Editor’s Note-Portfolios, Potatoes, Politics

Editor’s Note-Portfolios, Potatoes, Politics

An investment analyst looks at election results.

In this issue, “Portfolio Positions” columnist Tony Carideo indicates that if he had to describe investment analyst Steve Leuthold with a single word, it would be “eclectic.”

Well, yes. As Carideo reports, Leuthold’s wide-ranging approach to investment markets has led his Minneapolis-based Leuthold Group into current investments in copper, nickel, lead, and other industrial metals; stock in public companies that operate globally (IBM, Dell, Sony, Toyota), regardless of their country of origin; and a portfolio of producers of home video games. Meanwhile, the Leuthold Grizzly Short Fund, which sells shares of borrowed stock in hope that the price will fall, is short-selling shares of financial service companies in expectation of rising interest rates.

Leuthold’s interests are hardly limited to investments, however. He was photographed for the October 2003 issue of this magazine at his farm in Maine, where he grows heirloom potatoes. He recently performed on guitar with a blues band in a Minneapolis saloon.

More intriguingly, last fall he edited and published a 91-page report on the federal elections system by Leuthold researchers Andy Engel and Connie Schultz. It concludes that technologically sophisticated gerrymandering and the fundraising advantages of incumbency have created a Congress whose members are almost impossible to remove from office.

A few observations from the report:

In the 2004 elections, only 9 (7 Democrats, 2 Republicans) of the 403 U.S. Representatives seeking re-election lost; 98 percent of incumbents won. There are 435 House seats; the party holding them retained control of them 98 percent of the time. On average, the winning candidates garnered 66 percent of the vote in their districts—indicating that there were few competitive races. In only 13.1 percent of races did winners receive less than 55 percent of the vote. Thirty-four candidates (17 Democrats, 17 Republicans) ran unopposed.

Gerrymandering has led to districts that often resemble ink blots on Rorschach tests; spidery arms reach into enclaves of voters who favor the majority parties of state legislatures, which are responsible for district boundaries. It’s a process in which “technology has played an increasing role,” Leuthold says, “as voting patterns can now be isolated almost to the individual home.” He observes that “one of the more unique Congressional districts” is California’s District 23, which is 200 miles long, stretching from Monterey County to Oxnard. “It was artfully crafted [by the Democrat-dominated California Legislature] in 2001 to avoid the Republican-leaning interior regions. Its widest point is only five miles, and in some places it narrows to the length of a football field.”

In Texas, Republicans were able in 2004 to break a stranglehold that Democrat incumbents had on their seats—and ignominiously redistricted so that 15 of 16 Republican incumbents could run again in their former districts while only 8 of 16 Democrats could do so.

How important is money in politics? Leuthold observes that there were only 10 instances among the 435 House races in 2004 in which the candidate who raised the most money lost. Of the 37 elections for “open” congressional seats, where there was no incumbent advantage, 32 were won by the candidate who raised the most money. A key advantage held by incumbents is that they can roll unused campaign funds from one election cycle to another, to be used in potentially tougher future races. Of the 403 House members who ran for re-election in 2004, only 107 had to draw on cash from a previous election; for the rest, the 2004 election was a war-chest-building proposition.

Especially interesting were the 34 representatives who ran unopposed—and who raised and spent $22.6 million, to beat nobody. They did not, however, spend it all in their own districts. More than $4.5 million was donated to national political committees or campaigns in other districts.

The Leuthold Group’s research is usually available only to clients, but that’s because it usually addresses investment markets. For an electronic copy of the report called “Prostituting the Political Process,” write to cschultz@leutholdgroup.com. It will persuade you that your congressman’s seat is probably safe in this fall’s election.

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