Face it…You’re not gonna hit the Jackpot!

Thoughts on the Mega Millions & Powerball drawings

Once again, Americans find themselves tempted by the prospect of winning a life-changing amount of money. The Mega Millions & Powerball jackpots, as of October 22nd, stand at $1.6 billion, & $620 million, respectively.

Whether it is in the Washington Post, wherein we read that the Mega Millions jackpot enters ‘uncharted territory’ at record $1.6 billion, or CNN giving advice on how to get Ready to be a Powerball or Mega Millions winner, the news and watercoolers are abuzz with very little other than the lottery.

However, before you get caught-up in your champagne wishes & caviar dreams, it might be helpful to pause, for a moment, and consider a few things.

---

Thing One: You are NOT going to win.

The reported odds of winning the Mega Millions jackpot are 1 in 302,575,350. The odds of winning the Powerball jackpot is 1 in 292,201,338. To put these odds into perspective, let’s look at some other odds.

In 2014, Dr. Clark Chapman, a Senior Scientist at the Department of Space Studies, at the Southwest Research Institute, in Boulder, Colorado, listed the lifetime odds of dying from various causes.

Cause of Death	Odds
Motor Vehicle Accident	1 in 90
Murder	1 in 185
Fire	1 in 250
Firearms Accident	1 in 2,500
Flood	1 in 27,000
Airplane Crash	1 in 30,000
Tornado	1 in 60,000
Lightning	1 in 135,000
Asteroid/Meteor Impact	1 in 1,600,000
Shark Attack	1 in 8,000,000

---

Lottery Jackpot	Odds
Powerball	1 in 292,201,338
Mega Millions	1 in 302,575,350

You are reading that correctly, a rocket scientist has estimated that it is more likely that you will die by meteor strike than win the Mega Millions or Powerball jackpot.

---

Thing Two: No one is going to get $1.6 billion (or $620 million.)

We all know that whenever winners are found, they will be subject to income tax. (A LOT of income tax.) The amount you pay varies, but, even so, the bite the U.S. Government takes, is a BIG one:

In other words, if you are the ONLY winner of the $1.6 Billion jackpot, your after-tax take-home can be as little as $489.8 Million. Let's face it, you are not going to be the ONLY winner, so that $1.6 Billion is even smaller.

---

Thing Three: This all seems quite distracting.

Perhaps you remember the last time the country was obsessed with the lottery.

In January 2016, FoxNews told people to Rush to get tickets for $1.5 billion Powerball drawing, and NBCNews advised people on Financial Planning and the Powerball. That sounds awfully like today’s headlines; however, I was referring to something older.

In the 2nd Century A.D., Roman poet Decimus Iunius Iuvenalis writes, in Satires Book IV, Satire X:

. . . Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions - everything, now restrains itself and anxiously hopes for just two things: bread and circuses.

The term bread and circuses refers to the perceived apathy of the once great Roman populace. A people known for their civic involvement suddenly cared only for the grain dole & costly Ludi, or circus games, used by politicians to distract the people from the serious issues of the day.

Think of it as a once great Republic distracted from their responsibility to themselves and the future of their Nation by petty entertainments.

Sound familiar?

If the opportunity to win a combined $2 Billion doesn’t distract people from the issues of the day, what possibly could?

Don’t Panic

Reflections on the Dow

I had written, what I feel, is a well-constructed post on Global Climate Change, in light of the week’s events.

Then Wednesday happened.

I’ll save the weather post, for the inevitable next hurricane.

So, you want to know what happened?

In order to fully appreciate the market events of Wednesday and Thursday, let us start with a definition, a fact, & a realization.

Definition: An asset’s current market price is the net present value of a percieved future stream of income. (e.g., How much income (dividends, interest, capital gain, etc.) will I receive over the time I hold the asset.)

That said, an stock’s current market price is based on people’s perception of the value of the company. If people’s perception changes, the stock price changes. When people perceive the future of the company looks bright (due to news, for example), the stock price rises. When people perceive the future looks dim, the stock price falls. When there is uncertainty (people do not have a common vision of the future,) there is volatility in the market.

Fact: There are, basically, two groups in the market, Investors & Speculators. Investors enter the market becasue they have a belief that the assets they hold will appreciate in value, over time. Speculators are invested in an asset for a shorter period, in the hopes of making a quick buck. When the market is driven by investors, and information about assets is free, the market value of an asset is accurate. When the market is driven by speculators or information is imperfect, the market is distorted (under- or overvalued.) If the market is overvalued, at some point, the market corrects to, what investors feel, is the true market value.

Realization: In other words, if you can convince enough people the market is over-valued, you can bring it down. Even if it is not, in reality, overvalued.

Now look at two headlines, leading-up to market open Wednesday.

‘Call Me Concerned’ About the Markets, Says Jim Cramer

Small markets correction soon possible, warns Randy Watts

These are only TWO headlines from Tuesday, and it doesn’t really matter that the content of the interviews don’t speak to a market-wide event. What matters is that enough people felt that the market was going to correct, even though, in reality, it did not need to. THAT precipitated the event.

The President has stated that the event is the fault of the [Federal Reserve bank,](Trump calls ‘loco’ Federal Reserve ‘too aggressive’) an odd claim for him to make. An odd claim, because he takes credit when the economy does well, but accepts no blame when it does poorly.

In reality, the only thing he or the Fed can affect, is people’s perception of the future value of the market.

As I said, in an interview during the event, if the company has value, a market event has only a temporary effect, being driven by temporary fear.

Unless you see a reason to be afraid, don’t panic.

The thing that hath been, it is that which shall be. . .

Dodging Tariffs in the 21st Century

As an economist who strongly believes in ‘Free Trade,’ I find myself often confronted with people who disagree with me either for political reasons (which I refuse to speak to,) or out of an (accidental or intentional) ignorance of history. I am not criticizing people for not being versed in the the particulars of, say, the Tariff of 1883, however, I have always felt it important to acknowledge that the news is chock-full of people attempting to pull-off something (policy or scheme) that did not work the previous times it was attempted. I feel the aphorism ‘nothing new under the sun,’ speaks directly to the heart of this matter. A person can be excused for not recognizing that the current international trend in anti-globalization mirrors similar trends dating back hundreds of years; however, without this knowledge, people live with uncertainty and are caught off-guard when they read of the policies and their outcomes, often stating ‘no one could have predicted that!’

I am reminded of this almost daily.

In a front page article in today’s Wall Street Journal, titled Trade Fight Spurs Tariff Dodges, With 18,927 Options, we find that, in the face of trade restrictions, U.S. importers are resorting to fraud to evade classifications that would make their goods subject to the tariff. The article gives the example that plywood originating in China is subject to a tariff, this gives the Chinese supplier an incentive to mark the shipping container with the classification code (called a Harmonized Tariff Schedule, or HTS code) for a product that is tariff-free.

So, in the face of a trade restriction, importers & exporters attempt to classify the good in such a way to not be subject to said restriction. Are we surpised? We shouldn’t be.

Three stories:

Story 1: At the end of the U.S. Civil War, the U.S. was concerned with reconstruction and needed to protect domestic industry. To this end, the U.S. Congress put into place a complex system of protectionist policies, which in 1882, a commission appointed by President Arthur recommended be reduced. The result was the Tariff of 1883. Without going too deeply into the specifics of the tariff, one item of note, imported fruit was exempt from tax. This lead importers of tomatoes to file for an tariff exemption, due to the fact that tomatoes are classified as fruit. In 1893, the U.S. Supreme Court ruled, in Nix v. Hedden that, for the purposes of the tariff, a tomato is a vegetable, and therefore is not exempt from tax.

Story 2: The U.S. differentiates between ‘dolls’ and ‘toys.’ Dolls are representations of human beings, toys, are not. In 2003, the company Toy Biz filed suit against the United States in the U.S. Court of International Trade, claiming that the ‘action figures’ that they produce, based on Marvel Comics characters, do not represent human beings, and therefore should be exempt from the tariff on dolls. Toy Biz won, and the HTS no longer distinguishes between dolls & action figures.

Story 3: One, hopefully, would not wear their Halloween costume to work or out to a nice dinner; however, in 2017, in Rubie Costume Company v. United States the U.S. Court of International Trade ruled that a Santa Claus costume could not be classified as ‘festive’ clothing (which would be free of tariff) but instead, given that it was ‘well-constucted’ must be classified as ‘wearable apparel.’ This means that a Halloween costume is only exempt from tariff if it is of low-quality.

So, while the specifics enumerated in the Wall Street Journal article are a cause for concern, no one should be surprised that, in the face of trade restrictions, once again, people are using product classification to avoid paying.