GOLDMAN SACHS CHIEF ECONOMIST: There are 3 big risks for 2017

• Ben Moshinsky
 

• 5h
• 10,612

Keith Mui

LONDON – The second half of 2016 will probably be remembered for its geopolitical shocks and uncertainty rather than as a period of benign economic data.

But to do so would be to only have half of the story.

According to Goldman Sachs' measures of economic activity, the last two quarters of 2016 were really pretty encouraging.

"If you look at economic data for the past few months, there's been an impressive acceleration in growth," Jan Hatzius, the chief economist at Goldman Sachs, said in a speech in London on Monday.

Here is the chart:

Goldman Sachs

"What lies behind this pickup in growth? We think two things," Hatzius said. "Number one; an easing of financial conditions. We've seen in general easier conditions in 2016 as compared with 2015, especially when the impact on growth is concerned."

"Also we've started to move into mildly positive territory as far as fiscal policy is concerned," he added. This trend could continue into 2017, especially if the Trump administration in the US cuts taxes and raises spending.

Here is Hatzius again:

"One of the big questions of the Trump administration is how much additional fiscal policy stimulus are we likely to see? Now our expectation is that there will be corporate tax reform and some individual tax cuts. We're not building in the full proposal in our numbers, but something around half of that in our numbers.

"The tax cuts will be constrained because the US is already running a fairly high deficit. But nevertheless we expect an annual fiscal easing of $200 billion annually. We think that will take effect on growth at the end of 2017."

But Hatzius said there were three key risks to that optimistic outlook for the year. His presentation was capped at 20 minutes, and so he summed them up in a sentence each.

Here they are:

1. Trade protectionism: "Associated with the transition to the Trump administration, a hard turn towards protectionism. That's definitely something that we've got our eye on that I think is a downside risk to the global economy."

2. European politics: "While Europe has improved there's still some significant problems, especially in the labour markets of the southern European economies."

Here is how that political schedule stacks up:

Goldman Sachs

3. China: "China continues to see very rapid debt growth and increases in the debt to GDP ratio so we would have to have a close look at signals from China, especially as far as capital flows are concerned and this is a major focus of our Asia economics team."

Here are those China debt charts:

Goldman Sachs

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Warren Buffett brilliantly explains how bubbles are formed

• Elena Holodny
 

• Mar. 23, 2016, 11:55 AM
• 107,173

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Warren BuffettAP Images

In an interview with the Financial Crisis Inquiry Commission (FCIC) back in 2010, Warren Buffett answered several questions about what he thought caused the housing and credit bubble.

During the interview process, he also gave a crystal clear explanation of how bubbles are formed.

It's a great read for anyone interested in investing or behavioral economics.

The interview comes from a recent document dump from the National Archives, which released transcripts, meeting agendas, and confidentiality agreements from the FCIC. The group was set up in the aftermath of the crisis by Congress to look into the causes of the event.

Anyway, here's Buffett (emphasis ours):

"... My former boss, Ben Graham, made an observation 50 or so years ago to me that it really stuck in my mind and now I've seen evidence of it.

He said, 'You can get in a whole lot more trouble in investing with a sound premise than with a false premise.'

If you have some premise that the moon is made of green cheese or something, it's ridiculous on its face. If you come out with a premise that common stocks have done better than bonds [... that] became the underlying bulwark for the [1929] bubble. People thought stocks were starting to be wonderful and they forgot the limitations of the original premise [....]  So after a while, the original premise, which becomes sort of the impetus for what later turns out to be a bubble is forgotten and the price action takes over.

Now, we saw the same thing in housing. It’s a totally sound premise that houses will become worth more over time because the dollar becomes worth less. [...]

And since 66% or 67% of the people want to own their own home and because you can borrow money on it and you're dreaming of buying a home, if you really believe that houses are going to go up in value, you buy one as soon as you can. And that’s a very sound premise. It’s related, of course, though, to houses selling at something like replacement price and not far outstripping inflation.

So this sound premise that it’s a good idea to buy a house this year because it’s probably going to cost more next year and you’re going to want a home, and the fact that you can finance it gets distorted over time if housing prices are going up 10 percent a year and inflation is a couple percent a year. Soon the price action – or at some point the price action takes over, and you want to buy three houses and five houses and you want to buy it with nothing down and you want to agree to payments that you can’t make and all of that sort of thing, because it doesn’t make any difference: It’ s going to be worth more next year.

And lender feels the same way. It really doesn’t make a difference if it’s a liar’s loan or you know what I mean? [...] Because even if they have to take it over, it's going to be worth more next year. And once that gathers momentum and it gets reinforced by price action and the original premise is forgotten, which it was in 1929.

The Internet was the same thing. The Internet was going to change our lives. But it didn't mean that every company was worth $50 billion that could dream up a prospectus.

And the price action becomes so important to people that it takes over the — it takes over their minds, and because housing was the largest single asset, around $22 trillion or something like that, not above household wealth of $50 trillion or $60 trillion or something like that in the United States. Such a huge asset. So understandable to the public – they might not understand stocks, they might not understand tulip bulbs, but they understood houses and they wanted to buy one anyway and the financing, and you could leverage up to the sky, it created a bubble like we’ve never seen."

You can check out the full interview with Warren Buffett at the National Archives.

SEE ALSO: Why this 2,073-foot Chinese building could be an omen of economic doom

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Science says parents of successful kids have these 13 things in common

• Rachel Gillett and Drake Baer, Tech Insider

• May 6, 2016, 2:09 PM
• 26,413,886

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Richard Branson and his mother, Eve.Clive Rose/Getty Images

Good parents want their kids to stay out of trouble, do well in school, and go on to do awesome things as adults.

And while there isn't a set recipe for raising successful children, psychology research has pointed to a handful of factors that predict success.

Unsurprisingly, much of it comes down to the parents.

Here's what parents of successful kids have in common:

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1. They make their kids do chores.

AngryJulieMonday/flickr

"If kids aren't doing the dishes, it means someone else is doing that for them," Julie Lythcott-Haims, former dean of freshmen at Stanford University and author of "How to Raise an Adult" said during a TED Talks Liveevent. 

"And so they're absolved of not only the work, but of learning that work has to be done and that each one of us must contribute for the betterment of the whole," she said. 

Lythcott-Haims believes kids raised on chores go on to become employees who collaborate well with their coworkers, are more empathetic because they know firsthand what struggling looks like, and are able to take on tasks independently.  

She bases this on the Harvard Grant Study, the longest longitudinal study ever conducted.

"By making them do chores — taking out the garbage, doing their own laundry — they realize I have to do the work of life in order to be part of life," she tells Tech Insider.

2. They teach their kids social skills.

Fiona Goodall / Stringer / Getty Images

Researchers from Pennsylvania State University and Duke University tracked more than 700 children from across the US between kindergarten and age 25 and found a significant correlation between their social skills as kindergartners and their success as adults two decades later.

The 20-year study showed that socially competent children who could cooperate with their peers without prompting, be helpful to others, understand their feelings, and resolve problems on their own, were far more likely to earn a college degree and have a full-time job by age 25 than those with limited social skills.

Those with limited social skills also had a higher chance of getting arrested, binge drinking, and applying for public housing.

"This study shows that helping children develop social and emotional skills is one of the most important things we can do to prepare them for a healthy future," said Kristin Schubert, program director at the Robert Wood Johnson Foundation, which funded the research, in a release.

"From an early age, these skills can determine whether a child goes to college or prison, and whether they end up employed or addicted."

3. They have high expectations.

www.flickr.com

Using data from a national survey of 6,600 children born in 2001, University of California at Los Angeles professor Neal Halfon and his colleagues discovered that the expectations parents hold for their kids have a huge effect on attainment. 

"Parents who saw college in their child's future seemed to manage their child toward that goal irrespective of their income and other assets," he said in a statement.

The finding came out in standardized tests: 57% of the kids who did the worst were expected to attend college by their parents, while 96% of the kids who did the best were expected to go to college.

This falls in line with another psych finding: The Pygmalion effect, which states "that what one person expects of another can come to serve as a self-fulfilling prophecy." 

In the case of kids, they live up to their parents' expectations.

4. They have healthy relationships with each other.

Shutterstock

Children in high-conflict families, whether intact or divorced, tend to fare worse than children of parents that get along, according to a University of Illinois study review.

Robert Hughes Jr., professor and head of the Department of Human and Community Development in the College of ACES at the University of Illinois and study review author, also notes that some studies have found children in nonconflictual single-parent families fare better than children in conflictual two-parent families.

The conflict between parents prior to divorce also affects children negatively, while post-divorce conflict has a strong influence on children's adjustment, Hughes says.

One study found that, after divorce, when a father without custody has frequent contact with his kids and there is minimal conflict, children fare better. But when there is conflict, frequent visits from the father are related to poorer adjustment of children.

Yet another study found that 20-somethings who experienced divorce of their parents as children still report pain and distress over their parent's divorce 10 years later. Young people who reported high conflict between their parents were far more likely to have feelings of loss and regret.

5. They've attained higher educational levels.

Merrimack College/Flickr

A 2014 study lead by University of Michigan psychologist Sandra Tang found that mothers who finished high school or college were more likely to raise kids that did the same. 

Pulling from a group of over 14,000 children who entered kindergarten in 1998 to 2007, the study found that children born to teen moms (18 years old or younger) were less likely to finish high school or go to college than their counterparts. 

Aspiration is at least partially responsible. In a 2009 longitudinal study of 856 people in semirural New York, Bowling Green State University psychologist Eric Dubow found that "parents' educational level when the child was 8 years old significantly predicted educational and occupational success for the child 40 years later."

6. They teach their kids math early on.

Flickr/tracy the astonishing

A 2007 meta-analysis of 35,000 preschoolers across the US, Canada, and England found that developing math skills early can turn into a huge advantage.

"The paramount importance of early math skills — of beginning school with a knowledge of numbers, number order, and other rudimentary math concepts — is one of the puzzles coming out of the study," coauthor and Northwestern University researcher Greg Duncan said in a press release. "Mastery of early math skills predicts not only future math achievement, it also predicts future reading achievement."

7. They develop a relationship with their kids.

Dubova/Shutterstock

A 2014 study of 243 people born into poverty found that children who received "sensitive caregiving" in their first three years not only did better in academic tests in childhood, but had healthier relationships and greater academic attainment in their 30s. 

As reported on PsyBlog, parents who are sensitive caregivers "respond to their child's signals promptly and appropriately" and "provide a secure base" for children to explore the world.

"This suggests that investments in early parent-child relationships may result in long-term returns that accumulate across individuals' lives," coauthor and University of Minnesota psychologist Lee Raby said in an interview.

8. They're less stressed.

Flickr/Oleg Sidorenko

According to recent research cited by Brigid Schulte at The Washington Post, the number of hours that moms spend with kids between ages 3 and 11 does little to predict the child's behavior, well-being, or achievement. 

What's more, the "intensive mothering" or "helicopter parenting" approach can backfire. 

"Mothers' stress, especially when mothers are stressed because of the juggling with work and trying to find time with kids, that may actually be affecting their kids poorly," study coauthor and Bowling Green State University sociologist Kei Nomaguchi told The Post.

Emotional contagion — or the psychological phenomenon where people "catch" feelings from one another like they would a cold — helps explain why. Research shows that if your friend is happy, that brightness will infect you; if she's sad, that gloominess will transfer as well. So if a parent is exhausted or frustrated, that emotional state could transfer to the kids. 

9. They value effort over avoiding failure.

China Stringer Network/Reuters

Where kids think success comes from also predicts their attainment. 

Over decades, Stanford University psychologist Carol Dweck has discovered that children (and adults) think about success in one of two ways. Over at the always-fantastic Brain Pickings, Maria Popova says they go a little something like this: 

A "fixed mindset" assumes that our character, intelligence, and creative ability are static givens that we can't change in any meaningful way, and success is the affirmation of that inherent intelligence, an assessment of how those givens measure up against an equally fixed standard; striving for success and avoiding failure at all costs become a way of maintaining the sense of being smart or skilled.

A "growth mindset," on the other hand, thrives on challenge and sees failure not as evidence of un-intelligence but as a heartening springboard for growth and for stretching our existing abilities. 

At the core is a distinction in the way you assume your will affects your ability, and it has a powerful effect on kids. If kids are told that they aced a test because of their innate intelligence, that creates a "fixed" mindset. If they succeeded because of effort, that teaches a "growth" mindset.

10. The moms work.

Getty Images/Daniel Berehulak

According to research out of Harvard Business School, there are significant benefits for children growing up with mothers who work outside the home.

The study found daughters of working mothers went to school longer, were more likely to have a job in a supervisory role, and earned more money — 23% more compared to their peers who were raised by stay-at-home mothers.

The sons of working mothers also tended to pitch in more on household chores and childcare, the study found — they spent seven-and-a-half more hours a week on childcare and 25 more minutes on housework.

"Role modeling is a way of signaling what's appropriate in terms of how you behave, what you do, the activities you engage in, and what you believe," the study's lead author, Harvard Business School professor Kathleen L. McGinn, told Business Insider.

"There are very few things, that we know of, that have such a clear effect on gender inequality as being raised by a working mother," she told Working Knowledge.

11. They have a higher socioeconomic status.

EagleBrookSchool

Tragically, one-fifth of American children grow up in poverty, a situation that severely limits their potential.

It's getting more extreme. According to Stanford University researcher Sean Reardon, the achievement gap between high- and low-income families "is roughly 30% to 40% larger among children born in 2001 than among those born 25 years earlier." 

As "Drive" author Dan Pink has noted, the higher the income for the parents, the higher the SAT scores for the kids. 

"Absent comprehensive and expensive interventions, socioeconomic status is what drives much of educational attainment and performance," he wrote.

12: They are "authoritative" rather than "authoritarian" or "permissive."

Spencer Platt / Getty

First published in the 1960s, research by University of California at Berkeley developmental psychologist Diana Baumride found there are basically three kinds of parenting styles [pdf]: 

• Permissive: The parent tries to be nonpunitive and accepting of the child 
• Authoritarian: The parent tries to shape and control the child based on a set standard of conduct  
• Authoritative: The parent tries to direct the child rationally 

The ideal is the authoritative. The kid grows up with a respect for authority, but doesn't feel strangled by it. 

13: They teach "grit."

A West Point cadet at graduation.Chris Hondros / Getty

In 2013, University of Pennsylvania psychologist Angela Duckworth won a MacArthur "genius" grant for her uncovering of a powerful, success-driving personality trait called grit. 

Defined as a "tendency to sustain interest in and effort toward very long-term goals," her research has correlated grit with educational attainment, grade-point average in Ivy League undergrads, retention in West Point cadets, and rank in the US National Spelling Bee. 

It's about teaching kids to imagine — and commit — to a future they want to create. 

Read the original article on Tech Insider. Follow Tech Insider on Facebook and Twitter. Copyright 2016.

SEE ALSO: 21 books successful people read to their kids

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