December, 2019: a debate is (or maybe isn’t?) about to happen.
January, 2020: an impeachment trial will sideline the senators for at least two weeks (maybe more?). Another debate.
February 3, 2020: Iowa.
…And What’s Important
The rest? I’m skeptical the debate has a big impact, I’m skeptical the impeachment trial will matter. I’m sure the next month and a half will see momentum shifts and polling swings, but it’s impossible to know exactly what they’ll be and what will instigate them. Remarkably, for December before an election year, there’s really no clear front-runner for the nomination. The market is nearly completely up in the air.
In the last post, I tried to suss out who I thought was under- or overvalued. I said Joe was too cheap (and he went up since then), that Liz was too cheap (and she went down), that Bernie was about right (he’s gone up), and that Pete was a bit overpriced (he went up, but then down). [And despite this decidedly poor record, I still feel much as I did then, though I respect the case for Bernie more now. The great thing about PredictIt, of course, is that you can be wrong but as long as you recognize things quickly enough you can still come out okay, and I’ve tacked on another $300 or so since the last post, taking me to $6.2k in that market.]
So here let’s skip trying to figure out who’s going to win, and instead try to flesh out a decision-tree for possible results coming out of the Iowa caucuses.
How Iowa Matters
Iowa is about momentum, Iowa is about surpassing expectations and Iowa is about failing to meet expectations. Iowa is about the media narrative. The delegates won from Iowa are unlikely to matter in the end and are not a substantial number in any event. The whole game here is to do better than expected and, hopefully, to be “in the conversation” and “have a ticket” and whatever other shit metaphors people use to verbally segregate the perceived winners from losers. Now, it’s of course not entirely clear that media bumps will produce voter bumps – Obama got a big bump out of Iowa heading into NH but still ended up losing the Granite state. But, and I can say this quite confidently, the markets are going to track media sentiment and this is where the money will be, at least initially.
One Iowa Wrinkle This Year
The Iowa caucuses are weird, and for the serious or semi-serious bettor out there, I do suggest having a read through of the rules governing them. Briefly: there are several rounds of declaring support for various candidates. Of these, the first and the last are the most important. The first is where everyone huddles up in a group of other people who want to caucus for that candidate. The last is where everyone ends up at the end of the night once initial groups with fewer than 15% of caucusgoers (note this depends on the number of delegates selected by a precinct to the county convention… it’s a bit complicated) are redistributed to other candidates.
In the past, we only knew the final segregation of caucus-goers, and the media went, then, with that as the story. I suspect, but do not fully know, that this will be the case this time as well. However, it’s worth noting this year that Iowa will be reporting the results of the very first division into caucus groups. This is akin to basically the “first choice” vote that you would see in a primary state (except for the part that the voters are only those who are motivated to caucus in the first place). It’s quite conceivable, for instance, that Yang gets 6% of the vote in the first choice but 0% of the delegates in the final alignment. Bernie might be at 20% in the first round but end up with 30% of the delegates. So what numbers the media latches onto will matter.
But let’s assume the media does what they’ve done in the past and focuses primarily on the final expression of preference at the caucuses and run through some scenarios.
A Clear Winner, A Distant Pack
Candidate A – 45%
Candidate B, C, D – 14-18%
(Note that, of course, the prices you get for various things will depend on the extent to which any of these scenarios is expected or comes as a surprise. It’s too much to further branch the decision tree in that regard, but it’s something to bear in mind as we draw nearer caucus day.)
If Candidate A is Joe – max Joe practically everywhere, max NO on everyone else everywhere. It’s not completely over, Bernie could still beat him in NH and maybe NV in this scenario, but it’s basically over. Neither Pete nor Liz will be viable on Super Tuesday, although they may hang on til then anyway to save face. VT may be a fun state to watch, as some might panic-dump their Bernies there. Joe might hit 20-30c.
If Candidate A is Bernie – max Bernie everywhere, but aim to flip him in the Southern states. If you can get Joe under 50c NO in the southern states, take it. The extent of the swing in Southern states will depend on Joe’s rank – if he’s fourth he’s going to see prices crash into the 20s at least temporarily. Liz is dead in this scenario, and should be max bet against everywhere, including MA where if you’re fast enough (you probably won’t be) or get in ahead of time you’ll get the best price.
If Candidate A is Liz – max Liz practically everywhere. Can this happen anymore? I feel like she has another surge in her (I still have a lot of faith in her campaign) but perhaps she’s simply already on the way out. See above for what to do in Southern States, and absolutely destroy Pete shares across the board, including Indiana. He’s done here.
If Candidate A is Pete – whoa. Obviously you’re maxing Pete everywhere and saying goodbye to Elizabeth Warren. Joe and Bernie will both hang on here and we may well have a three-way contest heading into Super Tuesday.
A Clear Winner, A Striking-Distance Second, Distant Third and Fourth
Candidate A – 40%
Candidate B – 30%
Candidates C,D – 9-15%
If Candidate A is Joe – max Joe in all Southern States. Flip him in NH and NV (the extent to which depends on who Candidate B is). Sell him at 50-60c in California, and then use your best judgment about whether to short there. If candidate B is Bernie, max NO on Liz and Pete everywhere. If B is Liz, max NO on Pete and Bernie practically everywhere. If B is Pete, Liz is probably dead, but I’m not so certain Bernie couldn’t come back. Honestly, Joe + Pete getting 70% of the delegates in Iowa seems rather implausible.
If Candidate A is Bernie – max Bernie in NH, obviously, and take him out for a spin in NV and SC (but if B is Joe, don’t hold those SCs). B here is either Pete or Joe – if it’s Pete honestly I’d probably just max Bernie everywhere and call it. If it’s Joe, then Pete is done and Liz has the barest of chances remaining. Regardless, you’re max betting against C and D here almost no matter what.
If Candidate A is Liz – this is probably a Bernie collapse scenario, so you’ll want to own Liz in NH. Pete is completely gone, even if he’s candidate B (I don’t think that’s possible, really). Joe is most likely the serious competitor remaining and I think he’ll put up a fight that lasts beyond Super Tuesday.
If Candidate A is Pete – presumably candidate B is Bernie. Joe in a distant third or fourth would retain some Southern equity but I’d be betting against if I had prices under 50c in front of me. Liz here is completely done, presuming there’s no universe Pete + Liz get 70% of the Iowa delegates.
A Top Two and a Bottom Two
Candidates A, B – 35%
Candidates C, D – 12%
If A/B is Joe/Bernie and C/D is Liz/Pete – Pete is dead, Liz is all but dead, and Joe is the favorite to win the nomination (probably like 70:30 Joe but the market will price it at like 50:30 at best).
If A/B is Joe/Liz and C/D is Pete/Bernie – another Bernie collapse scenario, so see above for what to do there. It’s a closer race between Joe and Liz than between Joe and Bernie (I think?) but Joe is still the clear favorite here. California is the action state here, where I think I’d want to own Joe more than Liz, but could see it going either way.
If A/B is Bernie/Pete and C/D is Joe/Liz – wew. Liz is very close to done for and Joe is in trouble but not out of it – turbulent waters for him in Southern state markets. Bernie would see 40c in the overall market in this world.
If A/B is Pete/Liz and wait is this actually possible? I’m not sure I really see this.
A Three-Way Bunch and a Straggler
Candidates A, B, C – 28-31%
Candidate D – 10%
Bet against Candidate D, whoever it is. Only Joe could conceivably come back from that and by “conceivably” I mean “really unlikely to happen”. I’m probably betting against Pete regardless here as well. Liz is fine being in a tied top-three, while Bernie and Joe obviously don’t mind it either. Joe benefits the most from being A, B, or C here relative to (current) expectations.
Candidates A, B, C, D – bunched up from 15-25%
This is the most difficult. If it’s literally a four-way tie at 22% there’s a very different story coming out than if its 25-21-17-15 despite these not really being all that dissimilar. Pete is likely a goner if he’s not first (and I wouldn’t take him past 25c overall even if he is). Otherwise it depends on the exact percentages and narrative that emerges and that will be quite murky. My plan here is to seat-of-the-pants it and see what the media converges onto as the story.
Pete needs to win or finish a close second. If Pete or Liz is in a distant fourth, it’s over for them. Joe can survive a third or fourth place finish, but his value will take on water. A clear Bernie win will be seen as the first of what could be three dominoes in a row to fall towards his eventual victory, but it depends on the margin and which moderate does best. Liz wants top two to have a chance, though she does retain some equity if they all remain bunched up but she’s technically in third. And if Joe wins Iowa, he’s probably on his way to winning the nomination.