Welcome to the jungle (primary): California's elections are heating up

Good afternoon, traders.

The markets are hot right now. With the SpaceX IPO looming right before us, multiple major sports events underway, and an ugly car from Ferrari, there’s just so much we could talk about.

But instead, this week's topic is about everyone's favorite dinner-time conversation: Politics.

In particular, the big news everyone is paying attention to is the LA Mayoral and California Governor Primaries.

Of course, most of us may not live in California, so the election won’t really affect us. But then again, you don't have to own a cat to watch cat videos for three hours. With that said, let's get right into it.

^{For informational purposes only. Not financial advice. See full disclaimer below.}

Now we may not be speaking for everybody, but we’re sure many of our readers may agree that oftentimes politics can be incredibly boring. Luckily for everyone, the LA Mayoral election is turning out to be anything but that.

The current incumbent, Karen Bass (D) is up against potentially her worst nightmare: somebody who’s blaming her for his house burning down. This somebody is former reality TV star Spencer Pratt (Independent). Joining the party is Nithya Raman (D), who is further to the left on the political spectrum than Karen.

Based on our prediction markets, Bass is looking to win the first round of the election. However, for those unaware, LA uses a “jungle primary” system. This means that rather than having a Democratic and Republican Primary, all candidates appear on the ballot. If one candidate receives over 50% of the vote in the first round, they are immediately elected. But if no candidate receives 50%+ of the vote, the top two will move on to a second election.

As it stands, our markets are predicting that Bass and Pratt are likely to advance into a run-off. If that is the case, we will see an interesting matchup. On one side is Bass, a center-left Democrat who has been the current mayor since 2022.  On the other hand is Pratt, a former reality TV star who lost his house in the Palisades Fires. He is rallying support from voters who are sick of the current establishment, have lost faith in traditional politicians, and like his matter-of-fact and blunt statements about issues in LA.

The fact of the matter is this election is really boiling down to three major talking points:

Being the incumbent, it would stand to reason that Bass is at an advantage. But controversies surrounding the response to the Palisades fires, and people's continued frustration with ongoing homelessness and public safety concerns, are making this race much more volatile.

Where things may get interesting is with Nithya Raman. It's clear the public in LA is looking for change, and Raman represents progressive ideas which could shake up the race. Although Raman appears to be the least likely to advance, a second round with her versus Bass would be an interesting shakeup.

If this were the case, it would be a fight around whether voters believe in the steady progress Bass claims to have made during her stint as mayor, or if they want to see progressive new ideas from a more left-leaning leader. 

Time will tell what happens here, but all we recommend is to get out into the action and trade.

Like the Mayoral election, this year's California governor election is shaping up to be interesting. Current sitting Governor Gavin Newsom is term-limited, meaning there will be no incumbent for this election. And similarly to mayoral election in Los Angeles, the governor primary uses a jungle system. As a reminder, this means that during the primary voting, all candidates will be featured on the same ballot regardless of their party.

The major candidates to pay attention to are Xavier Becerra (D), Tom Steyer (D), and Steve Hilton (R). With that said, though, the jungle primary could make things spicy. It’s possible for any combination of these candidates, or even the other lesser-favored ones, to show up on the final ballot.

This became a big concern for the Democratic Party. There isn’t an obvious heir to Newsom because no major Democrats like Kamala Harris or Alex Padilla chose to run. Because of this, polls were initially rather weak for the democratic candidates, which in turn means the votes between them could easily split. This leads to an opening for Republicans.

If Democratic voters can’t decide easily between their options, there's an opportunity for disruption. We could see a Republican pose a real threat in a heavily blue state. 

What really could lead to a major disruption in this election is what’s on every single voter's mind: the absolutely insane cost of housing in California. Now, the cost of housing has been a major talking point in California elections in the recent past, but there’s a huge switch-up in how they want to approach the problem.

Previously, Democrats focused on progressive movements like socialized housing programs, rent control, and tenant protections as a solution to price hikes. But during this election, we’ve begun to see a major change, with Democrats beginning to support pro-development movements such as YIMBY (yes in my backyard).

What that means is that both Democrats and Republicans are essentially supporting the same position. That being that California needs to make it easier to build more homes. In previous elections, this was a much more Republican position on housing. We’re now seeing both parties supporting deregulating zoning, stopping permitting bottlenecks, and implementing pro-development policies.

The one thing that's definitely true is that this change is going to make this an election worth paying attention to. Democrats are going to be arguing for the need for housing reform, and Republicans are going to be screaming that Democrats caused all these problems in the first place by implementing policies that made it harder to build.

You’re going to have to wait and see how this pans out. But for all of us who don’t actually live in California, we’ll be placing our trades and posting up with a beer to watch the action unfold.

Follow Jack Kuveke at Jabroni Capital
Follow Kalshi on X: @Kalshi

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