Monthly Archives: January 2016

Not Worried About Tech Valuations: Why It May Be Different This Time

In the past month, there have been a plethora of doom and gloom articles about web 2.0, Silicon Valley, the economy, and start-ups. In this series, I address some of the major concerns, arguing that perhaps the doom and gloom is not all warranted.

Big-Cap Tech Stocks Are a Sucker Bet

We’ve been hearing these ‘tech stocks are overvalued!’ arguments since at least 2012, yet prices keep going up.

There are a couple things to keep in mind. We’re seeing a flight to quality, with fewer yet high-quality names like Facebook, Tesla, Amazon, Microsoft, and Google participating in the post-2009 tech bull market whereas in the late 90′s, during the tech bubble, the buying was indiscriminate, which ended badly. Now Wall St. and VC is not making that mistake again, choosing instead to pile into the best of the best and selling the rest.

The aforementioned stocks (Facebook, Tesla, Amazon, Microsoft, Google, etc) have market dominance, rapidly growing earnings, strongly positive cash flows, high profits margins, and few viable competitors. In the web 2.0 scene, Air BNB, Snapchat, Dropbox, Uber and Slack also qualify as having strong growth (or projected growth) and market dominance, which is why they are valued so richly and will continue to become more valuable in coming years, especially that internet and app companies are riding the tailwind of the booming mobile advertising advertising market.

As for web 2.0 unicorns, profitability right now is less important than the demonstrable ability to generate profits down the road, when the timing is right. Many successful web 2.0 companies, like Snapchat, are intentionally delaying revenue to build their userbases, but inventors are confident that should Snapchat ‘flip’ the switch and go ‘live’ with their ad platform, Snapchat will succeed at mobile advertising as Facebook and Instagram have.

PE ratios are not that important if fundamentals remain strong. Amazon has done so well, for example, that someone who bought in 1999 at the very peak would still have a 13% compounded yearly return if he sold today. Pretty amazing. Google had a PE ratio of close to 100 in 2005 after its IPO; is has surged 1,300% since then and the PE ratio is only around 20. BIDU had a PE ratio of 1600 shortly after going public in 2005; the shares have since rallied 1,500% and the PE ratio is only 40, as well as many other examples. Contrast that to the late 90′s when companies such as and, which had inherently flawed business models, were bid to the stratosphere. These were companies with business models that had negative cash flows, with no hope of profitability. As part of how capitalism is getting smarter, nowadays, such companies wouldn’t even get past the VC seed round, let alone go pubic.

Also, the PE ratio of the Nasdaq 100 is less than 22 (weighted PE ratio of the QQQ as of Jan 2016), versus over 100 during the late 90′s:

So right now I’m not too concerned.


The year we welcome squirrels – Unicorn Bubble

And from Business Insider 90% of the billion dollar unicorn startups are in trouble

I’ll believe there’s a unicorn crisis when I see actual secondary shares for major companies like Uber, AirBNB, Snapchat, Dropbox and Pinterest see substantial declines. Until then, this is all speculation. There’s a bubble in bubble predictions. Everyone wants their ‘I told you so’ fame, for some reason. I guess it’s human nature to want to be right or to see the successful stumble back to earth.

He says there is “blood in the water,” and we are entering a 90-10 situation for the unicorn class of startups with billion-dollar valuations in which 90% of the startups will be repriced or die and 10% will make it.

Well, that’s kinda how it’s supposed to be. That’s why expected value is more important. A few $200+ billion Facebooks and Googles can compensate for a lot of smaller $1 billion failures.

A lot of market speculators lose money by believing that trends that seem unsustainable must reverse or that history must always repeat, when there are factors that can cause wildly diverging outcomes even if there are many similarities between the past and present. You can have a situation where the past matches the present with 99% accuracy, but that 1% makes a huge difference in outcomes. This is related to Chaos Theory, where small adjustments to the initial conditions can cause the evolution of a system to change dramatically. Many people lost money shorting Amazon and Facebook stock between 2012-2015, believing that we are in another tech bubble, and while there are many similarities between 2000 and now (such as high stock prices) there are some subtle differences, too, such as better fundamentals. And those subtleties can make the difference between a profitable trade and losing your shirt. Or, another example, many people got burned betting against the post-2009 stock market recovery, believing that there would be a double dip recession, that there would be a ‘Great Depression’, or that America would become ‘Japan 2.0′, when, in fact, neither happened despite the many similarities between Japan’s recession and America’s such as high unemployment and deflation.

These short-sellers grievously underestimated the propensity of the consumer undaunted by the doom and gloom in the news to keep consuming, the ability of the economy to quickly bounce-back, the efficacy of TARP and other programs to stem the bleeding, and the unimpeded ability of S&P 500 companies to keep generating record profits and earnings quarter after quarter:

What about the fed? Aren’t they playing a major role in inflating the economy and stock market. Yes, to some degree, but not as much as commonly believed, as I explain here. The fed alone cannot account for all of the earnings growth since 2009. if this were a fed induced bubble we would expect stock valuations to be much higher, but the PE ratio is still only 15-17 for the S&P 500, which is around the historical average. QE and monetary policy is more of a band-aid than a lifeline (which is how blogs like Zerohedge interpret QE), which is is the market didn’t fall much when the fed officially ended QE in 2014.

Also, people have tendency to see patterns such a bubbles – even in a random walk – due to confirmation biases, a phenomena called Apophenia.

What it does show is that people are very receptive to data that supports their preconceived bubble theories. And this is a part of my anti-bubble theory. I’ve done posts on how the Economist magazine once bragged that it correctly predicted a bunch of housing bubbles, whereas the article it cited was actually totally, spectacularly WRONG about the future course of house prices in a number of countries. Prices actually rose in markets where they predicted declines. And yet the Economist put their “successful” prediction into an ad for the magazine. Someday China will have a big crash, and the people who have been predicting it for a long time will say, “I told you so.” And I’ll say, “Market prices rise and fall, that’s what markets do.”

Economies have booms and recessions. If talking about bubbles makes you feel good, go for it. But don’t think it’s telling us anything useful about the world. When prices are high they might crash, or they might go higher. That’s what history shows.

People complain that bubbles destroy wealth and that the government should try to prevent bubbles from forming. But it’s not like the government does a better job at managing money, which is why the concept of ‘exit’ is appealing to some in Silicon Valley. New technologies emerge from bubbles, and the only way to do away with the boom bust cycle is probably to do away with capitalism itself. If bubbles represent excess, then the bursting of the bubble removes the excess, meaning than while wealth may have been destroyed, the price level is only back to where where it was before the bubble. People who bought on the way up sell on the way down and it cancels out, which is the cornerstone of the functional stock market theory and the inflow/outflow theorem.

The Alt Right

From Radix Journal: WHAT IS THE #ALTRIGHT?

The big-tent alt-right includes identitarians and archeofuturists, race realists and HBD bloggers, European New Right (ENR), shitlords, neo-reaction (NRx) and reaction (Rx), trad Christians, neo-pagans, white nationalists, PUAs, etc. (Note, these groups are not mutually exclusive. For example, an alt-righter might consider himself an identitarian and race realist.)

The ‘alt right’ is a blanket term encompassing a far-reaching collection of sub-ideologies unified in their rejection of most or all America’s democratic institutions, rejection of Tabula rasa (blank slate), rejection of ‘mainstream’ conservatism, and rejection of egalitarianism. Aside from those preconditions, the ‘alt right’ is an ideologically diverse group, ranging from reactionary rationalists (this blog), to monarchists, hbd/race realists, neo masculinity, libertarian capitalists, neo reactionaries, and religious reactionaries. A list of alt-right categories and blogs can be found here and here, as well as the infamous NRx map which links these sub-ideologies together.

Related: Classification of Ideologies

One thing commenters have correctly noted is how young the alt-right is. While there is no objective way to determine the average age of the alt-right, I would place it in the early 20s. (Compare this with the average age of a National Review reader, which is about 65.) And this youth movement is different from, say, the “College Republicans” of the 1980s. These young alt-righters did not grow up reading National Review (a good thing). They grew up with /pol/, Reddit, Twitter and other social media, and were later introduced to sites like Radix Journal, AmRen, VDare, Occidental Observer, Heartiste, MPC, and The Right Stuff.

This agrees with some of my earlier posts about millennials rejecting democracy, instead turning to ‘niche’ ideologies (beyond the simplistic Republican/Democratic dichotomy) that offer better explanations for how the world works, as conventional explanations have fallen short. We, the ‘alt right’, seek the unvarnished truth and reality, thorns and all, as an alternative to the sterility of the MSM. Hundreds of thousands, maybe millions, of curious, well-educated young people are turning to sites like Reddit, 8chan, and 4chan, turning off the idiot box, and this bodes well for the ‘alt right’. The ‘truth’ is the comments section of a heated Reddit or 4chan debate on biology and IQ; it’s on Brietbart or Twitter (hashtag #NRx or #altright), not National Review.

Nerd Culture: Here to Stay

From cracked: 6 Ways To Be A Better Nerd In 2016

Nerd movies aren’t just No. 1 at the box office, they’re every movie at the box office. The biggest TV shows in the world are either fantasies or shows about being a nerd. We have a sitting president who got excited about watching Star Wars with us, and presidential candidates who compared their own candidacy to the Rebel Alliance. We are in charge. Everybody high-fi- nah, fuck it. Everybody Vulcan Salute; say, “May the Force be with you”; and then make a Pokemon joke or something, because it’s fine to come out of the Nerd-Closet and frolic through the meadows of relevance while bathing yourself in the warm light of cultural acceptance. For now.

This agrees with earlier posts about nerd ‘culture’ becoming mainstream, especially since 2008 or so, with examples in pop culture such as the wildly popular show The Big Bang Theory.

But it’s not something that is ‘for now’, but instead not only is nerd culture here to stay, it’s going to get bigger. In accordance with Ravi Batra’s social cycles, nerds now rule, and I don’t see this changing, especially if post-2008 economic trends persist, which I’m sure they will. Nerd culture is enduring because nerds are productive, and pop culture is finally catching up with the marketplace in rewarding and recognizing nerds for their economic and scientific contributions. It’s not that nerds are trying to impose their lifestyles on others, but rather everyone else is trying to emulate ‘nerd culture’, whether in pop culture or on social media. It’s like a repeat of the 50′s, when people turned to nerds to crack the Soviets, but now people are turning to nerds to crack the code of universe, and, on a less grandiose note, to explain connection between economics and biology, to explain why things are the way they are. Nerds toil among the ignorant without losing a grip on reality or sanity, a balancing act which in and of itself is worthy of admiration.

Liberals want to punish the successful and productive, and that includes nerds, which is why the left is fighting a losing war against #gamergate, in addition to their war against Reddit and social media, red pill, the manosphere, STEM, Trump, and the ‘alt right’.

If you want evidence of how the left is losing in the court of public online opinion, just read the most up-voted comments, which tear apart this leftist article by buzzfeed In 2015, The Dark Forces Of The Internet Became A Counterculture:

Black lives matter, but supporting white lives makes you racist, according to the left, even though white suspects of violent crime more likely to get killed by police than black suspects:

Adjusted to take into account the racial breakdown of the U.S. population, he said black men are 3.5 times more likely to be killed by police than white men. But also adjusted to take into account the racial breakdown in violent crime, the data actually show that police are less likely to kill black suspects than white ones.

The left is not only losing the social media war, they are losing the economic one, too, which nerds are winning. The S&P 500 has risen 200% from the depths of the crisis, from a nadir of 660 in 2009 when the left was convinced capitalism was going to die, to 2000 today, 30% higher than pre-crisis levels. Profit margins still at record highs and growing, enriching productive capitalists for the economic value they create.

There are a few arguments I see floating around the nerd culture. One is, “If you don’t like something, just ignore it.” If a woman complains about sexist depictions of women in movies, they say, “Just don’t go to those movies.”

The author, in showing his SJW leanings, is overgeneralizing. The reality of how women are depicted in video games, according to gamers, fits the feminist mold. Outside of the SJW-sphere and liberal arts departments, few people actually care about the depiction of women in pop culture or know what the ‘Bechdel Test’ is. If these liberals think they know better than the consumer, they should make their own feminist-approved movies and see how successful they are, which I imagine they won’t be. Liberal-inspired arts are dependent on donations and grants – often at taxpayer expense – because their creations can’t succeed in the marketplace, and provide little value to humanity.

Purely theoretical research such as string theory, while not having any direct applications, may have future applications similar to how electromagnetism and general relativity are used for magnetic resonance imaging and GPS, respectively.

I actually thing we’re in a philosophy boom, with recent developments in quantum mechanics and the synthesis between the two subjects. There is a lot of research in this area, about quantum mechanics, thought experiments (Chinese room), turing tests, complexity/computational theory of mind (Bostrom simulation argument, singularity) and connection to free will and other philosophical concepts. Philosophy becoming more STEM-like.

Philosophy even is useful for the sciences because epistemology can help scientists learn, organize, and approach subjects more efficiently, as well as reconciling physical knowledge with the metaphysical. Quantum mechanics is as much philosophical as it is mathematical, in reconciling philosophical concepts such as ‘free will’ and ‘reality’ with mathematics such as wave functions and quantum states. Or the connection between teleology, Aristotelian logic, and Darwinism. Modern philosophy almost incorporates as much math as many STEM fields. Even economics can be considered STEM, specifically fields such as econometrics and macro models, both off which heavily involve methods of statistics and calculus. There is a speculative branch of macroeconomics that merges concepts of theoretical physics and algebraic geometry, where economic agents and supply and demand are treated as fermions and energy states, with noncommutative geometry too. Philosophy, theology, and theoretical physics, all of which deal with the abstract, have become interwoven in recent years, an example being Gödel’s ontological proof, which merges logic with theology. Same for study of computational complexity and artificial intelligence, in which the line between the hard sciences and philosophy/theology are blurred.

… what? What mark has The Era of the Nerd left on the world? What are we doing with our time? What will we be proud of when we’re old and there’s no one left to impress because no one cares about what we think, and the only respect we can ever hope for comes from inside ourselves?

Ever hear of Uber, which is revolutionizing transportation? How about Elon Musk, who holds the record for the most popular Reddit AMA ever, and his Tesla and Space-X launches are media events. So I think it’s safe to say nerds have and will continue to leave an indelible mark on the world, through their contributions to society, technology, and the economy.

Debunking More IQ Denialism

However, numerous twin and adoption studies suggest IQ is heritable.

Heritability of IQ

Various studies have found the heritability of IQ to be between 0.7 and 0.8 in adults and 0.45 in childhood in the United States.[6][18][19] It may seem reasonable to expect that genetic influences on traits like IQ should become less important as one gains experiences with age. However, that the opposite occurs is well documented. Heritability measures in infancy are as low as 0.2, around 0.4 in middle childhood, and as high as 0.8 in adulthood.[7] One proposed explanation is that people with different genes tend to seek out different environments that reinforce the effects of those genes.[6] The brain undergoes morphological changes in development which suggests that age-related physical changes could also contribute to this effect.[20]

A 1994 article in Behavior Genetics based on a study of Swedish identical/fraternal twins found the heritability of the sample to be as high as 0.80 in general cognitive ability, however it also varies based on the trait, with 0.60 for verbal tests, 0.50 for spatial and speed-of-processing tests, and only 0.40 for memory tests; in contrast, studies of other populations estimate an average heritability of 0.50 for general cognitive ability.[18]

In 2006, The New York Times Magazine listed about three quarters as a figure held by the majority of studies.[21]

Few would argue that IQ is 100% biological, but biology probably plays a bigger role than environment.

And because I don’t feel like rewriting everything, to quote an earlier essay Does the Nation Make the Genius?

Yes, social factors play a role, but I think genes are more important, especially now that the Flynn Effect seems to be diminishing or reversing, which is evidence the playing field has been leveled. With food abundant and excessively generous welfare and education spending, environmental factors can no long be blamed as much for the differences between individual socioeconomic outcomes. Also, research by Jensen, Herrnstein, Murray, and Rushton shows that IQ tests are not culturally biased and that negative environmental factors (being born into poverty) does not preclude upward mobility for high-IQ individuals. Of course, even in the most optimal of conditions, few geniuses will ever attain the greatness of Shakespeare, but the arts, to a large degree, are subjective. Being a genius in terms of IQ may help one grasp abstract physics and mathematics concepts quickly, even if one doesn’t become the next Einstein*.

To to address the video, many on the left assume IQ is meaningless because not every high-IQ person accomplishes a lot, or that IQ is poor measure of creativity. However, the evidence suggest otherwise, from In Defense of Smart People:

According to a well-received TedX talk Do standardized tests matter?, people with high SAT scores (a good proxy for IQ) do better in life as measured by academic achievement, creative output, job performance, and income. Although the odds of finding the next Elon Musk or Mark Zuckerberg in the high-IQ subset of the population are low, it’s pretty much zero in the modest IQ subset. Billionaires, in general, are much smarter than everyone else, and while not every high-IQ person will become rich, having a high-IQ certainly helps.

Here is the TedX talk which demolishes the belief that IQ (and its proxy the SAT) is not predictive of creativity.

So while not every >130 IQ person will become the next Einstein, his odds are much higher than someone with an IQ <100. IQ measures the potential to succeed and or be creative, not actual creativity or success itself.

It just so happens this number called 'IQ' does a pretty good job at measuring skills (or the ability to acquire said skills) that are pertinent to success in society.

IQ is a subject that, predictably, makes many uncomfortable because it challenges their belief (ingrained by pop culture, school, parents, teachers, etc) that they have complete control and free will:

Of course, there are many kinds of talent, many kinds of mental ability and many other aspects of personality and character that influence a person’s chances of happiness and success. The functional importance of general mental ability in everyday life, however, means that without onerous restrictions on individual liberty, differences in mental competence are likely to result in social inequality. This gulf between equal opportunity and equal outcomes is perhaps what pains Americans most about the subject of intelligence. The public intuitively knows what is at stake: when asked to rank personal qualities in order of desirability, people put intelligence second only to good health. But with a more realistic approach to the intellectual differences between people, society could better accommodate these differences and minimize the inequalities they create.

Source: The General Intelligence Factor

We want to believe we can achieve or do anything, or (for the left) that the state can help pull people up, but the biology renders efforts to create equality futile.


Thomas Sowell on The Bell Curve
IQ and Morality; IQ and Job Performance

Self explanatory?

Time to Retire MLK

Every year on the third Monday of January, most government and business activity in America grinds to a standstill to pay homage to ‘the dreamer’. But maybe it’s time to retire MLK, for the following reasons:

1. MLK is the only American to have an entire national holiday dedicated in his name, after Lincoln and Washington were merged as ‘president’s day’. Although Columbus has a holiday, he was a Spaniard. Maybe it should be renamed ‘civil right’s day’ or ‘humans right’s day’. I don’t think many historians will dispute that Washington was more important than MLK.

2. He was an avowed socialist. Why should we have a national holiday devoted to someone who opposes the values America stands for? The irony here is that, worldwide, socialism and communism in the 20th century is responsible for more deaths and suffering than segregation.

3. He was an inveterate plagiarizer. But we’re not just talking about a few lines here and there (which alone is a fireable offense), but entire passages were appropriated for King’s dissertation. Even his speeches were likely plagiarized. That means his ideas were not even original and we’re celebrating the wrong person.

4. Most Americans, including blacks, don’t care about meaning of the holiday itself, seeing it just as another vacation. While Veteran’s Day, for example, will always be relevant, the civil rights movement is fading from memory. Given the high rate of black-on-white crime, many blacks are obviously not heeding King’s message of non-violent resistance.

5. The ‘dream’ has been fulfilled. Blacks are represented everywhere – in bureaucracies, the courts, in major corporations, and there’s even one as president. Blacks are making millions of dollars in sports and entertainment. There are blacks on the Forbes 400 list.

6. But the achievement gap between blacks and whites has not narrowed. By that metric (and others), the ‘dream’ failed.

The Daily View: 1/17/2016 (lots of stuff)

From Fred Reed: The Inevitability of Eugenics

I predict within 50 years America will start giving Eugenics a serious consideration as a way to tackle the growing entitlement spending problem, which by then will be much bigger than it is now if trends persist. Liberals and conservative alike need to get over this squeamishness of genetic engineering, which like masonry or computers, is a tool that can be used to improve society. A hammer can break but it can also build.


Jim and XS have some thoughts on bitcoin.

As some may already know, I have been a Bitcoin optimist for awhile, here and here for example, as well as an investor in the cryptocurrency.

I’ll believe there’s a crisis when the price crashes and doesn’t recover; until then, ‘coin on’. One thing I’ve learned from following bitcoin over the past three years is that everyone has their ‘theory’ for why it will fail, and all have been shown wrong. Bitcoin just keeps coming back, rising like a Phoenix from every adversity thrown at it. The FBI seizure of Silk Road didn’t stop it, neither did price crashes in 2011, 2013 and 2014, or the failure of Mt. Gox in 2014. Now Bitcoin is booming because because of China. Wealthy Chinese are using Bitcoin to circumvent capital controls. As China’s economy slows and in anticipation of a falling Yuan, the wealthy are looking for anywhere to park their money.


The internet has made defensive writers of us all

Perhaps ‘defense writing’ has become so commonplace nowadays because there is less tolerance at both the individual and societal level for mistakes than in the past. In an era where an abundance of information can be found instantly online for free, ignorance has become inexcusable. With the government spending tens of billion of dollars a year on public education, no one should be ignorant, and ignorance is seen as both a personal failure as well as an institutional or societal one. This dates back to the ‘enlightenment’ ideals of centuries ago, when we expected science and reason to explain everything, and that still carries on today. Failure or ignorance is seen as un-enlightenment. But the problem is the majority of people are simply not smart enough to benefit much from mass education, forgetting much of what is learned beyond the basics of reading and writing, rudimentary history and geography, and some math.

Also, thanks to the internet and other factors, we’re in an era of fact checking, which means writers have to be especially assiduous to buttress against all possible holes that can be poked into their thesis. Hedging means being open the possibility of being wrong, so instead having to create a thesis that is impervious to factual criticism, just use verbal disclaimers in the form of hedging language so that you’re covered.


More American exceptionalism: Cancer survival rates higher in USA than UK

Long wait times, scarcity of drugs for NHS patients, and poor screening regimens may be to blame.


Some Thoughts on Healthcare
Universal Healthcare Not So Great
Affordable Housing, Healthcare, & Tuition: Putting Things in Perspective


From Social Matter: Unless You’re An Atom, Principled Libertarianism Is Not For You

This invokes the slippy slope argument: what if instead of a plumber it’s a butter churn business and now technology has made churns nearly obsolete. Should the government ban automated churners to save his business too? Cheaper plumbing (and cheaper butter production) means more people can afford plumbing and butter, which boosts standards of living. 100 years ago, automobiles were a luxury item; now they are everywhere, thanks to globalization, free market capitalism, and other factors. That’s the free market argument, but it does not take into account the individual who may lose his job when technology becomes obsoleted, or his job is replaced by someone who can do it cheaper. New technologies and markets create new jobs, replacing the lost ones, although there is no guarantee the Luddite Fallacy or Lump of Labor Fallacy must remain fallacies.


Hmm…but private investment has risen substacially over the past six years:

Dividends are worse than buybacks, due to tax issues and other inefficiencies, but no one attacks dividends. Somehow buybacks have become the scourge of the left.


The Trouble With Fascism

Kinda, but fascism is predicated on race whereas communism is predicted on class, the later which is obviously leftist. Fascism means maybe some government control over certain industries,but it’s not leftist like Marxism, which has more control over businesses, to the point of almost total confiscation of private property.

On a somewhat related note, the problem with populism is that it tends to promote bad policy (particularly economic policy) for the sake of getting votes by exploiting the fears and ignorance of the masses (especially about economics), which is one of the fundamental flaws of democracy. In that regard, both left-populism and right-populism may be the different sides of the same coin. For example, many on the right support low taxes, but it’s less realistic promise both a smaller deficit and lower taxes, but republicans have to promise both to get elected.


Everyday Economics: The Rise and Fall of the Chinese Economy

Am I the only one who is still on the fence about China? It’s too early to say there is actually a mess. There is evidence maybe growth is glowing, but it’s far too early to call it a catastrophe, even though the doom and gloom media has been calling it one for the past year. The debate is over 7% GDP growth vs. 5.5%.

The Rise and Fall of the Chinese Economy.

If by ‘fall’ he means 5.5% GDP growth instead of 7%. Alos, low oil prices should help China as well as other Asian economies.

Maybe a lot of this doom and gloom comes down to a a simple math misunderstanding, which is that ‘slowing growth’ is not the same as shrinkage. Slowing growth implies the second derivative is negative, but the first one is still positive, meaning the size of the economy is still expanding. An example is the function ln(1+x)

Rather, his video does a good job of explaining what could go wrong, but I’m not sold on the idea that there’s a crisis now. I would not be surprised if this blows over in a a couple months like it did in the past during past concerns over China.


The Handicap of a High IQ (Guest Writer Matt Baldoni)

He’s probably right on all accounts, but take issue with this:

Okay, more good science, kids! There is a negative correlation between involvement in organized religion and IQ numbers. Dumb people go to church, basically. Smart people don’t.

I’ve heard this argument, but I’m not buying it, and its not like the correlation between IQ and religiosity is incontrovertible. No one really knows. This is similar to the leftist ‘knuckle dragging’ stereotype of Conservatives, which by my own empirical observations is also false. Liberals, particularly welfare liberals, are prone to reductionism and oversimplification more so than Conservatives. This is due to tribe mentality, as well well as general ignorance of complicated issues.

Maybe offline this is the case, but online some of the smartest, well-written people I’ve encountered are religious and or identify as Christian – blogs and writers like Free Northerner, Vox Day, Bruce Charlton, Nick B. Steves, Mark Citadel, Zippy, WM Briggs, and more. It’s many avowed atheists, people who watch Colbert or Daily Show, who seem dull and conformist.


Interest Rates, Unicorns And What The Fed Means To Silicon Valley

Low interest rates helps America’s best and brightest innovate and create wealth, and is an example of pragmatic/utilitarian/consequentialist polity that helps the ‘greater good’ even if such policy is unpopular with a lot of people. TARP, QE, and ZIRP were ‘lifelines’ for America’s most productive, as a way of containing or mitigating the the damage from the weak, inept sectors (banking, housing) so that the healthier portions could thrive. It was a success, with TARP three years later returning a profit to the treasury, and the economy & stock market now in its sixth year of expansion. Although the private sector and the consumer deserve most of the credit, TARP helped too.

A common argument is that low interest rates create bubbles, but the end result is still better than if bubbles are never formed. Risk taking is necessary for an economy to grow technologically and not become stagnant.

Second, compounding this run up in asset prices is the appreciation of the dollar on the global currency markets. Because the world was anticipating an increase in U.S. interest rates, the value of the dollar has been increasing for the past two years, since the Fed started signaling that it would eventually raise rates.

This is due to the ‘flight to safety’ and the insatiable demand for safe, low yielding US debt. The dollar is so strong not only because of the flight to safety, but because foreign countries that don’t have reserve currency status are running up deficits to try to grow their economies. Other reason are given here.

Cancer: The Mid-life Killer

In the past week, two famous people died of cancer at a relatively ‘young’ age: David Bowie, 69, and Alan Rickman, also aged 69, which is about 5-7 years below the average male life expectancy in western countries. Of note, David Bowie had a long history of heart disease (being thin apparently didn’t help), nearly collapsing backstage in 2004 due to clogged arteries, but it was cancer that killed him, indicating that while much progress has been made in keeping people with chronic cardiovascular disease alive longer, progress for treating late-stage cancer has been more disappointing.

Mortality for heart disease has plunged in recent decades, but not so for cancer:

Heart failure may no longer be as deadly cancer.

MUNICH – Five-year survival of patients with heart failure has been dire, worse than for many cancers. But therapeutic advances in the last 2 decades mean that today, for the first time, that’s no longer true, according to a large Swedish study.

“Heart failure has become less malignant than the most common forms of cancer at the population level,” Simon Stewart, Ph.D., said at the annual congress of the European Society of Cardiology.

Indeed, while most cancer-related survival rates have improved substantially in Sweden, as elsewhere, during the last 2 decades – with the glaring exception of lung cancer – heart failure survival rates have increased at twice the pace.

“Heart failure survival rates are now equivalent to those for large bowel cancer,” added Dr. Stewart, head of preventive cardiology at the Baker Heart Research Institute, Melbourne.

Survival rates for many cancers have not improved in decades, although the overall trend is positive:

Cancer is the leading cause of death for middle-aged people, surpassing heart disease, suicides, and accidents:

Source: the CDC, deaths by age group for 2010.

Hence, the ‘mid-life’ killer. I’m sure we all know people who in the prime of their working years were suddenly struck by cancer, with treatments only prolonging survival by a couple years. Some live longer, but the average survival rate for stage IV cancer is still only a couple years, which David Bowie and Alan Rickman, in spite of the best medical care money could buy, were unable to exceed.

The Daily View : Stocks Plunge, RIP American Dream, Why Prescription Drugs are so Expensive

Here is the backstory behind the 5,000% price hike of Daraprim.

In Martin’s defense, the drug is classified as an ‘orphan drug‘, which means there is little demand due to the rarity of the underlying condition it is supposed to treat. In order for phrama companies to profit from orphan drugs, they have to charge a lot, and since the left says every life is sacred, no matter the cost, taxpayers will always front the bill in the end. The left wants it both ways: affordable drugs for everyone to treat even the most obscure of diseases, but provided the company that sells them is not allowed to make too large of a profit. Maybe Daraprim was unprofitable at $13 a pill, necessitating a price hike. Turing paid $55 million for the rights to Daraprim, but due to the low demand it will take a decade to turn a profit at the old price:

Let’s consider the case of Daraprim. The US market for this drug is actually quite small. Last year, American sales of Daraprim totaled only $5 million. While that would still amount to an 8% annual return on Turing’s $55 million initial investment, it is far below the billions of dollars in revenue and 30% profit margin of most blockbuster pharmaceuticals.

Maybe the profits from Daraprim will be used for new research. We don’t have the full story. The left does not understand that the development of new drugs is very expensive (around $1-2 billion per drug), with a high failure rate, and a long development time (10-15 years from conception to approval). Out of 10,000 chemical compound, maybe only 250 will show promise for tests on mice and other small mammals, of which only 10% of drugs will qualify for tests on humans. Of these, only 21% pass clinical trials. Finally, just because a drug clears all the regulatory hurdles doesn’t mean it will succeed commercially. A notable example is Provenge, an expensive custom vaccine-based treatment for terminal prostate cancer, that received regulatory approval in 2010 but still failed because sales were not high enough to recoup the enormous expenses. As someone who follows stocks, I lost count of the number of biotech companies that have failed, but it’s a high percentage. Biotech companies need high profits on existing drugs to finance the development of new drugs. Perhaps Shkreli’s approach was wrong, and in his AMA he concedes he could have handled it better.

Some say the American dream is dead. However, I argue that it’s merely being redefined. We all have varying ‘dreams’ attainable within our cognitive capacities. Smart people have more options than less intelligent people, but that’s the way the cookie crumbles, as unfair as it may seem.

He’s right about the growth of freelancer and ‘temp’ economy. We’re seeing a major shift in the labor market from salaried jobs to freelancer jobs:

These jobs, while not paying as much as traditional labor, may create more economic value for employers than regular jobs.


No Stock Prices Plunge In Unprecedented Two-Week Slide

Don’t see a compelling catalyst for a bear market, but this decline is getting pretty bad, with the S&P 500 now twelve percent below the record highs of 2130. More likely, stocks will make a comeback later in 2016. The ‘experts have been saying to sell stocks, yet every year the market keeps going higher. So being a rationalist, the rational thing to to is heed the empirical evidence that we’re in a bull market until proven otherwise. None of my ‘sell’ indicators have been triggered. But the past two weeks have been pretty dreadful though.

Stock prices plunged again Friday and are down more than 8 percent in just two weeks, an unprecedented slide for a start of a year.

The vicious drops feel even more unsettling because they’re such a departure from the placid and strong returns that investors had been enjoying for years. Like vacationers returning from a warm beach to a slushy commute to work, the shock of change is making something already painful even more so.

Chinese Cash Floods U.S. Real Estate Market

But the left says that US economy is supposed to be weak and the housing market a bubble. If America is as awful as the left insists it is, why is all this foreign cash flowing here?


Classification of Ideologies

Inspired by the table above (can’t find the source), I created a classification of my own, but this is far from complete.

Welfare Liberal: Humans are imperfect or savages upon conception, and must be perfected with the help of the state in order to help create ‘equal outcomes’ where no one should be allowed to be too much better than anyone else, as well as to purge ‘bad beliefs’ that are ‘racist’; also, high taxes and regulation to try to force equal outcomes and suppress individual exceptionalism; pessimistic view of humanity and human nature – people fail because of greedy rich people, institutional racism, the fed, and other external factors – never genes or other internal factors. If a group or individual is successful, its because he had some unfair advantage, cheated, and or practiced 10,000 hours. Tends to reject HBD except for homosexuality. Rejects nationalism. Pro-choice as a form of ‘women’s liberation’; pro-SJW to a fault; anti-death penalty. Supports higher taxes on rich, and the universal basic income. Opposes free trade and globalization. Believes man-made global warming; rejects industrialization. Rejects social Darwinism, but supports policies that could be considered ‘reverse Darwinism’.* Rejects religion (except Islam), especially Christianity, to the point of persecution (war on Christmas, banning the display of the 10 commandments, etc), although there is a small subset of welfare liberals who are practicing Christians; open borders; collectivist; race is a social contract and or is irrelevant and meaningless.

Leftist Rationalist/Neo liberal/Classical Liberal: Less belief in blank slate, more emphasis on biological determinism, with the belief that some people are possibly born ‘better’ than others; economic policy should strive to allow individuals, especially the best and the brightest, to perform to the best of their abilities and to keep what they earn; pro-choice; HBD: belief in the innate, biological differences, both cognitive and physical, between men and women and different population groups, etc; support of pragmatist, utilitarian, and consequentialist policy; possibly support universal basic income. Ambivalent towards SJWs. Anti-death penalty, but may support it in limited circumstances, from a pragmatic standpoint. Global warming may exist, but not necessarily man-made. Supports free trade and globalization. More receptive to social Darwinism. Equal opportunity instead of equal outcomes. Agnostic/indifferent to individual religious preferences. Similar to welfare liberals, supports a welfare state, but possibly with means testing. Also tends to reject nationalism; tends to support open borders; less collectivist; less racial (but not outright rejecting it as welfare liberals do).

Pragmatist/Rationalist Right: Same as above but with more emphasis on free market capitalism, less regulation, more homeland security & defense, stricter border control, as well as less welfare spending; may support basic income with preconditions. May reject isolationism. Like above, generally supports free trade and is pro-technology. Ownership society. May support abortion, eugenics, and other HBD-based policy as a way to lower healthcare costs, entitlement spending, and crime, as well as to boost national IQ; pro-choice & euthanasia from a eugenic standpoint; Anti-SJW. Pro death penalty. Elements of futurism; pro-technology. Belief in social Darwinism, with some people being biologically better than others, which manifests through individual socioeconomic outcomes like wealth, creative output, and educational attainment. Agnostic/indifferent to individual religious preferences. Minimal welfare state; could be described as minarchist or neoconservative. Consequentialist; some central planning and govt. intervention such as TARP. More nationalistic, but this varies among individuals; supports high-IQ immigration, also with immigration control to turn away ‘low-quality’ immigrants; more individualistic, in the Randian sense.

NRx: Belief in HBD, but tends to be somewhat critical of eugenics, euthanasia, and policy that may be ‘un-Christian’. Isolationist, nationalistic, and traditionalist; strict border control (may support deportations); skeptical of free trade and globalization. Pro-life. Anti-modernity. Pro death penalty. May reject central planning. Skeptical of utilitarianism, pragmatism, and consequentialist policy. Ambivalent towards technology. Ideal government may be a theocracy (Catholic monarchy); less individualistic (tends to reject Randian Individualism).

The ‘mainstream right’ probably lies somewhere between the ‘rationalist right’ and the ‘rationalist left’, but shares some elements of the far-right. And the ‘mainstream left’ is between the ‘welfare left’ and the ‘rationalist left’.Paleoconservatives are perhaps the closest to NRx but probably slightly to the left. Trying to classify more ideologies, along with all of their subtleties, would require a lot more room.

*Welfare liberals have a conflicted view of race – on the one hand, having to pretend it doesn’t exist or is irrelevant, but also supporting race-based programs like affirmative action. They are also conflicted about science, being pro-global warming science but rejecting or dismissing race & IQ science. They believes in Darwinism – but in reverse, or survival of the un-fittest. Taking tax payer dollars from the most productive and frittering it away on the least. The left can’t stomach the idea that some people are intrinsically better than others, so they want the state to create equal outcomes, even if it makes everyone worse-off.


Free Will – Welfare Liberals vs. Neo Liberals and HBD Conservatives

The Differences Between Neo/Classical Liberalism and Welfare Liberalism

Utilitarianism Is Not Welfare Liberalism

Foucault, Chomsky, Pinker, and the Blank Slate

Collapse Can Wait, Part 2

Aaron is right about America’s reserve currency status, and also there is the petrodollar in addition to the ‘flight to safety’ and other factors that are keeping interest rates low and the dollar high, all thanks to American exceptionalism. As bad as the US economy may seem, other countries are worse, although I am more optimistic about America’s economic prospects than many on the ‘alt right’.

Economically, America is like the smartest kid in special ed.

I’ve discussed the debt situation earlier here and here. It’s not as bad as it may seem.

However, the treasury prints money, not the fed. QE is not the same as debt monetization. This is distinction explains why the money supply has not increased in spite of QE.

The story here couldn’t be more self explanatory. The US M2 money supply is simply not expanding anywhere close to its historical rate.

As you can see, the growth of the M2 money supply is still inline with historical trends:

This explains why inflation as measured by CPI is still very low. Another reason for low inflation is that the money velocity is still very low:

Loan activity is stagnant. Monetary policy can be likened to taking a bunch of money, sticking it in a safe, and melting the key. Monetary policy seems to be more psychological (as a way to boost confidence) than to alter the structure of the economy itself.

The reasoning is simple – the money multiplier is a myth. So, it doesn’t matter how many apples (reserves) the Fed puts on the shelves. It doesn’t result in more apple sales (loans). Banks are never reserve constrained. The explosion in reserves and continuing decline in loans makes this crystal clear. The Fed can continue to stuff banks with reserves and unless we see a substantive increase in lending the expansion of the monetary base will continue to be insignificant.

QE is just another tool in the fed’s toolbox to lower interest rates on the longer-duration of the yield curve after conventional monetary policy has been tried.

Pensions funds are playing a larger role, which is why it’s not such a big deal that China is dumping US debt:

For all the dire warnings over China’s retreat from U.S. government debt, there’s one simple fact that is being overlooked: American demand is as robust as ever.

Not only are domestic mutual funds buying record amounts of Treasuries at auctions this year, U.S. investors are also increasing their share of the $12.9 trillion market for the first time since 2012, data compiled by Bloomberg show.

American funds have purchased 42 percent of the $1.6 trillion of notes and bonds sold at auctions this year, the highest since the Treasury department began breaking out the data five years ago. As recently as 2011, they bought as little as 18 percent.

There is so much demand for low yielding, safe US debt that the bigger concern is deflation, not inflation.

Aaron mentions the stock market going up a lot since 2009, and this is true, but this has more to do with strong economic fundamentals (profits & earnings, globalization, consumer spending, technology, rich people consuming, etc) than QE or money printing.

Just look at multinational companies like Google, Amazon, Apple, Disney, Microsoft, and Nike, all of which keep posting strong earnings quarter after quarter. The new Star Wars movie set a box office record and is expected to gross over $2 billion globally. People are buying stuff, and businesses are transacting with other businesses. The S&P 500 is up 25%, and the QQQ tech index up 40%, since 2013 when the fed announced they were going to end QE. That is evidence economic fundamentals, not the fed, are driving this economic and stock marker expansion.

Although valuations have risen since 2009, they are still well-below the 2000 highs in spite of the market tripling since 2009, and are still within the historical average, again evidence that fundamentals seem to be at work here:

Also, too add, foreign countries don’t want to dump their US dollar holdings, because they are devaluing their currencies to boost growth, as part of the global ‘race to the bottom’, which America is the beneficiary in the form of a strong dollar and low inflation.

However, as I have argued numerous times before, America’ reserve currency status is not an invitation for reckless spending.

As I’ve written about in the past, with the exception of certain bright spots in the US tech sector and retail, the entire global economy is lethargic, creating a flight to safety and thus low rates, especially for American, Germany, and Japan. Also, deflationary forces from falling commodity prices. Deflation is a bigger concern than hyperinflation.

To end with, Aaron is right about the limitations of the CPI, and I discuss this further in Bifurcated Inflation. While there is very low inflation as measured by the bond market and certain items like apparel and electronics, prices for services such as healthcare, tuition, daycare, cable & internet, insurance, rent, and textbooks have outpaced inflation. The idea behind ‘bifurcated inflation’ is that services will become more expensive on an inflation-adjusted basis to compensate for real price declines in hardware and other tangibles. A television set is very cheap, but the cable required to make it functional is becoming more expensive. Netflix, on the other hand is cheap, but streaming internet (required to make Netflix functional) is not, and has outpaced inflation: