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Speaker 1: But knowledge to work and grow your business with c

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Speaker 1: i T from transportation to healthcare to manufacturing. C i

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Speaker 1: T offers commercial lending, leasing, and treasury management services for

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Speaker 1: small and middle market businesses. Learn more at c i

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Speaker 1: T dot com put Knowledge to Work. Hello and welcome

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Speaker 1: to another edition of the Odd LODs podcast. I'm Joe

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Speaker 1: wis Andthal, Managing editor at Bloomberg Markets, and I'm Tracy Alloway,

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Speaker 1: Executive editor at Bloomberg Markets. So Tracy, on our last

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Speaker 1: episode we talked a little bit about politics, and this

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Speaker 1: episode is about another political event that's coming up, the

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Speaker 1: upcoming Brexit vote. Brexit, of course, refers to this possibility

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Speaker 1: that on June three, when the UK holds its referendum,

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Speaker 1: that people might vote to leave the EU. And while

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Speaker 1: the expectation and the polls suggest that probably the UK

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Speaker 1: is going to stay in the EU, there is a

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Speaker 1: significant enough debate and doubt about this question that there's

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Speaker 1: a lot of excitement going into this vote. Have you've

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Speaker 1: been paying much attention to it, you know, obviously I'm

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Speaker 1: in market, so there's lots of people talking about the

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Speaker 1: potential impact on the financial system, on currencies, on the

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Speaker 1: unity of the EU, I also used to live in

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Speaker 1: the UK for about ten years, so I do take

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Speaker 1: a personal interest in this. So that's a long way

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Speaker 1: of saying yes, yeah, I'm really I'm really fascinated by

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Speaker 1: the story, and I just like, I just love votes, Like,

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Speaker 1: even if I don't have much of a stake in it,

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Speaker 1: anytime I hear of some big votes somewhere, it's like, oh, Philip,

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Speaker 1: your relationship. Scottish referendum. I just love the tension of

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Speaker 1: them because there's all this build up and then bam,

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Speaker 1: it's over in a second. So it's very exciting. Um

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Speaker 1: today we're going to talk kind of about this bregsit referendum,

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Speaker 1: but we're going to talk about it at a unique angle,

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Speaker 1: which is the gambling side of it. So people are

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Speaker 1: betting on whether or not Brexit will take place, right

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Speaker 1: So unlike you know in the US, we have this

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Speaker 1: sort of weird relationship with gambling where a lot of

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Speaker 1: people like to bet on things, but it's also heavily restricted.

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Speaker 1: There only select locations or select states and select things

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Speaker 1: you're allowed to bet on. In the UK, they just

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Speaker 1: love to bet on everything and it's wide out in

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Speaker 1: the open. So obviously the soccer teams. They're openly advertised

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Speaker 1: that you can bet on them. It's just much more

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Speaker 1: part of the culture, including betting on political outcomes. Right,

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Speaker 1: So I remember this from personal experience. You could go

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Speaker 1: to the bookies. You could bet on all sorts of

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Speaker 1: sports games. Obviously I did it for the World Cup

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Speaker 1: in two thousand and six. I remember you could bet

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Speaker 1: on more esoteric things like like you could bet on

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Speaker 1: who the next Pope is going to be, right they

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Speaker 1: said odds for stuff like that, or whether or not

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Speaker 1: Harry Potter is going to die at the end of

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Speaker 1: the Harry Potter series. All sorts of things. And so

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Speaker 1: of course you can bet on political outcome ms in

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Speaker 1: the UK they've been doing it for a long time.

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Speaker 1: And today we're going to talk about the expert in

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Speaker 1: political betting. His name is Mike Smithson, a former politician.

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Speaker 1: He now runs the website political betting dot com and

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Speaker 1: he wrote a book specifically about how to make money

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Speaker 1: betting on politics. Interesting, so has he used his political

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Speaker 1: experience to become an experience on betting on politics? I

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Speaker 1: guess we're going to find out, and I hope we

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Speaker 1: get some tips on how we can make money getting

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Speaker 1: on politics in the future. What are the tricks to

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Speaker 1: use to beat the system? All right, Mike Smithson, you're

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Speaker 1: the editor of Political betting dot Com. Thank you very

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Speaker 1: much for joining us. They liked it to be on

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Speaker 1: the program. Thanks Mike. Uh So, Mike, tell us about

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Speaker 1: the gambling market in the UK and the upcoming Brexit referendum.

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Speaker 1: How much money are people betting on this? On this event?

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Speaker 1: This has been the biggest political betting event of all

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Speaker 1: time that I've I've certainly been doing this for about

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Speaker 1: fifteen years and we're getting on the betting exchanges, which

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Speaker 1: operates where where buyers and sellers come together. We've been

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Speaker 1: getting up to a million pounds a day being traded.

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Speaker 1: And that's extraordinary for this to be happening eight weeks

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Speaker 1: out because the election, of course takes place eight weeks

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Speaker 1: eight weeks today. And simply it's not it's it's taken

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Speaker 1: everybody by surprise this year's scale. Generally speaking with with elections,

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Speaker 1: you nobody really pays any attention on the betting markets

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Speaker 1: still in about four or five days beforehand, so this

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Speaker 1: is absolutely massive. Is it popular in terms of betting?

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Speaker 1: Because it's basically a binary outcome, it's either yes or no.

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Speaker 1: Does that make it easier to bet on or place odds?

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Speaker 1: And someone, oh, yes, it's It makes it much much

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Speaker 1: simpler because you know, there there is. It gets compared

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Speaker 1: with a general election in the UK, which are quite complicated,

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Speaker 1: where it's much harder to work out the tours might

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Speaker 1: be they won the last election on thirty six point

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Speaker 1: nine percent of the vote, so that was not so obvious.

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Speaker 1: Wherever something like this, it is blindingly obvious from the

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Speaker 1: polling which way it's going, and it's and people adjust

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Speaker 1: their bets accordingly, and there's a massive amount of polling

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Speaker 1: analysis goes on and people every new poll that comes out,

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Speaker 1: people try to look and seek to undermine it or

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Speaker 1: seek to does it reinforce their positions and so on,

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Speaker 1: and it's it's it is. It is a fascinating period.

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Speaker 1: All right. Let's back up a minute, because to an

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Speaker 1: American audience, the idea that politics is a big thing

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Speaker 1: where people openly bed and openly tracked the gambling odds

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Speaker 1: is a weird thing. What's the history of political betting

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Speaker 1: in the UK? How did political events come to be

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Speaker 1: this thing that professional bookmakers and gamblers took interest in

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Speaker 1: a fact it goes back for century a couple of

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Speaker 1: century is that a better used to be illegal except

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Speaker 1: on race courses, but you would have a certain bookmakers

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Speaker 1: were able to operate this again that in the nineteenth

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Speaker 1: century were able to operate credit accounts, and what would

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Speaker 1: happen is that within the sort of London clubs people

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Speaker 1: would be placing pets and that would be that would

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Speaker 1: be sort of legal. But the big thing that where

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Speaker 1: it took off was in ninety one when betting betting

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Speaker 1: over the counter in shops, betting for virtually everybody was

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Speaker 1: made legal and since then it is exploded. And of

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Speaker 1: course what people love doing is matching their own predictions

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Speaker 1: of an outcome by putting their money on and risking

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Speaker 1: risking their cash on it. Joe was telling me earlier

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Speaker 1: in the segment that you actually used to be in politics.

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Speaker 1: You were with the Liberal Democrats. Can you maybe make

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Speaker 1: the connection between being in politics and then going on

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Speaker 1: to actually become an expert on political betting? Oh? Yes,

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Speaker 1: I think you understand the dynamics of elections a lot more.

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Speaker 1: You understand the sorts of people who votes. So for instance,

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Speaker 1: at the moment that The critical thing is turn out.

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Speaker 1: We don't know clearly how many people are going to

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Speaker 1: turn out, but we do know that from my experience

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Speaker 1: on the ground and I just stop being in politics

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Speaker 1: twenty years ago, is that people who voted in previous

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Speaker 1: elections are the ones that most likely to vote in

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Speaker 1: future elections. And if you've got a history of never voting,

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Speaker 1: then the chances are you're not you're going to be

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Speaker 1: less likely to vote in the coming election. So all

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Speaker 1: the polling analysis is really based on that's that's that

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Speaker 1: sort of that sort of thing. Generally speaking, UK pollsters asked,

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Speaker 1: you know, could you rate on a scale of one

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Speaker 1: to tend whether whether or not you're likely to vote

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Speaker 1: or not? And there are And what we're finding is

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Speaker 1: that a lot more people who are saying they're voted

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Speaker 1: they want to vote leave I'll say, are saying that.

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Speaker 1: But if you then analyze the back ground where they

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Speaker 1: come from, are you their socio economic groups, you discover

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Speaker 1: that they are the most least likely to vote it

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Speaker 1: to vote in elections. So you've got to sort of

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Speaker 1: balance that down. And that's that's where a debate with

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Speaker 1: people like me, where it comes down to what's the

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Speaker 1: turn it going to be so from your expert analysis

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Speaker 1: and having watched these things so far, where do you

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Speaker 1: stand based on the polling and what you read into

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Speaker 1: the polling? See Mike. This is the point at which

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Speaker 1: Joe asked you for betting toes um Well and and

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Speaker 1: and yeah and how do so? What do you see

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Speaker 1: as the likely outcome of the Brexit referendum? And be

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Speaker 1: do does your assessment match up with the current adds? Well?

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Speaker 1: First of all, as my own gambling is, I tend

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Speaker 1: to bet on betting, So if I think that there

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Speaker 1: will be a move towards leaving the betting, then I

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Speaker 1: will get on there so I'll be able to get

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Speaker 1: out of that position later. So it's not it's not

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Speaker 1: just a complete simple thing betting on an overall outcome.

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Speaker 1: But my reading at the moment is that probably we're

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Speaker 1: going to vote to stay in the in the European Union,

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Speaker 1: but I wouldn't be totally totally certain of that, and

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Speaker 1: currently the markets make it about a probability, which I

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Speaker 1: think is about right. So you mentioned something very important

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Speaker 1: that's different from how most people in the US think

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Speaker 1: of betting, which is that when you place a bet

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Speaker 1: on leave or stay. These you have a tradeable asset,

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Speaker 1: so it's not just that you have to hold on

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Speaker 1: to it and wait till the outcome. But if the

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Speaker 1: odds move nicely in the favor of your bed before

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Speaker 1: then you can lay it off and take a profit

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Speaker 1: before the ultimate results. So it's really much more like

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Speaker 1: a trading than just a pure buy a ticket and

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Speaker 1: then wait until the outcome. That's precisely and as a

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Speaker 1: result of modern betting systems and certainly online systems, those

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Speaker 1: complexitis can be handled and handled very well. And that's

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Speaker 1: that's one reason that one of the things really given

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Speaker 1: a boost to a political betting, that the ability to

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Speaker 1: to be able to take a view one day, make

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Speaker 1: a profit three or four days later, and then perhaps

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Speaker 1: bet the other side of the week after. Now you

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Speaker 1: mentioned the extraordinary um, the extraordinary monetary volume of Brexit

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Speaker 1: vetting betting on this referendum, and of course there are

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Speaker 1: a large economic ramifications, financial ramifications, ramifications for sterling the

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Speaker 1: currency specifically, is there much hedging going on, so people

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Speaker 1: are trying to hedge a certain position in the currency

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Speaker 1: market with a binary bet and somehow exploit an opportunity

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Speaker 1: a discrepancy between the two. I think that there is

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Speaker 1: that going on at the moment, and I think increasingly

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Speaker 1: that that that will take place. I mean, to my mind,

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Speaker 1: one of the best indicators it actually the value of

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Speaker 1: the pound against the dollar and the value of the

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Speaker 1: pound against the your bow. And if there is a

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Speaker 1: confidence that they that that we will vote for remain,

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Speaker 1: then seems to increase the increase the value. And I certainly,

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Speaker 1: in terms of my own tracking, I watch I watch

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Speaker 1: those Curvency screens as well as I watch other screens.

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Speaker 1: So I have a sort of existential question, which is,

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Speaker 1: you know, it's all very fun and interesting to watch

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Speaker 1: the Brexit betting, and we're seeing lots of money exchanging

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Speaker 1: hands based on this referendum, But is there any social

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Speaker 1: value to political betting because people often people often characterize

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Speaker 1: the stock market as sometimes a bit of a casino.

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Speaker 1: People are essentially gambling on the likelihood of companies succeeding

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Speaker 1: or not. But at least you can say that the

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Speaker 1: stock market is diverting money into actual capital, whereas this

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Speaker 1: is pure, pure bedding. Yes, um, I don't think there's

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Speaker 1: any social value at all. I think it's just providing

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Speaker 1: a means whereby people can bet back up their own

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Speaker 1: opinion by risking their own cash and wear their amounts. Yeah,

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Speaker 1: I can't see any social facular at all. Thank you, Mike.

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Speaker 1: We'll be right back with you. But first a quick

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Speaker 1: word from a sponsor, but knowledge to work and grow

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Speaker 1: We're back with Mike Smithson, uh, the editor of Political

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Speaker 1: Betting dot com. So we've talked about this upcoming referendum

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Speaker 1: and what the odds are saying. Do you have any

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Speaker 1: great examples of the markets having gotten it totally wrong

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Speaker 1: in the past, or uh, something in history that really

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Speaker 1: struck you as a particular the important or pivotal moment

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Speaker 1: for political betting in the UK. Yes, Certainly to the

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Speaker 1: last UK general election in two thousand and fifteen, none

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Speaker 1: of the all the markets pointed to. Perhaps the tour

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Speaker 1: is the Conservatives certainly winning most seats in the House

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Speaker 1: of Commons, but it was very much a long shot

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Speaker 1: that they that that Cameron could win an overall majority,

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Speaker 1: which of course he did. And in fact, even even

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Speaker 1: when the results were coming in, when the exit polls

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Speaker 1: were coming in, you could still get an overall majority.

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Speaker 1: Was just rated as a ten percent chance, and it

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Speaker 1: took a lot more results to coming before it turned

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Speaker 1: and people realize that, in fact the Conservatives were going

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Speaker 1: to win a majority. That was just that was just

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Speaker 1: a year ago. So this this, this, this does happen.

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Speaker 1: We also know that that people with an interest of

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Speaker 1: trying to influence betting prices in order to create a

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Speaker 1: sense of momentum. We saw that with the two uson

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Speaker 1: and twelve the White House race. When the old Irish

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Speaker 1: Exchange in Trade, which I don't think it exists any longer,

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Speaker 1: where where where the the the amount of money that

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Speaker 1: was going on Romney was simply out of keeping what

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Speaker 1: the polls were saying, and was also out of keeping.

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Speaker 1: We watched what the London based exchange were showing and

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Speaker 1: there was a quite a large arbitration opportunity. If you

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Speaker 1: wanted to get involved in that. It was just going

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Speaker 1: to ask how big is that cross exchange arbitrage of

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Speaker 1: different contracts and different trading platforms. That's certainly, it's certainly possible,

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Speaker 1: it's certainly there, but you've got to act extremely quickly

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Speaker 1: in order because deefinitely speaking, a good position like that

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Speaker 1: won't last very long. Though we we we did get

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Speaker 1: some quite extraordinary betting moves on this on the referendum

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Speaker 1: about last week or the week before last, when the

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Speaker 1: contrary to where the poles were going, the the leavers

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Speaker 1: the leaf the leavers were seeing a huge amount of

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Speaker 1: money going on them, and then then that sort of ceased,

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Speaker 1: and of course in order to if the if you're

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Speaker 1: putting forward a bet that's offering value to the other

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Speaker 1: the other side that's greater than that perhaps it should be,

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Speaker 1: then people obviously just sweep it up. It's just a

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Speaker 1: normal market operating well. So, speaking of discrepancies across betting platforms,

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Speaker 1: how do the bookies actually make their odds for things

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Speaker 1: that are often not that clear cut? We're talking about

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Speaker 1: a wide variety of outcomes, right, Well, there are two

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Speaker 1: sorts of bookmakers in certainly in the UK there were

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Speaker 1: those which have an exchange which actually seek to bring back,

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Speaker 1: bring forward to people who want to make a bet together.

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Speaker 1: It's all super fast and operated online. Uh and that

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Speaker 1: that that's that's one thing where the other sorts of

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Speaker 1: where you've got traditional bookmakers who work out and try

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Speaker 1: to thick work out what the odds are. They will

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Speaker 1: put odds up, but they will see if if if

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Speaker 1: they've if they've got it's wrong, they'll find a lot

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Speaker 1: of people coming onto them if or they'll find that

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Speaker 1: nobody's interested in the prices they're offering. So it's in

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Speaker 1: fact it's working in the same way so that the

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Speaker 1: odds will eventually work out in terms of what what

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Speaker 1: what the market is wanting. So one of the things

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Speaker 1: that always comes up when we discuss these kinds of markets,

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Speaker 1: they're always people who say all they do is track

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Speaker 1: conventional wisdom. They don't have any sort of particular They

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Speaker 1: don't offer us any particular insight. Others say, are the

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Speaker 1: markets are the clearest signal we have? Where do you

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Speaker 1: come down on this? Do markets do they usually get

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Speaker 1: it right? Are they what is their track record as

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Speaker 1: being a tool to forecast what's actually going to happen?

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Speaker 1: I think the best example of that were in two

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Speaker 1: thousand and fourteen September we had the refermendum in Scotland

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Speaker 1: on Scotland going for independence, and about ten days before that,

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Speaker 1: suddenly we have polls which were showing that the vote

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Speaker 1: would be for independence. Remember that, And what was interesting

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Speaker 1: is that the betting markets hardly turned on that, but

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Speaker 1: hardly any movement, and and and I think that that

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Speaker 1: represented that there was a different view being taken by

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Speaker 1: gamblers compared with what the polls were showing people. So

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Speaker 1: the pundits were losing their heads, but the gamblers stayed

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Speaker 1: cool and got it right, I think, so, yes, I know,

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Speaker 1: I remember on that one I was I tried to

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Speaker 1: I saw that pole. I thought, well, everybody's going to

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Speaker 1: be wanting to bet on Scottish such as getting independence.

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Speaker 1: And unfortunately the market didn't move and never had a

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Speaker 1: chance to take advantage of Alright, so we just have

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Speaker 1: a few minutes left. So let's say someone wants to

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Speaker 1: get into political betting. Obviously it would take a long

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Speaker 1: time for anyone to match your years of experience and

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Speaker 1: watching markets. But give us a few tips as a

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Speaker 1: as a pro in this area. What are some things

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Speaker 1: that people can do to improve their chances of success

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Speaker 1: in these markets. The most important thing is to disregard

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Speaker 1: your own what your own desires are, and it's very

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Speaker 1: easy to think I want to I want Barack Obama

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Speaker 1: to win, I want Donald Trump to win. You've got

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Speaker 1: to disregard that completely, and that is that is quite challenging,

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Speaker 1: because that the chances are. You will then interpret all

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Speaker 1: the evidence in line with what your what what your

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Speaker 1: desires are. That's the most important thing, and a lot

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Speaker 1: of people find that very difficult to do. Uh. Secondly,

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Speaker 1: you've really got to be watching for value. It's when

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Speaker 1: something comes up and you think, wow, that's a that's

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Speaker 1: a good price. You think something's ten percent chance, and

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Speaker 1: you find that the bets of the pricing on it

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Speaker 1: is only making it a five chance, then you've got

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Speaker 1: a value bet. And that's that that happened. That happens

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Speaker 1: all the time. Um So it's it's it's looking at it,

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Speaker 1: making your own objective assessment of what you think that

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Speaker 1: the chances of this event happening, and then looking at

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Speaker 1: the betting price. And if if your assessment it's better

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Speaker 1: them the price that you can get from the bookies,

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Speaker 1: then you you obviously bet. If it's not, then you

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Speaker 1: don't any anything else. We're just about out of time.

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Speaker 1: One last tip for people, UM, be careful. That's probably

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Speaker 1: the best advice, isn't it? All right? Mike Smithson and

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Speaker 1: thank you so much. This is a fascinating topic and

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Speaker 1: a fascinating lens through which we can watch the Breggsit

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Speaker 1: vote over the coming weeks. Really appreciate you sharing your

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Speaker 1: experience on this topic with us. So, Tracy, are you

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Speaker 1: going to place a wager on the upcoming breggs A referendum? Uh?

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Speaker 1: You know, I don't feel a lot of well, I

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Speaker 1: don't feel much of an urge to put my money

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Speaker 1: where my mind is. I did think it was interesting

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Speaker 1: that Mike brought up this idea that one of the

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Speaker 1: things people have to watch out for the most is

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Speaker 1: to avoid sort of confirmation bias and the idea that

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Speaker 1: they want to put money on the people that they

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Speaker 1: want to see in power. Yeah. I also am fascinated

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Speaker 1: by how big this particular market has gotten. And I mean,

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Speaker 1: there's no way to know for sure, but it does

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Speaker 1: seem to make sense that for people who have a

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Speaker 1: significant financial stake in the outcome of this referendum, that

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Speaker 1: the size and liquidity of this market not for huge players,

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Speaker 1: but for smaller players, you might want to place a

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Speaker 1: wager to sort of head your exposure to a brexit. Right.

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Speaker 1: I do like the idea that there's a secondary market,

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Speaker 1: there's all this arbitrage going on. It's really financialized. Actually, yeah, no,

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Speaker 1: that's really cool, and that's one of the things that

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Speaker 1: just generally seems cooler about betting in the UK versus Vegas.

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Speaker 1: In the in Vegas, obviously you place a bed at

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Speaker 1: a sports book and then you walk away and you

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Speaker 1: see the outcome. But it seems so much more fun

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Speaker 1: if you could then have this very liquid market to

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Speaker 1: trade that ticket, to arbitrage across multiple trading player forums,

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Speaker 1: to invest, to make a bet with the expectation that

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Speaker 1: you're not going to win, but that at some point

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Speaker 1: the odds will move in your favor and then you

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Speaker 1: can sell it to all kinds of It just seems

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Speaker 1: very fun to me, right, And I know I asked

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Speaker 1: if there was a social value to this kind of speculation,

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Speaker 1: and Mike was pretty upfront saying no, not really, it's

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Speaker 1: basically pure gambling. But I do like the idea that

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Speaker 1: he brought up about how this can have a predictive

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Speaker 1: value and sometimes it does indicate things better than some

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Speaker 1: other more traditional indicators. And of course I think if

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Speaker 1: you looked at a lot of Wall Street products and

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Speaker 1: ask the social value question, you would have just as

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Speaker 1: hard of a time coming up with very true, telling answer.

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Speaker 1: All right, well that is this edition of odd LODs.

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Speaker 1: Thank you very much for listening. I'm Joe Wisn't though

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Speaker 1: you can find me on Twitter at the Stalwart, and

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Speaker 1: I'm Tracy Alloway. I'm on Twitter at Tracy Alloway. Thanks

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Speaker 1: for listening. Put knowledge to work and grow your business

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Speaker 1: c i T dot com. Put Knowledge to Work.