Regruntled.com

The New Hampshire primary is over, and the Ron Paul contract at Intrade is in free fall. Before Iowa, Ron Paul traded as high as 9, meaning that he had a 9% chance of getting the Republican nomination. After Iowa but before New Hampshire, he traded at around 5. Now he’s at 2.5.

I still say he should be trading at zero, but here we have to face a structural bias at Intrade. Intrade requires traders to put up capital equal to their maximum possible loss. Unfortunately, Intrade does not pay interest on small accounts, so there is an opportunity cost to every trade.

The Ron Paul contract runs until August 31st, about 8 months from now. At 2.5, someone on the long side puts up $2.50, which is the most he can lose if the contract goes to zero. The person on the short side, me for example, has to put up $97.50, which is the most I can lose if the contract goes to 100 (Ron Paul gets the nomination). The most I can make is $2.50, which is less than I could make by putting the $97.50 in a money market account for 8 months. When I shorted Ron Paul at 7.7, it was an attractive trade. At 2.5, not so much. Time to take the money and run.

Alternatively, I can wait for Super Tuesday and maybe cover at 1.5 instead of 2.5. I have no problem with waiting a month to pick up another point, but my whole thesis is that the Paulistas are behaving irrationally. Do I really want to bet that Super Tuesday will make them less irrational?

See also:

• Selling Ron Paul short 3
• Selling Ron Paul short 2
• Selling Ron Paul short

Oprah is touring with Obama. This is really quite unprecedented. Oprah is a LOT more successful than Obama, she’s more famous, and she has more money. Being Obama’s warmup act is a step down for her. She’s slumming in the sordid world of politics.

Meanwhile, Obama has two things going for him. He’s a great speaker, and he’s not Hillary. Really, what is Obama famous for, except for a few great speeches?

Obama has always been the candidate with the most style and the least substance. Oprah is the Queen of Daytime Television. By definition, her audience doesn’t have anything productive to do during business hours. Is this a natural alliance, or what?

With Oprah to draw a crowd, Obama can reach more people with the audacity of hope, whatever than means. Of course, I like to quantify things. I note that Obama has gone from a 10% chance to a 30% chance for the nomination at Intrade, and that the polls have him leading in Iowa. Intrade has Hillary at 60%. Not that I would take either side of the Obama trade… anything could happen. It’s a great story!

Mitt Romney, in his much-anticipated speech on religion, invoked the memory of the Founders. As a rhetorical gimmick, this is a slam dunk. In EVERY country, EVERY politician invokes the memory of the leaders of the last successful revolution. It’s practically a pre-requisite for public life. Let’s take a look at what the Founders really believed.

The Founders, for the most part, were not Christians at all, they were Deists. (Deism is out of style these days, but a reasonable modern equivalent would be Unitarian Universalism.) The US did not have a Christian president until 1829, when Andrew Jackson took office, half a century after Independence.

Thomas Jefferson, for example, wrote the Jefferson Bible, which praises Jesus as a moral teacher, but never mentions the miracles or the Resurrection. For a Christian, the Resurrection is not exactly a minor detail.

Thomas Paine wrote The Age of Reason, one of the most anti-religious books of all time. The backlash against this book has been cited as one of the causes of the Second Great Awakening, the religious revival that led, among other things, to Mormonism!

For a Mormon politician to invoke the memory of the Founders in a speech on religion is just a little bit hilarious. Good politics, bad history.

Ron Paul is down to 4.7 at Intrade (I shorted at 7.7). I didn’t expect this to happen until late January. OK, so I was wrong, but at least I’m wrong in a good way. My bet is paying off faster than expected. What happened?

Mike Huckabee happened. The only plausible scenario for a Paul nomination is a surge in the polls followed by wins in the early primaries. The come-from-behind, underdog story is there alright, but it features Mike Huckabee, not Ron Paul.

Paul’s supporters are already urging him to forget about the Republican nomination and run as an independent (Intrade gives the odds at 25%). His campaign has raised a lot of money, and money has its own momentum. An independent campaign would push the day of reckoning from January to November, allowing the true believers to remain delusional for a few more months.

Intrade also has a contract for Ron Paul winning the general election. I didn’t short that one because it was priced lower, presumably because of the possibility that Ron Paul would win the Republican nomination only to lose to Dennis Kucinich in November. If he switches to an independent campaign, I may be able short Ron Paul all over again with the other contract.

Speaking of delusional:

The recent revelation in the National Intelligence Estimate that Iran stopped its nuclear weapons program in 2003 has had some interesting effects. The obvious conclusion is that our information was wrong, so we need to stop the saber-rattling and re-evaluate our policy. Duhhh. But Dubya says “… the NIE doesn’t do anything to change my opinion …”

I listened to the Democratic debate on NPR. The candidates took turns sound-biting each other. “You said this, you said that.” A logical response would be “I said that based on the information I had at the time, and the information was wrong”. But no, everyone says “what you think I said is not what I actually meant. In spite of having bad information, I’ve been right about Iran all along.” I’m paraphrasing, but I am not making this up.

I’m coining a new word: “back-spinning”, spinning a new interpretation of an earlier statement in the light of new information.

I’ll give another example of back-spinning: Day-Age Creationism. This is less topical, so maybe we can be more objective about it. Genesis is full of phrases like “and the evening and the morning were the first day”. For three thousand years, Biblical scholars thought “day” meant “24 hours”. It was not until AFTER science established that the earth was more than 6,000 years old that creationists advanced the theory that “day” really meant “age”, an indefinite time period. How convenient. In other words, when Moses wrote “day”, he really meant “age”. In spite of not having the slightest clue about astronomy or geology, Moses was right all along!

In the last Democratic debate, I learned that Hillary is neither for nor against issuing drivers’ licenses to illegal aliens. Or is she both for AND against it? It’s hard to tell.

Yesterday I watched Obama on Meet the Press and he is no less a weasel than Hillary. The problem is that anything a candidate says can be taken out of context, turned into a sound bite, and played over and over again. Think Howard Dean and his yell, or Dubya and “Mission Accomplished”. The only way to avoid being bitten is not to say anything biteworthy.

And so we have this strange sport of debates and interview shows where the reporters try to get their sound bites, and the candidates try to run out the clock without answering the questions. Watching a debate is like going to a car race and hoping for a crash.

The only candidates who can say anything interesting are the ones without a chance, like Dennis Kucinich or Ron Paul. Being sound-bitten would be a step up for them. (One of the reasons that I’m confident that I can sell Ron Paul short is that if Paul gets anywhere near being a serious contender, the other candidates will sound-bite him back into obscurity.)

Finally! After three and a half weeks, my account at Intrade is funded, and I can place an order to sell Ron Paul short.

This has been quite an adventure. My credit card company refused to process a charge from an offshore gambling operation. I could have sent a bank wire, but the transaction costs were prohibitive. I had to airmail a $250 check to Dublin, where Intrade presumably put a hold on it until it cleared. (Intrade could have handled this better. An email when they processed the check and started the hold would have been nice. I had pretty much given up on the whole thing.)

Well! While I’m composing this post, I get an email from Intrade confirming that I’ve sold 25 Ron Paul short at 7.7. So now they’re responsive?

The contract expires on August 31, 2008. If Ron Paul IS NOT the nominee, I make $19.25, which, over 10 months, is about 9% annualized. If Ron Paul IS the nominee, I lose $230.75, which is horrible.

Real Clear Politics, one the few sources where I can find a poll that lists Paul separately, shows him at 3.3%. Keep in mind that someone with 3.3% of the votes gets 0% of the nomination.

Meanwhile, Ron Paul has been very successful at raising money. I watched the last Republican debate, and Paul was the only candidate that was booed by the Republican audience. At the end of the show, he won the instant text messaging poll. I can only conclude that Paul’s people spammed the text message number to create the illusion of support. The idea must be that if they can convince enough people that Paul IS popular, then Paul will BE popular. Sort of a high-tech, magical thinking, bandwagon strategy. Very Boomerish.

I suspect that something similar is going on at Intrade. Here is an article showing Ron Paul’s Intrade chart and arguing that Intrade is a better predictor of the nomination than the polls. Nonsense. If Intrade is being manipulated, and the polls are not, then the polls are better predictors.

Congressman Ron Paul of Texas is running for the Republican nomination for President. I’d estimate his chances at approximately zero. Intrade gives his chances at 7.5%. Intrade is an online prediction market, the modern equivalent of a bookie. There are people betting for Ron Paul, and people betting against him, and 7.5% is where the market clears. Of course, this is a new millenium and we don’t talk about making bets, we talk about buying and selling contracts. It amounts to the same thing.

The trade is obvious: sell Ron Paul short at 7.5 and cover at 0. Can it really be this easy? It’s a short sale, and Intrade requires a margin that doesn’t earn interest. The contract runs through August 31, 2008, after the Republican convention. The trade works out to about 9% annualized. For all intents and purposes, the nomination will be over by the end of January, after Iowa and New Hampshire, so I can probably cover then, if not at zero then close to zero. I wouldn’t be surprised to see a 20% annualized return on this bet, I mean investment.

Or I could look at this in a “Wisdom of Crowds” sort of way. The people at Intrade know something that the mainstream political pundits don’t, and Ron Paul really does have a snowball’s chance in hell of getting the nomination. Nah… I don’t think so. Al Gore has a better chance of getting the Republican nomination. I think there are libertarians and conservatives at Intrade who are betting on what they want to happen, not what they would rationally expect to happen. However, there is a lot of enthusiasm on the internet, and you can read “Ron Paul Can Win” for the Paul supporters’ case.

Or I could look at this as psycho-financial arbitrage. I like Ron Paul. I’d like to see him get the nomination. I voted for him when he ran for President as a Libertarian in 1988. So I sell him short at Intrade. If I’m right and he doesn’t get the nomination, I make some money. If I’m wrong and he does, I have the satisfaction of seeing him run and voting for him in the general election. If I bet, I mean invest, the right amount, on balance I come out ahead either way. Such a deal.

I have $250 of edutainment money on its way to Intrade. If Ron Paul is still at 7.5% when my account is cleared to trade, I will sell him short.