8 Fascinating Reads

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Happy Friday! There are more good news articles on the Web every week than anyone could read in a month. Here are eight fascinating pieces I read this week

Low wages mean higher levels of government assistance. The Washington Post writes

Almost a third of the country's half-million bank tellers rely on some form of public assistance to get by, according to a report due out Wednesday.

Researchers say taxpayers are doling out nearly $900 million a year to supplement the wages of bank tellers, which amounts to a public subsidy for multibillion-dollar banks. The workers collect $105 million in food stamps, $250 million through the earned income tax credit and $534 million by way of Medicaid and the Children's Health Insurance Program, according to the University of California at Berkeley's Labor Center.

Good to great
Sam Altman writes on the only way a business can grow huge: 

All companies that grow really big do so in only one way: people recommend the product or service to other people.

What this means is that if you want to be a great company some day, you have to eventually build something so good that people will recommend it to their friends -- in fact, so good that they want to be the first one to recommend it to their friends for the implied good taste.  No growth hack, brilliant marketing idea, or sales team can save you long term if you don't have a sufficiently good product.

False facts
Samuel Lee writes on the difficulties of economic theories:
Pharmaceutical firm Bayer AG found it couldn't replicate the results of about two thirds of 67 studies it looked at Amgen found that it couldn't reproduce the results of more than 90% of 53 promising papers in cancer research. And this is biomedical science, where the methodologies are rigorous (double-blind trials are common) and your study -- if influential or interesting enough -- is going to be replicated by deep-pocketed pharma giants or academics looking to make a name for themselves. If there's one place where researchers have the incentive to get it right, it's there. And yet the failure rate is astounding.
My intuition is economics and finance studies are even worse. There are two ways to validate an economic or financial theory: wait 100 years and collect new data, or look at a fresh new data set, such as another time period or different markets. It can take decades before someone's held accountable for a bunk theory. On top of that, it's easy to run many different "experiments" on the historical data -- just change the programming code -- and prove your point, and no one can tell how many experiments you've run. (This is a very bad thing, a sin in empirical science.)
We've found the hyperinflation, folks. It's at Harvard
"The median grade in Harvard College is indeed an A-," the school's dean of education said today, according to the student newspaper. Even more stunning: "The most frequently awarded grade in Harvard College is actually a straight A."
Americans may be better prepared for retirement than you think, writes Reuters:

In mid-2013, the average U.S. household held $167,800 in retirement assets, including traditional pensions, in inflation-adjusted dollars. Compare that with the inflation-adjusted $56,200 in 1985 or $27,300 in 1975. Near-retirees (those between 60 and 64) have nearly $360,0000 in their defined contribution accounts and IRAs, on average, the report said.

The United States now has more than $20 trillion in retirement savings and investments, up from $11.7 trillion in 2000, according to the ICI.

Hindsight 20/20 
Phil Pearlman writes on how hard it is to spot bubbles:
While Ive been studying bubbles pretty closely for more than a decade, to be honest, I have no idea what is or is not a bubble usually until after the fact. Sure, there are symptoms but sometimes those manifest well before the bubble itself and sometimes there is no bubble and it just looked a bit like one.

Might bitcoin be a huge bubble and it goes to zero?

It looks kinda like a bubble to me, but what do I know about distributed cryptocurrencies? Be honest, you know little about them too and you're not an expert because you read the Reddit or discovered 4chan. Could bitcoin also be 10-100x undervalued? Why not? 

Wharton professor Jeremy Siegel is still bullish on stocks. From Business Insider: 

The biggest myth in the market today is that this bull run is because of quantitative easing. I'm not going to deny that an easy Fed is helpful, but this market is really being driven by fundamentals.

Earnings are up 10% to 13% this year over last year, and this is despite very slow GDP growth both in the United States and the rest of the world. I expect GDP growth next year to be 3.5% or higher. I admit that it might not reach that, and I have been a bit overly optimistic when predicting GDP in the past. But we got 2% growth this year, and most economists agree there was about 1.5% fiscal drag due to the higher taxes and the cutback in spending. If you add that 1.5% back you get 3.5%. I wouldn't be surprised if GDP pushes 4%.

My feeling is that the market is far too focused on QE, and people are incorrectly calling this "a QE-driven market." I don't understand why they do that, because if they looked at P/Es, earnings and interest rates, they would realize that the fundamentals support this bull run.

Anthony Morris from Nomura writes on the flaws of hindsight. Via Joe Weisenthal

Historians say that generals tend to fight the previous war. Investors may have a worse problem -- fighting what they mistakenly believe the last war was. An example of this may be perceptions of inflation risk and the presumed lessons of the 1970s. Some investors remain convinced that oil shocks caused the Great Inflation of that period, or that money supply growth always causes inflation. In this article, we try to identify and debunk some common mis-perceptions.

Enjoy your weekend. 

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