Mega Millions Number Frequency

Tonight’s Mega Millions Lottery is for over $600m, meaning that each ticket has an after tax expected value of almost $2 (assuming no splits).  To aid you in finding the best numbers to play tonight, below is a chart of the frequency of each number.  The red bars represent the frequency in all drawings, the black squares are the frequency in the last 50 drawings.  Good Luck!

Personal Saving Rate

If you’re in the camp that one of the major structural problems facing the US economy is that the personal savings rate is too low, then February’s personal income data out this morning shouldn’t make you feel too  optimistic.  Just as the stock market is making new highs not seen since 2008, the savings rate is making new lows not seen since a similar time.

Long Term Capacity Utilization Chart

Given that real GDP has moved beyond its pre-recession high, one might expect that capacity utilization would be narrowing and at least above its own pre-recession mark.  However, capacity utilization as reported in February is still only 78.7.  Optimists might look at this as a sign that there is still room to improve; pessimists might point to this as being a sign that the economy isn’t nearly as strong as sentiment would imply.

S&P 200 vs 50 Day Moving Average

Consistent with the laws of mathematics, the 50 day moving average of the S&P 500 is currently above the 200 day moving average.  In an attempt to use the divergence of the 50 and 200 dmas as a proxy for how overbought/oversold the index is, below is a chart of the difference between the 50 and 200 dmas since 2008.  At the current level, the 50 day is about 100 points above the 200 day.  In the last two peaks, this metric got into the 125 area.  

Year over Year Change in Monetary Base

Gold’s advance has slowed in 2012 compared to recent years, and the metal hasn’t traded very well since September of 2011.  Still, this morning CNBC is running results from a poll showing that retail investors love the metal.  While many professionals will tend to take such a poll as a contrarian indicator, something fundamental may be beginning to change for gold as well.  A major driver of gold’s advance has been the increase in the monetary base because of QE.  If a QE3 doesn’t take place then this increase will continue to slow.  The increase in the base has already slowed considerably in recent months, as shown below.  Of course, gold was strong 2002-2003 despite moderate base money growth, so just because this growth slows doesn’t necessarily mean the end for gold.

For The Price of The Dodgers…

A group led by Magic Johnson bought the Dodgers yesterday for $2.15B, the highest amount ever paid for a sports franchise.  Below is a list of other assets that could have been bought for $2.15B.  The Dodgers do about 10% of the revenue of these publicly traded companies.  In addition, the Dodgers revenue has fallen each of the last two years from $282m in 2009.

Mega Millions Mega Ball Frequency

A good investor looks for any opportunity in which capital can be deployed into a situation in which a contract can be purchased for $1 that has an expected value greater than $1.  With the mega millions jackpot at $356M tonight, this is one of those special times that the expected value of one lottery ticket is actually greater than the dollar it’s purchased for (excluding the possibility of a split jackpot).  This is because the lump sum after tax value of tonight’s jackpot is $191m in the state of California, but the odds of winning are 1:171m.  This implies that each ticket is worth roughly $1.12, a statistical arbitrage!

If you live in a mega millions state and are going to try your luck tonight, below is a frequency chart for just the mega ball, showing the all time frequency (in red) and the frequency in the last 50 draws (in blue).  In 705 drawings, each number should have been drawn about 15 times.  In the last 50, each number should have been drawn about once.

Largest US Companies By Net Income

AAPL may have surpassed XOM as the largest US company in terms of market cap, but as far as net income goes, XOM still is king of the hill.  Below is a list of the 20 largest US companies based on Net Income as reported at most recent fiscal year end.

The anomalies, F and AIG were so profitable mainly due to deferred tax benefits.  F did do $8B in EBIT last year, but also carries $100B in debt on its balance sheet.

Average Length of Economic Expansion

With the S&P making new cycle highs, and talk of “double dips” a distant memory, we look to previous cycles to guide us as to how long this one could last.  Below is a chart of the duration of all economic expansions since 1857.

The current expansion is 33 months old which still puts it below the average of all expansions and well below the post war average.  The average expansion since 1857 lasted 42 months; in the postwar era this number jumps to 59 months.  Notably, the economic expansion that followed the 1974 bear market (which many argue is the best historical corollary to today’s expansion) lasted 58 months, implying that the current expansion could have another 25 months to go.  That would put the next recession sometime in 2014.

DFS new leverage targets

Though it probably seemed like it would be a long time before leverage came back to the financial system, the following comment from Discover caught my eye on its most recent conference call. The company is moving from benchmarking equity on a tangible common basis to a Tier 1 (less strict) standard. It is also targeting a lower level of capital and therefore more leverage. From the call:

Turning to capital. For some time now, we have benchmarked our key capital ratio as tangible common equity-to-tangible assets with a target of plus or minus 8%. Going forward, we will switch to focusing on our Tier 1 common capital ratio as it better represents how regulators and the industry look at capital levels, and we have established a 9.5% long-term target. We ended the most recent quarter at 14.3%

Apologies to anyone who read this with glaring typos earlier.  That’s what I get for posting from my iPhone.