The Grant Williams Podcast Ep. 135 - Marvin Barth FULL EPISODE

Before we get going, here's a bit where I remind you that nothing we discussed should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets. And now, on with the show! Welcome everybody to another edition of the Grant Williams podcast, joining me in a moment returning to the podcast is a good friend of mine, Marvin Bath of Thematic Markets. I've had a couple of podcasts interviews with Marvin and I actually had a couple of video interviews with him on my now defunct gold tier. The silver team members listening, you can watch those conversations with Marvin. He's a fascinating guy. Every time I sit and chat with him, every time I read his work, I am left with so many thoughts thrown through my head. And he and I had dinner in person in London a few weeks ago and he had my head spinning with something that he was talking about getting ready to publish. He's published it this week and so I thought this was a perfect time to impinge on our friendship and ask him if he'd record a conversation with me about it, which he was very gracefully willing to do and you are about to listen to the fruits of that conversation. Marvin's work, as I say, is absolutely spectacular. At ThematicMarkets, he's on Twitter and ThematicMarkets.com, you'll find everything he writes there and I would urge you to give it the once over because I think you'll find it very useful. He has a sub-stake, same thing, ThematicMarkets, you'll find it all there. And as you're about to find out, he is a man of great intellect and he will challenge you in ways you aren't quite yet ready for our promissue. Anyway, that's it from me. Please enjoy my conversation with Marvin Barth. Marvin, my friend, welcome back to The Podcast. It's great to see you. It's fabulous to be back. Thank you very much for having me on, Grant. You and I had a very long overdue and most enjoyable dinner the other night when I was back in London and we got to talking to you as we invariably do. And I've realized that I need to confine my social engagement with you to lunch so that I have time in the afternoon to process all the things that you get me thinking about because I went home from dinner and I'm sitting there trying to get to sleep and I've got all this stuff right in the way and I'm like, "Cost you, Marvin, you did it again." So I think a few future lunch or better still breakfast because then I get the whole day to try and process it. But seriously, we talked about a whole bunch of stuff and I'm not sure how much of that we'll get on to today. But there's one very specific place I want to start because it was a thing that we talked about where you most challenged my expectations, challenged what I strongly believe to be pretty much written in stone. And that is the upcoming midterms. Now you have a phenomenal track record of calling these elections when a lot of people are pretty set in their expectations and you say, "Well, hang on, let me thought about this. My data's telling me something very different's going to happen." And your track record has been outstanding with that. So when we come up to an election and I want to know what I think might happen, I always listen to you and you did it again. You got me really thinking. So let's start with how you see the consensus currently sitting and where that consensus comes from. And then after that, let's get into your own work in China, understand the reality beneath the consensus. Okay. So I think the consensus is pretty straightforward and betting markets are a great indicator of it, which actually is, if we have time, there's a whole wonderful, interesting discussion we could have about when betting markets are a useful indicator and when they're not. But let's take them as an indicator of where the consensus sits. And certainly I can also tell you that the feedback on my piece from all my clients in a wide range of different markets has been, "Wow, that's out there." Yeah, exactly right. Thank God. Well, these people are not sleeping because of you, mate. Yeah. So I can pretty safely say the consensus is that this is a democratic sweep. I think the most optimistic Republicans out there are that they might be able to hold the Senate or at least keep it to a 50-50 tie where the vice president, JD Vance, will break the tie. But of course that means yesterday on Capitol Hill all the time. So where does that come from? That comes from, if you look at the polls, have quite consistently been building all year towards increased advantage for the Democrats. So you look at the sort of what's called the generic congressional poll. And it's generic because you're not asking about a specific candidate. You're just asking people, "Hey, do you intend to vote for Democrats or Republicans in Congress this year?" And by the way, that gives you a different answer than if you asked them about the specific person. So there's a big caveat around that. But that's been showing an advantage for Democrats that started the beginning of the year at a couple of points. And it's been increasing, increases significantly after the Iran War. And then actually in September really takes another bump up, interestingly enough. And so the latest ones are that it's around, depending on how you measure seven to nine percentage points in favor of the Democrats. And that's for the Congress. And the reason why people generally focus on the generic ballot polls is there's 435 House seats, right? It's really expensive to go conduct a poll. They don't conduct them for very many House seats, or at least not publicly available ones. But Senate races, there's only 100 senators and only a third of them come up for election every two years. And only a dozen of those are even in contention. So they poll those. And the same thing there, you've seen a movement in several of these states towards Democrats. And if you were to just look at polling numbers, it looks like the Democrats would pick up seven seats in the Senate. And given that the Republicans only have a three seat majority, that swings it to the Democrats. So this is where this is coming from. And betting markets have the House it, I think 92 to 95% goes Democrat and a probability of, it's down a bit for the Senate because some of the incoming data from early returns have changed that since I published. But now it's down to around a little less than two thirds chance that the Democrats take the Senate. So that's as close as you'll get to quote unquote a landslide in the election of this nature, right? When people talk about landslide, that's a pretty decent picture what they're talking about, which kind of seems weird, particularly for people in the UK, where a landslide is normally counted in the hundreds of seats, and you think that seven could be a landslide. But as you say, that's a big shift in terms of control and power. So let's start with the fact that you went into this exercise, expecting the Republicans perhaps to lose both chambers. And then you started doing the work, your work that has taken you to conclusions that many people didn't get to previously. So I don't know how much you want to talk about the kind of work that you do and the kind of questions you ask the places you go. But to the best extent you can lay out how you approach producing your own polling, if you like, on the likelihood of either side winning. My research is really economic and market research, right? So what am I doing forecasting elections out there? And yet I've been doing this for many years. And as you kindly noted, my track record on calling these elections has been quite good. And in particular, it's been in calling them against the grain of what the consensus was. So for 2018 and 2022, the previous two midterms, for instance, I didn't have an out of consensus view. I've figured that the Democrats were going to pick up seats in both of those and had no real significant reason to challenge that view and came out as expected. But 2016, I thought it was more likely than not that Donald Trump was actually going to win, despite his being behind in the polls. In 2020, polls said he was nine percentage points down. I thought it was going to be a very tight election and that he would lose very narrowly, which turned out to be the case. And in 2024, he was down a few points and I thought he's actually going to win the popular vote. And he's going to have what we Americans call co-tails. He's going to drag along people in the House and Senate. And all of those things came to pass. And so what was going on there? And the issue is effectively this phenomenon of populism, which as you know, I've done a lot of research on for its potential economic effects and market effects. And one of the things about populists is they tend to be low trust voters. And they are also people want to think of them as sporadic voters. I don't think that's the correct way to characterize them. I think they are reliable voters when a populist is on the menu. So if they don't. get a populist on the menu, yeah, they don't vote. But if a populist or a populist issue is on the menu, say Brexit in 2016 in the UK, they do come out. And that's why you see these surges in turnout around these. And in 2016, in both Brexit and in the US election, one of the things that was the clearest signal to me, that you were getting all these low trust voters were actually coming out, was when you saw in the UK that turnout numbers were high, I was like, okay, this is all these people who felt that they've never had a voice before are coming out. The second one is in the US, we have this early voting, which we're going through right now, right? And you see all the people out there counting up how many of these are people who are registered Democrats or registered Republicans have turned in their vote, anticipating that those people are going to vote along party lines. And that's what they really want to focus on. And that's where all the news focus is. What I looked at is what was happening to independent voters, people who were not registered with either party or who hadn't voted in either primary. And the reason for that is because nobody is trying to get those people to turn out. The Democrats have a big machine to get their voters out, the Republicans have a big machine to get their voters out. But nobody is saying, hey, let's go get those wildcard independent people out to vote. Nobody wants that, right? And yet independent votes were through the roof in 2016 in the states that were reporting it. And I said, there you are again. These are all those people who are not really affiliated with either party, but they see some, they see a populist issue on the ballot. And at that point, it was Donald Trump. And there is this perception that in the US, it's really only about Donald Trump. Because as I mentioned, 2018 and 2022, the midterm elections seemed to be roughly in line with polls. By the way, there's some caveats to that. But the places where people really started to notice these poll ares, and they're not poll ares. They're poll bias. They were in one direction. They continuously overstated Democrats lead was in the presidential elections of 2016, 2020 and 2024. But if you go back and look a bit further, you see the same thing in 2014. 2014 actually had even bigger polling ares, polling bias in favor of Democrats than 2016 did. And what's interesting about that is that was the first year you really start to notice populism show up in candidates and platforms. So you had candidates, Johnny Ernst in Iowa, like Tom Cotton in Arkansas, both of whom massively outperformed their polls. You also had a lot of populist candidates who lost in the primaries, but effectively dragged the whole party over onto many populist issues in their congressional platform. So you had an outperformance of a lot of Republicans across the board. Right? So the issue is, are we seeing that same sort of polling ares this year? And how do you identify them? And this is a real problem. If it were easy, pollsters would have fixed it by now. But it's not because what you're effectively looking for is people who don't show up in polls. And so that go back to that point that I made at the very beginning about these populist voters. They're low trust, but they vote when populist issues are on the table. What that low trust means is that they don't answer polls. So they don't show up in people's polls. And there's always been low trust individuals. So if you go back and look and talk to pollsters from 20 years ago, they'd say, oh yeah, we've got all sorts of low trust individuals. And it was usually minorities, right? It was Blacks, Latinos in the United States who felt disaffected by society and didn't answer pollsters phone calls. But it wasn't an issue because they also didn't tend to vote. And same thing, these same low trust populist voters, a lot of them didn't vote in the past either. As I said, about Brexit in about 2016, they came out of the woodwork when all of a sudden they felt there was something for them to vote on, somebody who was speaking specifically to their issues. So in the past, it had never resulted in bias. You missed them in the poll, but didn't matter because they didn't turn up to vote. But all of a sudden, when you start putting populists on the menu, they start turning out to vote. And so that's really the question. Do we face that same problem here? Do we see that there is a potential for polling bias this year? And if so, what is its magnitude? Is it big enough to affect the polls? So that's the sort of broad framework that I was approaching this with. And going back to your original question, yes, I came into this. My expectation was because populism in my view is on the menu, polling years would be there. But I also thought, the Democrats got a pretty big lead here. So they're probably not going to overcome that. So the House is almost certain to go. And the Senate is potentially going to go Democrat. That was my prior going into it. Well, come to why your priors are important in your process in a short while. But let's stay on this for a second, because I'm curious as to what do you think that this low trust populist issue voting cohort is this now, is this a phase or is this now a permanent feature of Western politics? And is it possible that the populist voter can also be given the right circumstances a left leaning Democrat cohort populism right now is a right side issue, because that's just the way the political spectrum has evolved. But one can imagine if we have right leaning government in common see for some considerable period of time, that the populism shifts to the left. So is this populism a phase or a permanent feature of Western politics? And how do you think it how big a factor could it be over the next sort of 15 to 20 years? So you have opened a whole can of worms there. Excellent. Hey, this is just getting you back for last Tuesday night. There you are. So look, it's really interesting. And I've had these debates and this has come up multiple times, not only in client conversations, but also recently on in social media that people challenge me on this and say, well, populism is about, and I'm going to paraphrase here and it's probably an over generalization of what people are saying. But basically, people seem to assume populism means the mass is asking for more free stuff. That is not populism in my view. That is absolutely not populism. And all my research on populism says that's not what it is. Okay. That is leftism. That is social democracy. That is socialism. That is the mass is saying, hey, we want to redistribute from the rich to the poor. That is a legitimate political view point that is already out there in mainstream parties. Right? You don't need to be a populist for that. Now, by the way, to exactly your question, populists can be both left wing and right ring. What we have seen is that a lot of the populism that seems to have come to the fore over the last couple of decades in Western democracies has been what we might call right wing populism. Although there's a really interesting characterization part of that, which is it does tend to have a very strong labor element to it. Like, it is about working class and it is about protecting working class jobs over other things. So that's why key concerns have been immigration, right? Immigration effectively floods the job market with competition for these workers and, of course, trade also exposes these workers to competition from abroad. So that's why that's two key components of the whole right wing populist agenda are actually labor issues. Things that traditional labor parties or social democrat parties had often advocated in the past. What populism really comes down to, and so I did this study back in 2016, which I think we've talked about on some of our previous conversations, the politics of rage, where I went through populist party after populist party across 22 different democracies, what their manifestos actually said, and over and over and over. What you keep finding is that it comes down to a sense of political disenfranchisement, that the center left and the center right parties, so whether you have a right wing leaning or a left wing leaning, neither of those parties, neither of those center parties were offering you choices you cared about. So then again, I always come back to immigration. Immigration is a great example of this, in almost every single Western democracy. If you look at polling, going back to the 1970s, significant majorities of people have asked for less immigration. Not no immigration, less immigration. And yet the opposite has happened. Both the center left and center right parties have promoted more immigration, right? Same thing, less clear than immigration, but on the tariff issue. Generally, most of these populations have favored tariffs and favored industrial production. And yet neoliberalism has dominated both the center left and center right parties. And so effectively, you had a whole set of voters out there who were saying, "It doesn't matter which one these guys I vote for, none of them actually listened to me." So I've been disenfranchised, yes we have a democracy, but I don't actually have a choice of what I want. That to me is what defines populism, not whether you're left or right. And this, I'm sorry for the long preamble in that, but it's really critical to answering your question about what we should expect going forward. The fundamental reason why these people are low trust is because government keeps failing them, right? So of course, if government is going to be unresponsive to them, they're going to be low trust. And so when you ask me, "Well, are we going to be facing the same problem in 20 years?" My retort to you would be, "Well, our government is going to start to listen to their populists again. As democracy is going to start to work again, our government is actually going to do what their people tell them. If they do, I would expect trust to rebound, and you'll have less of a problem with this. If they don't, then, yeah, this is going to continue to be a problem. But then we get to the second question you posed, which is, well, does this have to be a right-wing populism? And that's potentially an issue here. And in fact, it's one of the risks I raised to my own analysis of this election is that we have seen a surge in left-wing populism, and not just in the U.S. So in the United States, we've seen the Democratic Socialist Party effectively using the Democratic Party as a platform, in the same way Donald Trump's MAGA movement has used the Republican Party as a platform. And so I would characterize the DSA as a left-wing populist movement. They are definitely feeling like they have been disenfranchised. Now the difference is that the people who have been associated with the left-wing populism at least in the United States also happen to come from what you might call high-trust tribes. They tend to be college-educated, upper-middle-class people who actually have high trust in society. And so there's an argument that they are overrepresented in the polls, and that's what's giving you this left-word tilt in the polls. But I don't know that, right? We're going to have to see, we're going to have to see how this plays out over a few elections. But I do think that's a real risk. In Europe, I think it's an even greater risk. We actually do see evidence that whether it is the French left under Menachon, or the German left under Delinke, and was a BZD, I can't remember what the other parties. They actually, they're signs that day two have been punching above their polling weight in actual elections. So I think your question is very valid in terms of whether it will start to affect polls more in terms of undercounting left-wing votes. But it's so far, it's not clear in the United States. We haven't seen any clear evidence of that. So it's the definite risk for this election, but it's not one that I think we can count on. You mentioned this idea of priors earlier on, and this leads us into your process, and I'm going to get you to lay that process out if I can in a second. But just as a kind of setup to that, you went into this kind of expecting the Republicans to lose both chambers, probably that was the likelihood. At least the House and maybe this Senate, yeah. Your analysis, which we're going to get to now without wanting to issue any spoiler alerts, shifted that weight. And again, I think it's probably important that we state here that you were actually a bush administration appointee at one point. So people will want to frame that as you having a Republican bias. But obviously, when it comes down to the data, I know that you put that aside and it's all about the data. You're not looking for confirmation bars, you're looking for the answers. Is there a moment in your process where this turned, or was it more of a case of, is they more of the same from those previous experiences you had in looking through the data and coming up with surprising outcomes? I would say it came in in two bumps. So by the way, it's probably worth defining some terms here, because yeah, if you could hold that idea about bumps in your head, and then let's go through your process and the terms and you can drop those in as we come to them along the way. So I use this term and you just used it in your question up prior. So it's probably useful for people who haven't studied Bayesian statistics to understand this. So in what you might call classical statistics, you have a hypothesis, you go out and test it against the data, and if the data in a statistical sense shows something very different, you reject your hypothesis. So it's always about rejecting your initial hypothesis. In Bayesian statistics, and I'm bastardizing this a bit, but this is roughly the difference. Is you start with a view and then you say, do the data as they come in, each new piece of data I get in, update my view in a different way, or does it cause me to just stay where I was? And so my view, as I said, my prior, that's your view that you enter with, was that we did have polling errors, but I wasn't sure whether they would be big enough to overcome what seemed like a big democratic advantage, okay? And so then you go out and look at the data and you're looking for evidence that shifts your prior and creates a new view, your posterior view, what is so prior and posterior. And the reality is that there is a statistical significance to that too, but let me go back to the problem that we're trying to solve here. So I use a Bayesian process, but I wouldn't call it Bayesian statistics if that makes any sense, because remember the issue is we have people who don't show up in polls. Now there might be a few who sneak into polls, we don't know, right? And so maybe it's just that they're under sampled in in polls. But let's suppose the extreme case, they don't actually even show up. Well, how would I ever statistically test whether something is in the poll or not if I know it's not in the poll? It doesn't exist, right? You can't do that. So the onus on proving statistical significance that they exist is extreme here. You're almost never going to get that. And so the only way you ever see this is X-Post, after the election you say, "Oh my gosh, actually, there were way more populist voters than I thought." Okay? Well, that tells you that indeed you were missing all sorts of people, but you don't know that beforehand. So what I'm looking for in the polls is any kind of sign of that biases that existed in the poll still exist after the pollsters have adjusted those polls. And why would they adjust it? This is very straightforward, because there are some obvious biases that we know existent polls. So this is obviously a stereotype, but your some 70-year-old little white retiree woman sitting by the phone is much more likely to answer a pollster's call and complete their survey than a 25-year-old Latino man. Okay? This is just a statistical fact, by the way, but it also fits everybody's, I think, priors. I was just saying, it would come as a surprise to many people, I don't think. Exactly. So what happens is whether you're doing a telephone poll or an online poll, you're getting a bias sample coming in. The pollster knows that. You're going to get way too many little white women and not enough young Latino men. Okay. So what you do is you adjust the weights of those. little white women are 10% of the population, but you get 40% of your sample from little white women. Well, guess what? You divide their result by four and suppose that you only get 5% Latino men, but you know that they're supposed to be 10%. Then you multiply the results you get by two. And voila, you have now a supposedly unbiased poll. And to deal with this polling bias problem that we've talked about, pollsters have gone through a variety of different contortions to try and tease out whom they're missing. So one of the things that they noticed pretty early on is that, oh gosh, we seem to be missing a lot of working class white men. Those seem to be the people who have voted for Trump and we were missing. Now, it turns out, and one of the guys who's been like the best on this is a Democratic data scientist pollster. He was actually Barack Obama's chief of data science in the 2012 election at the age of 19. The guy's pretty off the charts. His name is David Shore. And he was one of the first people to highlight this trust issue. And he actually goes through the data exposed. He found trust surveys and things like this. And he shows that those white working class men, if they were high trust, voted overwhelmingly for Hillary Clinton. Whereas people with PhDs were low trust voted overwhelmingly for Donald Trump. So actually it's not working class versus educated. It goes back to that trust issue. And this is the problem is that I can slice and dice the data on all sorts of demographics. What your income is, what your religion is, whether you're rural versus urban, whether you're black versus white, all of these different things. But none of them get to this trust issue. And how do I even find out what your trust is if you don't even answer my poll? If you're not answering my poll, I can't ask you the question. Hey, by the way, are you high trust or low trust? So this is the problem. But we do know that from past, as I said, there seems to be a correlation with white working class men. There's also a correlation, by the way, with black and Latino men in terms of their Trump votes versus what they poll as. We've seen this in various elections. And so we know that there may be larger numbers of these low trust voters hiding in those groups that they can be in any group, but there might be larger ones in those. So then you can go through and start to look and see, well, hey, do I see a relationship between polling errors and the input sample that is before they do any statistical adjustments to it in pollsters, polls with the final results in past years, and look for whether those correlations or those over or under representation in their samples exist again this year. And what you find is that indeed, there is a very strong correlation between past polling errors and represent over or under representation across these different demographics, and that the same under and over representation problems occur this year. Now there's some additional wrinkles, which I get into in the piece. This gets a little bit more complex. But if you think about it, the pollsters aren't stupid. They say, oh, okay, we know that these particular groups seem to have a bigger problem. So what we're really going to do is we're going to try and massively over sample it. So even though we only need out of 100, say, 10 Latino men, we're going to sample 50. Just to really nail that down. Well, if only the high trust people answer the fact that you increased your sample size to 50 didn't change it just actually if anybody was. Yes, it made your bias problem worse. This is one of the things that I was wrestling with after a conversation and then reading the piece, right? Because if this idea of the re-weighting makes things worse rather than better, then if you identify the unrepresented popular group and you upweight them, you amplify the error. So if the fix is the actual problem, is there any kind of methodological route out of this for the pollsters or are we just in a period where even if temporarily, the industry is actually structurally broken for the time being. So I've thought a lot about that question. I don't see a good solution. Right. Because what I did is considered highly uncosure and you read the piece you'll know, I throw lots of caveats down. I say, hey, look, nothing I have here is statistically significant. This is not proper Bayesian statistics. This is, I come in with a view and then I look, does anything in the data contradict my view? And nothing did, by the way, so I keep my view. That's not proper Bayesian statistics. Like if this would not pass any peer review process, right? Right. And pollsters are caught in the situation where they're using statistical analysis. That's the basis of their being. So they kind of have to stick to it. So they're not going to stick their neck out there and say, hey, you know what? Our polls have a problem. And it's just big. That's not a big selling point of your pollster. But that's not my job. Going back to what you said at the beginning, where rightly identified my past Republican service as a potential bias here, today, my clients pay me to get the right answer. I don't give a damn, right? So what I do, and not only do they pay me to get the right answer, they want me to give them an answer. They are not going to pay me to say, yeah, nothing statistically significant. So I don't really have a view here. So then I have to actually make judgments. And this is my judgment. But when I go through and look, the fact that nothing contradicts this view that polling analysis exists. And then I do some much more sophisticated analysis, really detailed analysis where I actually look at how some of the composition of these voters is correlated with polling errors across elections through time. And what the composition of polls today looks most like. And guess what? Over and over again, it keeps coming up with the years that had some of the biggest polling errors. And in particular, by the way, that 2014 midterm that I highlighted as looking the demographics of the underlying poll look most like that, not like 2018, not like 2022. And then I go through and I look at cross state examples about how polling errors seem to be magnified by the percentage of the population that it normally votes Republican and different other Democrat factors. I put all these things together. And what I keep coming up with is A, there's almost certainly significant polling errors this year. And B, they are large enough to swing the election for the Republicans. Now, part of that also has to do with what elections really matter. So there's two, you need to think separately about the House versus the Senate. And this Senate, it's pretty straightforward. Most of these seats, they're talking about potentially flipping to Republicans. And oh, by the way, some of the ones that Democrats are supposed to hold like Michigan and Minnesota are within one or two percentage points in the existing polling. So if I find that those states have polling bias that might be on the order of three to four percentage points, you can see that the Senate ain't flipping, right? Right away. And in fact, actually, my baseline result, even though, yeah, my baseline result is that the Republicans may actually pick up a seat in the Senate. They may lose North Carolina, but pick up both Michigan and Minnesota. And thus actually end up with a 54 rather than a 53 seat majority. Okay. So that's the Senate. And again, that's highly dependent on how big is that polling air. But if my analysis suggests that roughly on average across most of these races is going to be on the order of three to four percentage points, that that takes you there. The House is a different kettle of fish. One of the things, first of all, think about the generic ballot. One, recall what I said about generic ballots are different from asking about actual people. And historically, what we found is that even before polling bias became a thing, the generic ballot tended to overstate the popular vote in the House races for Democrats by about two percentage points. So take that off the top. Then you look at the fact that because of jaring mandering, this practice of shaping districts around specific parties in different areas to get a specific outcome. You have places in California and New York and places like that that are massively like, there's no question this district is going to go for Democrats or in other places that it's going to go for Republicans. They're going to have a 70 or 80% to 30 or 20% majority. What really matters is close races. If you look at close races, we don't have very good date on that because as I said, they don't take very many polls of this, but from some of the few organizations like the Cook Political Report that do poll these things, there's about 75 house races that really are potentially in contention. If you look at those, in September, they had these guys at a two percentage point margin on average, not seven to nine, two percentage points. Well, now we're in polling territory, right? Right. Right. Exactly. Yeah. Again, look, I'm making some big assumptions here about what the actual distribution of those look like and using some fancy statistics. And I look at this and I run it through a variety of different assumptions, including by the way that the polls have increased another percentage point since then, which is what the generic polls did since Cook did their original polling in September. So let's bias it against. Let's just say the Democrats are even further ahead. It's three points, not two points. Even with that, what I find is that with normal size polling here, actually shockingly, and you've read my piece, you know, I don't even lean in and say, I think they're going to keep the house. I say, I think they got a good chance to keep in the house, but actually the numbers come out. They keep the house. One of the few times in history, they actually gains the president's party, actually gains seats in the house and potentially a record number. That belongs to how rare that is, Marvin, because when you gave me the data, I was shocked at how rare it is for an incumbent to actually gain in the midterms. Yeah. So it's only actually happened four times since the Civil War. Pretty civil war, the US was a bit different parties were a little bit less farmed. So 1902, you should probably toss that one out because that was actually an expansion of the house. So you added, I think was a hundred new seats to the house. And so yeah, the Republicans got some, they didn't actually come out in percentage terms. They just gained overall. So that's one of those. Then you have 1934, when in FDR's first year of the New Deal, you have 1998, when the Republicans were trying to prosecute Bill Clinton for the Monica Lewinsky affair and voter said, hey, we care about other issues, not about your damn partisan politics. And then 2002, right after the 9/11 George Bush, those were the only times the incumbent president's party has gained seats. And the biggest of those was nine seats. That was that 1902 one. So when I do these numbers, and I get numbers on the order of nine to 12 seats, the Republicans could actually pick up, this is what I'm saying. It's hard for me to discare that, even though it's not statistically significant, right? So that's where I come out on this. A fabulous, absolutely fascinating, and you are explicit throughout the piece that none of this is, as you just said there, statistically significant, right? Your regressions come back insignificant. And the whole framework is unable to establish buyers in a classical sense, right? But it still leads you to make what, in my reading over the last several months, is one of the loudest out of consensus calls I've seen, which is great. But I'm curious how you, how do you decide when consistency with the model is enough to act on? Because for a lot of people, the data that you're seeing will come back, and they'll go, well, this can't be right, but you're not contrarian for the sake of it. You've been out of consensus at points where it mattered, and you've been right. So how do you guard against that whole, well, I've been out of consensus. I've been right. This comes back out of consensus. I'm going to go with it again, because it's been right before, not necessarily because this particular set of numbers really screamed to me that this is a great call to make. Does that make sense? It's a bit of a roundabout. No, it makes sense in the simple answer is just what everybody in our industry does, right? There are people out there who are quantitative investors, or quantitative research shops, and they exclusively rely on statistically significant models that continuously, on average, produce a winner, right, or if they don't, they go out of business, whatever. Anybody else who's using a subjective metric is making a judgment at saying, look, I don't have enough data to prove this, but the data are consistent enough with my judgment and experience to suggest that this is what's going to happen. And that's all that's happening here is that I don't see my view on populism not going away, still very strong, still an important driver of elections in Western democracies. Two, half pollsters figured out a way to deal with this, we just discussed. It's basically impossible to deal with if trust is really the underlying variable, which I firmly believe it is. So as a result, I know for a fact that data will never say that this is going to be a bias problem. I can only say, or the data consistent with it, with their potentially being a bias problem. And if I think that a populism is around and b, that pollsters have not been able to solve this problem, then it leads me to an answer. And then it's really about sizing it. And that's where statistics comes in. And again, there's enough variability here that some of those things in terms of the margins are statistically significant, but most of them are not. So that's why I used, if you recall in the piece, a wide variety of different measures of what could potentially drive this. And by the way, the one that is the least approved by the data is the one that gives the Democrats the best result. So yeah, that's where I come from. It really is judgment. And at some point, you have to recognize you're not going to get statistical significance and you still have to make a call. And so here's my call. There's two other pieces of this that I wanted to dig into. But before we get to those, let's just be very clear with people what that call is. Because we've talked about the method and we've talked about the surprising result, but let's talk about what the actual call is that you believe may end up coming to pass. So first and most important is I can largely preclude the idea that we are going to have a landslide for the Democrats, okay? So I don't think that's happening. My base case is that the Republicans will hold the Senate. Maybe barely, but they will hold it. And they have a decent chance of holding the House, although as I said, my prior going in is that they would lose the House. And so even given my analysis, it's hard for me to really stomp my foot that they're actually going to take the House. That said, I do think there is a significant, and I'd define significant as, say, a 20 to 30% chance, right? So not small that actually the Republicans do not only hold both houses, but actually increase their leads in both. And that, if they do that, this has massive consequences. Aside from the fact that it will shock everybody, but it has really big consequences. This brings us to the things I wanted to get into because again, and you lay this out, and at the end of this, I'm hoping everyone is going to actually sit and read this piece because it's just such a thought-provoking and brilliantly argued piece. Let's get into those consequences because, again, when I read through them, I was sitting again, man, I didn't think of that. I didn't think of that. So just walk us through it. Let's say that your outlier prediction is right, and they gain in both. Let's talk about what that potentially unleashes in the aftermath. Well, I think the most important thing is that Donald Trump goes from being a lame duck the final two years of his final term we assume. Yeah. You have to put that little asterisk there. I know. It's crazy, right? That was a little asterisk there. With the old one. Unfortunately, so he goes into the final two years of his likely final term. Usually, that means the president is a lame duck. They have lost most of their power because nobody's really that concerned about him. Quite the opposite here. Donald Trump could be at his most powerful in the following two years if this happens. Remember how this happened? He specifically went out in the primaries and took out people who disagreed with him. At the threat of everybody saying you are going to lose our majorities in both houses because these people are unallectable. And the clearest example of that is North Carolina. Even under with my polling bias estimates, North Carolina is, by the way, there's a small caveat to that based on incoming early votes. But if we go by the polls and my polling heirs, they're going to lose North Carolina, right? And it's because he's Tom Tillish, you're out of here, right? And in Texas, Texas is considered competitive because they got rid of John Cornyan, brought in a populist who has some unsavory parts or some questionable parts of his past and has turned off a lot of other voters. So despite that, if they win, who is the Republican in either chamber who is going to stand up to this man because they know he's going to be in their districts campaigning against them in the next election, whether he's on the ticket or not. One of our prior conversations, we talked about my La Casa Nostra Americana framework for thinking about American foreign policy under Donald Trump, apply that domestically. Don Trump is going to take out any copo who tries to rise up against him, right? And so you better do with the Don says, right? So he is becomes extraordinarily powerful in my view. And I think whether you think that I am Republican or pro Trump or anti-Trump or whatever, or you have Trump derangement syndrome, I think we can all agree he will use it. Yeah. Yeah. Yeah. I think that's a fairly safe fit. Well, but again, when you talk about what he might use that for once again, I didn't see the stuff coming. Andrew Jackson comparisons that are diametrically opposed to things like the big, beautiful bill. So walk us through that because again, we all know Trump is a man of immense mystery and intrigue and contradictions. He's a fascinating character. If you can study the character and get past the man from whichever side, you either love more age. If you can find a way to put that side and objectively study him, he is a fascinating character. But again, what you talk about what lies beneath all the bluster again, I found extraordinary at first blush, but then the more I read about it and thought about it, I was like, man, again, you've got another point here. So talk a little bit about that to exactly your point. He is a fascinating figure. Whatever you think of him, like you really, whether you're a Trump lover, hater or just agnostic on him, you can't be agnostic. It's impossible. Yeah, it is kind of hard to be agnostic, but I throw that out there. But whether you're a lover or a hater, you got to throw that aside and just as an intellectual, just enjoy while the character development, the political savvy or in other ways, craziness of this man, there is so much complexity to understand here. And one of those complexities we've talked about before that he very consciously does try to distract people with misinformation or to divert their attention elsewhere. There's also, I cannot rule out a lot of the stuff he says and does. I'm just like, no, that's just plain erratic. I don't see any madness to that madness. Madness, that is just madness. Yes, but if you slice through all of that and look at it, I think there are two key things that show up again and again, particularly in the second term. One is that his instincts and the way he almost always ends up going and some of this might not just be him. A lot of it might be he's shaped by the political movement that he's created, right? Which has deep roots in American history. This is very clearly Jacksonian populism back to Andrew Jackson. And so one of my new rules for life is, or it's not rules for life, I don't apply this in my personal life. But rules for understanding Trump is WWJD, but not what would Jesus do. It's what would Jackson do because whatever Jackson would do is often the right answer for what Trump will do when you're confused, okay? So that's one rule and I'll come back to how that applies to some of these things. The other is that particularly in his second term, I think we talked about this in one of our previous conversations that this is a man who wasn't interested in being president the first time. It was just an ego kick. And then he starts to get interested by the end of his presidency and then he gets kicked out of office and he is pissed, he is really mad. And he's very competitive and he wants to come back and read it to him. He figured out how to do it and he did come back. And now this is a big mistake I think a lot of people make. They think that he is about the short term and about, oh, I'm going to do this to get this win or whatever. No, this man is all about he wants himself to go down in the history books as a Jackson, as an FDR, as a Lincoln, one of the big name presidents in history. The only way you do that is by doing really big things. So I think those are two fundamental rules you need to use whenever you evaluate Donald Trump. And it doesn't mean that they'll always be right, but I think they're very helpful. And that gets me to two of the big predictions I have that I think are very counter-consensus is one, with the leeway and time that he will now be afforded by a Republican Congress that he is all powerful in front of, is he is going to bring the Iran War to a conclusion in terms of forcing their submission. Because ultimately, this is really about the blockade and the blockade is working. And actually, the blockade itself is not very costly to the US. This is three and four decimal places to the right on the federal budget to continue the blockade. And it's being very effective. So then it's just a waiting game. And if he has the Congress, he has the waiting time. So I think that's one. The second is, and this one I think is much more controversial because everybody thinks he's a debt guy. He likes big debt. And even you just said something you compared it, well, this is against Oba, the one big beautiful bill. And I'm going to correct you there because that's not true. Despite what everybody said, real spending in the United States under Oba was cut. nominal spending did go up because inflation went up. But real spending for one of three times in the last 60 years that we have clear date on this was cut, okay. That is a rarity. You can also look at the primary balance in the United States. Now, if you look in future years, it does under Oba, but my presumption has always been Oba was just to get them through here and if he gets a Republican Congress, then he'll do something else. And so this comes back to what would Jackson do and also his legacy is absolutely clear that the U.S. is on a definitely unsustainable path. Now, it's unsustainable path has more runway than say Francis does, but it is an unsustainable path. And the next president for sure is going to have to deal with the fact that the Social Security Trust Fund goes into bankruptcy in the next term, right? So one, reflect back on, there is only one president in U.S. history who has ever not just balanced the budget, but actually paid down all the U.S. debt. Only one, Andrew Jackson was a massive fiscal conservative. If you look at Donald Trump's voters, what are the two biggest things that they wanted in terms of, if you pull them, what were their two biggest priorities? Number one was federal spending number two was inflation. When we talked about this before, on the inflation front, nobody expected him to appoint a hawk. Nobody expected him to appoint Kevin Worsh. was one of my big calls last year. He was going to appoint the Kevin Worship. and Kevin Worsh would turn out to be a hawk, right? So far, he's mostly proving me correct. We'll see, I still have questions, but he's mostly proving me correct. Same thing, I think we're gonna be surprised on the same thing on the fiscal front. His voters expect and want fiscal consolidation. And this is his path to being in the history books is that he actually gets us there. And so I do think that you're going to see a huge new focus on fiscal consolidation in the second term, which especially given the backdrop of what we're talking about taking place in Europe with France and other countries, is going to increasingly look attractive to the American electorate. People are gonna say, "Well, we don't want that." And that's when tough choices start to be made. - Does the American public think that? Because I think everybody everywhere in the West can point to France and say, "I don't want that." But then when somebody says to them, "Okay, well, here's how you avoid it." They go, "Well, hang on a second, I don't want to give up all the good stuff, I don't want to give up the goodies." I just don't want that. Find me another way to do it where we don't have to be fiscally conservative and we don't have to reign in the spending. That's the thing. 'Cause when I read the Jacksonian stuff, after I got passed my holy count moment, I'm like, "Yeah, actually, that makes sense." It makes sense, I get it. But where does that consolidation come from? And by raising tariffs and God forbid, taxes on the wealthy, 'cause a lot of his supporters is real hardcore financial supporters are not gonna like that. And cutting entitlements, which is essentially the only real way to do this, practically speaking. Does that survive contact with a congress that's looking already at 2028? I don't know. - I think that is the biggest issue, right? So now, I will say that there are very clear hints in his language and in other members of his administration. So in the early months of this term, we go back to the first half of last year. Howard Lautnicki in particular kept repeating this. And I thought that was interesting, but Howard Lautnicki can discount a lot of stuff he says whatever, but then Trump himself said it, right? And they talked about raising tax rates on the highest earners to finance a tax cut for the bottom 90%. And so I went out and I just did some back in the envelope calculations. And actually, yeah, you could finance with reasonably modest tax rises on the top 10%. You could finance removing income taxes on the bottom 90%. Now, that doesn't balance the budget, but it at least leaves you neutral there. And why are you doing that? Well, you're doing that because you actually are gonna raise tariffs a lot. And by the way, when you have a Republican Congress to now affirm all of those tariffs that you did through executive action before that some of which have been overturned by the courts, they actually do produce a significant amount of revenue. And you can imagine they could produce a lot more, but who do they fall on? Like overwhelmingly, because they fall on the cost of goods and because lower income households are the ones who predominantly spend their income on goods rather than services, this is exactly raising taxes on the bottom 90%. So if you think about it that way, the Latin Trump talk last year is basically, hey, we're gonna raise taxes on everybody, but to offset the fact that we're raising taxes so much on the middle and lower classes, we're gonna raise income taxes on the rich that would otherwise get away from them. So I think that's part of it. And then spending cuts are going to be significant. And that is going to have to happen through entitlements. And nobody really wants to do that. But I think this is a one part of the whole putting all this fraud that keeps popping up in front of people. Yeah, absolutely. People make the right point that when you look at this, oh, $80 million here, $100 million here, those seem like big numbers, but when you add them up, this is rounding air on the federal budget. That's not the point. The point is it says, look, federal programs are ripe with corruption and need to be reformed. Well, reform is a way to cut things. And oh, by the way, what is the thing that keeps coming back into focus? I've seen more and more reports highlighting this that one of the big drivers of this is Obamacare costs, right? And that is a very clearly partisan issue. So we'd love to take an X to that. Absolutely. And so I think when you put it all together, maybe he doesn't solve the whole problem, but he starts the process and does it in a way that effectively reaffirms to middle and lower class voters that, hey, I'm looking out for you, right? I'm doing this in a way that takes care of you. And you can say, well, yeah, but you're also undermining maybe social security and Medicare and things like that. But those programs are bankrupt anyway. I wonder how many voters at this point actually are thinking, yeah, that's gonna exist in 10 years. So if you put them on more solid footing, that might actually be a positive. That's speculative on my part. No question. If you told me I had to do this, how would I do it? Or if you told me that he is definitely going to do this, what would be my supposition of what he's going to do? These are the things that would come to mind. This is the path that seems like the most realistic path. But this goes back to, this is a bit of an out there call, but again, comes back to this. What would Jackson do and what is going to put him in the history books? I think we can all agree that for anybody listening to this who doesn't want to be France, take a look at social spending. That's the easy way to start there, right? But listen, there's one risk that you cite. Well, there's a few, but the one that I want to talk about, you called it Memdani Rage. It's a very real risk that let's just walk through what Memdani Rage is and the problems it might actually present. And I guess how we would know before election night if that was going to be a factor. So this is exactly what we were talking about at the beginning of the podcast about this idea that the populism could be on the left or the right and is low trust and equal feature of left wing and right wing populism. And as I said, there are some signs that maybe it is equal or at least somewhat affects the left in Europe. I've seen very little sign that's the case in the United States so far. But this election may prove that. Where are we going to see that? I would look in the same way that if you look across states, at their polling area. So just draw a little graph in your head on one axis put how Republican versus Democrat that state is. And on the other axis put polling areas. And it's basically a 45 degree line. Polling areas go up with the share of the Republican vote. That's that right wing populism. What I would expect is you'll see the opposite in the opposite direction as you go down towards Democrats that you'll start to get polling areas in the opposite direction as you go towards more and more Democratic states. So the places where that's going to show up are probably places that people aren't really watching. I can't remember any of the safe Democratic seats up up this year, but it's going to be those. It could show up in a place like Maine, although it's really interesting. Maine as Democratic as it is. This is a really interesting point. Is that Susan Collins is wildly popular. So one of the things that shows up in the polling is that if you ask people in Maine who they want to control the Senate, they will overwhelmingly tell you the Democrats. If you ask them who they're going to vote for, they will see Susan Collins the Republican, right? This does suggest candidates do make a difference. But so that's a place that I'd look for. The other places that I look for, they're much more knife edge because they're not clearly Republican or Democrat anymore or the Rust Belt states and two of them are up right now, which is Michigan and Minnesota. And the leads for the Democratic candidates in those two states are narrow. They're only about one or two points. Which, as you say, well, well, well within the margin of error. Before we close, you tease us at the beginning with Polymarket and you explain when they're good and when they're bad. Let's just close with that because I'm fascinated by that. So just run us through that if you wouldn't mind for your time. - I wrote something about this in one of my seriously Marvin publications, which are free, anybody can read those. The issue is that betting markets like financial markets are really good at objective risks. That is those things where we can clearly see the probabilities. So for instance, non-farm payrolls, markets are really good at pricing non-farm payrolls because we have a lot of data and it's a pretty well-known process and people have models for it and they know roughly what the statistics are, where markets don't do well is what is defined as uncertainty and uncertainty in mathematical terms is very different from what I think people's layman definition of it is. Layman definition is uncertainty is anything I don't know or anything that could be random. That's not what uncertainty is in mathematical terms, mathematical terms. Uncertainty is a non-quantifiable risk. You have no way of assigning a probability to that thing. So what's the probability that seven billion people are going to go and lock down next year in December 2019? Well nobody even thought it was on the menu then. But of course it did happen. What's the probability that we have massive polling errors in three straight presidential elections that are all lined up in one direction? Probably pretty low under classical statistical terms and yet it happened because there's uncertainty, a non-quantifiable risk in this. And so this is one of the things that I keep trying to press people on is that a lot of the world that we see today around us is associated with uncertainty. It's stuff that has either never happened before or happened so rarely in history that we don't have good statistics on it. And so as a result you need to use theory. You need to use that judgment we talked about earlier to assess what the realistic risks of these things. So everything that I did in this piece is about assessing uncertainty over something that cannot be statistically arbitrated. And that's why this is a risk for betting markets and when people say oh but the betting market say this so this must be the right answer. I'm like well my first question that comes to my mind is is the betting market on a objective risk with known probabilities or is it on a uncertain risk? One that we cannot define the probabilities of. Fast thing. Marvin, I've kept you longer than I planned to but that's your own damn fault frankly still being so interesting. This has been every minute as much fun as I did the other night out a lot more people get the benefit of the contents of that head of yours this time around. So for the people listening just let them know how they can follow your work. You mentioned seriously Marvin there but there are plenty of other ways. And I must keen now as I was the first time we met to introduce you to as many people as possible because I just find your work incredibly thought-provoking and incredibly useful for me when I'm trying to figure out what the hell is going on. That's very kind of you to say and thank you. The best place to find me is thematicmarkets.com and there you can find all of my research and seriously Marvin as well so my research is thematic markets that is institutional grade research that's what this piece was published on and that I charge a fee for and I also do these free pieces called seriously Marvin which are generally my unconventional thoughts that I don't really have time to devote to do significant research or are off-peaced maybe not quite market issues that everybody's going to be interested in but those are all free and I also do have a much smaller less professional less good podcasts than yours the thematic edge which you can access for free on there as well. And then if you're a sub-stack fan you can also find both or all three of those things on sub-stacks so look under thematicmarkets dot sub-stack dot com or seriously Marvin dot sub-stack dot com. The usual social media x linked in wherever it's all thematic markets for the at thematic markets right fantastic markets. Marvin my friend always a pleasure I look forward to our next in-person meeting but this will have to do for the meantime and again thanks for your time and thanks for your thoughts and I've got a half a day of process this conversation so hopefully I will sleep a little bit better tonight thank you. It was my pleasure thank you very much. Well they have it folks my sleepless nights and now you're sleepless nights so I'm sorry to dump that upon you hopefully you'll listen to this early in the morning and have a whole day to process what Marvin just said and you'll sleep a little bit easier than I did when I had it all whizzing around my brain the other night after dinner it's fascinating stuff and again there is no telling whether Marvin's right about these elections but his track record is good his predictions are decidedly non-consensus this year and if he is right it is going to cause all kinds of carnage so I think you're best prepared by listening to it and at least having a sense in your head about what might happen if the perceived wisdom goes squirrely and the opposite happens. All Marvin's work is available at thematicmarkets.com he's at the same handle at thematic markets on Twitter and I again would urge you to check out his work because I think it's absolutely best and breed. That's it for me for another conversation I enjoyed that one immensely and I'll be back with another one in the not-too-distant future in the meantime as always thank you so much for listening. Nothing we discussed should be considered as investment advice this conversation is for informational and hopefully entertainment purposes only so while we hope you find it both informative and entertaining please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.