Is the Stock Market Predicting an Obama Win?

Despite a lackluster jobs report last Friday, President Obama is basking in a 6-point jump in the polls, according to CNN. On Intrade, the influential site where people wager on political outcomes as if it were a futures market, prices for people betting that Obama will win the election have also surged over the past few days: On Sunday, he was trading at $5.82. By Wednesday, the price had bumped to $6.32. (Shares on Intrade convert to percentages, so the share move means his likelihood of winning went from 58 percent to 63 percent.)

Pundits and journalists like to pay attention to Intrade, because the site has accurately predicted the past two presidential elections down to the electoral vote count. Traders are constantly on the prowl for any morsel of news—a slip-up at a campaign event, a problematic remark made by a surrogate—whatever information they can trade on before the rest of the pack gets onto it. On election night, when the contest is decided, those who bet on Romney essentially pay those who bet on Obama at the share price they bought in. (For more on how Intrade works, see my story from last February.)

But Intraders didn’t react particularly strongly to Obama’s performance in Charlotte. After former President Bill Clinton’s stellar speech on the second night of the convention, Obama shares on Intrade moved up just 0.3 percent. They moved down 0.1 percent the following night, after his own speech. The DNC speeches themselves did not move the needle for Intraders. (The RNC was a different story: Clint Eastwood’s comments pushed Romney’s share price down right away.)

What happened was this: When voters reacted strongly over the weekend, Intraders took the hint and began trading in response to Monday’s polls.

Looking at Obama’s performance on Intrade over the past year and a half, you’ll see that Intraders react strongly to big news events: Obama reached a high point in May 2011, when Osama Bin Laden was killed, and traders rated his chances of winning the presidency at 70 percent. By October, the Republican primaries were in full swing, jobs reports weren’t looking good, and Obama was trading in the mid to high 40s—a record low. In the following months, Obama’s chances improved slightly, but he hasn’t traded above 60 percent all summer. Until now.

But the best way to understand Obama’s performance on Intrade may not be to follow the political news cycle or even jobs reports. Thanks to a tip from an Intrader (and help from my graphics whiz colleague Stephen Rose), I graphed Obama’s performance onto the S&P 500 stocks index. Looks like the guy was onto something. When the S&P dropped below 1,300 in June, Obama’s likelihood of winning on Intrade dipped into the low 50s. The S&P has been steadily recovering since July, and so has Obama’s share price. From the graphic, you can see it clearly: Obama’s performance on Intrade roughly mirrors the movements of the stock market.

How to explain the correlation? Many Intraders are actual traders in real life. So their day-job mindset—”risk on” or “risk off”—may carry over to their thoughts about whether the country is on the right course. That aligns with the Larry Kudlow theory, as expressed by the CNBC commentator back in 2007 about the Bush administration and another stock rally:

“I have long believed that stock markets are the best barometer of the health, wealth, and security of a nation. And today’s stock market message is an unmistakable vote of confidence for the president.”

Kudlow’s statement has been thrown back at him in recent days by Paul Krugman and others. If stocks continue their run through Nov. 6, we may find out if he’s right.

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Obama Picks Two for Fed Board

December 28, 2011, 2:57 AM EST By Scott Lanman and Roger Runningen

(Updates with economist’s comment in seventh paragraph.)

Dec. 27 (Bloomberg) -- President Barack Obama said he will nominate two former U.S. Treasury Department officials for the Federal Reserve Board, including one who served in a Republican administration.

Jerome Powell, an attorney who was a Treasury undersecretary for former President George H.W. Bush, and Jeremy Stein, a Harvard University economist who has advised the current administration, are Obama’s picks.

Pairing candidates who served under both parties may help ease approval by a Senate where the Democrats’ majority narrowed last year, letting Republicans block administration nominees. The Fed’s seven-member Board of Governors has two vacancies. While the term of Elizabeth Duke, an appointee of President George W. Bush, expires Jan. 31, she can continue to serve until a successor is appointed.

Referring to the nominees, Obama said today in a statement that “their distinguished backgrounds and experience coupled with their impressive knowledge of economic and monetary policy make them tremendously qualified.”

Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, said in an e-mailed statement that he plans to move the nominations “in a timely manner” and wants to schedule a hearing soon after lawmakers reconvene in Washington. Senators plan to return to business Jan. 23.

Powell, 58, and Stein, 51, were reported by media organizations including Bloomberg News to be under White House consideration for the Fed slots.

Former Economist

If confirmed as Fed governors, the pair probably won’t sway interest-rate decisions under Chairman Ben S. Bernanke, said Roberto Perli, a former economist in the Fed’s Division of Monetary Affairs. Fed officials have said they’re considering more ways to lower borrowing costs.

The number of voting policy makers who could oppose Bernanke will fall to one in 2012 from three in 2011, Perli said. The Fed chairman gained majorities for his decisions this year.

“I don’t think that the addition of two members, whichever way they might lean, will dramatically change the course of monetary policy,” said Perli, now a managing director at International Strategy & Investment Group in Washington. At the same time, the nominees’ skills and experience in economics and financial markets will benefit the central bank, he said.

Yields on 10-year Treasuries remained lower after the announcement. The rate fell to 2.01 percent from 2.03 percent on Dec. 23. U.S. markets were closed yesterday.

Potential Nominee

Obama administration officials regrouped to identify Fed candidates after Peter Diamond, a Nobel Prize-winning economist, withdrew his nomination to the board in June in the face of Republican opposition. Richard Clarida, a potential nominee who was a Treasury official under George W. Bush, pulled out of consideration in August.

Perli declined to predict whether Stein and Powell will win Senate approval, while saying the Democratic-Republican pairing may help their odds.

A spokesman for Alabama Senator Richard Shelby, the Republican whose opposition helped sink Diamond’s candidacy, didn’t respond to a request for comment.

While Powell has Republican ties, he indicated in May that he disagreed at the time with some Republicans’ strategy of threatening to oppose an increase in the U.S. debt limit and risking default unless Democrats agreed to spending cuts.

Lead Author

As a visiting scholar at the Bipartisan Policy Center in Washington, Powell was lead author of a June analysis saying failure to increase the ceiling would result in an immediate 44 percent cut in federal spending, creating a “chaotic” situation and “public uproar.”

“I am by any fair reckoning a fiscal conservative,” Powell, who goes by Jay, said in a May 16 interview with Bloomberg Television. At the same time, allowing a default is “just not a risk that you run.”

“That doesn’t mean that you don’t negotiate very hard to get additional spending cuts and get the deficit under control,” he said. “You do. But that crosses the line into hostage taking, I’m afraid, and is just tactically unacceptable.”

Powell, whose term would run through Jan. 31, 2014, has spent most of his career outside government, spanning the worlds of private equity, investment banking and law. He would add financial-markets experience missing since Kevin Warsh, 41, left the Fed board in April.

Based in Washington

Powell was a partner at the Carlyle Group, the Washington- based manager of private-equity funds, from 1997 to 2005 and was an investment banker in the 1980s with Dillon Read and Co. after working as an attorney following his 1979 graduation from Georgetown University’s law school. He holds a bachelor’s degree from Princeton University.

Powell joined the Treasury as an assistant secretary in 1990 and was appointed an undersecretary in 1992. While at the department, he helped revamp government-bond auction procedures after Salomon Brothers admitted to bid-rigging.

Stein’s term would end Jan. 31, 2018. He served in the Obama administration from February to July 2009 as a senior adviser to the Treasury secretary and on the staff of the National Economic Council, according to Harvard’s website. He was also a senior staff economist on President George H.W. Bush’s Council of Economic Advisers from September 1989 to June 1990, leaving just before Powell was nominated to a Treasury post.

Financial Crisis

Stein said in a Sept. 29, 2008, interview with Bloomberg Television that the Fed’s policies were partly responsible for the subprime mortgage-induced financial crisis.

“The Fed in the early part of this decade would have been better had they been a little bit more aggressive in dealing with the housing bubble in its early stages, both through interest-rate policy and potentially through worrying a little bit more about the buildup of all this leverage on bank balance sheets,” Stein said on the day House lawmakers initially rejected the $700 billion Troubled Asset Relief Program. The vote sent U.S. stocks tumbling 8.8 percent.

Bernanke, 58, whose second term as chairman expires in January 2014, said in a January 2010 speech that the central bank’s low interest rates didn’t cause the housing bubble and that better regulation would have been more effective in limiting the boom.

Capital Allocation

Like Bernanke and several other senior Fed officials, Stein holds a doctorate in economics from the Massachusetts Institute of Technology. Stein’s research topics include corporate investment and financing decisions, risk management, stock- market efficiency and capital allocation inside companies.

Stein, who has served on the New York Fed’s Financial Advisory Roundtable since 2006, rejoined Harvard as an economics professor in 2000. He worked as an assistant professor of finance at the business school from 1987 to 1990. Stein taught at MIT from 1990 to 2000.

Stein also worked as an intern at Goldman Sachs and Co. from July 1986 to June 1987, according to his curriculum vitae posted on Harvard’s website.

--With assistance from Roger Runningen in Washington. Editors: James L Tyson, Carlos Torres

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Boehner: Obama Must Take Part in Debt Talks

June 02, 2011, 12:25 AM EDT By Julie Hirschfeld Davis and Catherine Dodge

June 2 (Bloomberg) -- House Speaker John Boehner, intensifying pressure for a quick and far-reaching deal to slash U.S. government spending, said “it’s time” he and President Barack Obama get personally involved in talks on a broad debt- reduction package.

Boehner, voicing concerns that bipartisan negotiations led by Vice President Joe Biden are proceeding too slowly, said the White House and Congress should strike a deal within a month to avoid a continuing impasse over raising the nation’s $14.3 trillion debt ceiling that could spook investors and lead to an unprecedented government default.

The Biden-led talks “are making some marginal progress, but at the rate that that’s gone, we’ll be right up against the wall,” Boehner told reporters at the Capitol yesterday. “This really needs to be done over the next month if we’re serious about no brinksmanship and no rattling investors.”

Treasury Secretary Timothy Geithner is already using what he calls “extraordinary measures” to avoid exhausting the nation’s borrowing authority, and he has said that he will run out of options for avoiding default by Aug. 2. Boehner said he was worried that the Biden-led discussions would go down to the wire, putting Congress up against that date.

Obama “understands that we need this finished over the next month -- he said so this morning” at a private meeting he hosted for House Republicans on the debt impasse, said Boehner, an Ohio Republican.

‘Play Large Ball’

Asked what more could be done to prod a compromise, Boehner said: “The president could engage himself. I’m willing. I’m ready. It’s time to have the conversation. It’s time to play large ball, not small ball.”

Boehner’s comments raised the possibility that the current debt stalemate could culminate in the coming weeks in the year’s second high-level negotiation between Obama and Republican leaders on spending cuts. Obama and Boehner hashed out the final details of an agreement on the 2011 federal budget face-to-face at the White House in April, agreeing to about $38.5 billion in reductions with just hours to spare before a government shutdown.

Responding last night to Boehner’s comments, White House spokeswoman Amy Brundage said Obama is “closely monitoring” the Biden talks and is being “regularly briefed’ on their progress. ‘‘Both parties acknowledge that the group is making progress and talks are productive,’’ she said.

White House Session

Boehner made his comments a few hours after the 75-minute meeting Obama convened at the White House with Boehner and his colleagues to discuss the two parties’ differences over the government’s finances. After the session, Republicans said they had criticized the president’s description of their Medicare privatization plan, calling it unfair, and pressed him to offer his own proposal for tackling the debt.

Boehner described the session as ‘‘a very good meeting. It was frank, to-the-point, it was polite,” he said.

Still, House Republicans emerged indicating that they broke no new ground in talks to raise the nation’s debt ceiling in exchange for reductions in government spending.

“Unfortunately, what we did not hear from the president is a specific plan of his to deal with the debt crisis” that could be evaluated by the nonpartisan Congressional Budget Office, Representative Jeb Hensarling of Texas, head of the House Republican Conference, told reporters at the White House after the meeting.

Republican Frustration

Representative James Lankford, an Oklahoma Republican, said his colleagues are frustrated because they believe the administration isn’t offering ideas publicly on how to reduce the deficit, as Republicans did in April as part of a much- criticized budget plan to cut more than $6 trillion over a decade.

Obama wants to work behind closed doors on a plan that can clear Congress so that he can “step out front at the end of it and say ‘I led this,’” said Lankford.

“We have three co-equal branches of the government here, and one of them is sitting and waiting to follow,” he said.

House Budget Committee Chairman Paul Ryan said he confronted Obama about how the president was characterizing the plan Ryan wrote to privatize Medicare, the government health- insurance plan for older Americans, by giving people subsidies to buy coverage.

‘Demagogue’ Debt Efforts

“We’ve got to get our debt under control, and if we try to demagogue each other’s attempts to do that, then we’re not applying the kind of political leadership we need to get this economy growing,” Ryan, a Wisconsin Republican, told reporters.

Obama said there had been demagoguery on both sides, Boehner told reporters later at the Capitol, adding, “But if we’re going to change the process, it’s got to start from the top.”

White House press secretary Jay Carney said Obama “has clearly led” on deficit issues and cited the debt-reduction commission the president established last year and a plan he outlined in an April speech to cut $4 trillion in cumulative deficits within 12 years.

“His proposal is out there and I think pretty extensive,” Carney told reporters at yesterday’s White House briefing.

Carney dismissed the notion that Obama was distorting Ryan’s Medicare proposal.

‘Significant Issues’

“There is no question that on the issue of Medicare, we have significant differences,” Carney said. “And what the president has made clear is that he doesn’t believe that we need to end Medicare as we know it.”

Boehner and other Republican leaders said the private session in the White House’s East Room yesterday largely focused on the impact of the government’s debt on the economy and jobs.

“If we’re going to get serious about creating jobs in America, we’ve got to reduce some of the uncertainty” within the business community, Boehner said outside the White House. “Some of that uncertainty is caused by the giant debt that is facing our country.”

Biden’s negotiations over increasing the debt ceiling as part of a package of spending cuts began May 5. There have been four meetings between the vice president and six congressional leaders, with the next one set for June 9. Biden has said that progress is being made and that negotiators are trying to find savings of $1 trillion over 10 years.

House Majority Leader Eric Cantor, a Virginia Republican, said he asked Obama to work with Republicans on a “tax reform plan” that is being put together by Ways and Means Committee Chairman Dave Camp, a Michigan Republican.

Tax Issue

He also asked the president to steer clear of “any notion that we’re going to increase taxes” as part of any agreement on raising the debt limit

“It’s counterintuitive to believe that you increase taxes on those individuals and entities that you are expecting to create jobs,” Cantor said.

Boehner said he stressed to Obama that now “is the moment” to deal with the deficit issues facing the government. “We can work together and solve this problem,” he said. “Let’s not kick the can down the road one more time.”

Obama is to meet with the House Democratic caucus at the White House today. Separately, Geithner is scheduled to meet on Capitol Hill with freshman members of the House to discuss the debt limit, one in a series of sessions he has been holding with lawmakers to explain the issue, according to the Treasury Department.

Amid Washington’s debate about the debt, bond market yields in the U.S. are lower now than when the government was running a budget surplus a decade ago. The yield on the benchmark 10-year Treasury note fell below 3 percent yesterday for the first time in 2011, according to Bloomberg Bond Trader prices.

--With assistance from Brian Faler, Roger Runningen, James Rowley and Cheyenne Hopkins in Washington. Editors: Don Frederick, Leslie Hoffecker

To contact the reporters on this story: Julie Hirschfeld Davis in Washington at jdavis159@bloomberg.net; Catherine Dodge in Washington at cdodge1@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Obama Says Debt Default May ‘Unravel’ Global Financial System

May 15, 2011, 1:33 PM EDT By Roger Runningen and James Rowley

(Adds Boehner comments starting in fifth paragraph.)

May 15 (Bloomberg) -- President Barack Obama said failure to raise the U.S. debt ceiling by early August might disrupt the global financial system and plunge the nation into another recession.

If investors “around the world thought the full faith and credit of the U.S. was not being backed up, if they thought we might renege on our IOUs, it could unravel the entire financial system,” Obama said on a segment taped for today’s “Face the Nation” program on CBS. “We could have a worse recession than we’ve already had.”

Obama is reaching out to Republican and Democratic lawmakers to win approval of an increase in the debt ceiling. The government projected this month that the $14.3 trillion debt limit will be reached tomorrow. Treasury Secretary Timothy Geithner says that while he can juggle accounts for a time, he will run out of options for avoiding default by early August.

Republicans including House Speaker John Boehner of Ohio and Senate Minority Leader Mitch McConnell of Kentucky are seeking trillions of dollars of spending cuts and no tax increases in exchange for supporting a higher debt limit. Obama on April 13 proposed a long-term deficit-reduction package of about $4 trillion over 12 years. It includes $2 trillion in spending cuts, $1 trillion in tax increases and $1 trillion in reduced interest payments.

‘Totally Irresponsible’

Boehner, who in a May 9 speech demanded spending cuts greater than the amount of any debt-ceiling increase, said today that he understood “what the president was saying about jeopardizing the full faith and credit of the United States.”

“Our obligation is to raise the debt ceiling,” he said on CBS’s “Face the Nation.” “But to raise the debt ceiling without dealing with the underlying problem is totally irresponsible.”

Obama appointed Vice President Joe Biden to lead negotiations with congressional leaders to try to strike a deal on reducing debt and deficits. The small group of negotiators has met three times with Biden. The president held separate talks with Senate Republicans and Democrats May 11 and May 12.

“I’ve said, ‘Get them in a room, hammer out a deal, and make sure that we don’t even get close’” to defaulting on the nation’s debt, Obama said.

Debt reduction must be “balanced” and include tax increases, Obama said.

‘Shared’ Burden

“Are we going to make sure no single group -- not seniors, not poor folks, not any single group -- is carrying the whole burden? Let’s make sure the burden is shared,” Obama said on the CBS program, which was taped May 11 in Washington for broadcast today.

Obama said he would resist cuts in such areas as medical research; infrastructure such as roads, bridges or railroads; or college loans for needy students.

“My hope is that Congress is going to say, ‘This is so serious, we can’t play politics with it,’” Obama said. “Have faith that usually after trying everything else, we end up doing the right thing.”

Obama’s statement “makes me think he is really not serious about tackling the big problems that face our country,” Boehner said. “He’s talking about it, but I am not seeing real action yet.”

Still, Boehner said he was optimistic that the talks led by Biden would yield an agreement on legislation to cut spending and extend the government’s borrowing authority.

‘Opportunity to Act’

“We don’t have to wait to the eleventh hour” like Congress did last month to extend federal spending and avoid a government shutdown, Boehner said. “But I am not going to walk away from this moment” of “opportunity to act” to make serious spending cuts, he said.

“At the end of this process, it’s going to have to come to that,” Boehner said of extending the government’s borrowing authority.

The speaker said that “for quite a while” he has privately discussed with Obama his idea for making drastic spending cuts and changes in entitlements like Medicare and other programs in tandem with raising the debt ceiling.

Boehner said he told Obama, “‘Let’s lock arms and jump out of the boat together.’ I am serious about dealing with this. And I hope he is just as serious.”

One of Boehner’s predecessors as House speaker, Republican presidential candidate Newt Gingrich, said on NBC’s “Meet the Press” that Congress should “avoid default if you possibly can” but that the president shouldn’t get “a blank check.”

McConnell, appearing today on CNN’s “State of the Union,” said he wants extension of the debt limit coupled with broad- reaching fiscal reforms.

“We need to do something significant,” he said. “We need to impress the markets, impress foreign countries that we’re going to get our act together, and astonish the American people that the adults are in charge in Washington and are actually going to deal with this issue.”

--With assistance from Laura Litvan in Washington. Editors: Leslie Hoffecker, Andrea Snyder

-0- May/15/2011 17:11 GMT

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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