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Last night Keith and I attended a fundraiser for Chris Dudley, who is running for the Republican nomination for governor of Oregon.  For us it was less about being politically partisan, but more about supporting friends and keeping our Hedgeyes on the political process.   While I was impressed with Chris last night, the more interesting point was the nature of his candidacy and its potential implications for additional races in midterm elections.  Chris is a Republican, but he is also the consummate non-politician.  He has never run for or held political office, though he has had successful careers in sports as an NBA basketball player, in business as a financial advisor, and in the non-profit world with his work supporting Type 1 Diabetes.

Time will tell whether Chris wins or is successful as a governor, but to the extent that candidates like Chris Dudley are increasingly successful it is likely a positive sign for the political process.  The electorate is clearly becoming disenfranchised with the career politician and voting for the party that they are “supposed to vote for”, as we saw with Scott Brown’s win in the Massachusetts Senate race.  While that win was primarily a vote against healthcare, it was also a vote against the said political establishment.  A former NBA player like Chris Dudley doesn’t necessarily represent a populist candidate, but he likely does represent what the electorate will be increasingly looking to support in this age of massive government distrust.

The next couple of days are a veritable Super Bowl of Politics and will provide us further insight into the current direction of the political winds in this country.  The major event will of course be President Obama’s State of the Union address tomorrow night.  As Keith wrote earlier this week, Obama needs a win.  While he likely won’t garner a major victory from this address, the speech will of course be an opportunity for him to set the tone for the upcoming year and potentially regain some momentum.  Over the last two days the Gallup poll has measured President Obama’s disapproval rating at 47%, which is the worst of his Presidency.  Most notable is how split his approval rating is among party lines.  According to a release yesterday from Gallup:

“The 65 percentage-point gap between Democrats' (88%) and Republicans' (23%) average job approval ratings for Barack Obama is easily the largest for any president in his first year in office, greatly exceeding the prior high of 52 points for Bill Clinton.”

Perversely a President Obama that continues on the current path, which is clearly disenfranchising both Independents and Republicans, will likely lose substantial ground for his party in the midterms, but will be good for the Buck Breakout.  This administration is more and more so being viewed as bad for the U.S. economy and by default the dollar. So the less power for the Obama administration, the better for the buck.

Earlier in the day tomorrow, both Hank Paulson and Tim Geithner will testify before the House Oversight Committee.  The focus will clearly be on Secretary Geithner and his perceived favoritism to the Piggy Bankers of Wall Street. The anti-banking sentiment, whether the profits created from the bailout are the bankers fault or not, is clearly popular politically.  As a result, both Geithner and Paulson should expect some political grandstanding in Congress tomorrow.  Ultimately, President Obama will be forced to decide how long he is going to support Geithner and how long he will accept his Treasury Secretary as a drag on his approval rating. 

The other key event is of course the ongoing Federal Reserve’s two-day monetary policy meeting, which ends tomorrow.  To some extent this meeting will take a back seat to the ongoing controversy surrounding whether Chairman Bernanke will be reconfirmed.  His term expires this Sunday, and Senate Majority Leader Harry Reid has indicated that Bernanke’s confirmation vote for a second term could come either Thursday or Friday.  While it seems that Bernanke will be confirmed, he is, much like Timothy Geithner, coming to represent the jobless recovery that benefitted the banks, but not the masses. (Currently job seekers outnumber job openings by a six to one margin.)

President Obama has an economic team that has a long history of working with the financial sector, and has implemented policy as if there were a part of the sector.  While President Obama is now backtracking and trying to aggressively regulate the banks, this too is receiving mixed reviews.  Last night Chris Dudley was asked about the President’s new proposed banking regulations and his response was basically that voters will see through this intention. In effect, “you can’t regulate banks after they have paid you back.”  He has a good point-- the opportunity to regulate, or re-regulate, was a year ago, when the U.S. government was bailing out the banking system and the system was indebted to the government.  This, ironically, was exactly what Paul Volcker recommended.  Of course, Obama wasn’t listening to him then.  Over the next few days, we will all be listening and watching.

Daryl G. Jones
Managing Director