Political Calculations
Unexpectedly Intriguing!
September 26, 2017

The Fed did nothing with short term interest rates in the U.S. at its September 2017 meeting last week, yet the probability of a recession in the U.S. getting started at sometime in the next year ticked ever so slightly upward since the last Federal Open Market Committee meeting.

Recession Probability Track - 2 January 2014 through 22 September 2017

With the Federal Funds Rate still effectively set at 1.16% (the midpoint of the FOMC's current target range between 1.00% and 1.25%) and the slightly declining spread in the yields between the 10-year and 3-month constant maturity U.S. Treasuries declining slightly, the probability of a recession occurring within the next 12 months ticked up just a fraction of a percentage point to 0.38%. Or to put it more simply, there is currently very little chance that the National Bureau of Economic Research will someday declare that a national recession began in the U.S. between now and 22 September 2018 as based upon Jonathan Wright's recession forecasting method.

Perhaps the most interesting thing about what the Fed has done with short term interest rates in recent months is that it has set its Federal Funds Rate to be higher than the yields of the 1-Month, 3-Month and sometimes the 6-Month constant maturity U.S. Treasury securities. According to the textbook version of monetary policy, when the interest rate on Treasury bills is lower than the federal funds rate, banks will reduce the quantity of low-yielding Treasuries they hold and will instead increase loans to other banks, with the result that both the price of a Treasury bill rises and interest rates rise, which is exactly what we're seeing.

Previously on Political Calculations

Labels:

September 25, 2017

The S&P 500 closed the third week of September 2017 exactly 1.99 points higher than it closed the previous week of the month. In percentage terms, that's a gain of almost 0.08%!

For a week in which the U.S. Federal Reserve met and officially decided the future fate of both its balance sheet and short term interest rates in the U.S., that outcome basically meant that the Fed did just about exactly what investors expected the U.S. central bank to do.

The solidification of that view during Week 3 of September 2017 can be seen in the change in the probabilities that investors are currently attaching to the size and timing for the Fed's next announced change in the Federal Funds Rate, as measured by the CME Group's FedWatch Tool.

Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (CME FedWatch on 22 September 2017)
FOMC Meeting Date     75-100 bps 100-125 bps (Current) 125-150 bps 150-175 bps 175-200 bps 200-225 bps
13-Dec-2017 (2017-Q4) 0.0% 27.1% 71.4% 1.4% 0.0% 0.0%
21-Mar-2018 (2018-Q1) 0.0% 19.6% 59.0% 20.5% 1.0% 0.0%
13-Jun-2018 (2018-Q2) 0.0% 13.0% 45.5% 33.3% 7.8% 0.5%

Compared to the previous week, the probability that the Fed's next move for its Federal Funds Rate will be to increase it from the 100-125 basis point target range it is today to the 125-150 basis point target range in December 2017, increased significantly. However, we also see that investors are not anticipating another increase above that level at this time, and if we go by our dividend futures-based model, it appears that investors are splitting the difference between 2017-Q4 and 2018-Q2 as the most likely timing for the next rate hike increase.

Alternative Futures - S&P 500 - 2017Q3 - Standard Model - Snapshot on 22 September 2017

In the chart above, the red-shaded zone indicates the range where we would expect the S&P 500 to be after adjusting for the effect of past volatility of the historic stock prices that we use in our model as the base reference points from which we project future stock prices, which in this case, assumes that investors are focused on 2018-Q2, and the expectations associated with that quarter, in setting today's stock prices. As you can see, the actual trajectory of the S&P 500 is currently near the top end of that predicted range.

That suggests that investors are still focusing more of their forward-looking attention on that distant future quarter than they are on 2017-Q4, which would also suggest that stock market investors are betting that the Fed won't hike interest rates again until 2018-Q2.

This is the first time that we've seen that kind of disagreement between the CME Group's future probabilities for the Federal Funds Rate and our dividend futures-based model. We think that eventually, one or both views of the future will change so that their outlooks converge, but for now, we're in new analytical territory, where we'll have to turn to other means to see which outlook might prevail.

Speaking of which, the headlines for the week didn't offer much insight into which outlook should be given greater weighting.

Monday, 18 September 2017
Tuesday, 19 September 2017
Wednesday, 20 September 2017
Thursday, 21 September 2017
Friday, 22 September 2017

What else happened during Week 3 of September 2017? Barry Ritholtz lists the positives and negatives bullet points for the U.S. economy and markets for the week that was.

Labels: ,

September 22, 2017
Medicine Dosage on Syringe - Source: https://dailymed.nlm.nih.gov/dailymed/image.cfm?setid=df918ec2-0907-443f-a52a-b72866959644&name=image-15.jpg

Any chemical can be toxic and cause death when ingested in large enough quantity. The thing that keeps things made from chemicals from killing everyone and everything they touch (and remember, everyone and everything is made from chemicals to begin with), is their dose, which determines whether the chemical in question will be effectively harmless or will turn out to be a fatal poison.

That's why it is important to pay attention to the instructions and labels included with many medications that specify their maximum allowable daily dosage (such as this example for many commonly prescribed or over-the-counter medications). But how far does that maximum "allowable" dose fall below what would be considered to be a fatal dose?

The reason why we're asking that question today is because we were surprised to learn from Josh Bloom of the American Council on Science and Health that acetaminophen, a very common and popular pain relieving and fever reducing medication, is considered by some to be the "most dangerous drug ever made".

The reason why it is considered such is because the margin of safety between a fatal dose of acetaminophen and the maximum allowable daily dose indicated on the over-the-counter medication's label is comparatively low when compared to other drugs that are popularly perceived as being more toxic.

In medicine, the approximate safety margin of an estimated fatal dose of a given substance with respect to the amount of a dose recommended to achieve its desired benefit in 50% of the population is given by a quantity called its Therapeutic Index (TI). For acetaminophen, an estimated lethal dose would be considered to be 10 grams (10,000 mg), while the maximum allowable daily dose for the drug has been set at 3,000 mg since 2011.

Those values let us calculate the therapeutic index for acetaminophen, which we've built the following tool to do the math. If you're accessing this article on a site that republishes our RSS news feed, please click here to access a working version of the tool on our site.

Dosage Information
Input Data Values
Maximum Allowable Daily Dose [milligrams, mg]
Toxic (Fatal) Dose [milligrams, mg]

Margin of Safety [Therapeutic Index]
Calculated Results Values
Therapeutic Index

Prior to 2011, the maximum allowable daily dose for acetaminophen was 4,000 mg, which would give it a Therapeutic Index of 2.5. With its maximum allowable dose having dropped to 3,000 mg per day, the TI for acetaminophen is 3.3, which is still very narrow when compared with other pain relieving medications that are perceived by the public as being more dangerous, such as hydrocodone (estimated TI = 8 to 16), which must be prescribed by a medical professional.

That narrow margin for its TI value, along with its wide availability, may be why acetaminophen overdoses are surprisingly common. Neurologist Dr. Aric Hausknecht recently described the scope of the issue:

Each year a substantial number of Americans experience intentional and unintentional Tylenol (acetaminophen) associated overdoses that can result in serious morbidity and mortality. Analysis of national databases show that acetaminophen-associated overdoses account for about 50,000 emergency room visits and 25,000 hospitalizations yearly. Acetaminophen is the nation's leading cause of acute liver failure, according to data from an ongoing study funded by the National Institutes for Health. Analysis of national mortality files shows about 450 deaths occur each year from acetaminophen-associated overdoses; 100 of these are unintentional.

Doing the math, that's 350 intentional deaths that occur each year that can be directly attributed to overdoses of acetominophen. If all of these deaths are suicides, overdoses of acetaminophen would account for about 5% of all suicides by poisoning in the U.S.

For all the other cases, the bottom line is that the maximum allowable daily dose indicated on a medication's label should not ever be exceeded without direct monitoring and care provided by trained medical professionals.

Labels: , ,

September 21, 2017

How much do you need to save for retirement to maintain your pre-retirement lifestyle?

It's an easier question to ask than to answer because there are a multitude of factors that can affect what the right answer to the question will be for you. And that assumes that whatever answer you come up with turns out to be the right answer!

Still that doesn't stop people from asking and firms offering their retirement planning services from attempting to answer in the simplest ways they can.

The latest firm to do so is Fidelity, where they've developed the concept of using age-based savings factors to help you determine if you've saved enough at various points of your life. For the simplest estimate, all you need to get started is find the appropriate savings factor that applies for your age, multiply it by your annual income, then see how the balance of your retirement savings account compares to it. The following chart is one that they have provided for that simple math.

Fidelity: Savings Factors To Help You On Your Journey to Retirement

Seems pretty simple, right? And to be fair, the math involved is pretty simple. In the following chart, we've started with the median income earned by a typical American between the ages of 25 and 29 in 2016, then showed the inflation-adjusted savings that such an individual would have to accumulated at different points throughout their life to meet Fidelity's savings targets. The income trajectory shown for the individual is also one that Fidelity assumes, which we've listed along with a number of additional assumptions Fidelity is making....

Estimated Savings Needed to Maintain Your Pre-Retirement Lifestyle (According to Fidelity)

Will all those assumptions apply to you? Maybe yes, maybe no. Just for fun, we decided to play with just one of those assumptions, where instead of Fidelity's assumed 1.5% annual inflation-adjusted raise, we wondered how differently the chart would look if the individual to whom it applied was simply earning 2016's median income for the indicated age. After all, since it is the median, 50% of Americans have annual incomes above that level and 50% of Americans have annual incomes below it, so that particular income trajectory might be considered to be more representative of what a typical lifetime income trajectory for an American randomly plucked from the population at large might have, so here that chart is.

Estimated Savings Needed to Maintain Your Pre-Retirement Lifestyle (According to Fidelity) for a Median Income Earning American

It's quite a lot different from Fidelity's assumed lifetime of annual faster-than-the-rate-of-inflation raises. So the real question is which chart better represents the kind of pre-retirement lifestyle that an American looking to retire would want or be able to maintain?

We'll leave other questions that might come up about Fidelity's assumptions, such as "can someone with this income really afford to set aside 15% of their annual income for their retirement at Age 67?", as an exercise for our readers!

Labels: , ,

September 20, 2017

What are the differences between the Congressional Budget Office's estimates of income inequality among U.S. households and the annual estimates produced by the U.S. Census Bureau?

We've taken a stab at answering that question in a visual format through the following infographic! Please click the image to access a larger, more readable version of the chart to get the quick run-down on what makes each of the indicated estimates different from one another, while also checking out over 50 years worth of U.S. household income inequality data as measured by the estimable Gini ratio.

GINI Ratio of U.S. Households, Comparison of CBO and U.S. Census Bureau Estimates, 1967-2016

As for Item 4, we'll have more information soon, but as a quick indication of what we can do with the Census data that cannot be done with the CBO's data, check out our tool What Is Your Income Percentile Ranking?

Data Sources

Congressional Budget Office. The Distribution of Household Income and Federal Taxes, 2013. [PDF Document]. Supplemental Data [Excel Spreadsheet]. June 2016.

U.S. Census Bureau. Current Population Survey. Annual Social and Economic Supplements. Historical Income Tables: Households Table H-4. Gini Ratios for Households, by Race and Hispanic Origin of Householder. All Races. [Excel Spreadsheet]. 10 August 2017.


Labels: , ,

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.com

Thanks in advance!

Recent Posts

Applications

This year, we'll be experimenting with a number of apps to bring more of a current events focus to Political Calculations - we're test driving the app(s) below!

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button

JavaScript

The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recommended Viewing
Recently Shopped

Seeking Alpha Certified

Archives
Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.