Stocks were up but barely moved ahead of Tuesday's elections even as oil dropped to the lowest price in a month. Until the returns come in or polls show a clear breakout, there's not much incentive to move the market in either direction.

The major indices churned in place, with the

Dow Jones Industrial Average

held back by

Merck

(MRK) - Get Report

, which lost 10% to $28.29 after

The Wall Street Journal

reported on evidence that the company potentially downplayed Vioxx safety concerns. On the day, the Dow gained 27.29 points, or 0.3%, to 10,054.76.

The

Nasdaq Composite

also gained 0.3% to 1979.87 and the

S&P 500

rose a fraction to 1130.51.

Oil lost $1.63 to $50.13 a barrel after dropping more than 6% last week. Some of the decline could be election-related as Democratic candidate Sen. John Kerry has said he'd stop filling the strategic petroleum reserve. Treasuries tanked on oil's decline despite some less-than-stellar reports about the state of the economy.

Exxon Mobil

(XOM) - Get Report

lost 1% to $48.82.

The yield on the Treasury's 10-year note rose to 4.09% from 4.03% on Friday as the expected economic drag of higher oil prices faded a bit.

While most commentators have predicted a relief rally if the election result is decisive and a selloff if a repeat of 2000 appears likely, Tom McManus at Bank of America Securities is more worried about Kerry. Noting that wealthy voters and those favoring Bush have expressed higher confidence than other consumers, McManus believes they could turn pessimistic with a Kerry win.

"A Kerry victory might deflate the bullish sentiment of those upon whose spending the economy depends and affect hiring intentions and capital expenditure decisions," he writes.

Deficits and Illusions

Monday's economic data were weak but not earth-shattering enough to stop the

Federal Reserve

from moving to raise rates at either of its next two meetings. Construction spending for September was flat, contrary to expectations of a 0.5% rise, because residential home construction dropped. It was the first monthly decline since February 2003 and could be related to hurricanes.

Charmaine Buskas at Economy.com points out that the Commerce Department assumed a slight rise in September construction in last week's estimate of third-quarter GDP growth. Monday's report suggests a possible revision downward to GDP growth from 3.7%.

The Institute for Supply Management's monthly manufacturing index dropped to 56.8 in October from 58.5 in September. Any reading over 50 implies expansion in the manufacturing sector but the decline was the third straight and was deeper than forecasters predicted. Employment and backlogs fell while new orders rose slightly.

Personal income in September also came in slightly below expectations, rising 0.2%, while spending rose a hearty 0.6%. For this report, the Commerce Department explicitly warned that the hurricanes depressed the result. The savings rate of 0.2% was the second-lowest ever reported.

A number of commentators have suggested recently that the savings rate will have to increase sooner or later, putting a crimp in consumer spending unless job and income growth kick up a notch.

The annualized deficit of $342 billion between what consumers spend and what they earn is an unprecedented level, according to economist Paul Kasriel at Northern trust. Measured as a percentage of disposable personal income, it's at a 50-year high. The lack of savings may be a rational reaction to current low interest rates. After inflation and taxes, savers are losing money that they keep in the bank.

Kasriel says the deficits can't go on much longer. "Those industries dedicated to discretionary consumer spending and housing are going to experience weak demand going forward," he writes. "Adjust your stock portfolios accordingly."

He's also taking on defenders of the overleveraged consumer. For example, Fed chairman Alan Greenspan gave a speech on

Oct. 19 dismissing the significance of the record borrowings. Sure, debt has never been higher, income is stagnant and savings are low, but household net worth is high -- very high -- more than five times income, Greenspan noted.

"Taking into account this higher level of assets, all in all, the household sector seems to be in reasonably good financial shape with only modest evidence of an increased level of household financial strain," he said.

As Kasriel points out, this is an illusion. Household net worth can increase from new savings and investment or from an increase in value of prior investments. The current run-up is almost all from the latter, as savings rates are running at historically minuscule levels.

From 1952 through 1994, for every dollar saved, the markets tacked on $1.70. Since 1994, the market run-up has added $4.40 for every dollar saved as first the Internet stocks bubble and now the dramatic rise in real estate values inflated net worth.

And all of the run-up is in assets that do not make the country any more productive.

"The true measure of an increase in the wealth of a nation is the growth in its capital stock," Kasriel writes, referring to all the durables in the economy from drill presses to houses to cars. "In recent years, growth in our capital stock has slowed and the composition of the slower growth has moved in favor of McMansions and SUVs, which do little to increase the productive capacity of our economy."

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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