- The Washington Times - Wednesday, October 2, 2002

Investors will soon be getting their third-quarter financial statements showing a sharp drop in retirement wealth, and some Republican Party strategists fear they could lose House and Senate races in November if stocks decline further this month.
Marc Racicot, the Republican National Committee chairman, said Monday that "if things worsen substantially from an economic point of view it could make arguments for about anything more difficult."
"The quarterly reports will be showing up in mailboxes soon, and the numbers are not going to be a pretty sight," said pollster John Zogby.
Surveys show that two-thirds of all likely voters are invested in the stock market and that they vote in disproportionately larger numbers than Americans who have no investments. The White House and Republican leaders worry that many of them may show their discontent at the ballot box as a result of the steep reduction in their net worth and if the economy shows further signs of weakness.
Few Republican strategists want to say so on the record, but privately they admit to being more than a little nervous about the direction of the stock market for the rest of this month.
But White House economic adviser Lawrence Lindsey, attempting to redirect investor anger, said that if disgruntled stockholders wanted to blame anyone for the market's decline, they should blame the Democrat-controlled Senate, which has blocked President Bush's remaining economic agenda.
Investors should ask themselves, "Will continued gridlock help your portfolio?" Mr. Lindsey said in an interview.
Stephen Moore, who heads the Club for Growth, which supports tax cuts aimed at investors, says that "if voters do take out their disgruntlement on these losses, they are going to take out their rage on Republicans."
"If the stock market falls below 8,000, that's the level where Republicans fall into deep trouble. If the market falls below 7,000, Democrats are going to win," Mr. Moore said. Yesterday, the Dow Jones Industrial Average rose 4.6 percent to close at 7,938.79.
Wall Street's slide during the past three months, reaching lows not seen since 1987, and the decline in consumer confidence and retail sales "reminds us that the economic environment is favorable for a midterm election that could yield Democratic gains," said elections analyst Stuart Rothenberg in his latest report on the congressional races.
"As long as the elements are in place for an election where voters want to 'send a message' to the president, the Republicans certainly can't take this cycle for granted," Mr. Rothenberg said.
When the financial statements begin arriving in the mail in the coming days, just a few weeks before the Nov. 5 elections, "investors are going to see their assets have declined significantly," said Kevin Hassett, an economics analyst at the American Enterprise Institute.
"It's going to be bad news, but it is not going to be terrifying," Mr. Hassett said yesterday.
After a long sell-off during the past several months, interrupted occasionally by brief rallies, the stock market rose yesterday, with the Dow Jones Industrial Average up 346 points. But the previous three months that will be reflected in this month's quarterly statements will show how far stock values fell between July and September.
Mr. Hassett said that according to Morningstar, which tracks the mutual fund industry, "It looks like the average large-capital stock growth fund dropped by 14.6 percent in the third quarter, as of September 27."
But Mr. Hassett and other political analysts do not think that the decline in stocks so far will have much effect on the elections.
"I don't think it is going to have a big effect, because these are people who buy and hold, and they are comfortable with that. The large majority of them are in the markets for the long haul," Mr. Hassett said.
Mr. Moore said, "Net wealth has fallen a little bit but not hugely for the middle class. Those losses for the average family have been offset by fairly large increases in the values of their homes, which is their primary asset.
"That's one of the reasons why you are not seeing voter rage right now. The economy does not feel that horrible to people as a result of low interest rates and higher home values. But if the housing bubble bursts, we are in deep trouble," he said.
A recent Washington Post voter survey released before the latest financial statements found that 13 percent blame Mr. Bush for the weak economy, and fewer blame the two parties. Instead, most blame the market's decline on the September 11 terrorist attacks and the usual ups and downs of the business cycle.
The market's slump "is going to depress some people, no doubt about it, but most have already discounted it," said Republican strategist Bill Dal Col. "The war on terrorism and the war on Iraq will be front and center on their minds on Election Day, and historically we have always rallied around the president in times of war, and that bodes well for Republicans.
"If you took the terrorist attacks on September 11 out of the equation, we would be in trouble with the downturn in the stock markets. We'd be looking at serious losses in the House, and we could never hope to regain the Senate," Mr. Dal Col said.

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