<p>Xiggi, you don’t know what you are talking about in the case I mentioned.</p>
<p>This is one of my favorite threads. The few posters who post here know what they are talking about.</p>
<p>Sm74’s posts are great.</p>
<p>I have no problem with the research that was referenced in your link.</p>
<p>Ok Xiggi, I misread what you wrote…you weren’t really commenting on my specific example. Sorry.</p>
<p>However, what I wrote is not unique. I didn’t expect my private sector comment to lead to another thread that becomes political. I just meant what I wrote. The loss of this research has a far reaching impact. I am going to leave it at that because I don’t want this thread to become another one of those threads that gets politicized and ends up vaporware.</p>
<p>“What has actually happened the last few years is that when you invest in very high risk asset classes when things go very bad all those classes can collapse at the same time. High risk is high risk.”</p>
<p>Yes it is. Diversification has a whole new meaning today. Finance classes better update the subject matter.</p>
<p>I don’t know how schools are going to invest in fixed income with the low rates in most of the developed world, and the US.</p>
<p>I don’t see how investing in treasuries is going to cut it unless inflation is zero. Even then, I don’t see how 2.15 % 10 year bonds are going to be
a good enough return. </p>
<p>Endowments can invest in stocks, but the share of corporate profits
to wages is close to an all time high and usually that reverses and earnings drop…and that might not be too good for stocks.</p>
<p>With real interest rates at zero, commodities usually do well…but investing in commodities isn’t really investing, it’s speculating.</p>
<p>Where I live, prime commercial real estate yields low returns. If endowments want to invest in this space, they have to compete with foreigners who are willing to accept lower returns.</p>
<p>Then there is the borrow short lend long strategy, but that strategy usually has a lot of risk. Now with the decline in long term interest rates…the reward doesn’t seem too high to me.</p>
<p>Interesting times…I don’t know how these endowments are going to do over the next several years…but things look tough.</p>
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<p>If we see an extended deflation, the relative return of those 10 years could look tremendous, and the real return equally good. The best part of it would be that the nominal returns would be quite low and therefor taxed very lightly. The opposite situation of 30 years ago when nominal returns were high and real returns were much lower…sometimes negative after tax.</p>
<p>Deflation could happen. Do you think deflation is likely? Likely enough to invest your money to receive 2% a year for 10 years.</p>
<p>Many endowments are projecting much higher returns going forward than 2%. Right? A percentage of a portfolio that is invested for 2% returns means that the rest of the portfolio has to come up with even larger returns to make projected numbers…to make numbers so 4 to 5% of the endowment can be spent a year. I guess there will be more pressure to raise money.</p>
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<p>Dstark, I fully understand what you wrote. I also believe that research is extremely important to our successful future as a society. However, we need to balance that with the facts that “we” have been living well beyond our means, and that the ratio between potential benefits and fully accounted costs has rarely been viewed as critical. When it comes to higher education, not only have we lived beyond our means, but have done it in an obscene manner. The cost of providing an education has multiplied and outpaced inflation by a large margin. </p>
<p>This cannot go on forever; we do not have infinite sources of money. Parents can hardly be expected to chip in far more than they do. Using governmental support as it has been done is not a solution, as there are plenty of better destinations for a government spending than maintaining the ivory lifestyle of a few fatcats who live in a parallel world that is isolated from trivial issues such as surviving in a poor economic environment and having to worry about paying rent and buying ramen noodles. </p>
<p>Mini might attack me all he wants from my “becoming anti-intellectualism,” I maintain that the research that consisted in analyzing covers of BS magazines is nothing else than a misappropriation of funds, and this no matter who funded it. What is next? An analysis of the color used in the marking of beer cans to find out that grey carries the notion of an icy cold brew and sells better in Florida than in Wisconsin? On the current envirinment, we do not need any of this any more than we need studies on how libertine penchants and debauchery influenced the music scene in the glory years of Italian Renaissance.</p>
<p>Bottom line? We need more of a line-by-line analysis and leave not stone unturned and find the courage to rock the boat of the untouchables who have , for too long, enjoyed a life that is no longer compatible with our economical reality. </p>
<p>Our ever diminishing dollars should not be spent on idle theoretical pursuits but directly on tools that could jumpstart our economy. For instance we should spend a lot less on the far distant futuristic research in Livermore and a lot more on production and consumption incentives that DO work today. </p>
<p>When our economy returns to a semblance of normalcy, we can rethink funding for the 22nd century; we first have to survive the next thee decades.</p>
<p>dstark:</p>
<p>I think that the projections that pensions and endowments make often have more to do with what “has” to happen if the unthinkable is to be avoided. Organizations around the world engage in this practice.</p>
<p>As far as the deflation likelihood…its quite tough to say. But the bond market is saying that’s what is going to happen, isn’t it?</p>
<p>It seems to me that deflation happens when the money supply contracts; but the fed is leaning into that fairly heavily over the past few years. On the other hand, if you get overbuilt…meaning too much capital investment has been made, then the return on capital collapses, and deflation accompanies that process. I think we’re seeing some of that. Toyota just redesigned their Camry, and apparently cut the price just a bit. The obvious wage pressures are another sign. But I agree that it takes guts to lock up your money in US treasuries for 10 years at 2.21 or whatever the last auction was. </p>
<p>I have long thought that we could see an extended period where the “trick” was to lose the least. as the valued of all long term assets fell. I suppose cash under the mattress would be that. But bonds that were of high quality would probably work better. I watched the Buffett interview with Charlie Rose recently and was astounded that Buffett pointed out that we could never default because we had a printing press. So with things like that, and Bernanke at the controls of the press, locking yourself up for 10 years may not be so prudent.</p>
<p>Reverse of stag-flation= pushing on a string</p>
<p>Dadx, that’s a good post and you answered a lot of questions. With the yields in the bond market, it looks like a small amount of deflation is built in. But there is so much distortion in the market, the government is so heavily involved, I don’t know.</p>
<p>I think the government wants interest rates at levels below inflation…so people will spend money or invest money in more riskier assets. Asset prices rise and the debt doesn’t look so ominous. I think that is what is really happening.</p>
<p>“I have long thought that we could see an extended period where the “trick” was to lose the least. as the valued of all long term assets fell. I suppose cash under the mattress would be that.”</p>
<p>That has been my strategy. Well…I’m not quite using a mattress. :)</p>
<p>Xiggi, that is an excellent post.</p>
<p>I think we are in one of these situations where there are enough people and institutions cutting back that it hurts the economy. And if the economy is bad it gets even worse for the schools. It is a downward spiral.</p>
<p>Perhaps, but what is certain is that the status quo is not feasible. And neither is a return of the days when universities grew with abandon and allowed its tenured faculty liberties that have become unbearable. A handful of teaching hours a week and ultra-generous allowances for absences might have been “affordable” in better times, but those policies will have to be punted … forever.</p>
<p>At all levels in our education systems, we see the impact of the concessions that were extracted (extorted in some cases) from complacent and duplicitous administrators. Simply stated, we can no longer afford part-timers who expect benefits that none of their pupils’ families receive. We desperately need a revolution (for a milder version use the trite term reform) in our education model based on a longer school year and an employment based on an industrial society and not an agrarian model of two centuries ago. </p>
<p>Cutting the fat and the deadwood is long overdue. And so is the end of a model that protects the powerful and allows for the outright indentured servitude of the younger generations of educators. In higher education, time has come to separate the researchers from the educators, and disaggregate the two functions economically. Time has come to separate the essential and productive research from the whimsical and arcane (most charitable terms I can use here,) and make sure that the two are correctly ascertained on their potential economic return. </p>
<p>It might give great pride to alumni and students to applaud the number of Nobel prize-winners, and cheer gleefully about the size of the published research (the type of non-sense the fools who publish the ARWU peddle) but parents should think about what it DOES cost them in dollars and cents for the four to six years it takes students to earn an undergraduate degree.</p>
<p>Xiggi, another excellent post. I like the whole post.</p>
<p>" And so is the end of a model that protects the powerful and allows for the outright indentured servitude of the younger generations of educators."</p>
<p>That is what I have been arguing since I have been on CC. I probably argued with you. The model you stated is what we do in society as a whole. Education is just a subset of what we do in society. Your answer to what we should do is my theme. I could write it like this.</p>
<p>" And so is the end of a model that protects the powerful and allows for the outright indentured servitude of the generations of people."</p>
<p>What you and I wrote are tied together. You are not going to get what you want unless I get what I want.</p>
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<p>Haha, but I think I can wait a bit longer for my satisfaction. 
Well, that is in theory, of course!</p>
<p>Lol…that’s mean.:)</p>
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<p>They’ll eliminate faculty positions before they cut back on salary, sabbaticals or research. And, at $161 million a year, the National Endowment for the Humanities budget isn’t exactly game-changing as far as the overall $14 <em>trillion</em> debt is concerned.</p>
<p>Used to be publish or perish, I think thats changed to ■■■■■ for grant money or perish. My son interned this past summer at a medical research institute and the leader of his group spent 90% of his time trolling for grant money. Kind of turned him off to research.</p>
<p>The major basis for the PhD is to develop the skills to advance knowledge in that area. Most profs worth the name enjoy doing both teaching and advancing their specialty. So what is really being proposed is creating a subset of college teachers whose training and focus is to be advanced level versions of high school teachers. Good luck attracting the best and the brightest to that so long as MIT, Harvard and on down the list prefer the more traditional form of professor–which they will. And as long as the top privates call the tune any deviance will create even more of a two-tiered system of higher edcucation with the traditionals clustered at the top and the rest taking the leftovers and seen as little more than large 4 year community colleges. Good luck with that. The flight to quality for job hiring is already becoming more evident. We already have plenty of schools where profs do little research at all and generally they are known as the third and fourth tier schools. With the job prospects to go with that.
The assumption that creating and passing on knowledge are somehow mutually exclusive is neither proven nor likely. There will be good and poor teachers sprinkled among each group just as there are plenty of poor high school teachers and CC profs. And credentialing has hardly stopped poor teachers from getting through the system.</p>
<p>It would also be an economic fact that the so-called agrarian (9 mos on 3 0ff) model has been fully priced into the decision matrix for those interested in the field. Not to mention many students also use the off time for earning income, getting internships and all sorts of activities. Any change would create a new pricing model in order to attract similar quality. Not to mention many profs use the summer for focused research and other priorities they would not easily give up just because you think it’s a good idea. </p>
<p>I always love the citing of “all that worthless research” as justification for cutting such funding. Feel free to create a list of same and we’ll go though it. Proxmire did that and most found him to be the idiot–not the researchers. Most funding is in medical and sciences research. It can be very hard to predict what will be valuable in 10 years and what is a waste. Who gets that job? I don’t think spending a small percentage of GNP on basic research is wasteful. It also helps employ develop and groom the future researchers in both the public and private sectors. Most countries still envy our science/medical research infrastructure.</p>
<p>Barrons…nice post too.</p>
<p>I 2nd the motion-- a very good post indeed barrons!</p>
<p>The Moody’s report on Amherst is a big red flag. Apparently, the crazy bond market has resulted in some of their variable rate demand bonds being called. This means that the college is on the hook to immediately repurchase the bonds (like the bank calling and demanding that you pay off your mortgage this afternoon). This is major liquidity squeeze for colleges that play the variable rate debt game.</p>
<p>Amherst managed to turn a silk purse into a sow’s ear with mismanagement of their endowment (they had to borrow taxable debt to cover operating expenses). More interesting, though… if their variable rate demand bonds have been getting called, other colleges are probably getting bond calls, too. I thought things had been eerily quiet on the financial reporting front…</p>