Are Poll Skews the Ultimate November Surprise?

Takeaway: Most polls currently favor Obama, but his true tailwind may well be that Democrats are oversampled in many prominent polls.

Last week we held a conference that outlined our key scenarios for the upcoming Presidential and Congressional elections.  We based these scenarios on a multifactor analysis of polls, electronic markets, and economic models.  Our key conclusions were that the highest probability outcomes in order were:

  1. Democratic President, Republican House, and Democratic Senate
  2. Democratic President, Democratic House, Democratic Senate
  3. Republican President, Republican House, Republican Senate

Since our call last week, President Obama’s chances of re-election have only increased on Intrade and are now north of 70%.  This is Obama’s highest level on Intrade this electoral cycle.  Intuitively, this makes sense as Intrade typical trades off of the national polls and the positive spread for Obama has been widening.


In our national poll aggregate, the race was effectively tied on September 6th 2012 at 46.7 to 46.7.  This coincided with the end of the Republican convention.  Since then Obama has widened out his margin and currently has a lead of +3.7.  This is beyond the margin of error in most polls.  Currently, the benefit of a convention bounce is now likely out of Obama’s numbers, which suggests, in theory, that he has now opened a sustainable edge over Romney.


Are Poll Skews the Ultimate November Surprise? - 44. 1


Historically, the polling at this point of the election cycle has been very accurate for assessing a final outcome.  Since 1936, of the 19 candidates who led in the polls at the point, 18 won the popular vote and 17 won the electoral college (Al Gore was the lone exception here).   As well, as Nate Silver touched upon in his insightful blog today, there is typically no tendency for races to shift to the challenger at this point in a Presidential election.


At face value, the state of the race does not look great for the Republican faithful as an Obama victory appears increasingly likely.  This, of course, assumes one thing, namely that polls are an accurate reflection of the actual electorate.  Increasingly, there is a view that many polls are skewed based on abnormally high Democratic turnout in 2008.


Based on the exit polls in 2008, there were approximately 7% more Democrats in the electorate.  This is really no surprise given the disenchantment with the Bush years and the excitement around then Senator Barack Obama’s candidacy.  Given that most voters vote along party lines, this edge in Democrats ultimately equated very closely to Obama’s edge in the popular vote at +7.6 in 2008. 


As we mentioned last week, there is some evidence that turnout this election could favor the Republicans and that more of the electorate identifies themselves as Republicans versus 2008.  Rasmussen actually runs a monthly poll on voter identification and in the September 1st release found that 37.6% of Americans consider themselves Republicans.  This is the highest reading in this poll since it began in 2002. In November of 2008, this poll had a +7.6% edge for Democrats over Republicans.


Are Poll Skews the Ultimate November Surprise? - 44. DJ 


An example of recent poll that utilizes skew towards Democrats is the Reason-Rupe public opinion survey released on Friday.  The poll found that 48% would vote for Obama and 43% would vote for Romney.  Interestingly, the poll also found that 28% of those polled viewed themselves as Republicans and 36% polled viewed themselves as Democrats for a staggering 8% advantage for the Democrats.  Assuming the Rasmussen party ID poll is accurate, the Reason polls and other polls may potentially be overstating voter turnout by party.   By non-skewing the Reason poll, Romney basically takes an almost 3 point lead.


In the most recent national poll from Politico, 43% of those polled identify themselves as Democrats and 40% identify themselves as Republicans. The Obama edge in the poll is . . .  you guessed it . . . +3.  The nature of the sample and the weighting it gives either party is ultimately consistent with the outcome and headline number of the poll.


In the table below, we’ve highlighted a break out of voter ID from the Associated Press poll which shows this point in detail.  The Likely Voter survey showed that Democrats had an edge of +1 over Republicans in poll, probably a reasonable sample. This breakdown effectively matched the results of the poll which gave Obama a +1 edge.  In the registered voter category, Democrats had a +7 point edge.  To the extent that a pollster, such as Gallup, is still using registered voters it is likely to overstate the results for Obama.


Are Poll Skews the Ultimate November Surprise? - 44. 3.


If Republicans maintain their edge in voter ID polls and national polls continue to oversample Democrats, the ultimate surprise in November could well be failure of polls and a surprise showing by the Republicans versus the expectations of pollsters.  The aforementioned poll from Rasmussen will be a key tell in this regard given its predictive ability on voter ID in 2008 and 2010.


Daryl G. Jones

Director of Research


EUR/USD: What Lies Ahead?

Now that summer has come to a close and eurocrats are back from vacationing, we can trust that the Eurozone will be ripe with turmoil soon again. As we look at our quantitative setup for the EUR/USD, we're about to see if it breaks our TRADE level of support at $1.29. After that, $1.26 is the next level of support and after that...well...



EUR/USD: What Lies Ahead?  - 44. eur



Lots of news revolving around Europe's crisis, but the big issue at the moment is the new banking union proposal, which has Germany and France becoming nitpickish over timetables and terms of agreement. From Senior Analyst Matthew Hedrick:


"On a "single supervisory mechanism" of banks in the Eurozone, Germany remains reluctant to cede control of its banking sector.  It wants the new regulator to concentrate only on the region's biggest banks, perhaps an estimated 20-25 banks. Specifically, Germany's public-sector banks oppose regulation citing a lower-risk business model. The Germans are setting an expectation that an agreement may not come until next year. On the other hand, the French, in line with the European Commission (EC) positioning, want all banks in the Eurozone (~6,000) to be supervised by the ECB and are signaling that an agreement can be reached over a shorter time horizon than the Germans."


We'll keep an eye on the EUR/USD as more news and events unfold this week, including the German bond sale on Wednesday and Italian bond sale on Thursday.

EUR/USD: At A Tenuous Price With Catalysts Coming

Takeaway: beware that if $1.29 breaks, the next line of support doesn’t come until $1.26.

Positions in Europe: Short EUR/USD (FXE); Long German Bonds (BUNL)


In the chart below we outline our trading levels on the EUR/USD as we head into the week. Our quantitative levels suggest that the cross is broken on the long term TAIL line and that if its immediate term TRADE support level of $1.29 breaks, the next level of support is $1.26. Currently the EUR/USD is at $1.2911.


This weekend was packed with noise. The Germans and French in particular continue to be at loggerheads on the timetable and terms of a banking union.


On a “single supervisory mechanism” of banks in the Eurozone, Germany remains reluctant to cede control of its banking sector.  It wants the new regulator to concentrate only on the region's biggest banks, perhaps an estimated 20-25 banks. Specifically, Germany’s public-sector banks oppose regulation citing a lower-risk business model. The Germans are setting an expectation that an agreement may not come until next year. On the other hand, the French, in line with the European Commission (EC) positioning, want all banks in the Eurozone (~6,000) to be supervised by the ECB and are signaling that an agreement can be reached over a shorter time horizon than the Germans.


This indecision on a banking union was quickly met with rumors of the expansion of the ESM from €500 Billion to €2 Trillion, however without detail on how this expansion would be covered. The ESM is expected to come online on October 8th and we think the rumors reflect the market’s belief that the current size of the ESM is far insufficient to deal with the default and/or bailout needs of Italy and Spain, especially as the EFSF, the only remaining bailout facility (short of a blank check from the IMF), is nearly depleted if it is decided that funding for Spain’s €100 Billion bank recapitalization comes solely from it.


Below are a few calendar catalysts to note in the coming week that could influence the cross.


Wednesday (9/26)

Greece’s two biggest union have called a 24hr general strike to protest austerity.


Germany to sell 5 Billion of 10YR bonds.


Thursday (9/27)

Spain’s cabinet is expected to approve the 2013 budget.


Italy sells bonds.


Friday (9/28)

Spain will release results of stress test on banks (estimates between €60-100 Billion for bank recapitalizations).


France presents the country’s 2013 Budget.



EUR/USD: At A Tenuous Price With Catalysts Coming - 44. eur


Matthew Hedrick

Senior Analyst

Early Look

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In preparation for CCL's 3Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary


  • "In March, we entered into zero cost collars for an additional 19% of our estimated fuel consumption for the second half of fiscal 2012 and fiscal 2013, bringing the total to approximately 38% for this period. We feel comfortable with this level of protection for the next 18 months."
  • "We also have zero cost collars in place that cover approximately 19% of our estimated fuel consumption for fiscal 2014 and 2015. We will look to opportunistically increase these percentages over time."
  • "The price of Brent was $93 a barrel the other day when we locked off our forecast. The second rule of thumb relates to our current fuel derivatives portfolio where a 10% reduction in the price of Brent for the remaining half of 2012 would result in an additional $0.04 of realized losses on fuel derivatives that would offset the $0.13 per share favorable impact from the reduced price of fuel."
  • "A 10% change in all relevant currencies relating to the U.S. dollar for the remaining half of 2012 would impact our P&L by $0.11 per share."
  • "The significantly higher air costs for North American passengers traveling to Europe caused bookings for these itineraries to slow and resulted in our having to take further price reductions for these programs."
  • "During this past spring North American brands experienced slightly lower pricing than we originally forecasted. North American brand European itineraries experienced the largest declines in pricing, not just because of the slowing North American market but also because of the challenges in locally sourcing business from the softer European markets for these sailings. As a consequence for the remainder of 2012 we have modestly reduced our revenue yield outlook for North American brands for the second half of the year...For the full year North American brand revenue yields are now forecasted to be flat on a year-over-year basis."
  • "Revenue yields for our European brands, excluding Costa, are also forecasted to be slightly lower than previously anticipated primarily due to the significant softening in the Spanish markets. Ibero, our Spanish cruise line has suffered a significant decline in revenue yields. Fortunately there are just three ships operating in the brand so the impact of the struggling Spanish economy on our financial results has not been significant."
  • "We do expect that when year-over-year occupancy levels begin to normalize, Costa's cruise prices for 2013 should start to firm up. Costa's revenue yields for 2012 are forecasted to be down in the mid-teens levels on a year-over-year basis and we expect Costa's operating loss to be in the range of $100 million."
  • "2012 forecasted operating cash flow is expected to be in the range of $3.2 billion, net CapEx for the year is estimated at $1.9 billion, so after the dividend that will leave us with approximately $500 million of free cash flow. 2013, our CapEx is currently estimated at $1.8 billion, so with operating cash flow expected to improve in 2013, there should be further increases in free cash flow come 2013.
  • "(Excluding Costa), we are estimating that Q3 and Q4 yields will be down in the same relative range of 3% to 4%."
  • "We're incentivizing more going into Q3."
  • [Booking ranges for Q3 and Q4] "We are towards the lower end of the ranges (85-95% for Q3, 55-75% for Q4)"
  • [Share repurchase program] "At the moment... $330 million that remains on the program."
  • "We are seeing some increases in onboard. We were very pleased. In fact, we took the guidance up almost a point on onboard from March to the June guidance, so the trend is very favorable and I hope it is a leading indicator."
    • "Onboard was flat on the European brands despite the lower occupancy, so you're actually seeing some additional spending on a per diem basis. So, the onboard spend per person is going up. It was just we had a couple of points less occupancy on the brand. So, flat on a yield basis."
  • "We're very pleased with Australia and it's likely that we may be through the worst part of it in terms of the additional capacity. Next year Carnival brings a ship down to Australia and it's performing very nicely right now, so we're very pleased with Australia. In Asia, it's a pretty positive situation. We moved the largest ship into the China market, the Costa Victoria, and it's doing quite well, and we expect that we would be breakeven this year in Asia or maybe make a little bit of positive cash flow and that looks like it's going to be the case so far. So, bookings – pricing in Asia and Southeast Asia and China is quite good right now."
  • "Beginning next spring, we're bringing a second Costa ship to Asia, the Costa Atlantica"
  • "It's still early because South America season is basically mid December to mid March so it's a very short season and it's still quite early. But, early indications are positive."
  • "Direct bookings last year were 19% of our total business. That has moved up year-over-year. We don't have any specific aspirations. I do expect the number will continue to creep up over time."


3Q 2012 excluding Costa

  • "Capacity is expected to increase 2.9%, 3.4% in North America markets and 1.6% in EAA at the current time."
  • "On a fleet-wide basis, third quarter pricing and occupancy is lower than a year ago."
  • "North American brand capacity in the third quarter is 38% in the Caribbean, slightly up from a year ago, 24% in Alaska, slightly higher than a year ago and 25% in Europe, which is about the same as last year. North American brand pricing is lower than a year ago at slightly lower occupancies. Pricing for Caribbean itineraries is in line with a year ago with pricing for both Alaska and European cruises lower versus last year. The occupancies for Caribbean, Alaska cruises are slightly lower versus last year and occupancies for Europe cruises are lower than a year ago."
  • "EAA brand capacity in the third quarter is 85% in European itineraries, up from 82% prior year. EAA brand pricing, this excludes Costa again for European and all other itineraries, is slightly lower than a year ago on slightly lower occupancies. U.K. brands pricing is higher than a year ago and German pricing is slightly lower."

4Q 2012 excluding Costa

  • "Fleet-wide capacity is expected to be 3% to 4% higher than last year. 3.9% of that is for North American brands, 2.1% for EAA." 
  • "Fleet-wide pricing, excluding Costa, is slightly lower than a year ago on lower occupancies." 
  • "North American brands are 43% in the Caribbean, slightly higher than a year ago; 13% in Europe, about the same as last year, the balance is in various other itineraries. North American brand pricing is slightly lower than last year at lower occupancies. Caribbean pricing is higher than a year ago at flat occupancies. Europe pricing is lower versus last year at lower occupancies and pricing for all other itineraries taken together is slightly higher than a year ago on lower occupancies."
  • "EAA pricing in the fourth quarter, and this excludes Costa, is higher versus a year ago at lower occupancies.  Pricing for Europe cruises, which represents 61% of EAA itineraries are slightly higher on lower occupancies. For all other itineraries taken together, pricing is also higher on lower occupancies. Costa's pricing and occupancies are lower than a year ago. Although pricing for Europe brands excluding Costa is higher at the present time because there are more cabins to fill versus last year, we expect pricing for EAA brands to decline as the quarter closes on a fleet-wide basis. Similar to the third quarter, we're forecasting EAA revenue yields excluding Costa to be lower in the fourth quarter."

1Q 2013 including Costa

  • "Fleet-wide capacity for the first quarter of 2013 is expected to be higher by 4%, 3.4% in North America, 4.9% in EAA. Fleetwide occupancies at the present time are lower than a year ago with pricing at the present time slightly lower versus last year."
  • "For North American brands taken together, occupancies are flat year-over-year with overall pricing currently lower. However, pricing is higher for most of the North American brands, but lower in total partly due to itinerary changes and the mix of the four brands pricing."
  • "Revenue yield comparisons for the first quarter of 2013 versus first quarter of 2012 will be more challenging given our stronger first quarter North American yield performance in 1Q 2012."
  • "On a fleet-wide basis, EAA brand occupancies are behind last year with higher pricing. Although still early, pricing on Costa's bookings for Q1 is also higher on a year-over-year basis at lower occupancies."


Tough Spot: SP500 Levels, Refreshed

Takeaway: Unlike prior months and quarters, Earnings Season is no longer an obvious bullish catalyst.

POSITIONS: Long Utilities (XLU)


Today I am registering my 1st sell signal on an immediate-term TRADE break. In other words, what was immediate-term support is now resistance, and unless the market closes > 1458, short-term lower-highs look more likely than they did last week.


Across our core risk management durations, here are the lines that matter most:


  1. Immediate-term TRADE resistance = 1458
  2. Immediate-term TRADE support = 1441
  3. Intermediate-term TREND support = 1419


So I’d wait and watch here (stay hedged) for this 1 range to be tested. Unlike prior months and quarters, Earnings Season is no longer an obvious bullish catalyst.





Keith R. McCullough
Chief Executive Officer


Tough Spot: SP500 Levels, Refreshed - SPX

European Banking Monitor: Well That Was Short Lived – Swaps Blow Out

Takeaway: Draghi’s put is faded.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


Key Takeaways:


* Bank swaps domestically and in Europe saw significant widening week-over-week as economic uncertainty trumped monetary stimulus relief once again. Sovereign swaps followed suit mostly rising week-over-week. French, Italian, Spanish, and Portuguese sovereign swaps were all wider while Germany and Ireland saw their sovereign swaps tighten. 


On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated.



If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





European Financials CDS Monitor – French, German, Italian, Spanish and UK bank swaps all widened last week. 


European Banking Monitor: Well That Was Short Lived – Swaps Blow Out - 33. banks


Euribor-OIS spread – The Euribor-OIS spread tightened by 1 bps to 15 bps, and is now back at its tightest levels in the last five years. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: Well That Was Short Lived – Swaps Blow Out - 33. Euribor


ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  


European Banking Monitor: Well That Was Short Lived – Swaps Blow Out - 33. facility

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