How to Make Money off the 2016 Presidential Election

How Make Money off the 2016 Presidential Election
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The election is tomorrow and the polls are showing that a Hillary Clinton victory is likely. This may be good or bad news to you, depending on which side of the party spectrum you’re on. But, that’s not what we’re concerned with here. We’re concerned with how a victory from either candidate would impact the financial world. Furthermore, we’re concerned with how we can profit from these movements, regardless of who wins.

This article is based on the thesis that presidential candidates, and their ideas, would have a real effect on markets across the world. Ideas have real effects on markets in that they can cause buying or selling. A Trump victory is likely to cause selling across world markets due to his anti-free market stance. A Clinton victory is likely to cause a relief rally based on the idea that a Trump victory is out of the picture. In short, Clinton represents the maintenance of the status quo. The market prefers the status quo because it translates to stability and less uncertainty.

Below are six ways for you to make money off the election from the comfort of your own home. These are not recommendations. You are responsible for your own actions. Buy, or sell, at your own risk.

1. Predictit

Tim Kaine “Yes”

Tim Kaine “Yes”

Predictit.org

Predictit.org is perhaps the most direct possible way to make money off the election. The relatively new site allows you to make predictions and make money off those predictions by buying “shares” in the outcome. In this case, you can buy shares of Trump “Yes” if you think he’ll win. If you think Clinton is going to win, then you can buy her “Yes.” At the moment, it looks like you might no longer be able to bet directly on presidential candidates. You’ll have to buy shares from their respective VP’s “Yes” or “No” outcomes.

You can sell your shares at any time. That is, if you make a quick profit you can sell your shares right away. If you decide to hold all the way through, each of your shares will either go to $1 (if your prediction comes true) or $0 (if you were wrong). Tim Kaine “Yes” shares are currently priced at $.80 each, so you’d be making $.20 per share if Clinton wins. Conversely, Mike Pence “Yes” shares are currently priced at only $.23 each, so you’d be making about $.77 if Trump wins.

Like most opportunities in life, the higher the risk, the higher the reward. Clearly, predictit markets are predicting a Clinton victory (along with most polls). If Trump wins you’re looking at a pretty substantial profit with an over 300% profit margin. However, playing it safe in terms of probability can also be equally profitable if you raise your risk with a larger position. That is, you can make good money betting on Clinton so long as you’re willing to risk a larger dollar amount. Subtract the 10 percent fee that predictit takes on profits, and your looking at a decent payday.

2. Buy the Mexican Peso

20 Pesos

20 Pesos

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This method is almost entirely based on Trump’s stance on NAFTA and building a wall on the Mexico-U.S. border. It’s based on the fear that if Trump wins, relations between U.S. and Mexico may suffer (both politically and economically). Historically, when Trump has risen in the polls, the peso has fallen. Correlation is not necessarily causation, but the correlation is consistent enough that we can make money off of it. It fell dramatically when the FBI reopened its investigation on Hillary Clinton’s emails. It rose dramatically when the FBI released a statement saying that their decision about not indicting has remained.

To exploit this trade, you’re going to need to open up a forex account. If you decide to do so, stick to reputable brokerage firms with reasonable fees. After you’ve done that, you want to decide on which side of the trade you want to take. If you think Trump will win, you want to buy the U.S. dollar relative to the Mexican Peso (USD/MXN). If you think Hillary will win, you want to buy the reverse (MXN/USD).

3. Buy a Mexican ETF

The situation with this trade is almost identical to the situation with the Peso trade. The only difference is that this trade might be more accessible to people who only have a traditional brokerage account or people that prefer to avoid forex. This ETF is basically a diversified portfolio of mostly Mexican stocks. Therefore, buying this one stock is the equivalent of buying of 63 stocks. This high level of diversification means that fluctuations will be mostly mild, but expect a decent swing in either direction once it becomes clear who the winner will be.

As you can see in the two charts below, there is a very tight correlation happening between Clinton rising in the polls and shares of $EWW rising in price. Both of these charts measure the same time interval of 6 months to make it easier to see the correlation. If you think Clinton will win, buy yourself a few shares of $EWW. If you think Trump will win, open up a short sale.

Schwab.com
RealClearPolitics.com

4. Buy Defense stocks

Lockheed Martin F-22 Raptor

Lockheed Martin F-22 Raptor

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This one is a winner regardless of who wins the Election. Defense stocks are likely to raise if government spending on the military raises. Both candidates are likely to cause a raise in military spending. This means that companies like Lockheed Martin, General Dynamics, Northrop Grumman and Boeing are likely to rise in the mid-long term.

First, Clinton has been historically hawkish when it comes to the use of military force. She’s advocated for “safe zones” in Syria and military intervention in Libya. She’s generally been a strong proponent of military force when necessary like many presidents before her. She believes it’s necessary to use military force to establish American dominance and shut down terrorism. In this climate, she’s likely to be using more military force in the middle east. Also, U.S. tensions with Russia have been rising. This means further proxy war in Syria is likely, which means the U.S. military is likely to spend on the military if she wins.

Second, Trump just flat out said he would raise military spending to record levels. Republicans tend to like politicians who elevate the military. Also, this was said to gain him some support from military servicemen, who are statistically more likely to be Republican. Although, he seems to be more dovish on the issue with Russia, that’s entirely irrelevant to our goal of making money off the election. The bottom line is: both candidates are likely to require an increase in military spending and the defense companies benefit.

5. Short countries who depend on exporting to the U.S.

Trump is notoriously anti-globalist. That is, he’s all for empowering the U.S. economy at the expense of other economies. Specifically, he wants to “bring jobs back” to the country by making it more expensive to buy foreign goods. Obviously, this will hurt foreign economies that depend on selling their products to Americans.

Countries like China, Candada, Mexico and the European Union are especially at risk here. If Trump wins, all of these markets are likely to head lower. In order for us to profit off of this downward pull, we could short their entire market indexes. We could also short ETF’s with holdings from these economies. In Mexico, it’s the Mexican “Bolsa. In Europe, it’s the German “DAX” or the “FTSE 100” in the UK. In China, it’s the Shanghai composite.

Conversely, buying any one of these if Hillary wins could also be a money maker. Mexico’s “Bolsa” is up over 3% just today on news that the FBI is no longer looking into Hillary’s email situation. It’s likely to head higher when/if she comes out as the clear winner.

6. Buy the SPY

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Wall St. generally despises uncertainty. Up until today, US markets have broadly ended in the red for 8 straight days. The VIX, which is boughten when traders suspect upcoming volatility, was up for a record 9 days in a row. All this has been caused by uncertainty about who will be our next president, and uncertainty of what will happen if Trump gets elected. Whenever the market senses Trump narrowing the gap in polls on Clinton, and his chances of winning increase, the market sells off. This continuous selling pressure is likely to resolve itself in a relief rally if Hillary wins. But, if Trump wins, expect there to be a steep move downward immediately after.

The “SPY” is an ETF representing the S&P 500 index, which itself holds 500 companies representative of the US economy. If you believe Clinton will win, it’s a good idea to pick up shares of SPY, or any other broad market ETF, right now. The market will most likely rally on news that she’s likely to win and then continue to rally after she wins. If you believe Trump will win, then it would be wise to sell your positions now, and perhaps open up a short position on the SPY. You could also, more simply, buy the VIX since it’s likely to rise dramatically if Trump wins.

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