This note was originally published at 8am on May 29, 2015 for Hedgeye subscribers.
“Government spending is taxation. When you look at this, I’ve never heard of a poor person spending himself into prosperity; let alone I’ve never heard of a poor person taxing himself into prosperity.”
Hedgeye Early Look reader and friend Governor George Pataki officially threw his hat in the ring last night for the Republican nomination for President. The political punditry is by and large calling him the darkest of dark horses. And who knows, maybe they are correct – Governor Pataki has been out of public for nine years, currently is not well funded, and is centrist among Republicans.
The reality remains, though, that the Republican is currently ripe for a new face. Someone that is above the fray and perhaps, on some level, embodies the “disinterested statesmen” that was originally envisioned by the Founders as a key characteristic for the Presidency. The Republican race also needs some plain talk and who better to offer it than a candidate that has little to lose.
As a Canadian citizen, I can’t actually vote, so I’m no danger to any of you partisans out there, but a more centrist Republican who is trying to push the party beyond social issues and hasn’t been directly involved in the massive buildup of the federal government over the past ten years will be appealing to some. The central tenet in Pataki’s launch video is a focus on government as the problem.
Certainly, a lot of politicians and political candidates pay lip service to reducing the size of the government, while few actually follow through. If there were ever a time for follow through it is 2016, a year in which the federal government’s spending will be over $4.0 trillion and government debt will accumulate to $23.5 trillion. Undoubtedly one point that all of us can agree on is that governments are the most ineffective allocators of capital.
Back to the Global Macro Grind...
Staying with the theme of the Presidential race this morning, there is one big challenge facing Pataki or any Republican – Hillary Clinton. In the race for the Democratic nomination, she has a staggering lead of 51 points in poll aggregates over the second nearest candidate Elizabeth Warren. Meanwhile versus the large Republican field, Clinton outpolls the top contenders by between 8 and 10 points.
So, what, if anything, can stop the Clinton coronation? Well, as we touched on it a note a few weeks ago, there are a number of legitimate headwinds to a Clinton Presidency. The top four headwinds we see are outlined below:
1. The Clinton Foundation - This risk is the most topical right now given the current scrutiny the Foundation is receiving thanks to Peter Schweitzer’s book, “Clinton Cash: The Untold Story of How and why Foreign Governments and Businesses Helped Make Bill and Hillary Rich.” It is also very likely an issue that will not go away. On some level, whether the Clintons acted ethically as it relates to the Foundation is irrelevant because there is enough fodder that it will allow Republicans to continue to keep the heat on the Foundation. To the extent the scrutiny accelerates, the Foundation has the potential to become Clinton’s “Swift Boat” moment.
2. Likeability (and accessibility) – Since announcing her candidacy more than 45 days ago, Hillary has limited interaction with the press. Whether this lack of accessibility is ultimately perceived as a lack of a common touch (think Hillary going into Chipotle wearing sunglasses and not leaving a tip) remains to be seen. However, her favorability has taken a steady decline since she left office as Secretary of State in February 2013.
3. Bill’s Gaffes – While there is no question that Bill Clinton is one of the most talented politicians of his generation, there is also no question he is (and maybe increasingly so) prone to putting his foot in his mouth. In today’s hyper-plugged in digital world, where no one is safe from a rogue iPhone recording a candidate’s every word, this may pose a delicate challenge for the former commander in chief.
4. Benghazi (and general track record) – In aggregate, Hillary Clinton’s role as Secretary of State is regarded favorably and without much controversy with one big elephant-in-the-room exception – Benghazi. This was of course the unfortunate turn of events that led to the deaths of U.S. Ambassador J. Christopher Stevens and three other Americans when the U.S. diplomatic mission in Benghazi, Libya was attacked.
We are going to reserve analysis of the events, but believe this will become a major thorn in her side, especially as it gets into the nitty-gritty of the campaign post the nominating conventions. The downside of having a track record is that it can and will be scrutinized. With the eventual planned releases her emails as Secretary of State, her record will be subject to accelerating scrutiny.
Certainly, if the election were held today, it is hard to argue that Clinton would likely win in a landslide. But whether it is the emergence of a new Republican contender or a current front runner breaking from the pack, the polls will narrow into Election Day as they always do.
For Clinton specifically, as touched upon above, her favorability ratings continue to decline. Currently based on poll aggregates, 47.8% view her unfavorable and 45.9% view her favorably. These are her worst readings since 2009.
Make no mistake about it: there will be a race in 2016.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.98-2.20%
Oil (WTI) 57.01-61.35
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research