6th August 2024 > > Lessons & the US election.

tl;dr

There are several valuable lessons from the events of the last couple of days. The US election is closer than the betting markets believe it to be.

Market Snap

Market Wrap

The perpetual futures market is skewed towards more turmoil and more downside. As markets will always cause the maximum amount of pain, it would take just a little bit of good news in the shape of emergency rate cuts, or a dialling down of the threats to global stability from the Iran/Israel standoff, to rapidly reset perps with a violent and chaotic short squeeze.

One of the lessons the stock market has been taught since 2008 is that central banks will always be on hand to provide unlimited amounts of liquidity in response to stress whatever its cause, be it the GFC, the sovereign debt crisis, the self-inflicted damage caused by the illegal and illiberal reaction to Covid, or the mid-tier banking crisis, to name just a few examples.

Meanwhile there has been a deliberate policy by regulators and lawmakers to increase leverage during the last decade and a half for banks, industry, and governments themselves. The unwritten mandate for central banks is to prevent this debt driven façade from ever breaking down.

Which means that we are only 6% or so off stock market highs, suggesting to me that the doom and gloom being reported by the media is somewhat overstated, and not for the first time.

Curious Cryptos’ Meme Corner

For better or worse, the CC research team remains relentlessly positive, the key advantage in never using leverage. Remember that leverage is only ever for the mightily experienced. Platforms that offer leverage to the unwary are making out like bandits with all these billions of dollars of liquidations.

With apologies to those who took leverage pain, there is a real lesson here:

Curious Cryptos’ Commentary – US election

Following Kamala Harris’ usurping of Joe Biden as the Democratic Party’s candidate for President of the US, the betting odds have started moving in her favour.

Betfair’s odds of evens for Harris imply a 50% chance of victory, whilst the 8/11 for Trump implies 58%. Taking out the egregious margin for the bookmaker gets you to something like 45% and 54% which is almost bang in line with Polymarket which has their respective shares trading at 43% and 54%, along with some silly numbers for others who have no chance. At one point Trump was at an unbelievable 70% plus at Polymarket, a price which in almost any two-horse race is undoubtedly a sell to me. Whenever I see probabilities higher than that at the bookies (for example the near 90% against Brexit the night of the vote) my strategy is to bet against, and bet harder the more extreme it is. This does work over the long-run, so long as you’re consistent in your gameplan. Contrarianism will win easily against the lazy consensus, if managed properly.

In contrast to the betting odds, the polls for POTUS are almost a dead-heat which some commentators believe is one of the several causes of recent BTC weakness.

Normally, I would dismiss this claim, and put more weight on the betting markets, as talk is cheap. But I am not so sure in this case.

Polymarket is powered by cryptos, raising the not-immaterial possibility that given the disparate approaches to cryptos by the two main protagonists, the market is being skewed by wishful thinking on the punters’ behalf, a mistake that no investor is immune from. With half a billion dollars now wagered on Polymarket, maybe the arbitrage is driving the fixed odds market and not the other way round, which would be unusual to say the least.

What this all means is that I think the polls are more likely to be correct for once, that they are too close to call, and that is a more important signal for the crypto markets than the betting markets, in this particular instance.

But then again, I thought we would never see BTC below $60k again, so what do I know?powered by cryptos.