As most of you know, there's been lots of loose talk from the right wing about a Clinton run at the presidency. We know better, but how to explain what's going on at the
Iowa Electronic Markets? See the body of this message to give me free investment advice. (No, not really. But I am curious.)
There's been a fair amount of chatter in right-leaning media outlets and blogs about the possibility of a Hillary Clinton candidacy. As has been shown in this
Slate series (parts
one, two, and
three), virtually every shred of evidence to signal that Clinton is in the race starts and ends with an opportunistic right-winger. Never mind that that kind of buzz draws attention away from actual candidates--it looks <u>fantastic</u> on fundraising letters, as good or better than "President Quayle" ever did for lefty groups. (Man, remember when he was the gold standard for dumb?) So all the "Draft Hillary" websites, the FEC filings, what have you--if you scratch the surface, you'll find a flack desperately trying to keep a meme aloft. And, due respect to flacks, doing a pretty good job of it. The funniest part of the
Slate series is the last one, in which the same Republicans who created the Clinton candidacy myth are now excoriating her for running a lackadaisical, half-assed campaign (snicker). Candidate Clinton has neglected to spend any time in New Hampshire or Iowa, and is (chortle!) about to miss crucial filing deadlines for the primaries.
Okay, so in and of itself that's an object lesson in the politics of demonization and finance. 35% of the country would give their left kidney to see President H. Clinton, and 55% of the country would give $2000 to prevent it, so the smart play is to keep that spectre alive as long as possible, even to the point of lunacy, because loons can contribute money too.
That does NOT explain, however, what's going on at the Iowa Electronic Markets. A crash course in the IEM: it's a real-money futures market on political events run by the University of Iowa's business school. Investors (or gamblers, if you prefer) can spend up to $500 of actual money to buy "contracts" that represent the outcomes of elections and, in one case, the Democratic presidential nomination. Contracts which represent something that actually happens cash in at $1 each; contracts for something that doesn't happen are worthless. So, for example, right now, you can buy contracts in Howard Dean's chances to be nominated for about 30-35 cents, reflecting a market-driven consensus opinion that there is about a 1 in 3 chance that Dean will be the Democratic nominee. Wesley Clark trades at about 27-30 cents, John Kerry between 15 and 20, and so on. If Kerry dropped dead tomorrow, his contract would quickly reach a trading price of $0.00, and others' prices would rise to reflect the new odds. Because the market got going back in February when almost none of the potential candidates had committed themselves to running, Hillary Clinton contracts were offered as well, and since nothing is final until the actual nominee is chosen, they're still tradeable. The kicker is, they've been trading at about 10 cents for the past two months and show no signs of dropping into the tenth-of-a-cent basement where they belong. Lieberman and Gephardt, each of whom will probably win a primary or two before they drop out, trade from 3 to 6 cents, by way of comparison.
This can't be discounted as carelessness on the part of IEM traders; there's a great deal of market volume, and it takes an act of will to buy or sell contracts, so every day that Clinton contracts are at 10 cents, it's the result of a collective decision that that is a fair price. When my $500 check to the IEM cleared a couple months ago, I quickly bought 500 "bundles" (packages of one each of all contracts in the market, worth by definition $1 because $1 is the total value of all contracts regardless of which candidate wins) and sold off ALL of the Clinton contracts, making about $40 (500 times an average buy price of 8 cents) and feeling very smug. Now, of course, I wish I'd waited, because the buying price has actually increased slightly even as the chance of her candidacy, much less her nomination, gets less and less.
So I'm wondering what, if anything, is behind this. (Jokes about free investment advice aside, the die is cast for me; I'm locked in to a no-Clinton portfolio.) The IEM is spookily good at predicting outcomes if you look at it in the weeks immediately prior to an election: a related kind of futures market predicted the percentage of Bush popular votes to Gore popular votes within a tenth of a percent. I don't know whether to think that the IEM bidders collectively know something none of us know individually, or whether a 10-cent share just reflects persistent rumors. Is there really that deep of a belief out there in the general public that Clinton will run? Or is Richard Mellon Scaife looking to add a few billions to his coffers by buying up those contracts on the cheap?