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Takeaway: The first stop on the road to 1600 Pennsylvania Avenue is in Ohio, which favors Obama.

“Tin soldiers and Nixon coming, we’re finally on our own.”

                -Neil Young, “Ohio”

On Wednesday October 24th we are doing a call on the Battleground States with Professor Ken Bickers from the University of Colorado. (Materials and dial in will be circulated.)  Bickers and his colleague, Professor Michael Berry, have put together a fascinating projection for the Presidential race based on bottom up state based economic analysis.  The key drivers of their model are both unemployment levels, state and national, and state level income levels.

According to their analysis, President Obama is currently slated to win 208 electoral votes.  This is far short of the 270 he would need to retain the Presidency.  This is an extreme outlier from other current Electoral College projections which generally show Obama winning.   To their credit, the Bickers and Berry model has accurately predicted every Presidential election going back to 1980.  The two wildcards this year may be the unpopularity of the challenger (with approval ratings below 50%) and the fact that the stock market has done well, even as the real economy has struggled.

On the last point, our Hedgeye Election Indicator (HEI) still has Obama at a more than 60% probability of being re-elected.  This analysis is based on real time economic indicators, such as equities, so this makes sense.  The dichotomy between the strength of risk asset prices and economic data released by the federal and state governments is a point that we will be pushing Bickers on in our call.

On a national level, Romney appears to be holding his narrow lead since the first debate.  Based on the average of the last seven major polls, Romney is up +0.7.  This also includes a Gallup poll that has Romney up +7 and is a clear outlier.  Rasmussen who has been the most accurate nationally in the last two Presidential races, has the race has a tie.  So, Romney has a slight edge, but basically it is too close to call.

Historically, races don’t shift much with only a few weeks to go, so we think it’s fair to say that this race will go into election night in a very tight range with no clear advantage in national polls.  It will then of course come down to the a few key states with Ohio, similar to 2004, likely being the key state.  In fact, Nate Silver, who in our view is one of the best political statisticians in the game, ranks the “Tipping Point States” and has the top five as: Ohio 46.9%, Wisconsin 10.2%, Virginia 9.4%, Colorado 7.6%, and Nevada at 6.8%.   So, Ohio has a 1 in 2 probability of being the deciding state, which might not be good for Republicans.

For starters, Romney has and continues to struggle in Ohio polls.  In the last seven Ohio polls, Obama has led in five of them and Romney has led in two. Of the two that Romney has led, it has only been by +1 point.  On average of all the polls released in October, Obama is up +2.4.  In 2008 Obama won Ohio by +4.6 and Bush won it by +2.1.  No Republican has ever won the Presidency without winning Ohio.

From an economic perspective, Ohio also has a few things going in Obama’s favor.  First, the Ohio unemployment rate, of 7.0%, is below the national average.  This is well below the level of 8.6% when Obama took office.  Second, personal incomes have actually been on the rise in Ohio under Obama, which makes sense given the decline in the unemployment rate.

No surprise for a state with such critical importance, early voting has already started in Ohio with more than 1.4 million people having requested a ballot or already voted.  Currently both parties are claiming early victory.  For example, in Cuyahoga County 250,000 absentee ballots have been requested, 80,000 have been returned, and those numbers favor Democrats by a ratio of 3:1.  Meanwhile, in another key area of Ohio, Franklin County, Republicans account for 16.5% of registered voters and have made up 28.6% of early voting so far.

In general, it is probably premature to read much into early voting.  But we should be very clear- the road to the Presidency goes directly through Ohio.  With Ohio’s relatively positive economic performance and Obama’s current lead in most Ohio polls, the road looks bumpy for the Republican Party. (In the table below, for your reference on election night we’ve posted congressional district results for Ohio.  Romney will have to outperform McCain meaningfully to win.)

Daryl G. Jones

Director of Research

Ohio! - 1