Who Wins Scorched Earth Politics? By: Gabriel PotterMBA, AIFA® 2016.10.10

It has been a heck of a weekend for political junkies, with the release of Donald Trump’s Access Hollywood tape on Friday, a wave of Republican defections on Saturday, and the 2nd Presidential Debate on Sunday.  The good news for Donald Trump in this debate is that he is not a career politician, so he really doesn’t have anything to lose.  He can afford to walk in, ignore the recommendations of his party, escalate attacks, deescalate decorum, and throw bombs; he won’t have to face any consequences for this style of scorched earth politics.  The bad news is for pundits (or just enthusiasts like myself) who have to look at the debate’s messy aftermath following the mud-slinging affair and wonder if there’s a way to determine a “winner”.

Let’s ignore the political spinning from campaign surrogates and utterly useless non-scientific polls which are obviously easy to manipulate.  Let us instead praise the clarity of betting markets – people putting their money where their mouth is about who really won.  First, there are direct betting markets like Betfair, PredictIt, PredictWise and Iowa’s Electronic Markets where bettors (not really investors) bet directly on the probability of a win for their chosen candidate, with hard dollar payoffs if they’re right.  What is more fascinating to me is that real world proxies for the election can be found in traditional financial security markets.  For instance, Donald Trump’s policies (particularly his proposed wall on the southern border between the U.S. and Mexico) are supposed to presage hard times for Mexico, its economy, and its currency.  Thus, the currency market between the Mexican Peso is viewed as a real world analogue to a direct bets on who is likelier to be president.  Put simply, if the Peso goes up, it means the market thinks Donald Trump will not be president.  If the Peso goes down, it means the odds for a Trump presidency got higher.  So who is winning?  Just look at the currency markets.

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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