Tuesday 2 March 2010

Portfolio adjustments

The climate stocks at iPredict have finally closed out - surprisingly, Hadley wound up producing a complete record for 2009; they otherwise would have closed on NASA data. In either case, the result was the same: 2009 warmer than 2008 but less warm than the warmest year in the series. And so I suddenly have a whole lot of cash sitting over at iPredict. And they have a much improved faster back end system allowing for much quicker trading and browsing.

I want to keep decent cash reserves in case of short term price stupidity where somebody decides to give free cash to any traders liquid enough to take it. But that still leaves me with a fair bit that can be invested now.

So where are prices farthest from my own estimates?

First, PM.2011.National and PM.2011.Labour. There has to be at least a 90% chance of National being re-elected in 2011. They've been polling consistently above 50% and have built a good relationship with the Maori Party that will serve them well should they need a coalition partner post-election and should ACT disappear. Markets had this around the $0.71 mark, which I think mostly reflects time preference. I've bid this up to $0.75 and have a reasonable standing order there. A lowish return over two years, but low risk. And I don't mind having a reasonable stake in low-risk stocks with better expected returns than my retirement fund. If only iPredict could be a designated KiwiSaver scheme.

Next, MINWAGE.1STREAD . Pays $1 if Roger Douglas's private member's bill allowing the youth minimum wage to diverge from the adult rate makes it through first reading. I put reasonable odds on it making it through to committee but lower odds on passing second reading. I think National's happy for it to be debated in committee and for folks to be able to present what evidence exists on the links to youth unemployment, even if they wind up killing it later. Am reasonably long at $0.31, buying more through $0.33.

Then, the top marginal tax rates to be announced in the 2010 budget. Prices currently saying an 81% chance the top rate to apply 1 April 2011 will be 33-35%, 9% chance of 30-33%, 8% chance of 35-38%. TOPTAX.30-33. I can believe Key dropping it to 33%, either to take effect at 1 April 2011 or to get there in a couple of steps starting at 35% and subsequently to drop to 33%. I can't believe him dropping it to 30%. It would be a bold move. And he hasn't made a single bold move since he's been elected. Again, Key, I dare you to make me lose money on this contract.

Buying 35-38 @ $0.10
Selling 30-33 @ $0.075
Buying 33-35 @ 0.805

Next, GST.UP.JULY10. Pays $1 if the GST rate goes up on or prior to 1 July. I can buy an increase that would coincide with a natural break in the business reporting periods; I can't buy a break that would impose pretty high transactions costs on firms. Sure, there are arguments for a quick surprise increase if you're worried about distorting the timing of large capital good purchases. But those aren't a big worry for an expected 2.5 percentage point jump. And, some argument could be made that such distortions could even be desirable as stimulus to the extent that they bring forward purchases by more than a month or two. Short all over the order book from $0.05 up to $0.10 as this one has a spiky price history (lots of jumps up, even past $0.10, then back down again).

Finally, IPCC.RESIGN. Pays $1 if Rajendra Pachauri loses his job as Chair of IPCC before 1 May. I started bullish on this one, but with all the wagon circling and the absence of any obvious mechanism for impeachment even at the annual meeting in October, I turned heavily short. Continuing short and selling at $0.1275, though smaller amounts as I'm already reasonably heavily short.

Why aren't you trading yet?


  1. Unfortunately Australians are not allowed to trade on iPredict, to my great frustration.

  2. Why aren't you trading yet?

    Because the first time I ignored Robin Hanson, I bet on the obvious sure thing of Hillary Clinton winning the nomination.

  3. @robertwilbin...I feel your pain
    @Ryan: There are few sure things - the only real one was the warming contract as of about 4-5 months ago. But there are some that look over/under priced. Of course, no guarantees...