The Great Obama Crash of 2008

Business blogger James Pethokoukis has a great blog post comparing Obama to a trendy 1990s tech stock:

Speculative bubbles have come in many different varieties: flowers, railway shares, Florida property, Beanie Babies, comic books, technology stocks, exurb McMansions. Does Candidate Obama qualify? Well, the candidate does sound a bit like a lot of the hot Internet companies back in the late 1990s. Not much of a track record. Lots of media hype. Parabolic ascent. And now a stomach-dropping decline.

Maybe that’s all a bit too cynical. But take a look at the following description of a bubblicious scenario from the preface of the 1841 classic Extraordinary Delusions and the Madness of Crowds by Charles Mackay. Tell me it doesn’t sound like Peak Obamamania, from celebrity-packed, will.i.am YouTube videos to weak-kneed supporters at rallies (bold is mine):

In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first…. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.

Two events firm the Obama-tech stock analogy in my mind. First is Obama’s selection of Joe Biden as his running mate. (This may have been the exact Minsky Moment for Obama.) The logic behind the move was that Mr. Change needed to be balanced by Mr. Experience. New Economy Obama acquires Old Economy Biden. It reminds one of the January 2000 purchase of Time Warner by AOL, a combination which turned out to be a synergistic dud. The amateur explainers at Wikipedia got this one spot-on: “The acquisition thus became a symbol of the dot-coms’ challenge to “old economy” companies and the old economy’s ultimate survival. The revolutionary optimism of the boom faded, and analysts once again recognized the relevance of traditional business thinking.”

Has the “revolutionary optimism” of Obamamania faded? Let’s turn to a second event. I was recently chatting with a top Obama adviser who was explaining in detail the campaign’s ambitious 50-state strategy, how legions of Obamamaniacs were turning up in the reddest counties of the red states. If that was all true, I asked him, how come the polls were so close? If Obama was surging in places where John Kerry and Al Gore got clobbered, shouldn’t the Democratic nominee be ahead by a country mile? The only answer I got was something about how the structure of the American electorate is historically biased against Democrats.

Huh? I felt like a Wall Street analyst during the tech boom sitting through a glitzy PowerPoint presentation—filled with buzzwords like “stickiness” and “eyeballs” and, of course, “sticky eyeballs”—who finally had the temerity to ask: “So if things are so great, why aren’t you making any money?” It’s like the old joke, “Sure, we lose money on each sale, but we make up for it on volume!” (The adviser finally admitted that Obama hadn’t closed the deal on national security.)

The In-trade investors are the ones taking a hit so far. Obama’s “stock” has been around a 62-65% chance of victory the last three months. Right now, Intrade is giving Obama a 48.0% chance of victory. He’s lost the confidence of the prediction markets right now. The ultimate question is, “Can he come back? If so, what can he come back with?”

It’s possible, but I certainly wouldn’t get overconfident in this, that Obama is in effect played out, burning up from a campaign that’s too darn long. Matt Lewis thinks Obama’s tired which means an increase in gaffes, which means there’s money to be made on In-trade short selling Obama.