(By Costas Bocelli) In the spirit of the upcoming Presidential election on November 6, which is now less than a month away, I thought today would be a great opportunity to talk a little politics. Think of it as your opening act to tonight's debate between Congressman Ryan and Vice President Biden in Danville, Kentucky.
After all, the election results will be very important -- especially for Individual Investors like us. The question of who controls the White House could have a profound effect on your current investment portfolio, and will likely influence your future investment decisions too.
First of all let's get a couple things straight. I'm not an expert in political science. Nor am I going to spew a politically charged partisan rant. In fact, I tend to cast my presidential vote with little regard for party affiliation.
But this really isn't about who we're going to cast our vote for, or wish to be the President for the next four years.
It's about trying to figure out a specific outcome by looking at things from a trader's perspective. Analyzing information and making unemotional objective assumptions is the name of the game. That IS something that I do have experience with.
And with less than a month to go, my prediction -- and not my vote -- points to President Obama winning re-election and retaining the White House.History Sides with the Incumbent
In professional football, there is a proven statistical advantage for the home team, and that logistical piece of information plays a significant factor when bookmakers set the point spread, even when the home team is otherwise inferior to the visiting team.
And like the historical edge home teams enjoy in pro football, US presidential incumbents also enjoy a statistical edge. In US Presidential races where an incumbent was running for re-election, the incumbent was successful 19 times, while being defeated 10 times. On pure statistics and nothing else, the incumbent is a nearly 2 to 1 favorite in this particular election scenario.Live Money Points to Obama
There are all kinds of presidential tracking polls. Gallup, Rasmussen, Drudge, Politico... you name it. Even the convenience store 7-Eleven has a coffee cup poll, which by the way has allegedly predicted the winner in the last three elections.
Currently most of the reputable polls that are out there show Obama and Romney running close to a statistical tie when you discount factors such as margin of error and statistical variance.
But what is quite telling is that when you look at the live money prediction markets that accept real capital to be wagered on the outcome of who will win the election, Obama is running at a clear premium of 62% to Romney's 38%. In essence, the bookies have Obama priced as a 3-2 favorite, despite Main Street's tracking polls that otherwise imply a much tighter race.The Stock Market is close to 5-Year Highs
Sure, the stock market has declined every day this week, but it's coming off of fresh multi-year highs. The S&P 500 index recently hit levels not seen since December, 2007.
This is a huge tailwind for Obama heading into the election. And with the Fed's latest pledge to buy billions of dollars of mortgage-backed securities on an open-ended monthly basis, any pullback like we've seen lately will likely be short lived and well supported.Jobs, Jobs, Jobs
Job creation is a hotly contested issue in this presidential race, and resonates deeply in the hearts of millions of voters.
And while both candidates are in agreement that more jobs need to be created and offer varying plans, the reality is that the economy has added to payrolls for 24 consecutive months at an average of 150k new net jobs on a monthly basis under Obama's watch.
Last week, the Bureau of Labor Statistics released monthly payrolls for September, which saw 114K new net jobs added. And the prior two months saw an upwardly revised 86K jobs added to the July and August totals.
What added a little more sizzle to the monthly reading was that the household survey, which tracks the Unemployment Rate, dropped unexpectedly by a sharp 0.3% from 8.1% to 7.8%. The Unemployment Rate dropped for the first time after forty-four consecutive months above 8% and is currently 0.1% below when President Obama first took office in January, 2008.
A 0.3% drop in the Unemployment Rate is equivalent to roughly 1.2 million jobs added to the economy. And the outsized disconnect from the recent payrolls data immediately drew intense ire and accusations implying that the Obama Administration and the BLS had window dressed the data ahead of the election.
I'm not going to comment on the veracity of the recent data compiled, but what I do know is that the monthly number can be quite volatile because the survey sample is extremely small (60,000 households). And when taken into full context of the monthly data collected over the last several years, the unemployment rate has been trending down after peaking out at 10% when the economy was in a deep recession.
This in itself is another huge edge for Obama heading into the election.Obama's 47%
Game theory is a powerful weapon. I'm an avid poker player, and game theory helps me crush no-limit cash games. Basically, game theory is all about trying to understand why people make the decisions that they do. And to put it simply in the context of forecasting election results, constituents tend to vote for candidates that will serve their own individual best interests.
Romney was secretly recorded amongst a highly affluent group of donors at a private fund raiser where he made pointed remarks explaining the electorate landscape that he's up against."All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what... These are people who pay no income tax."
While Romney was forced to backtrack on the statements caught on tape and has been doing damage control ever since, the reality is that he is absolutely correct.
President Obama has been running trillion-dollar deficits every year since he's been in office. To be fair, it's been partly to fund very expensive wars that were not his doing. But he has opened the flood gates, expanding and funneling billions into social programs such as SNAP, the USDA food nutrition program, healthcare and other government entitlements such as several extensions of unemployment benefits.
The pools of voters that must take advantage of these programs has grown significantly over the past four years and are likely to vote for President Obama.
The bottom line is that unless Mitt Romney can somehow create a surge of momentum over the next four weeks and persuade enough swing state voters in the electoral college of Florida and Ohio, it's looking like President Obama is destined to four more years in the White House.
What does this mean for us as investors? The #1 biggest thing is this: Who occupies the Oval Office is going to have profound implications on the course of Fed policy going forward.
The future of quantitative easing -- under either Obama or Romney -- is something that I'll be covering in more detail over the coming weeks between now and the election.