This note was originally published
at 8am on September 19, 2012 for Hedgeye subscribers.
“If you put the federal government in charge of the Sahara desert, in 5 years there’d be a shortage of sand.”
I’ve used the jocular nicknames of both President Obama and Republican nominee Mitt Romney to emphasize the point that both candidates are having a tough time earning broad national respect. Before I get into a preview of our election call being held later today (we will be distributing the dial-in and materials later this morning), I actually want to acknowledge both candidates. Running for President is no easy task and both men should be given some credit for putting it all out there and taking a shot at serving the greater good.
Getting back to the race, the primary issue, which I alluded to above, is that both candidates are struggling with favorability and approval. As I’ve touched on in previous notes, President Obama’s approval rating is on par with prior Presidents that have not been re-elected. According to Gallup, the pollster that has tracked presidential approval going back the furthest, Obama’s approval rating is currently at +49. Typically the share of the two-party vote roughly equates to the President’s approval rating, so on this metric Obama is in a tenuous position.
Fortunately for the Democrats and unfortunately for the Republicans, Romney has very low favorability ratings. In the last five major polls starting in the first week of September, Romney has had an average favorability rating of +43.8. Even with meaningfully higher Republican turnout, a point I will delve into in more detail on today’s call, this is a favorability rating that is going to make the path to the Presidency challenging for Romney.
Given some of his recent misstatements, Romney does not appear to be doing his campaign any favors. As such, the media has begun writing him off over the last couple of days. Some of the more recent headlines include:
“Is This the End of Mitt Romney” –The New Yorker
“The Real Romney Is a Sneering Plutocrat” –New York Magazine
“Thurston Howell Romney” –The New York Times
Actually, now that I’ve put on my analytical lens, those aren’t really broadly representative of the media, though they are broadly representative of the New York media. The point being that while Romney has not helped his campaign with his recent comments, the interpretation from the media on the coasts and in more liberal bastions is not necessarily representative of how the broad electorate interprets these comments.
The truth is, though, that the Romney campaign, at least so far, has failed to make their candidate broadly appealing. The last few days of missteps, especially Romney’s comment about 47% of the country being dependent on the government, is likely not a death blow for the campaign, though they surely did not increase Romney’s changes of winning the Presidency either.
The most recent national polls suggest this race remains basically a dead heat. Respectively, the Rasmussen, Wall Street Journal and Gallup polls have Obama leading on average by +2. Two nights ago in a small group dinner, pollster Scott Rasmussen suggested to Keith and I that a potential wild card could be the fact that Republican enthusiasm, a proxy for turnout, may be higher than the Democrats by 4 – 6 points. If this margin is valid, it would put the race in a virtual statistical tie. (The caveat to these polls is that on other indicators, such as our own Hedgeye Election Indicator, which is highlighted in the Chart of the Day, Obama has 2/3s probability of being re-elected.)
This race is tight enough that clearly there is room for things to changes on the margin to still impact the outcome. In 2012, based on the Real Clear Politics average, Bush was up +5.9 points versus Kerry. In 2008, Obama was only up +2.0 points versus McCain. Obviously Kerry would go on to narrow the margin and Obama would go on to expand the margin. In fact, Kerry would narrow the race by +4.4 points as Bush’s eventual margin of error was only +1.5.
The Obama strategy so far has been based on playing it safe and pouncing on Romney’s errors, which have helped keep Romney’s favorability ratings low. Setting the other side’s strategy aside, Romney is actually the only Presidential candidate since 1988 to not get a bounce from his convention so this has been an easy task for the Democrats. Given that, it is likely time for the Romney campaign to stop with the personal appeals for the candidate and focus on what really matters to the electorate – the economy. In every gauge of issues, the economy dominates.
In addition, even if his language has been poorly worded, Romney’s attacks on the size and role of the government will continue to resonate with the electorate. In fact, in a recent Gallup poll, likely voters indicated by a margin of 54 – 39 that they believe the government is doing too much as opposed to not enough. More importantly, more than six in 10 independents think the government is doing too much.
For the next 50 days, Romney’s messaging should be very simply focused on getting the government out of the way to improve the economy. Potential voters may not view him favorably (yet), but these are the topics that will resonate with the electorate.
In our call later today, I will be joined by our Financials Sector Head Josh Steiner and Healthcare Sector Head Tom Tobin to discuss the potential impact on their sectors depending on who wins the Presidency and Congress. I will also touch on the outlook for some key asset classes. The big one is the U.S. dollar.
Based on what we’ve heard from some “in the know” Republican sources, Romney is toying with a massive cut in government spending on the order of $500 billion per year during his first term. We really won’t know if this is true until if and when Romney is elected, but this kind of deficit hawkishness could be very bullish for the U.S. dollar.
Even as Obama appears to have the edge in many statistical categories, this is a race that is not yet over and if the recently released video of Romney from Mother Jones tells us anything, it may be that this race is just starting to heat up. As Mao Tse-Tung famously said:
“Politics is war without bloodshed, while war is politics with bloodshed.”
Our immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1746-1785, $111.87-113.89, $78.48-79.73, $1.29-1.31, 1.75-1.87%, and 1446-1474, respectively.
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research