Morningstar’s Pat Dorsey gives his take on the market plunge today, based upon the extreme values being realized these days by the so-called “VIX” index:
The 2008.PRES.OBAMA Intrade contract now trades at 62.1, whereas the 2008.PRES.McCAIN Intrade contract is currently trading at 38 (compared with 58.2 and 41.6 respectively as reported on yesterday’s update).
The state-by-state contracts now imply that Mr. Obama holds a 286-185 “lead” over Mr. McCain (based upon my cutoff price point of 55 for allocating Electoral College votes). Since yesterday, Mr. Obama has “picked up” New Hampshire (4 Electoral College votes) and Virginia (13 Electoral College votes), whereas Mr. McCain has “re-lost” North Carolina (15 Electoral College votes); North Carolina has slid back into “swing” state status. The other remaining states which have “swing” state status today include Florida (27 Electoral College votes), Nevada (5 Electoral College votes), and Ohio (20 Electoral College votes).
FiveThirtyEight.com currently gives Mr. Obama a 325.5 to 212.5 advantage over Mr. McCain.
Addendum: September 29, 2008 Electoral College Vote allocation
Barack Obama (286): California (55), Colorado (9), Connecticut (7), Delaware (3), District of Columbia (3), Hawaii (4), Illinois (21), Iowa (7), Maine (4), Maryland (10), Massachusetts (12), Michigan (17), Minnesota (10), New Hampshire (4)New Jersey (15), New Mexico (5), New York (31), Oregon (7), Pennsylvania (21), Rhode Island (4), Vermont (3), Virginia (13), Washington (11), and Wisconsin (10)
John McCain (185): Alabama (9), Alaska (3), Arizona (10), Arkansas (6), Georgia (15), Idaho (4), Indiana (11), Kansas (6), Kentucky (8), Louisiana (9), Mississippi (6), Missouri (11), Montana (3), Nebraska (5), North Dakota (3), Oklahoma (7), South Carolina (8), South Dakota (3), Tennessee (11), Texas (34), Utah (5), West Virginia (5), and Wyoming (3)
Last Wednesday (September 24, 2008), I posted a blog entry entitled “Financial market risk and the “Peltzman” effect” which showed a time series graph since 2006 for the CBOE volatility index (aka “VIX”). Today is noteworthy in financial market history not only because the Dow Jones industrial average suffered its largest one day point drop in history — 778 points — but also because the VIX registered its highest closing level since its inception (in January 1990). The VIX closed today at 46.72, which is impressive considering that the average closing price for the VIX is 19.17 (this is based upon a total of 4,723 daily closing prices dating back to January 2, 1990). Today’s VIX reading also represents the 6th largest one day change in volatility for the entire time series. This is all the more impressive since volatility has been well above average long-run levels ever since the middle of September, which is the day that Lehman Brothers filed for Chapter 11 bankruptcy reorganization.
As I noted in my 9/24/2008 blog entry, VIX measures “consensus” forecasts of future (U.S.) stock market volatility as reflected in the market prices of call and put options written on the S&P 500 index. The higher the value for VIX, the more risk averse investors are in the aggregate. The last time the VIX was this high was on October 8, 1998, in the middle of the so-called Long-Term Capital Management financial crisis.
Here’s the daily time series graph for VIX from January 2, 1990 through the close of business today; the spike at the far right of the graph is from today: