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Wednesday, May 14, 2008  On My Radar Screen [Larry Kudlow] Here are some interesting stories I’m reading today:
Recession? Not So Fast, Say Some — Wall Street Journal A funny thing happened to the economy on its way to recession: It's taken a detour … Click here.
The Kudlow Conundrum — Forbes, Digital Rules by Rich Karlgaard I spent a fascinating hour yesterday with Peter Thiel, co-founder of PayPal and now president of a $3 billion hedge fund called Clarium Capital Management. According to the latest Barron’s survey of top 75 hedge funds, Clarium has knocked out a 40.8% three-year annualized return … Click here.
Who Stole the American Spirit? — Wall Street Journal op-ed by Zach Karabell [T]here is something both startling and disturbing about the gloom that has settled over Wall Street and the country in general. In fact, looking back over the past century, it would be a stretch to rank the current problems as especially notable or dramatic. Something else is going on – namely a cultural rut of pessimism that is draining our collective energy, blinding us to possibilities, and eroding our position in the world … Click here.
Wall St Gains after Inflation Data — Financial Times US stocks made strong gains in early trade as investors responded to a government report suggesting the economic slowdown may be easing inflationary pressures … Click here.
Who Wants to Be a Millionaire? — Wall Street Journal editorial We can’t wait to hear how Members of Congress explain their vote this week for the new $300 billion farm bill. At a time when Americans are squeezed at the grocery store, they will now see more of their taxes flow to the very farmers profiting from these high food prices … Click here.
05/14 01:35 PM Tuesday, May 13, 2008 K&C Quotables [Larry Kudlow] Some notable quotes from last night’s Kudlow & Company:
Overcoming the Obama Effect: The only way you overcome the Obama effect is not with atmospherics—he’s going to outdo you on eloquence and that kind of thing. The only way you can do it is with substance. That is, sharply contrast taxes. [Obama] wants to raise them, McCain wants to cut them. Social Security—Obama wants more taxes, McCain wants to allow private accounts to supplement Social Security. Healthcare—more patient control, which McCain wants, versus Obama having Katrina-like bureaucrats run the system. These are very basic differences. And if people recognize them, I think not only can McCain beat Senator Obama, but also inoculate even a Democratic Congress from going down that road. — Steve Forbes, Forbes president & CEO The Future of Microsoft: I think Microsoft really needed the Yahoo deal. Because it’s not just advertising on the Internet, it’s distribution of software over the next few years, over the Internet. [That’s] where their competition is going to be. And I was really disappointed that [Microsoft CEO Steve] Ballmer didn’t finish up on what he had started there. I think that they have this incredible machine that gives them more cash flow than they really know what to do with. And what they have to do is look around the corner, a little bit, and decide how is the business going to get distributed over the next three years…While they have this dominating position, they’ve got to use that domination to get to where they need to be over three to five years. To me that’s on the Internet. And I think they have to come back after Yahoo. — Vince Farrell, managing director, Scotsman Capital McCain’s Climate-Change Solution: One of my big concerns is the competitive disadvantage that cap-and-trade would put American industry versus industry from China, India, and other developing countries. If we put this new tax on our American companies, for the electricity and energy that they use, aren’t you going to see a migration of capital and jobs out of the United States to countries like China and India? — Steve Moore, senior economics writer, Wall Street Journal 05/13 04:42 PM 
Monday, May 12, 2008 McCain, the Cap-and-Trader [Larry Kudlow] As good as John McCain’s pro-growth, supply-side tax plan is, his cap-and-trade strategy unveiled this morning is very hard for conservatives to swallow. The whole cap-and-trade experience in Europe and elsewhere reveals that this is a huge government command-and-control operation that taxes, spends, and regulates on a grand scale. The “cap” part rolls back production to an extent that undermines economic growth. The European cap-and-trade plans are prohibitively expensive, and are themselves hostile to economic growth.
I guess we all knew this was coming from Senator McCain. Perhaps we have been in denial about the issues connected to it. But here the McCain plan is, unveiled in Oregon, with emission caps by 2020 — only twelve years from now — that will somehow move carbon levels back to where they were in 1990.
I don’t claim to understand everything about the cap-and-trade mechanism. But scanning the McCain announcement, I look at bullets like banking and borrowing permits; unlimited initial offsets; integrating with international markets; strategic carbon reserves; early allocation of permits; U.N. negotiations; climate-change adaptation plans; implementation at the local level; comprehensive plans for infrastructure ecosystems; resource planning . . . O my gosh!
I’ve got to bone up and really learn the details about all this. But I truly have to ask: Is this candle worth the game?
O my gosh! 05/12 10:47 AM Thursday, May 08, 2008 ‘This Inflation Speed-Up Must Be Taken Seriously’ [Larry Kudlow] U.S. economist John Lipsky, who is the first deputy managing director of the IMF, is giving a speech today before the Council on Foreign Relations in New York that warns of the spread of global inflation. Lipsky says, “This inflation speed-up must be taken seriously, as it creates potentially significant challenges to economic stability that could undermine prospects for restoring the combination of solid growth and low inflation that prevailed earlier in this decade.” He goes on to say, “To put the issue starkly, inflation concerns have resurfaced after years of quiescence.”
Lipsky, a former Wall Street economist and periodic Republican advisor, fingers the commodity boom as the main inflation culprit. I have written that since last autumn, I have become worried about inflation for the first time in ten years. The CPI has increased by 4 percent over the past five months. And I will finger the run on the dollar as the chief inflation culprit.
Along with the Fed’s excessive interest rate cutting, the emergence of the U.S. peso is the biggest driver of rising commodities and inflation.
Dick Fisher of the Dallas Fed has suggested that the central bank’s target rate should have stopped at 3 percent, not 2 percent. I agree. And the weak dollar has forced world central banks into the over-creation of liquidity.
So again I come back to my theme of the need to restore King Dollar. The U.S. neglect of the dollar is causing global inflation and an unnecessary commodity-price boom — especially oil, but also food prices. Oil has become a substitute for the cheap dollar. Of course, so has gold.
Speaking of gold, its rise in recent months has been corroborated by the spike in the CPI. A simple gold forecast model of future inflation has only missed by three-tenths of 1 percent over the past six years as the CPI has roughly doubled from 2 percent to 4 percent.
What’s ahead? The model predicts nearly 6 percent inflation in 2008 and 7.5 percent inflation in 2009 and 2010. After that, inflation falls back to 6.5 percent in 2011 and 5.5 percent in 2012.
The point is, the inflation outlook is worsening. Let me say again: We need to revive King Dollar. It’s gonna be a big election-year issue.
Sen. McCain, are you listening? 05/08 02:58 PM Kudlow 101: A Money Politics Game-Changer? [Larry Kudlow] As far as the Intrade pay-to-play prediction market is concerned, Senator Obama has enjoyed a considerable surge since Tuesday’s primaries. Take a look. 
You’ll see that Obama had actually slipped down to around 40 percent in the past week or so. But following his big double-digit win in North Carolina, the close-call in Indiana, and the increased pressure on Hillary to bow out from party bigwigs, Obama has rocketed all the way to up to 56 percent. It’s quite a move.
The next chart offers a nice snapshot of Hillary nose-diving to extinction. 
Of course, Senator Clinton wasn’t that high to begin with. But since her latest lackluster performance on Tuesday, she has shed an additional 10 points, dropping from 18 percent to only 8 percent. Never say never, but it sure looks like that goose is cooked.
Next up, the McCain odds. 
As we all know, Mac made a meteoric move since languishing in the low single digits back in the autumn of ’07. He was basically written off. Now he’s up just shy of 40 percent. A huge move. But that still leaves him with a very big deficit to Obama, according to the wisdom of crowds per the Intrade betting market.
And lastly, here’s a look at Intrade’s odds on Democrats capturing both houses of Congress come November. It’s not a pretty picture. 
As you can see, the Intrade odds have the Dems winning the House at 94 percent, and 92 percent in the Senate. So we’re looking at a potential three-house Democratic sweep. Talk about rubbing salt into a wound. Suffice to say, that is not a bullish scenario for stocks. That is not a pro-growth recipe for economic growth.
Yes, it’s still early in the game. Yes, there’s still time left on the clock. But much work needs to be done. Starting now. 05/08 01:59 PM Wednesday, May 07, 2008 McCain Must Focus and Fight — Starting Now [Larry Kudlow] The day after North Carolina and Indiana the Intrade pay-to-play betting odds in the race for president show Obama at 54 percent and McCain at 38 percent. But wait — it gets worse. The Democrats are favored to win the House and Senate by over 90 percent.
This is the investor class’s worst nightmare: A very left-liberal President Obama presiding over, well, a very left-liberal Democratic Congress.
If it moves, tax it. That’s the future. It’s not hard to predict higher taxes on investors, small businesses, oil companies, and corporations across the board. There will be a big move toward nationalized health care. Regulatory liberation for the unions. Trade protectionism.
None of this is good. But it’s realistic. Very few people in the financial punditocracy expect the three-house sweep, but the possibility is now out there for all to see.
Stocks are down today, but only a little bit. Of course, it’s still early in the game. In fact, one of John McCain’s best calling cards in the campaign is that electing him president will stop the three-house sweep.
The last sweep of this kind was the 1993-94 Clinton victory. Financial markets did poorly. When the Gingrich Congress came in, markets quickly headed north. But I suspect the current conditions for a three-house sweep are more like they were in the late 1970s. The Clinton episode came in the aftermath of the Reagan years. Now it’s more like the stagflationary Jimmy Carter years with inflation running much faster than growth.
All these news stories about the declining Republican brand in Congress are certainly worth reading — including Newt Gingrich’s attack on the GOP House. Mitch McConnell believes Senate Republicans will stay in the mid-forties. He acknowledges they are the ultimate firewall. (Sixty is the magic number in the Senate for presidential vetoes.) But I don’t want to write McCain off. I’m just citing the Intrade numbers.
Nonetheless, the Arizonan has got to mount a Herculean effort from here on out. He’s got to lay out a clear economic-growth strategy; a clear foreign-policy wartime strategy; and a pro-production, pro-growth energy strategy. All the while he has to stay on track for conservative social values.
Hillary Democrats and Catholics (especially) can be brought in by McCain. But he has to work on it. This whole summer-gas-tax-holiday flap is a distraction right now. McCain should be hammering on the huge differences between himself and Obama on taxes, spending, trade, and energy. He’s got to focus, pick up his game, and fight.
He also should separate himself from President Bush on the key issue of the U.S. dollar. He should promise a restoration of King Dollar, or say he’ll turn King Dollar into a Strong McCain Dollar. A Strong McCain Dollar would curb inflation, gas, and food prices and restore American prestige around the world.
The philosophical differences between McCain and Obama are huge. (McCain has said as much.) I believe a McCain presidency is there for the taking. But he has to energize and punch hard. Take the gloves off. Start immediately.
Yesterday’s Democratic primaries were a true game changer. Now the real race begins. The betting markets are pessimistic about Republicans and optimistic about Democrats. It’s up to McCain to turn this around.
Let the real games now begin. 05/07 04:48 PM K&C Quotables [Larry Kudlow] Some notable quotes from last night’s special primary-politics edition of Kudlow & Company:
Hillary’s Mission Impossible: This [Democratic] nomination — they will take it away from Hillary Clinton when they unwrap her cold, dead fingers from around it. She’s not going away. She’s not stopping. -- Quentin Hardy, Silicon Valley bureau chief for Forbes Remember Mac?: All we ever hear about anymore is Hillary and Obama, as though the whole decision is just which one of those two will be the next president. Well, there’s actually a third guy here. And he’s the pro-growth guy, the pro-stock market guy, the pro-investor class guy. He’s the guy who doesn’t want to raise the capital-gains tax; who doesn’t have all these crazy ideas for being the command-and-control commander-in-chief of the economy; who wants to let growth be an organic, successful, internal, upwelling phenomenon that happens from real people, not from the control panel of the Oval Office in Washington. So I actually have a contrary opinion on this: I think that we need to quickly get the Obama/Clinton thing to resolve, so that John McCain can get a little public attention. — Don Luskin, chief investment officer at Trend Macro Capital Gains Tax Watch: Sixty-five percent of Americans and half of Democrats are opposed to raising the capital-gains tax. And they make the connection: 52 percent of Americans say that if you raise capital-gains taxes, it’s going to be bad for the economy. With the current economic conditions, and the exit polls we’re seeing today showing this issue becoming more and more important, that is going to be a significant factor. — Scott Rasmussen, pollster and president of Rasmussen Reports Focusing on the Dollar: I think you’ll hear a lot [from the candidates] about [the need for a strong dollar] in the fall, not because people are going to connect all the dots to commodity prices, but because it’s symbolic. People do not like the idea that the dollar has fallen so low in value compared to other currencies. It’s a symbol of American weakness. Stay tuned. It will be an issue. — Bob Shrum, Democratic strategist 05/07 11:26 AM Tuesday, May 06, 2008 Over the Line [Larry Kudlow] Hillary’s Wall Street bashing is a giant cheap shot and a big disappointment from the junior senator from New York. After all, Wall Street is the heart of the New York economy. It supplies an enormous volume of tax collections to finance city and state experiments in socialism and welfarism. Incidentally, it’s kind of hard to buy into Hillary’s populist shtick, given the fact that she and her husband pocketed over $100 million of income in recent years.
Nobody can quite figure out whether she referred to Wall Street as a bunch of “money-grubbers” or “money brokers” the other night. The Hillary campaign insists it was the latter, but observers at the Indiana event are not so sure. So while there’s a part of me that thinks Hillary’s gas tax cut is a good political idea, her Wall Street bashing is over the line.
There’s a good chance she is going to be very disappointed by tonight’s election results, especially in North Carolina. As Byron York and Rich Lowry have written, Hillary has worked hard to Bubbify her campaign message to the working middle class, targeting folks who are bitterly disappointed at economic events and — as Obama claimed — are clinging to God and guns. The original Bubba himself has been out rallying voters in the rural precincts of North Carolina on a 24/7 basis.
But this morning’s Drudge Report shows a Zogby poll with Hillary going down by 14 points in North Carolina, and winning Indiana by only a couple. If Zogby is correct, she’s going to be very close to the end after tonight’s results. It’s doubtful that she’ll drop out, but she needs better numbers in both states for sure. 05/06 11:17 AM Monday, May 05, 2008 Bush as ‘Forecaster-in-Chief’ Continues [Larry Kudlow] Today’s ISM report for non-manufacturing (services) unexpectedly shot up to 52 from 49.6 in March, and a 47.8 percent first-quarter average. (Readings above 50 percent signify growth.) Recession bears are running for cover on this one. Coming off Friday’s jobs report, with 363,000 new household jobs, something is clearly going on here. That something could be a bottoming of the economy, sometime this past winter. We’re not totally out of the woods just yet. But the news is sure getting better. (Even the NYT’s Paul Krugman is backing off recession in his column today.)
Over in the Treasury market, the 10-year note is now trading up at 3.87 percent. During the recession winter, it was 3.3 percent. If the economy is coming out of the downturn, then the 10-year will make a move up to 4 percent or higher. The stock market is bogged down this morning, digesting the breakup of the Microsoft-Yahoo! deal. But stocks have enjoyed a great run since mid-March.
I still love U.S. News & World Report’s Jimmy Pethokoukis’s headline: “Economy Refuses to Tank, Bears Weep.” He’s right on the money. As for President Bush, his daughter Jenna is getting married this weekend down at the ranch in Crawford. Plus, he’s having a good forecasting week. Good for him. 05/05 11:20 AM Thursday, May 01, 2008 K&C Quotables [Larry Kudlow] Some notable quotes from last night’s Kudlow & Company:
Economic Resilience: When you think about it, look at what we had to deal with in the first quarter. You had the credit market seize up; you had Bear go out; you had Lehman close to going out — not because it should have, but because the financial markets were driving it that way; you had extraordinary moves by the Fed; you had continued collapse in homebuilding, and we still grew at 0.6 percent. That says to me if the economy was going to collapse, it would have collapsed then. It’s going to get better from here. Slowly, gradually, saucer-shaped, but it’s going to get better from here. — Jim Awad, chairman of WP Stewart Asset Management Oil, Gold & the Greenback: Oil is going down. Gold is going down. The dollar is going to strengthen because the Fed is now out of the way of the dollar. And the dollar will find its natural level, which is a whole lot higher from here … The market forces are starting to assert themselves. Gold, remember, is down from $1,030 dollars to well below $870. That is a big move, and oil is going to follow it down very soon … I think the next step is the European Central Bank cuts their interest rates — then we’re going to see the dollar do very well. — Vince Farrell, managing director of Scotsman Capital Rescuing King Dollar: It is always important for the Fed to act in a way to strengthen the dollar. And since they did not [yesterday], we’re going to have to get together and get John McCain to come up with a statement that as soon as he’s elected president, that he’s going to call a G8 monetary conference and define ways to support the dollar. — Wayne Angell, former Fed governor Help Across the Pond?: I think that a lot of the initiative is going to come from the Europeans. They don’t want the euro at the level it is, relative to the dollar. They’re going to be working on that. — Bob McTeer, former president of the Federal Reserve Bank of Dallas Cherrypicking: I wouldn’t avoid all stocks like I’ve been saying for the past few months on your show. I think you can cherry-pick with some strong brands. A couple of weeks ago, I mentioned some food stocks [Kraft (KFT) & Del Monte (DLM) ]. We’re seeing Buffett buying some of those. Some other companies have come in — very strong brands — that during a period of inflation, can pass along price increases. I think the transports are starting to hurt now, because they’ve reached the limit on their ability to pass along those price increases to their customers. — Mike Ozanian, senior editor at Forbes Productivity is Key: In an era of slow growth, productivity is key. How do you get productivity? You get productivity via technology. So a company like Cisco, I think, is going to do extremely well in this environment. You have to sort of rifle-select. I don’t think you can just say, ‘I’m going to be long or short this category or that category.’ You have to go for stock specific. — Vince Farrell, managing director of Scotsman Capital Skousen Likes Visa: [My single favorite investment is Visa.] I still like Visa. I think Visa is just a money-machine. It’s going higher. It’s another Mastercard kind of story. I also like Bank of Montreal (BMO). That has been a solid performer in the last few months. It didn’t deserve to be hit down with all of the other financials. — Mark Skousen, financial economist, author, and editor of the
financial-advice newsletter, Forecasts & Strategies 05/01 02:27 PM Wednesday, April 30, 2008 Recession? What Recession? [Larry Kudlow] U.S. News & World Report’s “Jimmy P” Pethokoukis and economist Jerry Bowyer — both regular contributors to Kudlow & Company — deliver two amusing takes on today’s GDP number and the muddled response from the economic punditocracy. Incidentally, take a look at the Intrade pay-to-play prediction market’s collapsing recession odds: They plummeted 20 points this morning. Talk about falling off a cliff. Dude, Where’s My Recession?
April 30, 2008 09:51 AM ET
James Pethokoukis
Out: Recession. In: Expansion. That’s my quick take on today’s first-quarter gross domestic product number, which showed that the economy grew 0.6 percent in the first quarter. Now that’s not a robust number by any means, but it’s not so bad given all the worry out there that the economy is headed off a cliff. Before you declare a recession, as many economic pundits have, shouldn’t the economy, well, actually recess a bit — if only for a quarter?
Remember, the shorthand rule for declaring a recession is back-to-back quarters of negative growth. The semiofficial recession judge, the National Bureau of Economic Research, has a more complex formula, but I am not sure it has ever declared a recession when the economy never actually shrank. And consider this: The Intrade online betting market now says there is a meager 25 percent chance of a recession — using the negative-back-to-back-quarters definition — in 2008.
Plus, don’t forget that there’s a lag before all that monetary stimulus from the Fed kicks in. (It’s not too late to do nothing today, Bernanke!) Who knows — those rebate checks might even help a bit, though we’re probably not getting much bang for the nearly $200 billion we’re spending.
As a movie buff, I keep looking for the right cinematic analogy for the American economy. Try this one: It’s like the Terminator. Not the Schwarzenegger one — the other one, the Terminator from the second film. You could empty a shotgun — or in this case, an imploding housing market, credit crunch, and high oil prices — into that morphing metal dude, and before you know it, the thing's all healed and chasing you again.
* * * * * * * * * * * * * * * * * * From: Jerry Bowyer
Sent: Wednesday, April 30, 2008 11:09 AM
Subject: RE: We Are In a Recession
Okay, so here we are again. Another quarter and another plus sign. The economy grew every quarter last year and, so far, it’s continued to grow this year. The pessimistic-financial-pundit-industrial complex suffers another quarter of model-crushing data. Will they change their models? Don’t count on it. Fear sells, it sells newsletters; it sells bookings; it sells speaking gigs.
Today, brace yourself for the tribe of Yesbuts.
Yes, but the postive GDP is from inventory adjustments.
Sure it is. Shouldn’t inventory be counted in GDP?
Yes, but it’s also from government expenditures.
Shouldn’t government spending be counted in GDP. Especially for those Yesbuts on the left...it seems that you see government expenditures as being a good thing, except when they boost growth.
Yes, but Gross Domestic Income differs a little.
GDI is a fine statistic, which will be rediscovered today in a desperate search for bad news. Even as I write, financial pundits are dusting off their college Macroeconomics textbooks and rifling through pages trying to relearn how GDI is calculated. Let me save you the trouble. It’s made up of personal income, plus business profit, plus sole proprietor income. The business profit is domestic only, hence the D in GDI. If you want to capture the productive power of US business overseas, look at the long-neglected GNP, which has been doing quite well lately. Though, it’s not out for Q1 yet.
Yes, but durable goods were down in Q1.
Indeed they were, which means that the rest of the economy was strong enough to pull us into positive territory. On top of that durable goods were down, not because of economic weakness but because some pro-business investment tax cuts expired in December and were not reinstated until halfway through the first quarter. It wasn't recession; it was a temporary tax code distortion.
For the perma-pessimists who were flat out 100% sure that ‘we’re already in a recession, the debate is about how long and how deep’ — back to the spreadsheets.
For the rest of you — have a nice day.
Jerry Bowyer
Chief Economist Benchmark Financial 04/30 01:34 PM Tuesday, April 29, 2008 Bush Whiffs on the Dollar [Larry Kudlow] In his news conference today President Bush really didn’t get to the key point on soaring gas and food prices: The best short-term policy is to strengthen the dollar. Bring back King Dollar.
Whether it’s energy, wheat, grain, corn, or whatever, since these raw materials are priced in dollars on global markets, a strong greenback will reduce commodity prices. And that, in turn, will lower both consumer and producer inflation. This would help corporate profits and would boost the purchasing power of wages.
In other words, a strong dollar would relieve gas prices and boost the economy. But so far as I know, the president never mentioned the dollar. And I don’t think any of the media people asked him about it.
Right now Mr. Bush should order his Treasury Secretary to appreciate the greenback and work with the G7 for concerted action that would send a strong signal to commodity and currency traders that they better close their short positions on the dollar and stop speculating on higher and higher commodity prices. Mr. Bush himself should adopt new rhetoric on a strong dollar. He should make it unambiguous.
In today’s consumer confidence report, inflation expectations surged to 6.8 percent for the next year. One year ago they were 5.1 percent. This is not good. And of course, gasoline prices at the pump as well as supermarket prices for food are becoming huge political issues. Huge! Bigger than the war and bigger than the economy.
Additionally, the president really missed the ethanol questions. He acknowledged that ethanol mandates are contributing roughly 15 percent to rising food. But he didn’t indicate any interest in eliminating the ethanol subsidy (a subject on which Deroy Murdock has artfully written).
The president was dead right in opposing the huge $280 billion farm bill. But on ethanol and the greenback he whiffed.
This is too bad, because the Fed meets tomorrow and is likely to end its interest-rate cuts after one more quarter point. I would prefer the central bank not even make the last cut to 2 percent. Money-market futures are now predicting a higher fed target rate next year. And if that expectation pans out, it will give a boost to the dollar and reduce all these inflationary pressures.
But defending the currency should also be done by the commander in chief and his Treasury man. As the Fed begins to shift gears, now would be a great time to resurrect the dollar.
Truly, we need a return to King Dollar and an end to the U.S. peso. Senator John McCain, are you listening? 04/29 01:14 PM Monday, April 28, 2008 The Fed Needs to Stop [Larry Kudlow] The Fed needs to stop cutting interest rates and halt the run on the dollar. They can do this by announcing a lengthy pause in their interest-rate statement due out this Wednesday at 2:15 p.m.
Over the past month or so, gold has dropped, and the dollar has stabilized. This is because investors sense that the Fed is finally coming to the end of its rate-cutting. Another quarter-point cut later this week would be a bad idea.
Gold, oil, and food commodity prices have all exploded in recent months as the Fed has over-stimulated its easing policies. The real fed funds rate remains negative. And in a market-based bond model, the negative real fed funds rate remains far below the economy’s so-called natural rate. It’s the lowest since the spring of 2005. It’s no wonder there’s been a big run against the greenback.
Voters are irate over the higher cost of gas and food. Truck drivers are preparing to march on Washington, D.C., in a strike against soaring prices for diesel fuel. Meanwhile, politicians on both sides of the aisle are making goofy policy proposals, such as instituting a windfall profits tax (Hill-Bama) or a summer gas-tax holiday (McCain). Yes, of course we need a good energy policy with a broad portfolio of all energy sources. No question about it. But let’s be very clear: The Federal Reserve has played a lead role in creating this energy- and food-price debacle.
As one of the financial news services put it today, Fed chair Ben Bernanke needs to act more like his hard-money predecessor Paul Volcker, in order to avoid becoming a stagflationist Arthur Burns.
It’s time to stop.04/28 03:50 PM Friday, April 25, 2008 K&C Quotables [Larry Kudlow] Some notable quotes from last night’s Kudlow & Company:
Fed Finally Gets It Right: It all goes back to March 17th. Bear Stearns Monday. That’s when the world changed. That’s when the Fed figured out that it could solve the credit crisis by something other than cutting the funds rate. And so, ever since then, all of these different markets have gradually, more and more, come to realize that it’s “one and done” at this point, at the most. And that the Fed is going to start hiking again, as soon as October. The futures markets are now looking at three rate hikes out a year from now. That strengthens the dollar; it weakens gold; it weakens oil. It’s great for stocks because it means that the Fed is going to stop fueling the inflation machine. And that there’s confidence that the credit crisis has been mastered. This is just fantastic news. — Don Luskin, chief investment officer at Trend Macro A Bullish Signal: When you narrow risk premiums, stock markets soar. When you widen risk premiums, stock markets tank. We’ve had wider risk premiums, whether you use the junk bond spread, or some other spread. There’s a hundred ways to measure risk premiums. They have peaked in the last few weeks. They are beginning to narrow. Stock markets recognize it. The process is finally working. — David Kotok, co-founder and CIO of Cumberland Advisors Schadenfreude: We’ve found out from Pennsylvania just how deep the divisions are in the Democratic Party. The media often talks about the divisions in the Republican Party, but we’ve got our nominee. That’s done. We’ve been united for some time. The Democrats have very serious divisions. They have race, gender, age, class divisions…you don’t just heal that. You don’t just heal that with a nice convention. You don’t just heal that by taking a certain position on an issue. I mean, these are very deep divisions in the Democratic Party that go back forty years to the riots of ’68. It spells serious trouble for them in November. — Jerry Bowyer, chief economist at Benchmark Financial Network 04/25 05:18 PM A Big Mac Attack [Larry Kudlow] All this postmortem election stuff is getting boring. But the stock market appears to be feasting on a McCain victory in November against either Hillary or Obama — especially Obama. Market indexes are having a terrific rally right now. In fact, they have been rallying ever since late January, when McCain emerged as the Republican nominee.
Sure, Mac may occasionally bash business, but he does want to lower the corporate tax rate. This is very good. And he also wants to keep investment tax rates low. Also very good. It’s been good enough for a stock rally, which may be capitalizing a McCain victory into share prices. Premature? Perhaps. But it’s one way to read the market’s move.
Here’s another key point: the front-page of Thursday’s Wall Street Journal hinted at the end of Fed easing moves. Another plus in the bullish column. Take a look at the price of gold. It has cratered down below the $900 mark. It peaked at $1009, just over a month ago on March 18. Meanwhile, the dollar engineered its best rally yesterday against the euro since 2004. So maybe the U.S. peso is dollarizing itself on the hope that the Fed will stop easing.
Finally, the stock market rally, along with a healthy rise in long-term Treasury rates, may be signaling that the “non-recession” recession will give way to a much stronger second-half economy. This scenario becomes increasingly likely if a rising dollar snuffs out spiking energy prices. I hope so. Because no matter how weak, and no matter how disjointed the Democrats may look right now, Big Mac is going to need all the help he can get come November. 04/25 07:26 AM Thursday, April 24, 2008 K&C Quotables [Larry Kudlow] Some notable quotes from last night’s Kudlow & Company:
Farrell’s Pearls of Wisdom: The market can stay irrational far longer than you and I can stay solvent. If somebody stood up and said, we must defend the dollar, stop cutting interest rates, [then] the dollar rallies, oil comes down, and the market takes on another leg. — Vince Farrell, managing director at Scotsman Capital Management Rescuing the U.S. Peso: The key for the dollar going forward is we’ve got to get the Fed to stop cutting rates. That’s the first thing. And then we need the [European Central Bank] to just cool it with all this ridiculous, hawkish talk. They need to either let the currency go, let it strengthen to 170, and then raise rates. Or shut up, and not raise rates, and just let [the euro] relax a little bit. — Andy Busch, global FX strategist at BMO Capital Markets Rising Food Prices: I just spent several days with farmers in the Midwest. The biggest cost for them? The reason food prices are rising? Diesel costs. These energy costs are skyrocketing. [When] farmers’ prices go up, prices go up at the store. — Kevin Kerr, president of Kerrtrade.com and editor
of MarketWatch’s Global Resources Beware the Taxman: I talked to two of my clients yesterday. These are top-drawer clients; seven-, eight-figure accounts. And they were both saying, Look, if Barack Obama or Hillary look like they’re going to get elected, we need to be selling. We need to be ahead of everybody else selling in anticipation of a capital-gains [tax hike]. — Jim Lacamp, portfolio manager at RBC Dain Rauscher 04/24 03:44 PM Wednesday, April 23, 2008 K&C Quotables [Larry Kudlow] Some notable quotes from last night’s Kudlow & Company:
An Ideological Gulf: [If Obama is the Democratic nominee] this is going to be — ideologically — the greatest distinction that we’ve had in candidates since the 1980 election when Jimmy Carter ran against Reagan. The Republicans have actually selected probably about the best candidate that they could in John McCain — in terms of his ability to reach out to the centrist-moderate wing of the party. The Democrats, on the other hand, have moved way to the left. I’m not sure that Barack Obama can win those Reagan Democrats. — Steve Moore, senior economics writer and
member of the Wall Street Journal editorial board No Time to Turn Our Back: There’s a fundamental problem in this country. I don’t think people understand two things that are important to us. One is, foreign markets are critically important to our future, for virtually every company. And second, we need foreign capital. This is not the time to be turning our back on the global economy. And also, the question is, if you want to renegotiate NAFTA, for instance, what are we prepared to put on the table? If it’s a negotiation, we’re going to have to give, if we want to get. What are we prepared to give? These kinds of questions really need to be addressed in a much more substantial way. — Robert Hormats, vice chairman of Goldman Sachs International Where’s the Beef?: It’s very hard to predict what the future behavior would be of a person who’s had no past record of actually initiating anything. But what we do know about Senator Obama is he has the most liberal voting record of anybody in the Senate. Therefore, we can observe that he will go along with any left-wing scheme that comes along. While he’s never had a policy initiative of his own, we could expect that if he were to win the White House, he would take the initiatives that came out of Congress — an increasingly more liberal and emboldened Congress — and you’d get many left-wing schemes coming out of the House and Senate to his desk, which he would sign, and embrace, and call his own. [Obama] is a fascinating person. It’s so hard for me to understand how a person who is so wholly devoid of any on-the-job policy accomplishment can take the job with these kinds of responsibilities, having demonstrated none in his life. — Former House Majority Leader Dick Armey 04/23 01:43 PM Tuesday, April 22, 2008 Strong Dollar, Anyone? [Larry Kudlow] Investors worried about the dollar, as I am, should really take a look at the recent London Daily Telegraph story written by Ambrose Evans-Pritchard. He reports an interview with Jean-Claude Juncker, the Luxembourg premier and chair of Eurozone financiers who is also known as the EU’s “Mr. Euro.” The interview strongly hints of a G7 action to halt the collapse of the dollar and bring an end to commodity speculation by hedge funds.
According to the piece, Juncker met with President Bush in the White House at Bush’s request, just before the latest G7 meeting. The two men discussed the dangers of protectionism, and Juncker apparently warned Bush of the need for the U.S. to take steps to halt the dollar’s slide.
According to Evans-Pritchard, Juncker said, “I don’t have the impression that financial markets and other actors have correctly and entirely understood the message of the G7 meeting.” Juncker is referring to a more aggressive G7 policy statement about monitoring currency volatility. Recently, I have been writing of the need to make this even clearer, by referring to a policy of dollar appreciation. You may recall that a little over twenty years ago, the G7 clearly stated a policy of non-dollar appreciation at the 1985 Plaza Accord in New York.
I can’t help but wonder whether some kind of dollar rescue mission isn’t out there in the near-term. And I agree with Mr. Juncker that a dollar appreciation would halt speculation in energy, gold, and other commodities. As of this writing, oil’s up over a buck, trading at $118.50. Meanwhile, the euro registered another high against the dollar, finally breaking through the 1.60 barrier.
For the life of me, I can’t figure out why Sen. McCain isn’t making a big pitch for a strong-dollar policy, thereby separating himself from President Bush’s dollar-neglect. In our interview last week, I pressed Sen. McCain on this issue, but he’s not yet quite committed to monetary actions for the dollar, though he does in a general way want a strong dollar.
Incidentally, former Fed chair Paul Volcker — Mr. Hard Money himself — who endorsed Barack Obama back in February, recently said that the dollar is already in a crisis. Wouldn’t it be a hoot if Volcker persuaded Obama to come out for a strong-dollar policy? Obama could make a populist pitch to protect the purchasing power of the wages of all those “bitter” small-town folks who are clinging to guns and God in the hinterland.
A big hat tip and many thanks to my friend Jimmy Pethokoukis over at U.S. News & World Report for noticing that I keep raising the dollar as a potential key issue in this presidential race. Food and gas prices are soaring. Big increases in the consumer price index are undermining worker wages.
So here’s the question: Which candidate, if any, is going to claim the lead on strong-dollar policy? 04/22 03:29 PM Novak: “McCain, Portman, and Victory” [Larry Kudlow] Bob Novak, the highly distinguished veteran columnist and author, told the American Spectator New York dinner group last night that John McCain will defeat Barack Obama in November’s election, although the Democrats will enhance their majorities in both the Senate and the House. Novak, who has covered elections for fifty years, speculated that McCain will pick former Ohio congressman Rob Portman (who also was President Bush’s special trade representative and OMB director) as his running mate, while Obama could choose former Sen. Sam Nunn as his.
On Portman, Novak said he’s young, will pass the conservative spell check, and can stand up in a debate. Our speaker also told us that the GOP has stumbled into the exact right candidate this year in McCain. Regarding McCain’s tax-cut proposals, Novak thinks they are real, and that cutting the corporate tax rate, as McCain has proposed, should be much more important to observers than the candidate’s occasional corporate and Wall Street bashing.
Novak also believes Obama’s gaffes about bitter small-town people who cling to guns and religion will be an absolute killer in the general election. So will the Jeremiah Wright business, and more generally Obama’s extreme, across-the-board, liberal-left positions.
The veteran journalist also responded emphatically to a question about media- and investment-driven pessimism that seems to permeate the airwaves today. He noted how much better off this country is today compared to the 1930s and 1970s. He observed that the Reagan supply-side revolution has created a vastly better economy than anything he has ever seen in his lifetime. Slowdowns come and go, but the underlying economy is strong.
It was a bravura performance from someone who has been a friend and mentor to me for three decades. Wonderful to see. 04/22 09:35 AM Monday, April 21, 2008 K&C Quotables [Larry Kudlow] Some notable quotes from Friday night’s Kudlow & Company:
Good News for the Greenback?: We’ve had a string of Fed governors finally come out and say that they’re uncomfortable with the level of inflation. When you get a plethora of these guys out there all saying the same thing, they’re sending a strong message. They’re saying we’re uncomfortable, and we may not give the market that extra 25 basis points at the end of the month — because we are uncomfortable with [inflation]. So that helped the dollar. — Andy Busch, global FX strategist at BMO Capital Markets Skousen Senses Opportunity: It’s possible that we’re not out of this recession. However, [remember] Fed policy. Don’t fight the Fed. Anybody who is fighting the Fed right now — in cash, T-bills, at a little bit over 1 percent — why would anyone be in cash at this point? These are tremendous opportunities. This is the time to get into the market. It’s all about globalization. Forget the U.S. economy; it’s globalization. Things have changed. Things have changed in the last ten to twenty years. The global economy is far more important. So when the U.S. catches a cold, the world does not catch pneumonia. — Mark Skousen, financial economist and author of EconoPower Obama & Capital Gains: If Obama gets in, I think it’s a catastrophe — if he puts through the policies he’s saying. [His exchange with ABC’s Charlie Gibson on taxing capital gains] was one of the most ridiculous give-and-takes I have ever seen. It was just silly beyond belief. [Obama] almost accepted it, and then he says he wants to raise taxes on capital gains, “cause it’s fair” — and not because it will help people, not because it will provide more revenues. It’s ridiculous what he said. [Obama economic advisor] Austan Goolsbee should be priming him on this stuff. It just doesn’t make any sense. — Arthur Laffer, supply-side economist and president of Laffer Associates Reich Reaches Hillary Tipping Point: I guess I just reached the tipping point this week, in terms of negative mudslinging by the Clinton camp. [It’s] bringing both [candidates] down. This is the old politics. … Given the scale of the problems the nation now faces … this kind of petty mudslinging has got to stop. I just couldn’t stand it [anymore] … Obviously, I was not going to endorse anybody, because I’ve known the Clintons for decades. It just seemed to be inappropriate to endorse anybody. But I reached a tipping point this week … I’m sick and tired of it. I’m fed up. — Robert Reich, former Clinton secretary of Labor 04/21 03:16 PM |
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