Jack’s Links

But the poorest 10% of consumers would lose 63% of their spending power, because they buy relatively more imported goods. The authors find a bias of trade in favour of poorer people in all 40 countries in their study, which included 13 developing countries.

They hired people–and, notice, more than one–to tell them that when you have a big loss in one year, you can use it to offset income

In many cases the requirements proposed by the department would require the university to implement extremely expensive measures to continue to make these resources available to the public for free.

  • Ben Carlson on Risk Taking: One point that is often lost on people is that years ‘far away’ from the mean are normal, not the other way around.


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Book Highlights: Antifragile

Antifragile: Things That Gain from Disorder (Incerto)
Nassim Nicholas Taleb

Antifragile: Things That Gain from Disorder (Incerto) by [Taleb, Nassim Nicholas]


  • I’d rather be dumb and antifragile than extremely smart and fragile, any time.


  • Which brings us to the largest fragilizer of society, and greatest generator of crises, absence of “skin in the game.”


  • Black Swans hijack our brains, making us feel we “sort of” or “almost” predicted them, because they are retrospectively explainable.


  • An annoying aspect of the Black Swan problem—in fact the central, and largely missed, point—is that the odds of rare events are simply not computable.


  • In short, the fragilista (medical, economic, social planning) is one who makes you engage in policies and actions, all artificial, in which the benefits are small and visible, and the side effects potentially severe and invisible.


  • no skill to understand it, mastery to write it.


  • To accord with the practitioner’s ethos, the rule in this book is as follows: I eat my own cooking.


  • philosophical notion of doxastic commitment, a class of beliefs that go beyond talk, and to which we are committed enough to take personal risks.


  • Hormesis, a word coined by pharmacologists, is when a small dose of a harmful substance is actually beneficial for the organism, acting as medicine.


  • I have called this mental defect the Lucretius problem, after the Latin poetic philosopher who wrote that the fool believes that the tallest mountain in the world will be equal to the tallest one he has observed.


  • You know, this economist had what is called a tête à baffe, a face that invites you to slap it, just like a cannoli invites you to bite into it.


  • Finally, a thought. He who has never sinned is less reliable than he who has only sinned once. And someone who has made plenty of errors—though never the same error more than once—is more reliable than someone who has never made any.


  • treating an organism like a simple machine is a kind of simplification or approximation or reduction that is exactly like a Procrustean bed.


  • employees, who have no volatility, but can be surprised to see their income going to zero after a phone call from the personnel department.


  • if you supply a typical copy editor with a text, he will propose a certain number of edits, say about five changes per page. Now accept his “corrections” and give this text to another copy editor who tends to have the same average rate of intervention (editors vary in interventionism), and you will see that he will suggest an equivalent number of edits, sometimes reversing changes made by the previous editor. Find a third editor, same.


  • Over my writing career I’ve noticed that those who overedit tend to miss the real typos (and vice versa). I once pulled an op-ed from The Washington Post owing to the abundance of completely unnecessary edits, as if every word had been replaced by a synonym from the thesaurus. I gave the article to the Financial Times instead. The editor there made one single correction: 1989 became 1990. The Washington Post had tried so hard that they missed the only relevant mistake.


  • Restaurants do not take your order, then cut the cake and the steak in small pieces and mix the whole thing together with those machines that produce a lot of noise. Activities “in the middle” are like such mashing.


  • “Provide for the worst; the best can take care of itself.”


  • people tend to provide for the best and hope that the worst will take care of itself.


  • I am fond of the brand of the unexpected one finds at parties (going to parties has optionality, perhaps the best advice for someone who wants to benefit from uncertainty with low downside).


  • For if you think that education causes wealth, rather than being a result of wealth, or that intelligent actions and discoveries are the result of intelligent ideas, you will be in for a surprise.


  • As per the Yiddish saying: “If the student is smart, the teacher takes the credit.” These illusions of contribution result largely from confirmation fallacies:


  • You would think that the people who specialized in foreign exchange understood economics, geopolitics, mathematics, the future price of currencies, differentials between prices in countries. Or that they read assiduously the economics reports published in glossy papers by various institutes. You might also imagine cosmopolitan fellows who wear ascots at the opera on Saturday night, make wine sommeliers nervous, and take tango lessons on Wednesday afternoons. Or spoke intelligible English. None of that.


  • Theory should stay independent from practice and vice versa—and we should not extract academic economists from their campuses and put them in positions of decision making. Economics is not a science and should not be there to advise policy.


  • As Yogi Berra said, “In theory there is no difference between theory and practice; in practice there is.”


  • the fragilista who mistakes what he does not understand for nonsense.


  • charlatans are recognizable in that they will give you positive advice, and only positive advice, exploiting our gullibility and sucker-proneness for recipes that hit you in a flash as just obvious, then evaporate later as you forget them. Just look at the “how to” books with, in their title, “Ten Steps for—” (fill in: enrichment, weight loss, making friends, innovation, getting elected, building muscles, finding a husband, running an orphanage, etc.). Yet in practice it is the negative that’s used by the pros,


  • For the Arab scholar and religious leader Ali Bin Abi-Taleb (no relation), keeping one’s distance from an ignorant person is equivalent to keeping company with a wise man.


  • Urban planning, incidentally, demonstrates the central property of the so-called top-down effect: top-down is usually irreversible, so mistakes tend to stick, whereas bottom-up is gradual and incremental, with creation and destruction along the way, though presumably with a positive slope.


  • “do you have evidence that this is harmful?” (the same type of response as “is there evidence that polluting is harmful?”). As usual, the solution is simple, an extension of via negativa and Fat Tony’s don’t-be-a-sucker rule: the non-natural needs to prove its benefits, not the natural—


  • Second principle of iatrogenics: it is not linear. We should not take risks with near-healthy people; but we should take a lot, a lot more risks with those deemed in danger.


  • Religion has invisible purposes beyond what the literal-minded scientistic-scientifiers identify—one of which is to protect us from scientism, that is, them. We can see in the corpus of inscriptions (on graves) accounts of people erecting fountains or even temples to their favorite gods after these succeeded where doctors failed.


  • I believe in the heuristics of religion and blindly accommodate its rules (as an Orthodox Christian, I can cheat once in a while, as it is part of the game).


  • For the Romans, engineers needed to spend some time under the bridge they built—something that should be required of financial engineers today.


  • Words are dangerous: postdictors, who explain things after the fact—because they are in the business of talking—always look smarter than predictors.


  • Anything one needs to market heavily is necessarily either an inferior product or an evil one.


  • my experience is that most journalists, professional academics, and other in similar phony professions don’t read original sources, but each other, largely because they need to figure out the consensus before making a pronouncement.


  • First, the more complicated the regulation, the more prone to arbitrages by insiders. This is another argument in favor of heuristics.


  • Everything gains or loses from volatility. Fragility is what loses from volatility and uncertainty.

Jack’s Links

Back at it again with the fresh links:

A twenty punch card investment portfolio is – by its nature – a concentrated investment portfolio. If I had run my portfolio like that I would have come out of the crisis with maybe six stocks, turfed one or two by now and added a single stock in 2012.

1.   The Fed raised rates last December, and just a week ago indicated that it is likely to raise rates again later this year.  Is that doing your best to inflate?

2.  The ECB and the BOJ have mostly disappointed markets this year, offering up one announcement after another that was less expansionary than markets expected.

So no, they are not doing their best.  If at some point they do in fact do their best, and still come up short, then by all means given them help.

I continue to be a reviewer on failed replications and re-analyses of the data — signing my reviews as I did in the Ranehill et al. (2015) case — almost always in favor of publication (I was strongly in favor in the Ranehill case). More failed replications are making their way through the publication process. We will see them soon. The evidence against the existence of power poses is undeniable.

A poster child for this problem is China and its narrowly pegged currency. In a world of freely floating currencies, the US dollar would weaken and the Chinese yuan would strengthen because the US runs a large trade deficit with China and the rest of the world.

Where does one start? No, China is not intervening to lower the value of the yuan; they are intervening to raise its value. And no, textbook theory does not say that exchange rates should adjust in the long run to balance trade in goods and services, unless long run means 1,000,000,000 years, in present value terms. But in that case the current US deficit presents no puzzle; it hasn’t lasted for a billion years.

Notice the schoolmarmy “And Trump still has not apologized to the president of the United States for an effort that many African-Americans saw as an effort to delegitimize the first black president.” As if that is relevant to a fact check.

Our findings provide empirical evidence that ride-sharing services such as Uber significantly decrease the traffic congestion after entering an urban area.


In other words, she would prefer to purposely make some other people worse off with higher taxes on what they buy (sales taxes) or earn (income taxes) than to raise the same amount of revenue by raising no taxes but instead legalizing a good so that the revenues are taken from people who are better off paying the revenues than buying in an illegal world.

That’s either ignorant or cruel, or both.

Books: I read a bunch of these little time sinks recently:

Get A Grip: One of a seemingly endless stream of fable-centric business management books. This one is about the “Entrepreneurial Operating System” that comes from an eponymous consulting group. Seems to be in the zeitgeist. More concrete than most other fabley books, and interesting take on the really popular notion of getting the right people on the bus then finding their seat later — basically defines seats on the bus first and then goes to fill them.

Get A Grip: An Entrepreneurial Fable . . . Your Journey to Get Real, Get Simple, and Get Results by [Wickman, Gino, Paton, Mike]

Antifragile:  Classic Taleb book, I’m thinking of doing a new kind of post on this one.

Antifragile: Things That Gain from Disorder (Incerto) by [Taleb, Nassim Nicholas]

The Ideal Team Player: Another business fable, this one from the Table Group, all about their three ‘virtues’, being humble, hungry, and smart. It may be because I haven’t read any of the other books in the series for a while, but I was more impressed than I thought I would be with their definitions of the virtues.

Humble is about not being arrogant, but also not being over-modest. Subtle distinction that I was surprised they made.

Hungry is pretty straight forward, and I liked that they mentioned that a candidate mentioning ‘work-life balance’ too many times is a red flag. All businesses want to think they let their employees find balance, but hiring someone who is focused on how much they won’t have to work is questionable.

Smart is focused on being people-smart, and people who can’t take social cues are undesirable as teammates.

As per usual for Lencioni, there were about a dozen awkward references to prayer, completely unrelated to the story, which I could have done without.

The Ideal Team Player: How to Recognize and Cultivate The Three Essential Virtues by [Lencioni, Patrick M.]

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Jack’s Links

Two weeks worth of links because I was gone at conferences last week — XYPN and FinCon. Summary posts to come.

  • NYT Article on Chilean Pensions: Spoiler: they are very small. Disclaimer: I know very little about the political/financial history of Chile. This is a perfect example of a totally worthless article, not because it is poorly written, but because there is absolutely no clue given as to the root cause of the problem. Yes, I get it, the pensions are low, but is that because contributions were low? fees were high? returns were low? payouts are below market? The article paints Chileans in a terrible light, it reads to me as if they are asking for more money because what they saved isn’t enough, and that the retirees are demanding the government take from the young to give to the old. A poor country isn’t going to magically be able to let citizens retire at the standard of living of a rich country because it’s a nice thing to do.

“The A.F.P.s have never lost money, stolen money or gone bankrupt,” Mr. Pérez said. “Does that mean that pensions are good? No, they are not. The system needs important changes. But the A.F.P.s administer the funds of those who save, and they’ve done that very well.”

  • NatGeo on BASE jumpers dying in record numbers: Super interesting article on a pretty glamorous sport. To answer the titular question, it’s pretty obvious that more people are dying because more people are doing it, it doesn’t seem like BASE jumping (sans wingsuit) has gotten much more dangerous.

Clif Bar’s official statement read that it was no longer comfortable “benefitting from the amount of risk certain athletes are taking in areas of the sport where there is no margin for error; where there is no safety net.”

At the opposite end of the spectrum are companies like Red Bull, GoPro, and, most recently, Stride Gum—which backed a skydiving stunt this summer in which Luke Aikens jumped out of a plane without a parachuteand landed in a large net.

If foreigners buy more bonds, then Americans buy fewer bonds and invest in those “risky, innovative enterprises.” So it’s hard to see why foreigners buying bonds means that there’s less investment in those enterprises.

Now it’s quite possible that the higher U.S. federal budget deficit crowds out investment in those enterprises. But then it’s the U.S. budget deficit doing that, not the foreigners’ choice of U.S. assets to invest in.

For those who are offended by surge pricing at a time of crisis, please tell me your preferred method for getting some people (drivers) to head toward danger when everyone else prefers to head in the other direction. And then tell me how you are going to get people who are heading out to the grocery or are thinking of going out for a drink to postpone or cancel their plans.

But at least you are in the MFTE program, so five of your apartments will offer a discounted rent of $1,020 per month to people whose incomes qualify. (You facepalm in disbelief, however, that whereas your original plan offered 40 units, unsubsidized, at $900 a month, your new version has just five units, subsidized, at $1,020.)

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Jack’s Links

Short links this week, China and monetary policy are two areas that almost anyone who considers themselves financially savvy probably has an opinion in which they are too confident by a factor of 10.

I for one still believe that low rates (and/or QE) don’t mean easy money, that monetary policy is still highly effective at zero rates, that fiscal policy is mostly ineffective, even at zero rates, that level targeting is especially beneficial at the zero bound, that central banks should target the market forecast, that markets are efficient…

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Jack’s Links

  • Scott Sumner on monetary offset: Understanding the implications of monetary offset is one of the prerequisites for intelligent conversation of economics.

There are so many fallacies here one hardly knows where to begin. The central banks have not done any “heavy lifting”. They can print money at virtually zero cost and their massive portfolio of bonds is generating enormous profits, more than twice as large as before the recession.

Henry Farber, a Princeton economist and author of several studiesaffirming the traditional view, echoed this sentiment, saying even his papers suggest that beginners frequently do not drive enough when business is brisk. “New drivers who can’t figure it out leave the business,” he said. “The ones who stay tend to learn.”

  • WCI on investing a lump sum in your 80s: good analysis and one of the classic examples of the potential usefulness of immediate annuities. Though of course the point is well made that he could simply live off of the cash for 17 years. The common mistake people make in this spot that I see is trying to protect the principal, stretching for excess dividend/interest yield to meet their 6% need.

While the income need/portfolio size ratio (6%) might not seem large to a 60 year old, it is quite good for an 83 year old.

But now an attempt to replicate this modern classic of psychology research, involving 17 labs around the world and a collective subject pool of 1894 students, has failed. “Overall, the results were inconsistent with the original result,” the researchers said.

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Jack’s Links

  • Joseph Belth on Long Term Care Insurance: Whether Long Term Care Insurance (LTCI) is necessary or wise is a common question when people are nearing retirement. The topic deserves a more thorough treatment than a links blurb, but the article gives a taste of why many savvy people choose to self-insure (i.e. not buy insurance) rather than shell out for LTCI coverage.

Your premiums will never increase because of your age or any changes in your health.” I wrote to the company expressing concern that the sentence, although technically correct, was deceptive. I said the letter should make clear that the company has the right to increase premiums on a class basis.

  • Low Interest Rates: Not Easy Money: For years I’ve been cautioning very smart people that I don’t know of a reason why interest rates are bound to return to ‘normal levels’, whatever that means.

Of course if that were true, then the Fed tightening of last December would have led to higher interest rates. Instead, bond yields have fallen sharply over the past 8 months.

  • How Long Do 65 Year Olds Live?: Having a basic understanding of the current landscape for people entering retirement is a prerequisite if one wants to discuss the finances and economics that accompany them. Great primer from Wade Pfau here.


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Jack’s Links

Short links this week, not much caught my eye as particularly good. These three are the exception, and I think they are exceptionally good.

  • CuriousGnu post on the profitability of day traders: Admittedly, this post is based off of what I would call extremely anecdotal data, but is compelling nonetheless. You’ll see in the data from the graph below — about 80% of people lost money over 12 months. There are a million follow-up questions, but this confirms about what one might expect this distribution should look like. Lots of people who lost everything on presumably high leverage or highly concentrated bets, a lot of people who were burned down by transaction costs, and then a general grouping around 0% for people who had decent bankroll management, but for whom investing is essentially a zero-sum game. More than anything, this post (and the others on the website) are great encouragement to learn the basic programming needed to scrape data.

eToro 12M Gains

  • This discussion between Gene Fama and Richard Thaler is about 45 days old, but I just found it (h/t David Henderson), and is well worth the watch/read: The competing schools of thought — taking essentially opposite views of whether ‘bubbles’ exist as generally defined. Both players are involved in the crossover between economics and finance, i.e., their works are directly applicable to investing.

Fama: I’m an economist. Economics is behavioral, no doubt about it. The difference is your concern is irrational behavior; mine is just behavior.

  • Another David Henderson h/t, this video on the economics of sweatshops is a great watch. Being able to simultaneously hope for better future outcomes for developing countries and recognizing that ‘sweatshops’ are part of those better outcomes is a skill worth developing.

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Jack’s Links

Back with the best links of the week, don’t engage in public discourse without reading them, or you’ll make us all dumber.

  • Ramit Sethi on young people ‘investing’ in a home: I don’t know if I’ve written about this before, or just said it a million times, but I’m consistently amazed by how pervasive the ideas that rent is ‘throwing away money’ and that real estate is the best investment you can make have become in the thinking of people in their 20s and 30s. This is amplified by the total obliviousness to the risks inherent with what is usually an extremely levered investment.

“I don’t want to waste money paying rent.” I’m convinced this awful phrase was invented by Realtors BECAUSE IT’S SIMPLY NOT TRUE FOR EVERYONE. YOU ARE NOT WASTING RENT IF YOU LIVE IN AN EXPENSIVE AREA.

  • Alex Nowrasteh from the Cato Institute on Common Arguments against Immigration: h/t to David Henderson on this link, great breakdown of the common arguments that get thrown around and what we know about the actual economic effects of immigration (especially low-skill immigrants).

6.  “Immigrants are especially crime prone.”

This myth has been around for over a century.  It wasn’t true in 1896, 1909, 1931, 1994, and more recently.

  • Jacob Falkovich on the wage gap: Similar to immigration, the wage gap has a bunch of facts that everyone knows the headlines for, but nobody has bothered to think critically about. I recommend the whole post. If the below quote doesn’t convince you to read it, hope is lost.

Economics tells us that if a wage gap existed, smart companies would profit by hiring women, driving the sexist companies out of business.

  • Sabine Hossenfelder on being a consultant for amateur physicists (the title of the article uses the word autodidact): Fascinating both from the implications of the success of the business, but also for the insight into how (extremely invested) amateurs approach problems, take things out of context, and are generally unfamiliar with the required pre-requisites for engaging in the industry in a productive way.

My clients read way too much into pictures, measuring every angle, scrutinising every colour, counting every dash.

7. “I always give the most difficult and complicated assignment I have to the most overworked person in the company. There’s a reason they don’t have time — work is a marketplace, and it’s telling you this person is good.”

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Jack’s Links

Fresh links are back in your eyedrums.

  • Controversial investments generally yield positive abnormal (risk-adjusted) returns using the Carhart four-factor model (beta, size, value and momentum). Screening them out produces suboptimal financial performance.
  • Scott Sumner has a post on free lunches: This is something that intelligent people shouldn’t have to be constantly reminded about, but alas, it is. Please keep in mind, everything needs to be paid for, and if you give something away for free, people will consume more of it than is efficient. See: water subsidies in California.

nearly 90% were in favor of making college free for students from lower income families

  • Speaking of terrible California policies, a blog from Alex Tabarrok on house prices and land use: the numbers really speak for themselves here, but I can never get over how the people who want affordable housing for everybody are the same people who turn around and push for zoning and regulation when it comes to building.



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