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Conclusion: We’ve recently been reading Jonathan Alter’s book, “The Promise: President Obama, Year One”, which is a thoughtful overview of President Obama’s first year in office.  We’ll leave a scorecard of that year to the punditry and historians, but one interesting take away from the book was the management hierarchy within the Obama White House.

Our friend Karl Rove has loudly criticized the power structure within the White House based on the number of staff, which by his count is almost 3x the number of people that were in the Bush White House.  In his view, the Obama structure is very political and laden with academics.  While this could be true, Alter provides a slightly different perspective of the current White House staff.

According to Alter, President Obama took a memo from his staffers on a trip to visit his ailing Grandmother in Hawaii in late October of 2008.  The topic of the memo was who was to report to whom in the White House.  As Alter wrote:

“Under one flowchart, a dozen senior staff would report directly to the President.  This was the way disorganized Democrats always seemed to do it, going back to JFK and Jimmy Carter.  Clinton followed the pattern and it contributed to the “college bull session” nature of his early tenure.  Obama chose Pete’s other chart, the one labeled “collaborative hierarchy.”  This centralized all power in the Chief of Staff’s office so that there was no confusion on lines of authority. The new Chief of Staff would have much more power on paper than many of his predecessors.”

So despite the highly populated White House, President Obama actually has theoretically set up a management structure that is quite focused with the Chief of Staff as the real power broker in the White House.

The other key decision was obviously related to the type of person that should be the Chief of Staff.  President Obama veered away from having a full principal (according to Alter, this is a powerful elected representative or someone of cabinet rank) as Chief of Staff, and instead selected Rahm Emanuel who was considered half principal, half staff. 

The new Chief of Staff, Bill Daley, actually diverges quite widely from the half principal model as he is, in fact, a former cabinet member as Secretary of Commerce under President Clinton and also a senior executive at many corporations, including the former President of SBC Communications.  In effect, we now have a White House that has established the role for a powerful Chief of Staff, and a Chief of Staff who is very powerful.  Therefore, in evaluating future decisions of the White House, it will be important to understand the background and influence of Daley.

Daley is a lawyer by training and has been either on the Board of, or worked for: Boeing, Merck, Boston Properties, JPMorgan, and SBC Communications.  He was also President Clinton’s advisor on NAFTA.  In sum, he certainly appears to be pro-business and an advocate of free trade.  Interestingly, and perhaps not surprisingly, the appointment of Daley has seen mixed reviews from President Obama’s base. Per Wikipedia:

“Daley's appointment was "vociferously condemned" by "leading progressive voices" including MoveOn.org, Rachel Maddow and Keith Olbermann of MSNBC, while being enthusiastically supported by JPMorgan Chairman and CEO Jamie Dimon (who first suggested Daley), the Chamber of Commerce, the Third Way, and Karl Rove. The choice was questioned due to the fact that "Daley was an outspoken opponent — in public — of two of Obama's most prominent legislative items: health care reform and the financial regulation bill's consumer protection agency."

The key danger we potentially see is that Daley may be too much of a principal to be effective in this management role, which may require as much in the way of logistics as actual decision making.   The other potential issue of course is hubris.  As we reviewed this past Sunday’s morning political shows, this is the key risk that jumps out at us from the early versions of The Daley Show.

On Meet the Press this Sunday, David Gregory started his conversation with Bill Daley talking about the price of oil and uncertainty in the Middle East.  To say he was less than on his game, might be an understatement.  He seemed rattled by some of Gregory’s questions and his answers were often full of platitudes, which showed a limited understanding of core issues.

The one response that intrigued us was when Daley responded in the affirmative that President Obama would consider tapping the Strategic Petroleum Reserve (SPR) to offset rising oil prices.  While on the margin this might have an impact, the issue is not supply, so increasing supply actually has limited benefit.  In fact, currently crude stockpiles in the U.S. are 1.4% over year ago levels, which is also above the prior five year range. So, the U.S. is solidly supplied with oil.

Given this, if the White House does tap the SPR, oil prices might go higher.  For starters, the SPR only holds ~724MM barrels, so at full U.S. consumption there is only ~34 days of supply, or roughly 2 months supply if we just account for covering imports.  The point being that the SPR does not have a lot of supply and should likely only be used in a period of real extremes.  If not, the risk is that tapping the SPR could signal to the market that oil is more scarce than reality.  It is likely no surprise, as a result, that the oil price has effectively not budged since Daley’s statement.

As you think about the coming months and years of the Obama Presidency, stay tuned to the Daley Show.  Our Hedgeyes will be focused on it. 

Daryl Jones

Managing Director