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Tuesday, January 31, 2012

Obama- A "One And Done" President

This is not a political post, but rather a "sports bet" one, if you will.

Intrade is currently listing President Obama's chance of being re-elected as 54.1%. You can currently buy shares of the President at $5.41 each, or sell shares (short them) a $5.40. Intrade works just like the stock market, except each decision you make is proven completely correct or totally wrong. For example, if Obama is re-elected this November, each share will be worth $10 ($10 = 100%) or $0 if he loses. That doesn't happen in the stock market, unless a company goes out of business, so place your bets!

Are you familiar with the "Bread and Peace" Model? Formulated by Douglas Hibbs, it's an accurate predictor of the results of presidential elections in a two party contest. The model only looks at two areas, per capita real personal disposable income (RPDI) growth and the number of American military fatalities in foreign conflicts during the President's term.

Here's the equation:
Got it? Yeah, me neither : )

Using Hibbs' "Bread and Peace" formula as of October 2011, it looks like President Obama is in trouble, with only a 44% chance of re-election. In fact, PCRI growth must average at least 4% per year over the last four quarters of Obama's term for him to win another four years. And the odds that there will be a recovery that is strong enough? Here's Hibbs' take on it.
If the US economy gets into robust recovery mode, real income growth could be high enough to secure the President Obama’s re-election. However, the pace of recovery from the 2008 Great Recession remains sluggish, and the famous 2009 book This Time Is Different: Eight Centuries of Financial Folly by Reinhart and Rogoff documents that recoveries from contractions originating with the bursting of speculative financial bubbles are not V-shaped as in garden-variety recessions, but instead are typically prolonged U-shaped affairs lasting 5 to 6 years. The statistical properties of the time path of US per capita real disposable personal income indicate that the chances of year-long quarterly growth rates on the order of 4% or higher are no better than 1/7.
So we have an incumbent President with a 44% chance of re-election. The chances the economy will improve fast enough to save him are 1 in 7. Intrade has him at a 54-46 favorite to win. 

I like those odds. It looks like a +EV play to "short" Obama's re-election stock!


  1. I don't really get this. Although I managed to win $50 betting on the Lakers on Xmas day (it was only the second sports book bet I've ever made), I don't understand the betting all that much. Once somebody says they bet a "round robin" my eyes glaze over.

    If this was a sports bet, wouldn't it just be something like -120 for Obama, +140 for Republican candidate? How do you buy shares and get paid off?

    And are you saying based on the model you are sighting, betting that Obama will lose is a good bet?

  2. Look at the other side of the bet.

    Newt? Mitt? Rick? Ron?

  3. @ Rob- You can go to the Intrade home page and it explains how their market works. And yes, according to the model I reference, the bet is against an Obama election win.

    @ Ken- Looks like Mitt to me, although Rick looks like a better fit if you're a conservative.

  4. Mitt is the only person that has a chance to beat Obama, but the question is: "How much of the far right will sit out the 2012 election and live with four more years of Obama in hopes of getting their own candidate elected four years down the road?"

  5. @ lightning- It looks to me like the right is energized. Not necessarily to vote for Romney, but to vote against Obama. I agree that Romney has the best shot to win, because he would be more acceptable to the independent voters. Guess we'll know soon enough :)

  6. Obama is an immortal lock to get reelected.

  7. @ balt- Looks like you're in the majority right now. If there's a third party candidate, it will tip the election to Obama. It'll be an interesting few months!

    Thanks for commenting!

  8. Don't be so sure, balt999. Check out this: