Political Calculations
Unexpectedly Intriguing!
October 1, 2014
Shoven: Percentage Increase for Deferring Social Security Benefits by Age

Did you know that if you're willing to defer collecting retirement benefits from Social Security, you can actually boost the amount of your monthly benefit when you actually do start to collect them?

The percentage by which you might boost your Social Security check can be pretty substantial, which is what our latest tool can help you determine. Just select the age at which you are currently considering to begin taking Social Security benefits and the age to which you might consider putting off collecting them, and we'll tell you how much bigger your monthly benefits check might be as a result.

And it doesn't matter if you're planning to retire early and apply for benefits at Age 62 or are planning to wait until your normal retirement age - if you're planning to retire before you reach Age 70, when you will have to begin taking Social Security benefits no matter what, we can estimate how different your monthly benefits check will be!

When to Start Collecting Social Security Benefits?
Input Data Values
Age at Which You're Currently Planning to Begin Taking Benefits
Age to Which You Might Delay Taking Benefits

Estimated Change in Monthly Social Security Benefit
Calculated Results Values
Percentage Change in Monthly Benefit

If you're reading this article on a site that republishes our RSS news feed, click here to access a working version of this tool!

If you want to put that percentage difference into more concrete terms, we encourage you to take advantage of Social Security's retirement benefit estimator to see what that might mean to you in terms of actual dollars.

Just remember that if you will be receiving Social Security benefits after 2032, when all Social Security benefits will be cut after the program's Old Age and Survivors Insurance trust fund runs out of money, you will need to multiply your result by 0.77 (or 77%) to reflect how much of your monthly benefit will remain after the promised cuts take place.

References

Shoven, John. Efficient Retirement Design. Stanford Institute for Economic Policy Research. [PDF Document]. March 2013.


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September 30, 2014
Signed LeBron James Miami Heat Jersey - Source: U.S. Treasury Department - http://www.treasury.gov/auctions/treasury/gp/riverside_genmerch.html

Earlier this year, the hapless Cleveland Cavaliers signed a two-year deal for its former player, NBA superstar LeBron James, for $42.2 million.

Was that a smart business decision for the Cavs?

To find out, we'll do some of the same math that economist LeRoy Brooks did to estimate that Cleveland's signing of LeBron James could add nearly $500 million to the economy of northeast Ohio. Only instead of considering James' potential impact on the region, we'll just look at the only real revenue that the team itself can fully count upon: its regular season ticket sales.

Why just regular season ticket sales? First, we need to exclude the possibility that the Cavaliers will benefit from additional ticket sales during postseason games, because that's not guaranteed revenue. After all, even with having signed the world's top ranked professional basketball player to its roster, there is no absolute guarantee that the Cavaliers will make it to the post season even though they have significantly improved their prospects. And that would be particularly true in the event that James is injured during the term of the contract.

In fact, to account for the potential of injury during the course of the season, we'll add an adjustment to account for the potential that James will play less than 100% of the team's home games during the season.

We'll also need to rule out money from other sources, such as television contracts, since those are largely locked up at this point until the league negotiates new contracts to replace the current ones, which will expire two years from now. The team does stand to benefit from licensing Cavalier's jerseys with James' name and number on it during this period of time, but we want to keep the math simple.

Here are the basic numbers we'll be working with:

Cleveland’s home-ticket prices last year averaged $68.17, according to TiqIQ. In 2009–10, the last season James played in Cleveland prior to leaving for Miami, Cavs ticket prices averaged $195. Last season, Cavs fans paid $202.74, on average, to watch Miami beat Cleveland.

Miami had the NBA’s highest average ticket price last season, at $245. To account for the lower cost of living in Cleveland, let’s make what still might be a conservative estimate: Cavs tickets go for $210, on average (remember — this doesn’t mean there won’t be plenty of seats for far less). Cavs attendance last year averaged 17,329 per game. With James, the Cavs are likely to fill up their arena’s capacity of 20,562. Spread over 41 home games, James could bring in $129 million in additional ticket revenue for Cleveland.

Let's now find out if it really made business sense for Cleveland to bring LeBron James back to northeast Ohio. If you're reading this article on a site that republishes our RSS news feed, click here to access a working version of this tool!

Ticket and Attendance Data
Input Data Without Superstar When Superstar Plays for Visiting Team
Average Sale Price of Home Game Ticket
Average Home Game Attendance During Season
Superstar Contract Data
Number of Home Games per Season
Number of Seasons Superstar Will Play for Team Under Contract
Maximum Compensation That Superstar Will Earn for Playing for Home Team
What Percentage of Home Games Is the Superstar Likely to Play? [Enter value between 0 and 100]

Should Your Team Sign That Superstar?
Calculated Results Values
Potential Additional Revenue per Home Game from Ticket Sales
Likely Additional Revenue per Regular Season from Home Game Ticket Sales
Likely Additional ReguRevenue Over Term of Superstar Contract
Potential Profit (or Loss if Negative) Over Term of Superstar Contract
The Bottom Line

Playing with the numbers, we find that the "LeBron effect" on the teams home game ticket prices can justify the expense of signing a "max" deal with him for the Cavaliers, even if the superstar ultimately misses playing as many as 79.4% of the team's home games!

Believe it or not, this kind of math applies outside of the world of sports. For example, it can help media organizations like People and Hello! determine if it makes sense to pay A-list celebrities like Brad Pitt and Angelina Jolie some $5 million for exclusive copies of their wedding photographs to put on their magazine covers. Or for that matter, how much they should pay D-list celebrities, like the Kardashians, for whatever photos they're hawking these days.

We'll close by sharing the classic video of Frank Caliendo impersonating Morgan Freeman reading the letter that LeBron James wrote to explain why he wanted to return to Cleveland, which is simply outstanding.



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September 29, 2014

How many of you recall what we wrote at the beginning of September 2014 about the dynamics of a stock market where investors are shifting their focus from one point in time in the future to another?

What we observe is that at present, investors would appear to be focused on 2014-Q4 in setting today's stock prices, which is a relatively recent development - one that has come about largely as a result of better than expected earnings reported by many companies in the S&P 500 in recent months. Prior to that development, investors had been largely focused on 2015-Q2, which is the period during which many believe the Fed will begin hiking short term interest rates.

But the danger in focusing on the fourth quarter of 2014 is such that any shift in focus by investors to another future quarter would be associated with either flat or falling stock prices. And then there is the question of what expectations of the future will replace those of the soon to expire 2014-Q3. Or the next to expire 2014-Q4. Investors can hold their attention on 2014-Q4 through the end of the third quarter of 2014, but that won't be an option for long in the fourth quarter.

It's that kind of scenario with expectations that explains why the month of October is historically feared by investors, because it can come with the greatest downside potential when compared with every other calendar month. If those new expectations are more negative than the ones they replace, then the stock market's reaction will likely be as well.

As best as we can tell, investors were switching their forward-looking focus back and forth between 2014-Q4 and 2015-Q2 as they were making their investment decisions and setting stock prices last week, which accounts for the volatility. Our rebaselined model of the potential alternative trajectories that stock prices are likely to take perhaps best illustrates what we think was going on:

Alternative Futures for S&P 500, 30 June 2014 - 30 September 2014 (Baseline for Projections Set Back from 1 Year to 2 Years Earlier), Snapshot on 26 September 2014

Now for the bad news. We got the data for what the S&P 500's dividends are expected to be in 2015-Q3, and the scenario isn't good. Here's what we see after we calculate the change in the year-over-year growth rate from quarter to quarter for each of the future quarters for which we have data.

Change in Growth Rates of Expected Future Trailing Year Dividends per Share with Daily and 20-Day Moving Average of S&P 500 Stock Prices, through 26 September 2014

In terms of basic growth potential, none of the future quarters is positive. The best case scenario, where investors would be steadily focused on 2014-Q4 or 2015-Q2 in setting stock prices, would be consistent with stock prices largely moving sideways within a relatively narrow band (say plus or minus 5%).

If investors shift their focus among these and the other alternative futures, then stock prices are likely to be very volatile, with a great likelihood of decline. The worst case scenario here would be for investors to suddenly make their investment decisions according to the expectations associated with 2015-Q1, which would coincide with a crash for stock prices in the long dreaded 10% (or more) correction.

The only thing that we will guarantee is that sometime during this next quarter, in the absence of a major fiscal crisis, investors will stop paying attention to 2014-Q4.

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September 26, 2014

When you were a kid, did you ever wrap your bike around a tree?

You know what we mean. You were out riding around and having fun with a bunch of your friends, and then did something meant to impress them that, in retrospect, turned out to not be very bright thing to have attempted, with the result of that unfortunate life lesson involving extensive road rash treatment for yourself and the need to untangle the frame of your hopelessly damaged bike from the tree trunk where it impacted.

Now, what if the frame of your next bike was designed to be wrapped around a tree, post or other object? And what if that was a key selling point for the bike? Would you be interested?

It could well be if you were concerned about the risk of having your new bike stolen. In fact, the fear of that risk motivated three Chilean design students to develop a bicycle frame with an integrated locking device - one where the bike would be rendered completely unrideable if it were ever cut. Via Core77, meet the "Yerka":

One thing we appreciate about the bike's design is that it eliminates the need to carry a bike lock while riding, which boosts its convenience factor. The trade off for that capability though is performance - the bike's frame will be heavier and less capable of absorbing impacts than a traditional frame design.

It also differentiates it from this competing concept, which basically makes the seat into the bicycle version of the "Club" steering wheel lock.

But that also means that the "Yerka" shouldn't be ridden in a way where the frame might accidentally get wrapped around a tree on accident!

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September 25, 2014

Earlier this week, we indicated that we were about to get our first glimpse of the expected future for the S&P 500's quarterly dividends per share for the third quarter of 2015.

We now have it! Here's the snapshot of the amount of cash dividends expected to be paid in each quarter between the present and the 2015-Q3, according to the Chicago Board of Exchange's implied future dividends per share indicators:

S&P 500 Past and Expected Future Dividends per Share, 2013-Q1 through 2015-Q3

This chart mixes the historic data for the S&P 500's quarterly dividends per share recorded by Standard & Poor [Excel spreadsheet] from 2013-Q1 through 2014-Q2 with the expected future dividends recorded by the CBOE's dividend futures contracts.

But because of how the CBOE's dividend futures work, there's a mismatch between the two sources of data. Here, the dividend futures contracts run through the third Friday of the month ending the indicated calendar quarter, while the S&P data runs to the very end of month ending the indicated calendar quarter. That mismatch in terms results in discrepancies between the quarterly dividends reported by each source of data.

For most quarters, the discrepancies that result from that term mismatch is relatively small, but our readers should expect that the data indicated for the future quarters will be revised.

That's especially true for the almost completed quarter of 2014-Q3, where the value indicated in the chart by the CBOE's dividend futures represents the amount of cash dividends paid out by S&P 500 companies between the time the 2014-Q2 dividend futures contract expired and the just expired 2014-Q3 dividend futures contract. Because we're still in the period before official end of the calendar quarter used by S&P, that figure will very likely be revised.

Leaving aside changes in the actual expectations for the amount of dividends that will be paid in future quarters, we should also note that the biggest discrepancy between what the futures data indicates and what S&P will finally record the data to have been will occur in the data for the fourth quarter of the current year and the first quarter of the next one, with the typical adjustment being that the data for the fourth quarter of the current year will tend to be adjusted upward and the data for the first quarter of the next year will tend to be adjusted downward when S&P reports its figures.

Update 25 September 2014 11:41 AM EDT: Oh, by the way, in case anyone is wondering why stock prices are down so much and so seemingly unexpectedly this morning, these future expectations are why. We'll explain more next Monday, and then we'll go on vacation for a week....

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