Are political investors mispricing risk?

The global financial system has gone into meltdown as investors suddenly realize they have mispriced risk for too long. Now, however, they see risk everywhere as a large percentage of the world's debt instruments turn out to have been holograms of fraud.

I have to wonder if we are seeing the same mispricing of risk in the 2008.PRES.McCAIN and 2008.PRES.OBAMA markets.

Investors are giving McCain a mere 15.2% chance of winning this election. And even that seems generous compared to the electoral college polling.

Are Intrade markets, however, failing to price in the risk of voting fraud?

Both campaigns are now warning of fraud and, yet, the markets look priced to perfection. Just like the stock markets before they collapsed.

While Obama is, as the markets reflect, far ahead in all the polls, favorability ratings and enthusiasm levels, what exactly are the algorithms that will translate these numbers into a vote?

Part of the reason that financial investors, for example, mispriced risk was that trading desks used proprietary algorithmic trading models they claimed almost eliminated risk. It turns out those algorithms weren't so miraculously immune to risk, or fraud, after all. As those trading desk algorithms are proprietary, of course, investors will never know just what formula it was that wiped out their net worth.

But just as triple AAA rated Collateralized Debt Obligation suddenly became worth 9 cents on the dollar, can five votes become worth say just one vote with the proprietary software running the electronic voting machines? Or, as I like to call them - the Miracle 51% voting machine.

The past two elections in America have been marred by the suspicion of not quite fair elections thanks to these electronic voting machines that, for example, gave sometimes drastically different results from the exit polls. Conveniently, the final results were so close that it was hard to cry 'foul' without seeming a poor loser. While the exit polls, of course, may have been inaccurate, we will never know if the voting machines were, too, as they leave no record and there is no way to examine the proprietary software on which the voting machines operate.

Remarkably, these paperless voting machines are apparently still around in several states.

And in West Virginia, where Intrade is giving McCain a 75% chance of
winning, there are already reports of votes for Obama 'flipping' to McCain.

The Charleston Gazette reports:

Three Putnam County voters say electronic voting machines changed their votes from Democrats to Republicans when they cast early ballots last week. .

This is the second West Virginia county where voters have reported this problem. Last week, three voters in Jackson County told The Charleston Gazette their electronic vote for "Barack Obama" kept flipping to "John McCain".

In both counties, Republicans are responsible for overseeing elections. Both county clerks said the problem is isolated.

No case of a Republican vote flipping Democrat has yet been reported.

Aside from the electronic voting machines, there is the old fashioned variety of vote suppression.

Robert Kennedy Jr. and Greg Palast argue in the latest issue of Rolling Stone that the election has, in fact, already been stolen and McCain is the 'winner:'

In state after state, Republican operatives — the party's elite commandos of bare-knuckle politics — are wielding new federal legislation to systematically disenfranchise Democrats. If this year's race is as close as the past two elections, the GOP's nationwide campaign could be large enough to determine the presidency in November. "I don't think the Democrats get it," says John Boyd, a voting-rights attorney in Albuquerque who has taken on the Republican Party for impeding access to the ballot. "All these new rules and games are turning voting into an obstacle course that could flip the vote to the GOP in half a dozen states."

Voter fraud has been a big issue in recent US elections. In the 2004 and 2006 election cycles, Republicans alleged widespread voting fraud by Democrats. They are now doing it again with the 2008 election.

But doth the elephant protest too much?

David Iglesias thinks so. As the FBI begins probe of a group called Acorn Iglesias had this to say:

"I'm astounded that this issue is being trotted out again," Iglesias told TPMmuckraker. "Based on what I saw in 2004 and 2006, it's a scare tactic." In 2006, Iglesias was fired as U.S. attorney thanks partly to his reluctance to pursue voter-fraud cases as aggressively as DOJ wanted -- one of several U.S. attorneys fired for inappropriate political reasons, according to a recently released report by DOJ's Office of the Inspector General.

And while the media is amplifying the Republican claims that Democrats are involved in widespread voter fraud via Acorn, a Republican operative has been quietly arrested for voter registration fraud in California:

The owner of a firm that the California Republican Party hired to register tens of thousands of voters this year was arrested in Ontario over the weekend on suspicion of voter registration fraud...

State and local investigators allege that Mark Jacoby fraudulently registered himself to vote at a childhood California address where he no longer lives so he would appear to meet the legal requirement that all signature gatherers be eligible to vote in California. His firm, Young Political Majors, or YPM, collects petition signatures and registers voters in California and other states..

Jacoby's arrest by state investigators and the Ontario Police Department late Saturday came after dozens of voters said they were duped into registering as Republicans by people employed by YPM. The voters said YPM workers tricked them by saying they were signing a petition to toughen penalties against child molesters..

The firm was paid $7 to $12 for every Californian it registered as a member of the GOP.

Regardless of whether or not any of these cases of voting registration fraud translates into actual voting fraud, the one thing that is clear is that the integrity of the US voting system is becoming increasingly suspect.

And with so many charges of voting fraud out there, it would seem there is no smoke without fire.

I don't buy Republican suggestions that Obama would need to participate in all the fraud they allege is happening. What on earth would be the point? Usually it's the guy behind in the game that needs to cheat. And the US ain't Russia where 90% wins are deemed necessary.

Nor am I convinced, however, by Kennedy and Palast's theory that the election has already been stolen for McCain. Unlike 2000 or 2004, all the polls and markets are just so overwhelmingly indicating an Obama landslide. And the $150 million raised by the Obama campaign in September suggests millions of American voters have skin in this outcome - unlike 2004 when Kerry support was always lukewarm, for example.

No. The Kennedy-Palast scenario is just too difficult to do in 2008. Such a theft could only happen if the resulting win is plausible. There would just be way too much explaining to have to do.

Furthermore, even the giants of the Republican party and/or Conservativism are planning on voting for Obama:

Christopher Buckley, son of William F., endorsed Obama:

Obama has in him—I think, despite his sometimes airy-fairy "We are
the people we have been waiting for" silly rhetoric—the potential to be
a good, perhaps even great leader. He is, it seems clear enough, what
the historical moment seems to be calling for.

So, I wish him all the best. We are all in this together. Necessity
is the mother of bipartisanship. And so, for the first time in my life,
I'll be pulling the Democratic lever in November. As the saying goes,
God save the United States of America.

Colin Powell announced on Sunday that he is endorsing Obama.

"I firmly believe that at this point in America's history, we need a president that will not just continue, even with a new face and with the changes and with some maverick aspects, who will not just continue basically the policies that we have been following in recent years," Powell said..

"I think we need a transformational figure. I think we need a president who is a generational change and that's why I'm supporting Barack Obama, not out of any lack of respect or admiration for Sen. John McCain."

.... Powell went on to say of Governor Palin . . .

"I don't believe she's ready to be president of the United States."

Endorsements galore from Republican leaning newspapers are also inconvenient to the Kennedy-Palast scenario.

The Chicago Tribune in their first Democratic Presidential endorsement ever:

McCain failed in his most important executive decision. Give him credit for choosing a female running mate--but he passed up any number of supremely qualified Republican women who could have served. Having called Obama not ready to lead, McCain chose Alaska Gov. Sarah Palin. His campaign has tried to stage-manage Palin's exposure to the public. But it's clear she is not prepared to step in at a moment's notice and serve as president. McCain put his campaign before his country.

The Salt Lake Tribune:

Then, out of nowhere, and without proper vetting, the impetuous McCain picked Alaska Gov. Sarah Palin as his running mate. She quickly proved grievously underequipped to step into the presidency should McCain, at 72 and with a history of health problems, die in office. More than any single factor, McCain's bad judgment in choosing the inarticulate, insular and ethically challenged Palin disqualifies him for the presidency.

The LA Times, which has not endorsed a Presidential candidate in decades:

Indeed, the presidential campaign has rendered McCain nearly unrecognizable. His selection of Sarah Palin as his running mate was, as a short-term political tactic, brilliant. It was also irresponsible, as Palin is the most unqualified vice presidential nominee of a major party in living memory. The decision calls into question just what kind of thinking -- if that's the appropriate word -- would drive the White House in a McCain presidency. Fortunately, the public has shown more discernment, and the early enthusiasm for Palin has given way to national ridicule of her candidacy and McCain's judgment.

Regardless, both sides are gearing up with massive legal teams - one to prevent certain voters from voting and the other to ensure certain voters can vote.

Bloomberg reports in "Obama Assembles US's 'Largest Law Firm' to Monitor Election:'

In Florida, Democratic lawyer Charles H. Lichtman has assembled almost 5,000 lawyers to monitor precincts, assist voters turned away at the polls and litigate any disputes that can't be resolved out of court.

"On Election Day, I will be managing the largest law firm in the country, albeit for one day,'' said Lichtman, 53, a Fort Lauderdale corporate lawyer and veteran of the five-week recount after the 2000 election when Florida eventually delivered the presidency to George W. Bush.

I think election night is going to be a lot longer than most people think.

And, heck, at only 15.2, 2008.PRES.McCAIN looks like a potentially profitable hedge against the risk of a hologram of an election.

Has the 'Republican base' become the fringe?

The 'Republican base' was very excited by the selection of bona-fide evangelical Sarah Palin. The McCain market has plunged, however, as the US voting population got a glimpse of that Republican base.

Rove's creation has turned into a mob baying for blood and even John McCain seems downright alarmed and frightened by Palin's supporters.

The Times reports:

WITH his electoral prospects fading by the day, Senator John McCain has fallen out with his vice-presidential running mate about the direction of his White House campaign.

McCain has become alarmed about the fury unleashed by Sarah Palin, the moose-hunting "pitbull in lipstick", against Senator Barack Obama. Cries of "terrorist" and "kill him" have accompanied the tirades by the governor of Alaska against the Democratic nominee at Republican rallies.

The scenes from the Palin rallies remind me of that film, To Die For, in which a hot newscaster babe (played by Nicole Kidman) winks her way into the hearts of a group of young, impressionable teenagers who promptly do away with anyone standing in the way of her ambition. 'All she wanted was a little attention'.

Nicole Kidman won a Golden Globe for her performance, and Palin has won the devotion of many for her own A-list winkage. The backers of Palin's performance, however - the McCain campaign - are losing big time at the Intrade box office.

As the Palin mob reached a fever pitch, McCain crashed on Intrade's President 08 (Individual) from the mid to low thirties to 20.

Hoping to stop the bleeding of mainstream support, the McCain campaign have reportedly resorted to keeping the press away from this base at Palin's rallies. It may be too late, however, for judgement has been rendered far and wide in the beltway and in the polls.

Joe Klein of Time says:

But seriously, folks, I'm beginning to worry about the level of craziness on the Republican side, the over-the-top, stampede-the-crowd statements by everyone from McCain on down, the vehemence of the crowds that McCain and Palin are drawing with people shouting "Kill him" and "He's a terrorist" and "Off with his head."

Conservative columnist, Kathleen Parker, warns:

The McCain campaign knows that Obama isn't a Muslim or a terrorist, but they're willing to help a certain kind of voter think he is. Just the way certain South Carolinians in 2000 were allowed to think that McCain's adopted daughter from Bangladesh was his illegitimate black child.

But words can have more serious consequences than lost votes and we've already had a glimpse of the Palin effect.

The Post's Dana Milbank reported that media representatives in Clearwater were greeted with taunts, thunder sticks and profanity. One Palin supporter shouted an epithet at an African-American soundman and said, "Sit down, boy." McCain may want to call off his pit bull before this war escalates.

Paul Harris for the Guardian sums it up as such:

There is still no doubting that Palin can powerfully move a Republican crowd. Her angry attacks on Obama stir supporters far more effectively than does McCain's more measured style. But she is now largely reduced to stumping in the rural Republican heartlands of America. She is a powerful tool in working up the party base, ensuring that they turn out on election day, but her crossover appeal has gone. Indeed, even Republican critics of Palin have been stamped on for questioning her. Several high-profile conservative writers - such as David Brooks in the New York Times and Kathleen Parker in the National Review - have poured scorn on her. Brooks even called her 'a fatal cancer on the Republican party'.

But the response among the base was instant and brutal. Parker received no fewer than 12,000 outraged emails, including some wishing she had been aborted, after writing that Palin should step down. There seems little doubt that Palin is still the darling of a huge section of red state America. But what works for the Republican base no longer works for the country as a whole

To cap it all off, the Dow has had its worst week since the Great Depression and "It's the economy, stupid" plays well in all but the reddest of states where 'culture' issues trump everything.

In the leading polls, Obama has a taken double digit lead across most. Obama and Biden's favorables have risen, while McCain and Palin's unfavorables have risen even more.

On Intrade, McCain sits below 23, while Obama rests comfortably above 77. Obama has also taken a commanding lead in the Intrade Electoral Vote Predictor map (O364, M174) with North Carolina, Florida and Ohio firmly blue and even Indiana turning blue.

McCain needs the mother of all October surprises if he has any chance of turning this thing around. We're only half way through the month . . .

Who's afraid of the big bad Dow?

American voters are, according to the latest Gallup polls:

A USA Today/Gallup poll finds 53% of Americans describing themselves as "angry" about the financial crisis that has gripped the nation the past two weeks. Fewer Americans, but still a substantial 41%, say the recent events have made them feel "afraid."

That's right, Americans are mad as hell and they aren't going to take it anymore.

And, of those 'afraid' of the financial crisis, women feel the most fear:

The poll does find that women (49%) are significantly more likely than men (32%) to say they have felt afraid as a result of the economic problems . . .

This is big, bad news for the McCain campaign which has decided to begin scaring these already freaked out security mom voters with stories of bigger scary things, like home grown terrorists from way back in the 1960's? Hockey mom Palin has made repeated claims this past weekend that Obama 'pals around with terrorists.' Unfortunately for these McCain team scare tactics, the Dow is actively terrorizing Americans' 401ks day in and day out for the past two weeks. Ayers, meanwhile, acts all too respectable and bespectacled at some university in Chicago. Either Ayers picks up a hand grenade soon, or I see McCain/Palin's latest fear tactics backfiring big time. For, while this Rovian strategy of freaking out the voting population has worked for eight years, the same voters McCain/Palin are trying to scare are far angrier than they are scared. And I suspect the blatant attempt to make their bad situation even more frightening will see these voters pay McCain back with an electoral kicking.

Over in the President 08 (Individual) markets, I warned a week ago that McCain would next see support at thirty if he passed through 40. Sure enough, after plummeting through 40, McCain slid through 30 momentarily before bouncing back on Sunday to about 35 which seems to be a bit of a ceiling for this apparent dead cat bounce.

A 30 point gap now sits between the two contracts: Obama 65; McCain 35.

Betting on implosion

The US government bailout of the banking system bill was the hottest contract of the past week. Traders remained bullish on the bailout passing the House until early Monday morning when the price collapsed a few hours before the bill failed to pass.

Punters are now giving an 85 percent certainty for some sort of bailout to pass by end of October. With the ISM manufacturing index shocking on the downside this morning with the biggest monthly decline since 1984 and with the IMF warning US lawmakers to do something quick, I would say that a bailout is a safe bet. It is an election year, however, so anything can happen.

In banking failure markets, the hot money is on National City followed by Downey and Bank United. Shares in National City are down 92 percent in the past twelve months while BankUnited Financial is down 95%.

In celebrity implosion news, traders are giving OJ Simpson a whopping 77 percent chance of being found guilty of at least one of the charges in the Las Vegas robbery. The NFL Hall of Famer is charged with a dozen crimes, including kidnapping and armed robbery. If found guilty, he faces five years to life behind bars for the Sept. 13., 2007 incident.

The LA Times reports on the devastating tape presented as evidence by the prosecution:

An attorney for O.J. Simpson tried Monday to undermine the effect of an audio recording in which the former NFL star asks whether a cohort pulled out "the piece" in a hotel hallway right before a confrontation with memorabilia dealers.

Simpson associate turned prosecution witness Michael McClinton testified last week in the armed robbery trial that Simpson asked him to bring a weapon and "look menacing" at a confrontation over sports memorabilia at Palace Station Hotel & Casino.

And in a tape recording McClinton surreptitiously made after the incident, Simpson asks whether McClinton might have inadvertently allowed the weapon to be picked up by hotel security cameras. McClinton is heard on the tape saying that he "kept that thing in my pocket until we got inside that room."

Next up in market news, the McCain campaign's declining numbers.

I warned last week that were McCain to pass through support of 40, he could see 30 next.

Today McCain's price has dropped to 34.5, while Obama rocketed through his resistance at 58 to hold at just under 65.

Rabbits better be pulled out of hats soon or we could see some capitulation in the McCain contract! The biggest problem for McCain now is that many voters are already sending in their ballots while Obama is hot. A miraculous McCain comeback could be too late if it doesn't happen very, very soon.

Over at the Electoral Vote Predictor Map, I'm seeing more landslide blues for McCain. Punters give Obama 338 to McCain's 200.

After a bit of a tug of war, Florida has now turned blue. Ohio, as noted previously, has also turned blue. And even North Carolina turned blue - if only briefly before punters piled in on what they saw as a McCain bargain at under 50.



Quinnipiac latest swing state polling confirms Intrade's Obama swing:

FLORIDA: Obama 49 - McCain 43 pre-debate; Obama 51 - McCain 43 post-debate; OHIO: Obama 49 - McCain 42 pre-debate; Obama 50 - McCain 42 post-debate; PENNSYLVANIA: Obama 49 - McCain 43 pre-debate; Obama 54 - McCain 39 post-debate Friday's presidential debate, Gov. Sarah Palin's sagging favorability and more voter confidence in Sen. Barack Obama's ability to handle the economy are propelling the Democrat to wider likely voter leads over Republican John McCain in Florida, Ohio and Pennsylvania, according to simultaneous Quinnipiac University Swing State polls released today.

No one has been elected President since 1960 without taking two of these three largest swing states in the Electoral College.

Quinnipiac goes on to quote Peter Brown, assistant director of the Quinnipiac University Polling Institute:

"It is difficult to find a modern competitive presidential race that has swung so dramatically, so quickly and so sharply this late in the campaign. In the last 20 days, Sen. Barack Obama has gone from seven points down to eight points up in Florida, while widening his leads to eight points in Ohio and 15 points in Pennsylvania."

"Sen. John McCain has his work cut out for him if he is to win the presidency and there does not appear to be a role model for such a comeback in the last half century."

On that note, there was much curiosity in the land of punditry as to why the McCain ticket would spend 24 hours in Iowa. According to the Intrade Electoral College Predictor map, he has only a 20% chance of taking the state's 7 electoral votes. Almost all the major polls place the state strongly with Obama as well.

Today the McCain campaign has moved on to Missouri where latest polls show his lead in the state narrowing. Regardless of the polls, traders on Intrade are telling McCain that he has nothing to worry about in the Show Me state where they are giving him a 68% chance of winning.

Finally, I got an email from Dr. Boyan Ivantchev, an economics adviser to the deputy prime minister and minister of foreign affairs of Bulgaria. He had this technical analysis of the President 08 (Individual) contract to offer:

Looking at the charts from intrade.com, you may see a leading sell off in Obama positions based on the Bearish Hanging Man appearing on the chart of 3Sept2008. That was before the Republicans convention started and the historically expected positive partisan support impact after the convention. My forecast in Bulgarian newspaper dnevnik.bg 14Sept2008/ for bottoming and consolidating of the position in oversold RSI zone for the period of 10-15Sept2008 plus Chaikin Volatility predicting the possibility of an uptrend for Obama once again proved leading in comparison to the fundamental data coming from the Gallup Poll Daily Tracking. As of today /29Sept2008/ the charts are telling me that we are close to breaking the resistance level of upper line of Bollinger bands and we are in heavy overbought zone of RSI. Election story ends on 4Nov2008 so it does not make me afraid to say that we can stay on heavily overbought zone up to the end of a game.

(I hold no positions in the contracts mentioned. )

Landslide?

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
America."

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.

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.

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 Intrade.net, 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 Intrade.net, punters are only placing a 25% chance of oil at over 135 by Dec 31st.