Friday, October 12, 2012

Intrade and electoral votes still show Obama in the lead; economy will drive odds going forward

After a sharp decline, the Obama victory odds on Intrade seem to have have stabilized at around 63% (chart below). The betting market was pricing in a poor performance by Biden (who has been known to "put his foot in his mouth"), which by most measures was not the case last night.

Once again, in spite of Romney leading in the major polls (Gallup: +2, Rasmussen: +1, IBD/TIPP: +1, Monmouth: +1), Obama continues to lead in the projected electoral votes - which is what Intrade reflects. Welcome to a republic.


Going forward the debates will become less impactful, as was the case during the Republican primaries. At this stage the focus is going to be almost entirely on the economy (as has been the case with most incumbents historically - has little to do with ideology, etc.). Economic data thus far has been helping the Obama camp (although another spike in gasoline prices could do some real damage). The recent jobs data (whether real or not; discussed here and here) as well as today's sharp increase in consumer confidence to the pre-recession levels (see Lee Adler's discussion) explains why the president's odds are still at these levels. Broader economic measures point to this fact as well, as reflected by a steady climb of the Citi Economic Surprise Index (discussed here).

Citi Economic Surprise Index

According to a number of economists the sharp decline in orders last quarter (discussed here) may have been a Eurozone induced "air pocket".
JPMorgan: - ... it looks most likely that last quarter’s sharp declines in capital goods orders represents an air pocket that will be followed by a lift back toward cruising altitude into year-end.
As difficult as things still are for the US consumer, American economic activity continues to be ahead of the global averages. And as long as these economic trends stay intact, the president will retain his lead, at least as measured by the betting markets.

Source: JPMorgan

Update: Here is the latest chart from DB that shows the probabilities of various elections outcomes:

Source: DB
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