http://kudlow.nationalreview.com/ en-us 2008-07-02T17:27:01-05:00 hourly 1 2000-01-01T12:00+00:00 http://kudlow.nationalreview.com/post/?q=ZTYxNDVlNmM3MWNkZWQyNWMxMjQyZmQ5ZTllMGFlY2M=President Bush led his Rose Garden news conference today with this statement: “We’re strong-dollar people in this administration.” Perfect. It’s a true King Dollar message, and hopefully he’ll carry it to the G8 meeting next week. It’s unfortunate the administration doesn’t seem ready to back this strong rhetoric with some old-fashioned intervention. The Treasury has the authority to buy dollars and sell euros in the open market. Better yet, it can coordinate these efforts with Jean Claude Trichet of the European Central Bank. President Bush and Treasury man Paulson also are forgetting the key word: “appreciate.” As in appreciate the dollar. That would be a head turner on Wall Street and on global foreign-exchange markets. But the strong-dollar message is very welcome. And so is the president’s continued drill, drill, drill offensive. He made it front and center in the Rose Garden, too -- which has me wondering. Where in the world is John McCain on this? Why isn’t the senator saying drill, drill, drill, and pummeling Barack Obama with this message every single day? That’s the thrust of my latest column. You can read it here. 2008-07-02T17:27:01-05:00 http://kudlow.nationalreview.com/post/?q=YzIwYjVlY2MzMjQxYmNiZWEzOWM1MTVhZjhlNWViYTU=President George W. Bush was strong and in good spirits as he met this morning with a small group of journalists for about 90 minutes in the Oval Office. Topics across the board were discussed. As always in these meetings, some of the juiciest stuff is off the record. Too bad, because the president has an awful lot of important things to say on so many of these issues. But ground rules are ground rules. I hope I don’t get into trouble by mentioning a few economic points that came up. First, the president will continue his strong push on energy deregulation to open up the offshore outer continental shelf, ANWR, and the shale fields. When asked if he would revoke the executive order moratorium on drilling, he said he was thinking about it. When asked whether he would give a prime-time nationally televised speech on the subject, he said he would think about that too. He made it clear that the root cause of high gas pump prices and the $140 barrel price of oil is a lack of supply. He said we’re in a transition period from hydrocarbons to alternative technologies, but that drilling for more oil and gas is essential at this stage. He said taxing oil companies will not create any new supply. He also asserted that the marketplace works more effectively than a variety of new regulations. When asked about the dollar, the president stated clearly that he is for a strong dollar. But he hinted that the non-intervention policy would remain in place. Instead of intervention, he felt that free-trade policies to open markets and expedite the free transfer of capital would send positive signals that would strengthen the currency. He said the Columbia free-trade debate in Congress has undermined the dollar, and he continues to believe that passage of Columbia free trade is a “no-brainer.” He also believes the European banks have done far less to repair their balance sheets than the American banks. And he hinted that our financial and economic position is stronger than Europe’s, another factor working to strengthen the value of the dollar. Toward the end of the session he talked in very clear terms about the need to maintain his policy regarding the spread of freedom worldwide and what he called the “universality” of freedom. He quoted from Lincoln that “all men are created equal under God.” He pointed out that there’s a picture of President Lincoln on the wall of the Oval Office. I would add that there’s also a sculpted bust of Lincoln, another bust of Winston Churchill, and a magisterial portrait of George Washington. Mr. Bush reiterated what he has said in a number of these meetings, that in the office of the president, character matters a lot. He said you have to have clear principles and strong beliefs to execute all the responsibilities that are part of the job. I’m gonna leave it to others to talk about some of the foreign-policy issues that came up. But I would say as someone who has been privileged to attend these gatherings in the past, not only did the president show the inner strength he always has, but when he does reflect on the tumultuous events of his tenure, he is completely at peace with himself and his decisions. 2008-06-30T16:35:43-05:00 http://kudlow.nationalreview.com/post/?q=MzkyZjc5Yzc3YTkyMjdlMWM3OGJmYmM3ODI3MzhlYjA=Alaska Governor Sarah Palin, frequently touted by conservatives as Sen. McCain’s running mate, gave an outstanding performance last night on Kudlow & Co. (Video here.) It was drill, drill, drill -- all the way. In particular, she said look, if the people of Alaska want to drill in ANWR, why should the Congress in Washington stop this? She added that there are tens of billions of more barrels of oil both onshore and offshore Alaska. Yes, it might take five years to get ANWR on line. But we have to start sometime to solve a problem of massive oil prices. Gov. Palin also said John McCain is wrong about ANWR and that she hopes to persuade him of that. And she agreed with me that we need an America-first energy policy that deregulates and decontrols all possible energy sources, unleashing the U.S. energy business. She was clearheaded and plainspoken. Very impressive. #more# Here's the full interview: Kudlow: All right, drill, drill, drill! Nobody does it better than Alaska, if only Congress would let it. So here to tell us all about it, Alaska Republican Governor Sarah Palin. Governor Palin, thank you ever so much for coming on. We appreciate it. I want to start with this, it’s an oddball question. I mean, Senator McCain says it's too pristine to drill. Senator Obama says the drilling won't work. What is your response to this? How do you fight back? Palin: Well it will work. And Senator McCain is wrong on that issue. He’s right on a whole lot of other issues, so thank goodness that he’s understanding and evolving with his position on OCS [Outer Continental Shelf]. So that’s encouraging. I think he’s going to evolve into, eventually, supporting ANWR opening also. Obama is way off base on all that. I think those politicians who don’t understand that we need more domestic supply of energy flowing into our hungry markets, you know, they’re living in La-La Land. And we’re in a world of hurt if their agenda continues to be to lock up these safe, secure domestic supplies of energy. Kudlow: Tell me about the “world of hurt” in your judgment. The criticism of ANWR is - this is what you hear from people in both political parties - there’s not enough to matter, it’ll take too long, and it won’t impact the price of oil internationally or gas at the pump. How do you respond to that? Palin: Well it will impact, in a positive sense, the price of fuel eventually. We’ve got to start somewhere. Again, we’ve got domestic supplies sitting there underground. The reserves are ready to be tapped. And you know, nowhere more than Alaska ï', 'ð', 'ñ', 'ò', 'ó', 'ô', 'õ', 'ö', '÷', 'ø', 'ù', 'ú', 'û', 'ü', 'ý', 'þ', 'ÿ', '...', '- Alaskans - would be impacted by development in ANWR. And here in Alaska, our constituents, the people who live here, want it drilled. So that tells you that we have confidence in the safety and the responsibility that we’ll see there with the development of ANWR. Remember too Larry, we’re talking about a sliver of the coastal plain of Alaska being explored and drilled for oil. It’s about a footprint of a 2000-acre plot of land. That’s smaller than the footprint of LAX, for instance. So it’s not so grandiose an acreage that it is out of the realm of possibility for others to start understanding why it is that we can do this safely. We can have a small footprint, and not adversely impact the land, the wildlife, that’s part of Alaska. Kudlow: Well what do you have up there around ANWR? Is it a bunch of big fat blue flies? People say nobody goes up there. Humanoids don’t populate it. It’s just the blue flies. I mean, I want to keep blue flies healthy. Maybe you can tell us about that? Palin: Well sure, we want to keep the blue flies healthy also. [Laughter]. But again, it’s a small portion of land up there. Alaskans understand that while we have these reserves underground, ready to be tapped, you know, we want to invite safe responsible development. We want those who can safely develop it. We want them to compete for the right to tap those resources and start feeding these hungry markets. Kudlow: How long would it take? How long would it take? I hear so many, Senator Obama says this, and a lot of Democrats say this, some Republicans, how long will it take Governor? What’s your estimate on this? To start lifting out of ANWR? Palin: It’s going to take at least five years. You know, and there are other areas in Alaska too, that have the reserves that need to be tapped, certainly offshore. There’s trillions of cubic feet of natural gas, and billions of barrels of oil there too that need to be tapped. We also have a natural gas pipeline that is underway now, a process to get that constructed, where we can build infrastructure and allow known reserves of natural gas up on our North Slope - it’s already there, it’s already proven ï', 'ð', 'ñ', 'ò', 'ó', 'ô', 'õ', 'ö', '÷', 'ø', 'ù', 'ú', 'û', 'ü', 'ý', 'þ', 'ÿ', '...', '- to be tapped and flow through a natural gas pipeline. Our legislature is dealing with that issue right now, getting ready to license a company to build that gas line. Again, to feed these hungry markets. Kudlow: Alright, so now you’ve got another case where both candidates seem to be off course. Senator Obama wants a windfall profits tax on oil companies. And Senator McCain talks about obscene profits, which I regard as the near cousin to the windfall profits tax. What’s your response to these criticisms? Palin: Well we just went through a process of making sure that the oil and gas resources that Alaskans own are properly taxed. And we just increased a tax on profits of oil companies up here, because an earlier version of Alaska’s tax formula had been corrupted by some politicians who are now in prison for the corruption. But we had to revisit the way that we were going to tax profits on oil companies. We just got through that, and it wasn’t an obscene amount of tax placed upon them. In fact, it’s driven more by a desire to explore and to develop with independent companies coming into Alaska. So you know, on a national level, they’re going to have to deal with that, but we just dealt with it on Alaska’s level. And we have a healthy valuation of our oil and gas reserves, and we’re deriving healthy revenue for our state off that. Kudlow: Well are profits a dirty word? In energy, or other businesses? Palin: Well no, of course not. And low taxes of course, we know spur the economy. I’m a Republican. I am for low taxes. We have to make sure though that an appropriate value is placed oil and gas resources. And that the people who own these resources are able to benefit from the development of them. But no, profit is not a dirty word. Kudlow: Why don’t we just liberate, and decontrol, and deregulate the whole bloody energy business ï', 'ð', 'ñ', 'ò', 'ó', 'ô', 'õ', 'ö', '÷', 'ø', 'ù', 'ú', 'û', 'ü', 'ý', 'þ', 'ÿ', '...', '- whether it’s oil, gas, shale, nuclear, coal, natural gas, as well as wind and solar ï', 'ð', 'ñ', 'ò', 'ó', 'ô', 'õ', 'ö', '÷', 'ø', 'ù', 'ú', 'û', 'ü', 'ý', 'þ', 'ÿ', '...', '- why don’t we just decontrol, deregulate, go for an America first energy policy? Get independent of Saudi Arabia? America first. Create all of these millions of high paying jobs. Why isn’t anybody talking about that in this race? That’s the natural, Reaganesque thing to do. Isn’t it? Palin: Yeah absolutely! You’re hitting the nail right on the head. That’s what so many of us normal Americans are asking. The same thing. Why aren’t the candidates talking like that? Where we can secure America and we can be more independent when we talk about energy sources if we could drill domestically. Here we sent [Energy] Secretary Bodman overseas the other day, and our president had to visit the Saudis a few weeks ago, to ask them to ramp up development. That’s nonsense. Not when you know that we have the supplies here. You have the supplies in your sister state called Alaska, where we’re ready, willing and we’re able to pump these supplies of energy, flow them into hungry markets across the U.S. We want it to happen. It’s Congress holding us back. Kudlow: Alright. I’ve got some sound from Senator John McCain. Please take a listen. [Video Clip: Audience member: Would you consider Alaska Governor Sarah Palin for a vice-presidential running mate? McCain: Could I say that this meeting is adjourned? [Laughter]. We’re still going through the process, but the governor of Alaska is a wonderful person, and very popular in her state, and very honest and straightforward, and I think has a future in our party] Kudlow: Alright Governor, you probably heard Senator McCain waltz his way through that one. Let me just ask you. If he asked you to be his vice-president, would you accept in light of your disagreement, apparently, over ANWR drilling? Palin: Well I’d like the opportunity to get to change his mind about ANWR, I’ll tell you that. But Larry, I’m gonna give you the same answer that any other potential VP gives you and that is you know, I really enjoy my job here in Alaska as governor. I believe that there’s a lot that Alaska could be and should be doing to contribute to the rest of the U.S. And I think I can do that in my job here in Alaska. And I know that, again, the other potential VPs are saying the same thing that they like where they are today. So I also have to say though that it’s really probably out of the realm of possibility to be tapped for that position, so I don’t even have to worry about it. Kudlow: Well okay. You’ve got a lot of work to do drilling up there to help the rest of America. But let me ask one final question. In your judgment, is it time for the Republican Party to put a woman on the ticket? Palin: Oh, we’re overdue for that. Absolutely. I would love to see that happen. Kudlow: Alright. Governor Sarah Palin, Alaska. Thank you very much Governor. Appreciate it. 2008-06-26T13:46:12-05:00 http://kudlow.nationalreview.com/post/?q=YjhkYWRkNDI5MzU1OGQ3MTFkNTE4ZGY0MDkyZjE2NjQ=Spiking gold and plunging stock prices today are a severe rebuke and spanking of the Fed for its non-action at Wednesday’s money meeting. These markets are in full revolt over the Fed’s failure to back the dollar and stop rising inflation. You can read all about it in my latest column.   2008-06-26T13:45:19-05:00 http://kudlow.nationalreview.com/post/?q=NjAzMjk1NjhlYTUyNTAwNzk0M2RkMmMyOWQ4MmM1ZGQ=All eyes are on the Fed meeting to see if the inner Ben Bernanke will lean toward inflation hawk Paul Volcker and follow through to stop inflation and defend -- indeed recreate -- King Dollar. Volcker told us a few months ago that we were in a dollar crisis. Since then, Bernanke has been talking tough. No one expects a rate-hike announcement tomorrow at 2:15 p.m., but all eyes will be watching and reading the Fed policy statement to see if inflation is rated public-enemy number one. The artful term among Fed watchers is “inflation bias.” Is inflation really a problem? Well of course sky-high oil and fuel prices make it thus. Check out today’s consumer confidence report: 12-month inflation expectations have skyrocketed to 7.7 percent! As recently as early 2003, that number was 4 percent -- a rock-bottom reading that is seldom violated in these surveys. And inflation is rising all over the world, especially for countries whose currencies are tied or shadowing the sinking U.S. dollar: China, India, South Korea, Thailand, Vietnam, Saudi Arabia, and Russia. Whenever the dollar sinks, global inflation is sure to follow. Even the strong-minded euro, piloted by inflation hawk Jean-Claude Trichet, has jumped to 3.7 percent from just over 1 percent a few years ago. Many on Wall Street and in Washington say the Fed can’t tighten policy because the economy is weak. But you know what? The economy is weak in large part because of rising inflation, which is the cruelest tax of all. It diminishes corporate profits and family incomes. It also is forcing the unemployment rate higher. Now the Phillips curve argues a tradeoff between unemployment and inflation. That Keynesian view is why all the Keynesian Wall Street and Washington economists are telling the Fed not to get tough. But check out some facts: The U.S. consumer price index bottomed in October 2006 at 1.3 percent. The unemployment rate bottomed six months later in March 2007 at 4.4 percent. Through May 2008, the latest readings have U.S. inflation at 4.2 percent and the unemployment rate at 5.5 percent. This is what we learned in the 1970s. Instead of moving in opposite directions, unemployment and inflation are moving up together. When you tax something you get less of it. By raising the inflation tax we are getting less job creation and higher unemployment. This is not to say that the housing problem and the credit crunch haven’t weakened the economy. But it is to say that if the Fed can bring down inflation by taking back its easy-money rate cuts in the next 4 or 5 months, it will lower the inflation tax, resurrect King Dollar, and just maybe save the economy. Is the inner Bernanke up to the task? We will soon know. 2008-06-24T15:50:15-05:00 http://kudlow.nationalreview.com/post/?q=NzMzMTY0MDZmZDBiYzcyZTk3MWI3YTU4NTFmYzU4OGY=What follows below is an unofficial transcript of my interview last night with James Hackett. Mr. Hackett is the president & CEO of Anadarko Petroleum. He also happens to be an incredibly bright man whose thoughts and ideas on energy are right on the money. Kudlow: Alright, drill, drill, drill. So here to talk about the whole energy situation is James Hackett, president and CEO of Anadarko Petroleum. Mr. Hackett, welcome. Let me just ask you, drilling, this big debate, you know all about it. Ending the moratorium. Decontrolling. Allowing us to produce more supply. First of all, let me get your quick take. How long would it take to bring some oil online if we go to the Outer Continental Shelf? Hackett: Generally five to seven years from the initial leasing until you actually have production. And we’ve proven that in 8100 feet of water, in a platform that we operate in the eastern Gulf of Mexico right now. Kudlow: So why are these senators -- and I’m not even gonna even say which political party they’re from, because I would never politicize an issue -- why are these senators saying it would take five to ten years and the price impact wouldn’t be felt until 2030? In fact, listen for one second, it’s a non-senator, I’ve got some sound from former Energy Secretary Bill Richardson. Hang on a second. Here he comes. [Bill Richardson video clip courtesy of CBS/Face the Nation: “I was Energy Secretary, and I can tell you that every bipartisan administration has opposed offshore drilling for pristine reasons, the ecosystem. But also, the fact that you’re not going to get any of this oil out offshore for the next ten years, and prices won’t go down till the year 2030 according to the Energy Information Agency which is part of the Department of Energy."] Kudlow: Mr. Hackett, you heard him. Ten years to get it out and then nothing until 2030 on prices. What’s he talking about? Hackett: Well, I think that it’s one man’s view. We happen to be operators in the Gulf of Mexico. I don’t think Secretary Richardson actually did operate a well in the deep offshore areas. As I mentioned, we’ve got a world class project that is the deepest producing well in the history of the world. It’s providing clean, natural gas to America, about 1.5 percent of all of our gas supply. Everyday it’s being provided from a football field and a half sized environmental footprint, a two-hour flight away from the shoreline. So it’s not in any visual contact with any human being. These platforms have gone through 200-year hurricanes, back in 2005, without any environmental consequences. It’s a bit of a fiction hoisted on us by people who don’t know better. Kudlow: Alright, I hear you. People who don’t know better. What’s the price impact and how much is out there? I mean, there’s a lot of estimates. What is it, 86 billion barrels in theory, maybe 20 billion barrels are going to be available and provable. What’s your take on the volume that you could put on the market? And when would the price adjust? Hackett: Well I think that the price would adjust actually as soon as you started drilling it. There’s a psychology with regard to speculative elements in any commodity market, whether it’s grains, or metals, or oil and gas. If the world really felt that there were plenty of places to go look for oil and gas, the markets would start trading as if that were a reality. Today it’s quite the opposite reality, especially with the geopolitical elements overlaying that. So, every time we say to the world, ‘We want energy security, but we want you to produce it, and we’re not going to do anything,’ the elements in the trading community say, ‘well that means that access is getting tougher.’ If you want the things that everybody says we want, we should go and open up our own shores to drill. We can do it environmentally well. We’ve got the proven technology. And we don’t know how much is left out there. Every time we go and find new resources, we find there are more than we thought there were. You could have gone back fifty years, and said that there were less resources, now there are more because we actually went and did good science, produced it responsibly, and have found new horizons in deeper and deeper areas of the horizon to be able to test and bring out. Kudlow: What about this other argument that is sort of the political talking points of one of the two major parties, although nobody is really totally clean on analyzing this. The leases. I heard a U.S. senator on one of the talk shows yesterday say well, ‘there’s 41 million acres worth of leases out there, but they’re only using 10 million.’ What’s that all about? What is your response to that argument? Hackett: Well one, it shows a very poor understanding of how the oil and gas business actually works. It’s a bit like the real estate development arena. If you were developing a real estate development, you wouldn’t just do it on one acre, you wouldn’t just build one house. To make it economic you’d actually buy, let’s call it fifty acres and you’d build a housing development. In our case, we don’t just take just one lease to get a well drilled. We actually take several leases if we’re lucky enough to get them. It’s all competitively bid. The federal government collects billions of dollars from this stuff. It’s as if they don’t get anything if you listen to the soundbites. We also pay annual rentals. So we’re putting together an economically developable area, because remember, we’re drilling miles into the ocean sometimes, miles into the ground, without knowing there’s anything there. So to assume it’s on that one acre that you actually bought is crazy. And so what we’ll do is we’ll actually get ten or fifteen leases, and then we’ll drill, and then we’ll figure out if it’s there or if it’s on the next lease next door. And these things take time. You have to permit them. You have to shoot seismic to be able to do the right science, image it below salt. And then you go and drill it, if you’re lucky enough to get a permit, after you’ve done all your environmental studies. But they’re talking about offshore. You go onshore, there’s places where we wait on permits for two months to two years. And even though it’s leased, it can’t actually physically be drilled. And that’s what people don’t really understand. With the environmental restrictions and environmental lawsuits, there are lots of places where we hold leases, [but] we’re not allowed to drill because the federal government that leased it to us actually won’t give us the permits. Kudlow: Yup. Alright before we break, let me just ask you a couple others. What would cap-and-trade do to drilling? Hackett: Cap-and-trade would probably hurt drilling. Because there’s a lot of risk that it would not actually be implemented properly. And the unintended consequences of a very complex system, that’s administered by governmental agencies, would have to be one that I would predict would actually make supply harder to get to consumers which I think is a mistake. Kudlow: What about those who are saying now the energy business in general is much too profitable, it’s time to charge a windfall profits tax and use the proceeds of that tax for consumers so they can buy more gasoline at the pump? What’s your response to that one? Hackett: Well first of all, I hope any American that is as old as I am, and was around in the ‘70s, realized that failed once. We actually started importing about 13 percent more oil, after we slapped a windfall profits tax on it. That money is much better spent within the private enterprise sector that’s good at finding new supplies. You’re actually discouraging supplies from being developed. A much healthier tax is actually opening up access, where you actually generate tax revenues for the government from the additional drilling. You get supplies, plus you get additional taxes. And that’s where we ought to be headed. It’s good for consumers. Kudlow: Do you have a problem giving some of those royalties to the states if they let you drill off their shores? Hackett: We’ve been huge supporters of that because it provides them an incentive to provide education, coastal restoration or any kind of fish and wildlife type of activity. We’ve been very active as part of our association, we’re trying to get that done. Kudlow: What about the shale story? President Bush talked about shale in his speech the other day. Green River Formation, they’re talking about maybe 800 billion in recoverable barrels equivalent. Some people like the Rand Corporation have said close to 2 trillion. And also the Bakken Shale formation, which is to the north of that. Are you doing any shale? It’s not drilling, I guess it’s extraction. Are you in that business? Is that a promising business? Hackett: Well we have huge amounts of shale exposure if you will, because of our old land grant with the Union Pacific Railroad. But I think it is a long-dated technology. We tried it in the 70s. We will try it again ultimately if oil stays high. I think there are other answers we should be searching for as well. But I think everything is up for consideration in an environment where we ought to be looking for more supplies and more alternative fuels. Just remembering that we’ve got a bridge we’ve got to make until we get to that ideal future of alternative energy. And recognizing that gasoline doesn’t come from wind power. Gasoline doesn’t come from solar firms. Gasoline comes from sometimes, really bad alternatives like corn-based ethanol. And we’ve got to be real careful not to prescribe political solutions, as opposed to funding research and letting science lead us to the right answers. Kudlow: …What do you say to the peak oil crowd? You don’t sound like you believe in peak oil. Hackett: I think that the peak oil is determined by price. And I think that it is also determined by what you allow to be alternative forms of energy. I think there are places in the world where peak oil has not occurred. I do think that oil will not be able to grow to the sky in terms of supply, forever and ever. I think it’s harder to get. It’s getting more expensive to get. I think that we need to continue to develop a broad based fuel sourcing, including nuclear energy. But prices are having some effect. It’s both impacting demand, which we all need to conserve a lot more than we do. We’ve become a very lazy country since the late 70s. Nobody talks about conservation. They’re talking about taxing the oil industry, instead of talking about turning off your air-conditioners, or driving smaller cars, which is what we really need to do. It has that immediate impact. Kudlow: Well isn’t the high price a blessing? Doesn’t the high price cause conservation? And doesn’t the high price cause production, if it were deregulated? Hackett: Absolutely. It’s Economics 101. We don’t have to have the government necessarily solve this for us. But it’s not to say that anybody likes [higher] prices. Because it’s not necessarily good for companies like us. It’s not good for demand. But it is having the intended effect. People are riding in buses. They’re taking mass transit. And they’re [creating a smaller] environmental footprint by virtue of doing that. We are finding new supplies in more and more remote parts of the world where you can’t do that at $30 oil. Kudlow: Alright, I got to take a commercial break Mr. Hackett. You’re gonna stay with us. I really appreciate your time very much, sir. Our distinguished panel is going to join us to drill down -- pardon the phrase -- on many of these issues we’ve discussed. By the way, Mr. Hackett is chairman of the board of directors of the Dallas Federal Reserve. So we might even go in that direction too. We’re for keeping America on the right track. You heard Mr. Hackett, we have a lot of drilling, profitably, to do. We can get it done. This is America. America first. Let us stay away from Saudi Arabia. We can do it right here. Kudlow and Company straight ahead. 2008-06-24T14:12:33-05:00 http://kudlow.nationalreview.com/post/?q=ZDA5NjkxODQ2NDE0MjI5Yzk5NjQxOGEzYTVmZjYzOGI=The gold market has sold off $20 today, and my hunch is it has something to do with the Federal Reserve policy meeting that begins tomorrow and will conclude with a public announcement at 2:15 p.m. Wednesday. A big gold drop strongly hints at market expectations for a tough-minded Fed that will defend the dollar and move to contain rising inflation. Nobody expects the central bank to raise its target rate this week -- although frankly I wish it would. In effect, it would be taking back some of the excessive rate cuts made last winter. And I think those rate cuts have a lot to do with the high price of oil and the cheap dollar. But the gold plunge today might be suggesting some tougher language from the FOMC policy statement on Wednesday. If, for example, the Fed language is biased against inflation, and perhaps even mentions the dollar, it would be a clear signal that rate hikes are coming sooner rather than later. There’s been a big debate about this, with hawks versus doves arguing over how tough the Fed’s gonna be on inflation. Bernanke sounded very tough, but then Donald Kohn and others seemed to be leaking to the media that they wouldn’t be so tough. Today’s gold drop suggests that Bernanke is going to win the day and pave the way for a quarter-point rate hike either next month or in August. The futures market is pricing in several more rate hikes after that. I continue to believe that fighting inflation and appreciating the dollar would be the best medicine for the economy, and in the short term would be strong medicine to reduce world energy prices, including gasoline at the pump. If Paul Volcker were running the Fed, speculation would be high today that the central bank would beat the market with a dramatic rate hike announced on Wednesday. Nobody today equates Bernanke with Volcker. And today’s stagflation is certainly a smaller dose than we had in the 1970s. But who knows? Maybe Gentle Ben will surprise us all with a Volckeresque action. 2008-06-23T12:24:11-05:00 http://kudlow.nationalreview.com/post/?q=MTIwNDdmM2IwZWMyZWY5NWRlN2QwZDU1YWUwODA0M2U=The stock market plunged 170 points this morning and oil jumped over $3, allegedly based on a New York Times story that Israel is carrying out military exercises as a rehearsal to bombing Iran. But actually, the Times story, written by the very able war correspondent Michael R. Gordon, is talking about Israeli training exercises from early June, not now. It’s a rehash story with some new details. And it does in fact confirm the market rumors of June 5 and 6 that Israel was planning an Iranian attack to stop the rogue state’s nuclear-weapons program.  Recall that oil jumped almost $15 on Thursday, June 5, and Friday, June 6, largely in response to Middle East war worries. In fact, on Friday, June 6, stocks plunged 400 points as oil jumped $11 to close at its peak price of $140 a barrel. It was this oil spike that helped trigger various Washington and presidential-campaign attacks on so-called oil “speculators.” But what the heck? Anybody with half a brain operating in the oil markets who thought there was going to be an Israeli-Iranian war would be buying spot and futures contracts -- which is exactly what happened. So far as I know, there is no new news coming out of Israel. Today’s Times story is a look backwards. But I want to make a separate point. Oil-market traders react rationally to new information. Instead of blaming them, senators McCain and Lieberman might want to visit with some traders on some of the big Wall Street trading floors to better understand the relationship between global news and price discovery. There’s something more here. Democrats reading from their talking points are completely opposed to Bush and McCain proposals to open up new oil drilling offshore and onshore. The Democratic argument -- which I heard again last night on my show from Robert Reich -- is that it will take ten years to lift new oil, which will never help today’s price problem. Obama says exactly the same thing, as do Harry Reid, Nancy Pelosi, and all the rest. But they’re forgetting the role of oil traders. Oil futures markets have contracts that run out five years and beyond. If these traders -- or “speculators” -- believe new oil supplies are on the way in the future, they will sell those out-year contracts. And before long market arbitragers will backward-ize those price drops toward the spot market, bringing prices down there as well. In other words, trader/speculators can be very handy instruments of energy (and economic) policies. If demand exceeds supply they are buyers. But a prospective future supply increase makes them sellers. In a free market prices move both ways. And if Sen. McCain would take the time to learn this he could respond accordingly to Obama’s silly criticism that we shouldn’t drill because it will “take too long.” This is all part of the key point that McCain can turn record energy prices to his political advantage, as polls now show 65 percent, or two-thirds, of the public favors drilling. But to do this the whole GOP must understand the role of oil traders and their speculations.  2008-06-20T10:49:35-05:00 http://kudlow.nationalreview.com/post/?q=MTY5MGUxMWE0MjYzYWZlY2M2Y2FlZTc2NTY0OGQxZTQ=The following is an unofficial transcript of my interview last night with Larry Dickerson. Mr. Dickerson is the CEO of Diamond Offshore Drilling. Kudlow: Alright, more on drill, drill, drill. The question is how deep? How much? How green? Here’s Larry Dickerson, CEO of Houston based Diamond Offshore Drilling. Larry, great to see you. Just to put a quick picture up on the full screen, your stock has been off the charts in the last three or four years. I got you up 500 percent. Your profits are growing near 70 percent per year, with 30 percent annual growth in sales. Welcome to the show. Now I want to ask you. Okay, we had on CNBC one of those cute looking greenies, tree huggers were on, and they were debating somebody about this drilling business. And they say, ‘Okay, you drill offshore, outer continental shelf, you’re gonna wreck the beaches of the coastal states. You’re gonna ruin the tourist trade and destroy their economies.’ What’s your response? Dickerson: Well Larry, there hasn’t been any significant  --  even insignificant that I can think of  --  oil spill from U.S. waters in over thirty years. We have an excellent environmental record. The amount of redundancy testing and government regulation put in place I think all but eliminate that as a possibility. Kudlow: So they’re basically just mau-mauing the business, the drillers. They’re mau-mauing the oil companies. They’re mau-mauing the American people, right? Dickerson: Well, I suppose there’s some logic to that. But at the end of the day, there’s the issue of supply and there’s the issue of jobs. People are paying $4 dollars a gallon for gasoline and we can recycle significant parts of that back to the economy in jobs  --  high paying blue-collar jobs and white collar jobs. We can recycle that through taxes. As Secretary Kempthorne said, a lot of that could go back to the states and help them with their budget problems. Kudlow: How far offshore can you go? You’re a deep-water driller aren’t you? Dickerson: Yeah, our deepest rigs can go 10,000 feet of water. Kudlow: How many miles out? Dickerson: Oh, we’ll go right out to 200. It really depends on the water depth, of how far it is. In some parts of the world it’s pretty shallow. Kudlow: What’s out there Larry? There estimates of 86 billion barrels out there. Is that true? Dickerson: Well, we really don’t know. All we’ve really significantly explored or really looked at with seismic is in the central and western parts of the U.S. Gulf of Mexico. I suppose that estimate is as good as any. But until we get out and work off the eastern Gulf and work up and down the Atlantic Coast and California’s been shut in for many years, I just don’t think we’ll know. But the history has been that there’s always been more than the initial estimates indicate. Kudlow: If Congress gave you the green light tomorrow  --  which they won’t  --  but if they gave you a green light to drill offshore, how long would it take you to start lifting oil? Dickerson: Unfortunately that is going to be some period of time. Demand is such all over the world that we’ve been taking rigs out of the U.S. Gulf. There’s probably 30 percent less rigs at work today than there was even three years ago. And the rigs that we have are booked up quite a bit in advance. So we’d have to do that. But while we were building new rigs, or relocating rigs here, our oil company customers would be doing the seismic and would be getting ready for that. So I would guess that it would be, by the time they got the studies and all that, drill bits wouldn’t be going into the ground for a couple years. And then maybe another couple years after that. Kudlow: So four or five years? Dickerson: Yeah probably. Kudlow: So wouldn’t the futures traders who are much maligned, wouldn’t they pick that up right away? They see you going out there, they see you mobilizing. Wouldn’t the traders start lowering the futures prices?  Those futures markets go out, heck, they go out ten years. Dickerson: Well it certainly couldn’t hurt. But it’s going to require a number of efforts all across the board. We’re not ruling anything out. But to take this action [against drilling], which is not followed in any other part of the world, and to take it off the table, just doesn’t make any sense to me. Kudlow: Well no other country is so dominated by greenies, and mau-maued by greenies. But let me just ask you Larry, is there a twitter, is there a buzz about the McCain statement and the Bush statement? What are your colleagues saying in the drilling business? Dickerson: Well I think we’re encouraged. But I mean, we’ve been down this for twenty years of ups and downs. But certainly this is a significant step forward. And as far as we’re concerned, you’ve indicated what our stock price and our income have done, primarily off some limited Gulf of Mexico, but off the rest of the world. So we’re going to do okay. But we would like to see jobs remain in America. We’d like to help this country out on this issue. 2008-06-19T17:03:44-05:00 http://kudlow.nationalreview.com/post/?q=MTVjNGY0OGMwYzgyYmZlNjJjYWY3YWQ3ZDNiZmFhYzA=Warts and all, John McCain’s flip-flop on offshore drilling is a very welcome development. When circumstances change, political leaders should change their policies. And $4 at the pump and $140 in the open market is certainly enough changing circumstances to warrant McCain’s constructive shift on offshore drilling. Regrettably, McCain still talks about the “pristine” ANWR patch. But he’s just not gonna move on that. Obama, meanwhile, is repeating the tired old Democratic response that there’s no way offshore drilling will lower prices now. But he is wrong. And McCain has an opening here if he’d only stop his silly attacks on “reckless speculators.” The Arizona senator doesn’t know anything about speculators or investors or commodity trading or any of that stuff. The reality is, should Congress overturn its offshore-drilling moratorium, those very same speculators are gonna start selling crude-oil futures contracts and price declines will filter backwards from the longer-term contracts to the cash market. In other words, what can be bought will be sold. If drilling expectations change on the hope that future oil supplies will rise, prices will adjust lower and it will happen fast. This is what Obama doesn’t understand. It’s also what McCain doesn’t understand. Price changes are pulled forward in response to shifting oil-supply policies. Ironically, one of McCain’s senior economic advisors, Kevin Hassett of the AEI think-tank, has just written a column on this very subject. So I don’t know who McCain is talking to, but he ought to talk to Kevin Hassett, who is a very smart guy. Regarding the investigation of commodity futures undertaken by the CFTC, acting chairman Walter Lukken has said they have not found a smoking gun. And this whole exercise in investigating traders reminds me of the nonsensical investigations of so-called price gouging, which for decades have come to nothing. In addition, McCain should get off this “obscene profits” song about oil-company earnings. Obscene profits are the near cousin of the windfall profits tax. Once again that puts McCain on the liberal-Democratic side of the issue. What you don’t want is to deter oil drillers and producers from going into new fields offshore and onshore if Congress lets them. One reason for all this is economic growth and jobs. A Wharton Econometrics study (hat tip to Mark Perry at Carpe Diem) shows that total employment at full production in ANWR would come to 735,000 new jobs created across the country, not just in Alaska. So not only would offshore drilling and ANWR and other domestic sources of energy reduce prices, they would also be huge job creators to spur the economy. This is something McCain should push. Finally, President Bush made a very strong statement today to lift the moratorium on domestic and offshore production. In his statement he emphasized the oil-shale fields in the Green River Basin of Colorado, Utah, and Wyoming. There is the equivalent of 800 billion barrels of recoverable oil in this area, more than three-times larger than the proven oil reserves of Saudi Arabia. Now get this: Bush charged that in last year’s budget bill Democrats inserted a provision blocking oil-shale leasing on federal lands. That’s unbelievable. McCain should pick up on that point, too. That oil shale could create another million jobs, bringing oil prices back down to about $75 a barrel and pushing gas pump prices way down as well. Onshore, offshore, oil shale. The mantra here is drill, drill, drill. Oil, jobs, and the economy may determine this year’s election. Sen. McCain has made a very good start but he has much more work to do.  2008-06-18T15:22:39-05:00 http://kudlow.nationalreview.com/post/?q=NTJmZTU3ZGVjMTU1YzE2N2UzOWI3ZjAyYzA1OGE5Mjk=Take a look at what my former boss had to say on this subject over twenty-five years ago. Now this is what I call a good-looking energy policy: “America must get to work producing more energy. The Republican program for solving economic problems is based on growth and productivity. Large amounts of oil and natural gas lay beneath our land and off our shores, untouched, because the present administration seems to believe the American people would rather see more regulation, more taxes and more controls than more energy. Coal offers great potential. So does nuclear energy produced under rigorous safety standards. It could supply electricity for thousands of industries and millions of jobs and homes. It must not be thwarted by a tiny minority opposed to economic growth which often finds friendly ears in regulatory agencies for its obstructionist campaigns. Make no mistake. We will not permit the safety of our people or our environment heritage to be jeopardized, but we are going to reaffirm that the economic prosperity of our people is a fundamental part of our environment.” From Ronald Reagan’s Acceptance Speech at the 1980 Republican Convention, July 17 1980. 2008-06-18T14:30:31-05:00 http://kudlow.nationalreview.com/post/?q=NWJlZDY3YTgxZTcyODE1YWFkOTkzZTU0ODAzNzFkYTI=Robert Novak’s column today argues that Wall Street speculation over Fed rate hikes “appears to be dead wrong.” Novak says Fed head Ben Bernanke is more worried about spiking oil prices causing recession than he is about inflation. If Novak is right, the central bank is going to suffer a big credibility loss by not acting. Perhaps on word of Novak’s column, gold jumped $16 this morning to $889. The greenback itself fell. In the May report released last week, U.S. CPI jumped six-tenths of 1 percent to 4.1 percent over the past year. It has been running around 4 percent for the past six months. Food and energy are the big drivers, with gas prices at the pump rising 21 percent annually over the past three months and food prices by 6 percent. Oil is up $3 this morning to $138. In Europe, the May CPI came in at 3.7 percent, with ECB head Jean-Claude Trichet signaling another rate hike. Bernanke recently said the Fed would “strongly resist” inflationary pressures. And he has talked openly about defending the dollar. President Bush and Treasury man Paulson have made similar sounds, including at this weekend’s G8 meetings. Bond-market futures are pricing in a 100-basis-point rise in the Fed’s target rate over the next seven months. For the August meeting there is a 70 percent probability of a one-quarter-point rate hike. By this January the target rate is predicted to reach 3 percent. Currently it is 2 percent. In the open market for Treasuries, the 2-year note is now yielding about 3 percent. Last March, it was only 1.35 percent. Many traders use the 2-year note as a proxy for the fed funds rate. The huge increase in the 2-year rate is signaling a stronger U.S. economy, somewhat higher inflation, and a series of fed rate hikes. If market expectations are foiled by a passive Fed that fails to deliver on its promise of a stronger greenback and its much-touted pledge to hold down inflation, it is likely the dollar will tank once again and drive up oil prices to new record-high levels. Mr. Bernanke surprised almost everyone with his tough statements on the dollar and inflation. But if Novak is right, and there is no Fed follow through, both the dollar and Bernanke’s reputation are really going to sink. My thought? I believe the Fed should raise its target rate one-quarter of a point at its meeting next week. It would be the shot heard around the world. The greenback would surge, oil and gold would collapse, and a lot of investment liquidity would come into the U.S. economy. Let’s see what happens. 2008-06-16T13:08:08-05:00 http://kudlow.nationalreview.com/post/?q=OGE3ZmUyZmI5MDE0ODBmODEzMmIyZjAyYWY2NzhjMDg=Who can figure out what Sen. John McCain really stands for on the economy? In recent days the Republican standard bearer gave a really strong supply-side taxpayer-friendly speech, hitting all the right notes. Undoubtedly his best economic statement of the campaign to date. And then, yesterday, he appears to embrace King Dollar in his New York town hall meeting. Here’s the money quote: “We have to talk up the dollar, obviously, and I’m glad that Bernanke did the other day, and take certain short-term steps to try and strengthen the dollar.” This is good. Very good. I’ve been worried that Obama, listening to Paul Volker, would get to King Dollar before McCain. But it looks like Big Mac, listening to Steve Forbes and Jack Kemp, is getting there first. So now we have McCain arguing for lower tax rates and a strong greenback, which is the ultimate supply-side Reaganesque message. Doesn’t get any better. In fact, from here, it only gets worse. In that town hall meeting yesterday, McCain also teed off on oil companies and so-called financial-market speculators. From today’s New York Sun, McCain endorsed a federal probe into speculation in the oil market: “I believe there needs to be a thorough and complete investigation of speculators to find out whether speculation has been going on and, if so, how much it has affected the price of a barrel of oil.” Well, this puts Big Mac in cahoots with Obama and the liberal Democrats who are calling for the same thing. I don’t know if Mr. McCain realizes that in the last six months or so there has been a run on the dollar. That’s been a key driver of higher oil prices, along with various supply bottlenecks around the world. A strong dollar would cure this without having to blame “speculators” who actually enhance markets by adding liquidity. And anyway, so-called speculators are also investors -- including, by the way, large state pension funds that represent tens of millions of cops, firefighters, teachers, and others. Free-market capitalism includes all investors, private and public. There are long-term investors and short-term momentum traders, and those momentum guys can turn markets on a dime. If they see a strong dollar, they’ll sell oil (and gold). Then Mr. McCain lashes out at oil companies: “I am very angry, frankly, at the oil companies. Not only because of the obscene profits they’ve made, but at their failure to invest in alternative energy to help us eliminate our dependence on foreign oil.” Well, Senator, my response is drill, drill, drill. Why aren’t you working to deregulate offshore drilling, ANWR drilling, and oil-shale drilling? By some estimates there are nearly two trillion barrels of oil to be lifted. And American oil companies can do it better than anyone in the world. Not only would so-called speculators take a look at this new drilling, they would start selling oil futures contracts immediately and pretty soon the spot-market price would come down. And by the way, the drill-drill-drill strategy would create hundreds of thousands of high-paying jobs. Think of it. Plus, the oil companies are already paying a bloody fortune in record taxes to the federal Treasury. This is all free-market capitalism. Why not let it work, senator? McCain is scoring poorly with the investor class because of his economic ambiguities. As we know, the investor class is one of the highest-turnout blocks each election, comprising two of nearly every three votes cast. It should be a natural core GOP constituency. But wait a minute, look at this: The latest numbers from the highly respected IBD/TIPP poll show McCain with a slim 44 percent to 41 percent lead over Obama in June. Last April, McCain was ahead 49 to 41 percent. He should win this investor poll by at least 15 percentage points, given the anti-investor and anti-business sentiment loudly proclaimed by Obama. However, if investors are on the fence about this election, it could spell trouble for Senator Mac. 2008-06-13T11:54:35-05:00 http://kudlow.nationalreview.com/post/?q=ZmU2ZGM3ZjczMTU5OGU5MTI5YWQ1OWJjYjVmZWZmZjc=Driven up by the cheap dollar, U.S. import prices surged nearly 18 percent above year-ago levels, according to a new report out today. Even removing all energy-related fuels, the surge is still 6 percent. As recently as late 2006, total import inflation was zero. And the core rate was one-half of 1 percent in early 2006. So inflation is getting worse and we may see these price hikes filter into tomorrow’s consumer price report. So let’s give a couple of cheers to Fed head Ben Bernanke, who has belatedly woken up to the inflationary perils of the cheap dollar. Recently Bernanke pledged to “strongly resist” any decline in public confidence over stable prices. Essentially he has put a floor underneath the dollar. He may even take back the last quarter-point rate cut in July, raising the Fed’s target rate to 2.25 percent. And today’s strong retail sales report, with upward revisions to April and March, confirm Bernanke’s view that the economy is likely getting better, not worse. Now here’s the rub. Incredibly, Bernanke’s number two, Donald Kohn, gave a speech in Boston contradicting the Fed chairman. Relying on a Phillips-curve tradeoff between inflation and unemployment used by liberal economists who disagree with Milton Friedman’s principle that inflation is a monetary phenomenon, Kohn tells a Boston audience that “appropriate monetary policy following a jump in the price of oil will allow, on a temporary basis, both some increase in unemployment and some increase in price inflation.” And then he goes on to say that too much attention to inflation will cause unemployment to go too high. In other words, right out of the Jimmy Carter 1970’s stagflationary playbook, a little more inflation is always okay if it creates a little less unemployment. This flawed thinking decimated the 1970’s economy and drove both inflation and unemployment sky high. Kohn not only undercut his own boss Bernanke, he also undermined efforts by President Bush and Treasury man Henry Paulson to restore confidence in the U.S. greenback at the G8 meeting about to begin. Although Kohn was originally appointed to the Fed by President George W. Bush, one has to wonder if Kohn isn’t thinking about an Obama presidency, and perhaps even damaging today’s economy to make Republicans look worse and Obama’s pessimistic economic view look better. 2008-06-12T16:02:25-05:00 http://kudlow.nationalreview.com/post/?q=YTEwNjU1MWU4MGZlNzU3M2YxZmUyMWQ4YzhmMjE5MjY=Is there a July Fed action coming to take back a one-quarter rate cut? I think so. That would put up the target to 2.25 percent. It would be a shot heard round the world, strengthening the dollar and attracting new liquidity and capital flows into the U.S. economy. Bullish for containing inflation, keeping down the un-indexed capital-gains tax, and helping stocks and the economy to recover. Plosser is right on the money. And then: Drill, drill, drill. From CNBC.com: Fed’s Plosser: Rates Will Have to Rise to Curb Inflation The Federal Reserve’s leading inflation hawk told CNBC that interest rates will have to rise soon in order to keep a lid on rising prices. “We need to take steps to ensure that inflation does not get out of control,” Philadelphia Fed President Charles Plosser said in a live interview. “It is certainly clear that rates will have to rise. The question is when.” Plosser comments are the latest in a series of speeches by Fed officials about the dangers of inflation, though the messages have been somewhat mixed. On Wednesday, Fed Vice Chairman Donald Kohn hinted that the central bank is inclined to leave rates steady despite rising inflation worries among US consumers. Kohn said that when the economy is hit with an oil price shock as it has been this year, the “appropriate” Fed policy will permit -- temporarily -- both higher inflation and higher unemployment. And on Monday, Fed Chairman Ben Bernanke said the centeral bank would work to restrain consumer expectations of higher prices, hinting that the Fed may be inclined to boost rates if inflation worsens. The Fed is hoping tough talk on inflation will do the job of moderating recent price increases, giving it room to avoid raising interest rates as the economy remains fragile. Plosser, however, stressed that the Fed may need to act soon against inflation. “We can’t control the price of oil directly, but we can control the underlying inflation pressures for the economy,” he said. Plosser also said he and his central bank colleagues must work to lessen the effects of the crisis in the financial system as well as inflation. “I think they're both real threats, and I think we have to manage both of them,” he said. Plosser said the Fed has taken aggressive steps to counter both problems, but he urged continued vigilance, saying the base of inflation is broadening, and the Fed is in a unique position to act. Plosser feels the Fed mishandled inflation in the 1970s by acting too late, allowing a relative price shock in oil to translate into higher inflation. Plosser endorsed Fed efforts to tackle the credit crunch -- such as opening the discount window -- with some reservations. “I think the Fed has been very creative and aggressive in trying to contain the crisis in the financial markets and the turmoil, and we've done some very interesting, innovative things,” he said. “Those decisions and choices we've made have cost some benefits. They contain some risk and challenges.” He also expressed reservations about government efforts to stimulate the economy through tax-rebate checks. “I am not counting on that having substantial impact on the economy going forward,” he said.  2008-06-12T11:43:12-05:00 http://kudlow.nationalreview.com/post/?q=MzJmMmZmMjQ1ZGIwNWU3NzgwMzJjNWZmNjY3MGEyYWM=Sen. John McCain delivered a nearly pluperfect supply-side tax-cut plan yesterday, one that is worthy of conservative support, and frankly a real eye-opener showing just how good he can be. I wrote about it in my latest column. But then he goes on NBC’s Today Show this morning and gets the whole energy story wrong. Oh my gosh. When asked about gas prices at the pump, and whether they could go any lower, Sen. McCain said he didn’t think so because “You’ve got a finite supply, basically, and a cartel controlling it.” This is exactly wrong. There is no finite supply, or if there is we are 100 years away from it. I don’t know who has put this thought into the senator’s mind, but it is a bad thought in terms of energy and a bad thought in terms of the politics of this campaign. Look, we have the Bakken fields, the outer continental shelf and all the offshore drilling opportunities, ANWR, and so forth. There’s probably over a trillion barrels worth of reserves out there. And Republicans in the Senate are trying to move a deregulated drilling bill through the process. McCain should be backing this and talking about it. Democrats are out there pushing cap-and-trade, which would jack up gasoline and oil energy prices, damage the economy, and create a massive central-planning exercise. The Democratic Congress has done nothing to alleviate the oil shortage. They’re captured by the greenies. They should be blamed. This is a real turnaround issue for the Republicans and Mr. McCain. But McCain’s not going there. Incidentally, in the Today Show interview, the senator takes a whack at oil-company profits, suggesting they should return some of these profits to consumers. And he would consider voting for a windfall profits tax. And then he used the phrase “obscene profits.” Make that two oh my goshes. 2008-06-11T11:30:16-05:00 http://kudlow.nationalreview.com/post/?q=OTI4YWJlMjJkZTVmNTlmMjQ5MGIyN2QwMzhlMDk0ZTU=I write today about the stark contrast between McCain and Obama on tax policy and economic growth. Of the Republican candidate I say: Sen. John McCain moved decisively to the supply-side Tuesday in a strong speech to the National Small Business Summit in Washington, D.C.  For investors, small-business owner-operators, and the vast majority of middle-class Americans who go to work every day and are concerned about Sen. McCain’s tax vision, this speech is good news. Big Mac is the taxpayer-friendly candidate. Of the Democratic candidate I say: Obama wants to use the tax system to redistribute income and wealth, not to grow the economy. He constantly talks about rewarding work over wealth. This is pure class warfare. You can read my full article here. If McCain stays on the message of low-tax-rate incentives to grow the economy, he’ll be in good shape in November. 2008-06-11T07:50:44-05:00 http://kudlow.nationalreview.com/post/?q=NzBhNDc0ZDZhZmQ4NGZhM2M2YjdhMzFlMDM0MGJkMzg=Skyrocketing oil and gas pump prices have become public enemy number one on the economics front, and politically priority number one out on the campaign trail. (Though neither Obama nor McCain have really connected with the public’s desire to drill and produce more oil as a way of getting gas prices down.) Interestingly, President Bush’s remarks today, ahead of his European tour, were right on message. He said that the U.S. has an opportunity to increase oil supplies and take pressure off gasoline prices. He specifically singled out opening up ANWR and the continental shelf. He also emphasized a strong dollar. Although he did not change the rhetoric of a strong dollar being in the nation’s interest, he did mention how a strong dollar was in the interest of the global economy. And generally he just seemed to be drilling down on this very important King Dollar topic. Noteworthy is Treasury-man Paulson’s CNBC interview where he did not rule out dollar intervention. Intervention won’t work in the long run. But it could have a positive shock value in the short term. Robert Rubin did this for President Clinton. If Paulson intervened now he could close down all those dollar shorts -- a move that would help the greenback and undoubtedly contribute to lower oil prices on the open market. Meanwhile Barack Obama put out his economic thoughts today, and had nothing to say about drilling for more oil or a stronger dollar. Obama railed on about tax breaks for big corporations and permanent occupation of Iraq. He also talked about a renewable energy policy that ends our addiction to foreign oil and brings relief from high fuel costs and builds a green economy that would create 5 million jobs. Nobody believes this. Then he went on to talk about rewarding wealth over work -- in other words, more class warfare and redistributionism. Oh, and did I forget to mention a windfall profits tax on Exxon? Yup. Still there in the Obama speech. 2008-06-09T15:43:11-05:00 http://kudlow.nationalreview.com/post/?q=ZmJjMDMwM2QxYzMzNWFkNTUxMjQ0NWM0ZDBhN2M3YjE=Republican Senate leader Mitch McConnell, on the show last night, illuminated his unyielding opposition to the cap-and-trade bill now being debated in the Senate. He hit all the right notes. Overtax. Overspend. Over-regulate. Central planning. Command-and-control of the U.S. economy. All in the name of a dubious global-warming theory. A bill that would wind up costing consumers and businesses a small fortune. A bill that would drive up electricity prices and gas prices at the pump, reducing American competitiveness and damaging the economy. It was a very impressive presentation of the conservative opposition to this crazy bill. Right now Sen. McConnell is trying to put forward a bunch of amendments that would be poison pills to Democratic leader Harry Reid -- including a provision to allow large-scale off-shore drilling for oil and gas. I might add that Mr. McConnell was heavily armed with facts and figures for this most impressive presentation on the program. If there’s any tougher conservative in the Senate, I don’t know who that is. We also talked some about the importance of 41 Republican votes to stymie Democratic plans in a number of areas. Of course, Mr. McConnell’s crystal ball for November is not perfect. But he made a strong case for electing Republicans to stop the threat of a three-house Democratic sweep. He also talked about stopping the union agenda -- which is very much a part of Obama’s campaign. Especially the card-check bill, which would end the secret ballot for union organizing in businesses. This bill was stopped once last year, but it will come up again if Obama wins. I also asked McConnell how he would deal with John McCain’s support of cap-and-trade. McConnell said he had no idea if McCain supported the current Democratic bill. But he said his Republican members are opposed to this bill. Steve Moore of the WSJ editorial board called in this morning to remind me that both Obama and McCain have critical cap-and-trade votes in front of them. I call it carbon politics. Think Kentucky. West Virginia. Pennsylvania. Ohio. These could be very important states in November. John McCain has an out by citing India and China, countries that of course will not be subjected to a U.S. congressional bill. That dodges the bigger points about the flaws of cap-and-trade, but it could give McCain an excuse to vote nay. Obama also comes from a coal state, so carbon politics are in play for him too. The fact that these coal states went for Hillary (not Illinois, of course) in the primaries doesn’t mean they’ll stay in the Democratic column come November. The public is totally against paying anything more in energy costs. And the Senate Democrats are making a huge mistake forcing this vote. I don’t think the stock market wants cap-and-trade either. But circling back to McConnell, let me repeat: He is one smart savvy conservative leader. A very impressive man. 2008-06-05T14:02:16-05:00 http://kudlow.nationalreview.com/post/?q=ZWI5N2NmY2M3MjQzYzM5YjBjYWE5NGU0MzQyMmVjMTQ=McCain Should Pick Sarah Palin for VP -- Jack Kelly in RealClearPolitics At 44, Sarah Louise Heath Palin is both the youngest and the first female governor in Alaska’s relatively brief history as a state. She's also the most popular governor in America, with an approval rating that has bounced around 90 percent. This is due partly to her personal qualities. When she was leading her underdog Wasilla high school basketball team to the state championship in 1982, her teammates called her "Sarah Barracuda" because of her fierce competitiveness. Two years later, when she won the “Miss Wasilla” beauty pageant, she was also voted “Miss Congeniality” by the other contestants. Sarah Barracuda. Miss Congeniality. Fire and nice. A happily married mother of five who is still drop dead gorgeous. And smart to boot. But it’s mostly because she’s been a crackerjack governor, a strong fiscal conservative and a ferocious fighter of corruption, especially in her own party . . . Click here to read. 2008-06-05T11:59:43-05:00 http://kudlow.nationalreview.com/post/?q=MjcxY2Y4YzJhOWVmNDU2ZWM2NjUzNDhjNTJhMjQxZDc=Last night on Kudlow & Company we discussed the theory suggesting the stock market sold off a hundred points earlier in the day -- despite Fed head Ben Bernanke’s bullish King Dollar statement -- because of the AP headline announcing Obama’s impending nomination. As the chart above clearly illustrates, the market nosedived mere moments after the AP story broke. My friend Bill Griffeth also mentioned this interesting coincidence earlier today on CNBC’s Power Lunch: We couldn’t help but notice yesterday, around 1:25 pm ET, when the Associated Press came out and announced that it had done the math and figured that Obama truly had virtually clinched the nomination, it was at that precise moment when the stock market started to fall. And the Dow, which had been slightly positive, virtually unchanged, suddenly had a 100-point decline … Is it possible that Wall Street is indeed rattled by [Obama’s] policies as it pertains to taxes? And, most especially, his desire to increase -- almost double -- the capital-gains tax?Sure makes you wonder, doesn’t it?  2008-06-04T14:54:27-05:00 http://kudlow.nationalreview.com/post/?q=NjNkNzRjNDZhMWM3NmIxNDQwM2IzMTU1NGEyMDIwNWY=Whenever I create lists of friends and colleagues for anything I always forget a few important names. So let me amend yesterday’s Bernanke dollar blog with some supply-side friends who also have been calling for hard money for a long time. Namely, my friend Steve Forbes, the editor and publisher of Forbes magazine. Steve has been indefatigable in writing editorial after editorial for years about the need for a hard dollar. Because of my senior memory, not only did I forget Steve in yesterday’s blog, but also the fact that he is a McCain economic advisor, having first counseled Rudy Giuliani earlier in the year. And that brings me to Jack Kemp, who is also a McCain advisor and who also has been tireless in his advocacy of a strong dollar. Forgetting these two names is my bad. I apologize to them and I hope they and readers will forgive me. And two more names: the tireless husband-and-wife team of Seth Lipsky, editor of the New York Sun, and his bride Amity Shlaes. In fact, the editorial page of the Sun is always reminding us of the declining gold value of the U.S. dollar, just in case we forget. Seth and Amity are of course graduates of the Robert Bartley Wall Street Journal hard-money school. (As, in effect, we all are.) Ben Bernanke didn’t solve the dollar problem yesterday. But the Fed head’s speech was a very large and important first step toward recognizing that dollar neglect is associated with higher inflation. The greenback has been broken and needs to be fixed. Let’s see what happens from here. 2008-06-04T09:25:48-05:00 http://kudlow.nationalreview.com/post/?q=ZWMwODNlN2MzMzg2OGU3MTgwMTA4MzRlNzU1YTE2YWU=Supply-siders have been warning of cheap-dollar inflation for quite some time. Think David Malpass, John Ryding, Brian Wesbury, Mike Darda, Don Luskin, John Tamny, Wayne Angell, Jerry Bowyer, and myself. I’ve even taken to calling the weak dollar the U.S. peso. There’s also Paul Gigot and Steve Moore over at the Wall Street Journal editorial page, both prominent leaders in the movement to resurrect King Dollar. And today we received some great news on this front. Fed head Ben Bernanke, finally figuring out that the weak dollar is driving up inflation, has signaled a major policy shift toward a strong dollar. In fact, Bernanke has not only acknowledged that the cheap dollar has caused “the unwelcome rise in import prices and consumer price inflation” -- as booming oil and commodity prices have leaked into U.S. inflation through the cheap dollar -- he may well have set a floor underneath the greenback. This is big news. Now, isn’t it about time Sen. McCain made a beeline for a strong dollar? That’s my take. You can read about it here in my column for NRO. 2008-06-03T14:23:05-05:00 http://kudlow.nationalreview.com/post/?q=MDM1MTg3NjIyMTRkNWY2NTE2YWNlMmQ4MWM1YjUwZDg=Some notable quotes from Friday night’s Kudlow & Company: The Smart Investor: This is one of those times when you have to be very discriminating when you talk about the “economy.” Because the “economy” includes things that are in outright depression like housing, and it includes things that are in an outright boom like technology. For instance, high-tech industrial production is at all-time highs, and going at roaring growth rates, even as overall industrial production has flattened out a little bit in the slowdown. So, just as people say, “It’s not a stock market, it’s a market of stocks,” it’s not an “economy.” It’s a portfolio of micro-economies. And the smart investor looks at these sectors, one at a time, and figures out the winners and the losers. [The smart investor] steps aside from some of this falsely macro analysis where you try to make one size fits all. We are in a diversified situation. -- Don Luskin, chief investment officer at Trend Macro   Washington’s Attack on Coal: I think cap-and-trade is just crazy. Because most of the coal use increase in the world, about 97 percent, is outside the United States. So if we’re really concerned about climate change, it won’t matter what we do. And all these new rules effectively just increase carbon emissions around the world, they don’t do anything to truly decrease carbon emissions … We’re fortunate at Massey to benefit from the coal use around the world because we export a lot of coal. But as far as getting free of imported energy in this country, the policies are exactly the reverse of what they ought to be…It just doesn’t make any sense at all because the world is going to use coal. And if the U.S. doesn’t use it, we’re going to be disadvantaged. -- Don Blankenship, chairman/CEO of Massey Energy    Global Warming Hoax: Manmade global warming is increasingly found to be a hoax; that it is not true. And our responses to this [hoax] through cap-and-trade is going to raise the price of energy. It’s going to make Americans less competitive. And then guess what’s going to happen? Congress is going to come in and try to correct a problem that it created. And the so-called solutions to the problems that they create will create other problems … Americans need to be aware that this whole global warming argument is a way for the government to come in and control our lives. That’s the whole agenda behind these environmentalists. They want government to have greater power to control our lives. -- Walt Williams, professor of economics at George Mason University    More on Mac: Let’s remember that [John McCain is] the only candidate running for president who stood up and said the farm bill -- which just passed -- is an abomination. It’s an abomination because it subsidizes American agriculture at a time when, as you point out, food prices are at record highs. And it is also a bill laden with pork -- absolutely laden with pork. -- Carly Fiorina, RNC victory chair and former CEO of Hewlett-Packard 2008-06-02T13:43:58-05:00 http://kudlow.nationalreview.com/post/?q=OGRlMzRmMTZiZDgwYzQ5ZDVkMjAyN2ZlODc4NzhmMzI=To recoin U.S. News blogger Jimmy Pethokoukis, “No Recession. No Bear Market. Bears Weep.” Today’s revised report on first-quarter GDP moved the number up to 0.9 percent at an annual rate versus a previous 0.6 percent. Year-over-year real GDP is 2.5 percent. Incidentally, brand new numbers on profits show a much-stronger-than-expected gain. Profits are the mother’s milk of stocks and the economy. So this is very positive. Also noteworthy is a low 2.1 percent core inflation rate, with the headline rate coming in at 3.5 percent. Look for these numbers to rise as a consequence of the cheap dollar and the commodities boom in energy and elsewhere. However, markets are smarter than GDP reports. And stocks are up over 100 today, continuing their gains of Tuesday and Wednesday. Even more significant, Treasury market rates are rising a lot, with the 10-year bond now all the way up to 4.11 percent. This is important because almost all the interest-rate gain comes from rising real rates, a signal of increased credit risk-taking and an end to the banking-crisis run for safety. Rising real rates also foreshadow a stronger economy in the future. And they are adding support to the beleaguered U.S. dollar. So gold is plummeting and oil prices are retreating. This is exactly what goldilocks wants to see. Instead of safe-harboring in commodities, investors are going back to stocks because the fundamental U.S. economic picture and the banking-credit picture are getting better. The combination of a rise in rates, a stabilizing dollar, and plunging commodities could be a tectonic sea change -- and a very positive one at that. Think of it this way: Investors now seem to want to loan money to job-creating businesses rather than Uncle Sam. Bravo for that. Meanwhile, money-market futures are predicting Fed rate hikes next year and maybe beginning later this year. That would lend strength to the dollar. And that in turn would contain inflation. Anticipating this, the plunge in gold could well be a leading indicator of a big decline in oil. Now if only Treasury man Paulson would call for an appreciating dollar. Of course, hovering over this good news is the threat of a three-house Democratic sweep in November. The mere thought of Barack Obama, Harry Reid, and Nancy Pelosi all at once is a potential suppressant for the economy’s improving animal spirits. But let’s cross that bridge when we get to it. John McCain is running even with Obama, and that’s good. Hopefully Sen. McCain will talk tax cuts rather than cap-and-trade. That would be very good indeed. 2008-05-29T13:55:00-05:00 http://kudlow.nationalreview.com/post/?q=OTRmMzc1ZWExZDc3MWU4OWE4YjQ2OWQ4ZGEzZjI1MDM=Here's another great video from my friend and top tax reform expert Dan Mitchell over at the Cato Institute.According to Dan: here’s good news and bad news in the world of tax policy. The good news is that a growing number of nations now have flat tax systems instead of so-called progressive tax schemes that punish people for contributing more to economic growth. The bad news is that the United States is conspicuously absent on the list of flat-tax jurisdictions. Defenders of the internal revenue code often argue that a flat tax is an impractical idea, but this new video demonstrates that the flat tax is working very well and spreading rapidly as nations compete to offer more attractive tax policy to the world’s investors and entrepreneurs. 2008-05-29T12:34:15-05:00 http://kudlow.nationalreview.com/post/?q=MDVjNDhkZTM2NjBjZjg0MTRiOTUwNmFiOTljNjNhMTI=Federal Reserve governor Frederic Mishkin announced plans on Wednesday to step down from his post after only two years in office. Of course, nobody knows exactly why. After all, these guys never talk -- at least not until later. (See Scott McClellan.)  A couple of things on this: First, Mishkin was known as a strong advocate of inflation targeting. That’s noteworthy since the other former strong advocate of inflation targeting, namely Ben Bernanke, seems to have given up on that all-important concept. In fact, a recent JPMorgan analysis predicts 5 percent inflation this summer. Read it and weep. Whether Mishkin’s departure has anything to do with this is a matter of pure speculation. Is he bailing out? I don’t know. Another sidebar to this story is the unwillingness of Senate Banking head Chris Dodd (D., Conn.) to move on White House nominations for two of the unfilled Fed seats. Mishkin’s resignation now leaves three unfilled seats on the Federal Reserve Board. That means just four governors remain, barely a quorum. Of course, Dodd is playing politics here, probably hoping for an Obama victory so he can get a bunch of Democrats on the all-important Fed board. But what about the next seven months? What about the fact that it takes a bunch of months to process and confirm new members? What about the credit crunch, and sweeping changes to financial regulation, and the Fed’s current work-in-progress of lending money to non-bank broker-dealers? It’s not as though these guys don’t have any work to do. Playing shorthanded right now is not a good idea. P.S. The better-than-expected factory-orders report strongly suggests that business is relatively healthy and most decidedly not in recession. Of course, the oil factor remains a question mark. But right now, I can’t help but think of my pal Jimmy Pethokoukis’s line, “No Recession. No Bear Market. Bears Weep.” 2008-05-29T07:32:54-05:00 http://kudlow.nationalreview.com/post/?q=MGFhMThjMThjOGY1ODRhOWI1OTFmN2FjMTMyMjM2NzQ=Polls are mixed on the McCain-Obama race for president. But there are some good things coming out the McCain story. First on the polls: Rasmussen has McCain four points ahead, 46-42. This is the first time in nearly three weeks that either candidate has enjoyed a four-point advantage in the poll. Disenchanted Democrats are the key here, with 23 percent saying they’d vote for McCain. On the other hand, the IBD/TIPP poll and the Zogby poll have Obama up about 10 points. And the Intrade prediction market shows a 58 percent probability that Obama will win, with only 38 percent for McCain. This is a winner-take-all market, not a poll. However, Bob Novak reports this morning that McCain is not going to disarm in the campaign -- meaning that he will fight hard to portray Obama as an inexperienced candidate with some very strange associations (William Ayres, Jeremiah Wright, etc.). Novak reports that Karl Roveï', 'ð', 'ñ', 'ò', 'ó', 'ô', 'õ', 'ö', '÷', 'ø', 'ù', 'ú', 'û', 'ü', 'ý', 'þ', 'ÿ', '...', '-protégé Tim Griffin, a leading practitioner of opposition research, has joined Mac’s campaign. Also, on the campaign trail, McCain is hammering Obama for favoring the massive farm-bailout bill, which even liberal editorialists at the New York Times oppose. What’s more, Mac is beating Obama with a stick regarding the latter’s high-tax proposals. I am particularly keen on tax attacks, since in a soft economy it just doesn’t make any common sense to be raising taxes -- whether on cap-gains, high incomes, or middle-class Social Security payrolls. Few people outside of the far-Left social agenda really believe the answer for a weak economy is tax hikes. And Rasmussen’s polling shows that over 60 percent of Americans are opposed to the Obama tax-increase plans. Interestingly, at Bob Tyrrell’s American Spectator dinner meeting last night, New York Times Book Review editor Sam Tanenhaus repeated his view that just as Reagan grew out of the Goldwater campaign, Obama has grown out of the McGovern experience. In other words, the Illinois senator is a leftie on taxes, national security, big-government spending, non-defense of marriage, and other issues. So if it quacks like a leftie and walks like a leftie, it must be a leftie. I hope McCain pounds away on this. But one area that Mr. McCain has not yet tapped is the dollar. With oil at record levels and gasoline climbing, Sen. McCain must form an anti-inflation policy that emphasizes a strong greenback. This separates him from President Bush who has ignored the dollar, and speaks to middle-class anger over food and gas-pump prices. It would be tragic if Obama got to the strong dollar before McCain. Even worse, Americans will be baffled if neither candidate goes there. 2008-05-22T11:10:28-05:00 http://kudlow.nationalreview.com/post/?q=ZGRiOWJlZDQzNzg5NDJkMWFiMWJjOGU5YTkzYTFmMTY=One of the things we’ve learned during the Democratic primary battle is that Hillary’s victories are bullish for stocks and Obama’s wins are bearish. The clearest example was Hillary’s massive West Virginia victory. Stocks opened strong the following day. But after Obama’s big North Carolina win, a night he nearly carried Indiana, stocks opened way down. Even though Hillary clocked Obama in Kentucky, since Obama took Oregon convincingly, he really carried last night’s elections and now stands on the verge of gaining the Democratic nomination. Not surprisingly, stocks opened down 80 points this morning. Markets don’t like Obama. If he wins alongside Democratic gains in the House and Senate, taxes are going up big time. This is especially true for the capital-gains tax, which is the single most important levy on assets of all kind, including stocks. (One wonders if Obama’s cap-gains tax hike will apply to housing, which obviously is in no need of higher taxes right now.) Then there was Obama’s Des Moines, Iowa, speech last evening. Lots of class warfare: “The Bush tax cuts for the wealthiest 2 percent of Americans that once bothered Sen. McCain’s conscience are now his only economic policy.” Obama went on, “Change is a tax code that rewards work instead of wealth . . . a tax code that rewards businesses that create good jobs here in America instead of corporations that ship them overseas.” Obama then repeated his usual litany: big-government health care, an attack on oil companies, a big spending plan for education, big bailouts for housing, and a pension assault on corporations. This idea of rewarding work instead of wealth is just insane. Capital needs labor and labor needs capital. You can’t create a new job without a thriving business. But if corporate and investment taxes are going up, how will these businesses be funded? And attacking corporations that work partly overseas is pure protectionism and isolationism. It’s as bad as Obama’s antipathy towards trade deals with South Korea and Colombia, as well as his Carter-like diplomatic initiatives toward Iran and other rogue states. The stock market is a barometer of the economic health of the nation. It doesn’t like these Obama statements one bit. It sees the handwriting on the wall: an attack on investors, an attack on capital, an attack on business, and an attack on trade. Most of all, higher taxes are anathema to the equity markets. Interestingly, stocks have preferred Hillary in the Democratic fight a) because she was roughing up Obama for the general-election fight against McCain and b) because markets believe they can do business with Hillary in a way they can’t with Obama. Last night’s results position Obama on the very edge of the nomination. The Intrade betting-parlor prediction markets give Obama a very strong chance of winning in November. Coupled with expected Democratic gains in Congress, we’re looking at anti-growth policies that could do great damage to the stock market and the economy. Of course, I am not counting John McCain out. He’s got some important openings that could carry him to the White House. But right now I’m not surprised the stock market is going through a downward correction after the big run-up that followed the McCain surge and the Fed rescue of the banking system. 2008-05-21T13:48:19-05:00 http://kudlow.nationalreview.com/post/?q=MDQ3ZTE3OWY5Y2RhOThmZWYwZGYzYTY0NjY4ODljYmE=Some notable quotes from last night’s Kudlow & Company: Shorting Buffett: Yogi Berra once said, “Even Napoleon had his Watergate.” And in the case of Warren Buffett, his Watergate is an investment-style drift which is really a no-no in the money-management business. You have to stick to your knitting. Look, I worship at the knee of Warren Buffett, and all he has accomplished over the years. But the reality is, in the last decade, he’s underperformed dramatically, and he’s drifted in terms of strategy. He calls derivatives “financial weapons of mass destruction,” yet he has about $40 billion on his books, and lost $1.2 billion in the first quarter. And [while] everyone admires him, and goes to the Woodstock of Capitalism in Omaha and praises his accomplishments, his stock is starting to do poorly. And, frankly, in terms of being a value investor, he’s opened up his book in the last decade, and there are many Buffett wannabes who follow exactly what he does, so it’s much harder for him to do what he does. You look at his largest investments, he has $9-$10 billion in Coca-Cola, Wells Fargo, and Bank of America -- those stocks have flat-lined for nine years. -- Doug Kass, president of Seabreeze Partners Management   MSFT, YHOO & Carl Icahn: You know it’s actually kind of a tough one to call. But I’ll tell you what it looks like right now. This looks less like Microsoft trying to buy Yahoo, really, then Microsoft trying to scuttle a deal with Google. If you think about the timing, this week, we were expecting Yahoo to actually announce this search partnership with Google. And I think that got Microsoft very, very anxious. And that’s why you see them back here. It’s not clear to me that you definitely see a transaction out of this, though I know Microsoft’s been hinting at that. -- Andrew Ross Sorkin, chief mergers-and-acquisitions reporter for the New York Times   In the Bull Camp: I’ve been bullish for a while now, Larry. And I shocked a few people when I turned bullish. But the market seems to want to go higher. The economic data is overtly bearish and yet share prices go up. I’ve been around for 35 years, and when you see a market that goes up, in the face of overtly bearish news, it’s likely to continue. We must remember the news is always its most bearish at the bottom of a recession. I think that’s where we are. And earnings begin to look upward later on. So I’m quite bullish on the stock market and continue to be. -- Dennis Gartman, editor and publisher of the Gartman Letter   Supply-Side Tsunami: You just can’t paint all of Europe with one brush. Yes, we have spots in Western Europe that are slowing down. [But] the fact of the matter is that Poland is still booming. Bulgaria is booming. The Czech Republic, Lithuania. Why are they booming? Oh, I don’t know, let’s think: They’ve got great labor laws. They have flat taxes. They basically have no capital-gains tax. Connect the dots! It works. It works in a big way. And when everyone was saying, “Wow, wait until Western Europe gets their hands on Eastern Europe, they’ll show them how to make things work,” just the opposite has happened. -- Dr. Bob Froehlich, chief investment strategist at DWS Scudder   Obama’s SUV Green Speech in Oregon: All that was missing was the cardigan sweater that Jimmy Carter used to wear when he talked about a “malaise.” This is hardly [Ronald Reagan’s] “morning in America.” It is an austerity agenda. I think that when it comes to energy policy, the Democrats have a very schizophrenic message. They can’t figure out whether they want energy prices to be higher, so that people use less and we have less global warming, or lower to help consumers. I’m for the lowest energy prices we can get. -- Steve Moore, senior economics writer at the Wall Street Journal 2008-05-20T15:43:01-05:00 http://kudlow.nationalreview.com/post/?q=YThkNzU5YTM1ODE3NTllNzE0YzU5NjQ5MTI4OWY4MmE=Sen. Joe Lieberman gave a brilliant speech last night at Commentary magazine’s annual dinner at the University Club in New York. It was one hell of a great talk. Joe Lieberman was incredibly impressive. Absolutely brilliant. Mr. Lieberman talked at some length about how the Democratic party has completely departed from the strong national-security principles of Franklin Roosevelt, Harry Truman, and John F. Kennedy. He said those leaders clearly understood the need to fight totalitarian dictators and regimes, and that they possessed the moral clarity that can separate friends from enemies in the long-run battle to promote freedom and democracy. He mentioned John Kennedy’s famous quote, “that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.” He mentioned Ronald Reagan as an heir to that tradition. He then spent a lot of time talking about why today’s Democratic party has completely lost its way on foreign policy -- especially Sen. Obama, who Lieberman believes is completely wrong in proposing to meet with Iran, North Korea, and other rogue states. He also criticized Obama for opposing the South Korean trade deal, which should be an important foreign policy against North Korea as well as an economic-growth measure. Similarly, he attacked Obama for opposing the Columbia trade deal, which would strike a blow against Cuba and Venezuela while enhancing economic growth. On several occasions the Connecticut senator emphasized the need for internationalism rather than isolationism, and for free trade rather than protectionism. He labeled Obama protectionist and isolationist, as well as completely naïve on international affairs, while strongly endorsing John McCain on these points. It was a tour-de-force speech that impressed me once again with the brilliance of Joe Lieberman. Frankly, he would make a good president. Undoubtedly, he will have a major cabinet post if John McCain wins. Interestingly, Lieberman noted that in the 2000 presidential campaign George W. Bush was closer to the isolationist position while Al Gore was the internationalist. Of course, that has gotten completely reversed over the last seven-and-a-half years: Bush has become the great internationalist while the Democrats have sounded more and more isolationist. It’s an interesting point. He also noted that 9/11 changed everything and that the surge in Iraq is working. Because John McCain shares Joe Lieberman’s worldview, I continue to believe that it is essential that McCain wins in November. When I endorsed McCain on NRO last winter I made the case that it was all about being commander-in-chief during wartime. I still think that’s what it’s all about. Let me add that while I do not support Sen. McCain’s cap-and-trade plan on climate change, I am pleasantly surprised with Mac’s supply-side tax-and-spending-cut program as well as his strong free-trade position. I also like his health plan and his speech on judicial conservatism. Sen. Lieberman didn’t talk about all this last night. Rather, he focused on the foreign-policy question, making the case for moral clarity in international affairs and extending that case to his support of John McCain. I totally agree. 2008-05-19T11:15:49-05:00 http://kudlow.nationalreview.com/post/?q=MDQwMDFjMTNiYTMwNzVkMzFmOTYxYmU5Y2U5NWIyODA=The following is a transcript of my conversation on last night’s Kudlow & Company with chief deputy minority whip Rep. Eric Cantor (R., Va.) on the various ethical and political hurdles facing Republicans. Kudlow: Congressman Cantor, thank you for coming on, we appreciate your time. I want to start with you. The only thing worse that I can think of for the GOP, than having 100 Republicans vote for this farm bill -- which is just an unmitigated disaster -- is the fact that you all have not read Vito Fossella out of the caucus. That, I think, is even worse. One is a financial and political issue. The other is a moral and ethical issue. Both are undermining the Republican brand, Eric. What’s your response please? Rep. Eric Cantor: Larry it’s good to be with you. Larry there’s no question right now that the public is questioning where Republicans are, and what we stand for. You mentioned the farm bill. I too believe that is probably one of the worst votes that anyone could take. There was so much pork in there. There was so much special interest politics at play. And frankly, when you’re giving farmers who could potentially make $2.5 million dollars as a couple, and still get government aid, while we have plenty of uninsured, real uninsured people out there who can’t get government assistance, I think there is a serious problem with Washington. But you know look, we have got a lot of challenges. We’ve only got six months before the general election. What the Republicans need to do, what we’ve got to do is get our message out. Kudlow: But Eric, if I may, just for a moment, before we get to the message part. And I appreciate the importance of that. I do not see how the Republican brand recovers when you have a chap like Vito Fossella, whom I’ve known for a long time, you’ve known him for a long time -- who knew what he was up to? But now that we know what he was up to. Heavy drinker with literally two families -- literally two families. One in Staten Island, New York, the other one down there in the Virginia suburbs, with a love child to boot, down there in Virginia. I don’t see on ethical and moral grounds, how the House Republican caucus cannot take the sternest possible action to push him out of the caucus and send him a message you must resign. In other words, Vito has to go. You know it, and I know it. And if you don’t do that, aren’t you continuing the damage to the brand? You know what? We have a clip. Let me just stop for a minute. This Vito Fossella story is becoming a national laughingstock. Let’s just take a look at this for a second, hang on. [Video clip: Saturday Night Live, “Weekend Update” -- TEXT: “New York City Congressman Vito Fossella was arrested for drunk driving, then caught having an extramarital affair, then exposed for a having a secret child with his mistress. Or, as it’s known in Washington, ‘The Trifecta.’”] Kudlow: Now that’s very amusing. Saturday Night Live is a pretty clever bunch. But congressman, my question is what are you going to do with this? The clock is ticking and the public is watching. Rep. Eric Cantor: Larry look, there’s no question this isn’t good for the brand. There’s no question that what had happened there is just, you know, unfathomable to many Americans. Vito’s got some decisions to make. I believe he will make them quickly and we will be able to go forward. And frankly, we need a lot of work. And we’ve got very little time in order to repair our brand. Kudlow: Jerry Bowyer, is it enough for Vito Fossella to make up his mind, or would it be better if the Republican leadership showed some real spine, principle, moral and ethics, and made a decision for Fossella? Bowyer: They need to shove him out. He should make the decision right now to leave. And if he doesn’t make that decision, they should show him the door. Kudlow: I mean, to some extent Eric, this is a rerun of what happened in 2006. It is. It’s a rerun of the whole business of the congressman in Florida and the pages. Bowyer: Mark Foley. Kudlow: And not just Mark Foley, but the way the leadership handled it. The way Mr. Hastert handled it. Slowly, haltingly -- there seemed to be an undertone that he knew more than he was letting on. You’re in that kind of box, sir. And I think you’ve got to take stern action right now. Rep. Eric Cantor: Well listen, I appreciate that Larry. And you know, it is symptomatic of the situation that we find ourselves here, that we’re even talking about this kind of stuff, which is exactly why the Republican brand is where it is. 2008-05-16T15:50:16-05:00 http://kudlow.nationalreview.com/post/?q=NmEzMjNmNDhhNDYxYjRjZThlZmMwZjUzZDAwMWU1N2Y=My friend Barry Ritholtz, author of the excellent Big Picture blog, did a great job last night defending his recession views on Kudlow & Company. The guests were stacked against him, but armed with his good humor and incisive economic analysis, Barry made his case. It was an impressive performance. Barry has been predicting recession for nearly two years. And while he hasn’t been exactly right, he hasn’t been exactly wrong either. Incidentally, this morning’s drop in industrial production supports his recession case (even while many other indicators run counter to it). But one thing is certain: Barry’s warnings about rising headline inflation have proven most prescient. In fact, a populist election revolt against high food and gasoline prices is occurring right now. Mr. Ritholtz is a political moderate -- probably a moderate Republican when it gets right down to it. He is a capitalist. He is not a supply-sider. But he is a very smart, good-natured, good guy. For those in the political world who are interested in following the hot-topics debate in the financial world, you can do no better than reading his Big Picture blog. I read it everyday. 2008-05-15T14:04:59-05:00 http://kudlow.nationalreview.com/post/?q=ZWVmZGI5MTRkOGIyMWM3MDgzNDc4OTBiMmRmMzc0Njg=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 ï', 'ð', 'ñ', 'ò', 'ó', 'ô', 'õ', 'ö', '÷', 'ø', 'ù', 'ú', 'û', 'ü', 'ý', 'þ', 'ÿ', '...', '- 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. 2008-05-14T13:35:51-05:00 http://kudlow.nationalreview.com/post/?q=YzUwMzQ0ZDQyMWE4MGNjYzQ5Yjg4N2QyYzkxMzc1NTg=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 2008-05-13T16:42:25-05:00 http://kudlow.nationalreview.com/post/?q=NjI2NzgyNGNmMDEzMjE0NzNjZjNmMWY4MjFlZWE5N2M=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! 2008-05-12T10:47:17-05:00 http://kudlow.nationalreview.com/post/?q=NTMxODc3OGIyZjAwOWJkOWM4Yzk1N2Q5OTA2NGFjYzY=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? 2008-05-08T14:58:50-05:00 http://kudlow.nationalreview.com/post/?q=MzJjODllM2I3ODI5MTFkZGFlMzZkNjBkMGNlMmIxMWQ=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. 2008-05-08T13:59:08-05:00 http://kudlow.nationalreview.com/post/?q=YjlkMDRmMzdkMTVjYjVhMmZjYzc0NWIyZGMxZWFmNDU=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. 2008-05-07T16:48:00-05:00 http://kudlow.nationalreview.com/post/?q=NDUwNzBjNmY1MzdjNzBmZGU3ZDQ3NjNmY2Y0YmNiY2Q=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 2008-05-07T11:26:29-05:00 http://kudlow.nationalreview.com/post/?q=NTg3M2M5ZjE0YzZmN2U4M2M1MzU5OWI5ZmM4Yzg4ZGQ=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. 2008-05-06T11:17:20-05:00 http://kudlow.nationalreview.com/post/?q=MDA1YWRmNDI0YjBhMjRiNWVmOTU1NGVkZWYwOTUwOWE=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