Best Arbitrage Trade in the World Today

I’ve been recently tracking the Presidential odds on PaddyPower, an Ireland domiciled online gambling site.  Here are the current odds:

Screen Shot 2016-05-09 at 11.06.37 AM

For those not in the world of gambling, you can interpret the odds by saying the first number is the amount of cash you will win given a cash outlay of the second the number.  You can see then that Hillary is a clear favourite.  It requires a $3 cash outlay to win $1 if she takes the Presidency.  A winning bet on Trump, however, brings in $5 for only a $2 cash outlay.  This means people don’t see it as a very probable outcome.

But let me show you why this is almost certainly a true arbitrage scenario.  Have a look at the following chart.

Screen Shot 2016-05-09 at 11.15.31 AM

So what we have in the above chart are all the states that have had total manufacturing compensation (nominal salaries and wages) declines since 2007 (source: BEA), the last year before the financial crisis which led to the still in play, trickle down economic policies.  Note there are 29 states that have lost manufacturing income (which incidentally continues to decline).

But perhaps more interesting is that of these 29 states, 27 have had primary elections.  Of those 27, 25 voted for Tump outright and 1 state was essentially split with Cruz (i.e. Maine).  Only Kansas bucked this almost perfect predictor and voted heavily for Cruz.  If we look at the 2 remaining negative manufacturing income states that have yet to hold their primaries, namely, NJ and WV, we can conclude that WV will now not go to Hillary, given her attack on coal miners.

So looking at the general election what can we predict?  Well let’s start by looking at the 2012 general election results.

2012 election results

What we find is that of the 29 negative manufacturing income states 19 of them voted democrat in the 2012 general election.  Now to win the general election one needs a total of 270 of the possible 538 electors up for grabs.  In the last election Republicans ended up with 206 electors or 64 short of a win.  Let’s assume it will be very difficult for Hillary to pick up states that went Republican in the last general election.  But there is an extremely high probability that Trump will pick up some of these 19 negative manufacturing income states that voted Democrat in the 2012 election.

If we break it down we find that these 19 states offer up a total of 232 electors.  Now we can pretty much say up front that Trump will take his home away from home (already a swing) state of Florida.  So that’s 29 electors of the 64 needed, meaning Trump at this point only has to take 35 additional electors from these remaining 18 states that have been adamant supporters of his America First policies.  With many of these states already considered ‘swing’ states like Ohio and Pennsylvania having many unions that normally back Democrats now publicly endorsing Trump, there is almost zero probability that Trump doesn’t secure 35 of the remaining 203 electors from these 18 states.

And so if you’re a betting man (or woman) I’d say the 5:2 odds being given by PaddyPower on a Trump Presidency is free money and your arbitrage trade of the day.

Happy trading!