Thursday, October 23, 2008

McCain's "Dead Cat Bounce"

In the world of high finance (a world in which two dear friends of mine have made considerable fortunes, while I sit down here in Gainesville, Florida, teaching community college), there are many darling terms of insider-slang, most of them dripping with the very sort of droll, gallows humor that one might expect from a room full of people too rich and too smart for their own good. The all-time champion (though, I believe, apocryphal) example of this is the assertion that the company "New England Screw and Bolt" was referred to in trading circles as Love 'em and Leave 'em.

Our high-finance slang term for this morning, however, is dead cat bounce. It's a term used to describe the interesting phenomenon by which a stock or other financial asset that has seen its value drop precipitously will, at some indeterminate point, enjoy a brief and completely unjustified rally--as a certain segment of the market moves in to buy it, thinking they've spotted a bargain. (One of those wealthy friends of mine spent all last week buying stocks, for example--but I love him far, far too much to gloat about it, so I won't even bring it up in print, here.) When this happens, when the asset in question makes this temporary little up-tick on its journey the rest of the way down the toilet, the high-financiers of the Wall Street world refer to it as a dead cat bounce. The premise of the expression is that even a dead cat will bounce--provided you drop it from a great enough height. An explanation which manages to be both hilarious and self-evidently untrue: a dead cat dropped from a great height would only make a larger stain on the sidewalk. I haven't tried it myself, but I don't believe I actually have to.

In the week following the third and final debate, the fortunes of John McCain and Sarah Palin would seem now to have been enjoying not so much a resurgence as a dead cat bounce: Some (though decidedly not all) of the national tracking polls indicated that the race had narrowed slightly, presumably thanks in no small part to the sudden celebrity of a tax-cheat in northern Ohio who practices plumbing without a contractor's license, whose name isn't Joe, and who doesn't actually have enough money to buy a business, or see his taxes go up under Obama's plan, either. Nonetheless, Diego showed the race tightening to D+5, one of the more ridiculous Gallup trackers showed it briefly as close as D+2, and the totally ridiculous AP interactive poll--the one McCain quoted in his improbably combative interview with loyal supporter and long-time friend Don Imus--yesterday reported the race at D+1.

And never mind that the scientifically valid of Gallup's three tracking polls continued to show D+10 or D+11, and steady-as-she-goes Scott Rassmussen saw no blip whatsoever from the D+6 stability he's been reporting for the thick end of a month. Never mind these results, specifically, because they didn't take away from McCain's counter-narrative that he was staging a late comeback. "Barack Obama won this election three weeks too early," quipped one of his surrogates last weekend on CNN, "and now people are actually starting to pay attention to what he says and what he wants to do, in time to decide they don't like it." For a moment there--one, almost sympathetically brief moment--it appeared as thought the Battle of The Pennsylvania Bulge would succeed in breaking Obama's stranglehold on the election coverage.

So what has happened since? Well, to begin with, the McCain/Palin ticket has proven once again that it will never miss an opportunity to miss an opportunity: Ms. Palin, already struggling to break free of the Troopergate investigation (a scandal that she, and she alone, refers to as Tasergate--in yet one more attempt to smear her former brother-in-law), turns out to have been wardrobed and made-up for the last eight weeks at the expense of the Republican National Committee. She's spent $150,000 of RNC campaign contributions on clothing, which is the aspect of the story with which most people have at least a passing familiarity, but she has also spent $20,000 on professional make-up sessions, prior to speaking engagements.

The response is only now building and is at least several days from cresting--at a time when Mr. McCain simply doesn't have several days of lost news cycles, to lose. Already the left-leaning blogosphere is making cruel but highly effective jokes about the matter (viz, "What's the difference between a pit-bull and a hockey mom?" "You can feed a pit-bull for 3,857 years on $170,000"), while other, more soberly industrious entities are wondering in print why the RNC hasn't been formally charged by the FEC for violating the strict letter of campaign finance law, which says in boldface type that a national party committee may not spend contribution money on clothes. Even stalwart voices from the political right are beginning to register their dissatisfaction, by turns wondering how McCain/Palin could have squandered yet one more comeback opportunity, and wondering why their own contributions to the RNC should have been diverted into purchasing the Governor of Alaska a new wardrobe.

Of course, between the Colin Powell endorsement, the record-breaking fundraising total for Obama in September, and his 100,000+ audience in St. Louis, by this past Monday the dead cat bounce for McCain looked to be in some very serious trouble even before the Palin-clothing-scandal. (How do we affix a "-gate" suffix to a word that ends in a "g"? I'm sure someone will figure it out.) But the clothing issue is now guaranteed to make the rounds of the late-night monologues with the sort of gleeful impunity that late-night hosts always reserve for bloviating phonies who refuse to hold press conferences in a desperate bid to hide the bankruptcy of their ideas from the general public. Suffice it to say that the next few days--some of the last few days of the election--are all but certain to be difficult ones for McCain/Palin and the RNC.

And the polls themselves? Ah, herein lies the rub. It happens that the two most reputable state-by-state polling firms (Battleground and Qunnipiac) are out this morning with new data on a variety of states, largely collected after the Powell endorsement. Quinnipiac is out with new polls in Ohio, Florida, and Pennsylvania, while Big-Ten Battleground chose this morning to release its current crop of results for Illinois, Indiana, Iowa, Ohio, Michigan, Minnesota, Pennsylvania, and Wisconsin. And the results, for McCain/Palin, are nothing short of dreadful.

Indeed the results are so dreadful for McCain that they warrant the extra column-inches for an itemized review, here:

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Battleground:

Illinois: Obama 61%, McCain 32% (D+31, but no surprise)

Indiana: Obama 51%, McCain 41% (D+10??? In INDIANA???)

Iowa: Obama 52%, McCain 39% (D+13 in a state McCain has visited in the past week)

Ohio: Obama 53%, McCain 41% (D+12 in a state without which McCain cannot win)

Michigan: Obama 58%, McCain 36% (D+22, which is about as big as possible)

Minnesota: Obama 57%, McCain 38% (D+21, ending all hope in the Gopher state)

Pennsylvania: Obama 52%, McCain 41% (D+11, making the PA gambit look hopeless)

Wisconsin: Obama 53%, McCain 40% (D+13, in another state McCain/Palin had hoped to peel)

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Qunnipiac:

Florida: Obama 49%, McCain 44% (D+5 in a state that was supposed to be the leading edge of McCain's comeback)

Ohio: Obama 52%, McCain 38% (D+14, even bigger than Battleground's result)

Pennsylvania: Obama 53%, McCain 40% (D+13, ditto)

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...Incidentally, Obama is also leading in North Carolina, Nevada, and Virginia.

But it is actually possible that Obama is doing even better than these polls might suggest--since every polling firm must employ some sort of "screen" to determine whether an individual is likely to vote or not, and then apply a second "weight" to ensure that the random sample they've received matches the party affiliation percentages of the state they're trying to survey. Neither of these processes is an exact science, and in a year that increasingly shows all the signs of a sea change in the fortunes of the two parties, it's entirely possible that the major polling firms are completely missing the mark to Obama's low side, using these two adjustments.

In early voting Mr. Obama is out-performing even his own best-case scenarios, for one thing, turning out African Americans and other Democrats in numbers wholly inconsistent with polling firms' likely voter screens and party-ID weights. Obama now stands a more than passing chance of stealing Georgia (of all places!) at least partly on the strength of the overwhelming turnout that state has already seen among its African-American population. At present the percentage of early votes in Georgia cast by African Americans is running at 35%, a full ten points better than their composition of the total ballots cast in 2004. Coupled with an almost certain decrease in Republican party discipline this time around, there would seem to be every possibility that the state-level polling for Georgia is being distorted by antiquated expectations regarding party-ID and likelihood of casting a vote. If the pattern holds in other early-voting states--notably Virginia, North Carolina, Ohio, and Florida, we could every well be looking at the earliest indications of a shockingly lopsided election night.

The problem for McCain now isn't even the reality of any of these burgeoning news stories, as the perceptional narrative that they set him up against as he continues to struggle to find an effective counter-punch. With twelve days to go, it isn't so much that Palin's wardrobe and Obama's twelve-point lead and the dramatic tsunami of early votes are collectively impossible for him to overcome (though in fact they may be), as that any further news coverage of McCain/Palin campaign maneuvers will be lead with prefaces that continue to remind everyone of the ticket's longshot status. It's easy for us to forget--since the last two Presidential elections have been so close--that most Presidential elections, are not. And part of the explanation for this is that a sizable contingent of the electorate is so concerned with not wanting to be seen supporting a loser, that they will actually alter their preferences to accommodate the larger state of the race. They may not switch their votes, but they may stay home--and, perhaps every bit as damning for McCain, they certainly won't rally to his defense when the pro-Obama wave starts building at the lunch counter.

And so where does that leave Election '08? Is it now completely over?

Almost. Over the next day or two, the current state of both the polling and the news coverage will do one of two things--either the polls will break slightly back in favor of McCain, affording the mainstream press one last opportunity to fan its ratings with nonsense about how this thing could still go either way, or the polling data will solidify around this D+12 or D+14 trendline that had been emerging before our lives were sullied by the uninvited presence of Joe the Plumber, and the media will have no choice but to solidify its own editorial slant on the coverage, to avoid seeming behind-the-curve.

No bonus points, by the way, for guessing which of those two ways it's going to go.

Dave O'Gorman
("The Key Grip")
Gainesville, Florida

12 comments:

Doug said...

Dave - do you think the Biden comment about Obama definately being tested in the first 6 months of office will generate any traction for McCain?

Please stop calling this thing over. You're gonna jinx us!

The Key Grip said...

Biden's comment would have been a gaffe in a tied race, as it stands it's been very easy for Obama to foul it off by changing the subject back to McCain's lack of a coherent economic policy.

On the "jinxing us" front, call me a contrarian but I seem to want to think -- rightly or otherwise -- that exuding confidence is actually a good thing for us, at this point: It seems far more likely to discourage Republicans than de-energize our own people (the Republicans have a shorter distance to fall, for one thing), and it also decreases the likelihood of a stolen election because it sets up the social narrative in a way that doesn't leave as much room for "surprise" outcomes in favor of McCain.

isuyankee said...

I am in the Warren Buffett camp on stocks "be greedy when others are cautious and cautious when others are greedy." Stocks are cheap here. (Just in case though, do you think you can get me an interview over at the community college!!!)

The Key Grip said...

The bottom of the equities market has to be down here (there?) somewhere, to be sure. But I wonder if a true crisis of liquidity, of the sort espoused earlier today by Chairman Greenspan, would lead to a semi-permanent realignment of the P/E baseline -- which, if I were right, would suggest that there still could be some easy money to be made to the low side.

Still, my friend who does this stuff for a living is a lot smarter than I am about it, and he's buying, so I guess what that means, isuyankee, is that you've gotta consider the source.

Doug said...

You are right, of course, about the jinxing stuff. Showing confidence and leadership right now is what this country needs.

However, we've all lived through 8 years of an administration that has hurt us in so many ways. And I do believe the Republican party will do virtually anything to maintain power.

So let's show confidence.

And run full speed across the finish line.

But let's not call it over just yet.

Brian B said...

With respect to Palin's spending spree at Nieman Marcus, et. al., how about WardrobeGate?

With respect to the market, I do not believe that the market has priced in the dismal financial results that will be posted in the next 3-12 months. People have plain and simple stopped buying anything except the essentials. Everything I have heard on CNBC, Bloomberg, and CNN has indicated that we are looking at a 12-18 month recession. The markets usually pick up 3-6 months before the end of the recession.

The recent surge in the value of the US$ is temporary - another dead cat bounce of a sort. The international market is clearing the carry trade and their various securities and derivative positions. This is temporarily driving up the demand of the US$. Once this surge is over, the international community is going to look at the fundamentals and see a country in recession, with $10 Trillion in debt, and a structural deficit that will certainly be above $500 Billion and could approach $1 Trillion, at at war in two distant countries.

On top of that, I have read (but cannot find the links again) to moves to price oil in Euro's or a basket of currencies. There goes another source the demand for US$.

And China's growth is declining from the current ~9%. When they hit 6%, they will be in an effective recession. When this happens, Chinese purchases of US T-Bills will decline. Which would be yet another knock against US$ demand. More importantly a source of debt financing for the deficit will slow or stop its support.

All that being said, this points to dramatic downward pressure on the US$ over the next year or longer. YIKES.

My friends and I have been talking about a permanent decline in the US standard of living.
Obama and Biden will need to do something dramatic when they win to bring the US economy back to some degree, maintain the morale of the Us citizen, and get people comfortable (or at least able to tolerate) a less consumption oriented lifestyle. I am personally at a loss as to what actions they can and will take to do this effectively. Any ideas?

My source of optimism with all this is that Obama and Biden WILL WIN the election. Even better, after 4 terrible years, the GOP may bery well want Palin to lead the ticket in 2012. This would be create a winning situation for the Democrats in 4 years.

Brian B said...

Another thing - an Obama/Biden landslide (with Senate and Congressional gains/control) will give him the authority to act as they see appropriate. A united government is what is needed so that they can act quickly. Hopefully, they will act wisely as well, looking to the long term as well as the short term.

The Key Grip said...

Oil is already -- I think -- priced in euros, de facto. If you look at what has happened to the price of a barrel of oil, as converted to euros, over the past two years, it's essentially flat, with a slight up-tick that can be attributed to increased demand in China. So you're right there.

My biggest concern for the US economy now is how low the Treasury will have to price its auctions in order to keep selling them, after China and the Social Security Trust stop buying them. If they go to, say, 20% -- which sounds Chicken-Little of me, but is entirely possible -- then there's no way any other instrument will be able to compete on the open market without paying even more, since those other assets have higher default risk.

Once it costs you 27% to borrow money for a house, what do we all think the current "housing crisis" is going to be remembered as, other than a drop in the proverbial bucket?

Brian B said...

I agree that the cost of oil in Euros has not moved a whole lot in comparison to the US$ volatility. However, the impact to the US will be when the Euro is used for settlement on purchase. This will dramatically decrease the demand for the US$. If, or perhaps when, this happens, the US$ will be subject to another devaluation pressure.

The question I am trying to answer is whether one of the end results will be inflation or deflation. There are pressures on both sides.

The Key Grip said...

The use of the dollar as a worldwide reserve currency has, in past times, held up the value of our dollar on world markets, which has held down our inflation rate. If the dollar were suddenly not in demand, the immediate effect would be inflationary. The only good news is that it would also make our exports cheaper as measured in someone else's currency at the other end of the trade pipeline, but that's different from contradicting the inflationary effect, which would be there anyway.

shabec said...

I was in Fernandina Beach this morning, looking over at a gigantic pulp mill. There was a pile of sawdust large enough to fill several ships. A fisherman said to us that it was exported to Latvia to make that fake furniture like Sandvic. It seems to me that when I took econ 4 million years ago that a country didn't want to take their raw materials and not make value-added products out of them themselves. I think OB should do several things immediately. 1. Pull out of Iraq AND Afghanistan. 2. Institute Medicare for ALL. 3. Start a CCC and NRA to put people to work rebuilding our infastructure and green energy projects. 4. In addition to his proposed tax plan, crush those firms who export jobs overseas. Cap CEO pay at 40x lowest paid worker. You're effing right that this is redistribution of wealth, and it is about time that the poorest and least among us are taken care of. Stop robbing the poor to pay the rich. I don't think the people are buying the lies this time. Non-Joe the non-plumber is not resonating this time around! 5. Don't let the ARMY of volunteers get away. This is an incredible bunch of people with drive, ambition and good will. They could be the heart of a new civilian corps in every neighborhood in every city. In one of the reddest (and thanks, Doug for sending the NY Times article wow!) states in the US, we have an office in our tiny city. Some of us "Deaniacs" were meeting 7 years after Dean was hounded out of the race, and became the basis for OB's remarkable structural organization.

shabec said...

I was in Fernandina Beach this morning, looking over at a gigantic pulp mill. There was a pile of sawdust large enough to fill several ships. A fisherman said to us that it was exported to Latvia to make that fake furniture like Sandvic. It seems to me that when I took econ 4 million years ago that a country didn't want to take their raw materials and not make value-added products out of them themselves. I think OB should do several things immediately. 1. Pull out of Iraq AND Afghanistan. 2. Institute Medicare for ALL. 3. Start a CCC and NRA to put people to work rebuilding our infastructure and green energy projects. 4. In addition to his proposed tax plan, crush those firms who export jobs overseas. Cap CEO pay at 40x lowest paid worker. You're effing right that this is redistribution of wealth, and it is about time that the poorest and least among us are taken care of. Stop robbing the poor to pay the rich. I don't think the people are buying the lies this time. Non-Joe the non-plumber is not resonating this time around! 5. Don't let the ARMY of volunteers get away. This is an incredible bunch of people with drive, ambition and good will. They could be the heart of a new civilian corps in every neighborhood in every city. In one of the reddest (and thanks, Doug for sending the NY Times article wow!) states in the US, we have an office in our tiny city. Some of us "Deaniacs" were meeting 7 years after Dean was hounded out of the race, and became the basis for OB's remarkable structural organization.