State of the Union: Not Very Happy

I normally don’t "do" politics, except where it intersects with the Economy and with Markets.

As such, I expected last week’s State of the Union address to be a
non-issue. The President has little political capital left to initiate
any major new programs that are potentially Market moving; Its arguable how much he even had once he won
re-election. My read of it was that a) the electorate was uncomfortable
switching riders in the middle of a war; and 2) the alternatives were not
all that compelling.

As far as markets are concerned, the key element here is Sentiment: As
we have shown in the past, 75% of gains in the last Bull Market were
due to P/E expansion. Thats a purely psychological phenomenon.

The ongoing political risks to the market are: 

Tax Cuts — the stock market likes them short term, but the bond market is all too aware of the impact of deficits on inflation;

Foreign affairs — Iraq is a continued drag, both economically and psychologically, while the WMD development in Iran is roiling the oil market;

GeoPolitical — The Muslim uprising in Europe raises strong
questions about future  integration issues; Ongoing unrest could be
problematic for the EU; Colleagues in Europe — Amsterdam in particular
— claim this is merely the tip of the iceberg, and is only going to
get worse;

Boomer Issues — The failure to deal with the rising costs of Social Security and Medicare is an ongoing problem; The country does not want a vast overhaul — they want the programs funded. This will also be an ongoing market issue. 


click for larger graphic


Complicating matters is the ongoing drop in the President’s approval ratings: The WSJ noted: "PRESIDENT BUSH’S approval rating, according to various opinion polls, has dropped in recent months, but the decline is just the tail end of a steady drop since a high point shortly after the Sept. 11 attacks."


Polling Data: President Bush Approval Ratings


Courtesy of WSJ


Note: Each colored line tracks positive answers to each poll’s key question on presidential approval rating:

NBC News/Wall Street Journal: In general, do you approve or disapprove of the job that George W. Bush is doing as president?

Harris Interactive:
How would you rate the job President George W. Bush is doing as president – excellent, pretty good, only fair, or poor? (Approve comprises excellent and pretty good.)

Washington Post/ABC:
Do you approve or disapprove of the way George W. Bush is handling his job as president? Do you approve/disapprove strongly or somewhat? (Results are "net approval" responses.)

CNN/USA Today/Gallup: Do you approve or disapprove of the way George W. Bush is handling his job as president?

AP/Ipsos: Overall, do you approve, disapprove or have mixed feelings about the way George W. Bush is handling his job as President? (Results are "net approval" responses.)



Public’s Focus Is Health Care, Troop Cuts in Iraq
Poll Shows Clear Demands That President Will Face For State of Union Speech
January 31, 2006; Page A4

NBC News/Wall Street Journal Survey
January 2006

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What's been said:

Discussions found on the web:
  1. B commented on Feb 7

    Oh come on! Post some politics and you’ll get more traffic. No one agrees on politics and nothing brings out more emotion. I’ll start if off. lol.

    Does anyone else feel conflicted about Bush? I truly believe he is a good guy and I think he really cares about people. That said, his leadership skills are awful.

    Bush would be a better leader of the Chinese Politburo. His style is command and control. You are either with me or against me. He immediately polarizes the nation on every topic. He’d have been a good head of the East German Stasi. I did vote for him the first time because Al Gore made me physically nauseous with his elitism.

    Good leaders find a way to bring all people on the team together. Good Presidents find a way to unite a nation under a common mantra or message. Ronald Reagan was the greatest President of my adult life. Peggy Noonan’s book “When Character was King” exposes a man who knew how to win the political game. Give Tip O’Neill and the Democrats their due and work cooperatively behind closed doors to craft a policy all could live with.

  2. royce commented on Feb 7

    Aside from uncertainty over a possible war/military action in Iran or elsewhere (which is one type of uncertainty I think the market really dislikes since it’s got so many permutations), the political risks involved all revolve around the continued failure of republicans to deal with spending issues in a realistic way.

    We know the democratic solution to budget issues: raise taxes. But Bush and the republicans can’t seem to deal with the reality that they have to drastically cut popular social programs to pay for the tax cuts, or they need to raise taxes. That’s one reason why we keep hearing these CATO Institute-inspired pipe dreams about providing services that won’t cost much money (much like the war in Iraq was going to be self-financing through oil revenues). Bush is basically the “free lunch” president on economic issues, and the market isn’t buying any of it.

  3. JWC commented on Feb 7

    Actually, I think the market is buying the “free lunch” business. Many of the market guru’s fall within the upper percientile of income and they are doing very well, thank you.

    Come out here in middle America, and it isn’t so wonderful. There is angst. Worry over jobs. More bills at the end of the month.

    I worry about the future we are building for my grandkids… And I worry that even sensible and honest commentors like Barry don’t want to take on the issue of where our so called “leaders” are leading our economy.

  4. B commented on Feb 7

    Then vote these arseholes out and put someone in there that is a prudent fiscal leader and someone who can heal the country’s savage bickering. That’s what I plan to do. I already wrote my Republican Senator and told her she was feeling a little too comfortable playing games with our future and she shouldn’t plan on my vote. I suspect she’s received alot of those because she’s backed off of her midterm support for the Prez’ plans. Funny how that works.

    And I can’t believe your comments Royce. A true partisan? The Republicans are the tax and spenders. I see more Democrats showing concern over runaway spending than Republicans. And the Republicans created a hell of alot more messes than just spending too much. The list is too long to type. If you are still supporting the Republican party without question, you need to wake up and smell the coffee. Ever tried Zoka? Highly recommended. lol. Give Me A Libertarian Or Give Me Death. Someone could always blame the other party when there was shared control but the Republicans have made this mess all by themselves. And might I say, they get an A+.

    Tell me why, oh why, we are spending $500 billion a year on defense when the rest of the world combined spends less than that? All while we are going bankrupt. I’m not so cynical but I’m beginning to buy into these Military/Industrial complex conspiracy theories. And we have Rumsfeld publicly chiding the Chinese for spending more on defense. It all disgusts me.

    One thing I am confident of is our future leaders will not be a repeat of the monkeys we now have running the zoo. I tend to think the majority of people are sick and tired of being sick and tired.

  5. Dean commented on Feb 7

    B for President.

    The Republicans have become even more profligate spenders in their quest to retain power, rather than govern based on their principles. Those of us that voted for small-government Republicans aren’t going to be fooled again.

  6. royce commented on Feb 7


    Does the phrase “CATO Institute-inspired pipe dreams” or referring to Bush as the “free lunch” president sound pro-republican to you? On the other hand, it’s silly to insist that the dems would somehow balance a budget by maintaining social spending where it is without increasing taxes.

    Bottom line: You want services of whatever kind, you have to pay for them through taxes. That’s a fact of life no matter who is in power.

  7. Bryan Price commented on Feb 7

    As an old boss pointed out to me a while back, once somebody gets into office, they no longer are a D or an R.

    It’s too damn expense to run for office. There will be paybacks. And it will come out of the public coffers.

    The level we were talking about was the state level. The federal level has to be a magnitude worse. Am I surprised about what’s happening with Halliburton, and Abramoff, and any other kind of financial scandal? No, not really, I just wasn’t expecting it to be quite that brazen, and it’s been pretty brazen. I’ve been absolutely amazed at the growth of the state’s budget for somebody that was elected on holding state expenses back. The fact that he is ranked in the bottom of governors approval right now isn’t a surprise, I guess.

    The only real difference I see between the Ds and the Rs (in this respect), is that the Ds typically try to make their paybacks through government services (entitlements) while the Rs make their paybacks through tax breaks and other non-entitlement spending.

    And the real bugger is, I don’t see a solution. Anybody that could possibly actually hold the line on either spending or taxes (let alone both) either won’t run because they don’t think they could actually make it work, or can’t run because they won’t get the neccessary funding to run an effective campaign.

    “Fiscally responsible” is an oxymoron in government.

    It’s going to get worse before it gets better, I don’t care who you are pulling for, regardless of who gets elected.

  8. Reyburn commented on Feb 7

    Social security and Medicare? What about healthcare broadly??? Lower labor participation + anemic growth + cutbacks = a train wreck waiting to happen. One wonders what the backdrop & time frame was to the implementation of social security relative to the markets of the 1920s & 30s.

    Can you imagine Congress trying to foist healthcare reform via mandates to employers???? I see this as protracted denial and economic malaise ala a much earlier time.

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