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Thu, Oct. 17

Will bull market quell anti-Republican mood?

This past May, when oil was $74 a barrel, gasoline was $3 a gallon and more, and the Dow had just plunged 214 points, I said the Dow would hit 12,000 before the end of the year. "Look for the total economy to grow to $13 trillion by next year and for the Dow to surpass 12,000 by year's end," I reported, adding an admonition from legendary financier J. P. Morgan that "anyone who bets against the American economy will lose." That no doubt sounded wildly pollyannaish at the time, and I got a lot of ribbing from colleagues and friends, but I based it on the fundamentals I saw in the United States and global economy at the time.

The stock markets were mindlessly in the grip of fears at a time when, to paraphrase FDR, the only thing we had to fear was fear itself.

The Fed was increasing in-terest rates in a myopic ob-session with inflation whose core rate, minus energy, re-mained relatively tame. The Republican-run Congress wasextending the 2003 capitalgains and dividend tax cutsthat President Bush quickly signed. Oil was showing signsof declining and, I believedat the time, gas prices would fall too. All this promised to fuel the financial markets further. At the same time, I saw a resurgent long-term global economy boosting U.S. ex-ports, continued growth in new jobs, higher corporate profits and renewed interest from investors.

So here we are approaching November and the 2006 congressional elections with the Dow surpassing 12,000 and the rest of the broader markets rising along with it.

The questions that await answers now are twofold: Will the bull market and rising stock values influence the voters' anti-Republicanmood, and will this economykeep growing as it has un-der Bush's policies?

It is one of the ironies of the 2006 elections that the electorate remains in agloomy mood about the ec-onomy. Rarely can one findan election in the past wherevoters wanted to throw out the party in power with theunemployment rate nearinga low 4.5 percent, the ec-onomy growing by better than 3 percent, and workerretirement stock portfolios increasing by near double-digit percentages.

That mood may be changing. The Gallup Poll's latest scorecard shows 41 percent of Americans rating the economy as excellent or good; 42 percent said "only fair"; and 16 percent said poor. That Oct. 9-12 survey does not reflect the market's latest ascent on Mount Twelve Thousand. At the same time, Iraq and the U.S. casualties could and very likely will trump the economy's per-formance among voters.

Meantime, I have no doubt that the Bush economy is going to continue to outperform the pessimists who are always seeing an economic collapse in the next quarter.

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