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We were bemused by the Obama administration's choice to run the dismantling of General Motors: Brian Deese.  Mr. Deese, based on his resume, is a 31-year old drop out of Yale Law School (he dropped out to join the Clinton campaign) who was an undergraduate major in political science, and has no ostensible automotive industry, economic, or business analysis experience.  According to a New York Times article on June 1, 2009:

"Every time Mr. Deese ran the numbers on G.M. and Chrysler, he came back with the now-obvious conclusion that neither was a viable business."

Now we are all about running the numbers, we have a ~20 person research team that "runs the numbers" daily, on markets, industries, and companies.  We think we are good at it based on years of experience at many large investment banks, hedge funds, and private equity firms, with educations from some of the top business schools in the world.  This is not to say that conventional experience is always the most appropriate, or that the Research Edge team is better than anyone else, but rather to suggest that having a 31-year old with no analytical experience "run the numbers" on one of the most complicated industries globally is a little disconcerting.

We don't engage in partisan politics in the office or in our analysis, because that is just a loser's strategy, but it is important to objectively analyze decisions made by our elected leaders, so we can have a view of what they might mean for future decisions and/or approval ratings.  Will Wilkinson from the Cato Institute wrote the following about having Deese in the driver's seat (excuse the pun):

"A fresh-faced 31-year-old, Deese dropped out of Yale Law School last year to work for Hillary Clinton's presidential campaign. When Clinton sank, Deese skipped over to the winning ship, impressed everybody who counts, and landed a desk in the White House. The big guns like Larry Summers and Christina Romer are busy cooking up hilariously sunny budget projections while trying to look like they're keeping the economy from collapsing. So Deese, armed with an undergrad degree in political science, finds the GM portfolio and the fate of millions in his hands.

Some are grumbling about Deese's lack of relevant experience. (He has driven a car and once slept in the parking lot of a GM plant!) But the real issue isn't Deese's résumé. The real issue is why anyone should have the power to "rewrite the rules of American capitalism." Unlike Deese, treasury secretaries Paulson and Geithner are men of experience. But what kind of experience could justify the immense, arbitrary power they've exercised in the wake of the financial meltdown? Experience centrally planning the global economy?"

The point is not suggest that Wilkinson, from the right leaning Cato Institute, is correct in his assessment of Deese, but rather that appointing people like Deese to such positions is going to have serious implications as it relates to the credibility of the leader's decision making process.

So far this decision to put a person like Deese in charge of the decision making process behind one of the largest bankruptcies in U.S. history does not seem to be lost on the electorate when it comes to their analysis of the administration's economic decision making wherewithal.  A recent Rasmussen Poll reported that more voters trust the Republicans now than the Democrats by a margin of 45 - 39 when it comes to the economy.  According to Scott Rasmussen, "this is the first time in over two years of polling that the GOP has held the advantage on this issue."   On healthcare, another key issue, the Democrats are also losing steam.  In May they had a 18 point advantage over Republicans and only have a 10 point lead now.

The Democrats appear to be in a position where they have the wrong man running the numbers, or at least an inexperienced one, and therefore the numbers are starting to run against them.  That said, President Obama, more broadly speaking, seems to be retaining his popularity.   On the Rasmussen Daily Approval Index, President Obama is back up to +9, which is at the high end of the range of where he has been for the last three months, despite the meaningful shift in the key issue polls, healthcare and the economy, that are noted above.

We've been expecting President Obama's numbers to weaken for months and they are impressively resilient.  To the extent that Obama and his advisors attribute this resilience to the recovery of the stock market, there will likely be implications in terms of fiscal policy in the coming months that may relate to a continued path of re-flation, or as we are calling it, "Burning The Buck."

Daryl G. Jones
Managing Director