The October 23 edition of Barron's will contain a report predicting that Republicans will remain in control of the House and Senate after the 2006 midterm elections. According to the report, Barron's predicted the outcome of congressional races by determining “which candidate had the largest campaign war chest,” adding: “We ignore the polls.” Barron's also touted its methodology, writing: “Is our method reliable? It certainly has been in the past. Using it in the 2002 and 2004 congressional races, we bucked conventional wisdom and correctly predicted GOP gains both years.” Barron's gave no indication, however, that its “method” has changed in each of the last three election cycles, including the use of polling data in past elections, while this year asserting that "[w]e ignore the polls."

Also, in its 2004 and 2006 reports, Barron's demonstrated a clear preference for a Republican-controlled Congress. Notwithstanding the shifting methodology and its candid preference, the Barron's 2006 report was highlighted by host Tim Russert on the October 22 broadcast of NBC's Meet the Press, who noted, without further explanation, that the magazine “predict[s] the Republicans will lose eight House seats, a maximum of 14, hold the House, hold the Senate.” Internet gossip Matt Drudge seized upon the report, linking to it on his Drudge Report website with the blaring headline: “Magazine shock: Republicans will hold Congress.”

According to the 2006 report:

We studied every single race -- all 435 House seats and 33 in the Senate -- and based our predictions about the outcome in almost every race on which candidate had the largest campaign war chest, a sign of superior grass-roots support. We ignore the polls. Thus, our conclusions about individual races often differ from the conventional wisdom. Pollsters, for instance, have upstate New York Republican Rep. Tom Reynolds trailing Democratic challenger Jack Davis, who owns a manufacturing plant. But Reynolds raised $3.3 million in campaign contributions versus $1.6 million for Davis, so we score him the winner.

[...]

Is our method reliable? It certainly has been in the past. Using it in the 2002 and 2004 congressional races, we bucked conventional wisdom and correctly predicted GOP gains both years. Look at House races back to 1972 and you'll find the candidate with the most money has won about 93% of the time. And that's closer to 98% in more recent years, according to the Center for Responsive Politics. Polls can be far less reliable. Remember, they all but declared John Kerry president on Election Day 2004.

Notwithstanding its own claims about its success in predicting past elections, however, the publication's methodology -- or at least its characterization of that methodology -- has changed from one election cycle to the next. According to Barron's October 11, 2004, report (subscription required), the magazine's analysis was based largely on grassroots contributions “from local residents as opposed to out-of-state interest groups,” and not just on the size of a candidate's “campaign war chest,” as it claimed in the 2006 report. The 2004 report noted that the magazine gave “an additional edge to the candidate who raises the most money from local zip codes” -- there is no indication in the 2006 report that contributions from local zip codes were given additional weight. The 2004 report also noted that the publication “looked at key polls, campaign-financing disclosures, economic indicators and insights from top political analysts” -- factors that were either not listed in the 2006 report, or, as with the polling data, specifically rejected.

From Barron''s 2004 report:

In the House, we foresee the Republicans with 234 members to the Democrats' 201, for a 53.8% majority, up from the current 227-205, or 52.5% majority. In the Senate, we believe the Republicans will end up with 54 members to the Democrats' 46, up from the current 51-49 advantage.

The predictions -- pointing to greater GOP gains than most observers expect -- reflect our view that the Republicans in key races generally have better grass-roots organizations than their rivals. The evidence: greater contributions from local residents as opposed to out-of-state interest groups. The Republicans are also helped by an economy that, while perceived less robust than before 2001, nonetheless is growing.

In sizing up the races, we looked at key polls, campaign-financing disclosures, economic indicators and insights from top political analysts -- a broad approach that served us well in forecasting the outcome of the 2000 and 2002 elections. In 2002, for instance, we were among the first and the few to correctly call a GOP win in the Senate. We predicted a 52-48 GOP advantage, when most other prognosticators saw Democrats winning control. We also correctly called a GOP surge in the House. We predicted a 225-seat majority, which was only two seats short of the actual result.

[...]

The correspondence between lucre and electability is not as pronounced in Senate races because both candidates typically are awash with cash. In part, there is more money because people from outside a state are making donations to advance their party's Senate candidate. To compensate for outside interference, we give an additional edge to the candidate who raises the most money from local zip codes. Local donations, we find, measure the strength of a candidate's grass-roots support and campaign organization.

Barron's October 14, 2002, report also indicated that it factored in polling data, and that the magazine conducted interviews and examined newspaper coverage and voter trends -- criteria nowhere to be found in the 2004 or 2006 reports. From the 2002 report:

Our own analysis, based on interviews, polling data, candidate finances, newspaper coverage, and voting trends, also sees the GOP in control of the House. In fact, we think the Republicans will actually pick up two seats, raising their majority to 225. But we part company with the overly cautious pundits and predict a 52-48 advantage for the Republicans in the Senate.

One big reason for our counter-intuitive conclusion is that the Republicans have a highly successful dirty-tricks squad assisting their cause -- the Democrats themselves. “The GOP is supposed to be the gaffe party!” marvels Republican election expert John Morgan of Applied Research Coordinates, in Alexandria, Va. A recent trip by three Senate liberals to Baghdad turned into a public-relations nightmare for the Democrats, leaving voters with the impression that the party is divided on the issue of war and soft on terrorists.

Also, the 2006 report specifically noted that the magazine used its “campaign war chest” methodology to predict the outcome “in almost every race” [emphasis added] -- raising the question of which races the magazine's purportedly consistent methodology was not applied.

Moreover, in the 2004 and 2006 reports, Barron's clearly stated that the stock market prefers a Republican majority in both houses of Congress. Barron's wrote positively of the Republican majority that it was predicting in 2004 for the salutary effect GOP control would purportedly have on the stock market. In 2006, it suggests darkly that the only way to protect against stock market stagnancy or collapse is for Republicans to retain control of at least one house.

According to the 2004 report:

The GOP gains we forecast this time bode well for the stock market. For one thing, stocks have generally fared better when Republicans have held majorities in both the House and Senate. Such Republican rule historically has been accompanied by average gains of 16.9% a year in the Standard & Poor's 500 index, compared with 8.2% gains when Democrats have held sway, says Anthony Chan, senior economist with J.P. Morgan Fleming Asset Management. That reflects Republicans' historical role as fiscal conservatives, favoring lower taxes and less spending.

Furthermore, even with the predicted Republican gains, Washington will remain sufficiently gridlocked that neither party will be able to spend freely. And that's good news for deficit reduction, a key concern on Wall Street.

According to the 2006 report:

If we're even half right, and the GOP retains control of the Senate but loses the House, then there would be important ramifications for the stock market. Since traders often have disdain for Democrats, there could well be a relief rally, at least in the short term. “It would force investors to rethink some overzealous discounting of stocks,” says Chuck Gabriel, chief political analyst for Prudential Equity Group.

Fear of Democrats, he suggests, may be playing a role in the weakness in energy and pharmaceutical stocks, with investors bracing for a populist backlash against profits. “Elections may or may not be a driver, but it would not hurt to remove that headwind,” says Gabriel.

Shares of student lender Sallie Mae also may also be feeling the weight of the presumed Democrat victory. The theory is that Democrats would reduce student-loan rates if they control both ends of the Capitol, hurting profit margins for parent SLM (ticker: SLM). It's unlikely Democrats could succeed with the Senate in GOP hands.

On the October 22 broadcast of Meet the Press, Russert posed the 2006 Barron's study's findings to nationally syndicated columnist Robert D. Novak, who dismissed them as “ridiculous”:

RUSSERT: Bob Novak, Barron's writes for tomorrow that they did an analysis of how much money each candidate has raised and will spend on the election and didn't look at any polls, and based simply on money being raised, they predict the Republicans will lose eight House seats, a maximum of 14, hold the House, hold the Senate.

NOVAK: That's a ridiculous method of -- of forecasting the election strictly on the money. Money is important, but it's not everything.

From The Drudge Report: