AVOID PREDICTION MARKETS

“No. So I like, okay. Maybe this is, like, bad for me to admit or whatever, but, like, I don't think prediction markets are, like, a good thing socially. I think that there is, like, an actual, like, pretty real dark side to prediction markets. These markets are only profitable for people like me because there are people just throwing away money. I think that's probably pretty bad, to be honest.”

“As we were watching, the odds of every word were jumping all around, and we just really locked in. Like, the world stopped. We felt like we were looking at this through a soda straw. Did he say our word? Will he? It becomes all your brain can think about. So when Trump starts talking about the economy, Mary's basically trying to goad him into saying the word tariff.”

“And as Bobby gets deeper into this giant fight with the states over whether Kalshi is gambling or not, he realizes the whole existence of these prediction apps depends on the courts agreeing with Kalshi that these yes or no questions about the future are like derivatives, like swaps, a regular degular financial instrument in which two parties with opposite views on the direction of some price or level agree to bet against each other.”

“Hi, Mary. It's Daleep Singh, currently vice chair at PGIM, former deputy national security adviser for international economics under the Biden administration, former head of the markets group at the Fed, blah blah blah. Well, I'm calling because I heard you're leaving Planet Money. Too bad because I was just about to cave to that interview you've been chasing me on.”

“Citadel Securities is reportedly exploring prediction markets as trading scales up, a development that could fundamentally change how financial markets incorporate real-world event probabilities into prices. The price of this contract at any given moment essentially represents the crowd's real-time probability estimate.”

“They have been slowly transitioning away from this agency model to more of a higher margin merchant payments model via its connected trip strategy. The growth strategy is certainly bearing itself out with merchant model revenue growing about 27.4% year over year.”

“In 2023, Tarek proposed Kalshi's first election market, a market for betting on what party would take control of Congress. Regulators blocked it as expected. They said election betting is gaming. It's not allowed. And that it would open up elections to interference among other things. But this time, Tariq sued. His lawyers argued there's no rule specifically against betting on elections, and this market would do what futures do best, you know, hedge against harmful outcomes and provide more predictive data.”

“Lueck's concern is that when you deploy these black box models at scale managing billions of dollars and you can't explain why the model is taking a position, you've introduced a risk that is very difficult to manage. You still want researchers to be thinking.”

“The CFTC, which was once a legal adversary of these markets, has done a complete about-face under the Trump administration. In January, the CFTC and SEC held a joint summit on modernizing the regulatory framework for these types of contracts.”

“The University of Michigan consumer sentiment index dropped to 49.8 in April. That is the lowest reading in the seventy plus years the university has been regularly pulling American consumers lower than during the February, lower than the COVID pandemic, lower than when inflation peaked after Russia invaded the Ukraine. And the decline, it hit every demographic, all ages, all incomes, all education levels, all political affiliations. So here's the paradox. The hard data says the economy is nowhere close to recession. Retail sales were solid in March even after adjusting for higher gas prices. Jobless claims are low at 207,000.”

“64% of respondents think unemployment will be higher a year from now, up from 61% in March. Never before has that share been this high without the economy experiencing recession. People aren't just complaining about prices anymore; they are scared about their jobs.”

“Lueck's concern is that when you deploy these black box models at scale, managing billions of dollars of client capital and you can't explain why the model is taking a position, you've introduced a risk that is very difficult to manage. In a drawdown, you don't know whether the model is wrong because the market has changed or right because the market is temporarily irrational. The distinction is everything. It determines whether you should add to a position or cut it. The danger isn't using AI in investing. It's outsourcing the thinking to AI.”

“I saw what some might call sinister interest in the real world recently. I was watching a mention market where people were betting on what words a Federal Reserve official was gonna say in a meeting about the crypto industry. It was on Zoom. And when the officials were taking questions from that Zoom, I saw KaoSci traders submitting questions as if they were just regular humans trying really hard to get the official to say something they were betting on. And they can get way more ick. Perhaps the most dark example, prediction market bettors threatened a journalist over his reporting on the Iran war saying that they would kill him if he didn't change what he'd written about a military strike.”

“One thing to note, they actually have earnings coming up pretty soon. And anytime you have earnings within the next two weeks, it is just a bad idea to enter a position in a company. Why? You're paying a volatility premium that kinda drifts away from the fundamentals of the company.”

“Bobby found a guy posting about his alpha on a bet about how long it would take Charlie Puth to sing the national anthem at the Super Bowl. I saw that, Charlie Puth was in San Francisco, like, three days before. So I flew out there immediately, went outside the stadium. And I was like, oh, this guy's a perfect example of someone who's willing to literally go the extra mile to have an edge that people would think would would be unfathomable.”

“The idea here is mixing these different asset classes that have different correlations to each other, and it lowers your overall risk profile of your portfolio. Because nobody knows what the future is gonna look like, and you can never be certain.”

“Citadel Securities, one of the most powerful trading firms in the world with 65,000,000,000 with a b, assets under management. It is publicly exploring prediction markets. The president, Jim Esposito, said last week that event event contracts are interesting to us and that there's sound industrial logic for institutional clients to use these contracts to hedge against various risks. He said if the market ramps and scales, Citadel will certainly consider getting involved. This is a landmark signal. When a firm like Citadel starts talking about a market this way, it usually means the opportunity is real and it's not just hype.”

“IS is kinda one of those boring businesses. Right? It's a blue chip travel compounder. They have a dominant global global market share. They have massive massive free cash flow. It's supposed to be 10,000,000,000 this year. And they're trading about 20% off their peak heading into a pivotal Monday print. Now the data breach, the softening consumer data, those are all near term watch items, but there's a lot of events coming up pretty soon. FIFA World Cup, people starting to plan for the Los Angeles Olympics, and the shift to this new model away from the traditional, agent model they had, Very compelling at 15.7 times price to forward looking earnings?”

“And so, yes, having an allocation to gold, which frankly, I think having a 10% or more allocation to gold is really important in times such such as this with dollar debasement, with the lack of, demand for US dollar denominated assets and what that's done for dollar assets. Having an allocation, albeit small, to cryptocurrency, having an allocation to traditional alternative investments. The benefits of that are not just about returns, but our overall risk level as well.”

“AI agents, the fear that these large language model companies could displace both tax prep and small business bookkeeping simultaneously has led to a lot of fear. This is a sell-off driven by convergence of regulatory and AI disruption fears, not really deteriorating fundamentals.”

“I think these are the most compelling NVIDIA alternative in AI accelerators. They have record data center revenue, they have that 41% server CPU share, and they have a credible roadmap towards GPU growth by these committed hyperscaler orders.”

“I think that in the long term, people are underestimating the benefits of TurboTax, for example. Right? The benefit is not that they're preparing your taxes. That's easy. The benefit is audit defense. The benefit is the lines of expertise in case you get audited. That is not something that is automated away. And so in the long run, I think a lot of these software companies that are beaten down have been beaten down to an extent that is unjustified.”

“They use the playbook that the crypto industry, I think, started and perfected during the Biden administration, which is framing their disruption of industries as a technological disruption when I would characterize it more as just a legal disruption. They are willing to take more legal risk and break the laws and essentially take the approach of catch me if you can.”

“During the Iran crisis, poly market ceasefire probability contracts moved before and alongside traditional markets. These markets aggregate real-time information with participants who have skin in the game which often produces more accurate forecast than polls or even option implied probabilities.”

“China still represents 30% of the revenue. So any additional export controls or Chinese retaliation, restricting tool service access, that could remove revenue to the tune of $2,000,000,000. It is a best in class franchise, but you are paying full price.”