Political Calculations
Unexpectedly Intriguing!
February 20, 2017

In Week 3 of February 2017, we closed out our five-week long prediction of the range into which the S&P 500 would close on each trading day from 5 January 2017 through 14 February 2017. The final results are presented in the following chart.

Alternative Futures - S&P 500 - 2017Q1 - Standard Model - Snapshot on 2017-02-17

This is second time that we've attempted the feat with our "connect the dots" approach for coping with the periods where we know in advance that the accuracy of our standard forecasting model will be negatively impacted by the echo effect of past volatility, which arises as a result of our model's use of historic stock prices as the base reference points from which we project future stock prices. As with that previous attempt, stock prices generally fell within our specifically projected range (actually, this time they all fell entirely within the predicted range, whereas back in 2016-Q4, they dropped just outside our projected range on two trading days during that previous prediction period).

It will be another couple of week's before the echoes of past volatility will once again prompt us to attempt another override prediction, but until then, our standard model's forecast will stand - to read that forecast in the chart above, you just need to determine how far forward in time investors are looking as they go about making their current day investment decisions, then identify the range that coincides with that point on the investment horizon.

As best as we can tell right now, they're focusing on either 2017-Q1 or 2017-Q2, for which our dividend futures-based forecasting model doesn't make much distinction. That observation is based in part on the market-driving news headlines that came out during Week 3 of February 2017.

Monday, 13 February 2017
Tuesday, 14 February 2017
Wednesday, 15 February 2017
Thursday, 16 February 2017
Friday, 17 February 2017

The Big Picture's Barry Ritholtz spelled out the pluses and minuses in the news for the U.S. economy in the trading week ending on Friday, 17 February 2017.

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February 17, 2017

Two years ago, Ramiro Gómez created a map that says as much about civilization as photographs of the lights from cities at night from space: a map of all the pubs in the United Kingdom and in Ireland.

Ramiro Gómez: Britain and Ireland, Drawn from Pubs

A little over two years later, computer scientists from the University of Waterloo in Canada have managed to connect all the dots that fall within the United Kingdom, as they used an algorithm they developed to solve a unique version of the "traveling salesman problem", to connect the dots in the shortest amount of distance without repeating any stop.

The result, of course, can only be described as the world's most epic pub crawl....

University of Waterloo: UK 24727: A shortest-possible walking tour through the pubs of the United Kingdom - all line version

HT: Frank Jacobs.

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February 16, 2017

Mark Bertolini is the CEO of Aetna (NYSE: AET). Yesterday, he gave an extended interview with the WSJ's Dennis Berman on the topic of the future of health care, in which he made big news by describing the Affordable Care Act (ACA), which is more popularly known as Obamacare, by saying that "it is in a death spiral."

But the part of his comments that really stood out to us came just after the 14-minute mark of the interview, where he said:

You know that mathematics education in the United States is working when someone says, let's see, I'm going to pay this much premium, I've got a $6,000 deductible, the average deductible across the country is $3,600 dollars, it's up 15% this year alone, right, and when I go to the doctor I'm going to pay cash, nobody anticipates spending a day in the hospital or going to the doctor more than once... so premium, plus deductible, plus paying cash... why do I do this? I'll just pay the penalty and move on.

We here at Political Calculations have been happy to help provide Americans with that particular mathematics education since 17 September 2013, when we introduced our tool "ObamaCare: Should You Pay the Premium or the Tax?" (a 2017 version is also available), in which we made the kind of personal finance math described by Bertolini easy to do for any American with an Internet connection.

So, in a way of speaking, we're the solution to the game of Clue featuring the all-but-confirmed death of Obamacare: it was Political Calculations, on the Internet, with Math!

That said, we do have some thoughts on how to address the situation that Bertolini describes as the result of the adverse selection that has drawn in the sickest Americans eligible for Obamacare while driving out the healthiest Americans. In our view, that outcome will be exceptionally valuable in making good on the failed promise of Obamacare to provide people with pre-existing conditions with the ability to obtain affordable health insurance coverage. Unlike the other failed Obamacare promise that "if you like your health care plan, you can keep it", we think it may be possible to make that kind of health insurance portability a reality, so long as it can be separated from the all the other, excessively wasteful baggage of the Affordable Care Act.

If you want a teaser, we think that the solution to that issue is not subsidized health insurance, but rather reinsurance, which is an idea that we'll explore more at a later date.

In the meantime, if you'd like to see what else Aetna's CEO had to say on about the future of health care, here's the WSJ's full video of the 50-minute interview, but we'll warn you in advance that it starts off with over four and a half minutes of some especially awful background music before it gets going.

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February 15, 2017

For the sixth month in a row, the exports of soybeans from the U.S. to China led to a year-over-year surge in the exchange rate adjusted growth rate of trade between the two countries. The following chart shows the spike in the growth rate of U.S. exports to China through the end of 2016, which closely resembles the previous spike in 2013 that was also driven by the mass export of that year's bumper crop in soybeans.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - December 2016

At the same time, the year over year growth rate of goods imported by the U.S. from China continued to rise into positive territory, suggesting growing strength in the U.S. economy.

Focusing on U.S. soybean exports again, the following chart shows our estimates of the volume of monthly exports of soybeans from the U.S. to China for each month of 2016 with respect to the amount of soybeans exported during those months in previous years.

Estimated Bushels of Soybeans Exported from the United States to China per Month, January 2012 to December 2016

In real terms, or rather, the terms of the quantity of U.S. soybean exports, 2016 is the best year on record, with the greatest contribution coming in the third quarter of 2016. The conditions that led to that outcome must be considered to be unique however, in that the world's second largest exporter of soybeans, Brazil, experienced a drought that reduced that nation's crop yields, which prompted China to turn to the U.S. market earlier in the year to fulfill a significant portion of their demand.

At the same time, thanks to nearly ideal growing conditions, the U.S. had a bumper crop of soybeans available to export - the largest since 2014.

Combined, those two factors delivered a real boost to the U.S. economy from the export of soybeans to China in the third and fourth quarters of 2016, with the third quarter benefiting more from the unique circumstances that made those increased exports possible.

Looking forward, we can expect the economic growth that will likely be reported in the first quarter of 2017 to be somewhat pale by comparison, since U.S. soybean exports will no longer be a significant contributor to economic growth. And given those unique circumstances, it is unlikely that the U.S. will see a similar year-over-year spike in exports to China when 2017's soybean export season comes around in the second half of 2017.

Data Sources

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 7 February 2017.

U.S. Census Bureau. Trade in Goods with China. Accessed 7 February 2017.


February 14, 2017

Honk If You Hate the IRS - Source: Real Clear Markets Like lots of Americans, President Donald Trump hates the hassles involved with filing and paying personal income taxes. But unlike lots of Americans, he's in a position where he is going to exercise some influence over the issue.

But why should he have all the fun?

When it comes to making personal income taxes easy, not much comes close to the flat tax, where we've made it possible for you to develop your own hypothetical personal income tax system for the entire United States. All you need to do is set the tax rate and enter the value for an individual tax credit into our tool below, and we'll figure out how well your personal income tax plan would mean for both you and the country if the U.S. Congress went along with it! [If you're accessing this article on a site that republishes our RSS news feed, please click here to access a working version on our site.]

Flat Tax Data
Input Data Values
Flat Income Tax Rate [%]
Value of One Individual Tax Credit [$]
Your Household's Tax Data
Your Household's Total Money Income [$]
Number of Individuals Covered on Your Tax Return

How Well Would You Do With Your Flat Tax?
Calculated Results Values
Your Basic Income Tax, Before Tax Credits
Your Tax Credits
Do You Owe, Or Will You Get a Refund?
Amount of Taxes You Owe, Or...
Amount of Your Refund
Your Effective Income Tax Rate and After Tax Income
Your Effective Income Tax Rate (After Tax Credits)
Your After Tax Income

We put your personal results first, but since our tool is also about seeing what your flat income tax scenario would mean for the country, we've also figured out how much money the U.S. government would collect through your plan and compared it to what it actually did collect in the 2010 tax year. Why 2010? Two reasons: first, we had the nation's income distribution data for that year right at our fingertips, and second, because in many ways, the economy of that year qualifies as having been in a moderate recession, with job losses continuing well into the year as millions of Americans continued to experience elevated levels of unemployment from job losses that occurred in the severe recession years of 2008 and 2009.

In years with strong economic growth, it's easy for a government to rack up lots of revenue from the taxes it imposes, but the real fiscal test of any tax system is how it performs when times are tough, which can put the solvency of fiscally-strained governments at risk. Even in the United States (just ask California or Illinois)!

How Well Would the Federal Government Do With Your Flat Tax?
Estimated Results Values
Aggregate Total Money Income
Aggregate Income Taxes, Before Tax Credits
Aggregate Total Tax Credits
How Much Money Would the Government Collect?
Estimated Results With Your Flat Tax Actual Income Tax
Aggregate Income Taxes, After All Tax Credits
... as a Percent of GDP

If you've run the tool with our default data, you've found that we've nearly matched the U.S. government's actual personal income tax collections without much straining.

But maybe the better question is would President Trump go along with such a simple flat tax plan, considering that what he proposed during the campaign was so different. Not that proposal means much at this point other than that the President will indeed seek to cut taxes, because with Trump, many of his proposals are more often than not just the opening bid for a big negotiation.

One last thing. The U.S. already has, for all practical purposes, a flat tax of 35%, where the rate is set that high to account for all the games that U.S. politicians have played with the tax code over the years at the behest of their most influential donors and their desire to buy lots of votes through popular tax deductions, exemptions, credits and eligibility for various welfare benefits. Regardless of how much income you have, that works out to be the average effective marginal tax rate that people across the entire income spectrum pay.

Since we're in for a negotiation, we might as well know where we stand today so we know if the deal that's offered is a good one!

About the Tool

We used our model of the 2010 aggregate distribution of household total money income for the U.S. in generating the "how would the federal government do with your flat tax?" portion of the tool, along with the U.S. GDP and the IRS' count of the number of exemptions reported on tax forms for 2010.

The rest was just simple math! (Trust us - you should see how the IRS does quadratic equations!)

Data Sources

White House Office of Management and Budget. Budget of the United States Government: Historical Tables Fiscal Year 2012. Table 2.1 - Receipts by Source: 1934-2016. [Excel Spreadsheet]. 14 February 2011. Accessed 28 September 2011.

Bureau of Economic Analysis. National Income and Product Account Tables. Table 1.1.5 Gross Domestic Product for 2010. [Online Application]. Accessed 13 February 2017.

Internal Revenue Service. Selected Income and Tax Items for Selected Years (in Current and Constant Dollars). Individual Complete Report (Publication 1304), Table A, 1990-2010. [Excel Spreadsheet]. Accessed 13 February 2017.

Image Credit: RealClearMarkets.

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

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