Kadner: Buying Obama shares and Romney futures
By Phil Kadner email@example.com October 8, 2012 6:12PM
Republican presidential candidate Mitt Romney and President Barack Obama smile after last week's debate in Colorado.
Updated: November 10, 2012 6:17AM
There’s a place where you can buy shares in Barack Obama or obtain futures in Mitt Romney.
It’s called Intrade and it calls itself “a prediction market platform.”
What’s a prediction market?
According to the Intrade website it’s a “market that allows you to make predictions on the outcome of hundreds of real-world events. Stock exchanges find the price of stocks and futures markets find the price of commodities.
“Prediction markets find the probability of something happening — a predefined, uncertain future event.”
Intrade basically asks people to place bets on “yes/no” propositions.
For example: “Barack Obama to be re-elected President in 2012.”
When I checked Intrade on Monday afternoon, Barack Obama was selling at $6.68 a share (up 3.1 percent), while Mitt Romney was selling at $3.34 (down 3.5 percent).
According to Intrade, 1,486,947 shares of Obama were traded and there were 1,604,381 Romney shares traded.
When you buy shares you are buying them from another member of Intrade and when you sell shares, another member of the exchange is buying them from you.
When the outcome of an event is known, the market is settled. The market is always settled at either $0 or $10, according to the actual real life outcome.
If you buy shares that Obama is going to be elected president, you will get $10 a share if you win and nothing if you lose.
If you buy a share of Obama at $7 while the proposition is in play and he wins, you would gain $3 for every share you bought.
Profits come from the losses of the other players.
Hey, I’m not endorsing this concept, and I certainly don’t encourage anyone to join Intrade.
I just find it fascinating.
There’s even short-selling on the presidential race.
“Is is it possible to sell shares that you don’t yet own? This is known as short selling. You are essentially ‘borrowing’ the shares and selling them with the intention of buying them back again later,” the website states.
“If you predict the market event will not happen then you will (short) sell shares. You can then cover this sale at a later time by buying back the shares or hold until the market is settled.
“So don’t be put off selling shares because you don’t own any — you can sell shares without owning them first.”
If that sounds like some sort of con game to you, well, just take a look at how the commodities market operates.
I’m not passing judgment. Just pointing out the facts.
It’s not only the presidential campaign that people are gambling on.
Intrade offers shares on the following proposition:
“The United States or Israel to bomb Iran before the end of 2013.”
You can also wager on whether Republicans or Democrats will control the U.S. House of Representatives; if the price of gasoline will hit $5 a gallon by the end of 2012; if there will be an earthquake of a 9.0 magnitude or higher by the end of the year and if Hamas will sign a peace treaty with Israel, among others.
You could even place a bet on the opening weekend gross of the movies “Taken 2” and “Frankenweenie.”
I’m guessing that most of the people putting up money on Intrade are not the “47 percent” on government subsidies Romney referred to as automatic Obama voters.
That’s why the fact that Obama shares were trading at a much higher price than Romney shares seemed surprising to me.
My guess is that a lot of the people on Intrade are folks who have seats on the New York Stock Exchange and Chicago Board of Trade and have nothing better to do with their spare time.
I’d also wager that lower-income people prone to gamble are either dropping their money at the corner 7-Eleven on lottery tickets or playing the slots at casinos in Joliet and Gary.
Founded in 1999, Intrade is an Irish-incorporated service business.
The website includes a rave review from a managing editor at Fortune Magazine who wrote, “We often write about the latest hot company, but it’s rare that we get a chance to introduce you to an entirely new market. Intrade is the only efficient market system around for investing in, well, almost anything.”
And there’s this from an economics reporter at the New York Times:
“Intrade isn’t just an entertaining website. It is the latest iteration of one of the most important economic developments of modern times.”
Intrade itself contends it promotes the “aggregation of crowd wisdom into predictive probabilities.”
It charges a monthly fee of less than $5 to become a member.
As of Monday, the probability of Obama becoming president in November was at 66.6 percent. Romney came in at 33.4 percent.
According to my reader, Jack McAuley, shares of Romney soared immediately after the presidential debate and shares of Obama plunged in value.
By watching the Intrade market throughout the debate, McAuley said he detected Obama shares were dropping like a stone until the discussion turned to health care when Obama shares began climbing once again.
Does any of this really matter?
I suppose it doesn’t, but I wouldn’t be surprised if every single person on Intrade opposed the idea of higher taxes on the wealthy.