Farrell: Bankers Beware
Chief Investment Officer, Soleil Securities
"I don't quit."
No you don't, Mr. President.
In a long, at times flat, at times inspiring speech, the President stuck to his guns and most decidedly did not take a turn to the center. With Democratic infighting raging (Nancy said that a spending freeze should extend to defense and the President had just upped the ante on Afghanistan) and his signature programs on life support, the President took a reasonable stance, doubled his bets, and carried the day. Speeches are one thing and action is another, but the speech was good to great. The tactical victory was his, but he still needs a strategic win with some legislation getting passed.
The order of topics was, I suppose, the order of priorities, so, as predicted, he has new-found religion in job creation. $30 billion of TARP repayment to community banks for lending is a small, but real step. Small business tax credits for hiring or raising pay, investment tax credits, and eliminating capital gains are also being pushed.
"Serious financial reform" was the second agenda item, and bonus payments will stay under attack. Encouraging energy innovation took a surprise number-three spot, and you could see even Republicans jump out of their seats when he mentioned expanded use of nuclear power and more offshore oil and gas development (wow to that!). He did say he was "Eager to help the bipartisan effort in the Senate" on an Energy and Climate Bill (cap and trade), but it was the last item in the energy list, which places it on the back burner. It appeared that even he knew it is dead.
The President wants us to export more.
His goal is to double exports in the next five years. Great. But if Germany, China, and India, all of whom the President mentioned as aggressive economic competitors, want to do the same, who is going to buy all these exports? This one is pie in the sky.
Investing in education is always good for applause ("The best anti-poverty program is a world-class education"), but a $10,000 tax credit for college and limiting loan paybacks to 10% of income after graduation is at least new. What wasn't new was the call for health reform. Mr. Obama said, "I take my share of the blame for not explaining it better", and "I will not walk
away from these (struggling) Americans." He continued that, "As temperatures cool, I want everyone to take another look." Two thoughts here: It does appear that, while refusing to give up, the President knows this has to go on the back-burner. Second, while it's good to be stubborn and fight, the President appears to think the issue is a problem of message and not of substance. The Massachusetts voters, and the Virginia and New Jersey voters, might disagree. They appeared to have gotten the substance and rejected it. Mr. Obama still believes in the power of charisma.
Then there was the "cut government spending, establish a toothless fiscal commission, freeze spending on a tiny part of the budget" type of stuff. Suggesting lobbyists disclose contacts and contributions and requiring legislators to list their earmark requests on web sites is a great idea, but watch how far that doesn't go. More security, repeal "don't ask-don't tell," equal pay for women, and fix immigration rounded out the speech.
I thought it was a job well done.
The one thing that had me squirming was his scolding the Supreme Court about their recent decision to allow companies' cash to flow into campaigns. I happen to agree with him on this one (not that any of you care what I think; I sometimes don't care what I think!). But it was the wrong place and the wrong message at absolutely the wrong time. Was he trying to influence/intimidate the Court? He certainly made them uncomfortable, and I am afraid of this tendency the Administration has. That is, it wants to influence heretofore independent branches. The pressure building on the Federal Reserve is troubling and incorrect, and his public attack on the Supreme Court was uncharacteristically rude and out of order.
The Administration, though, is probably celebrating a job well done. They should, but now let the battle continue.
Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.