Political Calculations
Unexpectedly Intriguing!
June 22, 2018

When we're not solving economic or finance puzzles, we often turn our attention toward fighting crime. Recently, we have been following the case of the mysterious death of an unknown woman in November 1970, through the BBC's fantastic podcast series Death in Ice Valley.

Known as the "Isdalen Woman", or the "Ice Valley Woman", after the isolated location where her body was found by two schoolgirls outside Bergen, Norway, the woman's true identity has never been identified. That's mainly due to her use of multiple identities, including passports, that she utilized as she traveled throughout Norway and western Europe in the year preceding her death from unusual causes, which are part of an extraordinary set of clues that she left behind before she died.

Even the nature of her death is something of a mystery, where there is evidence to support that she either committed suicide in a very unusual fashion or, perhaps more likely, was murdered. As for how she lived, it is quite possible that she was involved in an espionage or crime ring, where her activities and travels within Norway became a focus for Norway's secret police.

One of the clues she left behind was a page of coded notes, which was found in a suitcase that she had stored at a railway station in Bergen just days before her body was found. Here's a photo of the page in question:

Isdalen Woman - Coded Travel Itinerary

One of Norway's cryptographers was able to decipher a portion of the page, where he was able to identify a pattern that the Isdalen Woman used to record dates and some of the locations to which she traveled within Norway in 1970. Since we have a little bit of experience in working with old codes, we thought it might make for an interesting challenge to see if we could translate more of what would seem to be an informally-encrypted coded travel itinerary.

We've divided the page into zones, following the apparent chronological order. We assume all dates fall within 1970:

Isdalen Woman - Coded Travel Itinerary - Upper Left Corner
10 March - Day of departure from her point of origin
11 March to 16 March - Luxembourg (or a low probability of London, England)
17 March to 19 March - Ghent, Belgium
20 March to 23 March - Oslo, Norway
24 March to 31 March - Bergen, Norway
We believe "H" denotes Hamburg, Germany, with an alternate possibility of Hanover, Germany.
3 April - Rotterdam, Netherlands.

We think the Isdalen Woman is primarily traveling relatively short distances by either rail or by ferry rather than flying, given the high expense for that mode of travel in that era. So rather than flying from Ghent to Oslo, as might be done today, we think she's traveling by train to Hirtshals, Denmark, then taking a ferry across to Larvik, Norway before concluding her travel in Oslo (in fact, we had originally though the L and G in the first two destinations might stand for Larvik and Grimstad in Norway based on the path that she appears to have taken out of Norway, but have since refined our thinking). We also think her travel outside of Norway is primarily focused where she can either speak the language or can get by with the languages that she does speak relatively easily, where evidence suggests that she spoke German, French, Dutch, and to a much more limited extent, English.

Isdalen Woman - Coded Travel Itinerary - Upper Middle Section
23 April to 29 April - Frankfurt, Germany.
30 April to 14 May - Rotterdam, Netherlands. Alternatively, Regensburg, Germany, which would more directly fit on the way between Frankfurt and Vienna.
15 May to 21 May - Vienna, Austria.
22 May to 31 May - Wels, Austria, which lies between Vienna and Nuremberg.
4 June to 7 June - Nuremberg, Germany.
8 June - Travel from Nuremberg, Germany to Rotterdam, Netherlands.

The notes here are interesting in that she changes her pattern for recording dates. Instead of the typical European convention of Day Month, she changes to Month Day. Perhaps more interesting, we think its possible that she's evolving the code so that it would make sense in the context of her travels, where she may be reusing "R" to represent both Rotterdam, as in the previous section, and possibly Regensburg, which would make sense if she's traveling by ground between Frankfurt and Vienna, before going back to use "R" to indicate Rotterdam at the end of this section.

As a side note, we came up with Nuremberg as a destination in her itinerary before the podcast episodes revealed the modern forensic evidence that indicates that she may very well have lived her earliest years in that portion of Germany. As for her travel in this period, given the Cold War that was going on between western Europe and the Soviet Union, where traveling between a NATO country and a Warsaw Pact country would almost certainly have raised red flags, we don't believe that she would have risked traveling to an eastern bloc "W" destination like Warsaw, Poland, which is why we looked more to Wels, Austria as the likely destination.

What we think is her travel to Vienna, Austria however does suggest a possible link to espionage. Since Austria was neither a member of NATO nor of the Warsaw Pact, Vienna became something of a hub for international espionage during the Cold War. Coincidentally, the city of Rotterdam, Netherlands served a similar function during the first World War, and did so to a lesser extent during the interwar period until the Germans overran the country during the second world war.

Isdalen Woman - Coded Travel Itinerary - Upper Right Corner
8 June to 21 June - Rotterdam, Netherlands.
22 June to 3 July - Paris, France. 4 July Travel from Paris to Luxembourg.
4 July to 16 July - Luxembourg. 16 July Travel from Luxembourg to Amsterdam, Netherlands.
16-17 July - Amsterdam, Netherlands.
18 July - Rotterdam, Netherlands.

We wouldn't describe these notes as encoded so much as being a kind of personal shorthand. As a case in point, check out the Isdalen Woman's attempt to write a stylized "J" to differentiate July from June in her notes, where we're pretty sure that she decided it doesn't work. Almost immediately in its place, we think she chooses to substitute a double-J, or "JJ", to indicate July.

Considering her travel again, in a lot of ways, it wouldn't be a stretch to substitute London, England for Luxembourg in this portion of her itinerary. It's certainly accessible to the Netherlands via ferry through Harwich, England, but we're erring in favor of Luxembourg again.

There's a large time gap before the next section of her coded itinerary.

Isdalen Woman - Coded Travel Itinerary - Middle Section
22 October to 28 October - Paris, France. 29 October - travel from Paris to Stavanger.
29 October - Stavanger, Norway.
30 October - 5 November - Bergen, Norway.
6, 7, 8 November - Trondheim, Norway. 8 November - travel from Trondheim to Oslo to Stavanger.
9 November - 18 November - Stavanger, Norway.
18 November - Bergen, Norway.

We think that her travel from Paris to Stavanger may be one of the few occasions where she may have traveled by air, which would be an exception to her apparently preferred method of traveling by rail or ferry.

The next section is perhaps the most mysterious entry, where we've had to apply more than a little bit of speculation....

Isdalen Woman - Coded Travel Itinerary - Lower Left Corner
Repeat of "10M" (10 March), which marked beginning of coded travel itinerary.
23 November - Travel from Mollendal, Norway to Landas, Norway. Continued travel to Mannsverk, Norway.

If you look at the position of this note with respect to the main body of her coded itinerary, its position off to the side suggests that this last travel is literally a side trip.

Here, we've assumed that she is traveling locally through small towns that are near Bergen, Norway, adjacent to the region where her body found in Isdalen Valley. We also think that she's re-using her double-letter trick, although this time, to differentiate a location rather than a date.

The most curious thing though is the repetition of "10M", which had previously indicated the beginning of her coded travel itinerary, where repeating it here in connection with what would seem to be her final trip suggests that she may have known she was nearing the end, where she's purposefully connecting the end back to the beginning.

Her body was discovered on 29 November 1970. Nearly 48 years later, nobody knows who she was or why she was crisscrossing Norway while traveling under so many assumed identities.

There's a lot more to the mystery of the Isdalen Woman. If you're interested in finding out more, the BBC produced the following video to go with the first episode of the podcast series:


The series also has a Facebook group devoted to it. A 2017 article about the case also provides a good overview and photographs of the evidence that was collected in the original investigation.

If you haven't heard the series, perhaps the biggest twist comes in Episode 8, where the results of modern forensic analysis opens up a very new avenue for investigators to pursue in tracking her identity. The series consists of 10 episodes, which are available here. So if you were looking for a good mystery with a lot of twists and turns this summer, this true life case may fit the bill!

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June 21, 2018

One of the neater things that comes from researching the historic prices of everyday goods is the insights that you can extract from the data, where sometimes, you discover that you can divide a nation's economic history into distinct eras.

Here's an example of what we mean. We started off with the idea that it might be interesting to look at the history of the price of Campbell's Condensed Tomato Soup and also the price of crude oil in the U.S., where we were able to get monthly data for both series back to January 1946, which means that we're capturing the entire post-World War 2 era in the United States.

The reason why we were doing that is because oil, along with tomatoes and steel, can be considered to be one of the three primary ingredients for making Campbell's Condensed Tomato Soup, thanks to its role in fueling the supply, production and distribution networks for making industrial quantities of the iconic product available for sale in the U.S. economy.

So we did, and for the sake of making a more direct comparison between the two sets of prices, we converted the sale price of a typical 10.75-ounce can of Campbell's Condensed Tomato Soup into the equivalent price of a 42-gallon barrel of the product! The following chart shows the results of that math, where we discover that there are three distinct periods in the post-war economy for the United States.

Nominal Average Monthly Prices of One Barrel of West Texas Intermediate Crude Oil and Campbell's Condensed Tomato Soup, January 1946 - June 2018

The three periods are:

  • The post-World War period where the gold standard was in effect, until it was terminated on 15 August 1971.
  • An economic transition period where price controls were arbitrarily used in an attempt to control inflation to various degrees for different products from 15 August 1971 through 30 April 1974 (for food and other products), and through 30 June 1979 (for oil), although some price controls on oil remained in effect until they were fully eliminated on 29 January 1981.
  • The period since 29 January 1981 where neither a gold standard nor price controls have been in use in the U.S. economy.

Although we're looking at nominal prices per barrel for both products, there's enough change in their level over time to make it worthwhile to look at the same historic prices on a logarithmic scale to give a sense of the relative percentage changes that have taken place in the prices of each.

Log-Scale Nominal Average Monthly Prices of One Barrel of West Texas Intermediate Crude Oil and Campbell's Condensed Tomato Soup, January 1946 - June 2018

In this second chart, we see that the price of crude oil has been much more volatile in relative percentage terms than changes in the price of Campbell's Condensed Tomato Soup!

The different eras that we see in these charts are really only evident if you look at the nominal, or actual, prices that people paid for the products at the time they were sold. The following chart adjusts these prices for the effects of inflation, where the results are expressed in terms of constant May 2018 U.S. dollars, where you may be surprised by the historic cost trends for both soup and oil.

Inflation-Adjusted Average Monthly Prices of One Barrel of West Texas Intermediate Crude Oil and Campbell's Condensed Tomato Soup, Constant May 2018 U.S. Dollars, January 1946 - June 2018

If you had the impression that soup is no longer the consumer bargain that it used to be as recently as just over a decade ago, you're right! That adverse price trend is one of the reasons why Campbell's Soups (NYSE: CPB) has been struggling in recent years.

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June 20, 2018
Natchez, Miss. Marion Post Wolcott, photographer, Natchez, Mississippi, August 1940. Farm Security Administration/Office of War Information Color Photographs. Prints & Photographs Division. Source: Library of Congress - https://www.loc.gov/item/today-in-history/may-08/

The recent news that a study found that retailers are timing the advertising of number of products, such as soda pop, that are popular with food stamp recipients to coincide with the timing of when the federal government reloads Supplemental Nutrition Assistance Program (SNAP) benefit funds onto their Electronic Benefit Transaction (EBT) cards, ranks right up there with the kinds of stories that come out whenever huffy reporters are shocked to discover that there is gambling going on at their local casino.

Here's another news flash: the same retailers do exactly the same thing with the kinds of products favored by senior citizens, only here, the timing of the ads coincides with when Social Security checks are mailed out each month.

It's the result of something called "market research", and it has been a thing that retailers have been doing for decades to get to know their customers better. Here, retailers who pay attention to the kinds of things that their customers buy throughout the course of a month, and do so so for month after month while also making note of the visible characteristics of their customers, are seeking to find regular and repeating patterns in their consumer behavior. If they identify any such patterns, they will adapt their retailing strategies to accommodate those regular consumers so that they have the kinds of products available to buy when they're shopping for them and, horror of horrors, will use advertising to communicate that they do.

Understanding that is why we found the following comments of an assistant professor of health and social policy at Johns Hopkins University, who helped conduct the study, somewhat amusing:

“People will argue that individuals are ultimately responsible for their choices, but we know that the environment in which we make choices matters,” Moran said. “This study is another example of industry targeting sugary beverage marketing toward lower income families.”

This study is the first to tie food advertising to SNAP distribution patterns. Because food-stamp benefits are dispersed in a lump sum each month, and because many recipients spend those funds within a week of receiving them, stores frequently see higher sales and traffic in the days after benefits get reloaded.

[...]

“I’ve worked with a lot of work with retailers, and I know that retailers are very attuned to when households receive benefits,” Moran said. “When you think about it, it makes a lot of sense: If you operate in a state where everyone receives benefits on the same day, there’s a huge financial incentive on that day to heavily market popular items.”

Moran cautions that her data is only from New York and that patterns may differ in other states. She also can’t say whether grocery stores or soda producers are to blame.

We'll go out on a limb and say that there are almost certainly very similar if not identical patterns in every other state. We'll also say that in addition to grocery stores and soda producers, there's another party, aside from market research firms, behind the pattern Moran has observed: the low income consumers who receive and use SNAP benefits, who are also actively participating in these transactions!

But what to do about this newly perceived problem? Our intrepid researcher has an idea....

Fortunately, Moran said, the fix for this particular problem may be simple: States could issue food stamps on a rolling basis. On the national level, the Department of Agriculture could extend rules for SNAP-approved retailers to include marketing practices.

It's not a bad idea as it goes. Rather than dumping welfare benefits into the economy on the same days each month, the federal government could distribute the same amount of benefits in smaller, more frequent installments, which would introduce less distortion into local economies when compared with the disproportionate monthly spike that the current approach generates.

But shouldn't we also be looking at taking products like soda pop, which is perceived by many to be unhealthy, off the list of approved products that can be bought using SNAP's food stamp benefits? There certainly have been an increasing number of politicians seeking to have the program changed this way, despite studies that suggest little connection between food stamp use and adverse health conditions such as obesity.

But Moran did not back the growing calls to ban soda from the food-stamp program. Public health experts and conservative reformers have asked Congress to include such a ban in the 2018 Farm Bill, which they say would save money and improve nutrition.

Moran argues there's no evidence a ban would cut down on soda-drinking, because SNAP recipients could always just buy beverages with cash. Worse, she said, by ignoring marketing and other systemic issues, the ban would address the symptoms — and not the causes — of the income/nutrition gap.

This is where Moran starts getting into a bit of trouble. What our intrepid researcher doesn't appreciate is that all products that are eligible to be purchased through SNAP food stamp benefits are completely exempt from state and local sales taxes. That sales tax exemption means that SNAP welfare benefit recipients can buy larger quantities of products like soda pop than regular cash-paying non-SNAP households can when spending an identical amount of money.

In other words, when compared with non-SNAP households, many of the households that receive SNAP benefits have an additional financial incentive to buy larger quantities of products like soda pop, where their costs are discounted by the percentage of sales tax that they would otherwise have to pay if they spent cash from their ordinary income - especially in the 35 states that allow their full state and local sales taxes to be levied on the sale of soda.

On a side note, we believe that's the main motive behind many politicians seeking to get soft drinks off the eligibility list for SNAP benefits. It would unquestionably increase state and local government sales tax revenues.

But before we might consider taking steps to remove that welfare-driven financial incentive, we really need to know what impact that stripping the eligibility of soda pop to be paid for with SNAP food stamp benefits might have. As we saw in Philadelphia, when that city taxed soft drinks, it directly coincided with a pronounced increase in the consumption of alcohol-based beverages that became more relatively affordable after the city jacked up the cost of soft drinks with its controversial soda tax, which many people would argue leads to undesirable outcomes.

What we need is a proper experiment. What would it take to get one going?

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June 19, 2018
New Cover Design for U.S. Patents

The U.S. Patent and Trademark Office has issued its 10,000,000th utility patent! To mark the occasion, the USPTO also introduced a new patent cover design.

On June 19, the U.S. Patent and Trademark Office will issue patent number 10 million—a remarkable achievement for the United States of America and our agency. More than just a number, this patent represents one of ten million steps on a continuum of human accomplishment launched when our Founding Fathers provided for intellectual property protection in Article 1, Section 8, Clause 8 of our Constitution.

Appropriately, patent number 10 million will be the first issued with a new patent cover design, which we unveiled in March at South by Southwest in Austin, Texas. It was created by a team of USPTO graphic designers including Rick Heddlesten, Teresa Verigan, and led by Jeff Isaacs. Like the numerical milestone, the new cover design celebrates both how far we have come and the new frontiers we have yet to explore.

So it will be prettier than its 9,999,999 predecessors. But we won't know more than that until U.S. Patent 10,000,000 is officially issued later today. We'll update this post after it has been released sometime after 9:00 AM EDT....

Update 9:45 AM EDT: It's been released - it's a laser detection and ranging system that has been issued to Raytheon!

U.S. Patent 10,000,000 Page 1 Illustration

Here's the abstract:

A frequency modulated (coherent) laser detection and ranging system includes a read-out integrated circuit formed with a two-dimensional array of detector elements each including a photosensitive region receiving both return light reflected from a target and light from a local oscillator, and local processing circuitry sampling the output of the photosensitive region four times during each sample period clock cycle to obtain quadrature components. A data bus coupled to one or more outputs of each of the detector elements receives the quadrature components from each of the detector elements for each sample period and serializes the received quadrature components. A processor coupled to the data bus receives the serialized quadrature components and determines an amplitude and a phase for at least one interfering frequency corresponding to interference between the return light and the local oscillator light using the quadrature components.

For applications, a LADAR system like the one described in the patent would have the capability of replacing radar as a means for detecting objects in flight or on the ground. For Raytheon, which manufactures both missile and anti-missile systems, such a system would be less vulnerable to detection, which would make the company's bread and butter products less vulnerable to attack while remaining very capable of detecting and targeting threats.

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June 18, 2018

Last week, we listed three possible outcomes for how the trajectory of the S&P 500 would evolve after we reached the effective end of 2018-Q2.

Well, we reached the effective end of 2018-Q2 with a quadruple witching event on Friday, 15 June 2018, and we may have gotten an indication of where investors are investors will be shifting their forward-looking attention next: toward the distant future quarter of 2019-Q1.

Alternative Futures - S&P 500 - 2018Q2 - Standard Model - Snapshot on 15 Jun 2018

Truth be told, the jury is still out on whether that is really the case. It is still quite possible that investors are splitting their attention between 2019-Q1 and the nearer term future quarter of 2018-Q4, where they may just be putting a higher weight on the expectations associated with the more distant future quarter in setting today's stock prices. Which wouldn't be a bad outcome for investors because at least it doesn't coincide with a decline in stock prices.

As for the news of the week, which was described in some quarters as "the most important week of 2018", the market's reaction to all that news could be summarized as "meh", where even a new round of tariffs being imposed by the U.S. and China on goods exported by each to the other on Friday didn't contribute much more than a trivial level of noise to the market on the last day of the second full week of June 2018.

Monday, 11 June 2018
Tuesday, 12 June 2018
Wednesday, 13 June 2018
Thursday, 14 June 2018
Friday, 15 June 2018

Barry Ritholtz succinctly summarized Week 2 of June 2018's economic and market events, finding 8 positives and 5 negatives. If that doesn't intrigue you, there were also 5 "m/o/m" data points and one that was "w/o/w". (You really have to dig for points of interest on those "meh" weeks!)

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