Wednesday, January 31, 2007

Bush's Bull Market

On a day when the GDP report came in strong, and the Federal Reserve backed off a bit from its inflation worries to proclaim a balanced economy with growth and contained prices, President George W. Bush became only the 2nd sitting American president to visit the floor of the New York Stock Exchange.

As he moved from trading post to trading post, all the floor brokers and their assistants stopped work and started cheering and applauding.

And I mean loud applause and huge cheers.

This is a guy the mainstream media just loves to kick around. This is a guy still battling it out over Iraqi freedom, but subject to sinking polls.

But this is a guy with more character and more faith than almost anyone else in public life.

The last time he was in downtown New York was just after September 11th, when everything was devastated, including the NYSE. Now, more than five years later, Mr. Bush went back to downtown New York with a record-breaking stock market and a strong economic recovery.

That’s why there was loud cheering and strong applause.

Wednesday Night Lineup

On CNBC's Kudlow & Company tonight:

We're going to start the show off with a one-on-one interview from the North Lawn with White House press secretary Tony Snow.

Mr. Snow will be followed by our all-star Washington to Wall Street panel to explore and debate all the latest news and developments.

*Steven Pearlstein, columnist for the Washington Post
*Elizabeth MacDonald, Forbes senior editor
*James Pethokoukis, senior writer at U.S. News & World Report
*Daniel Gross, author and Slate columnist

FED & THE ECONOMY...On to discuss today's news will be Joe LaVorgna, Deutsche Bank economist, Adam Posen, a co-author with Bernanke and Frederic Mishkin of a book about inflation-targeting, and Ms. MacDonald.

OIL & ENERGY...a look at the latest with Daniel Yergin, president of Cambridge Energy Research Associates and Forbes' Elizabeth MacDonald.

It's going to be a dynamite show tonight - we hope you'll join us...

Just Right

Pres. Bush gave a major economic speech in New York today touting his plan for a balanced budget at prevailing low tax rates, in order to extend the economic boom that began in 2003. He also pushed hard for free trade as he did yesterday in Peoria, Illinois at Caterpillar, Inc.

Though Mr. Bush never gets any credit for the strong economy, reality is that economic growth continues to surprise everyone. Today's real GDP report came in at 3.5 percent at an annual rate for the October-December period in 2006.

Price inflation inside the report was very low around 2 percent with one major price gauge actually declining for its biggest drop in 52 years. For the whole year, GDP advanced 3.4 percent following 3.2 percent last year, 3.4 percent in 2004, and 3.7 percent in 2003.

The highly diverse and resilient American economy has not been derailed by a temporary housing slump, which occurred last year following many years of outsized gains. Excluding the drag from housing investment, real GDP growth in the 4th quarter was 4.8 percent and was 4.3 percent for the year.

The strong investor class stock market has been signaling high growth in the economy for quite some time and high growth is coexisting nicely with low inflation. Hopefully, the Ben Bernanke Fed is watching this carefully.

Both the late Milton Friedman and supply-side guru Art Laffer have taught us that inflation occurs because too much money chases too few goods. However, as the Fed has throttled back money supply growth, the continuing gain from more production of goods and services has actually reduced inflation (helped by falling oil prices). So more output chasing slower money growth is a prescription for contained inflation.

The so-called Phillips curve tradeoff between falling unemployment and rising prices has once again been disproven. Right now the Fed has no reason to tighten or ease its policy. Low tax-rates are promoting growth while monetary control is holding down inflation. Continued free trade will also promote economic growth.

Mr. Bush is on the right track as he follows classical supply-side economic principles. He deserves a better polling fate for this achievement. Be that as it may be, the Goldilocks economy, not too hot and not too cold, continues to defeat all the pessimists and nay-sayers out there.

Tuesday, January 30, 2007

Goldilocks Plus

You know, for all this talk about recession, (with some pundits calling for a recession just about every year—Paul Krugman comes to mind), the reality is that economic growth has been steady and strong following the 2001-2002 recession.

Think lower marginal tax rates, implemented in 2003 to strengthen work incentives, and significantly increase after-tax investment rewards.

This is Goldilocks plus.

It is called free market, Milton Friedman capitalism—with a strong dose of supply-side guru Art Laffer.

Tuesday Night Lineup

On tonight’s Kudlow & Company:

We’ll begin by taking the pulse of the economy and stock market.

ON THE ECONOMIC FRONT...James Smith, chief economist for Parsec Financial Management, will square off against Lakshman Achuthan, Managing Director of the Economic Cycle Research Institute.

*Jason Trennert, Chief Investment Strategist at Strategas Research Partners
*Doug Kass, founder and president of Seabreeze Partners Management
*Herb Greenberg, senior columnist for MarketWatch/CNBC contributor

KUDLOW’S STOCK CLUB...Kevin Shacknofsky, portfolio manager with the Alpine Dynamic Dividend Fund will offer his stock picks. (Note: he delivered a whopping 22.6 percent return in 2006, versus the S&P which came in at just over 13 percent.)

A LOOK AT WHAT’S AHEAD IN IRAN... US Under-Secretary of State Nicholas Burns will lead us off, followed by a debate between former assistant defense secretary, Larry Korb, and Frank Gaffney, founder & president of The Center for Security Policy.

Not Willing to Fight?

I was blown away by the results of a recent poll.

It purportedly shows that female college students are far more willing to enter the armed services to defend America than their male counterparts.

That blows me away.

According to a Family Security poll, one thousand college students across the country were asked whether they’d consider joining the armed services if America went to war. (We’re talking every region here—not just small, liberal arts colleges in New England with crummy football teams…)

Get this: Men came in at 14 percent with women at 40 percent—basically a 3 to 1 margin.

(This, by the way, is the first generation of kids who entered college when 9/11 happened.)

Of course, as my UVA professor friend Larry Sabato reminded me, there are 1000 polls a day, and only 10 or so are to be trusted. Sabato thinks the real number is more like 20-30 percent, for men and women willing to fight.

Let's hope he’s right.

NR on Ahmadinejad

From the latest issue of National Review:

Iranian president Mahmoud Ahmadinejad has created a world-storm, but things aren’t going all his way. Power, including the conduct of foreign policy, is in any case in the hands of Ayatollah Ali Khamenei, known as the Supreme Leader, and himself chosen by a special clerical body. In recent elections to that body, Ahmadinejad and his friends lost ground. Inflation and unemployment are both running around 30 percent. Gasoline rationing is due to begin in March. Demonstrations are met with force, and the prisons are full. But Ahmadinejad wants nuclear power above all else, and seemingly will carry on his war dance regardless of national and international opinion. The Security Council has imposed sanctions on Iran, but he dismisses these as a “rusty instrument” and “a piece of torn paper,” nicely mixing metaphors. The newspaper that reflects the Supreme Leader’s views has come out criticizing Ahmadinejad’s diplomacy for the way it has antagonized so many interests, and in another leading newspaper the man in charge of nuclear negotiations presses Ahmadinejad to end his involvement in the nuclear program. Perhaps they’ve noticed the reinforced American battle group in the Persian Gulf.

Monday, January 29, 2007

Monday Night Lineup

On CNBC's Kudlow & Company this evening:


Our guests:

*David Malpass, Bear Stearns' chief economist
*Jeff Kleintop, chief investment strategist, PNC Wealth Management
*Robert McGee, chief economist at US Trust

A CAPITAL VS. LABOR DEBATE...Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor/senior fellow at the Hudson Institute, will debate Jared Bernstein, senior economist at the Economic Policy Institute.

SUNDAY UNSPUN...Gallup Poll editor-in-chief Frank Newport joins us in our weekly segment sifting through the latest media spin.

POLITICS...a look at Hillary, Condi, and much more with Craig Crawford, Congressional Quarterly columnist and Larry Sabato, Professor of Politics at the University of Virginia.

Please tune into Kudlow & Company tonight, where we still believe free market capitalism is the best path to prosperity.

Milton Friedman Day

Today is Milton Friedman Day across the country.

My friend John Stossel wrote a column about it over at Human Events.

Amity Shlaes—another good friend—also penned a very good piece about this extraordinary man.

Heck, even Paul Krugman wrote a very complimentary article about Friedman in the New York Review of Books. He wrote:

...Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived....

(However, Mr. Krugman says that free market policies in the last twenty-five years have not been as good for growth as the un-Friedman polices were in the prior post-war 1947-76 period - I'm checking his numbers).

In any case, Happy Milton Friedman Day...

Cheney Out?

According to Comedy Central’s Indecider blog, Cheney is out as Veep, and will be replaced by Condi Rice. (See Cheney is SOOO Out as Veep!”)

Rice will be the first African American and the first woman in the White House. This would take some serious wind out of the Dems’ Clinton/Obama sails.

It would also be only the 2nd time in history that an acting VP was “like totally in love with the sitting President.”

Friday, January 26, 2007

Friday Night's Lineup

On CNBC's Kudlow & Company tonight:

We're going to come out of the gates with a look at the stock market and economy.

Our guests tonight:

*Mike Holland, Chairman of Holland & Company
*Greg Church, President at Church Capital
*Don Luskin, CIO of Trend Macrolytics

KUDLOW'S STOCK CLUB...Frank Holmes, CEO/CIO of Global Investors will offer his latest stock ideas.

RICH STATES VS. POOR STATES, UNIONS, & MORE: A Dynamic Duo class warfare debate between the Wall Street Journal's Steve Moore and former labor secretary/UC Berkeley professor, Robert Reich.

WHAT TO DO WITH IRAN...Human Events editor/former undersecretary of defense Jed Babbin will debate former assistant defense secretary Larry Korb.

Mr. Babbin will stick around and debate Lanny Davis, former special counsel for President Bill Clinton on the latest political developments.

Tune into Kudlow & Company tonight, where we still believe that free market capitalism is the best path to prosperity...

Capital Goes Where It's Treated Well

From today’s New York Times:

The Bureau of Labor Statistics reported Thursday that union membership fell by 326,000 in 2006, to 15.4 million workers, bringing the percentage of employees in unions to 12 percent, down from 12.5 percent in 2005. Those figures are down from 20 percent in 1983 and from 35 percent in the 1950s...

Take a look at the high union states vs. the low union states.

The high union states—New York, New Jersey, Washington, etc—also happen to be high tax, slow growth, population losing, states.

On the other hand, the low union states—places like Utah, Virginia, and both Carolinas—are low tax, pro business, population growing states, with strong economic growth.

It tells you something, doesn’t it?

Thursday, January 25, 2007

Thursday Night's Lineup

On CNBC's Kudlow & Company tonight:


* Vinny Catalano, chief investment strategist at Blue Marble Research
* Stefan Abrams, managing director at Trust Company of the West

A FED & ECONOMY DEBATE...former Federal Reserve governor Wayne Angell will debate Michael Darda, chief economist at MKM Partners on what's ahead.

CLASS WARFARE...a debate over the latest Lou Dobbs/Jim Webb populist rhetoric:

*James Pethokoukis, senior writer at U.S. News & World Report
*Daniel Gross, Slate columnist
*Michael Santoli, Associate Editor for Barron's

POLITICS, POLITICS...conservative commentator Ann Coulter will square off against liberal commentator Bill Press. (This should get interesting.)

It's going to be another great show tonight - please join us...

Two From the WSJ

Two very good, very interesting articles in the Wall Street Journal today—one’s on abolishing state income taxes; the other one, an op-ed written by Daniel Henninger, is about talking ourselves into defeat in Iraq.

Both hit the nail on the head...

Rich States, Poor States

If you're searching for the next big thing in American politics, it's wise to keep an eye on the states. Here's one possibility: the abolition of state income taxes.

In Georgia, Missouri and South Carolina, Governors and state legislatures are drafting serious proposals to repeal their income taxes to promote economic development. St. Louis, one of America's most distressed cities, may overturn its wage/income tax as a way to spur urban revival. And in Michigan, the legislature is in the last stages of phasing out its hated business income tax -- the most onerous in the land. "States are now in a ferocious competition to attract jobs and businesses," says economist Arthur Laffer, who is advising several Governors and legislators on the issue, "and one of the best ways to win this race is to abolish the state income tax."...

Talking Ourselves Into Defeat

...On the "Charlie Rose Show" this month, former Army vice chief of staff Gen. Jack Keane, who supports the counterinsurgency plan being undertaken by Gen. David Petraeus, said in exasperation: "My God, this is the United States. We are the world's No. 1 superpower. This isn't about arrogance. This is about capability and applying ourselves to a problem that is at its essence a human problem."

At our current juncture, Gen. Keane's words probably rub many the wrong way. But there's a Cassandra-like warning implicit in them. The mood of mass resignation spreading through the body politic is toxic. It is uncharacteristic of Americans under stress. Some might call it realism, but it looks closer to the fatalism of elderly Europe, overwhelmed and exhausted by its burdens, than to the American tradition....

Coulter on Kudlow & Company Tonight

Ann Coulter will be joining us on the show this evening.

The fiery syndicated columnist and author of "Godless, The Church of Liberalism" is going to tee off on her latest beef with the Democrats.

Well, imagine that.

Liberal political commentator Bill Press is slated to square off with Ann.

Incidentally, Matt Drudge linked to Ann’s latest column over on his site. Here’s a clip from her latest piece:

It's nice to have a president who is not so sleazy that not a single Supreme Court justice shows up for his State of the Union address (Bill Clinton, January 1999, when eight justices stayed away to protest Clinton's disregard for the law and David Souter skipped the speech to watch "Sex and the City").

Speaking of which, the horny hick's wife finally ended the breathless anticipation by announcing that she is running for president. I studied tapes of Hillary feigning surprise at hearing about Monica to help me look surprised upon learning that she's running…

The Veep explains to my friend Wolf Blitzer how the world really works...

Wednesday, January 24, 2007

Five Words

...Perhaps the most compelling argument of the day was not made by President Bush or Senator Webb—and it was made in five words. Earlier in the day, General David Petraeus testified before the Senate Armed Services Committee. When asked if he could get his job done in Iraq without additional troops, he replied: “No, sir.” When asked if a congressional resolution of disapproval of the “surge” could encourage the enemy, he said, “That’s correct, sir.” Under these circumstances, it is hard to imagine what impulse of arrogance could cause Republican senators like Warner and Collins to actively undermine the operational judgment of a skilled commander in the field, at the beginning of a decisive military campaign. The next week or so will test the proposition: does the military chain of command end in the Oval Office or on the Senate floor? I live in Virginia—but I have never voted for either senator from Virginia to be commander in chief.

-Michael Gerson, President Bush's former speechwriter in a web-exclusive for Newsweek

Wednesday Night Lineup

On CNBC's Kudlow & Company live from Washington tonight:

We'll come out of the gates by taking the pulse of the stock market with our market mavens...

*Joe Battipaglia, Chief Investement Officer at Ryan Beck & Co.
*Quentin Hardy, Forbes Silicon Valley Bureau Chief
*David Sowerby, portfolio manager at Loomis Sayles & Company

A look at class warfare and Jim Webb populism with the Wall Street Journal's Steve Moore and Robert Reich, Cal Berkeley professor/former Clinton labor secretary.

Dueling Chiefs of Staff...We'll dive into Washington to Wall Street politics in a debate between Leon Panetta, Clinton's former White House chief of staff and Andy Card, Bush's former White House Chief of Staff .

An immigration debate between liberal radio host Leslie Marshall and conservative commentator Martha Zoller.

Tax Cuts Work (again)

Thank you to my friend Dan Clifton over at Americans for Tax Reform for emailing this gem:

The Joint Committee on Taxation forecasted the 2003 capital gains tax cut would “cost” the Federal Treasury $5.6 billion through fiscal year 2006. The new numbers today showed the Federal Treasury received an “unexpected” $133 billion of capital gains tax collections through 2006. Capital gains tax collections in FY 05 and FY 06 were nearly double the initial forecast. Policymakers who believe they can generate tax revenue to the federal government by raising the capital gains tax are simply mistaken.

Full analysis here:

Amen to That

"A future of hope and opportunity begins with a growing economy – and that is what we have. We are now in the 41st month of uninterrupted job growth – in a recovery that has created 7.2 million new jobs ... so far. Unemployment is low, inflation is low, and wages are rising. This economy is on the move – and our job is to keep it that way, not with more government but with more enterprise." - President Bush in last night's State of the Union

Hillary Wants to "Chat"

Tony Blankley has a very good column on Hillary's "compulsion to false self-presentation" today:

Cato the Elder, the great Roman senator, stood for the proposition "Carthago delenda est" -- we should destroy Carthage. Thomas Jefferson ran for president to protect the yeoman farmers from Hamiltonian big government. James Polk promised to steal Texas from the Mexicans. Abe Lincoln stood to preserve the Union. FDR promised to defeat the Depression with bold experimentation. Ike would end the Korean War. Ronald Reagan promised to built up our military strength, defeat Soviet Communism, cut taxes and spending.

And last weekend, Hillary Rodham Clinton presented herself for election to the presidency of the United States with the timeless, clarion call:

"So let's talk. Let's chat, let's start a dialogue about your ideas and mine, because the conversation in Washington has been just a little one-sided lately, don't you think?"...

Click here to read the article.

Tuesday, January 23, 2007

Tonight's Show - Live from Washington...

We're broadcasting live from the nation's capital this evening...

Our core panel will weigh in on the (excellent) economic state of the union.

Our panel tonight:

*Art Laffer, supply-side economist and CEO of Laffer Associates
*John Rutledge, Chairman of Rutledge Capital
*Jason Furman, Director of the Hamilton Project for the Brookings Institute
*Gary Shilling, President of A. Gary Shilling & Co.,

Forbes' Elizabeth MacDonald will join the panel to discuss what's ahead in the stock market and energy.

A look at what's ahead in Iraq...

*Jed Babbin, Editor of Human Events
*Joe Cirincione, vice president of the Center for American Progress
*Christopher Hitchens, author and syndicated columnist

And finally, a preview of the President's State of the Union address tonight with Rep. Mike Pence (R-IN) and Rep. Artur Davis (D-AL).

An Excellent Economic State of the Union

Parsing through a dozen or so newspapers and websites this morning, I was stunned not to find a single reference to the very strong economic state of the union. Sure, there’s plenty about global warming, carbon caps, President Bush’s poor polling numbers, Republican opposition to the troop surge in Iraq, and the usual horse-race speculation about Hillary Clinton and the Democratic primary race for presidency. But there’s nothing -- and I mean nothing -- about the excellent economic state of the union.

I did manage to find one article, buried deep in the Wall Street Journal, entitled “Class of ’07 Gets Plenty of Job Offers.” It talked about employers planning to hire 17 percent more graduates this year than they did last year. This happens to top the college-hiring peak of the last economic boom in 2000.

There’s also an interesting op-ed by Deputy Treasury Secretary Bob Kimmet (an old friend with lots of supply-side blood in his veins), who notes the positives of “job churn.” More than 55 million Americans, or four out of every ten workers, left their jobs in 2005. Since there were more than 57 million new hires that same year, this is good news. It also means that new hires exceeded employee separations by an average of 364,000 per month. Per month!

Eat your heart out Lou Dobbs.

The fact is, jobs continue to boom. So do real incomes, productivity, and profits. Economist Michael Darda points out that real wages over the first five years of the Bush expansion are actually growing more rapidly than over the first five years of the Papa Bush/Bill Clinton boom.

Meanwhile, unemployment today is only 4.5 percent. Federal, state, and local tax collections are soaring through the roof. Budget deficits are plunging. Inflation-adjusted GDP is averaging just more than 3 percent. Family wealth stands at a record of slightly more than $54 trillion. Total employment is at a record 146 million.

Stock markets, as you might have noticed, also continue to rise. They have done so, almost without interruption, for four years, on the shoulders of a remarkable surge in business profits -- which itself is a function of the high-tech, knowledge-based product explosion.

These corporate profits, along with our record-setting stock markets, have enriched the more than 100 million investors who are participating in this prosperity. In fact, this America boom is spearheading a global economic surge. While the American free-market model is often derided as “cowboy capitalism,” imitation remains the sincerest form of flattery. And it isn’t just China, India, and Russia who are acquiescing to the worldwide spread of American capitalism. It’s also Eastern Europe and parts of South America. Heck, even the socialists in Old Europe -- like France and Germany -- are getting into the act by reducing individual and corporate tax rates to promote growth.

Note to John Edwards and other modern-day class warriors: The best anti-poverty plan is a growing economy, one that creates jobs and higher middle-class living standards. As free enterprise has been unleashed around the world, government planning once again has been rejected. This is the spirit of Adam Smith’s Wealth of Nations, where he argued almost 250 years ago for free markets, free trade, and a very light touch with respect to taxes and regulations.

Someone should be making the point that if the economy ain’t broke, there’s no need to fix it. Taxing the rich will not make the non-rich rich. Attacking businesses will not produce more jobs and investor-class profits. Imposing trade barriers will not help high-quality, low-cost consumer imports, nor will it promote job-enhancing business exports or help poor nations grow richer.

As for the global-warming alarmists, imposing carbon caps or carbon taxes won’t do anyone any good. On the economic side of things, this will severely depress production and employment. And for what? An estimated global temperature reduction of 4/100ths of 1 degree Fahrenheit?

Government meddling and failed liberal social policies are precisely what we don’t need today.

As President George W. Bush takes the podium tonight for his seventh State of the Union message, his policy of lower marginal tax rates and a general absence of overregulation (with the exception of Sarbox, but including the opposition to carbon caps) has succeeded in nurturing low inflation and entrepreneurial economic growth.

Of course, Bush gets very little credit for this in the mainstream media or in the polls, which is a shame. The truth is, the president has had the economic story basically right for six years. His overall economic record is rather solid.

But the bottom line is the bottom line: As we enter 2007, the economic state of the union is excellent.

If it ain’t broke, don’t fix it.

Monday, January 22, 2007

Slash Corporate Taxes

"The countries that lower their corporate tax rates lure capital, and that capital increases the number of jobs and bids up wages. And I've just finished a big cross-country study with my colleague at AEI, Aparna Mathur, and we found that there were very big statistically significant positive effects on wages of lower capital taxes and lower corporate taxes in particular. Multinationals are very good at locating activity at the most--in the most favorable climate. And they move their capital around to go find the low tax rate.

I mean, it's really not a mystery. If you go around and ask CNBC viewers, you know, if your state had a much higher corporate tax rate than the states around you, do you think the corporations would put their factories in your state or in the states around you? And they say, `Oh, they'll go to the states around us.' Well, that's exactly what's happening right now.

We're the country with the high rate and people are deciding to locate things abroad. You know, semiconductor foundries are not locating in the US. They're locating abroad. And yet they're really capital-intensive. It's not the low cost labor that's making firms do that. It's the opportunity to get the taxes out of the US or get the corporate profits out of the US to a low tax environment."

-Kevin Hassett, resident scholar and economic policy studies director at the American Enterprise Institute on CNBC's Kudlow and Company

Bottom line - if you're worried about wage inequality, U.S. competitiveness, or outsourcing, here's the perfect solution: Slash corporate tax rates. In fact, we ought to go ahead and abolish the corporate tax altogether.

Is There a Presidential Bull?

Are any of the leading presidential candidates good for the stock market?

Are any of them unambiguously pro-growth, pro-free enterprise, pro-supply side, pro-profits, and pro-large and small business? I’m just asking the question.

We’ve had a tremendous run in the stock market stretching all the way back to 1982, when President Ronald Reagan’s plan kicked in. And, as Don Luskin and others have pointed out, we have enjoyed a tremendous bull market since the Republican congressional takeover in 1994.

Now we have a Democratic Congress, and soon we will have a brand new face in the White House.

There are six leading candidates—three in each party. Clinton, Obama and Edwards for the Dems; McCain, Giuliani and Romney for the Republicans. It is unlikely that any other name will make it into this top tier. (The only possible exception is ALGORE—but he seems not to be running…)

So, we know the players, and we have a reasonable idea about their policy beliefs.

So again, for discussion and debate, I ask: are any of these major candidates good for the stock market?

Monday Night Lineup

On CNBC's Kudlow & Company tonight:

We'll begin tonight's program with a look at the stock market.

Our guests include:

*Steve Forbes, president and CEO of Forbes Inc
*Herb Greenberg, senior columnist for MarketWatch
*Eric Singer, managing partner at Pali Capital
*Craig Columbus, chief market strategist at Advanced Equities Asset Management

(The panel will stick around and discuss the field of presidential prospects.)

Sunday Unspun with Frank Newport, editor in chief of The Gallup Poll, where we'll expose some of the latest media spin and distortions.

We'll also look ahead to tomorrow night's State of the Union address with Kimberley Strassel, member of the Wall Street Journal Editorial Board and Dean Baker, co-director of the Center for Economic and Policy Research.

(The political panel will also discuss the latest debate in healthcare and global warming.)

A Father and Daughter

Great, instructive, little story...

A young woman was about to finish her first year of college. Like many others her age, she considered herself a liberal Democrat, very much in favor of the redistribution of wealth. She was deeply ashamed that her father was a staunch Republican.

One day she challenged her father on both his opposition to higher taxes on the rich and the addition of more welfare programs. The self-professed objectivity proclaimed by her professors had to be the truth and she indicated so to her father.

He responded by asking her how she was doing in school. Taken aback, she answered rather haughtily that she had a 4.0 GPA, and let him know that it was tough to maintain, insisting that she was taking a very difficult course load, constantly studying and had little time to go out and party like other people she knew.

Her father listened and then asked, "How is your friend Audrey doing?"

She replied, "Audrey is barely getting by. All she takes are easy classes, she never studies, and she barely has a 2.0 GPA. She is so popular on campus, college for her is a blast. She's always invited to all the parties, and lots of times she doesn't even show up for classes."

Her wise father asked his daughter, "Why don't you go to the Dean's office and ask him to deduct 1.0 off your 4.0 GPA and give it to your friend who only has a 2.0. That way you will both have a 3.0 GPA and certainly that would be a fair and equal distribution of GPA."

The daughter, visibly shocked, angrily fired back, "That wouldn't be fair! I have worked really hard for my grades. I've invested a lot of time and a lot of hard work! Audrey has done next to nothing toward her degree. She played while I worked my tail off!"

The father slowly smiled, winked and said gently, "Welcome to the Republican Party."

Don't Mess with Success

...In 1993, before the 13 years of no tax hikes began, the federal deficit was 3.9% of GDP. Today, after 13 years of tax cuts, it's about 2.5%.

And back in 1993 the cumulative federal debt was 49% of GDP. Now it's only 39%.

So let's see here. We cut taxes for 13 years. The stock market performed better. The deficit went down. The debt went down.

So what's the stupidest thing we could possibly do now? That's right (all at once, now): raise taxes....

-Don Luskin, "New Tax Hikes by Congress Will End the Bull Run for Stocks"

Friday, January 19, 2007

Thoughts on the McCain Interview

Senator McCain and I covered quite a bit of ground on last night’s Kudlow & Company. There were however, two rather interesting points he made that really stood out.

Here’s what he had to say when I asked him whether a “President McCain” would be even more aggressive with Iran:

I'm very concerned about Iran, their continued acquisition, attempt to develop nuclear weapons and the missiles to deliver them. Their president declared at the United Nations his country's policy of extinction of the state of Israel. Of course, I'm concerned. And I think it's very appropriate if there are Iranians who are inside Iraq or on the borders who are training, equipping and paying terrorists. Then it's our obligation to do what's necessary to protect the lives of our men and women in the military who are serving.

You know, Larry, it's awfully easy to sit back on the sidelines and to second-guess. I probably would make it more clear to the Russians that this is a determining factor in our relations with the Russians. They're really the only ones in the region that have, as you know, significant influence. And I would not look into Mr. Putin's eyes. I'd stare him in the face, and I'd say, `Look, pal, you've got to help us out here, and otherwise, the consequences will be significant in terms of our relationship.'

I also asked him if he thought a time would ever come that we would need a special consumption tax, or national sales tax, designated to beef up the Pentagon’s budget to cover all our needs in the war on terror, including an enlargement of the Army and Marine Corps. His response:

I don't think so. Larry, I just don't think it's necessary. We have to get into the position--into the mode of acquisition reform. One of the untold scandals in Washington, DC, today is the cost overruns associated with our weapons systems. Virtually every contract is now a cost-plus contract. We just put a stop order on a ship that was being built for the Navy that's up $400 million overrun. We need acquisition reform so that the taxpayers get the maximum amount for their tax dollars, long before we ask them to contribute more tax dollars. It's a scandal, it's a scandal, these cost-plus contracts which have inflated the costs dramatically of the weapons systems, and we've got to get about acquisition reform.

Did Someone Say Personal Savings Accounts?

Fed chief Ben Bernanke strolled up to Capitol Hill yesterday and scared the pants off Congress and the American public. His message? An over hyped, doom and gloom forecast about an entitlement bankruptcy tidal wave slamming American shores.

Unfortunately, Mr. Bernanke and all the other pessimists are using low-ball economic estimates to make their alarmist case.

As far as Social Security is concerned, a set of optimistic (yet eminently reasonable and realistic) economic assumptions exist which lead to no bankruptcy and no trust fund exhaustion.

This scenario—one rarely discussed by most—includes slightly less than 3 percent real economic growth, and 2 percent productivity per year. Over the next seventy-five years, this solid growth forecast keeps the Social Security funds alive and well.

(Bear in mind, real GDP growth over the last fifty years has averaged 3.3 percent annually. Why would people assume the future will be the worse than the past?)

Bernanke’s gloomy bankruptcy assumptions—where the trust fund is expected to exhaust in 2040—rely on a rather uninspiring economic outlook of around 2 percent growth. This is rubbish. With low tax rates, high productivity and low inflation, our technology based economy is poised for a long cycle of prosperity.

These doom and gloom Social Security scenarios aren’t worth the paper they’re printed on.

The real problem with Social Security is not bankruptcy. It’s the dreadful investment return (barely 1 percent) that future retirees have to look forward to.

If Americans had the chance to purchase S&P 500 SPDR contracts, and were able to hold them for fifty years, they would receive a real return of at least 7 percent compounded annually based on the history of the stock market. That's a lot of Benjamins. Heck, even if workers were given a lousy bank deposit option, federally insured by Uncle Sam, they could still count on squeezing out at least 3 percent compound returns.

The real reason we need to reform Social Security is to give American workers a far better retirement nest egg than the current system is capable of providing—not because of some phony bankruptcy driven deficit scenario.

Did someone say personal savings accounts?

Let’s remember that more savings means more investment. This in turn leads to productivity-fueled growth. The end result is we have more revenues to pay off Social Security liabilities over the next seventy-five years and vastly more wealth for retirees.

Think of it.

The Meddling has Begun

So, the Senate is considering a $1 million dollar limit on tax-deferred pay.

This is a really dumb idea.

What is Congress doing mucking around in company pay? That’s a matter best left to a company’s shareholders, executives, and board.

Sen. McCain said as much during our interview last night, and President Bush had the same view when I interviewed him last year. Of course, they both acknowledged that some pay packages were excessive, but agreed that the government should not step in and regulate them.

About a decade ago, President Clinton and the Congress limited the tax deductibility of corporate pay to $1 million dollars. The end result was that this spurred the movement towards stock options to get around the Congressional regulation. Well, you can bet your bottom dollar that if this goofy $1 million dollar limit on tax-deferred pay gets passed into law, corporations will find a way to get around it.

It’s a clear case of congressional over-regulation.

It also means that deferred comp above a million bucks would be subject to taxes as high as 35 percent a year. (Rather than the 15 percent rate that would apply to capital gains accrued from stock options that finish in the money over a period of years.)

The Dems have been in power less than a month and they’re already meddling in the governance affairs of businesses. They have already raised taxes (royalty penalties) on energy companies.

These are bad trends—anti-growth, anti-incentive trends.

Thursday, January 18, 2007

"She Can't Win"

Well, at least one mega-rich, prominent Hollywood liberal has come out swinging against Hillary Clinton and her presidential prospects:

"She can't win, and she's an incredibly polarizing figure. And ambition is just not a good enough reason." -David Geffen, Hollywood mogul

656 days left until election day and the race is heating up...

Thursday Night Lineup

On CNBC's Kudlow & Company tonight:

A one-on-one interview with Sen. John McCain.

We'll discuss the war, the economy, taxes, immigration and more...

The Wall Street Journal's Steve Moore and former Clinton labor secretary Robert Reich will join us for a follow-up to our interview with Sen. McCain.

We will also take a thorough look inside the economy, the Fed and the markets with Arthur Laffer, president of Laffer Associates and economist/NYU professor Nouriel Roubini.

Mr. Moore & Mr. Reich will stick around and weigh in with their thoughts...

It's going to be another great Washington to Wall Street show this evening - please join us.

Inflation? What Inflation?

Reality check for economic pessimists and worrywarts out there: inflation is coming down as the Fed has curbed money supply creation.

And of course, lower oil prices is helping enormously. Since its peak in July, oil has come down 34 percent.

Here are some Goldilocks factoids:

So-called core inflation (ex. food and energy) has dropped from 3.8 percent annually last May, to 1.4 percent in December measured over three month periods.

The 4th quarter core rate was only 1.8 percent.

And for the overall CPI, the 4th quarter rate declined by 2.2 percent annually—the biggest quarterly drop since 1949.

When you couple these positive inflation results with a pickup in industrial production and unexpected strength in retail sales, the Goldilocks economy really outperformed pessimistic expectations at the end of 2006.

Why Democrats attack the economy is beyond me. Non-inflationary growth is pluperfect.

If it ain’t broke, don’t fix it.

Senator Backbone on Kudlow & Company Tonight

We are gearing up for another terrific show this evening.

Tonight we welcome Senator John McCain. We're going to talk about taxes, business, the war in Iraq, and his possible run for the White House in 2008.

In a recent column I wrote that, "Two of the most important qualities necessary for a run to the Oval Office are decisiveness and strength of character. In recent weeks, John McCain has proven that he has more stock in these traits than most any public official today."

McCain is a rare bird. He's still standing tall against the tide. That's why I call him Senator Backbone.

Make sure to tune into to CNBC's Kudlow & Company where we still believe that free market capitalism is the best path to prosperity...

Wednesday, January 17, 2007

Manna from Heaven

Profits are the mother’s milk of stocks and the economy.

And they have soared in recent years, fueling the stock market’s rise.

Check out the latest Treasury Department reports. What has been remarkable is the rise in NIPA corporate profits, the most accurate profits measure, which are based on IRS tax filings. Obviously, corporate execs have no interest in artificially pumping up their profits to the IRS. Moreover, NIPA profits are based on current production, so expenses (like pensions and options) are scored when they occur.

NIPA profits have increased 131 percent from the trough, much more than the broad market indexes (the S&P 500 is up 85 percent and the Wilshire 5000 is up 97 percent). As a share of GDP, profits are at record levels; pre-tax profits are 12.4 percent (the highest since 1951), while after-tax profits are 8.7 percent (a post-WW II record).

Profits have been rising at a double-digit clip for over three years now.

This is profit season for the fourth quarter and some analysts think there’ll be a slowdown to single digits. Maybe so, but the Treasury Department reports that for the first three months of fiscal 2007 through December, corporate tax collections rose 22 percent—a pretty amazing number.

In addition, the December 15th tax payment date brought the largest single day corporate tax ever—receipts totaled $73 billion.

So, apart from the overall good news that revenues are rising (at lower tax rates) and the deficit is falling, the Treasury’s numbers are telling us that there might be yet another upside, positive surprise on corporate earnings.

Profits may be a four-letter word to some in Washington, but they are manna from heaven on Wall Street.

Two from "Jimmy P."

James Pethokoukis—aka “Jimmy P”—senior writer at U.S. News & World Report (and frequent Kudlow & Company guest) has two excellent blogs on the Rocky Balboa U.S. economy and Obamanomics.

Both are worth a read.

Lieberman on Kudlow & Company Tonight

Courageous Connecticut Sen. Joe Lieberman (D) will be joining us for a live one-on-one interview from Washington tonight.

We'll focus on the president's plan in Iraq and more...

Tuesday, January 16, 2007

Obama Takes First Step

Earlier today, Barack Obama announced on his website that he was filing a presidential exploratory committee - a more formal declaration is expected in early February.

This of course, is the first offical step in what looks like an all but certain run for the White House.

(It might be a good time to revisit Obama...)

Stock Picks...

On Friday night’s Kudlow & Company, Horacio Valeiras, chief investment officer at Nicholas Applegate Capital Management, offered his stock picks during our stock club segment.

Mr. Valeiras has got a heck of a track record.

He runs the five-star Morningstar-rated Allianz NACM International Fund which was up a phenomenal 31 percent in 2006, while the S&P notched a none-too-shabby 13 1/2 percent gain. (The fund’s 3-year return is +24.64%; 5-year +20.59%)

Here are Valeiras’ picks and why he likes them:

China Mobile: Largest cell phone company in the world; trading at 17 times earnings; growing over 20 percent. Cheap cell phones around the world popping up all over the place.

Foxconn International: This stock benefits from China Mobile's advantages. They make the guts, the components for inexpensive cell phones. The stock is growing at about 50 percent a year, trading at just over 20 times earnings.

C&C Group: A cider and beverage company out of Ireland. They've been able to push their cider, particularly in London with the hot summer last summer. They had a great penetration, and Valeiras expects that to continue. It’s also trading at a very nice multiple.

Nintendo: Valeiras expects the success of the Wii to continue.

Toyota: It’s going to become the largest car company in the world. It's really benefiting from the move to hybrid technology. Its new Tundra truck is also doing quite well in the U.S.

"Nifong & Fitzgerald's Prosecutorial Abuse"

From RealClearPolitics:

...Liberals rushed to condemn the Duke lacrosse players because they loved the narrative: rich white guys abuse poor black woman. Some furious backtracking is taking place as evidence of their innocence mounts. A new verb, to "nifong," has been coined. It's a synonym for "to frame."

Liberals also loved the original narrative in the Plame case: Bush aides persecute whistle blower. But the disclosure that Mr. Armitage was the source demolishes it as thoroughly as the DNA evidence has discredited Mr. Nifong.

Those who wonder why Mr. Nifong went forward with the Duke prosecution after receiving the DNA results should wonder also why Mr. Fitzgerald has persisted despite learning that no crime was committed when Ms. Plame's name was leaked, and that Mr. Armitage (who has not been indicted) was the leaker. Is to "fitzgerald" a synonym for to "nifong?"

Monday, January 15, 2007

Investors Say: Give the Iraq Plan a Chance

Amidst all the pessimism about the U.S. strategy-shift in Iraq, world financial markets seem to be voting for Bush and his plan — not against. On the days immediately preceding the president’s speech, as its contents were leaking out, oil prices were plunging and stock prices were rising. And right after the speech, when the contents of the Iraq plan were clear, guess what? Oil prices continued to fall and share prices hit record highs.

Of course, there are a lot of factors driving these markets. Corporate profits are strong. Productivity is high. Inflation and interest rates are low. And the threat of recession is nil. All this is good for stocks.

And markets do work. The high oil prices of the last couple of years have generated huge profits and considerably more production. Oil inventories are high and the world seems to be awash in oil supply. That (along with some unusually warm weather) is driving prices lower.

But President Bush’s overhauled Iraq strategy, including a tougher line on Iran, is being viewed by investors as a plus for security in the Middle East. Two large aircraft carrier groups and 16,000 sailors have been positioned in the Persian Gulf. There also are indications that the U.S. will provide Patriot anti-missile defense systems to allies in the region. So, putting all this together, geopolitical risk premiums are actually declining — hence lower oil prices.

While pundits and politicians are saying the new Bush plan won’t work, market investors are voting with their money for a much more positive verdict. And after surveying the details of the new Iraq strategy, I’m casting my lot with the investors.

The U.S. military buildup — including the strengthened naval presence — not only will provide better security for Iraq’s democratically elected government, but also enhanced security for the entire region.

Covering slightly more than 20,000 new troops, the revamped military plan will put five U.S. brigades in Baghdad and a sixth in al-Anbar province. Very simply, the White House believes that political progress and reconciliation in Iraq cannot come without better population security — hence the need for additional U.S. troops and a shift in tactics. The rules of engagement also are going to change. This means no more political interference by the Maliki government in U.S. military operations.

In essence, the whole war plan has been changed from an American clearing operation — where Iraqi forces would unsuccessfully attempt to hold that cleared ground — to a strategy where U.S. forces will clear, hold, and stay. There also will be a beefed up “clear and hold” operation in the volatile Anbar region, where local tribes have begun to move against al-Qaeda and other enemies.

These are all crucial components of a strategy that, for a change, sounds like a recipe for victory. However, it is critical to the success of the plan that all belligerent parties in the region now be held accountable.

“We will interrupt the flow of [enemy] support from Iran and Syria,” warned the president. “And we will seek out and destroy the networks providing advanced weaponry and training to our enemies in Iraq.”

These tough words amount to a virtual declaration of war against the rogue states within the Axis of Evil.

Just hours after the Bush speech, U.S. troops raided a building in northern Iraq and arrested five Iranian Revolutionary Guard operatives. Shortly afterwards, Secretary of State Condoleezza Rice told senators, “the United States is not going to simply stand idly by” while Tehran tries to disrupt Washington’s renewed efforts to stabilize Iraq.

It’s about time.

Additionally, the U.S. is waging financial war against Iran. The Treasury Department froze the assets of Iran’s oldest bank, Bank Sepah, which has facilitated the funding of Iran’s weapons-of-mass-destruction programs. The bank is now barred from American financial markets.

And let’s not forget that plunging oil prices — from nearly $80 a barrel all the way down to $52 — will do severe damage to Iran’s already tenuous fiscal position. As the new U.S. security blanket protects Persian Gulf shipping lanes from any Iranian mischief, continued oil-price declines will bleed the weak Iranian economy. That, in turn, will undermine Iran’s ability to financially assist terrorist groups like Hezbollah and Hamas, or anti-American factions in Iraq.

Think of it: Falling oil prices not only reflect lower war and political risk, but they are actually doing enormous damage to one of the Middle East’s top risk producers: Iran.

Political opposition by Democrats and Republicans to Bush’s new strategy may be hardening, but financial markets are pointing to a much more positive scenario. Might the president’s new plan actually work? World markets are saying give it a chance.

I agree.

Friday, January 12, 2007

Friday Night Lineup

On CNBC's Kudlow & Company tonight:

We'll begin with a look at the stock market's remarkable climb and the beautiful Goldilocks economy...

*David Malpass, chief economist at Bear Stearns
*Robert Hormat, Vice Chairman of Goldman Sachs International
*Stefan Abrams, CIO at Trust Company of the West

IRAQ/IRAN...Under Secretary of State Nick Burns will weigh in with his perspective.

A heated political debate between conservative columnist Ann Coulter and liberal radio host Leslie Marshall.

KUDLOW'S STOCK CLUB...Horacio Valeiras from Allianz NACM International Fund will offer his stock selections.

TAX TIPS with Tom Herman, The Wall Street Journal's "Tax Report" columnist.

Tune into CNBC's Kudlow & Company tonight - We still believe that free market capitalism is the best path to prosperity.

Goldie Marches On...

Strong retail sales report this morning. Strong consumers - this is a big positive. Q4 could be 3 percent growth...

From Bloomberg:

Retail sales in the U.S. rose more than forecast in December, capping the strongest back-to-back gains in almost a year, as growing incomes and holiday discounts kept Americans shopping.

Sales rose 0.9 percent, the most since July, after a 0.6 percent increase in November that was less than previously estimated, the Commerce Department said today in Washington. Sales excluding autos rose 1 percent, the most since January 2006, after gaining 0.7 percent in November.

The report suggests consumer spending, which accounts for more than two-thirds of the economy, gave growth enough of a boost last quarter to overcome slowdowns in home construction and manufacturing. Improved sales at restaurants, electronics and department stores led last month's increase...

Give it a Chance to Work

"Democrats, who earlier called for more troops, now seem to offer no plan other than to oppose Bush's effort. We think every American ought to be praying that Bush's plan somehow succeeds."

-Excerpt from an editorial in New Hampshire's Union Leader

"Nothing would more raise the tenor of this debate than if some member of the Democratic Party would take ownership of the subject of military doctrine in Iraq. On the evidence of their statements the past 24 hours, barely a Democrat exists with a clue of what Gen. Petraeus is about to do or why."

-Daniel Henninger, in today's Wall Street Journal, arguing that the Petraeus command is the overdue beginning of the counterinsurgency.

"...In an ideal world, both parties would recognize the disastrous results of a defeat in Iraq and would signal our resolve to win. But the Democrats (and some Republicans) are all too comfortable with failure.

Leading Democrats like the Speaker of the house and potential presidential candidates are indicating that if they take the White House, American withdrawal from Iraq is a certainty.

Our enemies watch CNN and read the New York Times. Perhaps they’ve noticed how eager Democrats are to cast the president’s decision as an “escalation” rather than a surge. They like the word escalation because it conjures Vietnam. Vietnam is the Democrats alpha and omega. It’s the war we lost (thanks in part to them) and they seem to want to return to the scene of the crime.

The president has freed himself from some of the rigidity that characterized his conduct of the war. The Democrats, unfortunately, are stuck in theirs."

-Mona Charen writing in National Review Online

Thursday, January 11, 2007

The Iranian Card

No question now that Iran is squarely in President Bush’s sights.

One of the big pieces in his speech last night was an aggressive warning to Iran:

“We will interrupt the flow of support from Iran and Syria. And we will seek out and destroy the networks providing advanced weaponry and training to our enemies in Iraq.”

This is tough stuff.

Earlier this morning, U.S. troops raided Iran’s consulate in the northern Iraqi city of Arbil, seized computers and documents and arrested five employees—all this shortly after the President’s speech.

Secretary of State Condi Rice warned Iran this morning that "the United States is not going to simply stand idly by" while Tehran tries to disrupt Washington’s renewed efforts to stabilize Iraq.

On top of all this, another aircraft carrier group is moving into the Persian Gulf. There are also indications that the U.S. will provide Patriot anti-missile defense systems to nearby allies.

These developments come on the heels of the Treasury Department barring Iran’s oldest bank from American financial markets. Iran’s Bank Sepah has facilitated the funding of Iran’s weapons of mass destruction programs. Treasury Undersecretary Stuart Levey is leading this charge.

Iran is clearly a key aspect of success in this battle’s next stage.

Look for an ongoing dragnet by American troops in Iraq to capture and detain Iranian personnel. I heard this first in the White House background briefing yesterday. Today’s raid on the Iranian consulate confirms it.

President Bush—aka President Backbone—may be fighting an uphill battle in Iraq, but he is sure fighting.

A Vote of Confidence

Amidst the expected chorus of pundit pessimism about the President’s new Iraq initiative, world financial markets are voting for Bush—not against him.

Yesterday, before the speech, stocks went up, while oil and gold both went down.

Today, when trading opened after the speech, stocks went up and oil and gold went down.

All three are political and war risk barometers. It’s a very important vote of confidence for Mr. Bush.

Wednesday, January 10, 2007

Bush’s Strategy for Victory

After taking part in a White House/NSC background-briefing conference call on President Bush’s speech tonight -- the contents of which I regard as essential to America’s security and the prospects for victory in the Middle East -- I believe we still can win in Iraq. That’s right. I believe we can win in the sense of providing security for Iraq’s democratically elected government along with the necessary training and support for the rebuilding Iraqi forces.

Covering slightly less than 20,000 new troops, the military plan will put five U.S. brigades in Baghdad and a sixth in al-Anbar province. There are nine districts in Baghdad, covering both the city’s east and west sides. The president’s plan is to put one battalion -- roughly 800 soldiers -- in each of the nine districts. So, in ballpark numbers, we will be doubling the American troop presence in Baghdad from the current 15,000 level to a new 30,000 level. At least that’s how I do the math.

Importantly, the rules of engagement are going to be loosened significantly. This means no more political interference by the Maliki government in U.S. military operations. Prior to this development, some U.S. coalition operations have in fact been interrupted by Maliki -- in particular when on maneuvers that bumped into the al-Sadr militias.

In effect, the whole war plan has been changed from an American clearing operation -- where Iraqi forces would unsuccessfully attempt to hold that cleared ground -- to a strategy where U.S. forces will clear, hold, and stay. Again, without any political interference from the Iraqi prime minister. There also will be a beefed up “clear and hold” operation in the volatile Anbar region, where local tribes have recently begun to move against al-Qaeda and other enemies.

The White House believes that political progress and reconciliation in Iraq cannot come without better population security -- hence the need for additional U.S. troops and a change in tactics. To me, this is a very good development indeed.

An oil deal also is in the works -- presumably an Alaska-type revenue sharing among Iraq’s three major groups, the Kurds, Sunni, and Shia. There also will be a much greater emphasis on military/civilian cooperation outside the Green Zone and around the country. New money will be injected by both the U.S. and the Iraqis in the cause of job creation and provincial economic activity.

Toward the end of the conference call, up came the subject of Iran. The NSC briefer mentioned “more aggressive steps to counter Iranian influence in Iraq.” I asked if that included military steps. The briefer said she couldn’t go there at this time, but suggested the capture and detainment of Iranians in Iraq, such as occurred in late December, would continue. I am mindful of recent news reports that two U.S. aircraft carrier groups -- the Eisenhower and Stennis -- have been assigned to the Persian Gulf. It sounds to me like the U.S. will be taking a harder line with Iran, one way or another.

While all this is happening it is important to note that oil prices (which have become a political risk-barometer of Middle East tensions) have actually been dropping quite a bit. In fact, in today’s trading, oil fell below $54 a barrel. (Its peak was slightly under $80 last spring and early summer.) Meanwhile, the stock market -- which, of course, has rallied mightily over the last six months -- actually climbed today as details of the president’s plan leaked out.

So let me ask these questions: Are world economies and financial markets applauding Mr. Bush? Are they saying that the change in generals and the American military strategy are good things? And might the markets be hinting that things are about to get a lot better in Iraq as a result of President Bush’s strong actions and leadership?

I’m looking at the lead story in the New York Times right now. The headline reads: “U.S. and Iraqis Hit Insurgents in All-Day Fight.” I like the sound of that. I hope more of the same is coming.

Wednesday Night Lineup

On CNBC's Kudlow & Company this evening:

We'll begin with a look at Iraq - ahead of President Bush's speech.

Our guests include:

*Bill Press, nationally-syndicated columnist and radio host;
*Jeff Goldberg, Washington correspondent for the New Yorker;
*Mona Cheran, syndicated columnist and political analyst

A wide ranging discussion on the economy and stock market with an emphasis on oil, Iraq and Iran...

*Quentin Hardy, Silicon Valley Bureau Chief for Forbes magazine
*Diane Swonk, chief economist for Mesirow Financial
*Don Luskin, CIO for Trend Macro
*Dan Yergin, president of Cambridge Energy Research Associates


(A look at the healthcare movement in California and the minimum wage...)

*Robert Reich, former Clinton Labor Secretary
*Steve Moore, from the Wall Street Journal editorial board

"Sticking it to Low-Skilled Workers"

John Stossel on raising the minimum wage:

The law of supply and demand works in the labor market, too. If government mandates a higher minimum wage, some workers will get a raise. Some. But something else will happen. Employers will hire fewer low-skilled workers. Others will let some current workers go. Some will choose not to expand their businesses. A few will close altogether. If an employer believes a worker creates only about $5.15 worth of value on the job, he won't pay $7, even if the government demands it...

Let's face it. The higher minimum wage is a feel-good law. A slight increase will pass because politicians and poverty activists will be able to say they have "done something" for the poor, while the victims of the policy go unnoticed....

Tuesday, January 09, 2007

Good News from Treasury

A senior Treasury official emailed me in response to my blog yesterday about Social Security tax threats.

The key line in the email was: “The Secretary isn’t for raising taxes.”

This is good news. I appreciate the prompt response.

It’s the clearest statement yet regarding Mr. Paulson’s strategy.

What I gathered is that they’re looking for some good non-tax hike ideas that could form the basis of an agreement—but if the Dems insist on tax hikes, there will be no deal.

Monday, January 08, 2007

Smoke and Fire

Beware the truth of the old adage, where there’s smoke there’s fire.

Still more articles out this morning on the potential threat President Bush will sign on to a high tax Social Security deal. Also, an Alternative Minimum Tax (AMT) repeal deal that would require big tax hikes elsewhere as a pay-go offset.

Bob Novak writes about the payroll tax threat, while Grover Norquist writes about the AMT threat.

Inside the White House, there’s apparently a split with Karl Rove, Al Hubbard and Ed Lazear, who oppose any tax hike deals, and Treasury man Henry Paulson and Josh Bolten who are apparently pursuing such deals.

Over the past couple of months, numerous supply-siders like myself and many others have wondered out loud about these anti-growth, tax threat deals. The President’s op-ed piece in last week’s Wall Street Journal suggests that he won’t do it – but no one really knows for sure.

He keeps saying that all options are on the table regarding Social Security reform. This is not a comforting phrase. Are we talking about a small kitchen table? Or are we talking about a super large antique Louis Quinze majestic dining room table?

Today’s New York Times has a classic, class warfare argument from a Congressional Budget Office analysis from 2004 tax data that purports to show “Bush Tax Cuts Offer Most for Very Rich” but actually shows that the top 1 percent of income earners paid about 37 percent of all federal income taxes—a big jump from prior years. (Meanwhile, families in the bottom 40 percent typically paid no federal income tax and received money back from Uncle Sam.)

On CBS’s Face the Nation yesterday, Ms. Pelosi mentioned raising taxes on people earning over $500,000 yearly as a “last resort.” So, tax-the-rich remains very much alive and well in the first 100 hours of the new Democratic Congress. (Democrats apparently want a new direction for U.S. economic policy, despite the fact that Friday’s jobs report once again showed our low tax rate economy is doing very well, thank you very much.)

Democrats took two concrete steps last week to promote this tax hike threat. First, they passed pay-go, which means spending increases could be financed by higher taxes. Second, they abolished a two-thirds super majority requirement for tax hikes and substituted a simple (read “party line”) majority instead.

I believe these actions rattled the stock market on Friday, despite the good economic news.

On the bright side, Republican Senate Leader Mitch McConnell told Fox News yesterday that the votes aren’t there for tax hikes. I sure hope he’s right.

But where there’s smoke, there’s very often fire.

Friday, January 05, 2007

Friday Night Lineup

On CNBC's Kudlow & Company tonight:

A political debate with Steve Moore, WSJ columnist and Robert Reich, former Clinton labor secretary and professor at UCal Berkeley.

Christopher Hitchens, columnist, and Jed Babbin, author and former undersecretary of defense, will discuss the Iraq war.

The economy and the markets with Jeff Kleintop (PNC chief investment strategist), John Rutledge (president of Rutledge Capital), and Nomi Prins (author/journalist/senior fellow at Demos).

Our Stock Club guest is Barry James of James Advantage Funds.

Tax Threat

John Fund reports today in Opinion Journal's Political Diary that the new Pelosi House has opened the door to tax hikes. Yesterday's package of new rules to govern the lower chamber erases the three-fifths majority that was required to raise taxes under the old Republican House rules. The new rules allow tax hikes through a simple majority vote.

This is a bad sign.

I wonder if today's stock market decline isn't picking up this high tax threat.

Goldi Scores Big

The Goldilocks economy scored big this morning, with new jobs from corporate payrolls rising 167,000, while unemployment held steady at 4.5 percent. Meanwhile, inflation indicators like gold, oil, and copper continue to fall. It's a near perfect combination.

In the jobs report, service sector employment led the way by creating 178,000 jobs in December, including a 50,000 gain from professional and business services. Manufacturing and construction firms shed jobs, but by a much smaller amount than in recent months. Meanwhile, average wages are up 4.2 percent over the past 12 months, more than twice the current 2 percent inflation rate.

In the more important household employment report, which includes entrepreneurs and small businesses, jobs rose by an incredible 303,000 and have averaged a 340,000 monthly gain over the past three months. For 2006, corporate payrolls rose 1.8 million, while household jobs rose 3.1 million.

Since the Bush tax-cuts of mid-2003, corporate payrolls have grown 7.2 million, while household employment increased 8.4 million.

The stock market roared ahead in 2006 despite early-year headwinds from rising energy prices and Fed tightening. As an accurate barometer of the future health of America's businesses and economy, stocks shrugged off bad news from Iraq, Iran, and North Korea, as well as the domestic housing slump.

Low-tax, free market capitalism is a wonderful thing.

The new Pelosi-led Congress is all abuzz with talk about a "new direction".

But, shouldn't calmer heads be asking: "if it ain't broke, don't fix it".

Thursday, January 04, 2007

A Tall Order

I hope the new Democratic Congress fares as well as the Republicans did during their time at the helm.

Take a look at the Republican report card from 1994 through 2006:

- The stock market posted incredible gains - the S&P 500 was up 209% during the GOP's tenure, while the Wilshire 5000 advanced 213%;
- Household net worth rocketed up $29 trillion;
- Real GDP averaged growth of 3.2 percent;
- The unemployment rate closed out 1994 at 5.5 percent - today it stands at 4.5 percent - 21 million new jobs were created.

Judging by the numbers it's a rather tall order...

Thursday Night's Lineup

On CNBC's Kudlow & Company tonight:


We're going to begin the show with a one-on-one interview with Rep. Charlie Rangel (D-NY), chairman of the Ways and Means Committee on what's in store for the new Congress.

Following our interview, Mr. Rangel will join our panel where we'll dive headfirst into a political debate with the following guests:

*Tony Blankley, Washington Times editorial page editor
*E.J. Dionne, Washington Post op-ed columnist

A DOLLAR & ECONOMY DEBATE with Brian Wesbury, Chief Economist for First Trust Advisors and Fred Bergsten from the Institute for International Economics.

TAX TIPS with Tom Herman, columnist with The Wall Street Journal.

Competing Visions on the Common Good

“We’re going to take things away from you on behalf of the common good.”
–Hillary Clinton, 6/28/04

“America's abundance was created not by public sacrifices to ‘the common good,’ but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America's industrialization. They gave the people better jobs, higher wages and cheaper goods with every new machine they invented, with every scientific discovery or technological advance -- and thus the whole country was moving forward and profiting, not suffering, every step of the way.”
-Ayn Rand

The Profligate Byrd

Great take on earmarks & pork from last night's Kudlow & Company:

"I like how [the media] gave a nod to Robert Byrd, thanking Robert Byrd for showing some kind of fiscal restraint. I mean, thanking him is like kind of thanking Dean Martin for showing up at just one AA meeting. The joke in West Virginia is [other people] may talk about bridges to nowhere—they talk about highways to nowhere. People get lost in West Virginia because, it's, you know, 'let's take route Robert Byrd to highway Robert Byrd and let's get off at the Robert Byrd...'"

-Elizabeth MacDonald, senior editor at Forbes magazine

Letter to Lou

Fabulous letter to CNN's protectionist-in-chief from George Mason economist Don Boudreaux...

Dear Mr. Dobbs,

Congratulations on having a large new bloc of voters bear your name! Politicians ignore the "Lou Dobbs Democrats" at their peril.

Every night on CNN you claim to speak for these people. They are America's middle class: decent folks who work hard and play by the rules but who, you insist, are abused by the powerful elite. Free trade is one of the policies allegedly supported by the elite and for which you reserve special vitriol. You thunder that imports destroy American jobs, reduce wages, and make the economy perilously "unbalanced."

But you are mistaken.

First, some basic facts about the state of middle-class Americans. The US unemployment rate now is at a healthy 4.5 percent. This rate is lower than the average annual unemployment rate for the 1970s (6.2 percent), the 1980s (7.3 percent), and even the high-growth 1990s (5.6 percent). Inflation, meanwhile, is running below the average for the 70s, 80s, and 90s.

Here's more good news for ordinary Americans. The percentage of Americans who own their own homes is higher than ever, even though the size of today's typical home is larger than ever. Workers' leisure time, too, is at historically high levels. And jobs are just as secure today as they were in the late 1960s, according to a research paper by University of California-Davis economist Ann Huff Stevens.

Perhaps you think that this prosperity exists only because so many of today's households require two income earners. But women started leaving homes for paid employment at least a century ago, with no jump since the end of World War II in the rate at which women enter the workforce, according to a recent report by the Bureau of Labor Statistics.

Had worker pay truly deteriorated in the past 30 years, and had families reacted by sending moms to the workforce, the rate at which women join the workforce would have increased. It did not.

Today, the percentage of household expenditures used to buy nonessential items is at an all-time high - about 50 percent compared with about 45 percent in the mid-1970s. That undercuts your notion that two incomes are needed just to scrape by. Not only is America's middle class not disappearing - it's thriving.

Perhaps you miss this fact because you are misled by familiar trade jargon. In your book, "Exporting America," in your columns, and on your television show you complain vigorously and often about America's trade deficit. You call it "staggering," and wonder how long America can continue to run such deficits.

Admittedly, the word "deficit" sounds ominous. In fact, though, America's trade deficit is evidence of its economic vigor and promise. Here's why:

When Americans buy foreign-made goods and services, foreigners earn dollars. The only way America would run no trade deficit is if foreigners spent all of these dollars buying goods and services from Americans. Instead, though, foreigners invest some of their dollars in America. They buy American corporate stock, they build their own factories and retail outlets in the US, they lend dollars to Uncle Sam, and they hold some dollars in reserve as cash.

Aren't you proud that so many people the world over eagerly invest their hard-earned wealth in America?

As an American, I'm proud and optimistic. Foreigners invest in the US so readily because its economy is so strong. And even better, these investments strengthen the economy by creating more capital for American workers. These investments raise workers' productivity and wages.

Remember: A trade deficit is not synonymous with debt.

I'm writing this letter on a new Sony computer that I bought with cash. I owe Sony nothing. If Sony holds the dollars it earned from this sale, or if it uses these dollars to buy stock in General Electric or land in Arizona - that is, as long as Sony invests its dollars in America in ways other than lending it to Americans - the US trade deficit rises without raising Americans' indebtedness.

Americans go more deeply into debt to foreigners only when Americans borrow money from foreigners. Uncle Sam, of course, borrows a lot of money, from both Americans and from non-Americans. I share your concern about the reckless spending and borrowing practiced by politicians in Washington.

Foreigners, however, are not to blame for this recklessness. Indeed, I'm grateful that foreigners stand ready to help us pay the cost of our overblown government. Fortunately, Washington's spending binges are not serious enough to cripple America's entrepreneurial economy. If they were, foreigners would refuse to invest here.

If you're still skeptical that America's trade deficit is no cause for concern, perhaps you'll be persuaded by Adam Smith, who wrote that "Nothing, however, can be more absurd than this whole doctrine of the balance of trade."

Smith correctly understood that with free trade, the economy becomes larger than any one nation - a fact that brings more human creativity, more savings, more capital, more specialization, more opportunity, more competition, and a higher standard of living to all those who can freely trade.


Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

Wednesday, January 03, 2007

Wednesday Night's Lineup


We'll begin with a look at the red hot stock market and the Goldilocks economy.

On board:

*Stefan Abrams, CIO at Trust Company of the West
*Elizabeth MacDonald, senior editor at Forbes magazine
*Author/Actor/Economist, Ben "Renaissance Man" Stein (Ben will stick around for the entire show...)

On the economic front:

*Nouriel Roubini, NYU Economics professor
*Jim Glassman, senior economist with JP Morgan Chase

A look at President Bush's op-ed in today's Wall Street Journal.

We'll start this off with a one-on-one interview with White House budget chief Rob Portman. Mr. Portman will be followed by:

*James Glassman, senior fellow for the American Enterprise Institute
*Jason Furman, Center on Budget and Policy Priorities
*Ben Stein...

Tune into Kudlow & Company tonight- we're hitting on all cylinders...

Goldie Lives!

The ISM manufacturing index beat the street rising to 51.4 percent in December, up from 49.5 percent in November.

This is very good news. Economists were expecting the index to remain below 50 percent at 49.5 percent. (Anything north of 50 signals expansion.)

Production and new orders both increased, while prices fell.

What used to be called the Purchasing Manager’s Index is now called the Institute of Supply Management. It’s one of the best real-time economic stats out there—not from the government, mind you, but from private manufacturing businesses.

On another note, President Bush’s op-ed today in the Wall Street Journal argues that his tax cuts fueled economic growth while simultaneously spurring record tax revenues. The bottom line? The budget deficit has plunged while the economy has soared.

Think of it as the Bush Boom—think of it as another “W” in the win column for supply-side economics and the Laffer Curve.

At lower tax rates, economic behavior responds with more work and greater investment. Our expanding economic pie throws off more tax revenues, even at these lower tax rates.

In his op-ed, Mr. Bush also pledged to clamp down on budget spending and corrupt earmarks. He’s aiming for a balanced budget plan by 2012. (I think it could happen sooner). He asks the Democratic Congress for bipartisan cooperation but if not, he clearly threatens to use his veto pen.

Good plan, President Bush.

Tuesday, January 02, 2007

Two Shows on Tap Tonight...

**Please note that CNBC's Kudlow & Company will be hosting a 2-hour special this afternoon and evening beginning at 4pm EST**

The first half:

CNBC's Chief Washington Correspondent John Harwood will start us off with the latest from Washington. We'll follow the Harwood update with a look at Ford's economic legacy with the following guests:

*President Ford & the economy...

*John Rutledge, chairman of Rutledge Capital
*Gary Gensler, former Undersecretary of the Treasury
*James Pethokoukis, senior writer at U.S. News & World Report

A Roundtable with the Historians:

*Allan Lichtman, professor of history at American University
*Guy Vander Jagt, a Ford friend and former GOP congressman from Michigan
*Julian Zelizer, Boston University Professor of History

Ford's Politics
*E.J. Dionne, columnist for the Washington Post
*John Fund, WSJ columnist


A look at the stock market, economy and the investor class with:

*Art Laffer, president of Laffer Associates
*Don Luskin, CIO of TrendMacro
*Rodgin Cohen, chairman of Sullivan & Cromwell LLP
*Gary Shilling, president of A. Gary Shilling & Co

*Frank Newport from Gallup will join us in the investor class discussion.

Kudlow's Stock Club with with Robert Smith, manager of T. Rowe Price Growth Stock fund.

A debate on Iraq between Jed Babbin, former undersecretary of defense and Joseph Cirincione, director of national security policy at the Center for American Progress.

A political debate on the new session of Congress and more between nationally syndicated columnist Deroy Murdoch and Peter Beinart of the The New Republic.

A New Direction?

(Received earlier this morning from one of our institutional clients...)


The Democrats promise "A New Direction For America"

The stock market is at a new all-time high and America's 401K's are
back. A new direction from there means, what?

Unemployment is at 25 year lows.
A new direction from there means, what?

Oil prices are plummeting.
A new direction from there means, what?

Taxes are at 20 year lows.
A new direction from there means, what?

Federal tax revenues are at all-time highs.
A new direction from there means, what?

The Federal deficit is down almost 50%, just as predicted over last
year. A new direction from there means, what?

Home valuations are up 200% over the past 3.5 years.
A new direction from there means, what?

Inflation is in check, hovering at 20 year lows.
A new direction from there means, what?

Not a single terrorist attack on US soil since 9/11/01.
A new direction from there means, what?

Osama bin Laden is living under a rock in a dark cave, having not surfaced in years, if he's alive at all, while 95% of Al Queda's top dogs are either dead or in custody, cooperating with US Intel. A new direction from there means, what?

Several major terrorist attacks already thwarted by US and British Intel, including the recent planned attack involving 10 Jumbo Jets being exploded in mid-air over major US cities in order to celebrate the anniversary of the 9/11/01 attacks. A new direction from there means, what?

Just as President Bush foretold us on a number of occasions, Iraq was to be made "ground zero" for the war on terrorism -- and just as President Bush said they would, terrorist cells from all over the region are arriving from the shadows of their hiding places and flooding into Iraq in order to get their faces blown off by US Marines rather than boarding planes and heading to the United States to wage war on us here. A new direction from there means, what?