My Intrade account is up to $54,024, a gain of 108,000% from my initial $50 in fall of 2007, and up 32% from last month's total.
This includes my first-ever withdrawal from Intrade. I needed to convince myself this wasn't just monopoly money, so I took out $2500. The process was smooth; as promised, I got a check in the mail 15 days after requesting it. Next I plan to convert it to $1 bills and roll around in it.
The big winners for me last month were the Burris contract, the -10%GDP contract, the number of GOP votes for the stimulus, and the Oscars. My biggest loser was betting that Daschle would stay on as HHS Secretary. Fortunately I didn't get too deep on that and only lost about $1000.
Next month I expect the Auto bailout, merger, and bankruptcy contracts to get a lot of attention. I suppose I'll have to learn about American Idol. The economic contracts about GDP and unemployment have also been popular, though most of them don't expire until the end of the year. And, as recent history has taught us, there will be some kind of crazy political spectacle coming out of nowhere.
And the Winner of the 2016 Republican Nomination Is...
Jon Huntsman Jr., governor of Utah. Huntsman has been positioning himself shrewdly for a national run. He's raised his national profile by coming out for civil unions for gays and lesbians, a position opposed by 70% of Utahans. Recently he's also taken shots at the Republican Congressional leadership, saying, "I have not met them. I don't listen or read whatever it is they say because it is inconsequential - completely."
We have the governor of Utah taking two stands which appear politically dangerous but really represent the mood of the country. He's also good looking, in the douchebaggy sort of way that Republicans tend to like. Yup, he's running in 2012. And he's going to lose. But he'll make his name known, and after the conservative candidate the GOP serves up gets destroyed by Obama, in 2016 he'll be The Guy We Should Have Picked.
Interview with a Black Box Wizard
The highest volume on Intrade is in the hourly, daily, and monthly Dow contracts. Unlike most other markets on Intrade, these are dominated by Market Makers. These guys put out both bids and asks on the same contracts. If everything goes well for the MMs, some traders buy, other traders sell, and they make their money on the bid/ask spread no matter what happens to the Dow. If they set their prices wrong, everyone buys or everyone sells, and the MMs could take substantial losses.
jbeyer, the market maker in the monthly and yearly Dow contracts, has generously agreed to answer some questions about how the whole process works.
JL: Briefly, how do you set your prices?
jbeyer: The foundation of my pricing model is essentially a random-walk model. The model takes two input parameters: the current Dow value and an estimate of volatility. I estimate volatility from VXD values. Your readers are probably familiar with VIX values. The value of the VIX is the market's estimate for the annualized standard deviation of the S&P 500 over the next 30 days. The VXD is the equivalent value for the Dow. For my year-end model (as opposed to monthly model), I use VXD futures data to estimate market volatility in future months. My pricing model generates probabilities that serve as the starting point for my spreads. I then shift my spreads in response to my own inventory. Occasionally, when the market has a very bullish or bearish sentiment, I will shift my spreads slightly in response to this sentiment.
JL: How did you decide to make markets on Intrade?
jbeyer: I became interested in Intrade during the 2008 presidential election. I noticed that they had financial markets, and approached them to see if they would allow me to act as a market maker. I have an understanding of both market mechanics and the technology that is used to post prices.
JL: How much volume do you trade? Are you nearly 100% of the markets' volume?
jbeyer: Intrade generally sees about 4-6 thousand contracts trade each month in the monthly contracts. The yearly contracts trade much less than that. For the monthly contracts, I probably account for 85% of that volume. I like to think that I facilitate the other 15% by setting a relevant price range and then people trade inside of my spread. As an example of this, you can compare the volume on the yearly S&P contracts, which don't have a market maker, to the volume of the yearly Dow contracts. The Dow contracts have a volume of approximately 2,000 so far this year. The S&P contracts have a volume of 26.
JL: How much do you make on a monthly basis? Biggest win, biggest loss?
jbeyer: I have only been acting as a market maker since Nov, so there aren't many data points here. The average month has been around $500 profit. The worst month was losing $100. I have also been fortunate in that most traders have been betting on a major bounce to the Dow and that hasn't occurred. I certainly don't do this for the money. I do it because I find it interesting.
JL: Do you trade anything else on Intrade?
During the 2008 presidential election, I traded a lot of contracts on the overall outcome and on the state results. I am considering getting into market making for other contracts. The financial contracts are nice in that I don't need to inject any personal opinions about what a contract is worth. I think that making a market in other markets requires a bit more human input, and I don't really have the time to devote to that pursuit right now.
JL: If you were a trader, how would you beat you?
jbeyer: While this isn't good for business, I would probably recommend limiting the number of trades per month. In addition to paying Intrade fees, traders are essentially paying a commission to me through the spread.
As the month winds to a close, my model probably over-estimates the amount of daily volatility. VXD values measure expected volatility over 30 days, which assumes that streaks in the market are likely. If you are looking at just one day, there isn't the same concept of a multi-day streak, so you can't scale the VXD value to a single day and assume it is accurate. I will probably be tweaking my model to reduce expected volatility in the last or last two days of the month.
___________
Wow, there's some honesty: the best way to win is not to play.
Here's my take on it: jbeyer essentially takes the stock market's opinion about how much volatility there will be, and translates it into probabilities for each contract. In order to beat him, you need to beat the market. Either identify times when the market is likely to move strongly in one direction, or when you think there will be much more or much less volatility than everyone expects. For small investors/gamblers, these markets are probably the most efficient way to speculate -- they have low minimum transactions, low fees, and small bid/ask spreads.
There is one other way to make money here. jbeyer adjusts his prices based on his inventory. If many people have bought a contract, he'll raise his bid and ask to attract interest from sellers. This means that he will sometimes post prices which are quite favorable, 4-5 points above or below fair value.
jbeyer, the market maker in the monthly and yearly Dow contracts, has generously agreed to answer some questions about how the whole process works.
JL: Briefly, how do you set your prices?
jbeyer: The foundation of my pricing model is essentially a random-walk model. The model takes two input parameters: the current Dow value and an estimate of volatility. I estimate volatility from VXD values. Your readers are probably familiar with VIX values. The value of the VIX is the market's estimate for the annualized standard deviation of the S&P 500 over the next 30 days. The VXD is the equivalent value for the Dow. For my year-end model (as opposed to monthly model), I use VXD futures data to estimate market volatility in future months. My pricing model generates probabilities that serve as the starting point for my spreads. I then shift my spreads in response to my own inventory. Occasionally, when the market has a very bullish or bearish sentiment, I will shift my spreads slightly in response to this sentiment.
JL: How did you decide to make markets on Intrade?
jbeyer: I became interested in Intrade during the 2008 presidential election. I noticed that they had financial markets, and approached them to see if they would allow me to act as a market maker. I have an understanding of both market mechanics and the technology that is used to post prices.
JL: How much volume do you trade? Are you nearly 100% of the markets' volume?
jbeyer: Intrade generally sees about 4-6 thousand contracts trade each month in the monthly contracts. The yearly contracts trade much less than that. For the monthly contracts, I probably account for 85% of that volume. I like to think that I facilitate the other 15% by setting a relevant price range and then people trade inside of my spread. As an example of this, you can compare the volume on the yearly S&P contracts, which don't have a market maker, to the volume of the yearly Dow contracts. The Dow contracts have a volume of approximately 2,000 so far this year. The S&P contracts have a volume of 26.
JL: How much do you make on a monthly basis? Biggest win, biggest loss?
jbeyer: I have only been acting as a market maker since Nov, so there aren't many data points here. The average month has been around $500 profit. The worst month was losing $100. I have also been fortunate in that most traders have been betting on a major bounce to the Dow and that hasn't occurred. I certainly don't do this for the money. I do it because I find it interesting.
JL: Do you trade anything else on Intrade?
During the 2008 presidential election, I traded a lot of contracts on the overall outcome and on the state results. I am considering getting into market making for other contracts. The financial contracts are nice in that I don't need to inject any personal opinions about what a contract is worth. I think that making a market in other markets requires a bit more human input, and I don't really have the time to devote to that pursuit right now.
JL: If you were a trader, how would you beat you?
jbeyer: While this isn't good for business, I would probably recommend limiting the number of trades per month. In addition to paying Intrade fees, traders are essentially paying a commission to me through the spread.
As the month winds to a close, my model probably over-estimates the amount of daily volatility. VXD values measure expected volatility over 30 days, which assumes that streaks in the market are likely. If you are looking at just one day, there isn't the same concept of a multi-day streak, so you can't scale the VXD value to a single day and assume it is accurate. I will probably be tweaking my model to reduce expected volatility in the last or last two days of the month.
___________
Wow, there's some honesty: the best way to win is not to play.
Here's my take on it: jbeyer essentially takes the stock market's opinion about how much volatility there will be, and translates it into probabilities for each contract. In order to beat him, you need to beat the market. Either identify times when the market is likely to move strongly in one direction, or when you think there will be much more or much less volatility than everyone expects. For small investors/gamblers, these markets are probably the most efficient way to speculate -- they have low minimum transactions, low fees, and small bid/ask spreads.
There is one other way to make money here. jbeyer adjusts his prices based on his inventory. If many people have bought a contract, he'll raise his bid and ask to attract interest from sellers. This means that he will sometimes post prices which are quite favorable, 4-5 points above or below fair value.
Is this ever going to end?
Turns out Roland Burris' son got a highly paid state job from Blagojevich. Not only that, but Roland Burris II was appointed senior counsel for the state's housing authority in September, 6 weeks after the IRS put a $34,000 tax lien on him, and 3 weeks after his bank filed to foreclose on his house.
Obviously this isn't good for Burris Sr. Still, I don't think this will be the straw that breaks the Senator's back. He's already dug in his heels and refused to resign. Burris knew this would come out sooner or later. It's a time-honored tradition in corrupt politics to curry favor with a politician by helping his immediate relatives. It's not like Burris could have hoped that no one would check on where his relatives worked.
It's also not clear evidence of a pay-for-play for the Senate seat. At worst, Blago did a favor for Burris, not the other way around.
Terrible timing for Burris. Today's the day he speaks on the Senate floor and then takes the big chair to preside over the Senate.
Quick note: a commenter asked what I thought of the GM merger contract. Chrysler would desperately love to merge with GM, but GM doesn't want to get chained to that sinking ship. This won't happen unless the government forces it as a condition of a bailout. I strongly doubt that will happen, but my feeling isn't certain enough to short the contract at 40 and lock up margin until the end of the year.
____________________
Edit: There's also zero evidence of impropriety in Burris II's appointment. Given that it's Illinois and Blagojevich, everyone assumes this was a patronage appointment. However the best the media can do for now is say this news "raises questions" about Burris' ties to Blago.
Obviously this isn't good for Burris Sr. Still, I don't think this will be the straw that breaks the Senator's back. He's already dug in his heels and refused to resign. Burris knew this would come out sooner or later. It's a time-honored tradition in corrupt politics to curry favor with a politician by helping his immediate relatives. It's not like Burris could have hoped that no one would check on where his relatives worked.
It's also not clear evidence of a pay-for-play for the Senate seat. At worst, Blago did a favor for Burris, not the other way around.
Terrible timing for Burris. Today's the day he speaks on the Senate floor and then takes the big chair to preside over the Senate.
Quick note: a commenter asked what I thought of the GM merger contract. Chrysler would desperately love to merge with GM, but GM doesn't want to get chained to that sinking ship. This won't happen unless the government forces it as a condition of a bailout. I strongly doubt that will happen, but my feeling isn't certain enough to short the contract at 40 and lock up margin until the end of the year.
____________________
Edit: There's also zero evidence of impropriety in Burris II's appointment. Given that it's Illinois and Blagojevich, everyone assumes this was a patronage appointment. However the best the media can do for now is say this news "raises questions" about Burris' ties to Blago.
"We don't suck as bad" is not a winning campaign slogan
It appears the Republicans have chosen to follow the stunningly successful "Kerry 2004" strategy. Namely, re-heating the crap sandwich of a platform that lost them the last election.
Obama is in a tougher situation than most people realize. The economy is going to continue to get worse. House prices will keep falling for the next 1-3 years until they reach some sort of reasonable value relative to incomes and rents. There will soon be shocks from Eastern Europe and China that reverberate through the US economy. All these problems are based on structural factors that built up over many years, and which Obama can't do much about.
In short, we're not going to be recovered in 2 years, and probably not in 4. Which means Obama really is vulnerable in 2012, and the Democrats may well lose seats in Congress in 2010.
Or at least they might, if the Republicans had any kind of new ideas or solutions at all. In 2004, Kerry's message was, "I don't suck as bad as Bush." What would Kerry do differently? Well... probably pull out of Iraq faster, but don't hold him to that. Maybe be nicer to terrorists? Fundamentally, Kerry did not construct a story about how he would lead the country forward.
Bobby Jindal and the GOP as a whole are making the same mistake. Here's their game plan:
1. Wait for the economy to get worse.
2. Blame it on Obama.
3.Profit. Tax cuts.
There's no acknowledgment that we're in a new and dangerous situation. The Republicans are collectively saying that all we need to do is cut the capital gains tax and we'll be partying like it's 2006. Before the public will listen to Republican ideas, we need to have a sense that they have correctly diagnosed the problems facing the country. They have not.
This morning on Intrade, Jindal has fallen behind Romney as the favorite for the 2012 nomination. Last night's speech didn't doom Jindal. 3 years is an eternity in politics, and he'll have time to recover. What it does reveal is that Jindal doesn't have the razor-sharp political skill that Obama has. The opposition's response speeches are inevitably panned, and it was a terrible choice for Jindal to make this his introduction to the national stage.
Obama is in a tougher situation than most people realize. The economy is going to continue to get worse. House prices will keep falling for the next 1-3 years until they reach some sort of reasonable value relative to incomes and rents. There will soon be shocks from Eastern Europe and China that reverberate through the US economy. All these problems are based on structural factors that built up over many years, and which Obama can't do much about.
In short, we're not going to be recovered in 2 years, and probably not in 4. Which means Obama really is vulnerable in 2012, and the Democrats may well lose seats in Congress in 2010.
Or at least they might, if the Republicans had any kind of new ideas or solutions at all. In 2004, Kerry's message was, "I don't suck as bad as Bush." What would Kerry do differently? Well... probably pull out of Iraq faster, but don't hold him to that. Maybe be nicer to terrorists? Fundamentally, Kerry did not construct a story about how he would lead the country forward.
Bobby Jindal and the GOP as a whole are making the same mistake. Here's their game plan:
1. Wait for the economy to get worse.
2. Blame it on Obama.
3.
There's no acknowledgment that we're in a new and dangerous situation. The Republicans are collectively saying that all we need to do is cut the capital gains tax and we'll be partying like it's 2006. Before the public will listen to Republican ideas, we need to have a sense that they have correctly diagnosed the problems facing the country. They have not.
This morning on Intrade, Jindal has fallen behind Romney as the favorite for the 2012 nomination. Last night's speech didn't doom Jindal. 3 years is an eternity in politics, and he'll have time to recover. What it does reveal is that Jindal doesn't have the razor-sharp political skill that Obama has. The opposition's response speeches are inevitably panned, and it was a terrible choice for Jindal to make this his introduction to the national stage.
Predicting Contract Volume
Here's a rough formula for how much volume a contract will get:
Volume = (News Rate) * (Intrinsic Interest)
By "News Rate" I don't necessarily mean the number of times a topic is mentioned on CNN. I mean the frequency with which a keen observer would change her estimates of the odds, and the magnitude of those changes. For something like the daily Dow contracts, this would change minute-by-minute. For the Osama Conclusion contracts, real news is exceedingly slow and the changes subtle.
"Intrinsic Interest" is difficult to quantify. I mean the aggregate degree to which Intraders care about a topic, or have an opinion about what will or should happen. For the most part, this is a mix of politics, economics, and a little entertainment. Basically, it's what's seen on the "hard news" segments on MSNBC or Fox News. Low interest topics include the weather (other than hurricanes), movie box office returns, and court rulings.
Take a look at the contract on the 1st Supreme Court Justice to leave (screenshot). There was essentially zero interest or volume on this until early February, when Ruth Bader-Ginsberg had surgery for pancreatic cancer. Volume surged (well, kind of--35 shares were traded, which was a lot on a percentage basis) and then fell again as there were no new developments.
In contrast, the Oscars had a steady trickle of volume. There was relatively high interest, as everyone watches movies and everyone has an opinion about which is best. There was hardly any news. The only real information coming out was from the early awards (Golden Globes, etc.), and Mickey Rourke's erratic behavior.
The very highest volume was for the 2008 Presidential election. That contest was extremely interesting, and there were new twists and turns on a daily basis. Every day there would be new polls, and the candidates and their surrogates would make news.
What new contracts would garner a lot of volume? The main topic in the news today is political intervention in the economy, which combines two high interest subjects. Will Citigroup or Bank of America be nationalized? Will there be a 2nd stimulus package? Will Obama's mortgage plan pass, and what will be in it? Now, these are complicated subjects, and Intrade will have to be very careful in the wording of its contracts, but I think these would all get a lot of volume and a lot of mentions in the media.
Other suggestions?
Volume = (News Rate) * (Intrinsic Interest)
By "News Rate" I don't necessarily mean the number of times a topic is mentioned on CNN. I mean the frequency with which a keen observer would change her estimates of the odds, and the magnitude of those changes. For something like the daily Dow contracts, this would change minute-by-minute. For the Osama Conclusion contracts, real news is exceedingly slow and the changes subtle.
"Intrinsic Interest" is difficult to quantify. I mean the aggregate degree to which Intraders care about a topic, or have an opinion about what will or should happen. For the most part, this is a mix of politics, economics, and a little entertainment. Basically, it's what's seen on the "hard news" segments on MSNBC or Fox News. Low interest topics include the weather (other than hurricanes), movie box office returns, and court rulings.
Take a look at the contract on the 1st Supreme Court Justice to leave (screenshot). There was essentially zero interest or volume on this until early February, when Ruth Bader-Ginsberg had surgery for pancreatic cancer. Volume surged (well, kind of--35 shares were traded, which was a lot on a percentage basis) and then fell again as there were no new developments.
In contrast, the Oscars had a steady trickle of volume. There was relatively high interest, as everyone watches movies and everyone has an opinion about which is best. There was hardly any news. The only real information coming out was from the early awards (Golden Globes, etc.), and Mickey Rourke's erratic behavior.
The very highest volume was for the 2008 Presidential election. That contest was extremely interesting, and there were new twists and turns on a daily basis. Every day there would be new polls, and the candidates and their surrogates would make news.
What new contracts would garner a lot of volume? The main topic in the news today is political intervention in the economy, which combines two high interest subjects. Will Citigroup or Bank of America be nationalized? Will there be a 2nd stimulus package? Will Obama's mortgage plan pass, and what will be in it? Now, these are complicated subjects, and Intrade will have to be very careful in the wording of its contracts, but I think these would all get a lot of volume and a lot of mentions in the media.
Other suggestions?
Lessons from the Oscars
Overall, I'm pretty happy with the way the Oscars went. Of the 6 bets, I won the 4 biggest and lost the 2 smallest. Lessons learned:
Supporting Actress. I took a small flyer on Henson based on Nate Silver's analysis. I should have known better than to trust someone else's model without seeing any of the internal numbers. I think my original assessment was correct, that Cruz was the favorite, but wasn't a good value on Intrade.
Lead Actress. I had a bit of cognitive dissonance here. After getting in to my position, I read other analyses supporting Winslet. For example one pointed out that Lead Actress winners are usually young and hot. Or British women playing the Queen of England. That just went in one eye and out the other.
I'm still not sure whether taking Streep at 4-1 was a bad bet. It is clear that the best opportunity here was shorting Anne Hathaway when she was trading in the teens. Once again, it's better to bet favorites than longshots.
Position sizing. Even though I won, in retrospect, I wouldn't have taken larger positions. Entertainment is a new field for me, and I don't have the certainty that I have for politics. The wagers were prudently sized. Next year, with this under my belt, I'll take somewhat larger positions.
This site. Yesterday my traffic was triple the usual count. I guess people like to be vicarious degenerate gamblers? Or maybe entertainment predictions are more popular than politics? Readers, any suggestions about what you'd like to see here?
Supporting Actress. I took a small flyer on Henson based on Nate Silver's analysis. I should have known better than to trust someone else's model without seeing any of the internal numbers. I think my original assessment was correct, that Cruz was the favorite, but wasn't a good value on Intrade.
Lead Actress. I had a bit of cognitive dissonance here. After getting in to my position, I read other analyses supporting Winslet. For example one pointed out that Lead Actress winners are usually young and hot. Or British women playing the Queen of England. That just went in one eye and out the other.
I'm still not sure whether taking Streep at 4-1 was a bad bet. It is clear that the best opportunity here was shorting Anne Hathaway when she was trading in the teens. Once again, it's better to bet favorites than longshots.
Position sizing. Even though I won, in retrospect, I wouldn't have taken larger positions. Entertainment is a new field for me, and I don't have the certainty that I have for politics. The wagers were prudently sized. Next year, with this under my belt, I'll take somewhat larger positions.
This site. Yesterday my traffic was triple the usual count. I guess people like to be vicarious degenerate gamblers? Or maybe entertainment predictions are more popular than politics? Readers, any suggestions about what you'd like to see here?
Final Oscar Positions
Seriously, I haven't seen any of these movies. Here's my reasoning for my picks.
The most likely scenario tonight is that I break about even--that I get my bridgejumpers* right and my longshots wrong. If I get either of the Lead Actor or Lead Actress calls right, I will be very very happy.
My profit/loss for each outcome:
Best Pic:
Slumdog Millionaire +$422
Benjamin Button -$2338
Milk -$2138
Field -$1938
Best Director:
Boyle +$602
Field -$3158
Lead Actor:
Rourke -$888
Langella -$1138
Penn +$1811
Field -$777
Lead Actress:
Winslet -$258
Streep $1201
Hathaway -$398
Field -$288
Supporting Actor:
Ledger +$160
Field -$2175
Supporting Actress:
Henson +$182
Field -$18
*Bridgejumper (n): A person who wagers large amounts of money, usually on short-priced horses to show, hoping to realize a small, but certain profit. The term comes from the structure these bettors may seek if they lose.
The most likely scenario tonight is that I break about even--that I get my bridgejumpers* right and my longshots wrong. If I get either of the Lead Actor or Lead Actress calls right, I will be very very happy.
My profit/loss for each outcome:
Best Pic:
Slumdog Millionaire +$422
Benjamin Button -$2338
Milk -$2138
Field -$1938
Best Director:
Boyle +$602
Field -$3158
Lead Actor:
Rourke -$888
Langella -$1138
Penn +$1811
Field -$777
Lead Actress:
Winslet -$258
Streep $1201
Hathaway -$398
Field -$288
Supporting Actor:
Ledger +$160
Field -$2175
Supporting Actress:
Henson +$182
Field -$18
*Bridgejumper (n): A person who wagers large amounts of money, usually on short-priced horses to show, hoping to realize a small, but certain profit. The term comes from the structure these bettors may seek if they lose.
The Blagojevich Burlesque
Last week I wrote about Roland Burris, "He has very obviously perjured himself, and will likely be investigated and eventually convicted." Two things: first, I was probably wrong about that. Legal experts have been weighing in on perjury charges, and the consensus seems to be that what Burris did was somewhere between being honest and convictable perjury.
The more interesting thing to me is how my own attitude has changed. I've bet quite a bit that Burris will still be in the Senate at the end of March (if anybody wants lots and lots of action, contact me). And I found myself in the shower yesterday thinking that what Burris did wasn't really all that bad. Or, more specifically, that if I were Roland Burris, I could justify all of my actions to myself. I'm not sure how much this is influenced by my Intrade position, but here are my thoughts.
What exactly did he do? Two things: 1) he lobbied Blagojevich for the Senate seat, and 2) he was not 100% honest about it during the Blago impeachment hearings.
From a "good-government" perspective, #1 is definitely shady. The thing is, it's also standard political practice. Willie Brown has a good opinion about it from a politician's point of view.
So let's move on to #2. As they say, it's not the crime, it's the coverup. Burris was certainly less than truthful with the committee. But think back to the political climate when he testified. He had come to Washington, and the Senate leaders didn't allow him in the building. He held a press conference out in the rain. Reid and Durbin got all kinds of pressure from the black community to seat him. So as a face-saving compromise, they agreed that he could be seated if he testified in front of the committee and got the Secretary of State's signature on his appointment letter.
Burris didn't have to testify. Reid and Durbin were on shaky constitutional ground denying him entrance in the first place. Once he gave testimony, with a sudden (and hypocritical) anti-corruption fervor sweeping the Illinois legislature, I can see why he chose not to rock the boat and to put the best face on things. If you read the transcript, it's clear he danced around the truth but did not tell any outright lies.
I can see why, from Burris' perspective, this is overblown. He didn't buy the seat. In fact, he was selected because of his reputation for honesty in a corrupt state. He testified as a favor to the Democratic leadership, and he didn't tell any outright lies. He must feel like he's getting jumped on by the media and thrown under the bus by his leadership.
The more interesting thing to me is how my own attitude has changed. I've bet quite a bit that Burris will still be in the Senate at the end of March (if anybody wants lots and lots of action, contact me). And I found myself in the shower yesterday thinking that what Burris did wasn't really all that bad. Or, more specifically, that if I were Roland Burris, I could justify all of my actions to myself. I'm not sure how much this is influenced by my Intrade position, but here are my thoughts.
What exactly did he do? Two things: 1) he lobbied Blagojevich for the Senate seat, and 2) he was not 100% honest about it during the Blago impeachment hearings.
From a "good-government" perspective, #1 is definitely shady. The thing is, it's also standard political practice. Willie Brown has a good opinion about it from a politician's point of view.
Appointing someone who will support you is standard operating procedure. The real reason Blago got impeached was the mercenary way he went about auctioning off the seat, and that the public got to hear what went on in his office. I don't think Burris' attempted fundraising was any worse than what everyone expected Carolyn Kennedy to do.Keep in mind, politics is a crazy business. When you're appointing people, you expect them to be supportive of you. You expect them to be loyal to you. You expect them to work for your re-election.
If someone tells you, "I bring the gay community to the table with me, and they will be supportive of your re-election if you appoint me," and then you appoint him, is that a quid pro quo?
Or take Caroline Kennedy, who looks like she's in line to get Hillary Rodham Clinton's Senate seat in New York. If she goes to the governor, David Paterson, and tells him, "I'm Caroline Kennedy, and I have distinguished myself. And I am able to raise a ton of money" - and he appoints her - is there a quid pro quo if she then goes and raises money for him?
So let's move on to #2. As they say, it's not the crime, it's the coverup. Burris was certainly less than truthful with the committee. But think back to the political climate when he testified. He had come to Washington, and the Senate leaders didn't allow him in the building. He held a press conference out in the rain. Reid and Durbin got all kinds of pressure from the black community to seat him. So as a face-saving compromise, they agreed that he could be seated if he testified in front of the committee and got the Secretary of State's signature on his appointment letter.
Burris didn't have to testify. Reid and Durbin were on shaky constitutional ground denying him entrance in the first place. Once he gave testimony, with a sudden (and hypocritical) anti-corruption fervor sweeping the Illinois legislature, I can see why he chose not to rock the boat and to put the best face on things. If you read the transcript, it's clear he danced around the truth but did not tell any outright lies.
I can see why, from Burris' perspective, this is overblown. He didn't buy the seat. In fact, he was selected because of his reputation for honesty in a corrupt state. He testified as a favor to the Democratic leadership, and he didn't tell any outright lies. He must feel like he's getting jumped on by the media and thrown under the bus by his leadership.
Auto Bailout: Expires at Zero
GM and Chrysler have come up with their bailout requests. They total $21 billion, which is less than the $25 billion specified in the contract rules. They probably won't even get that given how negative public sentiment is towards these bailouts.
I suppose there's a small chance they could ask for more later, but it's not too likely.
I suppose there's a small chance they could ask for more later, but it's not too likely.
That was fast
The Dow just hit a new intra-day low. Who knew I could just write out what I wanted and it would come to me?
Bits and Pieces
-Burris' spokesman resigned today. Obviously it's no fun to be the mouthpiece for your boss' new stories everyday. I don't read much into this as far as Burris' plans. The spokesman could know that Burris was going to resign and wanted to leave the ship before it sank, or he could know that Burris was not going to resign and didn't want to have to deal with the media anymore.
-Burris also failed to disclose all his lobbying contacts. If the whole perjury thing wasn't enough to get him to resign, I doubt this will be.
-Netanyahu won the endorsement of two opposing right-wing parties. He will almost certainly be the prime minister, with or without Livni in coalition. This may take a while to finally resolve itself, but betting on Bibi or against Livni is free money.
-The DOW.LOWERLOW.DEC09 keeps teasing me. I'm long 560 contracts, and it got within 30 points of a new low yesterday and 20 points today. Keep knocking on the door...
-Burris also failed to disclose all his lobbying contacts. If the whole perjury thing wasn't enough to get him to resign, I doubt this will be.
-Netanyahu won the endorsement of two opposing right-wing parties. He will almost certainly be the prime minister, with or without Livni in coalition. This may take a while to finally resolve itself, but betting on Bibi or against Livni is free money.
-The DOW.LOWERLOW.DEC09 keeps teasing me. I'm long 560 contracts, and it got within 30 points of a new low yesterday and 20 points today. Keep knocking on the door...
Burris: The gift that keeps on giving
I've started betting that Burris will stay around until the end of March. As I said last time, there are two ways he could be removed: he could be expelled by the Senate, or he could resign.
Expulsion by the Senate will take more than 6 weeks. Harry Reid seems to want to wait for local Illinois officials to investigate before taking things on in the Senate. And, of course, there's way too much other stuff on the national agenda for the Dems to make this a priority. (If it were a Republican who might be replaced by a Democrat? I'm sure they'd make time for it.)
That leaves resignation. I think this is unlikely in the near future.
-I think Burris genuinely believes he didn't do anything wrong.
-Resigning would be an implicit admission of guilt.
-Some news sources are citing anonymous Burris advisors saying that he hasn't even contemplated resignation (but, of course, what else would they say?).
Perhaps being found guilty of perjury would be enough to make him resign or get the Senate into gear. That is very unlikely to happen quickly.
I'd like to short this contract in a major way if I can get reasonable odds. Email wiserthanthecrowd@gmail.com if you're interested.
Expulsion by the Senate will take more than 6 weeks. Harry Reid seems to want to wait for local Illinois officials to investigate before taking things on in the Senate. And, of course, there's way too much other stuff on the national agenda for the Dems to make this a priority. (If it were a Republican who might be replaced by a Democrat? I'm sure they'd make time for it.)
That leaves resignation. I think this is unlikely in the near future.
-I think Burris genuinely believes he didn't do anything wrong.
-Resigning would be an implicit admission of guilt.
-Some news sources are citing anonymous Burris advisors saying that he hasn't even contemplated resignation (but, of course, what else would they say?).
Perhaps being found guilty of perjury would be enough to make him resign or get the Senate into gear. That is very unlikely to happen quickly.
I'd like to short this contract in a major way if I can get reasonable odds. Email wiserthanthecrowd@gmail.com if you're interested.
Damn you Nate Silver!
Huh. So Nate Silver thinks he can use statistics to predict the Oscars, eh?
We basically agree on Lead Actress, Supporting Actor, Best Picture, and Best Director.
I'm honest enough to admit that his formal model is more sophisticated than mine. His addition of actors' previous Oscar nominations and wins probably accounts for most of the difference in our assessment of the Lead Actor race. He incorporates # of previous Oscar nominations and # of previous wins. Previous nominations increase your chances, wins decrease them. This plays against Penn, who would be only the 9th actor in history to win Best Actor twice. On the other hand Rourke has been pretty much churning out crap for the past 20 years, and the Academy may decide to wait for his follow-up before awarding him. I'd revise my Lead Actor handicapping to 50-50 between Penn and Rourke.
Taraji Henson is a genuine surprise for Supporting Actress. I have enough confidence in Nate that I put down $18 on Henson at 9.
We basically agree on Lead Actress, Supporting Actor, Best Picture, and Best Director.
I'm honest enough to admit that his formal model is more sophisticated than mine. His addition of actors' previous Oscar nominations and wins probably accounts for most of the difference in our assessment of the Lead Actor race. He incorporates # of previous Oscar nominations and # of previous wins. Previous nominations increase your chances, wins decrease them. This plays against Penn, who would be only the 9th actor in history to win Best Actor twice. On the other hand Rourke has been pretty much churning out crap for the past 20 years, and the Academy may decide to wait for his follow-up before awarding him. I'd revise my Lead Actor handicapping to 50-50 between Penn and Rourke.
Taraji Henson is a genuine surprise for Supporting Actress. I have enough confidence in Nate that I put down $18 on Henson at 9.
Burris: I already carved Senator on my tombstone, bitches!
Burris at the impeachment hearings: I talked to some of my friends about wanting to be Senator.
Burris 2 days ago: By "friends" I meant lobbyists and Rod Blagojevich's brother. But I'm not dirty because I never raised money for Blago.
Burris today: I tried to raise money for Blago, but failed.
There hasn't been any action yet on the new BURRIS.DEPART.MAR09 contract. This is really a contract for whether Burris will resign by the end of March. There is no mechanism for impeachment or recall of Senators in Illinois. The only way Burris could be forced out would be if the Senate expelled him. That's possible, but it won't happen by March. There would have to be hearings, a trial, and a 2/3rds majority vote. It would suck up all the media oxygen at a time when the Democrats have very ambitious legislative plans.
Will he resign? He says no, but of course he'd say that now. The Illinois Republicans are calling for his head, while the Democrats have been in "wait-and-see" mode. I would think today's revelation about his attempted fundraising would push more of the Democrats against him. He has very obviously perjured himself, and will likely be investigated and eventually convicted.
Conventional wisdom says, if your own party turns on you, that's when you've got to go. I'm not sure that's true in Illinois. Blagojevich had to be dragged out kicking and screaming. I doubt Burris will show much more dignity. If this is the extent of the news about Burris, I think he insists on his innocence, despite all evidence to the contrary, and hangs on to finish out his term.
Burris 2 days ago: By "friends" I meant lobbyists and Rod Blagojevich's brother. But I'm not dirty because I never raised money for Blago.
Burris today: I tried to raise money for Blago, but failed.
There hasn't been any action yet on the new BURRIS.DEPART.MAR09 contract. This is really a contract for whether Burris will resign by the end of March. There is no mechanism for impeachment or recall of Senators in Illinois. The only way Burris could be forced out would be if the Senate expelled him. That's possible, but it won't happen by March. There would have to be hearings, a trial, and a 2/3rds majority vote. It would suck up all the media oxygen at a time when the Democrats have very ambitious legislative plans.
Will he resign? He says no, but of course he'd say that now. The Illinois Republicans are calling for his head, while the Democrats have been in "wait-and-see" mode. I would think today's revelation about his attempted fundraising would push more of the Democrats against him. He has very obviously perjured himself, and will likely be investigated and eventually convicted.
Conventional wisdom says, if your own party turns on you, that's when you've got to go. I'm not sure that's true in Illinois. Blagojevich had to be dragged out kicking and screaming. I doubt Burris will show much more dignity. If this is the extent of the news about Burris, I think he insists on his innocence, despite all evidence to the contrary, and hangs on to finish out his term.
Oscar Picks Part 2
Last week I talked about Heath Ledger, Slumdog Millionaire, and Danny Boyle and near-locks on their respective Oscars. I think Sean Penn and Meryl Streep are currently undervalued for the Best Actor and Best Actress Awards.
First, let's take a look at the previous awards: the Golden Globes, the Screen Actors' Guild (SAG) Awards, and the British Academy of Film and Television Arts (BAFTAs). I went through the winners of these awards since 1994, when the SAG Awards first started. The simplest case is when the 3 "minor league" awards are unanimous. In 6 out of 7 cases, the Best Actor/Actress winner from earlier shows went on to win the Oscar. The sole exception is Russell Crowe in 2001. He won all three early awards, then cursed out a BAFTA producer for cutting short his acceptance speech, attacked a hotel clerk, and, if I recall correctly, punched an orphan in the face.
Okay, so what happens when the early awards disagree? Independently, the SAG award is a better predictor of the Oscar winner. The GG winner goes on to win the Oscar 44% of the time, SAG 78%, and BAFTA 41%. Throw out the unanimous cases, and those numbers change to 30%, 75%, and 25%. What about when 1 actor/actress wins the GG and BAFTA, and another wins the SAG? In 4 of 4 cases, the SAG winner has won the Oscar.
That's exactly the case this year, when Mickey Rourke has won the GG and BAFTA, and Sean Penn has won the SAG. So why on earth is Sean Penn trading at 33 and Rourke at 60? And who thinks Frank Langella has a 7% chance of coming out of nowhere to win? Not to say Sean Penn is a lock here, but he should be trading above 50 at least.
The Best Actress category is a bit more complicated. Kate Winslet had two Oscar-contending roles this year, in The Reader and Revolutionary Road. Winslet won Best Actress for Revolutionary Road at the Golden Globes and BAFTAs, and Best Supporting Actress for The Reader at the Golden Globes and SAG. Meanwhile, Streep won Best Actress at SAG for Doubt. To make things even more confusing, Streep was nominated for Best Actress at the Oscars, while Winslet was nominated only for Best Actress for her role in The Reader. This makes historical precedent less useful.
I think Winslet is better than 50% to win. Winslet's role in The Reader was relatively small, though the Oscar voters will probably also consider her work in Revolutionary Road and in earlier years. Nevertheless, I took a flyer on Streep, averaging in at 19.3. Streep did beat Winslet in the most important head-to-head competition, Best Actress at the SAG Awards. I think fair value for Streep would be more in the mid-30s.
And Best Supporting Actress? The early awards are not nearly as predictive for the Supporting Oscars. Winslet's wins at GG and SAG muddy the picture even more. I'll pick Penelope Cruz in the office pool, but I don't see any good value on Intrade.
Positions:
Rourke +2 at 60.5
Penn +232 at 34.1
Langella -43 at 8.0
Streep +151 at 19.3
First, let's take a look at the previous awards: the Golden Globes, the Screen Actors' Guild (SAG) Awards, and the British Academy of Film and Television Arts (BAFTAs). I went through the winners of these awards since 1994, when the SAG Awards first started. The simplest case is when the 3 "minor league" awards are unanimous. In 6 out of 7 cases, the Best Actor/Actress winner from earlier shows went on to win the Oscar. The sole exception is Russell Crowe in 2001. He won all three early awards, then cursed out a BAFTA producer for cutting short his acceptance speech, attacked a hotel clerk, and, if I recall correctly, punched an orphan in the face.
Okay, so what happens when the early awards disagree? Independently, the SAG award is a better predictor of the Oscar winner. The GG winner goes on to win the Oscar 44% of the time, SAG 78%, and BAFTA 41%. Throw out the unanimous cases, and those numbers change to 30%, 75%, and 25%. What about when 1 actor/actress wins the GG and BAFTA, and another wins the SAG? In 4 of 4 cases, the SAG winner has won the Oscar.
That's exactly the case this year, when Mickey Rourke has won the GG and BAFTA, and Sean Penn has won the SAG. So why on earth is Sean Penn trading at 33 and Rourke at 60? And who thinks Frank Langella has a 7% chance of coming out of nowhere to win? Not to say Sean Penn is a lock here, but he should be trading above 50 at least.
The Best Actress category is a bit more complicated. Kate Winslet had two Oscar-contending roles this year, in The Reader and Revolutionary Road. Winslet won Best Actress for Revolutionary Road at the Golden Globes and BAFTAs, and Best Supporting Actress for The Reader at the Golden Globes and SAG. Meanwhile, Streep won Best Actress at SAG for Doubt. To make things even more confusing, Streep was nominated for Best Actress at the Oscars, while Winslet was nominated only for Best Actress for her role in The Reader. This makes historical precedent less useful.
I think Winslet is better than 50% to win. Winslet's role in The Reader was relatively small, though the Oscar voters will probably also consider her work in Revolutionary Road and in earlier years. Nevertheless, I took a flyer on Streep, averaging in at 19.3. Streep did beat Winslet in the most important head-to-head competition, Best Actress at the SAG Awards. I think fair value for Streep would be more in the mid-30s.
And Best Supporting Actress? The early awards are not nearly as predictive for the Supporting Oscars. Winslet's wins at GG and SAG muddy the picture even more. I'll pick Penelope Cruz in the office pool, but I don't see any good value on Intrade.
Positions:
Rourke +2 at 60.5
Penn +232 at 34.1
Langella -43 at 8.0
Streep +151 at 19.3
The only thing worse than being talked about
Someone sent me this link the other day:
http://www.midasoracle.org/2009/02/13/wiser-than-the-crowd/
You know, if everyone in the world thought that about me, I'd be pretty happy.
I'm going to stay anonymous for the time being, but I will say I'm a PhD neuroscientist with an interest in sophisticated gambling. I do Intrade and run this blog as a hobby, along with trading in the stock market. Both of those have been much more lucrative than research.
If you have questions, comments, or consulting work for me, you can contact me at wiserthanthecrowd@gmail.com.
http://www.midasoracle.org/2009/02/13/wiser-than-the-crowd/
Besides Midas Oracle, the only good prediction market blog left is:
- Wiser Than The Crowd by Jesse Livermore (pseudo of an InTrade trader)
I would love to know the true identity of this guy. Seems smart, although a little bit overly braggart.
You know, if everyone in the world thought that about me, I'd be pretty happy.
I'm going to stay anonymous for the time being, but I will say I'm a PhD neuroscientist with an interest in sophisticated gambling. I do Intrade and run this blog as a hobby, along with trading in the stock market. Both of those have been much more lucrative than research.
If you have questions, comments, or consulting work for me, you can contact me at wiserthanthecrowd@gmail.com.
Want to gamble? Try the stock market. Want to invest? Try Intrade.
A couple weeks ago, I mentioned that Intrade seems to have very little speculation. That is, if we define "speculation" as making trades with the intention of exiting before expiration -- in other words, predicting what other traders will think, as opposed to predicting how real-world events will unfold. The stock market equivalent would be technical analysis or its more sophisticated cousins.
Why is this the case? I think there are several factors.
-Compared to the stock market, Intrade is small and illiquid. It's generally difficult to bet more than $500 without moving the market. Bid/ask spreads are large, usually 2% or more even in the most popular markets, and then trading fees add another half percent. All this adds up to make it quite difficult to move in and out of positions quickly. This will change as Intrade grows.
-There is no leverage on Intrade, and hence no margin calls or short squeezes. On Wall Street, you can borrow money to buy a double-sized position in your favorite stock. If that stock goes down, your brokerage will give you a margin call, forcing you to sell at whatever the going price is, so that you don't risk losing their money as well as your own. When the whole market is levered up, one round of margin calls can force the price down, triggering further margin calls in a viscious cycle. This moves the market prices in a way that is disconnected from any underlying fundamentals.
-Short time horizons. Stocks will go on trading for 10s or 100s of years, until a company is bought for cash or dissolved. They do pay dividends, but even buy-and-hold investors must consider what other traders will be willing to pay for their shares at the end of the ride. Compare this to Intrade, in which most trading occurs within a few months of a contract's expiration, and even the longest contracts expire in 2012. This presents Intraders with far fewer opportunities for manipulation.
-Fewer moving parts. How do you come up with a fundamental value for Citibank? The bank has hundreds or thousands of complicated contracts, positions, off-balance sheet entities, etc., very few of which are explained in any detail in its public filings. It's impossible for an outsider. In practice the share price reflects a combination of Citibank's public filings, plus the market's estimate of how much that accounting is fudged, plus the traders' "animal spirits." How do you count how many GOP Senators will vote for the stimulus bill? You look at their public statements, consider what is in the Senators' and party's interests, see who they're meeting with, see what the Democrats are saying. It's a little complicated, but most of the information is publicly available and easily digestible.
-This also means Intraders don't have to worry much about insider trading. Though Intrade explicitly allows insider trading, I doubt if there are many Congressional staffers making trades on their Blackberries during conference sessions.
-Finally, Intraders' incentives are direct. Nearly everyone trades their own book. (I know of one "Intrade hedge fund" that operated during the 2008 election, but that's surely the exception rather than the rule.) Thus everyone has the incentive to maximize expected value. Compare this to a Wall Street hedge fund which is paid 20% of profits. That hedge fund has a HUGE incentive to gamboool. Say you're managing $100 million. If you go to Vegas and bet all of that on red, half the time you'll win $100 million (of which you take home 20%), and half the time you lose it all (at no loss to yourself). Your expected value is $10 million. Why wouldn't the fund manager do the stock-market version of betting on red? When managers across the market pursue this same strategy, we would see an increased price for risky assets, which was exactly what happened in the years before the credit crisis.
Why is this the case? I think there are several factors.
-Compared to the stock market, Intrade is small and illiquid. It's generally difficult to bet more than $500 without moving the market. Bid/ask spreads are large, usually 2% or more even in the most popular markets, and then trading fees add another half percent. All this adds up to make it quite difficult to move in and out of positions quickly. This will change as Intrade grows.
-There is no leverage on Intrade, and hence no margin calls or short squeezes. On Wall Street, you can borrow money to buy a double-sized position in your favorite stock. If that stock goes down, your brokerage will give you a margin call, forcing you to sell at whatever the going price is, so that you don't risk losing their money as well as your own. When the whole market is levered up, one round of margin calls can force the price down, triggering further margin calls in a viscious cycle. This moves the market prices in a way that is disconnected from any underlying fundamentals.
-Short time horizons. Stocks will go on trading for 10s or 100s of years, until a company is bought for cash or dissolved. They do pay dividends, but even buy-and-hold investors must consider what other traders will be willing to pay for their shares at the end of the ride. Compare this to Intrade, in which most trading occurs within a few months of a contract's expiration, and even the longest contracts expire in 2012. This presents Intraders with far fewer opportunities for manipulation.
-Fewer moving parts. How do you come up with a fundamental value for Citibank? The bank has hundreds or thousands of complicated contracts, positions, off-balance sheet entities, etc., very few of which are explained in any detail in its public filings. It's impossible for an outsider. In practice the share price reflects a combination of Citibank's public filings, plus the market's estimate of how much that accounting is fudged, plus the traders' "animal spirits." How do you count how many GOP Senators will vote for the stimulus bill? You look at their public statements, consider what is in the Senators' and party's interests, see who they're meeting with, see what the Democrats are saying. It's a little complicated, but most of the information is publicly available and easily digestible.
-This also means Intraders don't have to worry much about insider trading. Though Intrade explicitly allows insider trading, I doubt if there are many Congressional staffers making trades on their Blackberries during conference sessions.
-Finally, Intraders' incentives are direct. Nearly everyone trades their own book. (I know of one "Intrade hedge fund" that operated during the 2008 election, but that's surely the exception rather than the rule.) Thus everyone has the incentive to maximize expected value. Compare this to a Wall Street hedge fund which is paid 20% of profits. That hedge fund has a HUGE incentive to gamboool. Say you're managing $100 million. If you go to Vegas and bet all of that on red, half the time you'll win $100 million (of which you take home 20%), and half the time you lose it all (at no loss to yourself). Your expected value is $10 million. Why wouldn't the fund manager do the stock-market version of betting on red? When managers across the market pursue this same strategy, we would see an increased price for risky assets, which was exactly what happened in the years before the credit crisis.
Inefficient Market Hypothesis
There are plenty of mis-priced contracts on Intrade. But it's not often that you see an easy and mathematically obvious arbitrage situation. This was available a couple days ago. The Obama>Bush contract is in practice the same as Obama>57%. You could get guaranteed profits by buying the >55% at 75 and selling the >Bush at 81.9. If Obama ends the month between 55 and 57, you win both bets. If he's outside that range, you lose one and win the other, for a net gain of 3% of your stake.
I think Obama is a near-lock to end the month above 60%, so I just took the unhedged long position on >55%.
My Reputation Precedes Me?
I've been carrying over 1000 contracts of the controversial "-10%GDP.CUM.09*SEE*RULES*" issues. I averaged in beginning when the rules were "clarified," ending up at an average basis cost of 42.5. Since then, I've been selling in dribs and drabs. This has mainly been to free up margin for other opportunities.
Let me take a little detour to discuss the fair value of this contract. I think we're heading towards a deep and lasting recession, much more severe than the average economist is predicting. However, this will be ameliorated by the stimulus package and other bailout measures, and the government will fudge the figures to some extent. (Take a look at shadowstats.com for a comprehensive view of the way the government cooks its own books.) Back of the envelope, I see Q4 2008 revised downward 1%, along with about -3.5% in Q2 and Q3, which would bring us to -10% with room to spare, and a 4th quarter if necessary. Though as we saw when the advance Q4 results were released, no one has a real great handle on what the numbers will be and this uncertainty is why the contract is not a total lock.
Leaving aside the time value of money, I think the fair value of this contract is above 85. However, we will probably have to wait until the finalized numbers come out for Q3, which is almost 9 months from now. I'm happy to leave money on the table if I can get it out right now. Which is why I've been selling.
Well, someone named "fod" posted a buy order for 1000 contracts at 63 and advertised this on the Intrade forums. That was a great opportunity for me to get out all at once, but it was below what I'd been getting in my drips and drabs. So I put up an offer to sell 1000 at 67 (a $450 difference including fees). And the orders sat there opposing each other for a while. I PM'd fod to let him know about the offer, and 10 minutes later his bid was gone.
So what's the deal? I think it concentrates the mind to know that someone is willing to match your $6k bet in its entirety. I've been successful, and publicly so, which probably accentuated this effect.
In any case, I'm ambivalent about this trade. When I see free money, like on the Kennedy nomination, Blagojevich's resignation, Burris' confirmation, or the GOP votes on the stimulus package, I tend to focus on getting a large volume down quickly, without focusing too hard on a couple points of price. Here I'm actually giving up value, and I'm not in a hurry, so price is more important. I'll keep my shares out there for a little while longer and see if fod changes his mind.
Let me take a little detour to discuss the fair value of this contract. I think we're heading towards a deep and lasting recession, much more severe than the average economist is predicting. However, this will be ameliorated by the stimulus package and other bailout measures, and the government will fudge the figures to some extent. (Take a look at shadowstats.com for a comprehensive view of the way the government cooks its own books.) Back of the envelope, I see Q4 2008 revised downward 1%, along with about -3.5% in Q2 and Q3, which would bring us to -10% with room to spare, and a 4th quarter if necessary. Though as we saw when the advance Q4 results were released, no one has a real great handle on what the numbers will be and this uncertainty is why the contract is not a total lock.
Leaving aside the time value of money, I think the fair value of this contract is above 85. However, we will probably have to wait until the finalized numbers come out for Q3, which is almost 9 months from now. I'm happy to leave money on the table if I can get it out right now. Which is why I've been selling.
Well, someone named "fod" posted a buy order for 1000 contracts at 63 and advertised this on the Intrade forums. That was a great opportunity for me to get out all at once, but it was below what I'd been getting in my drips and drabs. So I put up an offer to sell 1000 at 67 (a $450 difference including fees). And the orders sat there opposing each other for a while. I PM'd fod to let him know about the offer, and 10 minutes later his bid was gone.
So what's the deal? I think it concentrates the mind to know that someone is willing to match your $6k bet in its entirety. I've been successful, and publicly so, which probably accentuated this effect.
In any case, I'm ambivalent about this trade. When I see free money, like on the Kennedy nomination, Blagojevich's resignation, Burris' confirmation, or the GOP votes on the stimulus package, I tend to focus on getting a large volume down quickly, without focusing too hard on a couple points of price. Here I'm actually giving up value, and I'm not in a hurry, so price is more important. I'll keep my shares out there for a little while longer and see if fod changes his mind.
Oscar Picks part 1
I don't have nearly as much experience with these entertainment picks as I do with politics. Here's my methodology:
1. Don't watch any of the movies. Seriously. The only Oscar contender I've seen is Dark Knight. Why? I know my tastes are very different from the Academy's tastes. Going over the list of Best Picture winners from the last several years, I only really liked about half of them, and actively disliked several.
2. Read goldderby.latimes.com a lot.
3. Most important: Look at how films and actors have done in previous awards shows. The Golden Globes, the SAG, DGA, WGA, PGA, and BAFTA have all been announced. The voters for these awards are many of the same people who are voting on the Oscars.
I did a statistical analysis of how well these awards predict the Oscar winners. I'll present this in more detail in a post about the Best Actor and Best Actress categories, but the short version is: pretty damn well. In particular, if a movie sweeps the early awards shows (as Slumdog Millionaire has) it is almost guaranteed to win Best Picture and Best Director at the Oscars. Same goes for Best Supporting Actor/Actress: anyone who has won GG, SAG, and BAFTA awards has also won the Oscar.
Hence, I'm pretty confident in my positions below:
Best Picture:
Slumdog Millionaire +236 at 84.4
Benjamin Button -40 at 9
Milk -20 at 8.5
Best Director:
Boyle (Slumdog Millionaire) +376 at 84
Best Supporting Actor:
Ledger +221 at 92.9
If I had more experience with these I would do a 100% plunge as I like to do with politics. For the moment, I'm going to be prudent and only bet $7000 on movies I haven't seen.
Still building positions in the Best Actor and Best Actress categories--more on these later.
1. Don't watch any of the movies. Seriously. The only Oscar contender I've seen is Dark Knight. Why? I know my tastes are very different from the Academy's tastes. Going over the list of Best Picture winners from the last several years, I only really liked about half of them, and actively disliked several.
2. Read goldderby.latimes.com a lot.
3. Most important: Look at how films and actors have done in previous awards shows. The Golden Globes, the SAG, DGA, WGA, PGA, and BAFTA have all been announced. The voters for these awards are many of the same people who are voting on the Oscars.
I did a statistical analysis of how well these awards predict the Oscar winners. I'll present this in more detail in a post about the Best Actor and Best Actress categories, but the short version is: pretty damn well. In particular, if a movie sweeps the early awards shows (as Slumdog Millionaire has) it is almost guaranteed to win Best Picture and Best Director at the Oscars. Same goes for Best Supporting Actor/Actress: anyone who has won GG, SAG, and BAFTA awards has also won the Oscar.
Hence, I'm pretty confident in my positions below:
Best Picture:
Slumdog Millionaire +236 at 84.4
Benjamin Button -40 at 9
Milk -20 at 8.5
Best Director:
Boyle (Slumdog Millionaire) +376 at 84
Best Supporting Actor:
Ledger +221 at 92.9
If I had more experience with these I would do a 100% plunge as I like to do with politics. For the moment, I'm going to be prudent and only bet $7000 on movies I haven't seen.
Still building positions in the Best Actor and Best Actress categories--more on these later.
Israeli Politics
There are Intrade contracts on the next Israeli prime minister. Benjamin Netanyahu was the 80% favorite before the election; after the election he's still at about 80%. Tzipi Livni, head of the ruling Kadima party, is the other contender.
The short version: Israel's government is a parliament, in which multiple parties compete for seats. If one party wins a majority of the seats, it elects a prime minister. If no one party wins more than 50% of the seats, the party with the largest number of seats makes deals with smaller parties to form a coalition government. At least, that's what usually happens. This time, the Kadima party won 38 seats, vs. Netanyahu's Likud party winning 37. However, there do not seem to be enough small parties which are ideologically aligned with Kadima for Kadima to form a coalition. Meanwhile Likud will probably be able to form a coalition with several small right-wing parties.
Livni will get the first chance to form a government. Her only real chance is to bribe the far-right Avigdor Lieberman for the votes of his party. She might offer him the chance to become Finance Minister. It's unlikely to work; Netanyahu is much more closely aligned to Lieberman ideologically, and could simply match the appointment.
I haven't bought anything yet, but I have orders out for Netanyahu around 80.
The short version: Israel's government is a parliament, in which multiple parties compete for seats. If one party wins a majority of the seats, it elects a prime minister. If no one party wins more than 50% of the seats, the party with the largest number of seats makes deals with smaller parties to form a coalition government. At least, that's what usually happens. This time, the Kadima party won 38 seats, vs. Netanyahu's Likud party winning 37. However, there do not seem to be enough small parties which are ideologically aligned with Kadima for Kadima to form a coalition. Meanwhile Likud will probably be able to form a coalition with several small right-wing parties.
Livni will get the first chance to form a government. Her only real chance is to bribe the far-right Avigdor Lieberman for the votes of his party. She might offer him the chance to become Finance Minister. It's unlikely to work; Netanyahu is much more closely aligned to Lieberman ideologically, and could simply match the appointment.
I haven't bought anything yet, but I have orders out for Netanyahu around 80.
Ship it!
3 Republican votes!
As they say, it's best not to see how laws and sausages are made. There's a good deal more sausage-stuffing left to come in the conference committee between the House and Senate. The Democrats want more spending and less tax cuts, while the 3 Republican crossovers claim they'll only vote for a bill substantially similar to what was negotiated in the Senate.
I think the Democrats certainly could re-arrange the bill if they wanted. The Senate delegation to the conference committee is Inouye, Baucus, Reid, Cochran, and Grassley. No conservative Dems. It would be relatively easy to add back $25-50 billion for education and dare Collins, Specter, and Snowe to change their votes.
That said, it's in the Democrats' interests to keep those three fed and comfortable. As we just saw, they're the most powerful individuals in the Senate right now. If the Dems want to pass health care reform or Card Check, they'll need help from those 3 moderates.
As they say, it's best not to see how laws and sausages are made. There's a good deal more sausage-stuffing left to come in the conference committee between the House and Senate. The Democrats want more spending and less tax cuts, while the 3 Republican crossovers claim they'll only vote for a bill substantially similar to what was negotiated in the Senate.
I think the Democrats certainly could re-arrange the bill if they wanted. The Senate delegation to the conference committee is Inouye, Baucus, Reid, Cochran, and Grassley. No conservative Dems. It would be relatively easy to add back $25-50 billion for education and dare Collins, Specter, and Snowe to change their votes.
That said, it's in the Democrats' interests to keep those three fed and comfortable. As we just saw, they're the most powerful individuals in the Senate right now. If the Dems want to pass health care reform or Card Check, they'll need help from those 3 moderates.
Coming up next!
This blog has been "All Stimulus, All the Time" for the past week. Once I get some free margin, I'll write some more about my Oscar picks and Obama's approval rating.
Plus: Free Money update. I have 53 contracts of HIGGS.BOSON.DEC09 for sale at 5.1. These will absolutely expire at 0. The only instrument in the world which might possibly detect the Higgs boson is the Large Hardron Collider (LHC). Due to engineering problems, this machine will not be operational until July 2009 at the earliest. Once it is operational, it is expected to generate Higgs bosons at the rate of 1 per 3 hours. At this rate, it will take up to three years to collect enough data to conclusively prove the existence of the particle (See page 44 of the LHC FAQ). Even after data collection is finished, there will be a 1-2 month delay before the results are published in a major scientific journal.
I'm selling my position because I know I can do better than 5.3% return over 11 months. But if you're looking for something more conservative, this is a sure thing.
Plus: Free Money update. I have 53 contracts of HIGGS.BOSON.DEC09 for sale at 5.1. These will absolutely expire at 0. The only instrument in the world which might possibly detect the Higgs boson is the Large Hardron Collider (LHC). Due to engineering problems, this machine will not be operational until July 2009 at the earliest. Once it is operational, it is expected to generate Higgs bosons at the rate of 1 per 3 hours. At this rate, it will take up to three years to collect enough data to conclusively prove the existence of the particle (See page 44 of the LHC FAQ). Even after data collection is finished, there will be a 1-2 month delay before the results are published in a major scientific journal.
I'm selling my position because I know I can do better than 5.3% return over 11 months. But if you're looking for something more conservative, this is a sure thing.
And we have cloture
Exactly 61 votes for cloture. Republicans are Snowe, Collins, and Specter, as predicted. I see absolutely no reason anyone would vote differently for the actual bill vs. the cloture motion. I freed up a little more margin and shorted more contracts in the 20+ range. I'm currently short 2676 contracts at various vote counts, risking $21k to win $5.4k.
I really don't understand why this isn't trading in the single digits. Somebody sold me all those contracts, and is still buying at 15 right now. Want to explain your reasoning in the Comments section?
I really don't understand why this isn't trading in the single digits. Somebody sold me all those contracts, and is still buying at 15 right now. Want to explain your reasoning in the Comments section?
Vote will be on Tuesday
Daily Kos has a rundown of what will happen procedurally. This isn't a 100% done deal -- surprises can always happen -- but it's 99% of the way there. Collins and Specter have publicly committed to voting for the package. There's plenty of pressure from the GOP leadership, so moderates like Voinovich, Martinez, etc. will not change their minds on a whim.
Both parties will be fighting the spin war pretty hard on this over the weekend, but barring something totally unforeseen, there's no question whether this will pass or who will vote for it.
Both parties will be fighting the spin war pretty hard on this over the weekend, but barring something totally unforeseen, there's no question whether this will pass or who will vote for it.
And the slightly less daring intraders are pouring in
5VOTE and 10VOTE have fallen to 10 and 5 respectively.
The news is that Ted Kennedy is leaving the hospital to vote. That means they'll be passing it with 60 votes exactly. Both of these are very nearly free money.
The news is that Ted Kennedy is leaving the hospital to vote. That means they'll be passing it with 60 votes exactly. Both of these are very nearly free money.
Let's Make a Deal
Senate Moderates Reach Tentative Stimulus Deal
Looks like the Dems are meeting right now and Reid is making sure all his troops are lined up. I shorted more 5VOTE and 10VOTE contracts.
Meanwhile, #2 Republican leader and prostitute aficionado David Vitter says he'll force a cloture vote, which means the actual vote on the bill may not occur until Sunday.
Looks like the Dems are meeting right now and Reid is making sure all his troops are lined up. I shorted more 5VOTE and 10VOTE contracts.
Meanwhile, #2 Republican leader and prostitute aficionado David Vitter says he'll force a cloture vote, which means the actual vote on the bill may not occur until Sunday.
60 on the nose?
I'll flesh out my thinking a little more on this. The Washington Times gives a good overview of what's happening right now.
Last night, it appeared there were about 5 Republicans who might be convinced to vote for this bill: Collins, Snowe, Voinovich, Specter, and Martinez. These guys were meeting with Ben Nelson and a bunch of other centrist Dems in an effort to cut $100 billion or so from the bill. Just about everybody else had strongly signaled their distaste for the bill or their loyalty to party leadership.
Fundamentally, the Republicans have no incentive to get behind the stimulus. If the stimulus works, the Dems will get credit for it. If it doesn't, the Republicans can take credit for opposing it. Plus, by making the Dems push this through on a near-party-line vote, the Republicans can take some of the shine off of Obama's New Politics.
The one thing I am worried about is if this version of the bill totally fails. If the cloture motion doesn't get 60 votes, it's not clear what will happen. For one thing, it's not certain that the Republicans would actually filibuster. McConnell might like the idea of the stimulus being passed with zero Republican votes. If they do filibuster, we'll be in for a very interesting showdown. Both sides will be scrambling to look like they are doing what's best for America. My intuition is that the Dems would eventually win the perception battle. Filibusters are fundamentally non-democratic and obstructionist, and a very good case can be made for immediate action. More importantly, Obama is far more popular than either party in Congress, and an extended debate will give him a chance to get on TV and push the bill. Up until the last 2 days, he really hasn't put much pressure on.
If the initial cloture motion fails, I think we see midnight negotiations aimed at peeling off a couple Republican votes. The worst case for my intrade portfolio would be if there were a radical overhaul of the bill. If they trim it down to $500 billion, half tax cuts, it might attract a dozen Republicans. But that couldn't possibly happen, right?
Last night, it appeared there were about 5 Republicans who might be convinced to vote for this bill: Collins, Snowe, Voinovich, Specter, and Martinez. These guys were meeting with Ben Nelson and a bunch of other centrist Dems in an effort to cut $100 billion or so from the bill. Just about everybody else had strongly signaled their distaste for the bill or their loyalty to party leadership.
Fundamentally, the Republicans have no incentive to get behind the stimulus. If the stimulus works, the Dems will get credit for it. If it doesn't, the Republicans can take credit for opposing it. Plus, by making the Dems push this through on a near-party-line vote, the Republicans can take some of the shine off of Obama's New Politics.
The one thing I am worried about is if this version of the bill totally fails. If the cloture motion doesn't get 60 votes, it's not clear what will happen. For one thing, it's not certain that the Republicans would actually filibuster. McConnell might like the idea of the stimulus being passed with zero Republican votes. If they do filibuster, we'll be in for a very interesting showdown. Both sides will be scrambling to look like they are doing what's best for America. My intuition is that the Dems would eventually win the perception battle. Filibusters are fundamentally non-democratic and obstructionist, and a very good case can be made for immediate action. More importantly, Obama is far more popular than either party in Congress, and an extended debate will give him a chance to get on TV and push the bill. Up until the last 2 days, he really hasn't put much pressure on.
If the initial cloture motion fails, I think we see midnight negotiations aimed at peeling off a couple Republican votes. The worst case for my intrade portfolio would be if there were a radical overhaul of the bill. If they trim it down to $500 billion, half tax cuts, it might attract a dozen Republicans. But that couldn't possibly happen, right?
That worked pretty well
I put all of my available margin into shorting these contracts. I definitely shorted at a lower level than the market price before I made the post, but I still think there's very very little chance that 10 Republicans vote for this.
Screenshot: http://i43.tinypic.com/fx8ajd.jpg
Screenshot: http://i43.tinypic.com/fx8ajd.jpg
Want to trade big $$$?
Okay, I'm going to do a little experiment. Previously I've generally kept my opinions to myself until after I've built the positions I wanted. This time I'll just announce my position and hopefully drum up a little more volume.
I think the stimulus package will be passed with minimal GOP support. Thus, I am short most of the STIMULUS.GOP.SENVOTES contracts. I'd like much more volume than is currently available, so take a look at it and see if you disagree. Contact me if you want to negotiate a large-volume transaction--either put in a comment here or send a PM on the Intrade message boards to JohnRemington.
I think the stimulus package will be passed with minimal GOP support. Thus, I am short most of the STIMULUS.GOP.SENVOTES contracts. I'd like much more volume than is currently available, so take a look at it and see if you disagree. Contact me if you want to negotiate a large-volume transaction--either put in a comment here or send a PM on the Intrade message boards to JohnRemington.
A Conservative Strategy
I don't run my account conservatively, but there is certainly an opportunity out there for someone to invest 5-6 figures and get a 3-4%/month return with very little risk.
There are a number of Intrade contracts where the winner is known with greater than 99% certainty. Yet because the result hasn't "officially" happened, the contract hasn't been expired. The 08.VOTER.TURNOUT contracts are an example. The turnout will be somewhere between 55 and 60, but Intrade will wait for the official Federal Election Commission report for expiration.
As a result, people with winning contracts have money tied up here. If they want to get out early, they have to accept less than a full payout. The offer on the >60% contract, which will expire at 0, is 4.8. The ask is 2.8.
The cost to get money out of these long-term contracts goes up when there are immediate opportunities in other contracts. During the Caroline Kennedy kerfuffle, that contract went up to 9.8! People (such as myself) wanted their money immediately, and they wanted it badly enough to give away a decent chunk. If you'd sold at 9.5, you'd get better than 10% return over 3-4 months, which for risk/reward beats the hell out of anything on Wall Street.
There are other, similar contracts out there. It's a great opportunity for someone to make money by providing liquidity to more aggressive traders. The key is that the offers have to be available at all times -- you don't know when the next Daschle/Kennedy/etc. will come up, and when people want out, they want out within a 15 minute window. So if you've got a couple thousand you could tie up for a couple months, why not put up offers to buy a dollar for 95 cents?
There are a number of Intrade contracts where the winner is known with greater than 99% certainty. Yet because the result hasn't "officially" happened, the contract hasn't been expired. The 08.VOTER.TURNOUT contracts are an example. The turnout will be somewhere between 55 and 60, but Intrade will wait for the official Federal Election Commission report for expiration.
As a result, people with winning contracts have money tied up here. If they want to get out early, they have to accept less than a full payout. The offer on the >60% contract, which will expire at 0, is 4.8. The ask is 2.8.
The cost to get money out of these long-term contracts goes up when there are immediate opportunities in other contracts. During the Caroline Kennedy kerfuffle, that contract went up to 9.8! People (such as myself) wanted their money immediately, and they wanted it badly enough to give away a decent chunk. If you'd sold at 9.5, you'd get better than 10% return over 3-4 months, which for risk/reward beats the hell out of anything on Wall Street.
There are other, similar contracts out there. It's a great opportunity for someone to make money by providing liquidity to more aggressive traders. The key is that the offers have to be available at all times -- you don't know when the next Daschle/Kennedy/etc. will come up, and when people want out, they want out within a 15 minute window. So if you've got a couple thousand you could tie up for a couple months, why not put up offers to buy a dollar for 95 cents?
And he's gone!
The rule of 3 takes Daschle out.
I should have seen this coming. I've been watching news all day waiting for Democratic reaction to the Killefer issue. Nothing came. I should have taken that as evidence there wouldn't be any support.
I'm kicking myself over not buying a block of 100 at 39.8.
I should have seen this coming. I've been watching news all day waiting for Democratic reaction to the Killefer issue. Nothing came. I should have taken that as evidence there wouldn't be any support.
I'm kicking myself over not buying a block of 100 at 39.8.
Daschle got Killefer'd
Two hours ago, I would have said Tom Daschle would barely get confirmed, on a party-line vote, if nothing else happened. Something else just happened.
Nancy Killefer just withdrew her nomination for Chief Performance Officer because she neglected to pay unemployment taxes for one of her nannies. This is the 3rd Obama nominee to have tax problems, thus officially making it a Trend. This will be the lead story tonight, and it will be the first thing Gibbs and Obama get asked about.
Does it take Daschle out? I'm not sure. I think both sides of the aisle still want Daschle to get confirmed. On the Democratic side, Daschle has close ties to Obama. He was one of the first major figures to endorse Obama, and many of Daschle's former staff now work for Obama. He's a former Senator, so he has personal relationships with most of the Senate and will get the benefit of the doubt. The Democrats don't want to be embarrassed by having to withdraw this major nominee who was going to head up health care reform.
The Republicans probably want him confirmed as well. Of course, they want to make as big a production out of this as they can, in order to embarrass Obama and shorten his honeymoon, and in order to make Daschle less effective once he's in. But keep this in mind: Daschle is no radical. He's a centrist. Not only that, he's a centrist who has just made $5 million lobbying for the health care industry. If he's confirmed, is he going to turn around and bite the hand that feeds him by pushing for a single-payer program? Of course not. He'll work for moderate reform, not a comprehensive overhaul that destroys the health-insurance industry.
So the Republicans are faced with a choice of moderate, bought-off, ineffective Daschle, or an unknown. It's pretty clear that they'll raise a stink in front of the cameras, but will not filibuster or work too hard to block Daschle.
That said, this is a fluid situation. Obama may decide Daschle is too compromised to effectively pursue health care reform. The GOP may decide they want Daschle's head as a trophy. Fair value will fluctuate a lot based on how everyone responds to the Killefer news.
Nancy Killefer just withdrew her nomination for Chief Performance Officer because she neglected to pay unemployment taxes for one of her nannies. This is the 3rd Obama nominee to have tax problems, thus officially making it a Trend. This will be the lead story tonight, and it will be the first thing Gibbs and Obama get asked about.
Does it take Daschle out? I'm not sure. I think both sides of the aisle still want Daschle to get confirmed. On the Democratic side, Daschle has close ties to Obama. He was one of the first major figures to endorse Obama, and many of Daschle's former staff now work for Obama. He's a former Senator, so he has personal relationships with most of the Senate and will get the benefit of the doubt. The Democrats don't want to be embarrassed by having to withdraw this major nominee who was going to head up health care reform.
The Republicans probably want him confirmed as well. Of course, they want to make as big a production out of this as they can, in order to embarrass Obama and shorten his honeymoon, and in order to make Daschle less effective once he's in. But keep this in mind: Daschle is no radical. He's a centrist. Not only that, he's a centrist who has just made $5 million lobbying for the health care industry. If he's confirmed, is he going to turn around and bite the hand that feeds him by pushing for a single-payer program? Of course not. He'll work for moderate reform, not a comprehensive overhaul that destroys the health-insurance industry.
So the Republicans are faced with a choice of moderate, bought-off, ineffective Daschle, or an unknown. It's pretty clear that they'll raise a stink in front of the cameras, but will not filibuster or work too hard to block Daschle.
That said, this is a fluid situation. Obama may decide Daschle is too compromised to effectively pursue health care reform. The GOP may decide they want Daschle's head as a trophy. Fair value will fluctuate a lot based on how everyone responds to the Killefer news.
Speculation and the Greater Fool
Reading Reminiscences of a Stock Operator has me thinking about speculation. Most of the moves that Livermore made were based on understanding the structure of the market and the positions of the players. For example, he made his first fortune in 1907 by understanding that there was very little available cash waiting on the sidelines. Most players held highly leveraged long positions, which they would be forced to liquidate if prices went down. Livermore identified psychologically important stocks and sold them short, triggering a widespread panic.
This had little if anything to do with the fundamentals of the companies he sold. The stocks may have been overvalued, but the crash did not occur because the business climate changed; it occurred because of the financial situation.
A related concept is the Greater Fool theory of investment: you overpay for a stock because you think someone else will overpay even more later. This type of thinking prevailed during the Dot Com boom. When it became clear that the market was running out of Greater Fools, everything collapsed.
Intrade has very little of this. For my part, I almost never take a position expecting to make money because the market to becomes irrational. I've only tried it twice, once successfully, once unsuccessfully.
Most recently, I took a speculative short position on Eric Holder's confirmation as attorney general. I averaged in for a couple hundred contracts at 95. When new administrations come in, the opposition party generally tries to knock off one or more of their cabinet nominees. At the time, the Republicans made it clear they were going after Holder. The big knock on him at the time was his involvement in the Marc Rich pardons. I saw other allegations that weren't getting much play that he might have been involved in the Chicago political machine. Given Obama's popularity and the Dems' majority, he would be confirmed regardless. But I thought there would be a great deal of consternation, and the intrade value would drop to the 80s or lower.
Obviously that didn't work. The Republicans got distracted by Geithner instead, and Holder got a free pass. I closed out my position with about a 60% loss.
I speculated more successfully last year during the VP selection process. Keep in mind the mood at the time. Everybody was looking for hints or inside revelations about who would be picked. Four years ago, someone had discovered that a private jet was being painted with "Kerry/Edwards" and made a bundle.
A day or two before Obama announced his running mate, Drudge had a headline item about it. He posted a picture of a bumper sticker reading "Obama/Bayh" at the top of his page. (I think it was Bayh, it might have been Edwards). My first instinct was that this was the equivalent of a private plane. Bayh's price hadn't moved much in the few minutes since this was posted, and I bought several hundred Bayh contracts in the 20s. After the initial adrenaline rush wore off, I thought about it a little more critically. The bumper sticker didn't have Obama's campaign logo and wasn't printed with his characteristic graphic design. I realized that 3rd-party vendors probably printed up thousands of bumper stickers with all the possible names, so they would be available for sale immediately after the announcement. Y'know, kinda like the Cardinals Super Bowl Champions hats and T-shirts that are being shipped off to Africa right now.
Okay, so this was obviously Drudge either being gullible or messing with people. Plenty of other Intraders had seen the item, and Bayh was trading in the 40s. I put mine out for sale, and closed out the position in the upper 30s. It seemed like every couple minutes, a new trader would discover the Drudge story, have an adrenaline rush, and buy whatever was available at market. I went short, and covered a couple hours later when the contract returned to its baseline in the 20s.
This had little if anything to do with the fundamentals of the companies he sold. The stocks may have been overvalued, but the crash did not occur because the business climate changed; it occurred because of the financial situation.
A related concept is the Greater Fool theory of investment: you overpay for a stock because you think someone else will overpay even more later. This type of thinking prevailed during the Dot Com boom. When it became clear that the market was running out of Greater Fools, everything collapsed.
Intrade has very little of this. For my part, I almost never take a position expecting to make money because the market to becomes irrational. I've only tried it twice, once successfully, once unsuccessfully.
Most recently, I took a speculative short position on Eric Holder's confirmation as attorney general. I averaged in for a couple hundred contracts at 95. When new administrations come in, the opposition party generally tries to knock off one or more of their cabinet nominees. At the time, the Republicans made it clear they were going after Holder. The big knock on him at the time was his involvement in the Marc Rich pardons. I saw other allegations that weren't getting much play that he might have been involved in the Chicago political machine. Given Obama's popularity and the Dems' majority, he would be confirmed regardless. But I thought there would be a great deal of consternation, and the intrade value would drop to the 80s or lower.
Obviously that didn't work. The Republicans got distracted by Geithner instead, and Holder got a free pass. I closed out my position with about a 60% loss.
I speculated more successfully last year during the VP selection process. Keep in mind the mood at the time. Everybody was looking for hints or inside revelations about who would be picked. Four years ago, someone had discovered that a private jet was being painted with "Kerry/Edwards" and made a bundle.
A day or two before Obama announced his running mate, Drudge had a headline item about it. He posted a picture of a bumper sticker reading "Obama/Bayh" at the top of his page. (I think it was Bayh, it might have been Edwards). My first instinct was that this was the equivalent of a private plane. Bayh's price hadn't moved much in the few minutes since this was posted, and I bought several hundred Bayh contracts in the 20s. After the initial adrenaline rush wore off, I thought about it a little more critically. The bumper sticker didn't have Obama's campaign logo and wasn't printed with his characteristic graphic design. I realized that 3rd-party vendors probably printed up thousands of bumper stickers with all the possible names, so they would be available for sale immediately after the announcement. Y'know, kinda like the Cardinals Super Bowl Champions hats and T-shirts that are being shipped off to Africa right now.
Okay, so this was obviously Drudge either being gullible or messing with people. Plenty of other Intraders had seen the item, and Bayh was trading in the 40s. I put mine out for sale, and closed out the position in the upper 30s. It seemed like every couple minutes, a new trader would discover the Drudge story, have an adrenaline rush, and buy whatever was available at market. I went short, and covered a couple hours later when the contract returned to its baseline in the 20s.
End-of-Month Results
Brag to date: The only big event for my portfolio since my last results update was the Caroline Kennedy/NY Senate fiasco, which netted me a couple thousand. Adding together Available and Frozen credits, I have $38282.43 on Intrade. This excludes "mark-to-market" gains and losses, which total roughly +$2500. Based on my starting point of $50 in September of 2007, this represents an 81,500% gain. I am happy.
Oscar Watch
Danny Boyle of Slumdog Millionaire won Best Director at the Director's Guild awards last night. His odds of winning the Best Director Oscar promptly rose 10 points to 83.5. I think this undervalues his chances. In the past 58 years, the DGA winner has gone on to win the Oscar 53 times, or more than 90%.
The two most recent movies to win DGA but not Oscar were Chicago and Crouching Tiger, Hidden Dragon, which lost to The Pianist and Traffic. The Oscars tend to have a middle-brow sensibility. That is, the big awards go to movies which are "serious" in a fairly narrow sense. They generally do not go to musical or martial art genres. Slumdog Millionaire does not have that problem.
Slumdog has also taken all the big awards so far, including Golden Globes, Screen Actors' Guild, and Producers' Guild. The only thing left is the Writers' Guild, which it is also likely to win.
While writing this, I picked up a block of +206 contracts for Slumdog to win Best Director at 84. I have a small position on Slumdog to win Best Picture, and short Milk to win Best Picture.
The two most recent movies to win DGA but not Oscar were Chicago and Crouching Tiger, Hidden Dragon, which lost to The Pianist and Traffic. The Oscars tend to have a middle-brow sensibility. That is, the big awards go to movies which are "serious" in a fairly narrow sense. They generally do not go to musical or martial art genres. Slumdog Millionaire does not have that problem.
Slumdog has also taken all the big awards so far, including Golden Globes, Screen Actors' Guild, and Producers' Guild. The only thing left is the Writers' Guild, which it is also likely to win.
While writing this, I picked up a block of +206 contracts for Slumdog to win Best Director at 84. I have a small position on Slumdog to win Best Picture, and short Milk to win Best Picture.