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Me or Your Lying Eyes


Divergent reads on the presidential debate.

MINYANVILLE ORIGINAL Based on the action in the market for wagers on the presidential election, your eyes weren't deceiving you during last night's debates. Romney rocked.

Romney's effective approval rating got its biggest bounce of the election campaign (and it's been a long campaign). The president, in this Coke versus Pepsi brawl, took a just-as-emphatic shellacking.

At InTrade, which makes a book on non-sporting contests like election results, President Obama's likelihood of triumphing in the election five weeks hence slimmed by eight percentage points. That's not only his biggest overnight crash; it's twice as dramatic as the hit his electability took amid talk of cutting America's credit rating. Romney picked up every one of those eight points, naturally.


But over in the real markets? Not so much. The Dow (INDEXDJX:.DJI) is up -- not sharply, but constructively, extending the best two-day period of two weeks. Meanwhile, the Volatility Index (^VIX) -- which arguably should be doing a better job of reflecting the fact that the top of every pundit on MSNBC fairly well blew off last night -- is dead flat and barely above 15.

Why is there this divergence?

Well, functionally, the equities and derivatives markets have more liquidity, for one thing. If Arab Spring couldn't incite the animal spirits, two guys in suits standing on a stage alternating conciliatory remarks with things that were tamer than anything my brother said about me over family dinners wasn't -- and shouldn't be -- enough to unleash the hounds.

Markets -- real markets -- are able to focus on more than one thing. (Has anybody heard that we get a jobs number tomorrow?) And sometimes, these markets see the consequences (intended or not) of outcomes. Hey, Romney has reversed what was starting to look like a dispiriting campaign, voter turnout on both sides remains buoyant, and the election outcome remains split. Maybe the two parties will talk while on line at the polls. A solution to the dreaded fiscal cliff? Something they should chat about.

Either way, last night's antics -- even if they amounted to lively theater during what is often a tedious process -- don't change the forecast for what's in the Beltway's future: Four more years of gridlock. Unlike the polls that have the outcome of the first Tuesday tighter than your thriftiest uncle, the InTrade standings had Obama as the Yankees and the former Commonwealth governor as the Sawx. InTrade says that, at eight points slimmer, Obama is only twice as likely, at 66%, to best Romney.

You can take that as being as predictive of the outcome as sticking a wet finger out a car window to judge how fast you're going.

But next week's tussle between Biden and Ryan ? It might be a more auspicious occasion to go long the VIX.
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