This is the way the markets work, markets work, markets work, This is the way.........

Yesterday's short, odd, late-morning behavior of the Bush Reelection Contract has now more than corrected itself. As can be see by this graphic of price over the entire lifespan of the contract up to the moment, things are unfolding as we might more or less expect them to. So what happened yesterday? Why did price suddenly plunge, moving to an effective market prediction of below-50% reelection likelihood in a few minutes? And why, indeed, did price recover and resume its current upward trend? I thought the sudden internet appearance of the beheading video might have caused a panic. Others suggested the newsman assassination video. While these may have exerted some influence sources tell us a major buyer came into the market matching all available orders for Bush at 63 or below, then 62, then downward and downward in an aggressively fashion down buying every single order up to and including 49.9. This was a minor George Soros-type speculator trying, we might guess, to induce a selling panic by spending mass quantities to force the price downward. Markets are just wonderful things. You say potato, they answer "protein." You propose down, they'll always move up. It is the recurring wet dream of the anti-market gang that a market push in one direction may induce a reinforcing push in the same direction. It can and does happen -- but only very, very, very rarely. Most of the time markets move back towards you if you push them away. They move up if you push them down, and down if you push them up. They're built that way. That's why they can determine nice things like "equilibrium" prices and quantities. The exchange absorbed the downward shock and within 30 minutes it was back to business as usual -- except for the few bucks made by the bargain hunters who came in quickly, knowing a good deal when they saw it! UPDATE: In connection with this one reader raised questions about the contract itself. We have this material from Tradesports (whom we thank for getting this to us) to clarify the matter: In the event of any delays (and including due 'legal' process) the exchange rules 12.1.4 are specifically clear, all contracts will remain open until due process has taken place and one or other of the candidates are duly confirmed as elected. The contracts will remain open for trading throughout any 'extension'. 12.1.1 ELECTION CONTRACTS Contracts Listed 0-100 Candidate/Political Party A wins: The expiry will be 100 if Candidate A wins the specified election and 0 if he does not. 12.1.2 The Result The Result used to determine the expiry prices is the final result of the election as determined by the authorized Board of elections or similar regulatory body. For Political Party contracts any tie will be broken by the authorized Legislative procedures that are used to break ties. 12.1.4 Postponement If the election is postponed until another date, then contract expiration date will be moved according. Similarly if the final count is delayed the contracts will remain open until the result from the final count is officially declared. It is important to state clearly: TradeSports do NOT set the prices for this market (or any other). We are merely facilitators/brokers enabling members to trade against each other. The definition of our contract on Bush and Kerry is quite clear: that they must be elected President. We have an additional contract on the Certification of the President by 13th of Dec. This is exclusive of the former contract and will exire at 0 or 100, if the president is or isnt certified by the 13th of Dec. This contract WILL expire on the 13th of December at either 0-100.

This might be easier to read

This is the way the markets work, markets work, markets work, This is the way...

So what happened yesterday? Why did price suddenly plunge, moving to an effective market prediction of below-50% reelection likelihood in a few minutes? And why, indeed, did price recover and resume its current upward trend?

I thought the sudden internet appearance of the beheading video might have caused a panic. Others suggested the newsman assassination video. While these may have exerted some influence sources tell us a major buyer came into the market matching all available orders for Bush at 63 or below, then 62, then downward and downward in an aggressively fashion down buying every single order up to and including 49.9.

This was a minor George Soros-type speculator trying, we might guess, to induce a selling panic by spending mass quantities to force the price downward.

Markets are just wonderful things. You say potato, they answer "protein." You propose down, they'll always move up. It is the recurring wet dream of the anti-market gang that a market push in one direction may induce a reinforcing push in the same direction. It can and does happen -- but only very, very, very rarely. Most of the time markets move back towards you if you push them away. They move up if you push them down, and down if you push them up. They're built that way. That's why they can determine nice things like "equilibrium" prices and quantities.

The exchange absorbed the downward shock and within 30 minutes it was back to business as usual -- except for the few bucks made by the bargain hunters who came in quickly, knowing a good deal when they saw it!

UPDATE: In connection with this one reader raised questions about the contract itself. We have this material from Tradesports (whom we thank for getting this to us) to clarify the matter:

In the event of any delays (and including due 'legal' process) the exchange rules 12.1.4 are specifically clear, all contracts will remain open until due process has taken place and one or other of the candidates are duly confirmed as elected. The contracts will remain open for trading throughout any 'extension'.

12.1.1
ELECTION CONTRACTS

Contracts Listed

0-100 Candidate/Political Party A wins: The expiry will be 100 if Candidate A wins the specified election and 0 if he does not.
12.1.2
The Result

The Result used to determine the expiry prices is the final result of the election as determined by the authorized Board of elections or similar regulatory body. For Political Party contracts any tie will be broken by the authorized Legislative procedures that are used to break ties.
12.1.4
Postponement

If the election is postponed until another date, then contract expiration date will be moved according. Similarly if the final count is delayed the contracts will remain open until the result from the final count is officially declared.

It is important to state clearly: TradeSports do NOT set the prices for this market (or any other). We are merely facilitators/brokers enabling members to trade against each other.

The definition of our contract on Bush and Kerry is quite clear: that they must be elected President.

We have an additional contract on the Certification of the President by 13th of Dec. This is exclusive of the former contract and will exire at 0 or 100, if the president is or isnt certified by the 13th of Dec. This contract WILL expire on the 13th of December at either 0-100.

Link posted by Steve Antler : 4:04 PM

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