The last quarter is here.

Bob Krumm, a well known Democratic Party consultant has weighed in today with an analysis that looks like a post mortem on the election.

If you’re in the Obama campaign–or a numerologist sympathetic to it–you probably console yourself with comparisons to polling results from 2008. Today Barack Obama is running about three points behind where he was at this point in the race two years ago, while Mitt Romney is about four points ahead of John McCain. Since Barack Obama won by 7.3% in 2008, the seven-point swing this year still puts the race within reach.

However this is not 2008. That year was an anomaly in my lifetime: the first election since 1952 when there was neither an incumbent president nor a sitting vice president on the ballot. The 2008 election was a choice; this year is a referendum.

We have watched the trend lines and many of us were highly suspicious of the polls last summer.

The 2012 election returns to the historical norm where you have an incumbent and a challenger. The primary metric is the incumbent’s level of support. He is only safe when he is well above 50%. When his support dips below 50% he is in danger. If it stays below 48% he is in extreme danger. Barack Obama sits at 47% and hasn’t been higher than 48% since the first debate.

The spread is not entirely meaningless, so long as one keeps in mind that it is a “horseshoes” type of metric in referendum elections. All the challenger has to do is to keep it close. Let’s look at a post-Labor Day comparison of 2012’s RCP averages versus 2004, the last time we had a similar election. It is true that Romney trailed Obama all throughout September, but he was well ahead of where challenger John Kerry was four years before. Meanwhile, Barack Obama stayed about a half-point behind George W. Bush’s 2004 numbers. In total, Barack Obama was running about 2.5 points behind Bush’s advantage. Bush ended up winning by 2.4%. The pre-debate conventional wisdom was that Obama’s 3-4 point lead put him in a comfortable position. Based on the 2004 precedent, that confidence was entirely misplaced.

As Instapundit says, “read the whole thing.”

The conclusion: The fundamentals of this race have never been in Barack Obama’s favor. For two years he has underperformed George W. Bush. For more than two years he has trailed in enthusiasm by margins of no better than 3:2. For two years he has had trouble breaking above 50% approval–and those are in polls of registered voters or even all adults. That’s not a good place for an incumbent Democrat to be. 2012 was predestined to be a referendum election, unlike the one Obama won in 2008. If that wasn’t clear enough, especially after a disastrous 2010 mid-term result, Democrats have only themselves (and their media partners) to blame for their delusion.

The Raven is now perched beside Obama’s chamber door.

33 thoughts on “The last quarter is here.”

  1. It’s the first major Democrat admitting the election is lost and claiming “Democrats have only themselves (and their media partners) to blame for their delusion.”

    I thought that was a good data point.

  2. And yet Intrade continues to price Obama at 60%. At this point I’m beginning to wonder exactly how large a margin Obama can lose by nationally and still pick up 270 EV.

  3. Phwest,

    In 2000 GWB got 271 electoral votes, and lost the overall popular votes by only 0.5%. It is virtually impossible to win the electoral college, while losing the overall popular vote. As to INTRADE, for whatever reason, the inmates are running the asylum over there (read the comments). This year, I really don’t think its numbers mean a thing.

  4. Michael – I was unable, in few minutes searching, to find anything identifying Krumm as a Democrat or a consultant.

    His blog site doesn’t mention either, which seems like a strange omission for someone in the business.

    Do have a source you can point me to?

  5. My theory is that Intrade is being manipulated by leftists. Couple of days ago, it started sinking fast & got down to Obama 56 Romney 44. Then suddenly, with nothing much happening, it’s back up to 60?

  6. More on INTRADE: While the “BO wins reelection” contract is at around 62% (and its comments are the very definition of ideological hackdom), the “BO wins the popular vote by 0.5% or more” contract is at 50%, and the “BO wins the popular vote by 1% or more” is at 49%. The former contract has lost 12% of its value in the last 24 hours, and the latter has lost 17%. The disparity among the three contracts is rather striking, with the win/lose contract predicting a BO victory and the two popular vote contracts predicting, essentially, his defeat because in the entire history of the country (I looked it up) no incumbent president has won reelection while winning the popular vote by less than 1%. The smallest margin of victory for an incumbent president in the popular vote was GWB’s 2.4% in 2004 (and BO is not tracking well compared to GWB in 2004). Sure, the two popular vote contracts have a much smaller volume than the simple win/lose contract, but sometimes quality matters more than quantity.

  7. Since the Intrade numbers represent real money, the possibility is that there is some insider info or educated guessing at work here. I don’t discount some last minute surprise(s) and as close as it is in some of the key contested states the shift in the Electoral College could be major. For example suppose that Iran announced it was suspending enrichment in response to the sanctions and/or a series of arrests or drone strikes take out the alleged Benghazi attackers and/or the unemployment stats are remarkably better for October. Heck, I don’t even have any insider info and I’ll be surprised if at least one of those things or another invention doesn’t happen. It isn’t like any such will be carefully investigated or validated before the election.


  8. Intrade was a very reliable predictor until the last few years. Its predictions for senate and gubernatorial races on election eve were well over 95% accurate. Toward the end of the Bush administration the DOJ started pressuring credit card companies to cut off foreign gambling sites. Intrade’s accuracy plummeted. This was especially noticeable in 2010. It is quite possible that Intrade’s numbers are being manipulated. The University of Iowa’s numbers are not to be trusted either-that is an extremely thin market and their vote share totals seem outlandish. One wonders where there traders buy their weed.

    The total total open interest on Intrade for Romney and Obama is two million contracts each-that is valued at 20 million dollars. That is chump change for someone like Soros. As a former successful commodity trader I am usually skeptical of claims of manipulation but here it seems warranted.

  9. Oops. Total volume traded for Romney and Obama is two million each. Open interest is about two thirds of that. The point about possible manipulation remains valid, though it could well be that a largely foreign clientele genuinely believes in Obama.

  10. Interesting, thanks.

    There have been studies on the accuracy of bookmakers for specific elections. Have there been any studies of their accuracy over time?

    The thing about manipulation is that it wouldn’t be enough to throw a few million dollars at Intrade and the Iowa markets. You would have to keep feeding them money over a long period, and you might have to spread the money around by placing bets at other shops in the bookmaking industry. Otherwise the attempted manipulation might be too obvious. Also, you would need to create and manage a large number of customer accounts at different bookies. Maybe it wouldn’t be difficult to do all of this nowadays, particularly since it would all be done offshore and the conventional media wouldn’t be interested.

    My guess is that there isn’t large-scale manipulation. The current market-based odds levels don’t seem implausible given a closely divided voting population, the advantages of incumbency and the likelihood of voting fraud favoring Obama. Also, it’s not clear how much benefit there would be to manipulating markets when you might invest the same money for better results in conventional advertising. But maybe I’m wrong.

  11. Ladbrokes has Obama 4/11 and Romney 2/1. I do recall (this dates me) that before the first Ali-Frazier fight Ali was 1/2 overseas and Frazier was 1/2 here. Prejudice does have a real effect.

  12. I wonder if there’s smart money out there that knows something we don’t. Such as down ballot initiatives in key battleground states that will motivate certain factions of the electorate to show up to the polls in higher numbers than expected on election day. An example would be pension reform initiatives or union containment initiatives such as we had in California a few years ago that caused the left to really mobilize to a surprising degree.

    One market I know some traders are using to speculate on a Romney victory is the equity of domestic coal miners. The linked chart shows the performance of Peabody Energy and Arch Coal, both based in St. Louis and both having substantial North American operations. As you can see the coal producers (green and blue) are up 30% since the first debate while the S&P 500 (red) is down slightly.;range=20121003,20121026;compare=^gspc+aci;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

    Regardless, I am immensely proud of my primary vote for Mitt Romney. I honestly think he was a wise choice by the Republican party. I feel he’s run an astute campaign. His rhetoric has been well calibrated to woo, rather than scare, the 30% of the battleground electorate that considers itself independent. Political scientists will study his debate performances for years to come. The only thing we don’t know yet is how his ground game is. That may be the deciding factor.

  13. I don’t think INTRADE is being manipulated, but, frankly, having read the comments made on it, I’ve lost respect for it. The people who comment are not objective souls doing their best to reason out what’s going to happen so that they can make some money. As I’ve said repeatedly, they are ideological hacks. Not just the polls, but every other indicator, including the actions of the BO campaign (e.g. spending time in states BO should have wrapped up, trying to get their vote out early becasue they know they can’t get it out on election day), indicates BO is behind. The smaller popular vote outcome contracts on INTRADE are in line with this too. I’m beginning to think the hacks on the win/lose contract believe that, if they keep BO above 60%, that in itself will guarantee his reelection. It’s like they are trying to buy the future they want, suffering one hell of a case of wish fulfilment. Well, anyway, that’s my opinion.

  14. Scotus,

    Why assume Intrade forum commenters are representative? Talk is cheap. The beauty of market prices is that they represent the people who are the most serious about their opinions and are willing to back them up with real money.

  15. Well, Jonathan, if I read the comments correctly, the commenters are also traders, with what they buy or sell stated in the upper right hand corner of their comment. Yes, talk is cheap, but, if you talk and pay, then I think you ought to be taken seriously when it comes to representing who’s buying and selling. What’s more, no evidence to the contrary, why shouldn’t one take the commenters as representative of the buyers and sellers? I mean it’s really the only evidence we have of the character of who’s trading. It strikes me as a little odd that someone would come to the INTRADE site to comment but not trade. Indeed, I don’t think INTRADE allows that. Finally, about people who back their opinions with money being serious, permit me to recall the old maxim that a fool and his money are soon parted. A certain city in Nevada is founded upon this principle.

  16. Maybe they are representative, I don’t know. However, the market prices are unambiguous. I would rather look at a stock’s price behavior than listen to stock analysts talk about it.

  17. There are a number of contracts in Intrade which seem totally unrealistic. Obama got 365 electoral votes last time against McCain. Their is not a snowball’s chance in hell of that happening now,but their are contracts out on that and other fantasies. There are other election markets as unreal-trouble is these markets are thin so so one is not going to make much money on them. The point I am making is that there are some unrealistic expectations there. Markets should be respected, but they are far from infallible.

    Do not take that to mean that gov’ts are smarter than markets-almost never happens

  18. Jonathan,

    Are the numbers unabiguous? Are they are driven by politcal ideology or reasoned judgment? I have serious doubts that it’s the latter.


    We both have great faith that thick markets over the long term are the best way weed out the bad goods and services from the good ones. (God bless the invisible hand!) We both, however, have grave doubts whether thin markets over the short term can predict whether a specific event will happen. I think we agree INTRADE et. al are glorified gambling sites, and we both take them to be such.

  19. Jonathan, I don’t mean to be a noodge, but bookmakers set their odds to keep the money bet on both candidates roughly even. Yes, shorter odds on BO and longer odds on Romney mean the betters favor BO. In other words a bunch of non-American gamblers favor BO. Take that for what it’s worth.

  20. Scotus, it is always a pleasure. I think the central question is whether the subset of non-Americans who bet on US elections is, like most members of the foreign press, so out of touch with reality as to be unreliable predictors. I hope that you are right but I don’t see how we can resolve this question before the election.

  21. Jonathan, it’s always a pleasure for me too. Permit me to speculate about what renminbi said about the odds on the first Ali/Frazier fight being reversed on the two sides of the Atlantic. Ali had become the darling of the Anti-Vietnamers because of his refusing induction into the Army. Most Europeans held American involvement in Vietnam in contempt; so, I wonder whether the European betters bet their hearts and not their heads. Another possibility: Ali had a well deserved world following even before he refused induction, while Frazier was not well known outside the USA. Perhaps the Europeans bet Ali’s reputation, not understanding, as the American betters did, how good Frazier was and how much Ali’s long, forced layoff from boxing would negatively affect him. If we extrapolate from either speculation to the BO/Romney betting in Europe, it bodes well for Romney.

  22. Best comment on Intrade from the Bob Krum site, which describes a significant barrier to entry to this market —

    October 27th, 2012 at 6:49 am

    DH has a very good point. I did some research on how cumbersome it is to transfer funds to Intrade – which is located in Ireland. Personal checks have to clear before they are active. Cashier’s checks are costly for a person who is interested in just one or two contracts – say, the presidential race.

    There are also some anti-money laundering laws in Ireland that require account holders to submit proof of residency such as a utility bill.

    Intrade’s fee structure also changed from a per contract basis to a static monthly fee. This may have discouraged people from getting in and out over one event. If you simply left your money in waiting for another event you were interested in you would be dinged for monthly fees.

    The people at Intrade were quite open in answering my questions. I asked specifically about how many of their account holders are in the US thinking the same thing as DH. A great deal of their market comes from the US. But, I think the early money was on Obama and others wanting to get in the action may be just too pressed for time to sit down and go through all the steps. I am sure the consistency of the 60+ percent for Obama has also caused people to think twice.

    My guess if it were as easy to open an Intrade account as it is to donate to the Obama campaign the presidential election trade would be much closer to the US polls.

  23. There is a part of me that thinks this might be like 1980 – polls close between Reagan – Carter and a blow out.

    Then part of me thinks back to the WI recall election – another referendum. No landslide by any means.

    I’m cautiously optimistic but will take any victory ;-)

    Another thing – on the polls – since they are presumably a national sample, and elections are won by the state (electoral college) – and since the poll can vary by state – hos much credence should one put in these national polls?

  24. Bill, I’ll repeat an earlier comment: In 2000 GWB got 271 electoral votes and lost the overall popular votes by only 0.5%. It is virtually impossible to win the electoral college, while losing the overall popular vote. (The reason it happened in 2000 was that Gore won California and New York big, while Florida was nearly a tie.) Also, according to Bob Krumm, given the status of Colorado as partisan index zero, it is statistically impossible this year to lose the overall popular vote and win the electoral college. I don’t pretend to understand why this is the case, but Krumm seems to know what he is talking about.

  25. Following up on Trent’s comment, since it is so hard for Americans to open accounts on INTRADE, when it comes to politics, I suspect only the true believers on both sides bother to do it. Thus, they are not a good sample to determine the viewpoints of the average American. Romney has pulled out to the lead he presently has in the polls because he seems to have convinced a good number of non-true believers to vote for him. BTW, four years ago, I was feeling contrary; so, near the end of the campaign, I was going to drop a little change on McCain on INTRADE as a protest. I found out, however, about the hoops an American must jump through (described by Trent above) to open an account. That put the kibosh on my plans.

  26. In some ways, the Intrade contract looks like it is almost splitting the distance between 50/50 and an Silver’s predicted Obama victory percentage. Recently, I read the book Market Mind Games which is sort of a self help book for traders. That is, it is mostly about getting in touch with you emotions as a lay psychologist might say but it did have a few nuggets of good info. One is that a trader shouldn’t try and gather info nobody else has. The goal should be more to get info and data before anybody else. This isn’t insider trading but rather anticipation of what will impact the market tomorrow and how it will be interpreted. For info to impact the market, other traders/investors have to actually see the information. That and a few other things were the best part of the book and I wish I had come up with it myself.

    Applying this to Intrade, as people said just look at who the possible pool of traders are in this group and what info are they examining. My guess is a substantial portion are NYT readers and/or reading European papers. Nate Silver is a guru because 1) he’s a progressive who predicted Obama’s rise and 2) he writes for the authoritative NYT 3) he’s been declared a guru by virtue of the first two. Anybody who has been a political junkie for a couple of decades can hear Zogby begging to have his guru status reinstated. Most reader’s of this blog will cast a jaundiced eye on anything remotely political coming from the NYT. And as far as making consistently reliable predictions in social sciences, well good luck with that. I would put more faith in the Ray Fair type of electoral model than in Silver’s.

    My prediction using my market voodoo is that the contract is about to break down, probably in the next day (or maybe few hours). The drop down to 50 the other day was just a precursor and the information that drove it down there is being absorbed by participants. The rally back up was just a lift perpetrated by people who didn’t come to terms yet with the new info or maybe short sellers getting cold feet. It is a common pattern.

Comments are closed.