Book Recommendation
Reminiscences of a Stock Operator, by Edwin LeFevre. A thinly veiled autobiography of Jesse Livermore, one of the greatest speculators in market history. He goes into detail about the methods he used to read, play, and manipulate the markets. Great stuff. Anyone's who's good at gambling will love this.
-3.8%????
Ouch. Well, in fairness, I did better than the economists' consensus of -5.5%. Took losses of a couple hundred today. I bet on <-4.0% at 90, figuring that was free money. That was mostly made up for by actual free money on <-3.5%, <-3.0%, and <-2.5%, plus a pretty large short position on <-5.0%.
Oh well. This is made up for by the Dow ending January below 8500, giving me a win on -140 contracts there. Also, the RNC race is going almost exactly the way I predicted, just slower. As of the 4th ballot, Duncan has dropped out, and it's clearly between Steele and Dawson, with Anuzis and Blackwell as also-rans. No position there; those contracts never had much volume.
Oh well. This is made up for by the Dow ending January below 8500, giving me a win on -140 contracts there. Also, the RNC race is going almost exactly the way I predicted, just slower. As of the 4th ballot, Duncan has dropped out, and it's clearly between Steele and Dawson, with Anuzis and Blackwell as also-rans. No position there; those contracts never had much volume.
New Contract Suggestion
Fed to purchase US government bonds.
Here's the biggest reason Intrade should list this contract: everyone on Wall Street wants to know whether the Fed will do this. Literally trillions of dollars will be made or lost depending on how this turns out. Yet there is nowhere in financial markets to bet directly on this issue. This contract will be mentioned in hundreds of news stories.
The Federal Reserve has been taking novel action to fight the credit crisis. It has lowered interest rates to zero percent, and has bought a variety of different securities to bail out banks, lower mortgage rates, and improve liquidity. One bridge they have not crossed is the purchase of US government debt. The US government is going to need to borrow another $1-$2 trillion in the next year, and it's not clear where that money will come from. Our traditional lenders, from China to private US investors, would have difficulty funding this debt in ordinary times; now it seems nearly impossible. The Fed, however, is in charge of managing the money supply, and, in essence, they can create money out of thin air. The Fed could solve our budget problem by creating new money and lending it to the government.
Of course, this would be a radical action and would have massively unpredictable consequences. The Fed buying debt is functionally the same as the government simply printing up however much money it wants, and would raise fears of currency debasement and hyperinflation. On the other hand, the banking crisis has vaporized trillions of dollars out of the money supply. Printing new money might simply stave off deflation, force interest rates lower, and fund stimulus and bailout plans. No one knows exactly what would happen, but I guarantee you Ben Bernanke is studying it late into the night.
Here's the biggest reason Intrade should list this contract: everyone on Wall Street wants to know whether the Fed will do this. Literally trillions of dollars will be made or lost depending on how this turns out. Yet there is nowhere in financial markets to bet directly on this issue. This contract will be mentioned in hundreds of news stories.
The Federal Reserve has been taking novel action to fight the credit crisis. It has lowered interest rates to zero percent, and has bought a variety of different securities to bail out banks, lower mortgage rates, and improve liquidity. One bridge they have not crossed is the purchase of US government debt. The US government is going to need to borrow another $1-$2 trillion in the next year, and it's not clear where that money will come from. Our traditional lenders, from China to private US investors, would have difficulty funding this debt in ordinary times; now it seems nearly impossible. The Fed, however, is in charge of managing the money supply, and, in essence, they can create money out of thin air. The Fed could solve our budget problem by creating new money and lending it to the government.
Of course, this would be a radical action and would have massively unpredictable consequences. The Fed buying debt is functionally the same as the government simply printing up however much money it wants, and would raise fears of currency debasement and hyperinflation. On the other hand, the banking crisis has vaporized trillions of dollars out of the money supply. Printing new money might simply stave off deflation, force interest rates lower, and fund stimulus and bailout plans. No one knows exactly what would happen, but I guarantee you Ben Bernanke is studying it late into the night.
RNC Chairman's Race Roundup
Here's a good overview of the RNC race tomorrow.
My prediction:
1st Ballot: Duncan scores in the low 50s on the first ballot, and his support dissolves from there. Steele does better than expected. Dawson places a respectable 3rd. Anuzis gets 4th, and it's clear he won't be the winner. Blackwell maintains a small but devoted following.
2nd ballot: Steele leads. Duncan and Anuzis lose votes. For the most part, Anuzis' moderate supporters go to Steele, and Duncan's cpnservatives go to Dawson. Blackwell maintains a small but devoted following.
3rd ballot: Duncan and Anuzis continue to lose votes. Anuzis might withdraw, throwing his support to whoever offers the best deal. Steele and Dawson both continue to gain, and it's clear that the race will come down to those two. Blackwell maintains a small but devoted following.
4th ballot: Blackwell throws his support to Dawson, and Dawson wins.
Disclosure: No position. I would go long Dawson, but it's hard for me to wrap my mind around the idea that the RNC might actually elect someone who belonged to a whites-only country club.
My prediction:
1st Ballot: Duncan scores in the low 50s on the first ballot, and his support dissolves from there. Steele does better than expected. Dawson places a respectable 3rd. Anuzis gets 4th, and it's clear he won't be the winner. Blackwell maintains a small but devoted following.
2nd ballot: Steele leads. Duncan and Anuzis lose votes. For the most part, Anuzis' moderate supporters go to Steele, and Duncan's cpnservatives go to Dawson. Blackwell maintains a small but devoted following.
3rd ballot: Duncan and Anuzis continue to lose votes. Anuzis might withdraw, throwing his support to whoever offers the best deal. Steele and Dawson both continue to gain, and it's clear that the race will come down to those two. Blackwell maintains a small but devoted following.
4th ballot: Blackwell throws his support to Dawson, and Dawson wins.
Disclosure: No position. I would go long Dawson, but it's hard for me to wrap my mind around the idea that the RNC might actually elect someone who belonged to a whites-only country club.
Q4 GDP will be exactly -4.9%
Once again, we're going to take advantage of systematic biases to get better predictions than the experts.
Economic predictions are often very, very wrong. Take a look at the Wall Street Journal's compilation of GDP predictions. They compiled quarterly GDP predictions from more than 50 different economists. The predictions generally form a bell-shaped curve, with about a 2-point difference between the highest and lowest numbers. What's surprising is, in 6 of the last 15 quarters, the actual GDP was completely out of the range of economists' guesses.
Why are they so wrong? Well, to be fair, we're comparing them against the "final" GDP numbers, which are often considerably revised from the "advance" numbers. The pack is somewhat better at predicting the advance numbers.
But I think a more subtle effect is also at work. There is a herd mentality among these number-crunchers. Nobody wants to get too far away from the consensus. What happens to your career as head macro-economist at Bank of America if you guess 3.0%, the average is 1.2%, and the actual number is 3.1%? You get a pat on the back and maybe a little bigger bonus. What happens if the actual number is 1.1%? You're not going to be head macro-economist any more. Much safer to be wrong with the pack than stray too far away.
Nevertheless, some economists do manage to get their predictions right more often than others. Nate Silver-style, I went through the data and compared predictions to results for 2007 and 2008. Looking at the "advance" numbers, I found that Maria Fiorini Ramirez had the smallest error ( for the mathematicians, a standard deviation of 0.4%), while James Smith of Western Carolina University and Parsec Financial Management had the largest error, (StDev 2.32%).
We can also see that there is a non-random distribution to the error. Whether the pack's average number is accurate or wildly off, the good performers are consistently closer than the bad performers.
It turns out that this information can be used to improve predictions. I won't bore you with the statistical minutiae, but here's the bottom line: by looking at the differences between good and bad performers, we can improve on even the good performers' predictions.
I expect the advance figure will be -4.9%, with a standard deviation of 0.45. It will be revised down by an additional point later on.
[A note for pedantic statisticians: I realize that I am evaluating my technique against the same data set on which the "good" and "bad" performers were defined. Thus my actual variance will likely be somewhat higher than what has been calculated.]
Economic predictions are often very, very wrong. Take a look at the Wall Street Journal's compilation of GDP predictions. They compiled quarterly GDP predictions from more than 50 different economists. The predictions generally form a bell-shaped curve, with about a 2-point difference between the highest and lowest numbers. What's surprising is, in 6 of the last 15 quarters, the actual GDP was completely out of the range of economists' guesses.
Why are they so wrong? Well, to be fair, we're comparing them against the "final" GDP numbers, which are often considerably revised from the "advance" numbers. The pack is somewhat better at predicting the advance numbers.
But I think a more subtle effect is also at work. There is a herd mentality among these number-crunchers. Nobody wants to get too far away from the consensus. What happens to your career as head macro-economist at Bank of America if you guess 3.0%, the average is 1.2%, and the actual number is 3.1%? You get a pat on the back and maybe a little bigger bonus. What happens if the actual number is 1.1%? You're not going to be head macro-economist any more. Much safer to be wrong with the pack than stray too far away.
Nevertheless, some economists do manage to get their predictions right more often than others. Nate Silver-style, I went through the data and compared predictions to results for 2007 and 2008. Looking at the "advance" numbers, I found that Maria Fiorini Ramirez had the smallest error ( for the mathematicians, a standard deviation of 0.4%), while James Smith of Western Carolina University and Parsec Financial Management had the largest error, (StDev 2.32%).
We can also see that there is a non-random distribution to the error. Whether the pack's average number is accurate or wildly off, the good performers are consistently closer than the bad performers.
It turns out that this information can be used to improve predictions. I won't bore you with the statistical minutiae, but here's the bottom line: by looking at the differences between good and bad performers, we can improve on even the good performers' predictions.
I expect the advance figure will be -4.9%, with a standard deviation of 0.45. It will be revised down by an additional point later on.
[A note for pedantic statisticians: I realize that I am evaluating my technique against the same data set on which the "good" and "bad" performers were defined. Thus my actual variance will likely be somewhat higher than what has been calculated.]
Post-Modern Financial Performance Art
Back in September, Damien Hirst held an auction of his collected works at Sotheby's, and Intrade had contracts on the total price for the collection as well as individual pieces.
Now, for those of you unfamiliar with the contemporary art world, Damien Hirst is best known for his series of animals preserved in tanks of formaldehyde. He (well, his workshop) also did a series of abstract paintings, as well as a diamond-encrusted skull that was priced at $99 million. His art was favored by hedge fund managers and other nouveaux riches, and the art was very much about the interface between the art and financial worlds. Owning a Hirst was a way of saying, "I have so much money I can spend $5 million on a pickled shark." That is, the same hedge fund managers who gambled with other people's money and won big, fleecing their clients for 20% of profits, were in turn fleeced by Hirst.
With that as backdrop, why not have a betting market on how well his auction did? And how could I not take advantage of a lazy market maker?
There were contracts on whether the entire auction would be above or below $120 million, $125 million, etc., and similar stepped contracts for individual pieces. Someone made a market for all of this, making bids and offers 20 points apart for each individual contract. Of course, no one on Intrade knows very much about pricing art auctions, so there was no volume to speak of.
I looked at them before the auction. I knew that Sotheby's and Christie's provide an estimate of the sale value of a piece, and that this is generally below the final sale price. On the other hand, the financial markets were falling apart, so the buyers might be quite a bit more cautious than they would have been 12 months ago. I didn't see any great value, so I stayed away.
Then, on the day of the auction, it turned out that Sotheby's posted the sales prices online. In real time. And the market maker hadn't moved his prices at all. I began to drool. The first 10 pieces went for twice their estimated values. I immediately bet that the auction would exceed all estimates, which turned out to be correct. I soon saw that there was a discrepancy between the sales prices of the formaldehyde animals, which sold below their estimates, and the paintings, which sold far above estimates. With this info, I was able to quickly estimate prices for several of the individual pieces, and I put bets on those as well.
I ended up netting about $2k, plus the satisfaction of participating in a meta-meta-meta-commentary about art, money, and fairness in the Late Capitalist period.
Now, for those of you unfamiliar with the contemporary art world, Damien Hirst is best known for his series of animals preserved in tanks of formaldehyde. He (well, his workshop) also did a series of abstract paintings, as well as a diamond-encrusted skull that was priced at $99 million. His art was favored by hedge fund managers and other nouveaux riches, and the art was very much about the interface between the art and financial worlds. Owning a Hirst was a way of saying, "I have so much money I can spend $5 million on a pickled shark." That is, the same hedge fund managers who gambled with other people's money and won big, fleecing their clients for 20% of profits, were in turn fleeced by Hirst.
With that as backdrop, why not have a betting market on how well his auction did? And how could I not take advantage of a lazy market maker?
There were contracts on whether the entire auction would be above or below $120 million, $125 million, etc., and similar stepped contracts for individual pieces. Someone made a market for all of this, making bids and offers 20 points apart for each individual contract. Of course, no one on Intrade knows very much about pricing art auctions, so there was no volume to speak of.
I looked at them before the auction. I knew that Sotheby's and Christie's provide an estimate of the sale value of a piece, and that this is generally below the final sale price. On the other hand, the financial markets were falling apart, so the buyers might be quite a bit more cautious than they would have been 12 months ago. I didn't see any great value, so I stayed away.
Then, on the day of the auction, it turned out that Sotheby's posted the sales prices online. In real time. And the market maker hadn't moved his prices at all. I began to drool. The first 10 pieces went for twice their estimated values. I immediately bet that the auction would exceed all estimates, which turned out to be correct. I soon saw that there was a discrepancy between the sales prices of the formaldehyde animals, which sold below their estimates, and the paintings, which sold far above estimates. With this info, I was able to quickly estimate prices for several of the individual pieces, and I put bets on those as well.
I ended up netting about $2k, plus the satisfaction of participating in a meta-meta-meta-commentary about art, money, and fairness in the Late Capitalist period.
Delving into Academy Awards
Bought 200 contracts of Ledger to win Best Supporting Actor at 93. It's really, really hard to imagine the 2nd favorite, Robert Downey Jr., winning for doing a role in blackface.
Beyond that, I don't see a lot of value out there. I think Best Picture comes down to Slumdog Millionaire vs. Benjamin Button. I have offers out to short Milk and Frost/Nixon.
Beyond that, I don't see a lot of value out there. I think Best Picture comes down to Slumdog Millionaire vs. Benjamin Button. I have offers out to short Milk and Frost/Nixon.
...whew...
By now everyone's seen the news that Paterson has chosen Gillibrand as Senator. My main idea last night was that it wouldn't be Cuomo, so that worked out pretty well for me. Paterson had made enough of a deal about replacing Hillary with another woman that it would have been very awkward to switch to Cuomo. I didn't take a big position, about -200 at the most.
What's next on the horizon?
-We've got some economic numbers being announced January 30th. The Q4 GDP, in addition to having its own contracts, will be very important for the "Depression" contracts.
-The monthly retail gas contracts will be expired. These markets used to be quite lucrative, but they've gotten much more efficient in the last couple months.
-The Coleman/Franken race should finally get settled in February.
-Academy Awards will be announced in February. This isn't my area of expertise, but I'll learn about whatever has volume.
-But most importantly, there will be some crazy sh*t going on. I don't know what it will be, just like I didn't know Blagojevich would be caught trying to auction off a Senate seat, or Kennedy would drop out in such an entertaining fashion. The lesson I learned over the last week or so is to keep some dry powder to take advantage of emerging opportunities.
What's next on the horizon?
-We've got some economic numbers being announced January 30th. The Q4 GDP, in addition to having its own contracts, will be very important for the "Depression" contracts.
-The monthly retail gas contracts will be expired. These markets used to be quite lucrative, but they've gotten much more efficient in the last couple months.
-The Coleman/Franken race should finally get settled in February.
-Academy Awards will be announced in February. This isn't my area of expertise, but I'll learn about whatever has volume.
-But most importantly, there will be some crazy sh*t going on. I don't know what it will be, just like I didn't know Blagojevich would be caught trying to auction off a Senate seat, or Kennedy would drop out in such an entertaining fashion. The lesson I learned over the last week or so is to keep some dry powder to take advantage of emerging opportunities.
Being Right and Sitting Tight
Last night was a gut-churning but ultimately very profitable evening.
Swampland has the run-down of how things were reported last night. Around the time of my post last night, the NY Post and NY Times both reported that Kennedy had withdrawn from consideration for the Senate seat. I was late to the Intrade party, and the stale bids had mostly been hit. I shorted a few hundred more Kennedy around 3, which in retrospect was not a terrible mistake, but did take out quite a bit of margin that I could have used more profitably later in the night.
Almost immediately afterwards, several media sources reported conflicting information. The intrade price begins to spike. At first I assumed it was idiots buying a "bargain" because they haven't seen the news. I continued to monitor various sources, and saw that her withdrawal had not been confirmed by anyone on the record. At this point, I was more than 1000 contracts short, at an average in the low teens. I experienced a brief, panic-induced pucker. At this point, I could have covered, probably around 20, for a guaranteed loss, or I could have risked a big hit to my Intrade roll.
I gave it some thought*. Consider the editorial process that went into the initial stories. Now, I don't know that the NY Post has any fact-checking to speak of, but the NY Times?? A reporter hears from a source that Kennedy is dropping out. The reporter talks to the editor, and they try to confirm the story. Naturally, they call both Paterson and Kennedy's spokesmen. Let's imagine the call to Kennedy's press secretary:
Reporter: Hi, I'm from the NY Times. We're about to run a story that will crush your chances of being Senator. But if you tell us it's not true, we won't run it.
Press Secretary: Let me get back to you on that.
Obviously since they don't deny the story, it must be at least partially true. At the point the price spike really peaks at 20, the original stories had been out for hours. Kennedy's phone and her staff's phones had been ringing off the hook for comment. She could still have nipped it in the bud by getting on TV and denying the whole thing. But she didn't. Which means either the story was true, or she had just atrocious media skills, either of which mean she won't be Senator.
I continued to sell, even exiting sure things like the Geithner nomination at unfavorable prices, so I could short more Kennedy. Essentially I was selling a dollar for 93 cents somewhere else so that I could buy a dollar for 80 cents here. Congratulations to whoever sold me 200 contracts of MN.SEN.REP at 9. At the end of the night, I finished with -2053 contracts at an average of 13.7.
I have opinions about the race now that Kennedy's gone. Will update once I build the positions I want.
*At this point my girlfriend came over with Chinese food. She helped enormously in this process, and I'm going to take her on a very nice trip, both for letting me bounce ideas off of her, and for understanding why I was gambling during our date.
Swampland has the run-down of how things were reported last night. Around the time of my post last night, the NY Post and NY Times both reported that Kennedy had withdrawn from consideration for the Senate seat. I was late to the Intrade party, and the stale bids had mostly been hit. I shorted a few hundred more Kennedy around 3, which in retrospect was not a terrible mistake, but did take out quite a bit of margin that I could have used more profitably later in the night.
Almost immediately afterwards, several media sources reported conflicting information. The intrade price begins to spike. At first I assumed it was idiots buying a "bargain" because they haven't seen the news. I continued to monitor various sources, and saw that her withdrawal had not been confirmed by anyone on the record. At this point, I was more than 1000 contracts short, at an average in the low teens. I experienced a brief, panic-induced pucker. At this point, I could have covered, probably around 20, for a guaranteed loss, or I could have risked a big hit to my Intrade roll.
I gave it some thought*. Consider the editorial process that went into the initial stories. Now, I don't know that the NY Post has any fact-checking to speak of, but the NY Times?? A reporter hears from a source that Kennedy is dropping out. The reporter talks to the editor, and they try to confirm the story. Naturally, they call both Paterson and Kennedy's spokesmen. Let's imagine the call to Kennedy's press secretary:
Reporter: Hi, I'm from the NY Times. We're about to run a story that will crush your chances of being Senator. But if you tell us it's not true, we won't run it.
Press Secretary: Let me get back to you on that.
Obviously since they don't deny the story, it must be at least partially true. At the point the price spike really peaks at 20, the original stories had been out for hours. Kennedy's phone and her staff's phones had been ringing off the hook for comment. She could still have nipped it in the bud by getting on TV and denying the whole thing. But she didn't. Which means either the story was true, or she had just atrocious media skills, either of which mean she won't be Senator.
I continued to sell, even exiting sure things like the Geithner nomination at unfavorable prices, so I could short more Kennedy. Essentially I was selling a dollar for 93 cents somewhere else so that I could buy a dollar for 80 cents here. Congratulations to whoever sold me 200 contracts of MN.SEN.REP at 9. At the end of the night, I finished with -2053 contracts at an average of 13.7.
I have opinions about the race now that Kennedy's gone. Will update once I build the positions I want.
*At this point my girlfriend came over with Chinese food. She helped enormously in this process, and I'm going to take her on a very nice trip, both for letting me bounce ideas off of her, and for understanding why I was gambling during our date.
And Kennedy is Out!
Carolyn Kennedy has withdrawn her name from consideration for the NY Senate seat, citing her uncle's illness. As a way to let her save face, Paterson's aides are leaking that she could have had the seat if she wanted it.
Well, I'm net short 167 Kennedy contracts, but this is partly balanced out by 131 Cuomo shorts. Thinking about adding to that position, since he's up to 60 now.
Well, I'm net short 167 Kennedy contracts, but this is partly balanced out by 131 Cuomo shorts. Thinking about adding to that position, since he's up to 60 now.
More NY Senate notes
After exiting the contract completely yesterday (total profit $45...), I went net short this morning. A couple pieces of news.
First, Carolyn Maloney seems to deny the NY Post's story from yesterday, at the end of this video:
http://www.ny1.com/content/top_stories/92514/paterson-s-pick-for-senate-on-mind-of-many-in-washington/Default.aspx
Second, Paterson hints that his pick will be female. More important, he also stresses that economic experience may be a very important factor. Could be a nod towards Carolyn Maloney, who chairs the House Subcommittee on Financial Institutions.
http://latimesblogs.latimes.com/washington/2009/01/clinton-kennedy.html
I think he genuinely is undecided. It's clear that Maloney is a more qualified candidate, and that Kennedy can help him more personally. He's got to be a little worried that he'll be blamed for any Kennedy flubs, which would partially negate any fundraising advantage. At this point, it's hard to see why Kennedy is trading in the 80s.
First, Carolyn Maloney seems to deny the NY Post's story from yesterday, at the end of this video:
http://www.ny1.com/content/top_stories/92514/paterson-s-pick-for-senate-on-mind-of-many-in-washington/Default.aspx
Second, Paterson hints that his pick will be female. More important, he also stresses that economic experience may be a very important factor. Could be a nod towards Carolyn Maloney, who chairs the House Subcommittee on Financial Institutions.
http://latimesblogs.latimes.com/washington/2009/01/clinton-kennedy.html
I think he genuinely is undecided. It's clear that Maloney is a more qualified candidate, and that Kennedy can help him more personally. He's got to be a little worried that he'll be blamed for any Kennedy flubs, which would partially negate any fundraising advantage. At this point, it's hard to see why Kennedy is trading in the 80s.
Free Monies Day
This afternoon Bush commuted the sentences of 2 border patrol agents, whose prison time had become a cause celebre for the right. Half an hour later, White House Press Secretary Dana Perino also announced that there would be no more pardons before the end of the term.
I hopped over to the LIBBY.EOT.PARDON contract and saw a redonkulous number of bids. I immediately took out all the bids from 40 to 6. I set up some offers, getting bites around 13. Taking out stale bids like that is standard operating procedure. The weird thing was, someone kept putting up new big bids for over 100 contracts at 7 or 8. I kept knocking them down until all my free margin was taken, for a total of 1140 contracts at an average of 9.6.
Here's a free tip for anyone who wants to get better at Intrade. When a contract goes from 40 to 6, you should look at the news before betting on it.
I hopped over to the LIBBY.EOT.PARDON contract and saw a redonkulous number of bids. I immediately took out all the bids from 40 to 6. I set up some offers, getting bites around 13. Taking out stale bids like that is standard operating procedure. The weird thing was, someone kept putting up new big bids for over 100 contracts at 7 or 8. I kept knocking them down until all my free margin was taken, for a total of 1140 contracts at an average of 9.6.
Here's a free tip for anyone who wants to get better at Intrade. When a contract goes from 40 to 6, you should look at the news before betting on it.
Hot Caroline-on-Caroline Action
Kennedy's contracts are ripping higher this morning on news from the NY Post that she is the "certain pick." Now, that certainly could be true, but it's not like the Post has been terribly accurate in its stories on Clinton's replacement. Last month they had Kennedy as a "1 in 20 shot at best."
Since Paterson is doing a second round of interviews, he may have given those interviewees the impression that the decision is already made. He may also just be messing with the press about the whole thing, having made his decision for Kennedy a long time ago. I disagree with the Post that not being picked would be "humiliating" for Kennedy, though it might close a few pocketbooks for Paterson.
We also have a very long puff piece in the NY Times of Kennedy. No new information, but it's interesting that they chose to dedicate that space to her right now.
This is a hard race to handicap. The problem is that there's a lot of stuff that I know I don't know. I have no idea about the dynamics of power in the state legislature. I don't know how appointing Carolyn Maloney or Steve Israel would affect anything.
Sold some more Kennedy between 80 and 84. There's too much uncertainty to hold past 80.
Since Paterson is doing a second round of interviews, he may have given those interviewees the impression that the decision is already made. He may also just be messing with the press about the whole thing, having made his decision for Kennedy a long time ago. I disagree with the Post that not being picked would be "humiliating" for Kennedy, though it might close a few pocketbooks for Paterson.
We also have a very long puff piece in the NY Times of Kennedy. No new information, but it's interesting that they chose to dedicate that space to her right now.
This is a hard race to handicap. The problem is that there's a lot of stuff that I know I don't know. I have no idea about the dynamics of power in the state legislature. I don't know how appointing Carolyn Maloney or Steve Israel would affect anything.
Sold some more Kennedy between 80 and 84. There's too much uncertainty to hold past 80.
Seriously?
Paterson decides to interview Senate hopefuls again? And now it might take him until later next week to decide? I'm really curious what the hell is going on inside his office. There is a good story here. Waiting this long really draws things out and makes Paterson look indecisive.
Snap Decision
Sold about 250 of my Kennedy shares. Paterson's interview on NYC radio suggested he's going with a no-name, possibly Carolyn Maloney. Plus Kennedy never gave that second round of interviews, and people generally think of her as unqualified.
I have to admit I don't know enough about NY local politics to understand all the ramifications of his pick. I can't really justify putting $3k+ on this without better info.
I still think Cuomo's not going to be the pick.
Currently +99 Kennedy, -99 Cuomo.
I have to admit I don't know enough about NY local politics to understand all the ramifications of his pick. I can't really justify putting $3k+ on this without better info.
I still think Cuomo's not going to be the pick.
Currently +99 Kennedy, -99 Cuomo.
The Longshot Bias
Brag to date: Adding together Available and Frozen credits, I have $35112.06 on Intrade. This excludes "mark-to-market" gains and losses, which total roughly +$2000. Based on my initial investment of $50, this represents a70,000% gain. I am happy.
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As I mentioned before, there is free money available on Intrade. One of several reasons is the Longshot Bias. Wikipedia explains:
"In gambling and economics, the favourite-longshot bias is an observed phenomenon where on average, bettors tend to overvalue "long shots" and undervalue favourites. That is, in a horse race where one horse is given odds of 2 to 1, and another 100 to 1, the true odds might for example be 1.5 to 1 and 300 to 1 respectively. Betting on the "long shot" is therefore a much worse proposition than betting on the favourite. Various theories exist to explain why people willingly bet on such losing propositions, such as risk-taking behaviour, or simply inaccurate estimation as presented by Sobel and Raines."
My guess is that this bias is exaggerated when relatively small sums of money are involved. If you guessed that Geithner would not be confirmed, selling him at 90 or so, you win money, but you also win the psychological satisfaction of having correctly defied the crowd's wisdom. And if you lose, your psychological pain is eased by knowing that it was a long shot in the first place, and you didn't expect to win. Thus, the risk-reward calculation is not strictly monetary, but also incorporates subjective experience. The less money at risk, the greater the contribution of psychology.
There are other factors at work as well. I suspect there is a non-linearity in the valuation of sums wagered. That is, if you lose $10, it's not that big a deal. If you win $90, you value that more than 9 times as much as the $10 you risked. This ties in with risk-seeking behavior more generally, and it's the only reason I can figure anyone would ever play unwinnable games like roulette.
One final factor is specific to Intrade. Most bettors have relatively small bankrolls, of less than $1000. If you only have a small amount to wager, the amount of research necessary for successful betting is prohibitively time-consuming. I spend 2-3 hours a day monitoring various contracts and keeping up with the news. If you're going to bet heavy favorites (especially contracts at 95 and above), and you only have $1000 to bet, it's not really worth your time to research them thoroughly. That means players like me have relatively little competition for the free 5-10 cents at the end of many contracts.
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As I mentioned before, there is free money available on Intrade. One of several reasons is the Longshot Bias. Wikipedia explains:
"In gambling and economics, the favourite-longshot bias is an observed phenomenon where on average, bettors tend to overvalue "long shots" and undervalue favourites. That is, in a horse race where one horse is given odds of 2 to 1, and another 100 to 1, the true odds might for example be 1.5 to 1 and 300 to 1 respectively. Betting on the "long shot" is therefore a much worse proposition than betting on the favourite. Various theories exist to explain why people willingly bet on such losing propositions, such as risk-taking behaviour, or simply inaccurate estimation as presented by Sobel and Raines."
My guess is that this bias is exaggerated when relatively small sums of money are involved. If you guessed that Geithner would not be confirmed, selling him at 90 or so, you win money, but you also win the psychological satisfaction of having correctly defied the crowd's wisdom. And if you lose, your psychological pain is eased by knowing that it was a long shot in the first place, and you didn't expect to win. Thus, the risk-reward calculation is not strictly monetary, but also incorporates subjective experience. The less money at risk, the greater the contribution of psychology.
There are other factors at work as well. I suspect there is a non-linearity in the valuation of sums wagered. That is, if you lose $10, it's not that big a deal. If you win $90, you value that more than 9 times as much as the $10 you risked. This ties in with risk-seeking behavior more generally, and it's the only reason I can figure anyone would ever play unwinnable games like roulette.
One final factor is specific to Intrade. Most bettors have relatively small bankrolls, of less than $1000. If you only have a small amount to wager, the amount of research necessary for successful betting is prohibitively time-consuming. I spend 2-3 hours a day monitoring various contracts and keeping up with the news. If you're going to bet heavy favorites (especially contracts at 95 and above), and you only have $1000 to bet, it's not really worth your time to research them thoroughly. That means players like me have relatively little competition for the free 5-10 cents at the end of many contracts.
I was 12 when this happened to Zoe Baird
Tim Geithner is having a minor hiccup in his nomination process. Seems he hired a nanny whose work credentials were somewhat out of order, and he forgot to pay self-employment tax when he worked for the IMF. Both of these are pretty minor. The nanny was a legal US resident, and only worked for him for 3 months without proper papers. She's now a permanent US resident. The self-employment tax is apparently an easy thing to forget, and the IRS made a generous settlement with a group of people who made the same mistake.
More important from a prediction perspective, these things are not a surprise to the Obama team. In fact, Obama's vetters discovered the tax issue, which Geithner's accountant had missed. And, knowing this, they decided to nominate him anyway. Both Dems and Repubs have come out in support of Geithner. Only Chuck Grassley seems to think it's a problem. I don't see any stomach for a real push to disqualify him on this. The Republicans apparently realize that Obama could have picked a much more liberal Treasury Secretary. Geithner is still almost certain to be confirmed.
And yet... and yet Geithner's nomination has dropped from 96 to 85-90 on Intrade. I've used all my available margin to buy 459 contracts at an average of 89.5. I even exited some of the Burris contracts early to get in on this. Hopefully the guy who's selling 600 contracts at 90 will still be around after Burris is sworn in on Wednesday.
More important from a prediction perspective, these things are not a surprise to the Obama team. In fact, Obama's vetters discovered the tax issue, which Geithner's accountant had missed. And, knowing this, they decided to nominate him anyway. Both Dems and Repubs have come out in support of Geithner. Only Chuck Grassley seems to think it's a problem. I don't see any stomach for a real push to disqualify him on this. The Republicans apparently realize that Obama could have picked a much more liberal Treasury Secretary. Geithner is still almost certain to be confirmed.
And yet... and yet Geithner's nomination has dropped from 96 to 85-90 on Intrade. I've used all my available margin to buy 459 contracts at an average of 89.5. I even exited some of the Burris contracts early to get in on this. Hopefully the guy who's selling 600 contracts at 90 will still be around after Burris is sworn in on Wednesday.
Just off by a couple days
Burris will be seated later this week. I did have a brief panic when Durbin made his response to the Illinois Supreme Court ruling, and sold some below my purchase price. Looks like my net win on this will be about $1000 -- it would have been about $1500 without the panic.
Still, this is a 5% return in a couple weeks. I'm pretty happy.
Still, this is a 5% return in a couple weeks. I'm pretty happy.
Loading the Boat on Burris
Not sure who I'm buying from, but someone wants to take a huge shot on Burris not being seated. I'm currently at +1089 contracts, averaged in at 93.1. This is pretty much a sure thing, and I would put the rest of my margin on it if I could get it at 93.
No one has any incentive not to see Burris seated. Burris and Blago obviously want him in. Reid and the Dems want the whole spectacle over, and they want the extra senate seat. If they delay, they piss off the black caucus, they draw the whole thing out, and they risk getting out-maneuvered by Blago again. And the GOP wants him in so they can remind everybody of "corrupt Democrats" in 2010. Plus this is the only way they could possibly win that senate seat.
So if we're all agreed, let's seat Burris next week sometime.
No one has any incentive not to see Burris seated. Burris and Blago obviously want him in. Reid and the Dems want the whole spectacle over, and they want the extra senate seat. If they delay, they piss off the black caucus, they draw the whole thing out, and they risk getting out-maneuvered by Blago again. And the GOP wants him in so they can remind everybody of "corrupt Democrats" in 2010. Plus this is the only way they could possibly win that senate seat.
So if we're all agreed, let's seat Burris next week sometime.
The Globetrotters Always Win
Blago may have psychopathic personality traits, but he is a fucking genius at politics. Here's what the Burris nomination does.
It plays the race card OLD SCHOOL. Very helpful that Reid endorsed white candidates to Blago and did not endorse black candidates. This makes the nomination about something other than Blago's problems. It also aligns Blago with the black political machine of Chicago. This gets him more sympathetic jurors for his eventual criminal trial. It also makes for very bad optics, when a club of 99 white people refuse to seat one black guy. This is incredibly craven and cynical by all sides, but the only way the Dems can manage not to seat Burris is if Obama gets out in front on it. Obama's not going to get out in front.
Why Burris as opposed to some other black politician? 1) He's clean, and 2) He's old and retired. 2 is important because he can't be bought off. There is nothing in the world that Harry Reid can give him that Burris wants as badly as a Senate seat. No support for his next race or his pet project or anything.
So, yeah, Burris will be seated. Betting on the Dems to be spineless is like betting on the Harlem Globetrotters to beat the Generals.
It plays the race card OLD SCHOOL. Very helpful that Reid endorsed white candidates to Blago and did not endorse black candidates. This makes the nomination about something other than Blago's problems. It also aligns Blago with the black political machine of Chicago. This gets him more sympathetic jurors for his eventual criminal trial. It also makes for very bad optics, when a club of 99 white people refuse to seat one black guy. This is incredibly craven and cynical by all sides, but the only way the Dems can manage not to seat Burris is if Obama gets out in front on it. Obama's not going to get out in front.
Why Burris as opposed to some other black politician? 1) He's clean, and 2) He's old and retired. 2 is important because he can't be bought off. There is nothing in the world that Harry Reid can give him that Burris wants as badly as a Senate seat. No support for his next race or his pet project or anything.
So, yeah, Burris will be seated. Betting on the Dems to be spineless is like betting on the Harlem Globetrotters to beat the Generals.
Other moves today
I'm exiting my +Franken and -Coleman positions at 2.1 and 97.9. Though I have quite a bit of free margin and there are no other pressing opportunities, this is still below the time value of money. We really don't know how extensively Coleman will pursue legal challenges and how long they will take to resolve. There is also a chance (<20% imo) that the MN Supreme Court will order some change to the way votes were counted, which will introduce new uncertainty.
One disappointment: thinking this way, I failed to jump on a big block of Coleman bid in the 4.5-5 range -- I could have gotten back out pretty quickly.
Someone put up a bid at 30 on the WAGONER.RESIGN.MAR09 contract, which I promptly filled. Resign?? Are you kidding me?? The guy played a high-stakes game of chicken with the government and wheedled out billions in bailout funds without making any significant concessions. He gets the Late Capitalism Medal of Honor, not a pink slip.
One disappointment: thinking this way, I failed to jump on a big block of Coleman bid in the 4.5-5 range -- I could have gotten back out pretty quickly.
Someone put up a bid at 30 on the WAGONER.RESIGN.MAR09 contract, which I promptly filled. Resign?? Are you kidding me?? The guy played a high-stakes game of chicken with the government and wheedled out billions in bailout funds without making any significant concessions. He gets the Late Capitalism Medal of Honor, not a pink slip.
Playing the intrade game
I posted that poll on the Intrade forums. I want to disseminate that information and push the price down as quickly as possible. I still think Kennedy is a winner here, and I want to be able to spend as much time as possible accumulating at a lower level, before any good news comes out for her.
I would have bought Cuomo before posting, but the lowest bid was at 39.9, which is clearly too high.
I notice that within 5 minutes of my post, people are selling Kennedy, and someone put out a block of 100 Cuomo at 15. I'm considering selling that block, but I'm going to put out a "stink ask" at 30 and hope someone hits it.
I would have bought Cuomo before posting, but the lowest bid was at 39.9, which is clearly too high.
I notice that within 5 minutes of my post, people are selling Kennedy, and someone put out a block of 100 Cuomo at 15. I'm considering selling that block, but I'm going to put out a "stink ask" at 30 and hope someone hits it.
...Or Is It?
Looks like publicity wasn't a good thing for Caroline Kennedy. A new poll shows Andrew Cuomo is heavily favored by New Yorkers for the seat. It just goes to show that a week is a lifetime in politics. And with Hillary Clinton's confirmation still 3 weeks away, this race will have plenty of twists and turns.
I got a partial fill on a bid at 76 for Kennedy. I think it'll head lower in the next couple days as news of this poll trickles down to intraders. Current position +56. Looking to buy in the low 70s now. I think she'll lay low for a little while and then come out with shiny new articulate interviews.
It's interesting to think about her strategy here. She clearly went for the "inevitability" route -- her supporters went around to all the big interest groups, saying, "She's the winner. Get on board now and be on the winning team." That didn't happen, so now it looks like she peaked too early.
What's Paterson's play here? If he knew he wanted Kennedy, why not pick her publicly while she was at her peak? He's playing things very close to the vest. One thought: he knows Kennedy is Obama's pick, and he's trying to wrangle more federal aid for NY. As we saw in the Blago mess, though, Obama doesn't want to play that game. As retaliation, Paterson is letting Caroline swing in the wind. Another factor is that Paterson, having inherited the governorship, wants to look like he has control over the process. He can't allow himself to be seen as a lapdog for Obama and Kennedy.
So what's the conclusion? Paterson will almost certainly pick Kennedy, as long as it's not embarrassing to him. If she continues to stumble, Palin-like, he can't afford to take the hit. But she has a pretty low bar to clear -- she just needs to look competent.
I got a partial fill on a bid at 76 for Kennedy. I think it'll head lower in the next couple days as news of this poll trickles down to intraders. Current position +56. Looking to buy in the low 70s now. I think she'll lay low for a little while and then come out with shiny new articulate interviews.
It's interesting to think about her strategy here. She clearly went for the "inevitability" route -- her supporters went around to all the big interest groups, saying, "She's the winner. Get on board now and be on the winning team." That didn't happen, so now it looks like she peaked too early.
What's Paterson's play here? If he knew he wanted Kennedy, why not pick her publicly while she was at her peak? He's playing things very close to the vest. One thought: he knows Kennedy is Obama's pick, and he's trying to wrangle more federal aid for NY. As we saw in the Blago mess, though, Obama doesn't want to play that game. As retaliation, Paterson is letting Caroline swing in the wind. Another factor is that Paterson, having inherited the governorship, wants to look like he has control over the process. He can't allow himself to be seen as a lapdog for Obama and Kennedy.
So what's the conclusion? Paterson will almost certainly pick Kennedy, as long as it's not embarrassing to him. If she continues to stumble, Palin-like, he can't afford to take the hit. But she has a pretty low bar to clear -- she just needs to look competent.
Okay, it's Caroline
I was waiting to see a second public interview with Caroline Kennedy, but the signs are there from all the insiders that she's the pick. Sheldon Silver has semi-endorsed her. Paterson has ruled out picking a caretaker. There are anonymous reports that Paterson has pretty much settled on her. At this point, she would need to continue to blunder, Palin-like, in her interviews, and I think she's smart enough that she's prepping like mad to avoid that.
Got a bid filled at 71. Now trading in the upper 80s. There won't be an official announcement until Clinton is confirmed as SecState, so I expect random rumors to occasionally push this down into the 70s. I'll be accumulating in this range for the near future.
Got a bid filled at 71. Now trading in the upper 80s. There won't be an official announcement until Clinton is confirmed as SecState, so I expect random rumors to occasionally push this down into the 70s. I'll be accumulating in this range for the near future.