Political Calculations
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October 19, 2017

2017 hasn't been a good year for General Electric (NYSE: GE), and now, the company's new CEO, John Flannery, who took over from Jeffrey Immelt in August 2017, is shaking up the company as its financial problems are reaching a crisis point, all while its stock price continues its 2017 trend of descent.

GE Stock Price History - 2017 - Snapshot on 2017-10-17 - Source: Google Finance

That much is evident from the just announced departure of the company's new Chief Financial Officer, Jeff Bornstein, who had just moved into the CFO position at the same time Flannery was elevated to be GE's Chief Executive Officer. The unexpected change points to ongoing issues with the company's financial situation, which appears to be deteriorating.

GE's management has been over-promising and under-delivering, and you only have to look at the nearly 27% decline in the company's stock price this year to see the impact. GE hasn't formally abandoned its EPS targets for this year and the next, but the commentary around those targets has grown increasingly negative. Moreover, there are signs of deteriorating quality of earnings. Consider:

  • GE significantly missed its own expectations for cash flow generation by $1 billion in the first quarter.
  • On the second-quarter earnings call, Bornstein guided investors toward the bottom end of the full-year earnings and cash flow guidance ranges.
  • Immelt's long-held target of $2 in operating EPS in 2018 is significantly above the analyst consensus of $1.63.

In a nutshell, market analysts believe that GE isn't going to make its earnings numbers, and what's more, they also believe that GE's cash flow is in trouble.

... when GE reported a cash flow shortfall of $1 billion in the first quarter--with $300 million of it from contract assets--it highlighted the fact that GE has been booking revenue and earnings which haven't been dropping through into cash flow as yet.

The combination of lackluster earnings and strained cash flow means that the company will likely be forced to cut its dividend. As a general rule, companies need at least one of these two things working in their favor in order to sustain their dividends without negatively impacting their other operations and costs, but since GE has neither of these going for it at this time, there is a very real possibility that the company will be compelled to slash its dividend in the very near future as part of an overall restructuring initiative. As in today or tomorrow, with a potential 25% cut from the current quarterly dividend payout of $0.24 per share down to $0.18 per share....

Since GE is one of the largest company's in the U.S., at least as measured by its market capitalization, what happens to GE will have a noticeable effect on major stock market indices like the S&P 500 (Index: INX). Because we use the future expectations associated with the index' dividends per share to project its future trajectory, we wondered how much GE cutting its dividend might affect those future expectations.

So we 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 through to our site to access a working version of the tool. The default stock price, market cap, and dividend data in the tool applies for General Electric and the S&P 500 as of the close of trading on 17 October 2017.

Individual Company Stock Data
Input Data Values
Stock Price per Share
Dividends per Share Paid During Last 12 Months
Number of Shares Outstanding
New Dividends per Share Paid During Next 12 Months
Reference Market Cap-Weighted Index Data
Reference Market Capitalization of Index
Reference Index Value
Current Stock Market Index Data
Current Index Value
Index Dividends per Share Paid During Last 12 Months

Market Capitalization and Dividend Change
Calculated Results Values
Index Dividends per Share To be Paid Over Next 12 Months
Change in Index Dividends per Share

For the default data that applies for GE in October 2017, we find that should the company cut its dividend by 25% from its current dividend level, the impact to shareholders of S&P 500 index funds would a reduction of $0.23 per share in their annual dividend payouts, or a little under 0.5%.

Because we built this tool to be able to consider the impact of a change in dividends paid out by any dividend-paying component of a market cap-weighted stock market index, you're more than welcome to use it to consider the dividend change situation at other companies - just make the appropriate substitutions in the tool, and we'll take care of the math.

The tool however does not consider what the other dividend-paying components of the index are doing with their dividends, so it should be used only to consider what effect that a change in a single company's dividend policy might have on the dividends that would be paid to investors in a market cap-weighted index fund.

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October 18, 2017

We're busy behind the scenes today here at Political Calculations, but to mark the occasion of new highs for the U.S. stock market, we thought we might revisit the past for the S&P 500 and its index predecessors.

First, a quick look at the average value of the S&P 500 in each month since January 1871.

S&P 500 Average Monthly Index Value, January 1871 to October 2017 (Through 17 October 2017)

Now that you've seen the chart, you might want to extract some of the data for certain periods from it. That's where our The S&P 500 At Your Fingertips tool comes into play, because not only can we tell you what the value of the S&P 500 or its predecessor indices was in any of those months, we can also tell you the index' earnings per share and dividends per share, as well as the rates of return that were realized between any two of months that you might select, both with and without considering the effects of inflation and dividend reinvestment! We update this tool monthly.

But wait, that's not all! Our Investing Through Time tool uses that data to estimate how much the inflation-adjusted value of an investment made between any two months from January 1871 through the present might be worth. If you're the kind who wants to consider worst case scenarios, just set "June 1932" as the end date for your hypothetical investment.... We also update this tool monthly.

We also present a tool for the Quarterly Data for the S&P 500, Since 1871, since that provides the raw data we use for the earnings and dividend data in the other two tools. We update this tool annually, where it presently provides data through the fourth quarter of 2016.

Finally, we'll revisit the data for the average monthly value of the S&P 500 in chart form, but this time, using a logarithmic scale.

S&P 500 Average Monthly Index Value, January 1871 to October 2017 (Through 17 October 2017)

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October 17, 2017

Last week, NASA scientists published their blockbuster findings of what they learned from the observations they obtained over the first two years of operation of the Orbital Carbon Observatory-2 (OCO-2) satellite.

Launched on 2 July 2014, OCO-2 has the ability to measure the concentration of carbon dioxide in the Earth's atmosphere at spatial resolution down to 1.3 kilometer by 2.25 kilometer rectangles, a significant improvement over the 50 by 50 kilometer squares that marked the limit that previous satellites were able to produce. With that level of detail, the satellite's instruments are better able to detect the emission of carbon dioxide from both natural sources and from human activities much closer to their points of origin, before they become more generally dispersed into the Earth's atmosphere.

The timing of the launch of the OCO-2 satellite was particularly fortuitous, because it came in time to capture the effect of the very strong El Niño anomaly of 2015-2016 upon the level of carbon dioxide that was added to the Earth's atmosphere during those years.

But more to the point, the satellite data was able to determine the amount and source of that additional carbon dioxide produced from natural sources. The following chart shows that almost all of that contribution came from the tropics, where a combination of higher temperatures and drought conditions led to less carbon dioxide being captured by plants in the Earth's equatorial belt.


NASA totaled up the numbers related to the 2015-2016 El Niño event:

A new NASA study provides space-based evidence that Earth’s tropical regions were the cause of the largest annual increases in atmospheric carbon dioxide concentration seen in at least 2,000 years.

Scientists suspected the 2015-16 El Nino -- one of the largest on record -- was responsible, but exactly how has been a subject of ongoing research. Analyzing the first 28 months of data from NASA’s Orbiting Carbon Observatory-2 (OCO-2) satellite, researchers conclude impacts of El Nino-related heat and drought occurring in tropical regions of South America, Africa and Indonesia were responsible for the record spike in global carbon dioxide. The findings are published in the journal Science Friday as part of a collection of five research papers based on OCO-2 data.

“These three tropical regions released 2.5 gigatons more carbon into the atmosphere than they did in 2011,” said Junjie Liu of NASA’s Jet Propulsion Laboratory (JPL) in Pasadena, California, who is lead author of the study. “Our analysis shows this extra carbon dioxide explains the difference in atmospheric carbon dioxide growth rates between 2011 and the peak years of 2015-16. OCO-2 data allowed us to quantify how the net exchange of carbon between land and atmosphere in individual regions is affected during El Nino years.” A gigaton is a billion tons.

In 2015 and 2016, OCO-2 recorded atmospheric carbon dioxide increases that were 50 percent larger than the average increase seen in recent years preceding these observations. These measurements are consistent with those made by the National Oceanic and Atmospheric Administration (NOAA). That increase was about 3 parts per million of carbon dioxide per year -- or 6.3 gigatons of carbon. In recent years, the average annual increase has been closer to 2 parts per million of carbon dioxide per year -- or 4 gigatons of carbon. These record increases occurred even though emissions from human activities in 2015-16 are estimated to have remained roughly the same as they were prior to the El Nino, which is a cyclical warming pattern of ocean circulation in the central and eastern tropical Pacific Ocean that can affect weather worldwide.

Doing the math, that additional 2.5 billion metric tons of carbon translates into an additional 1.17 parts per million of carbon dioxide being emitted into the Earth's atmosphere from natural sources during the period of the 2015-16 El Niño anomaly.

Having now isolated that natural contribution to the increase in the concentration of atmospheric carbon dioxide over that period of time, we can now subtract it out from the total to quantify the portion that might be attributable to human activities combined with what would be considered to be typical levels of CO2 generated from natural sources, which would be more directly comparable to the kind of readings that would be obtained in years where El Niño events are not a significant factor affecting atmospheric carbon dioxide concentration measurements.

Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 1960-September 2017

That in turn can tell us something about the relative health of the Earth's global economy, since human activities are primarily responsible for the increase in the year over year change in the concentration of atmospheric carbon dioxide over time. In this case, after subtracting out the contribution of the 2015-2016 El Niño anomaly on those measurements, we find that the peak value that would have been reached during this time would have fallen below the peak reached in 2013 and would be about the same as the peak reached in 2014.

For the Earth's global economy, that suggests that economic growth was largely flat from 2015 through 2016, where we would expect a faster rate of increase in the year over year change in CO2 levels if the Earth's economy was growing on net during that time.

Ideally, we'd like to get a month-to-month breakdown of how much additional CO2 was produced from natural sources during the 2015-2016 El Niño event, which would let us drill down into greater detail for the global economic performance that was realized during those years. And with data from the OCO-2 satellite, that might just be possible, which would allow us to directly take natural anomalies like a very strong El Niño episode into account in near-real time, as we would be better able to isolate and separate those factors from the CO2 produced via human activities.

That in turn would transform our vision for using the changing level of carbon dioxide in the Earth's atmosphere from human activities as a near-real time indication of the performance of the world's entire economy into a hum-drum practical achievement.

At least as the changing level of carbon dioxide in the Earth's air continues to be largely in proportion to the scope of human activities.


Florian M. Schwandner, Michael R. Gunson, Charles E. Miller, Simon A. Carn, Annmarie Eldering, Thomas Krings, Kristal R. Verhulst, David S. Schimel, Hai M. Nguyen1, David Crisp, Christopher W. O’Dell, Gregory B. Osterman, Laura T. Iraci, James R. Podolske. Spaceborne detection of localized carbon dioxide sources. Science. Vol. 358, Issue 6360, eaam5782. DOI: 10.1126/science.aam5782. 13 October 2017. Accessed 13 October 2017.

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [File Transfer Protocol Text File]. Updated 5 Octobedr 2017. Accessed 8 October 2017.

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October 16, 2017

Following the records set in the first week of October 2017, the S&P 500 (Index: INX) continued to mark new highs during the second week of the month.

More specifically, the 2555.24 that marked the level of the S&P 500 at the close of trading on Wednesday, 11 October 2017 upped the ante for the index's series of new high closing values, although it wasn't much of a gain over the previous week's closing value of 2549.33 on Friday, 6 October 2017. Nor was it far below the S&P 500's all-time intraday high of 2557.56 that the index reached at 10:46 AM EDT a week later on Friday, 13 October 2017, before slipping back to end the week at 2553.17.

Alternative Futures - S&P 500 - 2017Q4 - Standard Model with Connected Dots Between 20170908 and 20171108 - Snapshot on 20171013

The S&P 500 continues to track along near the upper end of the echo effect-adjusted range that we first forecast back in the first week of September 2017. At that time, we observed that investors were largely focusing on 2018-Q2 as they considered the future for the S&P 500, where we constructed our forecast based on the assumption that they would largely continue focusing on that distant future quarter over the next two months.

As things stand today, we're now past the halfway point, with just three and a half weeks to go before we reach the end of our need to account for the echo of past volatility in stock prices in our dividend futures-based model of how stock prices work.

Through Week 2 of October 2017, there was nothing to really prompt investors to shift their focus toward a different point of time in the future, which can be seen in the headlines that we flagged during the week.

Monday, 9 October 2017
Tuesday, 10 October 2017
Wednesday, 11 October 2017
Thursday, 12 October 2017
Friday, 13 October 2017

Elsewhere, Barry Ritholtz broke the second week of October 2017 down into its economic and market pluses and minuses.

And that's the week that was! As for the week ahead, unless investors shift more of their focus toward other points of time in the future than they are already, look for the S&P 500 to continue falling within the range shaded in red in this week's spaghetti chart update.

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October 13, 2017

It's a short one-minute long video from Ford, but it explains so much!

More seriously, what Ford's engineers are working on is a very real problem, and is one reason why industrial robot manufacturers add "eyes" to their products that aren't needed for their primary functions; it is so they can "communicate" where they're going to go with the human employees around them, which in turn, helps both machine and human coordinate their activities and helps avoid industrial accidents.


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

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