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Electoral College 269-269?

10/29/2012

The U.S. presidential election is quickly approaching, and for the first time since the campaign began, the outcome is impacting capital markets. In a previous blog, I categorized the current trading environment for the S&P 500® Index (SPX) as an “election correction.” I suspect that what the markets fear is not November 6 but rather November 7. Will the world awake to an uncertain outcome in a presidential race that has tightened to a dead heat? Markets despise uncertainty, and the upcoming election is providing tremendous uncertainty.
 
One result being discussed is an Electoral College 269-269 tie. In that scenario, the majority party of the Congress has until March 2013 to select the winner. The Republicans are clear favorites to maintain majority control of the House and certainly would not need until March 2013 to select Governor Romney as president.
 
Investors should actually be less concerned with a 269-269 confirmed outcome than a contested result in one or two states that could swing the presidency to one or the other candidate. That arduous scenario, as witnessed in 2000 (Figure 1.1), will take time and negatively impact the equities market. It was not until December 12, 2000 that President George W. Bush was declared the winner.
 
The impact for the capital markets from a confirmed 269-269 Electoral College result would be a significant Treasury sell-off – possibly the historic reallocation out of fixed income that seems long overdue.
 
THE UNLIKELY PATH TO A 269-269 CONFIRMED TIE…
 
According to Real Clear Politics, the Electoral College map currently tilts 201 votes for President Obama and 191 votes for Governor Romney. That leaves 11 states and 146 votes as toss-ups. I expect state unemployment rates will play a larger role in state outcomes than currently being discussed by the mainstream media. These are the states, votes, and respective state unemployment rates for those toss-up states: NV, 6, 11.8%; CO, 9, 8.0%; IA, 6, 5.2%; WI, 10,  7.3%; MI, 16, 9.3%; OH, 18,  7.0%; PA, 20, 8.2%; NH, 4, 5.7%;, VA, 13, 5.9%; NC, 15, 9.6%: and FL, 29, 8.7%.
 
Governor Romney holds modest leads in FL, NC, and VA, which is supported by poor labor figures for FL and NC. Let’s give him those states and bring his Electoral College vote total up to 248.
 
President Obama holds modest leads in WI, MI, OH, PA, and NH. The better-than-national average state unemployment rate in OH, WI, and NH are evidence to his marginal lead there. The auto bailout is helping the president maintain a lead in MI. Let’s place those states in the president’s column to bring his total up to 269.
 
That leaves IA, NV, and CO as undecided, and the Governor would need all three states to achieve 269. Statistically, Colorado is a dead heat. President Obama holds slight leads in NV and  IA. If the higher state unemployment rate thesis holds for those three states, NV’s 6 votes and CO’s 9 votes would go to Governor Romney, for 269 vs. 263 for Obama. Iowa would then be the deciding state. Not surprisingly, Iowa and its 6 votes is where Governor Romney spent his Friday.
 
If the 2000 presidential election has taught the country anything, it is that “anything” is possible. None of us will be surprised to find out that, more than likely, the current polls are way off in some capacity.
 
The purpose of this blog is to present the evidence that places the Electoral College at a 269-269 tie. Now that I have outlined the most likely scenario to get to 269-269, I suspect you will agree it is rather unlikelyFor those stuck indoors during Tropical Storm Sandy, take your best shot at the Electoral College map and try and come to up with another 269-269 scenario. I think you will agree, the unlikely scenario I have presented seems like the only plausible path to 269-269. But anything is possible, isn’t it?          

Figure 1.1 SPX October 30, 2000 to December 21, 2000

Source: Bloomberg

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