- The 5 jumps into the political sewer
- What’s wrong with the Dems-win-House conventional wisdom
- The numbers that give the GOP a chance
- The trouble with polling data (complete with “an industry term,” heh)
- Why does anyone still listen to Nate Silver?
- A massive and urgent trade opportunity with strictly limited risk
A note from Dave: Today’s episode of The 5 comes to you much earlier than usual — so you can act, should you choose, on an election-eve trading opportunity with the potential to make 16 times your money. Read on for the time-sensitive details…
“This will be an extremely close election for control of the House,” says our Jim Rickards.
Whelp, time to dirty our hands with politics here.
For the most part, we’ve managed to keep The 5a blessedly “midterm-free zone” this fall.
Yes, we’ve been all over the cannabis referenda in four states… but we’ve tuned out the partisan food fight surrounding the Congressional contests.
And we’ve especially tuned out the media hype about “the most important midterm in decades” — because that’s what the media told you about the midterm in 2014. And 2010. And 2006…
Today, however, on the eve of Election Day, we grit our teeth and tighten the stomach muscles… because there’s a timely trading opportunity tied to this election.
“The questions I’m asked most frequently these days involve the midterms,” Jim tells us. “Will the ‘blue wave’ drown Trump’s efforts to reform America? Will a ‘red wave’ rise to counter the blue wave?”
A casual glance at the mainstream headlines tells you it’s all over: The Republicans will likely hold onto the Senate, but the Democrats are a lead-pipe cinch to take the House.
A sampling from the last week…
- White House Is Said To Brace for GOP Losses and Staff Exodus (Bloomberg Quint)
- Fearing Loss of the House, Republicans Blame Each Other (USA Today)
- Trump’s Attack On Ryan Seen as Advance Scapegoating (The Hill)
Jim begs to differ. Back to the question he keeps getting asked…
“There is no blue wave. There is no red wave. What we have is a very tight horse race that will come down to the wire. If the Democrats take the House of Representatives, it will be by just a few seats. If the Republicans hang on to the House, it will be by the skin of their teeth.”
But if you scratch Jim a little more…he’ll stick his neck out there and tell you to look for “a surprise Republican victory.”
Yes, there’s a trade he suggests on the back of that prediction. And the best part is, he could be wrong and you still stand to make money.
More about that shortly. But first, let’s dig deeper into Jim’s outlier analysis…
“Right now, the Democrats have a slight edge but Republicans have better momentum,”says Jim.
[Warning: Numbers follow. Many of them. If you fear you’ll glaze over, you can cut to the chase and skip ahead to the 01:40 “timestamp.” But if you want to get all geeky about it, here’s your chance to indulge.]
“All 435 seats are up for election. Republicans currently control the House by 236 seats to 193 for the Democrats with six vacancies that will be decided in the upcoming election. The Democrats will have to hold all of their existing seats (including the two Democratic vacancies) and pick up 23 currently Republican seats to gain control of the House.”
“Of the 435 seats up for grabs, 399 seats (203 Democrats and 196 Republicans) are considered safe for the incumbent party or lean in favor of the incumbent. That leaves only 36 seats that are too close to call.
“The 36 toss-ups consist of 31 now held by Republicans and five held by Democrats. If the Democrats hold all five Democrat seats and win 10 of the 31 remaining toss-ups while Republicans hold 21, the Democrats will take control of the House.”
Visually here’s how the map looks as of Saturday afternoon at Real Clear Politics…
So there you have it: “The Democrats have to win 10 of 31 toss-up races for seats now held by Republicans to win the House.
“Predicting the outcome of those 31 close elections is extremely difficult because important indicators such as polling, likely turnout and enthusiasm are changing by the day. In addition, the 399 seats that are counted as safe or leaning include 43 seats in the leaning category that could move into the toss-up category by Election Day.”
Speaking of polling… be careful how you read the figures.
“They’re helpful (more for spotting trends than predicting outcomes), but they have many flaws,” says Jim. “Pollsters may obscure the differences among ‘all voters,’ ‘registered voters’ and ‘likely voters.’
“Only polls with likely voters should be given much weight. Even then, the likely category may be derived from a baseline of past elections, such as 2012, that may not be indicative of how likely voters will vote now.
“Pollsters also tend to overweight Democrats relative to Republicans and to overweight African-Americans within the Democrat sample. Pollsters do a poor job of getting through to people who use cellphones and they cannot properly estimate the actions of those who won’t answer the phones at all. Many voters do not give truthful answers to pollsters; they may have a view but are reluctant or embarrassed to state it to a stranger.
“Finally, none of the polls can estimate actual turnout, which is the most important variable of all.”
Aside from that, polls are dead-on balls accurate!
We anticipate an objection, especially if you’re a newer reader: What about Nate Silver?
As we write on Saturday afternoon, Nate Silver says Democrats stand an 85.4% chance of winning the House.
[Which reminds us of Agora founder Bill Bonner’s dictum about how statistics deserve increasing suspicion with the addition of every decimal place. But we digress…]
Even if you’re not a political junkie, chances are you’ve heard of Silver. He burst onto the scene in 2008 with his FiveThirtyEight website. He correctly forecast Barack Obama would edge Hillary Clinton for the Democrats’ nomination. In the general election between Obama and John McCain, he correctly called the winner in 49 states.
In the 2012 Obama-Romney race, he improved on that performance — calling all 50 states correctly.
Along the way, Silver built up a faux-science mystique around his work in a book called The Signal and the Noise: Why So Many Predictions Fail — but Some Don’t.
In the course of analyzing the endless quantities of data available today, he wrote, “the numbers have no way of speaking for themselves. We speak for them. We imbue them with meaning… Before we demand more of our data, we need to demand more of ourselves.”
Then along came Trump… and Silver should have demanded more of himself.
Wrote Silver in July 2015: “Trump has taken trolling to the next level by being willing to offend members of his own party… In the long run — as our experience with past trolls shows — Trump’s support will probably fade.” By November 2015, he said even a 20% probability of a Trump victory in the primaries was “substantially too high.”
Six months later, Trump had the nomination sewn up… and Silver was forced to engage in a bit of introspection.
“Our early estimates of Trump’s chances weren’t based on a statistical model,” he averred. “Instead, they were what we [call] ‘subjective odds’ — which is to say, educated guesses. In other words, we were basically acting like pundits, but attaching numbers to our estimates. And we succumbed to some of the same biases that pundits often suffer, such as not changing our minds quickly enough in the face of new evidence.”
Translation: “The possibility Trump would catch fire was so offensive to my elite sensibilities that I just made **** up.”
On Election Eve 2016, Silver grudgingly gave Trump a 30% chance of pulling out a victory. He said “turnout and late-deciding voters” would tell the tale — which, if you think about it, is something you or I or anyone else could have said without benefit of “predictive analytics” — heh.
Yes, we reprised all this history at the time. But two years on, the Drudge Report links to FiveThirtyEight every day with Silver’s latest calculations for the House… and there are still people out there whose lives revolve around refreshing FiveThirtyEight every few minutes in the run-up to Election Day. It’s astounding…
Back to Jim’s forecast, and the momentum he says the Republicans have…
“The decisive question is whether the Republican momentum continues and can close the gap in time or whether the Democrats can hang onto their edge and take the House.
“The economy may tip the election in favor of the Republicans. We’ve just had two back-to-back quarters of strong growth. Unemployment is at a near 50-year low and stocks are near an all-time high despite recent drawdowns.
“We’ll see what happens tomorrow. But if the old phrase ‘It’s the economy, stupid’ still means anything, the economic picture could favor Republicans by a hair.”
The outcome of the race for control of the House is serving up what might be the safest and most lucrative “asymmetric trade” that Jim has identified to date.
As a reminder, an asymmetric trade is one with very high upside and very limited downside — as Jim puts it, “heads I win, tails I don’t lose much.”
The classic instance was Jim’s call on the “Brexit” referendum in June 2016. Conventional wisdom said a majority of Britons would vote to remain the European Union. Conventional wisdom was upended when a majority voted to leave.
Jim anticipated the distinct possibility the “leave” side would achieve an upset victory. So he encouraged readers to lay on a trade that would win big if “leave” prevailed… but would register only a small loss if “remain” won as expected.
In the event, “leave” pulled off the upset… and depending on how they played it, Jim’s readers bagged a 129% gain in three days.
By the time the U.S. presidential election rolled around a few months later, Jim was willing to venture that Trump would pull out a victory — against all the conventional wisdom, you’ll recall.
And Jim was right. Alas — and in the interest of full disclosure — the timing of the trade was off the mark. Global markets sold off hard, as Jim anticipated… but only for a few hours overnight. By the time U.S. markets opened for business the next day, the opportunity had already passed by.
Looking at the 2018 midterm version of the asymmetric trade… it’s about as low-risk as your editor can imagine.
Without giving away too many details — those are reserved for paying subscribers, after all— I can tell you the risk-reward proposition here is extremely attractive.
If Jim is right and the Republicans manage to keep control of the House, this trade stands to pay off huge.
But even if he’s wrong and the Democrats win the House, this trade still stands to pay off — simply because of the way Washington works. Maybe it won’t pay off as big… but then again, knowing how D.C. operates, it might.
No, it’s not a “sure thing.” No trade ever is. What’s more, the payoff might unfold gradually — over the next six months.
But for the opportunity to make 16 times your money — and that’s the profit potential with this trade — you could probably exercise that patience, no?
Then again, Jim says the gains could materialize within only hours — with a $1,000 stake transformed into as much as $16,330.
Still not convinced? Jim makes his strongest case when you follow this link. Just make sure you do so right away. If events materialize with the speed he thinks they might… you need to place the trade no later than tomorrow.
Thanks for your attention to this atypical episode of The 5. We’re back tomorrow, again on the earlier side, with a last-minute assessment of the cannabis referenda in four key states and the implications for fast-moving penny pot stocks.
The 5 Min. Forecast
P.S. Twice now, Jim Rickards has made mincemeat of mainstream political predictions.
First he said “Brexit” had a chance in Great Britain… and Brexit won the day.
Then he said Trump would pull out a victory… and Trump did.
Now Jim is ready to show up the mainstream again with a bold midterm election forecast.
If it comes to pass, it could give anyone a shot to profit big as soon as the day after the election…
…but only if they take the right steps by tomorrow morning.