Political Calculations
Unexpectedly Intriguing!
August 23, 2017

In California, age plays a big factor in how one might see the health of the state's job market, where adults see very different prospects for collecting paychecks than the state's teenagers do.

For example, the current state of the state's job market for adults Age 20 and older might be described as "California Stalling".

California Non-Teen (Age 20 and Older) Labor Force and Total Employed, Trailing Twelve Month Average, January 2004 - July 2017

While for teens from Age 16 through 19, the best way to describe the state of the job market in 2017 is "California Falling".

California Teen (Age 16-19) Labor Force and Total Employed, Trailing Twelve Month Average, January 2004 - July 2017

For a state that has been boasting about possibly having surpassed the United Kingdom to become the fifth largest economy in the world as recently as a month ago, its economy sure is showing signs of increasing strain.


State of California Economic Development Department. California Demographic Labor Force Summary Tables, July 2017 (and previous editions). [PDF Document]. Accessed 22 August 2017.

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August 22, 2017

Since the end of the first quarter of 2016, the trajectory of the S&P 500 with respect to its trailing year dividends per share has mostly behaved in an orderly manner.

S&P 500 Index Value vs Trailing Year Dividends per Share, 30 September 2015 Through 21 August 2017

Since the current period of relative order began on 31 March 2016, we've had two episodes where we've seen statistical outliers in the data, which coincided with the 27 June 2016 outcome of the Brexit vote in the United Kingdom and the 4 November 2016 "pre-election jitters" that the market had when it was widely believed that Hillary Clinton would become the U.S. President.

Aside from those outlier episodes, the variation of stock prices about its mean trend curve with respect to trailing year dividends per share has largely followed a normal distribution, albeit with much less of a genuinely random walk than would be expected for such a relationship.

That relative order however now appears to be at risk of breaking down, where a downward move of 20 points, or rather, a drop of less than 1% of the current value of the S&P 500, would be all it would take for the current trend to either break down or register a new outlier episode.

Should order break down, it would mark a clear sell signal for investors, although one that would likely pale in comparison to the ultimate sell signal that this kind of analytical method would have generated if it had existed during the most significant event in U.S. stock market history.

On the other hand, if stock prices should only drop below the lower outer dashed red curve shown in the chart above for a short period of time, such a short decline could actually represent a buy signal for investors.

Which signal is being sent is something that investors would have to bet upon based upon their best guesses, where only the passage of time can definitively answer which scenario will be the one that plays out.

That does lead to some interesting questions. How would you as an investor place your bets to take advantage of this kind of information? Would you bet the house that such a move is only an outlier and that the trend will resume? And if reverting to the mean is not in the cards, how would you manage your investments to either maximize your returns or to minimize your losses to account for the potential of a sustained breakdown of order in the market?

Update 9:38 AM EDT: A partial answer, at least this morning, via Reuters... Wall Street opens higher on bargain hunting.

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August 21, 2017

For the S&P 500, the third week of August 2017 looked an awful lot like the second week of the month.

Alternative Futures - S&P 500 - 2017Q3 - Standard Model - Snapshot on 18 August 2017

Specifically, if you look at the period from the close of trading on Monday to the close of trading on Friday, the S&P 500 almost repeated the same trajectory that it did a week earlier, as it moved sideways from Monday through Wednesday, dropped 1.5% on Thursday, then moved sideways within a narrow band on Friday.

That kind of pattern raises an interesting question: Is the current period of relative order in the market, which has been in place since 31 March 2016, now breaking down?

We'll tackle that question at greater depth tomorrow, however the short answer to it is "potentially", where the answer may very well change to "yes" if the S&P 500 should drop by another 17-18 points below its Friday, 18 August 2017 close sometime during this upcoming week.

Now that we've shaken you up a bit, let's look backwards to understand the context that applied to the U.S. stock market in Week 3 of August 2017.

Monday, 14 August 2017
Tuesday, 15 August 2017
Wednesday, 16 August 2017
Thursday, 17 August 2017
Friday, 18 August 2017

For more context of the positives and negatives seen in the U.S. economy and markets in Week 3 of August 2017, Barry Ritholtz has you covered!

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August 18, 2017

As it might be seen in 3D... from space! (HT: TimeandDate):

If you want to see how the Monday, 21 August 2017 eclipse might look from Earth, and more specifically, from any zip code in the United States, Time has an app for that! (HT: Mark Perry)

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August 17, 2017

Now that we're just past the halfway point for the third quarter of 2017, let's take a quick look to see how the pace of dividend cuts in 2017-Q3 compares with the year-ago quarter of 2016-Q3. The following chart shows the data we compiled for both periods from Seeking Alpha's Dividend News resource and the Wall Street Journal's Dividend Declarations database.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter, 2017-Q3 versus 2016-Q3

Compared to the third quarter of 2016, the pace of dividend cuts in the third quarter of 2017 are slightly ahead of the pace set a year ago, with the current level being consistent with recessionary conditions being present within the U.S. economy.

Looking to see which companies among the 26 that have announced dividend cuts at this point of 2017-Q3 can tell us where those recessionary conditions might be found, where we find a strong concentration in two industries of the U.S. economy: the oil and gas production sector with 19, and the financial industry with 6, although most of these are firms with significant real estate holdings, such as Real Estate Investment Trusts (REITs).

If you're doing the math at home, the dividend cuts announced in those two industries add up to 25. The remaining firm in our sample is gun manufacturer Sturm Ruger (NYSE: RGR), which reflects the decline in U.S. gun sales since President Obama's exit from office, which has also negatively impacted sporting goods retailers.

Considering the elephant in the room however, we can identify the decline oil prices during 2017 as the primary contributing factor to the increase in distress in the U.S. oil and gas industry, where sustained crude oil prices below $50 per barrel have been putting that industry's margins under pressure.

As for the REITs, the Federal Reserve's series of interest rate increases since November 2016 would appear to be pinching the profit margins in that sector of the economy, although the exposure to distress appears limited at this time.

Finally, comparing the pace of dividend cuts in 2017-Q3 to what we observed during the first two quarters of 2017, we find that the current level of announced dividend cuts is about the same at this point of time as what we saw in both 2017-Q1 and 2017-Q2, although it had been slightly faster during the earlier part of the quarter.

Data Sources

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 16 August 2017.

Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 16 August 2017.

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