426% return if there is a recession in 2019?

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kosomoto
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426% return if there is a recession in 2019?

Post by kosomoto » Wed Nov 07, 2018 5:55 pm

For all you bears out there who have a fun money fund, I found something interesting.

If you believe there will be a recession in 2019 you can make a 426% return (minus 5% upon withdrawal). PredictIt is a legal betting website run by a university. I have always followed this website since I find it interesting to see what the market puts the odds at for certain events. I also find it interesting that you can make a 426% return if there is a recession in 2019 and a 23% return if there is no recession in 2019. They use the strict definition of two quarters of negative GDP growth. I have to admit I have a position in the "no recession 2019" bet. It's not a lot of money, and it limits you to 850 per bet so it won't be a big deal either way. But for people who like to hedge, you can plop down 850 and get a whopping 4k+ in return if there ends up being a recession soon. It's intriguing how the market works based on shares, so it's more of a market than a traditional gambling site.

Link Below:

https://www.predictit.org/markets/detail/4973

Greenman72
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Re: 426% return if there is a recession in 2019?

Post by Greenman72 » Wed Nov 07, 2018 5:56 pm

You could just invest in a triple-leveraged inverse ETF. Probably get the same thing.

kosomoto
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Re: 426% return if there is a recession in 2019?

Post by kosomoto » Wed Nov 07, 2018 6:10 pm

Greenman72 wrote:
Wed Nov 07, 2018 5:56 pm
You could just invest in a triple-leveraged inverse ETF. Probably get the same thing.
I'm not sure you would, if the market falls 30% you'd only get 90% minus attrition.

Plus your downside is literally unlimited.

jebmke
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Re: 426% return if there is a recession in 2019?

Post by jebmke » Wed Nov 07, 2018 6:16 pm

kosomoto wrote:
Wed Nov 07, 2018 6:10 pm
Plus your downside is literally unlimited.
This reminds me of a conversation between two of my financial analysts that I overheard at lunch decades ago.

"You know, what I like about investing in stocks [meaning long positions] is that the most you can lose is all your money."
When you discover that you are riding a dead horse, the best strategy is to dismount.

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arcticpineapplecorp.
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Re: 426% return if there is a recession in 2019?

Post by arcticpineapplecorp. » Wed Nov 07, 2018 8:06 pm

kosomoto wrote:
Wed Nov 07, 2018 5:55 pm
For all you bears out there who have a fun money fund, I found something interesting.

If you believe there will be a recession in 2019 you can make a 426% return (minus 5% upon withdrawal). PredictIt is a legal betting website run by a university. I have always followed this website since I find it interesting to see what the market puts the odds at for certain events. I also find it interesting that you can make a 426% return if there is a recession in 2019 and a 23% return if there is no recession in 2019. They use the strict definition of two quarters of negative GDP growth. I have to admit I have a position in the "no recession 2019" bet. It's not a lot of money, and it limits you to 850 per bet so it won't be a big deal either way. But for people who like to hedge, you can plop down 850 and get a whopping 4k+ in return if there ends up being a recession soon. It's intriguing how the market works based on shares, so it's more of a market than a traditional gambling site.

Link Below:

https://www.predictit.org/markets/detail/4973
where do you see the return possibilities? I don't see that anywhere under rules. Perhaps it's somewhere else?

I'm wondering if there's an incorrect interpretation or something because you're saying if there IS a recession "in 2019 you can make a 426% return..." but if there ISN'T a recession in 2019 you'd make 23%????

Isn't that heads I win, tails you lose. How can there not be a losing bet? You're saying whether there is or isn't a recession you make money?? Something doesn't sound right here. This is all I see:
The U.S. economy shall experience at least two consecutive calendar quarters, both or all of which are later than the 2nd quarter of 2018 and earlier than the 1st quarter of 2020, with a negative annual growth rate in real gross domestic product, as rounded to the first decimal, according to the third estimate of such quarters' GDP growth rates released by the Bureau of Economic Analysis.

Should no such data be published within 3 months of the conclusion of a given quarter, PredictIt may, at its sole discretion, continue to await such publication or select a suitable alternate source.

Neither data nor announcements published by the National Bureau of Economic Research's Business Cycle Dating Committee or any federal agency other than the Bureau of Economic Analysis will have any bearing on the resolution of this market, unless selected as an alternate source in the absence of the availability of the prescribed settlement source.

PredictIt’s decisions and determinations under this rule shall be at PredictIt’s sole discretion and shall be final.

End Date: 03/31/2020 12:00 AM (ET)
source: https://www.predictit.org/markets/detail/4973
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

VortexStreet
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Re: 426% return if there is a recession in 2019?

Post by VortexStreet » Wed Nov 07, 2018 8:55 pm

arcticpineapplecorp. wrote:
Wed Nov 07, 2018 8:06 pm
I'm wondering if there's an incorrect interpretation or something because you're saying if there IS a recession "in 2019 you can make a 426% return..." but if there ISN'T a recession in 2019 you'd make 23%????

Isn't that heads I win, tails you lose. How can there not be a losing bet? You're saying whether there is or isn't a recession you make money?? Something doesn't sound right here.
No, the OP didn't make it clear but they are talking about taking 2 different sides of the same bet; one side will win and the other will lose. If there is a recession and you bet as such you could make a 426% return, or if there isn't a recession and you bet as such you'd make 23%. If you bet there is a recession and there isn't, you lose all your money. If you bet there isn't a recession and there is, you lose all your money.

The website shows the last price paid to bet that there will be a recession was $0.19 for a $1 payout, so if there is a recession the return would be ($1-$0.19)/$0.19 = 426%, before accounting for whatever fees they charge.

Independent George
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Re: 426% return if there is a recession in 2019?

Post by Independent George » Wed Nov 07, 2018 9:02 pm

So, this is basically a proposition bet for eggheads?

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arcticpineapplecorp.
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Re: 426% return if there is a recession in 2019?

Post by arcticpineapplecorp. » Wed Nov 07, 2018 9:07 pm

VortexStreet wrote:
Wed Nov 07, 2018 8:55 pm
arcticpineapplecorp. wrote:
Wed Nov 07, 2018 8:06 pm
I'm wondering if there's an incorrect interpretation or something because you're saying if there IS a recession "in 2019 you can make a 426% return..." but if there ISN'T a recession in 2019 you'd make 23%????

Isn't that heads I win, tails you lose. How can there not be a losing bet? You're saying whether there is or isn't a recession you make money?? Something doesn't sound right here.
No, the OP didn't make it clear but they are talking about taking 2 different sides of the same bet; one side will win and the other will lose. If there is a recession and you bet as such you could make a 426% return, or if there isn't a recession and you bet as such you'd make 23%. If you bet there is a recession and there isn't, you lose all your money. If you bet there isn't a recession and there is, you lose all your money.

The website shows the last price paid to bet that there will be a recession was $0.19 for a $1 payout, so if there is a recession the return would be ($1-$0.19)/$0.19 = 426%, before accounting for whatever fees they charge.
thank you very much for your explanation. That makes sense.

So, basically, you can lose all your money. And there are actually two different ways you can lose all your money. Not interested in that.

The way I invest there's only one way I can lose all my money and it's if every company in the market goes out of business at the same time.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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aspirit
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Re: 426% return if there is a recession in 2019?

Post by aspirit » Wed Nov 07, 2018 9:24 pm

Independent George wrote:
Wed Nov 07, 2018 9:02 pm
So, this is basically a proposition bet for eggheads?
:thumbsup + AnimalSpirits
Time & tides wait for no one. A man has to know his limitations.

Patrick584
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Re: 426% return if there is a recession in 2019?

Post by Patrick584 » Wed Nov 07, 2018 9:36 pm

Bogleheads encourage fiscal discipline, and fun money is poor discipline. Endearment of this behavior is contrary to Boglehead’s philosophy and doesn’t have a place on this forum. Please don’t promote such fiscal recklessness.

wootwoot
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Re: 426% return if there is a recession in 2019?

Post by wootwoot » Wed Nov 07, 2018 9:42 pm

You should start buying SPY puts.

fennewaldaj
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Re: 426% return if there is a recession in 2019?

Post by fennewaldaj » Thu Nov 08, 2018 12:09 am

arcticpineapplecorp. wrote:
Wed Nov 07, 2018 9:07 pm
VortexStreet wrote:
Wed Nov 07, 2018 8:55 pm
arcticpineapplecorp. wrote:
Wed Nov 07, 2018 8:06 pm
I'm wondering if there's an incorrect interpretation or something because you're saying if there IS a recession "in 2019 you can make a 426% return..." but if there ISN'T a recession in 2019 you'd make 23%????

Isn't that heads I win, tails you lose. How can there not be a losing bet? You're saying whether there is or isn't a recession you make money?? Something doesn't sound right here.
No, the OP didn't make it clear but they are talking about taking 2 different sides of the same bet; one side will win and the other will lose. If there is a recession and you bet as such you could make a 426% return, or if there isn't a recession and you bet as such you'd make 23%. If you bet there is a recession and there isn't, you lose all your money. If you bet there isn't a recession and there is, you lose all your money.

The website shows the last price paid to bet that there will be a recession was $0.19 for a $1 payout, so if there is a recession the return would be ($1-$0.19)/$0.19 = 426%, before accounting for whatever fees they charge.
thank you very much for your explanation. That makes sense.

So, basically, you can lose all your money. And there are actually two different ways you can lose all your money. Not interested in that.

The way I invest there's only one way I can lose all my money and it's if every company in the market goes out of business at the same time.
Well if one is looking for potentially mispriced things to bet on you don't bet all your money on one you try to find as many opportunities as possible and spread your bets. My inclination is this bet is underestimating the chance of a recession but I don't feel strongly enough about that to bet on it.

Darwin
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Re: 426% return if there is a recession in 2019?

Post by Darwin » Thu Nov 08, 2018 3:28 am

Personaly, I'm putting all my chips on black. Though I might set aside enough to buy a lottery ticket first (I like to hedge my bets). That ought to balance my portfolio nicely... :wink:

Ari
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Re: 426% return if there is a recession in 2019?

Post by Ari » Thu Nov 08, 2018 4:41 am

That site is really interesting. I like the idea of using markets to make predictions, and I think it's not used enough. That site will let people who are (or see themselves as) good at predicting things within an area make bets. We get an aggregate estimate of the predictions of a lot of people, weighted by how strongly they believe in their predictions (how much money they bet), and people who are good at predicting can make some money playing against other predictors.
All in, all the time.

Valuethinker
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Re: 426% return if there is a recession in 2019?

Post by Valuethinker » Thu Nov 08, 2018 5:19 am

Ari wrote:
Thu Nov 08, 2018 4:41 am
That site is really interesting. I like the idea of using markets to make predictions, and I think it's not used enough. That site will let people who are (or see themselves as) good at predicting things within an area make bets. We get an aggregate estimate of the predictions of a lot of people, weighted by how strongly they believe in their predictions (how much money they bet), and people who are good at predicting can make some money playing against other predictors.
There's a big academic literature about political prediction markets and prediction markets in other things.

If you are not US resident, then you can sign up to IG Index, CMC markets and some of the other UK betting platforms and take bets on all kinds of things. Not just on Leicester City v. Bolton Wanderers ;-). Allegedly Nigel Farage, head of the Brexit movement in the UK (one of), made a fortune betting on a successful Brexit vote, having consulted private research by polling firms (he denies this).

I think the overall conclusion is that prediction markets are better than the average forecaster but are not, on average, right. In that sense they are like FX forward markets - they don't predict future exchange rates well. That's also true, AFAIK, of commodity markets and stock exchange futures.

GoldenFinch
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Re: 426% return if there is a recession in 2019?

Post by GoldenFinch » Thu Nov 08, 2018 5:58 am

Fun to think about, but it’s pure gambling, which is a slippery slope into the muck.

WanderingDoc
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Re: 426% return if there is a recession in 2019?

Post by WanderingDoc » Thu Nov 08, 2018 6:22 am

arcticpineapplecorp. wrote:
Wed Nov 07, 2018 8:06 pm
kosomoto wrote:
Wed Nov 07, 2018 5:55 pm
For all you bears out there who have a fun money fund, I found something interesting.

If you believe there will be a recession in 2019 you can make a 426% return (minus 5% upon withdrawal). PredictIt is a legal betting website run by a university. I have always followed this website since I find it interesting to see what the market puts the odds at for certain events. I also find it interesting that you can make a 426% return if there is a recession in 2019 and a 23% return if there is no recession in 2019. They use the strict definition of two quarters of negative GDP growth. I have to admit I have a position in the "no recession 2019" bet. It's not a lot of money, and it limits you to 850 per bet so it won't be a big deal either way. But for people who like to hedge, you can plop down 850 and get a whopping 4k+ in return if there ends up being a recession soon. It's intriguing how the market works based on shares, so it's more of a market than a traditional gambling site.

Link Below:

https://www.predictit.org/markets/detail/4973
where do you see the return possibilities? I don't see that anywhere under rules. Perhaps it's somewhere else?

I'm wondering if there's an incorrect interpretation or something because you're saying if there IS a recession "in 2019 you can make a 426% return..." but if there ISN'T a recession in 2019 you'd make 23%????

Isn't that heads I win, tails you lose. How can there not be a losing bet? You're saying whether there is or isn't a recession you make money?? Something doesn't sound right here. This is all I see:
The U.S. economy shall experience at least two consecutive calendar quarters, both or all of which are later than the 2nd quarter of 2018 and earlier than the 1st quarter of 2020, with a negative annual growth rate in real gross domestic product, as rounded to the first decimal, according to the third estimate of such quarters' GDP growth rates released by the Bureau of Economic Analysis.

Should no such data be published within 3 months of the conclusion of a given quarter, PredictIt may, at its sole discretion, continue to await such publication or select a suitable alternate source.

Neither data nor announcements published by the National Bureau of Economic Research's Business Cycle Dating Committee or any federal agency other than the Bureau of Economic Analysis will have any bearing on the resolution of this market, unless selected as an alternate source in the absence of the availability of the prescribed settlement source.

PredictIt’s decisions and determinations under this rule shall be at PredictIt’s sole discretion and shall be final.

End Date: 03/31/2020 12:00 AM (ET)
source: https://www.predictit.org/markets/detail/4973
Sounds like an insurance salesman or Ponzi scheme. "You win either way!" Riiiiiiiiiight..
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

james22
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Re: 426% return if there is a recession in 2019?

Post by james22 » Thu Nov 08, 2018 6:55 am

Patrick584 wrote:
Wed Nov 07, 2018 9:36 pm
Bogleheads encourage fiscal discipline, and fun money is poor discipline. Endearment of this behavior is contrary to Boglehead’s philosophy and doesn’t have a place on this forum. Please don’t promote such fiscal recklessness.
Nonetheless, building an investment portfolio can be exciting, and trying out modern remedies for age-old problems lets you exercise your animal spirits. If you crave excitement, I would encourage you to do exactly that. Life is short. If you want to enjoy the fun, enjoy! But not with one penny more than 5 percent of your investment assets.

That can be your Funny Money account.

Here are Funny Money approaches, and my advice about using them:

Individual Stocks? Yes, Pick a few. Listen to the promoters. Listen to your broker or adviser. Listen to your neighbors. Heck, even listen to your brother-in-law.

Actively managed mutual funds? Yes. But only if they are run by managers who own their own firms, who follow distinctive philosophies, and who invest for the long term, without benchmark hugging. (Don't be disappointed if the managed fund loses to the index fund in at least one year of every three!)


- John C. Bogle, The Little Book of Common Sense Investing
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

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PrettyCoolWorkshop
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Re: 426% return if there is a recession in 2019?

Post by PrettyCoolWorkshop » Thu Nov 08, 2018 8:23 am

Patrick584 wrote:
Wed Nov 07, 2018 9:36 pm
Bogleheads encourage fiscal discipline, and fun money is poor discipline. Endearment of this behavior is contrary to Boglehead’s philosophy and doesn’t have a place on this forum. Please don’t promote such fiscal recklessness.
I think it is worth entertaining the idea that you are smarter than the market. A good many people, though certainly a very small percentage of investors, have proven themselves to generate statistically significant alpha. Especially if you are a relatively young investor, experimenting with a small (important!) fraction of your portfolio can be worthwhile if it lets you discover this on your own. This is one reason (among others) many Bogleheads advocate a 5% fun money pot.

Bets such as these are a good opportunity to see if you can beat the market, as long as you are realistic about your expectations and calibrate your confidence over time. It may have a better risk/reward structure than the closest equivalent options play you could make.
Be greedy and fearful. All the time.

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Kenkat
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Re: 426% return if there is a recession in 2019?

Post by Kenkat » Thu Nov 08, 2018 8:52 am

Similar to sports betting, it is critical that the site can keep an equal amount of money on both sides of “the line”. If they get too much on one side or the other and that comes to pass, they will “take a bath” on that bet as they say in Vegas and will need to “cover” with money from outside of the betting pool. If they can’t, you won’t get all of your money, even if you win.

I don’t know who is backing this or how deep their pockets are, but there is some risk.

kosomoto
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Re: 426% return if there is a recession in 2019?

Post by kosomoto » Thu Nov 08, 2018 1:45 pm

Kenkat wrote:
Thu Nov 08, 2018 8:52 am
Similar to sports betting, it is critical that the site can keep an equal amount of money on both sides of “the line”. If they get too much on one side or the other and that comes to pass, they will “take a bath” on that bet as they say in Vegas and will need to “cover” with money from outside of the betting pool. If they can’t, you won’t get all of your money, even if you win.

I don’t know who is backing this or how deep their pockets are, but there is some risk.
Ken, I'm not sure I understand how that applies to this share system of betting. Predictit doesn't pay out using their own funds, they merely give the money from the losers to the winners and take their cut. It's a zero sum 0-100 system based on a market of tradeable shares.

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Kenkat
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Re: 426% return if there is a recession in 2019?

Post by Kenkat » Thu Nov 08, 2018 4:24 pm

kosomoto wrote:
Thu Nov 08, 2018 1:45 pm
Kenkat wrote:
Thu Nov 08, 2018 8:52 am
Similar to sports betting, it is critical that the site can keep an equal amount of money on both sides of “the line”. If they get too much on one side or the other and that comes to pass, they will “take a bath” on that bet as they say in Vegas and will need to “cover” with money from outside of the betting pool. If they can’t, you won’t get all of your money, even if you win.

I don’t know who is backing this or how deep their pockets are, but there is some risk.
Ken, I'm not sure I understand how that applies to this share system of betting. Predictit doesn't pay out using their own funds, they merely give the money from the losers to the winners and take their cut. It's a zero sum 0-100 system based on a market of tradeable shares.
Ok, I guess then I don’t understand how this works or how the pricing is set. What happens for example if it becomes obvious by the end of the year that a recession is imminent?

kosomoto
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Re: 426% return if there is a recession in 2019?

Post by kosomoto » Thu Nov 08, 2018 5:45 pm

Kenkat wrote:
Thu Nov 08, 2018 4:24 pm
kosomoto wrote:
Thu Nov 08, 2018 1:45 pm
Kenkat wrote:
Thu Nov 08, 2018 8:52 am
Similar to sports betting, it is critical that the site can keep an equal amount of money on both sides of “the line”. If they get too much on one side or the other and that comes to pass, they will “take a bath” on that bet as they say in Vegas and will need to “cover” with money from outside of the betting pool. If they can’t, you won’t get all of your money, even if you win.

I don’t know who is backing this or how deep their pockets are, but there is some risk.
Ken, I'm not sure I understand how that applies to this share system of betting. Predictit doesn't pay out using their own funds, they merely give the money from the losers to the winners and take their cut. It's a zero sum 0-100 system based on a market of tradeable shares.
Ok, I guess then I don’t understand how this works or how the pricing is set. What happens for example if it becomes obvious by the end of the year that a recession is imminent?
You can check other bets on different things to see exactly that - like the midterm result bets. The shares get sold/bought until the bet that is going to win only sells for 99 cents. If a result becomes clear any difference in price will be arbitraged away almost instantly.

inbox788
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Re: 426% return if there is a recession in 2019?

Post by inbox788 » Thu Nov 08, 2018 6:59 pm

Kenkat wrote:
Thu Nov 08, 2018 8:52 am
Similar to sports betting, it is critical that the site can keep an equal amount of money on both sides of “the line”. If they get too much on one side or the other and that comes to pass, they will “take a bath” on that bet as they say in Vegas and will need to “cover” with money from outside of the betting pool. If they can’t, you won’t get all of your money, even if you win.

I don’t know who is backing this or how deep their pockets are, but there is some risk.
This is exactly like how sports betting works, the line MOVES with the betting. What is being quoted is a moving target that gets adjusted as the bets are taken on either side. The site is guaranteed to win.

Rather than looking at the 426% vs 23% returns, it's better to look at odds 4.25:1 vs 1:4. Clearly the favorite is the no recession. On the site, they further divide out by a dollar, so it's currently at .29 recession vs. .71 no recession. So the odds have changed because more folks are betting on a recession now and payout for recession is lower, closer to 3:1 vs 1:3. Like the stock market, there are already paper winners and losers.

https://www.predictit.org/markets/detai ... r-end-2019

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