Trader’s Narrative

There are just a few days left until we know who the next President of the USA will be. Here are two aggregations of multiple polls:

FiveThirtyEight is a relatively new site which has gained a lot of attention because of their methodology. They assign each poll a weight based on its historical track record, the sample size, and the freshness of the poll.

They run a regression estimate based on the demographics in each state to account for outlier polls and to put the data its proper context.

Finally, 528 simulates the election 10,000 times for each update to provide a probabilistic assessment of outcomes based on a historical analysis of polling data since 1952.

The end result of all that? FiveThirtyEight is giving Obama a +96% chance of winning the election. This number fluctuates daily as new data is integrated. You can watch this and other information here.

But since this is a trading blog, lets take a look at the electronic markets where people don’t just give an opinion, they back it up with cold, hard cash. These “prediction markets” are also favoring Obama by a landslide.

Here is the intrade contract for Barack Obama, implying an 85% probability of winning:

Here is the Iowa Electronic Market for the US election, winner take all:

And here is betfair:

It seems like everyday another prominent Republican endorses Obama. People it seems, question his judgement, age and the tone of his campaign. The first and second go together because of his pick for VP, Sarah Palin, of course.

At first Palin energized the ailing McCain campaign but as people have gotten to know her more, she has become one of its biggest handicaps. From not knowing what the constitutional role of a VP is (”in charge of the US senate”), to wearing a $150,000 wardrobe and $22,000 make up artist while claiming to be a hockey mom, to not knowing what the 1st amendment means, to believing that the pledge of allegiance was written by the founding fathers, to not being able to name any media she reads, to not knowing any Supreme court cases other than Roe v. Wave, to not knowing the Bush doctrine…. need I go on?

I can’t blame anyone for being scared of this woman’s ignorance. As an average Canadian, even I know more about the United States and its constitution that her!

Who Wins? Who Loses?
Under an Obama administration the winners are clear, infrastructure companies, alternative energy companies like solar, wind, water/wave, etc. Defense spending and homeland security as well as big oil may have to butter their bread a little less.

What is amazing to me is that while the data historically has shown that Democratic governments have been a boon to the US economy, lowering unemployment, the deficit and even ushering in bull markets, the Republicans somehow have the image of being business friendly. Go figure.

While Obama’s provenance and religious leanings have been questioned, I find it rather odd because I find that that is one of his best strengths on the international front. Can you imagine the amount of goodwill that will be engendered in the Muslim world when the face that represents the people of the United States of America looks like them? What do you think that will say about the unity and diversity of the US? about its capacity for meritocracy? Maybe you Americans have never thought about it that way, but believe me, as an outsider, that is a major bonus that Barack Obama has.

Not that you should be voting for him based on that. Not at all. Vote based on the candidates’ judgements, platforms and ideas. If you are a US citizen, VOTE !!

Ronald Reagan Endorses Obama

Ronald Reagan did in fact endorse Obama. Ronald Prescott Reagan that is, the son of the former POTUS.

The only person it seems who hasn’t endorsed Obama is John McCain himself. Wouldn’t that be the ultimate move from a true “maverick”? to endorse your own opponent?

Below is the chart for the brand-new market on whether Sarah Palin’s vice-presidential nomination will be withdrawn:

You can see the complete page at intrade here.

If you think that Palin will be John McCain’s running mate, then you would sell and pocket the difference as the market settles to zero. If you think that she will be replaced, then you would buy and pocket the difference when the market goes to $1.00

So right now this market’s conviction is that there is about a 15% chance for this event. To see what I mean, check out the chart of the market for Palin’s nomination:

As the chart shows, the nomination came out of left field but those who had bought made a lot of money!

Although many call these markets “prediction” markets, they aren’t crystal balls that perfectly foretell the future. They simply reflect all available information at a specific point in time. For example, check out what they were saying during the Democratic and Republican nomination process for president.

The Iowa Electronic Market is another well-known “prediction market”. You can see the graph of the presidential race here.

Rove could teach Machiavelli a few tricks. But he isn’t infallible by any stretch of the imagination. In classic Rovian style, he brought in Sarah Palin to persuade disenfranchised Hillary Clinton supporters to vote for the McCain ticket. He knows that the GOP desperately need the woman’s vote to stand a chance in this election:

As one McCain aide put it: “We either get Hillary’s voters and we win, or we don’t. It’s not a mystery.” Said another: “This campaign is all about the middle.”

But he accomplished more than that. With Palin, he also makes it politically incorrect for either Obama or Biden to go after McCain’s VP because she is a woman. It would look unseemly to have two seasoned, eloquent politicians wipe the floor with an attractive mother of five who has no experience and no relevant qualifications.

Here is an easy way for the Democrats to checkmate Rove’s move: Have Hillary Clinton rip Sarah Palin apart.

She is more than capable. If she devotes half the tenacity she showed in the Democratic party nomination process, Palin doesn’t stand a chance.

She is the only person who can do this. Not only is she the right gender, she is eminently more qualified, experienced and educated. If I were advising Obama, I’d have him suggest the possibility of an appointment, say, Secretary of State - depending on how well Hillary demolishes Palin in the run up.

Oh, and by the way, three years ago we were told that Katrina was God’s punishment for all the sin in New Orleans. So how are we to interpret Gustav interfering with the GOP convention this year?

Unless you’ve been hiding under a rock, you know 2008 is an election year in the US. Will it be Hillary? Obama? Romney? Huckabee? When it comes to the stock market, it may not matter. Just the fact that this is an election year should put a smile on your face.

Like the 4 year cycle, an election year is a powerful cyclical pattern in the market:

So far this year, we’ve stumbled out of the gate. OK, more like tripped on our laces and landed square on our collective noses. But according to the election year seasonality, that’s in line with other years.

In fact, we could be in for more pain all the way to the summer. But as we get closer to November 4th, 2008, the market should pick up steam. Or rather, more accurately put, it has performed better in the past.

So even though we can’t count on the boost of the four year cycle this year, we have this to look forward to. It almost makes it worthwhile to sit through all those political TV ads, doesn’t it?

Just a few days after Canada Day, it is time to celebrate the United States of America. Our big brother (in a non-Orwellian meaning of the term).

I’m a Canadian (by adoption) and proud of it. I don’t usually venture off into political discourse but I simply can’t believe the depths that the current US president and administration has sunk to. Without a doubt they will be judged to be the worst ever in the history of a great nation.

But sometimes you need to hit rock bottom, to be able to wake up and reaffirm the values that you stand for and are ready to die for.

So to all the patriots out there, happy Independence Day. May your magnificent country once again remember its founding principles and live up to them.

See you all next week.