Featured Photos


Baseball Hall of Fame - 8/23/11

Featured Video


Avery's QuEST Project - It's Healthy!

House Construction


The Completed Home Renovation


Home Renovation - Complete!


Our House Construction Photoblog

RSS Feed

Money Talk

« Previous Entries                     Next Entries »

Stock Market Trivia

Wednesday, October 18th, 2006

The Dow Jones Industrial Average broke 12,000 today (although it ended the day just shy of that mark, but still at a record high of 11,992.68). In honor of the event, here is some interesting trivia:

Time it took the DJIA to go from 10,000 to 11,000: 24 days
Time it took the DJIA to go from 11,000 to 12,000: 7.5 years
Increase in the DJIA thus far in October, 2006: 312 points
Number of record highs set by the DJIA in the past two weeks: 7

Categories: Money Talk | 1 Comment »

Playing with Numbers, Part 2

Thursday, September 28th, 2006

The Dow Jones Industrial Average traded briefly over it’s record high today, while the tech-laden NASDAQ Composite remains significantly less than half of it’s record high. In keeping with today’s trend data theme, here are some interesting comparisons:

Here’s the graph everyone always talks about – stock market performance from the time the bubble burst (early 2000) until today:

The Dow broke even today (2,449 days after it’s record high). The NASDAQ is still down almost 50%. This data has been used for everything from explaining away bad investment strategies to arguing against the privatization of social security.

But let’s look at two other graphs that may put things in perspective. First, the performance of both indexes over the last ten years:

Obviously, the first thing one notices is the 377% gain in the NASDAQ between 1/1/96 and 3/10/00. But let’s focus on a few other data points as well: First, note that the NASDAQ’s net gain from 1/1/96 to today is 112% (just over 10% per year), which almost equals the more conservative DJIA’s 124% gain (11.5% per year) in the same period. Second, note that at the NASDAQ’s lowest point, 10/9/02, it was still 5% above it’s value on 1/1/96. Finally, note that Alan Greenspan’s famous “irrational exuberance” speech, in which he warned that assets may be overvalued, was given on December 5, 1996, when the DJIA was 6,381.94 and the NASDAQ was 1,287.68 (both roughly half of what they are today).

And yet, the same sorry tale continues to resonate over many beers in many different Wall Street bars: You invested $1,000 in a NASDAQ index fund on 1/1/96. On 3/10/00, it was worth $4,769. On 10/9/02, it was worth $1,052. Although you’d made 5% on your money (a paltry 0.75% per year, but still a gain), you cried to your friends about how you’ve lost your life’s savings. Now it’s 9/25/06, and your original $1,000 is worth $2,124, representing a very respectable 112% gain (more than 10% per year). Still, you cry to your friends about how risky the market is because your portfolio isn’t worth $4,769 like it used to be.

One more graph to illustrate another subtle point. By the end of 2002, the NASDAQ was significantly behind the DJIA, but today they’re just about even. The graph of both markets since 1/1/03 looks like something out of 1999. Well, OK, 1998:

A 62% return from the NASDAQ (16.5% per year), as compared to 34% (9% per year) for the DJIA.

The bottom line: the last ten years have been a roller coaster in the market, to be sure, but at the end of it all, total returns have hovered around a nice, healthy 10% or so. The volatility in between means that some people got lucky and made a killing, and others got unlucky and got killed.

But everyone remembers the lofty peaks, and the psychological loses are much, much harder to make back than the financial ones.

Categories: Money Talk | 5 Comments »

Playing with Numbers, Part 1

Thursday, September 28th, 2006

I’ve been playing around with trend data lately, and have discovered some interesting relationships that may provide a little context to current events. For instance, compare the historical price of oil to President Bush’s approval ratings throughout his presidency:


(chart links to a spreadsheet with the underlying data)

The correlation between the two datasets is -81.14%. In other words, over the last five and a half years, every time the price of oil has dropped $1, the President’s approval rating has increased by 0.8% (and vice versa). For the real statistics geeks, the R-Square value is 65.84%, suggesting that 65% of the movement in Bush’s approval ratings are explainable by the price of oil.

Now, I’m no statistician (two intro courses in statistics at The Wharton School were enough to sway me away forever), but I know enough to avoid confusing correlation with causality. This is not proof that the price of oil directly affects Bush’s approval ratings. It merely suggests that the historical data suggests a relationship. There is always the chance that this relationship is purely coincidental.

That said, (and based solely on my own opinion now, not the statistics), I think there is a causal relationship here. When the price of oil drops, the stock market tends to rise and the price of a gallon of gasoline tends to fall. These items have real world impact on most Americans and when they’re all moving in the right direction, I can easily imagine it affecting their attitude towards their president and their responses to polling questions.

What’s most surprising to me here is the extent of the correlation. If this data does reflect causality, then it means that each new opinion poll on the President’s job performance is not the stark referrendum on the Iraqi war, the erosion or our civil liberties, or our treatment of foreign detainees that one side or the other (depending on what the data says) claims it to be. Instead, around two thirds of any movement in the polls is tied to the price of a publicly traded commodity which is, at best, only indirectly controlled by the President himself.

Categories: Money Talk, Political Rantings | 4 Comments »

Good News – Things are Getting Worse!

Friday, July 28th, 2006

When Wall Street analysts start focusing on inflation, you wind up with headlines like this:

STOCK PRICES RALLY ON SLOWDOWN IN GDP

The article explains itself nicely: Basically, when the economy grows at a slower rate, there’s less inflation, which means the Federal Reserve doesn’t have to raise interest rates. This keeps corporations’ costs for borrowing money from going up, which suggests higher profits in the future, so the stock market goes up.

Still reads funny, though…

Categories: Money Talk | Comments Off on Good News – Things are Getting Worse!

Tax Cuts for the Rich Raise Taxes for the Rich

Thursday, July 13th, 2006

More evidence that every prediction you hear about taxes is intended solely to confuse you, nothing more. This, from the New York Times (free for now…)

An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

Unexpectedly steep rise in tax revenues from the wealthy? But I thought W’s sinister tax cuts were just fancy ways of cutting taxes for his rich cronies while taxing the lower middle class into poverty? I guess not…

The rest of the article quotes various partisans that bicker back and forth with the numbers: numbers are up, but haven’t reached the 2000 levels yet (right – 2000 was the peak of the largest peacetime expansion ever), numbers are up, but not as a percentage of GDP (why would you measure taxes against production? We tax income, not production, right?), etc., etc.

Here’s the key quote as regards taxes:

One reason for the increased volatility may be that, contrary to a popular assumption, a disproportionate share of income taxes is paid by wealthy households, and their incomes are based much more on the swings of the stock market than on wages and salaries. About one-third of all income taxes are paid by households in the top 1 percent of income earners, who make more than about $300,000 a year. Because those households also earn the overwhelming share of taxable investment income and executive bonuses, both their incomes and their tax liabilities swing sharply in bull and bear markets.

That’s mostly right, except for the bull & bear markets part. You pay capital gain taxes when you sell a stock. There’s more selling in a bear market, but in a bull market, sales occur at higher prices – causing larger capital gains & higher tax revenue, even though the tax rate is the same. You also pay taxes on dividends (one of the rates the Bush plan cut). Dividends come in bull and bear markets, although corporations tend to raise their dividends when things are going well, so bull markets will see higher taxes, but it’s very rare that a company lowers its dividend once it’s been raised, so I don’t expect this number declines much in a bear market.

Bottom line: both parties are obfuscating here.

The Democrats spent years telling us that Bush’s tax cuts were only for the rich, quoting us bogus statistics about how someone making over $200,000 per year would receive tens of thousands in tax cuts, while someone making $75,000 per year would receive a few hundred bucks. Now that it turns out the rich are paying significantly more in taxes, their gripe is that it’s not growing fast enough. I assume they’d be against further “cuts for the rich” to make it grower faster, though, huh?

The Republicans are spinning this good news into a claim that the deficit will be smaller than originally predicted. Someone needs to slap them in the face and tell them that increased revenue is not a valid excuse for unbelievable excesses in spending, and that faster than expected revenue increases are a golden opportunity to run budget surpluses, as opposed to smaller-than-expected deficits (cf. Bill Clinton’s last two years in office). While they are correctly touting this as a reason to make the tax cuts permanent, they are also using it as a matador’s cape to distract us from the runaway spending problem they’ve created.

Spinners, one and all. But, the policy itself seems to have been sound, so it’s good to know that at least it could have been worse…

Categories: Money Talk, Political Rantings | Comments Off on Tax Cuts for the Rich Raise Taxes for the Rich

Some More About the SWIFT Story

Saturday, June 24th, 2006

I wouldn’t claim to be an expert on how SWIFT messages work, but I have worked with/for Wall Street firms for more than a decade, so I do know a thing or two about them. The more I read about this story, the more I am dumbstruck at the apparent lack of knowledge being displayed (or, as is more likely the case, ignored for political purposes). So, some facts that might help: