Welcome to the Friday, November 13, 2009 edition of On the Moneyed Midways! Each week, we bring you the best posts we found among the best of the past week's business and money-related blog carnivals for your weekend reading pleasure!

With it being Friday the 13th, we understand that our more superstitious readers might believe they're due for some bad luck. To put your uneasy minds to rest though, you're luck is good - this week's posts included in OMM are of the same caliber and quality that you've come to expect.

Better even! There were quite a few posts jockeying for the title of being The Best Post of the Week, Anywhere!, with the criteria for winning coming down to an editorial choice to go with the most timely of the contenders!

Never-the-less, all the posts we selected for this week's edition are well worth your time. For proof, just scroll down....

On the Moneyed Midways for November 13, 2009
Carnival	Post	Blog	Comments
Carnival of Debt Reduction	Loan Modification Companies vs The Fair Housing Authority	Digerati Life	Stacey Doyle guest posts about her disappointment with the fees charged by commercial debt modification firms after getting behind on her mortgage payments, describing why she's turning to the Fair Housing Authority.
Carnival of HR	Why HR?	Pseudo HR	April Dowling got into a discussion with her boss regarding why they went into HR, which turns out to be pretty far from where they originally thought they wanted to go in their careers.
Carnival of HR	The Red Purse Story	HR Bartender	Oddly, Sharon Lauby's post isn't about HR at all. What it is about is how a business can correct a mistake and build a trusted relationship with their customers, which makes it Absolutely essential reading!
Carnival of Personal Finance	Travel Hacking for Noobs: How We Save Hundreds on Airfare, Get Free Accommodation & Make Money While Overseas	Man vs Debt	Adam Baker is maybe *the* guy who would know all the ins-and-outs of travel hacking, seeing as he's recently relocated his family halfway around the world without having a job lined up first! Absolutely essential reading for his take on how social networking is expanding the options people have in traveling!
Carnival of Real Estate	The New Deed for Lease Program Hits a Neighborhood Near You	VA Real Estate Talk	Cindy Jones describes Fannie Mae's new "Deed for Lease" (or D4L) program, which could transform the failed government entity into the country's biggest landlord for distressed homeowners otherwise facing foreclosure. The Best Post of the Week, Anywhere!
Carnival of the Capitalists	Success on the Side	The American	Ben Casnocha recounts several highly successful achievements and products that originally started out as side projects and describes how some companies have made side projects part of their business plan.
Festival of Frugality	5 Quick Fixes to Salvaging a Good Meal	Domestic Cents	Tisha Tolar lists how to recover from or avoid five potential dinner disasters, including salty soup, overcooked pasta, burned steak, less-than-fresh fruits and vegetables and stale rolls!
Festival of Stocks	The Gold-Dollar Correlation Explained and Why It Broke Down	Darwin's Finance	Why not buy gold? Darwin explains why in terms of the relationship between the shiny yellow metal and the U.S. dollar and describes the things an astute investor could do to hedge potential inflation risks or gain from the fall in the dollar's value.
Best of Money	Should You Move to a High-Deductible Health Insurance Plan and Use an HSA to Make Up the Difference?	PT Money	PT notes how the government-controlled automaker, General Motors, is taking steps to move its employees to health insurance plans with high deductibles combined with Health Savings Accounts, running the numbers of a friend who chose a similar option to see if they make sense. Surprisingly, they might!

Previous Editions

• OMM's Running Index for 2008
• OMM's Running Index for 2007
• The Best Blogs Found in 2006 (and our full 2006 index)!

Labels: carnival

- posted by Ironman at 5:24 AM | Permalink | |

Suppose that your company provides you with stock options as part of your compensation. Do you have any idea how much they might be worth?

Sure, you could use the Black-Scholes' method for determining how much your options might be worth, but that will require you to figure out or make a wild guess at things like:

• The intrinsic value of your options. This is the difference between the current price of a share of your company's stock and the strike price of your option, or rather, the price at which your option allows you to purchase a share of your company's stock.

• Market volatility over the period of time that you can exercise your stock options. Stock prices go up and down, which makes this factor especially hard to work out.

• Opportunity costs. If you're considering exercising your stock options, you'll need to have money set aside to actually purchase shares of your company's stock at your option's strike price. That means it's not available to spend or invest, which has a cost. The cost of that money is represented by how much it would cost you to borrow the same amount.

Daniel Sorid has a good discussion on how each of these factors can influence the value of your stock options. And there are some decent tools out there to help you work out the value of your company's stock options [Introduction page here, follow the link for the "Basic Options Calculator", which requires you agree to iVolatility's terms of use before they give you free access to their tool (HT: Fairmark.)]

But what if you just want a ballpark figure to use to estimate the value of your stock options? Without having to guess at how volatile the market will be over the term that the option is good or to work out what your opportunity costs might be?

For the S&P 500 and its predecessor indices and component stocks, the average nominal rate of return for the index since January 1871 is 9.4%.

While this approach will give you a general idea of the potential value for your stock options, the biggest downside to this method is that it doesn't take market volatility into account, which can be substantial. For the S&P 500 from 1900 through 2006, during which the index averaged an 11.7% annual return, the standard deviation of its returns is 19.8%.

And that's for the entire index, which is a lot less volatile than individual stocks. Here, the standard deviation of a typical stock between 1994 and 2006 clocks in at 60%.

So what can we do to get a sense of that risk where your employee stock options are concerned?

This is where we get to point you to a great tool. Moneychimp's Volatile Market Simulator can show you what the potential effects of that volatility can do to the value of a $10,000 investment. You can run the tool year by year, or over a 20 year period for either their default stock investing scenario, which assumes 10% annual returns with a standard deviation of 15%, or for a custom scenario, where you can plug in the values for these figures that we've provided above. Since the tool uses a Monte Carlo approach, it will be beneficial to run it several times, specifically over the period covered by your stock options.

Previously on Political Calculations

• Should You Keep or Sell Those Stock Options? - our tool to help you decide if you should hold or sell the stock options you have!

• Remapping S&P 500 Performance Since 1871 - Our tool and chart illustrating the best, worst and average rates of return for investments of any length in the S&P 500.

• The S&P 500 at Your Fingertips - our signature tool for finding the rate of return between any two calendar months since January 1871.

• Investing Through Time - Our historical stock market investing simulator. Find out how much your hypothetical investment between any two calendar months in S&P 500 history would be worth!

Labels: stock market, tool

- posted by Ironman at 5:52 AM | Permalink | |

Via Warren Meyer, we thought the the chart Clifford F. Thies created for his post The Dead Zone: The Implicit Marginal Tax Rate over at the Mises Institute was cool (see right).

But why does it look like this? Why do the government's implicit marginal tax rates go so far out of their way to affect people and households with low annual incomes?

Then another neat question came to us? How do these implicit marginal tax rates compare to how income is distributed in the United States? Fortunately for us, that's something we've already worked out. The chart to the left shows what we found when we answered that question back in May 2008:

In the chart to the left, we see that aggregate household income first rises, then falls as income increases, with households at lower incomes collectively earning as much as the households at higher incomes. For example, we can directly observe that households with annual earnings of $20,000 amass the same amount of aggregate income as those with annual earnings of $80,000.

The difference is the number of households at each income level. To get the same aggregate income level as the households with adjusted gross incomes of $80,000, there would have to be four times as many households earning $20,000.

Looking between these two income amounts, we see the peak in aggregate household income would appear to closely correspond to where the greatest level of implicit marginal taxation occurs. Here's an overlay of the two charts so we can directly observe where the implicit marginal tax rates fall with respect to household aggregate income:

We find that the level of implicit marginal tax rates with respect to earned income look the way they do because of how most of the money earned each year is distributed among U.S. households. With a progressive income tax structure, implicit taxation through the phase-out of welfare and other income-based tax benefits and credits at lower income levels is the method by which the government would appear to shift the implicit tax burden to more closely center on the mass of money aggregated in households with annual earnings between $19,000 and $46,000.

As household income levels rise, progressive income tax rates take over. We should note these higher explicit marginal income tax rates actually begin kicking in well below $46,000, contributing to the higher implicit marginal rates of taxation observed at these income levels. The difference is that the effects of the explicit marginal income tax rates upon a household's annual income are much more transparent.

And no, it's not something that happened by accident. Shifting the implicit tax burden this way is something that takes a lot of scheming....

Labels: taxes

- posted by Ironman at 5:51 AM | Permalink | |

When we last considered what the future held for the S&P 500, we didn't have enough data to confirm which point of time in the future to which investors would appear to have shifted their focus during the month of October 2009. Observing that the forward-looking focus of investors had indeed shifted from the first quarter of 2010 to either the third or fourth quarter of 2010, we constructed our forecast for where average stock prices would go in November 2009 by blending the results of our math together.

Today, with an additional week of data, it would appear that investors have shifted their time focus to the fourth quarter of 2010, with changes in the year-over-year rate of growth of the index' dividend futures contract expiring in December 2010 now providing the basic signal driving stock prices.

With that knowledge, we can now refine our forecast for where average stock prices will go in November 2009. Using the typical range of amplification factors that correlate the magnitude of changes in the rate of growth of stock dividends per share with changes in the rate of growth of stock prices that we've observed since 2001, we find that the full range for where the average of stock prices for November 2009 will fall is between 959 and 1098. Following our usual practice of indicating either the upper or lower portion of the full range we calculated for our actual forecast, we would narrow that down to 1036 to 1098.

The table below presents our previous prediction and the corresponding stock price forecast values:

* indicates forecast value based upon 2010Q3 dividend futures data. All other forecast values based on 2010Q4.

Some changes to note which account for the upward shift in our forecasted range for the S&P 500 in November 2009:

1. 4 November 2009 saw a significant jump in the value of expected future dividends per share for the S&P 500, with a combination of dividend increases forecast for semiconductor maker Intel (NYSE: INTC), railroad Norfolk Southern (NYSE: NSC) and power utility Southern (NYSE: SO) contributing to the increase.
   
   
2. The new forecast values above are based on a point 13 months in the future, as measured from the end of October 2009 (or more simply, December 2010.) Previously, we used the values for the S&P 500's dividends per share expected for October 2010.

We'll also note the much wider range of potential values for our November 2009 forecast as compared to our forecasts for previous months. This outcome is the result of the underlying data in our calculations, which is based on the year-over-year change in the rate of growth of the S&P 500's trailing year dividends per share. In a nutshell, the value of the change in the expected year over year growth rate of dividends per share for 2010Q4 is much larger than that for 2010Q1 (the previous period of investor focus), which results in a much wider range of anticipated future stock prices when multiplied by our amplification factors.

We would anticipate that our forecast range will narrow once again as we move past the trailing year data containing period of crisis that led to such an exaggerated difference from the typical values we observe.

Labels: forecasting, SP 500

- posted by Ironman at 10:00 AM | Permalink | |

Teen job loss surged in October 2009, as the number of teens no longer counted as being employed in the government's labor force statistics since the current recession began in December 2007 jumped from 1,202,000 (1.2 million) in September 2009 to 1,409,000 (1.4 million). As a percentage of the 8,390,000 jobs that have disappeared from the U.S. economy since the total employment level peaked in November 2007, teens now account for 16.8% of the total job loss. During that period of time, the percentage of working teens within the entire U.S. workforce has fallen from 4.00% to 3.22%.

The teen unemployment rose by 1.7% from 25.9% in September 2009 to 27.6% in October 2009. Meanwhile, the adult (Age 20+) unemployment rate increased from 9.1% to 9.5%. Together, the combined unemployment rate for all individuals Age 16+ rose from 9.8% to 10.2% between September and October 2009.

October 2009 also marked another grim milestone for working teens, as the year-to-date average for 2009 of the number of teen jobs lost since teen employment peaked in June 2006 now exceeds that seen during the Bush administration.

Compared to the average number of teen jobs of 6,161,250 counted in 2006, the average number of teen jobs counted in the last year of George W. Bush's presidency is 5,576,000, which represents a loss of 585,250 jobs from the peak in 2006. By contrast, since Barack Obama assumed office in January 2009, the number of working teens has averaged 4,946,400 through October 2009, marking a further loss in the average number of jobs per calendar year of 629,400, with two months remaining in 2009.

The bulk of that job loss since President Obama's inauguration has occurred since April 2009. In the six months since April 2009, spanning the third through ninth months of Barack Obama's presidency, the number of employed teens has actually fallen by 651,000, with 481,000 of that decline occurring since July 2009.

We observe that the rate of teen job loss has accelerated sharply since July 2009, which coincides with the most recent increase in the level of the federal minimum wage.

President Obama's most significant economic achievement to date, the $787 billion American Recovery and Reinvestment Act of 2009 (aka "the Stimulus Package") was passed into law on 17 February 2009. The Obama administration's other signature economic policy, the Cars Allowance Rebate System (aka "Cash for Clunkers"), was signed into law on 24 June 2009 and ran from 1 July 2009 through 24 August 2009.

That's significant because in theory, with no more federal minimum wage increases scheduled to take place following the most recent increase, the number of teen jobs should be stabilizing or rising. Especially if the economy was genuinely improving, as might be expected if the additional government spending enabled by the "Stimulus Package" and "Cash for Clunkers" were going to economically productive activities.

We find that even as GDP apparently grew at an annualized rate of 3.5% (according to the advance release figure for the third quarter of 2009) thanks in large part to the government's Cash for Clunkers program, progressively greater teen job loss occurred throughout the quarter instead.

But perhaps that outcome was unavoidable, given the over 40% increase in the cost of employing the least educated, least skilled and least experienced portion of the U.S. workforce that has taken place in stages over the last two years.

Labels: jobs, minimum wage

- posted by Ironman at 9:26 AM | Permalink | |