Obama Embraces Business Agenda on Exports, Roads, Taxes
Comment of the Day

January 26 2011

Commentary by David Fuller

Obama Embraces Business Agenda on Exports, Roads, Taxes

Here are some brief items and comments from the President's State of the Union address, reported by Bloomberg:
President Barack Obama embraced much of the business community's agenda last night, calling for progress on stalled trade pacts, investments in roads and education, reworking the corporate tax code, and freezing discretionary spending to cut the deficit.

The pledges in the State of the Union address by Obama, who tussled with business groups during the first two years of his term, match requests by chief executive officers from Verizon Communications Inc., Honeywell International Inc. and JPMorgan Chase & Co. in a report they presented to the administration last month.

Obama "has put an olive branch out to business, and it seems like a sincere offer," said Jim Kessler, vice president for policy at the Third Way, a Washington-based policy group that describes itself as moderate. "The president seems to be focused on growth and making business a partner, not a foil."

With Republicans taking control of the House of Representatives and U.S. growth still sluggish, Obama said his proposals were aimed at creating jobs and reorienting the economy to confront challenges from abroad.

On education:

Obama said the nation faces a "Sputnik moment." It was a reference to the Soviet Union's launch of the first satellite in 1957, a wake-up call that spurred a surge in U.S. spending for math and science education, and created the National Aeronautics and Space Administration.

Today, fewer than half of U.S. students are proficient in science, renewing questions about the country's global competitiveness, the Education Department said this week, citing the 2009 National Assessment of Educational Progress.

The president pledged to add 100,000 teachers of science, engineering and mathematics within 10 years. He also asked Congress to make permanent a tuition tax credit that he said was worth $10,000 for four years of college.

He repeated his call to replace President George W. Bush's No Child Left Behind Law, and to give schools more flexibility in demonstrating academic progress.

The threat of too few technology graduates, such as computer scientists and software programmers, worries Dale Meyerrose, vice president of cybersecurity for federal contractor Harris Corp., a communications-equipment manufacturer and computer-network management company based in Melbourne, Florida.

"How long is it going to be before we are held hostage by having to get either technology or skills from some place other than our own country?," Meyerrose said in an interview before the speech.

On energy:

Obama said he seeks to increase U.S. electricity from "clean" power sources to 80 percent by 2035, part of a plan to cut reliance on fuels such as oil while expanding the use of nuclear energy and natural gas.

The president failed last year to push energy and climate- change legislation through Congress, forcing him to find new ways to reduce U.S. dependence on foreign oil and limit greenhouse-gas emissions linked to climate change. Obama said he will seek to boost renewable-energy investment by more than 85 percent, funded partly by ending about $4 billion a year in tax subsidies to fossil-fuel producers led by oil and gas.

"The president's clean-energy goals are highly ambitious, but likely achievable with aggressive technology policy," Paul Bledsoe, a former White House energy aide in the Clinton administration, said in an interview.

Obama, unlike last year, didn't mention expanding offshore oil and gas development. The American Petroleum Institute, a Washington-based trade group for oil and gas companies, called the omission a "missed opportunity.'

''The president focused on job growth through federal spending but was silent on one of the best ways to create jobs: allow more energy development,'' Jack Gerard, the group's president, said in an e-mailed statement.

''Natural gas and renewables are important components of our energy mix, but we will need our nation's vast oil resources for decades to come."

"The president has had it in for the oil, gas and coal industries," Representative James Sensenbrenner, a Wisconsin Republican, said after the speech. Obama's proposal would drive up the costs for energy and make U.S. companies less competitive, he said.

The president's call to end tax preferences for oil, gas and coal producers renews an appeal that failed a year ago.
Obama also will set a goal of putting 1 million advanced- technology vehicles on U.S. roads by 2015, setting the U.S. on a path to cutting oil consumption by 785 million barrels by 2030.

David Fuller's view By most accounts and judging from news clips, it was a rousing speech which we have learned to expect from this president. More importantly, it was sufficiently bipartisan to gain overall approval and reassure markets.

Every journey begins with a single step but the USA has a long way to travel in terms of education, infrastructure overhaul, incentive taxation and energy policies, before the country can regain its relative competitiveness of the last century.

Lofty goals such as the cut in oil consumption by 2030, mentioned immediately above, are superficially pleasing but almost entirely dependent on the policies of future governments. It would be more reassuring to see sensible goals which can be achieved during President Obama's terms in office, assuming that he is re-elected in 2012.

Regarding 1 million advanced-technology vehicles on US roads by 2015, also mentioned immediately above, this was short on specifics. T Boone Pickens, among other practical businessmen and energy experts, have pointed out the vast reduction in oil imports that could be achieved if new, large trucks were required to run on natural gas rather than petrol. Thanks largely to shale gas technology, which the US invented, America has at least 20 years of abundant natural gas which is considerably cheaper than the crude oil currently imported.

What influence might these programmes have on long-term investments?

Few Fullermoney themes are more important than industrial resources and the USA's infrastructure overhaul will add demand to a sector where developing (progressing) economies have made most of the running over the last decade.

The energy portion of resources will remain vitally important for at least as long as we can peer into the distant future, particularly if you agree with the economic supercycle hypothesis advocated by Standard Chartered, as I mostly do.

Technology will continue to play an increasing role in most aspects of our lives.

Recently, sentiment towards equities has been tested by some understandable profit taking, plus concern over higher interest rates due to inflation, particularly regarding food prices. This affects consumers in emerging economies more than in the West, as the former pay a higher proportion of their income on food.

Consequently, the fashion shift evident on price charts since last November, away from Asia and towards western leaders such as the USA and Germany, continues. This is a positive development because it underscores that western multinational companies, leveraged to the global economy, are thriving in most instances as Fullermoney has long maintained.

Meanwhile, a positive Wall Street leash effect, whenever it persists, will continue to cushion downside risk in most other stock markets during their mean reversion process towards medium-term uptrends represented by the 200-day moving averages.

A click through weekly charts, where the 200-day MA is shown, reveals that a number have already approached their mean, as you can see with Indonesia. The region of the rising MA is a support level in a cyclical bull trend, more often than not and particularly for the better overall performers.

Pauses and especially pullbacks over the last few months are improving valuations for these former leaders. Their superior economic performance and higher rate of corporate profits growth should lead to another period of relative strength in the medium to longer term, provided that interest rates do not rise too much.

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