Can Obama stop the plunge?

Bookies tend to have their finger on the true pulse of presidential elections and since the first debate this race has tightened dramatically, in their view. Tomorrow's second encounter looks set to be a crucial one.

The US presidential campaign teams are in lock-down as the candidates prepare for their second debate, which is expected to include a much more spirited performance from incumbent Barack Obama.

Hofstra University in Long Beach, New York is hosting its second presidential debate in as many cycles. In 2008, President Obama duelled with then Republican nominee John McCain and the Democrat will undoubtedly be hoping to recapture some of the pep of that campaign tomorrow night (US time).

The stocks of Republican candidate Mitt Romney, the co-founder of Boston’s Bain Capital, have surged since the pair’s first face-to-face encounter at the University of Denver on October 4.

Obama remains the favourite to win the election on November 6, but only just. The national polls have tightened to an effective dead heat and the payouts that betting agencies are willing to offer for a Romney victory have shortened considerably since the first of three debates.

The following graph from online prediction market Intrade illustrates the situation pretty clearly.

This is the last 100 days of trading in contracts that reflect the market’s sense of Obama’s re-election chances – this correspondent maintains that punters are the best election predictors.

It’s pretty simple; a reading of 50 represents a 50 per cent chance of winning.

image

The beginning of that spike in Obama’s numbers (and an increase in trading volumes) corresponds with the death of the US ambassador to Libya and three other Americans in Benghazi. The president was much more cool-headed than his Republican rival in the aftermath of that particular chapter of Middle Eastern tensions.

When combined with the ‘Romney tapes’, which put the Romney camp in serious jeopardy, the market gave Obama a re-election chance of almost 80 per cent.

That was overcooked. The surge has been almost completely wiped out as speculators cover their Romney shorts. With just over three weeks before polling day, Obama goes in to his second encounter with Romney sporting a re-election chance of about 62 per cent.

The more modest numbers are a measure of just how much the US president’s performance in the last debate disappointed and how Romney exceeded all expectations.

While this correspondent argued at the time that presidential debates, historically speaking, tend not to shift the outcome of American elections, the tones of the respective campaigns have changed radically since the evening of October 4.

The wash-up from the one vice presidential debate last week was that ever passionate VP Joe Biden got the better of Republican rival Paul Ryan.

More importantly, the event provided the Obama campaign with some solid evidence that their candidate can offer a more aggressive defence of his administration without portraying a sense of self-satisfaction.

The ‘town hall’ format of the Hofstra debate is where citizens get to ask the candidates directly over 90 minutes. It’s traditionally known for being the most unpredictable of the three, making preparations more difficult.

Whatever the questions are, the candidates are expected to shape their answers towards the economy and foreign policy.

Alexander Liddington-Cox is Business Spectator's North America Correspondent.