Wednesday, November 5, 2008
The election’s eventual outcome was clear to many. The Economist boldly went to press this week with a cover bearing Barack Obama’s photo (alone), beneath the headline '"It’s time". The polls have long shown Obama with a widening lead (though nail-biters admittedly agonized over a potential 'Bradley effect' that would snatch the apparent vote away from the minority candidate.) Most telling of all, a great sage predicted in this very space that Obama at 63 was "just free money."
A month ago, the Intrade prediction markets may not have shown 100% for Obama, but they did reflect a clear skew, enough to bolster the many pronouncements now proven correct. Anyone forced to call the election a month ago using only Intrade markets would have done so correctly. How else can we use this tool?
We can begin by attacking the myth of the two-sided story in the major media.
There are certain issues for which the truth is not a matter of opinion, and if a counterpoint is to be presented, it is rightly cast as a fringe or minority view. History will reveal, for instance, that opponents of global warming – those who believe human activity could not possibly impact our climate on a large scale – are simply wrong, their pseudoscience overwhelmed by the steady accumulation of reliable, falsifiable data. Why, then, has climate change so long been presented as a ‘debate’? When scientists overwhelmingly support a single hypothesis, and the issue in question is a scientific one, we are likely best to defer to their collective expertise. (Put differently, if we are willing to weigh seriously the scientific whims of the masses, why bother training scientists at all?) Yet the media tiptoes around such results, deeply pressured to present a balancing view – regardless who they must tap to voice it.
By carefully affording equal space to opposing views in this way, journalists create false dichotomies. By seeking to avoid bias, we unwittingly introduce it.
It happens quite often. For a time, evolution could hardly be mentioned without a respectful nod to those who believe it hogwash and have made it their mission to replace it with religious teaching in schools. The implication? That there are two sides; that all are not convinced; that experts are split down the middle and it’s up to you to decide.
Such pandering empowers the audience, who find themselves suddenly elevated from mere consumers of news to the swing voters in major issues of the day. But this is of course misleading. Dig a little and you will find there is, really, no debate. It’s not up to you.
Evolution is fact. Climate change is real. And when the media stretches to present opposing views in the name of balance, the result is sometimes to present as uncertain and up for grabs something that in no way actually is.
That said, this quest for balance comes from a good place – presenting both sides often yields the most fair and nuanced approach. I don’t think major media reform is in order. Systemic change toward one-sided reporting would not be a good thing. (Fox News, anyone?)
But Intrade can help. A prediction market can restore the weight of mass opinion, the wisdom of crowds. It can remind us that in a false dichotomy, opposing views do not enjoy equal support.
In this sense, Intrade is not just a means to stake claims on the future, and it is more than a valuable predictor of election returns.
It offers a valuable lens through which to consume news. If you’re lucky enough to find a market that tracks a false dichotomy, Intrade can be a great clarifier.
Friday, October 31, 2008
As we coast through the final days before Americans elect their next President, the future of the Republican Party in America – thanks mainly to Gov. Sarah Palin – is very much in question.
The chipper Alaska governor has, in just a few weeks, neatly highlighted a fundamental divide in GOP ranks. On the one hand, there are the small-government, old guard Conservatives who, though perhaps religious, nonetheless appreciate intellectual inquiry and a cohesive sentence. The late William F. Buckley, Jr. was the iconic example of this set. On the other hand, the G.O.P. has lately welcomed a swath of faith-charged heartlanders who cheer Fox News, reject ideas in general and vote with their crucifixes – especially on so-called ‘moral issues’ such as abortion and same sex marriage. (Example? Oh, any Ann Coulter fan should do.)
These complementary yet distinct subsets might not have mingled socially, but as a voting base they were very effective. Together, they placed and kept George W. Bush in office, buoyed the Iraq war, and endorsed the easy-credit, cheap-money economy that has now brought the nation to its knees.
But Gov. Sarah Palin has divided the party.
A few highlights: just this month, the Conservative magazine National Review ran a scathing indictment of Palin; shortly thereafter, Christopher Buckley (son of WFB) endorsed Obama and resigned from the magazine his father founded. Colin Powell, George Bush's former Secretary of State, came out to endorse Obama on Meet the Press with Tom Brokaw.
These high-profile ditchings are endemic of a deeper rift: between voters who tolerated an everyman veneer on their President in order to see pet policies pushed through, and those who would seemingly actually endorse a neophyte for high office.
At the time, Palin’s appointment probably seemed logical. After all, playing to a (low) common denominator has worked wonders for the Republicans in recent years. Bravado beats books. Faith trumps reason. Big words are scary and distancing – so give the people someone who talks like they do, gaffes and all. With universities and the mainstream media increasingly branded as big-L Liberal, Conservative candidates have veered toward outright anti-intellectualism to scoop up votes.
When McCain tapped Palin as his nominee for Vice President, he no doubt sought to mine the same vein of back-to-basics bedrock sentiment that had worked so well for George W. Bush. But anything in excess is a poison, and Sarah Palin has proven to be too much of a bad thing.
We need not revisit here her now-famous interviews, the stunning poetry of her ‘verbiage,’ or the countless op-eds from conservative writers rejecting her as inexperienced, inadequate, and an insult to the electorate. What matters is that a major component of the Republican Party finds Palin difficult to stomach, and the G.O.P. is hemorrhaging moderates at a time when it can least afford to do so.
If Obama wins next week, as the popular polls and the markets suggest (2008.PRES.OBAMA trading above 85), G.O.P. heavies must weigh seriously and carefully the role they want Sarah Palin to play going forward. Her supporters within the party may seek to propel her toward the next presidential nomination (if you think so, you can already invest in 2012.REP.NOM.PALIN).
But that would be a bad move. A candidate who drives staunch, old guard Republicans from the fold isn’t good for business – and with Palin as leader of the Republican Party, the inmates truly will run the asylum. With moderates long gone, the fraction of Americans that remain in Palin’s GOP will look ever more like marginalized extremists.
America is ready for an intellectually respectable leader – and poised, at last, to get one. As the Republican Party retreats to nurse the stunning double axe-wounds delivered by the Bush administration and the coming Obama landslide, they will no doubt think carefully before thrusting Sarah Palin to center stage once more.
Thursday, October 16, 2008
The perfect solution is right in front of you. Use Intrade as a hedge.
Using money to offset real hardship is a time-honored trick. Insurance companies rely upon this approach to smooth over all manner of downers and upsets. So if you feel strongly about the election or the financial crisis, why not buy a little insurance of your own?
If you can imagine nothing worse than a McCain presidency, why, take a big position in 2008.PRES.McCAIN. If he wins, you'll curse the sun and moon, but you'll at least turn a big profit (he's currently trading at 18.6). And if he loses, you'll be so happy you won't miss the money.
Hope the economy pulls through? We all do. But if it doesn't, owning a little US.RECESSION.08 will help smooth the rough ride. What better way to counter your own personal recession than a little extra return when it hits?
It doesn't end there. Why not hedge against higher taxes on "Highest Marginal Single-Filer Fed Income Tax Rate to be Equal or Greater than 36% in 2009 Tax Year"? Boy, higher income taxes. That doesn't sound fun. But if it happens, an investment of $41.0 on 2009.INCOME.TAXRATE.>36% today will be worth $100.0. You could even invest just enough to cover a tax hike. No, really. Why not?
The possibilities are nearly endless. Say you hate Batman (who hates Batman?) and you can imagine nothing worse than The Dark Knight winning best picture. You’ll be glad you invested in BEST.PIC.DARKKNIGHT.
Live in the hurricane belt? I have a great pick for you, LANDFALL.08.FLORIDA. Current trading says there's just a 3.0% chance a Category 3 storm hits Florida this year, leaving a large financial upside to soften the blow if it does. There are other ways to profit from hurricanes, but believe me, you don’t want to do them.
Perhaps you're worried about bringing your fine art collection to market in the middle of this financial crisis. If so, you can hedge the risk that your Picasso's underperform at the auction podium with a short position in Intrade's MEI.MOSES.06JAN2009 fine art index futures.
In down times, we all need a little boost. Why not tie some financial upside to real-world events you dread? Intrade lets you do just that. A win could soften the blow with profit, and a loss – well, so what? The whole world is going your way.
Disclosure: I do not hold positions in any of the above markets.
Wednesday, October 1, 2008
First, its financial effects are routinely overstated. True, the Dow posted its largest single-day drop in history this week, at 777 points – but in fractional terms that's only 7%. The crash of 1929 amounted to a net drop of fewer than 200 points – but from its prior high of 381, the index lost nearly half its value. On Black Monday, October 19 1987, the Dow fell 22.7% in a single day (then quickly bounced back). Despite all the late unpleasantness, the Dow remains above the 'psychologically important' 10,000 mark we heard so much about after 9/11. Apparently it’s no longer so psychologically important.
Its political effects at first appear pronounced. Obama, trading nearly on par with McCain last week, has surged ahead by more than 27 points (McCain 36, Obama 63) in the clearest rally yet. I wonder though how much of that is tied to the bailout, and how much just reflects spillover of the frothing little cauldron of horrors that is McCain’s campaign of late.
Complicating factors are many. For starters, Sarah Palin has now embarrassed herself more thoroughly than any political candidate at any level of government that I have ever seen, meanwhile birthing the phrase "skewered by Katie Couric" – a sequence of words never before needed in English. Palin’s reappearance on CBS with McCain as chaperone further highlighted her status as an insult to an intelligent electorate. Are markets reacting to Palin?
Maybe - her chances to be withdrawn from the GOP ticket have nearly
tripled in the past week, trading as high as 11.9 during today's session.
Or perhaps investors are still punishing McCain for his aborted effort to postpone the presidential debate. This gaffe had the dual effects of making McCain appear vastly overconfident – as though he would ride into Washington to personally set right those pesky financial troubles – and in the meantime rather sheepish, like an unprepared student looking for a doctor’s note in hopes of escaping the big debate.
(Max Keiser blogged about this earlier this week on these same pages.)
To me, the reason for Obama’s recent surge is far simpler. Despite his attempts to distance himself from the Bush administration, McCain still stands at the head of the GOP: the party under whose watch America entered a drawn out war and fuelled a consumer economy with cheap money and HELOCs. Skittish post-tech investors retreated to real estate. We witnessed a furious rise in housing prices, widespread adoption of exotic debt instruments to pay for overvalued properties, and the subsequent implosion of bad mortgages along with the blue-chip firms that traded them. All is not well, and the average voter won’t need any more reason than that.
Of course, it’s wrong to simply blame all this on one political party or another. Much of it is just the heave and flex of a market economy, albeit one lacking some needed regulation. But the fat years are past, and the recession – the same one we deferred with cheap loans since the tech crash and 9/11 – is finally coming due. That is true today, and will remain true long past Election Day.
So while the importance of recent market corrections may be overblown, public perception is paramount. The financial markets will absorb these overdue corrections and carry on – but growth-focused pundits will juxtapose numbers from last week, last month, or last year, and brand this still a massive crash. People will decry the collapse of America's financial markets and condemn any who brought us here.
The good news is the markets are basically sound. The bad news is, no one believes it. It is the simple vacillating impulse – things are bad, vote for the other guy – that will end up carrying the day on November 4th.
Given that, Obama at 63 is just free money.