Grey Notes: Trump is ‘Junk’

According to the bookies, the odds of Trump being impeached or stepping down before the end of his first term are about 50%.

This means you can double your money in four years by taking the opposite side of this bet. This represents an annual compounded return (or yield to maturity) of 19%. Like a bond, Trump being impeached or stepping down is the same as a default. (Specifically, because a betting contract doesn’t pay coupons, it is a zero-coupon bond that trades at 50% below par.) A 5-year junk bond rated ‘C’ or worse typically pays 5% a year. Thus, this bet is like buying a junk bond that expires in 4 years, but the returns are so much higher, making this a something like ‘triple-F’ rated junk bond in the eyes of bookies. Usually, bonds issued by companies that are close to bankruptcy have such high yields. This represents extreme pessimism about the future of the Trump administration.

As mentioned last week, these odds are absurdly high. Trump is not going anywhere, sorry.

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