Thursday, January 5, 2012

Santorum/Newt

I'm still completely baffled by all the pundits, and at least reportedly the Romney campaign, who think that Newt was a bigger threat to Romney than Santorum. He's still beating Santorum on InTrade (6.4% to 6.0%) even now. Not that I think Santorum is a strong candidate, but stronger than Newt Gingrich? Isn't that obviously true?

That is all.

14 comments:

  1. Don't mess with Newt. He's got no votes, no endorsements, and no money -- a triple threat!

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  2. The only thing I can think is that Santorum is more obscure--but being notorious is not necessarily better.

    Generally, the question of the whole contest remains: when it is down to Romney and only one Not-Romney (plus Paul), who wins? No one really knows the answer to that question, but I would tend to agree that aside from a Bizarro-World Perry (meaning a Perry who is capable of representing himself as a minimally competent candidate), Santorum may be just about the worst possible Not-Romney for Romney to end up facing in that final showdown (among the bunch that made it to Iowa, at least).

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  3. One of the problems with Intrade is that it's hard to get a good return short-selling low-value candidates since it ties up your money. So if a bunch of people are want to push something up to 6.4% that really should be 0.4%, there aren't really that many people out to stop them. Still, Gingrich > Santorum is kind of ridiculous. People are probably looking at outdated national tracking polls.

    The case for Gingrich a few weeks ago was that the GOP entertainment infrastructure would want a not-Romney and pick him, since there was little time for anyone else to emerge (Santorum didn't fully emerge in time). I still think Gingrich would've won Iowa if they'd done that, since the free media would've neutralized Romney's ads. But they decided not to, and he's done.

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  4. @Neil Sinhababu - I don't participate on intrade, but it appears you can sell predictions short (much like the financial markets). With the lowest ask on Gingrich winning the nomination currently at $0.65/share, why not sell those shares short and buy - and cover - in a couple weeks when the highest bid will almost certainly be something like $0.20? All caveats apply (check with your financial advisor, etc), but like the financial markets, there's nothing about intrade obliging you to hold your options to maturity; especially in a short sale you will probably want to cover your position before it expires (i.e. Romney...or whomever...wins).

    To the larger point about Santorum v. Gingrich: I think this proves that Jonathan's earlier post - "Iowa: Between Everything and Nothing" - looks more like the latter than the former, if Gingrich v. Santorum is any indication.

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  5. The power of brand names? Newt was Speaker, of which there's only one at a time, and a highly visible one. Santorum was a backbench Senator.

    That's worth a few points.

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  6. Santorum was actually Chairman of the Senate Republican Conference, making him the third-ranking Republican in the Senate. There was a time he was considered a rising star--I don't know if any of that is relevant now.

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  7. As someone who remembers both of them and their political careers, I think they were both kidding themselves. Neither has any appeal to the middle.

    Newt has more accomplishments, but also more scandals. Santorum is a culture warrior hack who was sent packing by his state. At least Newt is known to have a brain. It was questionable with Santorum.

    So as a threat, I'd put Newt > Santorum. Both should be relatively easy to deflate, though. What a sorry bunch of candidates.

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  8. Perhaps this is a good place to recall that the valuations on intrade, like any market, reflect market clearing prices; that is, the price where sellers are happy to sell and buyers are happy to buy.

    So there have been many recent explanations for Newt's staying power on intrade, ranging from 'use of outdated polls' to 'a sham concocted by the media and avaricious consultants'. The manipulation is allegedly successful at the expense of deep-pocketed (price-making) investors, many of whom are apparently happy to be long Gingrich here at $0.65/share (or 6.5%).

    To draw a comparison: GE closed tonight at $18.55/share. That is almost certainly not the fair value of those shares, but it is just as certainly the place where buyers and sellers were satisfied at the end of today. No one would reasonably assert the buyers were fooled by outdated SEC filings (old polls) or manipulated by the media: GE buyers today took a long position because they thought it was a good investment; today's buyers of Gingrich's candidacy are most certainly motivated the same way.

    To put it slightly differently, if you're 100% certain that Romney is the inevitable nominee, nothing could be easier than shorting those Gingrich shares and making a quick several thousand (or if you have the cash, million) on the inevitable decline in Gingrich's shares. If Romney is the guaranteed nominee, shorting Gingrich (and Santorum) is the easiest arbitrage you'll find. This fact is widely obvious, including to the deep pocketed investors who can immediately exploit the apparent opportunity in shorting Gingrich.

    So why haven't deep pocketed investors done so? My guess is that, when they start thinking with real money, they realize that Gingrich floating at 6.5%, an impossibly high level given what is publicly known, is a reflection of some remaining conviction from people willing to put their money where their mouth is, other investors with deep pockets and different convictions, people who likely know something we commoners don't....

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  9. How large (and liquid) a market is Intrade?

    On Plainblogger's main point, I think it isn't just that Newt is better known. For all his phoniness, he speaks in a way that pundit types can relate to. (One blowhard to another, after all!) He at least pretends to be engaging ideas.

    Santorum, not so much. All I really know about him - and, I suspect, that most of us know about him - is that he foams at the mouth about abortion and gays. (And that gays repaid the favor by google-bombing him in a rather vivid way.) He is not annoying in an interesting way; rather he is annoying in a boring way.

    (On a slightly personal note, why is every prominent Rick in politics such a dick?)

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  10. (Having written all that, I notice that bids on Newt's candidacy have dropped to $0.50 this evening, down from $0.64 earlier today. Could suggest that market demand for his candidacy is shriveling up rapidly. Perhaps you Gingrich skeptics should be in the stock picking business :o)

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  11. There was an internet rumor that Newt was manipulating the InTrade prices last month, which wouldn't be costly to do. That reminded me of his manipulation of twitter followers last year. (Disclosure: I intensely dislike Newt, but I honestly did hear this.)

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  12. Not to complain about some perfectly nice comments, but while the InTrade stuff is interesting it's not really my main point - if I wasn't lazy, I could have found a dozen pundits saying how good it was for Romney that Santorum replaced Newt as the anti-Romney.

    So far, I'm hearing the Speaker thing, and that pundits might be particularly easy marks for Newt's snake oil. I like the latter theory, but have no idea whether it's correct or not. Hmmm...

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  13. After doing my "efficient-markets" scold routine, I got to thinking about Rick and ModeratePoli's pushbacks, and to Rick's point, I was unable to find the volume on intrade, and to ModeratePoli's, accusations of manipulation of prices were rampant in the 2004 cycle. Maybe there's more volume on intrade now, making manipulation more difficult?

    This got me thinking about the history of inefficiencies in the NYSE, which is more widespread than my efficient-market scold would make it seem. For one thing, there are the findings of academic finance, revealing things you can't imagine folks never noticed themselves. One of my favorites was the publication that unexpected positive earnings surprises led to unusually positive price action from day 2 post earnings to day 60. That effect went away after publication - but how in the world did George Soros-types not notice that before?

    Then there's the not-particularly-hidden inefficiencies Warren Buffett exploited to make a big part of his fortune. One of the most notorious was taking a big stake in a Western New York sewer company, a regulated utility, at a 1 P/E. Imagine that - paying $10 for $10 of guaranteed annual income! This was the 1970s, not the 1570s.

    So, as always, YMMV, maybe I'm wrong and Rick, ModeratePoli and Jonathan are right. Gingrich is back up to a $0.57 bid this morning. Could that be manipulation from friendly forces? What an interesting potential new way to make money from campaigns - I'd rather profit directly from campaign finance (via taking the other side of phony elevations on intrade), rather than endure boring, gauzy tv spots that do nothing for you.

    I just wish I had the guts :(

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  14. This is more than anyone probably cares to read, but here's yet one more reason to think that Team Gingrich manipulation can drive his price up unnaturally on intrade: a potential short squeeze on Gingrich is far more frightening than a comparable one on GE.

    At 5.7%, shorting Gingrich this morning gives you a possible upside of $0.57/share if you hold until he's officially defeated. However, you stand to lose up to $9.43/share if you wait to replace the shares until he's the nominee. If, for any reason, his candidacy turns around, his price will shoot up, continuing a long march up to $10/share (at the convention), which would be exceptionally painful for those short here at $0.57. It's pretty much impossible to imagine a scenario where GE imposes the same distortion in a short squeeze.

    So while there's probably a 90% or more chance that the Gingrich prices are elevated by manipulation, those prices hold because of the extremely destructive financial implication of the other 10%.

    So short Gingrich here. If you dare.

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