech. George W. Bush coined the phrase ‘the ownership society’, as part of his optimistic economic vision of home ownership and self-sufficiency as an alternative to government dependency. Not everyone on the ‘right’ shared in the optimism, and in 2009 columnist and author John Derbyshire wrote We Are Doomed: Reclaiming Conservative Pessimism, against what he perceived as a hijacking of conservationism by pollyannas.

On to the article and the caveats, in early 2011, despite being bullish on the stock market, a question remained unanswered: if the economy is doing so well as measured by data such as consumer spending and exports, why are so many not fully participating, if at all? Is an economy where few fully participate sustainable? To resolve this, I wrote Dyseconomics: The New Macro Econ and the Greatest Economic Boom Ever, to reconcile how such an economic system could be possible, and the answer is ‘yes’. I conclude such a system can be sustainable if the ‘good’ (huge consumer spending, steady GDP growth, record high profits & earnings, record high exports, gains in technological innovation, low inflation, cheap borrowing, etc.) outweighs the ‘bad’ (growing welfare spending, shrinking labor force size, and general anxiety and pessimism about the economy). Furthermore, the absence of full participation could also explain why the post-2008 economic and stock market expansion has been so enduring, and why it will continue for many years to come. The inability of the economy to ever enter a ‘full recovery’ delays rate hikes and keeps interests rates low and borrowing cheap.

The left argues that wealth inequality will doom and economy because ‘no one will be able to afford anything’. But the empirical evidence refutes this. Consumer spending is at record highs and keeps rising. Stocks that are dependent on consumer spending keep making new highs. Amazon.com, Johnson and Johnson, Disney, Nike, Facebook, Google, and the consumer staples and consumer discretionary ETFs are are record highs.

So obviously, not only are people spending despite wealth inequality, but total spending keeps rising. How is this possible.

The answer, from Sorry Middle Class, You’re Just Not That Important Anymore, is the Pareto Principle. The richest 20% contributes 80% to consumer spending, and the richest have seen their salaries and wealth continue to grow faster than everyone else, allowing total consumption to keep rising even if real wages are stagnant.

In time, the Pareto Principle will become more lopsided, with a shrinking percentage of the US population ‘contributing’ to the bulk of the economy, as everyone else kinda sits on the sidelines consuming and going on welfare but not really contributing in any meaningful way.

The richest consume the most; the poorest the least. Additionally, there is the boom in consumption in foreign markets, particularly for rich consumers. China is a major consumer of luxury goods:

There are 7 billion people in the world, of which just 50-100 so million are the ‘American middle class’. All of this makes the ‘US middle class consumer’ increasingly irrelevant in overall macroeconomic picture, and is why multinational large cap companies have done so well despite the ‘middle class’ feeling ‘squeezed’, having stagnant real wages, or ‘falling between the cracks’.

As I explore in The Meritocracy We Don’t Understand, somewhat in agreement with the Medium article, there is prosperity and opportunity in America, but this opportunity tends to be stratified by IQ and other factors, or as I call ‘the meritocracy stratified by IQ’. Smart people have prestigious, good-paying meritocracies in Silicon Valley, Wall St., universities, and lucrative start-ups. The less intelligent have their own meritocracies, but with low pay and less prestige, in the low-paying service sector.

The same disparity is also observed in the real estate market, with prices in smart, wealthy regions like Silicon Valley constantly rising as prices everywhere else stay stagnant.

And, back to the Medium article, I agree that America is doing pretty well, or at least compared to the rest of the world. Europe has been in borderline recession since 2007. Low-IQ countries like Brazil and Turkey are struggling with inflation, corruption, high borrowing costs, social upheaval, and stagnation. Russia is struggling with oil dependence. France and Germany, weighed by political correctness, are struggling with Islamic terrorism and overall economic sluggishness. The ‘fight to safety’ is keeping treasury yields low and the US dollar high.
This is why I’m ‘bullish‘ on America the S&P 500, but also bearish on foreign markets (except China).

US real GDP growth since 2008 has exceeded its peers:

And America is #1 in terms of intellectual output:

Now, there’s been a lot of news about horrible tragedies at the hands of the police and committed against the police. But these are anomalies in a longer term trend of police brutality (Harvard) and police safety (American Enterprise Institute). That being said, it’s clear that the police are treating black males differently from white males. Any death is horrible, but overall we’re trending down and hopefully, one day, no police officers will be harmed or citizens will be killed by the police.

I disagree with the part about police treating black males differently, but given the lopsided coverage by the liberal media that only focuses on black deaths at the hands of police and not white deaths, it’s understandable why this misconception is so persistent. The evidence shows that black-on-black and black-on-white crime is much more prevalent than white-on-black crime, and that there is no systemic bias against blacks by police. But overall, in agreement with Pinker, the world is becoming safer and less violent.

Furthermore, productivity is surging despite stagnant real wages. This is bullish for profits & earnings for large cap companies, and also explains why so many Americans feel left behind.

But because the economic contributions of cognitive and finance elite are so substantial, the Pareto Principle implies that the economy can keep expanding even as so many feel (and are) stuck. And this is how it’s possible to be optimistic about America, technological progress, and the S&P 500, despite all the negativity.

Ross Douthat Having a Meltdown on Twitter

Ross Douthat is having a pubic meltdown over Trump, frenetically posting dozens of tweets in the span of just 24 hours…in 2008, it was ‘Palin derangement syndrome’ for the ‘left’…now it’s ‘Trump derangement syndrome’ for some of the ‘right’.

Here are some of them:

It’s kinda surprising how much he is emotionally vested in the outcome. A couple times he has hinted at holding or sympathizing with ‘reactionary’ beliefs, and he has spoken out against faux cosmopolitanism, so why is he so ardently anti-Trump?

Ross likes the idea of being reactionary, but he fears populism of the form of Trump will possibly diminish his own personal social standing, so he’s sorta conflicted – a form of cognitive dissonance. Ross, who himself epitomizes the intellectual elite, is fine with reactionary government provided people like him, not the uncultured masses, are still able to call the shots.

This is the small dilemma that Ross, Andressen, Thiel and the rest of the financial and cognitive elite face: choosing between leadership that they more closely ideologically aligned with in exchange for possibly lesser social status, or choosing leadership they (the elite) ideologically oppose but are able keep their high social and financial status. In many instances, personal interest (money and status), which tends to be quantifiable, supersedes political and ideological ones, which tend to be vague and unquantifiable, and this choice is understandable because self-interest and self-preservation are powerful forces. Thiel would probably not be happy seeing his stock holdings take a major hit as a consequence of a wight-wing populist crackdown on free trade, for example. If Hillary becomes president, everything continues as it left off, but the the financial elite can still feign outrage, etc. That’s probably why Andressen is actually voting for Hillary, and I don’t begrudge him, because that is the perfectly rational choice for someone of his high financial status.

Ross doesn’t mind Hillary winning because, from the perch of the NY Times, Ross can continue to espouse his somnolent and nuanced, yet slightly edgy and subversive, brand of conservatism as Trump and his emotive, barefaced brand of conservatism exits stage left. Even though this post is slightly critical of Douthat, I actually prefer his rhetorical style over Trump’s.

2004, after the defeat of Kerry, were the halcyon days of the neocon establishment, before everything when to pot in 2006-2008. Buoyed by a steady economy and domestic complacency, in many ways America was close to an autocracy or monarchy of sorts, as Bush, belated heir to his father, was more like a figurehead, who deferred to his staff, particularly Cheney, on the most important matters. Now it’s Obama, the empty suit in the Oval Office, and his invisible VP.

Artificial Intelligence…or Just Software?

AI holds a lot of promise, that may never be realized or live up to its hype. And then there is always the demarcation problem of what separates an actual intelligence from merely an advanced software program (Chinese Room thought experiment). A lot of things that may be classified as AI are merely productivity-enhancing software. If I want to play chess better, a software program can assist me by telling me the optimal move (within certain time constraints) against a hypothetical opponent, but is that intelligence?

– Clinical diagnostics (all types of diagnostics, really,) can easily be performed by AI. In fact, AI is uniquely well suited to that sort of task. Most diagnostic scans — like FDG-PET — can be accurately interpreted by narrow and simple artificial intelligences. Simple complaints — for e.g., a rash like pompholyx — can be very accurately diagnosed via a combination of reverse image search and questionnaire. AIs can interpret blood chemistry and suggest medication. If they have large enough datasets, they can also run meta-analyses, post-marketing statistical surveys, and much more.
…It’s not that they AIs are unable to diagnose disease — to the contrary, I’m convinced they can already do a better job than most physicians — but that there are a hell of a lot of red tape and legal liability issues.

Hmm but is that intelligence…or just sophisticated statistical software that is making an inference from inputted data, and choosing the best outcome when constrained by a pre-determined threshold of statistical significance?

Also, many tasks have not been automated by AI. As for diagnostics, when someone with rectal bleeding (I chose this as an example because it’s a pretty common complaint) goes to the doctor, the doctor defers to a ‘risk profile’ based on the patent’s symptoms, age, medical history, and family history. This profile, which is extrapolated by prior patient data that is complied in a large database, determines the most appropriate course of action for the doctor. But due to litigation, most doctors will error on the side of caution. More or less, a middle-aged man with bleeding, even if there are no other symptoms, will still have to have an invasive diagnostic test performed, the colonoscopy – a long flexible tube that is inserted under anesthesia and connected to a camera. A century ago…and then all the way up to the 80′s, doctors used a short, metal rigid tube. But still, despite decades of technological advancement, including AI, diagnosing still involves direct visualization. Same for diagnosing lung cancer. Or bladder cancer.

Awhile back, Dan Luu wrote a post about AI, using healthcare and customer service as an example:

While replacing humans with computers doesn’t always create a great experience, good computer based systems for things like scheduling and referrals can already be much better than the average human at a bureaucratic institution2. With the right setup, a computer-based system can be better at escalating thorny problems to someone who’s capable of solving them than a human-based system. And computers will only get better at this. There will be bugs. And there will be bad systems. But there are already bugs in human systems. And there are already bad human systems.

If AI is defined to mean ‘a computer performing a cognitive-type tasks’ then, yes, AI has made huge strides and likely will continue to do so, but there are still enormous gaps that may likely never be filled.

Reign of Terror Begins: Twitter Bans Milo

Twitter Bars Milo Yiannopoulos in Wake of Leslie Jones’s Reports of Abuse

This is unprecedented because it’s the first time Twitter has banned the account of a major public figure for alleged ‘TOS violations’. Usually it’s ‘one strike and you’re out’ for accounts with fewer than 10,000 followers, whereas much bigger accounts have a lot more leniency. And celebrities can do anything they want, proving that not all users are equal under the TOS, as if that is a surprise.

Ms. Jones in particular has borne the brunt of the online abuse in recent days, especially since the release of “Ghostbusters” in the United States on Friday. Hundreds of anonymous Twitter commenters hurled racist and sexist remarks at the star’s Twitter account, rallied and directed by Mr. Yiannopoulos this week.

This seems to imply Milo actually dispatched these ‘mobs’ against her, which given the bias of the NYT, is probably false.

All over the internet, and especially on Twitter and Reddit, people are rallying in support of Milo.

In a brief interview on Tuesday evening, Mr. Yiannopoulos said, “This is the beginning of the end for Twitter.”

“Some people are going to find this perfectly acceptable,” he said. “Anyone who believes in free speech or is a conservative certainly will not.”

The problem is Twitter is not a platform for ‘free speech’. Their TOS gives them the right to ban accounts for any reason. Same for Facebook, Instagram, Blogger, Gmail, and others.

My advice if you have a huge twitter account: dial it down. Getting banned and losing all the followers you spent years accumulating is never worth it.

Vox has their own spin: Milo Yiannopoulos’s Twitter ban, explained

n 2014, Gamergate — the anti-feminist harassment movement that surfaced in gaming culture and spread into larger internet culture — also fought against many gaming franchises that sought to be more diverse.

Hmmm….mean comments on the internet, versus actual physical assault against Trump supporters.

Or that Leslie Jones has a history of racist tweets against white people.

Since then, the movement has effectively become a cornerstone of the alt-right, and still continues to influence everything from the presidential election to major tech conferences. It overlaps with large swaths of 4chan, men’s rights activism, the online atheist movement, pickup artist culture, Reddit, and Tumblr.

So now it’s atheism too…because Richard Dawkins and Sam Harris acknowledge the enemy of western civilization is not Christianity but Islamic terror.


Though multiple attempts have been made to paint the Ghostbusters backlash as a product of what is perceived (largely inaccurately) as a more general trend of fan entitlement,

According to the left, criticism of a shitty movie and its actresses becomes racism. The left thinks they can impose their values on society, and no one is allowed to push back? The Vox article goes on and on. The author, Aja Romano, who is a ‘Web Culture Reporter’ obviously abdicated any journalistic integrity as a ‘reporter’ in her obviously biased coverage, but this is not too surprising either.

Finally, some decent reporting: The Verge questions Twitter’s Orwellian ‘anti-harassment system’. This is similar to the equally arbitrary and draconian YouTube ‘copyright’ rules, which are often invoked not to protect legitimate copyright claims but to suppress content.

Post-2008 Wealth Creation: A Guide, Part 4

This is the penultimate installment of the post-2008 wealth creation guide. In part three, I discussed shorting inverse leveraged funds like SPXU and SPXS, which are 3x inverse versions of the S&P 500. As of 7/20/2016, SPXU is trading at 23.50. Shorting $10,000 worth would require shorting 425 shares. If it drops 20% to $18.8, your unrealized profit is $2,000. However, because it’s a 3x fund, if the S&P 500 were to drop 5%, you would lose around $1,500 ~ 435($23.5*1.15-$23.5). The ‘decay formula’ given earlier will give a more exact answer. There is a high degree of path dependency that typicality, over many months, helps the short seller, which is why shorting these leveraged inverse ETFs good strategy in most market conditions.

So the big problem, though, are large loses should the market fall a lot. There is a way around this, to some extent. It’s far from perfect but it helps a lot.

The solution is to buy treasury bonds such as TLT (an ETF proxy for the 30-year treasury bond), which tend to be inversely related to equities. This means if the S&P 500 falls 1% for the day, maybe the 30-year bond will rise .6%, offsetting some of the loss. This results in smoother returns and smaller dips, as shown below:

In 2008, the hypothetical bond-stock portfolio only lost 20-25% vs. a 40% loss for the S&P 500.

Like the S&P 500, bond ETFs pay dividends (about 3% a year for the 30-year bond proxy TLT), and this compounding affect helps immensely. This also helps when you are shorting inverse leveraged bond ETFs like TMV, the inverse 3x version of TLT. Since 30-year bonds pay 3% a year, TMV decays 9% a year just from the yield alone.

Like SPXU and SPXS, the ‘decay formula’ gives an annual decay of around 13% for TMV. Adding the yield decay, and the total is around 20% per year, even for a flat bond market.

Like SPXU, TMV is in a state of constant decay. It cannot retain any of its gains for very long and keeps going lower:

Same for PST, an ETF that is a 2x inverse of the 10-year treasury bond:

Its decay is even smoother than the 30-year one…strait to zero.

So what happens if someone shorts, allocating 50% of the portfolio value to short SPXU and 50% to short TMV, and then rebalancing it quarterly?

Turned $100 into $1,300 after seven years. The sharpe (a measurement of risk-adjusted returns) is about 1.7, twice as good as the S&P 500. This is about as good as any strategy that does not involve exceedingly high leverage. This assumes that bonds and stocks both perform well, but even if they are flat, the 20% annual decay still gives a total compounded return of 250% over seven years. This also ignores transaction costs. When those are factored in, the performance diminishes a little bit.

A common retort is that ‘stocks and bonds have been in a bull market since the early 80s’ but, going as far back to the 1930′s, 10-year T. Bond produce positive yearly returns 80% of the time, according to Annual Returns on Stock, T.Bonds and T.Bills: 1928 – Current.