Lesson: Watch the prediction markets

Lesson: Watch the prediction markets

Want to get the jump on the next Bush administration resignation? Follow the nascent political prediction markets, where insider trading ain’t no crime. This just arrived in my in box from InTrade, one of the leading markets:

Within minutes of TV reports of the resignation the price of a single contract on Gonzales resigning had soared to 99.5, representing a probability of 99.5% that he would be gone by the end of September.

Less predictable was the movement in this market early on Sunday, more than 24 hours before the resignation was officially made public. On Sunday the price of a contract for Gonzales to resign by the end of September rallied from 10.0 to 29.0. The contract for a resignation by end of December rallied from 26.0 to 40.0. 

Washington Whispers broke the Gonzales rumor at 12:06 p.m. on Sunday, the day Gonzales met Bush and resigned in person, so it’s likely that people were just making a bet based on that story. After the Winograd Commission condemned Israeli PM Ehud Olmert in late April for his conduct of the war with Hezbollah, InTrade’s Olmert resignation contracts spiked. Today they are at rock bottom. Still, this, from the same newsletter, is intriguing:

A similar market for Donald Rumsfeld to resign as Secretary of Defence also saw sudden upward movement in the hours before the news became public. The market on Saddam Hussein being captured also rallied just before he was found hiding in his bunker.