Evans Political Bull-Bear Political Indicator: October 2007

12 comments for “Evans Political Bull-Bear Political Indicator: October 2007”

1. This shows Giuliani on a major upward trend. Will it continue?

2. It’s really a race between Giuliani and Mitt.

3. Links seemed to be messed up on that last comment. Let’s try it again:

   Not sure exactly how Romney is so “bull” given that polls in New Hampshire and Iowa have tightened these last couple of months (with Giuliani making up ground in N.H. and Huckabee surprisingly surging in Iowa). The most recent news out of South Carolina isn’t good either and Romney kind of got embarrassed at a recent straw poll in Nevada that he showed up for. Add to this the fact that Brownback should throw more evangelical support behind one of the other candidates since he is very unlikely to support Romney and you have a very muddled picture for Romney (and everyone else). Romney has pulled some big endorsements of late and made some good headway with some Evangelicals, but it has been a pretty mixed couple of months for him.

   What all this says to me is that betting on the GOP nod is a very “high risk” investment right now.

4. BTW, the political futures markets are not simply (or at least only) about gambling. They are also used by some businesses to hedge against political risk.

5. “It’s really a race between Giuliani and Mitt.”

   To quote a past president “Now there you go again.” There are actually two political parties illustrated here. Let’s not make any assumptions.

6. Yes! I know Matt’s post mentions “GOP polling numbers.” I guess I’m just used to a one-sided conversation when it comes to political copnversations with my friends in the church. Sorry if I’m being overly sensative.

7. I don’t think anyone was alluding to the general election lamonte. The context of this post has related to the Republican primaries and that’s what I think Geoff was speculating about. That said, with the unrest in the Republican field, I do think it’s a little too early to narrow it. A lot can happen in the next three months.

8. I thought for a moment that it was in Huckleberry Finn that there was a bull-bear non-political indicator, but then memory revived and I remembered that it was in Paint Your Wagon.

   About all I remember is that the preacher said they were all going to hell for their part in the contest.

9. Nate,

   What businesses actually use these futures to hedge against political risk? Do you have a link to some data on this?

   I always thought that the participation costs (the fees taken by Intrade, the fact that the money does not earn interest while it is committed to Intrade, the fact that participation is not technically legal for people based in the U.S., etc.) are sufficiently high and the open interest sufficiently low to prevent these futures from being purchased by any serious finance professionals (hedge funds, investment banks, risk management groups at major companies, large-scale private capital managers, etc.)

   Frankly, I thought Intrade was mostly just a game of sport for underemployed bloggers and hacks (due mainly to the fact that Congress, for various reasons, has not found it in its heart to authorize a serious political options market on, say, the Chicago Mercantile Exchange — one that actually could play a serious risk management role in the economy).

   Are you telling me I’m wrong about all of this?

10. Timer and Nate Oman,

    I learned at BYU that an economist won a Nobel Prize for pointing out that anyone that actually gets elected is very politically neutral– they maximize votes by appealing as much as possible to the opposite side of the aisle while still staying just a hair on their party’s side. So basically there’s no difference between Republicans and Democrats who actually get elected. So why in the world would businesses buy futures on who wins elections?

11. California Condor,

    It is true that candidates in two party elections have incentive to move toward political center.

    However, the fact that they are trying to appeal to the same group of swing voters does not mean that they will always offer exactly the same thing. Politics is more complicated than that for all kinds of reasons (which I’m sure you’re aware of).

    In many local elections the distinction is particularly clear. One politician makes a credible pledge to spend $50 million on a new highway. The other politician makes a credible pledge to use the same money for tax cuts. Those with a financial interest in the outcome can benefit by hedging with political futures. This hedging would still make sense if you were only sixty percent sure (not one hundred percent sure) that the elected candidate would follow through on the pledge.

    In national elections, it seems that the stock market gets a bump (though of course it’s hard to disentangle from other factors–this is just my general impression from reading finance blogs on election days) from the election of a Republican presidential candidate (reflecting a belief that Republicans are more supportive of higher corporate profits). If one candidate pledges to drive a large amount profit out of the insurance or pharmaceutical industries and the other to do the opposite, well…. there’s plenty of reason to hedge.

12. Timer (11),

    Fair enough. I think for the broad economy, a Clinton is really the same as a Bush. But individual players in the economy might experience a pronounced benefit or harm based on a politician’s pet issues, like the Blackwater security consulting firm, for example.

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