Political Calculations
Unexpectedly Intriguing!
May 31, 2017

There's a strong connection in American history between soup and recessions. That connection can be largely attributed to the imagery recorded during the Great Depression of the 1930s, where Americans in large cities would queue up into long lines for free bowls of soup.

Since we have assembled the most complete nominal price history for Campbell's Condensed Tomato Soup as advertised at discounted sale prices by U.S. grocers since the product was first introduced to the market in 1898, we thought it might be interesting to overlay the National Bureau of Economic Research's official periods of recession on our charts showing the typical sale price of Campbell's tomato soup as we updated the chart through May 2017.

Unit Price per Can of Campbell's Condensed Tomato Soup at Discounted Sale Pricing, January 1898 to May 2017

Next, here's the same data, but now shown on a logarithmic scale:

Unit Price per Can of Campbell's Condensed Tomato Soup at Discounted Sale Pricing, January 1898 to May 2017, Logarithmic Scale

In case you're wondering why the price of a single can of Campbell's Tomato Soup began to increase sharply after April 1974 after having been so relatively stable for so much of its history, it has a great deal to do with the expiration of the price controls that President Richard M. Nixon first imposed upon food items and wages in 1971 (and later extended in 1973), which coincided with his official severing of the convertibility between the U.S. dollar and gold on 15 August 1971.

Let's switch back to nominal scale, and focus in on the recent price history for Campbell's Condensed Tomato Soup for the period since January 2000.

Unit Price per Can of Campbell's Condensed Tomato Soup at Discounted Sale Pricing, January 2000 to May 2017

The period since January 2000 is interesting in and of itself because the typical sale price of a can of Campbell's Condensed Tomato Soup has more than doubled, from $0.34 per can to $0.86 per can in May 2017, which means that its price has escalated an an average annualized compound rate of nearly 5.5% a year, which is much faster than the rate of 2.1% that the official Consumer Price Index averaged from 2000 through 2016.

That's just one reason why we can say that the typical price of a can of Campbell's Tomato Soup has never been higher than it today!

But more than that, you can look at the changes in the price of a single can of Campbell's Condensed Tomato Soup during this period as being the result of other disruptive forces acting upon the U.S. economy, which is an idea that we'll explore in future posts.

Image Credit: National Archives.

Chicago 1931: Soup Line funded by Al Capone

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May 30, 2017

With the long Memorial Day weekend holiday looming on the calendar, Week 4 of May 2017 was a slow week where trading the S&P 500 was concerned.

When the biggest news of the week was the release of the minutes from the Fed's Open Market Committee meeting three weeks earlier, the most significant market reaction was for investors to once again align their focus on 2017-Q2 in setting the level of the S&P 500, which coincides with the expected timing of the Fed's next short term rate hike.

Alternative Futures - S&P 500 - 2017Q2 - Standard Model - Snapshot on 26 May 2017

After that, with traders looking to get away for the long weekend, there wasn't much else of note that happened in the fourth week of May 2017....

Monday, 22 May 2017
Tuesday, 23 May 2017
Wednesday, 24 May 2017
Thursday, 25 May 2017
Friday, 26 May 2017

Barry Ritholtz lists the week's positives and negatives in his weekly economic data roundup.

On a cautionary note, the S&P 500's ticking clock problem to which we've been alluding in recent weeks not gone away, so as long as the "Fed's Kaplan" way of thinking continues to influence how far forward in time investors focus their attention, with both the third and fourth quarters in play for the timing of the Fed's next rate hike after the almost certain one to be announced in June 2017. As such, the market is at a heightened risk for a sudden increase in volatility.

We'll see what happens in the holiday-shortened fifth week of May 2017!

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May 26, 2017

Memorial Day weekend is upon us once again, and like many Americans, we'll take advantage of the long weekend to catch a movie at the local cineplex. The leading contender for the box office dollars of the Inventions in Everything staff this weekend is Guardians of the Galaxy, Vol. 2, which promises to provide a proper summer movie experience.

Coincidentally, the marketing and licensing minds behind the movie have also provided the invention that we'll focus upon this week: the "Doritos Guardians of the Galaxy Vol. 2 Soundtrack - Doritos Music Bag + Headphones".

No, we're not making this up! In fact, when the movie opened several weeks ago, you could actually buy this invention today from Amazon, although today, you might have better luck picking it up on eBay, since Amazon itself sold out some time ago (although a number of other sellers offer it through Amazon's site).

Amazon: Doritos Guardians of the Galaxy Vol. 2 Soundtrack - Doritos Music Bag + Headphones

Oh, but wait - there's more! Here's Amazon's description of the product:

About the product

  • What’s bolder than crunching on Doritos? Crunching on Doritos while rockin’ out to an awesome mix of songs from Marvel Studios’ Guardians of the Galaxy Vol. 2 soundtrack — straight from one epic bag inspired by the tape deck in the Milano.
  • Plug your headphones into the bag, press play, and enjoy the Doritos packaged inside!
  • Rock out with the bag, and share it with #DoritosRockOutLoud
  • The limited edition Doritos bag includes: one (1) custom, built-in, fully rechargeable MP3 player loaded with songs from Marvel Studios’ Guardians of the Galaxy Vol.2 soundtrack, one (1) separately packaged Doritos Nacho Cheese Flavored 3.125 oz. Tortilla chips, one (1) USB charging cable, one (1) pair of retro-style headphones
  • Each bag is packaged in a commemorative box

If you want to find out more about how it works, the guys at Engadget tore down a bag to see what was on the inside (HT: Kottke):

If you get bored this long holiday weekend, please do check out some of the other oddities of invention from our archives!

Other Stuff We Can't Believe Really Exists

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May 25, 2017

We're going to use charts to tell a short term story and a long term story about new home sales in the United States. Let's start with the most newsworthy of those charts, where we find evidence that new home sale prices in the U.S. have flatlined since January 2017, with our chart showing the relationship between the trailing twelve month average of median new home sale prices and median household income.

U.S. Median New Home Sale Prices vs Median Household Income, Annual: 1999-2015, Monthly: December 2000-April 2017

If this is the first time that you've seen this chart, that "loop-de-loop" is what the bursting of a housing bubble looks like as the U.S. economy experiences a major recession. Next, let's zoom out to see all the data we have for median new home sale prices and median household income, which for annual data, extends back to 1967.

U.S. Median New Home Sale Prices vs Median Household Income, Annual: 1967-2015, Monthly: December 2000-April 2017

One of the cool things about this chart is that it illustrates why the first U.S. housing bubble was such an exceptional event in the context of the long term relationships between median new home sale prices and median household incomes.

Speaking of which, the only reason we go back to 1967 in this chart is because the U.S. Census Bureau has only reported median household incomes for the U.S. since 1967 (monthly data is available from Sentier Research going back to December 2000). The Census Bureau's data on monthly new home sale prices however goes back to January 1963, where the following chart shows that data, and as a bonus, the average new home sale prices, which have only been reported since January 1975.

Median and Average Monthly U.S. New Home Sale Prices, January 1963 through April 2017 (Median) and January 1975 through April 2017 (average)

Let's next zoom in on those streams of data since January 2000, while also showing the official periods of recession for the U.S. economy during that period of time:

Median and Average Monthly U.S. New Home Sale Prices, January 2000 through April 2017

In our final chart, we'll calculate the trailing twelve month average of U.S. median new home sale prices while zooming in even closer to look at the period from July 2012 through April 2017, which contains three separate trends for the rate of escalation of median new home sale prices in the U.S.

Trends in Trailing Twelve Month Average of Median U.S. New Home Sale Prices, July 2012 through April 2017

And so, we come full circle, as we once again confirm that U.S. median new home sale prices have flatlined since January 2017 (although the three most recent months will still be subject to revision during the next several months).

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May 24, 2017

A story for investors in a single chart: the quantified expectations of the S&P 500's future dividends per share, as projected 2017-Q2 through 2018-Q2, as told by two different sets of dividend futures!

The Expected Future for S&P 500 Dividends Per Share, Snapshot on 23 May 2017

The story is told by our two main sources for information about the expectations of future dividends for the S&P 500: CME Group and IndexArb. Here are some quick notes about the data....

  • IndexArb uses a "bottoms-up" approach to estimating the dividends per share of the S&P 500 index, built up from the projected cash dividend payments projected for each of the index' dividend paying component firms after accounting for each firm's market capitalization. The CME Group's projected dividends are produced through a more "top-down" approach, where the trading of options contracts linked to future S&P 500 dividend payouts sets the projected dividend per share level for future quarters extending out through the current and next four quarters.
  • The "quarters" for both sources run from the end of the third Friday of the month ending the previous quarter through the end of the third Friday of the month ending the indicated quarter. As such, the data reported for both sources will not match with the quarterly dividend data reported by Standard and Poor for the S&P 500, since S&P follows regular calendar quarters when reporting dividends per share for the index.
  • Because of that term mismatch, S&P's reported dividends and the dividend futures will tend to greatly differ from each other for the data that applies to the last quarter of the year and to the first quarter of the next year. This apparent discrepancy arises because a number of firms that pay annual dividends will pay them out during the last week of the year, or in the case of firms that pay variable dividends, where they'll pay their largest dividends of the year during that last week, with both dividend paying strategies affected by tax considerations. Where dividend futures are concerned, that mismatch in the terms covered by a quarter will most often make Q4 dividends appear low and Q1 dividends appear high compared to the S&P's "official" dividends per share accounting.
  • IndexArb's dividend futures data follows a cumulative payout approach, where the value for each indicated quarter represents the projected total dividends per share that will be paid out between the current day and the third Friday of the month ending the indicated quarter. Values for the actual dividends per share can be calculated by taking the indicated dividends per share that apply for the quarter of interest and subtracting the indicated dividends per share for the preceding quarter. For the current quarter, the last time that math can be done is on the last day that the value of dividends per share remaining to be paid out in the preceding quarter is reported. In the chart above, the projection for IndexArb's 2017-Q2 dividends per share was made on 8 March 2017.
  • Since the CME Group's dividend futures data continues all the way through the expiration of the quarter's options contracts, changes can continue to be observed for that stream of data, which is why we use it in our long-running S&P 500 forecasting project. We had previously used dividend futures data provided by the Chicago Board of Exchange in our project, but they opted to discontinue their reporting at the end of April 2017.

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May 23, 2017

Although you wouldn't know it from the just completed earnings season for 2017-Q2, the number of dividend cuts announced to date in the current quarter indicate that recessionary conditions have returned in May 2017 after largely having been on hold in April 2017.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter in 2017, Snapshot on 2017-05-22

After outperforming the pace of dividend cuts recorded in 2017-Q1 during the first month of the quarter, 2017-Q2's pace of dividend reduction announcements quickened to match 2017-Q1's pace during the last several weeks, before quickening further to exceed it during the last week.

Compared to a year earlier however, 2017-Q2 is still markedly better, with considerably fewer dividend cuts having been announced during the quarter through the same point of time.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter, 2016-Q2 versus 2017-Q2, Snapshot on 2017-05-22

According to the online databases recording dividend declarations in near-real time of both Seeking Alpha and the Wall Street Journal, we can trace the apparent increase in economic distress in the U.S. to the oil and gas sector, where at least six multiple master limited partnerships declared during the last week that they would reduce their monthly dividend distributions to their shareholders by anywhere from 7% to 52%.

Those particular dividend cuts likely have a lot to do with falling revenue attributable to sizable percentage dips in oil and gas prices during the current quarter.

We've also seen recent upticks in the number of dividend cutting firms in the financial sector and also that produce chemicals used in the agricultural sector.

Though we keep hearing reports of struggling U.S. retailers, we have so far only seen one, Stage Stores (NYSE: SSI) announce a dividend cut this year. This will be an industry to watch should retail sales turn negative, increasing the distress in the industry.

Update 25 May 2017: By request, here is the chart comparing the cumulative number of dividend cuts announced in the current quarter of 2017-Q2 and the year-ago quarter of 2016-Q2, excluding the dividend reductions declared by firms in the U.S. oil and gas industry.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter, 2016-Q2 versus 2017-Q2, Snapshot on 2017-05-22, Excluding the Oil and Gas Industry

If not for the distress in that sector, the private sector of the U.S. economy might qualify as being relatively healthy in 2017-Q2, whereas in 2016-Q2, the economy was definitely experiencing recessionary conditions outside of the oil and gas industry.

Data Sources

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 22 May 2017.

Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 22 May 2017.

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May 22, 2017

In Week 3 of May 2017, the S&P 500 provided a small demonstration of what can happen to stock prices whenever investors shift their focus from one point of time in the future to another.

Because we've already discussed that "almost interesting" event, where investors partially shifted their forward-looking attention from 2017-Q2 to 2017-Q3, we'll simply note that the S&P rebounded in the latter part of the week as investors had reason to shift their focus back toward 2017-Q2, with stock prices behaving accordingly.

Alternative Futures - S&P 500 - 2017Q2 - Standard Model - Snapshot on 19 May 2017

Stock prices aren't the only data that suggest that a partial shift in focus for how far forward in time investors are looking took place during Week 3 of May 2017. U.S. Treasury futures also communicated similar information, as Mike Shedlock observed:

The futures market is starting to question the June rate hike thesis. For its part, the bond market is behaving as if the Fed is hiking the economy into a recession. Here are some pictures.

June Rate Hike Odds

Mish Annotated: CME Group FedWatch June Rate Hike Odds

No Hike in June Odds

  • Month ago – 51%
  • Week Ago – 12.3%
  • Yesterday – 21.5%
  • Today – 35.4%

The CME Group provides this data through its FedWatch tool, which uses futures contracts for the Federal Funds Rate to divine the probability that the Fed will hike that particular interest rate by the various upcoming meeting dates of the Federal Reserve's Open Market Committee (FOMC). They've been providing that kind of insight from futures contracts since at least the last quarter of 2015.

We've been using dividend futures to do somewhat similar analysis, where the Fed has often had an outsized role in determining how far forward in time investors in the U.S. stock market focus their attention, where our dividend futures-based model can explain a good portion of why stock prices behave as they do whenever investors shift their forward looking attention.

At least, when that information is combined with the more significant market moving breaking news of the week....

Monday, 15 May 2017
Tuesday, 16 May 2017
Wednesday, 17 May 2017
Thursday, 18 May 2017
Friday, 19 May 2017

For the week's major economic data points, be sure to check out Barry Ritholtz' succinct summary of the week's positives and negatives.

Note: Following our confirmation of the CBOE's decision to terminate reporting its implied future DVS indicators at the end of April 2017, we switched to using the CME Group's S&P 500 Quarterly Dividend Index Futures quotes in their place for our analysis, with the changeover taking place on 11 May 2017. The change in data source accounts for the apparent volatility on that date for the alternative future trajectories that our model projects for the S&P 500 for when investors would be focused on either 2017-Q3 or 2018-Q1 in our chart above.

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May 19, 2017

Every three months, we take a snapshot of the expectations for future earnings in the S&P 500 at approximately the midpoint of the current quarter, shortly after most U.S. firms have announced their previous quarter's earnings. Today's snapshot of the trailing year earnings per share for the S&P 500 confirms that the stock market's earnings have continued to rebound off their 2016-Q3 bottom, where they will likely recover to their pre-earnings recession levels during the current quarter of 2017-Q2.

Forecasts for S&P 500 Trailing Twelve Month Earnings per Share, 2014-2019, Snapshot on 4 May 2017

The recovery in the S&P 500's earnings has been a significant factor in boosting the value of the S&P 500 since the index bottomed at 1829.08 on 12 February 2017. The index has since gone on to set its all time record closing value of 2402.67 earlier this week (on 15 May 2017).

Data Source

Silverblatt, Howard. S&P Indices Market Attribute Series. S&P 500 Monthly Performance Data. S&P 500 Earnings and Estimate Report. [Excel Spreadsheet]. Last Updated 4 May 2017. Accessed 18 May 2017.

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May 18, 2017

As a general rule, and as it happens, one backed up by statistics, we don't often get very excited about single day moves in the S&P 500 unless the value of the index changes by more than two percent of its previous day's closing value. We're making an exception for Wednesday, 17 May 2017, because we get to once again demonstrate how stock prices really work.

Let's revisit the stage we began setting in earnest just one week ago, which we described in greater detail earlier this week. We've emphasized the key takeaways in the following text.

In Week 1 of May 2017, the probability that investors expecting the Federal Reserve to next hike U.S. short term interest rates before the end of 2017-Q2 reached 90%. As a result of that strong focus by investors upon the current quarter of 2017-Q2, the S&P 500 (Index: INX) has developed a real potential to experience the "ticking clock" problem.

The ticking clock problem for the S&P 500 arises whenever investors become strongly focused on the current quarter as they make the investing decisions that affect the value of the S&P 500 index. Because the clock on the current quarter is ticking down, investors only have a limited amount of time during which they can maintain their attention on the current quarter before they will be forced to shift their forward-looking attention to another point of time in the future.

The potential for a problem as a consequence of that shift in focus arises because of the expectations associated with the next period of time in the future to which investors might next collectively target their attention. If those expectations include an acceleration in the rate of growth of the index' dividends per share, then the shift in attention will drive an increase in stock prices, which would not be considered to be much of a problem.

If however those expectations include a deceleration (or negative acceleration) of the expected growth rate for the S&P 500's dividends per share, then the shift in attention will drive a decrease in stock prices. How much they might potentially move would then be a factor of the magnitude of the difference in those future expectations between the quarter they are currently focused upon and the quarter to which they set their attention to next.

Our dividend futures-based model for projecting the alternative future trajectories for the S&P 500 allows us to show how stock prices will likely be set as investors might focus their attention on specific points of time in the near future.

Alternative Futures - S&P 500 - 2017Q2 - Standard Model - Snapshot on 11 May 2017

If investors shift their attention to focus upon 2017-Q3, say because Fed officials begin communicating that they'll next hike interest rates in that quarter, that shift in attention will likely produce as much as an 8-10% decline in stock prices with respect to its projected trajectory. If investors fully redirect their focus to the 2017-Q4, then stock prices may rise by as much as 5%. And if investors have reason to split their focus between the two quarters, stock prices will fall somewhere in between, weighted to whichever future quarter investors are more strongly directing their attention toward.

As for telling how far forward investors may be looking, that takes paying attention to the market's news to understand the context of the market's information environment....

  • Should investors redirect their attention to 2017-Q3, that shift in focus would represent why the "Sell in May" stock trading strategy might matter in 2017, even though we basically debunked the evidence to support the calendar effect as the result of statistical outliers last week! As we hinted in that post, it would be purely coincidental if it turns out to have any bearing this year!

On 17 May 2017, the S&P 500 declined by 1.84% to close at 2357.83, which is a bit shy of the 2% threshold that usually marks where we find the stock market doing something interesting. We're calling the day interesting however because the Nasdaq (Index: IXIC) slumped by 2.57% to close the day at 6011.24, which technically makes the day almost interesting.

Alternative Futures - S&P 500 - 2017Q2 - Standard Model - Snapshot on 17 May 2017

So do we find a shift in investor focus from the current quarter 2017-Q2 toward 2017-Q3? Why, yes, we do (after accounting for the mild echo from past stock price volatility that is slightly skewing the accuracy of our model's projections at this time)! Via ZeroHedge:

We warned last week that behind the scenes, professionals were increasingly speculating on a delay to the "baked in the cake" June rate hike.

The sudden surge in interest in Eurodollar calls (vs puts) suggests more than just a few prop bets are being placed on the fact that The Fed does not hike rates in June.

ZeroHedge: Eurodollar Futures - 20170517 - Source: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/05/10/20170511_rates.jpg

Well the last few days have seen that started to be reflected in the primary markets... as US macro data collapses (and Trumptopia tumbles).

ZeroHedge: June 2017 Rate Hike Odds - 20170517 - Source: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/05/14/20170517_hike_0.jpg

And we know how much The Fed hates surprising the market. However, by now it is becoming clear to even the most resentful permabulls - and even Goldman  - that the longer the Fed delays the day of reckoning out of pure fear of the unknown, the greater the chaos and loss in asset values when the Fed no longer has the luxury of picking when to pull the switch.

It wouldn't be ZeroHedge if their outlook weren't both gloomy and doomy. For our purposes however, there's no guarantee that stock prices will steadily travel all the way to where our model indicates that stock prices would be if investors were fully fixated on 2017-Q3. Instead, what's more immediately significant is the vertical distance between the trajectories indicated for investors focused on 2017-Q2 and investors focusing upon 2017-Q3 - that wide distance between them provides the space where the market's day-to-day volatility will have the real potential to be genuinely interesting, with the attention of investors perhaps swinging back and forth between those two points of time until things finally settle down.

Until that happens, it could make for some interesting times for the market in the very near term future.

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May 17, 2017

We're surprised that nobody has put this information together before now, but here's the quick tally of jobs gained and lost as a direct consequence of Philadelphia's controversial soda tax. First, here's the positive side of the jobs ledger:

Here's the negative side of the jobs ledger:

The following chart shows how the jobs gained compare with the minimum announced jobs that will be lost.

Number of Jobs Added and Lost Due to Philadelphia's Sweetened Beverage Tax, 1 January 2017 to 1 May 2017

Seems pretty good, right?

The problem is that at an average wage of $14.72 per hour, the jobs added to support Philadelphia's pre-K school program pay a lot less than the estimated average of $21.50 per hour that the city's bottling plants and distributors were paying the employees who will be losing their jobs as a result of the city's controversial soda tax (based on similar jobs in Indianapolis).

Plus, according to the city's Pre-K enrollment applications, the pre-K jobs only require work during the School District of Philadelphia’s 2017-2018 School Year Calendar, which only covers nine out of the twelve months of the year. The school schedule covers less than seven hours per day, four days a week, with a just over a half-day on Fridays.

By contrast, the job layoffs affecting the employees of Philadelphia's beverage producers and distributors are mostly hitting people who work 40 hours per week, all year round.

In the following chart, we'll estimate the aggregate annual incomes for the jobs being added and lost in Philadelphia due to the city's sweetened beverage tax.

We find that at a minimum, the city's economy is losing more income than it is gaining through this point in time. We should also note that the negative $743,000 gap in the annual incomes between jobs lost and jobs added is a low end estimate that is based on the minimum announced layoffs attributable to the soda tax to date, where if the Pepsi layoffs total up to 100 (rather than 80), it would represent another $894,000 worth of annual incomes being taken out of the city's economy.

These estimates do not yet extend to job losses or work hour reductions that might also be likely to occur at the city's bodegas, grocers and soft drink retailers, which would further increase the income gap between jobs added and jobs lost.

One factor that would reduce the gap would be the "extremely generous" increase in wages that were awarded to the city's unionized employees at the same time the soda tax was being passed, but since that increase in incomes wasn't the result of adding or losing jobs, we've omitted those incomes from this analysis. Similarly, we have also not considered lost incomes through reduced labor hours.

Finally, we should also note that focusing just on jobs represents just a portion of the lost economic activity that has resulted within Philadelphia as a result of the imposition of its sweetened beverage tax. We'll refine our estimates of the projected deadweight loss to Philadelphia's economy sometime in the near future as new and updated data becomes available.

Previously on Political Calculations

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May 16, 2017

According to foreign trade data released earlier this month by the U.S. Census Bureau, U.S. imports from China surged in March 2017, following a month in which they had plunged by a "record amount".

We're revisiting that account today because last month, we found ourselves in the rare position of contradicting news reports that suggested that the reason for February 2017's plunge in Chinese imports was caused by "slowing domestic demand". We argued instead that the primary culprit behind the decline in the amount of Chinese goods reaching America's shores in February was the timing of China's 2017 Spring Festival, a week long holiday that largely shuts down operations at Chinese ports, which greatly diminishes incoming traffic at U.S. ports two to three weeks later after accounting for the trans-Pacific transit time for the largely shipborne cargo.

Once the Chinese holiday ends, China's ports get back to business, which we can see in our calculation of the year over year growth rate of the volume of goods and services traded between the U.S. and China that the U.S. Census Bureau has reported for March 2017.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - March 2017

Here, we can see that the value of goods imported into the U.S. from China has rebounded above their February 2017. Now, that's not saying very much, because that year-over-year increase of nearly 15% above is in part based upon a very low March 2016 level, which was itself depressed because of the timing of China's 2016 Spring Festival.

We can however compensate for that factor by switching up the growth rate math to instead look at the value of goods imported into the U.S. from China over combined two-month-long periods, which can absorb the pause in recorded trade resulting from the variable timing of China's Spring Festival. In doing that math, we find that the combined value of February and March 2017's imports from China shows a 1.4% increase over the combined months of February and March 2016, suggesting sluggish but positive growth for the U.S. economy during this time.

Considering the rate of influx of U.S. goods flowing into China, that year-over-year growth rate dipped in March 2017, but continued to be fairly robust. Taking the rate of growth of imports as an indicator of the relative health of China's economy suggests that it is continuing to grow somewhat more strongly than the U.S. economy at this time.

On a final note, that situation may be changing. Several months ago, we here at Political Calculations began seeing a notable uptick in site traffic from China to our tool for reckoning the odds of recession from the spread of the yields between long and short term treasury bonds.

Set up specifically to consider U.S. treasury yield spreads in era before the Federal Reserve began its Zero Interest Rate Policy (ZIRP), we believe it is drawing interest from China because that nation's bond yield curve has flattened and has recently begun to invert, which our tool would indicate as potential harbinger of a pending recession beginning sometime in the next 12 months.

We don't know if that's the scenario that will play out in China. Our tool is specifically based on pre-2006 U.S. treasury yield spread data, where we don't know how well that might translate to China's economic situation, so if you're reading this from China, please do take that factor into consideration.

And if you are reading this from China, you absolutely will want to pay attention to the year over year growth rate of China's imports from the United States, as measured by the U.S. Census Bureau as a comparatively high quality data source. If that growth rate turns negative outside of the months affected by the timing of China's annual Spring Festival, then that would be a near real-time indication that China's economy is indeed slowing down, which is very definitely something that we've directly observed in the past.

Data Sources

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 15 January 2017.

U.S. Census Bureau. Trade in Goods with China. Accessed 15 January 2017.

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May 15, 2017

In Week 1 of May 2017, the probability that investors expecting the Federal Reserve to next hike U.S. short term interest rates before the end of 2017-Q2 reached 90%. As a result of that strong focus by investors upon the current quarter of 2017-Q2, the S&P 500 (Index: INX) has developed a real potential to experience the "ticking clock" problem.

The ticking clock problem for the S&P 500 arises whenever investors become strongly focused on the current quarter as they make the investing decisions that affect the value of the S&P 500 index. Because the clock on the current quarter is ticking down, investors only have a limited amount of time during which they can maintain their attention on the current quarter before they will be forced to shift their forward-looking attention to another point of time in the future.

The potential for a problem as a consequence of that shift in focus arises because of the expectations associated with the next period of time in the future to which investors might next collectively target their attention. If those expectations include an acceleration in the rate of growth of the index' dividends per share, then the shift in attention will drive an increase in stock prices, which would not be considered to be much of a problem.

If however those expectations include a deceleration (or negative acceleration) of the expected growth rate for the S&P 500's dividends per share, then the shift in attention will drive a decrease in stock prices. How much they might potentially move would then be a factor of the magnitude of the difference in those future expectations between the quarter they are currently focused upon and the quarter to which they set their attention to next.

Our dividend futures-based model for projecting the alternative future trajectories for the S&P 500 allows us to show how stock prices will likely be set as investors might focus their attention on specific points of time in the near future.

Alternative Futures - S&P 500 - 2017Q2 - Standard Model - Snapshot on 11 May 2017

If investors shift their attention to focus upon 2017-Q3, say because Fed officials begin communicating that they'll next hike interest rates in that quarter, that shift in attention will likely produce as much as an 8-10% decline in stock prices with respect to its projected trajectory. If investors fully redirect their focus to the 2017-Q4, then stock prices may rise by as much as 5%. And if investors have reason to split their focus between the two quarters, stock prices will fall somewhere in between, weighted to whichever future quarter investors are more strongly directing their attention toward.

As for telling how far forward investors may be looking, that takes paying attention to the market's news to understand the context of the market's information environment....

Monday, 8 May 2017
Tuesday, 9 May 2017
Wednesday, 10 May 2017
Thursday, 11 May 2017
Friday, 12 May 2017

Elsewhere, Barry Ritholtz tallies up the week's positive and negative economics news….

Two final notes before we close out Week 2 of May 2017 for the S&P 500:

  • Should investors redirect their attention to 2017-Q3, that shift in focus would represent why the "Sell in May" stock trading strategy might matter in 2017, even though we basically debunked the evidence to support the calendar effect as the result of statistical outliers last week! As we hinted in that post, it would be purely coincidental if it turns out to have any bearing this year!
  • More significantly, we've had a major change in our data source for the S&P 500's dividends expected to have been paid out during future quarters. The CBOE has discontinued publishing their Implied Forward Dividends (DVS) Indicators for the S&P 500 (DVMR, DVJN, DVST and DVDE), where as of 11 May 2017, our analysis is now based upon the CME Group's S&P 500 Quarterly Dividend Index Futures quotes in our analysis (accounting for the apparent changes in the projected alternative trajectories beginning on that date). Since these quotes represent actively-traded options, we anticipate somewhat more noisy volatility in their reported levels.

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May 12, 2017

Every time that we here on the Inventions in Everything team think that we've seen it all, along comes an invention from left field that once again stretches the limits of the U.S. Patent Office would appear willing to issue patents.

Today's featured invention was issued U.S. Patent Number 9,555,301 on 31 January 2017, and it address the needs of college students everywhere who want to take the gameplay of beer pong where ever they might be. The official patent title is "Modular Beer Pong Table Constructed of Easily Interchangeable Modules", which is unique in that its 49 pages feature over 40 pages of illustrations.

Including Figure 15, shown below, which reveals that the game of beer pong can now take to the pool when the table is assembled from easily transportable foamboard modules for play!

U.S. Patent Number 9,555,301 Figure 15

Examining the figure, we should note that Item 138 is a airborne ping pong ball in play - it is not itself floating in the water.

The inventor of the modular beer pong table, Austen Roberto Rieman of Tustin, California, describes the problem his invention solves in the background section of the utility patent, particularly as it relates to playing beer pong in a swimming pool or other body of water, after describing how the game of beer pong itself is played:

Beer Pong is a table top game that is a popular pastime for college students, and is quickly spreading beyond the college campus. Arranging a plurality of cups at either end of a table in a triangular formation, players take turns attempting to toss a ping pong ball into any of the cups on the side of the table opposite to them. Cups are taken out of play once a ball is sunk, and the player or team that is first to eliminate the opponents cups wins the game. Beer pong can and is played on a variety of table tops or surfaces such as ping pong tables, dining tables, floors, and counters. Several products even allow beer pong to be played in the pool. Portable Versions have been designed with tailgating and camping in mind.

Beer pong tables that have been designed for the pool have taken many approaches from inflatable rafts with cup holders to flat foam tables with cup holder cutouts. The inflatable tables suffer from numerous shortcoming. First, the cup holders do not allow for the cups to be level and touching at the rims. This is a critical flaw as poor cup alignment causes chaotic deflections of a players shot, often making for a frustrating experience. Second, due to their inflatable nature, these tables are large and clumsy, often rising form the water about half a foot, requiring players to stand in shallow water so that much of their body is out of the water and potentially exposed to uncomfortable breezes. Also, the large thickness of the table will cause it to easily be shifted by a light breeze. Third, the table needs to be inflated for use and deflated for transporting and storage, requiring that the user have a manual or electrical air pump. Blowing these tables up by mouth is a time-consuming and frustrating affair. Once deflated, the product is disorderly, and, as they don't have handles, are difficult to carry. Fourth, inflatable tables are restricted to their original size, usually six feet, two feet under regulation size tables. Player have different preferences when it comes to the length of the table, and those preferences usually depend on the skill level of the player. Sixth, the uneven surface of inflatable tables makes bounce shots a near impossibility. Fifth, inflatable tables are highly susceptible to ruptures which render the product useless unless the hole is patchable.

Foam beer pong tables also suffer from numerous shortcomings. Beer pong tables made of foam are usually six feet or longer. Due to this, they are very difficult to transport and store, and, therefore, also making them very costly to ship. Unlike inflatable tables, there is no way to reduce their volume, and folding the tables in half often results in damage to the product and does little in the way of making them more orderly. The length of these tables also makes them costly to manufacture as low cost manufacturing techniques such as steam-chest molding are not employable. Also, like their inflatable counterparts, current foam tables are restricted to their original size.

Beer Pong tables designed for land use also have their share of shortcomings. Many portable versions have folding partitions, and, due to the mechanisms involved, require high labor costs. These tables are often very heavy, usually around thirty pounds, with their handles being of little consolation. The narrow legs of these tables make beach use difficult, and their heavy nature prevents them from being used in the pool.

In all, we find that U.S. Patent 9,555,301 and its 67 figures spread over 40 pages is perhaps the most comprehensive document ever issued by the U.S. Patent and Trademark Office related to the game of beer pong.

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