Monday, September 29, 2008


Hours after I blogged on Thursday, 25 September, McCain dramatically reversed his decision to abandon campaigning in order to save the economy.

Time reported on McCain's remarkable strategy in a piece titled, "Oh the drama! McCain in the Theater of the Absurd"
. . . an amazing week of political theater, starring the frenetic, operatic, borderline erratic McCain, the former fighter pilot who seems to have found his calling as a kamikaze politician. He might not win the election — another thing you missed this week was Barack Obama pulling ahead in the polls — but when it's over he's a shoo-in for a show on TNT. RuPaul doesn't know drama like McCain knows drama.
After much drama, John McCain, indeed, decided to show up at the first Presidential debate after all. Good thing he did because the pundits loved his performance:

Politico's Roger Simon declared, "The Mac is Back."
John McCain was very lucky that he decided to show up for
the first presidential debate in Oxford, Miss., Friday night. Because
he gave one of his strongest debate performances ever.
While the pundits loved McCain, the markets were puking him up. McCain opened with a brutal sell off on Saturday and, by the end of this past weekend, he was down 10% where he found some support at 40. Obama had opened up a
nearly 17 point price gap to below his upper resistance of 58. While McCain had recovered by Sunday evening to above 41, a few investors were actually flirting with Giuliani and Romney.

If McCain breaks through resistance at 40, watch out 30!

Not only had markets decided Obama won the debate, the voter had too. Polling of focus groups showed that the people that vote had declared by a wide margin that Obama had won the night. Even a Fox News focus group of undecided voters in Nevada had decided that McCain had lost the night. Frank Luntz conducted the focus group polling for Fox and the voters in the focus group said that after watching the debates they felt that Obama "... cared
about the average person" and "he seemed to care about everyone in

On the divergence between punditry and voter opinion, the Las Vegas Sun had this to offer:

After one of the worst fortnights in presidential campaign history,
with his oscillations on the bailout and bizarre campaign suspension
(except for all those ads and state organizations purring along), the
fundamentals of McCain's campaign are not sound.

What struck me amid the usual post-debate bloviating by the
punditrocracy and the ridiculous ritual of partisans telling the media
what to write about how wonderfully well their guy did (Lewis Carroll
would have had a field day), the desperation to stop the hemorrhaging
by the McCain campaign was manifest. No one watching that debate could
have believed McCain scored a convincing victory (for the record, this
bloviating pundit thought the Republican nominee had his moments but
Obama was solid enough to achieve a draw).

But the McCain campaign immediately inundated my inbox with e-mail
bursting with snippets of quotes from various journalists, implying
they had declared McCain the victor (even Henry Kissinger sided with
his friend, John McCain!).

Regardless of what the media says, if McCain wants to show his investors some loving, he is going to have to do something very soon to get investors to dip back in. And, according to a report in the Times, "McCain camp prays for Palin wedding," Mac thinks a shot gun wedding between Sarah Palin's daughter and her lover will save his campaign:

In an election campaign notable for its surprises, Sarah Palin, the Republican
vice- presidential candidate, may be about to spring a new one — the wedding
of her pregnant teenage daughter to her ice-hockey-playing fiancé before the
November 4 election.

Inside John McCain's campaign the expectation is growing that there will be apopularity boosting pre-election wedding in Alaska between Bristol Palin,17, and Levi Johnston, 18, her schoolmate and father of her baby. "It wouldbe fantastic," said a McCain insider. "You would have every TV camera there.

The entire country would be watching. It would shut down the race for a week."

This appears to be a legitimate story in the Times and I suppose in these Jerry Springer meets Pop Idol days, there could be some twisted logic to McCain's prayer of a Palin wedding. But I'm not convinced this will tempt investors back into McCain. Maybe the markets will prove me wrong.

Finally, on the electoral map today, Virginia, Ohio and Florida have gone blue. Obama takes 338 of the electoral vote predictor. Landslide.

Disclosure: I hold none of the securities mentioned.

Thursday, September 25, 2008

McCain Sells Off on His 'Bold' - or Bonkers Move

John McCain's shock suspension of campaigning has drastically altered the
fundamentals on the 2008 Presidential Election Winner (Individual) contract.
The stunt is being met with wide spread selling off of McCain on Intrade, while
traders simultaneously ploughed into Obama rocketing his price up to just under 57.

Obama has now opened up a nearly 13 point lead against his opponent.

McCain's move has been met with widespread disbelief in this morning's media.

The Wall Street Journal confessed to being totally mystified by McCain's suspension of campaigning:

Last we checked, the President of the United States was still
George W. Bush, the Secretary of the Treasury was still Henry Paulson, the Chairman
of the Federal Reserve was still Ben Bernanke, and Congress still had 533 members
not running for President who are at least nominally competent to debate and pass legislation.

So count us as mystified by Senator John McCain's decision yesterday to
suspend his campaign and call for a postponement in Friday's first Presidential
debate so that he and Barack Obama can work out a consensus bill to stabilize
the financial system. This is supposed to be evidence of leadership?

In an article titled, "John McCain's Decision to Suspend his
campaign is bold - or bonkers," the New York Daily News had this to say:
Still, there's an old saying in politics: Think political,
but never look political. Given McCain's timing,
this seems more political than altruistic.
"It looks like a desperate stunt,"
said another GOP political consultant who worked for a McCain primary opponent.
"McCain could have bailed out of the debate a week ago if this was really about the merits."
On top of suspending campaigning, McCain also cancelled, at the last minute,
an appearance on David Letterman. Letterman was outraged with the 'fishy'
McCain campaign and wondered, "Are we suspending the campaign because there's
an economic crisis or because the poll numbers are sliding?"

Is McCain experiencing a mere wave of panic selling? Can he rebound from 44? Time will tell,
but so far traders don't seem to be buying McCain on this dip, nor is anyone taking profits yet on Obama.

A few more days should tell whether McCain's gamble will pay any dividends him, but so far
traders have judged his move as 'bonkers,' not 'bold.'

Perhaps look for McCain to reverse this decision soon if he hopes to regain momentum.

Wednesday, September 24, 2008

October Surprise?

Osama Capture Dec08 contract has tumbled by 50% in past two weeks and yet the word on the Hill is for an October surprise.

Twice in the past few weeks, US helicopters have crossed the border only to
be turned back by gunfire from Pakistani troops. Scott Horton reports in Harpersthat Bush is hoping to deliver an "October surprise" for McCain.
What's up? There is one plausible explanation for the latest friction: the Bush
Administration has given orders to go all out–helicopter gunships, air strikes,
predator drones, and ground-based forces–through the end of the year in an attempt
to apprehend or kill Osama bin Laden and other senior Al Qaeda leaders.
He goes on to argue:
The Bush Administration is hoping for an "October surprise" that will lift
the tides of the Republican candidates just in time for Election Day.
That explains why the extraordinary effort is undertaken now, and why
the sensitivities of the U.S.-Pakistani relationship are being ignored.
Alternatively, Steve Coll, author of "The Bin Ladens: An Arabian Family in
the American Century," thinks bin Laden and pals may be planning their own 'October surprise,' as the 2004 October tape was such a market mover for them. Here from an interview for The Atlantic:
Jeffrey Goldberg: Do you think al-Qaeda is planning an "October surprise," an attack on an
American target, here or overseas, in order to influence the election?

Steve Coll: AQ leaders, maybe because they spend a lot of time trapped and bored
in safehouses, seem to be obsessed with calendars. They like anniversaries and
they pay attention to elections abroad. So I'm sure they have the American election in mind.
My last well-sourced conversation is a few weeks dated, but last I checked the US intel
system was very quiet in terms of "chatter" or other indicators of any attack in the U.S.
What seems more likely are more attacks against US-affiliated targets in the Pak-Afghan region,
coupled with media tape releases, similar to Osama's election-eve video of 2004.
They like to be heard at big moments in American politics, and this campaign is certainly such a moment.
Every time I turn on the news I see something going down at the Afghan-Pakistan border,
so I'm thinking the October 2008 Surprise might just be a big one -
making Osama.Capture.Dec08 seem tempting at only 8.

Over at, might be worth launching a market on October surprises.
No need to guess who would be helped by the capture or killing of Osama, but
who would it help if Osama were to release a scary video in October? Or how about a "who will Osama endorse" contract?

Anyway, over in President 08 market action on Tuesday (September 23) McCain's
price soared by just over 2 points, while Obama's price dropped by nearly 3
on the same morning. The two kissed briefly at 49 before McCain dropped back
to under 47 and Obama rallied to 52. While the financial turmoil remains center stage,
traders seem to be taking profits any time McCain gets above 47.

As the financial markets continue to react negatively to the Paulson bailout plan, Obama's numbers continue to hold steady. By a margin of 2-1 Americans (47-24), according to a CNN/Opinion Research Corporation Poll, blame Republicans over Democrats for the financial crisis that has swept the country.

While the economy may be swaying the President 08 market at this time, this might all change on
Friday when the first of the presidential debates are held. By that time, some sort of bailout
bill is meant to have passed into law. Furthermore, the first debate focuses on foreign
policy where McCain holds an advantage. But will McCain's foreign policy advantage trump Obama's economics advantage?

If the financial markets are taking the bailout plan more positively by the end of the week,
it could be a one two punch Friday for McCain. If not, he'll
have to wait for an October surprise.

In Electoral College trading, Virginia is looking good for Obama.
At least according to the latest polls that is. Two major polls are
placing Virginia in Obama's electoral college camp. SurveyUSA puts the race at O51-M45; ABC News/Washington Post puts Virginia at O49-M46. Rasmussen, however, puts McCain ahead by two at M50-O48, though this is within the margin of error.

Regardless of the positive Virginia polls for Obama, the Intrade Vrginia electoral vote
predictor is giving McCain a 53% chance to Obama's 45%. Punters are betting on history
as Virginia went to the Republicans in 2000 and 2004 by about the same percentage popular vote.

Onto New Hampshire. Traders are NOT buying the latest poll from University
of New Hampshire which gives McCain a 2 point lead, within the margin of error.
Over on the Intrade electoral predictor map, Obama is well ahead O60-M42

One state where Intraders opinion diverges from the polls is North Carolina
where punters are giving McCain a 75% chance of taking the state. In the latest Rasmussen Report poll of the state McCain is ahead only within the margin of error. Bush took 59% of the popular vote here over Kerry in 2004.

Finally, one more thing that might influence the President 08 market, of course,
is the price of oil. And, despite, September 22 being the biggest one day rally
in the price of oil, over at, punters are only placing a 25% chance of oil at over 135 by Dec 31st.

Monday, September 22, 2008

Bull Market in Bailouts and President 08

Despite a brief rally for McCain's (47.6) contract post GOP convention, the primary Obama (51.2) bull market trend has apparently resumed on the President 2008 market.

Obama's price has surged in the past week or so as the US financial crisis turns into the
'worst since the Great Depression." In the same period, McCain's price has dropped back over 10 percent.
After an explosive mid August to early September where his price rocketed
from the mid 30's to the mid 60's, McCain's contract is tumbling.
Is this a correction in the beginning of a bull market for him?
Or the resumption of his previous bear market trend?

How unusual is this sort of price action at this point in the cycle?
These market prices are mirrored in the polls. According to

"Over the course of the past several days, there has been a rather dramatic shift
in this election toward Barack Obama. Our trendline estimate, which is engineered
to be fairly conservative, registers the swing as equaling roughly 4 points over the course of the past week.

Changes of this velocity are unusual outside of the convention periods and the debates,
especially in close elections. It took John McCain about 60 days and tens of millions
of advertising dollars to whittle Obama's lead down from roughly 5 points at its peak
in early June, to the 1-point lead that Obama held heading into the conventions.
Obama has swung the numbers that much in barely a week."

If McCain's price collapse accelerates, perhaps he could appeal to the Bush
Administration to extend the short selling ban to his own contract?
Such intervention is not totally impossible in this new post free market era.
Alas, I doubt this will happen since McCain bizarrely threatened last week that
if he were to become President, he would fire Christopher Cox, Chairman of the SEC.
I don't think a short selling ban will come to McCain's rescue now.

Speaking of market interference, having seized control of vast swathes of the
mortgage and insurance markets, the Republican administration has now introduced
a trillion dollar bailout bill which comes with the added bonus of the biggest
expansion of federal power over the financial markets since the Great Depression
(there's that word again). Some analysts are comparing the Federal intervention
in markets to the Soviet Union. Communism, schmommunism. Free market traders are
loving it! Intrade contracts for end of year DJIA above 11250 jumped from 30 to
55 on the government bailout of the financial markets. Bets seem to be on that
no stock price will ever be allowed to fall again. Price fixing didn't work for
the Soviets - in the long run, but perhaps in the short term, traders may be taking the right bet.

The Intrade Recession 2008 contract has also plummeted. Despite mass layoffs,
home foreclosures, rocketing inflation, punters place only a 12 percent chance
of a recession in 2008. Considering that negative GDP growth for two successive
quarters is required and that the government is responsible for reporting GDP
growth, well then, in this Soviet-like day and age, punters are betting that
the US government will continue to maintain that inflation is only 1.2% and, hence,
GDP growth will remain 'robust.' The Soviet Union you might recall was also a
'fundamentally sound' economy - right up until the day it collapsed into a whole
heap of nothing in 1989.

Following on the nationalization theme, I was speaking to a central banker from Venezuela.
He told me that the US nationalization of the mortgage market was a good idea. I said,
"Of course you think that. But when Venezuela does the same thing,
like when you nationalized the oil industry, you are harangued by the United States."
He laughed and responded, "That's just politics."

So, where next for the new found American lust for nationalization?
I notice someone has started a contract over at on whether the US will
nationalize the oil industry in order to finance the banking bailout!
Punters are so far placing a 50% chance of that outcome.

With all these bailouts and nationalizations, I'm surprised nobody has started a
US dollar contract on What fate awaits the greenback?