(The following is a transcript from my weekly appearance on Hugh Hewitt's national radio show. Yours truly is a guest on Hugh's show every Friday night at 7:20pm ET. If you'd like to listen to the transcript from this past Friday's broadcast, click here.)
HH: This is rapidly becoming my favorite segment of the week, because Larry Kudlow cuts through the crap, and just gets to the bottom line when it comes to the economy. Larry Kudlow, interest rates on the 10 year dropped below 5%. The overnight is at 5 1/4. What's going on?
LK: Mortgage rates fell big. Mortgage rates are falling, I think, three or four consecutive weeks. Mortgage rates are falling. Energy prices are falling. Gasoline prices in the open market dropped under $2.00 to $1.95. If you add a buck for taxes and carrying charge, it tells you that across the nation, we're going to hit a $2.95 cent average gas price. That gets it below $3 bucks. NASDAQ tech stocks, Hugh, had their best week in four years. And the overall averages were all up. We are approaching, again, the highs, the five year highs, that were registered in early May. It is the greatest story never told, including the underlying economy, including the tax cuts, which George Bush talked about at Camp David today. It's a good story, and the cacophony of all these complaining, cults of the brear people is being put to rout.
HH: Let me talk to you a little bit, Larry Kudlow, about specific advice for people listening, and then get back to the macro. If you've got cash on the sidelines, and you want to park it in a mutual fund, where does Larry Kudlow tell you to look?
LK: You know, I always say buy the broad-based indexes. Buy the indexed fund for the S&P 500, buy the indexed fund for the Wilshire 5,000. You get all the major traded stocks in America. Essentially, you're buying a piece of the rock in this country's long-run economy. That's where they should go. If they're not professionals, believe me, you can't be picking and choosing, and buying and selling, and trading and day trading. Better off to buy the broadest indexes, and it's cheap. These index funds cost you about $.25 cents on the dollar. It is the best way to participate in this stock market, which by the way, is heating up, and it's going to bust through all the highs, you wait and see, by the end of this year, or early next.
HH: Now Larry, I always get questions, that say Hugh, I'm in the investor's class. I'm in an investment club. I want specifics from Larry Kudlow. And so, if they are doing the $100 dollars a month, and they're picking stocks because it's fun, what do you tell them to do?
LK: Well, that's an interesting question. That's a very interesting question. You know, when you look down the list, you see some very interesting things right now. You see, for example, some of the retailers, which have done very poorly, are having a nice little comeback, like this week, Circuit City was up 11%.
LK: Nordstroms was up 7%. Federated was up 4%. Even Amazon.com was up 4% this week. Now that stuff has been clobbered, and people have shunned it. I would go back to it. I'll tell you another one. Semiconductor companies...this week, AMD, which is kind of the new Intel, was up 21%. Broadcom was up 20%. Marvel Technologies was up 8%. Some of the communications companies...these are the equipment builders, because you know, the telephone companies are doing fiber optic buildouts to do internet telephony, and they're doing buildouts in order to get a piece of the television business. So what you're seeing...and the cable companies, by the way, are having to redo their own fiber optic stuff. So for example, this week, Qualcom was up 12%, and Lucent was up 9.5%. And Cisco was up 6.5%. And cell phone maker Motorola, I got my razor phone. You ought to have one, too. Motorola was up 5%. These are all very interesting little plays going on here.
HH: Hey, a programming suggestion for you, Larry.
LK: Now I'm not recommending. I'm just saying these are interesting plays. I am not the guy to recommend and pound the table. But since you asked, I'm just saying here's some hot stocks in some neglected sectors. Retail and computer chips, and communications equipment. Let me be very clear. I can't recommend them. I'm just saying this is stuff that looks like it has value.
HH: Programming for you, though. I think Larry Kudlow's stock club, that took the same kind of ethic that stock clubs around the country did on a Friday afternoon feature, would be enormously popular, because people do do this. And it's a good thing for the investor class to get together and talk about this. It's an educational process, for one thing.
LK: Well, I can only tell you that I think the growth-oriented sectors of the economy, and that...you know, let's take the consumer sector. Let's look at that for a minute. Everybody wrote the consumer off. They said the housing is slumping. That's going to kill consumers. Guess what? It hasn't. Consumers are very resilient. The great American consumer. Jobs are rising, unemployment is low, incomes are going up, tax rates are low. Consumers are showing a lot of resilience, and that's why I wouldn't write off all the consumer stocks. And incidentally, I wouldn't write off the home builders. Home builders have been smashed. Some of these great companies are down 50% for God's sakes. the home building correction is coming to an end. In fact, we saw in the 2nd quarter, home prices actually went up for a change. And while all the Wall Street consensus bears are telling you homes are getting killed, and are going to keep getting killed, if you have any contrarian blood in you, you might want to look at some of these home builders. I mean...
HH: Especially with interest rates on a glide path.
LK: Yes. Mortgage rates are coming down. For example, this week, Toll Brothers was up 5%, Lennar was up 5.5%. Pulte Homes was up 7%. Centex was up 8%. It's very interesting what's going on out there. It's counter-consensus.
HH: Now let me ask you to go macro again. Damage to the Israeli economy. How significant?
LK: Well, they got hurt. I don't know how significant it's going to be in the longer run. I'm not sure that there's going to be all that much. I mean, I hate to say it, but they are used to this kind of buffeting.
LK: And I would also say that the Hezbollah rockets, they've fired a lot of rockets. I'm not sure what all damage they did. I mean, they did kill some people, some families are hurt, and they had to move out. But in terms of the Israeli...you know, the Israeli economy is a technology driven economy. It's a near cousin to the NASDAQ. So it kind of trades off of the NASDAQ, and it's been in a slump just like the NASDAQ has been, but when you see the NASDAQ go up, really, to the best week in four years, and it may be that there's a revival in tech stocks, you might want to take a look at that.
HH: Thirty seconds, Larry. What about the defense industry? It's been a strong sector for a long time.
LK: Fabulous. Absolutely fabulous the last five years, up about 260%. The world is a dangerous place. I don't care who's running Congress. Military budgets are going to continue to expand. I love the defense companies. I just love them. And by the way, they're all better managed, and they apply good technology, and they're very productive. I would buy them across the board. I love defense stocks. Love them.
HH: Larry Kudlow, think about that Larry Kudlow stock club. It's a winner on Friday afternoon. I'll keep it up here. Larry, talk to you next week.
End of interview.