This is probably a State of the Union the markets will like. That might not necessarily be such a good thing.

The markets will like that it is vague, that it is unobjectionable, that it makes a feint at diminishing the deficit without really cutting hard enough to hurt economic growth, and that it makes the right kinds of noises about corporate taxation.

In short, it does very little to upset the current dispensation; that the Federal Reserve is kicking asset markets uphill and that this is a “good thing.” In fact, in the speech President Obama cites the roaring of the stock market as his first piece of evidence of the economic recovery, and by extension of his competence as an economic manager. This is a grave mistake, just as would have been citing the booming housing prices in 2006 as evidence of a strong economy then.

To his credit, Obama went on to emphasize the need to create jobs and new industries, but the baseline assumption conflates a healthy economy with rising asset prices.

The pledge to freeze discretionary spending for five years, saving $400 billion over a decade, will be a salve to bond markets, but in truth is not really very meaningful. It more serves to illustrate the difficulties of bringing the budget in line without touching entitlements.