Monday, November 19, 2007

CBOT (Cynics Board of Trade) - Contracts I'd Like To See

I''ve always marveled at the London Bookies, and their willingness to take a flyer and make a price on well-near anything be it the probability of a hole-in-1 at a particular major golf tourney (they priced this one wrong!) or the altitude and circumference of President Cheney's obviously large hemorrhoid. By comparison, the US futures, and stock exchanges as gambling destinations are poor seconds for those desiring to make more exotic bets with utilitarian hedge usefulness that might, one-day, make them legitimate risk-transfer vehicles.

With this in mind, there are some Contracts I'd like to see:

Shadow CPI Futures. Everyone knows the CPI is royally buggered. The CRB contract trades once-a-week and in any event reflects on the commodity side. The Shadw CPI fixes the bent nature of the CPI calculations. Of course for savers, this just whets the appetite for the real deal: "Shadow CPI TIPS". If the financial engineers on the sreet were looking to invent really useful products, someone would offer this one to their customers.

Marginal Tax Rate Futures Everyone knows that the US Fiscal balance is deeply flawed. Not everyone understands nor agrees upon how precisely it will be rectified. Marginal Tax Rate Futures will allow those who've exploitedthe double-laxity of fiscal and monetary policies over recent years with unusually low tax rates to actualy keep it by hedging their tax rate out into the future. I am not certain the best way to express it quite yet for there are many variations: highest marginal rate; or income tax revs as %GDP collected etc.

Inverse Chelsea Property Futures. Ohhhhh to short the Cheyne Composite! Thing how many aspiring oligarchs (and offspring) need to hedge their future purchase of a Sloane dacha, and how manny of us on the other side would love to take the other side of the trade "on spec". This is risk transferrance in its most beautiful form and would make a super contract.

Aggregate Foreign Ownership % of Japanese Stock Futures". The key to Japanese benchmark stock-index relative (and absolute) performance is what the foreigners are doing. Rather than waste time oln the vagaries and uncertainties of stock-picking, or currency moves, why nott just speculate on the aggregate movemement of foreign money into or out-of Japan?

Compound Options on the CSE, SENSEX & SSE 25. These would undoubtedly become the "freebase" or "crack" of modern financial markets. So powerful, and so much embedded leverage would there be in these little Habaneros that punters from all the globe would be queueing up to have a go. The skeptic need only spend a small amount to purchase a call option upon a put option, such returns in the event of implosions would be positively Paulson-esque.

US Federal Military Expenditure Futures. Ever-hopeful republicans and evangelicals may want to bet that global unrest might spur further military expenditure increases, but takin ghte other side, unethtical investors long of defense can hedge their portfolios or ethical speculators can layout new shorts to profit from the coming bust in defense expenditure when the Dems take over the both the Executive and Congressional bodies. I just wish there was a ready-made contract to get ready for Carter-esque chiseling of the military budget come 2009.

Minimum US Federal Motor Fleet MPG Futures". Don't you wish you could fiind a hedge for rising gasoline costs that didn't have the negative carry costs associated with the energy complex directly? Betting on the minimum Federal mileage regulations would provide just such a hedge. Cynics and libertarians could short it, while those with a view on future energy prices, the value of the dollar, and the direction of US energy policy post-2008 coiuld punt big top offset the ongoing USD depreciation and inflation whittling away our dosh.

These are but a few of the contracts I'd recommend that BoT, CME or other reputable exchange launch to take advantage of the growing need for alternative risk transfer. Please feel free to contribute your contract and product suggestions to this space!


The Olive Oil Gazette said...

Pension benefits futures would serve a purpose.

My dream play would be a daily pari-mutuel bet on the S%P (or anything) close. Windows open from 4:30-5.30, continental. Then a bid/ask aftermarket until U.S. close.


Byrne Hobart said...

Assuming they don't already exist: merger-only futures. People who work for a public company should have a way to hedge against the risk that their employer will be bought out and fire them, but shouldn't have to double-down on their bet that their employer will remain solvent enough to pay them. The solution? A product that pays the holder whatever the company gets when it's bought out (per share). So if your employer's stock trades at $50, you can spend $5 on an option that is worthless until the company is taken private or taken over.

This would also provide implicit odds of a takeover: if management saw that their buyout-only options had doubled in value over the last few weeks, they could start to prepare for an offer.

Macro Man said...

Might I suggest "writedown futures", the perfect hedge for investment bank employees trapped with large deferred-vesting long p.a. posiions in their employers. Simply buying "writedown" futures, which cumulate to the US dollar value of announced bank writedowns of turd-holdings in a given calndar quarter, would allow these poor folks to hedge their locked-in equity exposure. Imagine, if you will, the money that may have been saved by the loyal footsoldiers at C and MER had they been able to hedge with this vehicle. 'Twould also allow one to sift through the by-now daily rumours of multi-billion dollar writedowns to gauge exactly what is "in the price."

Might I also suggest "tin foil hat" futures, the perfect way for shorts to hedge against a PPT screw-job by anticipating the demand for the eponymous headgear from fellow conspiracty theorists....

OldVet said...

I'd like to see a "401(k) Lethargy Index" since most retirement investors are fast asleep and remain that way. Due to glacial movements in Lethargy it would have to be in small increments, and "Normal Alertness" would be the 50% or Normal marking on the scale. That would be the immovable money that will be the cushion in the deflating equity markets of the USA. Each share would have to be cheaply priced, due to tiny changes in Lethargy.