Earnings season for 2018-Q3 is off to a positive start, and with the S&P 500 now just 2% away from setting new records, investors have shifted a portion of their forward-looking attention away from 2019-Q1 to focus on the current quarter.

At least, that's one interpretation that explains what we're seeing in the alternative futures spaghetti forecast chart for the S&P 500.

Assuming that it is 2018-Q3 that they're focusing upon, it looks like investors are placing about 25% of their attention on 2018-Q3 and about 75% on the more distant future quarter of 2019-Q1 in setting today's stock prices.

The main question for the market going forward is to what extent might the ongoing tit-for-tat tariff wars negatively affect the business outlooks of traditional S&P 500 firms and to what extent might the updated outlooks of the index' biggest tech firms offset that impact.

So the upcoming fourth week of July 2018 could be a week with a lot of market-moving news. Unlike last week, which was pretty uneventful where moving the market was concerned....

Monday, 16 July 2018

• Oil's 4 percent tumble weighs on energy shares; banks rally
• Fed's Kashkari, citing yield curve, wants rate hike pause
• S&P 500 dips as energy shares fall; Netflix tumbles late after results

Tuesday, 17 July 2018

• Oil steadies on U.S. stockpile forecasts, Venezuela worries
• Fed's Powell: Years of strong jobs, low inflation still ahead
• Fed's George sees 'excellent' economy, wants more rate hikes
• Wall St. climbs on Powell comments, earnings

Wednesday, 18 July 2018

• Oil rises on bullish demand signals, even as U.S. stockpiles grow
• U.S. crude oil output hits 11 million barrels per day for first time ever
• S&P 500 climbs to over five-month high on strong earnings

Thursday, 19 July 2018

• Brent slips as focus returns to oversupply
• Trump criticizes Federal Reserve interest rate policy despite strong economy
• U.S. stocks fall on sour earnings, trade fears

Friday, 20 July 2018

• Oil strengthens as dollar slips to four-day low
• Trump threatens tariffs on all $500 billion of Chinese imports
• Wall Street slips as trade worries dampen upbeat earnings

For more background, Barry Ritholtz has summarized the top six positives and negatives for markets and economics news in Week 3 of July 2018.

We missed it when it first came out, but nearly 1.2 million views later, if solving quadratic equations is still burning your waffles, you might want to enroll in the rap-to-'rithmetic school of learning....

It could be worse. You might be compelled to get triggy with it.

It's not your imagination. Hiphop sold out and went mainstream a long time ago.

Others in the series:

• All I Do Is Solve (systems of equations)
• Graph!
• Solve Me Maybe (using inverses)
• Super Base (exponents)
• Teach Me How to Factor

The Pennsylvania Supreme Court ended months of potential legal jeopardy for Philadelphia's controversial sweetened beverage tax on Wednesday, 18 July 2018, when it ruled that the tax would be considered to be lawful under Pennsylvania's state constitution.

In a 4-2 majority opinion, the court found that the city had not violated state law by taxing the distribution of beverages. Opponents of the tax had argued that the levy amounted to double taxation because it is passed down to consumers who already pay sales taxes.

The ruling provided a more secure future for the 1.5-cents-per-ounce tax that funds Pre-K, community schools and improvements to parks, libraries, and recreation centers and ended a case that had been closely watched by other cities since Philadelphia became the first big U.S. city to pass a tax on soda and sweetened beverages in 2016.

The state high court's decision largely hinged on whether the well established economics principle of tax incidence would be recognized within the state of Pennsylvania, which is evident from one of the dissenting minority opinions for the case.

The opinion affirmed a ruling issued last year by the state’s Commonwealth Court. Justices Max Baer, Debra Todd, and Christine Donohue joined Saylor in the majority. Justice David N. Wecht and Justice Sallie Updyke Mundy each wrote dissenting opinions. Justice Kevin M. Dougherty, who is from Philadelphia, did not participate in the case.

Wecht, in his dissent, called the idea that the city’s tax is levied on beverage distribution “convenient fiction,” writing instead that taxing distribution of beverages specifically intended for retail sales is an illegal duplication of the state sales tax.

“A rose by any other name smells just as sweet, and, whether styled a retail tax or a distribution tax,” he wrote, and the tax at issue ends up “burdening the proceeds from the retail sale of sugar-sweetened beverages.”

A nearly identical tax in Chicago was repeatedly blocked under Illinois' state law and federal law by that state's judges who recognized the tax incidence concept back in 2017, forcing that city's legislators to considerably revise it before being allowed to go into effect. That soda tax subsequently proved to be so unpopular that it was repealed after two months of being in effect.

Philadelphia's beverage tax has likewise been unpopular, where it has underperformed both city officials' original expectations and their subsequently lowered expectations.

It definitely hasn't been the kind of reliable source of tax revenue for funding things like park improvements, community schools or "free" pre-Kindergarten/daycare programs that Philadelphia residents might have hoped to have. Then again, Philadelphia city officials might want to rethink their plans for instituting a city-wide pre-K program, given the surprisingly negative results for a large, randomized control trial that were just recently reported.

Not to mention the apparently massive problems that Philadelphia city officials have with responsibly handling taxpayer money, but that's a different story for another day!

How well are typical American households faring through this point of time in 2018?

To answer that question, we're going to turn to a unique measure of the well-being of a nation's people called the "national dividend". The national dividend is an alternative way to measure of the economic well being of a nation's people that is primarily based upon the value of the things that they choose to consume in their households, which makes it very different and, by some accounts, a much more effective measure of their state than the more common measures that focus upon income or expenditures that apply at all levels of the economy, such as GDP, which have proved themselves to not be well suited for the task of assessing the economic welfare of the people themselves.

To get around that problem, we've developed the national dividend concept that was originally conceived by Irving Fisher back in 1906, but which fell by the wayside in the years that followed because of the difficulty in collecting the household consumption data needed to make the analysis possible. It wasn't until we got involved in 2015 that anybody thought it might even be possible to develop with the kind of data that has become available in recent decades, where we've been working to make the national dividend measure of economic well-being into a reality.

With that introduction now out of the way, let's update the U.S.' national dividend through the end of May 2018 following our previous snapshot that was taken for data available through September 2017.

Through May 2018, the national dividend continues to indicate that America's households are enjoying a robust improvement in their overall economic welfare, having grown from a preliminary estimate of $7.63 trillion (or a revised $7.78 trillion) in September 2017 to a new high of $8.13 trillion through May 2018.

Notes

This is the first update that we've had since December 2017, where we've largely kept this analytical series on the back burner following Sentier Research's suspension of its monthly household income estimates data series from May 2017 to March 2018. With Sentier Research having resumed presenting their data series, we hope to present the national dividend on a more frequent basis.

We've incorporated the U.S. Census Bureau's April 2018 update to the estimated number of households in the U.S. in today's analysis, which covers data through March 2018. We're using projections of the number of households for April and May 2018, which we've based on recent historic trends, where we will subsequently revise this data as Census estimates become available.

Postscript

If you look closer at the history of our chart, you'll see the very real impact to American households of the most inappropriately contractionary monetary policy that the Federal Reserve ever implemented outside of the Great Depression. If you want to find out more about that event, check out this very timely article at Forbes....

Previously on Political Calculations

The following posts will take you through our work in developing Irving Fisher's national dividend concept into an alternative method for assessing the relative economic well being of American households.

• Calculating the National Dividend - we revive Irving Fisher's concept for calculating a "national dividend".
• The National Dividend vs GDP - perhaps the best way to think of the national dividend is that it is the part of GDP that filters through to regular American households. As such, it's the part of GDP that matters.
• An Almost Perfect Correlation - we discover a unique relationship that enables our subsequent work to make the national dividend into a near-real time measure of the economic well-being of American households.
• Developing the National Dividend Into a Monthly Economic Indicator - just that!
• The National Dividend in 2015-Q2
• Replacing GDP with the National Dividend - our anniversary post from 2015!
• Calculating the U.S. National Dividend through April 2016
• Update: The National Dividend Through December 2016
• The U.S. National Dividend Through April 2017
• The U.S. National Dividend Through 2017-Q3

References

Chand, Smriti. National Income: Definition, Concepts and Methods of Measuring National Income. [Online Article]. Accessed 14 March 2015.

Kennedy, M. Maria John. Macroeconomic Theory. [Online Text]. 2011. Accessed 15 March 2015.

Political Calculations. Modeling U.S. Households Since 1900. 8 February 2013.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Total Average Annual Expenditures. 1984-2015. [Online Database]. Accessed 7 February 2017.

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 16 July 2018.

Baseball's All Star Game (also known as the "Midsummer Classic", although nobody outside of the evil influence of Major League Baseball's marketing staff calls it that) is upon us once again, and once again, thanks to many more years of uninteresting execution, we have to recognize that it's kind of a disaster.

Perhaps not as big a disaster as the National Football League's Pro Bowl or the National Basketball League's All-Star Game, but still, for a game that calls itself the "national pastime", fans deserve better.

We have an idea for how to fix baseball's All Star Game that was ahead of its time back in 2009 when we first proposed it, but may now be more relevant given the recent experience of major league baseball players. Let's recap....

Once upon a time, baseball's All Star Game was a competitive event. Joe Sheehan describes the "good old days":

Baseball’s All-Star Game was once a cutthroat battle between two distinct and competitive entities, one of just two times all season that the leagues interacted. The game was played largely by the very best players in baseball, and those players often went the distance. If you wanted to see Babe Ruth face Carl Hubbell, or Bob Feller take on Stan Musial, or Warren Spahn pitch to Ted Williams, the All-Star Game was just about your only hope.

In the modern era, the All-Star Game has been reduced to the final act of a three-day festival, in recent seasons often overshadowed by the previous night’s Home Run Derby. Rather than a grudge match between rivals, it’s an interconference game like the NFL, NBA, and NHL events. The individual matchups, once unique, have been diluted by interleague play.

But that's not the worse part. Sheehan goes on to describe how players and managers used to approach the game, comparing the past to how things are done today:

In the first All-Star Game back in 1933, the starting lineups went the distance. The AL made just one position-player substitition, getting legs in for Babe Ruth late in the game. In the NL, the top six hitters in the lineup took all their at-bats. Each team used three pitchers. A quarter-century later, this was still the general idea: seven of the eight NL position-player starters in the 1958 game went the distance, five AL hitters did, and the teams used just four pitchers each. The best players in baseball showed up trying to win to prove their league’s superiority.

Then it all went awry. Before interleague play or 32-man rosters or All-Star Monday, there were the years of two All-Star Games. From 1959 through 1962, the AL and NL met twice each summer as a means of raising revenues for the players’ fledgling pension fund. In '58, 32 players played in the All-Star Game, 12 of them staying for the entire game. In 1963, the first year after the experiment, 41 players played and just five went the distance. The 1979 game, one of the all-time best contests, saw 49 players used and had just three starters who were around at the end. Fast-forward to 2007—the last nine-inning All-Star Game—and you find 55 players in, 17 pitchers used to get 54 outs, and not a single starter left in the game at its conclusion.

The All-Star Game has lost its luster because the game isn’t taken seriously by the people in uniform. Don’t read what they say—watch what they do. That’s the damning evidence that the participants care less about winning than they do about showing up.

So what to do? In recent years, Major League Baseball has tried to incentivize the players and managers of the teams representing the National League and American League by awarding home field advantage in the World Series to the team from the winning league in the All Star Game. But is that really working?

Given that the managers of each league's all-stars are the managers of the teams that went to the previous year's World Series, who most often by the All-Star Game know that their own teams are unlikely to repeat, what's the point? If they're not in the running by that point of the season, why manage their All-Star team to win for an advantage they themselves won't realize? The same fact holds especially true for the players, with maybe as many as a half-dozen on each side playing for teams with a realistic shot at making it to the World Series in the fall.

Bob Ryan describes how history has played out since league home-field advantage has been made the purpose of the All-Star Game:

Sadly, Bud Selig and his marketing minions don’t get it.

Bud is haunted by the tie game in his own hometown seven years ago. It was second only to the cancellation of the 1994 World Series as the worst event of his tenure as baseball commissioner, and he is determined it will not happen again. He thinks the solution is to expand the rosters for Tuesday night’s game into the absurdly bloated 33 players apiece, 13 of whom will be pitchers. As is almost invariably the case in these matters, more is less.

In order to restore so-called “meaning’’ into the game, Bud declared that, beginning with the 2003 game, the teams would be playing for home-field advantage in the World Series. That hasn’t prevented the American League from winning the first six games played under this policy, nor has it prevented the National League from winning the World Series despite lack of said home-field advantage in 2006 and 2008.

But neither of those are the point. The truth is that Bud wants it both ways. He wants the game to be played for a proper prize, and yet he has allowed the game to evolve into something far less than a real baseball contest.

Ryan argues that the way to make the All-Star Game more meaningful would be to shrink each team's roster back to 25 players and tell the managers to focus on winning, but still, they're having to go out of their way to play a game that offers nothing of real value to either the players or the managers.

If you're a player, why risk injury by playing your heart out? If you're a manager, why not coach by the same rules that apply to T-ball, where everybody getting a turn is more important than winning the game?

Here's our idea: put a real world championship at stake in the All-Star Game. Create two potential teams to represent the United States in the World Baseball Classic, Olympics or other international competition that might apply, one from the National League, the other from the American League. Players for the team that wins the All-Star Game would then be the ones that would literally get to go for the gold for the next year.

That might create a problem in selecting players, given the increasing internationalization of baseball in the United States. Here, at least 25 of the players selected for each team, covering each needed position for international play, would have to be selected to satisfy the eligibility rules to represent the U.S. Additional players, who might not be eligible to represent the United States, could then fill out the remaining slots on each team's roster to bring the total up to 33.

With the opportunity to coach the team in international play, that might make for a real challenge for managers, who would be compelled to put the best players possible out on the field in the All-Star Game, regardless of eligibility, who might then have to face those same additional players on other teams in international play.

And wouldn't that, just by itself, be a lot more interesting than how the All-Star Game is played today.

What's different in 2018 that wasn't the case in 2009 is the positive experience that major league baseball players had in the 2017 World Baseball Classic, which for many, was the first time that they were encouraged to have fun on the field since they played Little League. Baseball's attempted expansion into World Cup-style international play may provide the incentive the sport needs to transform its All-Star Game into something more meaningful.