Political Calculations
Unexpectedly Intriguing!
November 26, 2014

For many Americans, part of what makes the Thanksgiving holidays such an ordeal from year to year is simply finding something new and interesting to talk about with family members around the dining table.

We've decided to make that a lot easier to do this year, because we've uncovered a pretty uncanny, yet spurious correlation between the average live weight of farm-raised turkeys in the United States and the value of the MSCI World Stock Market Index since 1970!

Spurious Correlation: Average Live Weight of U.S. Farm-Raised Turkeys and MSCI World Stock Market Index, 1970 - 2014

As you can see in our carefully calibrated chart above, whenever the value of the MSCI World index has exceeded the equivalent live weight of an average farm-raised turkey in the U.S., the index went on to either stagnate or crash. And in 2014, the value of the the MSCI World Stock Market Index has once again exceeded that key threshold, which can only mean one thing.... The climate for investors has changed, and it's time to sell!

And if they try to tell you that doesn't make any real sense, you should hold firm and tell them that the correlation is really strong (the R² is 0.9616), which means that the science is settled and that they really shouldn't want to be some kind of climate change science denier.

Speaking of which, the rising live weight of U.S. farm-raised turkeys also is strongly correlated with global warming. Believe it or not, the correlation between atmospheric carbon dioxide and global temperatures is not very strong at all (other factors do a much more coherent job in explaining actual temperature observations).

Say what you will about the science, but you cannot deny that by using tips like this, you can make the conversation around your Thanksgiving dinner table a lot more lively this year!

Previously on Political Calculations

References

U.S. Department of Agriculture. Turkeys Raised. [PDF Document]. 30 September 2014.

National Turkey Federation. Sourcebook. [PDF Document]. October 2013.

MSCI. World Stock Market Index Performance. [Online Database]. Accessed 20 November 2014.

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November 25, 2014

In 2014, the early projections indicated that the population of turkeys produced in the United States continued to shrink, with an estimated 235 million turkeys. That's down about 2% from the 240 million that were produced in 2013.

Political Calculations: Number of Turkeys Produced, 1970-2014

That's also the lowest that the population of turkeys produced in the U.S. has been since 1986.

Previously on Political Calculations

References

U.S. Department of Agriculture. Turkeys Raised. [PDF Document]. 30 September 2014.

National Turkey Federation. Sourcebook. [PDF Document]. October 2013.

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November 24, 2014

In 2014, the average live weight of the typical turkey that will be consumed during the Thanksgiving holiday is 30.2 pounds.

Political Calculations: Average Live Weight of Each Turkey Produced, 1970-2014

Compared to the 1970's, when the live weight of turkeys produced in the United States had stagnated at 18.6 pounds per bird, that makes 2014's turkey about 61% heavier. Or about 88% heavier than the typical "heritage" turkey that might be found in the wild!

References

The Poultry Site. USDA Livestock, Dairy and Poultry Outlook - November 2014. [PDF Document]. 17 November 2014.

U.S. Department of Agriculture. Turkeys Raised. [PDF Document]. 30 September 2014.

National Turkey Federation. Sourcebook. [PDF Document]. October 2013.

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November 21, 2014

Friday, 21 November 2014 saw a major change in the expectations for future dividends per share in the stock market for the current quarter (2014-Q4), as measured by the Chicago Board of Exchange's dividend futures contracts, as not much changed for all of the other more distant future quarters for which we have data. Our first chart below shows the amount of quarterly dividends per share that are now expected to be paid out for the S&P 500 before the expiration of each dividend futures contract through the third quarter of 2015, which should be compared to our previous snapshot of these same expectations from two months ago.

S&P 500 Past and Expected Future Quarterly Dividends per Share, Snapshot on 21 November 2014

As a quick side note, the term mismatch issue that exists between the data reported by S&P and that indicated by the CBOE's contracts is such that we expect that the value for 2014-Q4 will be adjusted significantly upward at the expense of 2015-Q1 when S&P reports its data for the fourth quarter of 2014 early in 2015.

Using this data to calculate first the year-over-year growth rates of the S&P 500's trailing year dividends per share, and then the change in those growth rates from one quarter to the next, we can see the expectations surge for 2014-Q4, while the other future quarters don't change very much at all.

Change in the Growth Rates of Expected Future Trailing Year Dividends per Share with Daily and 20-Day Moving Average of S&P 500 Stock Prices, 21 November 2014

Since investors have been largely focused on 2014-Q4 in setting stock prices since the Fed's October meeting, stock prices rose significantly on Friday 21 November 2014, and very soon after the market opened, they peaked at 2071.37 before finally fading to close at 2063.50, just 10.75 points above its previous closing value.

S&P 500, Alternative Futures, 2014-Q4, Standard Model, Snapshot on 21 November 2014

As best as we can tell, the one thing that caused investors to suddenly focus on 2014-Q4 and to adjust their expectations for the amount of dividends that S&P 500 companies would pay out for the quarter was China's central bank's surprise action to cut interest rates to stimulate that nation's slowing economy as it approaches recessionary levels.

Normally, that sort of thing wouldn't amount to much more than what we would describe as a noise event, where the change in stock prices would be relatively short-lived, but this noise event coincided with a change in the fundamental driver of stock prices. That makes it unlike the minor speculative boost in U.S. stock prices following a merger announcement in the biotech industry earlier in the week. And as such, it is a rare example of how noise can actually contribute to the efficiency of setting stock prices, although as we've observed in previous examples, its contribution is most often rationally inefficient.

Now let's throw some chaos into the mix. Right now, investors are very much focused on 2014-Q4 in setting today's stock prices. But the quarter is more than half over, so the key question is how long will that continue? They will soon have to shift their forward-looking focus to some other point of time in the future.

That's where the recent improved expectations for the current quarter can come back to bite. Since the outlook for the other future quarters that investors have to select from did not improve, and because those outlooks are, at present, largely negative, the boost in stock prices today will set up a larger decline in the future when the attention of investors does shift.

And how big that decline will be is something that will itself be determined by the expectations associated with the alternative future points of time that investors might choose to focus upon next.

The best outcome would be if investors focus upon 2015-Q2, which is something they might be prompted to do if the Fed more clearly indicates that it will boost short term interest rates in that quarter.

The intermediate outcome would be if investors have reason to return their focus to 2015-Q3, which is something they might do since that's when the Fed last indicated it was likely to boost those short term interest rates.

And the worst outcome would be if investors suddenly had reason to focus upon 2015-Q1.

Programming Notes

We're following our annual tradition of focusing almost entirely on the Thanksgiving holiday all next week, but we'll find a way to tie in stock prices in some way, shape, manner or form before the week is over. And turkeys. Probably together in an incredibly unlikely way!

And now, you can't say you weren't warned!

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November 20, 2014

Needless to say, the secret to superior paper aerodynamics requires precise fabrication! (HT: Kottke)

The paper folding tool shown in the video is surprisingly affordable, as is the bag clip!

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