The MOUs Weigh In

by digby

In case you were wondering what Wall Street wants Obama to say in the SOTU, they've helpfully shared:

“It [his recent tone] suggested [that] the president is confrontational with business,” says Jeffrey Kleintop, chief market strategist at LPL Financial in Boston. "A tone that says he is open to working together, to bring the best minds together, would be welcome.”

Obama's attacks on the banking establishment rub many in the pinstripe set the wrong way. One is David Kotok, chairman of Cumberland Advisors, a Vineland, N,J., investment manager.

“I would like him to say he will stop vilifying bankers and Wall Streeters, and that he understands that many, many Americans are invested in US stocks and bonds in their 401(k)s. When he throws out mean-spirited commentary about the bankers, he is doing it to all those who are invested in them.”

Many on Wall Street expect Obama to seek another job stimulus package. But they don’t want to see another massive package similar to the $787 billion economic recovery package that Congress approved last February.

“Anything over $200 billion will be way too big, a waste of money,” says Mr. Kleintop, who suggests that the bond market would be happy with anything under $150 billion.

Cool to a spending freeze

Even before the speech, the administration has floated the idea of a freeze on federal discretionary spending, representing about 17 percent of the budget. But “Wall Street," Kleintop says, "sees right through a freeze.”

Indeed, Scott Brown, chief economist at stock broker Raymond James & Co. in St. Petersburg, Fla., says the bigger problem is entitlement programs, such as Medicare, Medicaid, and Social Security.

“A three-year freeze on discretionary spending – as Obama is proposing – does not leave you with a lot,” says Mr. Brown.

Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Ore., travels a lot in the Pacific Northwest. He says he would like Obama to soothe the fears of businesses that they are facing “massive tax increases for health and energy.”

“Everywhere I go, I hear people say they could start to throttle up hiring and increase work hours but they are afraid they will get hit with a massive tax increase.”

No new taxes

At the same time, many Wall Street economists would like to see the president suggest rolling back the tax increases that kick in with the expiration of the Bush tax cuts for relatively well-to-do wage earners, whose highest marginal tax rate will rise from 35 percent to 39 percent.

“Raising taxes is the last thing you want to do in an economic environment like this” says Robert McIntosh, chief economist at Eaton Vance, a mutual fund group in Boston. “Along with this, I don’t think it makes sense to raise the dividend and capital gains tax rates.”

Mr. McIntosh, like others on Wall Street, would also like to see Obama reduce the budget deficit. On Tuesday, the Congressional Budget Office said the budget deficit for 2010 would fall slightly, to $1.395 trillion.

“We must get it well under a $1 trillion,” says McIntosh.

First of all, the populist talk is not aimed at your friendly neighborhood financial advisor or personal broker unless they are taking million dollar bonuses from taxpayer money. These Banksters and Masters of the Universe have been utter pigs and there's no getting around the fact that this whining and moaning about how they are being unfairly treated just makes everyone see red. They really need to grow some cojones and STFU. The people down the food chain in the financial services sector are (mostly) as disgusted with this swinish behavior as anyone. It only hurts the ball team.

And the average American who has their 401k invested in the markets does not confuse themselves with Lloyd Blankfein, I guarantee it. (Unless they are a right wing dittohead who thinks that giving Rush Limbaugh tax cuts will benefit them.)

As for their policy prescriptions, I thought they were fairly restrained. Normally they would have called for total repeal of the capital gains tax, privatization of social security and tort reform so they're actually being very pragmatic in only wanting to cut social security and medicare and make the Bush tax cuts permanent. But then, they know how to negotiate. It's what they do.

And anyway, most of it's just kabuki:

Wall Street is marketing derivatives last seen before credit markets froze in 2007, as the record bond rally prompts investors to take more risks to boost returns.

Bank of America Corp. and Morgan Stanley are encouraging clients to buy swaps that pay higher yields for speculating on the extent of losses in corporate defaults. Trading in credit- default swap indexes rose in the fourth quarter for the first time since 2008, according to Depository Trust & Clearing Corp. data. Federal Reserve data show leverage, or borrowed money, is rising in capital markets.

Investors who retreated to the safety of government debt during the financial crisis are returning to the simplest forms of so-called synthetic collateralized debt obligations after last year’s record 57.5 percent rally in junk bonds left money managers with fewer options. While President Barack Obama’s adviser Paul Volcker has blamed credit swaps and CDOs for taking the financial system “to the brink of disaster,” bankers say the instruments help companies raise capital.