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Conclusion: President Obama’s post mortem on the midterm elections on 60 minutes on Sunday night provided some insight into policies that we could see evolve over the next couple of months as it relates to taxation, stimulus, and housing.

 

In the note below, we’ve highlighted some key takeaways from President Obama’s recent interview on 60 minutes with Steve Kroft.  Below are the actual quotes, and we’ve provided our interpretation of the President’s statements.  We would expect more insight in our discussion with Peter Orszag tomorrow, but it does seem that the President intends to shift more towards the middle on a fiscal basis.

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PRESIDENT OBAMA: There are some sincere Republicans in the Senate like Tom Coburn, Oklahoma, who is about as conservative as they come, but a real friend of mine and somebody who has always had the courage of his convictions and not, you know, bringing pork projects back to Oklahoma. 

 

Hedgeye Interpretation:  President Obama seems to have learned the lessons of the midterms and will make a concerted effort to reach out to the Republicans.

PRESIDENT OBAMA:  You know I think what I would have done is to be more scrupulous about sticking to some of the commitments I had made in how to get it done. For example, I made a commitment that I was gonna make sure that the key negotiations around health care were on C-SPAN. And the truth of the matter is that, you know, you have five different committees over there that are working on it.

 

Hedgeye Interpretation:  President Obama believes one of the failures of his first two years was the promise of transparency, so look for more transparent governing in the coming two years.


PRESIDENT OBAMA:  I had a conversation here in the Oval Office with Warren Buffett, who remains very optimistic about America's long term prospects. And he said, "Look, let's take the housing market, which is about as big of a drag on the economy as anything." He said, "We overbuilt for a lot of years. Now, we're underbuilding to soak up that inventory over the course of several years. More new families are gonna go out there and start buying homes. And slowly housing prices are gonna stabilize. And these foreclosures are gonna end and things are gonna pick up." So, some of it is just a matter of the economy recovering from a real trauma, a real body blow.

 

Hedgeye Interpretation:  It seems that President Obama may be leaning towards a more market based solution to a recovery in housing, which is that over time supply and demand will come back into balance; rather than further government intervention.

KROFT: Congressman Boehner is the next Speaker of the House, most likely, offered you a compromise back in September. He suggested extending the tax break for the wealthiest for two more years. And rolling back discretionary government spending to levels before the bailout in 2008. Is that something that you could live with?

PRESIDENT OBAMA: I think that when we start getting specific like that, there's a basis for a conversation. I think what that means is that, you know, we can look at what the budget projections are. We can think about what the economy needs right now. Given that it's still weak. And hopefully, we can agree on a set of facts that leads to a compromise. But my number one priority coming into this is making sure that middle class families don't see their tax rates go up January 1st.”

 

Hedgeye Interpretation:  Taxation policy will likely include some form of an extension of the Bush tax cuts, and will likely be more to the middle than we would have expected even a couple of months ago.   We would expect Obama to give in to Republican wishes and kick the can down the road over the next two years.

PRESIDENT OBAMA: The truth is that the way this thing works out, it's folks who are millionaires and billionaires who get the biggest breaks. And, you know, if you talk to Warren Buffett, he'll tell you, "I'm not gonna buy somethin' because of a tax break, because whatever it is I need, I can already afford." And the same is true for me. And the same is true for you.

 

Hedgeye Interpretation: While Obama might cave to the Republicans on taxation, it will be a negotiation and he will have the likes of Warren Buffett supporting his case.

PRESIDENT OBAMA: Well, it wasn't because The Recovery Act didn't work; it's because the modeling, in terms of what to expect where unemployment would go to, turned out to be wrong. So, you know, I don't wanna pretend like I've got a crystal ball.

 

Hedgeye Interpretation:  If you want to know why Christina Romer is back at Stanford, now you know.  Her models were wrong.  This explicit call-out suggests that Obama will hold more of his cabinet accountable to specific goals, especially on the economic front. 

Daryl G. Jones
Managing Director