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Better Decisions, Better Results

Seeds of Thought
Cognitive Science Meets Investment Management

Issue 15-22
June 30, 2015

Creating Distractions to Stay Focused

At moments like these, when something of potentially great consequence is in a state of maximum
uncertainty, I do my best to distract myself. To be honest, the last thing I want is to stay posted with
minute-by-minute updates. Thats what leads to selling EUR/USD at 1.0975 at the Wellington open on
Sunday night only to watch it trade back to 1.12+ later that same day. Of course, the optimist would say
you could have been on the other side of that trade. Even if that were the case, its likely you would have
done so simply by leaving a buy order and closing your eyes, for if you were fixated on the news flow
odds are you would have pulled the order just as you were about to be filled.
It takes a tremendous amount of willpower to ignore those Sunday night pre-open emails with headlines
like, EUR/USD collapsed through the lows or EUR/USD triggers stops. No liquidity. Actually, it
takes just as much discipline to turn off the TV and ignore your inbox right now. It is that kind of resolve
that is an essential component of intelligent investing. How important is it really for you to be the very
first to react to an announcement? Do you really want to make decisions of serious consequence under
that kind of duress? The minute you start to believe that your year hinges on one gamble is the minute
investors should be pulling their money from you. Therefore, as my gift to you, I am going to do my
best to distract you away from what everyone else seems hyper-focused on. First by identifying the key
trends in US participation rates and second with the new Seeds of Thought podcast.

Dissecting the Participation Trend

One of the best ways to maintain objectivity and see the world as it truly exists is to separate noise from
signal. The more effort we make up front to identify what is truly important, the less likely we are to
become distracted by the many voices vying for our attention going forward.
For the moment, lets set aside my opinion that what the Fed does is of less consequence than many
believe and zero in on what any good fed watcher should have on her radar. In particular, lets
concentrate on the employment half of the dual mandate. While we could debate what constitutes full
employment these days, I prefer to spend my time examining the actionable rather than becoming mired
in the rhetorical. In this edition of Seeds, we will delve into participation rates to see if we can extract
some essential elements to have on our radar and if were lucky, improve our contextual understanding
of the macro environment.
Im going to skip past the overall participation rate, because it provides little more than fodder for
conjecture, and thats precisely what were trying to avoid.
One surprising fact that jumps out at me is that the participation rate among the 65 & older crowd was
actually higher back in 1950. Thats significant because that sector of the population is huge. To give
some perspective, if the participation rate for that group alone were to return to the 1950 level today, the
Copyright 2015 by Bija Advisors LLC.;
Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document

Bija Advisors Seeds of Thought

unemployment rate would be 7.9% versus

the current 5.7%. Now, consider the
combination of higher medical costs,
particularly end of life expenses, and the
impact of the financial crisis on an already
underfunded retirement savings account for
many Americans, not to mention longer life
expectancy, and its not hard to imagine the
trend reversal that began in 1987 ultimately
recouping all of the ground lost since the
50s. When you also consider how many
more women are participating in the labor
force today than back in the 1950s (see
chart), you could make a compelling
argument for why we should expect to see
the participation rates of both the 55-64
group and the 65 & up group continue to
r i s e . T h a t s s i g n i f i c a n t b e c a u s e
unemployment rates are lowest for the
oldest workers (see chart). The only way I
see this peaking is if end of life expenses
drop precipitously or the government steps
up in funding them. Neither is off the table,
but Id say, thanks to advancements in
technology, the former has a better chance
of occurring first.
So thats two key trends, neither of which I
see reversing any time soon nor does either
argue for lower participation rates overall.

Issue No. 15-22

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Now for the other end of the age spectrum.

The large and consistent rise in college
attendance is clear in the participation rate
collapse among the 16-19 and 20-24 year
old groups (see chart). Considering the size
of this group (see population pyramid),
known as the Millennials, their decision to
delay entering the job market has been
especially fortunate, both for universities
and everyone else in the workforce.
However, this is a delay, not a departure,
Click to Enlarge
and its about to come to an end in a big
way. These millennials are better educated, and further in debt, which means they have an even greater
incentive to find work. Weve already been seeing the impact of a mismatch in the rapid increase in the
Copyright 2015 by Bija Advisors LLC.;
Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document

Bija Advisors Seeds of Thought

number of young people with advanced

degrees versus a declining need for people
with them. According to the Federal
Reserve, roughly 44% of new college
graduates are accepting positions which
dont require the skills of a high school
graduate, and nearly 1/3 are earning less
than $25,000 per year (close to minimum
wage). Take a look at the population
pyramids of 1980 and 2014 to see just how
impactful it is that we have one massive
generation that cant/wont leave the
workforce, just as an even bigger one is
entering it.

Issue No. 15-22

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When you combine this with the influence

of technology (see Doctoring Deflation),
its hard to imagine wage pressure being an
inflationary factor any time soon.

Seeds of Thought, the Podcast

Thanks to programs like Serial, podcasts
are becoming increasingly popular. Quite a
few clients, particularly those who prefer to
speak with me rather than read what I
write, requested that I create a podcast
version of Seeds for their commute. I roped
in a fellow UCSB professor, one who could
soften my edges, to co-host with me, and
Click to Enlarge
the early reviews have been very favorable
(especially for her). It was officially launched on iTunes today. Click here for the iTunes link or access it
via our website.
The first episode is titled, Guns, Hope and Unemployment wherein we discuss the effect of high
unemployment particularly among young men on suicide and homicide rates, terrorism and even racism.

About the Author

For nearly three decades, Stephen Duneier has applied cognitive science to investment management, and
life itself. The result has been top tier returns with near zero correlation to any major index, the
development of a billion dollar hedge fund, a burgeoning career as an artist and a rapidly shrinking
bucket list.
Mr. Duneier teaches Decision Analysis in the College of Engineering at the University of California
Santa Barbara. Through Bija Advisors' publications and consulting practice, he helps portfolio managers
and business leaders improve performance by applying proven decision-making skills to their own

Copyright 2015 by Bija Advisors LLC.;

Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document

Bija Advisors Seeds of Thought

Issue No. 15-22

As a speaker, Stephen has delivered informative and inspirational talks on global macro economic
themes, how cognitive science can improve performance, and the keys to living a more deliberate life, to
audiences around the world for more than 20 years. Each is delivered via highly entertaining stories that
inevitably lead to further conversation, and ultimately, better results.
Stephen Duneier was formerly Global Head of Currency Option Trading at Bank of America and
Managing Director of Emerging Markets at AIG International. His artwork is represented by the world
renowned gallery, Sullivan Goss. He received his master's degree in finance and economics from New
York University's Stern School of Business.

Bija Advisors LLC

Twitter: @BijaSeeds
LinkedIn: Duneier
iTunes: Seeds of Thought
Phone: 805 452 9429

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available information, obtained from sources that we consider reliable. However, Bija Advisors LLC does not represent that it is accurate and it should not be
relied on as such. Opinions expressed are current opinions as of the date appearing on Bija Advisors LLCs publications only. All forecasts and statements
about the future, even if presented as fact, should be treated as judgments, and neither Bija Advisors LLC nor its partners can be held responsible for any
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future presented in this document do prove to be accurate. Bija Advisors LLC is not liable for any loss or damage resulting from the use of its product.
Copyright 2015 by Bija Advisors LLC.;
Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document