Cantor Fitzgerald abandoning box-office futures despite regulatory approval.
Liberal politicians (sucking up to the Hollywood lobby) have managed to destroy one promising financial innovation applied to the movie business.
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Monthly Archives: June 2010
The Interdependence of Prices and Gold
I gave a talk on Thursday night at the New York Investing Club meeting.
The basic points:
Gold does well when real rates of return are low. Real rates describe the price of gold much better than inflation alone. This is because real rates reflect the opportunity cost of holding a relatively useless asset. Part of the reason gold seems irrational is that this extrinsic pricing is unintuitive and largely unappreciated.
Gold does well when liquidity, measured for example by LIBOR, is not especially tight.
Sentiment can be predictive with gold.
The “-extrinsic”- way of thinking is natural in the fx world where all trades are two?sided, and the idealized one?sided currency , e.g. Dollar Index, is a weighted average of two?sided rates. Other examples: the Fed Model and Dividend Discount models explicitly tie together the pricing of equities and interest rates. The housing bubble was to some extent already a mispricing of money in the form of interest rates. What was the “right” price for housing given the price of money?
Do people who claim that assets exhibit “irrational” moves have a clear idea of what level of volatility would be “rational”, especially given such cross?influences? I do not endorse the Dividend Discount Model, but no-one can deny that it is a fundamental model, and it predicts higher volatility when rates are low. Given current levels, a 10% one day drop of the market is by no means absurd. The stock market should also have more idiosyncratic volatility when it is driven by “-top-down”- policy, rather than averaging many “-bottom-ups.”-
There is perhaps a “-long-termism”- fallacy. Even if prices change glacially, if you want to maintain a portfolio limited to 30 stocks out of a universe of 6000, it is easy to see how a sensible person might change the “-best ideas”- list with some frequency. The more prices change, the more frequent portfolio changes would be in order from a valuation standpoint. Again, asset prices are not hermetically sealed, one?sided meanings and values. There is always some discount factor or relative valuation at play.
The easiest way to achieve a shock “20 standard deviation” move is to just not mark (or mis?mark) for a while. Deferral of pricing is much more likely than active trading to originate an explosion large enough to affect the underlying economy. Deferral of pricing, not active trading, played a large role in the corporate credit crisis. Social Security and entitlement programs are also “off balance sheet” debt. At least banks failed to predict the future. Governments failed to predict the past. The basic demographic and longevity trend has been apparent since at least the 1960s.
Demographic trends suggest lower real returns than those seen in the 20th century. Do economists have a demographic blind spot?
Whats different about Predictalot?
A predictalot user asked:
What’-s the difference between predict a lot y Bolsa de predicciones? they have the same things or at least very similar. ?Are you the same? They have predictions, groups, events etc. the only difference is the language- BP is in spanish.
This is my answer.
The main difference is that on bolsadepredicciones (and other prediction markets like crowdcast, inklingmarkets, intrade, newsfutures, hubdub RIP, and WorldCupX.com —- a new site with a nice/fresh look and good social hooks) every prediction is independent (separate) and there are at most a few thousand.
In predictalot, all predictions are interrelated (predicting Spain to win automatically increases Spain’-s odds of reaching the knockout round) and there are millions and millions of predictions possible, far more than other sites.
We also think our interface is easier to use than others, but you be the judge.
Predictions are flowing in about every three minutes. Here are some from the last half hour:
Chile will finish second in their group. Current odds: 33.50%.
Spain will finish first in their group. Current odds: 52.48%.
Spain will play Portugal in the knockout stage. Current odds: 48.77%.
Roger joined the group ‘-inetco’-
Spain will advance further than Greece. Current odds: 76.93%.
Spain will not advance to the Knockout Stage. Current odds: 23.13%.
Spain will advance to the Knockout Stage. Current odds: 77.86%.
Both United States and Uruguay will advance to Quaterfinals. Current odds: 60.04%.
Finally, here are instructions for playing predictalot on your iPad:
- Click Safari
- Go to predictalot.yahoo.com
BetFair: Residents of Monaco are allow to use Betfair and all the accounts from Monaco are still opened.
BetFair stated to me that, “-Residents of Monaco are allow to use Betfair and all the accounts from Monaco are still opened.”- Monaco people using a French ISP might run into temporary problems, though.
So, it seems that the few Monaco people reporting problems to me are in the minority, and there is no BetFair policy blocking Monaco bettors. Good to hear.
Today marks the first time that Midas Oracle has aired a political ad.
Because it is a good one.
Midas Oracle endorses no-one. Just publishing newsworthy things —-left and right.
How to Make Money Playing Prediction Markets
CFTC Takes Jurisdiction Over Prediction Markets.
First, a hearty congratulations to Robert Swagger and Trend Exchange. Along with the Cantor Exchange folks, they have run quite a gauntlet, and although there remains a tremendous obstacle in the form of the Lincoln amendment, I consider these exchanges to have already accomplished a great deal.
In its approval of Trend Exchange and preceding statements, the CFTC has confirmed a very broad definition of “-commodity”- that includes “-event”- contracts. The old debate about whether or not the CFTC has jurisdiction over “-prediction markets”- has been decided for now. Yet, there is considerable dissent within the Commission. Commissioners Chilton and Sommers have expressed disapproval that the Commission did not first address the general questions raised in the 2008 Concept Release. To this point, given the very broad definition of “-commodity,”- it now seems that Intrade and online sports exchanges could be in violation of the Commodity Exchange Act. The Commission does not consider an “-economic purpose test”- in the contract review process, and there is no statutory basis for such a test being used in jurisdictional determinations. Perhaps as a matter of practice, in accordance with the spirit of the Act, the Commission is considering such a test for jurisdicitional questions as I suggested in my Concept Release comments (surprisingly cited by the MPAA group). Otherwise, it seems inconsistent that exchange-traded sports bets, for example, would not also be considered commodities and be subject to the Act.
As a whole, the Commission has apparently decided to defer such questions and focus on specific techniques for ensuring that the new contracts fulfill the Act from the standpoints of manipulation and fair trading. To these ends, the CFTC will require, “-entities and individuals who control a film’s marketing budget, release date or opening screen number to provide the Exchange with information regarding such decisions whenever that entity or individual holds a position of 1,000 or more contracts.”- Additionally, the Commission will require a “-firewall”- within studios and distributors, and has restricted certain employees from trading altogether. These are procedures that I had recommended for event contracts, but they are relatively novel mechanisms in the commodities world. Whether or not the CFTC would agree to support special trading restrictions was the pivotal question in whether the contracts would be approved. I applaud the principled, politically independent thinking of the Commission and the can-do attitude of the Market Oversight Division —- though some headline risk has been assumed here if something should eventually fall through the cracks.
Prof Michael Giberson still into prediction market manipulation
The value of prediction market journalism, which doesnt produce any scoop, is zero.
Felix Salmon (in a piece about the ROI of web publishing):
As real-money prediction markets become legal in the US, there’s surely going to be a lot of money in writing about them and driving rich readers to them.
Total bullshit.
Carlos Graterol [*] and Ben Shannon both tried to popularize their prediction market blog (featuring InTrade 95% of the time), and they never managed to take off. The fact that InTrade needs websites to drive people to its betting operation does not mean that readers will appreciate prediction market journalism.
Prediction market journalism (which sums up news and probabilities harvested from newspaper sites and from InTrade) does not produce any scoops. You need scoops to draw readers into your blog. No scoops, no readers.
[*] He is a smart and sociable young man with a bright future.
Felix Salmon wins the ASA 2010 Excellence in Statistical Reporting Award
American Statistical Association:
ALEXANDRIA VA, MAY 14, 2009 – Felix Salmon, a well known financial blogger who writes extensively about statistics, has been named the recipient of the 2010 Excellence in Statistical Reporting Award (ESRA) of the American Statistical Association (ASA). Salmon does quantitative, statistically minded reporting on topics ranging from the costs of counterfeiting to bank fraud to Nigerian spammers
ASA’s ESRA Committee selected Salmon “-for his body of work, which exemplifies the highest standards of scientific reporting,” according to the award citation. “His insightful use of statistics as a tool to understanding the world of business and economics, areas that are critical in today’-s economy, sets a new standard in statistical investigative reporting.”-
Salmon came to the United States in 1997 from England, where he worked at Euromoney magazine. He also wrote daily commentary on Latin American markets for the former news service Bridge News, freelanced for a variety of publications, helped set up the New York bureau of a financial web site, and created the Economonitor blog for Roubini Global Economics. He has been blogging since 1999 and wrote the Market Movers blog for Portfolio.com. Salmon currently blogs at Thomson Reuters. ( http://blogs.reuters.com/felix-salmon/ ). He is a graduate of the University of Glasgow.
Previous winners of the ESRA include Sharon Begley, Newsweek magazine- Mark Buchanan, freelance science writer- Gina Kolata, New York Times- and John Berry, Bloomberg News.
The ESRA was created to encourage and recognize members of the communications media who have best displayed an informed interest in the science of statistics and its role in public life. The award can be given for a single statistical article or for a body of work. In selecting the recipient, consideration is given to:
Correctness, clarity, fairness, brevity, and professionalism of the communication
Importance, relevance and overall effectiveness in impacting the intended audience
Impact on the growth and national or regional exposure of statistics
Appreciation and emphasis of the statistical aspects of a particular issue or event
Excellent coverage of research on statistics or statistical issues
About the American Statistical Association
The American Statistical Association (ASA), a scientific and educational society founded in Boston in 1839, is the second oldest continuously operating professional society in the United States. For 170 years, ASA has been providing its 18,000 members serving in academia, government, and industry and the public with up-to-date, useful information about statistics. The ASA has a proud tradition of service to statisticians, quantitative scientists, and users of statistics across a wealth of academic areas and applications. For additional information about the American Statistical Association, please visit the association’s web site at http://www.amstat.org or call 703.684.1221.