DEMOCRATS BREATHE SIGH OF RELIEF, FOR NOW

FORECASTS & TRENDS E-LETTER
By Gary D. Halbert
January 20, 2004

IN THIS ISSUE:

1.  My Take On Dean’s Downfall, Kerry’s Win.

2.  McAuliffe/DNC Twist Arms Hard In Iowa.

3.  Latest Polls Show Bush More Vulnerable.

4.  The Key Question: Who Will Make Us Safer?

Kerry Won Big While Dean Fizzled – Why?

Only 24 hours before the Iowa caucuses began, and in fact even during the day on Monday, many political pollsters, pundits and TV talking heads were still predicting that Howard Dean would win in Iowa by at least a slim margin.  During the last week, the polls had narrowed significantly to the point that the race looked like a statistical dead heat among Dean, Kerry, Gephardt and even Edwards.  Yet no one in the mainstream media predicted that Kerry would win by a more than two-to-one margin (37%) over Dean who came in a distant third (18%).

Kerry’s runaway win, Edwards’ surprising second place finish (32%) and Dean’s demise have been the focal point of non-stop media coverage over the last 24 hours, so I won’t bore you with additional lengthy analysis.  I have only the following few observations from my own point of view regarding the latest primary results.

First, Dean jumped out to a commanding early lead in the Iowa polls when the campaigning first shifted into high gear after the holidays passed.  He quickly drew the support of many Iowa Democrats who resonated with his fiery, liberal agenda.  The problem, as I see it, is that it is very hard to keep people mad for that long.  Sound too simple?  Maybe, but he lost big.

Second, Dean continually blasted the political “establishment” at every turn.   He purposely positioned himself as the “anti-establishment” outsider who would be his own man and jettison the existing political hierarchy.  But in the end, who lined up with Dean?  Al Gore, Bill Bradley, Tom Harkin and even Jimmy Carter.  These are all establishment players.

And third, in addition to the two points above, Iowa voters seemed in the end to focus in on who were the candidates that had the best chance to beat Bush, still a popular president, in the November election.  Never mind who might be their personal favorite.  In this regard, they ditched the mean-spirited guy and went for the more likable choices in Kerry and Edwards.   

DNC Leadership Breathes A Sigh Of Relief

As I have written in recent weeks, Howard Dean had made it clear to party insiders that it was his intention to clean house in the Democratic party leadership.  It is no secret that there is no love lost between Dean and DNC party chairman Terry McAuliffe, the Clintons' handpicked choice for the job.  In fact, Dean had let it be known that he would likely replace McAuliffe if he were to become the nominee.

So the party leadership, headed by McAuliffe, set out on a mission to stop Dean in Iowa.  No, this is not something you read or heard about in the mainstream press.  But you can be assured that a great many arms were twisted in Iowa not to vote for Dean.  If the truth were known, I would bet that even Bill Clinton made some phone calls to influential political players in Iowa.  It worked.

Where the Democratic campaign goes from here is uncertain.  Most of the pundits say we should not count Dean out.  It is true that he has lots of money, more than any of the other candidates at this point.  The most recent polls showed Dean had a commanding lead in New Hampshire, and he could still win there next week.  But he needs to win big if he is to keep his hopes alive.  If I had to wager today, I would bet that Dean’s star will continue to fall in the weeks ahead. I could be wrong, of course, but I suspect Democratic voters will continue to find him unelectable. 

From Nine Down To Four, Overnight

The Iowa caucus results effectively narrowed the field of Democratic wannabes from nine to only four: Kerry, Edwards, Clark and Dean .  Gephardt is already officially out of the campaign.  Lieberman will be out unless he scores big in New Hampshire, which is not likely.  The rest of the field is effectively gone now, whether or not they drop out right away.

By most media accounts, Kerry was the biggest winner in Iowa.  And it’s hard to argue with his more than two-to-one victory over Dean.  However, I would argue that John Edwards is an even bigger winner.  The little-known, first-term Senator from North Carolina has to be thrilled with his second-place showing (32%).  This puts Edwards in the catbird’s seat for the VP nod from the eventual winner (assuming Edwards doesn’t win the nomination outright which is doubtful).

Now, with the field whittled down to only four viable candidates, and with the attention shifting to New Hampshire, the focus will more intently shift to the main question: Who really has a chance to beat Bush?  With that as the upcoming focus, let’s take a look at Bush’s latest standings in the polls released over the weekend.

Latest Polls Show Bush More Vulnerable

The two latest polls on George W. Bush’s approval ratings suggest that the President is growing more vulnerable to whoever will be the Democratic challenger.  The latest results released on Sunday came from the New York Times/CBS poll (taken Jan. 12-15) and the ABC News/Washington Post poll (taken Jan. 15-18).  Both polls have a 3% margin of error. 

[Before we look at the latest poll results, you will see there is often a significant difference in the responses to “essentially” the same question.   The differences usually lie in HOW the questions are asked.  Different groups pose the questions in different ways, often to get a higher or lower response, depending on their political leanings. The NYT/CBS polls are notoriously slanted left, as are the CNN/Gallup polls.  Keep that in mind as you read the following.]

Anyway, here are the highlights from the latest ABC News/Washington Post and New York Times/CBS polls released on Sunday.

In both polls, President Bush’s job approval ratings fell.  In the ABC poll, his overall job rating fell to 58%; in the NYT poll, he fell to 50%, down from 60% a month ago in the same poll (just after Saddam Hussein was captured).  The 50% approval in the NYT poll matches Bush’s lowest rating in that particular poll since he took office. 

Both of the latest polls show that Bush’s disapproval ratings went up.   In the ABC poll, his disapproval rating rose to 40%; in the NYT poll, his disapproval rating rose to 45%, also the highest since he took office in that particular poll. 

On the state of the economy, the two polls offer surprisingly different conclusions.  The latest ABC poll shows that 58% believe the US economy is still in bad shape, even though GDP growth surged by over 8% in the 3Q.  The NYT poll found, to the contrary, that 54% believe the economy is in good shape now, while 45% think it is in bad shape. Even though 58% of ABC’s responses said the economy is in bad shape, 51% still said they approved of Bush’s economic policies, while 47% disapproved.  Yet the NYT poll found that 58% of those polled believe the Bush administration has done a good or fair job on the economy this year… Clear as mud.

On the subject of Iraq, the ABC poll found that a majority (55%) approves of the “situation in Iraq,” while only 37% disapprove.  Yet the NYT poll showed, for the first time, that a slim majority (51%) believes the war in Iraq was not worth the cost, while 43% still believe the war was worth it.  Perhaps more surprising, 60% of those polled by the NYT said they believe the Bush administration is hiding information about Iraq’s weapons of mass destruction, while only 27% believe the administration has told us most (or all it can) of what it knows. 

One of the most surprising results in both polls was on the issue of taxes.  Despite Bush’s much maligned tax cuts, most Americans are apparently confused on the issue of Bush’s tax policies.   In the NYT poll, 32% said Bush policies have caused their taxes to go UP, while only 19% said down, and 44% said they were unaffected. Go figure!  In the ABC poll, only 45% said they approved of Bush’s tax policies, while 51% said they disapproved.  Interesting, isn’t it, that the Democrats pound Bush daily over his tax cuts, yet apparently most Americans don’t even understand the issue, or else they believe the Democrats’ rhetoric that the tax cuts went only to the rich.

There were other negatives for Bush in the latest polls.  In the NYT poll, almost two-thirds (64%) said that the Bush administration favors “big business” over ordinary Americans; 57% said the Bush administration caters to “the rich,” while only 12% said Bush focuses on the middle class or the poor. 

On the subject of Bush’s new immigration proposals, there was surprising(?) opposition.  In the ABC poll, only 34% approved of Bush’s immigration polices, while 56% disapproved.  In the NYT poll, a plurality (45%) favored decreasing immigration, not increasing it, while only 16% favored an increase.

Bush also got disappointing poll results on the question of his latest space exploration initiatives.  The NYT poll asked if Bush’s latest suggestion of a permanent space station on the moon would be worth it.   Surprisingly, 58% said NO, while only 35% said yes.  Only 17% of those polled said the US should spend more money on space exploration, while 40% said we are already spending too much.  The NYT says this is the first time they have ever received such a response. 

Finally, the NYT asked if things in America are better or worse than five years ago; 57% said worse, only 21% said better and almost as many said about the same.  But then they flip-flop as we will see below.

But Bush Does Get His High Marks

While the mostly negative poll results cited above (and others not mentioned) are sure to give the President’s advisors heartburn, Bush did receive very high marks in some critical areas – in particular, the War On Terror.  The ABC poll found that 66% of respondents approve of the Bush administration’s handling of the War On Terror, while only 33% disapprove. 

The NYT poll asked if Americans believe that Bush’s policies have made the US “safer from terrorism,” and 68% said yes, while only 15% said less safe and 14% said no effect.  In this regard, 64% said they consider Bush to be a “strong leader.”

As noted above, a majority said things in the US are worse than five years ago.  But when asked how things will be in the future, 45% expect things to be better in five years, while only 25% said they expect them to be worse.

What All This Means For Bush

In a nutshell: Bush remains a popular president, but his popularity is narrowly based, and the trends are working against him, at least recently.  One year ago, a similar ABC/Washington Post poll asked respondents who they trusted most – Bush or the Democrats - to handle the country’s “main problems.”  The response: Bush 62%, Democrats only 31%.  In the latest poll released on Sunday, the very same question yielded the following response: Bush 45%, Democrats 44% - a statistical tie, and a great improvement for the Dems. 

Actually, this is quite a surprise given all that has happened in the last year.  Continued success in the War On Terror, the absence of any terrorist attacks in the US, the toppling of Saddam Hussein’s regime in Iraq (including his recent capture) and the strong rebound in the economy and the stock markets.  Given that over two-thirds (68%) of Americans feel that we are now safer from terrorism as a result of Bush’s WOT policies and actions, it is remarkable that his public trust to handle the country’s “main problems” has fallen so far.

While Bush’s numbers have fallen, it is important to keep it all in perspective.  First, the Democrat wannabes have been criticizing Bush relentlessly for the better part of a year now.  Bush has not responded directly to any of their charges.  He is not likely to do so until it is clear who will be the Dem’s nominee.  So, they can hammer away at will.

Second, these January polls always come out prior to the State of the Union speech and, predictably show the president's popularity waning.  In 1996, for example, similar polls showed Clinton’s approval rating at only 47%.  Yet presidents almost always get a nice boost in popularity following the State of the Union address which airs tonight on all major networks. 

Third, one of the Democrats’ main criticisms of Bush has been the war in Iraq. Yet the capture of Saddam Hussein has caused the war issue to fade.  While a large majority of Iowa caucus-goers disapproved of the war in Iraq, the vast majority of them actually voted for a candidate who supported the war.  Look for Iraq to dwindle as a top campaign theme.

The Key Question: Who Will Make Us Safer?

At the end of the day, this is THE question that I believe will most shape the 2004 presidential election.  As noted above, even the NYT/CBS poll showed that 68% of Americans believe Bush’s policies have made us “safer from terrorism,” while only 29% said they had little or no effect.  Even with Bush’s approval ratings down (pre-State of the Union), the public is still deeply concerned about making this country safer from terrorism.

For sure, the Democrats will continue to malign Bush over the economy, despite the recent red-hot GDP numbers.  Sure, they will continue to pound him on tax cuts, even though the public appears to be confused about what is, or is not, a tax cut.  The Dems will also continue to criticize Bush on other domestic issues.  That’s the way the game is played.

Yet in my view, the big mountain the Democrats have to take is: Who will make us safer from terrorism?  It is clear that Bush has the upper hand for now, as the latest polls have clearly shown – despite his falling approval ratings in other categories.

Going forward, will voters turn from Bush and trust John Kerry to make us safer from terrorism?  Clark?  Edwards?  Dean?  Not according to the latest polls, including the left-leaning NYT/CBS poll which found that 68% approve of Bush’s handling of the War On Terror as of last week.

Of these four remaining viable Democrat candidates, Dean likely ranks the lowest among voters on the question of who will make us safer from terrorism.   As stated earlier, I expect Dean’s star to continue to fall; however, we will have to await the outcome in New Hampshire next week, where Dean remains the frontrunner at least for the moment.

New Hampshire may also be a pivotal point for Wesley Clark.  Clark bypassed Iowa and has been campaigning aggressively in New Hampshire for several weeks.  He has enjoyed a nice rise in the polls, but this may be largely because he stayed out of the fray in Iowa.  Now that Clark is largely in the company of Democrats who supported the war in Iraq, in one way or another, it will be interesting to see if the General flip-flops his position on Iraq yet once again. 

Finally, this E-Letter is written on Tuesday afternoon prior to the President’s State of the Union address this evening.  State of the Union speeches are always filled with promises, and given Bush’s latest slippage in the polls, this one should be no different.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Why Kerry and Edwards got the votes.

Iowa winners and losers.

Dean goes berserk – read this if you didn’t see it on TV.


Read Gary’s blog and join the conversation at garydhalbert.com.


Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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