11/6/12 – It Ain’t Over Until It’s Over

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 6, 2012 8:33:49 AM

and tagged Fiscal Cliff, Politics and the Economy, Yesterday's News

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So here we are, Election Day, and the uncertainty will soon be resolved. Right?

I certainly hope so, but the signs actually aren’t that clear. Neither campaign has stepped back, suggesting that the candidates aren’t so confident of the outcome. The polls continue to suggest a dead heat nationally; in the swing states, the numbers are far from definitive. It looks to be a very close race indeed. What will that mean for the results?

It means it could be ugly. In the past week, both sides have dispatched lawyers to the swing states to observe, protest, and potentially litigate. Beyond delays and litigation instigated by the campaigns, pending lawsuits over voter identification rules may affect the results of the Ohio race—a critical one, perhaps the most critical—and similar disputes in other states.

Finally, there are the recount provisions required by state law if the race is closer than certain limits. Ohio has such a law, which could delay results until December, as described in “In Case of a Recount, A Long Wait for Ohio” on page A10 of the New York Times. Other states do as well. To quote the story “Battlegrounds Weigh Recount Rules” on page A4 of the Wall Street Journal, “Many battleground states, including Ohio, Florida, Colorado, and Pennsylvania, provide for automatic recounts if the final margin is 0.5% or less”—which it may well be.

Looking at Nate Silver’s model this morning, there is about a 6-percent chance of a recount, defined as one or more decisive states within 0.5 percent. That’s not a very big chance, but it’s larger than anyone would like to see.

The nightmare scenario, of course, is a repeat of 2000, which the Financial Times discusses on page 3: “Lawyers get set as fears rise of a repeat of 2000.” Ohio, as noted above, seems to be a serious contender to become the next Florida, but Florida is also apparently doing its best for a repeat role. In any event, both sides have teams of lawyers all over the country and have set their strategies if needed. Unlike 2000, this time both sides are prepared.

Even when the election results are resolved—however long that may take—we then move into the next phase of uncertainty, the fiscal cliff. But that’s another story for another day. Hopefully we can talk about that tomorrow, when we know who the next president is.

Hopefully.

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