The rate rise form guide

There is more than a horse race at stake Tuesday. There's also the future of Australian mortgages. The Reserve Bank has adjusted interest rates on each of the past four Melbourne Cup days, a coincidence that flows from its practice of meeting on the first Tuesday of each month.

Punters at sportsbet.com.au had been overwhelmingly backing another hike Tuesday with the house prepared to pay out just 1.36 per $1 bet if the bank moved.

Wednesday's surprisingly low consumer price result turned the market around with the house now prepared to pay an impressive $2.65 if the Bank moves.

The futures market has done the same, slashing the implied likelihood of a hike from a 49 to 21 per cent.

Reserve Bank books garner firms such as SportsBet publicity but they are hardly money spinners...

The firm has $25,000 riding on the Reserve Bank decision, around $4 million on the Cup.

Since April it has the field to itself. The Australian Securities and Investments Commission warned off its competitor Centrebet threatening it with "court orders shutting down your business" if it continued "offering a derivative without a financial services licence".

SprotsBet's Hayden Lane says he doesn't know why ASIC has taken action against one firm and not the other and he will stop as soon as ASIC asks.

In the meantime Sportsbet is taking bets on whether the Australian dollar will hit one US dollar before the end of the year.

It hasn't paid out yet because the rules specify the Aussie must be worth more than one 1 $US at 4.00 pm on an Australian weekday, something that hasn't happened yet.

It is offering $2.65 for each $1 bet on parity this year, having found most punters don't believe it will happen.

Published in today's SMH


Asic to Centrebet


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Read more >>

You wouldn't bet on it - if ASIC gets its way

The Reserve Bank will next meet to vote on interest rates a week from today, but don't expect to be able to bet on the outcome.

For only the second time in two years Centrebet won't accept your money.

The last time it believed the result was a foregone conclusion. This time ASIC has stopped it.

The Securities and Investments Commission has written to the Alice Springs based bookmaker warning that bets on interest rate changes may be "derivatives" as defined in section 761D Corporations Act.

That section defines a derivative as an arrangement in which the value of a consideration is derived from the value of something "of any nature whatsoever," including an interest rate or exchange rate.

On the face of it the section would outlaw all manner of bets including the recent high profile wager between economics professor Steve Keen and financial markets economist Rory Robertson on the value of house prices which saw the loser walk from Canberra to Kosciusko...

The letter from ASIC senior manager Jonathan Coultas to Centrebet says offering a derivative without a financial services licence "is an offence punishable by a fine not exceeding $22,000 or imprisonment for 2 years or both".

It threatens the bookmaker with "court orders shutting down your business".

"Totally shattered and a little bit confused," said Centrebet public relations manager Neil Evans when asked how he felt. "We have spent hundred of hours doing this for two years with not a word said."

Centrebet's market was hardly low profile. It has been reported on eight times in this newspaper and the odds it offers have been used as a guide to the weight of public opinion about what the Reserve Bank board will do.

Less-well known has been the market operated by Centrebet's competitor Sportsbet.com.au.

It is continuing to take bets on Tuesday's Reserve Bank board despite knowing of ASIC's threat.

Two of its bets it has taken on - each on no change in rates - are for $10,000 each.

"We have received nothing from ASIC in terms of whether we can or can't bet on that market. We will keep taking money until they tell us to stop," said spokesman Haydn Lane. "Apart from sports events and elections it is our most popular markets."

Asked why he thought ASIC had targeted Centrebet and not his organisation Mr Lane said it could be because in March "Centrebet started betting on the ASX 200, I think that sort of kicked them into action a bit with them, but we've certainly heard nothing".

Centrebet also suspects ASIC was provoked by its action last month in opening a market on the stock exchange share price index. "This other market seems to have been caught up in it. We've stopped in May but a rival bookie is going ahead."

Asked to explain why it had targeted one bookmaker but not the other an ASIC spokesman was unable to comment on operational matters. However he confirmed that ASIC had written to Centrebet.

Melbourne Law School professor Ian Ramsay said the ASIC letter had effectively shut down the Centrebet market on Reserve Bank decisions. It would not be worth the bookmaker's while to fulfill the requirements needed to get a financial services license.

For now Sportsbet.com.au is offering $1.20 for each $1 successfully bet on no change next Tuesday, and $3 for each $1 bet on a rate hike.

Mr Lane said he is hoping he doesn't have to stop mid-stream and give back the money.

Published in today's SMH and Age


Asic to Centrebet


AFR Editorial, April 17:

ASIC's nanny gambling curbs just don't rate

It's become commonplace in the wake of the global financial crisis to refer to the financial system as a giant casino. And in a sense that's true. But the critical issue is not that large amounts of money are wagered on predictions of future events, but that those making the bets may be unaware of the proper odds, or that the races are fixed. Or indeed that they are wagering at all.

Post-crisis focus should be on the integrity of financial markets, malfeasance by agents, structural imperfections and appropriate regulation and supervision.
The scrutiny should not be on the betting per se.

For better or worse, any financial reward carries a risk, and attempting to price that risk is the business of financial markets. It's an odds play.

Now we hear the Australian Securities and Investments Commission has told betting agency Centrebet to stop offering odds and taking bets on share price indices and the Reserve Bank's monthly interest rate changes.

ASIC claimed that the "financial bets" offered over the ASX 200 share index and RBA interest rate changes may be "derivatives" as defined in the Corporations Act, and that these services may amount to a financial services business, requiring a financial services licence.

Centrebet has suspended offering odds on both markets and has written to ASIC saying it would like to continue its interest rate betting service. It's also stated that its operating licence from the Northern Territory government allows it to bet on interest rates and stockmarket indices.

Curiously, Sportsbet.com.au, which is also licensed in the NT, and also offers interest rate betting, has not received any attention from ASIC. So why the heavying of Centrebet? The online lucky shop has been offering odds on Reserve Bank rate rises since August 2008, without any comment from ASIC. But in March this year it started offering odds on the monthly finish of the ASX 200 share price index, in effect setting up in competition to the ASX. Centrebet stated at the time that it also planned to extend its financial betting to the oil price, and individual stocks as well, although those latter plans are apparently now on hold.

Centrebet is trying to expand its market beyond the traditional gambler to appeal to white collar financial types. And it was succeeding. It received 200 bets on the monthly close of the S&P/ASX200. Now ASIC may well be right; Centrebet's activities with respect to the share price index may technically contravene the law as written. The interest rate betting is more uncertain.

But really, is this something to which a very stretched, crucial agency should be devoting time and resources? Is the spirit of the law intended to stop such bets? Why has it acted now, instead of August 2008, and why has Centrebet been singled out?

Does ASIC really think the integrity of financial markets is being compromised because maybe some investment bank's forex desk or options traders are laying off the RBA rate rise risk by flipping screens and hedging with Centrebet?

For the punter, the monthly RBA board meeting and the daily sharemarket are probably two of the cleanest markets you could hope for. If those markets are fixed, then ASIC would really have some worries.

So, too, if punters were pulling their money from their superannuation and wagering it on Centrebet's ASX200 with a side bet on Martin Place in Race 5 at Randwick.

But there is no evidence of this happening. Those making such a bet can be perfectly sure what they are betting on, the odds being offered, and the counterparty they are dealing with.

Gambling, love it or hate it, is part of the Australian culture. Punters know they are making a bet when they go to a bookmaker. This is not a market we need to be nannied in. Centrebet should be free to resume taking bets on interest rate changes and ASIC should concentrate on bigger issues than a Darwin bookmaker straying into turf that the Australian Securities Exchange regards as its monopoly.



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Read more >>

No betting. The RBA loses its fun

Can this really be the end?

ASIC has moved to shut down betting on Reserve Bank interest rate decisions, giving the the bookmaker Centrebet until today (FRI) to desist or face the possibility of a court order "shutting down your business".

The letter from ASIC senior manager Jonathan Coultas to Centrebet seen by the Herald says "it has come to the attention of the Australian Securities and Investments Commission that you may be carrying on a financial services business without holding a financial services licence."

"In particular we believe the financial bets you offer over the ASX 200 share index and RBA interest rate changes may be 'derivatives', as defined in the Corporations Act."

The penalties for trading in derivatives without a license include up to two years in prison.

Melbourne Law School professor Ian Ramsay said it would be not be worth the bookmaker's while to run through the hoops needed to get the license. The letter would effectively shut down its market on Reserve Bank board decisions...

Centrebet has removed the ASX 200 and Reserve Bank markets from its website.

It took more than $45,000 on March Reserve Bank board decision and has taken more than $1 million over two years on the outcome of Reserve Bank meetings with the punters marginally in front.

"We didn't know we were selling derivatives," said Centrebet public relations manager Neil Evans. "We thought we were taking bets, the same as we do on the outcome of sporting events and elections."

"We've been doing it for two years without complaint. Now ASIC says it has come to its attention."

Professor Ramsay said ASIC may have turned its attention to the bookmaker following a complaint from a competitor after it set up a market on the ASX 200 share price index in March.

"Once ASIC took an interest it would have reviewed other activities of Centrebet including betting on interest rates, that's a possible scenario for how this unfolded.

Mr Evans said he was shattered and confused. "We have spent hundred of hours doing this since 2008 with not a word said."

ASIC confirmed the existence of the letter but would not comment.


Published in today's Age on line


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Read more >>

Okay, are they going up?

Someone has staked $30,000 on the outcome, due at 2.30 pm AEDT

Millions of Australians stand to suffer if, as expected, the Reserve Bank lifts interest rates by a further 0.25 points this afternoon. But for one big-spending punter the pain will be extreme.

The Sydney man, a Centrebet regular, has staked just short of $30,000 on the Reserve Bank sitting on hands.

If at 2.30 this afternoon the Bank announces its board has decided to keep rates on hold he will walk away with a profit of $21,000. If it puts rates up he will say goodbye to $29,500.

"He is very confident. He placed four separate bets, continuing to pile in as the odds went down," said Centrebet spokesman Neil Evans. "Another punter staked $5000 on there being no change, another $3500."

All up the betting public have staked $45,000 on no-change and only a couple of thousand on a move.

"Its the house against the punters"... said Mr Evans. "I am hoping they don't know something I don't."

Away from the punters there's a good deal of uncertainty.

Centrebet itself was caught short last month, refusing to run a book because it believed a rate rise was a done deal. Mr Evans says it won't make that mistake again.

Of the 18 market economists surveyed by Reuters 12 expect a rate hike and only 6 expect the Bank to stay put.

But they've been unusually reluctant to back their forecasts with money. "It's a case of once-bitten, twice shy," says Macquarie Group interest rate strategist Rory Robertson. "Prices on the futures market imply less than a 50-50 chance of a hike - that's because some players are staying out of the market."

Robertson himself will be very surprised if the Bank doesn't hike rates. "It's already paused for nearly 90 days after hiking three times in just 60 days," he says. "It's time to continue what it calls the process of normalisation."

Reserve Bank governor Glenn Stevens told a parliamentary committeee in February that rates were still
between 0.50 and 1.00 points below their long-term average. "We are still below normal which hitherto has been the appropriate place to be," he said. "There is a little distance to go yet before I think you could characterise the setting of interest rates as normal or average."

Another hike of 0.25 points today would add a further $47 to to the monthly cost of servicing a $300,000 mortgage. The two to four such hikes foreshadowed by the Governor would add between $95 and $190.

The consumer group Choice called on banks to "come out quick" in response.

"Last time after Westpac moved with a big increase we had a rather unedifying standoff of the others waiting seeing who was going to respond first," said spokesman Christopher Zinn.

"The National Australia Bank showed leadership by quickly announcing it would keep its increase to that imposed by the Reserve Bank and gained kudos and business as a result.

"If these guys are such boffins with the figures they should already know excatly what's in their interest and announce it without waiting to see what the others will do."

Economic figures released yesterday marginally added to the case for a rise. Company profits, sales and imports all increased in the December quarter, with profits climbing for the first time in 15 months.

But the jump in imports was narrowly based with 70 per cent of it due to motor vehicles as buyers who could define themselves as businesses rushed to take advantage of the government's tax break for buying cars before it expired at the end of the year.

Published in today's SMH and Age


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Read more >>

Somewhere, someone is very certain about how the Reserve Bank is going to move Tuesday

Someone is very sure about the outcome of tomorrow's Reserve Bank board meeting.

Late on Thursday, the day that briefing papers went out to the members of the Reserve Bank board, Centrebet received an inquiry about accepting an enormous wager.

The caller, who left his name with staff at the Alice Springs-based bookmaker, wanted to know whether it would accept three-quarters of a million dollars on the board voting for "no change" on Tuesday.

The bet would have been way in excess of anything Centrebet has ever previously been offered on a non-sporting contract...

"Off the scale," said spokesman Neil Evans.

The biggest previous bet placed on an economic outcome was $90,000 in two lots of $45,000 on the previous Reserve Bank board decision.

"With a potential bet of this size, it is actually quite frightening when you are talking about decisions that may or may not be known," Mr Evans said.

Asked whether Centrebet staff suspected the caller had inside knowledge, he replied, "you can read into it what you like, but you would just about have to know what's going to happen at Tuesday's announcement."

The timing of the call, after 5.00 pm Thursday, lends weight to those suspicions. Thursday is the day the Reserve Bank's senior staff finalise their recommendation about what to do with with interest rates and send it out to board members.

Until Thursday there is no recommendation on rates to leak.

Although board members are free to reject the staff recommendation and have done so at least twice since the onset of the global financial crisis, rejections are normally rare.

Centrebet told the caller it was prepared to accept the $750,000 bet but would pay out only part of it at the quoted rate of $1.08 per $1.00, paying out the rest at a lower rate.

A payout of $1.08 for the full amount would have netted the caller $60,000.

As it happened the caller was unable to come up with the money and never laid the bet. Centrebet staff say they have no doubt his inquiry was genuine.

The biggest bet actually made on the outcome of tomorrow's meeting is worth $25,000. It will earn the punter $2000 if the board votes to keep rates on hold.

Published in today's SMH and Age

Read more >>

Not exactly on the mend, but...

The only big international organisation to foresee the global financial crisis believes the worst of it may have passed.

The Swiss-based Bank for International Settlements says "glimmers of hope" are sparking a "rebound of risk appetite among investors," pushing up borrowing by more than a quarter so far this year.

"The key economic indicators remain at depressed levels," the Bank says in its latest quarterly report. "But investors are focused instead on incipient signs that economic conditions are deteriorating less rapidly than before, while intensified policy actions to counter the crisis have helped bolster confidence".

In Australia the latest Dunn & Bradstreet survey finds businesses more positive with expected expected sales, profits and employment all improving from a low base...

The sales expectations index is up 16 points to minus 32, the profits index up 17 points to minus 40 and the employment index up 2 points to minus 24.

Around 8 per cent of the employers surveyed say they now expect to put on more staff, compared to 32 per cent who expect to downsize.

Dun & Bradstreet consultant, Duncan Ironmonger, said the survey indicated that, after "a very bleak June quarter, there would be some improvement in the September quarter".

"In July, there is an income tax cut and government infrastructure spending will have an increasing positive impact on jobs and incomes in the quarters to follow,'' Dr Ironmonger said.

The next round of employment figures to be released Thursday are nonetheless expected to be grim.

Officially Australia's unemployment rate fell from 5.7 per cent to 5.4 per cent from March to April in what market economists interpret as statistical noise.

Westpac believes the rate returned to to 5.7 per cent in May and will eventually climb above 8 per cent. It expects the Thursday's figures to show that an extra 30,000 Australians have lost their jobs.

The bookmaker Centrebet is also offering the shortest odds on an unemployment rate of 5.7 per cent and is offering a good return to anyone prepared to punt their money on Australia continuing to avoid a so-called "official recession".

Although the March quarter growth figures released last week had Australia avoiding the two consecutive economic contractions commonly taken to define a recession, the Alice Springs based betting agency will pay $1.85 to anyone prepared to punt $1.00 on Australia continuing to remain out of the woods.

Dunn & Bradstreet found that only 6 per cent of executives expect to increase their investment spending in the year ahead, while 17 per cent plan to cut it.

The Bank for International Settlements distinguished itself from the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development by pointing to the dangers of an global financial crisis ahead of it starting in 2007.

It says in its quarterly report that economic data is turning out to be less gloomy than expected, particularly in the United States. Business and consumer confidence is rebounding in the US and across Europe. Only in Japan does positive news "remain scarce".

Read more >>

Now you can bet on a higher unemployment rate

What do you reckon? It's now 5.4%   Pick a lower rate, if you're game

There's about to be another way to be on the health of the economy, besides taking a punt on the recession and interest rates. Centrebet has opened Australia's first online betting market on the unemployment rate.

Most-recently 5.4 per cent after sliding from 5.7 per cent, the agency will pay out $4.00 to any punter prepared to put a dollar on the rate being steady when the next figures come out next month.

The odds it's offering suggest it believes the most-likely result is a jump back to 5.7 per cent, and the least-likely, a recovery to below 5 per cent.

The Alice Springs-based bookmaker will pay out a generous $34 to anyone brave enough to put a dollar on an unemployment rate of 4.9 per cent or below...

UPDATE: THE BBC TAKES UP THE STORY

"This is the sort of thing punters talk about," said spokesman Neil Evans. "So we've tried to frame a market that will give them the opportunity to be proved right or wrong."

Treasurer Wayne Swan described an earlier Centrebet market on whether Australia would enter a recession as "utterly irresponsible".

Read more >>

The graphs that answer questions

From the Reserve Bank's Quarterly Statement


1. Which house prices are climbing, and which are falling?



2. Who has rushed into the housing market?



3. Are our big banks cleaning up at the expense of other lenders?



The Statement answers other questions as well.

Read more >>

When is punting on the economy "utterly irresponsible"?

When it is done through Centrebet, according to Australia's Treasurer.

The bookmaker is taking bets on whether Australia will enter a recession during 2009.

You can bet here, and see the latest prices, which suggest Centrebet expects a recession. If you disagree, by all means punt. At the price they are offering you stand to make a fortune off them.

Justin Wolfers, an expert in prediction markets, reckons Swan is being a bit harsh on Centrebet.

"In recent months, there have been millions of dollars bet in options markets, as traders seek a big payday in the event that the economy heads south — and this hasn’t raised an eyebrow...

The contrast between the Treasurer’s response to financial trades and bookies’ bets provides a nice example of how people respond differently, depending on how a bet is framed. One is modern finance, while the other is a repugnant market. Both, of course, are simply state-contingent contracts."

One of Wolfers' commenters asks:

"What's the difference between a bet and a call option? Whether the guy making it wears a tie and whether the bookie sits in a corner office?"

It reminds me of Tim Harford's BBC radio documentary on repugnant markets, which begins with him making a phone call to the Ladbrokes betting agency:

"EMPLOYEE: How can I help you?

HARFORD: Yeah, I wanted to place a bet that I, Tim Harford, was going to die in the next year. Could you give me odds on that?

EMPLOYEE: Right.

HARFORD: Can I take a bet on my own death?

EMPLOYEE: Erm, I’m not too sure. Just hold the line a moment please. Thank you. (Music)

HARFORD: Should we let our feelings of repugnance get in the way of the market?

EMPLOYEE: Hello, Mr Harford?

HARFORD: Hello.

EMPLOYEE: Hello, sorry to keep you waiting there. Okay. No, basically we don’t bet on deaths because it’s a negative bet, you see.

HARFORD: There’s a lesson in that. If you want to take a bet with a stranger that you’re going to die, don’t call a bookmaker – call a life insurance company."

Read more >>

Who'd take on Centrebet?

Australian punters are backing the economy with an overwhelming majority putting money on the proposition that Australia will escape recession.

As Treasurer Wayne Swan branded Centrebet "utterly irresponsible" for operating the market, the agency revealed that all but 1 of the of the 25 punters who have placed bets believe that Australia will avoid a recession next year.

"And one of those bets is big - someone's put around $900 on Australia escaping recession. Others have put up $400, $200, and others, $50 and $5," said Centrebet spokesman Neil Evans.

"But only one person so far has wagered that Australia will enter a recession, and that was a bet of $5."

It might be because of the odds Centrebet is offering...

The agency opened the market on Tuesday promising to pay only $1.12 per dollar waged that there would be a recession, and a far more generous $5.50 for each dollar successfully waged that there would not be.

"We had to take an unemotional and professional approach in setting the opening price. Without being a monumental doomsayer we think there's a much bigger chance that Australia will go into recession than avoid it."

Early betting has shifted the odds. The Alice Springs-based bookmaker was last night offering to pay a higher $1.20 for successful bets that Australia would fall into recession and a more modest $4.20 to punters who believed it would not.

Asked whether he agreed with Centrebet, the Treasurer replied that he did not and added that, "that sort of talk is utterly irresponsible".

"We are doing everything we possibly can to strengthen our economy and to protect jobs. That sort of speculation, I think, is utterly irresponsible," he said

The Melbourne Institute's leading index slid further yesterday to annual growth rate of just 0.6 per cent, implying that Australia will skate very close to recession. Earlier the US Fed slashed its funds rate to close to zero, adopting a formal target of somewhere between zero and 0.25 percentage points, the lowest level on record, promising to "employ all available tools" to restart growth.

China reported a massive slump in its imports, turning what had been an annual increase of 17 per cent into an annual slide of almost 18 per cent.

"After posting positive double digit growth rates over the entire year, the latest reading is beyond comprehension," said CommSec economist Savanth Sebastian. "This does not bode well for the global economy."

The Department of Employment and Workplace Relations reported that skilled job vacancies slumped by seasonally-adjusted 15.9 per cent in December, their biggest slide since the early 1990s recession.

Centrebet spokesman Neil Evans said the market on whether there would be a recession had been approved by the Northern Territory Racing and Gaming Authority, as had its markets on Reserve Bank decisions.

If the Treasurer wanted to ask Centrebet to stop, it would listen to what he had to say.

"We don't have a complete head-in-the-sand attitude. If Mr Swan wan'ts to discuss anything, we will discuss it with him for sure," he said.

Read more >>

Super Super Tuesday

Jessica Irvine in the Sydney Morning Herald:

"It's the odds-on favourite for a Tuesday trifecta: an interest rate cut of half a percentage point at 2.30pm, Mad Rush to win the Melbourne Cup at 3pm and Barack Obama for US President.

But racegoers beware. Of the three bets, picking a Melbourne Cup winner has the longest odds.

"It certainly will be easier making money on interest rates than it will be trying to get a winner home in the Melbourne Cup," a Centrebet spokesman, Neil Evans, told the Herald"...

Read more >>

Too late: the odds have changed

This morning at Lasseters Sportsbook you can only get a commitment to pay $15 for every $100 bet on a cut of exactly 0.25%. You only get $500 (down from $800) if you successfully bet on a cut bigger than that.

So my fancy idea for making money no longer works.

Perhaps because one of you tried it.

Perhaps because the economists' joke is right.

Read more >>

Is this sure-fire way of making $50?

What do you think?

On my reading of this Lasseters Sportsbook page here's what you should do.

[Insert legal phrase about no liability, seek independent advice etc]

Bet $1,000 on "DOWN 0.25%", and $150 on "DOWN MORE THAN 0.25%".

Your total outlay will be $1,150.

If rates are cut by 0.25% on Tuesday you will be paid $1,200 as a result of your first bet.

You will make a profit of $50.

If rates are cut by more than 0.25 per cent you will be paid $1,450 as a result of your second bet.

You will make a profit of $300.

Am I missing something?

Is the joke on me?

Is it something to do with two economists walking down a street and seeing a $50 note on the footpath...

Read more >>

A week you can bet on

What a week it'll be.

The first big event is Tuesday - when the Reserve Bank board meets and announces its rate cut decision at 2.30pm eastern time.

And guess what - thanks to Lasseters Sportsbook you can bet on the outcome.

If, as is likely, the Reserve Bank cuts its cash rate by 0.25 percentage points and you bet $100, you will make a $20 dollar profit.

But if it cuts by more than that, as is possible, you will get nothing. On the other hand, if you are backing a bigger cut, your profit will be $800.

They both seem like pretty good deals to me. Not sure whether the whole thing is taxed, but it looks like a good opportunity to clean up. Ethical considerations prevent me from doing it, but not you.

[Insert legal phrase about no liability, seek independent advice etc]

On Wednesday the ABS releases the Australian National Accounts. We will see how far economic growth has slipped, and get an idea of what the Reserve Bank needs to do from here on.

The following Monday , September 8, at 9.00am, The Governor himself will submit himself to a parliamentary grilling at the Dallas Brooks Hall. Go along if you are in Melbourne.

Read more >>

The money shifts to Rudd

Want to bet on Labor winning the federal election?

You've left it too late.

My colleague Andrew Fraser reports in this morning's Canberra Times that for the first time the weight of money on Centrebet is predicting a Labor win:

One of the most trusted indicators of voting intention has shifted for the first time to predict that Kevin Rudd will lead Labor to victory at this year's election.

Centrebet, which prides itself on its accuracy ahead of much of the opinion polling, has installed Mr Rudd as the $1.80 favourite ahead of Prime Minister John Howard ($1.90) in the race for The Lodge. There has been something of a plunge, with Labor having been at $2.75 when Mr Rudd took over only 2 months ago, when the Coalition had been at $1.40.

Labor is a far shorter favourite to retain power at the March 24 NSW election, with a Centrebet quote of $1.20 against the Coalition of Peter Debnam at $4.

Andrew Leigh has written rather a lot about the predictive power of political betting.

Read more >>

A punter's guide to the bird flu pandemic

Like to bet on something more serious than the Melbourne Cup? At www.intrade.com you can bet on when bird flu will reach the United States. Disturbingly, the betting points to a 25 per cent chance that bird flu will hit the US some time this year and a 50 per cent chance it will hit early next year. Even more disturbing is that these markets have a history of being right.

In the US, betting markets accurately predict everything from election results to the weather. In recent elections they have predicted the winning margin of both Democrat and Republican candidates to within 1.5 per cent. In Australia's last election the punters at Centrebet put five times as much money on the Coalition as on Labor. They were right. The press and the opinion polls were saying the election would be close.

In his book The Wisdom of Crowds, James Surowiecki outlines one of the early successes of betting markets. In May 1968 the US submarine Scorpion disappeared at sea. It could have been anywhere in a region 32 kilometres wide.

Instead of asking one or two experts where they thought it was, the chief naval officer assembled a large group of specialists in all sorts of fields and asked each of them to guess the location. The prize was a bottle of Scotch.

Using mathematics to put the guesses together he came up with a spot just metres from where the ship was found. Intriguingly, it wasn't a location identified by any of the experts on their own...

What we really need right now is a market for betting on when, or if, bird flu moves between humans. We know that it sweeps through chickens and that it can jump to humans who handle them, although so far not easily - only about 120 people appear to have caught it, all of them in Asia. But the death rate among these people has been high, about 50 per cent.

Some of them may have already passed it on to other humans. Dick Thompson, from the World Health Organisation, has told the SBS Insight program that there have probably been a handful of limited transmissions in which the virus has moved from one person to another and then stopped. It hasn't yet continued to move on.

The Canadian economist Dr Sherry Cooper, of Harris Bank, has spoken to the world's leading bird flu experts and concluded that its spread among humans is just a matter of time. She quotes them saying that the virus "will learn to do it".

Her report is entitled Don't Fear Fear or Panic Panic. She says for perhaps the first time in history we are watching a global pandemic "unfold in slow motion".

There is a slim chance that we might be able to smother it before it develops. She says there is a 20- to 30-day window in which a huge application of antiviral drugs at the site of an outbreak might slow or stop it from spreading. But that will require international co-ordination on a scale rarely, if ever, seen.

If the disease does spread to humans and go global there will be an unknowable number of deaths. Martin Meltzer draws up the forecasts at the US Centres for Disease Control. He says the point isn't the exact number. "The point is: imagine a lot of people ill in a very short space of time. More than you've ever seen."

The task facing economists is to try to work out how such an upheaval would change things.

Cooper says it would fill all our hospitals and there would be nowhere to take the overflow. In a localised crisis victims can be ferried to hospitals in other towns and health-care workers can be brought in from interstate. But in a pandemic there are no healthy towns to draw beds or nurses from.

As well, the so-called H5N1 bird flu virus is thought most likely to kill or hospitalise those people with the strongest immune systems - typically those aged between 20 and 40. This unusual feature would see it disproportionately remove from the workforce our most productive workers.

The Treasurer is already worried about this sort of effect because of the ageing of the population. A pandemic would bring it forward, worldwide.

Unemployment, as measured, would fall further. Any worker who remained able-bodied would be in big demand and able to command a higher wage. It would be hard for employers to fill shortages with workers from overseas. Fewer 20- to 40-year-olds would mean fewer pregnancies and fewer new workers for decades to come. There would be less demand for houses. Property prices would fall.

Petrol prices would fall as well. With many of us too infectious to go to work and with schools quite probably closed there would be few reasons to drive a car. Coffee shops, restaurants, cinemas and airports would be particularly poorly patronised until the pandemic passed.

Other prices would soar. Among the items swept off the shelves would be face masks, rubber gloves and cans of baked beans as people rushed to stock up on news of the pandemic beginning.

News would become more important with so many of us stuck at home. But it would be news delivered by computers and radio and TV. Few of us are likely to pop down to the shop to buy a newspaper.

A radically different world awaits us if bird flu does begin to spread among humans, and it is entirely possible it will. It's little wonder the punters are interested.

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