A Bettor Forecast of Bush's Victory

The exit polling got it wrong, as did predictions that the popular vote would be close. Turns out bookies make the best pundits

By Ryan Brecht

Despite predictions of a tight election by major news organizations and pundits, the outcome of the U.S. Senate, House, and Presidential contests appears to have conformed to what was implied by the betting sites in the weeks leading up to the election. The Republicans managed to add a few seats to their narrow majorities in both houses of Congress, while President George W. Bush captured 51% of the popular vote, vs. 48% for John Kerry. The Massachusetts senator made his concession speech at 2 p.m. on Wednesday in Boston.

Interestingly, the odds for the Presidential election at U.K. betting site Ladbrokes, which are no longer posted on the site, swung sharply on early rumors regarding the exit polls. This is an interesting story in itself, given the presumed secrecy surrounding the exit poll results, which are the private property of the major U.S. news networks. These rumors led to a massive swing in the odds in favor of Kerry to a 71%-29% split, from a roughly 62%-37% split in favor of the President just prior to the election.


  The Iowa futures exchange (Presidential election graph) was more cautious prior to the election, with a 55%-45% split and slightly better odds that Bush would win with less than 52% of the electorate vote. Arguably, these odds appeared to support the 51% result. But on Election Day, these odds shifted sharply toward a nearly even race.

The GOP has safely held on to its majority in the Senate, consistent with the outcome implied by the Iowa futures exchange (Congressional election graph). The GOP held control by a one-seat margin going into the election, and according to election returns on Washingtonpost.com (free subscription required), they have added to their majority.

The GOP captured the closely contested Louisiana seat by winning more than 50% of the vote in a three-way race, hence avoiding a run-off. The Republican had been somewhat favored in a run-off election, but the results were viewed as a close call. In addition, the Republicans gained seats from Georgia and South Carolina, as was expected. As of Wednesday afternoon, Florida also appears to be an upset in the GOP's favor.


  A tight race in South Dakota also has gone the Republicans' way, according to the election returns. The GOP lost seats as was indicated by polls in Illinois and Colorado, though the Colorado election was also expected to be close. Early returns favored the Republicans retaining the Alaska seat.

  Republican Democrat
Republican Incumbent 48 to 49* 0 to 1
Previously Republican 0 2
Democratic Incumbent 0 to 1** 42 to 43
Previously Democratic 4 to 5*** 0 to 1
TOTALS 52 to 55 44 to 47
Previous Composition 51 48
Change +1 to +4 -1 to -4

*Alaska seat appears to have been kept by the GOP, but a winner has not been declared. **Daschle's seat in South Dakota has been claimed by the GOP, but no winner declared yet. ***The Democrats' Florida seat is also in a tight race with no winner declared.

As with the Senate, the battle for control in the House of Representatives has gone in the Republicans' favor. This was both expected by the pundits and predicted by the futures markets. Election night returns point to a small GOP pickup of at least four seats.

  Republican Democrat
Republican Incumbent 229 1*
Democratic Incumbent 5** 199
TOTALS 233 205
Previous Composition 229*** 205
Change +4 -4

*Two vacant GOP seats were kept by the GOP. **Colorado seats appear to have been taken by Democrats. ***GOP decisively captured four Texas seats and one seat in Kentucky. There is one independent seat (Vermont) in the house, for a total of 435 seats.

While the handicapping of the various races has been of great interest -- and a lot of fun -- for many market players, the game is now pretty much over, as the GOP has amassed solid victories in all three arenas. Now financial markets can return their focus to playing the odds on more tangible things than political power -- like stocks, bonds, and currencies.

Brecht is senior economist, North America, for Action Economics

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