US election: uncertain predictions and market risks
Marcus Brookes looks at what Brexit teaches us about trusting betting exchanges and polls in the run-up to the US election, and some of the market implications of the possible results.
Betting exchanges vs polls
We learned from the Scottish referendum that betting exchanges were a better predictor of a particular voting outcome than the official polls.
The Brexit vote should therefore have been a vote to remain since this is how the betting exchanges were calling it, but clearly this was wrong so this theory was undermined.
I have heard an explanation for this failure that the number of bets to leave were larger than the number to stay, but the average value of the bet to remain was significantly larger which skewed the total value of the bets towards a forecast of remain.
In other words it is probable that wealthy “remainers” skewed the data.
Perhaps next time we will look at the number of bets made for one outcome relative to another, if we are allowed this data.
So what are we going to use to forecast the result of the US election? A reputable bookmaker had the odds of Clinton winning at 4/9, with Trump at 7/4 which clearly puts Clinton in the lead. I could find no data on the number of bets placed.
Polling data coming out the US is pretty mixed, but there is general agreement that Hillary Clinton remains the favourite, but not by a huge margin.
This is all a bit reminiscent of the Brexit vote, where pollsters and bookies agreed on an outcome but both were wrong, of course.
I found an article where a number of psychics were asked to use their particular talents to forecast the result and with the usual caveats, they too were for Clinton.
Why does any of this even matter?
Irrespective of the reader’s own personal politics it is becoming clear that the candidates represent very different agendas for the US, which could spill over to becoming global issues.
Clinton is the establishment figure and according to most commentators represents the closest version of “business as usual”.
Particular areas that investors might wish to focus on relate to her views on the cost of healthcare (too high), fiscal policy (small easing, no helicopter money), defence (increased foreign policy so more spending) and regulation (proponent of greater financial regulation).
In contrast, Trump is not viewed as being an establishment figure, despite being white, male and a billionaire.
His policy seems to be more rhetoric than well-planned/costed initiatives; we all know about “The Wall” but he has also alluded to a more protectionist agenda that sees the US rein in its foreign policy objectives and winds back globalisation. With respect to fiscal policy there is little known apart from the fact that Trump will spend a lot more than Clinton, with little detail on how this is funded (perhaps helicopter money).
More specifically, Trump has also pronounced that Janet Yellen would be removed from her position as Chair of the Federal Reserve and this perhaps indicates that monetary policy would become less independent of government.
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