Political Calculations
Unexpectedly Intriguing!
April 30, 2009

President Barack Obama and the Democratic Party majority in the U.S. Congress are committed to allowing the federal income tax relief first passed in 2001 to expire after 2010, which will result in nearly everyone's tax rates in the U.S. rising when they do. Our question today: Which taxpayers are going to get shafted the most when that happens?

It's very likely not who you think it is:

What If Tax Collections after Current Law Tax Rates Expire After 2010 (in 2006 USD)

To create the chart above, we used our model of the distribution of U.S. household incomes from 2005, multiplying the aggregate incomes by the tax rates that would apply under current law and after 2010. From this chart, we see that those earning between $30,650 and $154,800 will be providing most of the increased revenue the government hopes to collect.

We'll note that we used the income thresholds that apply for taxpayers filing as Single, which means that we're overestimating the amount of taxes that would be actually be collected. We justify doing so because we're more interested in the magnitude of the change from applying the different tax rates, which provide a very clear picture of the income ranges from whom the government will be collecting most of the expected increase in tax revenue resulting from the higher tax rates.

Or, as we prefer to think of them, "the rich."

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April 29, 2009

Investing Piggy BankWhich is better for investors today, a Traditional IRA or a Roth IRA? And if you're the investor, which option should you choose?

We're going to help you answer these questions today, but first, let's look at why you might choose one type of these Individual Retirement Accounts over the other.

A Traditional IRA allows individuals to direct a portion of their pretax income into an investment account that can grow without being subject to income, dividend or capital gains taxes while the funds are held within the account. Only when individuals withdraw money from their Traditional IRA does it then become subject to personal income taxes, but here, the withdrawals will be taxed at whatever income tax rates are in force when the money is withdrawn, not those for when the money is first invested.

A Roth IRA, on the other hand, works a bit differently. Here, individuals can contribute a portion of their annual income after they've paid income taxes on it into an investment account, whose balance can then grow over time without ever again being subject to income, dividend or capital gains taxes.

Assuming that the same investing options are available to both types of IRA, the advantage of one kind of account over the other comes down to how much you can expect to have to pay in income taxes, either at the future date when you withdraw funds from a Traditional IRA or when you first contribute funds to a Roth IRA. Here, for instance, if you expect that you'll have to pay higher taxes in retirement than you do today, then the Roth IRA might make more sense. But, if you expect that you'll have to pay a lower rate of taxes in the future, then investing in a Traditional IRA may be more to your advantage.

We've constructed the tool below to help you work out which type of IRA might be more suited to your needs. While it's set up to consider annual contributions to either type of IRA, you could also use it to decide whether it might be to your advantage to convert a Traditional IRA into a Roth IRA. Just enter the appropriate date into the fields below and we'll run the numbers for you!

Investment Data
Input Data Values
Amount of Pretax Income Available for Investing [$USD]
Average Annual Investment Rate of Return [%]
Time to Hold in Investment Before Withdrawal [Years]
Current Income Tax Rate Data
Your Current Federal Income Tax Bracket [%]
Your Current State Income Tax Bracket [%]
Future Income Tax Rate Data
Expected Future Federal Income Tax Bracket [%]
Your Current State Income Tax Bracket [%]


Calculated Investment and Tax Results
Calculated Results Traditional IRA Roth IRA
Combined Federal and State Income Taxes To Be Paid Before Investing [$USD]
Amount To Be Invested After Taxes Are Paid [$USD]
Expected Future Value of the Investment at Time of Withdrawal* [$USD]
Combined Federal and State Income Taxes To Be Paid at Time of Withdrawal [$USD]
Amount Remaining After Taxes Are Paid at Time of Withdrawal [$USD]
* We assume quarterly compounding applies for the invested amount for both the Traditional and Roth IRAs.

So now, the question comes down to how much you can expect to pay in taxes in the future. Right now, unless the current U.S. government acts otherwise, most income tax rates will be rising after 2010. The following table indicates how individuals in today's tax brackets may be affected:

Federal Income Tax Rates Planned Under Current Law (Current and After 2010)
Current Income Tax Rates 10.0% 15.0% 25.0% 28.0% 33.0% 35.0%
Income Tax Rates Beginning in 2011 15.0% 15.0% 28.0% 31.0% 36.0% 39.6%

And that's without even accounting for how much the government will be forced to increase income tax rates given the massive amounts of debt it is planning to accumulate beginning this year.

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April 28, 2009

Scroll down for update!

Barry Ritholtz is pessimistic this morning:

Note the question mark in the title — is this the same gig as yesterday? Yesterday morn also had Dow Futures off triple digits, but it was less of a sell off than implied.

428-futes

But it didn't seem to matter much– markets rallied after the open, and closed much better than the futures would have suggested.

Is today more of the same, or is the overdue correction imminent.

I suspect the latter.

Should we really expect stocks to drop today? And if so, why?

Answering the second question first, based on the kind of analysis that we've developed, we would expect stock prices to drop today (and stay down) if a company, or number of companies, representing a significant portion of the market capitalization of the S&P 500, were to announce that they would be slashing their dividends well into the future.

S&P 500 Trailing Year Dividends per Share Futures, 30 Mar 2009 to 28 Apr 2009 Is that what lies in the cards for the stock market today? To find out, we went to IndexArb's dividend analysis data and used their projections of future dividend payments to construct a quarter-by-quarter representation of trailing year dividends per share (incorporating historic data for dividends per share which we obtain from this spreadsheet from Standard & Poor.) Combined with our best estimation of where trailing year dividends in the current quarter will end up, we've taken these projections and charted them since 30 March 2009. The results are presented in the chart to the right and above (click the chart for a larger image.)

The key observation we make in this chart is that, at least since dipping from 21 April through 23 April, there has been no significant decline in the expected future level of dividends per share for the S&P 500. In the absence of a decline in the dividend futures data, we would not anticipate a decline in stock prices, or more accurately, if such a decline did occur today, we would view that decline in stock prices as being the result of noise rather than fundamentals.

But that begs the question: where do we expect stock prices to go, even if we don't expect them to drop today?

S&P 500 Average Monthly Index Value and Trailing Year Dividends per Share with Futures - 28 April 2009For that, we've updated our projections based upon the latest data and merged it with what we've observed about how stock prices work. Here, we project a lower range for where we expect stock prices to be during the second quarter of 2009 of 855 to 885, based upon the range of values ypically between 7.0 and 11.0 for the amplification factor that we've observed for the market since 2001 (we've indicated the lower half of the range in the chart.) And, sure enough, we've been observing the market bouncing around the lower end of our projected range since 9 April 2009.

Consequently, we see stock prices today being pretty much where they ought to be.

Are We Really Any Good at This?

Maybe. You'll need to be the judge.

We've been progressively building a pretty decent, but not perfect track record using an analytical method that we've developed for anticipating the direction and magnitude of changes in stock prices. The method takes changes in the future rate of growth of dividends per share for the stock market and shifts those forward looking expectations to the current day, amplifying those changes into a corresponding change in the growth rate of stock prices.

Using that kind of analysis, we've been able to anticipate that the market had lower to go before hitting bottom back in early March 2009, when and where it would go after it hit bottom (here's our snapshot marking that occasion), that a sudden large drop in stock prices was nothing to be concerned about and most recently, when the market recently provided an unexpected buying opportunity for investors that we bet our own money on!

Update 28 April 2009, 9:00 PM PDT: Looks like we won the call today, as the S&P 500 closed down just 2.35 points at 855.16. However, it also looks like Barry will get some of his pessimism reinforced tomorrow - here's the forecast dividend futures for 29 April 2009:

Trailing Year Dividend Futures for 29 April 2009

Not enough for us to alter our overall projection for the second quarter of 2009 at this point, but enough we think to move stocks a touch lower tomorrow. Then again, who's to say that another IBM-type announcement isn't in the works somewhere in an S&P 500 boardroom?

Update 29 April 2009, 10:30 AM PDT: Well, what do you know?... Just for reference, XOM represents 4.46% of the S&P 500 by market cap.

Update 30 April 2009, 7:15 AM PDT: It looks to us as though there may be a short term selling opportunity developing. Although what we're seeing in the market these last two days fits our expectations for where stock prices will be for the quarter, we recognize that the market is likely getting ahead of itself in the short term, with stock prices going up while their underlying dividends per share (and the corresponding accelerations) are headed downward, as the market would appear to be being driven more by noise rather than signal. Here's the picture for the expected future dividends per share as of 30 April 2009:

S&P 500 Trailing Year Dividends per Share Futures, 30 March 2009 through 30 April 2009

We dug deeper into the individual stock dividend futures between yesterday and today, and found that they indicated that ExxonMobil had been expected to increase their dividend payout to $0.45 per share, rather than the $0.42 they actually did, which accounts for much of the decline we see in dividend futures for today.

Let's just say that we would not be surprised to see a pullback in the next several trading days.

Update 4 May 2009, 8:00 AM PDT: And we got it. When we wrote the section above, the S&P had risen to 886 at 7:30 AM PDT (10:30 AM EDT). Shortly thereafter, the S&P 500 dropped to close the day at 872.81, a drop of roughly 1.5%. This marked the short term buying opportunity we identified.

Today the market is up substantially (at this writing), which we'll note in a separate post, as changes in stock prices are now being measured from a new base. We're also going to change our focus with these posts, so we'll no longer be tracking the market in near real time, as we simply don't have the time available to do it (we're certainly not paid to do it!) Instead, we're going to be focusing more on more significant movements as they develop.

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April 27, 2009

S&P 500 Trailing Year Earnings per Share and Dividends per Share, Historic and Forecast (as of 27 April 2009) The last time we looked at the earnings of the S&P 500, we described them as being "an even deeper earnings bucket," as they had significantly decreased from when we had charted them just two weeks earlier.

Today, the expected trailing year earnings for the S&P 500 in the first quarter of 2009 don't look much like a deep bucket so as much as they look more like a really nasty crevasse. We'll also note that the first quarter of 2009 would mark the first time since the S&P 500 was originally developed in 1957, that the index' trailing year earnings has ever been negative.

This "achievement" owes a great deal to many companies' decisions to book as many losses as possible in the fourth quarter of 2008. As a result, the earnings per share recorded for the S&P 500 for the quarter was a mind-boggling -$23.25. By contrast, in the first quarter of 2009, earnings per share are projected to come in around $7.32.

Looking forward to the end of 2010, a long, slow climb appears to be in the cards for earnings in the S&P 500 given S&P's latest indications.

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April 24, 2009

Just a quick aside, here's Greg Mankiw just a short while ago:

The Economix blog offers up a simulation that alleges to show a roller coaster ride "whose track charts the Dow Jones industrial average from October 2007 to March 2009."

But that can't be right. Stock prices are approximately brownian motion, which means they are everywhere continuous but nowhere differentiable. In plainer English, "continuous" means that stock prices an instant from now, or an instant ago, are close to where they are now. But "not differentiable" means that the direction they move over the next instant is not necessarily close to the the direction they were heading over the last instant. A roller coaster with that property would be quite a ride.

Since at least January 2008, stock prices moved away from approximating Brownian motion to instead follow more of a Lévy Flight. The charts below demonstrate the difference, with generic Brownian motion shown on the left and Lévy flight on the right (here's our post where we originally presented these non-stock market-related charts):

Brownian Motion Levy Flight

As for being "quite a ride," we'll agree with that, especially if you take a ride on our model of the roller coaster:

S&P 500 Average Monthly Index Value vs Trailing Year Dividends per Share, Dec-1991 thru 23 April 2009

Update 25 April 2008: Welcome Eddy Elfenbein fans!

If you think this is math geekery, you ain't seen nothin' yet! Michael F. Martin over at Broken Symmetry has also taken note of this discussion, and makes a very good note about the nature of Lévy processes while adding a whole new angle to describing how the market is behaving: an inhomogeneous Poisson processes!

But, if you're not quite ready to throw Lévy processes out with the bath water, you might consider Andrzej Palczewski's and Emilia Rudzka's Truncated Levy flights on Warsaw Stock Exchange, which argues that truncated Lévy flights can be rather simply adapted to account for the observed asymmetry in the distributions of returns in a stock exchange, which tend to not only have "fat tails" compared to a normal Gaussian distribution, they also tend to have one tail be fatter than the other.

We'll stop there since detailed technical discussions of this kind of stuff makes our own eyes glaze over....

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Carnival Midway from The Jerk Welcome to the Friday, April 24, 2009 edition of On the Moneyed Midways, where we catch you up with the best money and business-related blog posts that we found in the past week's best money and business-related blog carnivals.

It seems Climateer believes we here at Political Calculations are "quirky." Here's Climateer's dilemma:

Political Calculations is quirky. On the one hand they link to Prof. Shiller's merged Cowles/S&P data (first rate scholarship/database). On the other they do a "On the Moneyed Midways" linkfest that seems aimed at a totally different target audience.

As it happens, we do have two very different, but somewhat overlapping audiences, which we discovered long before we first launched OMM. There's the (mostly) serious core crowd who enjoy the analytical power we bring to a number of different topics, and then there's the (more fun-loving) community of money and business-focused bloggers with whom we interact in other forums.

The thing we discovered long ago however is that our core readers tend to only check in with us on Monday through Thursday, while the more fun-loving crowd are much more likely to check in with what we do either periodically or over the weekends. From that observation, we conceived On the Moneyed Midways as the bridge between our two primary audiences.

Or it could just be that Ironman is just plain quirky, the kind of person(s?) who might spell words with an extra "u" just for fun. We would refer anyone seeking insight into the nature of Ironman to this post, which presents the only glimpse we've ever offered into the true nature of Ironman.

Then again, we've rambled on long enough. The best posts we found in the week that was are just a mouse click away!

On the Moneyed Midways for April 24, 2009
Carnival Post Blog Comments
Carnival of Debt Reduction Discovering Your Financial Priorities Man vs. Debt What do you *really* care about? And how might that changing affect how you deal with your money? Baker lays out what he's focused on now and what he's not given where he is in life.
Carnival of Personal Finance Mortgage Help - Should You Avoid Payments? Apply4-Credit It seems like lots of the wrong people are getting a lot of benefit out of the bailouts by not making good on their mortgage payments. Apply for Credit says that might have made sense before, but that's not the way to do things today since the lenders have launched new programs to help truly distressed borrowers.
Carnival of Real Estate Oh Honey No. The Amazing Ways Toronto Sellers Tank Sales Living in the Neighbourhood Lauren Mitchell has a bone to pick with home sellers in Toronto who don't seem to get that success in selling their home requires a commitment from them. Absolutely essential reading!
Carnival of the Capitalists How to Find the Bottom of the Real Estate Market Tallahassee Real Estate We've said it before, and we'll say it again: Joe Manausa analyzes his local real estate market the way we would if we analyzed his local real estate market! Here, he charts where the Tallahassee market is as of early April and identifies what has to change to declare that the market has really hit bottom.
Cavalcade of Risk How Much Life Insurance Do You Need? Cash Money Life Patrick provides a real-life example for figuring out how much term life insurance to get given how much income you might be looking to replace.
Festival of Frugality Top 5 Financial Mistakes The Centisible Life Kelly Whalen categorizes her personal finance mistakes into five groups. Our personal favourite? Making a budget with no room for "stupid mistakes!" The Best Post of the Week, Anywhere!
Money Hacks Carnival Best Small Companies Fair Value Estimates Old School Value Jae Jun screens Forbes' list of the "200 best small companies" to work out which are overpriced and which are worthy of investing.

On a final note before we conclude this week's edition of OMM, we do ask that in the absence of the Leadership Development Carnival, which will not be returning until June as it's shifting to a bi-monthly format, please do check out our sponsor Gary Young's new book Leadership Tips: Why Don't They Just Do Their Jobs at Xlibris.

Previous Editions

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April 23, 2009

Stock Prices - Source: WiredChanges in stock prices are largely driven by changes in the expected future growth rate of their corresponding trailing year dividends per share. Today, we're going to show you how that works, with math. You've been warned - if you don't want to deal with math, now's the time to bail out!

Seriously. We'll be using a lot of algebra. This is your last chance....

Still here? Alright then, let's get started....

The basic relationship we've observed that exists between changes in the rate of growth of stock prices and changes in the rate of growth of their dividends per share, or in our terminology, their accelerations, is given by the equation:

Accelerating!

Where Ap is the change in the rate of growth of stock prices and Ad is the change in the rate of growth of dividends per share. m is an amplification factor that varies over long periods of time but can be nearly constant for short-to-intermediate periods of time, which we'll focus more upon in future posts.

As we've formulated it, these accelerations represent the change in the compound annual growth rate of stock prices (Rp) and trailing year dividends per share (Rd) between two points in time (Δt):

Acceleration of Stock Prices
Acceleration of Trailing Year Dividends per Share

Substituting these expressions back into our basic relationship gives the following:

The Equations Merge!

Multiplying each term on both sides of the equation by the time interval (Δt), we are able to eliminate this term altogether:

The Man Behind the Curtain Makes dT Disappear!

We can now replace the compound annual growth rates with their corresponding stock price and trailing year dividend per share data. The generic compound annualized growth rate of both stock prices (Rp) and trailing year dividends per share (Rd) are given by the following equations:

Compound Annualized Growth Rate for Stock Prices
Compound Annualized Growth Rate for Trailing Year Dividends per Share

For these equations, i represents the more recent data, while i-n indicates an older data point, occurring some n periods or time before i. Substituting these terms into our equation relating the compound annual growth rates of stock prices and trailing year dividends per share leads to the following equation:

A Really Long Equation!

Combining like terms, we can simplify the equation:

And Then, There Were No 1's

We'll next simplify the equation further by letting T equal 1 period of time. This allows us to eliminate the exponents, but also requires that we set the time interval between (i) and (i-n) to span the same time interval. We get the following equation:

No More T's Either!

Our next step will be to solve for P(2), the most recent stock price. First adding P(1)/P(1-n) to both sides of the equation:

Like deck chairs on the Titanic, terms are shifted around the equation.

We'll finally solve for the most recent stock price by multiplying each term in the equation by P(2-n):

You following me, camera guy?

But wait, that's not all! Since changes in stock prices are largely driven by changes in the expected future growth rate of their corresponding trailing year dividends per share, we need to account for the fact that investors are looking ahead in time. We'll do this by indicating that the dividend data is shifted ahead some period of time, s:

P2: Now with Time Shifted Dividends per Share!

Now, how would we use this equation in practice? Let's say that our stock price data consists of the average daily closing value of the S&P 500 and the index' corresponding trailing year dividends per share for each month since January 1871. If we use year-over-year data for our calculations (T equal to one year), we might calculate the average monthly stock price for any month beginning with February 1872 as follows (click the image for a larger, more readable version):

Super Really Long Equation!

Here, the subscripts indicate the relationship of the data point to the month for which we're trying to solve, which we've identified as "Current". Subtracting a given number from this figure indicates that the data point is that many months before the current month. Adding a given number to this figure indicates that the data point is that many months in the future from the current month.

In this equation, we're left with two unknowns in being able to anticipate where stock prices will be set: our amplification factor (m), and our forward looking time shift (s), which itself varies with time. Both of which might be determined in practice by observation and trial and error. We should also point out that the variations in these two factors are specifically what makes the stock market a chaotic place.

And if you can get your hands on dividend futures data, you might reasonably predict how stock prices today will adapt to changes in how fast investors expect dividends to grow in the future.

There's a tool in here somewhere....

Update 28 April 2009: Based on some really good feedback from a really sharp reader, we've altered the images for the second, third and fourth equations (click links for originals) presented in this post, changing "dt" to "Δt", to better clarify that we're not necessarily looking at infinitesimal units of time, but rather discrete intervals of time!

Elsewhere on Political Calculations

Essential Reading to Get Up to Speed with Us!
Date Posted Post Remark
2007-12-06 The Sun, in the Center We used historic data for the S&P 500 to uncover the fundamental power-law relationship that exists between dividends per share and stock prices. Our third anniversary post!
2008-12-10 Acceleration, Amplification and Shifting Time We introduce evidence demonstrating that the breakdown in stock prices beginning in January 2008 was a very orderly process. Our fourth anniversary post, and the grandfather to this one!
2007-12-17 Deriving the Price Dividend Growth Ratio We do hard core algebra to identify what makes up the different parts of the fundamental relationship between stock prices and dividends. And a mind control experiment (we know better than to post raw math by itself in a blog post!)
2008-06-24 Stock Prices: Normal Until They're Not, But They're Not Normal! If you've read enough of our posts, you'll note that we've often presented our data using something that looks a lot like control charts as a tool to identify significant changes in stock prices with respect to their underlying dividends per share. This post explains why!
2009-02-19 Evidence of Order Underlying Chaos in the Stock Market You wouldn't think it to look at it, but chaos in the stock market isn't necessarily a bad thing, at least, once you have the tools to sort it out....
2009-01-28 Unraveling Chaos We follow up our groundbreaking fourth anniversary post by first introducing the basic relationship between the acceleration of stock prices and trailing year dividends per share.
2008-08-25 The S&P 500 from December 1991 Onward This is the first post in which we noted that changes in the rate of growth of the S&P 500's dividends are correlated with and perhaps even drive larger changes in stock prices.
2008-11-19 The Black Monday Stock Market Crash, Explained We identify changes in the acceleration of the growth of dividends as a key factor driving changes in stock prices. We'll be taking a closer look at this event again sometime in the future, as we were rather stunned to see the correlations apparent in the data since 2001, which we presented in this post.
2008-08-28 Hey Look - Brownian Motion! This post looks at the Dot-com Bubble, in which stock prices and dividends per share were fully decoupled from each other, which we should note would make the kind of analysis presented in this post unworkable until the relationship is re-established. The result: unadulterated Brownian Motion (complete with video!)
2008-07-15 Defining Bubbles, Order, Disorder and Disruptive Events We provide our operating definitions for each of these concepts describing the associated states of the stock market.
2008-03-18 Recognizing Disorder in the Stock Market How do you know when how things were aren't the way they're going to be with stocks? We discuss how to recognize when disorder erupts in the stock market.
2008-06-12 Emerging Order in the Stock Market The flip side to our post on how to recognize when disorder has erupted in the stock market. Plus, we introduce quantum phenonoma!
2008-01-23 Distress, Recessions, Market Bottoms and the Future We find an interesting correlation between when the market hits bottom, recessions and peaks of distress as measured by our price-dividend growth rate ratio!
2008-01-09 The Beating Heart of the Stock Market Here, we find we can use the price-dividend growth rate ratio as a tool to measure the level of distress in the stock market.
2006-12-06 The S&P 500 at Your Fingertips We put the entire history of the S&P 500, including the index' price, dividends, and earnings data at your fingertips! As a bonus, we also find the rate of return between any two calendar months in the index' history, both with and without inflation and with and without dividend reinvestment!

Image Credit: Wired

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April 22, 2009

NASA Alligator (Flipped from Original) We weren't going to do this again. We really weren't. But then we found the statistics that tell how likely it is that an individual will die of an alligator attack in the United States, and that was all she wrote!

All the data in the table below is courtesy of the Florida Museum of Natural History, who was mostly concerned about people's perceptions of the frequency of shark attacks. Being so concerned, the minds at the museum calculated the relative risk of dying as the result of shark attack with respect to other causes of death in the United States.

We've presented their findings in the table below and, where we could, we extended their calculations to find the probability of other causes of death for which they only provided the raw numbers of deaths over a given period of time. Like death by mountain lion. Or death by collapsing sand hole, which not being Floridians, is a cause of death that we had never previously considered.

Annual Risk of Death During One's Lifetime
Fatal Disease or Cause of Death Average Annual Deaths Death Risk During One's Lifetime
Heart Disease 652,486.0 1 in 5.7
Cancer 553,888.0 1 in 6.8
Stroke 150,074.0 1 in 25.0
Hospital Infections 99,000.0 1 in 37.9
Flu 59,664.0 1 in 62.8
Car Accidents 44,757.0 1 in 83.7
Suicide 31,484.0 1 in 119.0
Accidental Poisoning 19,456.0 1 in 192.6
MRSA (Resistant bacteria) 19,000.0 1 in 197.3
Falls 17,229.0 1 in 217.5
Drowning 3,306.0 1 in 1,133.7
Bike Accident 762.0 1 in 4,918.7
Air/Space Accident 742.0 1 in 5,051.3
Excessive Cold 620.0 1 in 6,045.3
Sun/Heat Exposure 273.0 1 in 13,729.2
Vehicular Collision with Deer [1] 130.0 1 in 28,831.3
Bicycle Accident in Florida [2] 114.8 1 in 32,639.2
Hunting Incident 55.1 1 in 67,992.1
Lightning 47.0 1 in 79,746.1
Train Crash 24.0 1 in 156,169.5
Dog Attack [1] 18.0 1 in 208,225.9
Snake Attack [1] 15.0 1 in 249,871.1
Fireworks 11.0 1 in 340,733.4
Attack on Homeless Individual 7.0 1 in 535,438.2
Tornado in Florida 5.4 1 in 695,206.0
Shark Attack 1.0 1 in 3,748,067.1
Collapsing Sand Hole 0.9 1 in 3,982,321.3
Mountain Lion Attack [1] 0.6 1 in 6,246,778.5
Alligator Attack 0.3 1 in 12,077,105.0
Shark Attack in Florida [3] 0.2 1 in 17,241,108.5

Footnotes

[1] Annual Average During 1990s
[2] Bicycling fatalities in Florida account for 15.1% of the total in the United States.
[3] Shark attacks in Florida account for 20% of the total in the U.S.

Clearly, the lesson from these footnotes is to stay away from bicycles in Florida, as they represent over 1 out of every 7 bicycle related deaths in the United States....

About the Odds

We calculated the annual odds of each cause of death using the same method as the Florida Museum of Natural History. We took the annual population of the United States for 2003 (290,850,005) and divided it by the average annual number of each cause of death and the average life expectancy for an individual born in 2003, 77.6 years.

More Death on Political Calculations

We've covered this territory before, as our previous posts on the topic reveal:

  • Mapping Death by Natural Hazard in the U.S. - Charting where you are most likely to be killed by different kinds of environmental factors.
  • The Odds of Dying in the U.S. - The official statistics for a variety of accidental or intentional causes of death from the National Safety Council.
  • The Disproportionate Killers - Our look at the chronic diseases that claim the lives of the black population of the U.S. in disproportionate numbers compared to other ethnic groups. Part of a series of posts where we worked out how a good portion of the racial disparity in life expectancies in the U.S. might be eliminated.
  • Natural Life Expectancy in the U.S. - A comparison of how long Americans live with respect to Europeans, after adjusting for non-health related factors, like vehicle accidents.
  • Estimating Your Life Expectancy - How long might you live if you're an average American? Our tool can provide the answer!
  • How Much Longer Can You Expect to Live? - Our tool will tell you how many years more you're likely to live if you make it to Age X, assuming you're an average American!

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April 21, 2009

Percentage of Total Population Represented by Employed Individuals, 1900-2008 Did you ever wonder how many people actually do all of the work in the United States?

We did, and we found that the answer is "less than half." More specifically, it's never been higher than 48.5%, which represents the all-time high achieved in 2000. By contrast, the all-time low of 30.3% was reached during the Great Depression in 1933.

Source Data

Our population data is available here. The data from which we extracted the number of employed individuals for each year since 1900 is available from two separate sources:

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April 20, 2009

This morning, we bet our entire retirement portfolio on the S&P 500.

Or rather, after looking over the stock market and thinking about it for less than a minute, we shifted all the cash we had sitting on the sidelines in our IRAs around so that it's now fully invested in an index fund that closely tracks the S&P 500. We did that at a point in the morning at which the Dow Jones Industrials had plunged below 8,000, dropping by more than 2.5%, the Nasdaq had dropped over 3.0% and the S&P 500 itself had dropped nearly 3.0% from its Friday close of 869.60, or roughly 25 points, to 844.

And that's not even all the bad news that might take place in the market today! Since we're investing in a traditional index fund, rather than an ETF, wherever the market closes today will be our buy point.

That's not as bold as it sounds, given how much time we have between now and when we retire, as we've designed our retirement investment strategy to accommodate the worst possible scenarios. What's more, given what we know about how stock prices work, we have not yet seen a change in what investors should expect for the future rate of growth of dividends per share in the stock market. Since that change is the signal that we've seen drive stock prices, without observing such a change, we view today's drop in stock prices as being the result of noise.

Which for us means today's stock market is presenting us with a noisy opportunity.

It's certainly not an investing strategy for geting rich quick, but hopefully is one for getting where we want to go sooner than we might have otherwise with a bit less risk. That's really all we're after!

Post Market Close Update: At least we're not the only ones seeing a lot of nothing out there! For the record, the major indexes had the following closes:

Major Index Closing Values, 19 April 2009
Index Closing Value Percentage Change
from Previous Close
DJI 7841.73 -3.56%
S&P 500 832.39 -4.28%
Nasdaq 1608.21 -3.88%

If we're right, thanks for the extra money, Wall Street!

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April 17, 2009

Carnival Midway from The Jerk Welcome to the Friday, April 17, 2009 edition of On the Moneyed Midways, where we've collected the very best reading from the best of the past week's money and business-related blog carnivals, purely for your weekend reading pleasure!

What can you learn about personal finance from a 9-year old's entry into a drawing contest? A lot more than you ever imagined, especially if you need to put your own fiscal house in order!

But then, that's the description of the post we declared to be "The Best Post of the Week, Anywhere!" Our other selections this week offer more focused insights on different aspects of money and business. All the best of the week that was, begins below....

On the Moneyed Midways for April 17, 2009
Carnival Post Blog Comments
Carnival of Debt Reduction Accountability: Sometimes You Need Someone to Slap You on the Back of Your Head Bible Money Matters Where fiscal discipline is concerned, it really helps to have someone around who can hold you accountable for your actions. Pete offers his relationship tips for getting along with that person in your life.
Carnival of HR When Does a Job Interview Begin? Fortify Your Oasis Rowan Manahan notes that a lot of people might be very surprised to find out that their job interviews have begun long before they arrive at their prospective employer's premises!
Carnival of Personal Finance What to Do with Old Cell Phones? ChristianPF Finally! Bob Lotich describes a service where you can trade your old cell phones for cash. Best money tip of the week!
Carnival of Personal Finance Augment Yourself, Not Your Resume Bargaineering Shouldn't you be more than the bullet points on your resume? Jim Wang makes a strong case against career growth by ticket-punching. Absolutely essential reading!
Carnival of Real Estate Myths That Can Sink New Real Estate Investors Real Estate Heavyweight 90 real estate "pros" got together and launched this blog to help promote their book about real estate investing. In this section, Jarom Adair takes the "easy money through real estate investing" sales force to task for the myths they push.
Carnival of the Capitalists How Would You Reach YOU? Eric.Weblog() Eric Sink delves into the mystery that is effective marketing by first placing yourself in the shoes of a potential customer and asking "how would you find out about what you have to sell?"
Festival of Frugality Learning to Love Foods You Hate: A How-To Guide for Frugal Eaters Cheap Healthy Good Kristen Swensson deploys all her sneaky cooking tricks to find ways to insert inexpensive, yet healthy foods that have bad reps into your diet.
Money Hacks Carnival How to Be a Millionaire: As Explained by a 4th Grader Prime Time Money There was no serious competition for The Best Post of the Week, Anywhere! this week, thanks to PTMoney's featuring fourth grader Jenna Fink's contest winning artwork.

Previous Editions

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April 16, 2009

Crystal Ball EarthThe plus-minus statistic in hockey is one of the neatest statistics out there. Simply put, the plus-minus statistic considers how valuable a player is over a period of time by finding the net difference in points scored by their team and their opponents while they're on the ice. A player who consistently maintains a positive plus-minus statistic is one whose presence is one who will likely be greatly valued, while a player who regularly runs a negative plus-minus statistic is one who will be considered to be less valuable.

To be fair though, what counts most is a player's relative plus-minus statistic compared to those who might play in their place. In the case of when a star offensive or defensive player needs a break, the challenge for their coaches is to put players on the ice who can minimize any potential point loss during that time while the other team might have their best players going, assuming the coach doesn't have a deep bench full of star players.

Today though, we're going to apply the plus-minus statistic to something very different. We're going to use it to see how valuable we are when it comes to making predictions! Better still, we'll challenge our competition to put up their own numbers! We figure we'll find out two things: who's got the guts to be honest about it, and who's got game when it comes to forecasting!

Here's how we'll do it. We've arbitrarily gone back to January 1, 2008 and run through all of our posts where we've made a real prediction, as opposed to simply offering an observation. If we got it right, we score it as +1. If we got it wrong, we score it as -1. And if the outcome for the prediction in question is uncertain, for whatever reason, we score it as a zero (+0).

The cool thing about this approach is that if we're just making coin toss random predictions, over time, our plus-minus will drift toward zero. Alternatively, if we're better at this prediction game than not, then our plus-minus will drift higher and if we're worse, our plus-minus will fall.

How did we do? We found we made 25 predictions since 1 January 2008 related mostly to the economy or the stock market. The table below tells the rest of the story....

Political Calculations' Plus-Minus for Predictions Since 1 January 2008
Date Prediction Outcome +/- Score
2 January 2008 In December 2008, the S&P 500 would reach 1610. We dumped our prediction just two weeks after making it, recognizing that a significant disruptive event was overtaking the stock market. -1
16 January 2008 A recession would not be declared to have begun in 2007. Technically correct. The NBER later declared that December 2007 marked the final month in which the U.S. economy expanded in the previous business cycle before a recession began. In common word usage though, most people take the NBER's declaration and cite this month as the being the starting point for recession. +1
23 January 2008 The stock market will begin bottoming in September-October 2008. We're scoring this prediction as zero, or "mixed". Partly this is due to not understanding well enough how dividend futures worked at the time, which ultimately caused us to put the peak of market distress ahead of schedule (that happened in January 2009.) However, our error in interpreting the dividend future data wasn't that far off target at this point - the S&P 500 began did indeed begin its bottoming process in September-October 2008! 0
5 February 2008 The level of distress in the stock market will peak in July-August 2008. Hugely wrong, and directly due to our rookie error in reading dividend futures data! -1
6 February 2008 Distress will peak in the stock market in March 2008. Even more wrong. But not yet as wrong as we could get! -1
7 February 2008 The peak of distress in the stock market will occur between February and March 2009. As wrong as we could get (and got!) We finally figured out what we weren't getting nine days after this post! -1
27 March 2008 First quarter GDP for 2008 will come in at $11,754.8 billion (real GDP - adjusted for inflation in chained 2000 US dollars). Real GDP in 2008Q1 came in at $11,646 billion (chained 2000 USD). We were over target by 0.9%. +1
31 March 2009 The New York Times' weekday circulation would drop below 1 million in the next 12-18 months. Right on target. A year later, we believe the weekday circulation for the Grey Lady is occasionally dipping below the million mark, which we expect to be a very regular occurrence another six months from now. At this point, the New York Times' leadership could pull out the stops to make this prediction wrong, but only by sacrificing its revenue. +1
5 April 2008 U.S. unemployment levels for the year will peak in November-December 2008. The timing was right, but the composition of the job losses wasn't quite what we expected. Up through October 2008, most of the jobs lost throughout 2008 were the minimum wage jobs we anticipated (these also account for the majority of jobs lost for the year.) However, the summer oil shock spread the job losses into the automotive sector, which began massive layoffs toward the end of the year. +1
16 July 2008 "Until the erosion in dividends ends, we're afraid that the S&P 500 and other major stock indices will not be going up anytime soon. We would anticipate that the carnage in the market will continue until the powerhouse financials dragging the indices down get serious about building up their balance sheets and pull the trigger on dividend cuts. Then, and only then, will investors regain confidence in these companies." Dead on target. This is, in fact, exactly what's finally being played out after the first quarter of 2009, and is why stock prices are finally rising off their lows. +1
22 September 2008 We noted a unique correlation between when an uptick occurred in our preferred tool for determining the probability of a recession and when the stock market began plunging in mid-September 2008. We note that the next uptick in this measure would coincide with the week of 13 November 2008 through 20 November 2008. In retrospect, a creepily accurate prediction. +1
29 September 2008 We backnoted how our "modified limo" technique would have predicted the level of Real GDP for 2008Q2 (which we can't count as a prediction since we hadn't posted anything before-hand), and we predicted that 2008Q3's Real GDP would be $11,781.4 billion (chained 2000 USD). 2008Q3's Real GDP came in at 11,712.4 billion, which means we overshot the mark by 0.6%. +1
1 October 2008 We anticipate that January 2009 would see the bulk of companies revising their forward business outlooks downward. We also anticipated that the driver for this outcome would be the spreading of problems in the financial sector to the rest of the U.S. economy. +1
22 October 2008 After rebuilding our confidence offline through most the year, we revisit the dividend futures data that had been the main source of our biggest failures in the prediction business and peg January 2009, give or take a month, as being the peak month for distress in the stock market, projecting the bottom for the stock market not long behind. Now with the advantage of 20-20 hindsight, we were very much on target with this call. The level of distress in the stock market, as measured by our price-dividend growth ratio, spiked for January 2009 at -111 (absolute value +111). +1
30 October 2008 We reviewed the biggest single financial transaction in presidential candidate Barack Obama's life and extrapolate that an Obama presidency might be characterized by a significant lack of fiscal discipline in pursuit of grandiose ambitions. We wish we were wrong and that President Obama's legacy would not be one defined by massive amounts of wasteful spending with little to show other than lasting, unwanted obligations. We dare President Obama to make us wrong. +1
5 November 2009 We project the bottom for the stock market "in or around January 2009." We're going to count this one as incorrect, even though you'll see that we're not far off…. -1
6 November 2009 Remember that "uptick" in our measure of recession probability that coincided with a massive point loss in the stock market? We go officially on record with our prediction that carnage would ensue in the stock market on 20 November 2008. We called a bottom in the stock market. There's no ifs, ands, or buts about it. +1
20 November 2009 In the middle of the day, nearly at the peak for the stock market for the day, we doubled-down on our prediction from 6 November 2009. In our update to the post later that day, we also hint that Round 3 for the stock market might begin on or around 21 January 2009. It's true. We achieve modern-day Garzarelli status! (and if there's any doubt that we did, you can see our pre-updated time-stamped post via our RSS feed.) Although unlike Garzarelli, we may not be a one-hit wonder.... +1
5 February 2009 We call *the* market bottom in a three-part prediction based based on past market performance, finding that the bottom would occur: 1. A 24.2% chance of happening by the end of January 2009 2. A 59.6% chance of happening by the end of February 2009 3. A 79.8% chance of happening by the end of March 2009 In a next-day update, we pick February 2009 as the most likely time for the market to bottom. We missed the absolute market bottom by nine calendar days (or six trading days.) We're scoring this as a -2, as we've presented four separate predictions, three wrong and one right, which nets out as -2. The only prediction that was right? The one that gave an 80% likelihood that we'd see the bottom by the end of March 2009 following the peak of market distress. -2
13 February 2009 We predict that significant changes in the U.S. income tax are in the works given the kinds of questions that members of the U.S. Senate (or their staffs) are asking us through Google. We'll see. +0
17 February 2009 We present a prediction that GM is heading toward bankruptcy that we had originally put forward back on 2 October 2008 at Econbrowser. Looks pretty likely. +0
3 March 2009 We put the bottom for the S&P 500 index value occurring within a range between 655 and 680. Well, what do you know? We do what Garzarelli never could: between our timing prediction from 5 February 2009 and this prediction for calling the range in values that would define it, we called a market bottom for the SECOND time! Calling it three days early doesn't hurt our cause either! +1
16 March 2009 With the bottom of the market behind us, we predict that the S&P 500 will move into a range between 815 and 840. The gold standard in being a good analyst isn't just making a bottom call, but also calling the turn in a market. You always have those people who make just bull calls or bear calls, and like broken clocks, they get to be right at least once if you give them enough time. We called the turn in the market seven days in advance of the market hitting our target. +1
2 April 2009 We up our forecast for the S&P 500 to hit values between 860 through 890. Although we didn't specify it on our own site, this prediction applies through the end of June 2009. Right now, there's been a very small bit of erosion in the dividend futures we use to create our forecasts, so if we made this prediction today, our methods would have us put the S&P 500 between 855 and 885 from now through June 2009. For now though, we're going to count this prediction as neutral. +0
14 April 2009 We predict, after stocks fell by a healthy margin on 14 April 2009, that they would close up by a healthy margin on 15 April 2009. There are two ways you can look at this particular prediction. Either we had a 50% chance of being right and we got lucky, or there's something to the kind of analysis that we do and luck wasn't much involved at all. If you think it's all random, at what point might you place your bets on the guy who keeps winning the coin toss? +1

Out of these 25 predictions, we find three that have yet to have their outcome determined. Totaling up the numbers of the remaining 22, we find we have a plus-minus of +8. Since we discovered what we were doing wrong in reading dividend futures back in mid-February 2008 for our stock market predictions, our plus-minus is +11.

How do you think Garzarelli might rank? Or Roubini? Or Krugman? Or any of those talking heads who make a living making predictions? Will they put up their own numbers? Ever?

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April 15, 2009

Pay up, fool! Now that we've mapped a relationship between the national debt and the maximum income tax rate, we're celebrating the annual filing of our U.S. income tax returns today by presenting a tool based on our analysis!

The tool below may be used to approximate how politicians might set the top income tax rate in the United States, given:

Best of all, you can update the tool with the latest figures coming out from Washington D.C. so you can anticipate how tax rates might change given the latest policies and economic situation as well as how U.S. politicians have responded to similar debt loads in the past.

U.S. Economic Data
Input Data Values
National Debt [trillions USD]
Nominal GDP [trillions USD]
Population


Where Might the Politicians Set the Top Tax Rate?
Calculated Results Values
DTIP (Debt Burden per Capita, or Debt-to-Income-to-Population) Index Value
Corresponding Maximum Income Tax Rate

Top Income Tax Rates vs National Debt per Capita-to-Income (GDP) Index Value, 1913-2008 In looking at the chart to the right, we note that historically, U.S. politicians hold off on making significant changes to the top income tax rate until the data points appear to get too far away from our modeled relationship.

We see this at several points in history, such as in 1917 when the U.S. Congress and President Woodrow Wilson cranked up the then new income tax rates in anticipation of funding World War I, which was followed shortly by massive increases in the national debt, bringing both the maximum tax rate and level of debt in tune with our modeled relationship. We see the reverse pattern in 1963, with the implementation of then President John F. Kennedy's tax cuts, which came as the level of the national debt per capita was falling while the economy was growing.

In 1981, we see something especially remarkable: a simultaneous significant tax rate decrease and relatively small and steady increases in national debt during President Ronald Reagan's first term, bringing the relationship between the level of the U.S. national debt and maximum tax rates in very close proximity to what we'll call a "political equilibrium." This change in tax and spending policies is largely what one might expect given the excessively high tax rates and relatively low debt burden that existed in 1981, as compared to our curve defining the "political equilibrium" between the two. We should note however that the reductions in the U.S. national debt in the 1970s were largely achieved through high inflation during this era, as income taxes were not adjusted to account for this factor until the 1980s.

It would seem then that the thing to watch out for in our current situation is how much the national debt increases without a corresponding increase in the top tax rate to close the gap. The farther away from the curve the data moves, the more likely a significant change in income taxes is likely to occur as these three examples demonstrate.

If they don't, then they'll get the money some other way, such as through high rates of inflation. Or both. Let's not underestimate our politicians!

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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:

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