Media Appearance: Kudlow & Company (1/31/06)

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Tonight’s media appearance will be Kudlow & Company. I will be on from 5:20 to 6:00 pm, along with Cult of the Man Cow President Noah Blackstein, John Rutledge, and Gene Henssler. I imagine the Fed Meeting and statement will be discussed extensively.

Also appearing:  Washington Post columnist E.J. Dionne and politico Terry Jeffrey discussing the SOTU address.

I rarely do the political thing (I’m an Independent), but here’s my overview:

• The President has little budgetary room — and even less political capital — for any grand projects;  If he can extend his tax cuts, it would be a big victory;

• I would love to see some sort of a capital gains tax cut for the development of alternative energies; Sending lots of $$$ to the Middle East  works against our National Security interests;

• Bush’s re-election was not a mandate, but (IMO) a decision by the electorate not to change horses or riders during a War; It also speaks to his challenger’s relative lack of appeal;

• Ironically, the President gave nearly that exact same advice to Hammas:  Not a mandate, but a repudiation of your opposition;

• He is almost — but not quite — a lame duck;

• There is a small but increasing chance the GOP will lose control of one house  of Congress.

As far as the market is concerned, we have seen much better performance under a mixed government than with single party rule.

When Republican President Reagan was forced to deal with Democratic House Speaker Tip O’Neill, and when Democratic President Clinton had to deal with Republican House Speaker Newt Gingrinch, it forced all involved towards the Center — where Mr. Market likes them.

In each of these instances of divided government, Markets did well. Why? When politicos grit their teeth and learn to work together, good things happen. Each side cuts the other’s desires by claiming fiscal prudence: Taxes get cut, spending gets cut, budgets get balanced, good things happen.

The one divided government caveat: just about all of the 4 terms of the Reagan and Clinton divided government market gains came during the 1982 – 2000 Bull run.

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