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Mid-Term Election Outlook & 2011 Policy Implications
October 2010Daniel Clifton
The Recession Election
• 3rd Straight Election Voters Will Throw Out Incumbents
• Elections Have Not Been This Volatile Since Late 1940’s/Early 1950’s.
• Independent Voters Don’t Believe Either Party Is Equipped To Provide Growth
• Divided Govt Is Last Shot Before 3rd Party Challenge
Historic Convergence of Political Party Identification
Macro Indicators Pointing To A Wave Election
• Macro Data Points To A Wave Election In Which Macro, Not Local Issues
• Obama Approval Rating, Generic Ballot, Right Track/Wrong Track Are Upside Down For Democrats
• Republicans Energized, Independents Breaking Republican 60-40, Democrats Demoralized
• Intrade Odds Place GOP Takeover of the House At 90 Pct and Senate At 25 Pct
• Bottom Up Intrade – GOP Picks Up 55 House Seats & 8 Senate Seats
Micro Data Beginning To Catch Up To Macro Data
• 50+ Dems Behind In The Polls, Just 25 GOP Members At This Time In 2006
• Traditional Battleground States Are Comfortable GOP, Lean Dem Areas Are Now Tossups
• Handicappers Placing 99 Districts In House At Risk
• GOP Senate Takeover Being Underestimated
2nd Highest Unemployment Rate For A Post WWII Election
US Unemployment Rate, Annual Avg, Pct
0
2
4
6
8
10
12
'48 '55 '62 '69 '76 '83 '90 '97 '04
Consumer Confidence Remains Depressed
Consumer Confidence & Unemployment Rate
0
20
40
60
80
100
120
140
160
'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
2
3
4
5
6
7
8
9
10
11
Unemployment Rate, Right, Inverted
Consumer Confidence, Left
'94 Election
'06 Election
Economy Remains Democrats Achilles Heal
Approval of Obama's Handling of Economy (Washington Post, 9/2)
30
35
40
45
50
55
60
65
Feb-09 Aug-09 Feb-10 Aug-10
Disapprove: 57%
Approve: 41%
Voters Giving Little Credit To $1 Trillion Stimulus Program
• A majority of voters oppose the stimulus as they have not felt a direct benefit from the program. This is the conclusion of a Democratic focus group during the State of the Union.
Voters Aren’t Buying ItWhen President Obama took credit for bringing the economy back from the ledge or pointed to macro-level indications of economic growth, voters turned their dials down.
National Journal, 2/6/10
Anti-Incumbent EnvironmentMembers of Congress Deserve Re-Election
(Gallup, 10/21)
38 39
33
57
45
50
56
29
0
10
20
30
40
50
60
'94 '06 '10 '02
Yes
No
Wave Election: Step 1Presidential Approval Drops
Approval Correlated With Lost House Seats
Presidential Approval Rating & Loss of House Seats In Midterm Election
-60
-50
-40
-30
-20
-10
0
10
30% 40% 50% 60% 70%
Presidential Approval Rating
# of House Seats Lost
Wave Election: Step 2Generic Ballot Switch Parties
Generic Ballot Pointing To Significant Dem Losses
Gallup’s Plug & Chug Generic Ballot Model
Gallup Historic Generic Ballot Seat Forecast
Dem Vote Share
Mid-Range Dem
Low-Range Dem
High-Range Dem
60% 348 337 359 59% 337 326 348 58% 326 315 337 57% 316 305 327 56% 305 294 316 55% 294 283 305 54% 283 272 294 53% 272 261 283 52% 262 251 273 51% 251 240 262 50% 240 229 251 49% 229 218 240 48% 218 207 229 47% 208 197 219 46% 197 186 208 45% 186 175 197
Wave Election: Step 3Dem Enthusiasm Wanes
High Level of Interest in Elections (NBC/WSJ Polls)
0
10
20
30
40
50
60
70
80
90
18-34 yearolds
Liberals ObamaVoters
Blacks All Voters Republicans
2008
2010
Intrade: Near 90% Chance GOP Takes Over The House
Intrade Odds: GOP Control of House After 2010 Elections
0
10
20
30
40
50
60
70
80
90
100
11/ 26 2/ 26 5/ 26 8/ 26 11/ 26 2/ 26 5/ 26 8/ 26
Intrade Suggests GOP Takes 55 Seats
Intrade Odds: GOP to Gain 55 House Seats
10
20
30
40
50
60
70
8/ 1 8/ 15 8/ 29 9/ 12 9/ 26 10/ 1
Placing The Consensus ViewIn Historical Context
# of Seats Gained By A Political Party In House Elections
0
10
20
30
40
50
60
70
80
'46 '54 '62 '70 '78 '86 '94 '02 '10
Intrade Odds For 55 Seats Is A Large Pickup By Historical Standards
Senate Odds: Very Low Probability of GOP Takeover
Intrade Odds: GOP Control of Senate After 2010 Elections
0
10
20
30
40
50
60
70
80
90
11/ 9 2/ 9 5/ 9 8/ 9 11/ 9 2/ 9 5/ 9 8/ 9
Intrade Odds Saying Dems Lose 8 Seats But Hold The Senate
Intrade Odds: # of GOP Senate Seats (10/21/10)
0
10
20
30
40
50
60
70
80
90
100
41 42 43 44 45 46 47 48 49 50 51
7 Seats
10 Senate Seat Pickups Rarely Occurs In One Election
# of Seats Gains By A Political Party In Senate Elections
0
2
4
6
8
10
12
14
'46 '54 '62 '70 '78 '86 '94 '02 '10
Intrade Odds For 7 Senate Seats Is Large
But For 10 Seats Woud Very Large By
Historical Standards
70 Pct Rule Would Suggest Senate Takeover Is Possible
The 70 Pct Rule For Wave Elections
0
10
20
30
40
50
60
70
80
90
100
'06 '08 '10
House Seats In Play
Net House Seats Won
'06 = 64% '08 = 72% '10 @ 68% = 56 Seats
Market Has Begun Pricing In The Election
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
97
98
99
100
101
102
Strategas Republican Portfolio Relative Democrat Portfolio20-Oct-2009 to 21-Oct-2010 (Daily)20-Oct-2009=100; Local
Data Source: Prices / Exshare ©FactSet Research Systems 2010
Election Will Bring Book End Of Outcomes
# of Seats Held By Democrats In The Senate
20
30
40
50
60
70
80
'26 '36 '46 '56 '66 '76 '86 '96 '06
Dems Held 60 Seats For The First Time Since '76
Days of 2,000 Page Bills Are Over
Major Financial Legislation: Number of Pages
31
37
61
66
145
848
0 200 400 600 800 1000
Federal Reserv e Act (1913)
The Glass-Steagall Act (1933)
Interstate Banking Efficiency Act(1994)
Sarbanes-Oxley Act (2002)
Gramm-Leach-Bliley Act (1999)
Dodd-Frank Bill (2010)
Equity Markets Applaud Congressional Gridlock
Partisan Control, S&P Performance (1928-2009, Excl. 2001-02)
2.4%
9.2%
7.9%
4.9%
15.1%
0% 5% 10% 15% 20%
R Congress, D President
R Congress, R President
D Congress, D President
GOP Sen/Dem House/GOPPresident
D Congress, R President
S&P 500 Up After Every Mid-Term Election Since 1938
S&P 500 Price Return, 12 Mo. Period Following Mid-Term Election
Average Since 1950 = 17 Pct.
0%
5%
10%
15%
20%
25%
30%
35%
'50 '54 '58 '62 '66 '70 '74 '78 '82 '86 '90 '94 '98 '02 '06
Election Will Bring “Book End” Of Outcomes
Senate Action on Cloture Motions
0
20
40
60
80
100
120
140
'74 '79 '84 '89 '94 '99 '04 '09
Motions Filed
Cloture Votes Cloture Invoked
Tax Cuts Will Get Extended For At Least One Year
Democratic Congressional Insiders:1-Yr Bush Tax Cut Extension for Everyone
9/18/10
26%
68%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Yes No Depends
But Comprehensive Reform Will Be Needed In The Future
Budgetary Costs of Expiring Tax Provisions, $BN
2011 2012 2011-20 Comments
Total, Expiring Tax Cuts and Credits -394.4 -516.1 -5,959.5
Total Bush Tax Cuts (2001 & 2003) -186.7 -375.4 -4897.9
Income Tax Provisions of EGTRRA -64.6 -107.7 -1404.2
...for those with incomes below $250k -34.6 -71.7 -775.2 Estimates, Not subject to PAYGO
...for those with incomes above $250k -30.0 -36.0 -629.0 Estimates, Subject to PAYGO
Estate and Gift Tax Changes -11.0 -42.0 -576.5 Subject to PAYGO
Relief from Marriage Penalty -6.0 -8.7 -78.7 Not Subject to PAYGO
Credits and Deductions -26.1 -96.6 -1119.7 Not Subject to PAYGO
Capital Gains and Dividend Tax Reductions -14.4 -12.7 -314.6 Subject to PAYGO
Alternative Minimum Tax -71.9 -31.0 -547.5 Not subject to PAYGO
Make Work Pay Credit -28.8 -62.0 -587.5 Not subject to PAYGO
Other Expiring Provisions -157.2 -155.4 -1330.8 Most subject to PAYGO
Korea & Columbia Trade Could Be Area of Agreement
Trade Weighted Dollar
60
70
80
90
100
110
120
130
'00 '02 '04 '06 '08 '10
Federal Spending Is A Target For GOP Congress
Federal Gov't Spending and Revenue (Pct. GDP, OMB Proj. '10-'20)
10
12
14
16
18
20
22
24
26
'46 '56 '66 '76 '86 '96 '06
Spending
Revenue
Spending At Highest Level Since
WWII
A Renewed Focus On Unfunded Liabilities…
Social Security Revenue and Outlays (Pct. of GDP)
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
'90 '00 '10 '20 '30 '40 '50 '60 '70 '80
RevenueCosts Exceed Revenue 2015
CostsHistorical Projected
…As Tea Party Members Must Vote For A Debt Limit Increase
Federal Debt Outstanding (Monthly, $TN)
12.0
12.5
13.0
13.5
14.0
14.5
1/ 1 2/ 1 3/ 1 4/ 1 5/ 1 6/ 1 7/ 1 8/ 1 9/ 1
Total Public Debt Subject to Limit
Debt Limit
Highway Spending Bill Requires A Tax Increase
Highway Trust Fund End-of-Year Balance or Shortfall
-80
-60
-40
-20
0
20
40
'99 '02 '05 '08 '11 '14 '17
Half of Stimulus On Highway/Rails Has Been Spent
Federal Stimulus Provisions For Highway & Rail Spending
ProvisionAllocated
($BN)Available
($BN)Paid Out
($BN)Paid Out (% Allocated)
Highway Infrastructure
$27.50 $26.86 $14.55 52.93%
Transit Capital Assistance
$8.40 $7.30 $3.14 37.34%
Total $35.90 $34.16 $17.69 49.28%
Host of New EPA Rules Coming
House Will Vote To Repeal Healthcare Bill
Support for Repeal of Healthcare Plan (Rasmussen)
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
3/ 24 4/ 23 5/ 23 6/ 22 7/ 22 8/ 21 9/ 20
Favor Repeal: 55%
Oppose Repeal: 40%