Election 2008 Where Are The Conservatives?

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
January 22, 2008

IN THIS ISSUE:

1.   Why Are Conservatives Losing Elections?

2.   How The Presidential Races Are Shaping Up

3.   New Poll Shows McCain Beats Hillary Or Obama

4.   A Few Words About Ron Paul

5.   President Bush’s Fiscal Stimulus Package

6.   Conclusions: Hold Your Nose & Vote


Editor’s NoteEarly this morning, the Federal Reserve announced an unscheduled, emergency cut in the Fed Funds rate from 4.25% to 3.50%.  That is a 75 basis-point cut in the Fed’s key lending rate, and they cut the discount rate from 4.75% to 4%.  Clearly, the Fed is concerned about the US economy falling into recession and the continued troubles in the housing and credit markets.  The latest rate cut was the largest single reduction in 23 years, and is a clear indication that the Fed has finally figured out it needs to focus on the slowing economy, and not inflation, as I have suggested for the last several months.  Analysts are now expecting even more rate cuts when the Fed holds its next scheduled FOMC meeting on January 30/31.

Tomorrow morning (Wednesday), The Bank Credit Analyst will host a live Audio Webcast (new lingo for a teleconference) in which the editors will discuss the latest market turbulence, the latest status of the housing and credit markets, their latest assessment of the US economy and their latest investment recommendations.  This should be extremely interesting and timely given what is happening in the equity markets and the latest large emergency rate cuts by the Fed.  Depending on what I learn from BCA tomorrow, I may publish a Special Edition of Forecasts & Trends E-Letter on Thursday.  In the meantime, what follows is my latest political analysis which I had planned to send you today, prior to the Fed news this morning.

Introduction

If you have been reading me for long, you know that I am a conservative on most issues, even though I am not a member of any political party.  Many of my friends and business associates are also conservatives on most issues.  With the presidential primary season upon us, most people I talk to are quite disappointed with the Republican field of candidates.  Most people I talk to don’t believe there is a true conservative among the GOP candidates, with the possible exception of Rep. Ron Paul, and he will not be the Republican nominee for president.

So why is it that there seems to be so few true conservatives in Washington today?  As you might expect, I have more than a few thoughts on this subject.  In the pages that follow, we will discuss the status of contemporary conservatism, and why the definition of conservative has seemingly changed.  Hopefully this will shed some valuable light on the current presidential race and politics in general.

Following that discussion, I will handicap the latest presidential races as they stand at this point.  You may be surprised (and perhaps disappointed) to learn that the latest USA Today/Gallup poll shows that John McCain is the only GOP candidate that can beat Hillary or Obama in November.  That is a startling thought!

Finally, with the economy slowing down rapidly, along with continued bad news in the housing/credit markets, there is widespread pressure for the government to “do something” in the hopes of heading off a recession and millions more home foreclosures.  Last Friday, President Bush announced a $145 billion “fiscal stimulus package” which is not needed, in my opinion.  I’ll tell you why in the pages that follow.

Obviously, we have a lot to cover this week, so let’s get started.

Why Are Conservatives Losing Elections?

Some political analysts believe the Republicans will lose more seats in the House and Senate this year.  The question is why.  For years, polls have shown that a majority of Americans consider themselves to be conservatives rather than liberals.  So why then did so-called conservative candidates take such a drubbing in the 2006 mid-term elections, when Republicans lost seven seats in the Senate and 31 seats in the House, thereby giving the Democrats majority rule in both houses of Congress? 

The definition of “conservative” varies widely, but here is what are generally considered to be the main conservative values and positions: 1) smaller government and limited regulation; 2) balanced budgets; 3) free markets and trade; 4) lower taxes; 5) strong military; 6) pro-life; 7) strong moral values; and more recently, 8) sealing the US borders to stem illegal immigration. 

On the subject of illegal immigration, conservatives are divided about what to do with the estimated 12+ million immigrants who are in the US illegally.  Some conservatives would prefer that these people be rounded up and deported, but most have no idea how difficult or impossible this would be, or what the enormous economic repercussions would be – can you say recession?  But on balance, I think many conservatives would be satisfied if the borders were really sealed, even if the current illegals with no criminal records were allowed to stay given certain conditions.

Given these positions, and the fact that more Americans consider themselves to be conservatives than liberals, why are the Republicans continuing to lose in the elections?  Consider this: 1) could it be that many of the so-called conservatives in the Congress and even the White House are guilty of moving toward the center ideologically; or 2) could it be that so-called conservative voters in general have moved toward the center?  Unfortunately, it may well be both.

Think back to 1994 when the Republicans steamrolled the Democrats and took majority control of Congress.  The Republicans wasted no time in demonstrating that not only would they not reduce the size of government, and also that they could deficit spend with the best of the Democrats.  Then along came President George W. Bush in 2001, with his so-called “compassionate conservatism.” 

While Bush initially attempted to reach out to the other side, starting with writing the education bill with Ted Kennedy, he got his teeth kicked in by the libs.  Thereafter, he disappointed conservatives time after time with his positions on many key bills – steel tariffs, bloated farm bills, etc., etc. – and his paralysis in using his veto pen to stop ever-rising government spending.

The bottom line, in my opinion, is that most conservatives in government have abandoned many of their core beliefs and have gravitated toward the center, while the liberals have stood their ground or have become even more strident in their positions.  No wonder that most conservative voters cannot get enamored with any of the current group of GOP presidential hopefuls.

The following excerpts from a recent Accuracy In Media column by Cliff Kincaid, quoting one of his conservative friends, echo my own thoughts:

“The ideas of small government, low taxes, low regulation, and minimal intrusion in the daily lives of people are losing ground... We have diluted the Republican concepts of being conservative with each election. Look at Arnold Schwarzenegger and Rudy Giuliani. These are your electable Republicans these days. And when we settle for them we commit ourselves to a worse one with the next election.

I contend that Mr. Reagan himself would have a tough time getting elected these days. Likewise, John F. Kennedy would have the same problem in the Democrat party. He actually summed up the conservative central theme when he said, 'And so, my fellow Americans, ask not what your country can do for you; ask what you can do for your country.'

Conservatism cannot win without people understanding the concept. And the word is not getting out there. If it weren't for the Internet this fight would already be lost.

My point really is though that there are getting to be fewer and fewer real conservatives all the time. I am afraid that this media onslaught of misinformation is winning. The constant drumbeat of the necessity of government's changing role I think is having an effect. More and more people are buying into the new and expanded role of government. I think that most Americans think that if an individual doesn't want to get out of bed in the morning, go to work and support their children, that the government should step in and take over.

Socialism has always been easy to sell because it has that 'something for nothing' promise. Of course, as real conservatives know, it has always failed to deliver and always will. Freedom, entrepreneurship, and motivation are destroyed and the promises can't be delivered on." 

Since the Republican candidates profess to be Reagan conservatives, perhaps we ought to remind them of what the former president said: ‘Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free.’  

How many times have you heard the current crop of candidates talk about freedom? Go to their websites and see how many times they mention the word. Are they talking about freedom? Or are they talking about what government can do?  

It may be that there are fewer conservatives these days. But it could also be that the definition of the term has changed.”

Bottom line: I believe the definition of “conservative” has changed.  Conservatives are increasingly moving to the center, while the liberals are holding their positions.  Yes, the liberal bias of the mainstream media, and the liberal leanings of the teachers’ unions are aiding and abetting the left.  But we conservatives need to hold our ground and teach our children to do the same.

Unfortunately, most of the current Republican presidential candidates do not stack up to the above requirements.  No wonder most conservatives are not engendered to any of the current GOP hopefuls.  And that raises the legitimate question: how many conservatives may simply decide to stay home and not vote on November 4?

I will address that very question later on, but first let’s look at some detailed analysis of the presidential races...

How The Races Are Shaping Up

The Democrat candidates for president have boiled down to Hillary Clinton and Barack Obama. This is no surprise.  The surprise is that Hillary is in the fight of her political life against Obama. As you know, Obama won Iowa by a healthy margin, and Hillary finished third. Hillary then managed a slim victory in New Hampshire and a victory in Michigan where Obama was not even on the ballot.  She also won Nevada over the weekend, which was important for her as Obama is leading in the polls in South Carolina that will hold its Democratic primary on January 26.  If Obama wins convincingly in South Carolina this Saturday, that could give him new momentum heading into the all-important Super Tuesday primaries on February 5.

If Obama wins South Carolina ahead of Super Tuesday he will be in a position of strength, but that still doesn’t mean he will run the table on February 5.  Remember that Florida votes on January 29 and as this is written, Hillary is heavily favored, especially among the millions of retired Democrats who make their home in Florida.  If Hillary wins Florida, look for her to win New York, Massachusetts, Connecticut, Arkansas and California, regardless of what happens between now and then.  Beyond Illinois, Obama’s home state, it is harder to pinpoint which other large delegate states he will win, but look for him to be strong in the south, particularly in Georgia, Alabama and Tennessee.  Also, Obama has a real chance to carry Missouri and Minnesota.  The point is, both Hillary and Obama could still be alive after Super Tuesday.

The GOP field has effectively been reduced to four candidates: McCain, Romney, Huckabee and Giuliani.  All but Giuliani have at least one primary win under their belts.  In my opinion, Rudy made a big mistake not participating in the earlier primaries, and may be out of the running unless he wins Florida.  For the last several weeks, McCain has been leading in the polls in Florida, slightly ahead of Giuliani, but as of late, Romney seems to have surged in FL and is now slightly ahead of McCain and Giuliani.  If McCain or Romney wins in Florida, they have real chance to run the table on Super Tuesday and effectively lock-up the nomination.  If Rudy wins, then it’s a new ballgame altogether.

Many in the GOP establishment and some conservative talk show hosts (such as Rush Limbaugh) would prefer Romney over McCain.  And there is plenty not to like about McCain.  Old line Republicans have never forgiven the senator for the McCain-Feingold Act in 2002, which was a dismal attempt at campaign finance reform, or his vote against Bush’s tax cuts.  He was also a member of the “Gang of 14” that tried to influence President Bush’s nominees for judicial appointments.  McCain is not a true conservative by any stretch.  The fact that McCain has rebounded strongly is further evidence of my theory that the definition of “conservative” has changed, as discussed above.

The Resurgence Of John McCain

As you probably know, the McCain campaign was left for dead over the summer as its coffers ran dry and key advisers abandoned ship.  The senator and his remaining organization then faded into obscurity for several months, only to re-emerge in New Hampshire with a surprise victory and a fresh head of steam.  So why is a resurgent McCain a problem for the GOP establishment?  Well, to be frank, because he has refused to tow the party line on several critical issues.

The GOP elites have some of the same problems with McCain that I do, as noted above.  In addition, McCain is considered soft on immigration as evidenced by the Kennedy-McCain Immigration Bill that thankfully went down in flames last year due to a massive outpouring of public criticism.  McCain has also embraced the global warming crowd in recent years.  As noted above, his record on socially conservative issues is spotty at best.  True to his “maverick” nature, he is also seen as being too close to the Democrats on too many key issues.

To his credit, however, McCain is very strong on national security and defense.  He is a big supporter of the military, having been a decorated naval aviator and a prisoner of war in Viet Nam.  McCain supported the war in Iraq and was one of the architects of the recent troop “surge” which is working very well.

While the GOP elites and party leadership have these negative issues with McCain, it seems that many rank and file Republican voters do not.  This is partly due to the fact that many rank and file voters are not as ideological as the GOP elites who consider McCain a lightweight on numerous conservative issues.

Some in the GOP leadership have suggested that a McCain nomination in 2008 would simply be a re-run of the Bob Dole presidential nomination in 1996 when he was trounced by Bill Clinton.  If you recall, Dole was a long-time party leader who was elevated to standard-bearer mainly because it was is his “turn,” so to speak.  In reality, few in the party felt Dole had a chance against Clinton.

In the current presidential race, the GOP leadership is not thrusting McCain upon the electorate; quite the contrary; and they will only embrace his nomination if he manages to amass enough convention delegates to make it inevitable.  Consider this: on the day after McCain won in New Hampshire, Human Events, an old-line conservative think-tank, endorsed Fred Thompson for president, even though his campaign was flailing; this was considered an anti-McCain endorsement.

Of all the Republican candidates, I probably like Thompson the best, even though he is no Ronald Reagan conservative.  But in my view he is more conservative than any of the other GOP candidates, save for Ron Paul (who I will discuss below).  But the real question is, can Fred Thompson win the Republican nomination, much less beat Hillary or Obama?  Unfortunately, the answer seems to be no on both points.  In fact, Thompson may have already dropped out by the time you read this.

New Poll Shows McCain Beats Hillary Or Obama

For months now, most of the major polls have shown that the Democrats will win the White House in November, regardless whether it’s Hillary or Obama.  However, in what came as a real surprise to me, the latest GALLUP poll of head-to-head contests has McCain defeating either Hillary or Obama.  Yes, you read that correctly.

The latest USA Today/Gallup poll as of January 16 had the following results:

McCain  50 / Hillary  47
McCain  50 / Obama  45

This is a significant shift!  None of the other GOP candidates win against either of the Democrats in this same national poll.  None.  Giuliani, Romney and Huckabee all lose decidedly to either Hillary or Obama in the latest polls.  Here’s the link should you care to look for yourself:

http://www.realclearpolitics.com/epolls/2008/president/national.html

While I am not endorsing McCain, it may be a mistake for the party elites and conservatives to dismiss him. Why?  Based on the numbers above, McCain may just be the GOP’s only chance to defeat either Obama or Hillary in the national election.  How can this be?

Because McCain is a moderate on numerous issues, he draws a significant number of independents and even some conservative Democrats.  Yet there are those who claim that if McCain is the Republican nominee, conservatives will simply stay home on Election Day.  I disagree with that.  When faced with the alternative of Barack Obama, a far left-wing ideologue, or Hillary Clinton, who is… well, Hillary Clinton, McCain then becomes a palatable alternative.

When the choice is down to a liberal Democrat or a moderate Republican, then I think there is no choice.  I don’t like it one bit, but would I cast my vote for Hillary or Obama because I’m not enamored with McCain or one of the other candidates?  No way.  Likewise, would I simply not vote at all on November 4?  Again, no way, since staying home is the equivalent of a vote for Hillary or Obama.

I could make much the same argument if the GOP nominee is Romney or Giuliani.  Like McCain, these candidates are not as conservative as we would like, but they would be better choices than either Hillary or Obama, in my opinion.

A Few Words About Ron Paul

Rep. Ron Paul of Texas has run for president for years.  In every presidential election cycle, I get calls, letters and e-mails from clients and readers asking why I don’t get on Ron Paul’s bandwagon.  The truth is, I love Ron Paul as a congressman from Texas and as a presidential candidate.  For the record, I believe he is the most conservative candidate of them all.  Unlike some of the GOP candidates, Ron Paul has always been a conservative.

My problem in voting for Ron Paul for president is simply that he is not going to win.  As much as I would like him to, he just does not have the national support to win the GOP nomination or the general election.  If he did, I would probably be the first to encourage you to vote for him.

President Bush’s Fiscal Stimulus Package

With the economy slowing down markedly, and growing predictions of a recession this year, more and more politicians are calling for some sort of “fiscal stimulus package.”  Just in case you’re not familiar with what a fiscal stimulus package is, it is simply a large new injection of government spending, supposedly designed to kick-start the economy.  A fiscal stimulus package can take the form of more government spending on roads, bridges, infrastructure and the like, or it can be in the form of tax rebates, in which government checks are sent directly to the people who qualify.

Hillary and Obama have come out in favor of a fiscal stimulus package in the range of $70-$75 billion.  Last week, some members of Congress were discussing a package in the range of $100-$125 billion.  Not about to be outdone, last Friday President Bush announced his plan for a stimulus package of $150 billion!  That’s about twice what Hillary and Obama suggested – just one more reminder that Bush can spend with the best of ‘em.  Also not to be outdone, Mitt Romney has proposed a stimulus package totaling $233 billion.

President Bush’s stimulus proposal would be concentrated around targeted tax rebates (reportedly $800 for individuals and $1,600 for married couples) based on family income.  Bush’s tax rebates would be made to those individuals making $85,000 or less and married couples making $110,000 or less.  Bush’s proposal also includes additional tax breaks for businesses and other incentives intended to bolster the US economy. 

I have only one response to these stimulus proposals: please, let’s not go there.  Here’s why.

First, let us not forget that the government has had a fiscal stimulus package in place ever since the middle of 2001. That’s when the federal government resumed spending more than it takes in and running budget deficits. Here are the deficits of the past six years:

Fiscal Year 2002 - $157.8 billion (1.5% of GDP)
Fiscal Year 2003 - $377.6 billion (3.5% of GDP)
Fiscal Year 2004 - $412.7 billion (3.6% of GDP)
Fiscal Year 2005 - $318.3 billion (2.6% of GDP)
Fiscal Year 2006 - $248.2 billion (1.9% of GDP)
Fiscal Year 2007 - $161 billion - est. (1.2% of GDP)

That’s almost $1.7 trillion in deficit spending, a.k.a. fiscal stimulus, from the Congress and the Bush administration in the last six years alone.  Last year, the White House Office of Management and Budget forecast a $258 billion deficit for fiscal year 2008 (Oct.-Sept).  But with the economy slowing down, tax receipts are coming in below expectations according to the Congressional Budget Office, so the 2008 deficit is very likely to be larger than the estimated $258 billion.  If the Congress passes another $145 billion in new spending, the FY 2008 budget deficit will be the largest in history.

Next, do the Washington Wonders actually believe that $145 billion in new spending will really jump-start the economy?  According to the Commerce Department, the US economy (GDP) was a whopping $13.2 trillion in 2006 and even larger in 2007.  An additional $145 billion in new spending will hardly make a meaningful difference.

Next, these fiscal stimulus proposals are all based on the assumption that we are in a recession, or will be very shortly.  Yet as you have read over the last two weeks, both BCA and Stratfor do not believe a recession is the most likely scenario this year, and both expect the economy to rebound on its own next year.

Let us be clear, this is all about politicsIt’s an election year, and politicians – especially those up for re-election – want to give handouts to please their constituents.  President Bush, while not up for re-election, must believe that giving $800 to those who make $85,000 or less will buy his party some favor when it comes time to vote in November.  Even Fed Chairman Ben Bernanke said last week that a stimulus package is needed and should be enacted quickly.  At the rate lawmakers are going, this thing could be passed before you read this!

Conclusions: Hold Your Nose & Vote

I will be the first to admit that I am as disappointed as you probably are with the current field of GOP presidential candidates.  But consider the alternatives: Hillary or Obama.  Do we want 4-8 more years of the Clintons in the White House, especially with Hillary’s agenda for socialized health care, higher taxes, her disdain for the military and her pledge to pull out of Iraq within 60 days of her inauguration?  Do we want Bill Clinton as the “First Man?”  I don’t think so.

Do we want a sophomore, left-wing ideologue, Barack Obama, with limited business or economic experience and no foreign policy expertise, running the country for the next 4-8 years, when we are likely to face some of the most challenging global economic conditions in years?  Here too, I don’t think so.  Obama could well take us back to the “tax and spend” years of the Carter presidency, or worse.

The present group of Republican hopefuls - while admittedly disappointing to most conservatives – is better than the Democratic field in my opinion.  While they are not nearly as conservative as we might like them to be, none has remotely as liberal leanings as Hillary or Obama.  And political pressures should prevent even the more moderate Republican candidates from going where Hillary and Obama are almost sure to go, should they win the highest office in the land.

Sadly, I hear from some Republicans who feel that it will be better for the Democrats to win in 2008 and inhabit the White House in 2009-2012, because they believe that we are headed for a bad recession during that period.  As you know, The Bank Credit Analyst feels we may well encounter a potentially serious recession in 2010-2011.  So some Republicans have taken the position: let it happen on the Democrats’ watch.

Yet in my view, that is the wrong position to take.  Assume a recession is in our future.  Who do you want to be in charge in such a scenario?  Hillary or Obama, who will opt for higher taxes and more government?  Or any one of the current GOP hopefuls who will not likely default to such liberal reactions?  In my opinion, we all need to vote – don’t sit this one out.  Just pick one candidate and go for it – that’s my advice.

Our right to vote is a precious thing, and our vote should not be cast - or withheld - lightly.  Fortunately, I’ve not heard from a single client or reader who is not planning to vote in November, even if they aren’t thrilled with the field of candidates.  That’s good!

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES:

Exhuming HillaryCare (read this, if nothing else)
http://www.realclearpolitics.com/articles/2008/01/exhuming_hillarycare.html

Now McCain Must Convince The Right
http://online.wsj.com/article/SB120096343271605141.html?mod=opinion_main_commentaries

The Democrats could still slip up.
http://www.washingtonpost.com/wp-dyn/content/article/2008/01/18/AR2008011802870.html


Read Gary’s blog and join the conversation at garydhalbert.com.


Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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