Political Calculations
Unexpectedly Intriguing!
July 21, 2017

If you work for a modern American corporation, whether at an office or from home, you have the kind of conference calls that only today's modern Internet technologies make possible: really awful ones.

You know what we mean, and so do the creative minds at I-am-bored, who posted the only possible way to make it through the ordeal of interacting with your professional colleagues in the online world with any shred of your sanity intact: by turning each Skype, Lync or Facetime meeting into a game of Conference Call Bingo!

Here's the basic game card:

Conference Call Bingo Card

Armed with this card, rather than multitasking as most Americans workers might attempt during such an event, you now have an incentive to hang on every word spoken during each conference call so you can catch every one of the typical statements made by the attendees of today's conference calls as they make them, where we encourage you to shout "Bingo" if you get five in a row. Or get all four corners and the center square. Or, for a real challenge, see if you can completely fill your card during the duration of the call!

Of course, you should set your headset or microphone to mute when you announce each victory. Your managers will greatly appreciate your concentrated focus on the matters being discussed during their calls and presentations, but even though they and your company's IT department are the ones who hooked you up to today's online meeting technology, we're afraid that because they did, they're not eligible to play....

Previously on Political Calculations


July 20, 2017

Last November, the USDA published a report that provides some insight into the kinds of food and drink items that recipients of its Supplemental Nutrition Assistance Program (SNAP), which used to be called "Food Stamps", are buying up with their government-issued EBT cards.

In the chart below, we've taken the Top 10 items from Exhibit 6 of the report, which lists the millions of dollars of eligible food and drink commodities that SNAP recipients were determined to have bought in transactions using their EBT cards, and shown how the spending for those items compares to the total amount of spending that was counted in the study.

The Value of What's in the Shopping Carts of SNAP Benefit Recipients, 2016

Together, SNAP benefit recipients purchases of the Top 10 food and drink categories accounted for over one-quarter of all the spending on eligible food and drink items captured in the report. The most popular category, soft drinks, alone accounted for over 5.4% of all purchases, or about $1 of every $18.38 spent.

It's important to recognize that SNAP recipients will often use a combination of their regular income and their SNAP benefits to purchase groceries. For example, a single individual in New York City who has $825 in income per month can augment that income with a monthly SNAP benefit of $194 per month (a lower amount of SNAP benefits can be obtained for such single, childless, working-age individuals with incomes of as much as $1,285 per month).

Since these benefits are exempt from federal, state and local income taxes, and are also exempt from state and local sales taxes, SNAP recipients can maximize their benefits by using them to buy items that would otherwise be subject to state and local sales taxes. For example, in New York once again, items like carbonated soft drinks, candy and grocer-prepared food like sandwiches, are subject to the state's sales tax rate of 4%, where the city of New York would pile on an additional local sales tax rate of 4.49%, which makes it possible for SNAP benefit recipients to buy 8.49% more of these kinds of groceries in New York City with their benefits than they can with their regular income.

And for that matter, that much more than what people who don't receive SNAP benefits can buy with the same amount of cash, although the amount of this kind of extra tax-free benefit will vary by state, city and county!

Data Source

Garasky, Steven, Kassim Mbwana, Andres Romualdo, Alex Tenaglio and Manan Roy. Foods Typically Purchased by SNAP Households. Prepared by IMPAQ International, LLC for USDA, Food and Nutrition Service, November 2016. [PDF Document].

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July 19, 2017

There is a rather strong correlation between changes in the acceleration of nominal private sector debt in the U.S. and the direction of growth for the nation's real GDP growth rate. In a nutshell, we've found that "nearly 88% of periods in which the trailing twelve month average of private debt acceleration declined or was negative occurred when the U.S.' real GDP growth rate was falling", indicating that changes in the acceleration of private debt is a good predictor of the direction of GDP growth.

So what does the Federal Reserve's latest data for the change in the growth rate of private debt in the U.S. economy tell us today?

Acceleration (Change in Year Over Year Compounded Growth Rate) of Private Debt in the United States, January 2007 - March 2017

If we go by past history and assume that the momentum in 2017-Q1 will continue into 2017-Q2, there's a really strong likelihood that the U.S.' real GDP growth rate for the soon-to-be reported quarter of 2017-Q2 will have expanded over the 1.4% rate of growth that was reported for 2017-Q1.

That's it - we're going to keep the analysis short and sweet today! If however you want to know more about how and why this forecasting approach works, please follow the links below....

Data Sources

U.S. Federal Reserve. Data Download Program. Z.1 Statistical Release (Total Liabilities for All Sectors, Rest of the World, State and Local Governments Excluding Employee Retirement Funds, Federal Government). 1951Q4 - 2017Q1. [Excel Spreadsheet]. Online Database. 8 June 2017. Accessed 18 July 2017.

U.S. Bureau of Economic Analysis. Table 1.1.1. Percent Change from Preceding Period in Real Gross Domestic Product.
1947Q1 through 2015Q3 (second estimate). Online Database]. Accessed 18 July 2017.


National Bureau of Economic Research. U.S. Business Cycle Expansions and Contractions. [PDF Document]. Accessed 14 December 2015.

da Costa, Polyana and Ponder, Crissinda. How Fed Moves Affect Mortgage Rates. (Timeline for Federal Reserve Quantitative Easing Programs QE 1.0 through 3.0). [Online Article]. 17 September 2015. Accessed 14 December 2015.

Previously on Political Calculations

Political Calculations. The Position, Velocity and Accelration of Private Debt in the U.S.. 5 November 2015.

Political Calculations. The Correlation Between Decelerating Debt and Falling GDP. 12 November 2015.

Political Calculations. QE and the Acceleration of Private Debt in the U.S.. 18 November 2015.

Political Calculations. Private Debt Decelerates in 2015Q3, Real U.S. GDP Follows. 15 December 2015.

Political Calculations. Slowing Private Sector Debt and the Slowing Economy. 16 March 2016.

Political Calculations. Private Debt: U.S. Growth Likely Rebounding in 2016-Q2. 28 June 2016.

Political Calculations. Private Debt in U.S. Rebounds in 2016. 27 September 2016.

Political Calculations. Acceleration in Private Debt Boosts U.S. GDP. 19 January 2017.

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July 18, 2017

Carbon dioxide. It's not just a constituent gas in the Earth's atmosphere, it's also an alternative economic indicator for the entire planet's economy!

Or at least we'd like to make it into one, with the idea that changes in human activities are accompanied by changes in energy production, where additional carbon dioxide finds its way into the atmosphere as a by-product of those activities.

To that end, the following chart shows the average Parts Per Million (PPM) of carbon dioxide that has been measured at the Mauna Loa Observatory in each month from January 1960 through June 2017.

Parts per Million of Atmospheric Carbon Dioxide in Earth's Atmosphere, January 1960 - June 2017

In this chart, we see both the rising trend for the concentration of atmospheric carbon dioxide along with its seasonal variation, as the amount of carbon dioxide in the air has increased with economic growth around the world. In our next chart, we'll focus just on the year over year change in the amount of CO2 measured in the Earth's atmosphere.

Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 1960 - June 2017

In this chart, we've identified two anomalous periods, in 1997 and in 2015, where large scale wildfires in Indonesia greatly skewed the amount of carbon dioxide entering into the Earth's atmosphere, which was subsequently measured at the Mauna Loa Observatory in Hawaii. With the end of the spike for the 2015 Indonesia wildfire, we find that the year over year change in the pace at which carbon dioxide is being added to the atmosphere has fallen back to the typical range it has been outside of anomalous events since 1997, and in fact, we find it in the lower end of that range, suggesting a cooling global economy in June 2017 after a period of growth.

We also confirm a rising trend over time in considering the bigger, longer term picture, which coincides with the economic performance of the global economy. In our next chart, we'll account for the annual seasonality in the data by calculating the trailing twelve month moving average of the year over year change data, where we'll also identify major economic events that coincided with those changes.

Trailing Twelve Month Average of Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 1960 - June 2017

Following the end of the 2015 Indonesia wildfires effect on atmospheric carbon dioxide, the trailing twelve month average is presently falling rapidly, which will continue through much of the rest of this year as the levels of CO2 in the air resume changing in step with productive human activity around the globe and its seasonal variations.

And if you want to see where the growth has or hasn't happened, say between 2012 and 2016, check out the new nighttime map of Earth!

Data Source

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. File Transfer Protocol Text File].
Updated 5 July 2017. Accessed 5 July 2017.

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July 17, 2017

In the third week of July 2017, Fed Chair Janet Yellen may very well have single-handedly reversed the momentum for short term interest rate hikes at the U.S. Federal Reserve.

Writing at Real Investment Advice, Lance Roberts had perhaps the best summary of what happened when the Fed's Yellen testified before the U.S. Congress on Tuesday, 11 July 2017:

As I noted in yesterday's missive, Yellen's recent testimony on Capitol Hill sent robots frantically chasing asset prices on Thursday even before testimony began. The catalyst was the release of prepared testimony which included this one single sentence:

"Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance."

And on that statement, doves flew and algorithms kicked into to add risk exposure to portfolios. Why? Because she just said that rates will remain low forever. As my partner, Michael Lebowitz, noted yesterday:

"Per Janet Yellen’s comment, the 'neutral policy stance' is another way of saying that the Fed funds rate is appropriate or near appropriate given current and expected future economic conditions.

Two weeks ago, several fed officials were working hard to set the expectation that the Fed would hike its Federal Funds Rate again at its upcoming September 2017 meeting, in the current quarter of 2017-Q3, where investors were split between that quarter and 2017-Q4 as being the most likely timing for the Fed's next move to increase U.S. short term interest rates.

But after Yellen's congressional testimony, investors are betting that won't act to increase interest rates again until the first quarter of 2018 (2018-Q1), at the earliest.

We've been paying attention to CME Group's FedWatch Tool, which uses Fed Fund futures to anticipate the level that the Federal Funds Rate set by the Fed will be on the dates when the Fed meets. In the following chart, which we've animated, we'll scroll through what those futures indicate the probabilities for how the rate will be set after its upcoming September 2017, December 2017 and March 2018 meetings.

CME FedWatch Tool, 2017-Q3, 2017-Q4, 2018-Q1 Federal Funds Rate Probabilities, Snapshot on 2017-07-14

With the Federal Funds Rate currently set between 100 and 125 basis points (bps), the CME FedWatch tool is indicating that the market is betting that the Fed will hold its rate at that level through the end of 2017, where increasing it by a quarter percentage point only becomes the most probable outcome after its 21 March 2018 meeting, and even then, it gives only 45% odds of it doing so.

At least, as of when we took a snapshot of the data on 14 July 2017. There is a lot of time between then and now where a lot can happen.

Now, the cool part is that because the Fed influences how far forward in time investors are willing to look ahead, we can use the information provided by CME's FedWatch tool to identify just how far forward. And given what we've found out in the last week, it is very much in the ballpark of 2018-Q1, which would appear to match what our dividend futures-based model for forecasting the value of the S&P 500 suggests.

Alternative Futures - S&P 500 - 2017Q3 - Standard Model - Snapshot on 14 July 2017

If that holds, unless 2017-Q3's earnings season is accompanied by significant dividend increases, we may be near the peak for the S&P 500 in the quarter.

Of course, it's possible that new information about business conditions in the U.S. or the efforts of more hawkish Fed officials might succeed in directing investors to refocus their attention on points of time in the nearer term future, which would affect stock prices correspondingly, but for now, we think that the Fed is unlikely to shift the market's attention on the future in the absence of compelling data for it to do so.

Meanwhile, the news headlines for Week 3 of July 2017 back up what the FedWatch tool indicates about the future focus of investors.

Monday, 10 July 2017
Tuesday, 11 July 2017
Wednesday, 12 July 2017
Thursday, 13 July 2017
Friday, 14 July 2017

Elsewhere, Barry Ritholtz captured the pluses and minuses for the U.S. and global economy in Week 3 of July 2017.

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