Why Almost Everyone Loses on Prediction Markets

SPEAKER_1 (0:00)

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Daniel Bach (0:33)

President Trump announces a new plan for opening the Strait of Hormuz, but traders seem unconvinced. Plus, GameStop makes a massive play for e-commerce giant Ebay.

And the journal reveals why most prediction market bets end in a loss.

Neil Mehta (0:48)

Calchian Polymarket have pitched themselves as this everyman's platform, where anyone can monetize their beliefs and win. But what they don't mention is that you'll probably lose.

Daniel Bach (0:59)

It's Monday, May 4th. I'm Daniel Bach for The Wall Street Journal, filling in for Luke Vargas. And here is the AM Edition of What's News, the top headlines and business stories moving your world today.

President Trump has said the US would begin guiding commercial ships out of the Strait of Hormuz today in an effort to unblock the waterway. But critics point to how the plan doesn't involve naval escorts. Instead, Project Freedom allows for countries, insurance companies, and shippers to coordinate in a bid to get traffic flowing through the Strait. For now though, oil traders appear unconvinced it will resolve a supply crunch that has sent prices soaring. Features tied to Brent crude rose above $109 a barrel this morning.

And those higher oil prices have led to a surge in fuel costs for airlines, with the sector this weekend claiming its first victim of the war. Spirit Airlines has shut down after bailout talks with the Trump administration failed. Before the war in Iran, the low-cost carrier had plans to get out of bankruptcy. But with its jet fuel more than doubling since, the airline couldn't pull through. Like many affected travelers, Journal reporter Dean Seal had a flight already on the books. He's looked into what customers need to know following the airline's closure.

Dean Seal (2:16)

The airline said all flights have been canceled and that it will automatically process refunds for tickets bought with a credit or debit card. Customers can go to spiritrestructuring.com for more information. The Department of Transportation said Saturday that several airlines are offering a mix of capped and reduced fares for impacted Spirit customers.

Sean Duffy (2:32)

United, Delta, JetBlue and Southwest are capping their ticket prices for Spirit customers.

It's going to vary between the airlines. You have to go to their websites to take advantage of these special offers. It is normally going to be about $200 for a one-way ticket.

Daniel Bach (2:53)

That was US. Transportation Secretary Sean Duffy. Another sector suffering from the war in Iran is the auto industry. The war is driving up US aluminum prices by choking off critical shipments from the Persian Gulf. Combined with a 50 percent tariff and a major supplier outage, the cost of primary aluminum from smelters is nearly 90 percent higher than a year ago.

The supply crunch leaves the auto industry facing a severe shortage for a metal that has become critical for truck building.

Bob Tieta (3:22)

The automotive industry depends on aluminum because it's lightweight and the more you use, the better your fuel economy is because you're taking weight out of a vehicle.

Daniel Bach (3:34)

That's journal reporter Bob Tieta who covers the metals industry.

He says that the pain is especially acute at Ford.

Aluminum is used in the best selling vehicle in the US., the F-150 pickup.

Bob Tieta (3:45)

So Ford is the biggest user of aluminum from the plant in Oswego, New York, operated by Novellis, and it can't get enough aluminum. It's caused a slowdown in production of the F-150s. So there's dealers that are nervous about having enough trucks to sell, particularly now in the summer months. There's been some discussion about, particularly in the steel industry, would automotive companies start to use more steel because it's somewhat less expensive, and there's a lot of it in the United States. It's not something that can be done quickly.

Ford last week said that it expects its commodity cost to increase by about $2 billion this year, and most of that comes from paying more for aluminum according to the company.

Daniel Bach (4:41)

Ford recently asked the Trump administration to waive the 50% tariff on imported aluminum until its primary supplier, the Oswego plant, returns to full service. So far, administration officials have refused to budge on the request.