10 Minutes to Midnight: Gauging the Likelihood of War With Iran

According to the people who pay attention to such things, there’s less than a 50/50 chance of a war with Iran in the next 12 months.

Barely less.

There’s a 48% chance, if you want to be precise. We’re at 10 minutes to midnight, figuratively speaking.

10 Minutes to Midnight

The Atlantic has introduced an Iran War Clock… not unlike the “doomsday clock” maintained by the Bulletin of the Atomic Scientists gauging the likelihood of nuclear war.

“The Iran War Clock is not designed to be pro-war or anti-war,” cautions writer Dominic Tierney. “Instead, the purpose is to estimate the chances of conflict in the hope of producing a more informed debate. If people hold a very inaccurate view of the odds of war, it could be dangerous.”

With that in mind, the magazine has chosen 22 panelists across the ideological spectrum — from the hawkish Atlantic reporter and ex-Israeli soldier Jeffrey Goldberg to the dovish former CIA analyst Paul Pillar.

“If there is a 0% chance of war,” Tierney writes, “the clock hand is at 20 minutes to midnight. Each extra 5% chance of war moves the hand one minute closer to midnight.

“So for instance, a 10% chance of war would set the clock at 18 minutes to midnight, and a 75% chance of war would set the clock at minutes to midnight.”

Right now, it’s 48%. Rounding off, that’s 10 minutes to midnight. The magazine plans to give us an update every month or so.

Meanwhile in the betting market at Intrade.com, the likelihood of war is pegged somewhat lower — 37% by the end of the year.

Depending on whom you want to believe, Intrade might be a more accurate predictor — for Intrade is an intriguing experiment in what’s come to be known as “crowdsourced prediction.”

“Crowdsourced prediction,” according to IT consultant Bob Lewis, “is based on a simple premise — that crowds are wiser than experts. Those who place their faith in markets insist that online betting on these outcomes delivers more accurate results than the experts.”

This is a bigger business than you might think. General Electric uses prediction market software from an outfit called Consensus Point to generate new business ideas. Other Consensus Point clients include Best Buy, Motorola and Qualcomm. A competing firm, NewsFutures, counts Pfizer, Siemens and Renault among its customers.

So what’s this to you? The crowd’s mood can shift from week to week, even day to day. It can be as fickle as a debutante deciding out who gets to dance with her first at the big ball.

And therein lies a moneymaking opportunity, something a lot more fun and potentially much more lucrative than fooling around at Intrade or similar places.

Let’s get back to the prospect of war with Iran: It’s been hanging over the oil market for weeks. But as our market-sentiment maven Abe Cofnas said on Monday: “No one expects an attack on Iran this week while Israeli Prime Minister Netanyahu is in the U.S. On the bearish side, slowdown in China puts a damper on expected demand for oil. So there is a balance of fears going on.”

That balance led to last week’s “mock trade” in the binary options market. Abe figured by Friday, oil would still be trading in a range between $103.75-108.75. And he was right. It was good for a 19% gain in four days.

Abe’s two for two on these mock trades. The previous week, a play on the movement of the Dow delivered a 24% gain. And the way all of these trades work, it’s “in on Monday, out by Friday.” You know the outcome in four days or less.

Which brings us to this week’s mock trade…

Over the weekend, China reported a trade deficit for February — $31.5 billion. “Exports took a hit from Europe’s economic slowdown,” according to the Financial Times, “stoking concerns about growth prospects in the world’s second-largest economy.”

“All copper traders monitor the news from China,” says Abe. “The Chinese slowdown is on the surface negative for copper demand, but from a trader’s perspective, the chatter among China watchers is pointing to a stimulus to offset the overall slowdown.”

That’s because the latest report on inflation in China came in lower than expected. In China, as anywhere else, if central bankers have fewer worries about inflation, they feel freer to turn on the monetary spigots.

“This becomes very supportive for copper prices,” says Abe, “as it firms up technical buying.”

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning