Tuesday, July 31, 2012

National Pulse Index Update - July 31

To see what this is click here.

Here's the latest:

And the cumulative graph:

The last week has been quiet with no real gain for either side. As there's a tendency for these data (in the top graph) to oscillate, one might expect to see things swing Democrat for a bit, but we'll see.

Overall, Republican polling gains have been relentless since April, and it's even started to be reflected in the presidential race numbers, however slightly. Also, as all these races are at least somewhat of a referendum on the battle for the White House, we can conclude that Obama's attacks on Bain have been ineffective and his "you didn't build that" gaffe may have hurt badly (the last big Republican polling surge happened after he said that).

Look for the White House to go even more negative and roll out any number of attack strategies. This will be self-defeating, though, as presidential candidates viewed as glowering pessimists almost never win. Think back through the last dozen elections or so - the cheery optimist wins every time. Obama played that role well in '08, but he has turned into the angry scold this time.

Tuesday, July 24, 2012

Introducing the National Pulse Index

In the run-up to the election, the Naked Dollar will keep you up to date on its two political models, the Electoral College Forecasting Model, and the National Pulse Index. Today we will talk about the latter.

I used to run a quant hedge fund. What we quants do is take lots of data and make sense out of it. So, how to use this approach to capture the ebb and flow of an election cycle at the national level? Is the national mood swinging Democrat or Republican?

The approach I came up with two years ago is a simple metric, and the purpose is to use data - not the media or the water cooler - to track short term swings in political momentum. As it happens, it's a quick way to determine if the media narrative has any merit.

Essentially, the Index aggregates polls from everywhere, from presidential down to the House level. The idea is to pull in a huge and continuous sample, exploiting the wisdom of crowds. Specifically, the Index compares each new poll with the previous poll from the same race. The other day, for instance, Rasmussen reported that Sherrod Brown, who's running for re-election for the Senate in Ohio, is up by 4 points. While this may seem like good news for Democrats, the last poll actually had him up by 16. I assign this a "minus 12" for the Democrats.

Each day, as new polls come out, they are compared to the previous polls from the same race. The numbers are added up to get a net score for the day. Then, I use a moving average of the last five days to smooth out the data. This gives us a very good picture as to which side has the momentum.

Allow me to make my case for why this works, and then we'll get to the numbers.

1. On any given day, this will capture the aggregate opinions of up to 20,000 people, whereas an individual poll (that might get one side or the other excited) can have as few as 300 people.

2. There really is a national "mood," and it really does matter which way it's moving. Opinions are infectious. It matters in Ohio what people are thinking in Alabama. They may not be perfectly in sync, but they do tend to move in the same direction at the same time. Thus, if Diane Feinstein just went from 20 points up to 30 points up, it doesn't mean anything for Feinstein - she's still going to win easily - but it does mean the mood in California is moving in a certain direction. This makes it likely the mood is moving in the same direction elsewhere.

3. Aren't some of these polls partisan and/or sloppy? Absolutely, but the Index takes them all, because it evens out. For instance, not long ago a Bloomberg poll came out showing Obama up by up by 13 points, which was a crazy outlier, and resulted in a +10 score for the Democrats (since the previous poll had shown him up by 3). A day later, though, another poll came out showing Obama to be down by two, which resulted in a -15 score. Bad polls tend to get balanced out, in other words. To the extent that they don't, they probably have useful information, which is why one doesn't want to make judgments about which polls to use.

4. What about the Generic Ballot polls, the ones where people are asked whether they intend to vote for a Republican or a Democrat? Don't those show the national pulse? Yes they do, but they don't come out every day, and they survey far fewer people (as few as 700).

So, the narrative over the last couple of months has been: good month for Romney/Republicans in June, good month for Obama/Democrats in July. But what do the numbers say?

This shows the swings. As you see, it's mostly an oscillator. Here, the positive swings mean Republican swings, and negative mean Democrat. Overall, the swings seem to favor Republicans.

Perhaps making this clearer is the following graph:

This time series started on April 1st. Each time a poll moves for a Republican, it's a positive, and vice verse. (Obama moving from +1 to +3 would mean the Index moves down 2 points, in other words.)

The trend is clear enough: momentum has been favoring Republican candidates, unrelentingly so. This is a tide that will be reflected in the presidential race, even if the those poll numbers don't reflect it yet. Interestingly, the media isn't picking up on any of this, probably willfully so. It also suggests that Obama's media buys are working against him.

The obvious caveat: we are a million years from election day, and momentum shifts in October will be more meaningful.

This is a lot of work, folks, so I hope somebody cares!

Tuesday, July 10, 2012

An Open Letter to Mitt Romney About Taxes

Dear Mitt,

You don't need The Naked Dollar to tell you that our current tax code, a Frankenstein monster of unimaginable complexity and perverse incentives, is a huge part of what's wrong with our economy. You acknowledge as much on your website. We all know the code is a monster that can no longer be tweaked - it must be destroyed.

But your solutions (which are there, if you click enough things) are not revolutionary. They can barely be called evolutionary. You leave the monster in place.

Right now, you are essentially avoiding the issue on the campaign trail. I suspect this is because you think you will leave yourself exposed to class warfare arguments. You believe you can run a disciplined, close-to-the-vest campaign and win. You probably can. With a wink-and-a-nod you assure your supporters that you'll solve the big problems after you dispense with the election.

I have a problem with this, because the goal is not so much to get you elected as it is to fix the country. We may not get another chance. For a president to pull off a big, structural change in something like the tax code, without saying up front it's what he wants to do, is highly problematic. On the other hand, if you say it, it's a mandate.

What's frustrating to me is that the tax issue is not something you need to hide from. In fact, embracing it will help you get elected. Follow me here:

  • The tax code is the single biggest source of (legal) political corruption there is. Politicians sell exemptions to the code in exchange for contributions. The more complex the code, the easier it is for pols to pull this off. Our current code is unmatched in its complexity, and therefore its corruption.
  • Most of those buying code exemptions are big corporations. There is an expression for this: crony capitalism.
  • All true conservatives hate crony capitalism, because there's nothing capitalist or conservative about it. It's legalized cheating that distorts free markets.
  • More importantly, the left hates it too. Big corporations buying favors? This is one of the things the Occupy types are marching in the streets about.
  • So, rail against the tax code as the source of crony capitalism, as something that favors big, connected corporations over the little guy (all true).
  • Make the point that the only way to heal the code is to scrap it and start over with something new, the simpler the better (even a little complexity will leave it open to corrupting influences later).
  • Also point out that by doing this, you can dramatically reduce the size and scope of the IRS, nicely contrasting you with Obama's plans to enlarge it.
  • Lastly, find a company, perhaps in Nancy Pelosi's district, that got a tax break that no one else got. Link it to a series of contributions. Make it the poster child for tax-code related corruption.

These arguments will resonate with every point on the political spectrum. They will firmly plant you on the side of the little guy and small biz, helping offset your image as a Bain Capital, big time Fortune 500 type. Best of all, they are all true.

Time to step up, Mitt.


The Naked Dollar

Thursday, July 5, 2012

Elections Since 2008 - What Are the Voters Saying?

Last week's SCOTUS decision was was a horrible turn for the conservative movement, to be sure. John Roberts wants to be invited to better Georgetown cocktail parties, apparently. The invitations are in the mail. Alas, voters can't do anything about Roberts. He's untouchable.

But what have the voters been saying lately, when they've had the chance? Elections in off years are often viewed as referenda on the person occupying the White House, so what have they been telling us?

 The vox populi has been unequivocal: President Obama is in deep trouble.

The first stirrings of discontent manifested in 2009 with the elections of Bob McDonnell in Virginia and Chris Christie in New Jersey. The Christie election was especially startling given New Jersey's status as a thoroughly blue state. Scott Brown won in an even bluer Massachusetts.

Then, of course, there were the house elections in 2010, where Republicans picked up 63 seats, the most in 72 years.

Then we had Bob Turner's election to Anthony Weiner's seat, which straddles Brooklyn and Queens. You would be hard pressed to find a bluer place.

More recently we had the emphatic rejection of Scott Walker's recall in Wisconsin, another blue redoubt.

Also, sometimes overlooked has been the huge swing towards Republicans in state house races across the country.

The only bright spot for Democrats was retaining Gabrielle Gifford's seat in Arizona, an election greatly influenced by Gifford's personal popularity and sympathetic story.

It is difficult to understand why anyone believes Obama is the favorite to win in November. For three years, voters have been champing at the bit to send a proxy message to the White House. What will happen when they have the opportunity to send a much more direct message?

Intrade betting markets still have Obama at about a 55% probability for re-election. I would put the odds at 35-40%.