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Sunday, November 02, 2008


Election Preview post

There are really only two possibilities. Either the polls are right or they're not. If they are right, Obama is going to get over 330 electoral votes, winning most of the states that are really competitive. I would expect him to win, for example, New Mexico, Virginia, Ohio, Colorado, New Hampshire, Pennsylvania, and Wisconsin. The rout is on if, as is possible, he can win one or more of the following: Florida, Indiana, North Carolina, Georgia, Missouri, and Montana. You are going to get results from Virginia, North Carolina, Indiana, and New Hampshire pretty early, and if a couple of these are going to Obama pretty decisively, you can go to bed. If he runs the table, GOP survivors will be few.

The second possibility is that the polls are wrong, either because of flawed statistical and/or execution methods, including bias by those conducting them, or because poll subjects simply self selected (McCain supporters were more likely to decline to be polled) or chose to poll for Obama when they were in fact undecided or leaning to McCain. There is also the possibility that there has been a late move toward McCain that his supporters have been talking about, in spite of the lack of any apparent evidence.

If this is the case, McCain would squeak out all of the above mentioned states, except perhaps New Hampshire and New Mexico, resulting in another cliff hanger election. In that case, we will have a very long night, probably inconclusive, going to the absentee ballots, confirmation of provisional ballots, etc. Hopefully, without litigation. In this scenario, McCain probably brings back one of the 2004 blue states that was very tight, maybe New Mexico (I doubt it), but probably not Pennsylvania.

Which scenario is more likely? I am afraid that scenario #1 is about 85% probable. Americans vote their wallets and their pocketbooks. When the economy looked like it might hold, McCain's edge in experience and statesmanship might have been enough to overcome the unpopularity of the current administration. With the economy pretty clearly in recession, a change of parties in control of the administration must be expected. I expect the popular vote to be something like 53% to 45%, with the rest going to the fringe parties.

One might ask why I would assign scenario #2 even a 15% probability? The fact is that I am seeing folks who are usually knee jerk liberals having trouble committing to Obama. This lends credibility to the few polls showing very high (up to 14%)numbers of "moveable voters." So, we'll have to watch for confirmation of the Obama tide before hitting the hay Tuesday night. But confirmation may come early.

The Congressional races don't look so good for Republicans either. Say what you will, African American turnout will be much higher than ever, and they vote reliably Democratic. The only question is whether all the new voters will spend any more time in the booth than it takes to mark their vote for Obama. So GOP senate candidates are hoping for a big undervote for their races. If that doesn't happen, the Dems have a good chance for 60 or more. Races to watch - New Hampshire where Sununu is in trouble, North Carolina where Dole is at risk, and Minnesota where Norm Coleman could actually lose to a not very funny comedian, Al Franken. What a country!

If the GOP hangs on to 41 or more, they will have to be dealt with and they will stand as the last bastion for private property and against higher taxes. As for Iraq and other international issues, independent Senator Lieberman can be added to the minority, and that will prevent the more radical mischief. Still it's a very bleak picture for the GOP. They are likely to lose 15-20 House seats as well. My next post will feature prescriptive advice for how Conservatives should go about the rebuilding process.


Here's a quote from a WSJ editorial. "If Fannie May were a normal private company, it would be tarred and feathered faster than you can say 'Enron.' But Fannie May is not just another private company. It has a federal charter and an implicit guarantee from the government (read: taxpayers) of its debt. Which makes it all the more vital that Congress reduce the risk that Fanny Mae and Freddie Mac pose to our financial system and the federal fisc."

As if we didn't know, right? Well, we didn't all know when this was written. It's from the February 24, 2006 edition, predating Fannie's demise by more than two years. It expanded on the findings of the Rudman Commission, which highlighted the mismanagement and outright thievery of Franklin Raines and the other managers of the GSE's, who maintained their gold mine by sprinkling gobs of cash to Congressional supporters like Barney Frank, Chris Dodd, Chuck Schumer, and yes, Barack Obama. And this is the crowd about to gain almost unfettered control of Washington.

There was actually a rare win for logic and good sense this week when the Bilosky decision was handed down by the U.S. Court of Appeals. The case concerned the ability to patent so-called intellectual property, that is business processes and other methods. The Court quite logically decided that without some physical manifestation, an idea could not be patented. If you are not in a large corporation, you have no idea how the in-house lawyers had gained control of all the projects so they could patent every seemingly new idea under the sun, allowing them to rush to the courthouse seeking compensation every time someone else thought of the same thing.

Intellectual property is, hopefully, an idea consigned to the scrap heap, although a Supreme Court appeal is likely.


We are likely in a bear market rally, with a retest of 8200 on the Dow still a possibility, but for now, I will stand by my call in the last post that we have made a bottom, that occurred Monday. The markets had driven my account values down to the point where the formula calls for only three transactions every two weeks instead of four, so we only had one last week. On Monday, I bought 500 shares of Boyd Gaming at 3.95, for a change, a well-timed purchase based on its closing price for the week. This will be an interesting week. The market will like the certainty of knowing the election result (assuming we do know), though it may not be crazy about the identity of the winners. The other question is where we are in the deleveraging process, and what the next move by the hedge funds will be.

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