No Donkey Serenade for Wall Street
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Call it a donkey myth.
That’s the Democratic wave that was supposed to sweep the midterm elections. In brief, the country’s disenchantment with the seemingly endless and worsening war in Iraq and the president’s shabby ratings in the polls would hopefully enable the donkey brigade, so went the recurring message from the Democratic leadership, to wrest control of the House and Senate from the elephants.
In essence, the misguided optimism of the Democrats, according to some Wall Street pros, should give the nation’s 78 million stock players a sigh of relief with the midterm election process now in the final stretch. In other words, potential Democratic actions that could negatively impact taxes, trade, and a number of major industries appear to be dead in the water.
Or, putting it politically, no donkey serenade.
You might call it, judging what I got during the weekend from Chuck Gabriel, one of Wall Street’s most astute political minds, the donkey wave that almost was and now will likely never be.
In other words, his outlook calls for the Democrats to make strides in the November 7 elections, but not the kind of expected gains that many of the Democratic party’s more visible spokesmen had been bragging about.
“Close, but no cigar” is essentially the message on prospective resounding Democratic victories in both the House and Senate that Mr. Gabriel, the Prudential Equity Group’s chief Washington strategist, fired off Friday in an election update to the firm’s clients.
Barring any last minute dramatic surprises, he now expects the Democrats to retake control of the House, but fall shy in the Senate, a political showing which, he believes, would lead to political gridlock, but pose no serious worries for the stock market.
To gain control of the House, the Democrats need to gain an additional 15 seats. Based on his analyses, plus conversations with leading pollsters and political pundits, he expects the Democrats to snare 16 or 17 more seats. “As far as the Republicans are concerned, the House is gone,” he says.
In actual odds, Mr. Gabriel gives the Democrats a 66% shot at winning the House and a 45% chance of capturing the Senate.
“Based on what I’m now seeing, I think the death of the elephant has been greatly exaggerated,” says money manager Raymond Stahler, who appears to be having a change of heart. Only about a month ago, he told me he thought the Democrats would definitely take the House and possibly grab the Senate, as well. “I thought Foley-gate would do it for the Dems, but it looks like I was premature,” he says.
(Foley-gate is a reference to the resignation of Republican Florida Congressman Mark Foley following the disclosure of a sex scandal he was caught up in involving Congressional pages.)
“Somehow, I think the Republicans in certain states are managing to get their act together and stabilize things,”observes Mr. Stahler, a principal of London-based Stahler Dearborn Ltd.
That’s essentially Mr. Gabriel’s thinking, as well, at least as far as the Senate goes. To win the Senate, the Democrats need to net six new seats. Mr. Gabriel thinks they’ll take four, namely Montana, Pennsylvania, Rhode Island, and Ohio. But the key, as he sees it, is that the Republicans’ Senatorial prospects in Missouri and Tennessee seem to be stabilizing and he expects the party to hold both seats.
When all is said and done, he says, “it’s a benign verdict for the investment community. It won’t produce a result that will impede the market rally.”
But suppose he’s wrong and the Democrats retake control of both the House and Senate?
On that basis, he suggests, all bets are off. “It would then be the beginning of a two-year risk cycle for the market,” he says. Such a scenario, he believes, would likely produce the following:
• A clear move to impeach the president, which would see Washington hunkered down in lots of alleged scandals and the issuance of subpoenas over the information the president used to take the country to war.
• Trade agreements would be under pressure under a new round of protectionism.
• Higher tax cuts could be on the way and President Bush’s tax cuts could be rolled back.
• A number of industries such as drugs, HMOs, energy, and defense could have their wings clipped.
• A lot of China and Wal-Mart bashing.
Likewise, Mr. Gabriel points out, if the Democrats were to take both chambers with a decided swing to the left, you could see fears of a market retrenchment because of fears of a Democratic presidency in 2008.
Mr. Stahler thinks next week’s elections are unlikely to produce any kind of Democratic runaway. His reasoning: People vote with their pocketbooks. The economy is doing okay, the market has been acting great, gas prices are coming down, and all this could all be an ignored boon for the Republicans, he says.