We think it will, and in a big way — 55 Blue Senate seats on January 1st is our prediction.
Political Bets
Granted 204 days to election day is an eternity in politics but we layout our analysis in the following. Our best trades, in terms of returns, over the past two years, were bets on the 2018 Blue Wave and on impeachment, which returned over 200 percent (we were in and out of it last year). Unfortunately, it is difficult to do size in these contracts.
By the way, we also won a nice chunk betting that Donald Trump would beat Hillary in the electoral college and lose the popular vote just to let you know we are not 100 percent partisan in our analysis. Lucky for us on that trade, unlucky for the country and world, however.
Individual Races
We look at the individual Senate races and can’t understand why PredictIt is still pricing the Republicans to remain in control of the Senate with a 61 percent probability. The following is the latest Cook Report analysis of the 23 Republican and 12 Democratic seats up in November.
Most analysts are not traders and are more emotionally invested in their work. That is, they are afraid of being wrong as to are many academics, in our experience. Traders understand they will be wrong almost 50 percent of the time, and even some that get it wrong 60 percent of the time can still be multi-millionaires if they have good money management discipline.
Nevertheless, it was clear the pollsters were gun-shy after the 2016 debacle and afraid to call the Blue Wave in 2018 even when it was so obvious,
U.S. Midterms
Have you been listening to the American political pundits recently? We have never seen so many waffles since our last visit to the IHOP.
Even Nate Silver at 538, who has the Dems at an 87 percent probability of taking the House back is hedging. We’ll take a trade with an 87 percent probability any day, anytime. Of course, nothing is ever certain.
Fat tails? Yes.
Life is a game of odds. — GMM, Nov 5, 2018
I am not going to hedge here. If the November election is legit, a big if, it will be a freaking blow-out.
We have our money where our analysis is, betting on a Blue Senate, and if we are right, we are looking at a 439.11 percent compounded annual return (CAAG) by election day. Beat that in the stonk market, folks.
We could also lose 100 percent of our investment, of course, as it is a binary trade but we like the odds and think they are grossly mispriced. Wonder if the Fed will bail us out if we are wrong?
Again, no wishful thinking, no partisan bias — though it fits our political values – just based on our analysis. We find it easier to win in the political markets because most people, we have discovered, make their bets based on emotion rather than analysis, and have difficulty reading cross-tabs in the polling data, which was the subject of our undergraduate senior thesis.
We took a candidate who at the time was running sixth in a crowded Republican Senate primary and picked him to win it all by analyzing the cross-tabs in the polls and how he was developing his campaign strategy. He did win the Senate seat and we graduated with honors.
Hint, don’t look at the headline number but put more weight on the strongly approve/disapprove or definitely will/won’t vote numbers as there is very little wiggle room for a major surprise unless the poll is constructed in a flawed manner or a major political earthquake takes place.
It also goes without saying closely monitor the indies, such as in the following recent Reuters/Ipsos poll.
We made some decent money in 2008 betting on Obama against the meme, “no black man can ever become president” and betting on Trump to win the electoral college and Hillary to win the popular vote.
Not all are winners, however. We did bet Romney in 2012 and lost our ass and recently took a longshot bid on Amy K to win the nomination after her New Hampshire surprise at 20:1 or the potential for a 1,900 percent return. That didn’t work out.
Interesting story about the 2004 presidential election. John Kerry was trading at about $.30 earlier in the campaign so we took a flier, not really believing he would win but the price too low and hew was about to move higher. On election day, it looked like Kerry was going to win Ohio and the contract was trading at $.90 plus when we went to the gym, believing John Kerry was about to become the 43rd POTUS. We got out of the shower and the networks were protecting W.’s reelection. Apparently, someone got a hold of some bad exit polls and leaked it. Needless to say, the contract went straight to zero.
Not to worry, Democrats, our bets this year are mostly matched with donations.
Many believed Trump had so alienated the Latino community he had no chance in 2016. We looked at how the Latino vote was dispersed throughout the country, mainly with big populations in Texas and California, making their vote a bit less relevant in the electoral college as those states are on political autopilot. Maybe not so much for Texas going forward.
We found the Latino vote could also have a significant impact in New Mexico and Nevada. We made our bet, had some luck and outside intervention (not a hoax) with the Trump win but the country and world lost big-time, in our opinion. There you go some partisanship or maybe just reality?
The Senate
That brings us back to the 35 upcoming Senate races in November.
The following illustrates what the prediction markets are expecting in some selected close and toss-up races We also think Lindsey Graham, now polling in a statistical tie with Jamie Harrison, is in much bigger trouble than most believe and also think Mitch McConnell is more vulnerable than markets anticipate.
The Majority Leader’s opponent will be the very attractive, tougher than nails candidate, Amy McGrath, a retired USMC pilot, who has outraised McConnell, $12.8 million in the first three months of 2020 to $7.5 million, and mostly from small donations.
Even Sen Joni Ernst in Iowa is also not safe, in our opinion, as her numbers have been falling like a stone, though PreditIt puts her at 69 percent probability to retain her seat.
Though, the PredictIt market is only making Governor Steve Bullock of Montana a 44 percent probability to win the Senate seat, he is a very strong candidate and we do think he will win. He is a moderate and just entered the race after Biden became a sure bet at the top of the Democratic ticket. Another attractive potential return.
Presidential Race
We suspect a Blue 1980-ish outcome in the popular vote where Trump wins around 41 percent of the popular vote (close to where he is currently polling), which is about the same percentage as President Carter won, but wins a bit more than the six states than Carter did in the electoral college.
For example, if Trump loses Michigan (65% prob), Pennsylvania (61% prob), Arizona (54% prob), and Florida (47% prob) and manages to hold all the other 26 states he took in 2016, that puts him at 228 electoral votes, well short of the 270 needed for reelection.
It’s interesting Trump leads Biden in the head-to-head contract on PreditIt but the Dems are sightly favored to take the White House. The market pretty much is making the election outcome a toss-up.
Why is Biden trailing? He could get ill, for example, or step down and allow a brokered convention may to nominate Andrew Cuomo, which is now a 10 percent probability, for example.
Florida
Governor DeSantis’ gross failure of leadership and botching of the COVID crisis is going drag the Republican ticket down in Florida, in our analysis. His numbers are pretty much tracking those of President Trump, who should be closer to an 80-90 percent approval rating during such a crisis rather than 45 percent. Most of the other governors who took decisive action and showed strong leadership are seeing their poll numbers skyrocket.
Senate Races
Doug Jones will need a miracle, as in a repeat of the 99 percent margin of victory with African-American women who turned out in droves for him during the special election.
Nevertheless, these data alone show a probability of a net pick-up of four seats for the Democrats, which would put them in the majority with the two independents, Bernie Sanders and Angus King voting in with the Democratic caucus.
Coattails?
If Trump is swept from office, as we feel he will be, expect an even bigger coattail effect. As in large coattails. Bid adieu to Mitch, Lindsey, and Joni.
As always, we reserve the right to be wrong as we often are.
Please no screaming emails or comments but we do welcome your debate and analysis to instruct how we may be wrong.
Whatever the case, prepare for some massive gaslighting. folks. If you didn’t see today’s White House COVID presser campaign rally, it’s clear: it begins.
*Gaslighting, if you don’t know the word, is defined as manipulation into doubting your own sanity; as in, Carl made Mary think she was crazy, even though she clearly caught him cheating. He gaslit her.
…What the crisis has given us is a once-in-a-lifetime chance to see ourselves and our country in the plainest of views. At no other time, ever in our lives, have we gotten the opportunity to see what would happen if the world simply stopped. Here it is. We’re in it. Stores are closed. Restaurants are empty. Streets and six-lane highways are barren. Even the planet itself is rattling less (true story). And because it is rarer than rare, it has brought to light all of the beautiful and painful truths of how we live. And that feels weird. Really weird. Because it has… never… happened… before. If we want to create a better country and a better world for our kids, and if we want to make sure we are even sustainable as a nation and as a democracy, we have to pay attention to how we feel right now. I cannot speak for you, but I imagine you feel like I do: devastated, depressed, and heartbroken.
….Until then, get ready, my friends. What is about to be unleashed on American society will be the greatest campaign ever created to get you to feel normal again. It will come from brands, it will come from government, it will even come from each other, and it will come from the left and from the right. We will do anything, spend anything, believe anything, just so we can take away how horribly uncomfortable all of this feels. And on top of that, just to turn the screw that much more, will be the one effort that’s even greater: the all-out blitz to make you believe you never saw what you saw. The air wasn’t really cleaner; those images were fake. The hospitals weren’t really a war zone; those stories were hyperbole. The numbers were not that high; the press is lying. You didn’t see people in masks standing in the rain risking their lives to vote. Not in America. You didn’t see the leader of the free world push an unproven miracle drug like a late-night infomercial salesman. That was a crisis update. You didn’t see homeless people dead on the street. You didn’t see inequality. You didn’t see indifference. You didn’t see utter failure of leadership and systems.
But you did. You are not crazy, my friends. And so we are about to be gaslit in a truly unprecedented way. It starts with a check for $1,200 (Don’t say I never gave you anything) and then it will be so big that it will be bigly. – Forge
Global Macro Monitor 