Elections Desk Research Note: Macro-Political Turbulence and Asymmetric Opportunities

Key Takeaways

• The 50% probability of 'Trump Out' in 2025 represents peak political panic and offers a favorable short opportunity given high constitutional removal barriers.
• The Kevin Hassett Fed Chair market (38%) is critically linked to the Trump outcome; its conditional probability implies a >60% chance if Trump stays, pricing a significant monetary policy shift.
• Macro markets at ~1% for recession show extreme complacency and provide cheap tail-risk hedging against both economic slowdown and political crisis fallout.
• The optimal trading strategy involves selling expensive political volatility while buying undervalued policy and macroeconomic volatility through structured pairs and hedge positions.

Executive Summary: A Market Bifurcated Between Politics and Policy

The current prediction market landscape, as captured in high-volume Kalshi markets, presents a stark dichotomy. On one side, political markets—specifically those concerning the stability of the Trump administration—are pricing in significant turbulence, with a 50% probability of President Trump leaving office before year-end. On the other, macroeconomic and financial asset markets reflect a remarkably sanguine outlook, with sub-10% probabilities for recession, aggressive Fed easing, or parabolic crypto moves. This disconnect creates the core trading thesis: markets may be significantly overestimating near-term political volatility while underestimating the economic and policy consequences of a stable, second-term Trump administration. The appointment market for Fed Chair Kevin Hassett (38% probability) stands as a critical nexus between these two narratives.

Deep Dive: The 'Trump Out' Market – Anatomy of a 50% Probability

The market 'Donald Trump out this year?' trading at 50.0% with a massive $9.8M in volume is the dominant signal in the current landscape. This implies a coin-flip chance of a presidential departure via resignation, removal, or death before January 1, 2026.

• Historical Context & Implied Volatility: This level is unprecedented for a sitting president in the modern prediction market era. For comparison, similar markets for Presidents Biden or Obama never sustained probabilities above low single digits barring acute health crises. The 50% price indicates markets perceive an extraordinary spectrum of risk pathways.
• Deconstructing the Catalyst Map: The probability likely aggregates several non-mutually exclusive risks:
  1. 25th Amendment/Health: Given Trump's age (78) and the intense stress of office, this is a constant baseline risk.
  2. Resignation: Seen as unlikely given personal disposition, but not impossible under extreme pressure.
  3. Impeachment & Removal: A Democratic-controlled House could initiate proceedings, but a conviction in a likely Republican-held Senate remains a very high bar. The market may be pricing in a small but non-zero chance of a black-swan political crisis that fractures the GOP senate caucus.
• Trading Insight & Asymmetry: The 50% price appears rich. While political warfare will be intense, the constitutional mechanisms for removal are intentionally steep. A short position (NO shares) offers a favorable risk/reward profile. The most plausible path to a 'Yes' resolution is a health event, which is inherently unpredictable but statistically still below a 50% annualized risk for a 78-year-old male. Any stabilization in the political narrative or failed impeachment moves should see this probability decay rapidly toward 20-30%, representing significant downside for 'Yes' shares.

The Policy Corollary: Fed Chair Hassett and the Shadow of MAGA Monetary Policy

The market 'Will Trump next nominate Kevin Hassett as Fed Chair?' at 38.0% ($5.0M volume) is the most significant policy market and is intrinsically linked to the 'Trump Out' narrative. Kevin Hassett, former Trump CEA chair and a respected but traditionally mainstream Republican economist, has been a speculated candidate.

• Analysis of the Probability: A 38% probability suggests Hassett is considered a front-runner, but not a certainty. Jerome Powell's term expires in May 2026. The market 'Powell leaves before 2026?' is priced at just 1.0%, indicating high confidence Powell serves his full term. Therefore, the Hassett market is pricing in a future nomination by Trump, presumably in 2026.
• The Political-Policy Link: If the 'Trump Out' market resolves to 'Yes', the Hassett nomination becomes moot. Consequently, the true implied probability of a Hassett nomination, conditional on Trump remaining in office, is significantly higher than 38%. A rough calculation (ignoring other potential nominators) suggests it could be north of 60% (38% / (100% - 50%)). This reveals the market is pricing a Hassett nomination as a likely outcome of a continued Trump presidency.
• Market Implications: A Hassett-led Fed would be perceived as more accommodative and potentially more susceptible to political pressure than a Powell-led one. This is a structural bullish catalyst for equities and a bearish catalyst for long-term Treasury bonds (higher inflation risk premium). The mispricing link between the two Trump markets creates a pairs trade opportunity: go long Hassett nomination / short Trump out.

Macroeconomic Calm: A Contrarian Signal Amidst Political Storm?

In stark contrast to the political frenzy, macroeconomic markets are priced for a 'soft landing' perfection.

• Recession in 2025 (1.0%): At just 1%, this market is assigning a nearly negligible chance of a standard two-quarter recession. This is historically low for any forward year, ignoring the current political uncertainty and the lagged effects of prior tightening. This represents a major complacency signal.
• Fed Cuts (2 cuts = 6.0%): The market for exactly two 25bp cuts (50bps total) in 2025 is at only 6%. This, combined with the recession probability, suggests markets expect the Fed to be on hold, gently easing, with no dramatic stimulus need. This is inconsistent with either a major political crisis ('Trump Out') or a Trump administration likely pushing for lower rates.
• Trading Insight: The macroeconomic suite offers asymmetric short opportunities (buying 'Yes' on recession, buying 'Yes' on more cuts). The triggering catalyst could be either an economic slowdown OR a political crisis that shocks confidence. The low cost of these contracts (high implied odds against) provides a valuable hedge against the turbulent political narrative and a pure contrarian macro bet.

Crypto and Sports: Side Shows Reflecting Risk Sentiment

• Cryptocurrency Majors: Both Bitcoin ($130K+ at 1.0%, $150K+ at 1.0%) and Ethereum ($5K+ at 2.0%) markets assign minuscule chances to parabolic 2025 rallies. This aligns with the calm macro outlook but may underestimate endogenous crypto cycles. These are lottery-ticket contracts with high negative carry (steady probability decay).
• 2026 NFL Championship: The Philadelphia Eagles (10%) and Los Angeles Rams (14%) represent early high-tier favorites. These volumes ($5.6M, $4.2M) highlight the significant liquidity in non-political markets. For context, a 14% probability in a 32-team league (implied 3.125% neutral) represents being a 4-to-1 favorite. These are efficient, sentiment-driven sports betting markets with less clear structural edges.

Integrated Trading Thesis & Catalyst Calendar

Primary Thesis: The Great Disconnect. Markets are simultaneously pricing high political volatility and low economic/policy volatility. These states are contradictory. One narrative will converge toward the other.

Recommended Actionable Views:

1. Core Positioning: Short Political Volatility, Long Policy Volatility.
   • Trade: Sell 'Trump Out YES' (current 50%). Hedge with small long position in 'Recession YES' (1%) as a tail-risk catch-all.
   • Rationale: The constitutional threshold for removal is higher than current sentiment suggests. Political noise will remain high, but the binary outcome is likely 'NO'.
2. Pairs Trade: The Trump-Hassett Linkage.
   • Trade: Long 'Hassett Fed Chair YES' (38%), dynamically hedged against 'Trump Out YES'.
   • Rationale: The conditional probability is compelling. A stable Trump administration makes a Powell reappointment (seen as insufficiently dovish by Trump) unlikely, elevating Hassett's chances.
3. Contrarian Macro Hedge: The Complacency Trade.
   • Trade: Allocate small capital to long-dated, out-of-the-money macro contracts: 'Recession 2025 YES' (1%) and 'Fed Cuts >2 YES'.
   • Rationale: Extremely cheap insurance against any economic stumble or a crisis-induced Fed reaction.

Key Catalysts (Q2-Q4 2025):

• Political: House impeachment inquiries (if initiated), Senate trial votes, Supreme Court rulings on immunity/obstruction cases, election-related litigation.
• Policy: Fed commentary reacting to political instability, White House statements on Powell/Hassett, Congressional hearings on Fed independence.
• Economic: Any sharp deterioration in consumer confidence or business investment linked to political uncertainty, Q2/Q3 2025 GDP prints.

Risk Factors

• Black Swan Health Event: The unpredicted health catalyst is the primary risk to short 'Trump Out' positions.
• Unprecedented Political Escalation: While considered low probability, a crime-fraud type revelation that instantly converts GOP Senate votes cannot be fully discounted.
• Market Inefficiency: These markets are driven by sentiment and liquidity; probabilities can diverge from fundamentals for extended periods.
• Conditional Dependency: The Hassett trade is entirely conditional on Trump's survival and re-nomination intent, creating binary correlation risk.

Conclusion

The prediction markets are screaming a story of two realities. The actionable intelligence lies in the disconnect. The extreme 50% probability of a presidential exit feels more like a reflection of acute anxiety than a冷静 assessment of constitutional stability. Meanwhile, macroeconomic optimism appears overextended. The strategic opportunity is to position for a re-convergence: political stability proving more resilient than expected, while the economic and policy consequences of that same stability—embodied in a potential shift to a more dovish, politically-aligned Fed Chair—are currently underpriced. The Hassett market at 38% is the keystone, offering a direct conduit to bet on the policy implications of a sustained Trump presidency.

Market Analysis

Donald Trump out this year? 📉

Current Probability: 50.0%

Overpriced relative to historical and constitutional precedent. Primary risk is health, not politics. Expect mean reversion toward 20-30% range barring a major, immediate crisis.

Trump nominates Kevin Hassett as Fed Chair 📈

Current Probability: 38.0%

Undervalued on a conditional basis. The key policy derivative of a stable Trump administration. Represents a pivot toward a more politicized, dovish Fed.

Recession in 2025 📈

Current Probability: 1.0%

Extreme complacency. Serves as a cheap hedge and contrarian macro bet. Catalyst could be economic or political.