In the market on which of the 13 members of Trump’s Cabinet will leave next, I have made several predictions over the past few months:
- Esper: Secretary of Defense Mark Esper isn’t going anywhere before the elections, but might get fired shortly after the elections.
- Pompeo and Barr: Both Secretary of State Mike Pompeo and Attorney General Bill Barr will try to stay in the administration as long as possible.
- Carson: The markets, at 2%, were underpricing the likelihood of drama between Trump and Secretary of Housing and Urban Development Ben Carson. In all likelihood, Carson is fed up with the job and doesn’t want to stick around regardless of the election outcome.
All paid. Long shares on Carson, in fact, were one of the best trades of the year, recently spiking from 1% to 10%. This is how the market stands currently:
I think we’re now entering a new phase of this market, which might be creating opportunities to cash in on lottos.
The markets are likely mispriced for three reasons:
- The GOP is unlikely to hold the presidency. Given that the markets still believe that Republicans have more than a 30% chance of keeping the presidency, traders are probably discounting the likelihood that all 13 Cabinet members will be on their way out come November.
- Trump isn’t likely to fire anyone before the elections. The markets are probably overestimating Trump’s inclination to fire someone before the elections. As we saw earlier this year, when Trump was considering firing Esper, Senate Majority Leader Mitch McConnell has made clear that he doesn’t want a Cabinet shake-up, and that he is willing to say so publicly when Trump appears to be thinking about it. Now that Trump is depending on McConnell to fast-track his Supreme Court nominee, in the face of public opinion, while McConnell is up for re-election, he has every reason not to irk McConnell with another distraction.
- The remaining Cabinet members are unlikely to quit before the elections. The 13 Cabinet members currently in office are there for a reason. Unlike their predecessors, who either had the dignity to resign or who were not able to accommodate the president’s quirks, the current group is doing whatever they can to stay in office. Even if they have little intention of sticking around in a second term, they gain nothing by breaking with Trump a month before the election.
These assumptions lead me to the following conclusions:
- Azar is overpriced. I see little reason to think that the departure of Health and Human Services Secretary is imminent, or that he will get fired after the elections—at least not before Esper. Azar is trading at 32% in part because, if everyone leaves at the same time, Azar YES will win because his name is the first in the alphabet. The “alphabet holders”, in my view, are underestimating the likelihood of someone either getting fired or quitting before Inauguration Day.
- Play the swings on Esper. Continue to play the swings on Esper between now and the election. If the market still isn’t settled on the eve of the election, sell off NO shares and consider going long on Esper.
- Mnuchin won’t quit. Yes, Trump threw him under the bus with the stimulus talks. But I don’t think it’s enough to cause Treasury Secretary Steve Mnuchin, one of the president’s earliest supporters, to quit this time.
- COVID is the wild card. An emergency strikes me as the most likely reason we’ll see a departure before the election. A COVID diagnosis strikes me as the most likely scenario. Eight of the thirteen Cabinet members are trading at 4% or less. None are exactly pictures of health. I don’t see any reason why they are any less likely than anyone else to test positive on COVID. Shares at 2-3% on any of them could spike on a simple, unsubstantiated rumor.
Overall, this is a risky market. With all the MAGA money on the table right now, it may not be worth the trouble. But if you feel like taking a chance on some lottos, the Cabinet market might pay big in the coming weeks.
Pratik Chougule is a contributor to Star Spangled Gamblers and author of the book How to Make Money from Political Predictions: A Guide to Generating High, Steady Returns from PredictIt.