Your Candidate For Pennies on the Dollar

Forget the polls. The only electoral prognosticator worth heeding is the Iowa Electronic Markets (IEM), a real money futures exchange set up by Iowa's Tippie College of Business in which you can buy shares in future events.

The way that IEM works is that you can invest up to $500 on a number of future events (like elections), in which you buy shares of certain outcomes. If your outcome comes to pass, you make money. If not, you lose your shirt.

An example to explain the IEM:
Lots of pundits speculate whether the Federal Reserve Board will raise, lower, or sustain its key rates; however, IEM is the only place (that I know of) where you can essentially wager on the outcome. According to this graph, the current share price of the Fed keeping rates the same during its May meeting is trading north of $.90. If you bought shares at $.90, and the Fed kept the rate the same, you'd be paid out $1.00 for every share you owned.

Now, it turns out that the IEM is generally a better Presidential Election predictor than the polls, so it's a good idea to keep track of how well the market is treating a candidate's chances.

Right now, futures in John Kerry are surging him into, in a virtual tie with Bush. (Actually, the market has him winning in a landslide, but that will be clearer after Kerry wins the Democratic nod.)

A Kerry share assumes that he'll win the Democratic nod and go on to defeat Bush. Shares in this outcome were available for $.03 at the start of January, and have leapt to ~$.45, a dead heat with the President, at the time of this writing.

Eager to keep their audiences attention, some writers may imply that other democratic nominees still have a chance, but the IEM says otherwise. Dean went from $.34 to virtually nil, a fate shared by Clark. (Strangely, the market still gives Edwards a $.25 chance.)

So ...where will Kerry's shares be trading on the Monday before Election Day?