I wouldn't ask my advice if I were the President.
What do I know?
The issue is what does anybody know except they are sick of high unemployment and the rising deficit. The sheer cost of the health care plan seems to have scared the independent voters in Massachusetts. America has not fallen in love with Republicans. They have fallen out of love with lofty speeches, ambitious goals, and the "establishment" and will vote anybody out of office who gets in the way. The Republicans though are now dreaming and thinking they could recapture the House in November.
The arithmetic is daunting, but if incumbent Democrats keep dropping out it might be possible. Kevin McCarthy, the Republican's House political strategist (so take it from the source) figures another six Dems will retire which would bring the total to 17. The Republicans need to win 40 seats to gain control of the House. At the moment there are 256 Democrats serving. Even if the world is breaking in your favor on all fronts it is very rare for 10 to 15% of a Party's incumbents to be defeated. The momentum of voters to go with the incumbent is strong. But the Republicans think they can get 25 to 30 seats that way and the balance would have to come from seats being vacated by retirement that would be hotly contested. A bunch of Republicans - 14 at last count - are also retiring so the odds still favor Democratic control of the House come November.
But it is getting close enough to be focused on it.
The Vice President's son, Beau Biden, has opted not to pursue his Father's Delaware Senate seat and a popular former Republican Governor, Mike Castle, is now strongly favored.
The Democratic Party can't have the V.P.'s son defeated.
And, today, the President has no coattails to speak of. The percent of Americans who disapprove of the job he is doing has quadrupled to 44% from 12% not long ago. He has, however, overseen an economic recovery and while his political foes don't want to give him credit, they would be fast enough to blame him had things gone totally sour. He has recommitted to the war in Afghanistan and has taken enormous steps to rebuild America's image in the world. But Copenhagen was an embarrassment two times. The first when he pitched the Olympics (was he paying back old Chicago debts?) and then the disaster that was the clean air summit. Reaching out to North Korea, Iran, Cuba, Venezuela (that lunatic, Chavez, is now referring to our President as "the devil". Wasn't that Bush?), Russia, and China hasn't worked. Mr. Obama appears to believe, as Bret Stephens says in his Tuesday Wall Street Journal column, "too much in the power of charisma itself, and specifically too much in his own."
It is not too late for Mr. Obama and the Democrats.
President Reagan fished in these troubled waters and his Presidency was resurrected. But if the Democrats don't reclaim some high ground, Obama's Presidency will stay in trouble and a President in trouble is never good for the market. He said he would end the war in Iraq, bring health care to all Americans, pass a cap and trade system to curtail global warming. and close Guantanamo. None of it happened. What he needs to do now is to make a strong, bold statement on curbing the deficit and introduce fiscal restraint and maybe say something like the budget would be balanced ex interest costs. The recent proposal in Tuesday's paper is a start, but it addresses only 17% of the budget.
The other big theme of the State of the Union speech has to be jobs and how they might be created. The U-6 measure of unemployment is 17% and the proportion of long term unemployed is at its highest ever. Be it government grants or targeted tax cuts, additional infrastructure spending, or more state and local aid, the priority of his Administration has to realign itself with voters concerns. Most are happy with their health care and are not in a mood to pay more in taxes or see their benefits reduced to help others. That might not be nice or noble, but it is reality.
An even bolder step would be for the President to reach out and engage the Republicans on an issue dear to them. If he were willing to take on tort reform for example he might be able to build a coalition on health care. Such a move would have to be worked back door so it wouldn't prove an embarrassment if it failed and Emanuel might not be the guy to negotiate. But they have capable people who haven't alienated both sides of the aisle.
Back in the "safe "world of stocks, AmerisourceBergen (ABC, buy rated, recent price $27.73) reported earnings Tuesday morning. ABC's principle business is drug distribution. The company earned $.52 for fiscal Q1 of 2010. Soleil's A.J. Rice had been estimating $.45. The beat came from better top line growth, some generic drug launches, and positive operating leverage. The company bought $145 million in stock during the quarter and reiterated its goal of acquiring $350 million for the year. Free cash flow should be in a range of $500- $575 million for the year. The company currently has about $1 billion in cash on its balance sheet. A.J. has raised earnings estimates for both this year and next. Calendar year 2010 is now $2.01 and calendar 2011 has been raised to $2.23. A.J. feels the stock is worth 15 times his forward year estimate , or $34.
Alan Gould is recommending News Corporation (NWSA; buy rated, recent price $12.72) both as a "short term trade and as a longer term investment." He expects management to "meaningfully" increase guidance on its conference call next Tuesday. The advertising environment is improving and ratings in the cable division (half of operating income) and broadcast businesses have been strong. The film division should be especially strong (Avatar) and the newspaper business is improving.
News Corp is the most global of the major media businesses and its cable networks are the most rapidly growing. Rupert Murdoch has been the "most adept manager transitioning from old media to new media." The stock trades at 13.4 times Alan's 2010 calendar estimate and 5.6 times EV/EBITDA. Other large media companies trade between 7 and 8 times EV /EBITDA. His price target is $16.50.
Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.