The Case For Jeb 2012

Buy Jeb Bush for 2012 GOP nominee contracts on intrade right now. Yes, he could very well decide not to run, but the upside in the event that he does decide to run outweighs the downside when he doesn't. Maybe I'll post more analysis about this but just wanted to get on record.

Lie To ME

Chinese Stimulus Package

Yesterday the Chinese government announced it would spend nearly 600 billion USD in stimulus efforts. Morgan Stanley's Qing Wang and Steven Zhang gave us a heads up that this was coming here. They expected the announcement of a proactive stimulus policy to be made at the end of the month. Not only was it made earlier, but prior to the announcement, Chinese finance minister Xie Xuren was called back from Peru under what seem to be emergency circumstances. One partial explanation for the timing of the announcement is to frame the Chinese leadership in the best possible light heading into this Friday's G20 summit.
I think it's more likely that the Chinese government just caught on to the extent to which economic conditions have deteriorated domestically and realized they had to do something immediately. The amount to be spent is far larger than Zhang and Wang had anticipated although the announcement has been criticized for including infrastructure projects and earthquake recovery funds which were already to be spent. It had the effect of boosting Asian markets on Monday. Tokyo's benchmark stock index rose 5.8%, Shanghai's 7.3% and Hong Kong's 3.5%. The Yen also depreciated some which is interpreted to mean some are willing to make large investments financed by Japanese lenders.
I doubt these rallies will last as I don't think the markets had fully priced in the information that has spurred the Chinese government to action. Over the next few weeks, I think we'll see ever more stunning drops in exports and retail sales, rising unemployment and bankruptcies, and ultimately social unrest.
From Plastic News China; The twice-yearly China Import and Export Fair in Guangzhou is an important barometer of China's exports. The most recent fair, held earlier this month, witnessed a 10 percent drop in trade volume. According to the Xinhua Agency, orders from the U.S. posted the biggest decline: more than 30 percent from last year.
From the China law blog:The downturn in shipping is having a profoundly negative effect on all segments of China's maritime industry. Shipbuilders are finding that their shipbuilding contracts are being extensively breached. Since shipbuilders in China are mostly new companies, they are heavily in debt. These breaches threaten the life of the entire shipbuilding industry in China."

The Baltic Dry Index can be used as a stand-in for the amount of shipping occurring. From the chart you can see demand for exports has nosedived in the past few months.

View the full BALDRY chart at Wikinvest

Conditions have deteriorated so quickly that power generation in China actually fell in October:
'With more than 70 percent of electricity consumed by industrial users, economists track the power figures for an insight into the health of the manufacturing sector.
Sure enough, factories have moved down a gear in recent months, and economists polled by Reuters expect figures on Nov. 13 to show that industrial production growth slowed to a six-year low of 11.3 percent in the year to October.'

In a desperate attempt to avoid "mass incidents", local governments are stepping in to pay some of the wages owed by failed companies. From this chilling Washington Post article:

In the city of Dongguan, the local government handed out about $3.5 million on Oct. 21 to the employees of Smart Union -- which sold its toys to Mattel, Disney and Hasbro -- after the 7,000 workers staged a strike.

Hu Weicai, 38, who worked with the plastic molds used to make electronic toys, said employees became nervous when the owners slipped three months behind on salary payments. The workers occupied the factory and the surrounding streets until government officials promised them they would be paid.

"The government was very afraid when they saw what was happening. What the government fears most is workers making trouble. They paid us to stabilize our moods," Hu said. Indeed, signs posted at the gates of closed factories did not direct former workers to places where they could get help, but instead displayed a warning. In large black characters, they reminded workers that they could be detained for stirring up unrest, for disobeying security officials or even for 'unlawful gathering.'

The Chinese government cannot create demand which has suddenly disappeared. Furthermore, the current downturn is only a triggering event for the much larger correction which China would inevitably face, which is not dependent on external events, and which will be greatly exacerbated by China's own property market bubble bursting.
The Chinese consumer cannot save us. (But maybe the Japanese consumer can.)

McCain got bad beat and hes short stacked, Time to pick a spot and push.

Not to be stuck in total denial of reality, if you squint at it there is a way that John McCain's comeback is inevitable and Republicans can fend off total slaughter come November. Assumption #1 congress has to pass a bailout plan. Assumption #2 In order to pass that bailout plan McCain has to play an integral part. Assumption #3 The McCain campaign realizes that their only chance of winning the election is to be seen playing a central role in brokering a successful bailout package. Assumption #4 possibly the white house also realizes that they need to let McCain broker the deal if they are to get a deal. (and, again, there will be a deal cuz there has to be.)
This is the exact sort of big issue, capitol gridlock situation that McCain has used to establish himself as a maverick by bucking Republican orthodoxy to achieve a bipartisan solution that just about nobody is happy with. (But its still better than the status quo!)
Having passed the bailout, the elimination of most worst-case scenarios will cause an immediate improvement in the market and the economy although the ripple effects of whats going on right now will be present through election day.
Not saying this will actually happen, just saying that if it does people will say that it was some amazing turn around but in reality it was inevitable and predictable with the proper model.

The scale of events these days is enough to make a US presidential election seem trivial. As such its a good time to mention some other inevitabilities. It is inevitable that the US will adopt appropriate fiscal and monetary strategies to cope with this economic situation. Its impossible that political leaders who are unwilling to act correctly according to economic theory will not gain power. They (collectively) know the theory. The theory is correct. It is also impossible that self interested actors would not choose to adopt correct strategy if they can, considering the advantage correct strategy would give them over their political opposition. (Correct as in avoiding disaster, although there is a lot of room for sub-optimal strategy.)
This will certainly be a period of increased concentration of industry in the hands of government, and possibly increased protectionism. However, the inevitable result will be the adoption of consumption increasing policies by the governments of the G8 ex-US plus China. These countries will all be forced both by politics (the US twisting arms) and economic circumstances to undergo reform. In the end they are too dependent on the US as an export partner to not give in to US demands and US demands will be increased consumption on their part which will ultimately free them from dependency on the US as an export market.
People who think that China is going to own the US and UK financial system need to realize that our financial problems are merely a precursor to their much more serious problems which will require an international bailout as they don't have the technical sophistication to engineer it for themselves. Therefore, the reverse,(China selling of large chunks of equity at in their banking sector at firesale prices to Western firms) is more likely.
Of course, I am probably wrong about all this, there are so many more ways to be wrong than to be right. The goal is to develop strategies to make a profit when you are right and break even the rest of the time.

More Free Money on Intrade

Someone is trying to manipulate the markets on Intrade. That means free money for anyone that buys an Obama contract. Sell in exactly 3 weeks for guaranteed profit. Or if you feel the need to make a larger gamble and you think Obama will win, you'll get your best price now so buy and hold till expiration.
Mccains only chance at this point is a. the general consensus is that the financial system is stable to the point that we can get back to more trivial issues. 2. Jeremiah Wright round two hits harder than anticipated and Coloradans actually care.

DEM.VP

Regarding the DEM.VP intrade markets, we can now take a look and see how they performed. Of interest: market efficiency, their prediction accuracy, and reaction to Biden's headfake (8/19).
Here are some graphs and commentary written in the language of gibber.


Clearly there was a reaction to Biden's headfake. His price had been surging and suddenly dropped for 2 days. Kaine and Bayh's prices both increased after Biden said he was 'not the guy' (What a Dbag!) It might be more significant that it didn't decrease more as it would indicate some traders knew Biden was the pick, or possibly just knew Biden is moronic enough to pointlessly deny something that would be announced in two days. It also may have been decreasing slowly due to market inefficiency. (Including some traders not getting word of Biden's statement.)


Here's a trade by trade graph starting hours before the announcement.
Interesting how it jumped to 90 and then fell back to 70 before climbing to where its at. Were some people just cashing in causing the price to drop? Did some traders know for sure but the speculators pushed the price back down? Did news reports give mixed signals?



Interestingly, unlike the other two candidates, Kaine's largest day of trading volume occurred on the 21st. Amid the swirl of speculation over the past week is was difficult to determine which new information mattered and I think I discounted some quote from Kaine on the 21st, but it was obviously a market mover.




Here we see a clear Volume trend, where the market started rather inefficient and the volume grew everyday until the selection was announced.


This is the last 48 hours of Bayh trading (ending at 3pm 8/23) ie. it gives insight into just what took place within that frenzied volume of trading shown in the final two days of the first graph. It wasn't all straight down. Specifically, something happened around 6pm on Friday that seems to have convinced a lot of people that Bayh was the pick. That topped out at 50 before the price basically nose-dived to 0. (When exactly did official word of the pick go out? Was it Friday evening as this graph would suggest? What time did news break of the Obama-Bayh yard sign?)

According to The Page, Obama, whoever he chose to tell, the four finalists, and whoever they choose to tell, knew about the selection as of 8/21. (But I will not apologize for calling him a Dbag.)

LMAO@Obama-Biden

There is a reason nobody took Biden's presidential campaign seriously in the first place. Biden is not appropriate for national television. His total inability to shut his mouth is a character flaw. His Jefferson Jackson dinner speech in Iowa was literally the worst speech I have ever heard in my entire life. (And I have attended English language Toastmasters meetings in Beijing). When he starts talking too much during Cspan coverage of congressional hearings, I can turn it off or skip forward 20 minutes, but there in Iowa I could do nothing but count his attempts to invoke an aura of weightiness by saying "ladies and gentlemen" over and over and over. Sure one could argue that Biden's policy stances contradict what Obama claims to stand for. Or that these policy stances are flawed. Or mention his plagiarism in 1988. But if I was Steve Schmidt or Rick Davis, I might just say nothing. Attacking Biden gives him an undeserved credibility, evidencing a concern that without the attacks people might not see through his rhetoric for what he really is. There need not be such concern with Biden. Just let him introduce himself to the American public in the way that he sees best fit. That will surely be off-putting enough for the majority of Americans.
Dems should be crying. They could have Clinton-Obama. Instead they have Obama-Biden. LMAO.


As for McCain, I'm assuming that both Rice and Petreus, for whatever reasons, are not actually choosable. I'm hoping for Pawlenty and if it's Romney I will be rather disappointed.