Is the market reacting to the incumbent's chances?

Saturday, July 24, 2004 | 05:31 AM

Nothing like a little political discussion to spice things up on a rainy Saturday morning.

In an attempt to add some empirical facts to a highly emotional issue, Bianco Research has been tracking the relationship between the S&P and Transport.com's Bush reelection futures, and has concluded they're symbiotic.

I disagree.

Bianco notes, via Aaron Task of the TheStreet.com, the following (dubious IMHO) relationship:

"A couple of interesting things – Bush has always been above 50% in this [futures] market, which belies some of the polls that we've been seeing lately," Bianco wrote on June 30. "This market has always thought Bush was favored. ...from August 2003 to the high in January 2004, as Bush futures went to 75 briefly, the stock market was moving up over the same period. ...as Bush futures declined from 75 to 53, the stock market went sideways. Since January, the biggest rally in stocks has been the current rally of the last three weeks or so. The biggest rally in Bush futures since January has also been in the last three weeks or so [again this is of June 30]. These things might not be unrelated. The stock market might want Bush to win, and may be keying off of Bush's re-election chances."

Here's Bianco's chart; Note that my own annotations are in Purple.

bush_and_the_market

My response:

Jim Bianco makes an interesting but highly tenuous (specious, even) argument, for oh-so-many reasons. The first is that markets, being highly complex systems which seem to operate based upon same the principles which govern Chaos theory, are simply too multi-faceted for any single factor to dominate -- at least beyond a short period of time.

Second, the President's futures peaked way before the market did -- but in other instances, the futures hardly led. At best, they may be a lagging indicator -- and just one of many.

Third, an economic reality: all Presidents get far more credit and more blame than they deserve, at least when it comes to economic performance. The business cycle and the Fed Chair have alot more to do with the economy than the President does. (An argument can be made that in the present case, some of the economic policy decisions The Prez made are having their impact -- they were stimulative of some sectors, but not others, and perhaps now the stimulus is fading).

Lastly, markets get it wrong -- and quite often. I know this is a scandalous assertion to some, but sorry, I believe it to be true. Mr. Market was wrong when Nasdaq was at 5,100, and he was wrong in Oct '02 at 1,100. The 4 false rallies since the crash were "wrong," at least in terms of predicting a recovery.

I addressed how wrong prediction markets can get Iowa and Prediction Markets, which had Vermont Governor Howard "I have a scream" Dean as a sure thing in the Dem Primary.

So much for that prediction . . .

Saturday, July 24, 2004 | 05:31 AM | Permalink | Comments (1) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post

bn-image

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00d83464973269e2

Listed below are links to weblogs that reference Is the market reacting to the incumbent's chances?:

Comments

Just a thought, If I were one of those wall-street leaders, maybe I should support the Bush tradesports futures at the 50 level. Just to make an impression of being in a winning team. And it seems to me that the bid side recently has been much deeper that the offer side when the future has traded near 50.

Posted by: Mats | Jul 26, 2004 4:58:02 PM

The comments to this entry are closed.



Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Archives

Complete Archives List

Blogroll

Blogroll

Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:


Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites

FeedBurner


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo

Disclaimer

Disclaimer

Odds & Ends

Site by Moxie Design Studios™

FeedBurner