Can a Good Bet Be Had?
While I usually tend to shy away from overtly political articles, this is one that concerns both gambling and value so I feel more comfortable writing about it. The only thing that I can hope for is that the comment section doesn’t turn into a Liberal v. Conservative debate, or anything along those lines, because the purpose of this is to discuss probabilities and not political opinions.
With that said, many readers here will know that I tend to skew to the left politically, so while it is not deliberate, don’t be surprised if some of the views espoused here within tend to trend towards that side of the spectrum.
We are going to be looking at PredictIt.org for the purposes of this article because the majority of WoV visitors are U.S.-based, and that seems to be one of the only places for a U.S. based bettor to get some action down on the possibility of Trump being removed from office, or not. While there may be some online sportsbooks that Americans can access by one means or the other, PredictIt is one site that Americans can access with total impunity.
The implied odds of the binary options on PredictIt have recently increased in favor of a Trump removal from office given much of the news over the last month. For these purposes, I don’t want to delve too deeply into each individual news subject, but we will go over many of the highlights since July in a summary manner:
1.) Repeal and Replace Failure
The first thing that we note is the failure of Trump and the Congress to make any significant headway with respect to the repeal and replacement of the Affordable Care Act, known colloquially as, “ObamaCare.”
The House originally passed a bill that would have served to repeal and replace certain aspects of Obamacare, which then moved onto the Senate for a vote. Senate Majority Leader Mitch McConnell utilized what is effectively a loophole to enable the Senate to pass the House of Representatives’ bill with a simple majority of Senate votes (50 with Vice-President Pence breaking a tie, if needed) as opposed to the usual sixty that would be necessary.
This bill, known as the, ‘Better Care Reconciliation Act,’ faced opposition in both the House and the Senate from Republicans in addition to unanimous opposition from Democrats. With respect to the Republicans, some of them skew more, ‘Moderate,’ than others and were opposed to the bill due to expected cuts to MediCaid as well as the fact that, ultimately, fewer Americans would be covered by some form of healthcare as a result. This was according to the Congressional Budget Office.
Facing early opposition from Kentucky Senator Rand Paul for not being Conservative enough as well as Maine’s Susan Collins (a left-leaning state) due to MediCaid cuts, the bill was such that all fifty of the remaining Republican Senators would have to vote in favor for it to pass. In the middle of July, both Mike Lee of Utah and Jerry Moran of Kansas also announced that they would vote in opposition to the bill. Given the fact that there was no way any Democrats would vote in the bill’s favor, it effectively died.
Senate Majority Leader Mitch McConnell seemed to concede defeat and initially seemed prepared to move on to other matters. Ultimately, though, he and many other Republican Senators decided it would be preferable to try to find a different way to repeal other parts of ObamaCare.
The first series of efforts was aimed at creating a new bill that would fully repeal and replace ObamaCare, but McConnell and friends were unable to craft something that would have resulted in the Senate voting in favor of it in the majority. The next effort was one in which the Senate would vote to repeal ObamaCare, effective next year, but would not come up with a replacement for it until a later day. That measure would have been completely irresponsible as insurers, the public and the Government itself would have no idea what to expect in terms of the nation’s health care prior to the drafting of the replacement bill. It also seemed to count on the notion that Senators would be able to agree on a replacement in the first place, which seems unlikely.
Ultimately, that bill would go on to fail by a vote of 55-45.
The final effort was termed the, ‘Skinny Repeal,’ which would repeal a few aspects of ObamaCare while leaving the rest of it in place. Interestingly enough, the Senate could have passed this, ‘Skinny Repeal,’ and moved it onto the House, but they did not actually want the House to pass it. In fact, Speaker of the House Paul Ryan had to specifically promise that the House would not pass, ‘Skinny Repeal,’ to get many Republican Senators to even seriously consider it. The ultimate goal was to get something back over to the House so that House and Senate committees could work on modifying it into an essentially completely new bill.
Simply put: It was a hail mary pass to keep the debate alive.
Had the Senate and House passed, ‘Skinny Repeal,’ as molded, it would have been an abject disaster. It would have removed the individual mandate, employer mandates and would have given states the leeway not to enforce the terms of ObamaCare that require insurance companies to offer ten essential services.
This would have sent the nation’s health care into a tailspin and would have been bad for everyone. The mandates are necessary to keep health insurance affordable as they require employers of fifty people or more to provide an insurance option for employees while the individual mandate requires all citizens to have some form of insurance or pay a fine. Both of these things are fundamental aspects of keeping the costs of insurance lower while maximizing the number of those insured.
The Congressional Budget Office concluded that the, ‘Skinny Repeal,’ would have the immediate effect of fifteen million more Americans not being insured as of next year (admittedly, some by choice) as well as the cost of premiums going up approximately 20% overall. The reason that the premiums would go up is largely due to the fact that healthy people (the ones who enable the system to work and insurance companies to retain their profit margins) would be the most likely to get off of insurance.
In other words, everyone loses with the, ‘Skinny Repeal.’ We will never know whether or not Speaker of the House Ryan would have kept his word that he would not put the bill, as molded, to vote because it failed in the Senate. Alaska’s Lisa Murkowski, (despite President Trump directly threatening her state) Maine’s Susan Collins, and “The Maverick,” John McCain came through in an effort to cause the bill to fail 49-51. It was actually expected that McCain would vote in favor of the bill, so much so in fact that Vice President Pence was present just shortly before the vote expecting to have to cast a tie-breaking vote.
Both McConnell and Trump lamented the failure of the bill while Speaker Ryan declared that the House of Representatives had done their part. Speaker McConnell announced that it was time for the Senate to move on to other matters while Trump took to Twitter to bash the Democratic Senators as well as the three Republicans who voted against.
In itself, this wouldn’t seem to have much to do with impeachment. None of this represents anything remotely close to an impeachable offense, but fortunately for those who want to buy the, ‘No,’ any bad news for Trump seems to temporarily bump the price down if you want to take the side that says he remains in office.
Congressional Republicans and Democrats were able to unite on one topic shortly after the failure of the health care bill. They came together in an effort to vote to prevent Trump from being able to reduce or alleviate economic sanctions that had been placed upon Russia due to their perceived interference in last year’s Presidential Election.
The vote to block Trump from being able to reduce sanctions passed the House of Representatives 419-3 and the Senate 98-2, which are veto-proof majorities by a ton. Despite the coming together of both sides of the Congress, Trump once again took to Twitter to lament the measure.
Immediately after the failure of the Congress to repeal and replace ObamaCare there came a rash of staff changes in the Trump White House. Some people wanted to chalk it up to a temper tantrum on Trump’s part, some people say that it just demonstrates the total disarray that the White House is in and I will personally abstain from giving an opinion on any of that.
I will state the facts:
1.) Against the wishes of White House Press Secretary Sean Spicer, President Trump appointed businessman Anthony Scaramucci as White House Director of Communications. Despite the request of Trump to the contrary, Spicer opted to resign his position as a result of this appointment.
2.) Anthony Scaramucci then conducted an interview with Ryan Lizza of the New York Post during which, among other things, he:
- Threatened to fire his entire staff for leaking inside and classified information.
- Stated that Chief of Staff Reince Priebus was a paranoid schizophrenic (with a few choice modifiers behind the statement) who had been blocking the appointment of Scaramucci with his penis for the last several months.
- Stated that Steve Bannon tries to perform fellatio upon himself and is attempting to build a brand off of the, “Strength of the President.”
In his defense, Scaramucci stated that the spirit of the interview was, “Off-the-Record,” though he admitted to not specifically asking to be off-the-record. One would think that when one’s title is, “Communications Director,” and one is speaking to a journalist, that it might be prudent to watch what one says. In fact, one might argue that Scaramucci should have known that he needs to state that he is speaking off-the-record if that is the context he wants the conversation to take place in.
In any event, Scaramucci kind of but not really apologized for the vulgarity of his remarks saying that he will try to avoid using that sort of language in the future. However, he followed that up by doubling down on his threats against leakers and also claiming that his financial disclosure records had illegally been leaked and that her would get the FBI and Department of Justice on the matter.
Scaramucci apparently did not realize that those same records are a matter of public record and were released legally, upon request, by the Import-Export Bank in which Scaramucci had worked prior to assuming his new post.
Except, Scaramucci never technically assumed his new post. With an official start date of August 15th, he was technically fired (cough, cough: resigned: cough, cough) before he had even assumed his position.
That was after new Chief of Staff General John Kelly assumed his new position due to the fact that:
3.) Chief of Staff Reince Priebus resigned shortly after Scaramucci’s comments were made public. While he stated that he would always support President Trump, he declined to discuss his resignation in any other than vague terms and said he would not, “Get down in the mud,” as relates Scaramucci’s statements towards him.
Between then and now Trump is perceived to have:
1.) Made a politically charged speech at the National Boy Scouts’ Convention.
2.) Seemingly advocated in favor of police brutality.
3.) Made comments after a tragedy in Charlottesville, VA during a White Supremacist rally (and counter-rally) that resulted in three deaths and several injuries that did not, as perceived, do enough to denounce white supremacy.
The Odds and PredictIt
Okay, that’s enough current events for one day. Too depressing. The only good news for those of you looking to turn this news cycle into some cash is that the perceived actions of Trump have decreased his popularity (with some) and those numbers have spoken, with money, that they are putting on the notion that Trump will be impeached by a certain time.
People often tend to bet more with their hearts than with logic, as you will notice that every single thing written above has absolutely nothing to do with whether or not Trump will be impeached. At least, not directly.
In just a few short days, the value has increased dramatically from the time that I wrote a similar article for our parent site LCB! The PredictIt page concerning White House affairs can be found here.
The first thing that you will notice is that a question is posed as to whether or not Trump will still be in office at 2017 year’s end. In the meantime, there is also a question of whether or not Pence will be Vice-President at year’s end.
The two markets may vary (Trump is more valuable for, ‘Yes,’ and Pence is more valuable for, ‘No,’) but they are asking the same question, essentially. Short of one of them dying, for Pence NOT to be Vice-President would first require Trump not to be President.
For the LCB piece, I looked at the implied odds and value for both 2017 and 2018, but we are going to limit ourselves to just 2017 today because I believe the value is significantly better. I am of the opinion that the value is better for a few reasons:
1.) There is less uncertainty between now and year’s end 2017 as compared to year’s end 2018. To wit, there are just over four months of this year left.
2.) While I did perceive value in the 2018 question, you have to look at the difference between the matter resolving in sixteen months as opposed to four months. If you want to take the, ‘Yes,’ side, and you do, then you have to be getting a Return-on-Investment at least four times greater on the 2018 question to justify the additional length of time you are floating the money.
While I perceive a greater value with the 2018 question, it is nowhere near four times greater. In fact, the relative movement on the, ‘Yes,’ side has generated greater additional value in the last few days as compared to the 2018 question. When it comes to RoI on an annualized basis, this isn’t even close.
3.) I think that there is a non-zero actual probability of Trump being removed from office by the House & Senate during the year of 2018 while I put the probability of same happening this year at 0.0000000000000000001.
In other words, the only way I think that Trump will not be in office by the end of this year is if he is dead. The implied odds of the current binary (.80/.20) effectively imply (if you agree with me) that there is a 20% chance of him dying by the end of the year. I maintain that the probability of him dying by the end of the year is nowhere near 20%.
The Impeachment Process and Political Process
The first thing that needs to be understood is that Presidents, by design, are very difficult to remove from office. You cannot have the highest Executive office in the nation’s stability be subject to the vagaries of whatever party happens to control Congress at a given time.
Think about it in terms of Obama, for much of his Presidency, Obama was faced with a Republican Congress who acted in near-Universal opposition to him. If a majority vote in the House and a majority vote in the Senate would have been enough to remove him from office, don’t you think they would have tried? Same thing with Trump, if Democrats controlled both houses, anyway.
Initially, the special investigation being led by Special Counsel (and former FBI Director) Robert Mueller will have to conclude before Congress even has a potentially impeachable offense to work with. Due to the complexity of the investigation, there has been substantial question as to whether or not it will even conclude prior to the end of this year.
Without investigation findings, or Trump committing some actual crime in the interim, there is literally no reason to impeach Trump, much less remove him from office. There is no way I can make that any clearer, there is nothing to impeach him for.
Even if there were, now one has to take a look at the impeachment process itself, here is what that consists of:
1.) The belief that, “Treason, Bribery (while in office) or High Crimes and Misdemeanors,” have been committed. What is a High Crime or High Misdemeanor? Don’t know. The Constitution didn’t deign to specify that for us. Ergo, Congress effectively decides what constitutes same.
2.) A Congressional Committee must then prepare Articles of Impeachment, which are then voted upon by the full body of Congress. In the event of a majority vote in favor, then the Articles of Impeachment are considered as passed, the President has been impeached (by the House) and the matter moves on to the Senate.
3.) When it goes before the Senate, the accused is not removed from office and the matter is handled in the fashion of a trial. In fact, the accused shall even have attorneys present to present the accused’s defense. The Chief Justice of the Supreme Court shall preside over the proceedings and the matter will be handled similarly to a criminal trial with both defense and prosecution presenting their respective cases.
4.) The Senate will essentially find the President, “Guilty,” with a two-thirds vote and the President shall be removed from office. Anything less than a two-thirds vote and the President is not guilty and shall not be removed from office.
While two Presidents (Andrew Johnson and Bill Clinton) have been impeached by the House of Representatives, no President has ever been found guilty and removed from office by the Senate. Richard Nixon almost definitely would have been, but he resigned prior to the Articles of Impeachment even passing the House of Representatives.
Beyond that, impeaching a sitting President is a politically inadvisable thing to do, generally speaking. The fact of the matter is that, despite his approval rating of 37.8% compared to 55.4% disapproval (roughly 6.8% with no opinion) according to FiveThirtyEight.
The majority of Republican voters do, in fact, approve of the job that President Trump is doing while many strongly approve. Any efforts that are undertaken with an eye towards impeaching or removing Trump from office could result in political backlash against individual Congressman by those in their party who support President Trump.
While this may not play out in the mid-term General Elections next year, (as many states are deep red or deep blue and vote pretty strongly along party lines, anyway) you could see Pro-Trump primary challengers come up early next year against Congressmen who may be seen as anti-Trump. Certainly, Congressmen are not going to want to face a potential primary challenge if they would be vulnerable, so they are largely going to moderate their stated opinions of Trump to keep in line with what the Congressional District (or State, in the case of the Senate) thinks of Trump.
The above paragraph essentially summarizes my argument for why Trump is unlikely to be impeached in 2018. Donald Trump once claimed, “I could stand in the middle of Fifth Avenue and shoot somebody and not lose any voters.” While that may not be strictly true, he could certainly shoot someone and not lose ALL of his supporters. In fact, many Trump supporters (though a small percentage) would encourage such behavior.
Let’s Get to the Math
The first thing that we are going to assume is that you do not currently have any money invested on PredictIt.org, but it’s actually even better if you do. The reason why is because you eat a 5% fee on withdrawals, but those are already sunk costs if you’ve got money in there.
However, we are going to make that assumption that you have no money in there so we can take a worst-case scenario view.
The first thing that you will notice is the binary’s phrasing:
Will President Trump be in office by year’s end 2017:
Yes: $0.80 No: $0.20
The way that a binary option works is that you can purchase shares in either the, ‘Yes,’ or, ‘No,’ and, if you hold the shares until completion, (in this case until Trump is either out of office or the year ends) then the binary will resolve at $1.00/share if you had the winning side and $0.00/share if you have the losing side. In the meantime, you can sell your binary shares at anytime in the event that you are able to find someone willing to buy them.
Of course, very little in life is free and this is no exception. In the case of PredictIt, they will charge a commission of 10% of your profits in the event that you either win at $1.00/share or if you sell your shares at a profit. In the case of this binary, you would profit $0.20/share taking the, ‘Yes,’ and will be charged $0.02/share as a result. In effect, you will have a return of $0.18/share if you win.
Unfortunately, unless you choose to leave money on the site, there is one direct fee that you will have to contend with. If you choose to withdraw your funds, then you will be charged a flat 5% fee on the entire amount withdrawn. In other words, if this is the only bet you will ever make on PredictIt, you will eat 10% of any profits and 5% of your total balance after profits.
What that means is, assuming you win, you will receive $0.98/share to your balance based on a bet of $0.80/share and will pay 5% of the total balance after resolution. If you buy 100 shares, then you will either lose $80 ultimately, or you will cash out $93.10. The $93.10 comes from the $98 you will finish with (10% Commission on $20 is $2) multiplied by the .95 that you will get after withdrawal fees which results in $93.10.
Ergo, you will either profit $13.10 or you will lose $80, pretty simple.
What do you want to put the probability of losing at? I am going to say the probability of losing is equivalent to that of Trump dying because under no other set of circumstances do I not believe he will be in office by the end of the year. I am going to deliberately overshoot and say the probability of him dying at the end of the year is 2%.
(13.10 * .98) - (80 * .02) = $11.238
Based on a 2% actual probability, the expected profit on the outcome is $11.238 on $80 in total bets. In other words, you expect a return of (1+ 11.238/80) or 114.0475%. I don’t know about you, but I call that a pretty nice advantage. You can also choose to do 91.238/80 = 114.0475%, same thing.
You can substitute whatever actual probability you think is accurate to the equation above. Just change the implied probability numbers. If you think the actual probability of him not being in office at the end of the year is 5%, then do this:
(13.10 * .95) - (85 * .05) = $8.195
As you can see, based on those assumptions, you now have an expected profit of $8.195. Your return is $88.195 on $80 bet, so your expected return percentage is 110.24375%. Again, that’s still an extremely healthy edge!
You might be asking yourself: Well, I’m not sure what I think the probability is, so how do I find the breakeven probability? That question is answered by a simple algebraic equation:
(13.10 * x) - (85 * (1-x)) = 0
Solve for X, or cheat:
X = 0.866463
In other words, if you think the probability of Trump remaining in office is 86.6463% (probability of removal 13.3567%) you have a break even bet. If you think the probability of him removing in office is greater than 86.6463%, then you have an advantage making the bet.
These PredictIt.org, ‘No,’ takers on this question are positively giving money away, at this point. I would recommend anyone who is so inclined to go forth and grab it if you have the means and the desire to do so. There is so much value on this, ‘Yes,’ that it is positively absurd at this point.
The good news is, even if you believe the probability of Trump not being in office has changed, or if the price to take the, ‘Yes,’ changes, you can do the simple math I have shown above to determine your expected profit (or loss) based on your bet amount. Remember, there will come a certain point at which you cannot possibly win and do not want to buy shares. At $0.95, for example, you cannot possibly profit if you are making a new deposit. You would win $0.05/share, receive $0.045/share (Improving your balance to $0.9945, for each share you have) but that 5% withdrawal fee would bring you down below $0.95/share in value.
Anyway, whatever the news cycle does, there will eventually come a point during which we are simply too close to the end of the year for the price of the, ‘Yes,’ to even temporarily go down by very much. My advice is to get your bets in good while you can and watch the news cycle for news that seems bad for Trump and perhaps look for another price fall on the, ‘Yes.’ Even with that, with less than 4.5 months to go until resolution, I’d be shocked if you end up with a better opportunity than this.
It’s free money.