Saturday, June 28, 2008

Weekend Edition: Probably Not a ‘Beat-and-Raise’ Month for Obama

The following email arrived this morning, from the Obama campaign:

On Monday, everyone will be watching our fundraising totals to see if we can compete with the McCain campaign.

This month is the first test of our grassroots fundraising strategy since we declared our independence from the broken campaign finance system….

Make a donation of $30 or more by midnight on Monday, June 30th, and show off your support with an Obama logo T-shirt…

This political version of quarter-end discounting—more usually associated with commercial ventures looking to make their numbers than political campaigns—comes on the heels of Obama’s first actual earnings “miss” in its entire, brief history:

Obama Raises $22 Million in May, His Weakest Month This Year
Associated Press

June 20, 2008 10:23 p.m.
WASHINGTON -- Democrat Barack Obama raised $22 million in May for his presidential campaign, his weakest fund-raising month this year, and ended the month with $43 million cash on hand, the campaign reported Friday.

—The Wall Street Journal

In Wall Street’s parlance, the Obama campaign “missed the number” in the month of May.

Sure, $22 million in one month is a lot of money, even in Presidential politics. But the Obama campaign’s earnings ‘momentum’ slowed sharply in May: that $22 million was down 29% sequentially from the $31 million raised in April.

More ominously, his campaign spent $26.6 million in May, making it a cash-flow negative month.

No wonder we’re getting t-shirt offers for a month-end donation.

Why does all this possibly matter to a financial observer of the investment scene?

Well, Intrade has buyers willing to pay 65.3 for the right to earn 100 if Obama wins the election. (Intrade is not a bet on the actual voting split: it’s all or nothing, so buyers of Obama at 65.3 would make 50% on their money if he wins.)

McCain, on the other hand, is trading at 30.8.

Meanwhile, our inbox with the t-shirt offer suggests that June will not turn out to be a “beat-and-raise” month for the Obama finance team.

And if "the number" comes in materially worse than expected, we might start to see a bit more of the skepticism already starting to creep into the Obama press coverage. Not to mention the Swift-Boaters that have turned their sites from Hillary to Obama: Michael Bloomberg actually had to publicly deny that Obama is secretly a Muslim.

There’s one more reason we’d bet Obama won’t stay at 65.3 for very long: he’s the front-runner now, and America likes front-runners to earn their place.

So, while we never recommend stocks in these pages, if Obama was a stock, we’d short him right here.

Full disclosure: a family member volunteers for Obama.

But that wouldn’t stop us from shorting now, and covering on the pullback.

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way. Inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Mark said...

The more Obama talks about his tax plans, the less likely it is that anyone who has any significant amount of money will give any to him. Thus, like any good CEO, he will undoubtedly soon learn his lesson and begin "underpromising" (the size of the rate boosts he's salivating to make) until he's elected, at which time he will undoubtedly attempt to start "overdelivering".

cargocultinvestor said...

Unless somebody starts raising your taxes and addresses the chronic deficits, anybody with a significant amount of money will have significantly less shortly.

The American pie isn't "getting higher" Or have you noticed?

Mark said...


1) You don't raise taxes in a recession.

2) You don't raise capital gains taxes if you want to encourage investment.

3) You're not "wealthy" if you make $200,000/year and live in New York City; in this case, a marginal tax rate well north of 40% (inclusive of 11% city and state) is already too damn high. Talk to me about a few more points on whatever one earns north of $1 million/year, and I'll listen.

4) The fact that hedge fund managers (sorry Jeff!) get taxed capital gains rates on their carry on money that isn't their own is a joke; there's no question that should be considered "ordinary income".

5) I see nothing "fair" about making home mortgage interest deductible, but THAT will change the day Al Gore starts forecasting a new ice age.

Jeff Matthews said...


No need to apologize about the capital gains tax issue.

Personally I agree with Warren Buffett--it's income however you want to define it for tax purposes.

And Buffett knows a great deal about that favored treatment of income for hedge funds (as well as private equity and other forms of investment partnerships): Buffett ran a hedge fund for 13 years.

He enjoyed a mighty nice tax advantage too--bigger than the one he complains about today. The top marginal rate on income from 1956-1969 was a bit higher than 35%.

First reader to tell us what that rate was gets nothing but a nice mention here.


Mark said...

>>First reader to tell us what that rate was gets nothing but a nice mention here.<<

When Kennedy first took office, it was 91%. It took him-- a very wealthy guy-- to get that rate reduced...

Kind of ironic, considering that it was probably never collected on profits earned from bootlegging!

Prasad said...

This is what I found and just could not believe my eyes.
1956 91 <7> 400,000
1957 91 <7> 400,000
1958 91 <7> 400,000
1959 91 <7> 400,000
1960 91 <7> 400,000
1961 91 <7> 400,000
1962 91 <7> 400,000
1963 91 <7> 400,000
1964 77 400,000
1965 70 200,000
1966 70 200,000
1967 70 200,000
1968 75.25 200,000
1969 77 200,000

Roberta said...

the marginal rate was 70%, but in reality when one includes inflation the marginal rate actually ran over 100% per year on the purchasing power of a capital gain

The Inscrutable Chicken said...

91%. Can I have a cookie?

Jeff Matthews said...

Sorry, Inscrutable Chicken: 'No cookie for you!'

Mark gets the cookie and a nice mention, which you are past already if you read this far.

The capital gains tax rate at the time was 35%. So Buffett enjoyed a nice 5600 basis point tax benefit running his hedge fund.

The current gap between cap gains and ordinary income is 2000 basis points.

So when it comes to getting a tax break, today's hedge fund managers are all pikers compared to Buffett in his prime.


Doug said...

With Obama at 65.3 and McCain at 30.8, then presumably I can go long on each and lock in 3.9% on my investment in 5 months (9.36% annualized). No? That seems a reasonable return on the risk that neither would win the election for whatever reason (Nader, Barr, not being nominated, etc.).

Lyon Jewett said...

I remember back in December when Guliani and Hillary were running in the 60's on intrade. There was no way they weren't going to be the nominees, it was inevitable!

Needless to say I got my butt kicked going long those.

Jeff Matthews said...


The main reason McCain + Obama don't = 100 is Hillary, and you can buy her at 4.8