- The Washington Times - Tuesday, November 7, 2000

It's the closest election in 40 years, but that isn't keeping some people from betting big money that Republicans will sweep into control of the White House and retain Congress today.
On the Iowa Electronic Market, where investors place bets from $5 to $500 on the outcome of the elections, traders piling into the market at the last minute yesterday were giving long odds that Texas Gov. George W. Bush will edge out Vice President Al Gore in the presidential race and that Republicans will retain control of Congress.
While the results mirror the close contest seen in public-opinion polls, the creators of the Web-based exchange at the University of Iowa Business School say the market may be a more reliable predictor of the elections since participants are putting money on the outcome.
The market has accurately predicted the outcome of the past three presidential races.
The electronic market is closely followed on Wall Street, where analysts say a Republican sweep could have a profound impact. Already in anticipation of a Bush victory, investors yesterday pushed up the stocks of companies that would prosper more under a Bush administration, including pharmaceuticals, defense and tobacco stocks.
The buying spree sent the Dow Jones Industrial Average up 159 points.
"This is a Bush market today," said Jack Shaughnessy, chief investment strategist at Advest Inc. "Obviously, people are viewing the prospect of his presidency as being very positive for investors. This is also a continuation of last week's positive momentum."
Analysts say drug companies would fare better under the Republican candidate's prescription-drug program for seniors, while tobacco companies might get some relief from federal litigation and regulation. Defense contractors would see more money pour in with a renewed military buildup.
Microsoft's stock also jumped $1.25 to $69.50 yesterday on Nasdaq on speculation that the Justice Department under a Bush administration would ease up on efforts to break the company in two, as proposed by the Clinton administration in its landmark antitrust case against the software giant.
But not all financial analysts believe a Bush victory would bring bliss to Wall Street. When coupled with Republican control of Congress, in particular, some analysts warn that Mr. Bush's $1 trillion tax-reduction program could turn into a tax-cutting spree that puts the budget surpluses in jeopardy and would hurt the financial markets.
"The odds of a clean sweep by Republicans have risen significantly," said Neal Soss, analyst with Credit Suisse First Boston in New York, pointing to the trend since the middle of October in the electronic futures market.
"A clean sweep by either party likely translates into a substantial easing of fiscal policy," and that would drive up interest rates, he said. Higher rates hurt both stocks and bonds and make it harder to finance new investments.
"For financial markets, the best outcome on Tuesday is if America votes for divided government," Mr. Soss said.
Andy Palmer, analyst with ASB Capital Management, agreed that interest rates would rise if Mr. Bush wins. But he said the impact would be limited by a strengthening of the dollar as investors both here and abroad would view a Bush administration as more pro-business and, therefore, better for investments.
Mr. Bush's plan to let taxpayers invest part of Social Security taxes in private stocks and bonds would be a boon for the markets. But bond traders worry that by diverting some of the Social Security funds into stocks, fewer of the outstanding government bonds would be paid off, Mr. Palmer said.
A bigger national debt would mean higher interest rates, but that would be offset some by the positive effects of a stronger dollar, he said.
"To the extent that overseas investors believe that George W. Bush is more likely to remove obstacles to U.S. corporations, whether it is through federal land-use, antitrust or other policies, the dollar is likely to rally," he said.
The more bullish outlook for business means that foreign investors will use their dollars to purchase more American stocks and bonds, driving interest rates lower, he said.

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