New early-state polling

Rasmussen has Hillary leading Obama 37-22 in New Hampshire. Not sure why, but it's not encouraging. I generally have a lot of faith in Rasmussen's methodology, however, so there's no use arguing with those numbers.

Public Policy Polling put out a South Carolina poll showing Clinton up on Obama 36-33. I drilled down further and found that they only had 40 percent blacks in their sample.

This is the kind of bush-league crap that I am seeing all the time in polls. Blacks made up 47 percent of the SC Democratic primary electorate in 2004 in a race with a bunch of white guys. Most people peg blacks' share of the '08 SC primary electorate at 53 percent. PPP itself showed Obama leading Hillary among blacks 55-29, exactly in line with my read on the Cook poll (below post). If the poll had proper demographic weights, it would show Obama with about a 38-33 lead.

Uhh... Defcon 5 anyone?

S&P 500 1412.09 -14.45 VIX 30.66 2.98 VIX/U7 24.66 0.36 VIX/V7 22.50 -0.13 VIX/X7 22.12 -0.23

Update: Heh. It's a dynamic chart (when I posted this, the VIX was at about 31). It went up to 37 a couple of days later.

Structure of the Democratic race

Date	Clinton	Obama	Edwards
08/15/07	39.00%	24.00%	13.00%
08/14/07	40.00%	24.00%	16.00%
08/13/07	43.00%	23.00%	12.00%
08/12/07	41.00%	23.00%	12.00%
08/11/07	39.00%	26.00%	12.00%
08/10/07	40.00%	27.00%	11.00%
08/09/07	40.00%	28.00%	11.00%
08/08/07	38.00%	27.00%	13.00%
08/07/07	40.00%	24.00%	15.00%
08/06/07	43.00%	22.00%	14.00%
08/05/07	44.00%	22.00%	14.00%
08/04/07	45.00%	21.00%	13.00%
08/03/07	45.00%	21.00%	11.00%
08/02/07	43.00%	21.00%	12.00%
08/01/07	42.00%	21.00%	13.00%
07/31/07	41.00%	23.00%	14.00%
07/30/07	40.00%	24.00%	14.00%
07/29/07	40.00%	24.00%	14.00%
07/28/07	41.00%	23.00%	15.00%
07/27/07	42.00%	23.00%	14.00%
07/26/07	41.00%	23.00%	15.00%
07/25/07	40.00%	23.00%	15.00%
07/24/07	38.00%	25.00%	14.00%
07/23/07	40.00%	22.00%	14.00%
07/22/07	39.00%	26.00%	12.00%
07/21/07	40.00%	26.00%	12.00%
07/20/07	38.00%	27.00%	13.00%
07/19/07	35.00%	28.00%	13.00%
07/18/07	37.00%	25.00%	14.00%
07/17/07	37.00%	25.00%	14.00%
07/16/07	37.00%	25.00%	13.00%

(Source)

I have also been combing the Cook/RT crosstabs (p. 33) to see what demographic shifts have occurred, and compared that with other polling data. Here are the shifts I have divined:

1. The Hillary-Obama gender gap has evaporated, mostly to the effect that more male likely primary voters are leaning towards Hillary.

2. Obama now has a double-digit lead among African-Americans (48-37)

3. White baby-boomers have shifted significantly in Hillary's favor, at pretty equal expense to both Edwards and Obama.

4. Excluding The Pakistan Spat, Obama has been at 24-28 percent in national polls for the past five months; he is now at the low end of that channel.

So Obama has gained minor ground among women overall, lost significant ground among older white men (and a bit among white women), and Edwards has lost support across the board. What gives?

Due to the insanely high incarceration rate among black men (=> felonies => ineligible to vote in most states), black women make up almost 65% of the black "likely primary voter" electorate. Obama has made massive gains among black women, while whites have shifted towards Hillary and away from others regardless of gender.

The net effect has been for Obama to lose slightly, Edwards to lose dramatically, and Hillary to gain significantly in national polling, painting a "war of attrition, advantage Hillary" picture of the Democratic race, when in fact there is very significant underlying movement.

Obama retains extremely high favorables among white likely Democratic primary voters, indicating that they are still open to him.

The crucial question, in my opinion, lies between Edwards and the unions. Current speculation is that Local 226, the all-powerful Nevada culinary workers' union which will probably decide who wins that all-important early state, is leaning towards Obama after formerly leaning towards Edwards; Edwards has concurrently removed staff from Nevada (see above link), which would indicate to me that he thinks Local 226 has decided on which one to endorse, one way or another.

Union rank-and-file do not have much appreciation for Hillary Clinton, as was on display at the AFL-CIO debate not so long ago. Union leadership does love the Clintons, though. However, rank and file have also fallen head-over-heels in love with Edwards' pandering; conventional wisdom is that Edwards will rack up a lot of union endorsements.

However, it's also the case that there's no conceivable scenario under which Edwards could win the Democratic primary. If Edwards upstages Obama in Iowa, and then slingshoots into an impressive New Hampshire performance, Obama fades and a lot of black votes would presumably flow to Hillary.

Unions that want to "make a statement" without actually threatening the Clinton presidential bid (and thus risking future Clinton wrath) will endorse Edwards. Unions that want to deny Clinton the presidency will go for Obama, who already has very broad, but not yet sufficient support across all unions due to his Midwestern geographic base (lots of unions here).

Obama needs at least one endorsement between AFSCME and Local 226. If Edwards rolls up a lot of union endorsements, he will be leeching Obama votes to the very end, probably to fatal effect.

It's hard for me to see a lot of union fence-sitting in this race. The unions made a spectacularly bad investment last time around in Gephardt, and made themselves pretty irrelevant to the primary. This time around, there are large interests in both the Clinton and Obama camps shoving unions off the fence in what both expect to be a knife-fight of a race.

Union elites have been playing this game for longer than anybody. They can see (almost) as well as anyone that Edwards, who has high Dem. primary name recognition from his 2004 primary bid and VP run, probably hit a ceiling a month or two ago. Scenarios of an Edwards victory, even after a pile-on of union support, are exceedingly improbable.

Ames, again (yeah, I know)

Ames, Iowa has already gotten way more attention than it deserves. Romney is already busy parlaying this performance into a leading indicator that it isn't.

I find it revealing that Hugh Hewitt, conservative talk-radio jock, author, law professor and cheerleader-in-chief for Romney (he has even churned out a sheaf of pulp, A Mormon in the White House, to boost Romney), has not exactly played up Romney's Ames performance. Instead, Patrick Ruffini downplayed Romney's performance on Hewitt's own blog, as well he should have. Romney's Iowa/NH/SC expenditures (probably well over $10 million this year) have yielded zero return for two months and counting. If Romney could have crushed his IA competition (i.e., gotten comfortably more than second and third place combined), he would have shown that, even if he is running the quintessential astroturf campaign, at the end of the day his organization would carry the day, by a mile. For Romney to shell out $4-5 million for about 4,500 votes is dismal.

Huckabee is going to be a somewhat serious player from now on. He is getting the same liberal MSM favor that McCain received in 2000, and corresponding hatred from conservative interest groups. Anyone familiar with Huckabee's career can understand why: even as he was/is very likeable, he governed Arkansas very liberally.

Of all the candidates that spoke to the NEA, Huckabee was the only Republican. While the event was closed-door, I heard on decent authority that Huckabee received thunderous applause--more than any of the Democrats who spoke--because Huckabee absolutely swamped the AR teachers' unions with money, and in front of the NEA he had lots of concrete "achievements" to brag about.

At any rate, Huckabee will get a popular boost. GOP institutions will take a real hatred for him, though. I see Huckabee riding this for a while, and becoming a social-conservative powerbroker in the nomination fight.

Because Huckabee is quite "moderate," his instincts hew closest to Giuliani's, and a late Huckabee endorsement would also help Giuliani the most. It would infuriate the Club for Growth (secular business interests) who like Rudy. I imagine that after the Club has pushed its chips in completely (for Giuliani probably), Giuliani will get a Huckabee endorsement, and the Club will have to bite its tongue.

A Giuliani/Huckabee ticket, however, is somewhat further off. VP selection is about gaining the allegiance of institutions, and a lot of GOP/conservative institutions have much longer memories of the damage Huckabee did to the Arkansas GOP.

Also, what is McCain still doing in this race? Duncan Hunter beat him for crying out loud.

I think Huckabee also stole the show from Ron Paul. Even though Paul's fans seem moderately pleased with the result, Huckabee is going to get the media attention and the extra fundraising. If Paul had placed third, it would be different; but it's not.

Finally, zero enthusiasm for Newt Gingrich. No surprise there.

Romney's failed investment

Nobody knows how much Romney spent on the Ames straw poll that just finished up, although with their 100 buses, hundreds of volunteers, transportation, glossy mailings, flyers, additional transportation, etc., I would peg it in the $3-4 million range.

He faced the GOP "Pygmy Tier"; Giuliani and Thompson effectively did not participate.

The results were:

11. John Cox with 41 votes.
10. John McCain with 101 votes.
9. Duncan Hunter with 174 votes.
8. Rudy Giuliani with 183 votes.
7. Fred Thomson with 231 votes.
6. Tommy Thompson, 1,009 votes, 7.3%
5. Ron Paul with 1305 votes, and 9.1%
4. Tom Tancredo with 1961 votes, 13.7%.
3. Sen. Sam Brownback with 2192 votes and 15.3%

In a surprise, Gov. Mike Huckabee finished second with 2587 votes at 18.1%

Gov Mitt Romney won the 2007 Ames straw poll, receiving 4516 votes, or 31%.

14,203 ballots were cast.

Very lackluster performance by the Mitt, in my opinion. I'd love to see Romney's cash on hand figures right now; the Washington Post estimates that Romney has spent $6 million on Ames Iowa so far, only to aggrandize Huckabee at his own expense.

Very good for Fred Thompson, who has been quietly poaching a lot of having-second-thoughts Romney money, and who will see a lot more Romney donors jump the fence over the next several weeks.

Money can buy Romney all the astroturf he wants, but it can't buy him love.

Apparently a lot of Ron Paul supporters took advantage of Romney's free busing and went in en masse on the Romney campaign's dime. Clever.

The straw poll had significantly less participation this time as opposed to 2000, because Romney was the only "heavyweight" in the race (and he is a heavyweight only by virtue of the millions he has spent to plateau in Iowa and New Hampshire). And the Pygmy Tier still gave Romney a run for his money.

It will probably put Huckabee into his own tier.

Mildly disappointing for Ron Paul, I think.

I hope the rest of them go home. These 10-candidate debates are idiotic, and nobody will be sorry to see the Gravels and Kuciniches of the GOP pack their bags and go home.

Alexa traffic trends, August 10

barackobama.com
hillaryclinton.com
imwithfred.com
johnedwards.com
johnmccain.com

I hadn't realized that Edwards had dropped to McCain levels in terms of online site traffic.

Vix at DEFCON 4

Everyone's hearing everything about the implosion of the credit market, and how that is somehow smashing equities down.

What I find much more revealing is central banks' activities, particularly the ECB's $200 billion injection into the Eurobanks over the past two days. As I understand it, even after adjusting for inflation, this exceeds the ECB's liquidity measures immediately after 9/11.

Most everybody in the financial community is aware of the massive collapses of in-house hedge funds at JPMC, Goldman, ABN Amro and Deutsche, as well as major stat-arb funds Black Mesa and Tykhe. However, central bank activity suggests that there are much, much bigger implosions in progress.

Thus, it would make sense that Renaissance Technologies, the most successful hedge fund of the 2000's and the flagship stat-arb fund, is blowing up. Rumor also has it that Bruce Kovner's Caxton Associates (another major name) is shutting down its quant shop.

A commenter on Dealbreaker posted this comment, although for all I know it could be a convincing plant:

August 9, 2007
Dear Renaissance Investor,
Results in July were quite disappointing. Returns ranged between negative 4.0% and 4.5%,
bringing the year to date to profits averaging a bit over 1.0%.
Onshore LLC Offshore LP
July YTD July YTD
Series A -4.50% 0.61% -4.55% 0.19%
Series B - 3.96% 1.34% -4.00% 0.97%
Series C -4.40% 1.31% -4.45% 0.89%
Series D -4.38% 1.49% -4.43% 1.08%
Returns are for continuing investors.

While much of the damage was due to weak markets, our system experienced meaningful
relative losses during the first two weeks of the month. Thereafter these relative losses
decreased, but the markets proceeded to decline substantially. As I reported at our mid-
July investor meeting, the principal culprit was our Basic System, the platform upon which
almost all of our predictions are added. The predictions themselves performed adequately
during the month, but not sufficiently to overcome the down-draft in the Basic. As I
showed at that meeting, while the Basic System is a low volatility approach, which, over
time, should match the S&P and other indices, it does not track them, and excursions of this
size and larger (in either direction) may be expected to take place.

Research continues at a strong pace, with three very promising new signals in final stages
of release. Such continued work and our share of good luck should ultimately produce
attractive rewards.

Regrettably we have not had good luck during these last few days. We have been caught in
what appears to be a large wave of de-leveraging on the part of quantitative long/short
hedge funds. These undoubtedly share some signals in common with our own, and the
result has been losses for RIEF of the order of 7% at the time of this writing. Many
investors have called to see how we are faring, and after the close today we will send an
e-mail to all with an update and additional color on the situation.

Sincerely,
Jim Simons

Dear Investor,

Further to our earlier email, here is a communication from Jim Simons to all our clients regarding our recent performance. Please do not hesitate to call Mark or Sebastian with any questions and/or comments.

___________

Dear Renaissance Investor,

As promised in my July letter, posted today on the RIEF website, I want to share some thoughts on August-to-date performance in order to provide perspective on a most unusual period.

RIEF results through July 31 were below expectations, but not extraordinarily so. I've previously stated that the low volatility Basic System, to which our predictions are added, was not in sync with the market during much of this period. Nonetheless, we remain confident that over time the Basic System will match the return of the S&P and, enhanced by our predictive signals, should exceed it. Since we do not attempt to track this or any other index there will be periods of positive and negative relative returns.

August (down 8.7% through today) is a different story. The culprit is not the Basic System but our predictive overlay. While we believe we have an excellent set of predictive signals, some of these are undoubtedly shared by a number of long/short hedge funds. For one reason or another many of these funds have not been doing well, and certain factors have caused them to liquidate positions. In addition to poor performance these factors may include losses in credit securities, excessive risk, margin calls and others. All of this may not influence the direction of the overall market, but it may certainly alter the relationships of stocks to each other in a dramatic way. Given the undoubted partial overlap of our portfolios, these liquidations have had a negative impact on RIEF.

Other examples of such liquidations are the meltdown of risk arbitrage positions in the October 1987 crash, the forced liquidation of junk bonds around 1990 and the collapse of European bonds in 1994. Some of these were in the midst of a bear market, some not.

Such events tend to occur extremely infrequently. We cannot predict the duration of the current environment, but usually such behavior causes first pain and then opportunity. While we may hedge out some market risk, our basic plan is to stay the course and, as conditions revert to the norm, we anticipate the possibility of an attractive opportunity for RIEF. Our firm remains strong, and although Medallion has experienced some losses in August, it is solidly profitable year-to-date.

We are confident in our approach, and we urge you to contact our staff should you have any questions.

Sincerely,

Jim Simons

Posted by: mcspammy | August 10, 2007 08:57 AM

==============================

At the same time, the Vix touched 30 earlier today and is going steady at 29 now. As I recall, the VIX's all-time high was on 9/11-12, 2001, at approximately 42.

However, the liquidity injections for this crisis appear to have exceeded those on 9/11.

...

Brad DeLong noted yesterday that the monetary base of the North Atlantic econosphere had grown 7 percent in one day. He didn't count today, which probably tacked on another 5 percent.

Shouldn't gold (spot and futures) be going berserk right now? Presumably the banks are planning to cut liquidity back in the future, but shouldn't this dramatically increase expected future inflation regardless? Hasn't Bernanke "scrambled the helicopters"?

HRC on HRC: "Irresponsible and, frankly, naive"

Heh.

"I have said publicly no option should be off the table, but I would certainly take nuclear weapons off the table," Clinton said. "This administration has been very willing to talk about using nuclear weapons in a way we haven't seen since the dawn of a nuclear age. I think that's a terrible mistake."

Clinton's views on the potential use of nuclear weapons appear to have changed since then.

Her campaign spokesman, Phil Singer, said the circumstances for her remarks last year were different than the situation Obama faced.

"She was asked to respond to specific reports that the Bush-Cheney administration was actively considering nuclear strikes on Iran even as it refused to engage diplomatically," he said. "She wasn't talking about a broad hypothetical nor was she speaking as a presidential candidate. Given the saber-rattling that was coming from the Bush White House at the time, it was totally appropriate and necessary to respond to that report and call it the wrong policy."

What a lawyer.

State of the race, GOP edition

The listlessness of the Republican race grows more profound by the day. Had Fred Thompson been serious (stop laughing), he could have garnered serious momentum by now, and if he had made "rookie mistakes," he could be fixing them now. At present, Thompson remains the southern frontrunner. (The recent primary acceleration of SC to earlier-January is a big boost for Thompson.)

Romney, despite carpet-bombing California, Florida, South Carolina, Iowa and New Hampshire with ads, on top of generally slobbering media favoritism from Drudge, the Politico, etc., has moved nowhere in the past two months. That's even true of the early states; in South Carolina, he may have actually gone down. It baffles me why Romney remains the toast of the GOP elite; but many Romney backers are apparently also backing Thompson.

There have been three overall trends in the GOP race.

1. Rudy seems to have found a floor around 25 percent. That's a good sign for him, but his bounce came mostly from McCain's implosion rather than any particular expertise on his part. Then again, by the standards of McCain's erstwhile campaign, lying low has amounted to tactical genius. Giuliani's recent statement of admiration for McCain means that Rudy is aggressively bidding for McCain's support. I think McCain's support is mostly a mirage, so the wisdom of that strategy is highly questionable.

2. Thompson has lost some steam since the hype kicked into high gear in June, only to cannibalize itself on Thompson's steady stream of personnel replacements, pushed-back announcement dates, etc. For a long time, the Thompson team retained a very misguided notion of how badly Republicans wanted a conservative alternative; hence Thompson's ongoing tease of a non-campaign. They finally figured out that Republicans don't have the patience for that, so Thompson has decided to end the teasing and announce on Sept. 5. That's all well and good, but Thompson needs to be way more forceful in his public appearances than he has been so far. His slow Southern drawl connotes trustworthiness, but also slow thinking. It's very important for him to make a good first impression, particularly because McCain is a big wild card who might serve as someone else's attack dog against Thompson (with whom McCain was once very close).

   The biggest wild card (besides first impressions of Thompson) is what I perceive to be the Thompson's team's disconnect with the GOP base. There are very few GOP "insiders" or "professionals" who understand the magnitude of GOP base disenchantment. I hope to god that Thompson stays away from the utterly empty and platitudinous "Reagan... Reagan ... Reaganesque" incantations. If the GOP base can't differentiate well between its candidates, the Super Tuesday outcome will be a function of electability and buzz, rather than (undifferentiable-in-this-case) perceived conservatism. Under that particular scenario, I'd think Giuliani would win, notwithstanding the Romney campaign's relentless scorched-earth tarring of rival GOP candidates. (Rudy would give them jobs for several lifetimes.)

3. Romney has, at extreme expense, upticked marginally in national polls. His continued early-state spending without much gain suggest that, barring something that shows a side of Romney we haven't seen (in a good way), Romney will need more than money and Drudgico favor to win the nomination.

McCain's national poll numbers will enjoy a "Lieberman effect" (from high name recognition) until after the Iowa and NH primaries. He is still irrelevant--unless he comes to an understanding with a more agreeable rival to play attack dog against a rival or rivals that he particularly dislikes. That will be bad news for Romney, and quite possibly Thompson as well. It would also help Giuliani or, possibly, Thompson, depending on how much goodwill might remain in the Thompson-McCain relationship.

Wow.

Is this terrifying, or is it ... terrifying?

Statewide Registered Republican Voters

This subsample included 330 respondents who self-identified as Republicans. The margin of error of the subsample is +/- 5.25 percent.

The changes among Republican voters since March are dramatic. Romney is now the preferred candidate at 21.8 percent -- double his March support.

Giuliani's support, 10 percent, decreased by almost 8.5 percent. McCain's support has collapsed in Iowa. His support among registered Republicans dropped from 14.4 percent in March to 1.8 percent in July-August. UI political scientists note that McCain has been passed in popularity not only by former Sen. Fred Thompson, R-Tenn., who earned 5.2 percent support, but also by a Democratic challenger, Obama, who is supported by 6.7 percent of Republicans. No other candidate received more than 3 percent support.

Iowa sampling is notoriously risky business, but for the GOP in general and McCain in particular, this is absolutely damning.

Back

Sorry for the unanticipated posting hiatus. This past week (my last week working in NYC) saw equities crashing, bonds on a berserk rally, volatility spiking to 26 and closing the week at 25, and wheels generally flying off the financial-industry steamroller. And to top it all off, I had to move out on Saturday.

I have also been watching the last couple of news cycles (ie the ongoing Clinton/Obama dogfight) and am struck by two contradictory trends.

On the one hand, Clinton appears to have widened her national lead in the Democratic horse race by about 10 points. There are two components to this: Democratic-leaning independents have shifted disproportionately in her direction in the past three to four weeks; and Democratic partisans have moved in Clinton's direction very slightly. This would explain the dramatic shift in Clinton's direction by Rasmussen (who heavily weights the hypervolatile, D-leaning independent subgroup) as compared to ABC, Newsweek, etc, which mostly show Clinton gaining at Gore/Edwards' expense.

It seems to me that much of the widening Hillary-Obama national gap stems from the lost momentum of Edwards and Gore. Obama's own support has dropped by about a point according to the ABC/Newsweek polling, while Clinton's has risen by about three points.

In the early states, however, Obama appears to be surging. The Washington Post's Iowa poll, overseen by Ann Selzer (probably the most respected pollster of the Iowa Democratic primary) shows Obama having surged to 27%, with Clinton and Edwards tied at 26% each. Obama also leads second choices, as well.

Meanwhile, the American Research Group, whose results have been so favorable to Clinton that it has been accused of being on the Clinton campaign's payroll, shows Obama surging to a tie in New Hampshire and a lead (within the margin of error) in South Carolina. It's no coincidence that Obama has made ad buys in all three early states, and it's very encouraging to see that level of return on marginal expenditure. Those state polls also show that Obama is now leading among self-identified Democrats, while he has weakened somewhat among leaning-D independents likely to vote in the primaries--which is also very encouraging. Zogby's media comments indicate that he is getting very similar results (although I can't be sure of that, since I don't subscribe to Zogby's tracking poll.) The relative confidence of the Obama campaign in the face of craptastic national trends suggests that they are seeing the same thing.

Another positive trend for Obama is surging netroots support. Edwards has a huge netroots following thanks to his wife, and he says exactly what the netroots want to hear, but his across-the-board loss of support (including Iowa, where he seems to be stalling at best) coupled with Obama's sniping at Hillary, are bolstering Obama's netroots support significantly.

The markets beg to differ. The Clinton-Obama spread on Intrade has ballooned to 17 points, its largest spread since early June. I think this is a superficial reading of the last two weeks of made-in-Drudge manufactured gaffes, combined with Rasmussen's swing towards Hillary due to D-leaning independents. Early-primary state polling is saying the exact opposite.

The AFL-CIO rejects Edwards

Not a surprise, but still very bad news for the Edwards campaign:

Mr. Edwards has vigorously courted unions, hoping to win the coveted A.F.L.-C.I.O. endorsement and the accompanying organizational backing, especially in the first states to vote.

One-third of Democratic caucusgoers in Iowa came from union households in 2004, and one-quarter of voters in the New Hampshire Democratic primary were from union households.

The A.F.L.-C.I.O. is unlikely to endorse Mr. Edwards or anyone else before the primaries, several labor leaders said last week, because unions are so divided over the candidates.

Several unions that like Mr. Edwards are wary of endorsing him because he lags well behind Senators Hillary Rodham Clinton and Barack Obama in the polls.

“There’s a pretty strong sentiment across the labor movement for Edwards,” Steve Rosenthal, a former political director of the A.F.L.-C.I.O., said. “But I think some unions are a little leery of endorsing him without more evidence that he can win.”