A political betting revival?

Jun 30, 2023

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Programming note: We’ll be off this Monday and Tuesday for the Fourth of July but will be back in your inboxes on Wednesday.

America’s political betting markets are mounting a comeback bid for 2024 — no matter Washington’s concerns.

PredictIt, the political markets operator that federal regulators tried to shut down months ago, has launched new contracts that allow for bets on the longshot presidential bids of Vivek Ramaswamy, Chris Christie and Robert F. Kennedy Jr. The startup Kalshi, which has also faced regulatory resistance, is refusing to back down from offering wagers on congressional control.

“We’re going to keep pushing,” Kalshi CEO Tarek Mansour told MM. “It’s going to happen at some point. We’re just going to keep going at it.

The political betting world’s regulatory nemesis has been the CFTC, which regulates derivatives trading and has long-running concerns that election-related betting runs afoul of rules for that market. The agency tried to shut down PredictIt last year -- in a dispute over its status as an academic venture -- but has been forced to back off pending litigation. CFTC officials have spent months considering whether to block Kalshi’s offerings given questions about their legality, but it just punted by asking for a second round of public comment on the market operator’s plans.

Proponents of political betting – including economists like Jason Furman — argue it’s a better gauge of where voters stand than polling and is a hedging tool for election risk. Investor advocates warn that it will lead to excessive gambling. CFTC Chair Rostin Behnam has even raised concerns that it could make his agency an “election cop.”

CFTC officials are engaged in a tense debate over whether to give Kalshi the go-ahead. The agency’s two Republican commissioners – the minority on the CFTC’s five-member board – have dissented against its decision to drag out the answer to the question of whether Kalshi’s products are prohibited as a type of “gaming.”

“If we don’t want political control contracts, we should say that in a rule,” CFTC Commissioner Summer Mersinger, who dissented against the review, told MM. “This, to me, felt like another delay tactic — no real answer is given to anyone, and that’s frustrating to everyone. We’re not giving a real answer.”

In the meantime, traders like Caleb Davies aren’t stopping.

Since the CFTC ordered PredictIt to close last summer, the Minneapolis-based IT worker has been trading on other venues like the American Civics Exchange, which has been permitted to operate in a regulatory carveout with certain limits. Davies estimates his total profits on prediction markets trades since 2015 are more than $100,000. He has $24,000 riding on two bets: That Sen. Dianne Feinstein (D-Calif.) will not retire before 2024 and that there won’t be a special election to replace Rep. George Santos (R-N.Y.) this year.

If both pan out, Davies stands to make an extra $32,000.

Happy Friday — We’ll be back in your inboxes July 5. Until then, please send tips: Zach Warmbrodt, Sam Sutton.

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Driving the day

The Bureau of Economic Analysis releases its May PCE estimate at 8:30 a.m.

SCOTUS affirmative action ruling may have corporate chilling effect — The Washington Post reports that corporate diversity, equity and inclusion programs, which have already faced attacks from conservative groups and politicians, are now under threat after the Supreme Court ruled against affirmative action.

It “will put the wind in the sails of groups like ours, who want to get the woke, racially based hiring and promotion schemes out of corporate America,” said Consumers’ Research executive director Will Hild, who has targeted financial sector environmental and social considerations.

The court on Friday is expected to rule on challenges to President Joe Biden’s push to forgive more than $400 million in student loans.

Former Consumer Bankers Association head Richard Hunt sent MM a note about the upcoming ruling: “The Supreme Court’s Nebraska case to forgive up to $20k in student lending debt highlights a key fact we can all agree on: Congress and the Administration (both parties) have done nothing to curb the exorbitant cost of college, nor reform the student (over)lending programs.”

A ‘Bidenomics’ boost — U.S. GDP rose by 2 percent in the first quarter, the government said Thursday, an upward revision from the previous estimate of 1.3 percent, Sam reports. It’s not a spectacular growth rate, but it’s a bit of good news for Biden after the White House spent the week highlighting the benefits of “Bidenomics.”

Markets

Trump SPAC traders arrested — Federal prosecutors Thursday charged three individuals with insider trading after they allegedly made more than $22 million based on confidential information ahead of news about former President Donald Trump’s media company going public.

On the Hill

House chairs warn Gensler — The Republican chairs of the House Financial Services, Judiciary and Oversight Committees pressed SEC Chair Gary Gensler in a new letter to certify that the agency is following federal record-keeping laws and that he hasn’t used a private email account or other “off-channel” communications for official business.

The Republicans — Patrick McHenry, Jim Jordan and James Comer — suggest without providing much evidence that there may be some kind of transparency disconnect.

It’s not the first time Gensler has faced GOP scrutiny for his email use. Well before Hilary Clinton’s email scandal, an investigation found that Gensler as CFTC chair repeatedly used his personal email to communicate with staff, including when dealing with the meltdown of fellow Goldman alum Jon Corzine’s MF Global. (Investigators found "found nothing that appeared corrupt.")

Regarding the aforementioned House GOP letter, the Healthy Markets Association says Republicans in their warning to Gensler inaccurately described the group’s work on the SEC’s climate disclosure proposal and planned market structure overhaul. Healthy Markets said Thursday: “HMA has not expressed any position on the SEC’s climate disclosures proposal, and has significant concerns with several aspects of the agency's proposed stock market reforms.”

Regulatory Corner

Fed reveals real-time payments early adopters — The Federal Reserve on Thursday said 57 entities are certified to use its new FedNow real-time payments system that launches next month, including JPMorgan Chase and the Treasury Department, Victoria Guida reports.

Fly Around

Big ‘I’ apologizes after Jesse Watters incident – The Independent Insurance Agents and Brokers of America – better known as The Big “I” – issued an apology Thursday after CNN reported on crude comments that Fox News host Jesse Watters made about Vice President Kamala Harris in an on-stage conference interview with the group’s president and CEO, Bob Rusbuldt.

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