Jun 302016
 

Brexit Raises Risk of Global Recession, Maybe

After Britain voted to leave the EU last week stock markets around the world became very volatile. Two days after the vote $2.5 trillion were wiped from the world’s markets.đŸ˜± To put that into perspective that’s roughly the entire annual economic productivity (GDP) of the United Kingdom.

George Soros, the investor who warned of a 20% devaluation in the British pound now warns the Brexit has “unleashed a crisis similar to the financial panic of 2007 and 2008.” He says that a hard landing in China is “practically unavoidable.” And he is not alone. Most news sites say the Brexit fallout will continue to ripple across the world and put not only Britain but also the U.S. and other countries back into recession.

These commentaries are often portrayed as conventional wisdom, but that doesn’t mean they are necessarily true. In fact, news predictions are often wrong. One day in 1987 stock markets around the world crashed starting in Hong Kong and spreading to Europe and then to North America. The Dow Jones index in the U.S. lost more points in a single day than any prior trading period. This historic event was known as Black Monday. Many analysts and publications at the time warned it was only the beginning of a bear market and that more turmoil would come. A lot of people believed the hype and got out of the market because they were afraid. But those investors didn’t do their own risk assessment. Today, Black Monday is nothing more than a small, insignificant blip in the historical stock market chart. (circled in red below)

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The way we perceive risk is not always rooted in reality. An article in the Chicago Sun-Time features a study that demonstrates how conventional wisdom can lead people to the wrong conclusions about risk. Imagine an 8 year old girl has 2 best friends who both live close by but in different homes. The first friend’s parents keep a gun in their home.đŸ”«Â The other friend’s household doesn’t have a gun but does have a backyard swimming pool. 🏊

If you had to choose, which is the safer house for the little girl to go play in? 😁

Without any other information most parents would probably think the second friend’s house is safer because guns are perceived to be more dangerous than swimming pools. But in a country such as the United States, there are about 6 million swimming pools, and 550 children under ten years old drown in them each year. However out of roughly 200 million guns in the U.S., only 175 children die each year from guns. In other words, the risk of the girl dying by a pool (1 in 11,000) is much higher than dying by a gun (less than 1 in 1,000,000.) According to the study’s author, most people are “terrible risk assessors.” We often let irrational fears cloud our judgement.

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Jun 272016
 

Real Estate Ad Terms

Some folks might think using words like “charming,” or “spacious” in a properly listing is smart and would result in a higher sale price. But in reality the opposite is true. Here are 10 common real estate ad terms. Half of them have strong positive correlations with a higher sale price, and the other half is negatively correlated.

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According to the book Freakonomics by Steven Levitt and Stephen Dubner, the 5 terms correlated to a higher sale price are:

  1. Granite
  2. Maple
  3. Corian
  4. State of the art
  5. Gourmet

And the 5 terms correlated to a lower sale price are:

  1. Fantastic
  2. Charming
  3. Spacious
  4. Great neighborhood
  5. !

Words such as Granite, Maple, and Corian (a countertop brand,) are all definitive physical descriptions of a home. It tells any potential buyer exactly what the property is like. The terms Gourmet and State of the art, also connotes a place that’s ready to move in.

But on the other hand words like Fantastic can be a misleading description, as are other ambiguous terms such as Charming or Spacious. These words aren’t tangible enough to tell the buyer anything specific about the property. Mentioning a “Great neighborhood” might signal that this particular house isn’t that great and may not have any specific attributes worth mentioning, but at least other homes nearby are pretty nice. The last word on the list isn’t really a word; it’s an exclamation point. It feels like a feeble attempt to cover real shortcomings of the home with a false sense of enthusiasm!!!!

The book also broke down the language used in a listing for a real estate agent’s own home. She indeed emphasize adjectives like new, granite, maple, and move-in condition. She avoided empty and interpretive portrayals like wonderful, immaculate, or the overused exclamation point. She used every advantage she had to increase her final sale price, including telling potential buyers that a nearby house recently sold for $50,000 above the asking price. But that doesn’t make her a bad person. Realtors are people too. They’re simply looking for closure. 😆

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Jun 232016
 

I heard this parable on a radio talk show. It explores some important lessons about conventional wisdom, expectations, and opportunity, so I thought I would share it. I don’t know where it originated from here’s a paraphrased version of it.

16-06-janitor-cigarettesThere once was a janitor who worked for a large corporation in the 1900s. Like many working class folks at the time this janitor couldn’t read or write. 🙁 Although he was a quick learner, he never finished school because he started working at a young age to help out his family. Over time many of the other custodians at the company would go through janitorial education and get certified and promoted. But because this janitor was illiterate he couldn’t pass the certificate exams to become a world class janitor.

On his way home he would sometimes pass by a group of men loitering outside a local pub. They would often complain how there was no place to buy cigarettes around the neighborhood. They had to walk 10 blocks away to get to the nearest store that sells smokes. The curious janitor stopped one day to ask the men why not start their own cigarette business close by. “We don’t have the time,” they would reply.

Eventually the janitor decided to open a small cigarette store right beside the pub. He operated the store on his own during the evenings and weekends. It became very popular and he soon opened another location, and then another, and hired people to help his growing business. Then he quit his job as a janitor and continued to grow his cigarette company, which made him a ton of money. 🙂

When a large tobacco company offered to purchase his company he asked his accountant to read the offer letter to him. The accountant was unexpectedly surprised to learn that the successful entrepreneur didn’t know how to read. “You’ve already accomplished so much with your knowledge,” said the accountant. “Imagine where you would be right now if you were literate.” The ex-janitor chuckled and replied, “I’ll tell you exactly where I’d be. I would still be back at my old job sweeping floors.” 😃

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Random Useless Fact:

There’s a piece of land in the far Arctic named Hans Island. Since the 1930s, this nondescript island has been at the center of an ongoing battle between two countries.

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Jun 202016
 

UK’s Upcoming EU Referendum

The United Kingdom will hold a historical referendum later this week to let its people decide if it should remain in the European Union or not. There are a lot of issues driving the debate in Britain including immigration, sovereignty, defence, etc. But the financial factors are the most interesting to me so let’s break down some of those. 🙂

Advocates for Britain to exit the EU, or a “Brexit” scenario, argue that the EU is holding back Britain’s potential for international trade. If Britain leaves it will be able to make free-trade agreements more easily with India and China, which it doesn’t have yet due to current EU regulations. On the other hand, more than 40% of Britain’s exports go to other EU countries. Putting up barriers between its largest trading partner could hurt Britain’s exports.

There are about 3 million jobs in the UK that are linked to the EU. Leaving the EU could put some of these jobs at risk. But at the same time it may also create new opportunities for businesses to grow and hire since the UK could incentivise investments through low corporate taxes under it’s own policies.

London is a large financial hub. But some believe if Britain leaves the EU, it will lose the trading advantages of being in a larger market. Britain’s economy may suffer which could force financial institutions to leave the UK and the iconic city of London. But the Brexit camp says that due to low tax rates, banks of all types will still want to be headquartered in Britain. Speaking of banks, I’m not sure how many kidney banks are in the UK, but I know there is only one Liverpool.😆

Similar to federal transfer programs in Canada and the U.S. The European Union subsidizes its financially weaker economies with the money from other members. According to the BBC, the UK contributes £8.39 billion ($12.3 USD) each year to Brussels for the EU budget. This figure is net contributions, after subtracting rebates and receipts back from the EU. Britain would not have to pay this anymore if it exits. In the few minutes it takes a person to read this blog post, Britain will have paid another £50,000 to the EU in membership fees alone. 😕

Norway and Switzerland are not part of the European Union, and they have lower unemployment rates than both the UK and the average of the 28 EU countries.

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But who knows. Maybe it’s just a coincidence, and doesn’t have much to do with how they make their own labor and economic laws that work best for their own people instead of following rules made all the way in Brussels.

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Jun 162016
 

A recent report from the Brookfield Institute says that 42% of the Canadian workforce is at high risk of being replaced by computers and technology in the next 20 years. Suncor Energy is already planning to replace its fleet with autonomous trucks by 2020, which will lead to the permanent loss of thousands of oil sands jobs. Earlier this year Google’s AlphaGo program beat Lee Se-dol, the world’s best Go player. What makes AlphaGo different from other AI programs is that it doesn’t play by any specific algorithm to win. Instead, it learns from its mistakes and plays better after each game, which is similar to how we humans learn. 🙂 In the past automation has been restricted to laborious, routine tasks such as assembly lines in manufacturing. But new breakthroughs in artificial intelligence, advanced robotics, and faster hardware have pushed automation into cognitive occupations, such as driving and customer services.

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The report puts a 70% or higher probability that high risk jobs will be affected by automation over the next 10 to 20 years. These “high risk” jobs include:

  • Retail salesperson
  • Administrative assistant
  • Food counter attendant
  • Cashier
  • Transport truck driver

However, there are also low risk jobs that have less than 30% chance of being affected by automation. These are usually higher paying jobs which requires critical thinking, people skills, and tend to be in the science, technology, engineering and math fields (STEM.) These positions include:

  • Trade managers
  • Registered nurses
  • Primary and secondary school teachers

Naturally the careers that require higher cognitive and judgement abilities are at low risk of being replaced by machine or software.

If you believe your job may be at high risk of automation then it’s best to learn some new technical skills or transition into a different position of lower risk. Being good with computers and technology will always help, and as time goes on the technical standards will increase. At one point in time being able to type 50 words a minute was considered a legitimate computer skill to include in your resume. 😄 But boasting about this common ability today would just be silly.

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