Thursday, April 26, 2012

How The Bettors Are Handicapping the U.S. Political Races

Politics matters to the financial markets, but unfortunately the results of many presidential elections are not known until the final night.  To gain at least an educated guess of what the likely election results will be, a few years ago we started tracking various European wagering sites that take bets on U.S. political races.  It might seem odd that we would look to Europe for U.S. political guidance, but the research shows that the ones betting are mostly Americans who are using the foreign sites because in many countries on the Continent political betting is legal. 

The site we have come to trust the most is  As with many other European betting sites, on one can bet on just about anything from NASA offering proof of alien life forms to global warming.  It's a bettors' paradise or nightmare, as the case may be.  

We have watched for the last few elections and we have been very surprised how accurate their predictions have been.  If you go to the site you will see some of the academic research that has been done on the accuracy of the betting.  

There are literally hundreds of U.S. political races on which an individual can place a bet via the site.  We will track three races in particular:  the presidency, control of the House of Representatives, and control of the Senate.  We have also thrown in the current betting on one other political matter.  Please read on to see some surprising early wagering.   

The Presidential Race

Bettors currently are wagering that there is a 60% chance of President Obama retaining his job.  The chart shows how the betting has progressed since January of 2011.  He was above 60% for the first six months of 2011, before slipping to as low as 47% in October. Bettors then pushed his probability of winning back to the 60% range in February of 2012, where it has remained for the last three months.  We would expect some softening in President Obama's lead as challenger Romney begins his campaign in earnest.

Control of the House of Representatives

The Republicans are the runaway favorites to maintain control of the House of Representatives.  This past week that probability rose to 80%, the highest betting level it has been since late in 2011.  We don't see too many political pundits that disagree with this prediction.

Control of the United States Senate

The betting on this outcome will surprise you.  Sixty-five percent of betters are wagering that the Republicans will take control of the Senate.  We are not seeing that high a probability of Republican election success among the recognized polls.  This one will be interesting to watch.  

Bonus Betting

Probably one of the hottest political topics of the year has not been about politics directly, but about the constitutionality of Obamacare, the president's revamping of U.S. health-care.  The Democrats  bet the ranch, so to speak, when they pushed through the legislation.  The Republicans have attacked it before, during, and after its passage.  Now the whole matter is in the hands of the Supreme Court, who has promised to render its verdict in June.  Below is the current betting on the issue. 

Unconstitutionality of Obamacare

After watching the six hours of Obamacare testimony before the Supreme Court in late March, the betting here does not surprise us.  The sharp upward spike during the testimony shows that bettors were not convinced the president made his case.  Currently bettors have placed a 60% probability that the Supreme Court will rule Obamacare unconstitutional.   

We will continue to track the races we have discussed in this blog from now through the end of the election.  Things will definitely change over the course of the next few months.  The constitutionality of Obamacare will be decided in June.