Selasa, 30 April 2013

The Second U.S. Housing Bubble Continues to Inflate

After we had first announced that a new housing bubble had taken root in the U.S. economy beginning in July 2012, we soon followed up with additional analysis that suggested that it had perhaps begun to decelerate to a more sustainable level after December 2012. Recently revised data from the U.S. Census Bureau for the median sale prices of new homes in the United States through March 2013 now confirms that there has been no slowdown in the rapid inflation of new home sale prices observed since July 2012.

U.S. Median New Home Sale Prices vs Median Household Income, 1999-2013, through March 2013

Since 1967, there is only one period of rapid price escalation that even comes close to matching the current trend for median new home prices in the United States: the initial inflation phase of the first U.S. housing bubble, which ran from November 2001 through September 2005 - approximately the time at which the Federal Funds Rate began to converge with the level that would apply if the Federal Reserve had been following the Taylor Rule.

What is more remarkable however is that the trailing twelve-month average of median new home sale prices through February 2013 has now exceeded the peak value set at the height of the inflation phase of the first U.S. housing bubble. The previous record for this figure was set in March 2007 at $245,842. In February 2013, the trailing year average of median new home sale prices is now $246,167 and the preliminary data for March 2013 has it increasing further to $246,767.

These new figures may be subject to revision during the next several months.

Since the inflation phase of the second U.S. housing bubble began in July 2012, the trailing twelve-month average of median new home sale prices has increased by an average of $2,532 per month through February 2013. By contrast, the trailing twelve-month average for median household income in the U.S. has increased by an average of $121.56 per month, as median home prices have been rising by an average of roughly $21 for every $1 increase in median household income.

In more normal circumstances, or at least those we've observed since 1967, a $1 increase in median household income would typically correspond to somewhere between a $3 to $4 increase in median new home sale prices.

Previously on Political Calculations

Senin, 29 April 2013

Snapping Back Investor Focus to 2013-Q2

There are 10 companies that make up over 18% of the value of the market capitalization-weighted S&P 500 stock market index:

  • Exxon Mobil (NYSE: XOM): 2.78%

  • Apple (Nasdaq: AAPL): 2.70%

  • Microsoft (NYSE: MSFT): 1.70%

  • Johnson & Johnson (NYSE: JNJ): 1.68%

  • Chevron (NYSE: CVX): 1.62%

  • General Electric (NYSE: GE): 1.61%

  • Pfizer (NYSE: PFE): 1.53%

  • Google (Nasdaq: GOOG): 1.52%

  • Procter & Gamble (NYSE: PG): 1.48%

  • AT&T (NYSE: T): 1.44%

In the last two weeks, 5 of these companies, whose combined market capitalization makes up over 10% of the value of the S&P 500 index have boosted their dividends:

  • Exxon Mobil: Up 11% to $0.63 per share, payable to shareholders of record on 13 May 2013, to be paid on 10 June 2013.

  • Apple: Up 15% to $3.05 per share, payable to shareholders of record on 13 May 2013, to be paid on 16 May 2013.

  • Johnson & Johnson: Up 8.2% to $0.66 per share, payable to shareholders of record on 28 May 2013, to be paid on 11 June 2013.

  • Chevron: Up 11.5% to $1.00 per share, payable to shareholders of record on 17 May 2013, to be paid on 10 June 2013.

  • Procter & Gamble: Up 7.7% to $0.6015 per share, payable to shareholders of record on 26 April 2013, to be paid on 15 May 2013.

We're making note of these announcements and upcoming events today because we're trying to work out when exactly investors might permanently shift their focus away from the second quarter of 2013 to a more distant future quarter in setting today's stock prices.

After all, just two weeks ago, we had observed that the change in the growth rate of stock prices was beginning to diverge from the level that is consistent with investors focusing on the expected income they could derive from dividends being paid in 2013-Q2.

That changed in the middle of the last week however, on that weird day in the markets, as the forward-looking focus of investors appears to have suddenly snapped back to 2013-Q2:

Change in the Growth Rates of Expected Trailing Year Dividends per Share and the 20-Day Moving Average of S&P 500 Stock Prices

The announced increases in cash dividends to be paid out during the second quarter of 2013 provide an additional incentive for investors to either buy or hold stocks at least through the period in which they would need to be documented as a shareholder of record. For four of the five largest companies of the S&P 500 that have announced dividend increases taking effect in 2013Q2, investors would need to hold their stocks into the third week of May to be able to pocket a large portion of that cash.

After which, if they expect stock prices to fall, it might make more sense to sell while prices are high, then to buy back in later when shares are cheaper. Especially if the expected change in the growth rate of dividends per share in upcoming future quarters is negative.

These incentives could explain some of the dynamics of the "sell in May and go away" phenomenon, which suggests that investors who buy then hold stocks only from November through April have higher returns with less volatility than those who only invest in the May through October period.

CXO Advisory has looked into the phenomenon and compared it to the results of a simple buy-and-hold strategy, with buy-and-hold being a clear winner. However their analysis has investors selling immediately after April each year, although there's nothing in the adage for "selling in May" that spells out exactly when in May investors should sell.

If investors held out for a few weeks longer into May, long enough to be documented as shareholders of record for dividends paid out in the second quarter before acting to sell their shares, then that additional cash would boost their effective returns, which is something that using Robert Shiller's S&P 500 dataset to model the investing strategy wouldn't necessarily capture.

Since dividends for the S&P 500 are also weighted by market capitalization (unlike the index' earnings per share, which are not), it therefore would not take much additional holding of stocks to collect a lot of the extra benefit in cash dividend payments.

That additional gain then might wipe out a lot of perceived advantage of CXO Advisory's buy-and-hold comparison. But it would take some really detailed backtesting to confirm if that is indeed the case, which we'll leave as an exercise for others.

Jumat, 26 April 2013

Stranded in the Food Desert

Science is a wonderful tool for understanding how our world really works. But if the science supporting a given understanding is flawed, or worse, if it is slanted in favor of a politically-favored outcome, it can become the justification for excessively wasteful activities. When science crosses that line, it is transformed from something that is worthy of respect into junk science.

This is the story of Michelle Obama and her fight against the food deserts of America. The story begins on 24 February 2010, when the First Lady of the United States of America used her White House platform to introduce the little-understood concept of the newly-discovered "food deserts" of America to Americans as part of a media blitz:

As part of Lets Move!, the campaign to end childhood obesity, First Lady Michelle Obama is taking on food deserts. These are nutritional wastelands that exist across America in both urban and rural communities where parents and children simply do not have access to a supermarket. Some 23.5 million Americans – including 6.5 million children – currently live in food deserts. Watch the video below and learn what the First Lady is doing to help families in these areas across the country.

Food deserts sound horrible. Isn't it good that the First Lady is doing something about this awful problem that would appear to be plaguing America's most poor, yet obese citizens, who suffer because they are deprived from having large supermarkets stocked with nutritious foods within walking distance of where they live?

Big Pine Canyon, Big Bend National Park - Source: National Park Service

Or is the First Lady relying upon junk science to justify the wasteful expenditure of taxpayer money to benefit her and the President's political cronies? After all, there was already plenty of evidence back in 2010 that indicated that food deserts were more a junk science-fueled political talking point than a real factor that significantly contributed to making poor Americans obese, as the original 2006 study proclaiming the crisis in President Obama's home base of Chicago was funded by LaSalle Bank of Chicago, then the largest business lender in the city, who would directly profit from investments to "remedy" the situation.

Fortunately, respectable science can help provide the answers to these questions. The U.S. Centers for Disease Control very recently published a peer-reviewed scientific study of the impact that a lack of nearby access to nutritious foods, such as might be found in one of the First Lady's food deserts, actually has upon the Body Mass Index (BMI) of the Americans who live within such regions. Here are the results and conclusion for their study of 97,678 adults in the state of California (home to 1 out of every 8 Americans):


Food outlets within walking distance (≤1.0 mile) were not strongly associated with dietary intake, BMI, or probabilities of a BMI of 25.0 or more or a BMI of 30.0 or more. We found significant associations between fast-food outlets and dietary intake and between supermarkets and BMI and probabilities of a BMI of 25.0 or more and a BMI of 30.0 or more for food environments beyond walking distance (>1.0 mile).


We found no strong evidence that food outlets near homes are associated with dietary intake or BMI. We replicated some associations reported previously but only for areas that are larger than what typically is considered a neighborhood. A likely reason for the null finding is that shopping patterns are weakly related, if at all, to neighborhoods in the United States because of access to motorized transportation.

Economist Jacob Geller reviewed the study's statistical results:

If you look at the statistical tables, they’re pretty striking. Even where there is statistical significance — which is the exception to the rule — the size of the effect is so tiny, it’s like practically nothing. For example, on the margin, adding one full-service supermarket within a one-mile radius of your house is associated with an average BMI decrease in your neighborhood of .115. That is a difference of just one pound. (see back-of-the-envelope calculations here)

So there is really no relationship, according to this one recent study of nearly 100,000 Californians, between the distance between your body and a full-service supermarket (or any other kind of food store), and whether or not you are obese. Distance, which is a proxy for access (the idea of a food desert is that the nearest supermarket, which has fresh produce, is distant), is for all practical purposes a non-factor.

We created the following tool so you can see what Michelle Obama's publicity campaign to direct large and/or politically well-connected retailers to spend millions of dollars to open or expand stores in the "disadvantaged" regions identified by the U.S. government as supposed food deserts would have in terms of your own weight. And the cool part is that the math is such that we can figure out just how much that would be for you from just your height!

Your Height
Input Data Values
Your Height [inches]

Your "Food Desert" Weight
Calculated Results Values
Amount in Weight [pounds]

If you're accessing this tool on a site that republishes our RSS news feed, please click here to access the original, functioning version of this tool!

Our tool indicates how much of your weight would be affected by whether you lived within a food desert. If you live in an area identified by the U.S. government as a food desert, it indicates how much more you would weigh, and if you were to move out of that area, it is how much you would lose. To put your result into proper context, the weight of an adult American normally fluctuates by up to 5 pounds during the course of a single day.

Did we mention large and/or politically well-connected retailers are involved? That's actually how we know that the whole food desert publicity campaign is really about crony capitalism more than it is about dealing with the health problems of obesity. Because in truth, if it were a real problem that could be fixed by opening new store locations, it would be a lot easier, cheaper and faster for small "Mom and Pop"-style grocery businesses to fit themselves into the already existing and available retail spaces within such deprived communities as the supposed food deserts of America.

But since the whole food desert concept would seem to be based on junk science rather than the more respectable kind, it is perhaps too much to ask for the solutions advanced by the politicians taking charge of the crisis to solve a legitimate problem.


Carras, Michelle Colder. Normal Body Weight Fluctuation. 7 May 2011.

Croft, Cammie. Food desert? What’s a food desert? White House Blog. 24 February 2010.

Gallagher, Mari. Examining the Impact of Food Deserts on Public Health in Chicago. Mari Gallagher Research & Consulting Group, sponsored by LaSalle Bank. 2006.

Geller, Jacob A. The Problem of "Food Deserts" Is Not All About Access. 3 April 2013.

Hattori A, An R, Sturm R. Neighborhood Food Outlets, Diet, and Obesity Among California Adults, 2007 and 2009. Prev Chronic Dis 2013;10:120123. DOI: 14 March 2013.

McWhorter, John. The Root: The Myth of the Food Desert. National Public Radio. 15 December 2010.

Mooney, Alexander. First Lady Takes on 'Food Deserts'. CNN: The 1600 Report. 20 July 2011.

Political Calculations. How To Detect Junk Science. 19 August 2009.

White House. Transcript of President Obama's Remarks at 2013 White House Science Fair. White House Photos and Video. 22 April 2013.

Wright, Ann. Interactive Web Tool Maps Food Deserts, Provides Key Data. 3 May 2011.

Kamis, 25 April 2013

We Own #3!

On 30 January 2013, we introduced our tool for determining the percentile ranking of Americans according to their net worth (or net wealth), writing:

We didn't know this until yesterday, but apparently, our "What's Your Income Percentile?" tool is the second most highly ranked result on Google if you search for "household wealth percentile". Which we found out only because someone who works for the Federal Reserve Board came to our site after performing that exact search on Monday, 28 January 2012!

Well, that's not good enough, is it? We want to own the #1 result for that particular Google search and we're going to get it by building a tool that you can use to see how your household's net worth ranks among all U.S. households!

We recently noticed an upsurge in our site traffic, with visitors being drawn to our net worth percentile tool. It turns out that in less than three months time, the tool we developed that day has become the third highest result returned by a Google search for "household wealth percentile"!

Google: Third Highest Search Result for Household Wealth Percentile

Technically, we also own the #2 result, but that's our post as it appeared at Before It's News, which republishes our RSS site feed, and which doesn't include the JavaScript code needed to make the tool functional.

And to think, we achieved all that without the aid of any so-called "SEO experts"!

Instead, we have to thank all those who made their way to our site and who hopefully discovered something they thought was interesting or useful, then shared what they found with others. Our Google search ranking for "household wealth percentile" can be almost entirely attributed to that process of discovery.

We very much appreciate your finding us! And if you know any bird enthusiasts, be sure to let them know about our long-tail experiment with bird perches!

Rabu, 24 April 2013

A Weird Day in the Markets

What a weird day for the stock market. And the weirdness started early. Pragamatic Capitalism's Cullen Roche sets the scene:

Here’s a brief rundown of some of the data we saw in the last 12 hours:

  • U.S. Flash PMI came in at 52, weaker than expected and down from 54.6 last month.

  • German Flash PMI hit a six month low of 48.8.

  • China PMI hit a two month low of 50.5, down from 51.6 last month.

  • Richmond Fed Manufacturing came in at -6 vs expectations of a +3 reading.

  • Redbook sales were up just 1.8%, down from 2% last week.

  • New home sales came in at 417K, below estimates of 419K, but up from last month’s 411K.

So, not a great day for data. And yet the equity markets in Europe were up 1-3% and the S&P is up over 1%. No one I’ve talked to can make a whole lot of sense of this.

The big news in Europe overnight was that the ECB and Germany in particular might be easing on their austerity approach. The Euro tumbled in response and European equities soared despite very weak overall PMI data. So I think it's the Abenomics effect. As the Japanese market rallies higher almost every single day on the back of the "whatever it takes" commitment by the BOJ/MOF, there appears to be a belief that the policy is already working and worth trying elsewhere. It might just be that simple – we’re seeing market participants all over the place capitulating to the power of governments.

Now, that's what we would call a noise event, when the stock market completely goes off in a speculative direction that's not directly supported by a real (or implemented) change in their fundamental outlook, which we measure in the form of the signal provided by their announced expected future level of dividend payments.

As an example of what we mean, what is being called Abenomics is an announced policy in Japan, so it should have an affect on the fundamental outlook of the businesses that make up the Japanese stock market. But if the prospect of a similar approach being adopted in other nations affects stock prices in those nations, without there actually being a corresponding change announced for those nations' economic policies that would actually affect the fundamental outlook for the businesses within their borders, then any change in stock prices driven by such speculation is purely the result of noise.

AP 23 April 2013 1:07 PM EDT Hacked Twitter headline On top of that then, the market got weirder. There was another noise event during the day, this time a negative one, after a "verified" Twitter account operated by the Associated Press was hacked with an announcement that two explosions had occurred at the White House and that President Obama was injured.

The false news hit the wires at 1:07 PM EDT. The market responded to this negative noise event by immediately losing nearly 1% of its value in first three minutes following the false news hitting the wires, then took an additional two minutes after that to fully recover as traders overrode automatic trading programs that had been set to immediately sell stocks as soon as possible in the event that news of a terror attack was made public, after they realized that the news was phony in the absence of other breaking news reports to confirm it.

Reuters describes the trading that occurred during that short window of time:

More than 620,000 front-month S&P 500 E-mini futures contracts - the most popularly traded futures contract - and more than 180,000 front-month 10-year Treasury futures contracts changed hands between 1:09 p.m. and 1:12 p.m. EDT (1709 to 1712 GMT) after the tweet.

Here's what the event looked like in the context of the S&P 500 during the day's trading on 23 April 2013:

AP 23 April 2013 1:07 PM EDT Hacked Twitter headline

The time to respond to correct the reaction to this unexpected noise event is consistent with what we've frequently observed for the market's response to "ambiguous" news - where analysis by real-life humans is needed to determine a particular course of action in trading. It normally takes anywhere from two to four minutes for the market to respond to news it wasn't expecting, and the response in the automatic selloff reaction certainly fits within that typical window of time.

That stands in contrast to how the noise event began however, as stock prices responded almost instantly to the false news report, which almost gives the impression that traders were expecting the news!

That perhaps is the danger of programming computers to automatically execute trades in certain pre-defined circumstances - where a response is triggered before any sort of confirmation has occurred. At the very least, it appears that some Wall Street quants will be reviewing and perhaps rewriting a good portion of their code for trading pretty soon!

The really bad news however is that this is exactly the sort of thing that draws Congressional attention and government investigations. We're afraid that there's also going to be some very non-value added testimony in the future for a number of trading institutions.

Finally, the day ended with some good news. As many investors have been speculating for some time, Apple is going to boost their dividend by 15%, to $3.05 per share, so the day wasn't completely lost to noise! Since Apple is still the second-largest component of the S&P 500, Apple's action to boost its dividend does lend support for today's otherwise noise-driven increase in the value of stocks.


Get the rabbit habit
It is worth noting that many Kenyans are for a moment appreciating the rabbit business. As our motto suggests, "get the rabbit habit", it is a moment to reckon for the actual and would be producers, consumers, marketers and any other stakeholders in the value chain to fit in well.

Statistics show that the rabbit industry is the next big sector after the pig industry, which had for many years been neglected until recently.

Diminishing land availability, high prolific nature of rabbits, faster ROI, increasing lifestyle diseases, availability of better breeds, just to name a few are some of the key factors that are making enterprise rabbit farming be adopted by farmers. Access to research tools such as internet has also enabled easy access to information regarding the rabbit indutry.

"Many farmers are searching for relevant information such as breeds, market, housing, disease management etc, which is very much available through the Google search engine", says Joshua ankone, the IT manager at Kerayi Limited.

The new devolved government is therefore mandated to come up with policies and strategies to improve the enterprise in our counties. This would be new revenue stream for marginalized groups, unemployed youths and rural farmers in order to meet the demand at both national and international arena.

For more information on our products, please visit our commercial website