One on One with Tom Gallagher, Political Economist at International Strategy and Investment
Wednesday, November 05, 2008
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SUSIE GHARIB: Back now to our top story, the economic and market impact of the new administration of President-Elect Barack Obama. Joining us with more analysis, Tom Gallagher. He's political economist at International Strategy and Investment. Hi, Tom.
TOM GALLAGHER, POLITICAL ECONOMIST, ISI GROUP: Hi.
GHARIB: Tom, as you heard from all of our reports, everyone wants to know who is going to be on Barack Obama's economic team. So how soon do you think he's going to name his Treasury secretary? And who will it be?
GALLAGHER: I think there are a lot of indications that that will possibly be his first cabinet appointment. The first thing he wants to do is get a chief of staff in place. I expect within the week, we'll probably know who the Treasury secretary designate is going to be. All I can tell you is what the names are that are out there. Larry Summers, the Treasury secretary at the end of the Clinton administration, Tim Geitner, the New York Fed president are the top two candidates. And beyond that, I'd be surprised if it's somebody else. I think a lot of the other names that have surrounded Obama during the campaign like Volcker, Rubin, Buffett, I think they're all unlikely to have formal positions in the administration.
GHARIB: So Larry Summers and Tim Geitner possibilities, are they good choices to fix the economy and restore investor confidence?
GALLAGHER: Well, I think so. I think both will be great choices. Larry Summers was very early on the GSEs. If you look at what he was writing back in the summer about what the next policy steps should be, he really had it all nailed as far as a TARP-like proposal. Tim Geitner has hones his crisis management skills in a couple of different crises now. So I think they would both be strong.
GHARIB: As you know, Congress has been considering all sorts of different stimulus packages. Do you think that President-Elect Obama will be able to put his mark on any stimulus action?
GALLAGHER: Yes, definitely. One of the errors I think so many of the comments on your show so far underscore that markets and voters really aren't going to have a lot of patience for the technicalities of a two-and- a-half month transition. They'll want to see the -- President Bush and President-Elect Obama working together. I think one of the areas where that will be important and will be a challenge is on a fiscal stimulus measure that Congress is likely to take up in a lame duck session. My guess is that we'll see something like Darren described in his reports earlier, a down payment on a bigger stimulus bill that's likely to pass sometime next year. So I think in November there will probably be in agreement on a package, maybe around $100 billion, that will serve as a transition until the bigger economic measures that President-Elect Obama will propose early next year can take effect.
GHARIB: The other big issue that everybody has a question mark about is Obama's tax policies. Realistically what can we expect? Will he raise taxes in his first term or in his first year?
GALLAGHER: I think taxes are going up in the first term. I think they'll probably legislate the tax increases in the first year. That will probably be seen as a way to reassure markets that the jump in borrowing, the huge increase in borrowing is just going to be temporary. It will be a message to markets that they'll try to bring deficits down. As to when those tax increases will take effect, I think that's harder to say, 2010, probably 2011 but not next year. I think it's quite unlikely that the tax increases will take effect in 2009.
GHARIB: Looking at the Federal Reserve there are a couple of vacancies currently. What kind of people do you think President-Elect Obama will appoint and will he reappoint Fed Chairman Bernanke for another term?
GALLAGHER: Those are big questions. I think some of the most important questions because so many items on the Democratic agenda look to have inflationary effect so what Obama does with the Fed will be really important. I think there's been a clear trend over the last couple of presidencies to take politics out of the Fed. So I don't expect Obama to try to steer the Fed in a more populist direction. I think he'll appoint kind of the macro economic heavyweight banker probably to the Fed. And if I had to guess right now-- and it is really just a guess-- I would bet that he would reappoint Bernanke. A lot depends on how the Fed does over the next several months in handling the financial crisis, but I think in particular Bernanke's crisis management skills have been recognized by Democrats and would be rewarded. But there's no question Obama will have an ability to put his imprint on the Fed in the first year.
GHARIB: All right, real quickly. For investors who want to rearrange their portfolio based on this election victory, what is the top stock sector that they should put money into in an Obama presidency and what's a sector they should avoid?
GALLAGHER: I think infrastructure and alternative energy combined are the big winners. The losers are big pharma and managed care companies and traditional or conventional energy producers.
GHARIB: Thank you for that quick answer. We'll have to get back to you for more details. Thank you so much, Tom, for coming on the program.
GALLAGHER: Thank you, Susie. Thank you.
GHARIB: My guest tonight, Tom Gallagher, political economist at International Strategy and Investment.
