CFTC allows futures trading in Box Office opening sales.

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CFTC allows futures trading in Box Office opening sales.

Postby Dauric » Tue Jun 15, 2010 11:48 am UTC

Apparently federal regulators must have serious long-term memory retention issues to get hired. Local news had a few second blurb on TV this morning and didn't mention it again, but I went looking for details, this link is the best I could find.

(CFTC: Commodity Futures Trading Commission)

http://www.startribune.com/entertainment/movies/96329334.html?elr=KArksD:aDyaEP:kD:aUnc5PDiUiD3aPc:_Yyc:aUU

[spoilered for length]

Spoiler:
WASHINGTON - Soon playing in a theater online: trading of future box-office receipts for movies on a new exchange, following approval by federal regulators.

Unless, that is, Hollywood studios get their way and Senate legislation to ban the box-office futures becomes law.

A divided Commodity Futures Trading Commission on Monday approved the proposed futures contracts for the new Trend Exchange. That means the movie futures trading can proceed; it is expected to begin sometime in the third quarter.

The first proposed contract for the exchange is for opening-weekend receipts for "Takers," being released Aug. 20. Matt Dillon plays a cop who takes on a team of expert bank robbers.

Major movie studios strongly oppose the idea. They say rival studios could sabotage films by betting against them.

In giving its approval, the CFTC said it found that box-office receipts fit the law's definition of a commodity, that the Trend Exchange contracts aren't "readily susceptible" to manipulation, and they provide a way of managing risk.

The agency's vote was 3-2. Two CFTC commissioners, Democrat Bart Chilton and Republican Jill Sommers, voted against approving the contracts for the Trend Exchange.

"Popcorn prediction markets would serve no national public interest" and don't meet the law's requirements on how commodities are defined, Chilton said in a statement.

Chilton said he also was troubled by whether the new futures trading would provide a legitimate way for the movie industry to hedge against risk, since the agency's approval limits the use of the new contracts by movie studios.

Allowing future box-office receipts to be traded like crude oil or pork bellies would give people who finance movies a way to make money even when a film doesn't. It also could be used for speculation.

Trading would be based on the amount of money a movie takes in during its opening weekend. The exchange would set the initial odds for contracts, but those odds would change based on bidding of investors. An investor who buys a contract with longer odds takes on greater risk and the potential to earn more money.

For example, an investor thinks a movie will make at least $75 million in its first weekend. The exchange finds an investor who thinks the movie will fall short of that mark and the two investors enter the contract together. When the movie receipts come in, the one who is correct gets a percentage on top of his investment based on the odds received. The other loses his investment.

The CFTC previously approved the establishment of the Trend Exchange and the Cantor Futures Exchange. The proposed futures contracts, establishing rules for trading, have now gained the agency's approval for the Trend Exchange. For the Cantor exchange, the deadline for approving the contracts is June 28.

Supporters, led by investor groups that put up the money to make films, say the concept would help generate new capital for the movie industry. A tougher economy has made it harder to finance films and trading futures on box-office receipts would help offset risk.

"We are pleased that the staff of the CFTC and a majority of the commissioners recognized the legitimate economic risk-management benefits that these products will provide to the entertainment industry," Robert Swagger, CEO of the Trend Exchange, said in a statement.

Opponents, led by big Hollywood studios, warn that complex trading brought down the housing market and this idea could do the same to the movie industry.

In Congress, the Senate version of the financial regulatory overhaul would ban futures trading on movie revenues. It's unclear if that ban will survive House-Senate negotiations on the final legislation.

The studios' lobbying group, the Motion Picture Association of America, urged Congress Monday to put the ban in the final bill that will be signed by President Barack Obama.

"It is unfortunate that the CFTC has now given the go-ahead to a new gambling platform that could be plagued by financial irregularities and manipulation," MPAA President and interim CEO Robert Pisano said in a statement. The new box-office contracts "pose real possible economic damage to an industry that employs over 2.4 million men and women working in virtually every state in the country," he said.

Also opposed are the National Association of Theatre Owners, the Directors Guild of America, and the Independent Film and Television Alliance.

Swagger said his exchange "regrets that a special-interest group of Hollywood industry insiders chose to politicize the issue (and) we will fight attempts by this group to overturn the CFTC outcome in Congress."


I want to know which investment bank is behind this nonsense, judging by past bubbles nobody else actually profits from this kind of <insert expletive here>, and the harm extends well beyond the industries they speculate in.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Indon » Tue Jun 15, 2010 11:49 am UTC

You'd think there'd be constructive economic activity these bozos could invest in, but noooooo.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dauric » Tue Jun 15, 2010 11:54 am UTC

Housing is constructive economic activity, but they f- that up as well.

What I find mind blowing is that the bankers are saying they'll do good for the industry, but the movie industry wants nothing to do with it and is lobbying congress to override the CFTC, since apparently the federal regulators take the advice of people outside the industry rather than organizations that work in the industry in question.

What the <expletive> are they going to bet on next? Battlefield and Call of Duty high-scores?
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Vaniver » Tue Jun 15, 2010 4:18 pm UTC

The primary benefit these prediction markets would have on the movie industry would be giving execs information about the perception of their prospects, which isn't very useful once you've made and are about to deliver the movie, and allow them an easy way to hedge themselves by betting against their movie. The second will be capped, but while useful seems perverse.

Commodity speculation tends to benefit consumers at the cost of speculators- but the problem here is that I don't see how commodity speculation in movies will smooth prices or cause more movies to be produced (unless the futures market steps in as a major funding source), since movies don't have physical quantities. So, while I think economic activity like this should be legal on principle, I also don't see a strong benefit for allowing it, and several possible detrimental effects. Remember Uwe Boll?
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Re: CFTC allows futures trading in Box Office opening sales.

Postby nowfocus » Tue Jun 15, 2010 8:06 pm UTC

Vaniver wrote:The primary benefit these prediction markets would have on the movie industry would be giving execs information about the perception of their prospects, which isn't very useful once you've made and are about to deliver the movie, and allow them an easy way to hedge themselves by betting against their movie. The second will be capped, but while useful seems perverse.


The primary benefit is already provided by the Hollywood Stock Exchange. I suppose you might use it to hedge the risk in investing in a particular studio - suppose you thought the studio itself was sound but an upcoming film would be a flop. You can buy shares in the studio and short sell the stock itself. Or vice-versa. But I agree the benefit to the public seems minimal at best.
Jahoclave wrote:Besides if you observe romance, you change the outcome. Especially if you put his/her friend Catherine in a box.

Menacing Spike wrote:Was it the copper hammer or the children part that caused censoring?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dauric » Tue Jun 15, 2010 8:14 pm UTC

I still want to know who comprises the nebulous "people who invest in movies" that are backing this "Trend Exchange". Hollywood already has an exchange, so why are they making another one? These backers claim it will provide more money for film companies, yet just about every major industry organization is going apes41t to stop it.

It looks like a lot of smoke and mirrors to hide another Bubble Machine.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Iceman » Tue Jun 15, 2010 11:50 pm UTC

This is actually a very clever product, it can be used by the film industry to hedge and lock in returns for their own films.

I've not sure how this product would become harmful. Given that the returns would be cash delivery against factual result there could be no 'bubble' created. Claiming there could be shows a lack of understanding of the derivatives market. A bubble can only exist if there is no true value mechanism, which there would be in this case.

Also a futures market is completely different than the HSX which would function more as stock market and would be prone to bubbles, the derivatives part of the HSX seems to have some strange restrictions on it which wouldn't reflect actual returns, so I could see someone wanting to create a more serious product.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby nowfocus » Wed Jun 16, 2010 12:33 am UTC

Iceman wrote:This is actually a very clever product, it can be used by the film industry to hedge and lock in returns for their own films.

I've not sure how this product would become harmful. Given that the returns would be cash delivery against factual result there could be no 'bubble' created. Claiming there could be shows a lack of understanding of the derivatives market. A bubble can only exist if there is no true value mechanism, which there would be in this case.

What if exhibitors start deciding how many screens to alot each film by the stock price?? A rival studio could just short sell a competing movies shares, thereby reducing the number of theatres that movie is shown in, and in turn increasing the amount of theatres its movie is shown in. They profit twice - once for making the self fufilling prophecy that the movie would perform poorly, and a second time by having its film in additional theatres. You could also short sell before moving your release date to match the target films.

I'm also concerned that this market will lead to an inefficient allocation of marketing dollars simply because the exchange is only concerned about the first weekend.
Jahoclave wrote:Besides if you observe romance, you change the outcome. Especially if you put his/her friend Catherine in a box.

Menacing Spike wrote:Was it the copper hammer or the children part that caused censoring?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Iceman » Wed Jun 16, 2010 1:49 am UTC

Well, one of those things is insider trading, which is already illegal...And the other would'nt make much monetary sense because you'd end up wasting a lot of money to try and drive down prices. Intentionally moving a futures market is much more difficult than moving a stock price of similar volume. It'd also lead to a self-defeating mechanism...if someone drove down the theatres a movie was played in, but it was still popular in the theatres it appeared in, then theatres would realize it is a bad predictor of performance.

These markets are all self-correcting, you could spend money to temporarily shove it one way, but you'd likely be wasting it as it would cost you more to move it than you've gained, and in this case your gain relies on others doing as you predict.

The first weekend is also usually a very reliable indicator of end results as well, again it wouldn't make sense for the company to make a movie then abandon its marketing in favour of betting on the results. It would make more sense as a hedge, not a double down.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Marquee Moon » Wed Jun 16, 2010 2:35 am UTC

nowfocus wrote:What if exhibitors start deciding how many screens to alot each film by the stock price?? A rival studio could just short sell a competing movies shares, thereby reducing the number of theatres that movie is shown in, and in turn increasing the amount of theatres its movie is shown in. They profit twice - once for making the self fufilling prophecy that the movie would perform poorly, and a second time by having its film in additional theatres. You could also short sell before moving your release date to match the target films.

This depends on other traders in the market not changing their actions. If all available information says a movie will do well, and then the price suddenly falls because of rival studio manipulation, smart traders will say "wow this stock is way underpriced" and then buy the stock to make easy profits. As long as there are enough smart/informed traders, manipulation will have little effect on prices and would just lose the rival studio a whole lot of money. In fact, because smart traders are given an additional reward for trading in the market, (profiting from attempting manipulation) this would attract more informed people into the prediction market and make prices more accurate.

tl;dr It's hard and potentially very expensive to engineer a self-fulfilling prophesy in a large informed prediction market.

Here's a post about what I just said and some academic articles backing it up.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Jahoclave » Wed Jun 16, 2010 3:58 am UTC

Well I guess this means I can cross Hollywood off the list of a place that's ever going to produce a good movie ever again. Honestly, could we stop trying to turn every fucking thing into a method of profit?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Bubbles McCoy » Wed Jun 16, 2010 4:02 am UTC

Jahoclave wrote:Well I guess this means I can cross Hollywood off the list of a place that's ever going to produce a good movie ever again. Honestly, could we stop trying to turn every fucking thing into a method of profit?

Um, when was sending movies to the box office not a method of profit?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Jahoclave » Wed Jun 16, 2010 4:05 am UTC

Bubbles McCoy wrote:
Jahoclave wrote:Well I guess this means I can cross Hollywood off the list of a place that's ever going to produce a good movie ever again. Honestly, could we stop trying to turn every fucking thing into a method of profit?

Um, when was sending movies to the box office not a method of profit?

Not exactly what I was talking about. I was more referring to adding the speculation bullshit method so that jerkoffs with no talent can try to squeeze every dime and penny they can out of the system.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Bubbles McCoy » Wed Jun 16, 2010 4:06 am UTC

Fair enough.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby nowfocus » Wed Jun 16, 2010 11:49 am UTC

Iceman wrote:Well, one of those things is insider trading, which is already illegal...And the other would'nt make much monetary sense because you'd end up wasting a lot of money to try and drive down prices. Intentionally moving a futures market is much more difficult than moving a stock price of similar volume. It'd also lead to a self-defeating mechanism...if someone drove down the theatres a movie was played in, but it was still popular in the theatres it appeared in, then theatres would realize it is a bad predictor of performance.

Marquee Moon wrote:This depends on other traders in the market not changing their actions. If all available information says a movie will do well, and then the price suddenly falls because of rival studio manipulation, smart traders will say "wow this stock is way underpriced" and then buy the stock to make easy profits. As long as there are enough smart/informed traders, manipulation will have little effect on prices and would just lose the rival studio a whole lot of money. In fact, because smart traders are given an additional reward for trading in the market, (profiting from attempting manipulation) this would attract more informed people into the prediction market and make prices more accurate.


The illegal thing still happens quite a bit - and would be likely to happen here with so many hands in the pot. Whether or not its harder than moving the stock price is irrelevant - there is no 'movie stock price'. What matters is how hard it is to move at all. Prerelease very little information - but a large group of people that work for the studio/exhibitors have access to the it. If the stock price moves down, you might conclude that someone who has more information than you is short selling, and so short sell yourself compounding the effect. So I don't think it would necessarily take much money to pull this off.

I also disagree that exhibitors would necessarily realize this was a bad predictor of performance - these things tend to stick around because everyone understands them. The business world does not converge on optimal metrics.

The first weekend is also usually a very reliable indicator of end results as well, again it wouldn't make sense for the company to make a movie then abandon its marketing in favour of betting on the results. It would make more sense as a hedge, not a double down.

This isn't true - the first weekend is usually the easiest to predict given a large amount of information about a movie - but it is not a 'very reliable indicator'. Movies with longer 'legs' earn far more in subsequent weekends.

Marquee Moon wrote:Here's a post about what I just said and some academic articles backing it up.


That post assumes that non-informed investors can become more informed. How do you do that when most facts are kept confidential by the studio - and the rest is entirely public? I'm pretty sure Jim Cramer was talking about how easy it is to manipulate a market like that back when he was an investor. Jon Stewart dug up the clip.

In either case - a movie increasing its marketing budget because of these futures is an inefficient allocation of its resources. Why do we want to encourage studios to market their movies past the point that where its effective just so that it can have a larger opening weekend?
Jahoclave wrote:Besides if you observe romance, you change the outcome. Especially if you put his/her friend Catherine in a box.

Menacing Spike wrote:Was it the copper hammer or the children part that caused censoring?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Indon » Wed Jun 16, 2010 12:48 pm UTC

Bubbles McCoy wrote:Um, when was sending movies to the box office not a method of profit?


Sending movies that people wanted to watch was a method of profit.

With such a market, you can make a bad movie that nobody wants to watch, but if they think people will watch it you can bet against them and then make a killing when the movie flops because it was bad.

As Vaniver noted, this could lead to a Uwe Boll scenario.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Bubbles McCoy » Wed Jun 16, 2010 10:25 pm UTC

Indon wrote:Sending movies that people wanted to watch was a method of profit.

With such a market, you can make a bad movie that nobody wants to watch, but if they think people will watch it you can bet against them and then make a killing when the movie flops because it was bad.

Being able to profit by betting against something depends heavily on someone still believing that it can succeed. I suppose it is theoretically possible to make an insanely bad film on just a few pennies, make it look good to possible buyers and then sell a large amount of the stake for more than production costs, but I can't imagine this happening with much regularity. Any participants in this would permanently loose any form of future support if they get past any regulatory hurdles to do so, and you'd have to have a decent reputation to acquire the money to make the initial production. Managing to pull the wool over everyone's eyes would be quite the feat, and I just can't help but see it as being a regular problem.


nowfocus wrote:The illegal thing still happens quite a bit - and would be likely to happen here with so many hands in the pot. Whether or not its harder than moving the stock price is irrelevant - there is no 'movie stock price'. What matters is how hard it is to move at all. Prerelease very little information - but a large group of people that work for the studio/exhibitors have access to the it. If the stock price moves down, you might conclude that someone who has more information than you is short selling, and so short sell yourself compounding the effect. So I don't think it would necessarily take much money to pull this off.

I also disagree that exhibitors would necessarily realize this was a bad predictor of performance - these things tend to stick around because everyone understands them. The business world does not converge on optimal metrics.

Don't all of these arguments work just as well against normal stock markets? I suppose if you fundamentally disagree with the modern actualization of the stock market to such an extent that you believe it should be done away with entirely that's fair, but I would have to question whether there are any superior alternatives.



Speaking more generally, while I'm skeptical that this would have much a significant impact on anything I can conceptually see how it might be of use in the film industry. I doubt the open market for the stock is really of much use here, random speculation over the shares will probably occur but wouldn't be of much use or impact. What I would think might be useful is how this can streamline and make public a bit more financing surrounding movies, which might have value when it comes to promotion. From my current understanding, any production has to rely heavily on major studios for promotion, often leaving the producers of the actual film having to accept a flat rate for the production and lower levels like screenwriters being handed ultimately useless cuts of what the studio calls the profit of the film, which often ends up being horrendously small even with hugely successful films. By creating a single financial product to represent a film's success with set rules it could be easier to seek alternate forms of financing, possibly with mid-level promotion experts being able to take a film in early to late stages of production and seek out parties interested in investing in the particular movie. When there are only a handful of studios capable of large promotions it could be challenging to reach a fair deal, but if the ultimate results of the film and the shares in these profits are easily visible it's conceivable that a number of investment banks and the like could foot the bill for a share in the payout.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby G.v.K » Wed Jun 16, 2010 11:18 pm UTC

Has anybody really calculated the opportunity cost to society of having so many smart people gambling on every second product? Where is the evidence for all these 'invisible hand' arguments? Let's assume these markets do attract clever people. Well, that's a group of clever people who could have actually been making good movies or finding a cure for cancer or whatever. Instead they're just fucking gambling on outcomes.

Personally, I find the whole thing extremely distasteful. Sooner or later we'll have such a large proportion of society 'calculating risk' that nobody will be left to actually do anything worthwhile.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby nowfocus » Thu Jun 17, 2010 12:54 am UTC

Bubbles McCoy wrote:Don't all of these arguments work just as well against normal stock markets? I suppose if you fundamentally disagree with the modern actualization of the stock market to such an extent that you believe it should be done away with entirely that's fair, but I would have to question whether there are any superior alternatives.


I don't the arguments generally apply to the normal stock markest. In those a company actively sells an owner ship stake in its company and receives money. This is just straight gambling. Google benefits when I buy shares in its company because it can theoretically issue shares at a higher price. Google does not benefit when me and you set a bet over what its search revenues are in the next earning report.

I suppose the difference to me is the order of events. In the normal stock market - a company needs financing, issues shares, and then trading begins. Here trading begins first, and then the company can decide if it wants to participate in that trading. And now it might even be illegal for a company to benefit from the trading of its own stock.

Further - I think the criticisms I brought up apply to very specific incidents in the normal stock market, and very general incidents in this prediction market.
Jahoclave wrote:Besides if you observe romance, you change the outcome. Especially if you put his/her friend Catherine in a box.

Menacing Spike wrote:Was it the copper hammer or the children part that caused censoring?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Vaniver » Thu Jun 17, 2010 1:01 am UTC

nowfocus wrote:This is just straight gambling.
For actual commodities, futures markets serve to smooth prices and move risk from producers to speculators. For movies, some of the risk will still be moved from producers to speculators- so it's not entirely gambling- but it's not clear that'll happen in a way that's good for the movie industry or the movie-going public.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Iceman » Thu Jun 17, 2010 6:52 pm UTC

G.v.K wrote:Has anybody really calculated the opportunity cost to society of having so many smart people gambling on every second product?


The Smartest people allocating where the world's investment capital goes does seem like the best way to allot funds. Allowing the smart money to dictate which things get funding through natural self interest makes a lot of sense.

I think the benefits here are fairly obvious. A Movie production company can hedge against its investments and be more willing to undertake a project, resulting in more projects and smoother results.

I've heard a few silly things requiring manipulation, but I haven't heard a good argument how this would harm anything?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dauric » Thu Jun 17, 2010 8:28 pm UTC

Iceman wrote:
G.v.K wrote:Has anybody really calculated the opportunity cost to society of having so many smart people gambling on every second product?


The Smartest people allocating where the world's investment capital goes does seem like the best way to allot funds.


Uh, huh. You've been living under a rock for most of the last decade right? Giving millions to "Dot.Bomb" startups that didn't actually produce anything? Removing themselves from any risk involved in giving large loans to people with no possible way to pay back those loans? Speculating on oil in such a way that it's price became completely divorced from it's natural supply-demand curves?

Yeah, they're smart alright, smart enough to walk away from the oil bubble, the housing bubble, and even the Dot.Bomb with billions lining their pockets, while the computer industry, the real-estate industry, and the energy industry all busted and drove the jobless rate to levels comparable to the Great Depression while their houses were foreclosed at record rates.

Just because they're smart doesn't mean that they have the social conscience to allocate those funds in a way that benefits society as a whole. Rather what we've seen is smart people in an industry typified by a short-sighted goal structure playing hot potato with debt wrapped in "Synthetic Instruments".
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Re: CFTC allows futures trading in Box Office opening sales.

Postby nowfocus » Thu Jun 17, 2010 9:38 pm UTC

Vaniver wrote:
nowfocus wrote:This is just straight gambling.
For actual commodities, futures markets serve to smooth prices and move risk from producers to speculators. For movies, some of the risk will still be moved from producers to speculators- so it's not entirely gambling- but it's not clear that'll happen in a way that's good for the movie industry or the movie-going public.


While generally this is true - this market seems to limit the amount the producers can invest due manipulation concerns. Whats the point of a commodities market if the major buyers and sellers of that commodity can't participate?
Jahoclave wrote:Besides if you observe romance, you change the outcome. Especially if you put his/her friend Catherine in a box.

Menacing Spike wrote:Was it the copper hammer or the children part that caused censoring?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Vaniver » Fri Jun 18, 2010 4:55 am UTC

nowfocus wrote:While generally this is true - this market seems to limit the amount the producers can invest due manipulation concerns. Whats the point of a commodities market if the major buyers and sellers of that commodity can't participate?
They can participate- the hope is that they'll be able to participate enough to keep American moviemakers making expensive movies, but not enough that we see The Producers scenarios where people try to dishonestly cash out on intentional flops.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dark567 » Fri Jun 18, 2010 5:46 pm UTC

Dauric wrote:Uh, huh. You've been living under a rock for most of the last decade right? Giving millions to "Dot.Bomb" startups that didn't actually produce anything? Removing themselves from any risk involved in giving large loans to people with no possible way to pay back those loans? Speculating on oil in such a way that it's price became completely divorced from it's natural supply-demand curves?

Yeah, they're smart alright, smart enough to walk away from the oil bubble, the housing bubble, and even the Dot.Bomb with billions lining their pockets, while the computer industry, the real-estate industry, and the energy industry all busted and drove the jobless rate to levels comparable to the Great Depression while their houses were foreclosed at record rates.


There not all smart, thats why speculators who created many of those bubbles no longer have jobs(particularly the oil and dot-com bubbles, those that made the housing often got bailed out). You forget the person who most gets hurt most by an asset bubble is the speculator. The smart ones do in fact end up allocate assets well for the benefit of society, i.e. Warren Buffet or Peter Lynch. Also jobless rates really aren't comparable to Great Depression.
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Yakk wrote:The question the thought experiment I posted is aimed at answering: When falling in a black hole, do you see the entire universe's future history train-car into your ass, or not?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby G.v.K » Fri Jun 18, 2010 11:44 pm UTC

Dark567 wrote:There not all smart, thats why speculators who created many of those bubbles no longer have jobs(particularly the oil and dot-com bubbles, those that made the housing often got bailed out). You forget the person who most gets hurt most by an asset bubble is the speculator. The smart ones do in fact end up allocate assets well for the benefit of society, i.e. Warren Buffet or Peter Lynch. Also jobless rates really aren't comparable to Great Depression.


so we allow a bunch of idiots to go and create massive bubbles (which have obvious negative consequences) in order to allow the occassional Warren Buffet to do something good?

where is the evidence that this way of doing things is actually any better than a random allocation of funds?

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Re: CFTC allows futures trading in Box Office opening sales.

Postby folkhero » Sat Jun 19, 2010 12:25 am UTC

G.v.K wrote:so we allow a bunch of idiots to go and create massive bubbles (which have obvious negative consequences) in order to allow the occassional Warren Buffet to do something good?

where is the evidence that this way of doing things is actually any better than a random allocation of funds?

What exactly would such a "random allocation of funds" even look like? Would it be like that episode of South Park where they cut off a chicken's head and make economic decisions based on where on the thing keels over? What would ensure that we don't allocate $2 trillion to agriculture one year and 50 cents the next?

I mean, bad things can happen in free markets, and command economies don't work very well on large scales, so lets just throw some dice and hope for the best.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby G.v.K » Sat Jun 19, 2010 4:14 am UTC

folkhero wrote:
G.v.K wrote:so we allow a bunch of idiots to go and create massive bubbles (which have obvious negative consequences) in order to allow the occassional Warren Buffet to do something good?

where is the evidence that this way of doing things is actually any better than a random allocation of funds?

What exactly would such a "random allocation of funds" even look like? Would it be like that episode of South Park where they cut off a chicken's head and make economic decisions based on where on the thing keels over? What would ensure that we don't allocate $2 trillion to agriculture one year and 50 cents the next?

I mean, bad things can happen in free markets, and command economies don't work very well on large scales, so lets just throw some dice and hope for the best.


i'm not advocating any particular position. i'm just asking whether there is any evidence which could used to bolster the case for this kind of 'commodity' trading (since when are 'box office receipts' a commodity?)

as far as i know, we don't even have the beginnings of an truly empirical science which could allow us to predict 'social outcomes' which would result from such trading. although i would have thought recent history would be a pretty good indicator that it's maybe not such a good idea.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby folkhero » Sat Jun 19, 2010 5:26 am UTC

The little data we have suggest that futures markets stabilize prices, at least in the case of onions. Of course onions can be thought of as commodity goods, whereas Hollywood films certainly are not so it's hard to draw too many parallels.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby G.v.K » Sat Jun 19, 2010 5:47 am UTC

folkhero wrote:The little data we have suggest that futures markets stabilize prices, at least in the case of onions. Of course onions can be thought of as commodity goods, whereas Hollywood films certainly are not so it's hard to draw too many parallels.


well, if that's the extent our scientific knowledge of hte subject, then we really are in a bad way.

why exactly is it inherently good to have stable prices anyway? i'm assuming it doesn't benefit the producers, given that both onion farmers and movie studios don't seem to be in favour of future's trading on their products.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Technical Ben » Sat Jun 19, 2010 12:00 pm UTC

Vaniver wrote:They can participate- the hope is that they'll be able to participate enough to keep American moviemakers making expensive movies, but not enough that we see The Producers scenarios where people try to dishonestly cash out on intentional flops.


I totally forgot about that play. As I say, real life totally trumps fiction. I may never watch another Hollywood movie. :(

[Edit]
folkhero wrote:
G.v.K wrote:so we allow a bunch of idiots to go and create massive bubbles (which have obvious negative consequences) in order to allow the occassional Warren Buffet to do something good?

where is the evidence that this way of doing things is actually any better than a random allocation of funds?

What exactly would such a "random allocation of funds" even look like? Would it be like that episode of South Park where they cut off a chicken's head and make economic decisions based on where on the thing keels over? What would ensure that we don't allocate $2 trillion to agriculture one year and 50 cents the next?

I mean, bad things can happen in free markets, and command economies don't work very well on large scales, so lets just throw some dice and hope for the best.

Folkhero, you seem to have missed the point. G.v.K did not say random data was better, but that it could be equal to that of futures trading. I doubt that is so. But it could be "random" or of no benefit, if the futures trading has no correlation to the need of funding. Why not just do futures trading on quantum spin? Then you get your futures trading, but no markets suffer. ;) You seem to have created a straw man there. (is that the right term?)
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dark567 » Sat Jun 19, 2010 2:59 pm UTC

G.v.K wrote:
so we allow a bunch of idiots to go and create massive bubbles (which have obvious negative consequences) in order to allow the occassional Warren Buffet to do something good?

where is the evidence that this way of doing things is actually any better than a random allocation of funds?


We allow a bunch of idiots to go out of business so they no longer can create the bubbles and all we have left are the Warren Buffet's(Granted we failed at that this time around). Again the people hurt worst by asset bubbles are the idiot speculators. They go bankrupt.

The evidence is in people like Warren Buffet, Peter Lynch Etc. or really any mutual fund that has made money over a long period of time.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Iceman » Sat Jun 19, 2010 7:35 pm UTC

You're all making comparisons to bubbles...but Futures can't create bubbles. Stocks can.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dark567 » Sat Jun 19, 2010 7:53 pm UTC

Iceman wrote:You're all making comparisons to bubbles...but Futures can't create bubbles. Stocks can.


There can be a futures bubble. For example, everyone could think that the next Batman movie will make $10 trillion dollars, so everyone bids up the price of futures. When the movie comes out, it only make a billion dollars and the futures payout ends up being substantially lower. Thats a bubble.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Iceman » Sat Jun 19, 2010 8:02 pm UTC

There is no such thing as a 'price of futures'

And also what you described is not a bubble. If there's 500 futures contracts, 500 people be long, and 500 must be short. Even if the futures value is high, that is not a bubble, that's just people over-estimating earnings.
It's a Zero-Sum game. There Cannot BE bubbles.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dark567 » Sat Jun 19, 2010 8:13 pm UTC

Iceman wrote:There is no such thing as a 'price of futures'


Umm.... what. I used to work on the CME. Futures have a price, that is the price the underlying asset is currently expected to settle at when the future expires.
wikipedia wrote:The price is determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract.


Iceman wrote:And also what you described is not a bubble. If there's 500 futures contracts, 500 people be long, and 500 must be short. Even if the futures value is high, that is not a bubble, that's just people over-estimating earnings.
It's a Zero-Sum game. There Cannot BE bubbles.


Yes there has to be an equal amount of long and shorts, but the price they traded at could be much higher than the price the future settles at. For example July S&P future could be trading at $2000 dollars right now, but when we get closer to July and everyone realizes its not going to hit that, the price will drop dramatically. Yes, its zero sum, and some people will be gaining a lot while others are losing a lot, but I think it should still be considered a bubble.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Iceman » Sat Jun 19, 2010 9:50 pm UTC

Just clarifying that there is no 'price' Paid for a future. In this case they'd merely agree on a revenue number and swap the difference.
There is no actual 'purchase' or 'sale' of the contract, no funds change hands when you enter a contract.

People's expectations on that revenue would be based on the expectations on the long and short side and then verified by an actual number and a pre-determined date.
Under that mechanism a bubble is not possible.

In order for a bubble to exist an actual Value Holder must exist. Futures contracts hold no value meaning there can be no bubble.

A Bubble occurs when something HOLDS the value and creates the appearance of an asset with a higher value than can be justified. A bubble cannot exist if something doesn't hold a value, and futures do not, they are only contracts for future exchange. A bubble occurs because we're really only valuing the 'liquid' portion of a stock or commodity, and when something happens and more of the thing needs to be liquidated, the value drastically drops. This is not the case in futures.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby G.v.K » Sat Jun 19, 2010 11:03 pm UTC

Dark567 wrote:
G.v.K wrote:
so we allow a bunch of idiots to go and create massive bubbles (which have obvious negative consequences) in order to allow the occassional Warren Buffet to do something good?

where is the evidence that this way of doing things is actually any better than a random allocation of funds?


We allow a bunch of idiots to go out of business so they no longer can create the bubbles and all we have left are the Warren Buffet's(Granted we failed at that this time around). Again the people hurt worst by asset bubbles are the idiot speculators. They go bankrupt.

The evidence is in people like Warren Buffet, Peter Lynch Etc. or really any mutual fund that has made money over a long period of time.


i would argue that 'evidence' is in no way scientific in nature. there is a similar problem with evidence in the evolutionary theory. how do we know whether the success of a Warren Buffet is indicative of superior performance and not just pure chance?

even assuming there is some kind of superior performance, what are the goals that are being met by that performance? most people will just say something like 'the best allocation of funds'. but 'best' here just means most profitable. so now we have to prove that there is a relationship between profit and 'good' outcomes.

to take the movie industry example, is there any proof that the most profitable allocation of funds leads to the production of the highest quality movies?

it seems to me that economics gives a tautologous answer to this i.e. it assumes quality = profit.

but many of my favourite movies were not the most profitable.

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Re: CFTC allows futures trading in Box Office opening sales.

Postby Dark567 » Sat Jun 19, 2010 11:23 pm UTC

G.v.K wrote:
i would argue that 'evidence' is in no way scientific in nature. there is a similar problem with evidence in the evolutionary theory. how do we know whether the success of a Warren Buffet is indicative of superior performance and not just pure chance?

even assuming there is some kind of superior performance, what are the goals that are being met by that performance? most people will just say something like 'the best allocation of funds'. but 'best' here just means most profitable. so now we have to prove that there is a relationship between profit and 'good' outcomes.

to take the movie industry example, is there any proof that the most profitable allocation of funds leads to the production of the highest quality movies?

it seems to me that economics gives a tautologous answer to this i.e. it assumes quality = profit.

but many of my favourite movies were not the most profitable.


No the evidence isn't scientific, mostly because there isn't any type of control group(this is a general problem in economics though). Its very unlikely its pure chance, the chances anyone person could randomly do what Buffet did is something like 1 in 16 quadrillion(this was from finance course I took it college... so I am a little unsure of the accuracy) which means even the chances that anyone on earth did that is still like 1 in a million.

There is a relationship between profits and good outcomes(assuming those profits weren't made via fraud) the good outcomes though is defined by providing services that people want. So even if your favorite movies weren't the most profitable, many other people must be enjoying the movies that are, which is why it is a good outcome. Its not quality=profit, its providing services people want=profit. Sometimes those are quality sometimes the services are just cheap shit.
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Re: CFTC allows futures trading in Box Office opening sales.

Postby Patashu » Sun Jun 20, 2010 12:23 am UTC

Just because other people pay for it, does that make it the most 'moral' thing to do? Surely a movie imparts more things on people then just exchanging money for their time. Emotions, lessons, ideas, a subtle change in their culture and thought. If the only measure of a movie's success is how many people watch it, you miss so much more about what a movie can do.
(Admittedly, this kind of argument works better with things that have objective effects on people's livelihood, but I tried.)

---

The idea of the future being measured by the opening weekend sales worries me - that's not nearly enough time for word of mouth to spread about whether it was worth watching or not. Let's say movie X is being made and gets heavily advertised. People think it might be good so lots of people watch it on the opening weekend only to realize it's awful. But it's too late now - it already had a good opening.


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