How Many Pages Long Is the U.S. Income Tax Code in 2013?

To contact us Click HERE

According to the CCH Standard Federal Tax Reporter, as of 2013, it now takes 73,954 regular 8-1/2" x 11" sheets of paper to explain the complexity of the U.S. federal tax code!

Believe it or not, that represents an improvement from the trend that has existed since the end of World War 2, where the tool we developed to project the number of pages needed to explain the U.S. income tax code had anticipated that 77,030 pages would be needed in 2013.

You might think that our tool being "off" by 3,076 pages might depress us, especially after our tool was just 1.3% (or 956 pages) off from 2012's total of 73,608 pages. But it's really a cause for celebration, especially when you consider the real reason why the U.S. tax code isn't growing as much as our tool would project: it's an ongoing benefit of having perhaps the laziest U.S. Senate ever in U.S. history, while the more functional U.S. House of Representatives is controlled by the opposing political party!

So if the U.S. income tax code only grows by 346 pages instead of the 3,076 that the post-World War 2 trend would have predicted, count your blessings that you live in a country where having different political parties in control of different branches of the government results in the kind of non-productivity that can prevent truly bad things from happening.

Teens, Young Adults and President Obama's Minimum Wage

To contact us Click HERE

What effect might President Obama's 2013 State of the Union address proposal to increase the U.S. federal minimum wage from $7.25 per hour to $9.00 per hour have upon teens and young adults?

That question is especially relevant because teens and young adults between Age 15 and 24 represent approximately half of all minimum wage earners in the United States, not to mention making up a disproportionate share of individuals who earn wages just above that level.

To find out, we tapped the U.S. Census Bureau's detailed income data for the Age 15-24 population that it collected in 1995, when the U.S. federal minimum wage was $4.25 per hour, so we can see what effect raising the minimum wage to today's $7.25 per hour had on this age group through the data the Census Bureau collected in 2012 [1].

Our first chart adds up all the income earned by individuals between the ages of 15 and 24 in the United States in both 1994 and 2011 [2], both in originally reported values and in terms of constant 2011 U.S. dollars:

This result is pretty remarkable. In nominal terms, the aggregate income earned by all 15-24 year olds in 1994 adds up to more than $236.8 billion, while the aggregate income of those Age 15-24 in 2011 adds up to over $358.8 billion. But when we adjust for the effect of inflation, we see that the total amount of money paid out to 15-24 year olds in each year is almost identical!

In a sense, it is almost as if the employers of U.S. teens only have a fixed amount of revenue that they can use to pay them.

Next, we determined what the minimum wage for 1994, 2011 and the President Obama's proposed minimum wage in 2013 would be in terms of constant 2011 U.S. dollars:

Here, we find that although the U.S. federal minimum wage has grown by 70.6% from 1994's $4.25 per hour to 2011's $7.25 per hour, in inflation-adjusted dollars, it has really only increased by 12.4%, from $6.45 constant 2011 U.S. dollars in 1994 to $7.25 per hour today.

Meanwhile, President Obama's proposed increase to $9.00 per hour would represent a raw increase of 24.1%, which works out to be a 21.7% increase (to $8.82 in constant 2011 U.S. dollars) after we adjust for inflation.

In our next chart, we answer a hypothetical question by dividing the aggregate income of all 15-24 year olds in the U.S. by dividing it by the minimum wage for each year: how many equivalent hours of work would it take to earn all the aggregate income earned by all individuals Age 15-24 in each year if it was all earned at the federal minimum wage that applied in each year?

This is where that remarkable result we illustrated earlier comes into play. Because the employers of 15 to 24 year old Americans don't have any more money available in real terms to pay their workers than they did in 1994, an increase in the minimum wage forces a reduction in the number of hours in which those Age 15-24 can be employed below their 1994 level.

In the chart above, we see that the 12.4% real increase in the minimum wage from 1994 to 2011 results in an 11.2% reduction in the number of hours that U.S. employers had available for teens and young adults to work. If President Obama's 21.7% real increase in the minimum wage were to go into effect today, the fixed amount of money that the employers of teens and young adults have available would reduce the number of equivalent minimum wage hours by 17.8% below the 2011 figure.

We should also note that the number of hours shown for each year in our chart above would represent the hypothetical maximum number of hours that U.S. employers would have available for all teens and young adults to work. Teens and young adults who earn more than the minimum wage would reduce the amount of money and hours available for those who earn less than they do, forcing many out of the job market altogether. The more who make more than the minimum wage, the more who will be locked out from even being able to be employed.

So how did that 12.4% real increase in the federal minimum wage play out in real life for 15-24 year olds in the United States? Our final chart shows the changes in the number of teens and young adults both with and without income in 1994 and 2011:

Here, we should first note that the population of 15-24 year olds in the United States increased by 6,823,000, from 36,294,000 in 1994 to 43,117,000 in 2011.

With that noted, we find that there are some 1,012,000 fewer teens and young adults with incomes in 2011 than there were in 1994, as the number of income earning teens and young adults fell from 27,026,000 to 26,014,000. Meanwhile, the number of teens and young adults without incomes skyrocketed by 7,835,000, rising from 9,268,000 in 1994 to 17,103,000 in 2011.

That 84.5% increase in the number of teens and young adults without any kind of measurable income in 2011 should not be surprising, given that over 89% of teens and young adults who do have incomes earned more than the federal minimum wage in this year - that high figure means that most of the impact will be felt by teens who are blocked by the minimum wage from entering the job market. In this case, that includes the entire increase in the teen population from 1994 to 2011. Remember our point about the "more who make more" than the minimum wage above!

In the absence of real economic growth boosting the revenues for the employers of teens and young adults, which would be what is needed to effectively counteract this effect, we can expect the same scenario to play out if President Obama's proposed minimum wage ever goes into effect.

In an upcoming post, we'll take on how much of a deadweight loss that would be imposed on the economy for just Age 15-24 year olds by implementing President Obama's poorly considered proposal. In the meantime, see the comments here for more insight on the outcomes that this proposal would really achieve.

Notes

[1] We selected 1995 because the U.S. Census Bureau only makes detailed income data for that year easily available in a digital-friendly format). We selected 2012 because it is the most recent year.

[2] The U.S. Census Bureau collects in March of each year, so its reported income figures really apply for the previous year, which is why we've indicated 1994 and 2011 in our charts.

[3] We've deliberately introduced a flaw in our analysis above (not the math, mind you!), so it conforms with how President Obama and many of his supporters see the world - we think that they should really have to explain why they are out to hurt teens and young adults so much if what they believe about income inequality is really true.

References

U.S. Census Bureau. Current Population Reports. Consumer Income. Series P60-189. Table: PINC-01. Selected Characteristics of Persons 15 Years and Over,By Total Money Income in 1994, Work Experience in 1994 and Sex (Numbers in thousands). September 1995.

U.S. Census Bureau. Current Population Survey. 2012 Annual Social and Economic Supplement. Table: PINC-01.Selected Characteristics of People 15 Years Old and Over, by Total Money Income in 2011, Work Experience in 2011, Race, Hispanic Origin, and Sex, Total Work Experience, Both Sexes, All Races. [Excel Spreadsheet]. September 2012.

Sahr, Robert. Inflation Conversion Factors for Years 1774 to Estimated 2022. [PDF Document].

Quarterly Data for the S&P 500, Since 1871

To contact us Click HERE

Did you know that there isn't anywhere on the web where you can go and get quarterly data for the S&P 500 before 1988? It's true, or at least it was true, until today!

Prior to today, the only place you could obtain data like the amount of dividends per share (DPS) or earnings per share (EPS) for S&P 500 companies was Standard & Poor, who only makes available the data since 1988 [Excel spreadsheet].

Meanwhile, you can obtain trailing year DPS and EPS data for the S&P 500 and its predecessor indices and component stocks from Yale's Robert Shiller [Excel spreadsheet], or perhaps more easily from our S&P 500 at Your Fingertips tool, which go all the way back to January 1871. Unlike Professor Shiller's spreadsheet, our tool also calculates the rate of return between any two calendar months you select, both with and without the reinvestment of dividends and with and without the effects of inflation.

It's a strange omission, if you think about it, because earnings and dividends are both reported and paid by the quarter!

So we're fixing that situation today. We've used S&P's available quarterly data since 1988 and our trailing year data to work out what the S&P 500's quarterly data would have to be for each quarter going all the way back to 1871-Q1.

You can access our data in the tool below, or if you prefer your data in graphical format, in the charts that appear below our tool:

Year and Quarter for S&P 500 Data
Input Data	Year	Quarter
Select Year and Quarter	1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012	1 2 3 4

Historic Quarterly Stock Market Data
Estimated Results	Values
Average Price per Share in Month Ending Quarter
Quarterly Dividends per Share
Quarterly Earnings per Share

Now for the charts covering the quarterly data for the S&P 500 and its predecessor indices and component stocks since the first quarter of 1871. Our first chart shows the S&P 500's average price per share in the month ending the quarter in question:

Next, let's look at the dividends per share that were paid out in each quarter from 1871-Q1 through 2012-Q4:

Our third chart reveals the earnings per share that would be reported for each quarter from 1871-Q1 through 2012-Q4:

If you're ever bored and looking for something to do, overlay the data for the price per share chart and the dividends per share chart - you might make a pretty unique discovery!

Update 16 February 2013: Speaking of which, it certainly would be a lot easier to make that discovery if we also made the Quarterly S&P 500 Data Since 1871-Q1 available to you in spreadsheet form!

Image Source: Northern California Grantmakers

LANGUAGE="JavaScript">

The Rejection of America's Volunteer Military

To contact us Click HERE

Today, we're revisiting the topic of the ages of those who served in the U.S. armed forces during World War 2, because we have new information to add to it!

Before we go any further, the reason we're doing this is because this information plays a key part in one of the projects we're developing behind the scenes here at Political Calculations, which we'll be presenting in bits and seemingly unrelated pieces throughout this year.

So what information are we adding today? Well, it's about the end of volunteerism and the institutionalization of mandatory conscription for filling the ranks of the U.S. Army, Army Air Corps, Navy and Marines during the Second World War.

Air Force Magazine's John T. Correll explains more about how the American tradition of volunteering for military service came to be rejected by the executive order of President Franklin D. Roosevelt:

In 1936, an obscure Army major, Lewis B. Hershey, was appointed the executive officer of the Joint Army-Navy Selective Service Committee, set up to prepare for possible mobilization. The panel consisted of two officers and two clerks. Hershey was a former schoolteacher who joined the National Guard in 1911 and transferred to the regular Army after World War I. Nobody, least of all Hershey, dreamed the job would last for decades....

When Germany in 1940 invaded the Low Countries and France, Congress authorized the first peacetime draft in American history. Inductions began in November 1940. The following year, Hershey was promoted to brigadier general and named director of the Selective Service.

A total of 10.1 million men were drafted during World War II. At the beginning of the war, men rushed to enlist, but, from Hershey’s perspective, that ruined orderly conscription. He persuaded President Roosevelt in December 1942 to end voluntary enlistments except for men under 18 and over 38.

Prior to President Roosevelt issuing Executive Order 9279 on 5 December 1942, American men between the ages of 21 and 36 were subject to the military draft. In his executive order, in addition to eliminating volunteerism and fixed-term enlistments, President Roosevelt also took advantage of legislation passed by the U.S. Congress on 11 November 1942 to expand the eligible age range to be subject to the draft to include all men from the ages of 18 through 37. Volunteering for service was only permitted for those under the age of 18 and up to the age of 45 who claimed they could satisfy the military's enlistment requirements.

The birth years that coincide with these age ranges are shown in our updated chart below:

The end of volunteerism with the draft explains why the average age of those who served in World War 2 is 26 - it is the middle of the range from which the pool of those conscripted were drawn into service in the years from 5 December 1942 through the end of the war in 1945.

But more importantly, with how the draft worked during World War 2, by lottery, the age distribution of those conscripted into military service in a given year would be fairly even, rather than being heavily concentrated around a given age. The size of any bell-curve that might normally have formed was therefore minimized as a result of the policy.

That evenness of age distribution among those who served in the armed forces during World War II, in turn, explains a lot of things that turn up repeatedly in various datasets after the war. And that is something we'll be revisiting throughout the year....

A Little More Room To Run in the Near Term, And Then ???

To contact us Click HERE

Our favorite chart, updated through the futures for 25 February 2013:

Where Did the More Room to Run in the Near Term Come From?

The actions last week by Wellpoint (NYSE: WLP), Halliburton (NYSE: HAL) and Coca-Cola (NYSE: KO) to boost their dividends, which offset earlier moves in February by Diamond Offshore Drilling (NYSE: DO), Cliffs Natural Resources (NYSE: CLF), Exelon (NYSE: EXC), and CenturyLink (NYSE: CTL) to cut their dividends. The net increase in dividends expected for 2013-Q2, where investors are currently focusing their attention, provides a little more room for the rally to run, as the change in the growth rate of stock prices will continue to move upward to converge with the change in the growth rate of dividends per share expected in 2012-Q3.

By the way, it's really unusual to have more than three S&P 500 companies act to cut their dividends in a single month outside a period of recession.

What Does "After That" Mean?

Hypothetically, what would it mean if investors were to suddenly change their focus from 2013-Q2 to 2013-Q3? Or to some other more distant quarter in the future?

Well, in terms of today's stock market, that would mean shaving about 30% from today's stock prices. But then, there is no guarantee that investors will focus on 2013-Q3. They could choose to focus on 2013-Q4 which is considerably worse. Or they could opt to focus on 2014-Q1, which initially looks to be similar to 2013-Q2, but about which we'll know more in a about a month.

That, by the way, would be the best case scenario for stock prices in 2013 provided that wild card factors like a really amped up quantitative easing program by the Federal Reserve don't inject a lot of noise into the market.

The latest that investors might shift their forward-looking focus away from 2013-Q2 will be 21 June 2013, but they will become increasingly likely to shift their focus to a more distant future quarter after 15 March 2013, when the futures contracts for the S&P 500's dividends in the first quarter of 2013 expires.

Update 25 February 2013: See if you can tell what time the U.S. stock market got the news that the polls had closed in Italy without a clear outcome today, along with all that means for uncertainty in Europe's markets:

Now, that's what we would describe as a classic noise event! It's up to you to decide if that's a calamity or an opportunity!

Is your poop red?

To contact us Click HERE

Blood in your stool can be a sign of a serious disorder.  WebMD is a good resource for information.  However, your ordure being red could be a symptom of something I find disgusting, but otherwise completely harmless.

CREDIT: Frito Lay

Flamin' Hot Cheetos.  Yes, this seemingly innocuous treat is turning caca red.  

I guess looking down into the toilet and seeing bright red night soil might be frightening, frightening enough to wonder about seeking medical treatment.  There are reports that scared parents are taking children to the ER because of red turds.

Evidently, red dye #40 is not metabolized, so it is passed along with the rest of the excreta.  

Red Dye #40

Here is what I find shitty, and it doesn't have to do with crap.  Frito Lay's website provide the nutritional information for its snacks.  If you chow down on an entire 8.5 oz bag, you've consumed 1360 Calories.  If you have usually eat 2000-2500 Calorie a day, this one bag is your breakfast and lunch.  You also consumed more than two grams of salt - an entire day's worth of sodium.


DISCLAIMER:  I do love Lay's Classic potato chips.  These have a nice flavor with a good balance of fat and salt.

NOTE: I tried as hard as I could to use as many synonyms for feces.  Some I didn't use are bodily waste, droppings, pooh, poo, manure, dung, bowel movement, number two, and doo-doo. I also didn't to use any words like sheisse, merde, dreck, and govno from other languages. The reader is invited to submit their own in the comments.

The Cure for Constipation

To contact us Click HERE

Lest the reader thinks I am obsessing by having two posts in a row dealing with feces or that I have a desire to use all the available synonyms for feces, the timing of these two posts is merely a coincidence.
I came across QuantumMAN™: World's First Downloadable Medicine.  One of the products he sells is QLax™, a purported medical treatment for constipation.  His "radical new technology" is based on the concept that

The entire universe including the human body and disease that afflicts it operates according to the principles of quantum physics.

OK.  Ernest Rutherford said, "All science is either physics or stamp collecting." On those days when I am feeling terribly arrogant, I agree with Rutherford.  So where does QuantumMAN™ go from here?

Chemical based laxatives do not operate according to those principles and, as such, are not compatible with human physiology…

CREDIT: www.zazzle.com

Wait a minute.  Didn't he just claim the entire universe operates by quantum principles? Chemistry is somehow exempt?  Let's leave this puzzler for more pressing issues.

To solve a quantum problem you must offer a quantum treatment within a quantum operating system. Therefore, ZAG, the private humanitarian medical research group that employs QuantumMAN™, has developed the ideal quantum laxative branded QLax™. Derived from extreme advances in quantum computing, QLax™ consists of "Portal Access Keys™" (PAKs™) downloaded to your personal computer, smartphone or tablet. Accessing these PAKs™ allows your brain to quantumly receive (upload) QLax™'s master programs. QuantumMAN™ is the personification of this quantum data. When uploaded, QLax™ provides thousands of physiologic directives to your brain to program it to provide the corrective measures required to relieve your constipation without any possibility of adverse side effects no matter how long QLax™ is used. Due to repeater programs imbedded in its data, QLax™ allows delivery of its physiologic directives automatically several times a day for 24 hours with just one PAK™ dose. For extremely stubborn cases, more than PAK™ dose can be uploaded at a time without concern of any adverse side effects. ZAG guarantees your complete satisfaction for 30 days from date of purchase or your money is refunded.

For only $5, you can download 25 PAKs™ to your computer, smartphone, or tablet, and then your brain will upload - I mean, quantumly receive the program.  I do love the fact that if I'm still constipated after a month, I can get my $5 back.  Somehow after a month I think I might have more to worry about than the money.
Who's responsible for the amazing breakthrough in quantum medicine?

The Zürich Alpine Group (ZAG) is a private humanitarian medical research group of scientists and physicians working cooperatively and quietly around the world in the quest to improve the quality, efficacy and costs of medical care.

ZAG understands that quantum problems require a quantum solution and has found a way to transfer bioinformation from its quantum computer via quantum teleportation to the brain, also a quantum computer, to reprogram the brain to effect positive medical changes within the body and mind.

Why haven't we heard of this group and it marvelous products?

ZAG has quietly cultivated these phenomena and deliberately avoided scientific publication of its work until the intended release of its collaborative QuantumMANsite website.

ZAG has shunned reporting its research and trials in the traditional medical literature because it believes this venue is heavily influenced by Big Pharma and politics. 

They report they have conducted clinical trials in order to test their products efficacy and safety, but what is strange is that when you go to the Clinical Trials section of the website, you find no data.  All you find is audio recordings of twelve so-called participants.
What other incredible (from the Latin in- meaning 'not', and credere meaning 'believe') products are available?  If you don't know what's ailing you, there's QDr™ Tricorder Plus.  Star Trek fans take note.
Then there's QFood™, the solution to starvation.

The person will not be hungry and/or feel deprived or experience cravings if instructions are properly followed. For 10 days at a time, one set of QFood™ downloads will provide satiation and sufficient quantum nourishment that the person will thrive and not be at risk of dying due to starvation. 

There are even products for the bedroom.  Know what I mean.  Nudge nudge. Wink, wink.  Say no more.  Heaven's Gate™, QBX™, TigerTail™, HEjuvenate™, SHEjuvenate™, QHE™, and QSHE™.

CREDIT: unknown

What is it a duck, quantum or otherwise, says? 

If I Were to Write a Textbook

To contact us Click HERE
Most physics textbooks have titles like Physics, University Physics, College Physics, Physics for Scientists and Engineers, and Fundamentals of Physics.

If I ever write a text, it would definitely have to have a much cooler title.  Maybe something like:

 Letters of Priest on Different Subjects in Physics and Philosophy Addressed to a German Princess
Damn!  Wouldn't you know it; that title has already been used.

An Inventory of the Furniture in Dr. Priestley's Study

To contact us Click HERE

Professor Eckstrom, a colleague of mine in the English department at Rio Hondo College, passed along a couple of poems.  They were written by Anna Laeticia Barbauld (née Aikin).  The first, reprinted below, is An Inventory of the Furniture in Dr. Priestley's Study; the second is The Mouse's Petition (To Dr. Priestly) that Prof. Eckstrom tells me is about a mouse that inhabited Priestley's study.

Portrait by Ellen Sharples, 1794,
National Portrait Galleery, London.

Joseph Priestly is usually credited with the discover of oxygen - what he called dephlogisticated air.  In his study of gases, he also discovered nitric oxide (nitrous air), hydrochloric acid (vapor of the spirit of salt), ammonia (alkaline air), and nitrous oxide (diminished air).  Priestley also wrote The History and Present State of Electricity, the authoritative text that was widely used for over hundred years.  In this text is the first demonstration of the inverse square nature of the electrostatic force and a detailed description of Benjamin Franklin's kite experiment.
In 1761, Priestley moved to Warrington, not far from Liverpool and Manchester.  He became a tutor at an academy where Barbauld's father also taught.  She became good friends with Priestley and his wife.  
Now to the poetry.


An Inventory of the Furniture in Dr. Priestley's Study

A map of every country known, 
With not a foot of land his own. 
A list of folks that kicked a dust 
On this poor globe, from Ptol. the First; 
He hopes,–indeed it is but fair,– 
Some day to get a corner there. 
A group of all the British kings, 
Fair emblem! on a packthread swings. 
The Fathers, ranged in goodly row, 
A decent, venerable show, 
Writ a great while ago, they tell us, 
And many an inch o'ertop their fellows. 
A Juvenal to hunt for mottos; 
And Ovid's tales of nymphs and grottos. 
The meek-robed lawyers, all in white; 
Pure as the lamb,–at least, to sight. 
A shelf of bottles, jar and phial, 
By which the rogues he can defy all,– 
All filled with lightning keen and genuine, 
And many a little imp he'll pen you in; 
Which, like Le Sage's sprite, let out, 
Among the neighbors makes a rout; 
Brings down the lightning on their houses, 
And kills their geese, and frights their spouses. 
A rare thermometer, by which 
He settles, to the nicest pitch, 
The just degrees of heat, to raise 
Sermons, or politics, or plays. 
Papers and books, a strange mixed olio, 
From shilling touch to pompous folio; 
Answer, remark, reply, rejoinder, 
Fresh from the mint, all stamped and coined here; 
Like new-made glass, set by to cool, 
Before it bears the workman's tool. 
A blotted proof-sheet, wet from Bowling. 
–"How can a man his anger hold in?"– 
Forgotten rimes, and college themes, 
Worm-eaten plans, and embryo schemes;– 
A mass of heterogenous matter, 
A chaos dark, nor land nor water;– 
New books, like new-born infants, stand, 
Waiting the printer's clothing hand;– 
Others, a motley ragged brood, 
Their limbs unfashioned all, and rude, 
Like Cadmus' half-formed men appear; 
One rears a helm, one lifts a spear, 
And feet were lopped and fingers torn 
Before their fellow limbs were born; 
A leg began to kick and sprawl 
Before the head was seen at all, 
Which quiet as a mushroom lay 
Till crumbling hillocks gave it way; 
And all, like controversial writing, 
Were born with teeth, and sprung up fighting.
"But what is this," I hear you cry, 
"Which saucily provokes my eye?"– 
A thing unknown, without a name, 
Born of the air, and doomed to flame.

Stripper Physicist

To contact us Click HERE
Columbia University requires all undergraduates to complete a set of courses "considered the necessary general education for students, irrespective of their choice in major." One of those courses is Frontiers of Science.

The course is designed both to introduce students to exciting ideas at the forefront of scientific research, as well as to inculcate in them the habits of mind common to a scientific approach to the world. Each semester, four scientists in different disciplines deliver a series of three lectures each describing the background, context, and current state of an area of research; readings and other activities supplement the lectures. Consistent with the Core tradition, the course also includes small seminar sections in which these topics are discussed by students.

Professor of Physics Emryn Hughes took a rather unusual approach to introduce freshmen to the concepts of quantum mechanics.  He stripped down, changed clothes, lay on the floor all while a strange video played on the screen with the audio being Lil Wayne's Drop It Like It's Hot.  Then some ninjas showed up and stabbed some puppets.
Here's the link to the Vimeo video uploaded by Bwog.
While this is an approach I would never take and for as strange as it is, his explanation at the end of the video makes some sense.

To understand quantum mechanics, you have to undress everything, start new, and forget all the bad stuff.

Winter 2013 Snapshot of Expected Future S&P 500 Earnings

To contact us Click HERE

Starting last year, we began taking snapshots of Standard & Poor's forecasts for where the S&P 500's trailing twelve month earnings per share would be in the future at approximately three-month intervals. Our chart below illustrates how the expected future has changed over time:

Since our last snapshot in November 2012, we find that the earnings for the S&P 500 in the last two quarters of 2012 and the first two quarters of 2013 are now expected to be recorded at levels below where they had been expected three months ago.

But not all is gloomy, as S&P is now projecting a slight increase over previous expectations for earnings in the third and fourth quarters of 2013.

Still, perhaps the most important take-away from our chart though is how different the earnings expected for 2012 (shown as our snapshot of expected future earnings on 17 January 2012) are from where the level at which they are being finalized (shown as our 15 February 2013 snapshot). Going by the S&P 500's estimated total market capitalization of $9.8 trillion in March 2012, the fall in expected earnings for 2012 from January of that year to the present means that over $80 billion worth of earnings expected in 2012 failed to materialize during the year.

We just wonder if today's snapshot of the expectations for earnings in 2013 is as off-target!

Previously on Political Calculations

The previous snapshots we've taken of the way the future looked to investors for the S&P 500 at different points of time are presented in reverse chronological order below:

• Winter 2013 Snapshot of Expected Future S&P 500 Earnings
• Fall 2012 Snapshot of Expected Future S&P 500 Earnings
• Summer 2012 Snapshot of Expected Future S&P 500 Earnings
• The Spring 2012 Snapshot of Expected S&P 500 Earnings
• The Changing Futures for S&P 500 Earnings
• How Good Are Earnings Forecasts?

References

Silverblatt, Howard. S&P Indices Market Attribute Series. S&P 500 Monthly Performance Data. S&P 500 Earnings and Estimate Report. [Excel Spreadsheet]. Last Updated 14 February 2013. Accessed 15 February 2013.

An Elephant and Three Blindfolded Wise Men

To contact us Click HERE

Let's start today's post about where stock prices are headed by retelling an old Indian fable:

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold. The first, upon touching the elephant's trunk, concluded a "snake" was in the room. The second, upon contacting a leg, concluded a "tree" was in the room. The third, upon grasping the tail, concluded a "rope" was in the room. All were surprised to discover the elephant once their blindfolds were removed.

We thought it might be fun to illustrate just what the modern equivalent of those three wise men "see" as they attempt to describe what's going on in the stock market with the charts that we've developed over the last several years to analyze stock prices, as described in a recent article from the Reuters news agency.

Odds of a pullback are increasing, with the market in slightly overbought territory, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

"I do suspect the closing of the earnings season will lead to at least a pause and possibly a pullback," Zaro said. The S&P 500 could shave 3 to 5 percent between now and early April, he said.

It would seem that Bruce Zaro is a blindfolded wise man who feels the market's potential for mean reversion, such as might happen if volatility in stock prices could be described by statistically normal distribution that might be observed in something that looks like a control chart:

Here, having the most recent data be below the mean trend would suggest a rising market as stocks would be "underbought", while being above the mean trend would suggest that stock prices are "overbought" and are increasingly likely to either stall out or fall in the future.

In this chart, which picks up the major trend that has existed in the U.S. stock market since the QE 2.0 bubble popped in late July 2011, we see that stock prices are in what Bruce Zaro describes as "slightly overbought territory". The 3-5% "shave" he predicts by the end of March would represent a little over a one-standard deviation decline in stock prices, which would be a move from the central black trend line to the light-gray dashed line immediately below it.

Next, let's see what another blindfolded wise man discerns as he examines the stock market:

At the same time, other analysts say, the market has not shown significant signs of slowing, including a break below 15- and 30-day moving averages.

Such moves would be needed to show that momentum is slowing or that the market is at risk of a correction, said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati, Ohio. The S&P 500's 14-day moving average is at 1,511 while the 30-day is at 1,494. The index closed Friday at 1,519.

Todd Salamone is what we would describe as a "momentum" guy. Unlike a practitioner of momentum trading, which is really a kind of crowd-following/crowd-anticipating investment strategy, Salamone believes in the physical force of inertia, which is a way of saying that once stock prices get onto a particular trajectory, they'll stay on it!

All you have to do to see that prediction on our chart above is to draw an imaginary line from a point at the bottom of the most recent short-term trend up through the most recent data point for stock prices. And then on out as far as you dare dream. Kind of like Chuck Prince's dance party investment strategy, because what can possibly go wrong so long as you don't see stock prices suddenly dip below the moving line average shown on the chart?...

Let's get one last take on the current state of the stock market from the Reuters article:

The S&P 500 has been trading near five-year highs, and it notched its highest level since November 2007 this week. But the gains have pushed the benchmark index almost as far as it is likely to go in the near term, with strong resistance hovering around 1,525 and 1,540, one analyst said.

As a result, the index is set to move sideways, said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania. "We just don't have the volume or the catalyst right now" to go above those levels, he said.

Dave Chojnacki is described as a market technician, which means he is a practitioner of technical analysis. Here's how Investopedia explains that black art:

Technical analysts believe that the historical performance of stocks and markets are indications of future performance.

In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, the technical analyst's decision would be based on the patterns or activity of people going into each store.

In essence, what he is saying as he senses the stock market today is that because investors have never gone shopping for stocks much above the 1,525 and 1,540 level for the S&P 500 before, they're resistant to go shop for them above that level now.

But then, he goes on to say something actually interesting - he loosely perceives that some sort of physics might be involved, as he doesn't find any forces that might drive stock prices higher as he surveys the market's current environment.

The two comments together would seem to describe how stock prices might behave given the lack of upward room to move that is indicated by the current changes in the growth rates of stock prices and dividends per share driving them as the gap between them narrows in our chart below, if only the analyst knew of the relationship between the two!:

The only perspective that's missing from the Reuters article is the consideration of a steep decline for stock prices once we get past the near term. We guess they couldn't find a fourth wise man to blindfold before going to press....