Survivor! -- Part II
Cover Story -- Part I
IF WE'RE EVEN HALF right, and the GOP retains control of the Senate but loses the House, then there would be important ramifications for the stock market. Since traders often have disdain for Democrats, there could well be a relief rally, at least in the short term. "It would force investors to rethink some overzealous discounting of stocks," says Chuck Gabriel, chief political analyst for Prudential Equity Group.
Fear of Democrats, he suggests, may be playing a role in the weakness in energy and pharmaceutical stocks, with investors bracing for a populist backlash against profits. "Elections may or may not be a driver, but it would not hurt to remove that headwind," says Gabriel.
Shares of student lender Sallie Mae also may also be feeling the weight of the presumed Democrat victory. The theory is that Democrats would reduce student-loan rates if they control both ends of the Capitol, hurting profit margins for parent SLM (ticker: SLM). It's unlikely Democrats could succeed with the Senate in GOP hands.
Gabriel adds that shares of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), which have gained since Mark Foley resigned on Sept. 29 amid a sex scandal, might decline with even a partial GOP victory. Republicans are considered less friendly to the quasi-governmental agencies than pro-housing Democrats.
President Bush certainly would have to rethink his approach to Congress if our scenario plays out either in full or in part. The GOP majority in Congress would be so slim that the president would have to live up fully to a promise he made during his first election campaign to be a "uniter," not a "divider." He'd have a monstrously difficult time getting Congress to make his tax cuts permanent. His desire to reform Social Security with private investment accounts likely would remain unfulfilled.
The scandals and the unpopular war are not all that are propelling Democrats this year. The party has fielded candidates who are more attractive and better financed than in many past campaigns.
There are nine House races where the GOP's funding advantage is minimal, allowing for upsets. However, we don't think the Democratic pockets are deep enough to bring about a rout in these contests. There are nine other races where Democrats have very narrow funding advantages -- but the Republican Party has ready money to pour into such contests. Sara Taylor, director of the White House Office of Political Affairs, says the Republican Party has a $56 million cash advantage over Democrats going into the final weeks of the campaign. That's a lot of TV ads.
MANY ON WALL STREET believe the Democrats will triumph this year, too. "I'm not a big believer in generic polls, but the 23-point lead that Democrats have over the GOP in the recent USA TODAY/Gallup Poll is about as wide as it gets," says Greg Valliere, chief political strategist for the Stanford Washington Research Group, a leading adviser to the Street. The poll Valliere cites showed 59% of respondents favoring Democratic candidates, 36% favoring Republicans and 5% undecided. "I threw in the towel for the Republicans a day or two after the Foley scandal broke," he says.
Even the "investors" who buy contracts on the Iowa Electronics Market are down on the Republicans for the first time in memory. Contracts that will be worth $1 if Hastert & Co. end up retaining control of the House on Nov. 7 are trading for around 30 cents -- hardly a vote of confidence.
You hardly can blame Democrats for feeling giddy as the mid-term contest approaches. The GOP Congress has proved more adept at producing scandal than legislative reforms, and the unrelenting bloodbath in Iraq doesn't instill strong public confidence in our commander-in-chief. Maryland Democratic Rep. Chris Van Hollen contends the GOP's old trump card, terrorism, no longer has an effect on voters because they perceive America's pacification effort in Iraq "is a mess and in chaos because of gross incompetence by the Bush administration."
There's no denying that the Democrats have fielded stronger candidates this time around. The effects of that will be on display throughout Election Day in close races around the country. Here's a rundown on some of the tightest.
In Connecticut's fourth congressional district, Republican Rep. Chris Shays is in a bruising rematch against Diane Goss Farrell, whom he narrowly beat in 2004. He's raised $3.2 million to her $2.5 million. That puts her within reach of an upset, but we reckon Shays' funding advantage will help him keep his seat, even though the district voted against Bush in the past two presidential elections.
In New Hampshire's second district, incumbent Republican Rep. Charlie Bass, who was elected in 1994, has raised a total of $918,789. The challenger, lawyer Paul Hodes, whom Bass beat handily in 2004, has raised about $1.1 million. Although Bass is the incumbent and within striking distance, it looks as though he's going to be knocked off, based on the money.
In Indiana's 9th district, in the southeastern part of that state, Republican incumbent Mike Sodrel looks as if he will survive a spirited challenge by Baron Hill. Sodrel unseated Hill in 2004 after losing to him in 2002. Sodrel has raised $2 million versus $1.2 million for Hill, a comfortable funding advantage.
When Barron's visited the 9th district in July, we wrote that Sodrel would face an uphill fight because Republicans there were angry at Bush for running up the deficit and for mismanaging the Iraq war. Not only is Bush unpopular in the district; so is GOP Gov. Mitch Daniels. The fundraising numbers tell us that the GOP base might have had second thoughts about voting for a Democrat. Still, we expect Democrats to unseat Republicans in two other Indiana congressional districts.
In Pennsylvania, pundits have written off Republican Sen. Rick Santorum, who has raised $17.3 million. His Democratic challenger, Bob Casey, who has raised $15 million, has a large lead in the polls. This is the first serious challenge for Santorum since he was elected in 1994. We see him defying the pollsters on Nov. 7 and hanging on to his seat, with voters from the Western part of the state riding to his rescue.
Take a look at how Jim McTague did with his picks in 2004. (Part 1 | Part 2 )In Rhode Island, we predict Republican Lincoln Chafee will lose to democratic challenger Sheldon Whitehouse, a former U.S. attorney. Whitehouse has raised more than $4 million versus about $3.5 million for Chafee. According to the Center for Responsive politics, nearly 80% of the challenger's money comes from individuals as opposed to political committees. Chafee has raised about 50% from individuals. Clearly Whitehouse has a better organization.
With only two weeks to go, a barrage of contradictory poll findings is apt to confuse the oddsmakers, not to mention voters. But we're sticking with our numbers, and they say one thing: The Democrats don't have quite enough heft to push aside the elephant. |
