Political Calculations
Unexpectedly Intriguing!
27 March 2024
Piggy bank on a pink background photo by QuinceMedia on Pixabay - https://pixabay.com/illustrations/piggy-bank-money-finance-banking-2889042/

Life happens. And when it happens, it will often come with an unexpected price tag. Is that extra bill something you can afford to pay? Even on top of all your other bills?

Wouldn't it be nice if you already had the cash to pay that unexpected bill? Without having to borrow any money from family, friends, professional lenders, or your neighborhood loan shark? Or set up a GoFundMe fundraiser? Or count on winning the next lottery drawing?

If it's not obvious already, having cash saved and ready to use in case of emergency is a real solution to the money problems posed by potentially unexpected life events.

But there's a catch. In order to have a supply of cash available when an unexpected event happens, you have to have saved it first. According to Bankrate, just 44% of Americans have the savings to pay an unexpected bill of $1,000. If saving was as easy as banks make it sound, wouldn't that percentage be much higher? Right off the bat, 56% of Americans would seem to agree that saving is harder than it sounds.

To Bankrate's credit, they do suggest two basic steps for establishing up an emergency savings fund, including:

  • Setting up an account for your emergency savings in a savings account at a bank that earns a high rate of interest. They also say if you can get a cash incentive from the bank to set up a new account, more power to you.
  • Regularly funding the account a little at a time using direct deposit from your paycheck.

If you don't like banks and are willing to give up earning interest on your savings, you could cut the bank out of the picture and save cash in a piggy bank or in a safe at home. Both of which have their own risks, such as your kids helping themselves to what's in your piggy bank or you forgetting the combination to the safe! But there are some new options for setting up an emergency savings fund you might want to consider that may be available to you through your job.

If your employer offers a 401(k) program that is managed by Fidelity, you may have access to Fidelity's new Goal Booster program. This is a new program that automatically combines payroll deduction with savings accounts that are directly linked to your specific savings goals but are separate from your retirement savings. That means you can take out money from them when you need to without paying any early withdrawal hardship penalties. Other employers are starting to provide access to similar programs managed by firms like SecureSave and Sunny Day Fund.

What we haven't yet discussed is how much to save for an emergency. That's a different topic for a different day, which we'll get around to covering in Part 2!

Image credit: Piggy bank on a pink background image by Quince Media on Pixabay. Creative Commons CCO 1.0 Universal Public Domain Dedication.

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26 March 2024
U.S. American Eagle Gold One-Ounce Coin - Source: U.S. Mint: https://www.usmint.gov/wordpress/wp-content/uploads/2022/11/2023-american-eagle-gold-one-ounce-bullion-coin-obverse-768x768.jpg

What drives the price of gold?

That's a fascinating question, which is the subject of an article asking that exact question at Investopedia. We're going to cut straight to their bottom line answer:

Today, the demand for gold, the amount of gold in the central bank reserves, the value of the U.S. dollar, and the desire to hold gold as a hedge against inflation and currency devaluation all help drive the price of the precious metal.

We have a unique perspective on this topic because of the fortunate timing of a snapshot we took mapping the recent historic relationship between the spot price of gold and real 10-Year U.S. Treasury yields some two years ago. That snapshot covered the period from 2 January 2007 to 17 March 2022, which is significant because a new paradigm for gold prices took hold starting on that latter date.

Two years later, this new paradigm can be seen in the following update to our chart, in which how the price of gold has changed with respect to the inflation-adjusted yield of the 10-Year Treasury is shown by the red line.

Gold Spot Price vs Inflation-Indexed Market Yield of 10-Year Constant Maturity U.S. Treasury, 2 January 2007 - 22 March 2024

The big thing that stands out in the chart is that the price of gold has been rising even though the inflation-indexed market yield of a 10-Year U.S. Treasury has also risen during this period as the rate of inflation has fallen. This pattern contradicts the previous paradigm, in which gold prices rise as high inflation makes real yields fall or even turn negative in value, while low inflation rate has the opposite effect. In the old paradigm, there is an inverse relationship between the two.

The other thing that stands out are the periodic changes in direction of gold prices with respect to real 10-Year Treasury yields. We've marked the dates of the most significant turning points in the new paradigm on the chart.

We next mined through the market-moving headlines we've been capturing for years as part of our ongoing S&P 500 chaos series. While we seek to record headlines that have the potential to affect stock prices, it turns out we've also captured the events that proved to be major turning points for gold prices in the new paradigm. Here are the notable headlines occurring within a trading day of the indicated date on the chart marking the turning points:

For that last headline, gold prices broke through the $2,200 per ounce level to record an all-time high in terms of U.S. dollars. As of the final data point for the snapshot, we find gold prices hovering just a little below that level.

What all these headlines have in common is they herald actions by the U.S. Federal Reserve to alter the course of monetary policy in the United States. In the new paradigm, when the Fed alters its direction, investors alter the trajectory of gold prices.

References

Federal Reserve Economic Data. Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Inflation-Indexed. [Online Database (Text File)]. Accessed 24 March 2024.

USAGold. Daily Gold Price History. [Online Database]. Accessed 23 March 2024.

Image credit: American Eagle One-Ounce Gold Coin photo by U.S. Mint. U.S. Government works public domain image.

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25 March 2024
An editorial cartoon of a Federal Reserve official lighting a rocket with 'RATE CUTS' written on it and the Wall Street bull in the background.

For S&P 500 (Index: SPX) investors there was one, and only one, market moving headline during the week that was. The Federal Reserve confirmed on Wednesday, 20 March 2024 that interest rate cuts are coming in 2024.

That confirmation was like lighting off a rocket on Wall Street. The index rose nearly 0.9% after the Fed's "dot-plot" projection of future interest rates was released on Wednesday afternoon, closing at an all-time record high. The index would proceed to reach its current new record high of 5,241.53 on the following day, but dipped slightly on Friday, 22 March 2024 to close out the week at 5,234.18. That value represents a 2.3% gain over its previous week's close, making the third week of March 2024 the best of the year to date for the S&P 500.

The CME Group's FedWatch Tool projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 12 June 2024 (2024-Q2), unchanged from last week. The expectation that the Fed will begin a series of quarter point rate cuts starting on that date and continuing at mostly twelve-week intervals is also unchanged from the previous week.

With the Fed's first rate cut expected in June 2024, investors have locked their forward looking focus on the current quarter of 2024-Q2 in setting current day stock prices. The latest update shows that even though the trajectory of the index is just off its record high, it falls almost right in the middle of the redzone forecast range we added to the chart several weeks ago, which is based on the assumption investors would be focused on 2024-Q2 at this time.

Alternative Futures - S&P 500 - 2024Q1 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 22 Mar 2024

Other things happened during the third week of March 2024. Here's a summary of all the other market-moving news headlines that investors absorbed during the week, along with the week's most influential headline.

Monday, 18 March 2024
Tuesday, 19 March 2024
Wednesday, 20 March 2024
Thursday, 21 March 2024
Friday, 22 March 2024

The Atlanta Fed's GDPNow tool's latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) decreased to +2.1% after last week's +2.3% growth projection.

Image credit: Microsoft Bing Image Creator. Prompt: "An editorial cartoon of a Federal Reserve official lighting a rocket with 'RATE CUTS' written on it and the Wall Street bull in the background."

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22 March 2024

If you're a firefighter, one of the biggest hassles you have involves directing the water from a firehose to where a fire is burning.

That's not an easy job because of the high pressure of the water flowing through the firehose. For traditional firehoses, once the water is turned on, firefighters are limited in how they can direct it. They can angle the end of the hose within a small range and they can move the hose laterally along the ground to some extent, but doing so takes a lot of manual effort as you can see in firehose handling training videos.

But what if you could fly or steer the hose exactly where you need it to be to put out a fire? Better still, what if the hose could be either automatically or remotely-controlled so the risks to firefighters' lives from their inherent occupational hazards could be reduced?

That thinking lies behind the "Dragon Firefighter" flying robotic firehose being developed as an open source project by Japanese researchers at the Akita Prefectural University. As you'll see in the following video, "Dragon Firefighter" isn't just a cute project name. It's a useful description that accurately conveys what their innovation is and how it is intended to work.

If it's not already clear from the video, here's a written description of how the Dragon Firefighter works (HT: Core77):

The Dragon Firefighter’s firehose is propelled upward (flying at two meters above the ground) by eight controllable jets of water spouting from its center and head. The firehose can change shape and be oriented towards flames, steered by a control unit in a wheeled cart behind. The cart is connected through a supply tube to a fire truck with a water reservoir of 14,000 liters.

The nozzles spout water at a rate of 6.6 liters per second with a pressure of up to one megapascal. The hose’s tip contains a conventional and thermal imaging camera, which help to find the location of the fire.

The researchers anticipate they their flying robotic firehose concept is about ten years of development away from finding its way into the everyday arsenal of modern fire departments, where one of their bigger challenges is extending its length and range.

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21 March 2024
A 16 year old applying for a job. Image generated by Microsoft Copilot Designer.

Ernest Hemingway wrote one of the great lines about how change happens in The Sun Also Rises. Here is the set-up and delivery:

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”

The phrase "gradually and then suddenly" captures the nature of how real world change happens in ways that go far beyond the context of bankruptcy discussed by the characters in Hemingway's 1926 novel.

Applied to the employment situation of U.S. teens, that phrase is relevant because we're seeing some small changes in the trends being reported in the employment data for this demographic group. That matters because teens represent the most marginal members of the U.S. work force, having the least education, least training, and least work experience of all workers in the U.S. economy. And as a general rule, the younger the teen, the more marginal they are as a member of the U.S. work force because they lack the education, training, and work experience acquired by all older workers.

The following charts visualize the seasonally-adjusted numbers for the number of working teens in the U.S., showing the employment figures and employment-to-population percentages for younger teens (Age 16-17) and older teens (Age 18-19) as well as the combined population of working Age 16-19 year olds.

U.S. Teen Employment and Teen Employment to Population Ratio, January 2016 - February 2024

Since each of these data series receives its own seasonal adjustment, the numbers of working Age 16-17 year olds and Age 18-19 year olds won't necessarily add up to the totals shown for the combined Age 16-19 population. If you're looking for employment figures that do add up, you'll want to review non-seasonally adjusted data.

Looking at the most current trends, we find some small changes developing for the teen employment situation in the U.S.

  • As a percentage of the available teen population, overall teen employment peaked at 60.4% in July-August 2023 and has slowly decreased in the months since, declining to 60.1% through February 2024.
  • Older teens (Age 18-19) have seen their seasonally adjusted numbers generally rise over this period, with their employment data showing a flat-to-slightly rising trend and their employment-to-population ratio showing a slightly falling trend.
  • But younger teens are seeing erosion in their employment numbers, with both the number of employed Age 16-17 year olds and their employment-to-population ratio falling. In February 2024, the number and percentage of employed Age 16-17 year olds has dropped to their lowest level since October 2021. Both peaked in December 2022.

Even though the number of younger working teens is much smaller than the number of older working teens, the changes being experienced within this demographic group are large enough to affect the overall trend for the entire population of working teens. The falling employment and employment-to-population ratio for younger teens since December 2022 indicates U.S. economic growth isn't as strong as it was before December 2022. The fading employment prospects for the most marginal portion of the U.S. work force is one reason the Federal Reserve clearly signaled it will cut interest rates this year.

Keep in mind the Fed would have no reason to cut rates if they thought U.S. economic growth and employment would continue to be either positive or stable without that action. They're responding to gradually developing negative trends in signaling a slow pace of rate cuts this year. How do you suppose they'll respond if those negative changes start happening more suddenly?

References

U.S. Bureau of Labor Statistics. Labor Force Statistics (Current Population Survey - CPS). [Online Database]. Accessed: 20 March 2024.

Image Credit: Microsoft Copilot Designer. Prompt: "A 16 year old applying for a job."

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations

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