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Political Futures Markets? Bah, humbug

Posted By Barry Ritholtz On October 1, 2004 @ 3:18 pm In Politics | Comments Disabled

I keep hearing a lot of jabber about the Politcal Futures markets like Intrade.com and Iowa Political Futures, and how significant the political action is relative to the equities markets.

This is utter nonsense.

Lets compare these exchanges with the U.S. Capital markets, which are, in a word, massive. Total market capitalization for equities are ~$13 trillion dollars; for Federal debt (Bonds and notes) its about $4 trillion; while corporate bonds total in excess of $5 trillion.

The total dollar amount invested is the political futures? An absolute pittance.

Let’s start with Intrade.com. They state they are the largest political futures exchange in the world. Their biggest contract – The George W. Bush Futures — has about two million dollars invested. Over the past year, these futures have traded a grand total of six million dollars. The Iowa Political Futures market is downright tiny in comparison. Over the summer, they had less than $20,000 invested in their “winner take all” exchange.

Let’s put this in even simpler terms: eBay trades 10 million shares a day, and is priced at $91. It takes eBay less than 3 minutes to trade the entire years worth of Intrade presidential futures value. General Electric, at 15 million shares / $33, requires about 6 minutes. Microsoft takes one and half minutes.

And yesterday, when Merck got clocked, it traded the entire years worth of Presidential contracts in 25 seconds.

What does all this mean? Like it says in the fine print, this is good for “entertainment purposes” only. The dinky futures trading outfits are too small to reach even the level of unreliability as forecasters that the major capital markets are.

There is no alchemy: Pooling our collective ignorance does not somehow yield wisdom.

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