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Cognitive Biases by Mark Dow

1. We overestimate our abilities, our uniqueness, and our objectivity, even more so when under emotional strain. We have all seen the studies: 90% of people say they are above average drivers. Rarely do people think those around them work harder or better than they do. And so on…

2. We systematically understate the role of ‘random’. We crave order, and we are willing to torture the facts to get there. But sometime things just happen, and sometimes problems don’t have solutions. No fundamental cause, no guilty party, no concrete answers. Moreover, on the up side, when random does break our way it’s appropriated as skill. The investment world is shockingly bad at separating outcome and process—yes, even those who drone on and on to prospects about their processes.

3. People will find a way to believe what they are incented to believe. As the saying goes, “The most dangerous place to stand is in between someone and what they want to believe”. In my experience, it’s hard to overestimate the power of this statement. Starting with the conclusion and reverse-engineering the supporting arguments is central to the human condition and, surprisingly, serves and important role in our evolution.

4. When presented with points 1, 2, and 3, almost everyone recognizes their validity, but believes at some level that he/she is exempt. The typical reaction is “Yeah, for sure, of course that’s how [other] people act”. It is always easier to see others’ mistakes than one’s own. And this is one of the reasons we have a very hard time changing our cognitive biases. All of us.

7 Realities of Life

7 Realities Of Life from the Libertarian Republic

1. Your Feelings Are Largely Irrelevant

Seriously, nobody who has already graduated college cares about your feelings. That means that when you complain to your boss because your co-worker mis-gendered you, he’s probably not going to bend over backwards to bandage your wounds. Given feelings are entirely subjective in nature, it’s completely unreasonable to demand everyone tip-toe around you to prevent yours from being hurt. The reality is that people will offend you and hurt your feelings, and they won’t stop to mop up your tears because they shouldn’t have to. Learning to accept criticism, alternative viewpoints, and even outright insults will make you happier in the long run than routinely playing the victim card.

2. You Cannot Be Whatever You Want To Be

This is a comforting lie parents have started telling their children to boost their morale in school. Unfortunately, millennials are now convinced it’s true, especially as society has now decided to push this narrative as well. The reality is if you’re 17 years old and still can’t figure out basic division, you’re not going to be a rocket scientist. If you’re overweight and unattractive, you’re not going to be the quarterback’s prom date. If you lack fine motor skills, you’re not going to be a heart surgeon. It’s okay to accept that you cannot be whatever you want to be. In fact, once you accept this, you’ll be able to focus on the things you can be — the things you really are talented at.

3. Gender Studies Is A Waste Of Money

You heard me. While some millennials taking useless degrees will claim they’re beneficial for teaching or research positions, the reality is that they just put themselves several thousands dollars in debt to learn how to be a professional victim. While you’re struggling to make ends meet after graduation because nobody who pays more than minimum wage is interested in your qualifications and you’re drowning in student loan debt, be sure to check out the next harsh reality before you start complaining.

4. If You Live In America, You’re Already In The 1%

That’s right. Even though you work at McDonald’s for minimum wage because you got a useless, outrageously expensive college degree, you’re still far better off than the vast majority of the planet. Don’t believe me? Fly to Uganda and check out the living conditions there. Fly to China, Saudi Arabia, North Korea, Iran, Russia, and even European countries like Ukraine and Greece, and you’ll quickly discover just how well-off you really are. While it may be cool these days to dump on capitalism, it’s the only reason you aren’t already worse off.

5. You Don’t Have A Right To It Just Because You Exist

That includes healthcare, guaranteed income, and somewhere to live. Just because you’re here and breathing doesn’t mean society owes you anything. Like the billions of people who lived before you, working hard is a better guarantor of wealth and the ability to comfortably take care of yourself than begging society or the government to do it for you. Demanding healthcare be a right, for example, is equivalent to demanding government force the taxpayer to pay for it. While that may seem like a good idea in theory, it only leads to rationing of care when costs become unsustainable, which negatively impacts not just your health, but everyone else’s, too.

6. You DO Have The Right To Live As You Please — But Not To Demand People Accept It

By contrast, you do have the right to live however you please, so long as it’s within the confines of the law. If you want to cross-dress, smoke marijuana, drink lots of alcohol, have lots of sex, and, yes, even go to school for gender studies, then by all means, go for it. Government should not be allowed to legislate people’s behavior as long as it doesn’t infringe upon someone else’s rights, but that doesn’t mean society isn’t allowed to have an opinion. You don’t have the right to demand people keep their opinions about your lifestyle to themselves, especially if you’re open and public about it. I have as much of a right to comment on the way you live your life as you do to actually live it. Your feelings are not a protected right, but my speech is.

7. The Only Safe Space Is Your Home

No matter where you go in life, someone will be there to offend you. Maybe it’s a joke you overheard on vacation, a spat at the office, or a difference of opinion with someone in line at the grocery store. Inevitably, someone will offend you and your values. If you cannot handle that without losing control of your emotions and reverting back to your “safe space” away from the harmful words of others, then you’re best to just stay put at home. Remember, though: if people in the outside world scare you, people on the internet will downright terrify you. It’s probably best to just accept these harsh realities of life and go out into the world prepared to confront them wherever they may be waiting.

La Jolla Shores Bull Market

The Economy: The U.S. economy appeared to be motoring along in slow gear until last Friday. Then the abysmal jobs report was released and it cast uncertainty into the equation. Immediately, the odds of a Fed hike in June went to zero as investors recalibrated their tactics. Then on Monday of this week Fed Chair Yellen warned against putting too much emphasis on one report. She indicated that rate hikes were still in the cards for 2016. Yep … like a snow ball’s chance … . The bottom line is this: The Fed doesn’t believe that the U.S. economy is strong enough to allow for normalization of interest rates. We are stuck at the zero bound which is causing havoc for savers, banks and insurance companies. But the Fed lacks the confidence in the economy to end financial repression. How this plays out is anyone’s guess. The Battle of The Analysts is in full swing with some insisting that the end of the world is nigh. Others are equally vocal in calling for an end to cash so that governments can more accurately monitor the economy. The NSA must be salivating over the prospect of knowing where every nickel you spend is going. We’ve never been fond of Central Banks, run by academics, trying to impose economic theory on the real world. For a beautiful example of Central Banker Mindset, see Paxton Whitehead as economics Professor Philip Barbay, in Rodney Dangerfield’s 1986 comedy “Back to School.” He truly gets no respect.

Food for Thought: Global growth rates continue to be cut. This is occurring while global stock markets rebound from their first quarter swoon. Is this divergence evidence of The Greater Fool Theory or is it The Dawning of the Age of Aquarius? Your choice. We remain strapped to the rocket but have both hands on the ejection lever. The principals here at Higgins Capital have lived through several market crashes. The crashes follow the same script: Months of warnings culminate in a tipping point that seems to catch everyone by surprise. Far too many investors go from rompin’ stompin’ bulls to deer in the headlights unable to process the environment until they’re down 40%. Do not let this happen to you. Have an exit strategy. Know what you own and why you own it. Have real or mental stops on your portfolio. Trust your own personal experience over that of experts. Are things in your personal economic life or the economic life of your organization going so well as to justify new highs in a 7-year old bull market? Why do we continue to hear about new and more economic stimulus? Beware of Central Bankers bearing gifts.

Memorial Day in La Jolla

The Economy: Hundreds of millions of dogs and burgers will be inhaled and millions of gallons of brewskies will be quaffed by Dudes and Dudettes in the Grand American Tradition this weekend. GDP will spike. Presidential candidates may go for a smile. We’ll doff our caps or curtsey for those that gave the ultimate sacrifice while continuing another Great American Tradition of thumbing our noses at authority. The weekend spike in GDP caused by the national hedonistic orgy will be offset on Tuesday by a GDP dip as productivity-crushing hangovers reduce economic activity to near-zero. The economy will gradually recover until the evening of Thursday June 2nd, when relief partying for the coming weekend will create an economic stall that will persist until the following Monday, June 6th. Have a Great Holiday. We’ll catch you on the rebound.

Food for Thought:  On Memorial Day: Memorial Day is the holiday for remembering the people who died while serving in our armed forces. The holiday originated as Decoration Day after the American Civil War. The name of the holiday gradually morphed from Decoration Day to Memorial Day after World War II. In 1968 Congress passed legislation which moved four holidays, including Memorial Day, from their traditional dates to a specific Monday in order to create three-day weekends. The change moved Memorial Day to the last Monday in May. Memorial Day is not to be confused with Veterans Day which is celebrated November 11th; the anniversary of the end of World War I. Memorial Day is a day honoring the men and women who died while serving, whereas Veterans Day honors all U.S. military veterans. Memorial Day marks the unofficial beginning of summer. On Memorial Day, the flag of the United States is flown at half-mast (or half-staff for you Army and Air Farce types …Go Navy Beat Army!).

Donald Trump

The Economy: Another quiet week highlighted by the release of the Fed Minutes. As usual, the Minutes caused a hissy fit in global financial markets. Why? Well, why not? It was more of the same Elmer Fudd stuttering opacity that financial markets have become addicted to. For the rest of the world it’s much ado about nothing. The Fed emphasized that their decision on interest rates was data dependent. … as it has been since the Fed was founded in 1913. Duh! Economic numbers may move one tenth or one hundredth of a percent. In response, financial markets go haywire. Out of a US population of 320 million, a reported employment change of 15,000 will create massive gyrations in financial markets; over a .0047% change. When was the last time you based a decision on a .0047% change in anything? Recently? Ok you must be a quant or an engineer. For the rest of the planet, it’s statistically insignificant; not even a rounding error. As a result of this, we see the financial markets as being disconnected from the economy. Massive and misguided Central Bank manipulation, global fiscal irresponsibility, political gridlock by elected and appointed Peter Principled Lilliputians has failed to halt US economic growth. It’s a testament to the resilience of the American people. Every day is a holiday; every meal is a banquet.

Food for Thought: We are always conducting informal surveys to keep the mainstream media noise and click-bait in perspective. We continue to find the average Joe (or Josephine) well grounded. The basic American character of “Question Authority” remains intact. The prevailing outlook is local optimism tempered with frustration with the national and international scenes. America remains the clear choice to pursue personal and professional dreams. No other country or culture comes close. So spare us the incessant jabbering about the imminent demise of the American Goliath or the American way of life. The isolationist/interventionist dichotomy of the American political will has been a constant since George Washington warned of the “peril of foreign entanglements” in 1796. Rather than seeing the 20th century as the American Century, we see the 21st century as the true American Century. The 19th was only the prelude. We see the US increasing its global dominance. American innovation technological prowess will continue to reign supreme. In the global community, the US remains the headstrong, determined adolescent that will muscle its way to the head of the line. For Joe and Josephine American, “My Country right or wrong; still My Country” still rings true.

Higher Oil Prices are Good for You!

The Economy:  Economic numbers have disappointed this week. Housing disappointed. Manufacturing disappointed. The Fed met and as expected, maintained the status quo; no change to interest rates for the foreseeable future. Lower for longer or never forever. With respect to oil, for decades the mantra was that low oil prices were good for the USA. In the past 6-months policy wonks have championed the idea that low oil prices are bad for the ol’ USA. Oil prices are up almost 50% in the past few weeks. That must be a good thing as we spend more on everything petroleum. So who’s on First? Oil is up 50% and that’s now a good thing. So, oil moving back up to $140 must be a great thing. Confused? You should be. The mindless noise is deafening. Here’s a sample of recent headlines from the chattering media class courtesy of the “Daily Reckoning” website:
4/5: Dollar Rises as Investors Anticipate U.S. Data
4/6: Dollar Falls on Fed Minutes
4/13: Dollar Climbs Before Data Forecast
4/15: Dollar Falls on Lackluster U.S. Data
4/21: Dollar Rises After Solid U.S. Data
4/25: Dollar Sinks After Q1 Growth Takes Another Hit
You got that?

Food for Thought: We’re midway through the first quarter earnings reporting season. Stock buybacks and dumbed-down earnings expectations have given us earnings that again are beating those reduced expectations. Lower the bar enough and any caveman can stumble over it. Financial markets are lovin’ it. But for many investors this seems to be the stock market rally to hate. Beware. We believe that the US economy is fundamentally sound but until the Fed decides to stop supporting asset bubbles, we’re leery. Protecting your assets should be at the forefront of your decision making.

Helicopter Money

The Economy:  Economic data released this week confirmed a growing U.S. economy: Pending home sales up; Personal income up; Consumer spending up; Home prices up; Consumer confidence up; ADP Employment report in line. But the headlines belonged to Fed Chair Yellen and her speech on Tuesday. Yellen assured markets that the Fed would go slowly on any future rate hikes … if in fact they occur in 2016 at all. The expanding U.S. economy is no longer reason to hike rates. Yellen cited global uncertainty and potential fallout from recent events as justifying a slower path of rate increases. She made it clear that the Fed still has room for additional stimulus but that it can hike if the economy grows faster than expected. Global financial markets were ecstatic over the prospect of continued easy money.

Food for Thought: In the 1970s we had “stagflation.” The economy was stagnating with little growth but inflation was a problem. Eventually inflation rocketed and it was the Volcker Fed that whipped inflation with 21% money markets and a 15% 30-year U.S. Treasury. Now we have a Fed beholden to zero interest rates (ZIRP), considering negative interest rates (NIRP) and thinking about helicopter money. Our concern is that the Fed induced financial engineering, which has driven stocks higher, will end with the gravy train going off a cliff. The first 10% correction in 4-years was met with panic by global central bankers intent on continuing to inflate asset bubbles. In this investing environment, know what you own and why you own it.

San Diego Commercial Real Estate

The Economy: Recent economic data has been like the weather in Indianapolis: If you don’t like it, wait a couple of minutes and it’ll change. Conflicting data continues to point to a slowly expanding US economy. 7-years into this same slow motion movie and you have to ask, “What next?” Global Central Banksters have given us more than 600 interest-rate cuts and $12 trillion of asset purchases during the past 7- years. With the latest meetings of the ECB and the Fed, the answer is more of the same. Events
outside of our borders are now dictating the course of Fed policy despite the fact that within our borders the economy has demonstrated that removal of monetary accommodation is overdue. Today it was reported that bonds yields of Sanofi, the French pharmaceutical company, and Royal Dutch Shell have turned negative. This is nonsense.

Food for Thought: We’ve had five years of a bull market in the San Diego commercial real estate rental market. Now it may be over. 2016 has seen office space availability increase dramatically. Year to date, 570,000 square feet of office space has come on the market. This is in addition to the 360,000 square feet of space vacated by Qualcomm in 2015. This supply does not include new construction. Rather, it is due to slowing demand and additional space becoming available in existing buildings. In addition, many start-ups are beginning to struggle and their deaths will add more inventory to the market in 2016. The maturing demand for office space is expected to limit rent increases. While the tenants market of 2009 is still in the future, the landlord’s market we’ve seen for the past 3-years is over. The exception to this scenario is Downtown’s Class A buildings. That market is hot with limited availability. However, the offshoot is that rents in Class B and C buildings, some of which are functionally archaic, are under pressure.

Music of The Week:  Susie Arioli’s Album “That’s for Me”

Super Mario Draghi Rules

The Economy: Super Mario Draghi continues his legacy of Shock and Aw Shucks. We haven’t seen this kind of Italian Brass since Caesar crossed the Rubicon. Today Mario announced an aggressive expansion of ECB stimulus. Interest rates were cut further into deeper negative territory. Quantitative Easing was expanded by 30% from 60 Billion/month to 80 Billion/month. But the biggest change was adding corporate bonds to assets that the ECB can purchase. Global financial markets were not impressed. Moving into private sector debt is a Rubicon. What next? … Central Bank ownership of stocks, then real estate? Perhaps the ECB’s solution to slow growth is for the Central Bank to own all member assets and means of production. Nice way to come back to Marxism. Stalin and Mao must be gloating. Break out the Hammer and Sickle and fire up The Internationale.

Food for Thought: This week marks the 7th anniversary of the Bull Market. Stocks celebrated by trading down and breaking a 5-week rally. We continue to recommend that investors take profits and raise cash. The selloff that marked the first 6-weeks of the year has been arrested. But as we look out over the environment, we find it difficult find the drivers of growth that would power financial markets to meaningful new highs. Selling positions and moving into a money market fund is particularly prudent with retirement plan assets or annuities. In many cases investors can cherry-pick positions to sell within the same mutual fund. This is called a “Versus Purchase” transaction (VSP). We’re into tax season, now is a good time to review and protect your retirement assets. Buy and hold has worked for the past 7-years. Nothing lasts forever.

Annuities

The Economy: Data released this week shows a US economy that is continuing to slowly expand. Consumption, GDP and employment appear to be growing. The Beige Book, which is the Fed’s summary and analysis of economic activity, confirmed a mixed picture of slow growth. Manufacturing is flat and productivity growth is questionable. Confusing? Yep. The question is: Can the US avoid the fallout from the confirmed slowdown in China, The EU, Russia, Brazil and Venezuela … to name a few. Think Global Act Local. It’s hard to feel your pain in San Diego, the land of eternal sunshine. Here we have booming tourism, real estate, biotech and massive defense spending as the US reorients its focus from NATO to our “Strategic Competitor” China. (Shoutout to Glenn for the PC euphemism. Back in the day when men were iron and ships were wood, they were called enemies).

Food for Thought: Annuities can be an effective part of your investment and retirement planning. Their features and benefits continue to evolve with the changing economic environment. Like any investment, they must be reviewed periodically to confirm they are still relevant to your goals. Contact us if you’d like help in evaluating these complex instruments.