TOPIC: education
Issue 10
January 13, 2019
Unsafe Safe Spaces

In 2016, the University of Chicago’s welcome letter to the incoming freshman class of 2020 informed students that it would not support “trigger warnings” or a culture of safe spaces. The Dean of Students John Ellison declared that at the academic institution “…we do not cancel invited speakers because their topics might prove controversial, and we do not condone the creation of intellectual ‘safe spaces’ where individuals can retreat from ideas and perspectives at odds with their own."

Both Dean Ellison and the University of Chicago are brazenly at odds with many of this country’s institutions of higher education. At The Quintessential Centrist, we believe that they are correct.

Safe spaces are an outgrowth of both the feminist and LGBTQ movements as they provided a forum for those who felt marginalized from the norms of society. The idea was to be able to speak freely and communicate effectively without suffering vilification. Unfortunately, what was intended to create a protective environment has permeated the intellectual sphere to the point where, at best, divergence of opinion is stifled and freedom of thought is met with vindictive backlash.

Conservatives are now clamoring for the same, not least because they feel increasingly isolated and are now pushing for a safe space culture where they, too, can freely express their views without risking character assassination. This is an absurd and short-sighted response. An article published in New York Magazine on January, 5 2019 delved further into this issue. The journalist cited a work from National Affairs where arguments were presented by Frederick M. Hess and Brendan Bell from the American Enterprise Institute, a conservative think tank. The two scholars asserted that conservatives needed "an ivory tower of our own,” which is clearly a politically loaded turn of phrase. The insinuation is that safe spaces created by liberals are tantamount to creating idyllic and unrealistic isolation from the real world while also imposing intellectual restrictions of alternative points of view. While Hess and Bell are correct in referring to safe spaces as an “ivory tower,” fighting fire with fire won’t put out the flames of dissent.

The Quintessential Centrist rejects the concept of liberal or conservative-driven safe spaces. In our view, it defeats the notion of what free speech is intended to promote and implies that civil discourse, irrespective of political leanings, is a fundamentally unviable concept in America, a nation founded in-part on its differences. The immigrants who have made up this nation represent every race, religion and creed. Many, starting with the Pilgrims, came to this country to escape oppression -- be it of thought, religion, political leanings, gender bias, or homophobia. Interestingly, this chasm between the left and the right has been growing fervently since even before the election of President Donald Trump.

Issue 20
March 24, 2019
The Student Debt Crisis & What Can Be Done About It

“Getting a college degree has long been integral to the mythic promise of American opportunity. Yet for millions, it’s become exactly that, a myth---and a very expensive myth at that. The average student leaves school carrying $30,000 in debt. More than 40% of students who enter college fail to earn a degree within 6 years, and many of them wind up in the workforce lacking the credentials and practical skills required to get ahead.” - Bloomberg

A few weeks ago, following an exhaustive investigation by the FBI, dozens of privileged individuals including some public figures were charged by the United States Department of Justice with crimes that included racketeering, fraud, money laundering, obstruction of justice and conspiracy to defraud the United States. The offenses encompassed parents creating fictitious profiles of their children in order to bolster their chances of gaining admissions to selective universities, including highlighting athletic achievements for sports they did not participate in. Some high schools didn’t even field a team for the sport the prospective student was being profiled for! Other despicable actions included paying college entrance exam proctors to supply answers to tests, and outright bribery. Subsequently, both liberal and conservative factions of the mainstream press have had a bonanza highlighting the legitimate inequities regarding the college admissions process.

The Quintessential Centrist agrees that the college admissions cheating scandal is newsworthy. A few in the media have even written about how ultimately, it’s the children who will bear the brunt of their parents’ maleficence. That’s true; however much more widespread problems warranting investigation, thoughtful debate, and corrective action are the overbearing cost of a college education which has consistently outpaced inflation, the increasing amount of debt students incur to secure a college degree, and the fact that a growing number of employers (and students) maintain that the education our colleges provide is not commensurate with the skillsets they are seeking in new hires.

In an effort to frame this slow-moving crisis – and make no mistake, it is a crisis – consider these jarring statistics:

• In 2018, ~70% of college students took out loans to pay for their education.

• “According to figures from the Federal Reserve Bank of St. Louis, between January 1989 and January 2016…the cost to attend a university increased nearly eight times faster than wages did…”.

• Since the late 1990’s, colleges and universities have raised the price of education faster than any sector except healthcare.

• There is $1.56 trillion dollars of student loan debt outstanding. Aside from home mortgages, student loan debt represents largest consumer debt segment in the United States. To put $1.56 trillion dollars of student loan debt in context, consider that total credit card debt in America totals ~1 trillion dollars; and keep in mind, there are many more credit card holders in The United States than student loan borrowers. Hence, not only is the notional value of student debt roughly 50% larger than credit card debt, the dollar amount of student debt per borrower (~$30,000 per person) is exponentially higher than for credit card borrowers (~$5,700 per person).

Issue 22
April 7, 2019
Colleges & Universities Should Consider Abolishing Tenure

"It is indeed ironic that tenured economics professors lecture students about the wondrous efficiencies of a free market, but function in a closed ecosystem of their own. When the time comes to discuss oligopolies and cartels, what better example to use than themselves?" - TQC

When the Quintessential Centrist published a piece on the student loan crisis, it touched on some ancillary topics which deserved greater attention. Tenured positions for college and university professors was amongst the drivers to which we alluded that were unnecessarily driving up the cost of a college education and thus, leaving a generation of young Americans bogged down by student debt. For the purposes of this discussion, we provide a brief history of tenure, assess some of its pros & cons, and ultimately delve into whether it makes sense to maintain what many see as an arcane system.

Tenure, which essentially is lifelong guaranteed employment, first emerged in the US in the post-Civil War era as a means of emphasizing the importance of higher education. At the time, the tenure model adopted by German universities was favored by American educators and that model has remained fundamentally unchanged to this day. In the US, the practice of tenure was institutionalized with the founding of the American Association of University Professors (AAUP) in 1915. At inception, freedom of thought and speech without the threat of persecution was one of the central tenets of the AAUP. Faculty members were protected from termination should their academic research and resultant conclusions not be met favorably. In other words, this was the academic equivalent of First Amendment rights.

Not to bore our readers with exhaustive history, but this is a salient and fundamental piece of the story. By 1940 the AAUP formalized a Statement of Principles on Academic Freedom and Tenure. The Statement defined tenure as “(1) freedom of teaching and research and of extramural activities, and (2) a sufficient degree of economic security to make the profession attractive to men and women of ability. Freedom and economic security, hence, tenure, are indispensable to the success of an institution in fulfilling its obligations to its students and to society.” Proponents of tenure point to the wording of this statement as it emphasized both academic freedom as well as economic security.

Furthermore, tenure can add to the cache of institutions of higher education. The process by which to obtain tenure is rigorous. It typically requires in-depth and meticulous independent research and approval through a peer review process, which hopefully leads to a candidate being awarded a PhD. As more published, recognized experts in their respective field add value to a college’s reputation, a positive feedback loop ignites, which leads to the most qualified students vying for admission, driving benefactors to write big checks, and the school to build even more comprehensive research facilities. This attracts the best and the brightest in academia looking for a place to hang their hat and more prospective students to apply.

Issue 28
May 26, 2019
Harvard University, Disbarred

According to U.S. News & World Report, Harvard University is the 2nd best university in the United States, trailing only Princeton. Earlier this month, however, Harvard made a failing grade. In an act of cowardice, the university caved into a group of students who expressed disdain that Harvard law Professor Ronald Sullivan was among a group of attorneys representing accused sexual predator Harvey Weinstein.

This resulted in Harvard removing Professor Sullivan from Winthrop house, an undergraduate residence hall where he lived and served as a faculty dean. Mr. Sullivan was subsequently stripped of his title as faculty dean - an unacceptable and humiliating way to lose a title he earned ~10 years ago when he became the first black faculty Dean to lead an undergraduate residence hall at Harvard. His wife, Stephanie Robinson, a faculty dean in her own right and also a lecturer at Harvard, sadly became collateral damage in the debacle. Unfortunately, she too was removed and stripped of her title as Dean as well. While Professor Sullivan and his wife will continue to teach at Harvard Law, they are no longer welcome to serve as undergraduate Deans.

That Harvard acquiesced to a group of students’ fantastical claims that having Professor Sullivan continue in his roles at the University was anxiety-producing and contributed to a hostile and unsafe learning environment, is absurd.

In our view, Harvard, a clear global education leader needs to re-examine its priorities and its raison d’etre. Colleges and universities are supposed to shape mores while simultaneously embracing freedom of individuality and choice. Regrettably, by removing Mr. Sullivan, Harvard created an idyllic and unrealistic isolation from the real world for a coddled group of undergraduates. In this case, it also imposed unreasonable professional restrictions on a distinguished faculty member. Although Professor Sullivan was under no obligation to do so, he took a proactive (and costly) step and resigned from Weinstein’s defense team (there were rumblings about Sullivan being concerned for the safety of his family). In the spirit of maintaining order and continuity at Harvard, following these campus protests he made this difficult decision. Ultimately, it was all for naught, as his employer neutered him anyway.

Issue 38
August 11, 2019

One of the costliest and, unfortunately, consistent mistakes many investors make is to purchase a stock and employ a “stop” price, where they will sell their stock if it declines by a predetermined amount, typically 5% or 10%. Arbitrary stop prices potentially preserve some capital in the short term, but often prevent investors from making multiples of the money they saved from using the “stop” price, in the long term. In fact, utilizing a “stop loss” will almost guarantee that an investor will grossly underperform an appropriate benchmark consisting of a basket of stocks. The reason for this is simple: almost every single publicly listed stock that doubles, triples, quadruples, quintuples or even sextuples over a one, two, five etc., year time horizon declines at least 20% in between doubling, tripling, quadrupling or quintupling, etc., at least once, and often, many times.

Absent a corporate takeover, the results of a late stage clinical trial for a small biotech company, or another atypical event, stock price gains (and losses) are almost never linear. Let’s use a few real-life examples to help frame our argument:

Over the last five years, the shares of Netflix (NFLX) have gained over 500%. However, in between quintupling during half a decade, NFLX suffered a 30% drawdown in March/April of 2014, a 38% sell-off in August of 2015, and plummeted 45% in 2018. Had an investor sold NFLX during anyone of those three corrections they would have missed out on a large percentage of NFLX’s price appreciation. Over the last five years, the shares of Amazon (AMZN) have risen over 550%! However, in between almost sextupling in those five years, AMZN lost 28% in January/February of 2016, 13% in August of 2017, 16% in March of 2018 and 33% in the 4th quarter of 2018. Had an investor dumped AMZN at any point during those four acute sell-offs, they would have forfeited a substantial sum of money.

Worth noting is that this phenomenon is not just limited to technology or biotech stocks. It applies to blue chip companies as well. For example, the shares of Bank of America (BAC) have doubled since 2014. But in between generating a 100% return over a five year period, BAC corrected 17% in April/May of 2014, 17% in August of 2015, 40% in January/February of 2016, 25% in June/July of 2016 and 33% in 2018. Had an investor panicked and sold BAC on a negative headline during any one of the examples listed above, they could very well be sitting on a realized loss, despite BAC doubling over the last five years. Even stodgy, safe and steady Johnson & Johnson (JNJ), one of the lowest volatility stocks in the S&P500, has grinded out a gain of 33% over the last 5 years (investors were also treated to dividends). However, in between rising 33%, JNJ traded down 10% in September/October of 2014, 10% in January of 2016, 10% in the last 6 months of 2016, 14% in January of in 2018 and 14% in December of 2018. If an investor sold JNJ during any one of these drawdowns, their investment portfolio might very well be in need of a JNJ band-aid.

Issue 5
December 2, 2018
Read This Before You Go Abroad

“…what’s transpiring in the retail foreign exchange market is indicative of oligopolistic practices, not capitalism…” - TQC

Billions of dollars are at stake. The targets: The uninformed general public traveling overseas. The perpetrators: The monopolistic foreign exchange (FX) booths situated throughout airports and tourist hotspots & retail banks. No informed person would ever use an FX changing firm (or bank) to source foreign currencies if they had any idea how badly they are being fleeced, especially when an ATM provides far superior rates. Let us provide a window into the world of foreign currency exchange.

First, we must put the foreign exchange market into context. It’s by far the largest and most liquid market in the world. In fact, it dwarfs stock and bond trading. All major currencies trade against one another globally. Two common markets are the "spot" or current market and the "futures" market. Both markets are very liquid and offer buyers and sellers instantaneous access to foreign currency. In Friday's market for the $U.S. Dollar / Euro ($USD/EUR): One Euro could be bought for $1.1319 U.S. Dollars. Hence, the market for the $USD/EUR looked like this: Bid $1.1319 Offer $1.1320. The Euro could be bought for $1.1319 and sold for $1.1320, a difference of less than a penny. Furthermore, the amount of currency bid for and offered at these prices, just fractions of a penny wide, amounts to millions of dollars. Far more than any retail customer would ever seek to exchange at an airport kiosk or retail bank.

FX booths and bank branches sometimes offer to exchange foreign currency for "no commission." Instead, their take amounts to far more than a reasonable standard commission. This is what typically transpires: A foreign exchange booth or retail bank branch offers $U.S. Dollar / Euro but widens the market - the difference between the bid and the offer - out. The “markup” they take amounts to well in excess of any commission any broker could ever expect to make on any foreign exchange trade. For example, vs Friday's quoted current market, they might post that they would buy Euros for $1.02 and sell Euros at say $1.24 when the inside market (see above) is $1.1319 bid and $1.1320 offer. This is absurd. FX booths and banks are in essence locking in a ~10% markup from unsuspecting customers, possibly more, on a trades that should cost less than 1 penny to execute.