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Who’S Behind The Bush-Futures Attacks?
Whoever it is, he's trying to sway the election toward Kerry.


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Donald L. Luskin

President Bush’s enemies have found a new avenue of attack — the online financial markets.

There have now been four separate “speculative attacks” on the market in futures contracts on Bush’s reelection probabilities. These futures are real-money “bets” — placed by thousands of traders around the world — on whether or not George Bush will be reelected. For the last several months the futures have been a reliable leading indicator of where conventional polls are heading, and they’ve received increasing mainstream media attention.

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The attacks on the Bush futures have involved massive sell orders placed by a single individual — the same individual all four times — according to a spokesman for Tradesports.com, the Dublin-based futures-trading website. Each attack caused a massive temporary drop in the price of the Bush reelection futures. The most recent attack came last Friday at about 1:30 p.m. Eastern time. It whacked the Bush futures from a price of 54 (indicating the market’s estimate of a 54 percent probability of a Bush reelection) all the way down to 10 (indicating a 10 percent probability of reelection) in just eight minutes. Six minutes after the attack the Bush futures were back to 54. That’s the equivalent of an 8,000-point crash in the Dow Jones Industrial Average followed by an 8,000-point recovery. All within 14 minutes.

What could have been the attacker’s motive? Obviously, it couldn’t have been to maximize profits. Even if Bush loses the election and the futures position pays off, those attacked would make more money by being patient and selling at 54 instead of 10. In fact, last Friday when the futures snapped back to 54 once the attacker was done selling, every contract he had sold at 10 showed an immediate 44 point loss.

So, if the motive wasn’t profits, it must have been political — a scheme to spread fear, uncertainty, and doubt among Bush supporters, and to create the false impression of winning momentum for John Kerry. Indeed, two of the attacks occurred just after the second and third presidential debates. The seller must have wanted to make it seem as though the futures — an instantaneous poll of very special credibility in which you have to truly put your money where your mouth is — were giving Bush a big thumbs-down.

If these attacks were carried out for such purposes, then they were flat-out market manipulations. Tradesports has indicated these trades are entirely legal, both within their offshore regulatory framework and by their own house rules. But if such manipulations had occurred on regulated stock or futures exchanges in the U.S., they would likely result in criminal charges of securities fraud.

Who would stoop to such a sleazy — even if entirely legal — trick? One person comes to mind, and I’m not thinking of Hillary Clinton (despite her ample experience in futures markets). I’m thinking of a billionaire market speculator who has pledged to spend $100 million dollars of his own fortune to bring down President Bush; a man who recently said that “These aren’t normal times. The ends justify every legal means possible.” I could be wrong, but of course I’m thinking of George Soros.

Soros is the master of the speculative attack. In 1992 he became famous as “the man who broke the Bank of England” with similar attacks against the British pound. He is widely believed to have earned $1.1 billion in trading profits when the pound finally collapsed under his onslaught, and the Bank of England was forced to withdraw England from the European exchange rate mechanism. He was accused of doing the same thing in 1997 against the Malaysian currency, the ringgit, during the Asian financial crisis.

The trades involving the speculative attacks on the Bush re-election futures were miniscule by comparison — measured only in the tens of thousands of dollars — yet they were sufficient to have a major impact on a small market.

And there’s more. The potential for manipulating futures to demoralize the Bush camp is one thing. But the Bush reelection futures — and similar futures that trade on the Iowa Electronic Exchange — are closely watched by Wall Street and have an influence on stock prices. I pointed out early this year that the stock market trades in near tandem with the ups and downs of the Bush futures. In fact, the Bush futures, the S&P 500, and the Nasdaq all made their lows for the year on the very same day — August 12. After that point, the stock market rallied along with Bush as the lackluster Democratic convention played out. Similarly, the market swoon of the last couple of weeks has corresponded with a drop in the Bush futures, a drop that began even before the first presidential debate.

Manipulating the Bush reelection futures to spook the stock market would be a terrific way to make voters feel down about the economy when they step into the voting booth on November 2. Would the man who broke the Bank of England hesitate to do this? Remember, Soros said that “The ends justify every legal means possible.”

And it’s not as far fetched as you think. Soros has written extensively on what he calls his “theory of reflexivity.” Years ago, before he got involved in politics, he used to grouse that he was being passed over for the Nobel Prize in economics for this idea. Simply, “reflexivity” says that financial markets can have impacts on the real world. So if you want to move the world, just move the markets. That’s what someone is doing right now with the Bush futures. If it isn’t Soros, then likely it’s someone who has read his book.

Officials at Tradesports tell me that they have no intention of taking any action against the attacker. As far as they are concerned, any trade is a fair trade. “All emerging markets will experience volatility,” a spokesman said. “We are gratified that the market recovered so quickly and without any intervention on our part.”

Fair enough — and far be it for me to call for more regulation (the best thing about Dublin, Ireland, is that it’s one of the few places where Eliot Spitzer doesn’t have jurisdiction). But there’s something that all of us can do to police the political futures market and help keep it free from manipulation. It’s simply this: Take advantage of the stupid trades the attacker makes.

Here’s what I’ve done (and anyone with an account at Tradesports can do the same). I’ve entered orders to buy the Bush futures at absurdly low prices — and I’m just going to leave those orders there, in the hopes that the attacker will hit them. If he wants to sell more futures at 10, I’ll buy them all day long.

I’ll even make the attacker a special deal. I’ll buy literally as many futures contracts as he wants to sell at a price of zero. It’s a riskless trade for me — and it’s a speculative attacker’s ultimate dream to beat a market all the way down to nothing. That way, we both win.

To the attacker, whoever he is, I say: Are you feeling lucky? Make my day.

– Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your comments at [email protected].



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