At Equities.com, we’ve always been focused on building an active community among the leading voices within the world of finance. As with many other fields, in finance, we’ve noticed a significant shift away from traditional sources of financial news, tips and predictions, and toward a growing number of financial bloggers.
In this series, we profile some of the most distinct and noteworthy voices in the world of financial blogging. Here, you’ll find our recent interview with Jeff Carter, founder of the site Points and Figures. Read below for Jeff’s insights on the merits of a marketplace that’s free of government regulation and the potential of American tech start-ups to revolutionize the way we communicate and travel.
EQ: Thank you for speaking with me today, Jeff. So to start, when did you start Points and Figures?
Carter: It’s hard to remember, actually! I think it was 2010 or 2011. 2010 sounds about right.
EQ: What originally inspired you to start the blog?
Carter: I saw a lot of things happening in the world of finance and economics from a regulatory and government perspective, and later from a trading perspective, and I thought the direction things were going in was all wrong.
EQ: Do you have any specific examples?
Carter: For example, I thought the stimulus that they passed was absolutely the wrong thing to do at the time. I thought that what they were talking about with Dodd-Frank at the time was totally off base. They were going about regulating the wrong way. I thought that, in the transition from human-led markets to electronic markets, they were actually destroying marketplaces and hurting end users.
Granted, electronic markets can open up access and create a fairer playing field. They can provide tremendous amounts of benefits, but there were some fundamental, structural issues with how these changes were implemented, that came about through no fault of the market participants themselves. So I talked a lot about that, and from there I’ve extended into politics and basically anything I want to talk about, now. Mostly, though, I write about startups.
EQ: How do you characterize the blog? It seems to touch on a lot of different facets of politics and current events and finance, so do you have a specific focus that you try to convey?
Carter: I’m a pretty libertarian guy, so the politics are libertarian. Democrats would probably hate my blog, or at least the posts that discuss politics. Some Republicans probably wouldn’t like it, either, though. I came from the University of Chicago, and I follow that school of economics.
When you start talking about Gary Becker's theories on why we should simplify the immigration process and simply charge to immigrate to the US, nobody likes that idea. Yet, it’s clearly the most market-efficient option. In fact, I was talking with somebody who came here from Columbia yesterday while I was lecturing at Notre Dame, and she was shocked by it. I said “wait a minute, think about our EB5 Program – the Chinese are paying $500,000 per citizen. How about all the people that are coming in illegally from Mexico that are paying these guys to take them in in unsafe conditions? Why not just move all that black market stuff above board and charge a real price and make it safe for everybody?”
EQ: That is a very valid point. I’d be curious to learn what those who have actually gone through the long and burdensome immigration process in the US would feel about that. At least with a specific cost, they would be able to work towards a goal and know exactly where they were going, rather than struggling through a complex bureaucracy that has so many levels and hurdles to jump through. In the long run that might be far more taxing.
Carter: The way I think, there’s the physical dollar cost – for example, if you pay $10, you feel the $10 coming out. You get some marginal utility out of spending that $10, but the other hidden cost – the one that you just touched on – is the opportunity cost. What hidden costs are there in going through the regulatory process? A prospective immigrant might have to meet with an adviser, and that takes three hours. That’s three hours a person could be working.
Plus, how do you quantify the stress of being an illegal alien in the United States and being found out and being deported back? It’s almost impossible to quantify that, yet at the same time I love my country so much, I want to share it with everybody. I want people to come here. I want it to be a shining beacon of freedom, an opportunity that exists nowhere else in the world.
I think anybody should be able to come here, as long as they’re not a terrorist or taking advantage of government programs. If you’re charging them for it, they're going to want to work. It just seems like a win-win to me. That’s the sort of idea that I would talk about on the blog that would be highly controversial.
As far as startups, I try to be educational. Because I started Hyde Park Angels in 2007, I want to talk to people about the Chicago environment. I really want to build a community here. I think it's important for the city. It's important for people to know. It's important for people to understand, because most of the Midwest has a real estate private equity type attitude. They don’t understand startups, and how dynamic and magnificent they can be for a local economy. Or that the real money is made investing in their growth. Private equity and Real Estate are dead.
EQ: Points and Figures certainly has a great deal of character and a perspective that differentiates it from other financial blogs out there – and I know there are a lot of them. Is there anything else in particular that you believe characterizes your blog differently than other finance blogs?
Carter: For starters – It's just me, so it really is my personality. I think one of the things about finance that people find very difficult is that there's a lot of shop talk and jargon, and it’s overly complex. I try to distill that into terms that they understand – to make it real for them. It alarms me when I see a statistic – and I haven’t followed up on this statistic if it's real or not – but when they say 52% of Americans don’t have any money in the stock market. I think 100% of Americans should have some money in the stock market.
Part of that is fear, and part of that is that they don’t have any disposable income. In that case, you really can’t help them, but if you look at our social security program, it's going to go broke. The reason it's going to go broke is that we’ve got so many people on it. We’ve made all these promises and there’s only so much money going in. The rate of return on the social security program is less than 3%, but if you privatize that, to put it in the stock market, your rate of return over the long haul will be 8%.
Over any particular 10-year horizon, you can cherry pick what you want – it's going to be what it is. However, if you look at the CRSP index since they've been doing this – back in the 1800s, I think – the rate of return on stocks is about 8%. If I had all of my Social Security money since I started working at a young age, and earned an 8% return, I’d be way better off, and the country would be in way better shape, too. That’s the kind of thing I like to talk about. Of course, sometimes I just like to talk about food and drinking, too!
EQ: That’s good – I think that personal touch goes a long way.
Carter: I’m not trying to be Zero Hedge. I used to blog a lot – sometimes I would blog several times a day. Now, I got it down to one post a day. Today, I blogged about foreign policy – I really think what the government is doing to farmers, eliminating potential people coming in to the food industry that could do cool stuff is very unfortunate. They talk about this highly uneducated workforce out there – well, what are they going to do? That’s something that they could do – they could engage in food production on their own, but they are limited due to federal regulations.
EQ: That’s a great example of a story that you can give your own specific take on. Similarly, what sort of stocks or investments do you find interesting right now?
Carter: Actually, I’m a terrible stock picker. I was a futures trader, so I look at things from more of a macro perspective rather than distilling it down to a stock. I love investing in startups. They are the future.
EQ: What about on a macro level, then?
Carter: For my own personal portfolio, I invest in startups. I’ve invested in over 20 and most of them are doing pretty good. With my retirement money and other money that I don’t need for daily living expenses or emergencies, I’ve got 100% of it invested in no load mutual funds or ETFs that replicate indexes. I don’t try to beat the market – I never sell, I only buy.
When I’m 62, I’ll look at that nest egg and hopefully I’ll be able to retire on that and live the life I want to live. I don’t think you should be short the American economy, especially now. Whether you hate the government, hate Barack Obama, you're worried about the debt or whatever, the things that I’m seeing in the startup world are so incredibly groundbreaking that they're going to make our economy grow faster than it ever has before. I think with the intersection of technology and the way the costs to implement technology are dropping, the cost of DNA research is dropping, and the fact that we have more and more bandwidth, and more and more people online, there is plenty of reason to be optimistic.
We’re in an age that’s unlike any age in human history, except for maybe the Renaissance. We’re going to see a new Renaissance that’s led by tech firms, and those are going to mostly be based in the United States, so it's going to be incredibly dynamic for our economy. One big impediment will be government regulation and crony capitalism.
It’s incredibly scary, because it's going to put a lot of people out of the jobs that they would traditionally do. Think about driverless cars – all of the sudden you don’t need taxi drivers, you don’t need truck drivers, you might not need pilots, or engineers on trains. Think about all the people that drive vehicles whose jobs are now done by a robot. What are those people going to do? The answer is that we don’t know what they're going to do, but they're not going to go work at McDonald’s. There’s going to be jobs that are created by the technology that we can’t even anticipate yet. In 2002, who would have thought that any business needed a social media manager? Now nearly all of them do.
EQ: That is a fascinating point. It sounds like you’re very optimistic on the potential for tech start-ups.
Carter: It's incredible. I’m talking my book a little bit, but if you look at NuCurrent.com – this is a company that, if you embed that technology everywhere, all of the sudden you can build a house and you don’t need as many plugs, or even appliances that connect to the wall with wires. What does that do to the building industry? What does that do to the way we design our homes? It changes everything – it’s a huge, game changing technology – and that's just one example.
Look at medical technology and the Apple Watch from Apple, Inc. (AAPL) – you can monitor heart rate and activity level, but that’s just the beginning. What happens when the cost of DNA research drops like a rock, and I can create my own personal pharmaceuticals, which is designed specifically to work with my own DNA? That is the micro-level that we're going to eventually, and you're going to see markets open up in some incredible ways.
I was just talking to a friend in trading about how if you go to an exchange like NASDAQ, NYSE, CME, ICE, or any exchange in the world, the market is “one size fits all”. It’s the same rules for every single market, but every single market is different. The hog market is not like the cattle market, which is not like the oil market, which is not like the currency market, so why aren’t there different technology platforms and different rules for different markets that make them more efficient?
Look at BitCoin ($BCOIN) and Blockchain. I think Blockchain can revolutionize supply chain technology to eliminate friction in supply chains, which allows currency in money and goods to move faster from point to point. It makes everything more efficient, which is going to drag down the costs of goods and services and allow people to consume more, which is going to raise standards of living. It’s a virtuous circle that happens. We’re on the beginning edges of that – we’re still singing the national anthem, and we haven’t even thrown up the first pitch.
I’m really optimistic about the future. I lectured in Notre Dame yesterday, and most of the people are 18, 19 years old. I said “man, I wished I was 18 years old.” The lives that these people are going to have an opportunity to live is going to be incredible, and I’ve probably only got another 50 years here.
I think 100 years from now, you're going to look back and see this is as the start of the American Renaissance. It’s going to revolutionize the way we live. There’s no cartoon today that can predict what it's going to look like.
EQ: That’s fascinating. It’s pretty amazing to go from talking about finance to a potentially high tech future, but of course it's all related.
Carter: It’s all related. I don’t know how old you are, but I remember watching men land on the moon in 1969. They had all these computers, and all these guys with crew cuts and glasses. Now, my phone has more power than those computers by a lot. The Apple Watch has just been released, and everyone’s like “well, I don’t know,” but what happens when the Apple Watch has more computing power than my phone? What’s the phone going to look like, and how are we going to communicate? It's going to be totally different.
A floor trader told me once that great leaps in mankind’s standard of living happen in two ways. One is better communication – think about the telegraph – and the other is better transportation. So here we are – we’ve got better communication and a change in transportation.
EQ: That is a good point. There will likely be another transportation revolution in the near future.
Carter: Yes, think about Elon Musk and his “Hyperloop,” where you can go from San Francisco to LA in a matter of minutes. If that really gets off the ground, that revolutionizes where people live, how they work…everything.
EQ: Terrific. Before I let you go, is there any single piece of advice that you'd like to impart on our readers, or a philosophy that you live by?
Carter: No debt. Then, know that with the bulk of your money you can’t beat the market. Just be on a low fee Vanguard-type fund. Follow the efficient market hypothesis. With some money, do your homework and know that you’re accepting a lot more risk with that money, so the return has to be requisite with assuming that risk. If you take a risk, don’t look back. Don’t kill yourself for losing money, because it happens. If you make money, pull chips off the table – dump it into a mutual fund. Follow your discipline, follow your risk and take the same risk again with a different opportunity.
For more of Jeff’s insights into the market, politics and a broad array of other topics, read his blog Points and Figures.
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