It looks like the GOP's fortunes may be turning around. When I first asked "Will Republicans lose the house?" near the end of August, Tradesports gave the party a 46% chance of retaining their House majority in November, and a 79% chance of holding on to the Senate. As of today, people betting on the 2006 election give the GOP a 57% chance of retaining the House and a 83% chance of keeping the Senate. That's a remarkable change in a little less than a month.

Along the same lines, Larry Kudlow writes about "The GOP's Bush-led turnaround".

Oil and gasoline prices have plunged over the past month, taking away a big Democratic issue. The broad stock averages have had a nice run since Labor Day and are closing in on five-year highs. This rally is a measure of the future economy and business profits, and it signals continued growth as far as the eye can see. And while investors are abandoning the energy sector, consumers are spending -- making the retail stock index one of the hottest plays on Wall Street.

At the same time, inflation indicators such as gold, commodities and energy have been pummeled. Long-term interest rates have dropped quickly from 5.25 percent to 4.6 percent, another sign of diminishing inflation fears. Consequently, the Federal Reserve hasn't touched interest rates at its last two meetings, while many on Wall Street are now betting the next Fed move will be a rate cut, not a hike.

Meanwhile, the monetary base, which measures the Fed's dollar-creating activities, has been flat-lined, with literally zero growth over the past eight months. As Milton Friedman taught us, excess money is the cause of rising inflation. But the Fed is taking care of that problem, which is why forward-looking market indicators (i.e., gold, energy and long-term bond rates) have all dropped significantly. In fact, if you combine the rising stock market with the falling inflation markets, the clear forecast is for non-inflationary growth.

I sincerely hope that the Democrats don't win a single seat until they wise up and return to sensible economic and foreign policies. It's not great to have both elected branches of government controlled by a single party, but it's better than the alternative when that includes sharing power with the likes of modern leftists.



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