Monday, November 05, 2012

Is anything happening tomorrow?

Finally, we get to move beyond the "Local TV Reinvestment and Recovery Act of 2012" aka, the election season, tomorrow.

I won't offer any endorsements or advice because politics remain the third rail of the blogosphere, but I will encourage everyone to vote.  I will, however, give some thoughts on the national campaign and its potential impact on the markets.

The consensus right now is moving toward an ugly, ugly forecast.  Many pundits predict that Romney wins the popular vote by 1 - 1.5 million but loses the electoral college by 15 votes or so.  This is roughly the same scenario as 2000 (when Gore won the popular vote by 500k or so) but the implications in today's increasingly partisan world are scary.  The likelihood of this happening has increased as a result of the East Coast superstorm which will suppress voting in the Northeast.  It doesn't put any of these traditional democratic states in play but it will likely lower the overall vote totals for President Obama.

Scenario 1 - If the electoral victory for Obama is clear I think the initial reaction by the markets would probably be positive, but concerns over the pending fiscal cliff and resistance to compromise from both parties would like dampen any enthusiasm.

Scenario 2 - The same as #1 but what happens if the victory is not clear?  I've heard that the parties have plans in place to demand Florida-style recounts in up to 5 states.  This is a nightmare scenario for the markets as they struggle with the uncertainty this would create.

Scenario 3 - Romney wins both the popular vote and the electoral college.  I think the markets would welcome this news because it would remove uncertainty.  However, the Senate should remain in Democratic hands and that would still cause some concern about Governor Romney's ability to craft a plan to avoid the fiscal cliff.

Scenario 4 - President Obama wins both the electoral college and popular vote.  Again, I think the market's would welcome this news because it would remove some uncertainty but then the focus would shift to the House to see what sort of political capital the President would have earned.

Last week, I was leaning toward Scenario 1 as being the most likely but I'm uncomfortable being part of the consensus.  When everyone is expecting A, B usually happens.  In this case, the market seems to be focused on a President Obama electoral victory (betting odds are running around 75%-80%) but more and more people are coming around to the idea of a Romney popular vote victory.

I usually like to be a contrarian so I'll switch my leanings toward scenario #4.  I suspect that the trend we've seen in polling in recent years will continue ie; missing the under 25 crowd.  Pollsters are really, really bad at getting in touch with the under 25 crowd despite their best efforts because this group of voters either doesn't have a landline or ignores the pollsters when they call on their cell phones.

This leads to an even bigger question when it comes to the validity of polls.  Recently, a Pew Research paper indicated that for every 100 homes contacted only 9 actually answer their polls.  I wonder what the response rate was like 1952 or 1972?

However, it turns out make sure to have your voice heard and get out and vote!

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