Summer of 2020

Doug Nolan


QE fundamentally changed finance.

What commenced at the Federal Reserve with a post-mortgage finance Bubble, $1 TN Treasury buying operation morphed into open-ended purchases of Treasuries, MBS, corporate bonds and even corporate ETFs holding high-yield “junk” bonds.

Markets assume it’s only a matter of time before the Federal Reserve adds equities to its buy list.

For years now, Treasury bonds (and agency securities) have traded at elevated prices – low yields – in anticipation of an inevitable resumption of QE operations/Treasury purchases.

Conventional analysis has focused on persistent disinflationary pressures as the primary explanation for historically depressed bond yields. While not unreasonable, such analysis downplays the prevailing role played by exceptionally low Federal Reserve interest-rates coupled with latent (and escalating) financial fragility.

Meanwhile, near zero short-term rates and historically low Treasury and agency securities yields have spurred a desperate search for yields, significantly inflating the demand and pricing for corporate Credit.

The Fed’s COVID crisis leap into corporate debt has wielded further profound impacts on corporate Credit – yields, prices and issuance.

September 2 – Financial Times (Joe Rennison): “Companies have raised more debt in the US bond market this year than ever before… A $2bn bond from Japanese bank Mizuho and a $2.5bn deal from junk-rated hospital operator Tenet Healthcare helped nudge overall US corporate bond issuance to $1.919tn so far this year, surpassing the previous annual record of $1.916tn set in 2017, according to… Refinitiv. The surge marks a dramatic revival for the market since the coronavirus-induced rout in March, when prices slumped and yields soared… ‘There has been a phenomenal amount of issuance,’ said Peter Tchir, chief macro strategist at Academy Securities… ‘It’s been the busiest summer I have ever seen. It’s felt like we have been setting issuance records month after month.’”

Future historians will view The Summer of 2020 as a Critical Juncture for the financial markets, with parallels to the Q1 2000 “blow off” top in Nasdaq (highs not exceeded for 16 years).

From March 23rd trading lows to Wednesday’s highs, the NDX rallied an incredible 84%.

At the close of Wednesday trading, the Nasdaq100 (NDX) enjoyed a year-to-date gain of 42.2%.

But an abrupt reversal saw the NDX sink 5.2% on Thursday and another 5% at Friday’s trading lows (before ending the session down 1.3%).

The Fed’s crisis operations unleashed a historic speculative Bubble, most conspicuously with the big technology stocks. FOMO (fear of missing out) forced professional asset managers into rapidly inflating tech stocks and tech-heavy indices – with nothing more than lip service paid to fundamentals and valuation.

Meanwhile, the online trading community (further energized by government stimulus payments) went into speculative overdrive. The Robinhood, E-trade, Schwab and Fidelity platforms posted unprecedented surges in trading volumes as retail “investors” fully embraced technology stocks, the mantra stocks always go up, and the unfailing Fed “put.”

Less obvious - but likely at least as consequential in fueling the destabilizing speculative melt-up – has been the system-wide proliferation of derivatives trading.

From the Wall Street Journal: “Data by the Cboe Options Exchange show that U.S. equity call-options volume has risen 68% this year. That compares with 32% for put options…”

Purchasing call options has been a highly lucrative endeavor over recent months. Owning call options on some of the big tech stocks has been nothing short of a once-in-a-lifetime bonanza.

The retail trading community has adopted options trading like never before. And I can only assume institutional derivatives trading (listed and over-the-counter) has exploded.

In a speculative market melt-up backdrop in the face of readily apparent downside risk, playing the wild market upside with call options (or comparable derivatives) has been a reasonable institutional strategy. Selling call options also seemed to have made sense, both to boost returns and as a mechanism to offset the cost of purchasing put option downside protection.

I’ll assume an unprecedented quantity of upside “call” options (trading on the exchanges or “OTC” derivatives purchased from brokerages) are currently outstanding. And when the market rally gained momentum, the writers/sellers of these derivatives were forced to buy the underlying stocks (or ETF shares, futures contracts) to hedge their rapidly increasing exposures to a rising market environment. A confluence of FOMO, manic retail speculation, and derivatives-related hedging fueled a historic speculative melt-up.

The equities market blow-off has been a key Monetary Disorder manifestation. To this point celebrated as one of the great bull market advances, surging prices are nonetheless indicative of acute market instability. Was this week’s dramatic technology stock reversal a signal of a change in trend – a historic market top with euphoria succumbing to a much less appealing reality?

Thursday trading saw the VIX (equities volatility) index jump 10 to 36, only to then trade at a 10-week high 38 during Friday’s session (before ending the week at 30.75). The Treasury market was similarly instructive. Ten-year Treasury yields traded to 0.78% last Friday – and were as high as 0.73% in late-Wednesday trading (with equities at record highs). Yields then sank as low as 0.60% as technology stocks reversed sharply lower.

Why might Treasury bonds respond so keenly to an overdue pull back in the big technology stocks? I view this dynamic as confirmation of the pivotal role the tech stock speculative melt-up has been playing in the market Bubble. If as much leverage has accumulated in technology stocks (derivatives, in particular) as I suspect, then a reversal in Nasdaq holds the clear potential to spark an unwind of derivatives-related leverage.

Those that have written/sold call options - previously aggressive buyers to hedge exposures – would reverse course to become forceful sellers into a declining market. Moreover, deleveraging in derivatives markets might then provide a catalyst for a more systemic de-risking/deleveraging dynamic.

Treasuries (and the VIX) are these days fixated on the big tech stocks because they are the marginal source of speculative leverage and, as such, marketplace liquidity.

Curiously, this week's equities market drama had little impact on corporate Credit.

Investment-grade CDS prices ended the week little changed, with high-yield CDS prices actually declining slightly. Both ended the week at or near March lows. The iShares Investment-Grade Corporate Bond ETF (LQD) was little changed in price, with the iShares High-Yield ETF (HYG) declining only about 0.5%.

And why would corporate Credit fret a Nasdaq reversal?

A faltering stock market Bubble, after all, will ensure more aggressive Fed balance sheet expansion, certainly including corporate bonds and ETF shares. Besides, sinking Treasury yields only adds to the appeal of relatively higher-yielding corporate Credit.

And while a faltering stock market Bubble will have major negative ramifications for corporate Credit quality, corporate bonds are priced these days relative to Treasuries with little regard for default risk. Both investment-grade and high-yield CDS prices trade below average prices over the past decade, despite today’s highly elevated risk of widespread defaults.

Let's return to that $1.9 TN of y-t-d corporate debt issuance (already a new annual record), Credit perceived to be underpinned by extraordinary Federal Reserve liquidity, market and economic support. I would argue this gross mispricing of Credit risk is a major Monetary Disorder manifestation with momentous ramifications.

I don’t buy into the notion that central bankers have everything under control – or that aggressive Federal Reserve stimulus measures will support financial markets indefinitely.

I see instead aggressive stimulus having been administered to a system already suffering from years of powerful Bubble Dynamics. And I’ve pointed to two key Monetary Disorder ramifications – egregious equities market Bubble speculative excess (with tech stock derivatives at its epicenter) and massive issuance of mispriced corporate Credit.

In both cases, I believe strongly that aggressive Fed stimulus exacerbates dangerous financial excess and economic maladjustment – fomenting precarious “Terminal Phase” Bubble excess.

Fueling a spectacular equities speculative melt-up comes with great risk. Spurring the issuance of Trillions of mispriced corporate Credit will haunt the system for years to come.

In particular, the notion of “insurance” monetary stimulus is dangerously ill-conceived. It has resulted in the Fed aggressively employing stimulus upon a system already under the command of powerful Bubble Dynamics. In the case of equities, it rather quickly fueled a destabilizing historic speculative melt-up – the type that traditionally ends with dislocations and crashes. For corporate Credit, it almost immediately spurred massive bond fund inflows and record debt issuance.

Both Bubble Dynamics are self-defeating.

Markets have become well-conditioned to assume aggressive monetary stimulus will launch a new speculative cycle. That unprecedented stimulus measures were employed only days after record stock prices made this cycle unique. Stimulus hit a system already overcome by speculative impulses, helping explain both how Bubble excess could so quickly attain powerful momentum along with why markets so easily detached from troubling economic fundamentals.

Especially over recent weeks, the view that the global Bubble has been pierced hasn’t seemed credible. Yet I do see support for the analysis that we’re witnessing the degree of excess and speculative blow-offs consistent with a major top. I wouldn’t be surprised if the Nasdaq top is in.

It wouldn’t be surprising to see equities unravel from here. But the risk of a serious de-risking/deleveraging episode rises significantly when we begin to see risk aversion return to the corporate Credit market.

QE may have changed finance, but it didn’t abolish market or business cycles. It made them more perilous.

Mainly, we’re seeing latent risks now beginning to surface. After this week, it’s more easily discerned why Treasury yields have remained so low - and the VIX elevated - in the face of record stock prices. As an analyst of Bubbles, I see compelling support for the Bubble thesis.

I see fragility. And we’re now less than two months from the most pivotal of elections.

Can financial markets remain attractive as politics turns ugly, repulsive and problematic?

Time for action on America’s Darwinian debt struggle

A credit crisis among small businesses risks creating an even more lopsided US economy

Robin Wigglesworth


A business loan supported by the US central bank’s emergency Main Street Lending Programme will help support Mango’s through Covid-19-induced difficulties © Bloomberg


Mango’s, a tropical-themed nightclub in Orlando that boasts the city’s “sexiest beats”, was recently saved from Covid-19-induced bankruptcy by the Federal Reserve.

A business loan supported by the US central bank’s emergency Main Street Lending Programme will help keep the hotspot alive until dancers and drinkers eventually twirl back to its venues. “We shall reopen to sing, dance, dine and entertain again when it is safe to do so,” the company promises visitors on its website.

Unfortunately, Mango’s rescue is an outlier. While the Fed has engineered a lavish party for America’s biggest companies, its smaller businesses are increasingly forced to scramble for scraps falling off the table, as access to credit becomes a case of feast or famine. 

To ease the economic impact of the Covid-19 pandemic, the US central bank has since March unveiled a series of monetary measures unprecedented in size, speed and extent. The most eye-catching move was to start buying corporate bonds. Although its actual purchases have been modest, the mere fact the Fed is doing this has nurtured a borrowing frenzy. US companies have now sold nearly $2tn of bonds this year, already smashing past last year’s total. 

Despite the bond spree, the average cost has sagged to or near all-time lows. Even riskier non-investment grade companies, often termed “junk”, have been invited to the Fed’s fiesta.

Aluminium can maker Ball recently sold a $1.3bn junk bond with a coupon of just 2.9 per cent, the lowest rate ever paid by a non-investment grade company. For an asset class usually given the more favourable “high-yield” moniker, a rebrand may now be necessary. 

However, in the humbler reaches of corporate America, where companies are far too small to issue bonds, access to credit has become a more Darwinian struggle. Rising corporate debt inequality is a longstanding trend but the coronavirus crisis has exacerbated it and thrown it into painfully sharp relief. Size, far more than creditworthiness, now dictates access to credit. 

Despite the bond boom, the Fed’s latest survey of bank loan officers revealed that a net 70 per cent of bank loan officers were tightening conditions on bread-and-butter corporate loans — making this the deepest credit crunch since the depths of the financial crisis. The mushrooming industry of private debt groups is also increasingly focused on bigger companies, not the smaller ones that most desperately need funding, widening the gap between the credit haves and have-nots.

The diverging access to credit is now so extreme that political and regulatory action is arguably warranted

This is a global phenomenon. The Bank for International Settlements estimates that companies with revenues of $1bn or more account for 70 per cent of all borrowers in the corporate bond and syndicated loan markets in the year to May, close to the highest in a decade. But it is particularly acute in the US, where bonds do more of the heavy lifting than in Europe and in Asia, where smaller companies generally have access to more vibrant local banking systems.

The good news is that the spike in corporate bankruptcies has thus far been more moderate than feared. Nonetheless, it is no coincidence that the historical outperformance of smaller listed companies has disappeared in the US over the past decade and even reversed this year, after nearly a century of faster average gains. Big has become better. 

The Fed’s MSLP, aimed at businesses with fewer than 15,000 employees or $5bn of revenues, is an admirable and innovative effort to address this issue. But it is complicated for smaller, often less sophisticated borrowers, and relies on local banks arranging the loans and selling them on to the central bank. 

This explains why a mere $530m had been lent through it by August 4, with another $421m under review, according to the Boston Fed, which administers the programme. The Paycheck Protection Programme run by the Small Business Administration and the US Treasury made 5.2m loans worth $525bn between its establishment in April and closure earlier this month.

The MSLP take-up will undoubtedly improve, as borrowers and banks become more familiar with it. Yet it remains a Band-Aid for the coronavirus crisis, rather than something that will durably improve access to credit for smaller businesses in the US. 

The diverging access to credit is now so extreme that political and regulatory action is arguably warranted, not just to help keep smaller companies alive in the short run, but to prevent the US economy from becoming even more dangerously lopsided. 

Perhaps it is time for politicians to make small business loans structurally more attractive for banks and other lenders through generous regulatory or tax system breaks. That might come at a cost of more dud loans, but the economic benefits outweigh the risks.

Stocks Went Haywire Today. The Steepening Treasury Yield Curve Tells the Real Story.

By Alexandra Scaggs


A morning briefing on what you need to know in the day ahead, including exclusive commentary from Barron's and MarketWatch writers.




Compared to the stock market’s wild Friday swings, Treasury yields provided a clear narrative.

Long-term Treasuries sold off after the morning’s employment report, with yields grinding higher throughout the session. To compare, the S&P 500 climbed 0.7%, fell 2.8%, rebounded to trade nearly flat, and then slid again to close 0.8% lower.

Yields on the 30-year Treasury bond ended the day higher by 13 basis points, or hundredths of a percentage point, at 1.47%. The benchmark 10-year yield climbed 10 basis points to 0.72%, and the two-year yield advanced by two basis points to 0.15%.

The increase in yields was pretty unusual for a day when the Nasdaq Composite slides 1.3%. Normally, investors buy Treasuries when stocks are down, as they worry that an economic slowdown could hurt growth-sensitive markets. But this selloff brought one of the largest single-day increases in the 30-year yield since the pandemic.


That helps back up one theory circulating to explain the tech selloff: Investors may be betting the U.S. is approaching a broad reopening and the economic growth that could come with it. If that is the case, there is less reason to own the pandemic’s biggest winners. And it could lead to a rebound in inflation, even just to average levels, which would erode the value of long-term Treasuries compared to other maturities.

Bank stocks’ gains can be explained by that fundamental thesis, and not only because a widespread improvement in creditworthiness would help banks’ balance sheets. Investors also believe that a wider gap between short-term and long-term benchmark rates helps banks’ profitability. The SPDR S&P Bank ETF (KBE) closed with a 1.9% gain.

Tech-stock underperformance also fits with that theory, since pandemic standouts such Zoom (ZM) and Peloton (PTON) lagged well behind the broader market on Friday. (They fell 2.8% and 2.2%, respectively.) But it also wasn’t clear how much of the losses were technical and linked to the news that sizable buying of tech-stock options by SoftBank helped drive the market higher in recent weeks.

The rise in Treasury yields has an alternate and more technical explanation as well. In trading days with high volatility, banks’ trading desks may be less eager to warehouse long-term Treasuries, since longer maturities carry greater duration risk. And if banks offload them into the market instead, that could depress prices, at least temporarily. Liquidity going into the three-day holiday weekend normally isn’t robust, either.


To figure out which explanation fits best, investors should watch to see whether the Treasury market’s move persists after the holiday weekend. If it does, the stock-market trends set on Thursday and Friday may continue, with banks higher and tech lower. If not, there could be a tech-stock rebound on the way.

Accountability in the South China Sea

The U.S. imposes sanctions on firms militarizing islands.

By The Editorial Board


An MH-60R Sea Hawk helicopter launches during flight operations aboard the U.S. Navy aircraft carrier USS Ronald Reagan in the South China Sea, July 17. / PHOTO: US NAVY/REUTERS


It’s been a whirlwind summer for American policy in the Western Pacific. Secretary of Defense Mark Esper this week is the second U.S. cabinet member to travel to the region in a matter of weeks, visiting Hawaii, Guam and Palau shortly after Secretary of Health and Human Services Alex Azar made a politically significant visit to Taiwan.

In July the U.S. declared Beijing’s maritime claims in the South China Sea unlawful for the first time, and on Wednesday it backed up this finding with sanctions aimed at Chinese firms.

China began aggressively militarizing islands in the South China Sea during the Obama Administration, making vast claims to the waterway that it said overrode those of its neighbors like Vietnam, the Philippines and Indonesia.

In 2016 the Permanent Court of Arbitration in The Hague said China was violating international law, but Beijing rejected the ruling.

China has since grown more assertive, using militia boats to harass fishing and oil exploration vessels from smaller countries.

Wednesday’s sanctions aim to make Beijing bear costs for this illegal behavior. Of the 24 companies targeted, the most significant is China Communications Construction Co. and its subsidiaries, which work closely with the People’s Liberation Army to build artificial islands and bases in the South China Sea.

Unlike telecom giant Huawei, CCCC does not rely on U.S. technology, so its placement on the Commerce Department’s “entity list” doesn’t threaten the company’s existence. Yet the State Department’s new visa restrictions against top executives, many of whom travel to the U.S., are a real blow.

The U.S. hopes the announcement will raise the profile of military-affiliated Chinese firms so countries in Southeast Asia scrutinize their activities.

For a decade, the U.S. has protested China’s slow-motion military dominance over one of the world’s most important waterways. The Trump Administration is trying to move beyond protestations and orchestrate resistance, signaling to Beijing that the costs of its coercive regional policies outweigh the benefits. The goal isn’t to create conflict but to deter China from reckless actions that could start one.

As the election approaches, debate is intensifying about how a Joe Biden administration would address the challenge from authoritarian China’s increasing disregard of international law.

These sanctions are the latest in a series of policies that will put the next President, no matter who he is, in a stronger position.

China’s Digital Currency Will Rise but Not Rule

China’s new digital currency and its cross-border payments system will together enhance the renminbi’s role as an international payments currency if the government continues to reform the country’s financial markets and remove restrictions on capital flows. But they will hardly put a dent in the dollar’s status as the dominant global reserve currency.

Eswar Prasad

prasad15_ ChesnotGetty Images_china currency


ITHACA – A few years ago, China’s currency seemed to be rising inexorably to global dominance. The renminbi had become the fifth most important currency for international payments, and in 2016, the International Monetary Fund included it in the basket of major currencies that determines the value of Special Drawing Rights (the IMF’s global reserve asset).

Since then, however, the renminbi’s progress has stalled. Its share of international payments has fallen below 2%, and the share of global foreign-exchange reserves held in renminbi-denominated assets seems to have plateaued at about 2%.

Earlier this year, China rolled out a central-bank digital currency, making it one of the first major economies to do so. Trials of the so-called Digital Currency/Electronic Payment (DCEP) have started in four cities, and the government recently announced plans to expand the tests to major metropolises such as Beijing and Tianjin, as well as Hong Kong and Macau. But the DCEP on its own will not be a game changer that elevates the renminbi’s role in international finance.

True, China has leapfrogged the United States and other advanced economies in the technological sophistication of its retail payment systems. It seems plausible, therefore, that the digital renminbi will give China an edge in the competition for global financial-market dominance.

But the reality is more sobering. The DCEP will initially be usable only for payments within China, although this could change over time. For all the hype about the new digital currency, China’s Cross-Border Interbank Payment System, introduced in 2015, is a more important innovation that makes it easier to use the renminbi for international transactions.

This payment system is also able to bypass the Western-dominated SWIFT system for international payments and thus circumvent US financial sanctions, a tempting prospect for many governments. Russia – or, for that matter, Iran and Venezuela – will now find it easier to be paid in renminbi for their oil exports to China.

As the renminbi becomes more widely used, other smaller and developing countries that have strong trade and financial links with China might start to invoice and settle their transactions directly in that currency. The DCEP could eventually be linked up to the cross-border payments system, further digitizing international payments.

Still, the DCEP by itself will make little difference to whether foreign investors regard the renminbi as a reserve currency. After all, the Chinese government still restricts capital inflows and outflows, and the People’s Bank of China still manages the renminbi’s exchange rate. Neither policy is likely to change significantly anytime soon.

Renminbi boosters will point out that the government has eased restrictions on capital flows and signaled its intention eventually to open the capital account fully, and that the PBOC has pledged to reduce its currency interventions and let market forces have their way. But whenever shifts in capital flows put significant pressure on the renminbi, the government invariably reverts to command-and-control mode and tightens capital controls and exchange-rate management. Foreign investors, including central banks, will therefore remain skeptical about the prospect of unfettered capital flows at market-driven exchange rates.

In any event, foreign and domestic investors are unlikely to view the renminbi as a safe-haven currency in times of global financial turmoil. That requires trust, which is fostered by adherence to the rule of law and well-established checks and balances in the political system.

Some argue that the rule of law does exist in China, and that the country’s non-democratic, one-party system of government contains enough self-correcting mechanisms to prevent policymakers from running amok. But these arrangements are not a credible or durable substitute for an institutionalized system of checks and balances such as that in the US, where the separation of the executive, legislative, and judicial branches serves to constrain the exercise of power.

US President Donald Trump’s administration is doing all it can to weaken America’s institutions, undermine the rule of law, and erode the Federal Reserve’s independence. But in international finance, everything is relative. America’s economic dominance, deep and liquid capital markets, and still-robust institutional framework mean that the US dollar still has no serious rival as the world’s leading reserve currency.

Any global gains the renminbi has made in recent years, both as a means of payment and as a reserve currency, have mostly come at the expense of currencies such as the euro and the British pound. Even when the IMF added the renminbi to the four existing currencies in the SDR basket and gave it a 10.9% weighting, it was mainly the euro, the pound, and the Japanese yen that gave way, not the dollar.

China’s new digital currency and its cross-border payments system will together enhance the renminbi’s role as an international payments currency if the government continues to reform the country’s financial markets and remove restrictions on capital flows. But they will hardly put a dent in the dollar’s status as the dominant global reserve currency.


Eswar Prasad is Professor of Trade Policy at Cornell University’s Dyson School of Applied Economics and Management and a senior fellow at the Brookings Institution. He is the author of Gaining Currency: The Rise of the Renminbi.

The One Thing You Can Control Right Now: Yourself

We feel powerless over so many things in the pandemic. But learning to practice better self-control can help.

By Elizabeth Bernstein


















Early in the coronavirus pandemic, Zvi Band took out a blank piece of paper and drew a line down the middle. Then he made two lists.

On one side, he wrote down the things he can’t control: the length of the quarantine; whether he or someone he knows gets sick; whether his business suffers; if or when there will be a cure.

On the other side, he listed things he can control: how he spends his time and who he spends it with; how he cares for his wife and family; what he spends money on; the information he consumes; the food he eats; how well he follows safety precautions.

When he was done, Mr. Band ripped the page in half, crumpled up the list of things he can’t control, and threw it away. He taped up the list of things he can control next to his computer monitor.

“It reminds me to stay focused and that I am in command of my emotional state,” says the 36-year-old CEO of a software company in Washington, D.C.

Feel like everything right now is beyond your control? It’s not.

You can control yourself.

Self-control—the ability to manage your thoughts, feelings and actions to achieve a goal—is a necessary skill to master in the Covid-19 era. You can’t overcome a challenge—big or small—without being disciplined.

Yet many people are finding it harder to maintain their self-control these days. When we’re under extreme stress, our brain works overtime to regulate our emotions, attention and behavior. At the same time, we have more distractions, fewer options for stress relief and poorer sleep. All this taxes our mental resources, depleting our ability to stay motivated, experts say.

“You can think of self-control as bandwidth,” says Angela Duckworth, professor of psychology at the University of Pennsylvania, who studies self-control. “And right now, it’s divided.”

The Ancient Greeks had a word for the lack of self-control: Akrasia—acting against one’s better judgment because of a weakness of will. It’s what happens when we succumb to a temptation that feels good in the moment, rather than doing something that would be good for us in the long run.

During the pandemic, lack of self-control includes bingeing Netflix for hours instead of doing our work, succumbing to our emotions and snapping at loved ones (or strangers), and endlessly doomscrolling the news.

Times are hard. It’s natural to lapse sometimes. If you’ve felt your self-control slip recently, don’t beat yourself up about it. It’s OK and even to be expected from time to time. Just try to do better going forward.

Research shows that people who practice self-control reap a host of benefits, including fewer physical and mental health problems and a longer lifespan; more success in school and work; a greater popularity with others, fewer arguments and better relationships, says Roy Baumeister, a social psychologist and professor at the University of Queensland in Australia, who has studied self-control for 30 years.

Everyone’s born with some ability to maintain self-control, experts say. But for some, it comes easier. People with the personality trait of conscientiousness may find self-control more manageable, as will people who have learned healthy coping skills. People who are naturally more reactive will probably find it harder.

The good news: Everyone can strengthen their self-control. “The Victorians called this building character,” says Dr. Baumeister, who is co-author of “Willpower: Rediscovering the Greatest Human Strength.”

A just-published article reviewing the research on self-control commissioned by the John Templeton Foundation, a philanthropic institution that funds scientific research, identifies two main ways to boost it. The first is to form better habits, such as turning off your cellphone when you need to work, shopping locally so you can walk to stores and get some exercise, or going to bed at the same time each night.

Next, reframe your thinking. Psychologists call this cognitive reappraisal. The idea is to broaden your perspective beyond the moment at hand. 
Get some distance.


You can use language to put mental space between you and whatever temptation you’re struggling with, whether it’s a piece of cake or the yearning to yell at your kids. This is called “psychological distancing.”

The idea is to talk to yourself when you’re upset as another person would. Experts suggest using the third person point of view to insert distance. (“Elizabeth is stressed-out on deadline but is not going to melt down.”) Studies show that people who do this have less anxiety and perform better under stress.

Create an alter ego.

To strengthen your resolve, imagine you’re a different, more capable person. Need to have a difficult conversation you’d rather avoid? Imagine you’re an ace hostage negotiator. Want to up your tennis game or swim laps faster? Pretend you’re an Olympic athlete in the competition finals. (My dad taught me to do this when we raced sailboats: “The world’s watching, so let’s show them how we win!” he’d shout with glee at the starting line.)

You could also ask yourself what someone you admire would do in the same situation. My favorite? “What would Mr. Rogers do?”

Studies show that when small children pretend to be a favorite character—Batman, Bob the Builder, Dora the Explorer or Rapunzel—they perform better on challenging tasks, both better regulating their emotions and managing their frustration.

Can this work for adults? Yes. “It allows you to take a step back and also channel someone who is more competent for the task,” says Amanda Grenell, a developmental psychologist at the University of Minnesota who co-authored the research.

So go pick your superhero.

Time travel.

Recall a time in the past when you kept your resolve. Or think about past challenges in history that others have overcome.

Research shows it can also help to envision a future point in time—whether it’s in a week or a year—when things will be better. “You think: ‘Yes, it is a turbulent time. But it will get back to normal,’ ” says Ethan Kross, a professor of psychology and management and director of the Emotion and Self-Control Laboratory at the University of Michigan.

Imagine your future self.

One of the reasons it is so hard to choose a future goal over immediate gratification is because it’s hard to relate to our future self, says Dr. Duckworth. She suggests visualizing yourself in the future the way you want to be, as a way to connect your current actions to your future goals. Then—this is important—you need to identify the obstacles that stand in the way.


Angela Hale, a business owner and single mother, imagines her future self when she needs to boost her self-control. / PHOTO: DANIEL JOHNSON


Angela Hale, who owns a coaching business and is the single mother of a toddler, often imagines her future self when she feels irritable, overwhelmed or doubts herself.

One recent evening, as she rocked her daughter to sleep for the sixth time and tried not to lose her patience or panic about the work she still had to do, Ms. Hale closed her eyes and imagined herself a few years older. She visualized a beautiful home and a thriving business. And she pictured her daughter talking, laughing and running around.

“This helped me see how temporary this time in her life is, and I melted instead of exploding,” says Ms. Hale, 35, who lives in Nevada City, Calif. “I suddenly felt so lucky to be there with her.”

Often when she imagines her future self, Ms. Hale asks for advice—about a relationship or a job or even what time to go to bed. Then she takes it.

“I know my future self well enough by now to know that she knows what’s best,” Ms. Hale says.

“She didn’t get where she is by wasting energy on unavailable men, staying up all night watching old episodes of ‘Grey’s Anatomy’ or making poor financial choices. So neither will I.”