Politics and the economy are intertwined. We all know this. That is why in recent political polls, the most common response to “Thinking ahead to the November presidential election, what is the single most important issue in your choice for president?” is “Economy/Jobs”. We wouldn’t name that as an election issue if we believed politicians could affect the economy.
Markets influence politics and politics influence markets. The actual stings on influence are many and diverse. Add to this tangle, a new thread, from Intrade.com. The site sets up a futures market for all sorts of events. Everything from the name of the last named storm of the 2008 Atlantic hurricane season (‘Omar’ is the current favorite) to the most used internet search engine. The most interesting futures, though, are about politics.
These are real markets. Real money is spent to buy shares of an Obama presidential victory and the like. The value of those shares fluctuate according to how the market views how his chances of winning change. As of the time when this sentence was written, an Obama victory is trading at 61.3 and McCain is trading at 34.4. They are followed by Clinton at 5.1 and, amazingly, Al Gore, who isn’t even running, at 0.6. I think I’d sell that one short, if I could find a buyer.
The numbers represent the percentage chance of the event occurring. Thus if you think Clinton’s odds of winning the 2008 Presidential election is greater than 5.1%, then you should buy shares. If not, you should sell them. The monetary value is one-tenth the percentage. Thus, in this example, a share of a Clinton victory is $0.51.
Anyway, they do a state-by-state victory as well. For instance, you can buy shares in a Republican Presidential victory in Ohio for $3.90 apiece (representing a 39% chance that the republican candidate will take OH’s electoral votes). Because of this, they always have a current Presidential electoral map based current prices. Check it out now and then and let’s see how self-correcting this market is.