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The death of election risk?


I'm something of a lightning rod for opinions about the Presidential campaign since I stuck my neck out last October and had the temerity to suggest someone other than President George W. Bush might win this election.

The number of e-mails I've received since the start of the GOP convention that are variations of "it's all over for Kerry" are staggering. Allow me to take the other side of this trade, so to speak, in an effort to point out that little has changed since Wall Street got this wrong in 2003 and early 2004.

New York state of mind

I honestly believe the inability of Wall Street to conceive of anyone other than President Bush winning the election has to do with the disproportionate losses Wall Street endured on 9/11. For these people, and understandably so, the number one concern is security and the prosecution of the war on terrorism. Polls consistently show that regardless of their views on the Iraq war, Americans believe President Bush will do a better job keeping America safe.

Don't take any of this to be a judgment of which candidate I believe would do a better job in the war on terror. My opinion on that fact doesn't matter.

What you should take away is that Wall Street is going to be biased towards their belief that President Bush wins because of polling data that shows Americans believe he'll do a better job against terrorism. This bias is the fundamental reason, in my view, Wall Street missed the fact this was going to be another close race.

Divided we are

The press likes to use the word "divisive" as a derogatory modifier. They tell us this will be the most divisive election in modern U.S. history. What they mean to say - but can't because it doesn't cause people to get mad and watch their shows - is that this will be the most strongly divided election in modern U.S. history. People who identify themselves as Democrats are not defecting to President Bush. People who identify themselves as Republicans are not defecting to Senator Kerry.

The battle, therefore, is for the independent and undecided voters. They are a relatively steady 10-15% of the population who determines their vote via an analysis of the issues and the persona of the specific candidate.

It is a measure of the divided nature of the 2004 electorate that most polls have undecideds and independents around 8%. It is this 8% the GOP and Democrat strategists are playing for in the final two months of the campaign.

Midwest reality check

Yeah, but will it play in Peoria?

This old Vaudeville term, co-opted into politics by Haldeman and Nixon, is probably the most accurate question those looking to ascertain the outcome of the election can ask. Fortunately, we have some insight here.

The excellent independent polling newsletter The Polling Report [] contained a summary of in-depth polling done among independent voters in the upper Midwest. This isn't exactly Peoria, but I suspect it is close enough for our purposes.

The University of Minnesota Humphrey Institute conducted polls and focus groups among 589 registered voters in Minnesota, 575 in Wisconsin, and 614 in Iowa. The margin of error is +/-4 points. The complete report is available on line for those who are interested.

Almost all voters believe President George Bush will do a better job on security and terrorism. Almost all voters believe Senator Kerry will do a better job on the economy, jobs, health care, education, Medicare, and prescription drugs.

What makes this significant is these voters believe the economy is the single most important issue in the 2004 vote for President. Suburbanites - even though they believe they are better off now than in 2000 - said the economy was more important than Iraq as an issue by as many as 14 percentage points. They said the economy was more important than terrorism by a similar margin.

Fighting the right battles

The Humphrey Center's efforts also point out with clarity how badly both parties are interpreting the items that matter the most to these swing voters. The Democrats keep hammering away on Senator Kerry's fitness for leadership in the war on terror when they have essentially no hope of capturing that vote. Republicans are less guilty for the same focus since at least that's their guy's main (only) polling strength.

These swing voters are concerned about the deficit. They believe the tax cuts disproportionally benefited the rich. They are in favor of increasing taxes (albeit mostly on the rich) to pay for additional programs in healthcare and education.

Bottom line

The content of the GOP convention was great comfort for those whose primary decision metric is which man will better be able to secure America from additional terrorist acts. Wall Street needs to recognize the rest of America - at least those swing voters who are going to decide this election - count that particular metric a distant second (or fourth) in the list of things that matter to them. Yes, President Bush got a 7-point boost in a poll taken of people who watched the speech. After the glow of what was clearly the best political speech President Bush has ever delivered wears off, undecided/independent voters will turn back towards the economy, healthcare, and education as the drivers behind their choice for President.

The candidates will meet in two Presidential and one Vice-Presidential debates. These are likely to be among the most watched election events in the last 30 years of political television. I submit we will not know which candidate plays best in Peoria - and therefore will be the likely winner - until after at least the first of those debates is concluded.

Until then, any claim that election risk has withered should be considered suspect.

No positions in stocks mentioned.

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