Posted on 08/11/2004 9:02:46 AM PDT by ableChair
Eric Engen of the American Enterprise Institute wrote an article today in the Wall Street Journal espousing the Iowa Electronic Market, saying it was far more predictive than conventional polling. Hopefully this story will gain traction and reduce the visibility of popular, left-biased polling in favor of market-oriented indicators.
What is the Iowa market saying right now?
It shows Bush up by 2% and trending in his favor as we speak.
Market Quotes: Pres04_WTA.html
Quotes current as of 11:00:01 CST, Wednesday, August 11, 2004.
Symbol Bid Ask Last Low High Average
DEM04 0.490 0.494 0.494 0.490 0.494 0.492
REP04 0.509 0.511 0.509 0.509 0.511 0.510
http://128.255.244.60/graphs/graph_Pres04_WTA.cfm
Yea!
I would like it better if there was more concern for the electoral college.
Kerry Up, Markets Down By Eric M. Engen Posted: Wednesday, August 11, 2004
ARTICLES Wall Street Journal Publication Date: August 11, 2004
In recent weeks, John Kerry and his supporters have claimed that his policies would stimulate the economy and that his election would be good for the stock market. Kerry supporters, for example, cite a Merrill Lynch study that shows that since 1943 the stock market returned 13.6% annually, on average, under Democratic presidents, compared with 11.7% under Republicans.
However, we do not need to speculate whether Sen. Kerry's election would provide a boost to the stock market. He has been the putative or actual nominee for many months. One can examine how his shifting political fortunes have affected the stock market itself. When Sen. Kerry's chances for election have risen in the short term has the stock market reacted positively as well? Unfortunately for the Democratic nominee, the answer is "No."
As a measure of Sen. Kerry's likelihood of election, data is used from the trading of real money future contracts based on election outcomes run by the Iowa Electronic Market. Academic research has shown that this market has been a very accurate predictor of elections--better than large-scale polling services.
In the winner-take-all market, participants can buy and sell a security that pays $1 if their candidate wins. The price of a futures contract for Sen. Kerry or President Bush can be interpreted as market participants' current collective call on the standing of the election. On Aug. 9, for example, individuals could pay 51 cents for the contract that will pay a dollar if President Bush wins. This implies that the market believes there is about a 51% probability that Bush will win. Contracts in this winner-take-all market have been trading only since June 1, while closely-related futures contracts where the prices reflects the market's expectation of the share of the total vote received by each candidate have been trading since early in the year. A greater expected vote share would suggest a greater probability of the candidate actually winning the election.
The accompanying chart plots the trading price of futures contracts for Sen. Kerry's share of votes along with the value of the S&P 500 composite index since March 3, the day after the Super Tuesday primaries. When the expected vote share rises and thus the implied probability of Sen. Kerry winning the election increases, the S&P 500 index tends to decline sharply. The pattern is consistent and significant. Given the negative response of the stock market index to increases in his electoral prospects, this suggests that a Kerry victory, or its inevitability in the run-up to the election, could cause a significant stock market decline. The correlation is apparent even when the lackluster response to Sen. Kerry and the Democratic convention depressed the value of the Kerry futures contract, and the stock market simultaneously rallied.
The stock market is affected by factors other than the upcoming election, and one might argue that the stock market is responding only to economic news and that the correlation of stock prices with the probability of Sen. Kerry's election is a mere coincidence. However, the economic news has been generally upbeat in the first half of 2004 with real GDP expanding at 3.8% clip, real business investment spending growing even faster at a 12.5% annual rate, more than one million new jobs created this year, consumer confidence generally rising, and strong growth in corporate profits. While the data have flagged a little recently, there is no obvious link between economic news releases and the implied probability of a Kerry victory in the Iowa Electronic Market futures prices.
Candidates always claim that their policies will improve economic outcomes if they are elected. Financial market developments have advanced enough that we can now evaluate what the markets think about a candidates promises. If equity markets had a vote, it seems they would cast it for President Bush.
It has become apparent that the economy would have been weaker and the stock market lower absent President Bush's tax cuts. Research has shown that the tax cuts have provided significant support to consumer spending since 2002, and business investment spending recovered strongly after the dividend and capital gains tax cuts in 2003 lowered the after-tax cost of investing. The dividend and capital gains tax cuts, along with the improving economy, also helped boost the value of the stock market. By increasing the after-tax value of a dividend paid or a capital gain realized, the tax reduction increased the demand for equities, and pushed up prices. The S&P 500 index of stocks rose about 26% last year, and although other political and economic factors helped, the tax cuts contributed to a significant portion of this increase. Indeed, the market rallied by about one-and-a-half percentage points on the day that the House passed the 2003 tax reduction package.
Despite this record, Sen. Kerry has promised to repeal a significant portion of these tax cuts if elected, including the tax rate reductions on dividend and capital gain income. With the growth rate of the economy high but slowing somewhat, there are signs that this promise is rattling financial markets. The evidence suggests that when Sen. Kerry's political fortunes rise, the stock market tanks.
Eric M. Engen is a resident scholar at the American Enterprise Institute.
Polls, the media can manipulate and tweak in whatever fashion best serves their neocommunist masters. The futures market, a quasi-capitalist device, is beyond their understanding and control.
Always remember the Time Magazine "survey" in 1999 where they asked to vote for the most "evil man" of the century past. Clinton won so dramatically that Time kept reducing his vote count and then removed the question altogether, skunking Willie out of yet another key point for his legacy. Never underestimate the filth and corruption of US neocommunist media.
Personally, I would LOVE Soros to "Buy Kerry".
One of the difficulties with this market is that the liquidity is not very high. More money being placed on the other side would drive down the "bush" price, make it more possible to make large "bush" orders without worrying about that distorting the market to my disadvantage later.
It would be WONDERFUL if he has been acting to keep that price in the 50-50 range, despite the ever increasing expectations for an easy victory by President Bush.
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2) Ray Fair's econometric prediction model, which fit EVERY election in U.S. history except 1992, because Fair failed to account for Perot; and
3) Alan Lichtman's "keys to victory." In this model, the winner has to have a certain number of 16 keys to victory, including no bloody primary fight, etc. Bush stands at +4 over those needed to win. It's a sure Bush win according to him.
The question is, then, why are the polls failing to capture what these models all say will be a foregone conclusion? Go back to 1996, when EVERY SINGLE POLL was off, and EVERY SINGLE POLL was off in Clinton's favor. Zogby was the closest, but still off. That's why everyone gravitated to Zogby. That's why so many here went to Rasmussen in 2000, because they adjusted for 1996. But Ras was off in the other direction, and apparently has "compensated" way off to the left. You can see this in his "internals" (for ex., Bush's approval at 53%, confidence in the economy high). On the other hand, Ras has a seven percentage gap in the generic congressional, yet the GOP HAS WON BOTH HOUSES OF CONGRESS and has held the HOUSE since 1996!!! This does not jibe.
Well, I can't say I disagree with you on the main points, but I like to think I'm an optimist. If we don't fight and challenge the liberal media establishment we'll never win...
Another interesting exercise is to watch these popular polls right up to the election itself. If you take their numbers, then look at the actual vote proportions on election day, they're always off by 5-10% in favor of Democrats. That should say it all. It's also funny to watch the media then try to play down the latest polls so as not to draw attention to how far off they were.
They were in 1996---even Zogby missed it by, I think, 2% in 1996. But I don't think all were off in 2000. I think there were a couple close at the end.
Political Futures markets have been getting a little bit of press on FOX News. This may be the last year of relying on polling for a primary guage on an election. FOX will probably get in with InTrades (the people behind Tradesports.com's tracking numbers) or someone similar for the next election cycle, maybe 2006 but definately by 2008.
The only problem with the Political Futures markets is the low volume. For instance, Tradesports.com has state-by-state presidential races as well as senate races, but the volume is so low it's hard to guage.
It seems you or someone in this thread is correct in saying there in an inherent bias in the major polls toward the liberal candidate. I noticed that on my own several years ago and kept track for a couple of cycles and it proved out. However, I followed the 2000 race closely with Mason Dixon polling and seem to recall that their final pre-election results matched within a percentage or two of teh final outcome.
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