Damn, back at it again with the fresh links. Good mix this week, some markets, some psychology, some economics.

• Scott Sumner has a post about how bond yields aren’t surprisingly low on a real basis, which we all know is how you’re supposed to measure financial things. My favorite sentence is the last one:

If you want higher interest rates, tell the Fed to cut interest rates.

If more people understood what Scott is getting at, there would be a lot less wringing of hands about monetary policy.

• Psychologists at the University of Illinois (shoutout) took a look at blinking: the astounding thing here is that we don’t know how it works. Well, we know how a blink works, but we don’t have a good idea of why we perceive (or rather, don’t) blinks the way that we do.

It certainly doesn’t feel like someone is flicking the lights on and off. How can this be?

• h/t to Miles Kimball for the link to this World Economic Forum 20 second visual showing the world’s economies.

• h/t Tyler Cowen on this NYT piece about “The Paradox of Disclosure”: feels like a piece that applies to many fields, not just medicine.

Surgeons also gave stronger recommendations to have surgery if they discussed the opportunity for the patient to meet with a radiation oncologist.

• Last, I was recently digging into the relatively well-known BHB studies on Asset Allocation: this 2010 piece from Ibbotson I found to be a great and concise review of the original work and the subsequent literature. He succinctly sums up what is now 30 years of research, conventional wisdom, debunking, and myth.

So how should we interpret BHB’s 90+ percent? BHB captured the performance from both the market movement and the incremental impact of the asset allocation policy.

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Short and pithy is the theme this week.

• Anthony de Jasay compares Pope Francis to Che Guevara: H/t to Alberto Mingardi on this one. This pope has made a lot of great stands, but his understanding of markets and economics seems to be woefully backwards.

“If there is a constant leitmotif in the papal discourse, it is the notion of the dangers of ‘unbridled capitalism’ and the demand that it should serve ‘men and not profit.'”

• Miles Kimball posts an excerpt from Henry George: and reminds us of the following:

What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.

As an aside, this is one reason why I am not nearly as hard on the UK for the Brexit vote as most of the economists whose views I agree with. From a fundamental point of view, either an independent UK and EU will come to trade terms which are mutually beneficial, in which case it is hard to see big long-term losses to the UK, or the EU is simply a bigger vehicle for protectionism and the UK didn’t make a big mistake by jumping ship. Obviously there are other factors and middle grounds at play.

• Jason Zweig reminds us of what gold is with the title of his latest column:

Gold: It’s Still a Pet Rock

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Happy 4th of July – on this most American of holidays please remember to give thanks for the fact that we have the Fed and not the ECB.

• Scott Alexander with one of his trademark posts that is highly enjoyable to read in and of itself, but also applies to a whole class of things in a thought-provoking way. This post is about effects of parenting, but the bigger theme is studies not dealing with limitations that seem relatively easy to overcome (hence the title of Scott’s post). The best part about this post is that it isn’t about replication. Maybe I’m a replication crisis hipster at this point, but complaining about it doesn’t seem cool any more.

Let’s see what the study’s Limitations section has to say about this:

We calculated 42 tests and did not adjust for multiple comparisons.

Why would you do this? If NASA preceded their missions with statements like “We are launching a rocket to Jupiter, but we did not adjust for the fact that it is very far away,” we would stop taking them seriously. But for some reason in the social sciences it’s okay?

• Timothy Taylor with a post about how (perhaps contrary to popular opinion?) the government is more about transfer payments than about provision of goods and services: Generally speaking this seems like a good thing to me, as the government is demonstrably bad at providing goods and services and there are seemingly fewer ways to be terrible at making transfer payments. Whether those transfers are done in thoughtful or intelligent ways or whether they ought to be making them at all is a question for another day.

Now the federal government is spending about 7-8% of GDP on “government consumption expenditures and gross investment,” which is now less than state and local government spending of about 10% of GDP in this category.

• Bob Seawright put out his Q2 2016 market monitor figures: fun to look at mean reversion in real time and let the brain find patterns that probably aren’t there.

• Rita Keller reports on Sam Allred’s perfect firm.

Can we create a firm…….

Where there are minimal politics

That has a very low turnover

That has a very high morale and high productivity…

[follow link above for the rest]

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• White Coat Investor with one of his best (imo) posts in a while on debt: Anyone with high income and debt would benefit from reading this with an eye toward critically examining their priorities.

Therefore, if you are a doctor with a car loan, you probably have terrible money management skills. The status symbol isn’t driving a fancy car; it’s driving a paid-for car.

• In what is certainly unfair to the rest of the financial advisor-centric blogosphere, not only does Kitces put out the best content, he also has great guest posts. This one, from Derek Coburn, on Networking, specifically networking to help existing clients: Everyone knows intrinsically that networking to help yourself reeks of desperation and never works, but the distinction Derek draws between networking as what I’d call ‘shotgun karma’ is a lot less effective than thoughtful networking between two parties who can certainly help each other, especially if you already have a strong relationship with one of those parties.

Of course I still needed to keep exceeding expectations as a financial advisor (you know, do my job), but I realized that by doing something valuable for clients, I could effectively eliminate my competition. Actively helping clients grow their bottom line is the Ultimate Tiebreaker.

• H/t to David Henderson on this link to Bastiat on what is seen and not seen: Always humbling to read someone from 165 years ago eloquently (shoutout to the translator) describing issues that humanity is still grappling with.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

• Love this Kitces article on retirement spending with an IRA and non-IRA dollars: Great examples of the concept that if you could, you would always bring yourself to the same marginal tax bracket each year in your life.

Book Review:

I recently read (re-read? I think I listened to the audiobook before) The 4-Hour Workweek, which if you haven’t read it, has extremely little to do with working four hours per week, and everything to do with eliminating inefficiencies, bottlenecks, and self-imposed restrictions in your life.

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All economics this week, though I’ve got some financial planning posts lined up for the near future.

• Alex Tabarrok links to the 80,000 hours career guide: I started watching the videos, I’m predisposed to liking them since I think earning to give is one of the best ideas to come to charitableness in a while. Love these graphs that Alex included:

• David Henderson on rent control: he draws a great (non-)parallel to gasoline price controls.

The simple fact that we got gasoline last week gave us no inherent advantage over others in getting it this week. We had to line up yet again. But, with rent control, the fact that we had a rent-controlled apartment last year gave us a huge advantage over those looking for apartments this year.

• Timothy Taylor with a post reflecting on the state of fossil fuels: paints a picture that suggests we might not be running out of fossil fuels as fast as everyone always assumes. We seem to be finding new oil at least as fast as we use it up. I wonder if that’s good or bad.

• Scott Sumner on Fed President James Bullard: they really do need to figure out that whole reconciling dot plots vs. market expected inflation thing, though. As a side-note, it seems more and more smart people outside of economics are buying the story that NIRP is just an extension of ZIRP and LIRP (is that a thing?).

“Look, monetary policy is not about interest rates, it’s about hitting the dual mandate.  There is no evidence that we need to dramatically adjust interest rates going forward to hit the dual mandate, so don’t pretend there is.  The Fed should not be trying to ‘normalize’ interest rates, it should be trying to maintain high employment and 2% PCE inflation.”

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• David Henderson on the fallacy of viewing trade as a zero-sum game (trump warning). Also, refreshingly correct use of ‘per se’.

Trump said: “I just left Los Angeles, thousands of cars, millions of cars coming in [from Japan]. We get nothing. We get cars. They get . . . We want to send rice, we want to send corn. . . . The imbalance of these things. They send a car. We send corn.”

So which is it? Do we send corn or don’t we send corn? And are cars “nothing”? And, if we do send corn, what’s wrong with that? Objecting to producing corn in the United States, where it’s cheaper to produce than in Japan, in return for cars that are cheaper to produce there than here—if they weren’t cheaper, we wouldn’t buy them—is to object to trade per se.

• Wade Pfau on safe withdrawal rates: some interest take-aways on what asset allocation ranges are reasonably similar.

• Miles Kimball on NIRP: includes a link to a very interesting IMF working paper on “Breaking Through the ZLB”, which I would expect to be a list of ideas that forecasts at least some of the future of money in developed nations.

But in the realm of macroeconomic stabilization, I view “nothing” as something that–to a reasonable approximation–has been tried and has failed. Anything one does has consequences. There is no true “inaction.” There is only “Do A” or “Do B.”

• Tyler Cowen with a short blog on what we misunderstand most in economics: I’ve heard him (or maybe it was someone else?) mention this one before, but I find it irresistibly accurate:

Since 1900, has the American economy had massive inflation or massive deflation?  If you are spending fifty cents, it is massive inflation, as today that sum hardly buys you anything, but earlier you could have received a nice white shirt.  If you are spending 100k a year, there has been radical deflation.

• Alex Tabarrok on Lottery Winners: some data out of Sweden makes the causal link from wealth to health dubious at best, which I think implies a third variable (or many others) that affects both. Reminds me of the Myers’ Race Car post on SSC from the May 7th links.

most estimates cluster around zero and developmental effects on things like IQ can be rejected (“In all eight subsamples, we can rule out wealth effects on GPA smaller than 0.01 standard deviations”).

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• Tom Selling from Accounting Onion on Loan Accounting Standards: This post is very interesting and extremely reminiscent of a piece by Matt Levine about Michael Dell buying out Dell which probably deserves to be it’s own link.

And it is unauditable to boot. If you believe that another financial crisis is just a question of time, there will be a generation of auditors that will once again have to answer for turning a blind eye to market indicators of deteriorating economic conditions.

• Scott Sumner on whether or not we should build more infrastructure (and who should or shouldn’t build it):

Though the bridge took only 11 months to build in 1912, it will take close to five years to repair today at a huge cost in dollars and mass delays.

• Alex Tabarrok commenting on the same Larry Summers article: he takes a more direct angle about how to address some of the problems.

First, it’s often the case that buildings of little historical worth are preserved by rules and regulations that are used as a pretext to slow competitors, maintain monopoly rents, and keep neighborhoods in a kind of aesthetic stasis that benefits a small number of people at the expense of many others.

Second, a confident nation builds so that future people may look back and marvel at their ancestor’s ingenuity and aesthetic vision. A nation in decline looks to the past in a vain attempt to “preserve” what was once great. Preservation is what you do to dead butterflies.

• Kaleigh Rogers at Vice on cursive as a going concern in education: some of the arguments the proponents of cursive put forth are hilarious, hopefully most kids aren’t wasting time learning handwriting when they could be learning anything else.

New Jersey … to make cursive writing mandatory in the state curriculum. “So that students are able to read our most valued historical documents in their original form … this bill requires that cursive be included in the public school curriculum.”

Oh, and for books, I finished the third Dune book, Children of Dune. Much more like the first, and much less of a grind than reading the second book.

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• James Osborne at Bason Asset with a post about the (lack of?) scaling of AUM fees: While I agree that we’ll see some people seize the opportunity to be different (either by scaling down costs aggressively after some AUM mark or by being “flat fee”), I think there is an alternative thesis that is along the lines of: people with much more money (5-10 million+) are willing to pay more for higher-end service, more contact, more support, etc.

if they go [and] interview 5 advisors they will see 5 fee schedules that are practically indistinguishable.

• Michael Kitces on The Problem of Joint Ownership of An Annuity: as if people need another reason not to own a deferred annuity…

With a jointly owned annuity, the death of the FIRST owner triggers RMDs!

• Ben Carlson at A Wealth of Common Sense with a post on pension investment return assumptions: some pretty shocking numbers in here.

Based on the latest NASRA survey data, just 5% or so of these pensions assume returns will come in below 7% annually.

• More Kitces, this time on Empty Nesters saving for retirement to make up for lost ground during the child-rearing years: I absolutely love posts like this that line up more with real life — there’s nothing wrong with telling people to target 15% savings rates, but nobody is going to be able to hit that target every single year with all of the ways that life changes.

• From the above Kitces article (h/t, Michael), a morningstar paper on savings guidelines which was pretty fun to dig through.

• Scott Sumner on Why most regulations are harmful:

We’d be better off passing a law sun-setting all regs, and the entire Federal tax code, in 2025. Then give Congress the next 9 years to set about re-passing all the regs and taxes that actually make sense.

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• Measurements of ‘hot hand’ effects or lack thereof are always interesting, this time, golf.

Our results seem to agree with most of the related work on hot hand effects in basketball, golf, and other sports; namely that it does not exist over the course of a season. We do, however, see that golfers may get hot in a tournament and go on what is commonly referred to in the golf parlance as a “birdie barrage”.

• I’ll let the quote speak for itself.

when asked by the pollsters what they had eaten in the last 24 hours, 60% of the self-described “vegetarians” admitted that that had consumed red meat, poultry or fish the previous day

• BPS Research Digest with a topic that hits close to home for yours truly, a compendium of beard related studies.

bearded men were considered better-looking (not to mention more masculine, mature, dominant, self-confident, courageous, liberal, nonconforming, industrious, and older)

• Scientific American interviews Scott Aaronson about lots of things.

Do you see it as your duty to expose scientific bullshit?

On reflection, no—because if I have such a duty, then presumably my colleagues do too, but I wouldn’t want to impose such a duty on my colleagues!

• A throwback link to a 2012 post from Tom Brakke – no doubt he tapped into the zeitgeist with his blog about cash and the changing tides of how we view it in the context of portfolios.

To limit a manager’s use of cash is to fail to understand the nature of the decision-making process. In any case, if a manager generates good returns with a load of cash that seems heavier than it should be, who cares? The presence of that cash may be one of the key reasons for the outperformance.

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