Jude Wanniski
October 27, 1982


The outcome of Tuesday's congressional elections will be influenced by the backdrop of the financial markets on Monday, November 1.  The political pros I rely on for close, daily assessments on the drift of national political sentiment agree that the electorate is on a knife edge that could shift many races on Tuesday if there is a big movement in the DJIA.  A market dive would discourage those who are still thinking of voting for Reagan/GOP candidates and a market boom would cut against Democrats. The White House high command at this writing (noon/Wednesday) is very sensitive about this and also conscious, because of the Monday dive, that this question will largely turn on what signals the Fed throws off after the money supply number emerges on Friday.  Explicit Fed signals that the Fed discount rate will be cut soon may help encourage the market as did the rumors of 10/26 afternoon.  But I'm urging my contacts at the White House to have the President signal the markets that he recognizes the Fed can't return to its austerity path after Nov. 2, aiming his message directly at the markets rather than at the electorate itself.  An admission by the President that he sees the need for a change in monetary policy would, I believe, encourage both the economic and political electorates on November 1/2.

As it is, the Volcker bull market has already helped the GOP considerably.  Mid-westerners are especially hopeful that the markets are pointing to better times ahead, nullifying necessity to punish Republicans.  Democrats have generally muffed chances to provide alternatives, confused by the bull market as well.  Bill Anderson of IPAA, our peerless political picker, on 10/26 released his final forecast, indicating a Republican GAIN of 7 seats in the House and 3 seats in the Senate.  If the winds blow against the GOP in the final days, including Monday's stock market, he suggests GOP losses could reach as many as 3 seats in the House and a stalemate in the Senate.  A big stock market breeze could increase the number of GOP House seats to 12-15 and add a fourth Senate pickup.  Anderson figures these gains despite a loss of 15 GOP incumbents in the House, the GOP doing very well with classier, younger candidates in the four dozen open seats.  He figures the GOP will hold all 13 Senate incumbents and pick up Virginia, Nevada, and Montana.  A fourth possibility in the Senate is Maine.  A last-minute GOP shift could lose among these as well as among incumbents Schmitt (NM), Danforth (MO) and Durenburger (Minn.).  My expert Democratic picker, Joe Rothstein, who is personally handling a dozen big races, thinks Nov. 2 will produce a stalemate, but agrees the last minute stock-market breezes could bear on several seats.  He figures Moffett will take Weicker in Conn., sees an outside chance Chafee will fall in R. I.

In the big, big New York gubernatorial race, Lehrman is in a dead heat with Cuomo as of 10/26 (despite NY Daily News reports of a 10-point Cuomo lead), and last-minute Lehrman TV spots emphasizing growth/leadership should put him ahead. Cuomo is acting as if he feels the slide away from him. Reagan has helped nationally by dropping the stay-the-course theme (suggesting inertia) and recasting the GOP as "the party of hope Better yet if he finished with a "GOP is the party of change" theme.