iPredict

I’ll blog below my weekly analysis for iPredict on the various stocks. Just thought I would share some other aspects of that people may find interesting.

iPredict launched some stocks on Friday around what arrangement, if any, the may have with . People may find it interesting the thought that has to go in to getting the stocks correctly described.

At first the plan was to just have a Yes/No on whether the Maori Party will support National on supply and confidence. But then I thought that this lumps in together the Maori Party abstaining on supply and confidence (which would probably let National form a Govt) and the Maori Party voting against supply and confidence.

So we then thought we had three stocks – support, abstain and no supply and confidence. But then again we saw potential problem is that “no supply and confidence” was covering two quite different scenarios – one is where National forms a Government with the Maori Party voting against supply and confidence (ie National does so well doesn’t need them) and one where Labour forms a Government. So we then did a fourth stock to cover those two quite different scenarios.

We also debated (I don’t decide these things – I just get asked for advice from time to time) how do you define supply and confidence. Do you pay out based on the first supply and confidence vote? Do you pay out on when a supply and confidence agreement is signed? If so, how then do you judge paying out on the option for no agreement? Is it when a Government is announced or when Parliament first sits? In the end the definition is:

This contract will be judged when an agreement has been reached or the first day Parliament sits, whichever comes first. If it is still unclear whether there is an agreement between a National-led government and the Maori Party then this contract will be judged based on the outcome of the first vote on Confidence or Supply after the General Election.

Which should cover all possibilities.

Having wrestled with what the options should be, how to describe them, and then how to judge an outcome, we have the decision on what initial prices to sell each stock as. My recommendations were:

  1. National-led Government with Maori Party voting for confidence and supply – 15c or 15%
  2. National-led Government with Maori Party abstaining on confidence and supply – 45c or 45%
  3. National-led Government with Maori Party voting against confidence and supply – 10c or 10%
  4. Not a National-led Government – 30c or 30%

No 4 was easy to price as that is basically the same as PM.Labour so went off their current share price. In fact PM.Labour and Maori.Nat.Other should always be the same price, so if they are not one could make some money arbitraging between them.

No 3 I saw as a low probablility of around 10%. National has said it will seek a support or abstention agreement with the Maori Party, even if they can govern without it.

No 1 I also put as a fairly low probability – 15%. To actually secure a positive vote on supply and confidence will be a big ask, considering how many Maori roll voters vote Labour

No 2 was by default 45%, what was left over. But it is logically the most likely outcome. National either gets a majority with ACT/United Future and strikes a deal to abstain, or if National/ACT/United Future just falls short, the Maori Party strikes an agreement to abstain, and the biggest bloc gets to form the Government – being National/ACT/United over Labour/Green/NZ First.

Did the market agree with me?

  1. I had Maori Party support at 15% and the market has taken it to 22% – not far off
  2. I had Maori Party abstain at 45% and the market has taken it down to 35%
  3. I had Maori Party no agreement with Nat-led Govt at 10% and the market is at 17%.  I suspect a few people are overlooking the fact National will seek an agreement even if they do not have to.
  4. I had “Other” being not a National-led Government at 30%. Market now has it at 23% but that is more due to the Winston revelations this morning.

Overall I’m pretty happy with my initial suggested prices.

Pm.National started the week at 68c. A narrowing margin in Sunday’s Colmar Brunton poll to 12% saw the price dip to 65c. Over the week the price rose up to 71c and then dropped on Wednesday afternoon to 68c as the Herald broke the story of further allegations about John Key and the H-Fee. But as the allegations were found to be baseless, PM.National recovered to end on 72c.

PM.Labour started at 32c and stayed at that until Tuesday 6 pm when news broke of Winston Peters having pushed Owen Glenn to be made Consul to Monaco. The reignited scandal pushed Labour down to 29c. They lifted to 32c when the H-fee scandal initially broke, but then fell down to 27c over the next day as it fizzled and backfired.

Since the column the price was at 28c at 10 pm Friday and on Saturday dropped to 20c after the publication of the Meurant documents in the Dominion Post.

Peters/Resign has been flatlined at 10c for weeks. The Glenn Monaco story saw it briefly lift to 16c on Wednesday but then it settled back to the normal 10c level.

Mp.Peters started the week around 35c but fell away to 25c on Tuesday night and Wednesday in reaction to the Monaco revelations. The market believes this story has seriously damaged his chances of getting NZ First back into Parliament. Likewise Tauranga.Peters fell from 15% to 10% at the same time.

The Dom Post story on Saturday pushed Mp.Peters down to just 20c.

My pick of the week was to short sell Peters.Resign at anything over 8c. It’s not much of a profit but it is an easy profit. The PM has shown she won’t sack Peters, even if he was found to be the alter ego of Osama bin Laden. There is no real chance he will be removed from office or resign before election day.

Since the column was published the shatre price nudged down to under 8c, so i

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