For all the smarts the media’s O!bama is supposed to have, our president-elect seems to have a tin ear for the market’s message to him which as of today stands at -20% (measured by market performance from the close of the market on November 4, 2008).

Investors, businessmen and women and those that make decisions as to how, when and what to risk their hard earned capital on each everyday have gotten nothing from the media’s O!bama. The world awaits his great oratory on the economy, on fiscal policy, on regulation, on restarting the financial system, on taxes, on a numerous factors that cause uncertainty, fear and a contraction in economic activity. But our president-elect deigns to appoint cabinet posts based on some new, weird calculus best understood by our media that has not raised a peep as to why he has not announced his candidates for treasury secretary.

In the face of this cluelessness, the market’s have needed no invitation to continue doing their recent handiwork of going about destroying the excess production capacity of the country willy nilly. The only factor being used to make determinations as to survival or death or is one: debt. Those that have debt coming due in the next 12 - 18 months face bankruptcy irrespective of what they do or their future business prospects. That’s the madness of markets in the throes of mania. The markets act like a car without a driver mowing down everyone in its way without discrimination.

O!bama’s decision to simply ignore the market’s message to him has given a boost to the market’s destructive tendencies. The sooner the market’s understand the new administration’s priorities, the sooner it can discount decisions that are going to be made. But the media’s O!bama wishes to wait and see the markets go through their current episode random act of cruelty and punishment.

The country is justifiably proud of Obama’s election in light of the long and difficult road it has traveled to arrive at this moment. As Obama stated in his acceptance speech, his election is an embodiment of the fact “that America is a place where all things are possible.” However, for some, including many who voted for him Obama’s election poses a multiplicity of problems. He is by quite a few measures the most left- leaning, pro-government/regulation, anti-growth/free trade candidate to be elected as president in recent history. His platform contains progressive and redistributive tax policies, including higher taxes on capital gains and dividends. He is in favor of a windfall tax on oil companies, when the long-term supply-demand imbalance argues for policies to stimulate production of this vital energy source. Higher taxes dampen innovation and risk-taking, constraining the commercialization of new ideas that are predicated on a few very large gains offsetting numerous losses.

If one were to measure the business communities reaction to Obama’s election by the best known indicator the stock markets, it’s unequivocal: two thumbs down. Since Obama’s election US stock markets have dropped by nearly 15% as investors anticipate the rise in taxes on dividends and capital gains.

The expectations for Obama’s presidency can only be described as unreal, delusional and impossible. The coalition that he cobbled together to elect him is unlikely to settle for something like Clinton lite. Unions, environmentalists, economic interventionists, socialists, social spending advocates, political correctness advocates etc., etc., are just waiting to sow the seeds of a long reversal that they hope will revert the US back to what it was before Reagan took office. Against the odds, the McGovern coalition that was destroyed by Nixon in 1972 has cobbled together a win for Obama. However, many would agree that current financial crisis may have been the biggest single factor in his victory, creating an irresistible force for voters looking hit the purge button for anything remotely associated in creating it.
The voters now have what they want. Hope. Change. In time our sense they will get what they deserve.
The coalition that Obama has put together, built around his life story and the historic nature of his presidency make him a prohibitive favorite for 2012. From a measurement perspective, his first term will be judged as undoing the mistakes of George W Bush and he’ll get a pass even if hope and change have not come to the land yet. But his second term will be judged and it’s our sense that by the delusions will have ended, the reality of our predicament all too clear and the disappointment great. Then as now, the sentiments will be the same: hope, change.

Within 48 hours we’ll know if we’re right. Or wrong. Within 48 hours we’ll know if the polls missed something or had it right all along. Our sense throughout this presidential campaign was that the polls represented an echo chamber to the media. The media at some point became a strong, sustained and persistent voice for the Obama campaign. A unpaid war room for Obama that answered any criticism levelled by Hilary Clinton in the Democratic primary and has played the same role with more vigor and viciousness in the presidential campaign to anything smelling remotely of attack by McCain.

The question for anyone looking at the polls as a predictive indicator or the Intrade presidential contracts is this: has the media affected the polls by their campaign for Obama?
In finance and economics, both social sciences in our eyes, it is well understood that the act of making an observation affects the observation itself, representing a feedback loop that is self-confirming until the event occurs revealing the faulty assumption underlying logic of the presumed outcome.

Our call for a McCain-Palin victory is based on a number of behavioral no-nos that we have observed through the presidential campaign.

There has been little or no skepticism associated with what are some dramatic assumptions underlying the sudden shift in the electorate anticipated to occur tomorrow.

If the press is to be believed, every state, including hard red Republican states Montana and Nebraska, are in play. Equally, the media and prediction markets suggest that all the swing states and many medium red Republican states like North Carolina, Virginia and Missouri will all turn blue. Voters certainly can change their minds dramatically but rarely by that much in such a short period of time, without a truly transormative event, like the Great Depression or World War II.

To suggest that Montana, Nebraska or Georgia will vote Democratic tomorrow is to suggest that something extraordinary has occurred in the country. An event whose significance is orders of magnitude greater than a poorly executed Iraq war which is not a major issue in the campaign and a economic crisis the impact of which is still unknown. Dramatic shifts in the electorate are understood after the fact, rather than in the process of a presidential campaign. Nixon’s so called Southern strategy was clearly understood as such largely after Karl Rove claimed to explicity to use it to get George W. Bush elected. However, everyone from Reagan to Clinton understood that one could build a winning coalition through the groups that Nixon put together when he was elected in 1968 and 1972.

We suspect the media has gotten itself caught in a terrible trap. A groupthink tsunami. The mother of self-feeding feedback loops. They have extrapolated their excitement for Obama into a irresistible narrative that wraps up the exit of an unpopular president, associated with a once unpopular war and the end of a long housing/credit bubble that has spawned an economic crisis along with the old, fusty, out of touch, warmonger McCain storyline. The timing of the financial crisis has given the media’s narrative a kind of certainty that makes the election seem a cinch for Obama.

Logically, who in the world would like to argue with the storyline? The US is going through one of the worst economic crises in its history. The incumbent is very unpopular, but for a very different reason than when the presidential campaign began. The incumbent’s party is very unpopular. The Democratic party has chosen an exciting young candidate, with the thinnest of resumes which has been an blessing and a curse. The Republicans have chosen a man who is older, very experienced and perceived by the media as past his best years.

Yet, if we strip away the storyline to its component parts we think readers can see a different storyline. The US is still a center-right majority electorate. The underlying conditions for that center-right electorate to be dramatically reconfigured have not yet changed. The current financial crisis has not gone on long enough to affect that many people yet, that would suddenly change allegiances because of it. From our perspective, the electorate then is fundamentally the same one that voted Bush into power.

In terms of familiarity, McCain is a very well known quantity. Only the most partisan would claim that he lacks the experience to be president. The most persistent issue that voters have with Obama is his readiness to be president. This is an issue that Obama that is substantively unadressable for him. The best he could do was to avoid the topic and run ads, that make him seem more presidential.

Electorates tend to stay static for long periods of time. Big events tend to break things up and new electorates form and stay that away till the next big event. If Obama is elected, it would mean that one of the components of Nixon’s southern strategy coalition have change, without a big event. While that’s possible it’s not a high likelihood and one we are willing to bet against.

As of this writing the McCain contract on Intrade is a mere $9.90. We venture that it’ll trade even lower tomorrow as voting starts.

Ultimately, even if we’re wrong on our call for McCain-Palin to win, there is little to gain by owning the Obama contract and much to gain by owning the McCain contract. As of this writing, the Obama contract trades $91.50 and is a bet that even if correct is not worth taking.

As we are won’t to say, only the future can determine the veracity of our prognostications. However, it’s not long between now and the future.

The question for some is: Are the polls to be believable?

There are believers and non-believers. They tend to split with Democrats being in the former camp and Republicans being in the latter camp. Gratefully, the polls are close enough that we haven’t seen the tired, inevitable calls for a Dewey vs Truman type turnaround from the McCain camp. The citing of Dewey vs Truman is in our view THE sign that the election will be a blowout for Obama. Nixonomics has yet to see a real Dewey vs Truman from McCain yet. There was a kind of Dewey vs Truman reference but it was indirect and in our view does not count as one.

Given that Obama is the favorite and looks to be near invincible, at least by those polls and by a very friendly press, the only real fun to be had if the Obama-rout comes to pass is guessing by how much he will win by, which red states he turned blue, and then of course the silly, even stupid analysis of why voters voted they way they did.

It is clear that even voters don’t know why they vote they way they do. Behavioral studies suggest that voters often vote for the first name on the ballot, the most familiar name on the ballot, or the person/party on a particular side of the ballot, or the party/person that they and their families have voted for generations.

These studies suggest that simpler variables than the press’ obsession with “issues” is at work in elections. The number of people that truly take into account “issues” is small. If you can predict turnout and know the percentages of folks in the categories listed above, you’re probably a lot closer to knowing why someone voted one way or the other.

But then, this election is purportedly a “historic” one. We say purportedly because we disagree. There is very little that’s historic about the current election other than that Governor Palin will only be the second woman to be nominated as vice president. Obama’s nomination is hardly unique unless you believe that race is the central factor in the current race. Even so, Obama is the son of a Kenyan immigrant and a caucasian woman. Obama is not descended from slaves and has no connection to the issue of slavery and and civil rights. If Obama were a direct descendant of slaves, his nomination as president and likely victory in 48 hours would be historic.

Nonetheless, the election is among the most hyped in at least a decade. Obama has garnered the support of an unusual collection of the electorate for his likely win, if the press is correct. Catholics, the northeastern conservatives and even some ex-Bushies (McLellan, Powell) are purportedly lining up behind him. The story line for the sudden shift in party among these reliably Republican partyline voters is the dissatisfaction with Bush.

Unquestionably, Bush is unpopular, even though the reason for this unpopularity has changed. Last year the unpopularity stemmed from the Iraq project but it’s now the economy. Once again, this is what the press says.

If what we read and have cited above regarding election oriented behavioral studies is correct, the press has a compelling story, but its unlikely to be true, even if Obama wins.

By behavioral norms, we’d handicap things like names (is it unusual, common, familiar, etc.), which side of the ballot voters tend to see first (i.e. left or right or alternately which name comes first) and long-term historical voting patterns.

In terms of names, Obama has the more memorable one. It’s different and unusual and few intending to vote for Obama are going to vote for McCain. McCain however has the more familiar name and it’s not “funny sounding” which is the way Obama has dealt with the foreignness of his name. From our purview, the name based sweepstakes works out to a tie, with a slight handicap to Obama, primarily because of his “funny sounding” campaign comment. By our reckoning, comments like that tend to make people uncomfortable.

With respect to the ballot and where each candidate will end up on, at the top, bottom, left or right, each state is different. Making a study of ballot patterns would be an excellent project for the big political foundations, and they can determine who is favored when the ballot is not arranged top to down in alphabetical order.

Finally, and perhaps most importantly voting patterns. Big shifts occur, periodically, perhaps even rarely. Nixon’s election in 1968 was one of those occasions. That election saw southern Democrats switch to the Republican ticket. With that switch, Republicans and center-right Democrats have won every presidential election since. Some may argue that Carter and Clinton aren’t center-right politicians. We disagree. Carter certainly presented himself as right of the the then Democratic party. Clinton was in practice a right of center Democrat particularly on spending and welfare.

The big question that will be answered on November 4 is if this electorate is still one that is a majority one. If, or perhaps I should say should when Obama wins, it’ll be because some group that comprised this electorate splintered off.