A Big Change Coming?

03/06/2008 12:00 am EST

Focus: MARKETS

Howard Gold

Founder & President, GoldenEgg Investing

Are the stars aligned for a major political change this fall?

Despite the continuing battle between Senators Barack Obama and Hillary Clinton for the Democratic presidential nomination, this coming election may well mark a big shift in the political landscape.

Before mini-Super Tuesday, when Senator Clinton's three primary wins stopped Senator Obama's momentum in its tracks, there was lots of talk about the Illinois Democrat as a "transformational" candidate who would spearhead a sea change in American politics.

Obviously Tuesday's victories by Senator Clinton took the wind out of those sails and lays the groundwork for a bitter battle, perhaps all the way to the Democratic Convention in August.

But in my view it doesn't diminish the likelihood of a major victory by Democrats in November, if not for the White House (where Senator John McCain will be a formidable candidate) then for Congress, where they will probably achieve a much bigger majority.

This week, in the first of a two-part series, I'll lay out why I think a big Democratic victory is coming this fall. Next week, I'll examine its potential impact on markets and investors. (Hint: It's not good.)

The Democrats have several things going for them this year: an unpopular Republican president, an active, motivated electorate, and a huge advantage in fund raising for both presidential and congressional races.

First of all, President Bush's approval rating stands at only 33%, where it has been mired for a year.  And three-quarters of Americans think the country is on the wrong track, matching the highest number ever recorded in that key barometer of public sentiment.

Clearly disaffection with the Iraq war and growing anxiety about the economy has soured the electorate's mood-and set the stage for an election in which "change" is front and center.

That should make things more difficult for Senator McCain, who has served in Congress for a quarter-century and will turn 72 by Inauguration Day next year. His strong support for the Iraq war and other Bush policies already has generated enthusiastic Democratic attack ads dubbing the presumptive Republican nominee "McSame."

Meanwhile, the campaigns of Senator Obama and to a lesser extent, Senator Clinton, have mobilized Democrats to get out the vote.

Through Super Tuesday, there were six million more Democratic than Republican primary voters-nearly a 50% advantage. That may not determine the course of the election, but it does suggest greater enthusiasm among Democrats for their candidates than Republicans have for theirs-at least now.

It also has created a fund-raising juggernaut. As of the end of January, Senators Clinton and Obama raised over $270 million, more than five times the $53.7 million raised by Senator McCain. And Senator Clinton raised $35 million and Senator Obama as much as $50 million in February alone.

And there's more where that came from: a good chunk of that new money is coming from individuals donating over the Internet who are far short of the $2,300 per-person, per-candidate limit in any one election. Senator Obama's campaign claims one million total contributors, while Senator Clinton boasts of 200,000 new donors in February.

Senator McCain, who is reputed to be an indifferent fund raiser, should benefit from President Bush's involvement in that area. But given the Democrats' massive money advantage, it's no surprise he's trying to get his opponents to join him in taking public financing for the general election campaign. That would put both parties on an even keel financially-and frankly I think it's as likely as Dick Cheney's becoming the Democratic vice-presidential nominee.

Meanwhile, both Democratic candidates led Senator McCain in a recent national poll. (Senator Obama was ahead by 12 percentage points.)

Still, that's pretty good news for Senator McCain, given all the attention being focused on the Democratic side. And the growing nastiness of the Democratic campaign may turn off some formerly enthusiastic voters over the next couple of months-particularly if Senator Obama doesn't get the nomination. Also, in the eight months before the election, we could see a weakening economy, surprise events in Iraq, terrorist attacks around the world or an international crisis that could suddenly change the dynamics of this race.

But barring all-out war in the Democratic Party, I think either Democratic candidate has a pretty good chance of taking the White House on November 4th.

And the Democrats have an even better chance of establishing solid majorities on Capitol Hill.

Currently Democrats control the House of Representatives by 231-198, with six seats vacant, while the Senate is split 49-49. Two independents caucus with Democrats, giving them the majority.

According to the Cook Political Report 35 Senate seats are in contention this year. Sixteen are likely to go Republican, 12 are likely to go Democratic, and seven (six of which are held by the GOP) are up for grabs. A strong showing there could easily push the Democratic-voting Senate majority to 55-within striking ground of the 60 votes needed to shut off a filibuster.

In the House, more than two-dozen Republican-held seats are open, versus only six held by Democrats, and the Cook Political Report calls nine of the previously Republican seats a toss-up (versus only one on the Democratic side).

Meanwhile, according to OpenSecrets.org, the Democratic Congressional Campaign Committee had raised more than $70 million as of last week-half of that cash on hand. That's nearly six times the $6.4 million its Republican counterpart still has in its war chest, giving Democrats a good shot at beefing up their House majority.

Also, as of last week, the Democratic Senatorial Campaign Committee had raised nearly $60 million-half of it still available for candidates. The Republican Committee still has $13 million on hand, more than a two-to-one advantage for the Democrats.

So, if you follow the trends-general malaise among the electorate, enthusiasm among Democrat voters, and lots and lots of money-it's hard to avoid the conclusion that Democrats are going to have much more clout in Washington next year.

Next week, I'll explore what that may mean for you.

Howard R. Gold is executive editor of MoneyShow.com. The opinions expressed here are his own and do not necessarily represent the views of InterShow.  

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