Political Calculations Unexpectedly Intriguing! http://so-l.ru/news/source/political_calculations Wed, 21 Nov 2018 19:50:37 +0300 <![CDATA[What 2009's Thanksgiving Taught Us About China's Trade War Strategy]]>

We're going to tie something that we learned during 2009's Thanksgiving to China's trade war strategy with the U.S. in this article, but we first need to set the stage for that lesson by examining an alleged mistake that China's leaders have made.

China's leaders are facing unexpected and very rare criticism from the nation's former top trade negotiator over their trade war strategy with the United States.

China’s former chief trade negotiator openly criticised Beijing’s trade war tactics on Sunday, singling out the decision to impose tariffs on soybeans as ill-thought out.

The comments by Long Yongtu, a former vice-minister with China’s foreign trade ministry who headed the talks that led to China’s entry to the World Trade Organisation, offered a rare glimpse into the country’s internal divisions about how to handle the dispute with the United States....

In particular, Long said it was unwise to impose import duties on soybeans in retaliation for US President Donald Trump’s decision to slap additional levies on Chinese imports.

“Agricultural products are very sensitive [in trade], and soybeans are very sensitive as well … We should have avoided targeting agricultural products because targeting agricultural products should be the last resort,” Long said. “But we have targeted agricultural products, or soybeans, right from the start.”

The agricultural states that produce the bulk of America’s soybeans make up Trump’s political heartland, but Long pointed out: “China is in dire need of soybean imports, so why did we pick out soybeans from the beginning? Is this deep thinking?”

The short answer is that it wasn't. The political angle is the explanation, where China's leaders hoped to influence the outcome of the 2018 mid-term elections in the U.S.' farm states, with the Chinese regime counting on its sympathizers to make hay out of the economic harm they purposefully sought to inflict upon U.S. soybean growers. They employed a similar strategy to inflict economic harm on the U.S.' crude oil producing states, although that effort failed to produce any damage.

U.S. Soybeans Help Feed the World - Source: USDA - https://www.usda.gov/media/blog/2016/06/21/us-soybeans-help-feed-world

As part of its soybean tariff strategy, China's leaders have chosen to substitute other nations' soybeans for U.S.-grown soybeans, which is primarily used as animal feed in the country. In practice, that has meant buying up large quantities of soybeans grown in other regions of the world like Brazil, the world's leading producer of the crop, but in recent months, that has also meant substituting other crops for soybeans, because all these other nations are not capable at this time of filling the void left behind by China's avoidance of U.S.-grown soybeans.

At the same time, China has also acted to relax its quality standards for the soybeans that it will accept. By doing this, China will import more soybeans than it otherwise would, but the combination of diminished quality and the substitution of different crops to use as animal feed will likely have unintended consequences.

And this is where we can apply what we learned from 2009's Thanksgiving! In that year, we observed that while turkeys raised by U.S. farmers were growing in size, they weren't leading to meatier birds for sale at U.S. grocery stores. At the time, we hypothesized that a policy implemented by the U.S. government was responsible for this result. That policy involved boosting government-provided incentives aimed at increasing in the amount of ethanol produced from corn in the U.S. for use in the nation's fuel supplies, which caused the supply of corn that had previously been directed toward feeding the U.S.' domestic animal production to instead be diverted toward ethanol production.

That change forced U.S. meat producers to substitute other crops for their preferred higher quality animal feed to fill the void created by the shift in demand, which in the case of farm-raised turkeys, ultimately led to lower quality birds on the nation's Thanksgiving tables while also making them more costly.

In China, soybeans are largely used to feed hogs rather than cattle or turkeys, where Chinese pork producers and consumers may see a similar unintended outcome, driving home Long Yongtu's point regarding the wisdom of China's trade war strategy.

Meanwhile, in the U.S., President Trump has recently acted to boost the nation's commitment to using corn-based ethanol, which is considered to be both bad science and bad policy, but in the context of China's trade war strategy against U.S.-grown soybeans, should perhaps be viewed as a political response aimed at offsetting the economic damage caused by it.

Would it really be too much to ask the world's political leaders to stop doing so many stupid things?

http://so-l.ru/news/y/2018_11_21_what_2009_39_s_thanksgiving_taught_us_a Wed, 21 Nov 2018 11:17:00 +0300
<![CDATA[Are Millennials Killing the Thanksgiving Turkey?]]>

There's a long list of popular products and institutions that Millennials are purportedly killing. Beer. Department stores. Bar soap. Movies. The National Football League. Sex. The Canadian tourism industry. Et cetera.

But now, millennials, or rather, that generation of people born in the years from 1981 through 1996, would appear to have turned their mindlessly destructive attention toward a new target: the Thankgiving turkey.

Small birds are having a big moment.

Tiny turkeys will increasingly grace Thanksgiving tables next week, thanks to the millennial generation's ongoing campaign to remake American gastronomy. The holiday depicted by Norman Rockwell—Grandma showing off a cooked bird so plump it weighs down a banquet plate—is still common. But smaller families, growing guilt over wasteful leftovers and a preference for free-range fowl have all played roles in the emergence of petite poultry as a holiday dinner centerpiece....

There are signs that wee birds are in greater demand. Inventories of whole hens, which are smaller than males, are down 8.3 percent from a year ago, the latest U.S. Department of Agriculture data show. Whole toms, the males, are up 6.9 percent.

Don’t call them capons. They're not castrated chickens. Nor are they chicks. They're not babies. They're just turkeys that weigh in the neighborhood of six pounds.

That's considerably smaller than the weight of adult turkeys commonly found in the American wild.

Are millennials such complete hipster douchebags that they would promote a radical selective breeding/genetic modification program for little more than what amounts to a personal fashion statement for the one day they might serve up their version of a traditional Thanksgiving dinner? And if so, how successful have they been at imposing their will upon the nation's turkey producers and all other Americans?

To find out the answer to that second question (the first was rhetorical), we turned to the U.S. Department of Agriculture's report on the total live weight of all turkeys produced in the U.S., where the following chart presents the annual totals for each year from 1970 through the preliminary estimate for 2018.

Total Live Weight of Turkeys Produced, 1970-2017, with Estimate for 2018

We see in this chart that the answer is "maybe", where the total aggregate live weight of all turkeys produced in the U.S. declined by 0.7% from their 2017 level to a preliminary estimate of 7.488 billion pounds in 2018.

But that could also be the result of a reduction in the number of turkeys produced in the U.S. For that number, we turned to the USDA's report on the number of turkeys raisede in the U.S. to determine the size of their population in 2018.

Number of Turkeys Produced on U.S. Farms, 1970-2018

Here, we find that the number of turkeys raised in the U.S. has declined by 2.5 million year-over-year, where the preliminary estimate of the population of turkeys in the U.s. has fallen to 240 million, the lowest level recorded since 1987 outside of the period of the bird flu epidemic of 2014-2015 that whacked the farm-raised population of turkeys.

By itself, this decline suggests that turkeys are becoming less popular with Americans, where Millennials would perhaps be the likely culprits, but when taken with the data for the total aggregate live weight of turkeys produced in the U.S., it allows us to determine the average live weight of the American farm-raised turkey.

Average Live Weight of Each Turkey Produced, 1970-2018

The average U.S. turkey in 2018 weighed 31.2 pounds, a tenth of a pound heavier than in 2017 and 67% heavier than the average turkey was during the 1970s, while also being 53% larger than the average turkey of 1987, when the U.S. farmers last tended a healthy turkey population similar in size to 2018's flock.

The comprehensive evidence indicates that Millennials are so-far failing to kill the Thanksgiving turkey. Going back to the Bloomberg article announcing the apparent Millennial desire for tiny turkeys, Scott Sechler, one of the breeders seeking to produce a sufficiently meaty small bird for the Millennial market, explained why that impact to the purchase weight of Ready-To-Cook turkeys now available for sale at your local grocery store has been so immeasurably small:

Still, 12- to 14-pound turkeys remain the biggest holiday seller, Sechler said. That may be because some millennials are "still going to Mom's," he said.

So says the man whose future livelihood depends upon his keeping an accurate pulse of this particular target demographic.

http://so-l.ru/news/y/2018_11_20_are_millennials_killing_the_thanksgiving Tue, 20 Nov 2018 11:26:00 +0300
<![CDATA[Changing Expectations and the S&P 500 in Week 2 of November 2018]]>

Seven trading days into our redzone forecast for the S&P 500, and so far, it's holding, with the closing value of the S&P 500 (Index: SPX) falling within our target range on six of seven of those days.

Alternative Futures - S&P 500 - 2018Q4 - Standard Model with Redzone forecast assuming investors focusing on 2019Q1 from 7 November 2018 through 7 December 2018 - Snapshot on 16 Nov 2018

The trajectory of the S&P 500 has also been consistent with our unadjusted standard model's projection associated with the expectations that investors have for 2019-Q1 in setting today's stock prices during this period. Since that trajectory reflects the echo of the volatility that stock prices experienced in October 2018, which arises from our model's use of historic stock prices as the base reference points from which it projects potential future stock prices, we had developed the redzone forecast to compensate for its effect. Our redzone forecast assumes that investors will largely keep their forward looking attention on 2019-Q1.

Just because we've assumed that will happen does not mean that it will. It is possible that investors may shift their attention toward other points of time in the future.

Speaking of which, the large decline in oil prices and growing signs of economic slowdowns elsewhere in the world have greatly influenced investor expectations during the last two weeks, particularly where the future for interest rate hikes by the Fed are concerned.

Back then, investors were confident in their expectations that the Fed would hike its Federal Funds Rate by a quarter point in December 2018, in March 2018 and were giving just over a 50% chance they would again in September 2018.

But now, they appear to be backing off those expectations, where they would appear to now anticipate quarter point rate hikes in December 2018 and just one more in 2019, in June, according to the CME Group's FedWatch tool.

CME Group Fedwatch Tool Probabilities of Fed Rate Hikes at Future FOMC Meetings - Snapshot 2018-11-16

Meanwhile, the news headlines of the past week suggest that some influential Fed officials are backing off plans to steadily hike U.S. short term interest rates into 2019, which accounts in part for those changing expectations....

Monday, 12 November 2018
Tuesday, 13 November 2018
Wednesday, 14 November 2018
Thursday, 15 November 2018
Friday, 16 November 2018

For a broader picture of what happened in the week that was, Barry Ritholtz found five positives and five negatives among the week's major economy and market-related events.

That's it for this edition of our S&P 500 chaos series. We'll see you again after Thanksgiving!

http://so-l.ru/news/y/2018_11_19_changing_expectations_and_the_s_p_500_in Mon, 19 Nov 2018 10:52:00 +0300
<![CDATA[At the Core of the Milky Way]]>

The universe is both stranger and more fascinating than all but a few can imagine. Bad Astronomy's Phil Plait just had that kind of realization after reviewing a paper with 59 co-authors, a group of astronomers and astrophysicists known as the GRAVITY team, who peered deep into the heart of the Milky Way galaxy to make an extraordinary discovery.

I read quite a few scientific journal papers every week, seeing which ones might make a good fit for the blog. They’re always interesting, and of course some have more ground-breaking results than others. But you can count on the fingers of one hand how many times one has made me exclaim out loud upon reading it.

I just read one where I exclaimed out loud.

In fact, I may have exclaimed an expletive out loud — “holy [synonym of feces]!” — when I read the abstract of this particular paper.

Why? Because in the paper, a team of astronomers show that they have observed a blob of dust sitting just outside the point of no return of a supermassive black hole, where the gravity is so intense that this material is moving at thirty percent the speed of light. And this wasn’t inferred, deduced, or shown indirectly. No: They measured this motion by literally seeing the blobs move in their observations.

Better still, there's video, assembled from actual images of the region they studied, as can be seen in the following presentation that zooms in on that region of space to reveal those images, then zooms in even closer via an animation of the orbiting gas for a really close-up view of what observations and astrophysics says is happening just outside of the edge of the black hole at the core of the Milky Way.

The hot "blob of dust" appears to be orbiting the black hole about once every 31 minutes. At 30% of light speed, that dust would be moving at more than 201 million miles per hour as it revolves around the black hole.

By comparison, the Sun, which is much farther away, is moving at speeds over 514,000 miles per hour (828,000 kilometers per hour) around the same black hole, where it will take about 230 million years to complete its orbit around the black hole at the focal point of the Milky Way galaxy.

http://so-l.ru/news/y/2018_11_16_at_the_core_of_the_milky_way Fri, 16 Nov 2018 11:01:00 +0300
<![CDATA[S&P 500 Falls Out of Order]]>

Earlier this year, we marked the occasion when a relative period of order appeared to end in the S&P 500 and a new period of chaos seemed set to take hold in the market.

We say "appeared to end", because order returned to the S&P 500, where a stable relationship between the daily closing value of the index and the index' trailing year dividends per share that had begun on 31 March 2016 subsequently resumed. In retrospect, what we had initially thought to be a sign of order breaking down in the stock market proved to be an outlier event in light of how stock prices behaved in the following months.

That's not the case today, where we can show that relative period of order in the stock market has much more definitively broken down following the onset of the third Lévy flight event of 2018, where the first two events represent a really aggressive reversion to the established mean of the previous period of order. The following chart shows what that looks like against the backdrop of a statistical equilibrium chart.

S&P 500 Index Value vs Trailing Year Dividends per Share, 30 September 2015 Through 14 November 2018, with Relative Period of Order from 31 March 2016 Through 11 October 2018

We mark the recently completed relative period of order as having run from 31 March 2016 to 11 October 2018. To put this period into a larger context, the following chart shows each major relative period of order and punctuated period of chaos from December 1991 through October 2018.

S&P 500 Average Monthly Index Value vs Trailing Year Dividends per Share, 
December 1991 to October 2018

If you'd like to get the data for this second chart, it's taken directly from the historical data we provide through our S&P 500 At Your Fingertips tool, where we make all the monthly data from January 1871 through the present available at no charge!

http://so-l.ru/news/y/2018_11_15_s_p_500_falls_out_of_order Thu, 15 Nov 2018 11:08:00 +0300
<![CDATA[Philadelphia Rebuild Paying Price for Soda Tax Shortfalls]]>

The city of Philadelphia is continuing to experience shortfalls in the monthly revenues it collects from its controversial soda tax. As a result of those ongoing shortfalls, Philadelphia Mayor Jim Kenney's Rebuild initiative is being significantly scaled back from the levels that city officials have promised city residents.

The following chart shows the amount of revenue that the city has collected through the Philadelphia Beverage Tax assessed in the months of January 2017 through August 2018. In the chart, the blue "Desired" line shows the amount of tax collections that city officials originally expected to collect throughout 2017, while the red "2017" line shows how much the city actually collected from its soda tax in each month of that year. The red 2017 line subsequently became the city's expected revenue for its soda tax in 2018, whose actual level of revenues are indicated by the green "2018" line.

Desired vs Actual Estimates of Philadelphia's Monthly Soda Tax Collections, January 2017 through August 2018

Through August 2018, Philadelphia is running about $1.6 million short of its expected revenue levels for the calendar year, and about $10.5 million below its original revenue expectation for the first eight months of collections for its soda tax.

City officials passed Philadelphia's soda tax into law by promising to use 100% of the money it would collect to fund "free" pre-Kindergarten programs in the city, community schools, and the mayor's Rebuild initiative, which would fund repairs and improvements to city parks, libraries, recreation centers and playgrounds.

With the city's soda tax collections persistently falling short of expected levels, one or more of these spending programs would have to pay the price by being scaled back, where the city's Rebuild initiative appears to have become the designated loser.

That much became evident last month when Mayor Kenney began walking back promises to fund $500 million worth of improvements to the city's public infrastructure.

The glowing "First 1,000 Days" report [pdf] released Oct. 1 by Mayor Jim Kenney contained 15 mentions of Rebuild, the most expensive and highest profile initiative of Kenney's first term. But unlike past mentions of the heralded program, these didn't include the $500 million price tag that the administration has used consistently since it introduced the program in 2016.

"Through the Administration’s signature infrastructure initiative Rebuild, we're investing hundreds of millions of dollars in our neighborhoods by renovating our aging recreation centers, playgrounds, parks, and libraries," the report reads.

The subtle adjustment to “hundreds of millions” may seem innocuous yet it portends an intentional shift that could result in fewer dollars reaching neighborhoods hungry for functional, decent places to play and learn.

Philadelphia is reliant upon the taxes it collects through its soda tax to support the borrowing it needs to fund the Rebuild initiative. With those revenues falling over 17% short of the city's original expectations, the mayor has scaled back the city's planned commitment for the Rebuild initiative from $500 million to $348 million, a 30% reduction. The difference between the percentage for the city's soda tax revenues and its funding commitment confirms that the Rebuild program is bearing a disproportionately larger share of Philadelphia's failure to collect its desired level of revenue through its soda tax.

That outcome could have been avoided if only Philadelphia's residents were more willing to pay the city's soda tax instead of engaging in tax avoidance behaviors. It's as if they don't care enough about what city officials want....

http://so-l.ru/news/y/2018_11_14_philadelphia_rebuild_paying_price_for_so Wed, 14 Nov 2018 10:58:00 +0300
<![CDATA[1 in 54 Chance of U.S. Recession Starting Before November 2019]]>

The U.S. Federal Reserve boldly took no action to increase short term interest rates in the U.S. at the conclusion of its 7-8 November 2018 meeting, leaving them at their current target rate of 2.00% to 2.25%, the level to which they had set them back in September 2018.

The risk that the U.S. economy will enter into a national recession at some time in the next twelve months now stands at 1.9%, which is up by roughly three-tenths of a percentage point since our last snapshot of the U.S. recession probability from late-September 2018. The current 1.9% probability works out to be about a 1-in-54 chance that a recession will eventually be found by the National Bureau of Economic Research to have begun at some point between 8 November 2018 and 8 November 2019.

That small increase from our last snapshot is mostly attributable to the Fed's most recent quarter point rate hikes on 26 September 2018. Since then, the U.S. Treasury yield curve has very slightly flattened, as measured by the spread between the yields of the 10-Year and 3-Month constant maturity treasuries, which has only contributed a very small portion of the increase in recession risk in the last six weeks.

The Recession Probability Track shows where these two factors have set the probability of a recession starting in the U.S. during the next 12 months.

U.S. Recession Probability Track Starting 2 January 2014, Ending 8 November 2018

We continue to anticipate that the probability of recession will continue to rise through the end of 2018, since the Fed is expected to hike the Federal Funds Rate again in December 2018. As of the close of trading on Friday, 9 November 2018, the CME Group's Fedwatch Tool was indicating a 76% probability that the Fed will hike rates by a quarter percent to a target range of 2.25% to 2.50% at the end of the Fed's next meeting on 19 December 2018. Looking forward to the Fed's 20 March 2019 meeting, the Fedwatch Tool indicates a 53% probability that the Fed will hike U.S. interest rates by another quarter point at that time. Looking even further forward in time, the Fed is expected to hold rates steady for a while, then hike them by an additional quarter point in September 2019.

If you want to predict where the recession probability track is likely to head next, please take advantage of our recession odds reckoning tool, which like our Recession Probability Track chart, is also based on Jonathan Wright's 2006 paper describing a recession forecasting method using the level of the effective Federal Funds Rate and the spread between the yields of the 10-Year and 3-Month Constant Maturity U.S. Treasuries.

It's really easy. Plug in the most recent data available, or the data that would apply for a future scenario that you would like to consider, and compare the result you get in our tool with what we've shown in the most recent chart we've presented. The links below present each of the posts in the current series since we restarted it in June 2017 and, barring significant events, our next update will be in December 2018.

Previously on Political Calculations

http://so-l.ru/news/y/2018_11_13_1_in_54_chance_of_u_s_recession_startin Tue, 13 Nov 2018 11:15:00 +0300
<![CDATA[Celebrating the End of the 2018 Midterm Election in the S&P 500]]>

The big news last week, aside from the U.S. midterm elections, which apparently are still going on in some places, was the stock market’s response to the return of political gridlock on Capitol Hill, where stock prices rallied strongly enough on the day after the election that they completed the fourth Lévy flight event of 2018, as investors fully returned their forward-looking attention to 2019-Q1 after having devoted all their attention to 2019-Q3 in the previous week.

Alternative Futures - S&P 500 - 2018Q4 - Standard Model with Redzone forecast assuming investors focusing on 2019-Q1 from 7 November 2018 through 7 December 2018 - Snapshot on 9 Nov 2018

Since our dividend futures-based model uses historic stock prices as the base reference points from which we project future potential values for the S&P 500, the recent Lévy flight events have significantly skewed our model’s projections in the period from 7 November 2018 through 7 December 2018. To compensate for what is, in effect, the echo of past volatility in our model's forecasts for the future the S&P 500, we've added a new redzone forecast to our regular spaghetti forecast chart for the S&P 500, where we've assumed that investors will maintain their focus on 2019-Q1 over this period of time.

Now, just because we've assumed that doesn't mean they will. If they don't, then our first potential confirmation that they have shifted their attention toward a different point of time in the future will come as the actual trajectory of the S&P 500 moves outside the rectangular red-zone that we've indicated on the chart. Given recent history and the Fed’s autopilot inclination to keep hiking interest rates well into 2019, even though the U.S. economy is expected to significantly slow (particularly in the third and fourth quarters), the most likely alternative focus point for investors will continue to be 2019-Q3.

Our thinking is that investors will be largely focused on 2019-Q1 during the next month because of the change in political control of the U.S. House of Representatives in early 2019 will keep investors concerned about what policies may come out of Washington D.C. during the first quarter. As we've seen in previous years, those potential policy changes can greatly influence how corporate boards set their dividend policies before the end of 2018, although we would expect this effect to be much less this year than in years where one political party has taken control of both houses of Congress and the White House.

That’s about the extent to which politicians can affect the stock market. The good news is that politicians are mostly impotent otherwise in their ability to affect the stock market, which is why we don’t bother paying much attention to their antics in our analysis!

Monday, 5 November 2018
Tuesday, 6 November 2018
Wednesday, 7 November 2018
Thursday, 8 November 2018
Friday, 9 November 2018

Elsewhere, Barry Ritholtz celebrated the end of all the robocalls, emails, doorbell rings, and political advertising as a positive in this week's succinct summary of the week's major economy and market-related events. That’s a political motion we’re happy to second!

http://so-l.ru/news/y/2018_11_12_celebrating_the_end_of_the_2018_midterm Mon, 12 Nov 2018 11:17:00 +0300
<![CDATA[Can You Afford to Retire?]]>

Can you afford to stop working and retire? How would you know if you were? And if you're not ready today, how far away is retirement for you?

Retirement Day Calendar (Winter Is Coming!)

It turns out that there is some shockingly simple math that can answer these questions! That math was developed by none other than Mr. Money Mustache, who found that whether you can afford to retire can be expressed as a single factor: the percentage of your annual after tax income from your job that you're able to save. He describes the intuition behind why this number matters more than almost every other in determining how soon you can retire:

If you are spending 100% (or more) of your income, you will never be prepared to retire, unless someone else is doing the saving for you (wealthy parents, social security, pension fund, etc.). So your work career will be Infinite.

If you are spending 0% of your income (you live for free somehow), and can maintain this after retirement, you can retire right now. So your working career can be Zero.

In between, there are some very interesting considerations. As soon as you start saving and investing your money, it starts earning money all by itself. Then the earnings on those earnings start earning their own money. It can quickly become a runaway exponential snowball of income.

As soon as this income is enough to pay for your living expenses, while leaving enough of the gains invested each year to keep up with inflation, you are ready to retire.

While he built an Open Office spreadsheet (*.ods) to do the math, we thought the insight behind it was interesting enough to develop an online application that doesn't require any special downloads to run, unless perhaps you're reading this article on a site that republishes our RSS news feed, in which case, you'll want to click through to our site to access a working version of this tool.

That said, just enter the indicated information in the following tool, and we'll work out how long it will take you to save up enough to retire and also how old you'll be when you can, assuming that you can sustain your savings plan....

Update 10 November 2018: Some of our readers have reported running into some very counterintuitive results when playing with the "safe withdrawal rate" in the tool. We've confirmed their results and also that our tool is accurately replicating the results that would be obtained using Mr. Money Mustache's original spreadsheet, so it's something that's baked into the math he developed. We've followed up with him, and will report back when we know more. In the meantime, we recommend limiting the range of values you might enter for the safe withdrawal rate to fall between 3% and 4%.

Retirement Factors
Input Data Values
Your Current Age
Your Current Savings (Including for Retirement)
Your Annual After-Tax Income
What Percent of Your Annual After-Tax Income Do You Save Each Year?
What Average Rate of Return Do You Expect on Your Savings/Retirement Investments (After Inflation)?
After You Retire, What Percent of Your Accumulated Savings Do You Expect to Withdraw Each Year?

When Can You Afford to Retire?
Calculated Results Values
Minimum Number of Years To Save Enough to Retire
Your Projected Earliest Possible Retirement Age

Running the tool with the default values, which assume a 35 year old individual who has already saved $15,000, who can afford to save 20% of their after-tax income of $30,000 per year would be able to retire in 42 years, at Age 76, given the conservative after-inflation rate of return of 4% for their retirement savings and a plan to withdraw 3.5% of the money they've accumulated in their nest egg after they retire.

Playing with the numbers If there were able to save 30% of their after-tax income, it would cut 10 years off that retirement scenario. Boosted to 50%, the time to retirement could be reduced to 19 years, where they would be Age 53.

Mr. Money Mustache notes that's a feature, not a bug, of how the retirement savings math works:

The most important thing to note is that cutting your spending rate is much more powerful than increasing your income. The reason is that every permanent drop in your spending has a double effect:

  • it increases the amount of money you have left over to save each month
  • and it permanently decreases the amount you’ll need every month for the rest of your life

So your lifetime passive income goes up due to having a larger investment nest egg, and it more easily meets your needs, because you’ve developed more skill at living efficiently and thus you need less.

Meanwhile, if you go in the opposite direction and shrink the percent of income that you save each year, you'll discover that it can take much, much longer. We put an artificial stop in the tool so it won't consider scenarios that last for more than 130 years, because if you cannot save enough to retire within that period of time, you will most likely expire before you can ever afford to retire.

Sharp-eyed readers will probably have noticed that the tool does not take any Social Security payments into account. That's because it considers the possibility that if you're successful, you could afford to retire at a much younger age where it might be years before you even see your first check from the program. And because it does, those who are concerned about whether their Social Security will be cut in the future as currently forecast can breathe easier because they're not dependent upon that additional income.

You can also play with the after-inflation savings rate of return, where values between 3% and 6% would be reasonable for long term scenarios. Meanwhile, retirement specialists suggest that a "safe withdrawal rate" from your retirement savings each year after you're retired would fall between 3% and 4%.

But the big driver in the numbers is the percent of your after-tax income that you can save. The bigger that number, the sooner you can leave the rat race!

http://so-l.ru/news/y/2018_11_09_can_you_afford_to_retire Fri, 09 Nov 2018 11:25:00 +0300
<![CDATA[S&P 500 Completes Fourth Lévy Flight Event of 2018]]>

2018 has been a big year for outsized stock price movements in the S&P 500 (Index: SPX)! It was just earlier this week that we marked the end of the index' third Lévy flight event in 2018, which had begun when investors suddenly shifted their forward-looking focus away from the future quarter of 2019-Q1 toward the more distant-future quarter of 2019-Q3. And now, in just the span of seven trading days, investors appear to have fully returned their attention to 2019-Q1, with the market's post-midterm election reaction marking the end of a fourth Lévy flight for the S&P 500 in 2018.

With the end of that new Lévy flight, we can now draw a new redzone forecast to project where the S&P 500 will go over the next month, where we assume that investors will sustain their focus on the near-term future of 2019-Q1 and the expectations for dividends associated with it from 7 November 2018 through 7 December 2018, which you can see in the latest update to our alternative futures spaghetti forecast chart.

Alternative Futures - S&P 500 - 2018Q2 - Standard Model with Redzone Forecast from 7 November 2018 through 7 December 2018 - Snapshot on 07 November 2018

Given the volatile nature of the stock market in 2018, it's possible that investors may shift their attention once again back toward 2019-Q3 (or 2019-Q4) and send stock prices falling again, or alternatively, to 2018-Q4 or 2019-Q2, either of which would coincide with a strong rally in the stock market, so that will be something to watch out for during the next month. If we're right regarding the future trajectory for the S&P 500 however, we won't see much in the way of interesting behavior during the next 30 calendar days, where we define "interesting" as being when the S&P changes in value by more than two percent from one trading day's closing value to the next.

We'll catch up with the market-moving news headlines in our regular Monday update to our ongoing S&P 500 Chaos series of stock price analysis. Until then, if you want to find out more about our prediction accuracy whenever we've presented a red-zone forecast for the S&P 500, please see our track record tally from March 2018 and, just for fun, also check out where we predicted where the floor would be for the S&P 500's third Lévy flight event of 2018 compared with where the index actually went during the time it ran. If any of that intrigues you, here's a discussion of how we're able to do it.

http://so-l.ru/news/y/2018_11_08_s_p_500_completes_fourth_l_vy_flight_eve Thu, 08 Nov 2018 11:23:00 +0300
<![CDATA[Scenes from the U.S.-China Trade War]]>

On 22 March 2018, President Trump initiated a trade war by imposing tariffs on goods the U.S. imports from China. Almost immediately, China retaliated by imposing its own list of tariffs on goods that it imports from the United States.

In the months since, there have been additional rounds of tit-for-tariffs imposed by both nations on each other's goods. As for their impact, we can see little effect on the U.S., which has seen an increase it the year over year growth rate in the value of its imports from China, while the exchange-rate adjusted growth rate of the value of U.S. exports to China have clearly fallen.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - September 2018

In the absence of tariffs, we would consider the negative growth rate of U.S. exports to China as evidence of a significant deterioration in the health of China's economy. And there is certainly independent evidence to support that observation, but the evidence is not as clear as it could be because of the specific actions China has taken in retaliation against the U.S.

Those actions were largely directed against two of the U.S.' principal exports to China: soybeans and crude oil. We decided to take a closer look at each to see what the impact of each action has been to the U.S.

Starting with soybeans, we've estimated the number of bushels that the U.S. has exported to China in each month from January 2012 to the present, and also what the U.S. has exported to the rest of the world, since the U.S. grows far more soybeans than it consumes domestically - the excess would have to go somewhere, or else risk becoming spoiled while in prolonged storage if they cannot be sold.

Monthly U.S. Soybean Exports to China and the Rest of the World, January 2012 through September 2018

Soybeans are, by far and away, the United States' largest single export product to China, which are primarily used as animal feed to support China's hog production. In this chart, we can see that China has severely reduced the number of soybeans that it acquires from the U.S. since the trade war began earlier in 2018, while exports to the rest of the world has only made up about a third of the U.S.' typical level of exports in recent years.

To do that, China has boosted the amount of soybeans that it imports from Brazil, the world's largest producer of soybeans and has also begun to substitute other crops for U.S. soybeans to make up the difference. More remarkably, China's leaders have also chosen to reverse an initiative to improve the quality of soybeans that it imports and will now accept diminished quality in the soybeans they acquire, which may negatively impact the quality of its hog production.

The result of all that is that U.S. soybean producers have been considerably disadvantaged by China's trade war tactic, where many will receive a federal bailout as compensation for their losses. The full cost of that bailout for U.S. taxpayers has yet to be determined.

Meanwhile, the volume of U.S. crude oil exports tells a very different story, as shown in the following chart showing the estimated number of barrels of crude oil exported by the U.S. in each month since the U.S. Congress lifted its ban on crude oil exports in mid-December 2015.

Monthly Barrels of U.S. Crude Oil Exports to China and the Rest of the World, January 2016 through September 2018

Unlike soybeans, U.S. oil producers have been able to find other buyers around the world to make up for China's retaliatory step to stop importing crude oil produced in the U.S., where China's effort to target U.S. oil producers appears to have missed the mark.

Overall, it would appear that China has been more affected in the trade war than has the U.S., where the negative impact to that nation's economy has been felt more broadly to date than what has been experienced in the U.S. economy. How long that might continue is an open question, where it would be in the best interest of all parties to reach a deal sooner rather than later.


Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 5 November 2018.

U.S. Federal Reserve. ALFRED Spot Crude Oil Price: West Texas Intermediate (WTI). Accessed 5 November 2018.

U.S. Census Bureau. Trade in Goods with China. Accessed 5 November 2018.

U.S. Census Bureau. U.S. Trade Online. Accessed 5 November 2018.  

http://so-l.ru/news/y/2018_11_07_scenes_from_the_u_s_china_trade_war Wed, 07 Nov 2018 11:14:00 +0300
<![CDATA[Where Does GE Go From Here?]]>

Now that General Electric (NYSE: GE) has slashed its quarterly dividend by 91%, from $0.12 to $0.01 per share, which we estimate is about 50% more than what investors had already priced in to the stock, what can they expect next for the company's share price?

Based on the historic relationship that investors have set between the company's market capitalization and its aggregate forward year dividends since 12 June 2009, we would anticipate GE's share price falling to somewhere within a range of $3 to $7.

General Electric Market Capitalization versus Forward Year Aggregate Dividends at Dividend Declaration Dates from 12 June 2009 through 30 October 2018

When GE's announced its future dividend cut on 30 October 2018, which will take effect with dividends to be paid in 2019, the company's stock price fell to $10.18 per share. Since then, the share price has continued to erode, where it has fallen into the single digits. In the absence of positive news, we would anticipate that erosion will continue until the share price stabilizes somewhere within our target range. That range is centered at about $45 billion of market capitalization, which corresponds with a share price of $5.14.

Alternatively, it is possible that the company's stock price could be sustained at higher levels if its new CEO, Larry Culp, was overly conservative in his action to preserve the company's cash by cutting its dividend. Given that GE's credit rating has been cut by S&P, Moody's and Fitch, we see that possibility as unlikely in the near term, where the reductions in its credit rating will mean higher borrowing costs going forward for a company that is awash in debt and which faces an SEC accounting investigation.

Data Sources

Dividend.com. General Electric Dividend Payout History. [Online Database]. Accessed 2 November 2018.

Ycharts. General Electric Market Cap. [Online Database]. Accessed 2 November 2018.

Yahoo! Finance. General Electric Company Historical Prices. [Online Database]. Accessed 2 November 2018.

http://so-l.ru/news/y/2018_11_06_where_does_ge_go_from_here Tue, 06 Nov 2018 11:10:00 +0300
<![CDATA[The S&P 500, the Fed and a Smoking Gun in October 2018]]>

Expectations about future of interest rate hikes by the U.S. Federal Reserve played an outsized role in setting stock prices during the month of October 2018.

If you recall, back at the beginning of the month, investors were largely focused on 2019-Q1 in setting stock prices, where they began the month near their all-time record levels. That seemingly stable set of affairs began to change dramatically after 3 October 2018. On 4 October 2018, the S&P 500 began to slide, slowly at first, but then significantly, as stock prices entered into a new Lévy flight a week later, as investors were shifting their attention toward 2019-Q3.

That continued until the end of the market's Lévy flight event was reached on 29 October 2018. After which, investors appear to begin shifting their forward-looking attention back toward the nearer term future described by the expectations associated with 2019-Q1. At least they did through Thursday, 1 November 2018, where on Friday, 2 November 2018, they appeared to shift their attention once again toward 2019-Q3.

Alternative Futures - S&P 500 - 2018Q4 - Standard Model - Snapshot on 2 Nov 2018

How does the Fed and expectations about its plans for future interest rates play into all this action, especially in the period since 3 October 2018? Ed Yardeni provided the key observation that explains why the market began to turn south at that time.

I am convinced that last month’s stock market rout started on October 3, when Fed Chairman Jerome Powell said in an interview with Judy Woodruff of PBS: “The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They’re not appropriate anymore.” CNBC also reported that Powell said: “Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral. We may go past neutral, but we’re a long way from neutral at this point, probably.” The CNBC article was alarmingly headlined as follows: “Powell says we’re ‘a long way’ from neutral on interest rates, indicating more hikes are coming.”

That interview was aired during the evening of 3 October 2018, where its impact would begin to be felt on the very next trading day.

We had independently observed that investors were shifting their forward-looking attention toward the more distant future of 2019-Q3, where we had identified the reason for the shift in focus to that particular future quarter as being tied to the timing of when the probability that the Fed would hike short term interest rates in the U.S. up to a target range of 2.75%-3.00% had risen above 50%, which had just happened on 3 October 2018 and which spiked upward on 4 October 2018, following the Powell interview. We believe it is the smoking gun where the start of the S&P 500's correction is concerned.

The following chart shows how that probability has evolved from the end of the first week of trading in 2018 through the trading week ending on Friday, 2 November 2018.

Probability of Federal Funds Rate Hike to Target Range of 2.75%-3.00% in September 2018, 5 January 2018 through 2 November 2018

The trend in the chart also provides an explanation for why investors would appear to have turned some of their forward-looking attention back toward 2019-Q1, which prompted a rally in stock prices during the past week: the probability of a future rate hike by the Fed in 2019-Q3 having dropped back below the 50% mark during the last week of October 2018. On Friday, 2 November 2018, that probability spiked back up above 50% and stock prices dipped as investors returned some of their focus back to 2019-Q3, thanks in part to the strong jobs report that came out earlier that day.

Speaking of news reports, here are the main headlines that we noted for their market-moving potential during the fifth and final week of October 2018. Note the lack of statements from the Fed's minions - they're in a blackout period for public comments ahead of the FOMC's next two day meeting on Wednesday and Thursday this week.

Monday, 29 October 2018
Tuesday, 30 October 2018
Wednesday, 31 October 2018
Thursday, 1 November 2018
Friday, 2 November 2018

Barry Ritholtz listed seven positives and negatives he found in the week's markets and economics news, where he described one of the negatives as "not a bad thing". What does that mean? You'll want to click through to find out!...

http://so-l.ru/news/y/2018_11_05_the_s_p_500_the_fed_and_a_smoking_gun_i Mon, 05 Nov 2018 11:38:00 +0300
<![CDATA[Dividends by the Numbers for October 2018]]>

Following what is seasonally the weakest month for dividend-paying firms in the U.S. stock market, October 2018 was, by comparison, solid but not spectacular. The following chart shows how the number of dividend increases and decreases announced during the month compares with all the previous months for which we have data.

Number of Public U.S. Companies Increasing (Blue) or Decreasing (Red) Their Dividends, January 2004 through October 2018

For October 2018, the chart shows a rebound in the number of firms increasing dividends and also a decrease in the number of dividend cut announcements during the month, as reported by S&P. Unfortunately, the number of reported dividend cuts during the month may not be as good as it looks, which we'll discuss more after we run through the dividend numbers for the month.

  • No fewer than 3,654 firms declared dividends in October 2018, an increase of 31 over the 3,623 that made similar declarations in September 2018, and up dramatically (577) from the 3,077 that issued dividend declarations in October 2017.
  • There were 38 announcements related to paying an extra, or special, dividend payment to shareholders in October 2018. While that figure represents an increase of 14 over the 24 extra dividends that were announced in the previous month, it represents a decrease of 3 firms from the total of 41 that were registered in the previous October.
  • 172 firms declared that they were increasing their cash dividends in October 2018, up by 101 from September 2018's seasonal low total of 71 firms. October 2018's total was 12 fewer than the 184 that was recorded in October 2017.
  • Standard and Poor counted just 13 dividend cuts in October 2018, down from the total of 26 they counted in September 2018. This figure was also six less than the 19 that were counted in October 2017.
  • Two firms declared that they would omit paying dividends during the month, rising by one from September 2018's total of one, but down by four from October 2017's count of six dividend-omitting firms.

We think that S&P's Divstat system undercounted the number of dividend cut announcements during October 2018. Focusing on dividend cutting firms, we confirmed at least 22 dividend cut announcements for U.S.-based firms in October 2018, the majority of which (13) hail from the oil and gas industry, which was largely made up of firms that pay monthly dividends as a fixed percentage of their volatile monthly earnings. The remaining firms represent a pretty broad cross section spanning a number of industries, including financial, real estate investment trusts, food, manufacturing, mining, utilities, consumer goods, and healthcare, which had either one or two firms each. Here's the full list we extracted from our two sources of dividend declarations made in near real-time during October 2018.

We're not sure what's up with S&P's dividend cut count, which will hopefully be resolved in the near future. In the meantime, we'll continue cross-checking its monthly results with the data we extract from other sources.

Data Sources

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 1 November 2018.

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 1 November 2018.

Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 1 November 2018.

http://so-l.ru/news/y/2018_11_02_dividends_by_the_numbers_for_october_201 Fri, 02 Nov 2018 11:33:00 +0300
<![CDATA[U.S. Median Household Income Hits New High in September 2018]]>

Median household income in the United States increased to $63,007 in September 2018, a 0.5% increase over Sentier Research's August 2018 estimate of $62,685.

The following chart shows the nominal (red) and inflation-adjusted (blue) trends for median household income in the United States from January 2000 through September 2018. The inflation-adjusted figures are presented in terms of constant September 2018 U.S. dollars.

Median Household Income in the 21st Century: Nominal and Real Estimates, January 2000 to September 2018

U.S. median household income continues setting new monthly records in both nominal and inflation-adjusted terms. In the latter case, September 2018 represented the ninth consecutive month of record-setting highs.

The rising trend for incomes in the U.S. is being confirmed by other data sources. The Department of Labor's employment cost index indicates that individual wages and salaries have increased by 3.1% on average in the year ending September 2018, which is the largest year-over-year increase for the last decade. Meanwhile, Sentier Research's median household income has increased by 5.5% over the same period.

Analyst's Notes

Our alternative method for estimating median household income turned in a preliminary figure of $62,678 for September 2018, which is slightly more than 0.5% below Sentier Research's Current Population Survey-based estimate for the month. Our alternate estimate is up by 0.4% from the $62,417 preliminary figure that we previously reported for August 2018.

The BEA's monthly revision of its personal income data affected data from July and August 2018, neither of which were significant.

Data Sources

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [PDF Document, Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 October 2018.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [PDF Document, Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 October 2018.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 11 October 2018.


Sentier Research. Household Income Trends: January 2000 through May 2017, March 2018 through September 2018. [Excel Spreadsheet with Nominal Median Household Incomes for January 2000 through January 2013 courtesy of Doug Short]. [PDF Document]. Accessed 30 October 2018. [Note: We've converted all data to be in terms of current (nominal) U.S. dollars to develop the analysis presented in this series.]

http://so-l.ru/news/y/2018_11_01_u_s_median_household_income_hits_new_hi Thu, 01 Nov 2018 11:10:00 +0300
<![CDATA[Chairs to Haunt Your Dreams This Hallow's Eve]]>

It is All Hallow's Eve once again, and here at Political Calculations, that means taking time out to engage in what some might call pure silliness, but we call a public service. Because on this day, as on Halloweens past, we find the fear in furniture, where everyday objects lose their comfort and charm and instead become something... sinister.

This year's journey into the dark side of seating begins with a truly terrifying design concept: the Terra! Grass Chair. This was a Kickstarter project that combined a cardboard pattern, dirt and grass seed to create outdoor seating. The kind that you can easily hide bodies under.

Terra! Grass Chair

As a general rule, seating is meant to facilitate social activity, where sharing comfort is key. But what if you despise such things?

Perhaps then, you might consider the Delirium Chair, which has been described as "a tribute to a balance between city and nature, artificial and natural, Techne and Psyche", whose "form flows organically but also reminds us of rigid systems like highways".

Delirium Chair

You can see artistic shots of the Delirium Chair interacting with people (or rather, a professional model) here, where if you pay close attention to the design, you'll appreciate its potential application for use in public settings where preventing homeless people from sleeping upon the public's furniture is a desired objective.

Meanwhile, for those who do like to occasionally have friends over, but who don't want to invest a lot in their comfort, the Social Chair Set, which is the result of a student design project, solves the problem of how to have extra chairs when you need them and also how to store them when they're not around.

Social Chair

On the other hand, it does beat the alternative of those folding card table-style chairs!

Now, what if you don't like having people over, but still have to have them anyway? You can sent a strong message about how long they should stay by providing the illusion of playful comfort while keeping them continually off balance with the "Teeter and Tot Chairs".

Teeter and Tot Chair

This furniture concept requires a quote from the student designers:

Teeter and Tot look unsuspecting as chairs. When sat on, they unexpectedly collapse. George Duan and Megan Lee designed Teeter and Tot chairs for office lounge spaces to revitalize risky play in everyday adult lives. The person who sits on Teeter or Tot will experience a sudden, unexpected drop. This falling sensation will inevitably send a strong adrenaline rush through his or her body. Sitting on Teeter and Tot is a chance for adults to experience something unexpected, exciting, and fun in their mundane office lives.

We carefully designed the structure of these chairs to ensure the safety of users, while creating risky, fun experiences for them. Through several prototype iterations, we adjusted the mechanism of the chairs to drop in height just enough to surprise users, but not fall off the chair. Teeter and Tot are upholstered from head to toe with soft materials to absorb the shock from the drop while providing another layer of safety protection for users.

Our final chair of terror is a futuristic concept that makes it possible for you to sit anywhere. Meet the Lex Bionic Chair, which isn't a chair so much as it is a fanny pack that stows two wearable legs that allow you to sit anywhere there isn't a chair, with perfect posture. Watch the video....

Believe it or not, this is the "most funded exoskeleton on Kickstarter". The future of furniture has arrived, and it's just as terrifying as we all have hoped!

http://so-l.ru/news/y/2018_10_31_chair_to_haunt_your_dreams_this_hallow Wed, 31 Oct 2018 16:14:00 +0300
<![CDATA[Inside the S&P 500 Correction]]>

Since it peaked at an estimated $24.84 trillion on 20 September 2018, the S&P 500 (Index: SPX) has lost about $2.557 trillion in its total market capitalization through the close of trading on Monday, 29 October 2018, bringing its market cap down to $22.28 trillion, which is below the level where it closed 2017.

S&P 500 Total Market Capitalization, 29 December 2017 through 29 October 2018

Just five firms account for more than $1 out of every $5 of the total net loss of market cap that the S&P 500 has seen since 20 September 2018: Amazon (Nasdaq: AMZN), Alphabet A and C (Nasdaq: GOOGL and GOOG), Facebook (Nasdaq: FB), and JP Morgan Chase (NYSE: JPM). The following chart illustrates the disproportionate bite that the market cap losses in these five firms has taken out of the S&P 500's net market cap loss over the last five weeks.

Net Loss in Market Capitalization of S&P 500 Component Firms, 20 September 2018 through 29 October 2018

The really astounding thing is that much of this loss has come just during the last two days of trading!

Investors who hold a larger share of these individual stocks in their investment portfolios than their component weighting in the S&P 500 index are feeling more pain than those who invested in the index itself in the market's latest correction. In particular, Amazon's decline has been particularly noteworthy, as the company has gone from becoming the second in history to touch a trillion dollar market cap in nominal terms to now losing its place as the second-most valuable company in the U.S. in just the matter of five weeks, as the company has shed $200 billion of its market cap.

http://so-l.ru/news/y/2018_10_30_inside_the_s_p_500_correction Tue, 30 Oct 2018 11:34:00 +0300
<![CDATA[The S&P 500 Nears the End of Its Third Lévy Flight Event in 2018]]>

Before we get started about what happened in the U.S. stock market during the fourth week of October 2018, let's consider some wisdom from JC at AllStarCharts:

When the stock market is not going up, the blame game gets played. It’s a combination of shareholders losing money and media types needing something to say. It’s always someone or something’s fault and rarely described as a normal occurrence. The truth, however, is that yes, stocks falling in price is part of the regular cycles that we’ve always seen.

We've had a month with a lot of interesting days, where we define "interesting" as happening whenever the S&P 500 changes by more than 2% from its previous day's closing value. In the past month, most of the days that have been interesting have involved stock prices moving in the downward direction. And we'll tell you right now that JC is right. There was nothing abnormal about what happened during the past month.

In fact, once the S&P 500 began its latest Lévy flight event [1], where stock prices would go when the event was complete was completely predictable. The good news is that it's now mostly over, with investors appearing to have completed shifting their forward-looking attention from the near term future of 2019-Q1 toward the more distant future quarter of 2019-Q3, where today's stock prices are now in line with the trajectory that our dividend futures-based model projected would be the case if investors were to do that.

Alternative Futures - S&P 500 - 2018Q4 - Standard Model - Snapshot on 26 Oct 2018

How long they keep their attention focused on that particular point on the future horizon is another matter. We don't know how long that might be. All we can tell you is that given the nature of how stock prices work, they're now likely within just a few percent of setting a bottom, if they haven't already, absent some fundamental deterioration in the expectations for dividends in the future or some noise event that prompts an irrational reaction among investors.

If the latter, then you'll have quite an investing opportunity and if the former, buckle up - you'll know which scenario applies from the news. Speaking of which, here are the headlines we noted for their market-moving potential during the fourth week of October 2018.

Monday, 22 October 2018
Tuesday, 23 October 2018
Wednesday, 24 October 2018
Thursday, 25 October 2018
Friday, 26 October 2018

Elsewhere, Barry Ritholtz succinctly summarized the week's markets and economics news. We'll be back next week to cover the fifth and final week of October 2018, which will also cover the first two days of November 2018!


[1] Lévy flight events are what give changes in stock prices their fat-tailed distribution characteristic, which distinguishes how they behave from what would happen if they followed a true random walk as described by a normal Gaussian distribution. We observe these events whenever investors shift their forward-looking focus from one point of time in the future to another, where the difference in the expected change in the rate of growth of dividends per share between the two periods determines how much stock prices might change when they occur.

http://so-l.ru/news/y/2018_10_29_the_s_p_500_nears_the_end_of_its_third_l Mon, 29 Oct 2018 11:15:00 +0300
<![CDATA[Solving the Topology of Poverty]]>

"All happy families are alike; each unhappy family is unhappy in its own way."

- Leo Tolstoy, Anna Karenina

While Tolstoy's insight into human nature applies specifically to families, it may also describe the state of many of the world's cities and the division between areas that have been formally developed, where people have easy access to obtaining life's necessities, and areas that have been informally developed, which are often defined by their lack the same kind of access.

At least, that's one takeaway from a new study by Christa Brelsford, Taylor Martin, Joe Hand and Luís M. A. Bettencourt, who found that when they applied the mathematics of topology to the layout of developed neighborhoods and undeveloped slums found in many of today's cities around the world.

Topology is the branch of mathematics that studies the properties of an object that are preserved when it is morphed into very different shapes without either tearing the object or fusing portions of the object back into itself. Think of a ball of clay, which could be shaped into a cube, a bowl or even into a leafy tree, where a wide variety of complex geometries can be grouped into families described by one simple base shape because they share certain unique mathematical characteristics. Because they share those characteristics, it becomes possible to compare very different or complex geometries and arrive at valid conclusions that would then apply to all potential members of the same topological family. Here's how they authors applied the math of topology to the study of urban areas:

The physical volume of all paths, streets, and roads in a city is a connected two-dimensional surface: Any point on this surface can be reached from any other point on the same surface. This surface ends where buildings begin and at external city boundaries. Thus, the urban access network surface, U, of any city has a number of internal boundaries, b, one for each city block and another for city limits. Mathematically, such an access system is topologically equivalent to a disk with b punctures or "holes" (or a sphere with b + 1 disks removed). In this way, all urban access systems with the same number b of city blocks (i) are topologically equivalent and (ii) share an invariant number, the Euler characteristic χ(U) = 1 - b, which is independent of geometry.

The authors found they could identify similarly developed but geometrically and geographically distinct regions as mid-town Manhattan, the Las Vegas suburb of Summerlin, Nevada, and the Dharavi neighborhood of Mumbai, India, and directly link them so long as they shared the same number of blocks, as shown in the following video.

They found that all these formally developed areas were all similar in their characteristics to one another, but the undeveloped areas either within or on the periphery of these cities were quite different from these "happy" communities, where "happy" means "having adequate access to roads, water and sanitation services". Moreover, their approach in mathematically describing slum areas without such similar access to life's necessities may lead to their effective development, with minimal cost and disruption to lives of the one billion people who live in these communities around the world today.

Here's how the authors foresee their new topographical tools being used to address the problem of bringing necessities into today's impoverished urban areas.

Over the next couple of decades, it is estimated that infrastructure investments will need to exceed $1 trillion/year in developing nations to meet international development goals, with the majority in poor areas of developing cities. Slum upgrading is a key strategy for achieving these goals, with infrastructure costs accounting for about 50% of the total. Efficient reblocking is an essential part of these transformations because the most important determinant of the cost of building or upgrading urban infrastructure is the existence and layout of the access network. By identifying and formalizing the essence of the spatial transformations necessary for neighborhood evolution, the methods proposed here increase the benefit-cost ratio for infrastructure provision [currently ~3 for water and sanitation] and markedly accelerate — from months to minutes — most technical aspects of creating viable reblocking plans. This enables nontechnical stakeholders to focus their time and effort on the socioeconomic tradeoffs of alternative layouts [leading to savings of up to 30%] and creates precise digital maps that can formalize land uses and property records, facilitating political and civic coordination and further local development.

In other words, the problem of how to transform impoverished areas into developed ones will stop being a technical challenge and will instead becomes purely a political problem. As for its potential, imagine unlocking what Hernando de Soto described as the problem of "dead capital" that would come from bringing formal property rights to these undeveloped urban areas and the one billion people who live in them.


Brelsford, Christa. Martin, Taylor. Hand, Joe., Bettencourt, Luís M.A. Toward cities without slums: Topology and the spatial evolution of neighborhoods. Science Advances. Vol. 4., No. 8., eaar4644. DOI: 10.1126/sciadv.aar4644. 29 August 2018.

http://so-l.ru/news/y/2018_10_26_solving_the_topology_of_poverty Fri, 26 Oct 2018 11:32:00 +0300
<![CDATA[More Signs Point to Stalling U.S. New Home Market]]>

2018 hasn't been very kind to U.S. homebuilders (Indices: ITB, PKB, XHB), particularly as investor expectations that the Fed will continue its series of interest rate hikes well into 2019 has taken hold during the last month.

But that's looking forward into the future. Present day data is also signaling that new home sales in the U.S. is decelerating, largely as a consequence of rising mortgage rates coinciding with the Fed's recent series of rate hikes, continuing a trend that we first identified in June 2018, shortly after new home sale prices hit their all time peak level of unaffordability.

Since then, the median sale price of a new home in the United States has been flat to slightly falling while median household incomes have continued to rise, leading to an improvement in the affordability of new homes, which never-the-less are still well elevated near their all-time highs for unaffordability.

Ratio of Trailing Twelve Month Averages for Median New Home Sales Prices and Median Household Income | Annual: 1967-2017 | Monthly: December 2000 - September 2018

That new home sale prices have stalled out since April 2018 is evident in the following chart, which presents the same data, but this time, showing the relationship between the trailing year average for median new home sale prices versus the trailing year average of median household income.

U.S. Median New Home Sale Prices vs Median Household Income | Annual: 1999-2017 | Monthly: December 2000 - September 2018

Let's next take a look at all the data we have available for this relationship, which extends back to 1967, to see how the recent trend compares with historic trends.

U.S. Median New Home Sale Prices vs Median Household Income | Annual: 1967-2017 | Monthly: December 2000 - September 2018

While the growth of new home sale prices have been stagnant in recent months, the sales of new homes has been growing, albeit at a slowing pace. In the following animated chart, we've captured the combined effect by calculating the effective market capitalization for new homes in the U.S. for the period from December 1975 through September 2018, where the animation will cycle between the nominal market cap and the inflation-adjusted market cap every five seconds.

Animation: Trailing Twelve Month Average New Home Sales Market Capitalization, Nominal and Inflation Adjusted, December 1975 - September 2018 (Corrected)

The data for recent months is still preliminary, and therefore subject to change over the next several months, but it suggests that the trailing twelve month average of the U.S. new home market capitalization reached a peak of $20.33 billion in nominal terms in August 2018, which has since dipped back below $20 billion in September 2018.

Taken together, all these signs are pointing to a new home market that is stalling.

Data Sources

U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 24 October 2018.

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 24 October 2018.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Text Document]. Accessed 11 October 2018.

Sentier Research. Household Income Trends: July 2018. [PDF Document]. Accessed 25 September 2018. [Note: We've converted all data to be in terms of current (nominal) U.S. dollars, and are using a projection for September 2018's estimate in calculating the trailing year average for the month.]

http://so-l.ru/news/y/2018_10_25_more_signs_point_to_stalling_u_s_new_ho Thu, 25 Oct 2018 11:04:00 +0300