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18 марта, 11:07

The S&P 500 Survives Quadruple Witching, But What Next?

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The S&P 500 (Index: SPX) survived last week's quadruple witching on Friday, 15 March 2019. The last time the S&P 500 was at such a height was back on 9 October 2018, shortly after the market peaked at its record high closing value of 2,930.75 on 20 September 2018, just ahead of another quadruple witching day. Now the big question becomes "how long might that last?" After all, the quadruple witching event on Friday, 15 March 2019 means that the dividend futures contracts for 2019-Q1 have now expired, which puts 2019-Q1 in the rear view mirror, at least as far as its dividend futures are concerned, which was the principal assumption behind the redzone forecast we added to our spaghetti forecast chart for the S&P 500 earlier this quarter. With the current level of the S&P 500 right at the upper edge of our redzone forecast, its current level is currently consistent with the last two of the four possibilities that we outlined in our last edition. Investors might focus their attention to the even more distant future of 2020-Q1, in which we would still see the S&P 500 decline from its current levels, but more on the order of 3-5%. As if the way stock prices work wasn't already complex enough, the fourth option would be if investors split their attention between two different points of time in the future. In which case, we would expect to see stock prices fall in between the levels we described above, but would be weighted toward whichever future quarter has more strongly captured their attention. In that last scenario, through 15 March 2019, the level of the S&P 500 would suggest that investors are splitting their forward-looking attention between 2019-Q2 and 2019-Q3, with a slightly heavier weighting toward the more distant future quarter. Remember, it wasn't long after the S&P 500 reached its all-time high closing value on 20 September 2018 that our dividend futures-based model indicated that investors suddenly began shifting their attention from 2019-Q1 toward 2019-Q3, forcing the market into the early stages of what would become a correction. 2019-Q3 has become relevant for investors once again because if the Fed might consider hiking interest rates during 2019, they will most likely do so during this future quarter according to a recent Reuters poll. Should investors have reason to more fully focus their attention on this future quarter, the S&P 500 would be in for a rougher ride, as we also outlined in our previous edition: Investors may shift their attention toward the more distant future of 2019-Q3 or 2019-Q4. The expectations for the change in the rate of dividend growth in both quarters are similar, but unfortunately, following 2019-Q2, that growth is projected to sharply decelerate, which is an expectation that has been in the cards (or rather, in the futures), since mid-2018. If investors focus their attention in these quarters, the S&P 500 can be expected to experience a correction, falling by 10% or more. The Federal Reserve's Open Market Committee will meet later this week, where we will soon have a better idea of what they are thinking. In the meantime, let's catch up with the major market-moving market headlines since our last edition.... Friday, 8 March 2019 Oil drops 1 percent as economic outlook weakens, U.S. supply surges China February exports tumble the most in three years, spur fears of 'trade recession' China February soybean imports fall to four-year low amid tariffs, flat demand China's iron ore imports hit 10-month low in February on holiday break China's February coal imports tumble on uncertainty over curbs, holiday disruption China's February crude imports surge 22 percent; gas imports drop from January China's February trade surplus with U.S. narrows sharply to $14.72 billion German industrial orders post strongest drop in seven months Fed's Powell says no immediate policy responses needed to economy Wall Street extends losing streak after weak U.S. jobs data U.S. February job growth weakest in nearly one and a half years Instant View: U.S. February job growth stalls but wage gains strong Monday, 11 March 2019 Oil gains over 1 percent as Saudi stands by OPEC output cuts Bigger trouble developing in China: China auto sales fall 14 percent in February, mark eighth month of decline China hog prices hit 14-month high as African swine fever slashes output 'Zombie' enterprises hampering China's economic transformation: Chinalco Bigger stimulus developing in China: China central bank pledges more policy support as bank lending slides U.S. inflation forecasts decline, supporting rate-hike holiday U.S. business inventories rise, sales drop biggest in three years Wall Street snaps five-day losing streak despite Boeing's drop Boeing shares, vanguard of the Dow, hit hard after second 737 MAX crash Tuesday, 12 March 2019 U.S. EIA cuts 2019 world oil demand growth forecast Ctrl-Alt-Stall: India's engineers struggle for work as jobs crisis worsens S&P, Nasdaq rise on tame inflation data; Dow felled by Boeing Boeing shares take another hit as more countries ground 737 MAX 8 planes Wednesday, 13 March 2019 Oil up after U.S. crude stock draw, supply growth seen easing China orders banks to boost financial support to small firms Wall Street rises; Boeing up despite U.S. grounding of 737 MAX jets Thursday, 14 March 2019 Oil wavers as OPEC pushes supply cut need, demand fears weigh China and U.S. to push back Trump-Xi summit to at least April: Bloomberg Trump says he is in no rush to complete China trade deal China industrial output growth falls to 17-year low, more support steps expected China makes major U.S. pork purchase despite steep import tariffs, as hog virus takes toll Finally some stimulus traction? China Jan-Feb steel output rises from December on strong margins S&P 500 eases amid U.S.-China trade uncertainty Friday, 15 March 2019 U.S. oil retreats from 2019 high on soaring production Bigger stimulus developing in China: China's premier says ready to use more policy tools to help economy China to lower funding costs for small and micro firms by 1 percent point this year: premier Wall Street gains with tech; S&P 500 posts best week since November For the bigger picture, Barry Ritholtz identified 7 positives and 6 negatives in the news of the week that was!

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15 марта, 11:26

How Much Underwear Should You Pack on Vacation?

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From time to time, Political Calculations takes on the challenge of answering questions that other blogs avoid. Whether that's due to fear on their part, where a sensitive topic may be too far out of their comfort zone, or just because they cannot, we see such challenges as an opportunity. So let's talk about how much underwear you need to pack while you're traveling away from home. Not long ago, Ashley McIntosh of Brisbane, Australia's 97.3 FM radio posted the solution to a problem that we ourselves never appreciated existed. We'll let her explain.... Are you guilty of packing three times as many pairs of underwear as you could possibly need when travelling. *Raises hand* Or even worse... Not packing enough!? Well never fear, this nifty new math equation is here to the rescue ladies. And it seems pretty thorough. Karina Judd recently shared on Facebook group Meme Queens her saving grace. Not just that, but she has also created a public Google doc excel spreadsheet so the math is all done for you! That's all well and good, but what if you're packing in a rush right before leaving on your trip because you've procrastinated too long and you can no longer afford to take the time to fire up your personal computer to run Karina Judd's spreadsheet to calculate how many pairs of underwear you should pack? That's the kind of niche market that we seek to serve here at Political Calculations, where we've brought Karina Judd's undie math into the world of online ready reckoners you can run on your mobile! Just enter the indicated data below, and we'll sort out how much underwear you should pack for your travel. [If you're accessing this article on a site that republishes our RSS news feed, please click through to our site to access a working version.] Underwear Quantity Factors Input Data Values What is the minimum quantity of clean underwear that you wear per day? How many days will you be traveling? 1 2 3 4 5 6 7 Do you have any gut concerns, such as Irritable Bowel Syndrome (IBS) or lactose intolerance? No Yes If you expect it during your trip, what is the average heaviness of your period? N/A Light Moderate Heavy Have you had, or are you about to have a baby? No Yes How Much Underwear You Should Pack Calculated Results Values Quantity For the sake of simplicity, we've limited the tool to consider no more than a week-long vacation, where we've assumed you will not have access to clean underwear outside of what you pack (if you're traveling for longer than that, or have limited packing space, you might consider taking advantage of local options for doing laundry during your trip). We've also generalized the math a bit, to make it more universally applicable. The original math in Karina Judd's spreadsheet was developed by Jess Evans, who considered a number of additional factors that could affect your underwear packing needs, such as the temperature of your destination, whether the drinking water is "dodgy", and whether you will be able to do laundry while traveling, where the spreadsheet can handle a much longer trip. Previously on Political CalculationsUnderwear math is far from the strangest problem we've built tools to solve! Here's a sampling of some of the other quirky problems we've tackled over time.... What Are the Chances Your Marriage Will Last? Picking the Right Date for Valentine's Day The Indisputable Inter-Age Rule for Dating Men: What's Your Sex Appeal? Men: Are You Old Enough to Propose Yet? Should You Become Intimate with a Coworker? Is Your Personal Grooming Adequate? How Much Should You Spend on Gifts this Christmas? Should You Keep Your New Year's Resolution? Should You Call in Sick? Five More Minutes? Are You Too Good for Your Job? Should You Buy Something (or Not)? How Many Cups of Coffee Should You Drink This Morning? How Many Beers Should You Have at the Company Picnic? Earth Live: Walk, Bike or Drive? Should You Say It on the Grapevine? Should You Start or Stop Procrastinating? Should You Apologize? Should You Lie? Should You Quit Your Job? Should You Go Out with the Guys?... Are You Whipped? Do You Dare Run for Public Office? How Many Hours of Sports Can You Watch (Without Her Getting Angry)? Should You Stop to Put Gas in the Car? How Many Kids Should You Have? How Big Should Your Kids' Halloween Bucket Be? When Will You Become Obsolete? The Robin Hood Morality Quiz The Ultimate Mobile App Math Formula Explains Geek's Dating Drought Happy Valentine's Day!

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14 марта, 11:26

El Niños, La Niñas and Atmospheric CO2

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How much do El Niño and La Niña events affect the rate at which the level of carbon dioxide in the Earth's atmosphere changes? Before we answer that, it would help to know how El Niño and La Niña events affect the Earth's weather. Accuweather provides the following description of how both kinds of events start: El Niño is a part of a routine climate pattern that occurs when sea surface temperatures in the tropical Pacific Ocean rise to above-normal levels for an extended period of time. The opposite of El Niño, La Niña, is when sea surface temperatures in the central Pacific drop to lower-than-normal levels. These warm and cool phases are part of a recurring climate pattern that occurs across this section of the Pacific, known as the El Nino-Southern Oscillation (ENSO), according to the National Oceanic and Atmospheric Administration (NOAA). Changes in equatorial water temperatures can then affect wind and water currents, which is how something that starts as a local weather condition transforms into something that has a global weather impact. NASA explains what happens when an El Niño event gets underway: During an El Niño event, the surface waters in the central and eastern Pacific Ocean become significantly warmer than usual. That change is intimately tied to the atmosphere and to the winds blowing over the vast Pacific. Easterly trade winds (which blow from the Americas toward Asia) falter and can even turn around into westerlies. This allows great masses of warm water to slosh from the western Pacific toward the Americas. It also reduces the upwelling of cooler, nutrient-rich waters from the deep—shutting down or reversing ocean currents along the equator and along the west coast of South and Central America. The circulation of the air above the tropical Pacific Ocean responds to this tremendous redistribution of ocean heat. The typically strong high-pressure systems of the eastern Pacific weaken, thus changing the balance of atmospheric pressure across the eastern, central, and western Pacific. While easterly winds tend to be dry and steady, Pacific westerlies tend to come in bursts of warmer, moister air. Because of the vastness of the Pacific basin—covering one-third of the planet—these wind and humidity changes get transmitted around the world, disrupting circulation patterns such as jet streams (strong upper-level winds). We know these large-scale shifts in Pacific winds and waters initiate El Niño. What we don't know is what triggers the shift. This remains a scientific mystery. The large-scale shifts associated with El Niño events matter where atmospheric carbon dioxide levels are concerned because these events contribute to widespread hot and dry conditions that limit the ability of natural carbon sinks, such as tropical forests and plants, to absorb carbon dioxide from the Earth's atmosphere. The opposite situation occurs during La Niña, when these same natural carbon sinks in the tropics are less distressed and are able to pull substantially more carbon dioxide out of the air. You can actually see the difference in the seasonal variation for changes in the level of atmospheric carbon dioxide. The following animated chart presents sixty years of that data from October 1958 through September 2018, where we've color coded El Niño years in red, La Niña years in blue, and neutral years in gray, where we've also indicated the intensity of the events with lighter shading for weak years and darker shading for strong years. The chart will cycle from all years, to El Niño years, to La Niña years, and then to neutral years every five seconds before restarting its loop. If you're accessing this article on a site that republishes our RSS news feed where the animation doesn't play, you can either click through to our site to see the animation, or just simply follow the links in the previous sentence to access the individual charts used to make the animation. From the animation (or the individual charts), you can see that El Niños are associated with higher-than-average levels of change in the seasonal variation of atmospheric carbon dioxide, La Niña events are associated with lower-than-average levels of change, while neutral years tend to see seasonal variation in carbon dioxide levels that are pretty closely grouped about the average. We haven't seen anyone else put together a similar presentation, where we're taking the opportunity to do it ourselves! The Mauna Loa Observatory is the source for the atmospheric carbon dioxide data, while the intensity levels for the various El Niño and La Niña events from 1958 through 2018 is taken from Golden Gate Weather Service's summary for the Oceanic Niño Index.

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13 марта, 11:08

Celebrating 150 Years of the Campbell's Soup Company

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The Campbell Soup Company (NYSE: CPB) will celebrate its 150th anniversary of being in business in 2019. Founded in 1869 as the Joseph A. Campbell Preserve Company in Camden, New Jersey by fruit merchant Joseph Campbell and icebox maker Abraham Anderson, it wasn't until 1897 that the company developed and began selling the condensed soups that would come to define the company's brand in the United States and the world. What made Campbell's soups successful was the condensing process that John T. Dorrance developed in the late 1890s, which removed water from soup without removing flavor, where home cooks could simply add water to the company's new concentrated soup product and then heat it to be served. That innovation allowed Campbell's to use much smaller cans for their soup, which also made their soup more affordable to produce and ship, not to mention for consumers to buy. Previously, the company's uncondensed soups had cost consumers 30 cents for a large can, where its new condensed soup products, which were capable of making an equivalent amount of soup, could be sold profitably for just 10 cents a can. In 1898, Campbell's introduced the red and white labels that became the company's trademark for its line of condensed soups, which included Tomato, Consommé, Vegetable, Chicken, and Oxtail. Of these first five soups, Tomato became the company's most iconic product, where in 2010, Andy Warhol's painting of a single can of Campbell's Condensed Tomato Soup sold at auction for over $9 million. Today, Campbell's Condensed Tomato Soup is the company's second-biggest seller, with the company's ubiquitous Chicken Noodle soup having claimed the top spot in the years since its introduction in 1934, when it was originally rolled out as "Chicken with Noodle" soup. [On a side note, it became definitively named "Chicken Noodle" when famous radio performer Freeman Gosden flubbed the company's chosen name for the product, calling it "Chicken Noodle" on air. The company quickly adopted "Chicken Noodle" as the name of its newest soup, and the rest, as they say, is history.] Campbell's Condensed Tomato Soup is unique among American foods because of how little it has seemed to change over the 12 decades that it has been produced. Which is pretty amazing, considering that every single aspect of the product has changed over its 120 year history. Everything from the tomatoes, the way its made, the way its shipped, the cans, and even the labels have been changed incrementally over the years. But by far, the most noticeable change of all for American consumers has been its price. The following chart show how the price of the iconic Number 1 "picnic" size can of Campbell's Condensed Tomato Soup has changed since it first started to be sold in American grocery stores in January 1898, all the way through December 2018. The chart shows the history of the prices at which we've documented that American consumers have purchased it on a linear price scale, but if you would rather see it on a logarithmic price scale, please see this version of the chart. Today, the average sale price that Americans pay for a 10.75 ounce can of Campbell's Condensed Tomato Soup is about 8 times the cost of what they paid for its 1898 equivalent. If we do the inflation math over that 120 year period, it would seem the price has increased at an average annual rate of roughly 1.7%. But that price hasn't risen steadily as you might expect. For the first 75 years of its history, the average price that Americans paid for a single can was mostly flat, costing within a few cents of the same 10 cents per can price that American consumers first paid for a can of Campbell's Condensed Tomato Soup at the end of the 19th Century. In the last 45 years however, the cost of a single can has jumped eight-fold, which works out to be an average annual rate of increase of 4.7% during these last four and a half decades. Much Ado About Tomato Soup What can a single consumer food product say about life in America over the last twelve decades? Quite a lot actually, where we've really only scratched the surface.... The Price of Campbell's Tomato Soup Since 1897 - We've come a long way since we first began researching and presenting the price of Campbell's Tomato Soup back in 2015! The Tomato Soup Standard - Which makes more sense to use for money - gold or cans of tomato soup? The First Ad Ever for Campbell's Condensed Soups? - A local grocer in Alexandria, Virginia advertised for a special demonstration in their store for how to prepare a "New Concentrated Soup" costing 10 cents a can on 12 January 1898. The ad we found doesn't mention Campbell's by name, but the circumstantial evidence that it was is pretty strong. War and Soup - Campbell's may have won an arms race within America's food industry for feeding American troops during the Spanish-American War of 1898. Early Advertising Milestones for Campbell's Condensed Soups - We track down the oldest ad we could find that mentions Campbell's condensed soups by name, their first super-discount sale, the first ad to feature an image of a can of Campbell's condensed soup, and the first announcement that Campbell's condensed soups would soon be sold at a highly successful regional grocer called A&P.... Updated: The Price of Campbell's Tomato Soup Since 1897 - Filling in missing information and updating our price database through December 2015. Of Soup and Silver and the Zombie Apocalypse - Campbell's Condensed Tomato Soup cost just a dime when it was introduced, at a time when dimes in the United States were made out of silver. We do the math to figure out how many ounces of silver it would take to buy a can of soup throughout its history. Soup and Recession - we examine how recessions have affected the price of Campbell's Tomato Soup. Soup and Steel Tariffs - In 2018, President Trump's Commerce Secretary used a can of Campbell's Condensed Chicken Noodle Soup as a prop in his pitch to sell the administration's plans to impose tariffs on Chinese-produced steel. We calculate what those tariffs could do to the price of a can of the company's soup! Tomato Soup, Oil and Inflation - We looked at the history of oil and soup prices after World War 2, and show why Campbell's Tomato Soup is no longer the consumer bargain it used to be. Celebrating 150 Years of the Campbell's Soup Company - We present 120 years worth of price data for Campbell's Condensed Tomato Soup to celebrate the company's sesquicentennial. Image Credit: unsplash-logoPaweł Czerwiński

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12 марта, 11:02

A Mathematical Model of the Internal Dialogue of Plants

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Plants appear to have their own secret language. That controversial observation has been the focus of biologist Richard Karban's work for a number of years, which we'll introduce with the following four-and-a-half minute TEDEd animation that was produced several years ago, after Karban resuscitated what had been a debunked concept in the field with his findings from new, more rigorous research. If plants communicate with each other, knowing how and why they are communicating could have a very large impact on many fields. In 2013, Karban reflected on the potential for future applications: Plant communication may still be a tiny field, but the people who study it are no longer seen as a lunatic fringe. “It used to be that people wouldn’t even talk to you: ‘Why are you wasting my time with something we’ve already debunked?’” said Karban. “That’s now better for sure.” The debate is no longer whether plants can sense one another’s biochemical messages — they can — but about why and how they do it. Most studies have taken place under controlled lab conditions, so one of the major open questions is to what extent plants use these signals in the wild. The answer could have big implications: Farmers might be able to adapt this chatter, tweaking food plants or agricultural practices so that crops defend themselves better against herbivores. More broadly, the possibility that plants share information raises intriguing questions about what counts as behavior and communication — and why organisms that compete with one another might also see fit to network their knowledge. Plants however also appear to communicate within themselves as they respond to the complex stimuli in their environment, which is something that previous models of plant growth have not incorporated. While not the kind of inter-plant communication being actively researched by Kaplan and other biologists, this internal dialogue, or intra-plant communication, would appear to have considerable influence over how plants grow. That's the insight that four researchers at the Gran Sasso Science Institute (GSSI) and the Istituto Italiano di Technologia (IIT) in Italy, Fabio Tedone, Emanuela Del Dottore, Barbara Mazzolai, and Pierangelo Marcati, have developed in applying math to model how individual plants behave in response to the complex stimuli they receive in their environment. Here's a brief summary of what they set out to achieve in the press release announcing the preprint of their paper at bioXriv: ... the researchers set out to develop a mathematical model that describes the dynamics of intra-plant communication and analyses the possible cues that activate adaptive growth responses in a single plant. This model is based on formulations about biological evidence collected in laboratory experiments using state-of-the-art techniques. Compared to existing models, their model covers a wider range of elements, including photosynthesis, starch degradation, multiple nutrients uptake and management, biomass allocation, and maintenance. These elements are analyzed in depth, considering their interactions and their effects on a plant's growth. To validate their model and test its robustness, the researchers compared experimental observations of plant behavior with results obtained when applying their model in simulations, where they reproduced conditions of growth similar to those naturally occurring in plants. Their model attained high accuracy and minor errors, suggesting that it can effectively summarize the complex dynamics of intra-plant communication. In doing that, they were able to effectively model the plant growth described in the biological research they surveyed with 11 nonlinear equations: For our money, here was the most interesting finding in the paper's conclusion, which would come into play whenever Liebig's Law of the Minimum might apply: Interestingly, in stress conditions, e.g. when the saturating thresholds were reached, the dynamics showed a fast adaptation of the plant with a self-optimisation of internal resources and feedback stimuli, without the need of a a-priori optimisation assumption. The same self-adaptive behaviour was evident when branching vs elongation was analysed. This optimising behaviour is realistic but difficult to be biologically demonstrated. However, differently to some models [4, 19] that directly start by assuming the existence of an internal optimisation function which drives plant dynamics, in here we demonstrated it to be a consequently behaviour emerging from the dynamics of internal processes. Therefore, our model enforces the idea of an emerging behaviour in plants making use of an internal communication network for optimising the use of the internal resources, the exploration of the soil and the adaptation of internal processes, and results in an efficient growth strategy. Plants aren't just efficient, they're economical in the I, Pencil sense! ReferencesFabio Tedone, Emanuela Del Dottore, Barbara Mazzolai, Pierangelo Marcati. Plant behaviour: A mathematical approach for understanding intra-plant communication. bioRxiv 493999; doi: https://doi.org/10.1101/493999. 11 December 2018. Images from paper reproduced under terms of CC-BY 4.0 International License granted by the authors to bioRxiv. Kat McGowan. The Secret Language of Plants. Quanta Magazine. [Online Article]. 16 December 2013. Richard Karban. Can Plants Talk To Each Other? TEDEd. [Online Video]. 2 May 2016. Image Credit: unsplash-logoScott Webb

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11 марта, 11:05

The Number of Firms and Dividend Payers in the S&P 500

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Here's our entry in the competition for the chart of the day: Perhaps the most surprising information on the chart? Since 2014, there has been more than 500 firms in the S&P 500! ReferencesSilverblatt, Howard. S&P 500 Dividend Payers. Standard and Poor S&P Dow Jones Indices. [Excel Spreadsheet]. Accessed 2 March 2019. Mauboussin, Michael J. The Real Role of Dividends in Building Wealth. Legg Mason Capital Management. [PDF Documents]. 25 January 2011. Political Calculations. What Caused the Dot Com Bubble to Begin and What Caused It to End? [Online Article]. 15 December 2010.

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08 марта, 10:57

S&P 500 De-levitates After Dimmed Prospects for Trade Deal, Gloomier Outlook for Eurozone

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We're one week out from the expiration of 2019-Q1's dividend futures contracts, so we're using the opportunity to take a snapshot in time of the S&P 500 (Index: SPX), where we find that the index has dropped back into the redzone forecast range of our spaghetti forecast chart following investor disappointment that the U.S. and China haven't yet reached a trade deal, and the new information that the economic situation in the Eurozone has gotten gloomier. The redzone forecast range on the chart is based on the assumption that investors would largely focus their attention on 2019-Q1 during February and March 2019. That assumption has mostly held up, but since that forecast incorporates dividend futures, whose contracts will expire on Friday, 15 March 2019, we will soon run out of 2019-Q1 for investors to focus upon. Given the relative level of the S&P 500 today, that means one of four things will happen in the next week: Investors may shift their attention to 2019-Q2. If that happens, stock prices could rise 3-5%, since the quarter is projected to feature strong dividend growth. Investors may shift their attention toward the more distant future of 2019-Q3 or 2019-Q4. The expectations for the change in the rate of dividend growth in both quarters are similar, but unfortunately, following 2019-Q2, that growth is projected to sharply decelerate, which is an expectation that has been in the cards (or rather, in the futures), since mid-2018. If investors focus their attention in these quarters, the S&P 500 can be expected to experience a correction, falling by 10% or more. Investors might focus their attention to the even more distant future of 2020-Q1, in which we would still see the S&P 500 decline from its current levels, but more on the order of 3-5%. As if the way stock prices work wasn't already complex enough, the fourth option would be if investors split their attention between two different points of time in the future. In which case, we would expect to see stock prices fall in between the levels we described above, but would be weighted toward whichever future quarter has more strongly captured their attention. As our chart is currently drawn, after the dividend futures contracts for 2019-Q1 run out, the redzone forecast range assumes that investors will shift their attention toward 2020-Q1 (Option 3). We're going to leave the redzone forecast alone for the next couple of weeks, because it will provide a useful frame of reference even if that assumption proves to be wrong. Remember statistician George Box' immortal words: "Essentially, all models are wrong, but some are useful"! In this case, seeing how the trajectory of the S&P 500 changes with respect to it will give us information about how far into the future investors are focusing their attention that the context provided by market-moving news headlines will help confirm. Speaking of which, here are the stories we noted during the first week of March 2019.... Monday, 4 March 2019 Oil rises 1 percent on U.S.-China trade optimism, OPEC+ supply cuts Bigger trouble developing in China: China services growth eases to four-month low in further blow to economy: Caixin PMI Asian shares retreat as China targets slower growth Bigger stimulus developing in China: China to slash taxes, boost lending to shore up slowing economy China to cut value-added tax rate for manufacturing, construction sectors China raises budget deficit to 2.8 percent of GDP: policy report China's defense budget rise to outpace economic growth target Wall Street drops after weak data, healthcare slump Tuesday, 5 March 2019 Oil prices flat; focus on OPEC-led output cuts, Libya oilfield Bigger stimulus developing in China: China to take steps to boost domestic consumption this year: state planner China to slash taxes, boost lending to prop up slowing economy Factors that have propelled Chinese stocks to nine-month highs Fed's Kaplan says U.S. corporate debt a reason for rate hike pause Fed's Kashkari says wages show labor market still has slack Wednesday, 6 March 2019 Oil prices end mixed after U.S. crude stocks build sharply U.S. mortgage applications fall as loan costs rise Fed's Williams says slower U.S. growth is a 'new normal' Fed thinking about growing balance sheet again: K.C. Fed paper Wall Street sinks for third day as healthcare, energy slump Thursday, 7 March 2019 Oil edges up as tight global supplies offset economic concern Fed's Brainard sees fewer U.S. rate hikes Bigger trouble developing in Eurozone: ECB cuts growth, inflation forecasts Surprise! ECB's Draghi surprised colleagues with bold stimulus plans: sources ECB statement following policy meeting Wall Street drops for fourth day as ECB stokes growth worries We're posting this edition of our S&P 500 chaos series ahead of our usual schedule, which means we're missing linking Barry Ritholtz' latest succinct summary of major market and economic events for the first week of March 2019. Look for it late Friday at this link. Meanwhile, the next edition of this weekly series should arrive on schedule, sometime early on Monday, 18 March 2019.

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07 марта, 11:25

Carrots, Sticks, and Health Insurance

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If your health insurer offered you cash to choose a less expensive provider for medical treatment, would you take it? That's a question whose answer has the potential to reduce the cost of health care, which was investigated by Christopher Whaley, Lan Vu, Neeraj Sood, Michael Chernew, Leanne Metcalfe and Ateev Mehrotra, whose findings were recently published in Health Affairs. Here's the abstract of their paper: Employers and insurers are experimenting with benefit strategies that encourage patients to switch to lower-price providers. One increasingly popular strategy is to financially reward patients who receive care from such providers. We evaluated the impact of a rewards program implemented in 2017 by twenty-nine employers with 269,875 eligible employees and dependents. For 131 elective services, patients who received care from a designated lower-price provider received a check ranging from $25 to $500, depending on the provider’s price and service. In the first twelve months of the program we found a 2.1 percent reduction in prices paid for services targeted by the rewards program. The reductions in price resulted in savings of $2.3 million, or roughly $8 per person, per year. These effects were primarily seen in magnetic resonance imaging and ultrasounds, with no observed price reduction among surgical procedures. The American Council on Science and Health's Chuck Dinerstein was less than impressed by this outcome, where he notes that insurance policies that aim to motivate patients to seek lower cost treatment to avoid cost penalties appear to be more effective in directing patient choices than offering the gains of small rewards: What might we conclude? First, even with price tools and now rewards, patients do not choose medical care by price. When they do consider cost it is more often for imaging, a “service” that seems more of a commodity, than surgery that is more a bespoke service or relationship. There is a term for this, the elasticity of price – how your demand changes with rising and lowering prices. It should be no surprise that healthcare is inelastic; higher prices do not automatically result in less utilization. Healthcare for all the effort is still not viewed as a commodity, although that is changing for “low touch” services like vaccinations or minor injuries where experience and relationship are not often considered. The studies of reference pricing, where you pay the cost over and above, what the insurance deems usual and customary, has resulted in savings of 15%. But that model supports healthcare disparities, creating tier of care based on ability to pay more. The carrot of a reward program, saving 2%, seems to be ineffective in the continued presence of high deductible and co-payment sticks. As the debate about pharmaceutical prices intensifies, keep those 2% savings in mind. It seems a lot closer to how we actually behave than the wave of the hand political promises of greatly increased saving from price transparency. Aside from price elasticity, the relatively small influence of monetary awards over penalties can largely be chalked up to a real world application of prospect theory from behavioral economics, which is perhaps better known as loss-aversion theory. Here, when people are given a choice where they can either experience a gain or avoid a loss of equivalent value in taking a risk with equal probability, most will choose to avoid the loss. The following video from the Khan Academy explains the concept: With medical treatment, the patient's psychological stakes may be much bigger in making their decisions depending upon their perception of the seriousness of the procedure, which may account for why so many were less willing to choose lower cost options for surgery than they were for the more "commodity-like" MRIs. It would be really interesting to find out what reward level might be needed to equalize the outcomes for savings between the stick and the carrot approach. Better still, would an insurer accept breaking even on the early transactions it might use to steer patients toward lower cost treatment options in the carrot approach if it could succeed in establishing long term relationships between its covered patients and those qualified providers that would save them money in the long run? Then for its customers who prefer higher cost treatment options, allow them to keep utilizing them, but for a higher cost that matches their expense with their preference. If that doesn't trigger their loss aversion instinct, at least the cost of it would be covered.... That would be the game theory solution. Of all of economics, the behavioral branch is perhaps the most dismal, which is saying quite a lot! On a lighter note, we'll close with a relevant editorial cartoon from more than 100 years ago!... Image Credit: Photo by rawpixel on Unsplash unsplash-logorawpixel

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06 марта, 11:20

Rising Trend of U.S. New Home Sale Prices Breaking Down

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What had been a well-established, rising trend for median U.S. new home sale prices appears to have begun breaking in the fourth quarter of 2018. As measured by the trailing twelve month average of median new home sale prices in the United States, the most recent trend that had begun in September 2015 looks to have lasted into October 2018, after which, the trailing year average of these median prices has dropped significantly. The following chart shows the three most recent linear trends for the trajectory of new home sale prices in the United States, covering the period from July 2012 through December 2018. We calculate the trailing twelve month average of median new home sale prices for two reasons. First, it helps take annual seasonality in the data into account, and second, it smooths out the noise in fairly volatile monthly data to help make trends in the data more visible. The next chart shows the raw monthly data for median and average new home sale prices in the U.S. from January 2000 through December 2018, where we find that one reason for the sudden decline in the trailing year average for new home sale prices is that they peaked in December 2017, which has now dropped out of the trailing twelve month average calculation. The primary factor behind that development is the rapid rise of mortgage rates in the U.S. during 2018, which rose nearly a full percentage point from November 2017 through November 2018 before dropping in December 2018, following the Federal Reserve's sudden decision to back off its established policy of steadily hiking interest rates, after one last hike in December 2018. The following chart shows 30-year conventional mortgage rates from January 2000 through December 2018. While in historical context, mortgage rates would appear to be low, its important to note that in rising from 3.9% in November 2017 to 4.9% in November 2018, the amount of interest that a home buyer would need to pay in their first year of home ownership would have increased by roughly 27%. Here's how that math works. Someone taking out a 30-year mortgage for $250,000 at 3.9% with payments starting in November 2017 could expect to have a monthly payment of $1,179.17, where they would pay a total of $9,670.49 in interest during their first year of mortgage payments. But if the interest rate they had to pay for the same size loan was 4.9%, their monthly payment would rise to $1,326.82, a 12% increase over the monthly payment with mortgage rates a point lower, where they would pay a total of $12,166.40 just in first year interest for the same amount of borrowed money, a 27% increase over the $9,670.49 they would have paid with mortgage rates set at 3.9%. That's what happened across much of the U.S. housing market during 2018, where the aggregate transaction value for existing home sales and for new home sales went on to peak in March 2018, lagging behind the peak in mortgage rates by several months as might be expected for major transactions like home purchases as it took time for the market's momentum to reverse. There is a bright side in these developments. In making the monthly payments for home ownership so much more expensive, 2018's rising mortgage rates have primarily affected the top end of the real estate market in the U.S., which has negatively impacted the real estate market in the regions that have been experiencing shortage conditions for homes, which also have some of the highest home prices in the nation. Home prices have responded in these regions by deflating which, as median household incomes have continued to rise in 2018, means that new homes have been becoming relatively more affordable, following their peak in unaffordability in February 2018. Theres's a lot more going on across the U.S.' various local real estate markets that also contributes to what we're seeing in the national data, but 2018's rising mortgage rates go a long way toward explaining why so many home buyers began steering away from high-priced houses during 2018, particularly in those areas that have very high escalations in home prices. We'll be exploring the real estate market in different regions in the U.S. later in the month. ReferencesU.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 5 March 2019. Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 5 March 2019.

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05 марта, 10:42

Dividends By The Numbers in February 2019

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For U.S. dividend paying companies, February 2019 was a down month, with a lower number of firms increasing their dividends and a higher number of firms announcing dividend cuts than in the same month a year ago. Here is the official tally for February 2019's dividend metadata from Standard and Poor: In February 2019, 3,650 U.S. firms declared dividends, an increase of 1,174 over the 2,476 recorded in January 2019. That figure is also an increase of 157 over the number recorded in February 2018. 42 U.S. firms announced they would pay an extra, or special, dividend to their shareholders in February 2019, an increase of 5 over the number recorded in January 2019, and also a an increase of 4 over February 2018's total. A total of 292 U.S. firms announced they would increase their dividend payments to shareholders in February 2019, an increase of 75 over the number recorded in January 2019, and a decrease of 30 from the 322 dividend rises declared back in February 2018. A total of 31 publicly traded companies cut their dividends in February 2019, an increase of 4 over the number recorded in January 2019 and also an increase of 11 over the 20 recorded in February 2018. Just 1 U.S. firm omitted paying their dividends in February 2019, a decrease of 1 from the number recorded in January 2019. That figure is also a decrease of 8 from the number of firms that omitted paying dividends back in February 2018. Looking closer at the dividend cuts, our near real-time sample captured 27 of the 31 announced dividend reductions for the month, led by financial firms and Real Estate Investment Trusts, followed by oil and gas sector, and technology firms, where these three industrial groupings accounted for nearly two-thirds of the total dividend decreases declared in February 2019. The following chart tallies up the number of firms announcing dividend cuts by their industrial sector. Here's our full sample of dividend-reducing firms for February 2019: Viper Energy (NASDAQ: VNOM) Sabine Royalty Trust (NYSE: SBR) Pitney Bowes (NYSE: PBI) L Brands (NYSE: LB) Arconic (NYSE: ARNC) Unique Fabricating (NYSE: UFAB) Medley Capital (NYSE: MCC) Artisan Partners Asset Management (NYSE: APAM) CenturyLink (NYSE: CTL) Clearway Energy (NYSE: CWEN) AllianceBernstein (NYSE: AB) Harvest Capital Credit (NASDAQ: HCAP) Newtek Business (NASDAQ: NEWT) Permian Basin Royalty Trust (NYSE: PBT) Cross Timbers Royalty Trust (NYSE: CRT) Marine Petroleum Trust (NASDAQ: MARPS) Owens & Minor (NYSE: OMI) PermRock Royalty Trust (NYSE: PRT) Fresh Del Monte (NYSE: FDP) AllianceBernstein (NYSE: AB) County Bancorp (NASDAQ: ICBK) Kraft Heinz (NASDAQ: KHC) Nabors Industries (NYSE: NBR) Lexington Realty Trust (NYSE: LXP) Protective Insurance Cl B (NASDAQ: PTVCB) Maxar Technologies (NYSE: MAXR) Park Hotels&Resorts (NYSE: PK) Of the 27 dividend-reducing firms in our sample for February 2019, 18 set their dividend payments independently of their earnings, while the remaining 9 pay out variable dividends to shareholders as a percentage of their earnings. ReferencesStandard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. 28 February 2019. Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 28 February 2019. Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 28 February 2019.

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04 марта, 10:58

S&P 500 Continues to Levitate on Trade Deal Optimism

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For a week that was crammed with as much news as it was, not much changed for the S&P 500 (Index: SPX), as the index continued hovering just above the top end of our redzone forecast range for a second week. We're getting to an interesting point of time for the stock market, because we're running out of 2019-Q1 for investors to focus upon, where the quarter will be effectively over in just two weeks where dividend futures contracts are concerned. That simple fact means a countdown clock has started ticking for when investors might shift their attention toward a different point of time in the future. If you can anticipate which point of time they'll shift their attention toward, you can use our spaghetti forecast chart to antipate the direction that stock prices will move. Right now, its suggesting that investors are mostly focused on the current quarter, but have shifted a portion of their attention toward 2019-Q2, which is how we would describe what the level of the S&P 500 hovering just above our redzone forecast range is communicating. If we were to pick just one factor that might explain the S&P 500's continued levitation during the final week of February 2019, we'd point to the continuing hints that a U.S.-China trade deal may soon be struck, which we touched on in last week's analysis. But judge the week's market-moving news headlines for yourself and if you're reading this article on a site that republishes our RSS news feed that allows comments, please let us know if you find a more compelling explanation.... Monday, 25 February 2019 Oil falls more than 3 percent as Trump blames OPEC for 'too high' prices Bigger stimulus developing in China: China orders banks, insurers to sharply step up lending to private firms Bigger stimulus developing in the U.S.?: Fed's 'hotter' economy can boost jobs, Kaplan says Not quite getting it yet, but not as out-of-touch as Fed's Mester: Fed’s Bostic Expects One Rate Rise This Year, Another in 2020 Trade deal in the offing? Trump delays tariff hike on Chinese goods, citing trade talk progress Trump says 'signing summit' with Xi for U.S.-China deal possible soon Wall Street rises after Trump stirs China trade hopes again Tuesday, 26 February 2019 Oil edges up as OPEC ignores Trump pushback on prices Bigger trouble developing in China: China February factory activity seen shrinking for third month: Reuters poll Fed's Powell says 'no rush' to hike rates in 'solid' but slowing economy Powell says economic theory of unlimited borrowing supported by Ocasio-Cortez is just 'wrong' Fed's Bullard says not ready to call for a rate cut: Fox Business Wall St. edges lower in choppy session Wednesday, 27 February 2019 Bigger trouble developing in China: Hot-rolled mess: China's steelmakers hit the skids as car sales slow Final deal negotiations? U.S. wants regular meetings to ensure trade deal enforcement: Lighthizer Fed to stop shrinking portfolio this year, Powell says Wall Street steadies after Lighthizer, Powell, Cohen testimonies Thursday, 28 February 2019 Brent eases as trade talks drag, China's economy shows weakness U.S. crude oil output falls in December for first time since May: EIA Bigger trouble developing in China: China February factory activity shrinks to three-year low, export orders worst in a decade China consumers squeezed in 2018 as income gains slow, living costs rise Growing contagion? Japan's factory output falls by most in a year as China demand slumps Fed's Powell: 'Muted' inflation gives room for wages to rise Fed's Kaplan says it will take time to see how much U.S. economy is slowing Fed's Clarida: Fed 'especially' tied to data as it pursues patient policy Fed's Clarida: 'No evidence' wage gains increasing inflation pressure U.S. stocks edge downward as Wall Street takes a pause Friday, 1 March 2019 Oil falls 2 percent as demand worries overtake supply cuts Bigger trouble developing in China (South Korea contagion edition?): South Korea exports suffer biggest slide in nearly three years as China sales sag Bigger stimulus developing in China: China looks to parliament for reassurances as economy slows Bostic: Markets may doubt Fed's inflation commitment - Well, when they chronically keep undershooting their target... Trump asks China to lift tariffs on U.S. farm products Wall Street rises as trade optimism counters weak data If you set out to identify six positives and six negatives in the bigger picture of the week's economics and markets' news, would you pick the same items as The Big Picture's Barry Ritholtz? Looking ahead, we're going to break up our regular routine and feature the next edition of our S&P 500 chaos series later this week, just one week before 2019-Q1's dividend futures contracts run out on 15 March 2019. That event will officially terminate the first half of our redzone forecast, where we assumed (mostly correctly) over a month and half ago that investors would be largely focused on the current quarter of 2019-Q1 during most of the quarter. We're debating how we might modify the redzone forecast for the second half of its run when that assumption can no longer apply.

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01 марта, 11:22

The Rest of Your 2018 Tax Refund

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Extra! Extra! Read all about it! "Many Americans are freaking out about getting a smaller tax refund this year - here's why it's happening" "Smaller Tax Refunds Surprise Those Expecting More Relief" "Why people are outraged at lower tax refunds (but probably shouldn't be)" These are actual recent headlines that appeared respectively at Business Insider, the New York Times, and the Honolulu Star Advertiser. All share one common thread - after filing their 2018 income tax returns, a number of financially inattentive Americans, many with access to social media accounts, are expressing how upset they are at getting a smaller refund than they expected, because they somehow never noticed that sneaky Uncle Sam stopped taking quite so much money out of each of their paychecks from mid-February 2018 through December 2018. How much less of a tax year-end income tax refund are we talking about? We've built a tool to do that math for each indivdual American income tax payer, where we'll approximate how much more of a refund they might have received if the IRS had never changed its withholding tax rates following the 2017 income tax cuts being passed into law. In doing that, we'll assume their employers implemented the change in the withholding tax rates on 14 February 2018, where our tool's results will reflect 10-and-a-half months worth of their paying reduced withholding taxes. [If you're accessing this tool on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.] .nobrtable br { display: none } Your Annual Pay and Tax Withholding Data Category Input Data Values Basic Pay Data 2018 Annual Pay 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 Your Additional Tax Refund, If Withholding Tax Rates Were Not Reduced Approximated Results Values Portion of Your 2018 Tax Refund You've Already Received Through Your Paychecks If you've already done your 2018 income taxes, add this number to whatever refund you now know you're going to get (or subtract the amount you have to pay to Uncle Sam from it if that situation applies to you instead), and see how closely that new figure compares to the size of the refund you expected. If your situation isn't too complicated by other factors, the tool's approximation should be pretty close. We're afraid we cannot do much more than give a ballpark approximation, because there a lot of other variables that we're not taking into account, such as when exactly your employer may have implemented 2018's tax withholding rates, the exact timing of your paychecks, or whether your income changed during the year, to name just three of the factors that can have a big effect on the outcome of the math. If you play with the numbers in the tool, and you should, you'll also find that the amount of annual income you enter can have a big effect on the results. If you enter $400,000 for example, the amount of Donald Trump's annual salary as President of the United States, you'll find that our tool estimates his additional take home pay for all of 2018 was just $215.03. For President Trump, who has donated virtually all of his Presidential salary after taxes to support various public-interest initiatives at several federal government agencies, that additional amount boosted his donation total for 2018. By contrast, someone who earned our tool's default entry of $36,000 per year would have taken home an extra $790.34 during 2018, which if the IRS had kept withholding tax rates the same, would have increased their income tax refund for the 2018 tax year by that amount. If that was you, there's the rest of your 2018 tax refund! Previously on Political CalculationsAlthough we've been providing tools for estimating federal withholding taxes since 2005, here are the ones that will matter most to you for your 2018 income taxes and your 2019 paycheck.... Your Paycheck in 2019 The Bottom Line for Your 2018 Paycheck After the Tax Cuts Your Paycheck in 2018, After the Tax Cuts Kick In Your Paycheck in 2018, Before the Tax Cuts Kick In