Equities| US CHRIS KRUEGER Research Analyst T: +1 202-747-9469 [email protected]

NOVEMBER 1, 2010 INSTITUTIONAL USE ONLY WASHINGTON RESEARCH GROUP ELECTION BULLETIN

With Wave, House & Senate to Turn Republican Next Congress

The Republicans are going to win the House of Representatives tomorrow night – 85% chance, in our opinion. The GOP needs to win a net of 39 House seats for control. The actual number of seats the GOP nets is likely to be north of 55, giving Rep. John Boehner (R-OH) a working majority. In the seven elections since 1930 in which the House has flipped control, the Senate has followed. We see a 51% chance that the GOP re-takes the Senate. To win ten seats and the majority, Republicans need to win the West Virginia and Washington Senate races (they will, narrowly, in our opinion). These two states will determine control of the U.S. Senate in the next Congress.

In wave elections (like 1994 and 2006), the toss-up Senate races break with the wave. This fact and the historical record of the House pulling the Senate are the two data points most overlooked by the conventional wisdom in DC that has the GOP picking up 6-8 Senate seats. The quantitative projection models miss the forest for the trees in a nationalized wave election, as the tide washes out all the close races.

In our view, the GOP will successfully defend all its current seats in play and has the ND, AR, and IN Senate races on lock-down, with PA and WI nearly in the bank. This gets the Republicans to +5. The GOP will win the other close races in IL, NV, and CO which gets them to +8. All three of these races are trending towards the Republicans in polls – election outcomes are all about who has the momentum at the end, which these Republican candidates have. Republicans still need two to get to ten: West Virginia and Washington. Yes, and could go to the GOP, but if Carly Fiorina and Linda McMahon pull upsets, WV and WA will surely too have fallen into Republican hands.

The third and final data point that underscores my bullish view on Senate Republican chances tomorrow is the glaring enthusiasm gap among voters. For the first time since 1930, more Republican primary congressional ballots were cast than Democratic ballots --- nearly four million more.

Key paragraph on the enthusiasm gap from the Gallup poll yesterday:

 “[T]his year's 15-point gap in favor of the Republican candidates among likely voters is unprecedented in Gallup polling and could result in the largest Republican margin in House voting in several generations. This means that seat projections have moved into uncharted territory, in which past relationships between the national two-party vote and the number of seats won may not be maintained.”

Another key finding on the enthusiasm gap from the POLITCO/George Washington University October 24th poll:

 “Key constituencies and regions that helped Democrats come into power continue turning against them. Whites favor the Republicans 56-33. Suburban voters tilt Republican 51-39, up from 44 percent in early September. Republicans lead 50-41 in the Northeast and 48-42 in the Midwest. Republicans now have a 15- point edge among non-college educated men.

The large enthusiasm gap continues to be a major advantage for Republican candidates. Independent voters – the mother’s milk of politics – are breaking heavily against the Democrats.

Due to absentee ballots, recounts, and potential party switches, it is very possible that control of the Senate will not be decided on election night. Washington State has a mail-in ballot system, so thousands (likely) of ballots will not be counted until the end of the week. 1 mfglobal.com

Washington Research Group | US NOVEMBER 1, 2010 | ELECTION BULLETIN

Below, the Republican Senate candidate is listed with the average percentage point they are leading (+) or losing (-) each race. The GOP is expected to hold all of the seats it is defending (column on left). Alaska is the only other wildcard, though either Joe Miller or Sen. Lisa Murkowski will likely win and keep the seat in Republican hands. A win in any of the states listed on the right column is a +1 to the Republican base Senate number of 41 (assuming they hold all seats, which they should).

51 is the magic number for majority status. If the GOP wins nine seats, the Senate will be tied at 50-50, though the Democrats will retain control thanks to the tie-breaking vote of Vice President Joe Biden. If this happens, look for party switching to reach fever pitch.

Competitive GOP Held Seats Competitive Democratic Held Seats

Ohio – Rob Portman + 19.0% North Dakota – John Hoeven +44% – Marco Rubio +19% Indiana – +19.3% Louisiana – Sen. David Vitter + 15.0% Arkansas – John Boozman +17.2% New Hampshire – Kelly Ayotte +15.0% Wisconsin – Ron Johnson +7.7% – Sen. Richard Burr +11.8% Nevada – Sharron Angle +4.0% Missouri – Roy Blunt +10.4% – Pat Toomey +4.0% Kentucky – Rand Paul + 11.0% Illinois – Mark Kirk +3.3%* Alaska – Sen. Lisa Murkowski +3.0%** Colorado – Ken Buck +3.0%*

Washington – Dino Rossi +0.5% West Virginia – John Raese -4.0%* ------California – Carly Fiorina -4.2% Connecticut – Linda McMahon -10.7% – Christine O’Donnell -14.0%* New York – Joseph DioGuardi -19.7%*

*The winner of this election will be seated for the Lame Duck Session on November 15th.

**This race continues to be the most volatile of the cycle. Analyst Nate Silver at 538.com has a 95% chance that Republicans will retain this seat. Note: All polling is taken from the Real Clear Politics Average.

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