Intrade Post-South Carolina: The Newt Strikes Back!

The South Carolina primary is over, and Newt Gingrich has emerged victorious. With Gingrich's decisive victory over former Massachusetts Gov. Mitt Romney, the chase for the Republican nomination is heating up.

CNN reported Sunday that with 95 percent of the polls reporting, Gingrich finished with 40 percent of the vote, Romney received 27 percent, Rick Santorum received 17 percent, and Rep. Ron Paul received 13 percent of the vote. It is said that America loves an underdog, and perhaps this sentiment played into Gingrich's turnaround in the race -- as it appeared that Romney was on the verge of running away with the Republican presidential nomination.

Commenting on Gingrich's key victory in South Carolina, Romney said, "This race is getting to be even more interesting... We're now three contests into a long primary season. This is a hard fight because there is so much worth fighting for." Along the same lines, Santorum commented, "This is a long race. As a result of what happened here tonight, this race isn't going to be over next week or the week after. This is going to be a long one..." Gingrich's victory speech in South Carolina reflected the fact that his campaign is gaining steam. As for the reason why Gingrich's message is resonating with the American people, the former House Speaker said, "It's that I articulate the deepest-held values of the American people."

Whereas former Alaska Gov. Sarah Palin had previously encouraged South Carolina voters to support Gingrich in order to "keep the race going", there may very well be opportunities going forward for traders on the issue of the Republican presidential nomination -- courtesy of the predictions market Intrade. After the New Hampshire primary on Jan. 11, I had previously asked, "Is Romney already the last man standing?" After the South Carolina primary, the answer to that question is a resounding 'no'. Gingrich's victory signals a definitive change in the course of the race for the GOP nomination. The race must go on, and Florida is the next battleground for the Republican candidates with its primary on Jan. 31.

One might say that if Romney had won South Carolina (even aside from the tie with Santorum in Iowa), the race would most likely have been over by now. That being the case, we can continue to look to the current sentiment at Intrade to get a glimpse of what will occur in Florida and beyond. Currently on Intrade, Romney has a 57.6 percent chance of winning the Florida primary. However, this statistic has fallen from above 95 percent in the middle of January. In comparison, Gingrich currently has around a 44 percent chance of winning the Florida primary.

Even after Florida, the GOP candidates will set their sights on the Nevada Caucus on Feb. 4, 2012. Currently on Intrade, Romney has near a 75 percent chance of winning the Nevada Caucus, again falling from a level near 95 percent in early January. Comparatively, Gingrich has a near 18 percent chance of winning the Nevada Caucus, rising from a price of near zero around Jan. 16.

In terms of becoming the Republican presidential nominee, on Intrade Romney still maintains a 72.5 percent chance. Not too shabby, but a substantial decline from the above 90 percent level in mid-January. On Jan. 11, Romney had a formidable 86.8 percent chance of being the Republican nominee. Comparatively, even with a double-digit victory in South Carolina, Gingrich only maintains a 22.5 percent chance of being the Republican nominee. This particular statistic has skyrocketed increased since mid-January when Gingrich's chances were below 5 percent.

On Jan. 11, I reported how Gingrich then only had a 4.4 percent chance of finishing as the Republican presidential nominee. The trading volume of Gingrich's chances to become the Republican nominee has also increased since mid-January. Even so, that particular "topical market" is not currently featured on Intrade's main page as being a hot market. If Gingrich does go on to win the Florida primary emerging as the clear conservative alternative to Romney, Gingrich's chances of being the GOP presidential nominee will most likely skyrocket while Romney's chances take a dive. Even with four candidates left standing for the GOP presidential nomination, one has to wonder how a surprise dark horse candidate or the threat of a third party rogue conservative candidate could play into the nomination process.

As for the topical market of Pres. Barack Obama being re-elected in 2012, Obama currently has a steady 55.5 percent chance of being re-elected. In fact, though this issue has increased several percentage points recently, Obama's chances of being re-elected have stayed relatively stable since November 2011. Comparatively, Romney's chance of being elected president is currently 29.7 percent, falling from near 43 percent on Jan. 17. Gingrich currently has a 9.4 percent chance of being elected president, up from near 1 percent for the first half of January, but down from a little under 20 percent in December 2011.

Even aside from Intrade, other exchanges may be getting into the political predictions market. Yahoo! Finance's Jeff Macke recently discussed how Yossi Beinart, the CEO of the North American Derivatives Exchange (NADEX) is considering allowing traders to buy and sell contracts based on the outcome of an election, much like Intrade. According to Macke, "[t]he major differences between Beinart's proposed offering and Intrade or the Iowa Electronic Markets are primary regulation by the CFTC [Commodity Futures Trading Commission] and being open to 'every day' US investors." And unlike Intrade, "Beinart's proposed markets would only involve major elections...those with the most liquid markets." Macke wrote that the CFTC is currently reviewing Beinart's proposal; the CFTC's final decision on the proposal "will be released within the next two-and-a-half months".

Thus, aside from the political implications of the GOP race, it would seem that Gingrich's victory in South Carolina and the announcement that Santorum won in Iowa make good news for traders as there will be more opportunities for traders to weigh in on the elections. Given how the Republican race for the presidential nomination may be a long road with more twists and turns (and perhaps even a few surprises) on the way, it would appear that the race will continue for some time. This may be bad news for conservatives who want a clear indication of who the GOP nominee will be, but it is good news for traders looking to profit from the predictions market. It will be interesting to see how things develop going forward.

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