HOLIDAY EYE ON THE MARKET J.P. MORGAN ...election results, 2016 Robert Vanderbei, Princeton...

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HOLIDAY EYE ON THE MARKET J.P. MORGAN DECEMBER 8, 2016 1 Investment products: Not FDIC insured • No bank guarantee • May lose value Life Away From Home, Version #2 As things stand now, with respect to President-elect Trump, financial markets seem to be pricing in an “American Enterprise Institute Presidency”: Plenty of deregulation (healthcare, energy, finance, internet) and substantial corporate tax cuts A small amount of personal tax cuts that create a modestly larger (but not massive) budget deficit Limited (if any) action on trade, tariffs and deportations of undocumented workers Large military expansion combined with an isolationist foreign policy Infrastructure spending financed through taxes on offshore profits and public-private partnerships Gradual non-disruptive dismantling of the Affordable Care Act Given all of the above, the yield curve will rise and steepen by an amount that’s great for banks, but not rise so high as to derail the housing expansion or worsen corporate debtor solvency In other words, markets are pricing in all the good stuff while ignoring for now potential consequences for the dollar, deficits, interest rates, trade, inflation and the uncertainty principle. Whether this benign view is accurate or not will be a major driver of markets next year. We sent out an early read after the election 1 and will take a closer look in our 2017 Outlook, released as usual on January 1 st . All things considered, I expect another year of single-digit returns on diversified, balanced portfolios in 2017. Every December, I take a break from market and investment topics to discuss other things. Three years ago, the holiday Eye on the Market was a letter to my oldest son who was leaving for college. Now that son #2 is off to college, I have written another one. Happy holidays, and I look forward to seeing many of you in the new year. Michael Cembalest J.P. Morgan Asset Management 1 Link to our comprehensive post-election Eye on the Market Link to our post-election discussion of the FCC, content providers and internet service providers

Transcript of HOLIDAY EYE ON THE MARKET J.P. MORGAN ...election results, 2016 Robert Vanderbei, Princeton...

Page 1: HOLIDAY EYE ON THE MARKET J.P. MORGAN ...election results, 2016 Robert Vanderbei, Princeton University Mark Newman, University of Michigan HOLIDAY EYE ON THE MARKET MICHAEL CEMBALEST

HOLIDAY EYE ON THE MARKET J .P . MORGAN DECEMBER 8 , 2016

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Investment products: Not FDIC insured • No bank guarantee • May lose value

Life Away From Home, Version #2

As things stand now, with respect to President-elect Trump, financial markets seem to be pricing in an “American Enterprise Institute Presidency”:

• Plenty of deregulation (healthcare, energy, finance, internet) and substantial corporate tax cuts

• A small amount of personal tax cuts that create a modestly larger (but not massive) budget deficit

• Limited (if any) action on trade, tariffs and deportations of undocumented workers

• Large military expansion combined with an isolationist foreign policy

• Infrastructure spending financed through taxes on offshore profits and public-private partnerships

• Gradual non-disruptive dismantling of the Affordable Care Act

• Given all of the above, the yield curve will rise and steepen by an amount that’s great for banks, but not rise so high as to derail the housing expansion or worsen corporate debtor solvency

In other words, markets are pricing in all the good stuff while ignoring for now potential consequences for the dollar, deficits, interest rates, trade, inflation and the uncertainty principle. Whether this benign view is accurate or not will be a major driver of markets next year. We sent out an early read after the election1 and will take a closer look in our 2017 Outlook, released as usual on January 1st. All things considered, I expect another year of single-digit returns on diversified, balanced portfolios in 2017.

Every December, I take a break from market and investment topics to discuss other things. Three years ago, the holiday Eye on the Market was a letter to my oldest son who was leaving for college. Now that son #2 is off to college, I have written another one. Happy holidays, and I look forward to seeing many of you in the new year.

Michael Cembalest J.P. Morgan Asset Management

1 Link to our comprehensive post-election Eye on the Market

Link to our post-election discussion of the FCC, content providers and internet service providers

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Letter To Son #2

Congratulations on getting to this point. In December 2013, I sent a note to your older brother with observations on life in college (grade inflation, sleep, drinking, employment, savings, music, etc). On the next few pages, I pulled together some new topics for you to think about, although I updated the first topic given its importance, particularly in 2016. You will be missed around here, but call before coming home since your mother is already letting transient political operatives and lobbyists stay in your room.

Note: I didn’t include anything on fraternities since your college doesn’t have them. But in case you’re interested, the most recent studies I’ve seen show that fraternity membership is associated with a negative GPA impact of half a letter (around 0.15) over one’s entire college career, and with a negative 0.32 GPA impact in the Freshman Spring semester2.

2 “Impacts of Fraternity and Sorority Involvement on Academic Outcomes”, L. Darwin, University of North Carolina, April 2014; “The effects of Greek affiliation on academic performance”, De Donato and Thomas, Duke University, July 2015.

Life Away From Home, Version #1, 2013

• The importance of thinking for yourself in an environment of ideological uniformity

• You should get better grades than I did: a history of grade inflation in public/private colleges since 1935

• Try and get enough sleep: the connection between sleep and your GPA

• Don’t room with party animals: connections between your roommate’s drinking habits and your own GPA

• The impact of technological change on the job market

• You better save for your future: how generational theft will affect your tax rates and retirement saving

• The impact of exercise and your GPA, and which exercise machines are the most efficient

• Empirical proof that music of the 1960s and 1970s is better than today’s

Life Away From Home, Version #2, 2016

• The importance of thinking for yourself in an environment of ideological uniformity

• Your college major and the job market, and some caveats on the legal profession

• The eternal flame of your social media presence: how employers really look at it

• About that carbon-neutral campus…some energy myths and realities

• Your brain, social media and binge-watching

• Make sure you understand Affirmative Consent and that respect should govern all of your interactions

• The life of a young entrepreneur: trying, failing and starting again; and how to finance a new business

• Wear something red (on heteronormative dating)

• Some data on college drinking and driving

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[1] “De Omnibus Dubitandum”: Think for yourself in a sea of ideological uniformity

This Latin phrase means “be suspicious of everything”. For a variety of reasons, your college professors are likely to overwhelmingly skew to one political party, and to a degree that is vastly different from the country you will graduate into four years from now. The 1st chart shows the ratio of Democratic to Republican professors for universities which rank near the top of US News & World Report surveys3. For comparison, the horizontal line shows the same ratio for college-age individuals using a few different sources, all of which point to a ratio of around 2:1. In other words, professor party affiliations appear way more skewed than those of their students. For additional context, the 2nd chart shows professor Democrat to Republican ratios by subject from three separate studies.

Regardless of your political beliefs, this will be something to think about. It will be up to you to do your own critical reasoning, and to avoid coming to decisions simply based on the crowd, your friends, your professors or the people who talk and yell the loudest. This might be the most important skill to learn in college.

3 The researchers accessed party affiliation through commercially available databases for the 30 states which allow such information to be aggregated and analyzed online. Around 55% of professors analyzed had identifiable party affiliations; the rest were either not registered to vote or not affiliated with either major party.

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2:1 Democrat to Republican party affiliation ratio for:2016 college students (Panetta Institute for Public Policy)2016 US 18-25 year olds (Pew Research)2012 California 18-25 year olds (OC Register)

Source: "Faculty Voter Registration in Economics, History, Journalism, Law, and Psychology", Langbert, Quain and Klein. Econ Journal Watch. September 2016. Note: the Brown ratio is 60:1.

Democratic to Republican professor ratio by university

Brow

n

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Democrat to Republican professor ratio at US universities

DepartmentCardiff / Klein (11 California universities)

CSPC study (32 elite colleges /

universities)

Five study aggregate

Anthropology 10.5 to 1 - ∞Economics 2.8 to 1 4.3 to 1 1.6 to 1

Engineering 2.5 to 1 - -

English 13.3 to 1 18.6 to 1 19.3 to 1

Hard sci./Math 6.3 to 1 - -

History 10.9 to 1 20.7 to 1 75.0 to 1

Philosophy 5.0 to 1 8.9 to 1 24.0 to 1

Political science 6.5 to 1 7.9 to 1 7.9 to 1

Sociology 44.0 to 1 30.4 to 1 ∞Source: American Enterprise Institute. 2009. ∞ = infinity.

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What kind of political balance exists outside campus universities? The standard map of US party affiliation by county based on the 2016 Presidential election4 is shown on the left (red = GOP). The map on the right shows which parties control state legislatures; this map is pretty red as well. A map of US governors by party looks similar to the reddish state legislature version.

However, these traditional maps ignore population densities. Here are two alternative ways to look at it. The map on the left shows political affiliation (blue = Democrat, red = Republican, purple = mixed) alongside county population (vertical bar height). The map on the right is a cartogram which resizes each county based on its population. Both maps are better depictions of the US political balance than the ones above, but no matter how you look at it, it’s a big country out there. The world you will find after college will be quite different than the one you’re in right now.

4 A quick note on the Electoral College. As of December 6, 2016, Secretary Clinton was ahead by 2.7 million votes. Let’s assume that Secretary Clinton won every single vote in California and New York; she’d be ahead by 18.2 million votes and leading Trump 54% to 41%. It still wouldn’t matter in terms of who is President...and should it? The Constitution was designed to unify disparate regions of the country and downplay the importance of voter intensity in specific locations. Anyway, whether you agree or not, discarding the Electoral College through an amendment requires consent from states that would lose the influence they now have, which is why it’s unlikely.

US party affiliation by county based on Presidential election results, 2016

US party affiliation by state legislature, 2016

Mark Newman, University of Michigan National Conference of State Legislatures

3-D US party affiliation by county based on Presidential election results, 2012

Population weighted cartogram of US party affiliation by county based on Presidential election results, 2016

Mark Newman, University of Michigan Robert Vanderbei, Princeton University

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[2] Your college major and the job market, and some caveats on the legal profession

Whatever choices people make in life and whatever dreams they pursue, more information is generally better than less, particularly given the rising cost of a college education. Georgetown’s Center on Education and the Workforce publishes a survey of salaries and unemployment rates every 3 years. Here’s the latest data for undergraduate and graduate degrees5:

Separately, the Institute for the Study of Labor estimated the “value” of a 2015 college degree based on 4 broad undergraduate majors by looking at earnings projections relative to cost. The bar chart shows the results, which are based on community and longitudinal surveys.

On STEM majors, there’s evidence that they make very large wage and productivity contributions to the communities they inhabit. When the number of STEM workers doubles within a given community of workers, their wage increases are much higher than when history, arts and social science worker populations double. Furthermore, doubling the workers in computer sciences and engineering enhances the productivity of workers in history and the arts by 19 percent, while workers in social sciences do not appear to enhance productivity for workers in any other fields. Some notable conclusions from the author6:

“The nature of skills in information-oriented and technical fields seems to allow workers with college training in those fields to benefit more from each other, as opposed to the skills in less information-oriented and technical fields.”

“While previous research suggests proximity to college-educated workers enhances productivity, these findings suggest that not all college educated workers are alike. Instead, positive spillover effects appear to derive mostly from proximity to workers with college training in information-oriented and technical fields.”

5 The Georgetown survey is self-reported and doesn’t check if someone is actually working in their field of study. This is an issue with respect to Drama majors, many of whom work in professions unrelated to acting. While Georgetown shows 7%-8% unemployment for Drama majors, the Bureau of Labor Statistics shows unemployment rates of 30%-35% for actors. The Screen Actors Guild reports unemployment rates that are even higher than that.

6 “Agglomeration, Urban Wage Premiums, and College Majors”, Shimeng Liu, Sol Price School of Public Policy, University of Southern California, April 2015.

Archit

Drama Film

Finan

BusinessMktingJourn

CompSci

Math

Educ

Civ Eng

Elec Eng

Nurs

Lib ArtsPhilos

PsychBiol

Chemis

Econ

PoliSci

Sociol

$25k

$30k

$35k

$40k

$45k

$50k

$55k

$60k

$65k

4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14%

College degreeMedian earnings in 2012 USD

Unemployment Rate

Archit

Drama Film

Finan

Business

Mkting

Comp Sci

Math

Educ

Civ Eng

Elec Eng

NursLib Arts

PhilosPsych

Biol

Chemis Econ

PoliSci

Sociol$55k

$65k

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$105k

$115k

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1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13%

Graduate degreeMedian earnings in 2012 USD

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Journ

Source: "From Hard Times to Better Times: College Majors, Unemployment and Earnings", Georgetown Center of Education and The Workforce, Feb 2015.

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STEM Business

Source: Temple University, Institute for Supply of Labor. January 2015.

Estimated value of a college degree by majorThousand US$

ScienceTechnologyEngineeringMathematics

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What about the earnings boost from a graduate degree? An interesting paper in 2016 looked at the incremental value of a law degree based on a student’s undergraduate major. The law premium on a percentage basis was largest for humanities majors (history, philosophy, religion, etc). However, there are some drawbacks to actually practicing law that are worth considering….

What income and employment surveys don’t capture are the personal risks of certain professions. The prevalence of substance abuse and mental health problems among attorneys has been the subject of research for many years, and now a 2016 study from the Journal of Addiction Medicine confirms the rather grim news. These papers should be required reading for any student thinking of taking the LSAT.

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Source: Rutgers and Seton Hall universities. March 2016.

Increased earnings from a law degreeMean earnings by undergraduate major

On attorneys, from the Journal of Addiction Medicine:

• Attorneys experience problematic drinking that is hazardous, harmful, or otherwise consistent with alcohol use disorders at a higher rate than other professional populations

• Survey levels of depression, anxiety, and stress among attorneys were significant (28%, 19%, and 23%)

• Results are in line with prior studies showing that attorneys experience problems with alcohol and depression at 2x-3x the rate of the general population

“The Prevalence of Substance Use and Other Mental Health Concerns Among American Attorneys”, Jan/Feb 2016

Other publications on the legal profession:

• “Stemming the Tide of Law Student Depression” (Yale Journal of Healthy Policy and Law, 2009)

• “Lawyers, Anger and Anxiety: Dealing with the Stresses of the Legal Profession” (ABA Publishing, 2011)

• “Drink Like a Lawyer: Neuroscience of Substance Use and Impact on Cognitive Wellness” (Univ. of Denver, 2015)

• “Buffering Burnout: Preparing the Online Generation for the Occupational Hazards of the Legal Profession” (Pepperdine University, 2014)

• “Women Lawyers Have Higher Divorce Rates” (ABA Journal, 2008)

• “Why Lawyers are Unhappy” (Cardozo Law Review, 2001)

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[3] The eternal flame of your social media presence

It can be fun to share information with others on social media. Even I do it: my Instagram account tracks my fishing trips, showing locations and species caught7. But you millennials are often unrealistic about social media’s permanence and its impact on potential employers. Here’s an excerpt from a piece in the American Business Law Journal:

“Millennials are cognizant of their reputational vulnerability on digital media, but are not willing to sacrifice internet participation to segregate their multiple life performances. Lacking the technological or legal ability to shield performances, millennials rely on others, including employers, to refrain from judging them across contexts. Their stated expectations of privacy, therefore, appear to be somewhat paradoxical: respondents generally want privacy from unintended employer eyes, and yet they share a significant amount of personal information online, knowing it could become available to employers and others.”8

Here are some surveys showing how millennials rely on other people not to judge them9:

You can be sure of this: employers actively monitor present and future employees’ online activities that may affect their on-the-job responsibilities. The reasons why, and some examples:

• The failure to uncover flaws in an employee’s background or character could lead to negligent hiring/retention lawsuits or malpractice claims

• Employers must also control employee behavior on company computers given legal liability that may result from wrongdoing

• One study showed that 45% of employers monitor social media sites as part of such efforts, and that one-third of employers found publicly available content on applicants’ social media profiles that caused them not to hire the applicants (!!!)

Millennials often perceive their identity as being a combination of their real, tangible lives and their online expressions of themselves. This is resulting in some very paradoxical behavior. If you have a compromising picture, save it on your computer and discuss it with your friends several years from now, but other than that, just delete it from any online forum.

7 The best one is a brief video of my battle with a sea lion while kayak fishing for yellowtail in La Jolla California. My objectives for 2017 include the Giant Trevally of the Pacific Ocean.

8 “Social Media Privacy and the Twenty-First-Century Employee”, Abril, Levin and Del Riego, American Business Law Journal, Spring 2012.

9 “Two Notions of Privacy Online”, Levin and Abril, University of Miami and Ryerson University, July 2009.

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This statement doesnot reflect my views

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Source: University of Miami, Ryerson University. 2009.

The survey question: "It's not right when people can access information that is not intended for them"% of respondents

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[4] About that carbon-neutral campus…

Many US college campuses are aiming to be “carbon-neutral”, including your own. The American College & University Presidents Climate Commitment was launched in 2007, and so far, 665 schools signed the commitment, 465 submitted plans to be carbon-neutral as soon as possible, and 30% set a target carbon-neutrality date within 20 years. To get a sense for what these plans are all about, let’s look at some common components:

• Heating buildings with biomass, sometimes with on-site biomass gasification plants • The purchase of renewable energy certificates and carbon offsets to offset campus carbon use • On-site installation of wind and solar power generation • Reduction of electricity consumption in buildings through more efficient HVAC systems, fluorescent

bulbs, adaptive/optimized thermostats, reduced stand-by electricity loads, etc

The good news: insulation and energy-efficient materials have reduced energy used in commercial and residential buildings since 1980. As shown in the chart below, lower building energy consumption is mostly related to heating rather than electricity, since modern computers, servers and telecom equipment (and all the devices required to ventilate/cool them) consume a lot of electricity.

But still…how can campuses achieve “carbon-neutrality” while the US and the world at large still use fossil fuels to generate 80%+ of their primary energy? Is campus carbon-neutrality a template for the rest of us? Here’s a partial list of what’s missing from campus assessments of their carbon footprints:

• Production of steel, cement and plastics needed to build and refurbish university buildings and other infrastructure; this is highly dependent on fossil fuels, with no large-scale non-carbon alternative

• Food consumed on college campuses, grown with heavy direct inputs of fossil fuels (for machinery) and indirect inputs of coal and hydrocarbons (to produce ammonia for fertilizer), trucked across the country by diesel rigs and packaged in energy-intensive plastic materials

• Clothes students wear, most of which are produced in China (an economy which uses coal for 65% of its primary energy) and which is transported to the US via diesel-fueled container ships

• Cars, SUVs and planes students use to travel back and forth to college, fueled by gasoline/kerosene

So, if we’re just tracking energy use of students and faculty once they arrive on campus, live in pre-existing buildings, after they’re fed and clothed, and all they need is lights and HVAC, that carbon footprint can be small and reduced further through insulation and efficient building materials. Campus carbon-neutrality efforts also help raise awareness of climate issues. But as a template for the rest of society, which has to generate large amounts of steel, cement, plastics and ammonia to produce structures and food, and distribute them throughout the economy, it doesn’t really mean that much.

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Source: EIA Commercial Buildings Energy Consumption Survey. May 2016.

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The 4 industrial pillars of modern society and their primary carbon-based inputs, Production index, 1950 = 100

Steel (metallurgicalcoke, natural gas)

2015: 1,600 Mt

Ammonia (methane)

2015: 146 Mt

Plastics (methane, naphtha and ethane)

2015: 330 MtCement (coal,

petroleum coke)2015: 4,100 Mt

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One more thing, on biomass: not always as green as you might think. Biomass carbon intensity depends on the feedstock type (cuttings and waste vs. existing trees), how it’s managed, fertilized, harvested and transported, and how long it takes for the feedstock to be naturally replenished. Ecologist Mary Booth (non-profit Environmental Working Group) wrote a paper in 2014 entitled “Trees, Trash, and Toxics: How Biomass Energy Has Become the New Coal”. Among her conclusions: even the cleanest biomass plant can emit more CO2, nitrogen oxide, volatile organic compounds, particulate matter and carbon monoxide than a coal plant (!!) per megawatt-hour of electricity. Not everything that sounds green is always that green.

The earth’s energy sources and uses are complicated. Google announced a Clean Energy plan in 2008 to reduce US electricity generation from fossil fuels by 88% by the year 2030. In 2011, Google abandoned the plan, and in 2014 its engineers wrote an assessment explaining what they got wrong. Their piece was entitled “Today’s renewable energy technologies won’t save us. So what will?”. Great reading for college students wanting to learn more about energy and the challenge of climate change. [5] Your brain, social media and binge-watching

Now that internet access is omnipresent on college campuses, academics are looking at its connection to your GPA and your life after college. One of the first efforts from Oxford (UK) looked at the impact on student GPA from the use of technology while studying. Here’s what they found: while increasing use of email and search engines was positively correlated with GPA, activities such as texting, instant messaging and media platforms like Facebook hurt student GPA. What this is really all about: humans have maximum capacities for cognitive learning through verbal and auditory channels, and with too much social media use, many people hit their multi-tasking limits.

An even bigger distraction is video streaming. A Texas Tech professor estimates that 9 out of 10 students use services like Netflix, and that ~70% binge-watch shows (i.e., watching at least 3 episodes at a stretch). Over the long run, what’s the risk of too much TV and not enough physical activity? By the time you reach middle age, your ability to perform simple matching and numeric tasks could erode. The chart (right) shows the odds of that happening based on your TV viewing time and level of physical activity. Too much screen time was also associated with premature aging in a 2015 study from the Mayo Clinic, and with depression and loneliness in a 2015 study on binge-watching from the University of Texas. Go outside and play.

Email Searching

Instant messaging Texting Facebook

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Source: Junco and Cotten, University of Oxford. September 2011.

Relationship between technology use and student GPARegression coefficient

0.50.70.91.11.31.51.71.92.12.3

Digit symbolsubstitution test

Color and namematching test

Auditory verballearning test

Low physical activity & high TVviewing timeLow physical activity & low tomoderate TV viewing timeModerate to high physical activity& low to moderate TV viewing

Source: Hoang et al, JAMA Psychiatry. December 2015.

The likelihood of having poor cognitive performance as an adult, Ratio

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[6] Make sure you understand Affirmative Consent, and that respect should govern your personal interactions

Make sure you understand what Affirmative Consent means in practice. The concept is gaining in acceptance at universities: around 2/3 of US colleges have explicit Affirmative Consent policies in place, and another 1/6 have references to consent as well.

Researchers at the Center for Research and Education on Gender and Sexuality at San Francisco State University found that students’ understanding of consent often differs from how the new policies actually work. Bottom line: you can’t just rely on certain verbal and non-verbal clues; consent means active consent. Universities are quite different in this regard from society at large: in May 2016, attendees at the 93rd annual American Law Institute gathering rejected a provision that would have endorsed an affirmative consent standard being added to the US penal code. But on college campuses, the rules have changed and it’s important for you to understand them, and conduct all of your personal relationships based on mutual respect.

8%4%

54%

19%

3%

12%Affirmative Consent Policy

State Mandated Strong ConsentPolicyStrong Consent Policy (No StateMandate)Reference to Consent

Reference to Effective Consent

No Affirmative Consent Reference

Source: AffirmativeConsent.com, a 501(c)(3) foundation. 2016.

Affirmative Consent policies widespread on college campuses, percent of 513 colleges reporting

Some components of consent:

• Consent can be revoked at any time

• Consent cannot be given if one of you is inebriated, drugged, coerced, or unconscious

• Past consent does not constitute present or future consent

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[7] The life of a young entrepreneur: trying, failing and how to finance a new business

From time to time, you mention the idea of starting a new business. That sounds great: just be aware of the risks, and be ready to start again if it fails. You might hear anecdotes that 9 of 10 all new businesses fail; the reality is actually not quite that bad. According to the Small Business Administration, around half of all new establishments survive for at least 5 years, and a third survive for 10 years. These trends have been very consistent, whether the starting point is 1995, 2000, 2005 or 2010 (first chart below). Another interesting observation: the survival differences by sector are not nearly as pronounced as you might think, with median 5-year survival rates for different sectors all within 10% of each other.

How do new businesses get financed? Despite all the terrible things you hear about banks, they do perform a lot of important functions. Bank loans are the most prevalent form of financing for new firms (aside from an owner’s personal savings). You should probably work with one bank upfront: broadening the number of banks you borrow from tends to increase the price of credit and reduce its availability. Also, start with a smaller bank: Fed data shows that small banks approved at least some of the amount requested for 76% of applicants, while large banks approved 58%. Small banks also had higher satisfaction scores from their borrowers (75 vs. 51).

This reality contrasts with perceptions that angel investors and venture capitalists are essential sources of capital for most startups. The chart above shows funding sources for 5,000 fast-growing companies in a Kauffman Foundation study; angel investors and venture capitalists funded only ~7% of the companies in the survey (in another Kauffman study, they funded only 3%).

[8] Wear something red: on clothing and heteronormative dating

I have never provided you much in the way of advice on dating or clothes (neither being an area of expertise), but now I have some empirical information for you on the science of personal attraction. Academics from the University of Rochester and the University of Munich10 conducted experiments to see if female humans are attracted to the color red in the same way that non-human female (animal) species are. Examples of the latter include mandrills, baboons, stickleback (fish), lizards and finches.

The authors measured reactions of female respondents using photos of different men, changing the color of their shirts or background colors of the photos. Here’s what they found: “Women perceive men to be more attractive and desirable when seen on a red background and in red clothing, and we additionally show that status perceptions are responsible for this red effect”. Can it be explained? The authors draw parallels to the animal kingdom (where the color red indicates vascular health and a strong immune system in males), as well as traditions from mythology and folklore, from symbols of prosperity in pre-modern China and Japan, and from signs of nobility and rank in medieval Europe. The authors conclude that biological and societal factors jointly explain this phenomenon.

10 “Red, Rank and Romance in Women Viewing Men”, Elliot et al, Journal of Experimental Psychology, Vol. 139.

0%10%20%30%40%50%60%70%80%90%

100%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1995200020052010

Source: Bureau of Labor Statistics (Business Employment Dynamics). 2016.

New business survival rates% of companies that survive, by establishment year

Years since founding

Per

sona

l sav

ings

Ban

k lo

ans

Cre

dit c

ard

Fam

ily

Hav

e no

t use

d fin

ance

Bus

ines

s ac

quai

ntan

ces

Ang

el in

vest

ors

Clo

se fr

iend

s

Ven

ture

cap

italis

ts

Gov

ernm

ent g

rant

s

0%

10%

20%

30%

40%

50%

60%

70%

Source: Kauffman Foundation. 2014.

Source of funding for the 5,000 fastest-growing companies, % of companies using a specific source

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[9] You only live once: be careful when driving, and with whom you drive

Your college is 5-6 hours away by car, so you will be doing a lot of travelling. In general, young people are notorious for making poor decisions about vehicles, alcohol and drugs. The first chart shows that 20%-25% of college students drive under the influence of alcohol/drugs, and the second one shows the exponential increase in crash risk once blood alcohol levels increase. You can obviously monitor this issue when you drive, but you also have to assess the condition of the person driving a car that you get into. Young people represent 14% of the population and 30% of all motor vehicle injuries. As shown in the third chart, young people are generally pretty bad drivers, even without the influence of alcohol or drugs. Do not become a statistic.

On a slightly related topic, repeated ecstasy (MDMA) use, despite many college student perceptions of its low risk, is now shown to materially erode cognitive functions over time that are related to immediate and delayed recall and pattern recognition. Save your brain, you are going to need it later.

__________________________________________________________________________________________ That’s enough for now. Good luck, study hard and have fun at school. See you over the holidays. Spring fishing season is just around the corner. Dad

0%

5%

10%

15%

20%

25%

16 17 18 19 20 21 22 23 24 25

Alcohol and marijuana combinedMarijuana aloneAlcohol alone

Source: Centers for Disease Control and Prevention. 2014.

Driving under the influence % of persons by age who reported driving under the influence

0x

5x

10x

15x

20x

25x

0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.20+Blood Alcohol Content

Source: National Highway Traffic Safety Administration. February 2015.

Crash risk rises exponentially with blood alcohol contentIncreased chance of car accident compared to driving sober

To reliably stay below .08 legal limit, males weighing 160-180 pounds can have 2 alcoholic drinks

200

300

400

500

600

700

800

900

16-1

7

18-1

9

20-2

4

25-2

9

30-3

9

40-4

9

50-5

9

60-6

9

70-7

4

75-7

9

80-8

4

85+

Age of driver

Younger drivers have more accidentsCrashes per 10,000 drivers

Source: AAA Foundation for Traffic Safety. 2009.

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HOLIDAY EYE ON THE MARKET MICHAEL CEMBALEST J .P . MORGAN DECEMBER 8 , 2016

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