Can the GOP Take Back Congress in November?
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IN THIS ISSUE:

  1. Brief Re-Cap of Recent Primary Results
  2. Historical Mid-Term Election Trends
  3. The Current Mood of the Electorate
  4. Electoral Landscape: The House
  5. Electoral Landscape: The Senate
  6. Voters Still Mad About ObamaCare

Introduction

A week ago today, we had several key House and Senate primary elections, and now we know most of the match-ups for the November 2 mid-term elections.  As long-time clients and readers know, we are admitted political junkies at Halbert Wealth Management (even though I’m not a member of any political party).  For many years, we have offered our political analysis of the national races in general election years in these pages.

With the results of the primaries last week, we were surprised to see just how many Democrats are likely to lose their seats this November, or are in the “toss-up” category, and how few Republican seats are likely to be lost.  We were surprised because the mainstream media does not report the average poll standings for all the races in one place.  But we do this week.

In order to eliminate any political bias, we bring you the latest mid-term election standings from RealClearPolitics.com.  RCP rates the races based on the combined results from several different independent polls.  A lot can change between now and November, of course, but I think you will be very surprised at what we present this week.

After we go through the numbers, I will venture some thoughts on why the Democrats look so vulnerable this year.  I believe there is more to it than simply “anti-incumbent” fervor as suggested by many political observers.  While we hear little about it anymore, more Americans are upset about government-run healthcare (ObamaCare) today than when the bill passed in March.  Here, too, I think the numbers will surprise you.

If you are interested to know if the Republicans have a real chance to retake the House and Senate on November 2, then you’ll like this week’s letter.  If you don’t care, or if you want the Democrats to keep control of Congress, you may not want to read the numbers and analysis that follow.  For example, I will show that it is very possible that Nancy Pelosi will not be the House Speaker and Harry Reid will not be the Senate Majority Leader next year.

Editor’s Note: I wish to thank Spencer Wright, one of our Investment Consultants at Halbert Wealth Management, for crunching all the numbers and helping me with the political analysis that follows.

Brief Re-Cap of Recent Primary Results

The primary results of Tuesday, June 8, 2010 set the stage for the upcoming November mid-term elections.  As you likely know by now, women flexed their political muscles on election day last Tuesday, with high-profile victories by Sharon Angle in Nevada, Senator Blanche Lincoln in Arkansas, along with Meg Whitman and Carly Fiorina in California.

Angle, Whitman and Fiorina are change agents riding a wave of anti-incumbency.  Sen. Lincoln was narrowly saved from election night defeat by the last minute campaigning efforts of former President Bill Clinton.  Lincoln is really a centrist who ran afoul of Big Labor because she opposes their “card check” legislation.  Unions spent millions trying to defeat her.

The mainstream media has gone out of its way to hammer home the women’s angle of the primary election results.  That is, however, only a positive byproduct of the larger issues of change, fears about out-of-control spending and anti-incumbency.  There are still a few more primaries to go, and it will be very interesting to see how they turn out.  In any event, the 2010 mid-term elections may well be very interesting to watch.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Historical Mid-Term Election Trends

Conventional wisdom dictates that mid-term elections are a referendum on the policies of the sitting president and/or the party in power.  Whether you choose to accept that or not, historically the party of the sitting president does not do well in mid-term elections.  In fact over the last 17 mid-term elections, the president’s party has lost an average of 28 seats in the House and four seats in the Senate.  Here is a chart of the last 17 mid-term election results:

Mid-Term Election Trends

Let’s look at what motivated the seven largest swings in the mid-term elections over the years.  The Democrats suffered large mid-term election defeats in 1942 largely due to the natural thinning of the massive majorities built by FDR.  The huge 1946 losses were the result of the broad directional shift away from the in-power party during the post-FDR, post-war era.

In 1958, the country was looking to the future and wanted to break with the post-war era that Eisenhower personified, even though it was an era of relative peace and prosperity. This led the Democrats back into the majority, though they would suffer a serious reversal in 1966, the result of the loss of JFK and the US involvement in Vietnam. 

Of course, the Republican revival was not to last long, as the disgrace of the Watergate scandal cost them dearly in 1974 and paved the way for new, large Democrat majorities. These majorities were stamped out in the 1994 GOP watershed that was seen as a reaction to the unpopular policies of then-President Clinton.  Yet the remaining “Contract with America” crowd was turned out of office in 2006, largely because they proved that they, too, could spend like drunken sailors and ran huge budget deficits.

Why does any of this matter?  It matters because the electorate has moods, moods that are the result of the politics and policies of the day.  These moods drive the results at the ballot box on election day.  Some moods are narrow “anti-something” (insert an unpopular policy here) or anti-president, whereas some moods are broad, such as anti-political party.  Most national moods are often combinations of the above.  But there is one form of the national mood that is feared the most, from the local school board to the White House, and that is the universal “anti-incumbent” mood.

The Current Mood of the Electorate

The overall mood of the electorate can be measured by polling the “job approval” of the president, of Congress and of the direction of the country in general.  The results of these three polls are usually a leading indicator of how the party in power will fare on election night.

President Obama’s job approval, measured as an average of several major polls, stands at 48% approve and 46% disapprove. Obviously, this is not good news for the Democrats, and it explains why President Obama was virtually invisible on the campaign trail during run-up to the primaries.  Yet Obama’s low approval rating is not, all by itself, a winning ticket for the GOP minority.  Unfortunately for the Democrats, the bad news does not stop there. Let’s add an unpopular policy to the mix – the Obama/Democrat healthcare plan. (More on why this plan is so unpopular later on.)

ObamaCare, as it’s come to be known, is opposed by 52%-58% of respondents, depending on which of the latest polls you read.  Add that to a presidential approval below 50% and things are starting to look worse for the party in power.  Now add in a Congressional job approval, on average, of just over 22% and that a whopping 61% of people think the country is headed in the wrong direction.  With this combination, you have a recipe for a broad anti-incumbent mood and therefore a potential Democrat election night disaster.

Some of you are probably thinking that if this is a broad anti-incumbent mood, why aren’t the Republicans suffering as well?  The answer is that they are.  But as a result of the Democrats’ large majorities as the in-power party, they are suffering disproportionately.  As we take a look at the electoral landscape, I think you will be surprised by what you see.

Electoral Landscape: The House

The graphic below is constructed based on averages of recent polling data collected by RealClearPolitics.com, and is up-to-date as of this writing.  We start with the poll standings in the House of Representatives where all 435 members are up for re-election on November 2.

House Seats Analysis

The large numbers in the top shaded line represent the number of “safe” House seats plus the number of “likely” seat wins, plus all of the seats that are “leaning” toward either the Democrats (in blue) or Republicans (in red).  The number in the top center represents the number of House seats that are considered to be “toss-ups” at this point. 

Listed beneath the second shaded line are the various Congressional districts (for example, AR4 is the 4th Congressional District of Arkansas) that fall into the likely, leans and toss-up categories. That there are 35 true toss-up seats is not in and of itself that remarkable; what is truly remarkable is that 34 of the 35 toss-up seats are held by Democrats.  The only GOP toss-up among the 35 is Illinois District 10.  Amazing!

Now I must point out that even if the Republicans win all the districts that are in the “likely” and “leans” categories, they still have to win over half of the “toss-up” races to regain control of the House.  And you might be thinking that could be a tall order.  However, with the mood of the electorate broadly negative and anti-incumbent, and with 34 of the 35 toss-up districts held by Democrats, they could indeed have a very bad night on November 2.

With the Democrats currently holding very large House (255 seats out of 435) and Senate (57 seats out of 100) majorities, they make up the lion’s share of incumbents up for re-election in November.  As a result, the Democrats are victims of their own previous success to a degree.  Once either party builds up a significant majority, it becomes very hard to maintain it even in the most favorable of political climates. 

The majority party must commit more resources to defend more seats and, as the in-power party, they get the credit – or in this case the blame – for the state of the country.  Thus, if you have large majorities and the electoral environment becomes toxic – as it clearly is today – the majority party can find itself on the wrong end of a serious electoral reversal. And as noted above, we have seen seven major reversals over the past 65 years.

Of course, the election is a long way away, and things can change. However, given the bleak nature of the Democrats’ position, I predict that the Republicans will re-take the House with a majority somewhere between 220-230 seats. 218 seats are required for the majority.

Electoral Landscape: The Senate

The graphic below is constructed based on averages of recent polling data collected by RealClearPolitics.com, and is up-to date as of this writing. This graphic is organized exactly like the House graphic above with the only difference being that the various Senate seats are marked with an “R” or a “D” as opposed to being color coded.

Senate Seats Analysis

While the Republicans look as though they will be able to secure a majority in the House, the Senate is another matter entirely.  Now that is not to say that the Republicans will not do well – they almost certainly will – but to go from their current standing to a majority position is a very tall order, even in a favorable election environment.  Also, only one-third of Senators are up for re-election this year, so there are fewer seats in play.

Again, the election is a long way off as American politics goes, but if the current trend holds, the Republicans should win the following seats in the Senate: AR, CO, DE, IL, IN, ND, NV and PA.  That is a gain of eight seats! 

[The GOP could pick up a ninth seat depending on what happens in the bizarre Senate race in South Carolina where Democrat voters just elected a jobless African American man with several felony charges reportedly pending.  What happens in SC remains to be seen, so I do not include it in this analysis.  However, SC is another indication of just how deep the anti-incumbent mood has become.]

The Democrats, on the other hand, are likely to add a seat in OH, as Republican Senator George Voinovich is retiring, and it looks as though FL may be electing an Independent.  If that is the case, then the Republicans will still net six seats - certainly a strong showing.  Even so, it is not enough to tip the balance, so I predict that the Senate will remain a Democrat majority, roughly 52-47 with 1 Independent (remember Joe Lieberman caucuses with the Democrats, so we don’t count him as Independent).

Voters Still Mad About ObamaCare

In addition to the widespread “anti-incumbent” emotion among many American voters this year, there are millions of likely voters who are still angry about the passage of nationalized healthcare earlier this year.  When the Democrats rammed through ObamaCare back in March, conservatives around the country wondered why President Obama and Congress were hell-bent on passing this sweeping legislation even though most polls showed that 50% or more of adults were opposed to it.

As time has passed, it has been argued that Obama and the leaders in Congress believed at the time that Americans opposed to ObamaCare would change their minds after the bill was passed.  It was a public policy version of the “try it, you’ll like it” argument that parents use to get their picky kids to eat new dishes.  They also believed – why I don’t know – that the passage of the healthcare bill would give Obama a boost in the polls.  Guess what – they were wrong.

Most polls since the passage of ObamaCare show that the law’s popularity has not improved, and slightly more people still dislike it than like it.  In fact, the latest Rassmussen poll on June 7 shows that dislike of ObamaCare is actually growing – 58% now want the bill repealed, while only 35% do not want it repealed.  This is a big reason why I believe so many Democrats are vulnerable in November.  And as for a bounce in the polls for Obama, it didn’t happen.

This may well explain why President Obama and certain members of Congress have recently gone on the offensive to change minds and try to drum-up more support for the healthcare plan, even though it has already been passed.  This may also explain why White House allies are forming a non-profit advocacy group dedicated to selling the public on the healthcare law’s virtues.  They plan to spend at least $25 million annually over the next few years to promote the measure and “beat back mischaracterizations” of it that could harm Democratic candidates.

Mr. Obama’s former communications director, Anita Dunn, and longtime Democratic strategist Andrew Grossman, have teamed up to form two new tax-exempt groups. The first, already incorporated as a nonprofit organization under the 501c(3) provision of the tax code, is called the “HealthInformationCenter,” and will run an intense public [dis]information campaign around the new healthcare law.

The second, still in the planning stages, will engage in political advocacy to “protect the law – and those who supported it – against distortions, misrepresentations and outright lies,’’ according to a Democratic strategist familiar with the effort. The strategist said Mr. Grossman will be involved in both groups and will raise money from the usual Democratic sources – including foundations and unions – to finance them.

Mr. Grossman spent 2009 coordinating healthcare advocacy groups in support of the new law.  In a recent telephone interview, Grossman said he was forming the two groups “to explain the benefits of the health care law to the public, because that’s the best way to get them to support it.’’  I might interpret that differently: ‘Let’s tell them all the good things about government-run healthcare and distract them from the things we know they won’t like.’

Obviously, Obama and his accomplices just don’t get it!  This approach did not sway public opinion much during the debate over the healthcare bill, and it likely won’t work now.  The flawed assumption was, and is, that the American people don’t know what’s in ObamaCare.  But a couple of Zogby polls back in February indicated that most voters were reasonably aware of the key elements in the healthcare bill as it was being debated, and they didn’t like most of them.  They were also aware of the huge costs, so they opposed it for both reasons.

And speaking of costs, the Congressional Budget Office warned that its prior estimated cost of ObamaCare – $950 billion was understated by $115 billion.  Thus the cost is now over $1 trillion.  And we all know how bad the government is at under-estimating and over spending.  There are analysts that believe the actual cost could be $2 trillion or more.  

It is impossible to know just how toxic ObamaCare will be come November.  Maybe the anemic economic recovery will improve by then, but I am not optimistic, and a growing number of analysts are coming to agree with me.  Most economists believe the unemployment rate will still be well north of 9% by early November.  That does not bode well for the Democrats’ hopes that voters will have forgotten about ObamaCare by election time.  No wonder they are setting up these healthcare advocacy groups to try and change voters’ minds!

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Conclusions

In the latest USA Today/Gallup poll, 63% of voters said most members of Congress do not deserve re-election, while 32% said most do.  That is among the most anti-incumbent responses since Gallup first asked the question in 1992. 

According to Rassmussen, the GOP holds a nine-point lead (44 to 35) in the so-called “Generic Ballot” (Will you vote Republican or Democrat?).  That’s the highest it’s been in years.  Rassmussen also reported that in May, the number of adults identifying themselves as Democrats nationwide fell nearly one percentage point to tie the lowest level on record, while the number of Republicans and Independents rose slightly.

All of this suggests that November 2 could be a great night for the GOP and a very tough one for the Democrats.  But as I have said throughout, it’s still a long way until November.  Voters can change their minds between now and then. 

Of course, there are always those voters that “say” they’ll vote their congressman (or woman) out of office, but when they get in the voting booth, they vote to keep him/her in office.  Something tells me there will be less of that happening in November this year.  People are truly mad at Washington, especially over healthcare and out-of-control spending.

As noted above, I expect the Republicans to gain 20-30 seats in the House and regain the majority.  In the Senate, I expect the Republicans will gain eight seats, the Democrats will pick up one seat (OH), and one seat will be taken by an Independent, leaving the Senate at something like 52-47-1.  I don’t believe the GOP can take the majority in the Senate.

In any case, it is entirely possible that Harry Reid will lose his Senate seat and Nancy Pelosi will no longer be Speaker of the House come January, as the polls stand today.   It probably won’t be a clean sweep of both houses of Congress like 1994, but it will almost certainly be big.

Yet it is most important to keep this in perspective.  Even if the Republicans regain control of the House of Representatives, they alone cannot repeal the healthcare law.  That would require a two-thirds majority vote in both houses of Congress.  I don’t think that will happen.  Likewise, they can’t repeal any other big spending bills that have already passed.  The best we may hope for is that they block new spending bills and curtail President Obama’s liberal agenda.

Very best regards,

Gary D. Halbert


SPECIAL ARTICLES:

What the primaries tell us about the general election trends
http://online.wsj.com/article/SB10001424052748703890904575297122404791134.html?mod=WSJ_newsreel_us


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"Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc. are not affiliated with nor do they endorse, sponsor or recommend any product or service advertised herein, unless otherwise specifically noted."

Forecasts & Trends is published by ProFutures, Inc., and Gary D. Halbert is the editor of this publication. Information contained herein is taken from sources believed to be reliable, but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgment of Gary D. Halbert and may change at any time without written notice, and ProFutures assumes no duty to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Any references to products offered by Halbert Wealth Management are not a solicitation for any investment. Such offer or solicitation can only be made by way of Halbert Wealth Management’s Form ADV Part II, complete disclosures regarding the product and otherwise in accordance with applicable securities laws. Readers are urged to check with their investment counselors and review all disclosures before making a decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Gary D. Halbert, ProFutures, Inc. and all affiliated companies, InvestorsInsight, their officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Securities trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results.




Posted 06-15-2010 3:13 PM by Gary D. Halbert