Monthly Archives: January 2017

Why Foreign Real Estate is a Bad Investment

There is some advice that is so bad, as an act of public service it is necessary to debunk it. In this post, it’s about foreign real estate, or more specifically, why you should never buy foreign real estate.

Five reasons not to buy US real estate

12 Reasons to Buy Real Estate Overseas

Despite all the doom and gloom about US real estate bubbles, foreign real estate–with the possible exception of a handful of countries–is an awful investment, and much worse than US real estate both in terms of greater volatility and more risk.

Real estate crashes are not unique to America. Foreign real estate markets crash all the time, and they are often much longer, deeper, and more protracted than US real estate crashes. In the earlier post Advice to Ignore, real estate in the Bay Area and America, overall, has not only recovered from its 2006-07 peak, but has made new highs in many regions:

10 years is a long time to wait to break even, but it sure beats Japan, which 25 years later is still far from its 1989-1991 bubble highs:

During the final stages of Japan’s post-WW2 ‘miracle’, there was the belief that Japan would eventually ‘buy out the world’, having in 1989 bought out Rockefeller Center for $846 million, and in 1990, the Pebble Beach golf course. Many American business leaders emulated Japanese business management, culture, and mannerisms, such as by bowing, taking off one’s shoes at at home, long work hours, and fostering a culture of subservience and loyalty to the corporate hierarchy. All of that came crashing down in the early to mid 90′s when Japan’s bubble economy and buying binge finally burst. America has long since pulled ahead of Japan, which decades later has yet to recover. Buyers of Japanese real estate will likely die before ever seeing a positive return on their investment.

A major risks of foreign real estate investing is currency fluctuations. If you use your US dollars to buy property in Euros or Pounds, and the Euro or Pound loses 20% of its value against the dollar, you lose 20%, which is what happened in 2008 (financial crisis), 2011 (Greece and Spain crisis), 2014, and 2016 (Brexit). The Euro may also make gains against the dollar, but the trend for a long time has been for foreign currencies to lose their value against the US dollar. Since 2014, the US dollar has been very strong, which I predict will continue:

In the unlikely event the US dollar falls a lot, with US real estate it doesn’t matter, because the US dollar is still the world benchmark for wealth, and a store of wealth. The US dollar is not only a reserve currency, but everything (such has oil, gold, etc.) is denominated in US dollars, not Euros, Francs, Pounds, or Yen. Consequentially, the US can print as many dollars as it needs to prop up its assets, as it did in 2008-2014, and buyers of asset classes such as US stocks and US real estate benefit. Some call it fiscally reckless, but the US has the power to do this without suffering from the consequences of ‘wealth destruction’ and hyperinflation, that no other country in the world has. The central bank of Europe can print money to try to boost its economy, but such efforts may destroy wealth by weakening the Euro against the US dollar. America does not have that problem, because of dollar denomination. As an added bonus, when the US dollar falls, it makes America’s exports more competitive.

Especially since 2009, The US economy is pulling ahead of the rest of the world, with the possible exception of China. Since 2009, America has the strongest real GDP growth of all major developed nations (except for perhaps China). Why would the Euro, Aussie (Australian Dollar), Jpy (Japan), Pound, Kiwi (New Zealand), or Cad (Canadian dollar) become a reserve currency when their economies are much weaker. Rising interest rates under an inflationary, stimulus-laden Trump administration will strengthen the US dollar even more.

If Japan wasn’t bad enough, as recently as early 2014, Moscow was in the top-10 list of ‘most expensive cities’. Then came the late-2014 oil implosion, which saw oil prices fall from $100 in 2014, to $45 in late 2015. As a result, the Russian Ruble lost 70% of its value against the dollar in the span of a year, destroying the wealth of anyone who held Russian assets, because Rubles suddenly became much cheaper. Now Moscow is somewhere in the top 100-150, far from top 10.

And then in 1997-1998 there was Asian financial crisis, which saw the currencies of Indonesia, Philippines, and Thailand lose 30-70% of their value against the dollar in just a singe year. Poof–wealth gone.

Other notable examples:

Greece real estate lost over 50% of its value from 2008-2016 and is nowhere near coming back:

Ireland real estate…another train wreck, down 30-40% since 2007:

Romania…down 50% since 2008:

If you look at these charts, it’s immediately obvious that these declines are much longer and deeper than the US housing market crash, yet everyone thinks that the US housing market is the worst world in the world, due to biased media coverage. After accounting for weakness in the Pound and Euro relative to the US dollar, it gets even worse.

Yes, sometimes foreign real estate does well (Norway, Sweden, Hong Kong, Canada), but when things go south, it tends to be much worse than in the US. This is due to currency weakness, bubbles and fads, and smaller economies being more vulnerable to weakness. America is such a big and important economy, that it’s immune to these three things. With US real real estate investing, the returns may not be as great compared to some countries, but they are more consistent and smoother, and there is no currency risk.

A major reason why US real estate is so resilient–in addition to central banks having the power to prop up American assets, is because of huge private equity and foreign demand. Smart, rich Chinese buyers are flocking to the safety of US real estate and the stability of the US dollar. The Chinese know that $1 billion of US dollars is always $1 billion, but a billion US dollars worth of Yen or Euro may be something different tomorrow. With the exception of maybe Monaco, Cayman Islands, and parts of Northern Europe, wealthy Americans seldom buy foreign real estate (Warren Buffett will never touch foreign real estate), but wealthy foreigners love to buy American real estate, so it makes sense to own real estate in the country where all the rich people are buying.

Yes, foreign real estate may have higher yields and maybe you will save some money because the cost of living is lower, but what good does that do when your principal is destroyed in a bubble or currency crash. Also, when prices fall, so too will the rent, so the yields are often unchanged.

Other benefits of US real estate include the overall geopolitical stability of America and its government. As heated as the Trump vs. Clinton campaign was, it pales in comparison to the politics of much else of the world, where the stakes are much higher. In 2013, the government of Greece took 10 percent off the top of each bank account holder. That would be unheard of in America, but such occurrences are not too uncommon in smaller countries.

There are no shortcuts. High yield almost always comes with hidden risk that isn’t manifested until it’s too late, as the investors of Madoff’s fund learned the hard way. US real estate offers solid, consistent returns going back over a century, and with much less risk than foreign countries.

Trump’s Muslim ‘Ban’

It’s been absolute pandemonium offline and online after Trump announced his Muslim ‘ban’. I have never seen anything like this…so much outrage, virtue signaling, and holiness spiraling over something that affects relatively few people and is far from binding. The funny thing is, this is the first time the liberal media is attacking Trump for not being extreme enough, in Trump failing to include countries he allegedly does business with in his ban. But it’s a no-win situation because had he banned more countries, the left would have gone after him harder anyway. Assuming this executive order holds, there is nothing unconstitutional about it, as these visa holders and refugees are not US citizens, and denying entry does not violate any human rights either.

Section 1182(f) of Federal immigration law, ratified in 1952, contains a clause that allows the president to bar entry of certain groups, if it’s in the best interests of the United States.

From NRO: Trump’s Exclusion of Aliens from Specific Countries Is Legal:

Federal immigration law also includes Section 1182(f), which states: “Whenever the President finds that the entry of any aliens or of any class of aliens into the United States would be detrimental to the interests of the United States, he may by proclamation, and for such period as he shall deem necessary, suspend the entry of all aliens or any class of aliens as immigrants or nonimmigrants, or impose on the entry of aliens any restrictions he may deem to be appropriate” (emphasis added).

The left also conveniently forgets that Obama deported more immigrants than any other president:

President Barack Obama has often been referred to by immigration groups as the “Deporter in Chief.”
Between 2009 and 2015 his administration has removed more than 2.5 million people through immigration orders, which doesn’t include the number of people who “self-deported” or were turned away and/or returned to their home country at the border by U.S. Customs and Border Protection (CBP).

President George W. Bush’s administration deported just over two million during his time in office; and Obama’s numbers don’t reflect his last year in office, for which data is not yet available.

To borrow from Scott Adams, Trump may be using a persuasion technique called anchoring. By making his executive order really ‘extreme’, Trump can then dial it down and reconcile somewhere in the middle, which is more than he would have gotten had he made his initial offer weak. Trump can split the difference and still come out ahead.

Already it’s being diluted. A federal judge defied the order, and the White House put out a statement that parts of it are negotiable, “On the same day, announcing a reversal of the order’s scope, White House Chief of Staff Reince Priebus said that the order would not affect U.S. lawful permanent residents (i.e. Green Card holders),[4] and that “going forward” the order would allow exceptions on a case-by-case basis” The outrage over this also gives Trump some cover to push through other parts of his agenda, such as the tax cuts and defense spending. Trump will come out ahead on this.

Smart, Optimistic Millennials

Browsing /pol/, you’re get a mini history lesson (about the Eastern Roman Empire and Catholicism), an economics lesson (about why Argentina is stagnant despite abundant natural resources, and about sovereign debt yields), a pharmacology lesson (about psychedelics), and even a grammar lesson.

If you went back in time 40-60 years ago and showed this screenshot to anyone who was not an economist, they would be dumbfounded (as if you speaking Mandarin), but such posts make sense to many millennials, who seek a higher level of discourse than earlier generations and are familiar with advanced economics concepts. Millennials who frequent smart sites like 4chan, Reddit, and Hacker News, are rejecting ‘low information’ discourse, gravitating towards ideologies that fall outside of the left-right schism (alt-right, NRx, anarcho-capitalism, libertarianism, etc.); debating social theory, economics (the post-2008 great economics debate), and HBD (maybe IQ is important, and some people are born smarter than others); learning coding (how does functional programming work anyway?), physics, and mathematics (string theory, quantum physics, game theory, ordinal numbers and sets, etc.); engaging in philosophical inquiry (positive vs normative ethics, categorical imperatives, ‘trolley problem’, utilitarianism, deontology, introspection and existentialism); and discussing investment strategies, finance (are markets efficient, and if so, how much?), self-sufficiency, and personal development.

As mentioned before, finance and wealth creation are also very important to millennials…A recent ‘Ask Reddit’ thread What are some cons of being rich? got hundreds of replies, indicating both a lot of rich people and a sort of newfound ‘solidarity’ with the rich, in contrast to 2009-2013 during OWS and the Obama administration in which there was a lot more antipathy towards capitalism, finance, bankers, and ‘the 1%’. You go on Quora and you see hundreds of questions about how to be richer, how to be smarter, about being smart, having a high IQ, etc.–not questions about how to be better at social justice and stuff like that. In the past, young people aspired to be rock stars, athletes, and actors, but now they want to be financiers, philosophers, computer scientists, and physicists, like these people:

They don’t want to be a poor loser who whines about ‘white male privilege’. They want to be like Elon Musk, who builds rockets and makes childhood dreams a reality.

Jack Bogle, the legendary inventor of the ‘index fund’, agrees that millennials are both smart and optimistic:

…another really great part of my life has been working with young people. I’ve had about 150 students on my scholarships at Blair Academy and another 150 on my scholarships at Princeton. This present generation, they’re bright. I mean, they’re unbelievable.

MR Is there a difference between them and past generations, or is it just that optimism of youth?

JB Well, certainly they’re smarter. Certainly they’re more internationally minded. Certainly they’re less personal wealth-oriented. They’re happy to have their wealth measure by what they’ve accomplished. These are generalizations. They’re just great young men and women.

Based on my own empirical evidence, I disagree with the part about being less ‘less personal wealth-oriented’.

As explained in ‘Millennial Mindset’ 1 & 2, wealth for millennials is measured in terms of breadth of knowledge (intellectualism) – but also wealth as measured by a bank or brokerage account statement, and millennials are also very individualistic (individualism). Having both wealth and intellectualism is ideal, but intellectualism is necessary. It’s like the ‘Ayn Rand generation’ but with more socially liberal politics.

Also, there is evidence that the generation that follows millennials – ‘Generation Z‘ ( (the demographic cohort between the ages of 14 and 23) – may be more socially conservative than millennials and possibly smarter too. This could provide a huge economic tailwind once these smart millennials and Gen Z begin to enter upper-management of major corporations, replacing retiring boomer and Gen X seniority. Or there is the possibility SJW-millennials will destroy everything that the generations before them built, although I am more optimistic. The Greatest Generation grew up during the Great Depression, and if that wasn’t hard enough, went off to fight in WW2 shortly thereafter. Perhaps Gen Z, shaped by the 2008 financial crisis, will turn out better than we hope.

Doomsday prep for the super-rich

This article by the New Yorker is going viral: DOOMSDAY PREP FOR THE SUPER-RICH (Some of the wealthiest people in America—in Silicon Valley, New York, and beyond—are getting ready for the crackup of civilization.)

The article was shared hundreds of times on sites such as Reddit, and the same liberals who express outrage at finance and tech billionaires protecting themselves and their families during possible societal collapse have nothing to say about wealthy politicians and entertainers who also have private jets and mansions and seek to seclude and isolate themselves from society – not just during crisis but at all times.

A common argument in the comment threads is that if the rich want to protect themselves, they should spend their money revitalizing their local communities instead of hiding from them. But the wealthy pay the most in taxes (both capital gains and income) whereas the bottom 50% pay zero income taxes. The left’s anger against the wealthy is misdirected and should be directed against state and federal governments for mismanaging this money.

Regarding the article, instead of asking, ‘when will there be revolt and revolution,’ it’s better to ask, ‘why hasn’t there been?’

Civil revolt is unlikely, because history shows, as explained in earlier posts here, here and here, revolutions typically occurs when there is severe economic strife – massive unemployment, hyperinflation, starvation, etc. We’re nowhere near that. Compared to the rest of the world, Americans have it pretty good. The unemployment rate in America is only 5% (which I know does not take into account those who dropped out of the labor force), whereas in other countries, such as Greece, Brazil, Turkey, and Spain, it’s much higher. Inflation in America is only 2%, compared to much higher inflation in the aforementioned countries. And as explained in the above links, not only the the case for revolution weak, but America-politically, economically, and socially-is very stable. To get an idea of how unlikely revolution is, even in dire economic conditions, consider Zimbabwe, which not long ago had 95% unemployment and 1000% annual inflation, yet they still haven’t been able to depose Mugabe. America went through economic conditions far worse than now – the 70′s stagflation and Great Depression – without revolt or civil war occurring.

Also, America’s law enforcement, defense department, FBI, and military is extremely effective, if push comes to shove, at quelling any possible uprisings. Look at the post-911 response, in which America put its full weight behind preventing terrorism, with success, as there haven’t been any repeat attacks, and many potential attacks have been foiled. Because failed attacks get much less media coverage than successful ones, the absesne of terrorism creates the impression that all this anti-terrorism spending is ineffective, but all the work goes on behind the scenes, and it’s understandable why the FBI and other agencies don’t want to make their counter-terrorism efforts obvious to the public. This is also related to the Lucas Critique in economics–but replace ‘robbery’ with ‘terrorism’, and ‘Fort Knox’ with any major city:

For a simple example, consider the question of how much Fort Knox should spend on protection.[7] Fort Knox has never been robbed. Statistical analysis using high-level, aggregated data would therefore indicate that the probability of a robbery is independent of the resources spent on guards. The policy implication from such analysis would be to eliminate the guards and save those resources. This analysis would, however, be subject to the Lucas Critique, and the conclusion would be misleading. In order to properly analyze the trade-off between the probability of a robbery and resources spent on guards, the “deep parameters” (preferences, technology and resource constraints) that govern individual behaviour must be taken explicitly into account. In particular, criminals’ incentives to attempt to rob Fort Knox depends on the presence of the guards. In other words, with the heavy security that exists at the fort today, criminals are unlikely to attempt a robbery because they know they are unlikely to succeed. However, a change in security policy, such as eliminating the guards, would lead criminals to reappraise the costs and benefits of robbing the fort. So just because there are no robberies under the current policy does not mean this should be expected to continue under all possible policies. In order to answer the question of how much resources Fort Knox should spend on protection, the analyst must model the “deep parameters” and strive to predict what individuals will do conditional on the change in policy.

The Rodney King and Watts riots were perhaps the closest in recent years America has come to major civil unrest and ‘race war’, but those were self-contained and hardly apocalyptic. For there to be major disruption probably requires a coup of some sort whereby the military and police defy the chain of command in joining or forming an uprising. Another possibility could be an attack by a rogue state on major American cities, that isn’t thwarted by anti-missile defense systems.

Back to the original article, this is a good point:

Most people just assume improbable events don’t happen, but technical people tend to view risk very mathematically.” He continued, “The tech preppers do not necessarily think a collapse is likely. They consider it a remote event, but one with a very severe downside, so, given how much money they have, spending a fraction of their net worth to hedge against this . . . is a logical thing to do.”

If someone has a family and residence to protect, some preparation makes sense.

“I’ve heard this theme from a bunch of people,” Hoffman said. “Is the country going to turn against the wealthy? Is it going to turn against technological innovation? Is it going to turn into civil disorder?”

To answer those, no.

“But, having said that, I actually think it’s logically rational and appropriately conservative.” He noted the vulnerabilities exposed by the Russian cyberattack on the Democratic National Committee, and also by a large-scale hack on October 21st, which disrupted the Internet in North America and Western Europe. “Our food supply is dependent on G.P.S., logistics, and weather forecasting,” he said, “and those systems are generally dependent on the Internet, and the Internet is dependent on D.N.S.”—the system that manages domain names. “Go risk factor by risk factor by risk factor, acknowledging that there are many you don’t even know about, and you ask, ‘What’s the chance of this breaking in the next decade?’ Or invert it: ‘What’s the chance that nothing breaks in fifty years?’ ”

This is where the collapse argument shows weakness. If such systems are really as vulnerable as some argue they are, there would be far more disruptions by terrorists and other groups, than we’ve already seen. Those who seek the destruction of America are looking for any entry possible, so if major infrastructures are so vulnerable, why haven’t there been more attacks? If disabling major websites and services such as Google and Netflix were easy or feasible, such attackers could realize large profits by betting against the stock prices of companies adversely affected by prolonged downtime.

Élite anxiety cuts across political lines. Even financiers who supported Trump for President, hoping that he would cut taxes and regulations, have been unnerved at the ways his insurgent campaign seems to have hastened a collapse of respect for established institutions. Dugger said, “The media is under attack now. They wonder, Is the court system next? Do we go from ‘fake news’ to ‘fake evidence’? For people whose existence depends on enforceable contracts, this is life or death.”

Again, more fear and concern over nothing. Trump still plans to lower taxes and reduce regulations. In his first week, Trump ordered the revival of Keystone XL and Dakota Access pipelines. Trump rightfully going after the disingenuous MSM has nothing to do with reneging contracts between private individuals. The media is not an ‘established institution’, and many government institutions are oversized and inefficient and need to be reduced or eliminated. The left keeps getting it wrong: the fate of the US economy does not hinge on some stupid, overblown ‘trade deals’. If such deals were so important, Trump would not be able to override them with an executive order; he would need to have the approval of congress. Trump on Monday pulling out of TPP was met with indifference on Wall St., and then over the next two days the stock market rocketed 1.5% higher to new highs. Trump and his staff are not idiots and are not going to try to enact policy (assuming that is even possible) that sinks the economy and stock market, generating bad press and jeopardizing his reelection hopes.

The part about the underground bunker made from a missile silo reads like something from a sci-fi novel. The biggest challenge is probably retreating to the silo when crisis strikes, because it’s possible everything will shutdown immediately if the crisis is bad enough. You would have to permanently live within the vicinity of the silo, for maximum effectiveness.

This passage stood out:

“The country has turned into the New York area, the California area, and then everyone else is wildly different in the middle,” he said. He worries that the economy will suffer if Washington scrambles to fund Social Security and Medicare for people who need it. “Do you default on that obligation? Or do you print more money to give to them? What does that do to the value of the dollar? It’s not a next-year problem, but it’s not fifty years away, either.”

A single large bailout would probably be required to cover the cost of buying out all existing payees. People aren’t going to revolt if social security goes away–they will revolt it they paid in for many years and get nothing.

Overall, I reiterate there won’t be any sort of crisis or revolt in America during Trump’s presidency and possible reelection, if not for decades or longer. Firearms and emergency rations are a good idea for general self-defense and preparedness regardless if there is a major crisis or not.

The American Dream Still Exists–If You’re Smart Enough

From Freakanomics Radio: Is the American Dream Really Dead?

It depends how you define it and for whom. The podcast defines the ‘American Dream’ in terms of upward mobility, or the percentage of people born in the bottom fifth of income who advance to the top 20%. Because the size of each bracket is always fixed at 20%, the mobility rate (going from the lowest bracket to the highest) is always between 0-20%. San Francisco and San Jose have higher levels of upward mobility (13%) than Atlanta (5%). The main guest on the podcast, Stanford professor of economics Raj Chetty, argues that environmental factors, specifically the neighborhood a child grows up in an early age (before the age of 9), plays a major role, and that children in who grow up in areas with a lot of ‘social capital’ have higher rates of upward mobility.

Predictably, the podcast doesn’t mention IQ or how some groups may be inherently smarter than others. So does that mean we can discard HBD? I disagree. On an individual basis, all else being equal, smarter people will have a higher likelihood of upward mobility. As discussed in earlier posts, the US economy is becoming increasingly bifurcated and deterministic, with biological factors such as IQ playing an increasingly important role in determining who succeeds (or has the most potential to succeed) or fails, and such determination is made very early in life.

Kids who are ‘wired for success‘can easily learn high-paying skills such as coding. According to an immensely popular Reddit AMA, one such individual taught himself a fairly difficult programming language in under a year using self-help books, upon which he developed a complicated app, making himself and his company presumably a lot of money. His story is the epitome of the American dream – to start from nothing (as he did) and then become successful in a relatively short period of time through one’s own efforts and gifts.

Also, the fact the AMA was so hugely popular, getting over 40,000 votes and 4,000 comments, is further evidence we’re in the era of the ‘STEM celebrity‘, which I wrote about in 2014 and 2015, and is another example this blog correctly predicting and observing nascent social and cultural trends.

For the high IQ, they are on what appears to be a permanent plateau of abundance, for which the American Dream is alive and well. Obviously, they still have to work to attain it, but as the Reddit AMA above shows, success comes much faster and easier than for most, and the payoffs can be huge (as the meteoric success of websites and apps such as Uber, WhatsApp, Instagram, Facebook, Google, and Twitter show). Never before in the history of the world has there been a better time to be smart and rich. But for those who make up the ‘fat middle’ of the Bell Curve, not so much. I believe the sun has set on the American Dream for those people.

This pessimism has to do with how the US economy has evolved, but also the winner-take-all nature of post-2008 American capitalism, in which there are too many losers and few winners, the latter which keep growing by taking advantage of cheap borrowing costs and globalization. Entrepreneurs of average IQ tend to start businesses that deal with tangible products–restaurants, grocery stores, clothing stores, and auto repair shops–but such businesses also have high start-up costs because a lot of space and labor is required. But since the 80′s, overhead costs (rent, insurance, legal, advertising, etc.) have surged relative to inflation, and since 2008 credit has become more scarce because banks are reluctant to lend, increasing the failure rate for businesses that have high initial capital requirements.

The technology industry, especially coding, is largely insulated from these trends because the start-up costs are much lower: you don’t need many employees or a lot of physical space to create an app or a website. A team of three or so people in a singe bedroom or garage can code an app potentially worth millions or even billions of dollars should it go viral. Getting that kind of growth and ROI with a brick and mortar business is unheard of. All this growth in the technology and financial sectors over the past few decades has made the surrounding west and east coast real estate among the wealthiest in the nation:

… 70 of the top 100 ZIP codes nationwide are in California and 20 are in New York state. The remaining 10 include two each in Connecticut, Massachusetts and New Jersey and one each in Florida, Maryland, Nevada and Washington state.

On overage, tech jobs not only pay more than construction and other ‘blue collar’ jobs and sectors, but high-IQ jobs also tend to be more stable. In the 80′ and 90′s, US auto workers were hit hard by foreign imports, the shuttering of domestic auto factories, and the demise of auto unions. Hundreds of thousands of jobs were lost, to never return, and the workers that remained faced lower pay. Then in 2006-2008, the housing market burst, again hurting blue collar workers, in the construction industry, who tend to be of average IQ. Those jobs also didn’t recover even though housing prices have rebounded, because too many homes were already built in the 2003-2007 boom. And in 2014-2015, the energy market imploded as oil fell from as high as $110 in 2013 to as low as $35 in 2016, and as many as a million workers in various energy sectors and industries lost their jobs, due to factory closures. Again, those jobs haven’t returned. The bursting of the the bubble in 2000 hurt tech jobs to some degree, but it was much less longstanding than the prior examples.

Despite record high stock prices and earnings, most of the job growth since 2008 has been in the low-paying service sector. High-IQ jobs that require advanced degrees fared the best and have seen strong wage growth, but middle-class jobs that in the past only required a high school diploma were hollowed out. And then when you add all the student loan debt, compounded by weak job prospects, and it’s understandable why so few are celebrating the DJIA recently crossing the 20,000-point milestone.

It may not seem fair, but that’s the economy we have. For those who are smart, the American Dream dream is still possible. For everyone else, maybe not.

Stagnant Inflation-Adjusted US Wages: Putting Things in Perspective

Headlines about stagnant inflation-adjusted wages in the US, are becoming increasingly common. Real wages have not budged since the 60′s:

However, WSJ had an article discussing how wages are higher when measured by a different inflation index, and also after accounting for increased employee benefits in the form of employer-subsidized healthcare.

This trend is not unique to America; wages have been stagnant in all developed countries:

Also ignored in this often partisan debate that blames so-called corporate greed, is the role of utility and buying power, which has surged despite flat wages.

After adjusting for buying power, utility, and the strong US dollar, American workers are getting a good deal relative to foreign workers. The US dollar is the strongest it has been since 1986 and inflation remains low in the US:

This means American workers can take their dollars and buy far more than comparable workers in the UK, Australia, or elsewhere. Consider a hypothetical economy that has high inflation, high inflation-adjusted wages, but also slow inflation-adjusted GDP growth (stagflation). Because inflation-adjusted wages are rising, it may seem like workers are prospering, but their local currency offers a very poor purchasing value when converted back into US dollars.

For example, in 2014, in the span of just three months, the Euro and Pound lost 20% of their value relative to the US dollar. Did wages rise 20%? No, effectively equating to a 20% pay cut and wealth tax. The US dollar is special because it’s a universal unit of value, so a falling dollar hurts American wealth far less than a falling local currency hurts other countries.

A laborer in such a country may spend a good chunk of his or her income on basic necessities, as the hyper-inflationary crisis in Valenzuela shows, whereas low-skilled workers in America for the same number of hours can buy far more. American wages offer much more utility and value: Netflix, abundant credit, stores stocked with cheap food; cheap computers, phones, and TVs for the entire family. Similar electronics are more expensive in the UK:

Although healthcare and college have become more expensive,

…electronics and most food is cheaper. Additionally, an increasing percentage of healthcare and education costs are subsidized by federal or private lenders. Few pay full tuition or healthcare costs out-of-pocket. But also, there is much more utility. A TV today is superior to a TV made 60 years ago, costs fewer hourly wages to purchase, and has vastly more channels to choose from (instead of just 5 or so, which is how it was half a century ago). There are new drugs that didn’t exist decades ago. The internet has replaced libraries. Amazon has replaced inconvenient department stores.

Although UK, Australia, and Canada have higher wages, everything else is more expensive to compensate. (Such as rent, heating energy, electronics, prioritized healthcare (not universal healthcare that long waits. Even in countries that have universal healthcare, many patients will opt for the private plans if they can afford it).)

Low inflation and strong purchasing power is why America often ranks high on various ‘cost of living’ indexes, which take into account rent, inflation, cost of basic goods and services, and local wages. For this reason, American tourists in Britain are often taken aback by how small and expensive everything is, as they are not accustomed the sudden downgrade in standard of living despite Britain being a ‘first world nation’.

This is probably why so many people want to immigrate to America, because despite rising wealth inequality and stagnant inflation-adjusted wages, it’s still better than their home country. The trend could also be part of America’s transition to a post-scarcity economy where most citizens have near-zero or negative net-worth but have abundant purchasing power and technological utility, as well as subsidized healthcare (expansion of Medicaid) and housing (expansion of public housing).

Why NRx is Popular on Reddit

Reddit’s users are predominantly millennials, and ideologically, the site tends to have an anti-authoritarian, anti-establishment, and contrarian bias, yet NRx and related ‘Dark Enlightenment’ views are surprisingly popular there despite reactionaries generally advocating ‘more power’, not less. When Moldbug in 2016 did an AMA it was very well-received, and judging by the up-votes, many Reddit users were not only curious about NRx but agreed with many aspects of it, but also if they didn’t agree still respecting Moldbug for his intellectual intrepidness. You can go on almost any moderately popular sub and many posters are familiar with NRx writers and concepts…they know who Nick Land and Moldbug are. Here are some reasons why NRx has become popular, not just on Reddit but elsewhere online:

1. The post-2013 anti-SJW backlash. After a string of victories: OWS, the 2008 election, and 2012 re-election of Obama, the left became overconfident and overplayed their hand, and the Reddit community turned against ‘social justice’ when SJWs began going after innocent targets, embodying the very oppression they allegedly were supposed to fighting against.

2. The recent backlash by millennials against democracy. Both the ‘left’ and the ‘right’ agree democracy is ineffective and not the ‘unalloyed good’ that their teachers and other propagandists had told them, blaming democracy for engendering wealth inequality, creating inefficiency and waste, fostering corruption, being an impetus for unnecessary and costly ‘nation building’ occupations, being a popularity contest that puts superficiality ahead of important issues, and for giving voters who are ill-informed too much influence over policy. It makes sense: anyone who finds Dancing with the Stars entertaining should not have a say in how the country is run. Put the most competent people in charge, but the problem with democracy is the increasing trend towards the least competent running things. The people who are the most drawn to power are often the least fit to serve.

3. Related to anti-establishmentarianism, being a reactionary in an era of political correctness is in itself anti-establishment and contrarian. In the 60′s and 70′s, boomers rebelled through drugs and other acts of mindless conformity; millennials rebel by turning to intellectualism and introspection.

4. Although Reddit tends to be anti-authoritarian, it understands the need for legitimate authority such as police and military, which is why the Reddit community, by in large, condemned the BLM protests during the 1-year Ferguson anniversary, the protests by women and BLM against Trump, and other instances.

From Social Skills and Political Correctness:

Online, whenever a story breaks about the public school war on boys or about false rape accusations, the overwhelming majority of comments are against the SJWs, and we’re not talking about conservative websites, but sites like Reddit that have a broad appeal. For example, I was on Reddit in early August following the Ferguson melee, and I estimate at least 3/4 of the users were on the side of the police and against ‘black lives matter’. Anti-police comments were summarily down-voted. This was for general, bi-partisan subs like /r/news, not conservatives ones.

Reddit and 4chan oppose illegitimate and arbitrary power; for example, SJWs telling white males to check their privilege, or how far-left liberals try to impose their values on society through the education system, courts, or culture. They oppose communism for this very reason. When Fidel Castro died, all of Reddit was celebrating, save for a handful of the usual socialist/Marxist subs.

5. Reddit understands that power in the context of NRx is not about micromanaging individuals (that’s puritanism), but rather about power as a means of promoting order, stability, and ‘rule of law’, yet where personal autonomy is still preserved, in contrast to democratic forms of government, which do a poor job at concentrating power and thus tend to be susceptible to corruption and ‘purity spirals’.

6. Related to the backlash against democracy, the millennial-lead backlash against ‘low information‘ discourse, and NRx is as ‘high information’ as you’re going to find.

7. Related to #1, many liberals realize they have been too close-minded, and Hillary’s loss, which came as a surprise to many on the left becase Hillary’s polls were strong for most of the campaign, was a lesson or wake-up call to the value of understanding opposing perspectives instead of being insulated. This also ties in the with rise of ‘rationalism’ and centrism, and the pendulum of discourse, to some extent, returning to the middle after swinging too far to the left in 2009-2013. Popular sites such as Slate and Quillette are part of the new ‘contrarian mainstream’ that are challenging beliefs that many on the far-left hold dear. Less Wrong, which is very popular on Reddit, although it’s not reactionary per say, helped create the intellectual groundwork for the reality-based approach characteristic of NRx, and with its large readership helped to make NRx more popular. Some could liken Less wrong as ‘reaction’ for the left.

8. The rise of the alt-right and Trump, although this is related to reasons 1-7.

Trump Presidency: Sober Expectations

Trump’s inauguration speech was very ambitious….if he accomplishes just 10% of it (and assuming there are no negative economic consequences), his presidency will be a success. Of course, it’s very hard to predict how history will judge Trump, but I’m predicting he will surpass expectations, meaning that he’ll be a better president than many in the media and the right-wing ‘establishment’ are predicting. I am highly confident the eight years of foreign peace, stock market gains, and American economic growth and stability under Obama (not that I am giving Obama credit for it; had Bush been given two more terms, the post-2008 recovery would likely been even stronger) will continue under Trump. Given Trump’s inexperience, this will work to his favor, because all he has to do is not screw it up. Voters who are expecting deescalation in the Middle East and sweeping economic and immigration reform will likely be disappointed. The Trump presidency will prove to be surprisingly uneventful. Yeah, unless there is some sort of cataclysmic event (such as another 911), for the next four years, all the global economic and social trends that were in place before Trump acceded office will remain so. As Scott noted, Trump’s efforts to create and save American jobs my be more symbolic than permanent and sweeping. But that’s still better than nothing. Trump’s legacy is being a catalyst for increased populism around the world, but making a big difference in terms of policy will be much more insurmountable.

A Skeptic’s View of Fred’s IQ Artilce

From Fred Reed; IQ: A Skeptic’s View

As anyone who has read Fred Reed’s columns knows, he has a soft spot for Mexico, possibly stemming from the fact he lives there with his wife and children, ardently defending the country against so-called ‘IQ-ists’ who insist Mexico only has an IQ of around 85, which Mr. Reed refutes with anecdotal evidence and how Mexico City, developmentally, resembles that of cities of higher IQ populations. His latest article is no different.

Fred is far from being an idiot, having scored in the 99-percentile on the GRE according to his website, implying an IQ of at least 140-150, but I think he deliberately omits obvious counterarguments to generate more discussion for his articles, as commenters below fill the obvious but intended gaps of his logic. It’s almost like a variation of Cunningham’s Law, which states “the best way to get the right answer on the Internet is not to ask a question, it’s to post the wrong answer.”

For example, American blacks, the Irish, and Mexicans had IQs accepted by the list as being 85, 86, and 87 respectively—almost identical. It seemed odd to me that identical IQs had produced (a) the on-going academic disaster of American blacks (b) an upper Third World country running the usual infrastructure of telecommunications, medicine, airlines, and so on, and (c) a First World European country. This, though IQist doctrine argued vociferously that IQ correlates closely with achievement. Well, it didn’t.

I think he confused ‘b’ and ‘c’.

I was struck by the perfect acceptance of these numbers even though they made no sense. IQists simply do not question IQ. I pointed out the obvious conclusion, that if Mexicans could run the infrastructure of modern nations, decent if not spectacular universities, and so on, then so, on the basis of IQ, could blacks—none of which they in fact do, or have done.

…Do you really believe that this city was designed and built by people with a mean IQ of 84? That is six points below Mexicans, and below American blacks? As a matter of logic, it follows that if people of IQ 84 can design, build, and operate a city with all the credentials of modernity, so can a population of IQ 85. It’s either both can, or neither can, or something is wrong with the purported IQs. For what it’s worth, my wife and I recently spent a month traveling widely in the country. No sign of stupidity

Here is the global IQ map:

Africa and South America have IQs of around 85-90, almost a full standard deviation below Europeans and Asians. In the case of Africa, this data is corroborated by many tests, in which Africans consistently score even lower than Whites, even for non-culturally biased tests such as Raven’s Progressive Matrices. This is discussed in further detail in IQ Tests Are Not Culturally Biased.

But it’s not just Mexico that has modern-looking cities–so to does Zimbabwe and Uganda, both of which have lower national IQs than Mexico. For example, Kampala, the capital city of Uganda:

…and Harare, the capital city of Zimbabwe:

As the examples above show, the existence of modern infrastructure in sub-100 IQ countries is not a refutation ‘IQ-ism’, but rather that scarce cognitive capital is being put to good use. The major flaw in Fred’s logic is that he ignores how national IQ is only an average of a normal distribution of IQ scores. Countries with national IQs of 80-90 will still produce geniuses (albeit at a much lower rate), because of the normal distribution of IQ scores. Maybe instead of, say, thousands of geniuses required to to build and run a modern city, maybe you only need a few hundred geniuses, which is feasible even for a country with a national IQ of 85. Also, low-IQ countries import cognitive capital (doctors, engineers, etc.) as needed.

This is furiously denied in IQist circles. The reason, in my judgement, is that thirteen points is exactly the purported gap between Mexicans and US whites insisted upon by IQists. These, often rabidly anti-immigration, do not want to admit any possibility that the immigrants might not be suitably stupid. Why they want immigrants to their country to be moronic is not clear.

Again, señor Fred continues to misinterpret, ignore, or misconstrue arguments that refute his thesis. How else is it explained that certain immigrants score lower on achivement tests and are disproportionately represented in the criminal justice system.

Source: The Color of Crime, 2016 Revised Edition

If IQ measured intelligence, we would be in the midst of an intellectual explosion. We are not.

To some extent, we are. Look at all the innovation coming out of Silicon Valley (self-driving cars, delivery drones, apps that can do everything you want, etc.), or the surge in physics and mathematics publications on arXiv, or how America leads the world in research papers, Nobel Prizes, and patents.

Then in the IQ brew there is the occasional intrusion of common sense. (Not much of it, I grant.) A country whose purported IQ seems to me to fail the test of common sense is India, mean IQ 81. Here we have a billion people averaging well below borderline-retarded. Say again? Anyone even vaguely familiar with the intellectual, artistic, and musical history of India is going to think, “What are you guys smoking?”

The cut-off for retardation is 70, not 80.

There immediately springs to everyone’s mind that Indian kids dominate the Scripps National Spelling Bee. The IQist response is that only the smartest Indian kids come to the US. Perhaps, but the smartest American kids are already here, aren’t they? And since the kids got their visas based on the brains of their parents, shouldn’t they be regressing to the (dismal) mean?

Yes, I know the IQist explanation, that they are genetically-selected Brahmans, said to have a mean IQ of 96, the rest of the country being wretchedly stupid. Well, maybe. Like so much in IQist thought, it relies on genes posited but not identified, acted upon by selective pressures assumed but not quantifiable, to produce assumed effects that cannot be correlated with the pressures. If that isn’t rock-solid, I can’t imagine what could be.

One reason they don’t regress is because of assortative mating. It’s funny how Fred dismisses such counterarguments as ‘maybe’, when it’s the most obvious explanation and also pretty much destroys his thesis. Also, a spelling bee is not an IQ test.

Having spent twelve years in Mexico, I can see no difference in intelligence between Mexicans and Americans. Nor when I lived in Taiwan, Vietnam, or Thailand. This raises the question: How great would the difference have to be to be noticeable? Clearly, greater than thirteen points (OK, now reduced, sometimes, to ten points), since that is the Mexi-American gap measured by IQists. The response will be that I am reasonably intelligent and so spend my time with the reasonably intelligent, but that is equally true in the US, and of course I am in frequent contact with ordinary citizens.

Depends on how you define ‘intelligent’ or how you measure it. Merely conversing with someone in casual setting about simple day-to-today stuff is too imprecise to be of any use in ascertaining intelligence. There’s a reason why IQ tests are designed the way they are, and have specific questions that measure quantifiable attributes of intelligence.

The ‘New World Order’

From Unz: Risks and Opportunities for 2017

Russia is now the most powerful country on the planet. I know, I know, the Russian economy is relatively small, Russia has plenty of problems and just a year ago Obama dismissed Russia as a “regional power” while McCain referred to her as a “gas station masquerading as a country”. What can I say? – these two imbeciles were simply wrong and there is a good reason, plenty in fact, why Forbes has declared Putin the most powerful man on earth for four consecutive years. And it’s not just because the Russian armed forces are probably the most powerful and capable ones on earth (albeit not the largest ones) or because Russia has successfully defeated the USA in Syria and, really, the rest of the Middle-East. No, Russia is the most powerful country on earth because of two things: Russia openly rejects and denounces the worldwide political, economic and ideological system the USA has imposed upon our planet since WWII and because Vladimir Putin enjoys the rock-solid support of about 80%+ of the Russian population.

Even though I’m on the ‘right’, I’m not so quick to jump on the ‘Russia is the greatest thing ever’ bandwagon. People said the said thing in the late 80′s, too, that Russia would dominate, and then like a house of cards it folded. Putin having 80% support is kinda meaningless considering the country is run like an oligarchy anyway. Russia’s economy is weak and highly dependent on oil and gas prices being high. When oil prices plunged in 2008 and in 2014, Russia’s economy contracted significantly. Russia also has high bond yields on its debt and a weak currency. Unlike America and China, Russia’s very deficient in intellectual property exports.

The ‘new world order’ is not Russia, rather it’s the regions below:

America – west and east coasts; Massachusetts
China – four major cities
Northern Europe – Oslo, Stockholm, Davos

The leader by far is America, with it’s unstoppable dollar, eight consecutive years of GDP growth, the election of Trump, and the biggest and longest stock bull market ever. For 2017, I predict the US dollar will continue to surge as Europe struggles with slow growth, Islamic terrorism, debt, and uncertainty…The only way the US dollar falls is if non-American countries outperform, economically, relative to America, which won’t happen as long as the rest of the world continues to be economically weak as it has been since 2011. There’s no reason why Europe, South America, Russia, and the Middle East will stage a meaningful economic recovery. Another reason is that the fund managers who bid up foreign currencies between 2002-2008 and in 2009-2011 are not going to make that mistake again, having been burned twice. As foreign countries rack up debt to futility inflate their dying economies, this pushes their currencies lower and consequently lifts the US dollar, due to the ‘fight to safety’ trade. Yen, Euro, Pound, Aussie, and Canadian dollar are never going to recover…stick a fork in em’. This also explains why Bitcoin is doing so well and will continue to rise, as a means of transferring capital out of countries with doomed currencies. Bitcoin is going much higher and I have been long Bitcoin since 2013.

Although America, as a ‘whole’, is one of the leaders of this ‘new world order’, not all of America contributes equally. The ‘epicenters’ are the Bay Area (especially, the Silicon Valley–the technology capital of the word, home to Apple, Facebook, Google, etc.). Same for China, which has Ali Baba, Baidu, and many other leading technology companies. Europe and Russia also have technology companies, but they don’t exert nearly as much influence as America’s and China’s tech companies. The Bay Area also has among the best real estate markets in the world too. This tiny region controls so much of how the world consumes and processes information, whether it’s the Twitter feed, the Facebook feed, or Google search results. In this same region, there is also Caltech, UC Berkeley, and Stanford, three of the most prestigious universities in the world. Southern California, which has Hollywood and UCLA, is also important, but not as much as the Bay Area.

Another ‘epicenter’ is Seattle, where Microsoft, Starbucks, and Amazon are headquartered. And also, Massachusetts, which has Harvard and MIT, two hugely influential institutions. Additionally, there is New Haven, Connecticut, home to Yale; Providence, RI: Brown; Hanover, New Hampshire: Dartmouth; and so on. Also, Washington D.C., for obvious reasons. Then there is also New York, specially, Manhattan, home of Wall St. and the two most important stock exchanges in the world: the Nasdaq and the NYSE. And Sagaponac, NY, the most expensive zip code in America. So that pretty much covers the most important and influential parts of America (but also most of the world, too).

Despite the protectionist and anti-globalist sabre rattling during the campaign, China–United States relations will strengthen further with Trump as president, and will remain the two most dominant countries in the world, by far, for the foreseeable future. America, especially the Bay Area and New York, will remain more than ever a magnet for China’s high-IQ rich, as China’s cognitive and financial capital floods America’s coasts. As much as some want to believe we’re in a post-America era, the rest of the world can’t get enough of America. The four major cities of eastern China – Shanghai, Beijing, Guangzhou, and Shenzhen – are also ‘epicenters’ or constituents of this ‘new world order’, and like Silicon Valley, are full of innovation and technology, as well as having a very strong real estate market. Like Silicon Valley, it’s somewhat insular, high-IQ, and high-trust, in contrast to most parts of the world, that are much less intelligent and more corrupt and incompetent. China has become so important in recent years to America that even the smallest of news over there is picked up by the American media, and vice-versa.

Finally, there is northern Europe, specifically, the Nordic countries Denmark, Finland, Iceland, Norway and Sweden, where the global elite retreat, insulated from the occasionally undesirable consequences of their actions and general pubic disdain. Other countries that are part of the ‘elite’ include Austria and Switzerland. The capitals Oslo and Stockholm are like quintessential ‘socialist utopias’ consisting of high living standards and perpetually rising real estate for those who are wealthy enough to afford it, and, overall, are high-trust societies with low crime and no Islamic terror.