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16 января, 11:42

S&P 500 Continues in Lévy Flight in Week 2 of January 2018

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The S&P 500 continued its rapid rise in the second week of January 2018, having now risen some 112.63 points, or 4.2%, since the last day of trading in 2017, to close at a new record high value of 2,786.24 on Friday, 12 January 2018. Although slower than in Week 1, the actual trajectory of the S&P 500 in Week 2 of January 2018 continues to be consistent with a Lévy flight, where investors are shifting their forward looking focus from one point of time in the future to another. We are observing an interesting development in that process. More often than not, when we see shifts in how far investors are looking into the future, we can typically tie the shifts to changing expectations for things like how and when the Fed will change its interest rate policies, which is why we pay close attention to the CME Group's Fedwatch tool, which provides an indication of the kind of odds that investors are giving for various changes in the Federal Funds Rate that investors are expecting at different points of time in the future. The following table summarizes those probabilities at several key future dates. Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (CME FedWatch on 12 January 2018) FOMC Meeting Date Current 125-150 bps 150-175 bps 175-200 bps 200-225 bps 225-250 bps 250-275 bps 12-Mar-2018 (2018-Q1) 26.3% 72.6% 1.1% 0.0% 0.0% 0.0% 13-Jun-2018 (2018-Q2) 8.4% 40.7% 49.2% 1.8% 0.0% 0.0% 26-Sep-2018 (2018-Q3) 3.6% 22.0% 43.0% 28.2% 3.0% 0.1% 19-Dec-2018 (2018-Q4) 2.3% 15.3% 35.1% 33.2% 12.4% 1.6% What this table shows is that investors are expecting two rate hikes in 2018. The first would be a quarter point increase that they expect would be announced at the FOMC meeting scheduled for 21 March 2018, which has been expected for some time. The second would be another quarter point increase that would take place at the FOMC meeting scheduled for 13 June 2018, which is a new development - prior to the second week of January 2018, investors had been anticipating that action would not take place until sometime during the third quarter of 2018. So there would appear to be a disconnect between where our dividend futures-based model is indicating that investors are focusing their future-oriented attention and what the current expectations are for the future of the Fed's monetary policies. The current trajectory of the S&P 500 with respect to our model's projections suggests that investors are focusing more of their attention on the more distant future of either 2018-Q3 or 2018-Q4, which coincides with where stock prices are today, than they are on the nearer term future of either 2018-Q1 or 2018-Q2, where stock prices would be considerably lower if that were the case. The question is why, and we suspect the answer may be the recently passed permanent reduction in the U.S. corporate income tax rates, which would primarily impact investor expectations for their investments in one of three ways: The corporate tax cuts make more money available to pay increased dividends to shareholders. The corporate tax cuts make more money available for U.S. firms to pursue new growth opportunities that can lead to faster than previously expected growth. The corporate tax cuts make more money available for share buybacks for U.S. firms without strong growth prospects, allowing them to artificially boost their dividends per share. Many of these share price-boosting actions at different companies may be in addition to other changes, where the corporate tax cuts have also made more money available to pay higher wages and/or bonuses to their employees or to lower their prices to their consumers, which we've seen in the case of public utilties, but would also apply in the case of companies seeking greater market share. As of 12 January 2018, we haven't seen any significant change in the expected levels of future dividends, but that may be about to change as we get into the earnings reporting season for 2018-Q1, where we've mainly been waiting for corporate boards to meet and set their new policies following the passage of the Tax Cuts and Jobs Act of 2017 back on 23 December 2017. The next six weeks have the potential to be a lot of fun! As for the second week of 2018, here are the headlines that stood out. Monday, 8 January 2018 Oil mostly flat as rising U.S. output offsets OPEC worries Fed's Bostic says three rate hikes in 2018 may be too much Fed's Rosengren urges study of creating target range for inflation Fed's Williams says price-level targeting has benefits S&P keeps New Year's rally alive, Dow eases Tuesday, 9 January 2018 U.S. crude hits three-year high as prices climb in tight market U.S. oil output to surpass record earlier than expected: EIA Fed's Kashkari: Keep interest rates low to boost wages, inflation Wall Street climbs with boost from healthcare, banks Wednesday, 10 January 2018 Tax cuts mean Fed must be vigilant on 'overheating': Kaplan Fed's Evans wants rate hike pause, not concerned on yield curve Fed's Bullard says inflation miss has 'cost' U.S. lost growth U.S. yields at 10-month high on China report; S&P 500 snaps rally Wall Street falls on China, NAFTA concerns Thursday, 11 January 2018 Brent hits $70 per barrel before retreating; equities rise with energy Oil dips away from levels last seen in late 2014, but analysts say market supported Key Fed official slams U.S. tax cuts for imperiling economy - the "key Fed official" is the outgoing New York Fed president Bill Dudley, who made similar arguments against sustaining excessively high deficits during the Obama administration, but who never-the-less worked to fully enable them, including executing the expanded quantitative easing policies that offset the negative economic impact from the 2013 fiscal cliff tax hikes to avoid recession. Something of a case study for hypocrisy. Wall St. rises with oil prices, earnings optimism Friday, 12 January 2018 Oil adds to rally, heads for fourth week of gains U.S. holiday spending surges to 12-year high, helped by tax cuts Wall Street hits new highs on earnings optimism, data Barry Ritholtz lists the positives and negatives for the U.S. economy and markets in Week 2 of January 2018, and if that weren't enough, also discovers a new investment strategy based on betting on companies slammed by President Trump that has been delivering outsized returns.

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12 января, 11:00

Your Paycheck in 2018, After the Tax Cuts Kick In

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How much of your paycheck will you be allowed to keep for yourself in 2018 after a less greedy Uncle Sam has extracted what he wants out of it to put into his own till? For many Americans, that has been something of a burning question ever since the Tax Cuts and Jobs Act of 2017 was signed into law before Christmas, where we have had to wait until the IRS issued an official notice of what will be the nation's new income tax withholding rates will be going forward on Wednesday, 9 January 2018. U.S. employers have been instructed to implement the new tax withholding rates as soon as possible, but by no later than 15 February 2018 (if your employer needs time to change their paycheck processing system, please click here to access the "before the tax cuts" version of this tool!) In fact, you'll probably want to visit that tool specifically to get that information so you can determine how much your take home pay is changing as a direct result of the Tax Cuts and Jobs Act of 2017. After you have that information, plug the same information into the tool below, and we'll estimate what your paycheck will look like after the tax cuts have kicked in. But wait, that's not all! Because a growing number of major U.S. employers have announced that they'll be giving many of their employees raises as direct result of the tax cuts being passed into law, you'll be pleased to know that our tool below can also take your raise into account too! We can also answer other paycheck-related math questions that might be important to you, such as: What if I boost my pre-tax 401(k) or 403(b) retirement plan contributions - how will that change my take home pay? Will I take a hit from the Additional Medicare Tax? [That's the "shared responsibility contribution" that doesn't ever go into Medicare's trust funds, which can affect higher income earners.] How would a flexible savings account for health care or dependent care expenses affect my take home pay? Our tool below is designed to answer those questions, as well as a number of others that may occur to you that we haven't considered! Just enter the indicated information as it applies for you, and we'll do our best to estimate how much of the money you work hard to earn will still be in your possession after the federal government has withheld what it wants from your paycheck! [If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version.] .nobrtable br { display: none } Your Paycheck and Tax Withholding Data Category Input Data Values Basic Pay Data Current Annual Pay Pay Period Daily Weekly Biweekly Semimonthly Monthly Quarterly Semiannually Annually Federal Withholding Data Filing Status Single Married Number of Withholding Allowances 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 401(k) or 403(b) Contributions Pre-Tax Contributions (%) After Tax Contributions (%) Flexible Spending Account Annual Contribution Data Health Care Spending Account Dependent Care Spending Account What if You Had a Raise? Desired Raise (%) Your "Typical" Paycheck Data Category Calculated Results Values Basic Income Data Proposed Annual Salary (Including Raise!) Typical Paycheck Amount Federal Tax Withholding Amounts U.S. Federal Income Taxes U.S. Social Security Taxes U.S. Medicare Taxes U.S. Additional "Medicare" Taxes (If Applicable) 401(k) or 403(b) Contributions Pre-Tax Contributions After-Tax Contributions Total Contributions Flexible Spending Account Contributions Health Care Spending Account Dependent Care Spending Account Your Paycheck's Bottom Line Take Home Pay Estimate Basic Net Paycheck Amount ... But, After Social Security's Taxable Income Cap Is Reached, It Becomes (If Applicable, for a Full Paycheck) ... And Then, After Additional Medicare Tax Income Threshold Is Reached, It Becomes (If Applicable, for a Full Paycheck) Now for some quick results. For the default annual income of $36,000 with all the other default settings in place including having taxes withheld at the Single filing status and Biweekly paychecks, we estimate that the 2017 Tax Cuts and Jobs Act would increase the take-home income of a person with that income by $34.74 per paycheck. Multiplied by 26 paychecks in a year, that represents and increase in take-home pay of 903.24, the equivalent of a tax free raise of 2.5% with respect to a pre-tax income of $36,000. Just for fun, we did the exact same math, but for an annual income of $50,000. Here, we found that take home pay increased by $59.16 per paycheck, or $1,538.16 per year, which works out to be the equivalent of a tax-free raise of 3.07%. And because we couldn't just leave it there, we also ran the numbers for an annual income of $400,000 that is paid out quarterly, which just happens to currently be the annual salary of the President of the United States (which President Trump donates to various causes). Thanks to the Tax Cuts and Jobs Act of 2017, and assuming all the other default settings, President Trump's after federal withholding tax income rises by $61.44 per quarterly paycheck, which would nets him an additional $245.76 per year and is the equivalent of a tax-free raise of slightly over 0.06%. [Note: These figures apply until the President's cumulative income exceeds certain thresholds - keep reading....] Now that we've given you a sense of how much money you'll have withheld in 2018 from each of your paychecks by the U.S. federal government, at least until the new tax cuts take hold, we should note that there are some really complicating factors that may come into play during the year depending upon how much you earn. For example, in 2018, once you have earned over $128,400, you will no longer have the Social Security payroll tax of 6.2% of your income deducted from your paycheck (or 12.4% if you are self-employed, but our tool above is designed for those employed by others). But then, by the time that happens, you'll have long been paying taxes on your income that are taxed at rates that are at least 10% higher than those paid by over half of all Americans. There's also the complication provided by the so-called "Additional Medicare Tax" that your employer is required to begin withholding from your paycheck if, and as soon as, your year-to-date income rises above the $200,000 mark, which is part of the extra taxes imposed by the "Affordable Care Act" (a.k.a. "Obamacare"). Since the money collected through this 0.9% surtax on your income does not go to directly support the Medicare program, unlike the real Medicare payroll taxes paid by you and your employer, it is really best thought of as an additional income tax. In the tool above, in case the amount of your annual 401(k) or 403(b) retirement savings contributions exceed the annual limits set by law, we've limited the results our tool provides to be those consistent with their statutory limits, and will do so as if you specifically set the percentage contributions for these contributions with that in mind. Also, our tool does not consider whether you might take advantage of the "catch-up" provisions in the law that are available to individuals Age 50 or older. The IRS Is Developing Its Own Withholding Tax Calculator? Maybe the funniest story we saw yesterday was published by Reuters at 5:18 PM Eastern time. Here's the money quote (emphasis ours): The Trump administration on Thursday said most U.S. workers will see bigger paychecks in February, as a result of the Republican tax overhaul, but many will need to make sure taxes are withheld accurately with an online calculator that does not yet exist. Well, we fixed that problem pretty easily now, didn't we? And it only took about an hour of actual work, most of which involved writing up the text that changed from the "before the tax cuts take effect" edition and to add the results of the three income scenarios that we ran. How much do you suppose the IRS' coders are getting paid? More seriously, we'll be happy to link to the IRS' withholding calculator when they get around to posting it online. Update 12 January 2018, 8:15 PM EST: Here is where the IRS Withholding Calculator will be able to be found. Although more than 24 hours after Reuters' report, it's not there yet! Elsewhere on the WebThere are other salary and hourly paycheck calculators like this on the Internet, including the very well done tools available at PaycheckCity.com. We really like PaycheckCity's calculators because they allow you to determine the amount of state income tax withholding that will be taken out of your paycheck separately from what the federal government takes. Meanwhile, payroll processor ADP also has a salary paycheck calculator, but we find the interface for PaycheckCity's calculators are more user-friendly. Then again, if you live in one of the seven states that have no personal income tax for wage and salary income (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming), our tool above will provide you with a very good estimate of your actual take-home pay. Previously on Political CalculationsWe've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005! Your 2005 Paycheck Your 2006 Paycheck Your 2007 Paycheck Your 2008 Paycheck Your 2009 Paycheck Your Paycheck in 2010 Your Paycheck in 2011 Your Paycheck in 2012 Your Paycheck in 2013: Part 1 - the "same as 2012" version. Your Paycheck in 2013: Part 2 - the "over the fiscal cliff" version. Your Paycheck in 2013: Part 3 - the "post-fiscal cliff deal" version. Your Paycheck in 2014 Your Paycheck in 2015 Your Paycheck in 2016 Your Paycheck in 2017 Your Paycheck in 2018, Before the Tax Cuts Kick In Your Paycheck in 2018, After the Tax Cuts Kick In

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11 января, 14:39

Philadelphia Soda Tax $20 Million Short with One Month to Go in First Year

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Philadelphia's controversial 1.5 cents-per-ounce soda tax was supposed to bring in $92.4 million per year to the city's coffers. Through its first 11 months of collections, the city has collected just $72.3 million, leaving city officials over $20 million short of their goal. In order to have been on track to hit its target of $92.4 million, the city would have needed to average $7.7 million per month from its tax on all naturally and artificially-sweetened beverages distributed within the city for retail sale. Instead, the city has averaged less than $6.6 million per month from its sugary drink tax. But not to worry, because Philadelphia's mayor's office sees no need to discuss scaling back either their revenue projections or their plans for spending the revenue that they desired to collect from the Philadelphia Beverage Tax (PBT). Despite the likely shortfall, Mike Dunn, a spokesman for the Kenney Administration, said the $92 million yearly projection will remain. When asked if the dollars meant Philadelphia residents should expect a curtailing of the programs funded by the PBT, he said, "We’re not going to speculate." Those comments echo similar ones that Dunn made back in May 2017. "We're experiencing the growing pains of a new tax. We still expect to reach our projections in the long term," Dunn said. Perhaps with the assistance of lots of inflation or if "in the long term" really means "after many years". Still, to be fair, what kind of growing pains could there be? Robert Inman, Wharton's Mellon professor of finance and public policy at the University of Pennsylvania, called Dunn's assessment appropriate – especially given the lack of historical data for PBT and other similar policies. "If they are within 85 to 90 percent of their projections," Inman said, "that's pretty good." Changes in weather, among other variables, could also influence collections since some consumers may buy more of the impacted beverages in the summer months. Explaining there will be a lot of "uncertainty" and "randomness" with such estimations when there is little to no previous information to work from, Inman said, "They just don't have the history with this." In our chart above, we've taken the basic seasonality that beverage makers typically see throughout a year to indicate how much revenue that Philadelphia could reasonably have expected to collect from its beverage tax each month in order to reach their annual $92.4 million projection. There have really only been two months that haven't at least somewhat followed that pattern so far - April 2017, where the gap between "desired" and "actual" collections really began to open up, and September 2017, where we suspect an unusual number of beverage distributors made late tax payments to the city. Through its first eleven months, the city's cumulative soda tax collections of $72.3 million are falling nearly 15% below their desired revenue of $85 million that would apply over that period of time. If the bar for evaluating the success of Philadelphia's Beverage Tax is lowered to $78.54 million for the full year (85% of the city's annual $92.4 million revenue projection based on Professor Inman's generous grading curve), Philadelphia will need to collect nearly $6.3 million in December for the tax to be considered a success by those reduced standards. Based on the seasonal pattern, where December's tax collections would reasonably be expected to come in at a lower level than those for November, that may be pretty unlikely with the preliminary estimate for November having been reported to be $5.9 million. Since Philadelphia's soda tax payments are due in the month following when they are assessed, we should find out later this month just how far short the city was from both its unchanging annual target revenue figure or even the reduced standard of 85% of that level in collecting revenue from the sweetened drink tax during its first year in effect.

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10 января, 11:34

Brazil's Back and U.S. Soybeans to China Are Getting Hammered, But There's Good News on U.S.-China Trade!

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A lot of people don't know this, but the humble soybean ranks among the top products that the United States exports to China. The vast majority of those exports come in the months from September through December each year and, if the U.S. Census Bureau's data on U.S. soybean exports to China is any indication, 2017 is lagging far behind 2016. For the peak export month of October, the estimated volume of soybeans being shipped from U.S. ports to China has fallen by 91.5 million bushels from 2016's record 384.3 million bushels (a 24% drop). Likewise, the just released data for November 2017 indicates that month's 264.6 million exported bushels of soybeans is 21% below 2016's level of 335.2 million bushels. And all this is happening as the price of soybeans has been largely stable at an average of $9.40 per bushel from 2016 to 2017. 2016 was an unusual year for soybean exports for two main reasons. First, U.S. farmers had a bumper crop of the oil seed, which was especially good news because the world's second largest grower and exporter of soybeans, Brazil, endured drought conditions that significantly reduced its crop as the second reason. In 2017 however, Brazil is back, reclaiming much of its market share with China, the world's largest importer of soybeans. For the overall state of U.S. exports to China, you might expect then to see a spike the year over year growth rate of exports in late 2016, which would then not be present in 2017. Worse, with such a large decline in U.S. soybean exports to China, you might expect that the growth rate of the overall value of U.S. exports to China could even be negative. The following chart shows what we're really seeing today. Instead of being negative, the year over year growth rate of the value of the goods and services that the U.S. exports to China just above the zero growth line for both October and November 2017. Remember that these months saw the year over year growth rate of U.S. exports to China spike a year earlier, thanks to the record surge in U.S. soybean exports that year. For the estimated volume of those exports to have declined by over one-fifth in 2017 and to still have enough other exports to fill the gap so that the overall value of U.S. goods going to China is slightly positive is an indication of how successful the U.S.' other export products to China have been in 2017. A big portion of those additional exports is in the form of crude oil, which is a story that we'll follow up next month after the U.S. Census Bureau releases its trade data for December 2017.

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09 января, 11:29

New Tools for Assessing China's Economy in Near Real Time

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China's official economic statistics bureau has struggled over the years to accurately capture the state of that nation's economy for years, where it recently was forced to revise its previous estimate of its GDP in 2016 downward. China's statisticians have been working to improve their estimates, but still face challenges. Beijing is in the process of updating its statistics methods to better represent its vast and quickly changing economy, especially with regards to how provincial figures are calculated by local authorities with vested interests. Speaking of "vested interests", local authorities in China's provinces have some pretty strong incentives to put out data showing strong GDP growth (emphasis ours): There are a number of reasons for doubts about the accuracy of China’s GDP. To begin, there are structural political disincentives to reporting accurate GDP figures at the local level. Local officials are promoted almost entirely on the basis of their locality’s growth rates, giving them a huge incentive to report increasing GDP figures, no matter if they are or not. Environmental concerns have also created an incentive for officials to lie: higher growth rates, when paired with the amount of coal burned, give the province an appearance of greater energy efficiency. There is however a new tool that may soon provide a near-real time picture of how strongly the economies of local regions within China are performing. NASA's WorldView application can be filtered with data showing the amount of light being emitted from the surface of the Earth at night as recorded by NASA's Suomi National Polar-orbiting Partnership (Suomi-NPP) satellite, which was launched in October 2011. The satellite is equipped with the Visible Infrared Imaging Radiometer Suite (VIIRS), which is capable of providing a remarkably clear view of the Earth's surface at night. That near-real time imagery has been available continuously since 11 November 2016. Before that, we have only the imagery that was produced by NASA's Black Marble project in the years of 2012 and 2016. To show how this data might better communicate the state of the economy on the ground within one of China's provinces, we used the Worldview application to generate the following animated picture comparing the brightness of the lights in China's Shaanxi province in 2012 against how they looked four years later in 2016, when the mining industry in Shaanxi, one of the provinces largest economic sectors, was reported to have gone through a sustained period of relative contraction. In this animation, you can see many of the lights in Xi'an, and especially in the surrounding settlements, dim in the period from 2012 to 2016. That dimming effect doesn't appear uniformly all over China. For example, if you look at the coastline of the Leizhou peninsula in the Guangdong province in Southern China (immediately north of the island of Hainan in the South China Sea), you can see the night time lights in that region brightened between 2012 and 2016. Recent economic research examining data collected over a 20-year period has concluded that there are "high correlations between the area lit from night-time lights on the one hand, and GDP, electricity consumption, and CO2 emissions on the other," which is to say that the number and brightness of night-time lights is a good proxy for economic activity occurring at specific points and regions on the Earth's surface. For China's National Statistics Bureau, using the near-real time resource provided through NASA's Worldview application might provide a good way of performing a reality check on the economic data provided by local provincial officials in the country, where they could more quickly identify gaps between what they report and the real situation on the ground.

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08 января, 11:34

S&P 500 in Lévy Flight in Week 1 of January 2018

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In the first week of 2018, investors would appear to be shifting their forward-looking horizons to the more distant future, from the current quarter of 2018-Q1 toward, we believe, the more distant future quarter of 2018-Q3. Through the end of Week 1 of 2018, we would say that investors are focusing about 60% of their attention on 2018-Q1 (down from 80% at the end of 2017) and 40% on 2018-Q3. This shift in forward-looking focus corresponds to a 2.6% gain (69.54 points, from 2,673.61 to 2,743.15 for the S&P 500) during a comparatively short period of time, and the largest upward movement over a period of five trading days going back more than a year. Which is to say that sort of large magnitude upward change in the S&P 500 doesn't happen very often. More often than not, stock prices tend to move by much smaller amounts over such short periods of time, where even a large, sustained 657.97 point (31.6%) rally of the kind we've seen since 8 November 2016 doesn't produce the kind of sudden upward shifts that we're seeing now. In math, this kind movement is called a Lévy flight, which is similar to a random walk, but with one big difference. Instead of having the sizes of all the movements be relatively small and similar in size to one another, the size of some of the movements are disproportionately large compared to most of the others. More so than would be predicted by a normal distribution. When that happens with stock market, what you're really seeing is one of the quantum-like properties of how stock prices work, where we see these kinds of outsized movements whenever investors are shifting their attention from one point of time in the future to another, where the difference in expectations for dividends associated with the different points of time is large enough to produce outsize movements, which we've previously described as a "quantum random walks" (if you only have time to follow only one link in this article, click this one!) They're pretty cool when they happen, and as it turns out for this week, timely, because the science of economics is believed by some to be long overdue for a quantum revolution, where perhaps seeing a quantum event like this might motivate some forward movement within the field. Analyst's NotesWe're coming up on a relatively short period where the accuracy of our standard dividend futures-based forecast model for the S&P 500 would be reduced because of the echo effect from the past volatility of stock prices, which arises because the use of historic stock prices in making its projections. Although we've had some success in adapting a simple technique to get around that limitation, we're going to skip making a red-zone forecast to cover this period for the following reasons: The upcoming period where the echo effect is present is short - we anticipate it running from 11 January to 24 January 2018. The magnitude of the echo is comparatively low. While the accuracy of our model's projections will be affected, we don't anticipate, in the absence of noise, that the difference between the model's projected ranges and actual trajectories for the S&P 500 will be all that great. These first two items would apply even if stock prices were not currently in Lévy flight. Being in Lévy flight adds a new dynamic, where we would not anticipate that a red-zone "connect the dots" forecast would work, at least yet, for the following reasons: We have not reached a point where the expectations for a quarter-point rate hike by the Fed in March 2018 have locked in. As of Friday, 5 January 2018, the CME Group's Fedwatch tool indicates a 67% probability of such a hike being announced on 21 March 2018, with nearly a 32% chance that they'll keep their target range steady at 125-150 basis points. Until the expectation for a 2018-Q1 rate hike locks in, we believe that investors will keep at least a portion of their forward-looking focus on the current quarter of 2018-Q1, which means that the actual trajectory of stock prices will fall somewhere in between the indicated trajectories for 2018-Q1 and 2018-Q3. 2018-Q3 coincides with what investors currently expect will be the timing of the Fed's next action for short-term U.S. interest rates. As of Friday, 5 January 2018, stock prices were actively in a Lévy flight transition from one "quantum" level for our alternative future projected trajectories to another, where we don't know yet to what extent investors will come to balance their forward-looking focus between 2018-Q1 and 2018-Q3. Until that split-in-focus between future points in time might stabilize, we would not be confident in setting a "parallel" red-zone forecast. And of course, that's all assuming that investors don't have reason to shift their attention to some other point of time in the future, which would be driven by learning new information and changes in future expectations. Speaking of which, here are some of the more significant news headlines that we believe would have strongly influenced investor expectations of the future during Week 1 of January 2018. Tuesday, 2 January 2018 Oil prices close to mid-2015 highs, but doubts over further rises loom S&P, Nasdaq hit record closing highs in new year; dollar drops Wall Street starts year on strong note; Nasdaq ends above 7,000 Wednesday, 3 January 2018 Fed policymakers see future rate rises guided by inflation, fiscal stimulus Following the release of the Fed's December meeting minutes, the CME Group's FedWatch tool showed a 67.5% probability of a quarter-point hike in March 2018 (up from 56% at the end of 2017), and a greater than 50% chance of a second quarter point rate hike as early as August 2018. Oil at highest in two-and-a-half years on Iran tensions, strong demand S&P 500 tops 2,700 on tech advance; Dow, Nasdaq hit records Thursday, 4 January 2018 Oil at highest since 2015 on inventory drawdown, Iran unrest Dow tops 25,000 milestone; Wall St extends New Year's rally St. Louis Fed's Bullard links tax bill with equity surge, stronger growth outlook Friday, 5 January 2018 U.S. trade deficit rises to near six-year high on record imports - Translation: domestic U.S. producers can't keep up with increased demand from strengthening economy! Oil retreats on U.S. output rise after hitting near 2-year high Traders keep bets on two Fed rate hikes after jobs report Yes: Fed's Harker says two rate hikes 'appropriate' this year No: Fed's Mester sees roughly four U.S. rate hikes in 2018 Big news if it happens (and alert Scott Sumner!): In test for Powell, internal groundswell grows to rethink Fed's inflation approach S&P 500, Nasdaq post best week in more than a year Elsewhere, Barry Ritholtz took note of the positives and negatives for the U.S. economy and markets in the first week of January 2018.

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05 января, 11:48

Dividends by the Numbers through December 2017

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2017 marked something of a turnaround for the fate of dividends paid by publicly-traded companies throughout the year. What had been a multi-year declining trend for the U.S. stock market since mid-2014 appeared to bottom out between March and June 2017, before reversing into an improving trend throughout the rest of the year. Let's drill down into December 2017's numbers, before we comment on some unique developments in the last month of the year that was. 4,506 publicly-traded U.S. firms issued some kind of declaration regarding their dividends in December 2017, the most on record for data that extends back to January 2004. That figure was up from 3,518 in November 2017, and also from the 4,252 that declared their dividends back in December 2016. 144 U.S. companies announced that they would pay an extra, or special, dividend payment to their shareholders in December 2017, up from 109 a month earlier, but down from the 162 that did in December 2016. The greatest number of extra dividends on record was in December 2012, just ahead of the so-called "Fiscal Cliff" tax hike crisis, where 483 U.S. firms went out of their way to pay out a special dividend to their shareholders to minimize their taxes as part of what we call the "Great Dividend Raid". December 2017 was a lackluster month for dividend increases being announced, with just 126 U.S. firms boosting their dividends. That figure was down from the 185 firms that hiked their dividends in November 2017, and up slightly from the 119 that raised their dividends in December 2016. December 2017 also seemed to be a disappointing month for shareholders hoping to avoid cuts in their expected dividend payments, where 54 companies acted to cut their dividends. That was up from 22 in the previous month, but the apparent silver lining is that figure was down from the 59 firms that announced dividend cuts in December 2016. Finally, 7 firms omitted paying dividends in December 2017, up by one from the 6 that omitted paying dividends in November 2017, and up sharply from the 2 firms that took that action in the previous year's month of December. Those numbers would appear to present a mixed story for dividends in December 2017, but the biggest political event of 2017, which came in the third week of December 2017, is very likely responsible for that result, where the situation for dividend-paying companies is much stronger than these numbers would initially make it seem. Here's why. The passage of the Tax Cuts and Jobs Act of 2017 is particularly beneficial for investors in companies that directly pass through income from their business operations to their shareholders, such as Real Estate Investment Trusts (REITs), where if they act to delay taking those dividend payments until after the law goes into effect in 2018, means that they can significantly increase their after-tax returns. The tax plan features a deduction for pass-through businesses—income derived from commercial activities that their owners or shareholders pay on their personal income taxes. That deduction includes the income that flows to REIT investors through dividends—mainly from rent or mortgage interest—but not the capital gains secured when properties are sold. The plan allows investors to deduct 20% of the income, with the remainder of the income taxed at the filer’s marginal rate. It is available even if the taxpayer doesn’t itemize deductions. Shareholders of REITs who now pay the top income-tax rate of 39.6% on dividends received would see that rate drop to 29.6%, according to Nareit, formerly the National Association of Real Estate Investment Trusts. “Clearly this is a deduction that will lower the overall tax rate for individuals who invest in REITs,” said Dianne Umberger, the REIT leader for Ernst & Young’s National Tax Department. The new provision would keep REITs an attractive vehicle for real-estate investors, and could fuel additional demand for REIT shares. That’s because investors who earn rental income outside of REITs could be subject to taxes at the top rate of 37% under the new bill but just 29.6% through a REIT. The distribution of capital gains from REITs will continue to be taxed at 20%, according to Nareit. “There has never been a lower rate of tax for rent and mortgage interest received through REITs,” said David Miller, a partner in the tax department of Proskauer Rose LLP. “This is unprecedented.” For the managers of REITs with the ability to easily change when they might pay out their scheduled dividends to maximize the benefits for their shareholding owners, the passage of the Tax Cuts and Jobs Act provides a particularly strong incentive for them to: Hold off on announcing any plans to increase their dividend payments until 2018. Hold off on announcing any special or extra dividend payments until 2018. Announce dividend cuts or omit paying them before the end of 2017, then turn around and pay them in 2018 when taxes will be lower. We see all three of these actions that would boost the after-tax dividend payouts to investors taking place to some degree in the data for December 2017, where we're really looking forward to what happens next for dividends in 2018. The only previous period for which we have data that shows similar dynamics was in the period from December 2012 through March 2013, when the threat of a massive tax hike on dividends spurred the Great Dividend Raid of 2012, and where the subsequent fiscal cliff tax deal in January 2013 led to dividends being increased because they would be taxed more favorably than regular income, which was a factor influencing the decisions of highly influential investors who could choose how much to be paid in either salaries or dividends. On a final note, the number of firms omitting or suspending their dividends in December 2017 also includes a number of California utilities, such as Edison International (NYSE: EIX) and Pacific Gas and Electric (NYSE: PCG), which face liability risks from the wildfires that burned large tracts of land in the state. With luck, they'll rebound to where they can resume paying dividends to their shareholders by the end of 2018, but the costs and penalties they can expect to be dealt in California's hostile legal and regulatory environment before that might happen will likely be substantial. Data SourcesStandard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 2 January 2018. Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 2 January 2018. Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 2 January 2018.

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04 января, 11:18

The S&P 500 at the End of 2017 and What Lies Ahead in 2018

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Falling between the Christmas and New Year's holidays, not much of newsworthy note happened for the S&P 500 during the fourth week of December 2017 and the final week of that year. Consequently, the S&P 500 mostly moved sideways during Week 4 of December 2017 before dipping by 0.5% to close at 2,673.61 on Friday, 29 December 2017, the last trading day of 2017. Most of that decline happened during the last half hour of the day's trading, suggesting that it wasn't motivated by much more than opportunistic year-end profit taking during a week that featured very light trading volumes. The headlines of the week that was point to a very slow week for market moving news indeed. Tuesday, 26 December 2017 Oil soars, U.S. crude hits $60/bbl for first time since mid-2015 Wall Street slips on tech sector weakness Wednesday, 27 December 2017 Oil falls from 2015 highs as rally runs out of steam Wall Street edges up as tech snaps skid Thursday, 28 December 2017 Oil prices stay near high on strong U.S. refinery runs, China data Wall Street rises as financials, tech advance Friday, 29 December 2017 West Texas Intermediate crude hit $60.32 per barrel: Oil up at year end, U.S. crude hits highest since mid-2015 30 December 2016: 2,238.22. 29 December 2017: 2,673.61. Up 435.39 (19.45%) year over year. Wall Street quiet on last trading day of a strong year Finally, Barry Ritholtz provides a succinct summary of the positives and negatives for the U.S. economy and markets in the year ending fourth and final week of December 2017. Wrapping Up 2017 in a BowThe alternative futures charts that we present each week show the actual trajectory that the S&P 500 takes with respect to the backdrop of where our dividend futures-based model projects that they would be depending upon where stock prices are in the present and have been in the recent past, as well as how far into the future investors might be looking on any given day. That's a lot of moving parts of which to keep track, so for fun, we've put together the following animation showing the evolution of the S&P 500 through selected key dates in the months ending each quarter of 2017. In the chart, the black line represents the daily closing value of the S&P 500, while the colored lines and bands represent where our model projects that the S&P 500 would be when investors have focused their forward-looking attention on a specific quarter in the future. We like this kind of presentation because of the way it captures how the expectations that investors have for the future either filled in or changed throughout the year! In fact, if you pay attention to the alternative future trajectory associated with 2017-Q4, you can see it swing upward by 300 points from the end of 2016 to the end of 2017, which gives a sense of how fluid expectations of the distant future can be. Because our model uses historic stock prices as the base reference points from which it projects future stock prices, the vertical tan/brown bands indicate when we anticipated well in advance that our model's projections would be less accurate because of the "echoes" of past volatility in stock prices. In our quarterly charts for 2017, we occasionally added an additional forecast range (shaded in red) to account for this echo effect, where we made specific assumptions about the trajectory that the S&P 500 would take during the periods where we anticipated that our model's projections would be off for prolonged periods of time (the animation above excludes these shorter-term predictions). If you would like to see how well we did at forecasting where the S&P 500 went whenever we chose to add a so-called "red-zone forecast" to our alternative futures charts, please follow the links below: 5 January 2017 to 14 February 2017 - Duration: 5 weeks. 6 March 2017 to 24 March 2017 - Duration: 2-1/2 weeks. 11 September 2017 to 6 October 2017 to 10 November 2017 - Duration: 8 weeks. All together, our three red-zone forecasts spanned 81 of the 251 trading days of 2017. On 79 of those days, the S&P 500 closed within the specific range that we indicated at the beginning of each forecast. These results suggest that our "connect the dots" approach for adapting our forecast model to account for the echo effect of the past volatility in stock prices on its projections of future stock prices is at least somewhat effective. The Future for the S&P 500 in 2018The following chart reveals what our dividend futures-based model anticipates for the S&P 500 in 2018, from the vantage point of the close of trading on the last business day of 2017. If you go back and review our animation for 2017, you'll see that our model tends to perform best when looking just one quarter ahead at a time, which is why we have typically only presented charts showing the current quarter in this long-running series. The truth is that expectations of the future are continually changing by enough where there isn't much value in looking much further beyond three months ahead in time on any given day with our model. With that in mind, let's zoom in on the future for 2018-Q1: Going into 2018, although stock prices would seem to be tracking along with what our model projects would be the case if investors were primarily focusing on 2018-Q2, we believe that investors are presently splitting their forward-looking attention between 2018-Q1 and 2018-Q3. Here's why we're thinking that. 2018-Q1, and specifically, 21 March 2018 coincides with the expected timing of the Federal Reserve's next change in short term interest rates, where the CME Group's FedWatch tool is currently giving a 67.5% probability of a quarter-point increase being announced on 21 March 2018, up sharply from the 55% it was indicating at the end of 2017. Looking beyond that first rate hike for 2018, the Fedwatch tool is also projecting a greater than 50% probability for another quarter-point rate hike this year that would come in 2018-Q3, and perhaps as early as 1 August 2018, although by 26 September 2018 remains more likely. At present, investors would appear to be more heavily weighting their forward-looking focus on 2018-Q1, where we would recognize a significant upward movement in stock prices should they shift more of their focus toward the more distant future quarter of 2018-Q3. An alternative explanation for what we're currently observing is that investors are mostly focused on the current quarter of 2018-Q1, but the recent passage of the Tax Cuts and Jobs Act of 2017 is adding a positive speculative boost to current day stock prices above the level where today's available dividend futures would place them if they were solely focused on 2018-Q1. As the members of corporate boards return after the holidays and meet to set their firms' dividend policies in the new year, we'll see how much of that speculation turns into a more tangible form of expectation, but for right now, we're not seeing any change in the future expectations described by quarterly dividend futures, which haven't as yet changed since the end of 2017. We'll find out soon enough which explanation better describes how investors are weighing the future for the S&P 500 in 2018. Stay tuned!

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03 января, 11:45

November 2017 Median Household Income

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Median household income in the U.S. rose to an estimated $58,741 in November 2017, an increase of 0.2% from our previous October 2017 estimate of $58,643. The following chart shows our estimates for the trends for both nominal (red) and inflation-adjusted median household income (blue) from January 2000 through November 2017. In nominal terms, which provide perhaps the best indication of the state of the U.S. economy for typical American households, median household income continues to rise steadily, much as it has throughout 2017 after having stalled in the latter half of 2016. Though our estimates from June 2017 through November 2017 are still preliminary, pending ongoing revisions, the data suggests that there has been a small uptick in the rate of growth of median household income in the U.S. during the period from September through November 2017. After adjusting the monthly nominal household income estimates for inflation, so that they are expressed in terms of constant November 2017 U.S. dollars, we also find an uptick in so-called "real" median household income in recent months, which has come after this measure dipped sharply from July to September 2017. This period coincides with the impact of Hurricane Harvey and Hurricane Irma, which caused a short term spike in the prices of consumer goods and construction materials in Texas, Florida and in other states along the gulf coast, which has since largely dissipated. The methodology for the approach we've developed to generate these median household income estimates is described here. In generating inflation-adjusted portion of the Median Household Income in the 21st Century chart above, we've used the Consumer Price Index for All Urban Consumers (CPI-U) to adjust the nominal median household income estimates for inflation, so that they are expressed in terms of the U.S. dollars for the month for which we're reporting the newest income data. Analyst's NotesNext month, when we have the preliminary data for December 2017, we will make a spreadsheet version of our analysis available, which we are planning to periodically update on at least a semi-annual basis. Data SourcesU.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. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 22 December 2017. Accessed: 30 December 2017. 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. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 22 December 2017. Accessed: 30 December 2017. 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: 13 December 2017. Accessed: 30 December 2017. ReferencesSentier Research. Household Income Trends: January 2000 through May 2017. [Excel Spreadsheet with Nominal Median Household Incomes for January 2000 through January 2013 courtesy of Doug Short]. [PDF Document]. Accessed 22 June 2017. [Note: We've converted all data to be in terms of current (nominal) U.S. dollars to develop the analysis presented in this series.]

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02 января, 11:10

Your Paycheck in 2018, Before the Tax Cuts Kick In

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How much of your paycheck will you be allowed to keep for yourself in 2018 after a greedy Uncle Sam has extracted what he wants out of it to put into his own till? Thanks to the passage of the Tax Cuts and Jobs Act of 2017, which was signed into law just before the Christmas holiday, the answer for many Americans is going to be more than they would have without the tax cuts. However, the answer to the question of "how much more?" will depend upon a lot of factors that can vary from one individual paycheck earner to the next. One of Political Calculations' missions is to build tools to help people easily answer personal finance questions like these, where to be able to answer the full question of "how much more of the money I earn will I see on my paychecks after the tax cuts take effect?" first requires us to work out how much in withholding taxes that the U.S. government will be taking out of each of your paychecks in 2018 before the nation's federal withholding taxes are adjusted to account for the new tax cuts. Those new federal withholding tax rates won't take effect until sometime in February 2017, where we won't find out how much they'll be until they're published sometime later this month. When they are, we'll present a second tool to do that new paycheck math! And as an extra bonus, we're planning to do a third tool where we'll directly estimate how much your take home pay will change as a result of the new tax cuts, which will firmly answer the question of "how much more?" your paychecks may be as a result of the new tax cuts. Update 12 January 2018: Our tool for calculating Your Paycheck in 2018, After the Tax Cuts Kick In is now live! Update 14 January 2018: That third tool we mentioned will go live early on Wednesday, 17 January 2018. When it does, this link will connect through to it! But wait, that's not all! A number of major U.S. employers have already announced that they'll be giving many of their employees raises as direct result of the tax cuts being passed into law. If your employer is one of these firms or will be joining these firms in boosting your earned income, our tool can take your raise into account too! We can also answer other paycheck-related math questions that might be important to you, such as: What if I boost my pre-tax 401(k) or 403(b) retirement plan contributions - how will that change my take home pay? Will I take a hit from the Additional Medicare Tax? [That's the "shared responsibility contribution" that doesn't ever go into Medicare's trust funds, which can affect higher income earners.] How would a flexible savings account for health care or dependent care expenses affect my take home pay? Our tool below is designed to answer those questions, as well as a number of others that may occur to you that we haven't considered! Just enter the indicated information as it applies for you, and we'll do our best to estimate how much of the money you work hard to earn will still be in your possession after the federal government has withheld what it wants from your paycheck! [If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version.] .nobrtable br { display: none } Your Paycheck and Tax Withholding Data Category Input Data Values Basic Pay Data Current Annual Pay Pay Period Daily Weekly Biweekly Semimonthly Monthly Quarterly Semiannually Annually Federal Withholding Data Filing Status Single Married Number of Withholding Allowances 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 401(k) or 403(b) Contributions Pre-Tax Contributions (%) After Tax Contributions (%) Flexible Spending Account Annual Contribution Data Health Care Spending Account Dependent Care Spending Account What if You Had a Raise? Desired Raise (%) Your "Typical" Paycheck Data Category Calculated Results Values Basic Income Data Proposed Annual Salary (Including Raise!) Typical Paycheck Amount Federal Tax Withholding Amounts U.S. Federal Income Taxes U.S. Social Security Taxes U.S. Medicare Taxes U.S. Additional "Medicare" Taxes (If Applicable) 401(k) or 403(b) Contributions Pre-Tax Contributions After-Tax Contributions Total Contributions Flexible Spending Account Contributions Health Care Spending Account Dependent Care Spending Account Your Paycheck's Bottom Line Take Home Pay Estimate Basic Net Paycheck Amount ... But, After Social Security's Taxable Income Cap Is Reached, It Becomes (If Applicable, for a Full Paycheck) ... And Then, After Additional Medicare Tax Income Threshold Is Reached, It Becomes (If Applicable, for a Full Paycheck) Now that we've given you a sense of how much money you'll have withheld in 2018 from each of your paychecks by the U.S. federal government, at least until the new tax cuts take hold, we should note that there are some really complicating factors that may come into play during the year depending upon how much you earn. For example, in 2018, once you have earned over $128,400, you will no longer have the Social Security payroll tax of 6.2% of your income deducted from your paycheck (or 12.4% if you are self-employed, but our tool above is designed for those employed by others). But then, by the time that happens, you'll have long been paying taxes on your income that are taxed at rates that are at least 10% higher than those paid by over half of all Americans. There's also the complication provided by the so-called "Additional Medicare Tax" that your employer is required to begin withholding from your paycheck if, and as soon as, your year-to-date income rises above the $200,000 mark, which is part of the new income taxes imposed by the "Affordable Care Act" (a.k.a. "Obamacare"). Since the money collected through this 0.9% surtax on your income does not go to directly support the Medicare program, unlike the real Medicare payroll taxes paid by you and your employer, it is really best thought of as an additional income tax. In the tool above, in case the amount of your annual 401(k) or 403(b) retirement savings contributions exceed the annual limits set by law, we've limited the results our tool provides to be those consistent with their statutory limits, and will do so as if you specifically set the percentage contributions for these contributions with that in mind. Also, our tool does not consider whether you might take advantage of the "catch-up" provisions in the law that are available to individuals Age 50 or older. Elsewhere on the WebThere are other salary and hourly paycheck calculators like this on the Internet, including the very well done tools available at PaycheckCity.com. We really like PaycheckCity's calculators because they allow you to determine the amount of state income tax withholding that will be taken out of your paycheck separately from what the federal government takes. Meanwhile, payroll processor ADP also has a salary paycheck calculator, but we find the interface for PaycheckCity's calculators are more user-friendly. Then again, if you live in one of the seven states that have no personal income tax for wage and salary income (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming), our tool above will provide you with a very good estimate of your actual take-home pay. Previously on Political CalculationsWe've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005! Your 2005 Paycheck Your 2006 Paycheck Your 2007 Paycheck Your 2008 Paycheck Your 2009 Paycheck Your Paycheck in 2010 Your Paycheck in 2011 Your Paycheck in 2012 Your Paycheck in 2013: Part 1 - the "same as 2012" version. Your Paycheck in 2013: Part 2 - the "over the fiscal cliff" version. Your Paycheck in 2013: Part 3 - the "post-fiscal cliff deal" version. Your Paycheck in 2014 Your Paycheck in 2015 Your Paycheck in 2016 Your Paycheck in 2017 Your Paycheck in 2018, Before the Tax Cuts Kick In

23 декабря 2017, 01:59

The S&P 500 in Week 3 of December 2017

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Coming before a prolonged holiday week in the U.S., we suspect that this may be the least read of any post appearing on Political Calculations during 2017, but we'd like to knock it out before we go on our own year-end holiday, where we have just one more post after this one to present in 2017, in which we'll reveal the biggest math story of the year that was! Until then however, let's check in with how our dividend futures-based forecasting model for the S&P 500 worked during the third full week of December 2017. The following chart shows where the actual trajectory of where the S&P 500 tracked against the background of our model's spaghetti-chart forecasts. Week 3 of December 2017 is when the Tax Cuts and Jobs Act of 2017 officially became law, with President Trump signing the measure on Friday, 22 December 2017. Based on Federal Funds Rate futures, we believe that investors are currently mostly focusing on the first quarter in setting stock prices, where options speculators are betting that the Federal Reserve will act to boost short term interest rates in the U.S. again shortly before the end of that quarter. We suspect that stock market investors are speculatively pricing in higher dividends in the future resulting from the tax cut, which have yet to materialize in the dividend futures themselves, where we are seeing the actual trajectory of the S&P 500 tracking along above the range we would expect if investors were closely focused on 2018-Q1 in setting stock prices based on the level of dividends that are currently projected for that future quarter. That's not necessarily a bad speculation, where a number of U.S. firms have already announced that they will use the opportunity of the tax cut to increase the pay of their employees, whether through bigger paychecks or through bonuses. We'll find out, most likely in 2018 after the boards of directors of S&P 500 companies have had the chance to meet and make decisions on how they might adapt their compensation and dividend payout policies to respond to the tax cut, how smart that speculation may be. Until then, for our last post looking at the S&P 500 of 2017, we'll close by wrapping up the week's market moving headlines in the following package.... Monday, 18 December 2017 Oil gains on pipeline outage tempered by robust U.S. output Fed's Kashkari says voted against rate rise on inflation, yield curve worries Wall Street climbs on rising tax-cut hopes; Nasdaq breaks above 7,000 Tuesday, 19 December 2017 Hurricane recovery: Single-family housing starts, permits hit 10-year high Fed's Kashkari says should wait for inflation Wall Street eases as investors look past tax revamp Wednesday, 20 December 2017 U.S. home sales hit 11-year high, supply still tight Wall Street edges lower, pauses as tax bill clears Congress Thursday, 21 December 2017 Energy and financials power Wall Street's rise Friday, 22 December 2017 Oil eases from highs but OPEC cuts still support market More hurricane recovery: U.S. new home sales race to more than 10-year high in November Trump signs tax, government spending bills into law Wall Street slips heading into holiday Elsewhere, Barry Ritholtz succinctly summarized the positives and negatives for the U.S. economy and markets for Week 3 of December 2017. That's it for now - we'll be back sometime tomorrow with our special last post of 2017!

21 декабря 2017, 23:36

A Natural Experiment for Philadelphia's Soda Tax

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The city of Philadelphia's controversial soda tax is providing a lot of material for serious scientists to evaluate the effects of arbitrarily imposing a tax on the distribution of a range of naturally and artificially-sweetened beverages. Since we're near the end of the tax's first year of being in effect, we thought we'd focus upon one of the more interesting findings to date. Consumers are primarily the ones paying the taxThanks to the quirks of geography and development, some parts of the terminals at Philadephia's international airport fall within Philadelphia's city limits while other parts do not, which means that Philadelphia's Beverage Tax is imposed in some parts of the airport while not in others. Cornell University's John Cawley recognized that situation would make for a natural experiment for assessing some of the impact of the tax, where they collected data for soda sales at the airport in the period of December 2016 through February 2017, which provides a window into how both prices and sales changed as the tax went into effect on 1 Janaury 2017. Here's a summary of the research's findings: The research, co-written with Barton Willage, a doctoral candidate in economics, and David Frisvold of the University of Iowa, appeared Oct. 25 in JAMA: The Journal of the American Medical Association. Philadelphia’s tax of 1.5 cents per ounce on sugar-sweetened beverages is one of several passed by cities throughout the United States. The goal is to increase prices and dissuade people from drinking soda to benefit their health. These taxes have been controversial; Cook County, Illinois, recently repealed its tax, which had only been in place a few months. The Philadelphia tax (and one in Berkeley, California) are levied not on consumers but on distributors. That’s because lawmakers are trying to change consumers’ behavior but want, for political reasons, to avoid taxing consumers directly. So they levy the tax farther up the supply chain, said Cawley, who is co-director of Cornell’s Institute on Health Economics, Health Behaviors and Disparities. Until now, it has been unclear just how much of Philadelphia’s tax on distributors would be passed on to consumers in the form of higher retail prices. Distributors could just pay it themselves to avoid a decrease in sales, Cawley said. “Or producers like Coke and Pepsi could say, ‘We’re not going to let cities use this tax to decrease our sales; we’re going to bear the brunt of it. We’ll just sell our soda cheaper to distributors, and that’s how we’ll keep retail prices the same,’” he said. But in Philadelphia, just 36 days after the tax went into effect, stores raised their retail soda prices by a whopping 93 percent of the tax. “I was surprised by how much of the Philadelphia tax was passed on to consumers in such a short period time,” said Cawley. And some untaxed airport stores, technically located in Tinicum, Pennsylvania, also raised their prices by exactly the amount of the tax after the taxed stores did, the study found. “It was impossible to predict in advance whether the untaxed side of the airport would limit the pass-through of the tax on the Philadelphia side, or whether the untaxed side would take advantage of Philadelphia’s tax to raise prices themselves,” says Cawley. The 93 percent “pass-through” to Philadelphia consumers was significantly higher than occurred in Berkeley, California; previous research (including some by Cawley and Frisvold) showed that only 43 to 69 percent of the Berkeley tax was passed on to soda drinkers there. This finding is highly significant because although Philadelphia directly imposes the tax on beverage distributors in the city (the de jure incidence of the tax), in reality, the tax is predominantly falling upon consumers, who are the ones who are primarily paying the tax (this is the de facto incidence of the tax). The true incidence of the tax matters because it potentially affects the legality of the tax and how it is imposed. The imposition of a similar soda tax in Chicago was largely derailed because courts in that state recognized the de facto nature of the tax, while courts in Pennsylvania have so far dismissed the real world incidence of the tax in upholding Philadelphia's soda tax. Pennsylvania's state supreme court has not yet announced whether it will hear an appeal of the case. Meanwhile, the pass-through of 93% of Philadelphia's soda tax to consumers at Philadelphia's International Airport falls on the high side of our own observations throughout 2017, where overall, we've found that two-thirds of Philadelphia's soda tax is being passed through to consumers. Confounding factors for soda prices on the Tinicum-side of the airportWe should however recognize that the market represented by Philadelphia's International Airport is not generally representative of the market for beverages in the city, where the airport cannot be considered to provide a genuinely free market for competition. For example, the city of Philadelphia, which manages the airport, is able to severely restrict the number of vendors that may do business at the airport. Restricting the ability of outside vendors to freely enter into the market represented by Philadelphia's international airport allows the approved vendors who sell soft drinks outside of Philadelphia's city limits at the airport to hike the prices of the sweetened beverages they sell without the potential penalty of losing business to competitors charging lower prices, with the vendors and their employees pocketing the difference thanks to their city-granted, monopoly-like business privilege. On average, in December 2016 before the tax was implemented, the mean price per ounce of cola was 12.37 cents on the untaxed side and 12.53 cents per ounce in the taxed side. By February 2017, that price had increased to 12.93 on the untaxed side and 13.92 on the taxed side. Thus, the price had risen significantly more on the taxed side. The investigators calculated that overall, 55.3 percent of the tax was passed along to consumers. In the taxed stores, however, 93 percent of the tax was passed to consumers by February. One might query why the stores in the untaxed part of the airport also raised prices? Probably because they could, and it would simply add to their profits. That would make logical sense, but there's more to the story, where the common conflating factor of the intervention of Philadelphia's city government is also at work. Here, the role of the city in jacking up prices for consumers at parts of the airport outside of the city's limits was confirmed by the mayor's office. Mike Dunn, a spokesman for Mayor Kenney, said Friday that vendors on the Tinicum side who have raised their prices since Jan. 1 did so for a different reason. Three out of the 37 vendors in Tinicum received permission to change prices this year, Dunn said, and all did so as part of a voluntary program that allowed them to raise all prices by 10 percent in exchange for paying their employees more. All airport merchants will be required to pay a minimum hourly wage of $12.10 when they enter new concession contracts, Dunn said, but three vendors on the Tinicum side elected to begin early. That dynamic adds an interesting wrinkle to Cawley's initial research findings, one where he should already have the detailed data indicating the amount of prices changes of soda at all airport locations to be able to resolve, where it should be easy to identify the vendors that increased their soda prices by the 10% that was blessed by the mayor's office. How soda prices changed at the remaining vendors will then give us an ideal of the extent to which those other vendors took advantage of the opportunity to gouge their customers within the closed market of the Philadelphia International Airport during the first two months of the tax going into effect. It's a question to which we don't yet know the answer that will be exciting to find out, hopefully in 2018!