A baseline of needs, or a Millennial’s applied version of Maslow’s Hierarchy of Needs

I recently arrived at the conclusion that I have a baseline level of absolute needs. These needs must be met before any type of growth or personal development can be achieved or even sought. They are the foundation for the mental and emotional stability that I require to make myself vulnerable or take risks. They are:

1. Keep a robust, balanced, healthy, and nutritious diet. Eat at least three meals a day and eat fruits and vegetables every day.
2. Live within my means. Run a personal budget surplus each month, excepting one-time items.
3. Sleep an average of 8 hours per night. Variance is OK, but try to minimize the standard deviation.
4. Exercise at least 4 days per week.
5. Maintain work / life balance. Spend no more than an average of 9 hours per day in the office. Variance is OK, but remember that it’s more acceptable to work 4 hours more than the average than 4 hours less.
6. Maintain a healthy and active sex life.

These rules are a work in progress, evolving with my changing needs and my recognition of any blind spots I confront while living them out. For example, attempting to further myself professionally, I loaded up my hours in the office, neglecting my personal life and overlooking my need for loving and intimate relationships. That resulted in a feeling of isolation and anxiety which inhibited my ability to focus clearly on my goals and desires otherwise. I added maintenance of a healthy sex life to my list of requirements, dedicated time and effort to it, and my life began to stabilize.

One note on this list is that my default action is to fill my space with work and work-related activities. My tendency is to drift into long hours in the office, often resulting in small marginal gains of productivity. These rules are therefore a balancing act for me, to keep watchful eye on the completeness of my needs, in addition to the need to work hard and keep focus on my work. Those needs therefore go without saying on here for me. That may not be the case for another person.

This list is a result of a checklist of mental health requirements that a friend of mine shared with me months ago. I’ve always assumed that it had its origins in an Alcoholics Anonymous space, given he was an active member of the club and many of his self-regulation tools had their roots there. Whenever he was bothered or upset, doubtful or anxious, or even considering drinking, he asked himself 4 questions:

1. H – Am I Hungry?
2. A – Am I Angry (with another person or thing?)
3. L – Am I Lonely?
4. T – Am I Tired?

It was essentially a sanity check. It’s not bulletproof, but it drives at something deeper for me.

I watched a Christmas Carol with my family yesterday at the McCarter Theatre in Princeton. As Jacob Marley made his initial appearance to Scrooge, the latter refused to believe the ghost was real. He was being haunted, and to defend himself from the torment, he rebutted to himself that the terror was simply a mental trick being played by some physiological factor. “You’re a piece of undercooked beef! You’re an old piece of cheese I should not have eaten!” It seems that in 1843 London, Scrooge was aware that our mental health can be affected by physical factors and that the two can be interconnected.

As I began testing the method for myself, I found a few additions were required to suit my life. I first added a C. C stands for chemically balanced. As a man not in recovery and apt to have fun on weekends, my chemical levels are rarely balanced Friday through Sunday and the imbalance frequently drifts into Monday. If I could recognize that a lack of dopamine or some other neurochemical, caused by a rough Saturday night, was to blame for my Monday cragginess, I could compartmentalize it and not extrapolate the feeling as a sign of impending personal failure. That helped.

I then added F. F stands for financial stability. Am I financially secure? I’m two years out of college, earning essentially an entry level salary, and taking on the financial obligations necessary for self-sufficiency seemingly every day. I live in a nice house in a nice part of the city, I own a car, I pay utilities and insurance and I buy food and gas and furniture and everyday items. Taking a sober look at my finances and understanding where I need to cut is a sometimes-painful activity, but the comfort I can derive by knowing that I am in control of my finances, and that I am beholden to nobody financially is powerful.

Finally, I added another L. L stands for love. Do I feel loved? Do I feel that, if I were to fail today and be in a bad situation, that there would be someone who would still love me?

Without these things, it’s hard to look outside myself. Charity, generosity, and selflessness are traits I seek to build into my life, but they’re difficult to sustain if you cannot first provide for yourself. I’ve come to think that there’s nothing selfish in recognizing that I must come first and that I cannot adequately or sustainably provide for others, especially those that I love, if I am not stable. These cumulative activities, bringing together my physical needs with some basic economic and lifestyle rules, bring me a great deal of stability when implemented accordingly. It’s no surprise that people like me best, and I am happiest and most generous to others, when I have successfully checked all the boxes laid out above. The hope for this list is that the requirements serve as a baseline of self-sufficiency, and do not occupy my whole time. With proper planning, I can chart out meals, workouts, and good sleeps in an hour’s time. I do this – or at least attempt to – on a weekly basis. I can say that the simple requirements listed out above have had a significant, positive impact on my life. With further refinement, I hope that I can push them to the subconscious, and dedicate my active thinking to topics concerning others wellbeing and areas of interest. The true goal is to limit my introspection to a reasonable level and accept that things are OK, and I will be OK.

My reason for sharing this stems from a desire to get my ideas out of my head. This concept isn’t new. Maslow essentially came up with this idea in the 1940s. But it seems to me that I’ve been wrestling with the details for months now, trying to perfect the list, and that just isn’t healthy. I think that this list is strong and sufficient. That’s not to say it can not or will not be improved in the future. That’s my hope with publication. I think that I’ve taken it as far as I can in my own head and can only pass it along for testing and breaking by others with different perspectives.

The Far East Races South

Originally published February 10, 2015 in the Penn State Economics Association’s February edition of the fabled Optimal Bundle.

At the time, I was a second-semester junior at Penn State, studying finance and economics and had just invested half of my life savings in an ETF tracking the Nikkei 225 (primary Japanese stock index). 

There is a race to the bottom happening in East Asia. Export-heavy countries like Japan, Singapore, and Taiwan have watched their currencies depreciate over the past few years. Japan has taken charge in this race to the bottom as the Yen has shed 54% of its value against the U.S. dollar since February 2012. The drop has been exacerbated by the Bank of Japan’s quantitative easing, which has put pressure on other export-heavy countries to copycat and depress their currencies. Since the announcement of Japanese QE in April 2013, the Singapore dollar and New Taiwan dollar have lost 10.5% and 7% respectively relative to the U.S. dollar. The depreciation is due to a cocktail of the recent strengthening of the U.S. dollar and Asian central bank intervention. If natural strengthening of the USD does not satisfy the export desires of Asian central bankers, FX traders could see an Asian currency print-off and the race to the bottom would accelerate.





Waiting to Grexhale

Originally published March 6, 2015 in the Penn State Economics Association’s March edition of the fabled Optimal Bundle.

At the time, I was a second-semester junior at Penn State, studying finance and economics and was very proud of the title of this piece. It was funny in 2015 .. to a wannabe Wall Street Journal reporter. 

Investors breathed a sigh of relief early last week. Greece reached an eleventh hour agreement  Tuesday with its international creditors to secure €240 billion in continued bailout funding. Its willingness to push the envelope has roiled financial markets in the past month. The yield on Greek 10-year government bonds rose as high as 11.21% this month before settling at 9.24% after trading Thursday. An increase in bond yields indicates fears that Greece may not repay its debt. Greek bond investors have reason to worry – a 2012 debt restructuring shed the face value of Greek debt by 53.5%, reduced interest rates, and extended maturities. In all, the debt lost 74% of its overall value. International investors now hold €370 billion in Greek debt – a similar restructuring would cost them about €270 billion. The new agreement gives Greece four months to act. In the meantime, investors will hold their breath once again.







Op-Ed: The Fuel Behind the Rocket

Originally published March 31, 2015 in the Penn State Economics Association’s March edition of the fabled Optimal Bundle.

At the time, I was a second-semester junior at Penn State, studying finance and economics and attempting to convince myself I was an investment banker. 

Securities markets in the United States are red-hot. The Nasdaq Composite recently hit its eerie 5,000 point mark – reminiscent of the 2000 tech bubble implosion – and the benchmark 10-year Treasury is trading below 1.9%, as of March 25th. As investors worldwide pour into domestic markets, we have to ask ourselves: are investors fueling another bubble?

The answer, in my humble opinion, is no. The term bubble is fairly subjective, but it is most commonly associated with the phenomenon where asset prices rise based on large amounts of market speculation, rather than fundamental analysis. Massive speculation in the housing market led to the financial crisis in 2007. The dotcom bubble in the late 1990s and early 2000s was the quintessential bubble – some technology stocks gained nearly 1000% within days of going public. Fundamentals couldn’t support this.

So what’s different about today? Since the Nasdaq bottomed out at around 1,250 in March 2009, it has jumped 284%. As of March 25, the Index stands at 4,888 — admittedly, an absurdly high growth rate for a 5-year span. However, the difference is the fuel behind the rocket.  Bubbles are a result of over-speculation, which is not necessarily the case today. Then what’s fueling today’s rise?

Investors are hungry. They’ve sat patiently for years in a low-to-zero interest rate world as the global economy recovered from the financial meltdown. Select German, Japanese, Swiss, and Swedish short- and medium-term government debts are currently paying negative interest. The EU is on the brink of deflation and the ECB just embarked on a massive new stimulus round aimed at pushing bond yields down even further. Growth in most EU countries is less than 1%, China is revising its growth forecasts downward at an alarming rate, and there continues to be uncertainty in the Middle East. And that leaves us with the current star of financial markets, the United States. Growth forecasts put GDP growth around 3% for 2015 and the Fed is expected to raise rates at some point this year, making domestic securities even more enticing.

The capital inflows into the US securities markets, therefore, aren’t speculative by nature. As prices rise, returns should continue to thin out. Investors will presumably keep piling into them until the returns on American securities are on par with the paltry returns elsewhere. The market may be saturated, but it doesn’t appear to be a bubble. It just begs the question: to where else should investors turn? 












Following the Crowd

Originally published February 27, 2015 in the Penn State Economics Association’s February edition of the fabled Optimal Bundle.

At the time, I was a second-semester junior at Penn State, studying finance and economics and attempting to make connections between theory learned in class and real-world events.

Last summer, I decided that I wanted to invest in the market. I knew the basic principle of ‘buy low, sell high’ and with that in mind, I set off looking for deals. I perused the WSJ and Bloomberg. I wanted to find a so-called ‘value pick’ – one that was fundamentally undervalued and that I could hold for a long time. Eventually, I found a couple good picks. Stocks were pretty jumpy this fall so I figured I could buy one quick after it had a rough day. But, every time I decided to buy, the markets seemed to reverse course and my ‘deal’ had vanished. I couldn’t keep up with the movement of the market. Everything that was hot one was day cold the next, it seemed.

Then I found oil. It wasn’t too hard to find – it was a top story line all through the fall. But I figured trading commodities was only for the pros. I looked around and found there were hundreds of individual stocks related to oil and gas companies. And they were all taking a beating. I wondered why. By November, the market price of crude oil had fallen about 25% since its high in the summer. The price of a barrel of American oil as of November 21st was $78. I ran the math – there are 42 gallons of oil in a barrel – and found that it was selling wholesale for $1.78 per gallon. The price of gas at the pump near my house had been falling sluggishly by Thanksgiving to around $3.10. At those prices gas companies were profiting just under 50% per gallon sold. I knew gas margins were normally high, but that seemed almost monopolistic. My economics classes taught me that each of these gas stations could gain a large share of the local business if they cut prices beneath their competitors’.

I sat in the car with my mom one day.

“I’m gonna pull over and get gas,” she said.

I interjected, “but your tank is half-full already.”

“The price is too low not to take advantage.”

Too low, I questioned.

“Hold off on it,” I said. “Prices are gonna be below $3 sooner than you think.”

“Whatever you say,” she mocked.

We drove on.

I had very little data to support my statement. Only articles I’d read about in the WSJ where business columnists worried that the US had out-produced demand and was headed for a big drop. My emotions kicked in. That sounds bad, I thought. And that’s when I decided I should buy.

I wanted to invest in distressed, highly leveraged oil companies who would suffer the most from low oil prices. When the depressed prices began to cut into their margins, they’d have less cash with which to pay their debts. Default was a possibility. Or they’d get bought out. Oil companies with stronger balance sheets and strong cash flows could buy them out at bargain prices and pay off their debts.

Thank goodness I didn’t. A couple buyouts have occurred (see Repsol S.A. and Talisman Energy), and some analysts have since jumped on my side. But since November 21, 2014 – the day I wanted to pull the trigger – prices have dropped another 33%. I would’ve bought very high.

To understand why this happened, and why I couldn’t have foreseen it, I began to ask why exactly prices were falling so significantly. “Oversupply!” market experts cried out, “we’ve produced too much oil!” As the old adage goes, “pigs get fat, hogs get slaughtered.” Energy companies expanded rapidly in the wake of the recession on the basis that oil would remain around $100 per barrel. As of August 2014, energy companies (oil and gas, etc.) had outstanding debts of roughly $350 billion – in the junk category alone. That’s a scary thought.

Anyway, US oil production is booming, and global demand is cooling. That’s the story, at least. But when you look at the data – it just doesn’t hold up. Let’s look at a 2014 report from the US Energy Information Administration (EIA) detailing global oil supply and demand and make a judgment for ourselves.

In 2013 global oil production was 90.90 million barrels per day. Global consumption was 91.24 million barrels per day. Then, the US surged and global oil production jumped in 2014 to 92.94 million barrels per day. Meanwhile, consumption grew to 92.13 million barrels per day. As of the end of 2014, daily supply exceeded demand by 800,000 barrels per day in a market that consumes more than 92 million every day. The world is producing .85% more oil than we’re consuming. That marginal “oversupply” has resulted in a nearly 60% drop in oil prices.

It doesn’t add up. There are other factors influencing prices that don’t show up on a data set. What are they?

Fear, anxiety, and uncertainty. As Chud likes to call it, animal spirits. The market reaction has as much – if not more – to do with people’s emotions than it does with fundamental economics. If traditional supply and demand can’t adequately explain the seismic shift in prices, behavioral economics might.

Take Goldman Sachs for example. As recently as October 2014, the bank forecasted prices of Brent Crude to be $100/barrel for Q2 2015. Later that month, they changed their mind and lowered their forecasts to $85/barrel. Goldman, an investment bank with what one would believe to be almost ubiquitous fundamental information about oil supplies and demand, couldn’t even see this coming. When Goldman revised their forecast, they issued a statement. In it they said, “WTI could fall as low as $70 in the second quarter and Brent as low as $80, when oversupply would be the most pronounced, before returning to first-quarter levels.” They were dead wrong. They didn’t – they couldn’t – have predicted such a free fall. And they weren’t alone, other major investment banks with divisions devoted entirely to oil price speculation made the same error, though I use that term loosely.

Well, what else happened? Why is the market panicking?

On November 27th, 2014 the Organization of Petroleum Exporting Countries, known as OPEC, held a meeting in Vienna to discuss the fall in prices. OPEC is headed by Saudi Arabia, the pre-eminent global oil supplier for the past 40 years. OPEC produces anywhere between 30 and 40% of world crude supply annually. The market waited anxiously for a response from the group on how they would react to the fall in prices. There was tension amongst the group members. Venezuela needs oil to trade for about $120/barrel to balance its government budget. They wanted to cut production. Saudi Arabia didn’t care about price. They were concerned with market share. The Americans were impeding on their territory and they were ready to defend it. They had a $750 billion cushion in currency reserves accumulated from godly high margins over the last 30 years. They’d learned their lesson since oil crashed below $10/barrel in the 1980s. They’d prepared for this.

The market held its breath. Analysts said they would need to cut 1.5 million barrels/day to keep prices afloat. After six hours of congregation, the Saudis won out and OPEC would continue its current pace of drilling. Oil prices dropped 7% that day. They haven’t looked back since.

OPEC’s stance was clear: they want to keep their market share and wipe out American oil producers. Saudi Arabia, the leader of OPEC, is willing to withstand low – even negative – profit margins as a result. Saudi Arabia’s state-owned producers bet they could ride out the storm longer than the private United States producers. In January, Saudi Arabia released a 2015 budget outline. The key statistic – they forecast a $38 billion deficit. In 2014, they ran a $54 billion surplus. A major reason? Total exports are expected to decline by 4.4%. Meanwhile, non-oil exports are expected to increase by 3%. They’re bracing for a significant reduction is oil revenues. Insert the price war.

Reports have surfaced that Saudi Arabia is offering drastic price cuts in its exported oil to Europe and Asia. They’re selling oil as low as $4.10 below the benchmark price, nearly 10%.

There is no real question that there is a competition – some call it a war – to hold onto market share and outlast competitors in the oil market. Saudi Arabia and OPEC are betting that they can drive out US producers and eventually get supply back to a ‘healthy’ level, where the market price will stay at the elevated levels we’ve been used to. The upstart Americans are a nuisance – and a real threat – to the stronghold OPEC’s had on the market for decades. Neither side is willing to give in. Production in both areas is expected to continue to grow through 2015.

So, what is driving the oil prices down? The confusion that arises from all of this hoopla. Investors just want to know. They want to know who’s gonna win. They want to know if the Saudis will stay on top. They want to know if the Americans are for real. They want to know how long this battle will last. Uncertainty in financial markets creates hysteria. It produces emotional responses. It drives people to make judgment calls on the spot that may not be fully informed. And passive investors get caught up in the mix. It’s biology that says we like to follow the crowd.

Take, for example, the tulip craze of the 1630s in Holland. Through pure speculation, tulip bulbs became so vastly overpriced that Dutch citizens were trading their properties and life savings for a single bulb. Eventually, the market realized its folly. The price of a tulip reverted back towards its value and subsequently crashed. Some people lost everything. Why would anyone trade a farm for a flower?

We humans are not always as rational as we think. We tend to make hasty, uninformed decisions. As oil continues its slump, some investors are yelling “buy, buy, buy!” Some are fleeing the market with their tails between their legs, selling all they’ve got and living to fight another day.

It’s hard to judge how the price will move in the future. It’s very low right now – but we said the same thing $30 ago. Will it continue to fall? I don’t know. But as I wait, I’m observing people’s emotions just as closely as the facts. The headlines and the numbers may tell different tales.

Link: http://www.psuea.org/recenteditions/2015/02/17/following-the-crowd