The largely discouraging economic news in recent months hasn’t offered much to support President Obama’s re-election bid. Still, Jim McTague‘s latest “D.C. Current” column in Barron’s highlights an election model from quantitative trader Reid Holloway that projects an Obama victory over Mitt Romney.
The trader, who operates quietly from Litchfield County, Conn., foresees an Obama victory, with 325 electoral votes for the incumbent versus 213 for GOP challenger Mitt Romney. Holloway doesn’t relish the outcome; he favors Romney-style self reliance over Obama’s Big Government. But Holloway’s computer model tells him Obama’s victory is all but inevitable.
Holloway’s election formula is based on one he developed to predict market volatility among the S&P 500’s market segments. The market formula is a key tool for Holloway’s proprietary trading firm, which is in the sub-$100 million size group. Each market segment has a mean volatility. When a segment’s volatility moves to an extreme, his model flags it and predicts when it will revert to its norm.
Holloway’s political model breaks the national presidential contest into 50 unique state elections. Each state has a philosophical mean. But sometimes a state will shift sharply either to the right or the left. …
… Holloway predicts Obama will win in Florida, Iowa, Nevada, North Carolina, and Ohio—all crucial swing states. Romney will take Colorado, Indiana, and Virginia. No model is foolproof, of course. Successive financial crises have taught us this. Holloway says that Romney would win if he defied the model and took Florida, North Carolina, and Ohio. Unless the Republican can turn his troubled campaign around, however, the odds he will score this hat trick are steep.
