DA: David Axelrod - Senior Advisor to President Obama
DG: David Gregory – Host of NBC’s Meet The Press
KM: Keith McCullough – CIO Research Edge LLC
DG: What will this stimulus plan do to ease the recession, this year?
DA: Well… I think that there will be some immediate activity… you know… let’s understand that this is the worst economic downturn since World War II… so our first mission is to slow the trajectory of it and turn it around… this will help do that – we believe that this will create 3.5M jobs… Ultimately we are going to put people to work doing the work that America needs done in energy, in healthcare, in education, rebuilding our bridges, roads… a lot of those projects are going to begin soon… but let’s be clear, it’s not going to be an overnight turnaround… it took us a long while to get into this mess, it’s going to take us a while to get out of.
KM: Axelrod is already pushing out expectations on the duration of the fix… and trying to insulate the new President’s room for error by using the same Bush fear mongering verbiage of “worst since World War II” – C’mon man, America didn’t hire Obama to make excuses – let’s step up to the plate and show some confidence in your plan.
DG: Will this stimulus plan prevent 10% unemployment?
DA: Well, that’s our hope… there is no doubt that’s what we were looking at, double digit unemployment… this should help put the brakes on that and slow it down.
KM: David, hope is not an economic process. At least say it like you mean it. You definitely did during the Presidential campaign – now it’s time to give Americans something to believe in. Or do you actually believe it?
DG: Mark Zandi at Moody’s Economy.com thinks the stimulus will create only 2.2M jobs by 2010, leaving unemployment hovering around 10% and probably forcing lawmakers to undertake another stimulus plan? Another stimulus plan?
DA: Look, let’s see how this works out… I respect Mr. Zandi, but there are all kinds of analysis by different economists saying different things… we believe the 3-4M number is an accurate number, a good guess… but there are some unknowns here… let’s give this a try.
KM: “Lets see how this works out”… “a good guess”… are you kidding me?
DG: But is it ambitious enough? Other economists like Paul Krugman say the economy is under-producing to the tune of $2.9 trillion dollars?
DA: Well… let’s see how it goes… we think this spending will have a multiplier effect and that ultimately this will pay off… this will break the hard edge of this recession… we believe this stimulus is where it should be, and we want to move forward.
KM: “Lets see how it goes”? and hope and pray that John Maynard Keynes was right – because if his economics aren’t (and Irving Fisher’s are), we’re definitely going to need to have to ask Congress for a whole lot more of them stimulus moneys come summer time… Axelrod does rhetoric – he doesn’t really do math. This is now very clear.
DG: The President said his metric is 4M jobs. If you have benchmarks along the way that are not being achieved, will you go back to Congress and ask for another stimulus?
DA: I am not going to presuppose that David. That’s a hypothetical that I am not going to deal with. We have great confidence in what we are doing here… and that’s the assumption we are making.
KM: I, David Axelrod, do not manage proactively for tail risk. I manage toward the assumptions embedded in a conclusion that I want to see… not all of the risk and scenario analysis stuff… “I am not going to deal” with those…
DG: Government outlays pay out rather slowly… do you run the risk of losing precious ground as the economy worsens day by day?
DA: Look… obviously this is a complex task administering this program… but there are a lot of projects all over this country that are ready to go, that have been vetted and cleared… and we are just waiting for funding that will begin very quickly.
KM: There is a lot of risk in the Axelrod rhetoric of “shovel ready”… it’s something that he is going to be taken to task on – but since his view is that this has all been “vetted”, he probably has nothing to worry about, right?
DG: You wanted this to be a bi-partisan package. It is not… do you think this was principle opposition, or calculated efforts by the Republican Party to rebrand themselves?
DA: I don’t know.. I think they have a point of view… the point of view was expressed in the economic policies of the last 8 years – those economic policies have not worked… that’s one of the reasons why we are in the mess we are in.
KM: Good answer by Axelrod here – this is his go to line, and the one that gave him his position of power. If he said that same line, and had Obama repeat it, for the entire 2008 campaign, how could he lose? He didn’t… but what do we do with that one liner now? Show us the change big man – show us the change we can believe in.
DG: Are you creating more permanent government spending in a debt environment, which is very dangerous for the economy of the US?
DA: Well… I think it’s sort of late in the game for folks to be raising the debt issue after doubling the debt over 8 years… most of this spending is going to be spent very quickly… rebuilding 10,000 schools is going to have a short term and long term benefit… for decades we have been deferring investments in energy, healthcare, education – let’s put people to work doing the work that America needs done…
KM: The work that America really needs done is in Financial Services. I get the politics associated with the Energy, Healthcare, Education platform… that won an election. But now that gas prices are under $2 at the pump, I don’t think it matters like it did then. Why isn’t Obama focused on getting people to rebuild Wall Street?
DG: So the lack of bi-partisanship in this bill is not a major concern to the President?
DA: First of all bi-partisanship isn’t just measured by the number of votes you get… its measured by the dialogue you have…
KM: Now, for a politician… that was a classic answer! Welcome to Washington team Obama – welcome to Washington!
DG: What does this tell you about how to approach your agenda and how you approach Republicans?
DA: Look, we’re faced with an economic emergency here, and were going to have to move forward quickly… there are a range of things that we to have to do because the country is in trouble right now… we want to move deliberately, thoughtfully… but we can’t drag our feet because people are counting on us to act in the face of this crisis…
KM: This is true. But be careful to not manage this reactively, like the Bush Administration did – as the US stock market flails, we will see if you will succumb to the pressures associated with not being popular. Being a populist won’t get you to where you ultimately need to get – move “deliberately, and thoughtfully”, if you can – I agree.
DG: The “buy American” provision… this survived in the package… the President said he didn’t want protectionist measures – what is this?
DA: First of all we want to promote American businesses, we all agree on that… there was language added to that provision that respects our international agreements… the last thing we need is a trade war…
KM: You may not want a trade war, but you are being protectionist… on the margin.
DG: But China and India are excluded?
DA: We believe that it achieves our goals without risking the kind of trade war we can’t afford right now…
KM: You may not want a trade war, but if you exclude the Chinese like this – you will get one…
DG: Was it a mistake for Geithner to issue principles and not specifics?
DA: First of all, I understand Wall Street’s reaction… they would have preferred he wheel barrowed down the center of that room with cash and say were going to take care of all of your problems – that wasn’t a practical answer… he planned to lay out a strategy – the strategy is set, and we believe it will help lead us out of the morass… and were going to fill in the details in the next few weeks…
KM: I like this answer. It’s patient and it, ostensibly, implies they have a proactive plan. Only time will tell if this is a New Reality, or simply rhetoric.
DG: So nationalization of banks is not something you anticipate?
DA: Well, we will do what we need to do… but our long term goal is to have a strong private financial sector…
KM: That didn’t sound like a no to me. I think Obama is going to let more banks fail.
DG: Is the Administration prepared to offer more bailout money to at least 2 of the Big Three (auto)?
DA: Well, of course, we need to see what they come up with this week… one thing is clear, really two… we need an auto industry in this country… but it’s going to require a major restructuring …
KM: They are going to bailout big auto, but not big shareholders or big executive comp of big auto.
DG: Can the economy withstand a bankruptcy at GM?
DA: Well, I am not going to … as I said… were going to need a major restructuring of these companies… it’s going to be something that requires sacrifices not just from the auto workers, but from creditors, from shareholders, and executives who run the companies…
KM: A simple no would have sufficed here… if the other part of the answer is that we are going to have a Big Auto “Czar”, God help us all…
DG: Senator Judd Gregg steps down – what happened here?
DA: He had second thoughts and he withdrew… and we’re going to move on…
KM: Let’s hope that the first 4 weeks of Team Obama was the low point – having second thoughts via tax evasion or guys just not wanting to be on the group hug bus of the new, new Washington DC, is not what voters in this country signed up for.
Keith R. McCullough
CEO & Chief Investment Officer