BALANCE OF POWER HAS SHIFTED

The US constitution provides our system of government with a number of checks and balances. The ultimate power rest in the voting power of the people; the people have spoken. They have elected a President and given him unusual power.

During the first Bush term, the Republican Party held the House and the Senate but the Senate by a slim margin. The slim margin gave "veto power" to Senators who were willing to plant their feet on specific issues. President Bush was able to successfully pass a number of initiatives but it was always a struggle.

Our government was designed to move as slow as molasses. Every issue that is the least bit controversial must pass committees, two houses of congress, more committees and the President. Now that the republican majority is up to 55% in the Senate, the party is ready to pass bills.

The tort reform bill in regard to class action suits was a long time coming and passed easily. President Bush wants to make changes of historical proportion. Social Security reform and Medicare reform are two of the biggies on his list. Social Security will be the big challenge and Bush is pulling out all the stops.

I believe he will succeed and I believe he will be remembered as one of the great presidents of all time. Success will not be won easily and the fight will likely last until at least October 1, 2005.

In the mean-time, smaller less important but not inconsequential bills are moving forward. Reform of the bankruptcy law has been needed for many years. Bankruptcy laws have driven up costs to American companies and American citizens. The new bill will encourage folks to negotiate at least a partial payout of debts and will slow the spin of the revolving door. There is bi-partisan support for reform and the republican controlled senate is ready to vote. The house leadership has said they will pass a clean bill quickly.

Abortion rights leaders just lost a vote in the senate. Do you see the how the balance of power has shifted? Instead of passing a bill in the house and then having to horse trade in the senate, the senate is now able to pass a bill and let the house "confirm" the bill. I am not saying the house is a rubber stamp. I am simply saying that the filibuster power in the senate is not nearly as strong as it was when the majority ruled by one vote.

Speaking of power, have you noticed the move in the 10 year t-bond. The yield has jumped 45 basis points in a month. For five years in a row, yields have been high or moving to high ground during the first half of the year and then moved down by the end of the year. Stocks have typically had their best runs in October thru December.

One forecast of GDP in 2005 was revised up to 4%. If this economy continues on this strong path, even state governments that have struggled to balance budgets in recent years are going to be flush with cash. Roads will be built, oil wells will be drilled and power plants will be built. Companies like Fluor, Ingersoll Rand and GE will do well.

The bond vigilantes are clearly prepared to keep the BOOM in check. A terrorist attack could up-set the apple cart but the recent news out of the Middle East has been on-balance out-standing. The BALANCE OF POWER HAS SHIFTED. Syria has gotten the word that the US and Europe are on the same page. Iran now understands that there is much to gain by working with Europe and America. Russia has thrown around its weight a little but all industrial nations know it is in the best interest of all to keep the pressure on the terrorist. The BALANCE OF POWER HAS SHIFTED and President Bush is using power to improve the lot of the world.