PRESENTS:

Polls Say Kerry. Futures Say Bush. (DANIEL GROSS, 8/08/04, NY Times)

IN the presidential campaign season, which is now unmercifully upon us, the worlds of politics, economics and the markets merge. Traders watch opinion polls for guidance on whether to buy or sell, pollsters track the markets for indications of the popular mood, and campaign managers await each new macroeconomic gleaning with the jangled impatience of 3-year-olds at a Wiggles concert.

While most public opinion polls show the Democratic nominee, John Kerry, with a slim lead, some market and economic indicators are telling a different story. On two exchanges where investors trade contracts on political outcomes - the Iowa Electronic Markets and Intrade, based in Dublin - President Bush has a slight lead. And a venerable economic model that uses historical voting results and current economic data to predict presidential votes suggests that Mr. Bush will win by a large margin.

Intrade's 34,000 members can trade futures contracts on events, like which city will be the host of the 2012 Summer Olympics. Bush futures - which pay $1 if President Bush wins the election and nothing if he loses - were trading at 52.4 cents on Friday. That means traders believe Mr. Bush has a 52.4 percent chance of winning re-election.

Should anyone give credence to such exchanges? "Our contracts have a much higher predictive value than any public opinion poll because people have to put their money where their mouth is," said Michael Knesevitch, director of communications and business strategy at Intrade, which was founded in 2001. "We predicted all the primaries. We also had Edwards as being the vice presidential nominee back in May."

The Iowa market, housed at the University of Iowa, has been around since 1988 and makes somewhat less exuberant claims. A comparison of 596 opinion polls with Iowa's presidential futures prices at the time the polls were conducted shows that the futures prices were closer to the actual result 76 percent of the time, according to Thomas A. Rietz, an associate professor of finance at the University of Iowa and a director of the market. As of Friday, Iowa traders thought that Mr. Bush had a 52 percent probability of winning.

That's pretty much where he should be if the election were being held today--1% better than his approval rating. The election though is in November--after the GOP convention; two months further away from the handover of sovereignty; after two more months of economic growth; after a debate or two...

Posted by Orrin Judd at August 8, 2004 8:23 PM