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More presidential political betting stuff. Short version: Sell Guiliani and maybe Clinton. Buy Huckabee, Obama, and McCain. In particular, look at buying a contract on a Huckabee victory in Michigan (!) and Florida (!!!).

Guiliani is currently trading at 25% on Intrade. That’s highly overvalued. That’s definitely a contract worth selling; he’s currently languishing in third place in national polling (behind Huckabee and McCain) and his prospects of winning Michigan or South Carolina are virtually zero. What concerns me the most, though, is that he isn’t just losing in the early states, but he’s been completely side-lined. The next state he can compete in is Florida on January 29. (Currently he’s up by 5 points, according to RCP polls). I do not think he is likely to win Florida. I don’t think he’s even close. Over the next 18 days, the coverage is going to intensely favor McCain and Huckabee, particularly if Huckabee pulls out a victory in Michigan.

I’ve been a little hesitant to suggest that buyers looking at the Republican field buy Huckabee. But, at $.17, I think HUCKABEE NOMINEE is definitely underpriced.  Right now the market has Huckabee roughly 30% likely to win Michigan.  The state has many evangelical Christians and a lot of economically depressed areas receptive to populist appeals. I anticipate he will score at least second in Michigan. If he wins Michigan, he has essentially won.  Regardless of Michigan, he is the heavy favorite in South Carolina. I anticipate cashing out on Huckabee after South Carolina; economic and security conservatives will rally around a candidate that is more electable and amenable to their positions. Prediction: as Huckabee’s primary bid gets stronger, expect the value of “PRESIDENT HILLARY” and “PRESIDENT OBAMA” to sky-rocket. I agree with the conventional wisdom that Huckabee will lead the GOP to electoral disaster.

I still like McCain at around 35%. But the risk is that he gets beaten by Huckabee in Michigan, which would be a crippling blow. Romney is less of a problem; I expect that his support is more superficial and less likely to show up to vote. Furthermore, the media won’t be as surprised by McCain losing to Romney. Although it’s not widely expected now, it seems plausible. A loss to Huckabee in Michigan would be completely unexpected and the media narrative will be that Huckabee is the frontrunner, he can compete for independents, etc. If he looks like he could win the nomination, I think that “PRESIDENT MCCAIN” will be cheap. I think the conventional wisdom is somewhat overrating Democratic strength this election and I think McCain will play well in purple states.

Obama is currently trading at a hair above 40% for the Democratic nomination. I think he will win the election, but it isn’t the right time to buy him now. He will lose Nevada handily, but he will win South Carolina big. Wait until he loses Nevada and you can get in cheaper. Then you have the option of cashing in after SC if you feel skittish. I expect his value will spike shortly after South Carolina– I anticipate that Edwards will withdraw shortly after a disappointing finish there.

MY BETS

1. 5000 shares of PRESIDENT HUCKABEE at $.05 each (I hope to sell these for $.20-.30 if he becomes the nominee). -$250 if I go bust, +$5000 if I held on to these and he won.
2. shortsold 1800 shares of MCCAIN MICHIGAN. -$900 if I go bust (he wins Michigan), +$1800 if he loses.
3. 3500 shares of HUCKABEE FLORIDA at around .32 cents each. -$1100 if I go bust (he loses), +$3500 if he wins.
4. 8000 shares of NOMINEE HUCKABEE at $.16 each. -$1700 vs. +8000.

My betting strategy right now is heavily Huck-dependent. I think that the next two primaries play really well to Huck’s strengths.

1. There are three plausible outcomes in Michigan, a win by Romney, McCain or Huckabee. A Romney win helps Huck by prolonging the Romney campaign. I assume that Romney competes more with McCain than Huck for voters. A McCain win wouldn’t do much damage to Huck. No one’s expecting him to win. A Huckabee win is a tremendous boost to his chances of winning the nomination. Even if Huckabee doesn’t win, he might still boost himself by outperforming the local favorite (Romney), who has underperformed thus far.
2. After Michigan, the field shifts to South Carolina. Besides the Office of Special Investigations and Surf City, South Carolina is known for being a pretty mainstream conservative state. Heavily military, which plays to McCain’s strengths, but it also has a ton of evangelical Christians. South Carolina essentially ended the McCain candidacy in 2000 by opting for a Great Plains governor with relatively little foreign policy experience…

If Huckabee wins Michigan, I’ll probably unload the PRESIDENT HUCKABEE immediately. I’m shooting for $.20 a share, which will happen approximately when Intraders agree that Huckabee has around an even chance of winning the GOP nomination. I assume that Huckabee will win the nomination if he wins Michigan, so I’ll hold onto NOMINEE HUCKABEE.

If Huckabee doesn’t win Michigan, I’ll wait until he wins S.C. and unload PRESIDENT and NOMINEE HUCKABEE the next day. Depending on how quickly I cash out on Huckabee, I might be able to buy NOMINEE OBAMA before Edwards drops out of the race.

At that point, I’ll try diversifying into non-election political bets. For example, Intraders think there is only a 15% chance, respectively, of President Bush having at least a 45% approval rating at the end of his term. I wouldn’t bet heavily on the proposition, but any sort of trouble abroad could easily put him over. He only needs 10 points.

Intraders think that the GOP nominee is only 65% likely to pick up Indiana’s electoral votes in the general election. I assume that none of those traders have ever been to Indiana.

Intraders think that the GOP nominee is 25% likely to win Ohio. That feels about right… but if it looks like Obama is going to win the nomination, I’d take that bet on the GOP side. It’s a high-risk bet, but I can easily envision the circumstances that could cause me to win it.

Intraders think that the DNC candidate is only 70% likely to pick up New Hampshire. Barring a total Democratic meltdown, that feels ridiculously implausible. NH has been trending Democratic for quite some time– it was the only state to vote for Bush in 2000 but not 2004.

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