Tomorrow, We Vote
Notes from a 50/50 Nation
Today's note is going to be pretty short. I don't really have any alpha in predicting the election, nor do I think my views on the President particularly matter.
As regular readers may know, my view is that the challenges the US (and by association the West) faces are deeper than Democrats vs Republicans. I'm more of a horseshoe guy - not in the extremist sense, but in the sense that both ends of our political spectrum are missing something crucial. Our current politics lacks a cohesive framework for dealing with the challenges of the coming century, and these challenges, left unattended, will threaten the very foundation of the Republic. This is why I've been advocating for what I call a New New Deal - a comprehensive approach that transcends traditional partisan divisions to address technological disruption, climate change, and geopolitical realignment.
We'll dive deep into both the political philosophy and specific policies in the coming weeks, but for now, I leave you with this:
Elections are a gift.
We may be weary of the red vs blue map, the election markets vs the pollsters, and the memetic warfare across multiple domains, but let's take a minute before diving in to just appreciate the beauty of the conversation and the process.
The span of human history is filled with unelected kings and tinpot despots. Democracy is rare, a gift and privilege. You may be sick of people texting, ringing, and advertising at you, but let's take a moment to appreciate that they are doing it because, by and large, your vote - and by association, your voice - matters. Maybe not as much as Elon's, but infinitely more than it did in 17th century England, or 3rd century Rome, or 21st century China. Let's appreciate the privilege of the gift, for at least a moment.
And it's precisely because this gift matters so much that it makes sense to pay a little attention to what prediction markets are saying. This intersection of democracy and markets tells us something important about collective wisdom and expectations. So let's look at what election markets are saying, and use this data to try to extract where markets (and our world) may go, depending on which way the wind blows.
What do the polls say?
Nationally, 50/50
Pennsylvania: 50/50
I'm no Nate Silver, but it seems like whoever wins PA wins the throne.
Nevada might be almost as much of a toss up, though with 1/3rd of the weight.
What do prediction markets say?
Manifold: 50/50
Polymarket (58/42) after a late surge by Harris.
Interestingly, this ambiguity extends to the notion of a divided government, which is trading at... you guessed it, 50/50.
Implications for Markets
Using the hourly changes in the odds to suss out the ‘correlation structure’ across markets tells an interesting story, one by and large consistent with our last write up on the topic, with one interesting outlier.
Tech Sector: Surprisingly, Trump appears better for tech stocks. This makes some sense - he certainly hasn't threatened to tax unrealized gains (which would likely kill the unicorn economy, by the way).
Safe Havens: The Trump effect on gold is positive, aligned with market expectations of weakness in bonds and the dollar under his presidency. Though it's worth noting that his last election actually saw bonds sell off, leading to a stronger, not weaker, dollar.
The China Factor: Perhaps the most intriguing correlation is the strong negative relationship between Trump's odds and Chinese stocks. Personally, I'm skeptical this linkage will play out as strongly as markets suggest - it might have more to do with the pump and dump we saw a month ago coinciding with his peak odds. Still, it's worth monitoring, especially given that expectations for single-day volatility in the Chinese Yuan are at an all-time high for election day.
China has mostly stayed out of the conversation this election cycle, partly because Trump has tacked to the center on the issue, and Harris had a hard time out-hawking him there. My view? If Trump wins, we'll likely see an about-face regarding China as he suddenly remembers the lack of follow-through on "Phase One" of the trade deal.
Seems the only part that really came through was purchases of food.
Implications on process and policy
The impact on policy outcomes appears more muted than one might expect:
Both candidates claim they'll decrease undocumented immigration
Harris is more likely to legalize marijuana, regulate AI, and cut carbon
Trump is more likely to create a recession, inflation, a new SCOTUS justice, and peace in Ukraine. If he doesn't win, he's also 6x more likely to go to jail
As for process, there's only a 1-in-3 chance we'll know the answer in 24 hours:
With what we call a ‘long tail’ in the business.
Manifold will probably crash.
If Trump loses, he probably fights (90%+).
If Harris loses, there’s a 40% chance she fights.
Meaning, regardless of who wins, there's a very good chance we'll see some social unrest.
Bringing us full circle to our opening reflection: Democracy is a gift, but it's also fragile. The market predictions and potential for social upheaval remind us just how precious - and precarious - this gift is.
May the count be swift and the streets quiet.
May the winner lead with wisdom and the losers accept with dignity.
After all, a smooth transfer of power is democracy's finest return on investment.
Good luck out there.
Charts and graphs included in these materials are intended for educational purposes only and should not function as the sole basis for any investment decision