Friday, March 30, 2007

Listening to Laffer

It’s good to see that Republican presidential contenders are focusing on supply-side economics as a pro-growth strategy for their campaigns and presumably, for their presidential vision if elected.

The Wall Street Journal’s Kim Strassel tells the story in her “Tax Talk” column today. Having interviewed the “Big Three” candidates on CNBC’s Kudlow and Company, I agree with Ms. Strassel’s assessment that Mayor Giuliani and Governor Romney have developed the best tax strategies so far. Senator McCain remains a distant third.

Incidentally, Steve Forbes’ endorsement earlier this week of Rudy Giuliani is a significant development. Both Rudy and Romney have strong supply-side tax advisors in their camps. And if economist Kevin Hassett can convince Sen. McCain to slash corporate tax rates, that would surely give the Arizonan a much stronger economic growth platform.

Also noteworthy is Alan Reynolds’ recent piece that argues tax revenues as a share of the economy actually increased during the JFK, Ronald Reagan and George W. Bush tax rate reduction periods. Revenues also rose following Bill Clinton’s second term tax cut package that included a reduction in the capital gains tax rate.

Right now in Washington’s budget process, Republicans should be arguing that any revenue shortfalls can be made up by reducing tax rates—or at least holding them down to their current levels.

Tax receipts have absolutely boomed in the aftermath of President Bush’s 2003 tax rate reduction package. That’s a fact. As a consequence, the budget deficit has fallen substantially. Moreover, at lower marginal tax rates there’s a good chance the budget will be balanced in the next year or two, despite chronic overspending.

I wish the presidential contenders would talk more about all this. Lower taxes make good economics and good politics. But the fact they are all searching for a supply-side tax strategy bodes rather well for a Republican comeback in 2008.

The older I get, the more militant I become on this subject. Lower tax rates do expand the economic pie. Lower tax rates do boost revenues. Art Laffer had it right, and he’s got twenty-five years of pro-growth evidence to back him up.

The tax cutters were right. They won.

Thursday, March 29, 2007

President Bush was at his best in a brief news conference this morning after meeting with Republican leaders.

He made it very clear:

1) No to the pork barrel laden Iraq funding bill;

2) No to Congress’ attempt to micromanage the war and help the enemy with specific withdrawal timetables; and

3) No to the implied tax increase coming out of the Democratic Congress budget making process. (Check out Bob Novak's latest column for more on this)

President Bush is just saying no. It’s good to see him restoring conservative principles on the war, on taxes, and on overspending.

The big three Republican presidential candidates—Messrs. Giuliani, McCain, and Romney (is there a fourth—Fred Thompson?) should echo and support Mr. Bush’s “Just Say No” news conference.

The GOP must stand for getting the bad guys, wherever they are, and economic growth policies through low tax rates and clear budget caps.

"Supply-Side Giuliani"

***Editorial from today's New York Sun***

The announcement yesterday by the magazine executive and former presidential candidate, Steve Forbes, that he is endorsing Mayor Giuliani in 2008 and joining the campaign as a national co-chairman and senior policy adviser, crystallizes for us a feeling that has been germinating for quite some time, that Mr. Giuliani is emerging as the candidate in this race for growth-oriented, economic conservatives — and, for that matter, those who aren't so conservative but comprehend the importance of policies not of managing shortages but of ensuring jobs and growth.

We gained an early glimpse of this in Russell Berman's dispatch about Mr. Giuliani's brilliant remarks at the Hoover Institution, where he issued his call to make the GOP the "party of freedom." We saw it in the interview Mr. Giuliani did this week with Lawrence Kudlow on CNBC's "Kudlow and Company." Mr. Kudlow is important because he understands this stuff down to the ground. Mr. Giuliani said flatly: "I regard myself as a supply-sider for sure. I mean, watched Ronald Reagan do it and learned it, saw it work. Taxes get reduced, more revenue comes in."

In the same interview, the mayor also said, "you lower the capital-gains tax and if you do it smartly, you're going to end up with more revenues from the lower tax than you do from the higher tax." And he said, "I think Reagan got it right. I felt that what Reagan did was, I kind of think of it as like cleaning out the forest. You got — the tax code was this big, he got it down to a simple code, reduced the top rates. Kind of leveled out the rates a little so there weren't as many. The tax code needs a simplification in addition to lowering your sum taxes...."

Click here to finish reading the editorial.

Tuesday, March 27, 2007

God Bless Tony

May God bless Tony Snow whose cancer has apparently spread to his liver.

Tony’s a good friend. He’s also a great man and a great American. Tony’s always been a fighter and he said he’s going to beat it. I believe him.

We wish him all the best. He can be sure that we will be praying for him every step of the way.

Tuesday Night Lineup

On CNBC's Kudlow & Company this evening:

A MARKET DRILLDOWN...from the NYSE with CNBC's Bob Pisani to start the show.

AN EXCLUSIVE ONE-ON-ONE INTERVIEW WITH DAVID STOCKMAN...the former chief executive of Collins & Aikman will present his side of the story on his indictment yesterday on federal fraud charges.

SARBOX REFORM...Peter Wallison, resident fellow at the American Enterprise Institute, will debate Jack Coffee, an expert in securities law at Columbia.

MARKET PERSPECTIVE with Fritz Meyer, senior investment officer with AIM Advisors, Art Laffer, president of Laffer Associates, and CNBC reporter Herb Greenberg.

FREE TRADE...Rep. Charlie Rangel (D-NY) will join us in a one-one-one interview to discuss all the latest Washington developments.

A BUDGET/TAXES DEBATE...between Rep. David Dreier (R-CA) and Rep. Xavier Becerra (D-CA).

KUDLOW'S STOCK CLUB...Tony Dong, portfolio manager at Munder Mid-Cap Core Growth Fund will offer his stock picks.

Rudy Speaks...

America's mayor and GOP presidential hopeful Rudy Giuliani on last night's Kudlow & Company:

On Taxes:

I'm against most taxes. I mean, I think that taxes have to exist. But they should exist at the lowest possible level, and to the extent that we can, we shouldn't invent new ones. Maybe that's my experience being mayor of New York City, where we had so many taxes. I mean, think about it. I lowered 23 different taxes. And I'm not sure I lowered all of them. A city shouldn't have 23 taxes, or 30 taxes, or 40 taxes. There should be a few. They should be simple. They should be easy to comply with. They should raise the revenue that's necessary for the essential services of government, and they should be competitive. So whenever people talk about a new tax, I generally don't like the idea…I don't like taxes. I don't know how to make that any clearer. I don't like taxes.

On Free Market Capitalism and Supply–Side Economics:

I regard myself as a supply-sider for sure. I mean, I watched Ronald Reagan do it. I learned it, it works. Saw taxes get reduced, more revenue come in. Practiced it as the mayor of New York, as the first mayor ever to do that. It's almost harder to do it in New York than it is in Washington. There was less of an acceptance for it and more resistance to it. But I lowered taxes 22, 23 times. I started with a $2.3 billion deficit, and by lowering taxes, we cleared that deficit and we started building a pretty big surplus. So not only do I believe in it, I've made it work. So I believe in it really strongly because it comes out of practical experience.

...I'd say over the last 10 to 15 years, I've become more and more convinced that globalization, free market economics, is the way to go for the United States. It really just challenges us to kind of predict the future and to try to think of the industries we have to create where we can take advantage of the large number of consumers that are emerging in China, the large number of consumers that are emerging in India. If we challenge ourselves, it really gives us the hope of really strong growth and that's what we should always be pointing toward, growth.

On Whether He's the Pro-Stock Market, Pro-Investor Class Candidate:

Well, I think so. I mean, I as the mayor of New York, I consider [the stock market] a hometown industry. I used to talk about the finance industry being to New York what the steel industry was to Pittsburgh 20 or 30 years ago. It's our hometown industry. It's the thing that dominates 30 to 40 percent of the economy of New York City. It seems to me that that's also true of the United States. And, of course, it's the way in which we develop capital and drive these tremendous inventions, creations.

I've always been in favor of a low capital gains tax. In fact, as the mayor of New York, I used to try to urge actually removing the capital gains tax. I thought it would be one of the best little special benefits for New York. Couldn't quite get the congressional delegation to agree with that. But the idea if you lower the capital gains tax and if you do it smartly, you're going to end up with more revenues from the lower tax than you do from the higher tax. So I think that if you look at my background and you look at my experience as mayor, I probably have the most aggressive, fiscal conservative record, supply-side record. I'm probably the only one that's really practiced it.

Monday, March 26, 2007

Tonight's Special Kudlow & Company Lineup

Former New York City Mayor and current GOP presidential frontrunner Rudy Giuliani will join us in an exclusive one-on-one interview.

We'll discuss a wide range of topics including protecting our homeland, free market capitalism, taxes, Iraq, and much more...

The Wall Street Journal's Steve Moore and senior MarketWatch columnist Herb Greenberg will be on board to offer their economic perspective and responses to the interview.

Also, former GOP House Majority Leader Tom DeLay will battle Lawrence O'Donnell, political analyst and producer of "The West Wing" in a politcal response to the interview.

It's going to be a great show...please join us on CNBC at 5pm ET.


America’s mayor and presidential front-runner Rudy Giuliani will sit down with us for an exclusive one-on-one interview on Kudlow & Company this evening.

We’ll cover the waterfront—the subprime housing slump…taxes…President Bush’s threatened veto on the pork laden, artificial deadline-setting Iraq spending bill…should Alberto Gonzales be replaced…how did Rudy get to be the GOP frontrunner…what’s his global anti-terror strategy, and so forth…

I'm excited to interview Mayor Giuliani. We're going to see if he's a free market capitalist. I have a feeling he is.

Friday, March 23, 2007

Bull Run

Spurred by a Fed policy shift to neutral and surprisingly strong housing data, US stock markets rose by 3.5% this week, their best performance in four years. That's right, four years.

The February stock correction based on overly obsessive fears that sub-prime mortgage failures would spread like a virus through capital markets, major financial institutions and the economy has now given way to a renewal of the bull market built on hopes that the sub-prime sickness will be contained and the housing drag on the economy is gradually dissipating.

Earlier this week new housing starts surprised the perma-bears with a 9% gain reported for February. Today, existing home sales scored a 3.9% February blow-out rise that caught the Wall Street smart money completely off-guard. The home resale gain was the biggest monthly rise in three years and the third consecutive monthly gain. The National Realtors Association reports that with small home price declines and rising job-related incomes, their housing affordability index has quietly reached a two year high.

Several new studies have been recently published that show delinquent and late-pay mortgages to be only a small fraction of overall home loans. Thirty-five percent of all homeowners don't even have a mortgage. More than 86% of sub-prime borrowers are not late payers, and over 95% are not in foreclosure.

You might not know it from the headlines, but a number of key data points for February were actually quite strong. Besides the two housing releases, the Fed's index of industrial production increased 1% just for February, and corporate payrolls gained nearly 150,000 including prior month revisions. All this during a month of terrible winter weather that was so bad that over 500,000 people couldn't get to work, and two Congressional hearings on global warming were cancelled due to unusually frigid and snowy climate change.

There are still some sub-prime glitches that will work their way through the economy. But the low-tax, deregulated, resilient and diverse American business system is likely to escape the perma-bear recession forecast. Over the past year the US stock market has gained over 10%, surely a sign of future boom rather than bust. At current interest rates, stocks look to be at least 10% undervalued.

Still the greatest story never told.

Bravo President Bush

"...The purpose of the emergency war spending bill I requested was to provide our troops with vital funding. Instead, Democrats in the House, in an act of political theater, voted to substitute their judgment for that of our military commanders on the ground in Iraq. They set rigid restrictions that will require an army of lawyers to interpret. They set an arbitrary date for withdrawal without regard for conditions on the ground. And they tacked on billions for pet projects that have nothing to do with winning the war on terror. This bill has too much pork, too many conditions and an artificial timetable for withdrawal.

As I have made clear for weeks, I will veto it if it comes to my desk. And because the vote in the House was so close, it is clear that my veto would be sustained. Today's action in the House does only one thing: it delays the delivering of vital resources for our troops. A narrow majority has decided to take this course, just as General Petraeus and his troops are carrying out a new strategy to help the Iraqis secure their capital city...."

Friday Night Lineup

On CNBC's Kudlow & Company this evening:

A LOOK AT THE MARKETS, ECONOMY, HOUSING & THE EURO...joining us tonight are Robert Hormats, vice chairman of Goldman Sachs International; Bear Stearns chief economist David Malpass; and Doug Duncan, Chief Economist with the Mortgage Bankers Association.

IRAN CAPTURES BRITISH SOLDIERS...Jed Babbin, editor of Human Events, will offer his perspective on the latest developments.

OIL, INTERNATIONAL MARKETS, ETC...on to discuss are Messrs. Hormats, Malpass, and Babbin.

GLOBAL WARMING DEBATE...David Doniger, climate policy director for the Natural Resources Defense Council will square off against Myron Ebell, director of energy and global warming policy at the Competitive Enterprise Institute.

RUDY FOR PRESIDENT, WARTIME FUNDING & MORE...our political guests tonight will be Hugh Hewitt, conservative radio talk show host/author/blogger and liberal radio show host Leslie Marshall.

KUDLOW'S STOCK CLUB...Bob Sullivan, portfolio manager at Satuit Capital Management Micro-cap fund will offer his stock picks.

TAX TIPS...The Wall Street Journal's Tom Herman will provide some last minute tax advice ahead of Tax Day.

Please join us for another edition of CNBC's Kudlow & Company this evening, where we believe free market capitalism is still the best path to prosperity.

Caveat Emptor

Gentle Ben, stocks’ best friend.”

That’s the headline from the Bank of America’s latest credit report. I’m sure it’s somewhat tongue in cheek. But it does characterize my view that the Federal Reserve, which held interest rates steady this week, is dissing inflation while preparing to ease monetary policy.

Two factors are competing here: On the one hand, inflation puffed up in January and February, an argument for Fed tightening. On the other hand, we have the sub-prime housing virus, by no means an economic positive (although it’s not the economic catastrophe the mainstream media is making it out to be).

In other words, the Fed is caught between a rock and a hard place. And by changing its policy statement to neutral this week it appears to have chosen the path of least political resistance. But neutral is in effect a de facto easing — at least from the standpoint of market perception.

“A roar went up on the trading floor when people saw the Fed’s statement,” said Jon Najarian, a trader at the Chicago board options exchange, in Thursday’s Wall Street Journal. And the stock market roared, too.

Gentle Ben Bernanke, stocks’ best friend indeed.

But has inflation really become a worry? Economist Michael Darda, an inflation hawk, notes that inflation indicators such as gold, commodities, and foreign currencies have all rallied in the aftermath of Bernanke’s statement. Meanwhile, inflation-linked bond spreads have been widening, another excess-money signal. I don’t want to take the inflation threat too far, but these indicators, alongside higher inflation in the January and February reports, must be carefully watched.

Lurking behind all this is a historical footnote: It is possible to have slow growth and rising inflation — or too much money chasing very few goods. This translates to a whiff of stagflation, which is the Fed’s worst nightmare.

Ben Bernanke is wagering that slower growth will bring down inflation, but that’s not always a good bet. And if March brings another bad inflation report, the Fed will be faced with an excruciating choice. Futures markets are speculating that the central bank will ease in order to counter sluggish growth. But that bet could turn sour if the inflation indexes don’t behave themselves.

Moderate growth and declining inflation have been in control for some time now, and I don’t think there’s any need to desert the Goldilocks scenario just yet. There is in fact a reasonable chance the economy will surprise on the upside, as it has done so often in recent years. Take the important index of industrial production: It rose 1 percent in February. The Institute for Supply Management’s real-time index for manufacturing and services registered good growth as well.

Jobs also don’t appear to be a worry. The February jobs report, which was close to 100,000, was probably depressed by unusually bad weather. So when the March number comes out in a couple weeks, we could witness a big jobs-increase payback. Even the much-maligned housing sector registered a surprising 9 percent increase in February.

So, despite the sub-prime mortgage tragedy — which to me looks more like a capital-markets issue than a recession call — the economy has latent strength built-in. And if Congress would quit threatening to roll back today’s low tax rates on investment, cash-heavy businesses might be willing to step up their capital-goods production.

Another point arguing against economic collapse is that the consumer is still plenty strong. A $3.8 trillion increase in household net worth in last year’s fourth quarter leaves roughly $150 billion in consumer spending power. But that’s only part of it. If you add in wages and salaries, which grew $325 billion, and home-equity loan extraction, which climbed $470 billion, today’s consumer-spending war chest is roughly $945 billion.

All this ought to tide the economy over while the housing problem works itself out. As a result — and despite current market perceptions — the Fed may be in no rush to actually print more money through a lower federal funds target rate. If the economy performs on the upside, inflation may prove to be a very short-lived threat.

After all, the Fed has been raising rates and curbing the growth of the monetary base for three years now. At some point, that’s going to bring inflation back towards the 2 percent comfort zone that Bernanke favors. The bottom line is that our monetary-policy gurus have their work cut out for them.

Caveat emptor, Fed: When in doubt, don’t cut rates. Stay steady. Even though Goldilocks is sending mixed signals, the free-market U.S. economy may once again produce a surprisingly good result.

Rudy on Kudlow & Company


This Monday I'm going to sit down for an exclusive interview with former New York City Mayor Rudy Giuliani.

I want to know if Mr. Giuliani is for free market capitalism...

Thursday, March 22, 2007

Hat Tip

Technical Analysis of STOCKS & COMMODITIES magazine featured a nice write-up of this blog in its April edition.

Here’s an excerpt from the article:

“…[Kudlow’s Money Politic$] remains one of the many ways that those on the right side of the political spectrum can get quick, easy-to-digest takes on how a given policy or politician may encourage or discourage growth, incentivize or disincentivize capitalists and either contribute to making the United States an even greater economic power or aid and abet in the shackling of the world’s sole superpower at a time when, according to many on the political right, a superpower is sorely needed…”

My thanks to the magazine and to the author David Penn for featuring the blog.

Thursday Night Lineup

On CNBC's Kudlow & Company this evening:

A LOOK INTO THE MARKETS...with Greg Church, president of Church Capital; Barry Ritholtz, president of Ritholtz Capital Partners; and Forbes magazine senior editor Elizabeth MacDonald.

FHA LOANS...a one-on-one interview with U.S. Housing Secretary Alphonso Jackson. Forbes' Liz MacDonald will join in the discussion.

FHA LOANS, SUBPRIME & THE ECONOMY...joining us tonight are Robert Reich, former Clinton labor secretary; The Wall Street Journal's Steve Moore; and Forbes' Liz MacDonald.

WARTIME FUNDING...Messrs. Reich & Moore will weigh in along with Ms. MacDonald.

A HEALTHCARE DEBATE...between Sen. Tom Coburn (R-OK) and Sen. Ron Wyden (D-OR).

Please be sure to join us tonight at 5pm ET for another edition of CNBC's Kudlow & Company. We still believe free market capitalism is the best path to prosperity.

Gentle Ben, Stocks Best Friend...

That’s the headline from Bank of America’s latest credit report. I’m sure its somewhat tongue in cheek, but it does characterize my view that the Fed is dissing inflation somewhat and is preparing to ease in order to deal with the subprime housing slump economic slowdown. This, even though inflation has puffed up in January and February.

The Fed is caught between a rock and a hard place. And they appear to have chosen the path of least political resistance by changing their policy statement to neutral. But neutral is in effect a de facto easing, at least from the standpoint of market perception.

From today’s Wall Street Journal: “A roar went up on the trading floor when people saw the Fed’s statement,” said Jon Najarian, a trader at the Chicago board options exchange.

Gentle Ben, stocks best friend…

Wednesday, March 21, 2007

Wednesday Night Lineup

On CNBC's Kudlow & Company this evening:

MARKETS...our panel tonight will be Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners; Seabreeze president Doug Kass; and Wendell Perkins, chief investment officer of Johnson Asset Management.

FED FACTOR...Joe LaVorgna, chief US economist at Deutsche Bank will square off with Conrad DeQuadros, senior economist at Bear Stearns.

TRADING WITH THE STARS...Lawrence O'Donnell, political analyst and Emmy winning producer of NBC’s “The West Wing" will be joined by our market panel to learn the ropes of investing.

WASHINGTON TO WALL STREET..."Jimmy P" Pethokoukis, senior writer with U.S. News & World Report will debate Dean Baker, co-Director, Center for Economic and Policy Research.

POLITICAL ROUNDUP...with UVA political scientist Larry Sabato, nationally syndicated columnist Mona Charen, and Lawrence O'Donnell.

Democratic Tax Threat

It’s a wonder the stock market is holding up against the growing congressional threat of higher taxes on capital gains and dividends.

While everyone is obsessing over subprime mortgages, Democrats in Congress are working slowly, surely, and steadily to erase these pro-growth tax cuts. And I believe it is this news coming out of Washington that is hurting stocks as much as anything else, including the subprime obsession.

Dan Clifton of American Shareholders Association reminds me that both Charlie Rangel and Nancy Pelosi said on Kudlow and Company that they would not repeal the pro-investment tax cuts. Ms. Pelosi said only as a last resort, but it looks like the Dems are moving swiftly to a first resort with Sen. Conrads’s budget and Chairman Rangel’s “tax rearranging” plan.

In Washington, the latest from Senate Majority Leader Harry Reid is to keep the social policy tax cuts on children and marriage, but to get rid of the pro-growth tax cuts on capital.

Remember, both the Chinese and Japanese stock markets sold off on rumors of a cap gains tax hike.

Treasury Secretary Paulson expressed strong opposition to tax cut repeal on our CNBC show last week. And it is widely assumed that President Bush would veto any tax cut rollbacks.

But the Democrats are grinding forward on some very bad tax hike and budget overspending legislation. This may be the true source of the current stock market correction.

Why the “U.S. Attorneys Eight”?

Unfortunately, President Bush’s news conference yesterday failed to answer the absolute key question for the public: Why did he fire the eight U.S. attorneys?

If you read the transcript, he talked about “new leadership.” He also said, “Neither the Attorney General, nor I approve of how these explanations were handled. We’re determined to correct the problem.”

But people watching Mr. Bush will still be wondering what his explanation is.

Of course, the President has the political and constitutional authority to hire and fire these prosecutors. But why were these eight dumped? Why not the other eighty-five?

It seems to me if you use a press conference event to go over the heads of the mainstream media, and broadcast to the American public, you have to deliver a clear rationale for your actions.

Regrettably, I don’t think Mr. Bush did this.

And that’s one reason why he’s going to stay in hot water on the Hill, and probably remain in that hot water with the electorate.

Here’s my humble suggestion: Mr. Gonzales ought to be replaced by an eminent law school dean or college president—someone with enormous credibility and respect.

What comes to mind is President Gerald Ford’s decision to appoint University of Chicago president and former law school dean Edward Levi in the post-Watergate pardon period. Levi restored credibility for the Justice Department.

Just a thought.

Tuesday, March 20, 2007


In case you hadn't seen it yet, here's my friend Jerry Bowyer's latest piece over at NRO.

Dear Sir/Madam,

I am the former head of the Central Bank of my country. I would like to share with you the riches that I received when I held that very-important post. If you would please wire me $50,000 U.S. as a fee for me to come to your next speaking engagement, I will tell you when to buy puts on your American stock exchanges when a recession is coming. Please reply at your earliest convenience.


A. Greenspan
His Excellency, former Monetary King and Maestro of the Republic of America

Well, it’s not quite as unreliable as a Nigerian 419 scam, but a recession call from Greenspan isn’t exactly bankable, either. After all, if the former Maestro wasn’t able to call recessions when he was running a forecasting firm, we can hardly expect him to do so now. Reportedly, Townsend, Greenspan and Co. predicted only one of the many recessions that occurred between 1954 and 1987. But Greenspan’s record didn’t improve all that much during his two decades at the Fed.

Despite sitting atop an organization with the largest concentration of financial brainpower since Alexander Hamilton sat there alone, Greenspan respectively found himself optimistic before a recession (1990); pessimistic before a great boom (1996, irrational exuberance); optimistic before another recession (2000); and pessimistic before an even-greater boom (2003). While not a bad central banker by any reasonable reckoning, Greenspan always has been an abysmal forecaster. To wit, here’s a passage from the Fed meeting of June 27-28, 2000.

The staff forecast prepared for this meeting continued to suggest that the economic expansion would moderate gradually from its currently elevated pace to a rate around or perhaps a little below the growth of the economy’s estimated potential.

Um, the economy went into a full recession only six or so months after that meeting adjourned. But this nearsightedness doesn’t bother me all that much. Rather, what’s most problematic is the allegiance of some corners of the investing community to the soothsaying abilities of the ex-Maestro — those short-term traders who salivate and/or flinch out of habit every time Alan Greenspan rings a dinner or alarm bell.

Tuesday Night Lineup

On CNBC's Kudlow & Company this evening:

A LOOK AT THE MARKETS...with Michael Cuggino, president and portfolio manager of five-star fund Permanent Portfolio Funds and Seth Tobias, general partner at Circle T Partners.

THE ECONOMY & SUBPRIME...on to discuss are Art Laffer, president of Laffer Associates; Gary Shilling, president of A. Gary Shilling & Co; and Christopher Whalen, managing director for Institutional Risk Analytics.

KUDLOW'S STOCK CLUB...portfolio manager Michael Cuggino will offer his stock picks.

...on to debate are former Fed governor Wayne Angell and Adam Posen, senior fellow at the Peterson Institute for International Economics.

Please join us at 5pm ET for another edition of CNBC's Kudlow & Company.

Strange Bedfellows

John Fund has an interesting note on journalistic conflicts of interest in today’s Opinion Journal Political Diary.

He cites a recent Los Angeles Times guide showing a number of potential media conflicts—one of them being the Times’ own Ron Brownstein whose wife is Sen. John McCain’s chief spokeswoman. Also in the McCain camp is Fox News analyst Nina Easton’s husband. He’s a media advisor to the Arizona Senator.

Then there’s NBC’s Campbell Brown. Her husband is a former aide to President Bush, and was considering joining Mitt Romney’s campaign. Conde Nast’s Matthew Cooper, formerly of Time magazine, is married to Hillary Clinton’s chief ad strategist.

What’s interesting to me is that three of the four are married to Republicans.

Maybe (just maybe) the mainstream media isn’t as totally biased to the left as many of us believe?

Troop Surge Bearing Fruit

A number of very positive developments are occurring under General David Petraeus’ command in Iraq.

The troop surge is beginning to bear fruit.

In an interview reported in today’s New York Post, Gen. Petraeus said tactical units are being flooded with intelligence information from local Iraqis. "After our guys are in the neighborhood for four or five days,” the General said, “the people realize they're not going to just leave them like we did in the past. Then they begin to come in with so much information on the enemy that we can't process it fast enough."

Gen. Petraeus also said the sheiks in Sunni al Anbar Province “have had enough” with al Qaeda fighters. In addition to killing civilians, al Qaeda has prevented the sheiks from carrying on business. These Iraqi businessmen have aligned themselves with new government and have encouraged young Iraqis to join the police force en masse.

According to Petraeus, "Less than half the al Qaeda leaders who were in Baghdad when this [surge] campaign began are still in the city. They have fled or are being killed or captured. We are attriting them at a fearsome rate."

This is just some of the very good news. The whole article deserves a read.

Monday, March 19, 2007

A Tale of Two Geographies

The New York Post reports a British poll that finds that most Iraqis believe life is better for them now than under Saddam Hussein. 49 percent say they prefer life under Maliki, and only 27 percent think there’s a civil war, compared to 61 percent who say they don’t.

Meanwhile, the FT reports a poll that reveals that 44 percent of European Union citizens think life has gotten worse since their country joined the EU. Only 25 percent of the Europeans believe life in their country has improved since it joined the EU.

So let me get this right: Europeans are more pessimistic, but Iraqis are more optimistic.

I don’t know if there’s a link here, but I’m working on it.

Are We Being Mau-Maued?

The following is an excerpt from my conversation with Wharton finance professor/WisdomTree Senior Investment Strategy Advisor Jeremy Siegel on Friday night's Kudlow & Company. My take on the subprime virus is that while it's certainly a problem, it looks more like a capital markets issue, not a major economic recession call. The key point is that there’s no economic collapse out there. Consumers still have a lot of spending power.

KUDLOW: Jeremy Siegel, are we all overrating the subprime effect? Are we all being mau-maued by the permabears and the media? Because when you look at the consumer spending power, household wealth is very high, actual income is very high, actual mortgage extractions are still high--over 400 billion--even though it's down from its peak. Isn't there enough spending power and business profits to keep this economy more than afloat?

JEREMY SIEGEL: Absolutely. I agree with you. I agree with those experts who look at the data and say, `This is a subprime issue.' Actually, only the adjustable rate mortgages of that subprime, that is really where the problems are really located. It is true that that lending did boost the economy in 2004, 2005, maybe early 2006. That part of the boost is going to be withdrawn. But, as you say, household wealth is still at a record high. And even if housing prices come down a little bit, and even if the stock market comes down a little bit, there's enough buying power. It's fear. I mean, can they generate enough fear in consumers? And that's why I think one of the good things we saw today, the preliminary University of Michigan report, little bit of a drop but not very much—first real report since the stock market. If we keep the consumers from, you know, falling apart and thinking the economy's going to fall apart, I don't think there can be a recession.

KUDLOW:...I hate being mau-maued, and I particularly hate it when desperate permabears do the mau-mauing, which I think is a very big part of this subprime story...All I'm saying is, when you look at household net worth, it's up $3.8 trillion. The Fed says use 4 percent of that for consumer spending, so that's $150 billion. Wages and salaries at the end of '06, up $325 billion. And as I said earlier, mortgage equity extraction is still rising by $470 billion. Put all that together, you've got about $950 billion of consumer spending power, which is almost twice the volume of consumer spending in Q4. So what I'm saying is, if you get nicked a little bit, why does this bring the whole house down?

Friday, March 16, 2007

A Very Terrible Idea...

Congressmen Artur Davis (D-AL) and Phil English (R-PA) are cosponsoring a China bashing protectionist bill called the “Nonmarket Economy Trade Remedy Act of 2007.”

This bill would set up “countervailing duties.”

If this thing ever passes the House and Senate, it would easily knock a thousand points off the Dow.

No Tax Hikes

Treasury Secretary Hank Paulson has a very good statement opposing the tax hikes that are implicit in the Senate Budget Committee markup.

Hats off to Mr. Paulson for jumping on this Democratic tax hike.

Here's the statement:

"The budget resolution reported by the Senate Budget Committee today assumes a significant tax increase, which is the last thing our economy needs as we work to extend the current expansion. I am also disappointed that the resolution doesn't address entitlement reform. The rising costs of Social Security and Medicare, if left unchecked, will ultimately consume the bulk of the federal budget. Balancing the budget is only one step toward addressing entitlements, which is the long-term fiscal challenge. We must also keep the economy growing, both to create jobs and increase wages for American workers and to put us in a stronger fiscal position to deal with the growing entitlement challenges in the coming years."

Friday Night Lineup

On CNBC's Kudlow & Company this evening:

A BULL VS BEAR DEBATE...Renowned Wharton finance professor and author Jeremy Siegel will debate Robert Shiller, Yale economics professor and Chief Economist at MacroMarkets LLC.

INFLATION DEBATE...Diane Swonk, chief economist at Mesirow Financial will square off with Robert Stein, senior economist at First Trust Advisors.

KUDLOW'S STOCK CLUB...Pete Klein, portfolio manager with Fifth Third Asset Management will offer his stock picks.

MARKETS...Russ Koesterich, senior portfolio manager for Barclays Global Investors will join Messrs. Siegel and Klein in a look at the markets.

CHINA TRADE...William Hawkins, Senior Fellow for National Security Studies at the U.S. Business and Industry Council will discuss with Daniel Ikenson, associate director of the Cato Institute’s Center for Trade Policy Studies.

Please join us tonight at 5pm ET for another edition of CNBC's Kudlow & Company.

Luck of the Irish?

Great article on NRO by Chris Edwards:

...Ireland has boomed in recent years, and it now boasts the fourth-highest gross domestic product per capita in the world. In the mid-1980s, Ireland was a backwater with an average income level 30 percent below that of the European Union. Today, Irish incomes are 40 percent above the EU average.

Was this dramatic change the luck of the Irish? Not at all. It resulted from a series of hard-headed decisions that shifted Ireland from big government stagnation to free market growth...

[T]he key to Ireland’s success has been its excellent tax climate for business. In 1980, Ireland established a corporate tax rate for manufacturing of just ten percent. That low rate was subsequently extended to high-technology, financial services, and other industries. More recently, Ireland established a flat 12.5 percent tax rate on all corporations — one of the lowest rates in the world, and just one-third of the U.S. rate....

Thursday, March 15, 2007

Hats Off

Headline on Drudge: Senate GOP Turns Back Iraq Pullout Plan...


Democratic defeatism continues to pull the party further and further left. The Dems think they’re very clever catering to certain polls, but their McGovernite resurgence is actually damaging them politically.

Today’s IBD/TIPP poll shows that two thirds believe victory in Iraq is important. 35 percent are “very hopeful” we can win, and 23 percent are “somewhat hopeful.” So that equals 58 percent for victory.

Hats off to Sen. Mitch McConnell (R-KY) for leading the Republican charge and supporting the war effort.

Fed Rate Cut?

Food prices surged in today’s producer price report, rising 1.9 percent in February and 6.8 percent over the past twelve months. The CRB Spot Foodstuffs Index has risen 7 percent YTD and 23 percent year on year.

We’ll see what tomorrow’s CPI brings, but fast food prices should not be overlooked.

Thurdsay Night Lineup

(Please note that CNBC's Bob Pisani will be taking over the hosting duties of Kudlow & Company on this evening's show.)

On tonight's show:

A LOOK AT THE MARKETS...with Mike Holland, Holland & Company Chairman; Vinny Catalano, Blue Marble Research President & Global Investment Strategist; Stefan Abrams, Quantamental Capital Partners Managing Partner.

INFLATION DEBATE...between Michael Darda, MKM Partners Chief Economist and Lakshman Achuthan, Economic Cycle Research Institute Managing Director.

BANKING SECTOR/SUBPRIME...Robert Albertson, Sandler O'Neill Principal & Chief Strategist will offer his insights. The market panel will weigh in.

REITS/SUBPRIME...Michael Farrell, Annaly Mortgage Management Chairman & CEO, will discuss with Ellen Bitton, Park Avenue Mortgage Group CEO.

MARKET RECAP & LOOK AHEAD...Messrs. Holland, Abrams and Catalano will weigh in with their thoughts.

DEMOCRATIC BUDGET PROPOSAL...Club for Growth President Pat Toomey will debate Jared Bernstein, senior economist at the Economic Policy Institute.

Please join us on CNBC at 5pm ET tonight for all the latest Washington to Wall Street news and developments.

Wednesday, March 14, 2007

Lieberman Speech

Powerful remarks delivered by Sen. Joe Lieberman (D-CT) earlier this week:

"There is something profoundly wrong when opposition to the war in Iraq seems to inspire greater passion than opposition to Islamist extremism. There is something profoundly wrong when there is so much distrust of our intelligence community that some Americans doubt the plain and ominous facts about the threat to us posed by Iran. And there is something profoundly wrong when, in the face of attacks by radical Islam, we think we can find safety and stability by pulling back, by talking to and accommodating our enemies, and abandoning our friends and allies. Some of this wrong-headed thinking about the world is happening because we're in a political climate where, for many people, when George Bush says "yes," their reflex reaction is to say "no." That is unacceptable."

Wednesday Night Lineup

On CNBC's Kudlow & Company this evening:

DIGGING DEEP INTO MARKETS...Our market pros will offer their take on all the latest stock market news and developments.

On board tonight: Craig Columbus, chief market strategist with Advanced Equities Asset Management; Gary Shilling, president A. Gary Shilling & Co.; Quentin Hardy, Silicon Valley Bureau chief at Forbes magazine.

INTERNATIONAL MARKETS, OPEC & MORE...Robert Hormats, vice chairman of Goldman Sachs International will join the market panel with his insights.

KEEPING AMERICA GREAT...Thomas Donohue, president and CEO of the U.S. Chamber of Commerce join us this evening.

KEEPING AMERICA COMPETITIVE..."Jimmy P" Pethokoukis, senior writer at U.S. News & World Report and Gary Gensler, former Undersecretary of the Treasury will debate.

IRAQ OIL & HYDROCARBON LAW...Author/syndicated columnist Christopher Hitchens will square off with Antonia Juhasz, analyst with watchdog group Oil Change International, and author of “The Bush Agenda: Invading the World, One Economy at a Time.”

Please join us tonight for another edition of Kudlow & Company at 5pm ET on CNBC.

Paulson Interview

Here's an interesting excerpt from my interview last night with Treasury Secretary Henry Paulson:

KUDLOW: Secretary Paulson, welcome to Kudlow & Company. Sir, before we get to the competitive issues, can you give us a brief thought on today's stock market correction, on the subprime issue and the general health of the American economy?

TREASURY SECRETARY PAULSON: Larry, first of all, it's good to be here. Secondly, I believe--well, first of all, I focus on the economy and fundamentals. I think that's what drives the market over any reasonable period of time. And I continue to believe the US economy is healthy.

Now let me comment on the subprime mortgage market. We have had a significant housing correction in the US. Housing was growing at a level that was unsustainable. The correction has been significant. You can't have a correction like that without causing some dislocations. It's too early to tell whether it's bottomed. I believe it has. We'll know more in the next month or two. You know the housing starts, some of that data has shown some continued slowdown, but in terms of the demand, it's held in there pretty well. When we get farther into the spring, we'll get a better sense of that.

Now, so if, as I think is the case - again, I don't have a crystal ball - that the housing correction has bottomed, again, it shouldn't be a surprise to anyone that there's some fallout in the subprime mortgage market. And, again, as I've said before, I believe there’s going to be dislocations. It's painful to some mortgage holders. It's going to be painful to some lenders, but it's largely contained.

KUDLOW: It's not a credit crunch economy wide?

Mr. PAULSON: No, no. The consumer in this country continues to be very healthy. This is a diverse economy. We've got exports growing faster than imports right now. That's adding to growth. We've got a very, very healthy consumer. Inflation would appear to be contained. So, again, I continue to believe that we are making a successful transition from an economy that was growing at an unsustainable rate, to one that's growing at a more sustainable rate.

Tuesday, March 13, 2007

Tuesday Night's Lineup

The theme of tonight's special Washington edition of Kudlow & Company is Keeping America Competitive and Keeping America Great...

On CNBC's Kudlow & Company tonight:

OUR MARKET PANEL WILL START THINGS OFF...we'll be joined by Don Luskin, CIO at Trend Macro; Jeff Matthews, General Partner of Ram Partners, LP; and Herb Greenberg, senior Marketwatch columnist/CNBC contributor.

KEEPING AMERICA COMPETITIVE...Don Evans, former U.S. Commerce Secretary and CEO of the Financial Services Forum, will square off with Herb Greenberg.

HEDGE FUND REGULATIONS/MARKETS/ETC...Messrs. Luskin, Matthews, and Greenberg will stick around and weigh in with their perspective.

SARB-OX, HALLIBURTON'S MOVE TO DUBAI, & MORE...former Clinton Labor secretary Robert Reich will battle The Wall Street Journal's Steve Moore.

AMERICA'S COMPETITIVENESS, TAXES, ECONOMY, CHINA, ETC...Treasury Secretary Henry Paulson will join us on-set in a one-on-one interview.

It's going to be another dynamite show tonight. Please join us at 5pm ET on CNBC.

Two Fiascos

The Washington Post and The New York Times both ran front-page stories this morning on the Justice Department fiasco.

It’s hard for me to understand what’s going on over there—dismissing eight United States attorneys with apparently no good reason, other than the fact they submitted to pressure from lawmakers like Sen. Pete Domenici and Rep. Heather Wilson of New Mexico.

What is this really about?

And the White House knew of course about the other fiasco—the FBI fiasco—that involved overstepping the Patriot Act, and various wiretapping abuses regarding national security letters.

It all has a bad feel to it.

The Wall Street Journal calls it a “meltdown at justice.”

It smacks of incompetence or worse.

Heading Down to Washington

I’m hopping aboard a train down to Washington D.C. this morning where Treasury Secretary Henry Paulson is hosting a conference on U.S. capital market competitiveness.

Top U.S business leaders including GE’s Jeffrey Immelt, Warren Buffett, Chuck Schwab and JPMorgan’s Jamie Dimon have all gathered in the nation’s capital to discuss easing burdensome government regulations.

Mr. Paulson will be on-set with me on Kudlow & Company this evening.

We’re going to talk about Sarbox and other regulatory/competitive issues. We’ll also spend some time discussing China, taxes, subprime mortgage credit crunch, Iran, and the state of the U.S. economy.

It is going to be another terrific show tonight. Please join us at 5pm ET on CNBC.

Any Hedgehogs Running for President?

Another impressive jobs report was released by the U.S. Department of Labor last Friday, but you didn’t hear anything about it from the big-three Republican candidates for president. They claim to support President Bush’s supply-side tax cuts, and say they will fight repeal should they be elected to the Oval Office. Yet neither Sen. McCain, nor former-Gov. Romney, nor former-Mayor Giuliani talks about the continued economic benefits of the sweeping tax cuts of 2003.

This is puzzling. It’s easy to understand why the leading Democratic candidates are silent on the matter. Sen. Clinton., Sen. Obama, and former-Sen Edwards intend to overturn President Bush’s supply-side program, and would do so with the usual liberal mantra of taxing the rich. But Republican silence is baffling in the real-world laboratory where evidence shows the tax cuts have worked. In particular, taxing capital less has unlocked new investment and unleashed record liquidity to fund business and the stock market, even in the face of money-tightening actions by the Federal Reserve.

Just look at the evidence. Wall Street economist Michael Darda points out that real wages from increased job creation have climbed at twice the speed during this business cycle than in the first 66 months of the previous cycle. Boosted by service-sector job creation, nonfarm payrolls grew by 97,000 in February, with a net upward revision of 55,000 for the December and January reports. The median length, or duration, of unemployment fell 8 percentage points in the last year, while non-management wages increased 4.1 percent, almost twice the inflation rate.

The U.S. job-creating machine is firing on all cylinders. Significant GDP-slowing inventory corrections in housing and manufacturing couldn’t stop it, nor could unusually bad February weather. Get this: According to Wall Streeter Joe LaVorgna, 505,000 people couldn’t get to work because of bad weather last month, the highest number in ten years and twice the normal seasonal weather effect of the past five Februarys. Yet jobs still rose substantially, and next month’s report will likely include another positive payback revision.

It’s also a quality jobs boom: Americans with a high-school diploma registered a 4.3 percent unemployment rate (slightly less than the national average), those with some college education had a 3.6 rate, and those with a bachelor’s degree or higher had a rock-bottom 1.9 percent rate.

The biggest dilemma in the jobs stats is the 7.1 percent unemployment rate for people with less than a high-school diploma. But taxing the rich will not solve this. Education reform, such as parental school choice and merit pay for teachers, will.

But why the silence from McCain, Romney, and Giuliani on all the good news? Despite the headwinds of war and recession six years ago, the Reagan-Bush tax-cut model has again spurred a long-lasting, job-creating economic expansion. Even Bill Richardson, the Democratic governor of New Mexico who is a card-carrying member of the nearly extinct tax-cutting school launched by JFK, has been silent on all this.

If these presidential contenders truly believe in the tax-cutting model, they should be saying so. The positives are simply too positive to go unspoken. U.S. employment is now a record 146 million, and 9.5 million higher since the expansion started in December 2001, according to Bear Stearns economist David Malpass. The Federal Reserve reports a record $55.6 trillion in household net worth (up 7.4 percent from a year ago) and a record $1.7 trillion in corporate profits (up 20 percent). All this should be shouted from the mountaintops.

And then there’s the just-released Forbes list of worldwide billionaires. This list registered a staggering $3.5 trillion in wealth and a record 946 members, up 150 from last year for a 35 percent gain. Almost half the list is comprised of Americans, with significant representation from emerging countries like China, Hong Kong, Mexico, Russia, and Spain.

“This is the richest year in human history,” said editor-and-chief Steve Forbes. The list “is a mere reflection of a dynamic global economy. More people are better off on this earth than ever before.”

What’s going on here is plain to see: It’s the global spread of free-market capitalism. The American model of “cowboy capitalism” — of low tax rates, deregulation, contained inflation, and free trade — is producing unheard of wealth that is turning the have-nots into haves.

Many years ago British diplomat and political philosopher Isaiah Berlin taught us that while the fox knows many small things, the hedgehog knows one big thing — and that it’s the one big thing that always wins the race. Today, the successful worldwide spread of free-market capitalism is the one big idea that puts me solidly in the hedgehog camp. But are there any hedgehogs running for president?

Monday, March 12, 2007

Monday Night Lineup

On CNBC's Kudlow & Company this evening:

MARKET UPDATE...CNBC's Bob Pisani will get us started with a look at the latest news and developments.

THE ECONOMY, BOND MARKET, SUBPRIME & MORE...Joe LaVorgna, chief US economist at Deutsche Bank will debate Michelle Girard, senior economist at RBS Greenwich Capital Management.

Alex Pollock, AEI fellow and former president/CEO of the Federal Home Loan Bank of Chicago will join in the discussion, along with Deborah Wince-Smith, president of the Council on Competitiveness.

TRADING WITH THE STARS...Lawrence O'Donnell, Emmy Award-winning producer and writer for The West Wing will discuss the Million Dollar challenge. He will be joined by David Sowerby, portfolio manager with Loomis Sayles.

STOCK MARKET PERSPECTIVE...David Kotok, president of Cumberland Advisors will join us with his thoughts, along with Mr. Sowerby.

SUNDAY UNSPUN...Frank Newport, editor-in-chief of Gallup, will help us sift through media spin in our weekly segment.

Hats Off to Zell

This speaks for itself and I fully agree. Bravo to my friend Zell Miller.

Some things need to be said and this is one of them.

"Iceland's Laffer Curve"

From today's Wall Street Journal:

"...The benefits of low taxes are on full display in Iceland, which provides an almost perfect demonstration of the Laffer Curve. From 1991 to 2001, as the corporate-tax rate fell gradually to 18% from 45%, tax revenues tripled to 9.1 billion kronas ($134 million in today's exchange rate) from just above 3 billion kronas. Revenues have more than tripled again since 2001 to an estimated 33 billion kronas last year. Personal income-tax rates were cut gradually as well, to a flat rate of 22.75% this year from 33% in 1995. Meanwhile, the economy has averaged annual growth of about 4% over the past decade...."

To top it off, Iceland's government is now considering a reduction of its corporate-tax rate to ten percent. That would beat Ireland's low corporate tax rate by over 2 percent.

Meanwhile, the prevailing 35 percent corporate tax rate here in the U.S. continues to take monster bites from all U.S. businesses.

As I've written before:

"Corporate profits are a vital form of capital and capital is the key ingredient in capitalism. If the latter is to work and expand prosperity, then the former must be saved. In fact, corporate profits shouldn’t be taxed at all...Profits are the seed corn of economic growth. Eliminating the tax burden on profits will reap a record harvest of jobs and prosperity."

Friday, March 09, 2007

The Hedgehog Marches On

As I have repeatedly argued, the one good idea from the hedgehog always wins the race against the many small ideas of the fox.

This one great idea is the global spread of free market capitalism.

It is producing a record amount of new billionaires around the world, according to the Forbes magazine list of billionaires published yesterday. There are now 946 billionaires circulating the globe, up more than a 150 from last year.

In the words of Forbes editor-in-chief Steve Forbes:

"This growth in the billionaires list is a mere reflection of a dynamic global economy. More people are better off on this Earth than ever before…This is the richest year in human history."

Mr. Forbes will be joining me tonight on Kudlow & Company to discuss this one great idea which is unleashing unprecedented wealth in all corners of the world.

Friday Night Lineup

On CNBC's Kudlow & Company this evening:

MARKETS...we'll start things off tonight with a thorough look into the latest market news and developments.

Our market pros tonight include:

*Joe Battipaglia, chief investment officer at Ryan Beck.
*Art Laffer, president of Laffer Associates.
*Jim Awad, chairman of Awad Asset Management.

BOOM VS BUST...a debate on today's jobs number and the overall economy between supply-side guru Art Laffer and Jim Smith, chief economist for Parsec Financial Management.

*The legendary Steve Forbes, President and CEO of Forbes and Editor-in-Chief of Forbes magazine will join the market panel following the economic debate to weigh in on the stock market.

KUDLOW'S STOCK CLUB...Grab a pen and piece of paper for Reiner Triltsch, Portfolio Manager of the Excelsior International Fund. He will present his latest stock picks.

THE DYNAMIC DUO...A "Left versus Right," Washington to Wall Street debate between The Wall Street Journal's Steve Moore and former Clinton Labor secretary/UCal Berkeley professor Robert Reich.

Tonight's debate will center around Treasury man Hank Paulson's big trip to China, free trade and the yuan. We'll also take a look into Rep. Charlie Rangel's tax hike proposal and other issues du jour.

Please join us for another edition of Kudlow & Company at 5pm ET this evening. Yes, we still believe free market capitalism is the best path to prosperity.

Thursday, March 08, 2007

Thursday Night Lineup

On CNBC's Kudlow & Company this evening:

BOOM VS. BUST DEBATE...CNBC's Erin Burnett will get us started with today's market report from the NYSE.

She will be followed by an economic debate bewteen bullish John Rutledge, chairman of Rutledge Capital, and bearish Gary Shilling, president of A. Gary Shilling & Co.

TOMORROW'S JOBS NUMBER...John Silvia, chief economist for Wachovia will square off with Jan Hatzius, Goldman Sachs senior economist.

EMERGING MARKETS & MORE...with Gary Shilling, John Rutledge, and Jared Bernstein, senior economist at The Economic Policy Institute.

IRAN/IRAQ...a look at all the latest developments from U.S. Undersecretary of State Nicholas Burns, including the latest on the defection of a high-ranking Iranian defense official.

Please join us for another edition of Kudlow & Company at 5pm ET - we still believe free market capitalism is the BEST path to prosperity.

Kudos Mr. Paulson

Treasury Secretary Henry Paulson is doing the Lord’s work in Asia this week.

He’s over in China, trying to pry open their markets and get them to drop their barriers to trade. And he’s telling them to stop pirating our copyrights and patents. He’s also pushing for more liberalization and deregulation.

At the same time, he’s been out defending the Bush boom, and for that matter, the capitalist boom spreading like wildfire in emerging countries throughout the world.

As the powerful former chairman and CEO of Goldman Sachs, this former investment banker carries a lot of weight in international circles. He’s winning points everywhere.

Our hat is off to him.

Worried About Washington, Not China

The big labor offensive in the Democratic Congress is rattling the stock market.

If big labor has its way on card check and ending the secret ballot, along with unionizing TSA screeners, it sets up an anti-competitive dynamic that would roll back private sector productivity, diminish economic growth and profits, and push government spending higher.

The Shanghai flu briefly infected the stock market, but there's more to it as my friend Jerry Bowyer points out. He's right, and as I wrote in the WSJ op-ed last week, all this labor saber rattling has also contributed to the stock market slowdown. Further fueling the stock market slowdown is Rep. Charlie Rangel’s (D-NY) plan to raise taxes on the top two income tax bracket earners (33% & 35%).

The good news is the Dow is up 100 this morning -- testimony to continuing confidence in Goldilocks.

More good news is Treasury Secretary Henry Paulson. Hats off to Mr. Paulson for his stand up performance defending the Bush boom, as well as his current attempts to prod China into additional liberalization of their banking system and economy.

But the big stock market threats are coming from Washington, not China. The Democratic Congress is anti-stock market, anti-growth, and pro-tax hikes. Not good.

Wednesday, March 07, 2007

"GOP Protectionism"

Here's an excerpt from Jack Kemp's excellent op-ed in the Wall Street Journal yesterday. Incidentally, Mr. Kemp will be joining us on this evening's Kudlow & Company to discuss this unfortunate and ill-advised strain of GOP protectionism.

"...Protectionist views on trade resemble Al Gore on global warming: Pessimism permeates their arguments and they misuse statistics to drive their propaganda on these very important issues. Mr. Buchanan, for example, argues that the U.S is witnessing the passing of our nation as the greatest industrial power the world has ever seen. Nonsense: Half the wealth our nation has ever produced was generated in the last 25 years or so.

With the recent passing of Milton Friedman and Ronald Reagan, we've lost two great champions of the free-enterprise and free-trade policies that helped lay the groundwork for the last two decades of low unemployment and low inflation, fostering the growing class of working families who own stocks, bonds and property.

The answers to our challenges in today's global marketplace can be found in sound money, lower tax rates on capital and labor, an easing of regulatory burdens, and the welcoming of foreign investment and trade with nations like Japan. Isolationism and protectionism are not worthy of 21st century America."

Wednesday Night Lineup

On CNBC's Kudlow & Company this evening:

MARKETS & ECONOMY...our market mavens will discuss all the latest market news and developments.

On board this evening are Michael Cuggino, portfolio manager at Permanent Portfolio Funds, Barry Ritholz, president of Ritholz Capital, Mark Skousen, editor of the Skousen High Income Alert and CNBC reporter Erin Burnett.

GOP PROTECTIONISM...Former New York Congressman and Vice-Presidential candidate Jack Kemp will offer some perspective. (You can check out his recent Wall Street Journal op-ed here).

TOYOTA...Mississippi Governor Haley Barbour will join us to talk about the automaker's new $1.3 billion vehicle assembly plant.

WASHINGTON TO WALL STREET PERSPECTIVE...on the aforementioned topics from "Jimmy P" Pethokoukis, senior writer with U.S. News & World Report and Rep. Steve King (R-IA)

Please join us at 5pm ET tonight for another edition of CNBC's Kudlow & Company, where we still believe free market capitalism is the best path to prosperity.

Mr. Obama Goes to Wall Street

These Democrats really know how to invest don’t they? They’re just a bunch of real investor class wealth-creating capitalists aren’t they?

According to today’s New York Times, Obama was out buying $50,000 worth of stock in two highly speculative companies whose biggest financiers were his own political donors. One of them by the way could be an Albany, NY crook named Jared Abbruzzese, a guy who’s been playing footsy with Republican State Senate majority leader Joe Bruno. He’s now in the middle of an FBI public corruption investigation and was also a contributor to Swift Boat Veterans for Truth.

Nothing wrong with that, it’s just that Obama’s investment strategy tells the story about a guy who doesn’t get it.

When Obama found out about the sleaze factor, he sold the shares for a $15,000 loss. This was in 2005, roughly midway in one of the great bull markets of all time. How about a nice safe broad stock market index fund? It would have doubled if Sen. Obama had bought it immediately after Bush’s tax cuts on capital gains and dividends.

I’ve got to hand it to these Democrats. They’re really in touch with the 100 million plus investor class and the stock market.

On another note, it wouldn’t surprise me if Hillary Clinton’s people leaked this story.

Like Obama, Hillary happens to be another ace investor—a real all-star. Once upon a time, back in the days when disco reigned supreme, Hillary put up a measly $1000 bucks, money which was shepherded by some Clinton fundraisers in the commodity business. Remember? Ten months later, Hillary’s $1000 dollar cattle future “investment” magically morphed into a $100,000 profit. (Eat your heart out Boone Pickens.)

10,000 percent profit in less than a year—makes Obama’s $13,000 stock loss look like chicken feed doesn’t it?

Of course, Queen Midas later told investigators there was no inside fix for her cattle futures investment (wink-wink). According to Hillary, she carefully read the Wall Street Journal commodities page every day. Remember that one?

Recently, however, Mrs. Clinton has been advising foreign governments not to buy U.S. Treasury bonds. This Hugo Chavez-like capital controls idea—one which would lethally damage America’s financial position—must undoubtedly reveal Mrs. Clinton’s current investment strategy. Next thing you know, the New York Times will be reporting that Hillary has been shorting Treasury bonds in advance of her brilliant campaign of financial protectionism.

If one of these Dems ever became president, it makes you stop and wonder about the fate of stock markets and economy.

Not good I would think…

Tuesday, March 06, 2007

If History Is Any Guide

"History demonstrates that lower tax rates are good for the economy. The tax rate reductions in the 1920s, 1960s, and 1980s all resulted in faster growth, rising incomes, and more job creation. Moreover, even though critics complained that these tax rate reductions would allow the "rich" to keep too much of their money, upper-income taxpayers actually wound up paying a greater share of the tax burden during all three decades, because lower rates reduced the incentive to hide, shelter, and underreport income..."
-Dan Mitchell, Heritage Foundation

Tuesday Night Lineup

On CNBC's Kudlow & Company this evening:

CNBC's Bob Pisani will lead us off with a report from the New York Stock Exchange.

STOCK MARKET...Following the update, our stock market superstars will weigh in with their perspective. On tap tonight are Craig Columbus, chief market strategist with Advanced Equities Asset Management, Noah Blackstein, lead portfolio manager for the Dynamic Power American Growth Fund and senior MarketWatch columnist/CNBC contributor Herb Greenberg.

TAXES...A look at Rep. Charlie Rangel's (D-NY) sneaky tax hike proposal with none other than Mr. Rangel himself. The Wall Street Journal's Steve Moore will offer the opposing viewpoint.

BOOM VS BUST...Time to square off with CNBC economics commentator Steve Liesman on the economy.

POLITICAL HEADLINES...CNBC Chief Washington Correspondent John Harwood will offer up the latest on Scooter Libby, Dick Cheney's health, and more.

It's going to be another great show tonight. We hope you'll join us at Kudlow & Company, 5pm ET...

Rangel’s Tax Hike

I hope everyone saw Charlie Rangel’s cleverly nefarious tax hike proposal to pay for AMT reform.

What he intends to do is make more income subject to the top tax rates of 33 percent and 35 percent, by lowering the threshold for triggering those two tax rates. This would of course make more income subject to the higher tax rates. It would also abolish credits and deductions for those top earners.

Using this method, Rangel could say he hasn’t raised the marginal tax rate. But in effect, that’s exactly what he’s doing.

The big question now becomes what the Bush administration’s response will be.

The combined effect of all this would be a sizable tax hike on the most successful earners. Pro-growth tax reformers like myself have always argued for raising the bracket thresholds, thereby reducing the effective tax burden.

Mr. Rangel will appear on CNBC’s Kudlow and Company tonight to discuss his proposal.

Monday, March 05, 2007

Monday Night Lineup

On CNBC's Kudlow & Company tonight:

We're going to start the show off with a look at today's stock market news - CNBC's Bob Pisani will join us live from the floor of the New York Stock Exchange.

Our market mavens will follow with their market perspectives.

Joining us tonight will be Stefan Abrams, managing partner at Quantamental Capital Partners, Quentin Hardy, Forbes Magazine Silicon Valley Bureau Chief, and Vadim Zlotnikov, chief market strategist at Sanford Bernstein.

A look at subprime mortgage lending with Sheila Bair, chairman of the Federal Deposit Insurance Corporation.

We'll have a "Boom or Bust" economic debate between Bear Stearns chief U.S. economist John Ryding and Joe LaVorgna, chief US economist at Deutsche Bank.

And finally, we'll dig into the health of global markets with Keith Wirtz, president and CIO of Fifth Third Asset Management and Zachary Karabell, Senior Economic Analyst and Co-Portfolio Manager of the China-U.S. Growth Fund.

Please join us tonight at 5pm ET for another edition of Kudlow & Company, where we still believe free market capitalism is the best path to prosperity.

"Early Signs Are Encouraging"

Positive signs in today's WSJ from the gents behind the blogsite:

BAGHDAD -- The new strategy to secure Baghdad has been dubbed by Prime Minister Nouri al-Maliki as "Operation Imposing the Law." After weeks of waiting and anxiety it is finally underway, and early signs are encouraging.

The government information campaign and the news about thousands of additional troops coming had a positive impact even before the operation started. Commanders and lieutenants of various militant groups abandoned their positions in Baghdad and in some cases fled the country...

This indicates that both the addition of more troops and the tough words of Prime Minister Maliki are doing the job of intimidating the militants. The extremists understand only the language of power, and any reluctance or softness on the part of the Iraqi or U.S. government would only embolden them. In this way the clearly voiced commitment of President Bush and Prime Minister Maliki was exactly the type of strong message that needed to be sent....

The Big Boys Are Big Bulls

From Bloomberg:

March 5 (Bloomberg) -- The biggest money managers and strategists on Wall Street are standing their ground.

They say the four-year bull market in U.S. stocks will persist even after the Standard & Poor's 500 Index plunged the most since January 2003 last week on concern a slowing economy will hurt corporate profits.

Putnam Investments, which oversees one of the best- performing U.S. equity funds, and BlackRock Inc., the second- largest publicly traded U.S. money manager, say stocks are cheap. Citigroup Inc. and UBS AG are telling investors to add to their U.S. holdings. All 15 strategists tracked by Bloomberg were sticking with their forecasts as of March 2. The S&P 500 lost 1.1 percent that day, bringing its weekly decline to 4.4 percent.

``We're more favorably disposed to the U.S. market than we were at the end of last year,'' said Kevin Cronin, who oversees $192 billion as head of investments at Boston-based Putnam. The selloff has been a ``bit overblown.''

The strategists surveyed by Bloomberg predict, on average, a 12 percent increase for the S&P 500 within a year...

Friday, March 02, 2007

Friday Night Lineup

On CNBC's Kudlow & Company tonight:

INSIDE THE MARKETS...CNBC all-star reporters Maria Bartiromo and Erin Burnett will bring us all the latest stock market news.

GOLDILOCKS? RECESSION?...we'll debate the ongoing economic divergence with Brian Wesbury, chief economist at First Trust Advisors, and Nouriel Roubini, chairman of Roubini Global Economics and professor of economics at New York University.

A BOOM/BUST SHOWDOWN...between Steve Liesman, CNBC senior economics reporter and yours truly...

THE FED FACTOR...Former Fed governor Wayne Angell will weigh in along with Lee Hoskins, former president of the Federal Reserve Bank in Cleveland.

MARKETS INVESTMENT STRATEGY...Stefan Abrams, advisor to Trust Company of the West will offer his perspective with Herb Greenberg, senior MarketWatch columnist and CNBC contributor.

A WASHINGTON TO WALL STREET DISCUSSION...with "Jimmy P" Pethokoukis, senior writer at U.S. News & World Report, and Steve Pearlstein from the Washington Post.

Please be sure to join us at 5pm ET tonight...

Three Cheers for Krugman!

Congratulations to Paul Krugman for his ninth bear market recession forecast in the last four years.

My only criticism of his column in The New York Times today is his boring lack of creativity. He cites the housing slump. He cites China, and junk bonds, and hedge funds, etc.

Really boring...

It’s almost as boring as Alan Greenspan’s forecast that the economy is going into recession because it's going into recession, meaning that after five years we’re due for a recession.

But back to Mr. Krugman.

He dated today’s recession forecast and stock market meltdown February 27th, 2008. Get it? It’s really a year ahead! So that would make this his tenth recession forecast.

But the really neat thing going on here is that he could’ve dated today’s meltdown forecast Feb 27, 2003…or 2004…or 2005…or 2006. (In fact, I should probably Google it and see if he’s already done just that.)

At any rate, many congratulations to Mr. Krugman.

Congratulations are also in order to The New York Times. Thank you for running his column. Very helpful stuff. Don’t know what I’d do without them.

Madame Hillary’s Frightening Proposal

If Hillary Clinton recognizes that the Shanghai flu currently infecting U.S. and world markets was in part caused by rumors of a capital gains tax increase in China, then why doesn’t she apply that same logic to tax policy here in the United States?

Because just as sure as day follows night, Hillary will undoubtedly try to raise tax rates on capital gains and dividends by not extending the Bush tax cuts if she were elected president.

Similarly, Hillary’s idea that this stock market correction is caused by too many Chinese or foreign purchases of U.S. bonds is pure insanity. In addition, her ridiculous claim that trade deficits are causing this correction is equal insanity.

Mrs. Clinton cited Sen. Byron Dorgan’s bill, which would trigger some kind of punitive action if our trade deficit exceeds 5 percent of GDP, and if foreign bond ownership exceeds 25 percent of GDP. Well here’s a news flash: Our trade gap today is already 7 percent of GDP and the economy has been prosperous for years.

Foreign owned Treasury bonds are only 16 ½ percent of GDP. Who really cares? Foreigners own $2.2 trillion of our bonds. Compare that to $54 trillion of family wealth.

And what’s more, OPEC and China only own 20 percent ($450 billion) of total foreign ownership. The lion’s share is actually owned by Britain, Japan, and other clear U.S. allies. These countries own the other 80 percent ($1.8 trillion).

So where’s the great threat?

All this bluster from Mrs. Clinton reeks of trade protectionism and capital controls. It belongs in a third world statist economy like Hugo Chavez’s Venezuela. It’s Pat Buchanan/Lou Dobbs stuff that would be devastating to the U.S. and world economy.

Mrs. Clinton has positioned herself substantially to the left of her husband on these issues. She will be laughed out of the ballpark by the left liberal academic community. In fact, moderate Democrats of the Jason Furman ilk, don’t even agree with this extremist nonsense.

Try to imagine the United States imposing capital controls. And try to imagine the United States trying to deglobalize from the world economy.

That’s as dumb as well, nationalized, socialized healthcare, or seizing oil company profits.

Thursday, March 01, 2007

Thursday Night Lineup

On CNBC's Kudlow & Company tonight:

We're going to dig down deep into the markets, the economy and Alan Greenspan's recessionary talk with our market pros. We'll also discuss whether Hillary Clinton is using recent stock market troubles to further her own agenda of trade protectionism and controls.

Steve Forbes, president/CEO of Forbes and former Presidential candidate will be on board throughout the show weighing in with his perspective.

Our market mavens include CNBC ace Erin Burnett, PNC Wealth Management's Jeff Kleintop and the bearish Doug Kass from Seabreeze Partners.

Bob McTeer, former head of the Federal Reserve Bank of Dallas, will also be on board with us.

David Sowerby from Loomis Sayles will join us for a special installment of Kudlow's Stock Club, offering his stock picks throughout the show.

Also, Sen. Byron Dorgan will offer some insight on the latest union battles.

Please join us at CNBC, 5pm ET tonight...

Carter, Clinton & Alan Greenspan

Greenspan is yapping again.

The latest former Fed chair flap occurred in Japan, where he softened his recession forecast from Sunday to yesterday by downgrading it from a “probability” to a “possibility.”

This contrasts with his successor, current Fed Chairman Ben Bernanke, who informed Congress yesterday that the economy could withstand a housing and inventory correction and achieve a soft landing.

What we’ve got here are two different views from the Fed Chairmen.

Greenspan has two main concerns. His first seems to be that business expansions run out of steam after about five years. He’s also worried about the budget deficit.

His first point is highly dubious. President Reagan’s expansion lasted almost eight years. The 90’s Papa Bush/Clinton expansion lasted a decade.

In other words, in this modern era of low tax rates, deregulation, low inflation and low interest rates, along with high productivity from the burst of technological entrepreneurship, our rejuvenated free market American capitalist system has shown that expansion cycles can go on for longer than Mr. Greenspan allows—more like 8-10 years.

In fact, over the last quarter century we have had only six negative GDP quarters, and the most recent recession, in 2001, was shallow and short-lived.

The present Bush boom expansion is slightly more than five years old. So I would reckon that in the new era, launched by the Gipper 25 years ago, we have another 3-5 years to go in the growth cycle.

Why is Alan Greenspan ignoring all this evidence? Why is he second-guessing Ben Bernanke? Former Fed Chairman Paul Volcker never second-guessed Greenspan when he was replaced in 1987. Why Greenspan is doing all this is beyond me.

It seems like lucrative speech-fee troublemaking to me.

Or is Greenspan promoting his book due out in September? Maybe he’s trying to match Bill Clinton’s $40 million in speaking fees? Perhaps he’s playing the Jimmy Carter game, where the former peanut farmer tirelessly attacks Republican President George W. Bush, and who before that, constantly criticized Papa Bush and Ronald Reagan?

All this stuff from Greenspan, Clinton, and Carter is a new low in bad manners. It is totally unseemly.

And what’s with Greenspan’s obsession with the budget deficit? High growth tax collections are exploding right now. The budget deficit is falling like a stone in the aftermath of Bush’s supply-side tax cuts four years ago.

The bottom line here is that not only is Mr. Greenspan’s economics half-cocked, but his second-guessing for speech fees is, well, just plain rude. The institution of the U.S. Fed does not need to be second-guessed, nor does its new chairman need to be undermined by Mr. Greenspan’s speech for money calendar.

In fact, if I didn’t have such a high regard for Alan Greenspan, who has been a personal acquaintance for three decades, I would describe his current behavior as “Clintonian” or “Carteresque.”

This is all wrong.

The Prosperity Boom

(In case you haven't seen it yet, here's the op-ed I wrote in today's Wall Street Journal)

The U.S. stock markets were looking for a correction for some time now and on Tuesday they found it: a 3.5% sell-off across the board. The plunge follows a 20% run-up that began last summer, and some analysts believe it was overdue. Indeed, 3% corrections are normal and healthy. Legendary financier J.P. Morgan knew this a hundred years ago when he told a congressional panel that prices fluctuate. But the trigger for Tuesday's drop undoubtedly came from China.

The Chinese have sent a Shanghai flu across the globe. There is talk in China's government circles of slowing its boom and the "speculative" stock rise that has taken place over the past 18 months. Higher reserve requirements for banks, tighter interest rates, stricter implementation of a capital-gains land tax, and perhaps some form of capital controls are all in the rumor mill. This sounds like root-canal advice from the U.S. Treasury and the IMF, which somehow are dissatisfied with 10% growth and 2% inflation in China. France, Germany, Japan or Latin America should have it so bad.

At home in the U.S., there are still housing-slump worries and concerns about an inventory correction in autos and factories. Former Federal Reserve Chairman Alan Greenspan this week even predicted a recession, naming the budget deficit as the cause. Huh? The deficit is evaporating as record tax revenues are being generated by a solid economy, itself a function of the low marginal tax rates put in place by President Bush.

Current Fed Chairman Ben Bernanke is looking for a soft economic landing, and I agree.

A quick tour of the data: Consumer incomes keep rising amidst low unemployment and record job creation. Ditto for business profits -- the mother's milk of the economy and rising stocks. Exports are strong. An inventory correction, which helped knock fourth-quarter GDP down to 2.2% from 3.5%, will pass. As yet there is no evidence that a sub-prime mortgage lending problem is spreading. There is no economy-wide credit crunch. And bond rates are a low 4.5%, adding more value to stocks. The prosperity boom is alive and well.

In fact, using a modest 8% growth estimate for 2007 earnings, and capitalizing that profits forecast with a 4.5% bond yield, shares appear to be anywhere from 15% to 25% undervalued today. Put another way, the 6.7% forward earnings yield of the S&P 500 compares very favorably to a 4.5% Treasury bond or a 5.7% A-rated corporate bond.

The high-tech, productivity-driven U.S. economy is more durable and flexible than its liberal-left critics will ever admit. It is a private-sector free-enterprise economy, not a government-planned one. Innovation is strong and entrepreneurial spirits are high. The four prosperity killers, a paradigm coined by Arthur Laffer many years ago, all look dormant: inflation, taxes and regulatory burdens are low, while free trade keeps expanding.

One of the most underrated aspects of this bull-market economy is the sharp drop in marginal tax rates on capital formation. After the levies on capital gains and dividends were reduced to a scant 15% in 2003, the supply of easy capital surged, holding down real interest rates and expanding internally generated liquidity. This, plus record profits, has been the major source of the new-liquidity generation that has fueled stock markets at home and abroad.

This is good noninflationary liquidity. It is not bad liquidity, such as occurred in the 1970s when the Federal Reserve and other central banks gunned the printing presses and created the excess money expansion that drove inflation and interest rates sky-high.

Although gold prices are a concern today, the bigger bond market is sending a noninflationary signal. Future inflation spreads are predicting price-level increases of only 2%. The Fed is targeting inflation even more than unemployment. The core consumer deflator increased only 1.9% at an annual rate in last year's fourth quarter, while year-on-year inflation is a low 2.2%. We must keep an eye on gold -- which has a long history as an inflation barometer -- but right now the bond message seems closer to the truth. Additionally, consumer survey expectations of future inflation have come down markedly.

As for stocks, we're back to the stalwart supply-side adage: tax something less, get more of it. The low tax cost of capital has helped create a boom in private-equity buyouts and share buybacks, which pay out to investors in cash, thus adding to abundant liquidity that recycles into higher prices for a shrinking supply of stocks.

All that said, there are threats to growth. For starters there is the union attack on business, where "card checks" would substitute for secret ballots. Jack Welch, the former CEO of General Electric, thinks the unions are aiming at Silicon Valley -- America's most innovative high-tech area -- in a misbegotten attempt to turn the clock back to the 1960s and 1970s when competitiveness and entrepreneurship were at a low ebb. Tax threats associated with fixing the alternative minimum tax also are problematic. But the president has pledged to use his veto pen to prevent higher tax rates and will, according to the vice president, veto any card-check legislation (a.k.a. the misnamed Employee Free Choice Act).

Overall, Washington politics have taken a decidedly anti-growth turn ever since the new Democratic Congress went into session. Carbon caps and protectionist trade threats are the new battle cries. But the leftward moves of the Democrats on both the war and the economy may doom them in 2008. Neither statism nor galloping McGovernism is a prescription for taking the White House, especially with investor-class stockowners casting two out of every three votes in recent elections.

This is why I continue to believe that the prosperity boom is not over, either in the U.S. or around the globe. The spread of free-market capitalism, and its record wealth creation for both the rich and the unrich, is unstoppable. Liberal seers have been predicting the downfall of U.S. stocks and the economy several times a year since the Bush boom began back in 2003. Yet at comparable points in the business cycle, wages and wealth have outperformed during the current expansion.

My advice to investors is to remain optimistic and stay in stocks for the long term, since economic freedom is the tried and true path to growth and prosperity. Isaiah Berlin wrote many years ago that hedgehogs always win the long-term race against foxes. Message to the investor class: Hold that thought.