Friday, July 11, 2008

The best investment idea I have right now. A risk-free, massive annualized return.

So it turns out that Republicans are a hardy bunch. They haven't let the last eight years phase them, and despite everything we know about presidential elections, you can go to InTrade right now and find McCain carrying a 30% payout for losing the 2008 presidential election. You don't even need Obama to win. You just need McCain to lose.

It's a funny thing about presidential elections -- I've read some economic analyses and it turns out that for all the talk about women's rights, immigration, gas prices, and whatever else we claim is the hot button issue, there is only one thing that really matters in a presidential race, and that is the real incomes of mainstream Americans. It doesn't matter whether incomes are high or low, it only matters if they are rising or falling. If household income is rising (even if it is low) then we love our government. If household incomes are falling, then it is "throw the bums out." And don't think it matters which party is in control, because it doesn't.

You probably don't need me to tell you this, but real incomes are not doing so hot (along with every other economic indicator). In addition to this, any time one party is in control for too long (as Republicans have been) you get party fatigue and adopt an even stronger "throw the bums out" mentality. This country is clearly leaning left this year for these two reasons, and yet there is still a 30% payday on McCain losing the election, which he is easily going to do.

So, I've finally found a position where those of you who don't like to short stocks can easily go long. The election is only four months away. By betting against McCain on InTrade, you are looking at a 30% return in just four months, which annualizes quite nicely for something that is such a small risk. Unfortunately, you can't run a margined account on InTrade, so this would actually be a smaller return than I can make doing things like buying puts against Allied Capital (ALD). Thus, I will not be making this nearly risk-free investment, but for those of you who don't trade options this is as good as you're going to find!

Betting on elections is illegal if you're in the U.S. while you do it, so of course none of us would ever bet on InTrade. Betting on whether subprime families will pay off their $700,000 mortgages in the stock market is still okay though.

Fannie (FNM) and Freddie (FRE) down another 25% today.

1 comment:

Anonymous said...


What's your rationale for the negative outlook on Allied?