The So-Called, So-Called Fiscal Cliff, Again, but this Time with Feeling and with an Emphasis on Negotiation Tactics
Tuesday, November 13, 2012 at 10amBy John Friedman
A friend asks, “John — What do you have to say about the fiscal cliff?”
I’ve had quite a bit to say about the so-called so-called fiscal cliff (yes: that’s an intentional double-up on the so-called phrase, because these days, more often than not, when you see the FC phrase it’s either in quotes or modified by a preceding “so-called”).
I first wrote about the s-c s-c FC in terms of tax rates and investment portfolios here, and then I touched on its impact on end-of-year tax planning and long-term policy here and here.
So pretty much everything I’ve written since the election has been about the s-c- s-c FC, including one piece which is directly on point and provides some actionable advice (remember: that’s generic, non-applied advice and not likely to fit your situation to a T).
* * *
Today I again write a piece on the fiscal cliff, occasioned this time by reading, earlier today, a piece in which fellow Berkeleyan, Robert Reich, gives Obama some negotiating tips, primary among them the tried-and-true advice to aim high.
Similar to what I wrote yesterday, in today’s piece Reich yearns for the days of yore when tax rates varied quite widely, and depended quite directly on the scale of a person’s income. Interestingly enough, though, Professor/Secretary Reich yearns for the taxcode of the 1950s, while yesterday I yearned for the taxcode of the 1960s, all of which leads to three questions. First, does this make both of us, in a way, conservative? And, second, do our different ages account for our different time-aim, as we both yearn for the taxcode of our teenage years? And, third, if so, does that make both of us total-loser tax-wonks?
* * *
I wholeheartedly agree with Reich’s aim high approach.
Obama, as best I can tell, does not.
If I were Obama, I’d do what Bush did in post-election 2004, which is to say something along the lines of, I won this thing. Last year’s deals, in which I proposed three dollars of spending cuts for every dollar of revenue raised — when you waltzed me across the floor and then told me to take a hike — are gone, and they’re not comin’ back. This year’s deals are different. Go tell your people, John. There’s a new sheriff in town.
As best I can tell, Obama does not have that bone in his body. He is sticking with his small tax increase (4.6%) on any annual income over $250k.
But when you think about how things went for Bush in 2004 and 2005 (that political capital he built didn’t buy very much, did it?), you must also wonder whether Obama’s approach is the right way. Surely it’s more presidential.
* * *
It would be nice if, when negotiating, we could all state what we think is a fair deal, end up somewhere in the middle of what everyone said they found to be a fair deal, and then be done with it.
My experience, in pretty much every facet of life, be it commercial, social, political, etc. — but especially commercial and political and other hard-charging parts of life — is that human beings are not built this way. So those who open where they want to close are usually facing people who aim high, which means that those who open where they want to close are, quite often, hurt badly. The a-economic, gentle-hippie human being, as it happens, when faced with your standard-issue human being of the twenty-tens, does not fare well in negotiation. The Mongol horde, if time-warped into the future to face guns, would not fare well either.
So the mechanics are simple: if you open with where you want to close, then you will rarely (never, ever?) close where you want to close.
* * *
When I work with people on the revenue side of their lives — helping then improve their overall financial health by helping them have a happier time bringing money into their lives — this aim high approach often plays a big role in the work I do. A lot of people are not naturals at this approach; they’ve been waltzed across many a floor. They can learn how to be better negotiators and, gosh oh gosh, what a big financial-health-improvement it can be!
(Wonky the-business-of-financial-planning aside: most financial folks ply their craft within business models that define success in terms of assets gathered, while I do so inside a business model that defines success in terms of good actionable advice received and overall financial health improved, so working on the revenue side of a financial life is a great fit for me, but not so great a fit for the asset-gatherers.)
* * *
Given what we’ve heard so far, then, I expect that we will in fact see tax rates go up on incomes over $250k per year. Obama has been very line-in-the-sand on that point, and, if need be, he can simply let 1/1/13 come about without Congress having done anything to the s-c s-c FC, at which point all tax rates will revert to their decade-ago higher rates, and, from that point on, all remedying tax legislation would necessarily fall within the rubric of “lowering tax rates” (i.e., bringing them back to where they are today, except for the rates for annual incomes over $250k) which, technically, will indeed be what is going on.
Ahhh, but, given that Obama has opened with where he wants to close, it’s likely that he will have to throw something(s) substantial into the mix to get his open to be his close.
And that is where the fear on The Left is: what will Obama give away to get the increase on tax rates on annual income over $250k?
Time will tell.
I never wanted a president with whom I’d enjoy sharing a beer. I always instead wanted a president who was way Way WAY smarter than me. And wiser. And more prescient. And better able to get things accomplished.
Let’s hope that Obama negotiates well.
1,017 words (about twelve minutes of reading, sans linked-to content)
Post-Election Financial Health Takeaways
Monday, November 12, 2012 at 12pmBy John Friedman
Elections have consequences — sometimes quickly and obviously, sometimes over the long-run, and sometimes not so much.
Last week’s election stands a good chance of being consequential. It stands a good chance of being quickly and obviously consequential due to the oncoming rush of the fiscal cliff. And it has a good chance of being long-run consequential for the simple reason that a president can really make his or her (no hers yet . . . ) mark deep down into the nooks and crannies of the federal government over a full eight years. Think of Clinton and Bush; think of judges and regulations and long-term bureaucratic hires and make-overs.
But let’s bring it closer to home, shall we? Let’s look at the consequences to you and to your overall financial health, shall we?
* * *
The beginning of the end of the tax revolt.
A generation after California voters signaled the beginning of the tax revolt via their passage by popular vote of Proposition 13 in 1978, California voters are now signaling the end of that revolt. That signal is both direct (the voters’ passage last week of Proposition 30, which raises state income taxes on high earning Californians and raises sales taxes on all Californians) and indirect (the voters’ collective decision to elect Democratic super-majorities to both chambers of the state legislature, enabling the legislature, for the first time since Prop 13 passed, to increase taxes, including property tax laws) (yup: ever since Prop 13, the only way the CA legislature could raise taxes has been via a super-majority vote).
At the federal level, we also have a strong indirect signal: a clear win for the presidential candidate who’s been saying for the better part of a decade that income tax taxes should go up on millionaires and billionaires.
The simple idea of increasing revs, then, is back in the mix after a nearly 40-year wander-in-the-desert. To which I say Hallelujah!
There’s no doubt in my mind that the Reagan/Norquist axis of hatred of most-things government, and The Right’s concomitant hatred of all things tax (or is it the other way around?), has been very, very detrimental to all of our financial healths — and especially so given the capital-over-labor skew which seemingly 99% of all tax code changes over the past 34 years has begotten.
So here’s a big cheer for getting the government out of the bathtub and stopping the attempted drowning.
Illustration: Tomer Hanuka, from Mother Jones’s The Job Killers
The pulling back of the curtain on deficit hawks and doves.
As the jockeying and jostling over the fiscal cliff goes on over the next many months, we are going to be able to divine, with more clarity than has generally been the case, which politicians really care about decreasing the deficit and which are merely using the deficit as a good front-person for another motivation, which might be, say, to dismantle the New Deal.
The key thing to keep your eye on is, in my estimation, defense spending. It’s one of the meatiest parts of our spending, and one of the most likely places out of which to cut some fat. Think of it as the spending equivalent for us SF’ers of eating out too much, i.e., for anyone looking to reduce spending, it’s the obvious activity to curtail.
Big changes to the government’s Gives and Takes.
Anyone who has read Obama’s books and watched him over the past four years knows that he is all about building consensus and compromise (those who say he is hyper-partisan are . . . hyper-partisan; the facts simply do not support that characterization).
So, while it’s very easy to predict that the federal government’s Gives and Takes will go through some large upheavals in the next year or two, it’s also fairly easy to predict that a lot of those changes will be hard for many to swallow. For instance, raising the Medicare age to 66 will send The Left straight to the moon; it’ll be seen by The Left as both ineffectual at saving money for the country collectively, and harmful to the healthcare system as a whole. Likewise, increasing taxes on upper income earners and cutting defense will drive The Right bonkers.
Personally, the tax deduction I think we should all agree to scrap (or at least further curtail) is the deduction for mortgage interest paid on a second home. How does that deduction help us, as a society? Surely there are folks in the vacation-home industry it helps, as well as people with second homes, but that’s a very small us.
And if I were king of the forest, we would have at least a dozen tax brackets, including a 0% tax bracket for low earners (psychologically and appearances-wise, I think it’s important to have a 0% bracket) and a 50% (at least) tax bracket for all earnings a person makes in a given year that exceed, say, $25 million (in the ’60s we taxed income like that at 91%!).
Above all, I’d return to the days where middle income and huge income people wouldn’t find their marginal dollars taxed at nearly the same rates. Today pretty much everyone finds themselves in marginal tax brackets in the 25 to 40% range — a spread that is way too thin for all of our own goods. The Big Us says the spread needs to be greater.
And, oh yea, one more thing: labor should be taxed more favorably than capital!
Big changes to the health system.
It doesn’t take a genius to know that our health system is about to undergo a thorough revamping, as over the next several years ObamaCare is slated to come into full effect, and we are going to have a grand experiment (though largely without a control group, the hallmark of every good experiment).
Having had clients who, through no fault of their own, found themselves in financial jeopardy because they did not have access to health insurance, I see the changes to the health insurance part of the health system as quite welcome and as quite beneficial to all of our financial healths collectively.
And as for the changes to the health care part of the health system? It’s all very complicated — isn’t it? — but the experts whom I trust to be mostly correct at predicting the future of our health care system are encouraged, and so too, therefore, am I.
Big changes to the retirement savings system.
The figures about how well all of us have so far saved for our retirements are terrifying. The baby boom is a bust when it comes to saving for retirements (topic for another day: the great failure inherent in the shift away from defined benefit retirement plans towards defined contribution retirement plans — students of human nature and financial health have known from the get-go that this would be a large collective fail).
So look to see some further upping of the nudge-ante as Uncle Sam tries to make us an offer for retirement savings that more of us can’t refuse.
* * *
So there you have it. No doubt my politics are again showing.
From a politically damaging presidential election in 2000 through the worst thing that ever happened on our shores in 2001, to some crammed-down tax changes and a really bad war in 2003 that distracted from a better war (whatever that means . . . ) from the fallout of 2001) . . . to a frozen mortgage market in 2007 and the worst financial collapse in 80 years in 2008, etc. etc., . . . things were really rotten during the Aughts — both generally and in terms of our overall financial healths.
We now find ourselves quite possibly coming out of the lingering effects of those Naughty Aughties — coming out the other end of the Great Recession/Lesser Depression (sheesh, it’s been a long time — let’s hope so!), with one war done and another dwindling down.
And now we’re going to get to see what the other side can do with a decent-sized chunk of the Teens. And perhaps the whole rest of them . . .
1,078 words (about a 12-minute read sans linked-to content)
T’is the Season for 1040-Tweaking: A Schedule for End-of-Year Action
Friday, November 9, 2012 at 11amBy John Friedman
Halloween is now ten days passed. I know this because there is no longer any bite-sized bad-for-you-food on the reception desks in offices throughout downtown SF.
Thanksgiving is less than two weeks away. I know this because the decorations are up and the holiday music is a blarin’.
A bit more than fifty days remain in the year. I know this because I used Excel to subtract today’s date from 1/1/2013 (or should I have used 12/31/12? I fluffed it, and avoided that whole issue entirely, by going with the “bit more” construction . . . ).
All of which means that we are in the ultimate, end-of-year time-soak.
Days will no longer be 24 hours. Weeks will no longer be 7 days. Minutes will be slightly shorter than 60 seconds.
And, before you know it, it’ll be 2013.
Because time, as we know it. . .
. . . compresses after Halloween.
* * *
We are, then, on the end-of-year, sliding-down-the-playground-slide part of the year when we inexorably find ourselves running out of year and struggling to get things done.
This is the time of year, then, when a lot of folks don’t want to take on big projects, such as, for many, the perennially-on-the-To-Do-List-and-never-gotten-around-to project of finally taking a hold a’ their financial life, having their way with it, and then making of it what they will and, in general, overall-improving it (but: for other folks, when the time’s right, the time’s right, and if that describes how you feel right now with respect to starting the process of proactively improving your overall financial health, well then please do begin!).
* * *
There’s one part of that financial-heath-improvement process thang that can’t wait all that much longer, though, which is end-of-year tax planning. It’s, um, gotta be done by end-of-year, ya know?
The question to ask yourself, then, is whether you want to proactively tweak what your 1040 for this year will look like — how much tax you will owe for 2012 — or whether you want to let it unfold as it will, come what may.
For some folks there’s a whole lot of 1040-tweaking they can do; self-employed people fit into this category, as do people who have investments outside of retirement accounts. I’d also add to this category people who are having a 2012 that is not like their normal years (e.g., they are making much more, or much less, income than usual). And then there are lots of other things that can make a 1040 tweakable as well (this is tax stuff, so there are lots of nooks and crannies that are not easily summarized).
But just about all of it has to be done before 1/1/13.
For other folks there’s not much, if anything, they can do to tweak their 1040 and dial-in how much tax they owe. If you’ve been employed all year and have no investment accounts outside of retirement accounts, and if you do not own your shelter or make a six-figure income, then this is probably where you fit into the mix.
* * *
If you think you have some 1040-tweaking that you might be able to do, or if you are not sure, then, please, get ye to a tax helper or get ye smartened up on your own. You owe it to yourself, and I mean that fairly literally: you owe to yourself the dollars you might well save and you do not owe them to Uncle Sam.
But, ah, scheduling. The end-of-year bugaboo.
I have a plan. And plans — good plans, anyway — always have dates attached to them, right?
* * *
12/1/12.
First, you need to get into gear on this stuff before December 1st. That’s two Saturdays after Thanksgiving — just three from now — so, please, do take at least a baby step on your 1040-tweaking by the end of the week after Thanksgiving.
Your baby step can be, e.g., looking at last year’s tax return and trying to figure out whether you left any money on the table (yes, this is well beyond the capability of most human beings) or, more practically, having a quick Q&A with someone in your life who can help you with your 1040-tweaking.
If no one in your life fits that bill, then please do call. I’m not a last-mile tax guy, i.e., I do not help people fill out their taxes, and do not serve as people’s tax expert, but I can usually help folks figure out whether they have a 1040 that is likely to be tweakable or not, and help them figure out next steps. And I’d be happy to do those things for you, gratis.
12/15/12.
Following that baby step, the schedule is to have all of your end-of-year tax planning completed by Saturday, December 15, 2012 — with all your To-Do’s stemming from your planning either done by then or cued-up by then, awaiting answers to the questions about what will unfold by year-end as the Powers that Be do their light-fandango skipping with the so-called Fiscal Cliff (that so-called modifier seems to be taking hold today in the sources I read . . . ) and try to reach some sort of agreement.
* * *
So please get on it!
There are real dollars involved, as in dollars that you will soon have in your pocket that otherwise would’ve been in Uncle Sam’s.
818 words (about a nine minute read — 17 if you also watch the Whiter Shade of Pale link and watch/read the Contacts page link)
Tax Rates and the Fiscal Cliff (a/k/a the ALLEL-GBTD-HSS-2001)
Thursday, November 8, 2012 at 1pmBy John Friedman
We now return to our normally scheduled program . . .
* * *
The election of 2012 is over and at least day-and-a-half-after debriefed.
My how things have changed. Looking back we see how:
Twelve years ago we, as a nation, made decisions which, when aggregated, were tantamount to a coin flip in which the coin ended up on its edge for 35 days and then, via 537 votes in FL and 1 vote on the SCOTUS, finally fell flat on 12/12/2000; and then
Eight years ago we, as a nation, watched as Ohio de-gummed-up its system and the following day John Kerry conceded — too early by some people’s perspective (and Sorry Everybody came online); and then
Four years ago we, as a nation, watched as the whole thing was over, at the presidential level anyway, ASAP, i.e., at 8 pm West Coast time day-of; and then
Two days ago we, as a nation, watched and, nearly-ASAP, saw the election called at about 8:20 pm West Cost time day-of.
And then, oh my: for this just-passed election it was if we, as a nation, had tossed a coin that was weighted just a teensy bit in favor of the Dems — as just about every coin-toss of a close-one went the Dems’s way.
Now political junkies everywhere (you lookin’ at me?) can turn their attention to The Fiscal Cliff issues coming our way right soon.
* * *
Writing of which, the Repubs can chalk up a different sort of victory — a linguistic branding victory — in the ubiquity of the very Lutz‘ian Fiscal Cliff labeling of the tax and budget issues confronting us over the next several.
In here I’ll acquiesce to my Lutz’ian master, and use that Road-Runner’y/Wile’y-Coyote’y language, though I would prefer to call it something along the lines of the ALLEL-GBTD-HSS-2001 (i.e., At Long Last the End-of-the-Line-for-the-Gimmicky-Budget-and-Tax-Deals-that-have-Held-Sway-Since-2001).
* * *
Part of The Fiscal Cliff we confront is a whole lot of uncertainty about tax rates — tax rates on income, tax rates on capital gains and tax rates on dividend income, to name just a few of the wild cards (estate taxes and the alternative minimum tax are also involved in big ways).
In brief, if we do indeed go off The Fiscal Cliff . . .
. . . then that means that the federal government has not passed, among other things, new tax legislation before 1/1/2013, in which case all of our current tax rates will revert (that’d be the gimmicky part right there) to what they were at the end of the Clinton era, i.e., higher than they are right now and higher than they have been for the better part of a decade.
So here’s how I view this stuff . . .
* * *
Taxes on Capital Gains.
I’ve argued for years that, when people are looking at selling an asset that’ll generate capital gains, they should consider, far more than they should have before Bush’s tax code, simply sucking it up and doing the deal in a way that results in paying the tax on that gain. Because, after all, tax rates on CGs are, by historic standards, exceedingly low (1031 industry, do you hear my call!?).
But the human being is, by and large, not wired to opt-in to an avoidable have-to-write-a-check-to-pay-it sort of tax.
But now, with that low rate possibly going buh-bye, the advice is more urgent. So maybe you should consider purposefully opting-in to paying some capital gains this year by doing some transactions by year end?
Hopefully we will know by then which way the tax-wind has blown, but we might not. So please do think it through and be ready with a plan and/or go ahead and pull the trigger. 15% is really not that bad!
A word of caution: this is tax, so there are a lot of moving parts/lots of scenarios to consider. So using your friendly tax planner/advisor might . . . pay dividends.
Taxes on Dividends.
Speaking of which, the conventional wisdom from mainstream media financial-talking-heads for going on five years now has been to load up on high-dividend-paying stocks. So far this advice has worked out well, in part, no doubt, due to the favorable treatment of dividend income (not to mention the doubling of the stock market since March of 2009). I mean, if you can buy still-mostly-beaten-down GE shares that over the past five years have paid an average annual dividend of 4.1%, while over that same time period 10-year Treasurys (bonds from Uncle Sam) have paid about 3%, you might well buy the GE shares, right? After all, they pay more. (And, yup, that is the way in which many, including the Wall Street Journal, spell the plural of Treasury in this context).
And how about if the money the GE shares pay out are federal income-taxed at a measly 15%, while the money the Treasurys pay out is federal income-taxed at 35% (as is often the case for well-off folks)?
Now you’re comparing an after-tax cashflow-in of 3.485% vs 1.95% (i.e., your 85% after-tax-keep of the 4.1% annual cashflow-in the GE shares have paid equals 3.485%, and your 65% after-tax-keep of the 3% annual cashflow-in the Treasurys have paid is 1.95%).
You’d accept a whole lot of downside risk from owning the GE shares knowing that your cashflow-in from holding those shares is about 75% greater than holding the Treasurys, would you?
Bond income is, then, as I tell my clients, tax-ugly, and gosh-awful tax-ugly at that.
I’ve often wondered why it is that the current tax code hates bond income so much compared to dividend income. Maybe it’s because bonds are too boring and stocks are all swashbuckling and entrepreneurial? Or maybe it’s because, in the dark hours of the sausage-making of the 2001 and 2003 tax changes, the legislative aids simply ran out of bandwidth to do more? I dunno. But I *do* know that the sausage-making also did not do any favors for annuities (though the sausage-meister did retain the primary tax-deferred, FIFO tax-beauty that life insurance products have enjoyed all these years).
At any rate, I think it’s fair to say that dividend-paying stocks have seen their prices bid up, to at least some degree, due to their tax-beauty relative to bonds’s tax-ugly.
But what have we as a nation done? We’ve gone hog-wild into bonds and are now poised for people to lose a decent chunk of money on the bonds that have been bid up by bond-buyers (and propped up by the Fed) and will eventually be bid down by bond-sellers (and plopped down by the Fed).
So maybe it’s time to lighten up on both bonds and high-dividend-paying stocks?
Taxes on Income.
If tax rates on income go up, there is only one obvious thing for all of us to do, and to do right away:
Stop making income!
Just stop it all together.
Just kidding.
Every bone in my body and every data point in my head — as well as my gut and intuition — tells me that increasing tax rates on income across the board (and, oh, how debatable in this context the definition of across the board has been) do not have a big impact on how people, in aggregate, work for their livings. At some of the weirder and sharper margins it might have some impact, and in individual instances perhaps, but, taken as a whole? Not so much.
Academics whom I respect just so happen to concur with me; politicians whom I do not respect just so happen to disagree with me. Funny how that works . . .
I also believe that a small increase in tax rates on big incomes (and I do think that an increase of 4.6% on top of a 35% tax rate, to get up to an overall 39.6% tax rate, is a small increase) will not, and should not, change more than a figurative handful of weirdos’ motivations for working for a living.
* * *
Oooops . . . didn’t I open by heralding the end of the political season?
Well, its like I said before: our financial lives are inherently political.
And the tax code is one of the places where this inherent’nance is most direct!
1,287 words (about a fifteen-minute read sans links) (longer estimate of reading time than usual because it’s tax stuff . . . )
Fuzzy Reality
Wednesday, November 7, 2012 at 11amBy John Friedman
The number-crunchers won last night (and so, by and large, did the Dems).
Nate Silver, the grand poobah of the number-crunchers, and therefore the chief focus of vitriol from those who did not like the trends the numbers since about mid-October had been showing, turned out to be right, and his detractors wrong.
As I pointed out about six weeks ago, Nate and his number-crunching ilk seek to divine — through number crunching — what all the political polls, taken together, actually mean, and to lay out that meaning on a daily basis during the months leading up to the election.
To do that, the number-crunchers have to smartly aggregate the polls which, because they seek to measure, via sampling, something huge and complex, tend to be noisy and somewhat chaotic. But, the thinking goes, by combining those noisy and chaotic polls in smart ways, a smart number-cruncher should be able to separate the wheat from the chaff — to separate the signal from the noise, as Mr. Silver would put it.
Last night, the theory, in practice, proved quite powerful; the signal, as the number-crunchers divined it ahead of time, aligned with the reality, as it unfurled. So much for punditry intuition, and so powerful the excellent numbers-based prediction.
* * *
Many of the numbers populating our financial lives follow this same pattern: they are both signal and noise.
The most obvious example is the account balance for any one of your investing accounts. Think about the balance of such an account that contains stocks and the like — investments that are priced second-to-second throughout the period each weekday during which the stock market is open — and think about how, at most, there are really only two numbers that an unusually fastidious, eye-always-on-the-ball sort of investor really needs to think about, i.e., the account balance as of the opening of the market day and the account balance as of the closing of the market day.
And some would say that that is one — maybe two — numbers too many at that . . .
Now someone who manages money for a living ought to pay more attention than that. And anyone considering selling or buying something for an investment account is well advised to pay more attention as well.
But, in general, the more attention you pay to all those numbers, the more noise through which you must sift and, unless you’re good at distinguishing the signal from the noise, the more confused, and therefore the less informed, you’re apt to be.
And that’s why most financial advisors advise their charges to pay attention to the numbs on, say, a monthly or quarterly basis, and, otherwise, to go about their daily business attending to things that really matter, such as whether that traffic light they’re looking at is green or red.
* * *
Many things in nature tend to be rather fuzzy when studied closely. So while there are amazingly precise parts of nature:
there are also those that are inherently uncertain and fuzzy (so much so that pictures comprised of pixels cannot do them justice, and links must suffice).
But then there are times when something that’s chaotic and fuzzy and indeterminate transitions to something that is gaining in orderliness, and then, finally, condenses down to an absolute certainty.
We’ve seen one of those transitions over the course of the last several months, as the probabilities set out in Nate Silver’s projection started out at about 60% odds that Obama would win to, the day before the election, 91% that he would win, with a big odds-course correction starting right around the time of the first debate and lasting for about ten days, after which Obama’s odds started going up again, all the way to 91%.
Here is that pic:
http://fivethirtyeight.blogs.nytimes.com/
Unfortunately, the screen scrape left the scaling info behind, so here is what you need to know to get the scale of the pic: the double line centered vertically (remember: you have vertebrae in your backbone and your backbone goes up and down, and therefore “centered vertically” means “centered up and down”) (also, the horizon goes left/right, and therefore “horizontal” goes left/right) is 50% and each line above and below represents a 12.5% increment, so that the overall up/down scale is 0% to 100%, with Obama’s odds of victory shown in blue and Romney’s in red, and the left/right time scale being May 31 through November 6, and each vertical line being the beginning of a month).
And then, yesterday, the pace at which reality unfurled really picked up steam, via tens of millions of decisions and actions that we all made and took, so that, as of last night at about 8:30 West Coast time, the odds went up to, let’s call it, a 99.9999% probability that Obama won the electoral college (that’s a one in a million chance that he did not).
Reality will be totally unfurled at that time, probabilities having fully condensed down to a single, immutable, unmistakable reality.
* * *
So remember that account balance I mentioned above — the account balance showing at any given time for some investment account of yours?
My advice to you is that you think of that number as a collection of fuzzy probabilities that apply to each of the holdings in that account — as a collection of possible prices, some of which are more likely at any given moment than others and some of which are quite unlikely — and that you also understand that, once you go ahead and decide to change something in that account by, say, selling one of the holdings, then, and only then do you truly know how much that holding is worth.
Until then, please do think of the information value embedded within that account balance as more wispy cloud than Fibonacci-geometried sunflower.
975 words (about a ten minute read, sans links)