The end of daylight savings.

  1. The end of daylight savings.

    The idea of shifting our clocks to make better use of daylight is as old as Benjamin Franklin, who first penned the idea while living in Paris in 1784 when he noticed people used candles at night and slept past dawn in the morning. However, the notion wasn’t given serious consideration until the early 1900’s, and during World War I the first laws were passed driven largely by economic considerations. Now 70 countries have instituted Daylight Savings Time to some degree. Despite many adjustments since then, observance today in America is nearly universal, except in the case of Hawaii and most of Arizona. Arizona felt that with its hot climate, it argued that people prefer to do their activities in the cooler evening temperatures after the sun sets. Hawaii sits so close to the equator that its sunrise and sunset are consistent already and therefore has little need for extra light. Most countries located around the equator have opted out for the same reason. The theoretical arguments for DST – lighter evenings mean lower demand for illumination and electricity – have been debated at length, but it was rather hard to prove. However, when Indiana adopted DST statewide in 2006, after previously observing it county by county, researchers were able to study before-and-after electricity use across the state. In a 2008 National Bureau of Economic Research study, the team found that lighting demand dropped, but the warmer hour of extra daylight tacked on each evening also led to more air conditioning use which more than…

  2. Market Outlook – 3Q 2017

    In my opinion, it is wise to generally avoid pessimists and political provocateurs. Yes, they are right sometimes (and how they love to tell you when they are), but their stock-in-trade is to tell you how the American economic system is going down the tubes. Rather, I prefer to focus on being objective and optimistic. The American economic system is a very powerful engine. When good companies run by talented leaders grow their revenues and earnings, it can produce an impressive market environment. Equity markets posted another strong quarter. Corporate America reported earnings that met, and in many cases, exceeded our expectations. Their forward guidance on revenue and earnings growth are the center of our optimistic market outlook for the fourth quarter and into 2018. Revenue growth among larger companies still exceeds mid and small firms, but the gap is narrowing. Year over year revenue growth for large companies increased to 7.6% in the second quarter (from 7.4% in Q1). For mid-sized companies year over year revenue growth increased to 7.3% in the second quarter (from 6.0% in Q1). We see four things here. One, increasing revenue is the single best source of support for continued earnings growth. Two, there is a sizable gap between earnings and revenue growth which reveals the continuing positive effect of cost cutting implemented in past years. Three, larger companies have greater operational leverage that usually manifests itself first in a growing economy, but mid-sized firms are now starting to catch up. Four, while companies with foreign exposure have done…

  3. (Ir)Rational Behavior

    There is a Nobel Prize given for the dismal science — economics. Since prevailing economic theories seem to change with the weather, it may seem pointless to award a prize in the field. The recent award to Richard Thaler, however, is spot on. Thaler’s work is in the area of behavioral economics. Simply put, he studies the irrational behavior of humans in the way they handle their finances. For example: You have $10,000 in a savings account earning virtually nothing. Say you have $7,000 in credit card debt charging 18% interest. Logic would indicate you should tap the former to pay off the latter. Many, if not most, people do not. Why? Thaler found that people place a higher value on what they have than what they do not, therefore it seems more important to keep the cash than to part with it, even though there is future expense involved. He found that when the price of gasoline drops, many drivers switch to premium rather than save the difference. He learned that if a cab driver is having a slow day, he will work longer hours to try to make up for it; conversely, if he is having a busy day, he will quit early, even though the exact reverse would make better economic sense. You can read more here. It is well documented that when employees are offered a default choice to opt into a retirement savings plan rather than to opt out, many more join the plan, though the number should logically be…

  4. Going up?

      Interest rates are going up. In fact, they have begun rising already. Since December 2015, the Federal Reserve has raised the overnight interest rate from 0% to 1.25% through five quarter point increases. They are also signaling one more in December and up to three of four more next year. And if you take into account a coming leadership change at the Federal Reserve, these plans could become more aggressive in removing accommodation. So what does this mean for portfolios? The effect on equity securities will be muted, for a while. Equities typically like a little inflation; we are in a sweet spot between 1.0 and 2.0%. Equities also like interest rates to keep themselves in a range too. The boundaries of this range can change based on market conditions, but we are in another sweet spot there too. Rates are still low enough to encourage businesses to borrow so they can do their own investing. And they are too low to act as competition for investor capital. As rates rise these factors will change, but we think that is rather far away. Equities can exist quite happily with rates staying below four or five percent and nobody is talking about those levels yet. The effect on fixed income is more immediate and surprising, based on what you own. Fixed income prices are based on interest rates and the math that calculates your cash flows back to today. When rates go down, fixed income securities’ value goes up because your fixed cash flows are now…