Port Security Sneak Attack - Gambling Bill Passes

Port Bill passes with gaming bill attached:

Republican leaders reach a port security conference deal and the Internet Gambling bill also was included and passed tonight.

The bottom line is that the our government has now passed a bill making Internet gambling a crime for both the operator and any individual or institution involved in online gambling.

**As of now the TradeSports USLAW.IGAMING.JAN07 is trading at 90 likely due to a question of rules interpretation

Favorites covering in the NFL once again - PinnacleSports

Trends so far this season and a dead simple evaluation tool for finding underpriced teams:

One way to evaluate a team is to look at its offensive yards per play and the defensive yards allowed per play. As one would expect, teams that gain more yards than they allow tend to win. While this isn’t exclusively accurate, this measure is at least as good a predictor of future performance as past game scores. Using the Internet and Excel, you can easily evaluate the entire league in just a few minutes. Scraping data and analyzing it in Excel is a mandatory skill for successful handicappers, so it’s worthwhile to provide a brief example of how simple it is.

Picking Winners - Protrade Sports Market

Interesting Forbes article on Protrade.com, the HSX of sports:

The site has turned into the MySpace for sports-stats geeks. Members blog about their favorite players, create personal profiles, share their portfolios with other members and compete in weekly challenges. "Everybody wants to prove that they're the smartest sports fan," says Kerns, 29. "What better way than to be the top trader?"

Is this Tradesports?

-"Several legal online betting sites have approached Protrade to use its win-probability statistics in a live gambling game."

FBI: Late to the Party Again- Don’t worry, Chip Burrus is here to help

Having wrapped up that whole terrorist thing the FBI is now jumping on the Hedge Fund Boogeyman bandwagon according to this article in Bloomberg today.

``I'm not interested in civil fines,'' he said. ``If I'm coming in and I'm looking, there are allegations of criminal misconduct. There's obviously a different pucker factor that comes when you start talking to an FBI agent

.
In other words, armed men show up and threaten criminal charges unless there is full cooperation (meaning just admit you did something wrong and we’ll go extort someone else) and a few employees are tossed under the bus. These are Elliot Spitzer style tactics of government intimidation and thuggery with the primary concern being headline and press release generation.

The article goes on to quote Mr. Fife:

``It is an emerging threat because of the dollar value and the number of institutions that are actively taking a look at this,'' Burrus said. ``People that maybe aren't expecting to have this type of a risky investment in their portfolio end up taking a bath.''

It’s an emerging threat because investors weren’t expecting that type of investment? So if an investor doesn’t do his research or ignores the dozens of warnings in the offering documents the FBI will investigate?

I feel safer already.

The Markets Handled Amaranth – No Regulation Required

The fear after LTCM ($4.6b in losses), which moved the fed to organize banks into a bailout of the hedge fund, was that there would be a global financial crisis. We’ve seen the blasé market reaction to $6b losses from Amaranth, the markets didn’t care. Despite this proof that the capital markets are more robust than ever the NY Times thinks that regulation is required.

The Times believes that speculative losses can be prevented by additional regulation. As if the state, unencumbered (or do they think this means unbiased?) by price signals, can value and allocate risk better than the market. The costs of regulation in any industry are well known: higher costs, less innovation, entrenchment of established players, and the Leviathan expanding its domain. Who benefits from that?

It’s a standard move in the statist playbook; whatever the problem is, it can be solved only with more regulation. Just like socialism, the consistent failure of regulation does not discourage the statists, it encourages them to try again and again. “This time it’s different. The last time they didn’t do it right, but we know how” are the shibboleths of this poisonous mindset. Meanwhile the markets have already moved on.

Amaranth Hedge Fund Equity Portfolio - A Quick Look

This spreadsheet was posted yesterday by stock guru Bill Cara and shows Amaranths equity portfolio as of 6/30/06. While this was not the section of the portfolio that Brian Hunter controlled an review of the buys and sells that took place in the past week show how bad the liquidity crunch at Amaranth had become.

First we took a look at the top ten holdings as % of the portfolio on 6/30:

SPY US - 127.23
GG US - 30.22
S US - 19.99
HUM US - 53.70
RAIL US - 55.51
SEA US - 10.16
IMA US - 28.23
FE US - 54.21
OKE US - 34.04
UNH US - 44.78
STJ US - 32.42
DADE US - 41.64

The top ten positions accounted for 23% of the entire equity portfolio of about 1,600 total positions. The SPY we can ignore, it’s just an index.

They bought GG a gold mining operation when gold was at $600. The stock had no serious moves even as gold peaked. As the metal fell back down the stock started to decline. Although there were no serious volume spikes (they didn’t hold enough to cause them) if they had to sell out of this position, it would have been at a big loss. They bought at $30 and stock is bottoming out at $23 right now.

Most of the top ten it would be just speculation as to what they did with the positions. A spot check of volume doesn’t show anything obvious for: S, HUM, FE, UNH, STJ, and DADE. Likely they would have sold off HUM (bought at $53 currently at $67) if they were still holding it because of the large gain on that position. The volume of the above stocks in high enough that even if Amaranth dumped it would be a small blip.

Some of the other stocks were more thinly traded and we can see from them what Amaranth dumped and when. RAIL a railcar manufacturer, it had an average daily volume of 355K but on September 15th, volume jumped to a little over 1m.

This is the pattern we see from most of the Amaranth dumpings, they took place on the 15th and the 18th when the letter to investors was sent. They may have sold on the 15th to get some breathing room once the energy disclosures hit. If that’s the case they grossly misjudged the amount of liquidity they would need to survive once the letter was made public and then were forced to sell even more frantically on the 18th to survive.

SEA, Star Maritime Acquisition, a speculative firm without significant operations was an obvious dump. With average daily volume of 92k, Amarmath dumped 2.5m shares on the 18th at a slight loss.

The other top ten holdings that showed an uptick in trading volume on those days are IMA and OKE, which may not have been related to Amaranth.

The liquidity crunch was so severe that Amaranth had to not only get rid of the profitable position but several break evens and losers just to survive.

Prosecutor Sean Berkowitz gets a Second Chance – The Harassment of Jeff Skilling Continues

Police thugs on a power trip recently arrested former Enron CEO Jeff Skilling for the crime of walking down the street. With the harassment of Skilling still going on maybe Sean Berkowitz will get a chance to win one against him.

You remember Sean right? He was the prosecutor who Skilling ate alive during the Enron trial.

Up next: Justice Dept. vs Skilling in the conspiracy to commit jaywalking trial. Soon to be followed but the prosection of Skilling under section 1001 for lying to federal investigators about jaywalking after they don't find enough evidence to support the conspiracy charge...

Atrocious Economics at the Washington Post

It could almost be satire. In this article the Post claims that elimination of tariffs is a plot by big corporations to attack small business. I am not making that up (thanks Jeff!). Circumstances do not exist where an economy benefits from trade barriers – they are always detrimental. The costs of the tariffs are borne by consumers who pay higher prices and get less choice. Only a very small group of people reap the rewards of this statism

"It's become sort of a lobbyists' dream," said Jim Schollaert, a former State Department trade specialist who now represents domestic manufacturers. "It's a gravy train, and there's little work to it."

Each legislative season, corporate executives and lobbyists quietly draft hundreds of bills to suspend tariffs. Over time, the changes cost taxpayers hundreds of millions of dollars in lost revenue, a Washington Post analysis of U.S. trade data found

Conspiracies everywhere, propagated by evil corporations and unscrupulous lobbyists! Soon to be reprinted in The Daily Worker…

TradeSports: The Smart Money according to IBD

They quote to 10ths and feature Luskin:

In handicapping the midterm elections, conventional wisdom and the smart money seem to have parted ways in recent weeks.

If you happened to catch "The Chris Matthews Show" on NBC on Sunday, you would've learned that 11 of his 12 panelists expect the Democrats to capture the House.

But those who put money behind their predictions see things differently. Quotes at TradeSports.com show that futures traders favor Republicans to retain control of the House.

Wages of Sin- The New Yorker on the Hypocrisy of Gaming Ban

The difference between the lottery and other forms of gaming. Plus how gov't intervention stifles innovation:

Sports betting, by contrast, involves skill, and it is possible, although very difficult, to consistently win money on it. Sports bettors are closer to stock or commodities buyers than to people who buy lottery tickets. How much difference is there, after all, between betting on the future price of wheat (an activity banned in some states in the nineteenth century) and betting on the performance of a baseball team?

Furthermore, the ban on online betting is hindering the development of new markets that could predict far more important outcomes than that of the N.B.A. finals. In the past few years, a host of prediction markets, as they’re usually called, have appeared online, offering people the chance to speculate on subjects ranging from the box-office performance of Hollywood films to the outcome of Presidential elections and the spread of bird flu.

If I Had A Nickel For Every Click...

Starting next year, in much the same way Ranieri packaged bundles of mortgages themselves and sold them as investment vehicles to institutional investors, Root Markets and the CBOT aim to create futures markets based on consumer Internet leads. "We see a very interesting product opportunity in a whole variety of sectors," says CBOT CEO Bernard W. Dan. In other words, they literally intend to create new markets out of consumers' online attention.

Very interesting stuff!

Records Opium Yields in Afghanistan – Another Drug War Failure

…economic history is a long record of government policies that failed because they were designed with a bold disregard for the laws of economics. – Ludwig von Mises

The United Nations' anti-drugs chief announced a "staggering" 60% rise in opium cultivation in Afghanistan this year, and demanded the government arrest scores of major traffickers and remove corrupt officials and police who are profiting from the trade.

If the supply of any good declines while the demand remains constant, what happened to the price? Its goes up of course! So how did the anti-drug policy cause a rise in production in the first place?

The rise comes despite an injection of hundreds of millions of dollars in foreign aid to fight the drug over the past two years.

This should actually start off, “The rise comes because of…”. In other words the supply was restricted and caused a rise in prices. The rise in prices gave growers more incentives to raise opium. The actions taken to eradicate the supply of the drug provided the price incentives for supplies to grow more of it. There is no victory when you battle the market.

The record crop yielded 6,100 tons of opium -- enough to make 610 tons of heroin -- outstripping the demand of the world's drug users by a third.

I’m not sure what the WSJ means by this. Likely this is just a sloppy comparison to last years consumption figures and may portend a price fall.
The benefits of eradication are a windfall to the growers and intermediaries involved in the drug trade. The drug war is better thought of as a massive transfer of wealth from the US taxpayer directly to the traffickers. With out the Leviathan spending so much to keep the price of drugs high the suppliers and dealers of narcotics wouldn’t have so much incentive to advance and perfect their trade.

Will Hillary Drop Out of the Race? Who Benefits?

http://www.timesonline.co.uk/article/0,,2089-2340352,00.html

FRIENDS of Hillary Clinton have been whispering the unthinkable. Despite her status as the runaway frontrunner for the 2008 Democratic nomination for president, some of her closest advisers say she might opt out of the White House race and seek to lead her party in the Senate.

BetonSports Court Order Extended – Carruthers Still Under House Arrest

This was reported last yesterday, here is the best article on it from Kenneth Weitzner at EOG:

At Thursday's hearing prosecutors said they were still trying to serve legal notice of the indictment on the company and expected to be able to do so in London within a week.
…
Was the timing of the initial arrests involving BetonSports occurring in juxtaposition with the Leach Bill making it's way through the House of Representatives another coincidence, too? I think not.

What I believe we have happening here is a coordinated effort by the DOJ and Congress to work together to ban online gambling.

Furthermore, I believe there are special interest groups pushing them financially and politically to get the job done no matter what the public (voters) really wants.

TradeSports Updates Fee Structure

Details of the changes are...

* No Fees Pre-Event: No trading or expiry fees on sports events if you trade them before they become "in-running".
* No Expiry Fee Unless "In the Money": A position that expires "out of the money" used to incur a 4c fee per lot. "Out of the money" expiries will now incur no expiry fee. An in the money expiry will now incur a fee of 10c per lot.
* Trading Fees: Trading fees are being increased to 5c per lot. Trading Fees at price extremes will be 3c per lot. Price extremes are 0 to 5 and 95 to 100.

Forum comments on the change

Sacha

the canuck