Stock markets cheered on Friday after hearing Fed head Ben Bernanke virtually ensure more cash and lower rates from the central bank. And President Bush offered up a modest program for troubled homeowners that could help to stop a potential tidal wave of defaults and foreclosures.
All eyes were on Bernanke at the Fed's annual summer get-together in Jackson Hole, Wyoming. He told the group and world markets that were listening in that a prosperous economy needs a well-functioning financial market. The Fed stands ready to take additional actions to provide liquidity to offset any negative economic consequences of stressed financial markets. Not for bad decision bailouts of lenders or borrowers, but instead to keep the financial system healthy. Good thinking on his part.
Retired maestro Alan Greenspan would have been more pre-emptive and aggressive than the cautious Bernanke. Nevertheless, expect a 25 basis point rate cut at the next meeting on September 18 with additional quarter point cuts coming after that.
Meanwhile, President Bush got ahead of the political curve by announcing a plan to reform and expand self-financing FHA home loan insurance, develop mortgage-servicing workout plans for decent credit borrowers who may have temporarily fallen behind on mortgage payments, and a three-year moratorium on misguided IRS foreclosure taxes that could otherwise haunt lower income folks who have already lost their real estate property.
With the help of Treasury strongman Henry Paulson, Mr. Bush is identifying ways to provide some modest help to a couple of hundred thousand homeowners to keep the ownership society dream alive. Paulson will continue to work with Ben Bernanke to identify additional areas where Uncle Sam can be helpful. But at the same time, Bush is determined to avoid large-scale government bailout plans from leading Democrats who would like to directly subsidize millions of homeowners in a budget-busting exercise that would create vastly more harm than good.
In particular, Paulson's idea is to find third-party service organizations who can help cash-strapped homeowners to re-negotiate their loans. In an era when mortgages are owned and distributed to banks all around the world, this old-fashioned workout idea in the new financial world of mortgage securitization is a very positive step. There's no miracle here for many who over-reached and will face foreclosure. But as any old line banker will tell you, forbearance is much better than foreclosure whenever possible.
Friday, August 31, 2007
Phillips Heads Screw Drivers
My great pal Jerry Bowyer (who incidentally will be appearing on tonight's Kudlow & Company) fired off this email earlier. It's definitely worth a read...Phillips Heads Screw Drivers
Most analysts scoured this week’s Fed Minutes looking for clues as to what they’re going to do.
I scoured them looking for some explanation for why they haven’t done what the stock, bond and commodities markets know they should have done already. Bad policy comes from bad ideas. What bad idea has been knocking around in the collective known as the FOMC. You don’t need to read all four pages, all you need to see is one paragraph.
Here’s the (why we don’t have enough) money shot:
Participants generally expected that core inflation would edge lower over the next two years, reflecting a slight easing of pressures on resources, well-anchored inflation expectations, and the waning of temporary factors that had boosted prices last year and early this year. Participants anticipated that total inflation would slow as well, particularly if market expectations of a modest decline in energy prices in coming quarters were to prove correct. But they were concerned that the high level of resource utilization and slower productivity growth could augment inflation pressures. Against this backdrop, the Committee agreed that the risk that inflation would fail to moderate as expected remained its predominant policy concern.
In the Bowyer English Version:
Even though inflation has been going down and probably will continue to fall, we’re going to starve the banks of cash because some long-dead central planner named AW Phillips said that growth is bad for prices. When entrepreneurs and investors create too much wealth, our job is to yank back on the chain as hard as possible. The drivers of growth must be punished, otherwise everybody’s going to get a little too excited, and then prices will rise. Better to risk a deflationary recession than to let the drivers drive too fast.
Phillips was, by all accounts, a fine engineer and a war hero to boot. But he was an awful economist and has done enormous harm. It’s time for Bernanke to stop listening to the Phillips heads who dominate the Fed staff cubicles and start listening to the markets.
Friday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC's Bob Pisani will lead us off with a market drilldown from the NYSE.
FED BIG WIG DEBATE...Our expert panel will offer their collective central bank wisdom and expertise on what may lie ahead.
On board:
*Wayne Angell, former Federal Reserve Governor
*Lyle Gramley, former Federal Reserve Governor
*Bill Ford, former Atlanta Fed President
THE BUSH PLAN...CNBC chief Washington correspondent John Harwood will deliver a report on all the latest news.
Federal Housing Commissioner Brian Montgomery will join us.
BUSH'S SUBPRIME MORTGAGE CRISIS PLAN...On to debate are Amity Shlaes, columnist and author of The Forgotten Man: A New History of the Great Depression; Kevin Hassett, director of economic-policy studies at the American Enterprise Institute; and John Browne, editor of MoneyNews.com.
COMMERICAL PAPER, MARKETS & MORE...Our panel will weigh in with their perpective on all the latest developments.
On board:
* Don Luskin, CIO at Trend Macro
* Maria Fiorini Ramirez, president/CEO of Maria Fiorini Ramirez, Inc., (MFR)
* Jerry Bowyer, contributing editor to NRO financial & author of "The Bush Boom"
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Thursday, August 30, 2007
Thursday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC's Bob Pisani will lead us off with a market drilldown from the NYSE.
THE MARKET...Our market pros will weigh in with their perspective on what may lie ahead for investors.
On board:
Jason Trennert, chief investment strategist at Strategas
Fritz Meyer, senior investment officer with A I M Advisors
Joe Battipaglia, chief investment officer at Ryan Beck & Co.
John Browne, editor of MoneyNews.com
A PREVIEW OF BEN BERNANKE'S SPEECH...CNBC’s Senior Economics Reporter Steve Liesman will join us live from Jackson Hole, Wyoming ahead of the Fed chair's speech tomorrow.
HIGH/LOW ECONOMIC DEBATE...Stuart Hoffman, chief economist at PNC Financial Services Group Inc will take on Ryan Beck CIO Joe Battipaglia.
UPDATE ON THE CRAIG CONTROVERSY...CNBC chief Washington correspondent John Harwood will fill us in on all the latest.
TAX DEBATE...On to lend their insight are John Fund, columnist for The Wall Street Journal's opinionjournal.com, Christian Weller, senior economist at the Center for American Progess, and CNBC's John Harwood.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
The Big Easy’s Billion Dollar Boondoggle
So, the president and Mrs. Bush went down to New Orleans to commemorate the second anniversary of Hurricane Katrina. Who knows? Maybe over a latté with leading Democratic candidates Hillary Clinton, Barack Obama, and John Edwards they discussed spending even more money down there. After all, everyone seems to be saying New Orleans needs more cash.Here’s a pop quiz: How much money has Uncle Sam spent on New Orleans and the Gulf region since Hurricane Katrina ripped the place apart?
I’ll give you the answer because you’ll never guess it. The grand total is $127 billion (including tax relief).
That’s right: a monstrous $127 billion. Of course, not a single media story has highlighted this gargantuan government-spending figure. But that number came straight from the White House in a fact sheet subtitled, “The Federal Government Is Fulfilling Its Commitment to Help the People of the Gulf Coast Rebuild.”
Huh?
This is an outrage....
Click here to continue reading my latest column.
Wednesday, August 29, 2007
Wednesday Night Lineup
On CNBC's Kudlow & Company this evening: We'll begin with a market drilldown from CNBC's Bob Pisani at the NYSE.
THE MARKET...Our market panel will weigh in on today's big gains and what lies ahead for investors.
On board:
* Michael Pento, Delta Global Advisors, senior market strategist
* David Kotok, co-founder & CIO of Cumberland Advisors
* Jeff Kleintop, chief market strategist, LPL Financial Services
* Jim LaCamp, portfolio manager & financial adviser for RBC Dain Rauscher
THE ROMNEY INTERVIEW PART II - HEALTHCARE...Steve Moore from The Wall Street Journal editorial board will debate Jared Bernstein, senior economist at the Economic Policy Institute.
Messrs. Moore and Bernstein will also debate the latest census income report.
WASHINGTON SCANDALS...CNBC chief Washington correspondent John Harwood will bring us up to speed on the Senator Craig controversy, Hillary's Hsu campaign contribution, and profligate Katrina spending.
KATRINA SPENDING...Donald Powell, President Bush's Gulf Coast rebuilding chief will be aboard to offer his take on the rebuilding efforts.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Pour in the Cash
There are a number of deflationary factors behind my campaign to get the Fed to permanently inject new cash into the banking system and deal with the dysfunctional commercial paper market — as well as the general credit freeze-up.
There’s housing price deflation: The Case/Shiller home-price index is off 3.5 percent over the past year.
There’s commodity deflation: Gold prices are off nearly 15 percent from their 2006 highs. Stock prices for materials are off nearly 13 percent since July 19, while metal and mining shares are off 16 percent.
There’s the deflation of loan values, both CDOs and CLOs.
And there’s the deflation of the Treasury bill rate from 5 percent to 4 percent.
The Fed needs to stop this deflation by pouring in new cash. I call it the growth solution. Growth will solve the credit problem as the Fed moves to stabilize the credit and housing deflation we are now experiencing. And as future investment and economic growth are enhanced, the value of the dollar will get a boost.
Yesterday’s FOMC minutes showed just how badly the central bank missed the credit problem. With Treasury bills around 4 percent, the fed funds rate should be around 4.5 percent. A 5.25 percent fed funds rate, with the entire Treasury curve below that rate, is neither sustainable nor wise.
There’s housing price deflation: The Case/Shiller home-price index is off 3.5 percent over the past year.
There’s commodity deflation: Gold prices are off nearly 15 percent from their 2006 highs. Stock prices for materials are off nearly 13 percent since July 19, while metal and mining shares are off 16 percent.
There’s the deflation of loan values, both CDOs and CLOs.
And there’s the deflation of the Treasury bill rate from 5 percent to 4 percent.
The Fed needs to stop this deflation by pouring in new cash. I call it the growth solution. Growth will solve the credit problem as the Fed moves to stabilize the credit and housing deflation we are now experiencing. And as future investment and economic growth are enhanced, the value of the dollar will get a boost.
Yesterday’s FOMC minutes showed just how badly the central bank missed the credit problem. With Treasury bills around 4 percent, the fed funds rate should be around 4.5 percent. A 5.25 percent fed funds rate, with the entire Treasury curve below that rate, is neither sustainable nor wise.
Excerpts from the Romney Interview
A few interesting exchanges during last night's interview with presidential hopeful Mitt Romney.
KUDLOW: You know, there's a whole flood of stories on [the Sen. Larry Craig controversy] which I think to some extent may be a test of leadership in this primary. The Idaho Statesman has a devastating article about Craig, so does The Washington Post, so does Roll Call. Apparently, a couple years ago a professional man close to the Republican Party reported having oral sex with Craig at Union Station in Washington in 2004. Apparently, there are allegations and charges going back to 1982, where Mr. Craig denied having sex with pages. Isn't this the sort of thing that reminds us all of the Mark Foley episode last fall, before the elections, that was devastating to the Republicans?
Gov. ROMNEY: Yeah, I think it reminds us of Mark Foley and Bill Clinton. I think it reminds us of the fact that people who are elected to public office continue to disappoint, and they somehow think that if they vote the right way on issues of significance or they can speak a good game, that we'll just forgive and forget. And the truth of the matter is, the most important thing we expect from an elected official is a level of dignity and character that we can point to for our kids and our grandkids, and say, `Hey, someday I hope you grow up and you're someone like that person.' And we've seen disappointment in the White House, we've seen it in the Senate, we've seen it in Congress. And frankly, it's disgusting.
* * * * *
KUDLOW: You know, a couple weeks ago, you were campaigning in New Hampshire -- a reporter asked you about Senator Clinton's economics. Here's what you said, quote, "That's out with Adam Smith and in with Karl Marx." It's an interesting quote, sir. Would you like to expand on it?
Gov. ROMNEY: Well, yeah, it's sort of tongue in cheek. But there's some truth to it, and that is that Hillary Clinton has said that we have always been a, quote, "on your own" society. And there's some truth to that. We believe in individual initiative, we believe in incentives, we believe in the Adam Smith theory of how to build a strong economy. And she said it's time to end that and to move to an economy based on shared responsibility. She called it a "we're in it all together" society. Well, that doesn't sound as much like Adam Smith as it does like Karl Marx, and that's why I made the comment. It's a bit of a joke, but there's truth in it. And I don't think Hillary Clinton fundamentally understands how the private sector and our economy works. And I've spent 25 years in the private sector. I have some understanding of what causes jobs to come and leave, why businesses grow, why they shrink. And an "all in it together" society, with higher taxes for corporations, which she also is calling for, that's a mistake.
* * * * *
KUDLOW: You have such a distinguished business record, one of the founders of Bain Capital private equity fund. It's done very well. Is it possible nowadays with these private equity funds and even hedge funds, kind of in, I won't say disrepair, but in the public view, the populist view, not very popular nowadays. I remember years ago when you first ran against Senator Ted Kennedy in 1994, he attacked you for being a party to restructuring and job losses. Does this private equity fund background of yours, as distinguished as it is, might that be a problem in the presidential campaign if you were the GOP nominee?
Gov. ROMNEY: You know, I think it will always be considered a plus to have somebody who is president of the United States who understands how the economy works. We're in a global competitive race with nations around the world to make sure that we have good jobs here and that we're the nation of growth and vitality. And frankly, we've got three people on the Democratic side who are all running for president, not one of whom has ever had any experience, really, leading or managing. And you know, the government of the United States is the largest enterprise in the world with millions of employees, trillions of dollars in revenue. These guys have never run a corner store, let alone run an enterprise. And it would be helpful in this country, particularly as we face the competitive array that we do, to have somebody that understands how jobs are created, why businesses decide to locate where they do, why they leave. And that's something I certainly understand.
KUDLOW: You know, there's a whole flood of stories on [the Sen. Larry Craig controversy] which I think to some extent may be a test of leadership in this primary. The Idaho Statesman has a devastating article about Craig, so does The Washington Post, so does Roll Call. Apparently, a couple years ago a professional man close to the Republican Party reported having oral sex with Craig at Union Station in Washington in 2004. Apparently, there are allegations and charges going back to 1982, where Mr. Craig denied having sex with pages. Isn't this the sort of thing that reminds us all of the Mark Foley episode last fall, before the elections, that was devastating to the Republicans?
Gov. ROMNEY: Yeah, I think it reminds us of Mark Foley and Bill Clinton. I think it reminds us of the fact that people who are elected to public office continue to disappoint, and they somehow think that if they vote the right way on issues of significance or they can speak a good game, that we'll just forgive and forget. And the truth of the matter is, the most important thing we expect from an elected official is a level of dignity and character that we can point to for our kids and our grandkids, and say, `Hey, someday I hope you grow up and you're someone like that person.' And we've seen disappointment in the White House, we've seen it in the Senate, we've seen it in Congress. And frankly, it's disgusting.
* * * * *
KUDLOW: You know, a couple weeks ago, you were campaigning in New Hampshire -- a reporter asked you about Senator Clinton's economics. Here's what you said, quote, "That's out with Adam Smith and in with Karl Marx." It's an interesting quote, sir. Would you like to expand on it?
Gov. ROMNEY: Well, yeah, it's sort of tongue in cheek. But there's some truth to it, and that is that Hillary Clinton has said that we have always been a, quote, "on your own" society. And there's some truth to that. We believe in individual initiative, we believe in incentives, we believe in the Adam Smith theory of how to build a strong economy. And she said it's time to end that and to move to an economy based on shared responsibility. She called it a "we're in it all together" society. Well, that doesn't sound as much like Adam Smith as it does like Karl Marx, and that's why I made the comment. It's a bit of a joke, but there's truth in it. And I don't think Hillary Clinton fundamentally understands how the private sector and our economy works. And I've spent 25 years in the private sector. I have some understanding of what causes jobs to come and leave, why businesses grow, why they shrink. And an "all in it together" society, with higher taxes for corporations, which she also is calling for, that's a mistake.
* * * * *
KUDLOW: You have such a distinguished business record, one of the founders of Bain Capital private equity fund. It's done very well. Is it possible nowadays with these private equity funds and even hedge funds, kind of in, I won't say disrepair, but in the public view, the populist view, not very popular nowadays. I remember years ago when you first ran against Senator Ted Kennedy in 1994, he attacked you for being a party to restructuring and job losses. Does this private equity fund background of yours, as distinguished as it is, might that be a problem in the presidential campaign if you were the GOP nominee?
Gov. ROMNEY: You know, I think it will always be considered a plus to have somebody who is president of the United States who understands how the economy works. We're in a global competitive race with nations around the world to make sure that we have good jobs here and that we're the nation of growth and vitality. And frankly, we've got three people on the Democratic side who are all running for president, not one of whom has ever had any experience, really, leading or managing. And you know, the government of the United States is the largest enterprise in the world with millions of employees, trillions of dollars in revenue. These guys have never run a corner store, let alone run an enterprise. And it would be helpful in this country, particularly as we face the competitive array that we do, to have somebody that understands how jobs are created, why businesses decide to locate where they do, why they leave. And that's something I certainly understand.
Tuesday, August 28, 2007
Tuesday Night Lineup
On CNBC's Kudlow & Company this evening: We'll begin with a market drilldown from CNBC's Bob Pisani at the NYSE.
THE STOCK MARKET, HOUSING & ECONOMY...Our market guests tonight include Bob Shiller, Yale economics professor and chief economist of MacroMarkets; Dennis Kneale, managing editor of Forbes magazine; Barry Ritholtz, president of Ritholtz Research & Analytics; and senior MarketWatch columnist/CNBC contributor Herb Greenberg.
INTERVIEW WITH MITT ROMNEY...We'll discuss the Senator Craig controversy, the credit crunch, the Fed and much more with the former Massachusetts governor & GOP presidential hopeful.
THE DYNAMIC DUO...On to register their take on the Romney interview and to duke it out on the aforementioned subjects are Bob Reich, former Clinton labor secretary and UCal Berkeley professor and Steve Moore, member of The Wall Street Journal editorial board.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Romney on Kudlow & Company Tonight
The Republican presidential hopeful and former Massachusetts Governor -- currently surging ahead in the polls -- will be joining us on this evening's Kudlow & Company for an in-depth interview.
We'll discuss the latest controversy whirling through Washington involving Senator Larry Craig, how a "President Romney" would handle the credit crunch, Ben Bernanke and the Fed, Hillary Clinton & Karl Marx, and much, much more.
Please be sure to join us -- 5pm ET on CNBC.
We'll discuss the latest controversy whirling through Washington involving Senator Larry Craig, how a "President Romney" would handle the credit crunch, Ben Bernanke and the Fed, Hillary Clinton & Karl Marx, and much, much more.
Please be sure to join us -- 5pm ET on CNBC.
Monday, August 27, 2007
Growth Solution
A full Monty easing of Fed policy, including fed funds rate cuts on top of their discount rate opening, could lead to a stronger dollar and a much weaker gold price, according to John Tamny of RealClearMarkets and Paul Hoffmeister of Bretton Woods Research.
Does this sound counter-intuitive? Well, the missing link is economic growth.
The idea here is a simple one. Cutting the fed funds rate removes a tax on money that has weakened the economy and the dollar in recent years. This tax on money has also strengthened the gold price, a symbol of higher inflation.
Interestingly, inflation hawk Steve Forbes agrees with this idea. On Kudlow & Company tonight John Tamny, a former Goldman Sachs banker turned economic journalist, suggested that a 4.5 percent fed funds target rate could bring the gold price all the way down to $550. That's the power of rising money demand.
Paul Hoffmeister, a former staffer to the late Jude Wanniski, argues that a lower fed funds rate would provide new cash liquidity that would bolster investment and economic growth. This growth, in turn, would absorb any excess liquidity and therefore it would hold down inflation.
Most Wall Street economists believe that a lower fed funds rate would speed up economic growth and increase inflation. However, the supply-side view offered by Tamny and Hoffmeister, and endorsed by Forbes, argues that faster economic growth leads to lower inflation.
In other words, at today's lower tax rates, more liquidity would safely and constructively boost the economy towards a much needed growth rebound. And, growth solves a lot of problems. Growth solves credit problems. It also solves a softening of job creation. It also solves inflation (which has not been a huge problem).
Perhaps most important, growth solves the soft dollar problem, which has become chronic in recent years.
I find myself agreeing with the Tamny-Hoffmeister view. It may sound counter-intuitive, but it makes perfect sense in the logic of supply-side economics. The key right now is a lower fed funds rate target from Bernanke & Co. Hats off to Tamny and Hoffmeister.
There is a growth solution.
Does this sound counter-intuitive? Well, the missing link is economic growth.
The idea here is a simple one. Cutting the fed funds rate removes a tax on money that has weakened the economy and the dollar in recent years. This tax on money has also strengthened the gold price, a symbol of higher inflation.
Interestingly, inflation hawk Steve Forbes agrees with this idea. On Kudlow & Company tonight John Tamny, a former Goldman Sachs banker turned economic journalist, suggested that a 4.5 percent fed funds target rate could bring the gold price all the way down to $550. That's the power of rising money demand.
Paul Hoffmeister, a former staffer to the late Jude Wanniski, argues that a lower fed funds rate would provide new cash liquidity that would bolster investment and economic growth. This growth, in turn, would absorb any excess liquidity and therefore it would hold down inflation.
Most Wall Street economists believe that a lower fed funds rate would speed up economic growth and increase inflation. However, the supply-side view offered by Tamny and Hoffmeister, and endorsed by Forbes, argues that faster economic growth leads to lower inflation.
In other words, at today's lower tax rates, more liquidity would safely and constructively boost the economy towards a much needed growth rebound. And, growth solves a lot of problems. Growth solves credit problems. It also solves a softening of job creation. It also solves inflation (which has not been a huge problem).
Perhaps most important, growth solves the soft dollar problem, which has become chronic in recent years.
I find myself agreeing with the Tamny-Hoffmeister view. It may sound counter-intuitive, but it makes perfect sense in the logic of supply-side economics. The key right now is a lower fed funds rate target from Bernanke & Co. Hats off to Tamny and Hoffmeister.
There is a growth solution.
Monday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC's Bob Pisani will start us off with a drilldown from the NYSE.
THE MARKETS...Our market panel will offer their perspective on all the latest news and developments.
On board:
*Joe LaVorgna, chief U.S. economist at Deutsche Bank
*Gary Shilling, president of A. Gary Shilling & Co.
*Don Luskin, chief investment officer at Trend Macro
*Jack Bouroudjian, Brewer Investment Group principal
ROMNEY VS. RUDY ON TAXES...Chief Washington Correspondent John Harwood will offer insight from Washington.
FED WATCH...Former Atlanta Fed President Bill Ford and Lyle Gramley, former Federal Reserve Governor will weigh in.
THE FED, GOLD & INTEREST RATES...On to discuss are Steve Forbes, CEO/editor-in-chief of Forbes magazine; Jerry Bowyer, economic advisor to Benchmark Financial Network and the author of The Bush Boom; and John Tamney, editor of RealClearMarkets.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Friday, August 24, 2007
Friday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC's Bob Pisani will guest host tonight.
THE MARKET...On board tonight are Michael Crofton, chief executive officer of the Philadelphia Trust Company; Fortune Magazine writer Peter Eavis; and Craig Columbus from Advanced Equities Asset Management.
A LOOK AT HOUSING...Thomas Kunz, President & CEO of Century 21 will offer his insight on today's better than expected housing number and the road ahead.
FED & THE ECONOMY...Our economic panel will weigh in all the latest.
*Arthur Laffer, president of Laffer Associates
*Christopher Thornberg, founding partner of Beacon Economics
*Peter Eavis, writer at Fortune Magazine
SOVEREIGN WEALTH FUNDS...On to debate are Frank Gaffney, president of the Center for Security Policy and Steve Moore, member of The Wall Street Journal editorial board.
THE ECONOMY, HEALTHCARE & MORE...Glenn Hubbard, Columbia Business School dean and former chief of President Bush's Council of Economic Advisers will debate with Roger Hickey, co-director of the Campaign for America's Future.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Thursday, August 23, 2007
Time for the Fed’s Full Monty
Earlier this morning, the Fed unexpectedly pumped in over $17 billion dollars to the financial system in three separate actions. This is much more than they’ve done in recent days where new cash additions had been hovering around $3 billion dollars. Undoubtedly, these money-adding operations were aimed at soothing the commercial paper market (the money market area where short-term corporate loans are financed) that has been reduced to total dysfunction.
Did I say dysfunction? Add to that deflation.
In the most recent week, outstanding U.S. commercial paper fell by more than 4 percent. That’s the biggest weekly drop in almost seven years going all the way back to November of 2000. In fact, over the past two weeks, outstanding commercial paper has dropped by more than $180 billion dollars—an eight percent haircut.
The worst part of this story is in asset-backed commercial paper. These are the loans that are collateralized by debt from mortgages, credit cards and auto loans. This asset backed paper -- which amounts to about half of all commercial paper -- has dropped $125 billion dollars in the last two weeks, representing an almost an 11 percent decline.
That’s called evaporation.
(And by the way, in the next three months commercial paper borrowers will have to roll over $550 billion dollars. Where exactly is that money going to come from?)
Right now, short-term investors are flocking to gilt-edged, risk-free Treasury bills. They have no stomach for corporate risk. Accordingly, Treasury bill rates have plunged to around 3.5 percent due to this huge appetite for risk-free cash,
The Fed’s recent discount window loan advances have so far had virtually no impact on thawing the commercial paper freeze. It’s going to require much more radical action by the central bank, namely, permanent cash additions to the money market to fix this mess.
This can only be accomplished by lowering the fed funds target rate to around 4.5 percent as suggested in this mornings WSJ op-ed by former Federal Reserve governor Wayne Angell. My supply side mentor Art Laffer also holds this view. The Fed should be watching and listening to the meaning of the plunging Treasury bill rate in the context of the extreme financial breakdown of the commercial paper market.
Countrywide Financial Corp CEO Angelo Mozilo (who just sold 20 percent of his company, the largest mortgage originator in the country to Bank of America) believes that the Fed’s discount window operation is inadequate to the task of dealing with the money market’s liquidity shortage. He’s right. Incidentally, Mozilo also sees a recession ahead.
I’m not ready to go there. Rising jobs, incomes, and business profits should continue to hold the economy up in a 2 percent growth range. But Art Laffer’s point is right on target: The subprime mortgage virus has created an enormous increase in money demand that will only be resolved by an increase in money supply.
The fed discount window strategy is simply not going to cut it. It’s too coy. What the central bank needs to do is get out there, pull up its collective sleeve, and bring out the full Monty with a permanent injection of new cash by lowering the fed fund target. The sooner the better.
Think of this: If skittish investors insist on socking away their money in Treasury paper, then where’s the dough going to come from to finance U.S. business expansion and the economy? I’d much rather have American businesses get the money then the government.
On a more positive note, today’s CBO report estimates that the federal budget deficit is falling all the way down to $150 billion for FY 2007. Let’s just hope that American businesses don’t experience a rising deficit in the weeks and months ahead.
Did I say dysfunction? Add to that deflation.
In the most recent week, outstanding U.S. commercial paper fell by more than 4 percent. That’s the biggest weekly drop in almost seven years going all the way back to November of 2000. In fact, over the past two weeks, outstanding commercial paper has dropped by more than $180 billion dollars—an eight percent haircut.
The worst part of this story is in asset-backed commercial paper. These are the loans that are collateralized by debt from mortgages, credit cards and auto loans. This asset backed paper -- which amounts to about half of all commercial paper -- has dropped $125 billion dollars in the last two weeks, representing an almost an 11 percent decline.
That’s called evaporation.
(And by the way, in the next three months commercial paper borrowers will have to roll over $550 billion dollars. Where exactly is that money going to come from?)
Right now, short-term investors are flocking to gilt-edged, risk-free Treasury bills. They have no stomach for corporate risk. Accordingly, Treasury bill rates have plunged to around 3.5 percent due to this huge appetite for risk-free cash,
The Fed’s recent discount window loan advances have so far had virtually no impact on thawing the commercial paper freeze. It’s going to require much more radical action by the central bank, namely, permanent cash additions to the money market to fix this mess.
This can only be accomplished by lowering the fed funds target rate to around 4.5 percent as suggested in this mornings WSJ op-ed by former Federal Reserve governor Wayne Angell. My supply side mentor Art Laffer also holds this view. The Fed should be watching and listening to the meaning of the plunging Treasury bill rate in the context of the extreme financial breakdown of the commercial paper market.
Countrywide Financial Corp CEO Angelo Mozilo (who just sold 20 percent of his company, the largest mortgage originator in the country to Bank of America) believes that the Fed’s discount window operation is inadequate to the task of dealing with the money market’s liquidity shortage. He’s right. Incidentally, Mozilo also sees a recession ahead.
I’m not ready to go there. Rising jobs, incomes, and business profits should continue to hold the economy up in a 2 percent growth range. But Art Laffer’s point is right on target: The subprime mortgage virus has created an enormous increase in money demand that will only be resolved by an increase in money supply.
The fed discount window strategy is simply not going to cut it. It’s too coy. What the central bank needs to do is get out there, pull up its collective sleeve, and bring out the full Monty with a permanent injection of new cash by lowering the fed fund target. The sooner the better.
Think of this: If skittish investors insist on socking away their money in Treasury paper, then where’s the dough going to come from to finance U.S. business expansion and the economy? I’d much rather have American businesses get the money then the government.
On a more positive note, today’s CBO report estimates that the federal budget deficit is falling all the way down to $150 billion for FY 2007. Let’s just hope that American businesses don’t experience a rising deficit in the weeks and months ahead.
Thursday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC's Bob Pisani will guest host tonight.
MARKETS...Our market guests will sift through all the latest news and developments and offer their insight on what may lie ahead.
On board:
*Barry Ritholtz, President of Ritholtz Research & Analytics
*Seth Tobias, President/CIO of Circle T Partners
*Jeremy Siegel, Wharton finance professor & director/senior strategy adviser at WisdomTree Investments
THE FED FACTOR...A look at the central bank with Wayne Angell, former Federal Reserve Governor and William Ford, former Atlanta Fed President.
MARKETS: A SEPTEMBER TURNAROUND OR TURNDOWN?...Wayne Angell and our market panel will weigh in with their forecasts.
ASSET ALLOCATION...James Lowell, editor of Fidelity Investor will be aboard with his take.
Our market panel will join in the discussion.
SUBPRIME DEBATE...Barbara Ehrenreich, author of "Bait and Switch" and "Nickel and Dimed" will spar with Carrie Lukas, president for policy and economics at the Independent Women’s Forum.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Wednesday, August 22, 2007
Papa Fed and Mr. Bush
Watching Senate Banking Chairman Chris Dodd (D-CT) meet with Fed chief Bernanke and Treasury man Paulson, I can’t help but wonder why President Bush didn’t host this kind of meeting.
Suppose the president had invited these monetary bigwigs -- including House Banking Chair Barney Frank -- to a lunch, either in the White House or down in Texas. Wouldn’t a hundred million members of the investor class, and 146 million folks in the workforce be more reassured if the nation’s chief executive were involved? Wouldn’t this have given Mr. Bush a good opportunity to reaffirm his commitment to pro-growth economic polices?
Growth is really the key issue here. Even the Fed now acknowledges that inflation is receding. Economic growth uncertainty has taken its place as the principal focus of their policy. But if investors are putting all their money in risk averse Treasury paper, they won’t be financing the business sector that makes our free market capitalist economy hum.
The president might have said that ample liquidity is necessary to sustain growth. (Yes, that is Papa Fed’s role, but it’d be reassuring to hear the president say it himself.) And as the central bank reaffirms its traditional role as liquidity supplier of last resort, Mr. Bush could have reaffirmed his intention to keep pro-growth tax rates low. He could have signaled his resolve to veto anti-growth spending excesses. And he could pledge to keep working for pro-growth free trade deals around the world.
The financial storm offers President Bush a chance to show economic and monetary leadership. Instead, it was Connecticut’s Sen. Dodd who played the coordinating role, a role that really belongs to the president.
Something tells me that the president missed a golden opportunity here.
Suppose the president had invited these monetary bigwigs -- including House Banking Chair Barney Frank -- to a lunch, either in the White House or down in Texas. Wouldn’t a hundred million members of the investor class, and 146 million folks in the workforce be more reassured if the nation’s chief executive were involved? Wouldn’t this have given Mr. Bush a good opportunity to reaffirm his commitment to pro-growth economic polices?
Growth is really the key issue here. Even the Fed now acknowledges that inflation is receding. Economic growth uncertainty has taken its place as the principal focus of their policy. But if investors are putting all their money in risk averse Treasury paper, they won’t be financing the business sector that makes our free market capitalist economy hum.
The president might have said that ample liquidity is necessary to sustain growth. (Yes, that is Papa Fed’s role, but it’d be reassuring to hear the president say it himself.) And as the central bank reaffirms its traditional role as liquidity supplier of last resort, Mr. Bush could have reaffirmed his intention to keep pro-growth tax rates low. He could have signaled his resolve to veto anti-growth spending excesses. And he could pledge to keep working for pro-growth free trade deals around the world.
The financial storm offers President Bush a chance to show economic and monetary leadership. Instead, it was Connecticut’s Sen. Dodd who played the coordinating role, a role that really belongs to the president.
Something tells me that the president missed a golden opportunity here.
Wednesday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC's Bob Pisani will guest host tonight.
MARKETS...Our market guests will weigh in with their take on what lies ahead for the stock market and economy.
*Michael Pento, Delta Global Advisors, Senior Market Strategist
*Jim Awad, Awad Asset Management, President
*Stefan Abrams, Bryden-Abrams Investment Management, Managing Partner
FED FACTOR...Bob McTeer, former Federal Reserve Bank of Dallas President will offer some perspective.
BANK STOCKS...Robert Albertson, Sandler O'Neill Principal & Chief Strategist will join us.
ASSET ALLOCATION...Dan Wiener, editor of the Independent Advisor for Vanguard Investors will offer some of his thoughts.
THE DYNAMIC DUO...Former Labor Secretary Robert Reich will debate Steve Moore from The Wall Street Journal editorial board on a host of subjects including a showdown on taxes and financial literacy.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Tuesday, August 21, 2007
Tuesday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC chief Washington correspondent John Harwood will guest host tonight.
MARKETS...Our panel will weigh in with their take on all the latest news and developments. CNBC'S Bob Pisani will get things started with a report from the NYSE.
*Rich Karlgaard, Forbes magazine publisher
*Jack Bouroudjian, Brewer Investment Group principal
*Herb Greenberg, MarketWatch Sr. Columnist & CNBC contributor
HOUSING, THE CREDIT CRUNCH & MORE...U.S. Housing and Urban Development Secretary Alphonso Jackson will join us.
THE ECONOMY...Joining us to discuss are Christian Weller, senior economist at the Center for American Progess and CNBC’s Senior Economics Reporter Steve Liesman.
WASHINGTON TO WALL ST. DEBATE...On to debate raising taxes on private equity are House Ways & Means Committee members Rep. Thomas Reynolds (R-NY) and Rep. Sander Levin (D-MI).
POLITICAL DEBATE...Washington Post columnist E.J. Dionne and Republican strategist Leslie Sanchez will debate the news out of Iraq, the race for the White House and more.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Bullish News on Iraq
Hats off to our last best hope in Iraq -- General David Petraeus -- for engineering a significant turnaround.Pessimistic politicians and pundits scoffed at President Bush's troop surge plan back in January, insisting it would fail. But General Petraeus and the troops have kept their eyes on the prize. They are being rewarded handsomely for their courage, hard work, and steadfastness.
And as the Washington Times points out, even the Democrats are coming around.
From today's paper:
"Top Senate Democrats have started to acknowledge progress in Iraq, with the chairman of the Armed Services Committee yesterday saying the U.S. troop surge is producing "measurable results."
Sen. Carl Levin of Michigan highlighted improved security in Baghdad and al Qaeda losses in Anbar province as examples of success — a shift for Democrats who have mainly discounted or ignored advances on the battlefield for weeks.
"The military aspects of President Bush's new strategy in Iraq ... appear to have produced some credible and positive results," Mr. Levin said..."
Click here to read the whole thing.
Monday, August 20, 2007
Cut It
Three key points from my pal Dan Clifton -- he's director of policy research over at Strategas Research Partners.
1) The credit crunch is continuing, with 3-month T-Bill rates down an additional -100 basis points today, the Fed could cut the funds rate any time now.
2) There is a global panic / flight to quality. This panic has created a run on Treasury Bills, which is getting out of hand. The commercial paper market is not working, despite Friday’s intervention.
3) There is no economic data of significance to change this view over the next several days. It seems unlikely that the Fed will make it to the September meeting without cutting rates.
I agree.
Also, another prominent former Reagan Federal Reserve governor (besides my friend Wayne Angell) weighed in with an email earlier suggesting that a 4.5 percent fed funds rate should be the next target.
1) The credit crunch is continuing, with 3-month T-Bill rates down an additional -100 basis points today, the Fed could cut the funds rate any time now.
2) There is a global panic / flight to quality. This panic has created a run on Treasury Bills, which is getting out of hand. The commercial paper market is not working, despite Friday’s intervention.
3) There is no economic data of significance to change this view over the next several days. It seems unlikely that the Fed will make it to the September meeting without cutting rates.
I agree.
Also, another prominent former Reagan Federal Reserve governor (besides my friend Wayne Angell) weighed in with an email earlier suggesting that a 4.5 percent fed funds rate should be the next target.
Monday Night Lineup
On CNBC's Kudlow & Company this evening: CNBC chief Washington correspondent John Harwood will guest host tonight's program.
MARKETS...CNBC's Bob Pisani will get us started with a report from the NYSE and join the panel with a look at all the latest.
*Michael Panzner, strategist and "Financial Armageddon" author
*Jonathon Smith, CIO of Fixed Income, Haverford Trust Company
THE ECONOMY & THE FED...Our economic panel will debate all the latest economic news and developments.
On board:
*Michelle Girard, RBS Greenwich Capital senior economist
*Gary Shilling, president of A. Gary Shilling & Co.
*Robert Hormats, Goldman Sachs International Vice Chairman
SUNDAY UNSPUN...Frank Newport, Gallup Poll editor-in-chief will sift through all the latest media spin.
INTERVIEW WITH SENATOR CHRIS DODD...The Senate Banking Committee Chairman and Democratic presidential hopeful will discuss his closed-door meeting with Federal Reserve Chairman Ben Bernanke earlier today.
WASHINGTON TO WALL ST. DEBATE...On to discuss the Dodd interview as well as other market/economic developments are Steve Moore from The Wall Street Journal Editorial Board and Jared Bernstein, senior economist at the Economic Policy Institute.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Saturday, August 18, 2007
An Important Fed First Step
The Fed took an important first step yesterday to relieve the financial system liquidity and mortgage credit crisis by reducing its discount rate for loans to member banks by one-half of a percent to 5.75 percent from 6.25 percent. Stocks cheered loudly. In effect, the central bank reaffirmed its traditional role as lender of last resort in times of financial emergency.
Essentially, the Fed seems to be saying that it will not allow money-good mortgage lenders such as Countrywide, Thornburg, and others to suffer bankruptcy from lack of liquidity. If solvency were the problem, there's nothing the Fed could or should do. But in a cash crunch, such as we have today, the central bank made the right move.
Importantly, Bernanke & Company have changed their policy leaning away from inflation-worrying to economy-worrying. This is a major shift. The biggest in several years. And well they should. Banking problems are far from over.
The commercial paper market for short-term corporate loans is completely dysfunctional. Mortgage-backed securities and corporate loan packages are still suffering from difficult pricing decisions and very little trading. No one really knows the full problem or the size or who owns what when it comes to the subprime virus. Loan transparency is inadequate. Cash hoarding is everywhere.
Investors are flocking to short-term Treasury bills in order to avoid any risk whatsoever. T-bill rates have collapsed all the way down to 3.5 percent. But if investors are putting all their money in government paper, they won't be financing the business sector that makes our free market capitalist economy hum.
The best thing the Fed can do now is to reduce its basic target rate in line with the decline of Treasury bill rates. In other words, Bernanke should follow the guidance of the free open market rather than rely on the economic models of the Fed staff.
This free market thinking suggests that the 5.25 percent fed funds target rate should fall a full percentage point as the bank keeps pumping in more cash to back-stop the financial system and promote future economic growth. At lower tax rates this new cash will stimulate more investment and employment without reigniting inflation. President Bush will veto any tax hikes. That keeps the door open for Fed easing.
The cash increase will be absorbed by gains in business investment and production. Credit deflation can be turned into credit stability. That will keep the Goldilocks Main Street economy alive and well.
But Mr. Bernanke should not wait until the next regularly-scheduled meeting on September 18th. He should follow on the discount rate cut with a 50 basis point fed funds rate reduction this coming week.
The credit freeze that has engulfed Wall Street could be solved in the next eight to ten weeks if the Fed acts sensibly and quickly.
Essentially, the Fed seems to be saying that it will not allow money-good mortgage lenders such as Countrywide, Thornburg, and others to suffer bankruptcy from lack of liquidity. If solvency were the problem, there's nothing the Fed could or should do. But in a cash crunch, such as we have today, the central bank made the right move.
Importantly, Bernanke & Company have changed their policy leaning away from inflation-worrying to economy-worrying. This is a major shift. The biggest in several years. And well they should. Banking problems are far from over.
The commercial paper market for short-term corporate loans is completely dysfunctional. Mortgage-backed securities and corporate loan packages are still suffering from difficult pricing decisions and very little trading. No one really knows the full problem or the size or who owns what when it comes to the subprime virus. Loan transparency is inadequate. Cash hoarding is everywhere.
Investors are flocking to short-term Treasury bills in order to avoid any risk whatsoever. T-bill rates have collapsed all the way down to 3.5 percent. But if investors are putting all their money in government paper, they won't be financing the business sector that makes our free market capitalist economy hum.
The best thing the Fed can do now is to reduce its basic target rate in line with the decline of Treasury bill rates. In other words, Bernanke should follow the guidance of the free open market rather than rely on the economic models of the Fed staff.
This free market thinking suggests that the 5.25 percent fed funds target rate should fall a full percentage point as the bank keeps pumping in more cash to back-stop the financial system and promote future economic growth. At lower tax rates this new cash will stimulate more investment and employment without reigniting inflation. President Bush will veto any tax hikes. That keeps the door open for Fed easing.
The cash increase will be absorbed by gains in business investment and production. Credit deflation can be turned into credit stability. That will keep the Goldilocks Main Street economy alive and well.
But Mr. Bernanke should not wait until the next regularly-scheduled meeting on September 18th. He should follow on the discount rate cut with a 50 basis point fed funds rate reduction this coming week.
The credit freeze that has engulfed Wall Street could be solved in the next eight to ten weeks if the Fed acts sensibly and quickly.
Friday, August 17, 2007
Friday Night Lineup
On CNBC's Kudlow & Company this evening: FED WATCH PART II...Our esteemed Fed panel from last night's show will join us once again to offer their unique insights in light of today's Fed action.
*Wayne Angell, former Federal Reserve Governor
*Lyle Gramley, former Federal Reserve Governor
*Bill Ford, former Atlanta Fed President
STOCK MARKET TURBULENCE...CNBC'S Bob Pisani will join us with a live report from the NYSE.
Our market panel this evening:
*Vahan Janjigian from Forbes Investors Advisory Institute
*Michael Pento, senior market strategist at Delta Global Advisors
*Joseph Keating, chief investment officer at First American Asset Management
*Arthur Laffer, former Reagan economic guru and chairman of Laffer Associates
SENATOR JOHN MCCAIN...A one-on-one interview with Senator Backbone himself. The GOP presidential hopeful will discuss his new book "Hard Call: Great Decisions and the Extraordinary People Who Made Them" and what he'd do about the current economic turmoil.
WASHINGTON TO WALL ST..."Jimmy P" Pethokoukis, senior writer at U.S. News & World Report will join us with a fresh look at the intersection of Washington and Wall Street and what it means for the economy.
Please join us at 5pET on CNBC for another free market edition of Kudlow & Company.
Thursday, August 16, 2007
Thursday Night Lineup
On CNBC's Kudlow & Company this evening: MARKETS...Our market mavens will weign in all the latest stock market gyrations.
CNBC's Bob Pisani will get us started with a report from the NYSE.
*Doug Kass, president of Seabreeze Partners Management
*Quentin Hardy, Forbes magazine Silicon Valley Bureau Chief
*John Browne, editor of MoneyNews.com
*Jerry Bowyer - economist/author of "The Bush Boom" and contributor to Human Events & National Review
FED WATCH...Our Fed experts will offer their unique perspective on the current state of affairs at the central bank.
*Wayne Angell, former Federal Reserve Governor
*Lyle Gramley, former Federal Reserve Governor
*William Ford, former Atlanta Fed President
MARKETS AROUND THE GLOBE...Senior CNBC Analyst Ron Insana will join us with a live report from Tokyo.
WASHINGTON TO WALL STREET...The Dynamic Duo Returns!
Robert Reich, former Clinton Labor Secretary & professor at the University of California at Berkeley will debate Steve Moore from The Wall Street Journal's editorial board.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
The T-Bill Message for Bush & Bernanke
The power outage in banking and credit markets continues to deepen as the sub-prime mortgage infection spreads throughout the U.S. and the global financial system.
As I mentioned in yesterday’s column, it is time for a major Fed operation. The central bank needs to surrender its 5.25 percent fed funds target rate and pour tens of billions of dollars of new-cash liquidity into the banking system. Of course, this would be felt most immediately in the U.S., but in effect it would be a global action since the U.S. financial system stands at the epicenter of world finance.
An extraordinary money-market development has occurred in recent days. The safest liquid credit instrument — the gilt-edged 91-day Treasury bill — has seen its yield plunge.
Here’s the story: Last Wednesday, August 8, T-bills traded at 4.49 percent. On Monday they dropped to 4.74. On Tuesday, 4.63. And yesterday they fell to 4 percent. This morning they dropped another 50 basis points to 3.52 percent. What’s this mean? It means the entire banking system has turned completely risk averse and is fleeing into the safest haven possible.
It is fear. It is hording cash. It is a mountainous tremor that has seized financial markets.
In terms of funding requirements — for big mortgage banks like Countrywide, or perhaps the major money-center banks and various hedge funds — it shows financial dysfunction.
Now, what to do?
The Federal Reserve must lower its target rate and pour new cash into the banking system. It should float the federal funds rate and let reserve and money-market forces determine the right rate level as it injects new liquidity into the system. A T-bill rate around 3.5 percent suggests a fed funds target rate of perhaps 3.75 percent, or somewhere thereabouts.
Right now, because of the fear and hording, cash demands inside the banking system are rising faster than cash reserve supplies injected by the Fed. So the central bank should keep adding new money until the fed funds rate stabilizes in the open market. In other words, the key target variable right now should not be the Fed’s interest-rate target, but the large amount of new cash it is injecting into these markets.
Put simply, Ben Bernanke & Co. should let the money market set the new target rate. Their job is to create enough new cash to stabilize and accommodate the fear-based rush of liquidity demands.
As I also mentioned in yesterday’s column, the Fed should expand its open-market purchases of collateral to include non-government mortgage-backed securities, jumbo mortgages, and asset-backed commercial paper, along with the more typical Treasury and government agency paper which includes Fannie and Freddie paper. This will help get the new cash into the places that need it the most. It’s a buck-shot approach, not a clean rifle hit. Unusual and cumbersome perhaps, but necessary I think at the present time.
The first order of business for the Fed is to protect the banking system. Credit deflation is a nasty virus. It requires a strong antibiotic. The trick is to not only keep the banking system afloat, but to prevent the credit virus from bringing down the economy.
So far, the economy looks fine. This is good. But the Fed must be the lender of last resort for the banking system. For my inflation-worrying friends out there, I say we can deal with that issue if it remerges sometime in the future. After financial stabilization, the new cash can be withdrawn and the fed funds target can be readjusted.
All I’m saying is first things first. That means stabilizing the banking system and accommodating the huge cash demands that have arisen. Right now, the system is virtually frozen.
One last thought: Talking with my great pal Jerry Bowyer this morning, we came up with an idea for President Bush. He needs to show leadership by meeting with Ben Bernanke, either in Washington or Texas. Remember, during the rough days of 1981-82, President Reagan met with Paul Volcker in the Oval Office. Reagan gave Volcker the green light to do whatever was necessary to curb inflation.
Today the problem is deflation — more specifically, credit deflation. So let Mr. Bush and Mr. Bernanke (and Mr. Paulson over at Treasury) talk among themselves. Let them hammer out a plan to stop the credit deflation and the financial emergency. After that, Bernanke can face the cameras (as suggested by former Federal Reserve governor Wayne Angell on Kudlow & Company last night) and announce his new policy.
This is a solvable problem. The economy is in relatively good shape. Stocks are still at a relatively high level. The unemployment rate is low. The vital economic signs are positive. But we need a credit fix. We need to restore banking confidence. Right now.
As I mentioned in yesterday’s column, it is time for a major Fed operation. The central bank needs to surrender its 5.25 percent fed funds target rate and pour tens of billions of dollars of new-cash liquidity into the banking system. Of course, this would be felt most immediately in the U.S., but in effect it would be a global action since the U.S. financial system stands at the epicenter of world finance.
An extraordinary money-market development has occurred in recent days. The safest liquid credit instrument — the gilt-edged 91-day Treasury bill — has seen its yield plunge.
Here’s the story: Last Wednesday, August 8, T-bills traded at 4.49 percent. On Monday they dropped to 4.74. On Tuesday, 4.63. And yesterday they fell to 4 percent. This morning they dropped another 50 basis points to 3.52 percent. What’s this mean? It means the entire banking system has turned completely risk averse and is fleeing into the safest haven possible.
It is fear. It is hording cash. It is a mountainous tremor that has seized financial markets.
In terms of funding requirements — for big mortgage banks like Countrywide, or perhaps the major money-center banks and various hedge funds — it shows financial dysfunction.
Now, what to do?
The Federal Reserve must lower its target rate and pour new cash into the banking system. It should float the federal funds rate and let reserve and money-market forces determine the right rate level as it injects new liquidity into the system. A T-bill rate around 3.5 percent suggests a fed funds target rate of perhaps 3.75 percent, or somewhere thereabouts.
Right now, because of the fear and hording, cash demands inside the banking system are rising faster than cash reserve supplies injected by the Fed. So the central bank should keep adding new money until the fed funds rate stabilizes in the open market. In other words, the key target variable right now should not be the Fed’s interest-rate target, but the large amount of new cash it is injecting into these markets.
Put simply, Ben Bernanke & Co. should let the money market set the new target rate. Their job is to create enough new cash to stabilize and accommodate the fear-based rush of liquidity demands.
As I also mentioned in yesterday’s column, the Fed should expand its open-market purchases of collateral to include non-government mortgage-backed securities, jumbo mortgages, and asset-backed commercial paper, along with the more typical Treasury and government agency paper which includes Fannie and Freddie paper. This will help get the new cash into the places that need it the most. It’s a buck-shot approach, not a clean rifle hit. Unusual and cumbersome perhaps, but necessary I think at the present time.
The first order of business for the Fed is to protect the banking system. Credit deflation is a nasty virus. It requires a strong antibiotic. The trick is to not only keep the banking system afloat, but to prevent the credit virus from bringing down the economy.
So far, the economy looks fine. This is good. But the Fed must be the lender of last resort for the banking system. For my inflation-worrying friends out there, I say we can deal with that issue if it remerges sometime in the future. After financial stabilization, the new cash can be withdrawn and the fed funds target can be readjusted.
All I’m saying is first things first. That means stabilizing the banking system and accommodating the huge cash demands that have arisen. Right now, the system is virtually frozen.
One last thought: Talking with my great pal Jerry Bowyer this morning, we came up with an idea for President Bush. He needs to show leadership by meeting with Ben Bernanke, either in Washington or Texas. Remember, during the rough days of 1981-82, President Reagan met with Paul Volcker in the Oval Office. Reagan gave Volcker the green light to do whatever was necessary to curb inflation.
Today the problem is deflation — more specifically, credit deflation. So let Mr. Bush and Mr. Bernanke (and Mr. Paulson over at Treasury) talk among themselves. Let them hammer out a plan to stop the credit deflation and the financial emergency. After that, Bernanke can face the cameras (as suggested by former Federal Reserve governor Wayne Angell on Kudlow & Company last night) and announce his new policy.
This is a solvable problem. The economy is in relatively good shape. Stocks are still at a relatively high level. The unemployment rate is low. The vital economic signs are positive. But we need a credit fix. We need to restore banking confidence. Right now.
Wednesday, August 15, 2007
A Temporary Power Outage
Wall Street remains caught in a tizzy over a power outage in the credit markets. But Main Street is in fine economic shape, according to the latest reports out of Washington.
Industrial production — one of the most important coincident indicators out there — is steadily rebounding. Overall, it’s up 2.9 percent annually over the past three months. Manufacturing is up 4.7 percent. Auto output has increased 19.4 percent. Computers and office equipment are up a whopping 25 percent.
These are big numbers. And Americans are buying what these businesses are producing. Overall retail sales are up 4.8 percent for the past three months at an annual rate....
Click here to continue reading my latest syndicated column arguing that the financial liquidity squeeze triggered by the sub-prime virus is a very difficult near-term problem.
Industrial production — one of the most important coincident indicators out there — is steadily rebounding. Overall, it’s up 2.9 percent annually over the past three months. Manufacturing is up 4.7 percent. Auto output has increased 19.4 percent. Computers and office equipment are up a whopping 25 percent.
These are big numbers. And Americans are buying what these businesses are producing. Overall retail sales are up 4.8 percent for the past three months at an annual rate....
Click here to continue reading my latest syndicated column arguing that the financial liquidity squeeze triggered by the sub-prime virus is a very difficult near-term problem.
Wednesday Night Lineup
On CNBC's Kudlow & Company this evening:Our guests will lend their perspective on today's stock market sell-off.
Our stock market guests:
*David Doll, president & CEO at Kanaly Trust Company
*Joe Battipaglia, CIO at Ryan Beck
*Robert Schiller, professor of economics at Yale University
*Stefan Abrams, Bryden-Abrams Investment Management managing partner
Our economic panel:
*Bob McTeer, former head of the Federal Reserve Bank of Dallas
*Wayne Angell, former Federal Reserve Governor
*Michael Mussa, senior fellow at The Peterson Institute
Also...
*Joe LaVorgna, chief U.S. economist at Deutsche Bank
*Robert Stein, senior economist at First Trust Advisors
*John Ryding, chief economist at Bear Stearns
We will also discuss the latest U.S. terror threats with Roger Cressey, former counterterrorism official in the Clinton and Bush administrations.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Perspective
"...Currently there are about 44 million mortgages in the U.S., and less than 14 percent of them are sub-prime. And only about 13 percent of those are late on payments, with the majority of late payers working through their problems with the banks.
So, all in all, when you work through the details and get down to the number that really matters, only about 0.6 percent of U.S. mortgages are currently in foreclosure. That’s up a hair from roughly 0.5 percent last year. That’s it...." -Economist, author, and Kudlow & Company guest Jerry Bowyer's recent op-ed on the supposed housing crisis.
Jerry is dead right on this issue.
So is another familiar face on Kudlow & Company...Ben Stein. His dynamite "Chicken Little" article in The New York Times this past weekend hit the nail on the head.
Both are well worth a read.
Tuesday, August 14, 2007
Tuesday Night Lineup
On CNBC's Kudlow & Company this evening:We will begin tonight's program with a look at today's steep stock market selloff. CNBC's Bob Pisani will get things rolling with a report from the NYSE.
STOCK MARKET...Our market pros will weigh in with their perspective on what lies ahead in the stock market and economy.
On board:
*Barry Ritholtz, president of Ritholtz Research & Analytics
*John Rutledge, chairman of Rutledge Capital
*Herb Greenberg, MarketWatch senior columnist & CNBC contributor
*Jim Lacamp, portfolio manager & financial adviser for RBC Dain Rauscher
David Malpass, former deputy assistant secretary of the Treasury under President Reagan and current chief economist at Bear Stearns will join in the debate.
THE RETURN OF IMUS...Jed Babbin, former deputy undersecretary of defense/editor of Human Events/author of the book "In the Words of Our Enemies" will square off with Air America Radio host Thom Hartman.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
More on What Was the SEC Thinking
This morning’s Wall Street Journal features a front-page story in the Money & Investing section on the SEC’s lousy idea to repeal the “uptick” rule on short sales.
I wrote about this yesterday:
“…Is it purely a coincidence that Chris Cox’s new SEC “no uptick” rule made its debut at the same time that stock market volatility has gone gangbusters? Are hedge fund traders shorting stocks on down ticks? This could be adding huge momentum to downsized price movement. It could also be putting ordinary mom and pops investors on Main Street at great risk to the machinations of Wall Street professionals…”
Maybe all this attention will get Chris Cox’s crew over at the SEC to reevaluate revoking a rule that worked well for seventy years.
Hats off to my old pal, money manager Mike Holland for bringing this to my attention.
I wrote about this yesterday:
“…Is it purely a coincidence that Chris Cox’s new SEC “no uptick” rule made its debut at the same time that stock market volatility has gone gangbusters? Are hedge fund traders shorting stocks on down ticks? This could be adding huge momentum to downsized price movement. It could also be putting ordinary mom and pops investors on Main Street at great risk to the machinations of Wall Street professionals…”
Maybe all this attention will get Chris Cox’s crew over at the SEC to reevaluate revoking a rule that worked well for seventy years.
Hats off to my old pal, money manager Mike Holland for bringing this to my attention.
Monday, August 13, 2007
Monday Night Lineup
On CNBC's Kudlow & Company this evening:CNBC's Bob Pisani will get us started with a live report from NYSE floor.
RUDY GIULIANI INTERVIEW...America's mayor will join me in a one-on-one interview covering the economy, his presidential campaign, and much more.
A LOOK AT THE MARKETS...Our market panel will offer their insight on all the latest news and developments.
On board:
*David Kotok, co-founder & CIO of Cumberland Advisors
*Jack Bouroudjian, Brewer Investment Group principal
*Jerry Bowyer, economic advisor to Blue Vase Capital Management and author of "The Bush Boom"
MIKE HUCKABEEE INTERVIEW...The former Arkansas governor and GOP presidential hopeful will join us to discuss his fair tax proposal and his 2nd place finish in the Iowa straw poll.
TIME FOR THE FAIR TAX?...Jerry Bowyer will stick around to debate with The Wall Street Journal's Steve Moore.
Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.
Two Big Interviews on Kudlow & Company Tonight
Two big interviews with two GOP presidential hopefuls on tonight’s Kudlow & Company— former New York City mayor Rudy Giuliani and former Arkansas Gov. Mike Huckabee will both join me in separate interviews.
Huckabee rode to a rather strong 2nd place finish this past weekend in the Iowa straw poll, surprising pundits on the strength of his fair tax proposal to abolish the income and payroll taxes and put in a national sales tax. We’ll of course spend some time discussing his fair tax plan.
As for Mr. Giuliani, America’s mayor is still in the lead as the GOP front-runner. We’ll talk about how a President Giuliani might go about solving the subprime mortgage problem among other topics.
Same time, same place -- CNBC at 5pm ET.
Huckabee rode to a rather strong 2nd place finish this past weekend in the Iowa straw poll, surprising pundits on the strength of his fair tax proposal to abolish the income and payroll taxes and put in a national sales tax. We’ll of course spend some time discussing his fair tax plan.
As for Mr. Giuliani, America’s mayor is still in the lead as the GOP front-runner. We’ll talk about how a President Giuliani might go about solving the subprime mortgage problem among other topics.
Same time, same place -- CNBC at 5pm ET.
What Was the SEC Thinking?
Savvy veteran investor Mike Holland keeps asking a question that no one seems to be asking, much less answering: Why in the world did the SEC revoke the “uptick” rule in early July?
Famous short seller and patriarch of the Kennedy clan, Joe Kennedy, created the uptick rule over seventy years ago during his tenure as FDR’s first SEC chairman. While many likened Kennedy’s stint to a fox guarding the hen house, Kennedy certainly knew how to stop the bear raiders from trashing the stock market.
The uptick rule was put into place forbidding traders from shorting stocks on a price downtick. Until last month, if you wanted to short a stock, you needed to wait for an uptick in the share price. This move stymied potential bear raids on stocks. It worked for over seven decades. Many Wall Street veterans also believe it dramatically reduced stock market volatility.
In today’s context, is it purely a coincidence that Chris Cox’s new SEC “no uptick” rule made its debut at the same time that stock market volatility has gone gangbusters? Are hedge fund traders shorting stocks on down ticks? This could be adding huge momentum to downsized price movement. It could also be putting ordinary mom and pops investors on Main Street at great risk to the machinations of Wall Street professionals.
Nobody knows for sure what’s going on here. I’d like to get some comments on this. Meanwhile, I’m still looking for more info on this whole point.
But it seems to me that abolishing the uptick rule was an unbelievably lousy idea by Cox’s SEC. It appears the rule’s revocation may have exaggerated downside pressure on the stock market.
More to be revealed later...
On a different point, today’s 0.6 percent increase in core retail sales -- which comes to 7.7 percent at an annual rate for the three months ending in July, and 5.8 percent for the last 12 months -- shows clearly that neither the consumer nor the economy is dead.
As I wrote in my most recent syndicated column ("Will Main Street Bail Out Wall Street?"), profitable U.S. businesses and hard working Americans are producing plenty of economy wide income to weather this subprime housing storm.
Famous short seller and patriarch of the Kennedy clan, Joe Kennedy, created the uptick rule over seventy years ago during his tenure as FDR’s first SEC chairman. While many likened Kennedy’s stint to a fox guarding the hen house, Kennedy certainly knew how to stop the bear raiders from trashing the stock market.
The uptick rule was put into place forbidding traders from shorting stocks on a price downtick. Until last month, if you wanted to short a stock, you needed to wait for an uptick in the share price. This move stymied potential bear raids on stocks. It worked for over seven decades. Many Wall Street veterans also believe it dramatically reduced stock market volatility.
In today’s context, is it purely a coincidence that Chris Cox’s new SEC “no uptick” rule made its debut at the same time that stock market volatility has gone gangbusters? Are hedge fund traders shorting stocks on down ticks? This could be adding huge momentum to downsized price movement. It could also be putting ordinary mom and pops investors on Main Street at great risk to the machinations of Wall Street professionals.
Nobody knows for sure what’s going on here. I’d like to get some comments on this. Meanwhile, I’m still looking for more info on this whole point.
But it seems to me that abolishing the uptick rule was an unbelievably lousy idea by Cox’s SEC. It appears the rule’s revocation may have exaggerated downside pressure on the stock market.
More to be revealed later...
On a different point, today’s 0.6 percent increase in core retail sales -- which comes to 7.7 percent at an annual rate for the three months ending in July, and 5.8 percent for the last 12 months -- shows clearly that neither the consumer nor the economy is dead.
As I wrote in my most recent syndicated column ("Will Main Street Bail Out Wall Street?"), profitable U.S. businesses and hard working Americans are producing plenty of economy wide income to weather this subprime housing storm.
Friday, August 10, 2007
Will Main Street Bail Out Wall Street?
The Wall Street brainiacs are panicked about sub-prime mortgages and the current stock market correction. But Main Street investors — with their plentiful incomes and longer-term stock market horizons — may ultimately bail them out.
Main Street rescuing Wall Street? It’s a compelling thought — not only for the stock market, but the economy at large.
While Wall Street was busy conjuring up high-yielding bond packages that were heavily invested in unsustainable sub-prime mortgages — and distributing these collateralized debt obligations to big institutional investors around the world — Main Street was focused on the real economics of our nation. To this day, the American labor force is going to work, running the millions of small owner-operated companies that provide the wellspring of our prosperity. And Main Street is benefiting from an unprecedented global boom that is stocking our stores with affordable goods and creating plentiful new jobs as U.S. firms service the rise of new export markets.
With a record 146 million men and women working, and the unemployment rate at a historically low 4.6 percent, the American labor force has increased its after-tax real income by a whopping $257 billion. Nominal wages for non-supervisory workers alone have sprouted by $296 billion over the past year, according to Wall Street economist David Malpass. Average compensation per hour has grown 5.2 percent.
According to economist Joe LaVorgna, these high-income trends continue right to the present day. His tracking of employee tax withholding receipts collected daily by the U.S. Treasury shows 6 to 7 percent gains through early August.
All of this suggests that when adjustable rate mortgages are reset in the coming months and years, our large working population has the resources to handle it.
The pattern is the same for American business. After-tax corporate profits have grown $578 billion to $1.1 trillion over the past five years, which is why jobs, the economy, and the stock market have performed so well. Very simply, profitable businesses are creating the jobs that are providing the incomes for families to spend. It’s an enduring story: Second-quarter profits for S&P 500 companies increased more than twice what Wall Street expected.
Meanwhile, the Federal Reserve reports that businesses don’t even need new loans. Corporate cash flow is so strong that firms are generating $987 billion in funds internally, which is actually more than the $973 billion they are investing in capital goods for new plants, equipment, and office buildings.
Bottom line: While the sub-prime mortgage virus has temporarily infected banks, hedge funds, insurance companies, and other institutions, most of Middle America is doing just fine, thank you very much.
Sheila Bair, the very smart chair of the Federal Deposit Insurance Corporation, told me in an interview that 85 percent of the outstanding sub-prime mortgages at her member banks are being serviced on time. She also reports that the banking system is highly profitable and that capital adequacy is oversubscribed. Others report that less than 1 percent of the entire mortgage total in this country is in default, a minuscule amount.
The biggest problem in the stock market is that the sub-prime virus has caused a temporary credit and trading freeze. Markets have already devalued mortgage bond prices, but the banks are loath to acknowledge price drops that would translate into sizable third-quarter profit losses. This is silly and shortsighted. Countrywide, for example, the nation’s largest mortgage lender, has seen its stock drop by 40 percent; Bear Stearns has fallen 35 percent.
The sooner financial companies liquidate their losses, the faster markets will return to normalcy. The system is deleveraging, which in the long-term is a very healthy correction. Leveraged corporate loans are actually starting to trade-up once again, undoubtedly reflecting the money-good profits behind them.
Federal Reserve officials believe we have a temporary liquidity issue, not a solvency crisis. So, at the prevailing interest-rate target, the Fed and other central banks are prudently injecting $131 billion of new cash to “facilitate the orderly functioning” of markets. Fed chairman Ben Bernanke has the story right.
And so does President Bush, who is arguing against government bailouts, which would wind up rewarding banks, hedge funds, and unscrupulous lenders for their poor judgment. (Do U.S. taxpayers really want to finance France’s BNP Paribas?) Market forces will see us through this correction. Mr. Bush is also on the money with his opposition to any and all tax increases, which would damage the work and business incentives that have been such a success in Middle America.
Nobody likes stiff stock market corrections. But if folks step back a bit they’ll see the many positives — the jobs, the incomes, and the profits — that will carry us through this difficult period.
They’ll see Main Street — working and prospering.
Main Street rescuing Wall Street? It’s a compelling thought — not only for the stock market, but the economy at large.
While Wall Street was busy conjuring up high-yielding bond packages that were heavily invested in unsustainable sub-prime mortgages — and distributing these collateralized debt obligations to big institutional investors around the world — Main Street was focused on the real economics of our nation. To this day, the American labor force is going to work, running the millions of small owner-operated companies that provide the wellspring of our prosperity. And Main Street is benefiting from an unprecedented global boom that is stocking our stores with affordable goods and creating plentiful new jobs as U.S. firms service the rise of new export markets.
With a record 146 million men and women working, and the unemployment rate at a historically low 4.6 percent, the American labor force has increased its after-tax real income by a whopping $257 billion. Nominal wages for non-supervisory workers alone have sprouted by $296 billion over the past year, according to Wall Street economist David Malpass. Average compensation per hour has grown 5.2 percent.
According to economist Joe LaVorgna, these high-income trends continue right to the present day. His tracking of employee tax withholding receipts collected daily by the U.S. Treasury shows 6 to 7 percent gains through early August.
All of this suggests that when adjustable rate mortgages are reset in the coming months and years, our large working population has the resources to handle it.
The pattern is the same for American business. After-tax corporate profits have grown $578 billion to $1.1 trillion over the past five years, which is why jobs, the economy, and the stock market have performed so well. Very simply, profitable businesses are creating the jobs that are providing the incomes for families to spend. It’s an enduring story: Second-quarter profits for S&P 500 companies increased more than twice what Wall Street expected.
Meanwhile, the Federal Reserve reports that businesses don’t even need new loans. Corporate cash flow is so strong that firms are generating $987 billion in funds internally, which is actually more than the $973 billion they are investing in capital goods for new plants, equipment, and office buildings.
Bottom line: While the sub-prime mortgage virus has temporarily infected banks, hedge funds, insurance companies, and other institutions, most of Middle America is doing just fine, thank you very much.
Sheila Bair, the very smart chair of the Federal Deposit Insurance Corporation, told me in an interview that 85 percent of the outstanding sub-prime mortgages at her member banks are being serviced on time. She also reports that the banking system is highly profitable and that capital adequacy is oversubscribed. Others report that less than 1 percent of the entire mortgage total in this country is in default, a minuscule amount.
The biggest problem in the stock market is that the sub-prime virus has caused a temporary credit and trading freeze. Markets have already devalued mortgage bond prices, but the banks are loath to acknowledge price drops that would translate into sizable third-quarter profit losses. This is silly and shortsighted. Countrywide, for example, the nation’s largest mortgage lender, has seen its stock drop by 40 percent; Bear Stearns has fallen 35 percent.
The sooner financial companies liquidate their losses, the faster markets will return to normalcy. The system is deleveraging, which in the long-term is a very healthy correction. Leveraged corporate loans are actually starting to trade-up once again, undoubtedly reflecting the money-good profits behind them.
Federal Reserve officials believe we have a temporary liquidity issue, not a solvency crisis. So, at the prevailing interest-rate target, the Fed and other central banks are prudently injecting $131 billion of new cash to “facilitate the orderly functioning” of markets. Fed chairman Ben Bernanke has the story right.
And so does President Bush, who is arguing against government bailouts, which would wind up rewarding banks, hedge funds, and unscrupulous lenders for their poor judgment. (Do U.S. taxpayers really want to finance France’s BNP Paribas?) Market forces will see us through this correction. Mr. Bush is also on the money with his opposition to any and all tax increases, which would damage the work and business incentives that have been such a success in Middle America.
Nobody likes stiff stock market corrections. But if folks step back a bit they’ll see the many positives — the jobs, the incomes, and the profits — that will carry us through this difficult period.
They’ll see Main Street — working and prospering.
Friday Night Lineup
On CNBC's Kudlow & Company this evening:CNBC's Scott Wapner will start things off with a quick report from the NYSE.
STOCK MARKET PERSPECTIVE...Our market and economic mavens will offer up their latest insights.
*Wayne Angell, former Federal Reserve Governor
*Bill Ford, former Federal Reserve Bank of Atlanta President
*Larry Lindsey, former director of the National Economic Council
*Michael Cuggino, Permanent Portfolio Fund
*Don Luskin, Trendmacrolytics
*Michael Panzner, author of "Financial Armageddon"
YOUR MONEY, YOUR VOTE with Congressman Ron Paul, Republican presidential candidate.
WASHINGTON TO WALL STREET with Steve Moore, WSJ editorial board, and Jared Bernstein, Economic Policy Institute.
Please tune in to CNBC's "Kudlow & Company" tonight at 5:00 p.m. (EDT)
Thursday, August 09, 2007
Thursday Night Lineup
On CNBC's Kudlow & Company this evening:CNBC's Scott Wapner will start things off with a quick report from the NYSE.
STOCK MARKET PERSPECTIVE...Our market and economic mavens will offer up their latest insights.
*Wayne Angell, former Federal Reserve governor
*Barry Ritholtz, Ritholtz Research & Analytics
*Joe LaVorgna, Deutsche Bank, U.S. chief economist
*Michelle Girard, RBS Greenwich Capital senior economist
*John Browne, financial editor NewsMax Media
*Quentin Hardy, Forbes, Silicon Valley Bureau Chief
*Jerry Bowyer, National Review columnist
*James Dunigan, PNC Wealth Management CIO
Sheila Bair, chairman of the FDIC, will discuss the U.S. banking system and the current sub-prime issues.
Please tune in to CNBC's "Kudlow & Company" tonight at 5:00 p.m. (EDT)
Wednesday, August 08, 2007
Wednesday Night Lineup
On CNBC's Kudlow & Company this evening:CNBC's Scott Wapner will start things off with a quick report from the NYSE.
STOCK MARKET PERSPECTIVE...Our market mavens will offer up their latest insights on what's ahead for the markets.
*Joe Battipaglia -- Stifel, Nicolaus & Co.
*Doug Kass -- Seabreeze Partners
*Stefan Abrams -- Bryden-Abrams Investment
*Jim Awad -- Awad Asset Management
TRADE & THE ECONOMY with Commerce Secretary Carlos Gutierrez
YOUR MONEY, YOUR VOTE with Senator Joe Biden (Democratic presidential candidate)
Please join us tonight at 5:00 p.m. (EDT) on CNBC.
Tuesday, August 07, 2007
Tuesday Night Lineup
On CNBC's Kudlow & Company this evening:CNBC's Scott Wapner will start things off with a quick report from the NYSE.
STOCK MARKET PERSPECTIVE...Our market mavens will offer up their latest insights on what's ahead for the markets.
*Don Luskin, Trend Macrolytics
*John Rutledge, Rutledge Capital
*Barry Ritholtz, Ritholtz Research & Analytics
*Herb Greenberg, MarketWatch
FED/FOMC/ECONOMIC DISCUSSION with:
*Bob McTeer, former head of the Federal Reserve Bank of Dallas
*Wayne Angell, former Federal Reserve Governor
YOUR MONEY, YOUR VOTE political debate with:
*Jared Bernstein, Economic Policy Institute
*Steve Moore, Wall Street Journal
Please join us tonight at 5:00 p.m. (EDT) on CNBC.
Monday, August 06, 2007
Monday Night Lineup
On CNBC's Kudlow & Company this evening:CNBC's Scott Wapner will start things off with a quick report from the NYSE.
STOCK MARKET PERSPECTIVE...Our market mavens will offer up their latest insights on what's ahead for the markets.
*Steve Forbes, CEO of Forbes
*Gary Shilling, president of A. Gary Shilling & Co.
*Ben Stein, economist and author of "Yes, You Can Get a Financial Life"
*Jim Lacamp, portfolio manager, RBC Dain Rauscher
Donald Evans, CEO of the Financial Services Forum and Floyd Norris, New York Times financial correspondent, will join the market panel to discuss the current credit crunch and sub-prime issues.
SUNDAY UNSPUN with Frank Newport, Gallup Poll editor-in-chief
ETHANOL debate with Jeff Goodell, contributing editor of Rolling Stone, and Lou Ann Hammand, CEO of Carlist.com
Please tune in the CNBC's "Kudlow & Company" tonight at 5:00 p.m. (EDT)
Money-Good
Wall Street stabilized today with a triple-digit Dow gain as of this writing.
All those Bear Stearns rumors on Friday were totally over-baked and hyperactively alarmist. The firm is money-good and their daily security positions are being financed by their top lenders, including Citibank and J.P. Morgan.
What's more, the two credit rating agencies, Moody's and S&P, gave Bear Stearns a positive and sound outlook with respect to liquidity and credit. S&P downgraded because of the possible likelihood of lower earnings over the medium term. But S&P said liquidity is fine. All the negative speculation and rumors about the firm are just wrong.
Meanwhile, I still believe the Goldilocks economic scenario is alive and well. Jobs came in at 120,000 for the private sector and if government teachers had contributed 30,000 as usual (probably due to a statistical estimating error, they didn't), then the jobs report would have met consensus.
Unemployment has essentially been unchanged at 4.5 percent to 4.6 percent for a year. Weekly jobless claims are low. Wages are running ahead of inflation. The ISM report suggests at least 2.5 percent real growth. The global economic boom continues as commodity indexes are holding the high ground. In the U.S. business loans are growing about 12 percent.
Second quarter profits are running 15 percent on a market cap basis, 11 percent on a net income basis, and 9 percent for continuing operations. Those profits are two to three times higher than consensus expected. Corporate bond spreads and yields are normalizing, but sources tell me that new money is coming in from petro countries and China to bottom fish cheaper corporate loans. All of which are money-good.
The sub-prime mortgage virus is still the biggest issue and no one can be sure how large the total damage will be. But with a global boom abroad and Goldilocks at home, the stock market story is in better fundamental shape than so many commentators would have us believe.
Call it money-good.
All those Bear Stearns rumors on Friday were totally over-baked and hyperactively alarmist. The firm is money-good and their daily security positions are being financed by their top lenders, including Citibank and J.P. Morgan.
What's more, the two credit rating agencies, Moody's and S&P, gave Bear Stearns a positive and sound outlook with respect to liquidity and credit. S&P downgraded because of the possible likelihood of lower earnings over the medium term. But S&P said liquidity is fine. All the negative speculation and rumors about the firm are just wrong.
Meanwhile, I still believe the Goldilocks economic scenario is alive and well. Jobs came in at 120,000 for the private sector and if government teachers had contributed 30,000 as usual (probably due to a statistical estimating error, they didn't), then the jobs report would have met consensus.
Unemployment has essentially been unchanged at 4.5 percent to 4.6 percent for a year. Weekly jobless claims are low. Wages are running ahead of inflation. The ISM report suggests at least 2.5 percent real growth. The global economic boom continues as commodity indexes are holding the high ground. In the U.S. business loans are growing about 12 percent.
Second quarter profits are running 15 percent on a market cap basis, 11 percent on a net income basis, and 9 percent for continuing operations. Those profits are two to three times higher than consensus expected. Corporate bond spreads and yields are normalizing, but sources tell me that new money is coming in from petro countries and China to bottom fish cheaper corporate loans. All of which are money-good.
The sub-prime mortgage virus is still the biggest issue and no one can be sure how large the total damage will be. But with a global boom abroad and Goldilocks at home, the stock market story is in better fundamental shape than so many commentators would have us believe.
Call it money-good.
Friday, August 03, 2007
Friday Night Lineup
On CNBC's Kudlow & Company this evening:STOCK MARKET...Our market guests will weigh in with their perspective on what's ahead for the stock market and economy.
On board this evening:
*Joe Battipaglia, chief investment officer at Ryan Beck & Co.
*Fritz Meyer, senior investment officer with A I M Advisors
*David Doll, president & CEO at Kanaly Trust Company
Also, Lawrence Lindsey, president & CEO of the Lindsey Group, former chief economic adviser to President Bush will be aboard tonight, along with former Dallas Fed President Bob McTeer.
WASHINGTON TO WALL STREET...Rob Portman, outgoing White House Budget Director will join us from the White House with his take on a number of key issues.
We will also have an economic debate between Jared Bernstein, senior economist at the Economic Policy Institute and Steve Moore, Wall Street Journal editorial board member on a host of issues including today's jobs number.
BRIDGE COLLAPSE & U.S. INFRASTRUCTURE...Geoffrey Segal, director of privatization and government reform at Reason Foundation will offer his thoughts on this tragedy. He will be joined by Janet Kavinoky, director of transportation at the U.S. Chamber of Commerce.
Messrs. Bernstein and Moore will weigh in as well.
Please join us live at 5pm ET on CNBC for another free market edition of Kudlow & Company.
"Leviathan on the Potomac"
"Add Rep. Roy Blunt to the list of Republicans who say a fall federal shutdown cannot be avoided. Here's a suggestion: Many government departments, agencies and offices should be closed for good.The Politico reported this week that Blunt, House minority whip from Missouri, said a shutdown over the 2008 budget is "inevitable" because Democrats in Congress want to spend more than President Bush is willing .
Though it likely will hurt the party that ostensibly supports less government, we admire Bush's principle. The federal apparatus has become the Leviathan on the Potomac.
...When the federal government was shut down in 1996, "nonessential" federal workers were told to stay home. It sounds like a joke, but the fact the government employs nonessential workers is clear evidence that it has grown too big."
-From Investors Business Daily's great editorial ("Drain the Swamp") today criticizing the ridiculous growth of government.
The whole thing is worth a read...
Not Too Hot, Not Too Cold
The way some people in the mainstream media are talking about the stock market and economy these days, you’d think it was 1929 rather than 2007.
This kind of extreme pessimism is unwarranted.
Just this morning, for example, we got a Goldilocks jobs increase of 92,000. Wall Street was expecting 130,000, but actually private payrolls increased 120,000, while the government lost 28,000 jobs. That can’t be all that bad.
Meanwhile, the unemployment rate is 4.6 percent, where it's been bobbing about for many months now at a near historic low. Moreover, non-management wages are 3.9 percent above a year ago. This is well ahead of the inflation rate. It means the wallets of American workers are gaining real ground in real purchasing power.
Once again, the education gap figured prominently in the unemployment statistics. If you’re armed with a bachelor’s degree or higher, your jobless rate stands at 2.1 percent. But if you didn’t graduate from high school, your average unemployment rockets up to 7.1 percent.
As for all the gnashing of teeth over corporate and mortgage loans, capital markets are absorbing the credit backup. Stocks posted strong gains the last two days and the long awaited market correction is currently tallying a 4-5 percent loss—quite mild by historic standards. Year-to-date the Dow is still up 8 percent and 20 percent higher than one year ago. All this comes despite a constant Democratic barrage of threats over higher taxes and trade protectionism.
Down in Washington, government shutdown rumors have started trickling out from House Republican members like Minority Whip Roy Blunt. This is because Bush will veto $22 billion dollars of Democratic overspending on appropriations, in addition to all the tax hikes chronicled in today’s Wall Street Journal by editorialist Kim Strassel. It is my hope that President Bush and the GOP congressional minority hang tough on the tax and spend issue.
So, while the mainstream media peddles its flimsy “sky is falling” narrative, the reality is a 13,400 or so Dow, along with rising wages and a 4.6 unemployment rate, point to a prosperous nation. These are the key barometers. The Bush boom continues.
No one should buy into this 1929 scenario. It’s not happening.
This kind of extreme pessimism is unwarranted.
Just this morning, for example, we got a Goldilocks jobs increase of 92,000. Wall Street was expecting 130,000, but actually private payrolls increased 120,000, while the government lost 28,000 jobs. That can’t be all that bad.
Meanwhile, the unemployment rate is 4.6 percent, where it's been bobbing about for many months now at a near historic low. Moreover, non-management wages are 3.9 percent above a year ago. This is well ahead of the inflation rate. It means the wallets of American workers are gaining real ground in real purchasing power.
Once again, the education gap figured prominently in the unemployment statistics. If you’re armed with a bachelor’s degree or higher, your jobless rate stands at 2.1 percent. But if you didn’t graduate from high school, your average unemployment rockets up to 7.1 percent.
As for all the gnashing of teeth over corporate and mortgage loans, capital markets are absorbing the credit backup. Stocks posted strong gains the last two days and the long awaited market correction is currently tallying a 4-5 percent loss—quite mild by historic standards. Year-to-date the Dow is still up 8 percent and 20 percent higher than one year ago. All this comes despite a constant Democratic barrage of threats over higher taxes and trade protectionism.
Down in Washington, government shutdown rumors have started trickling out from House Republican members like Minority Whip Roy Blunt. This is because Bush will veto $22 billion dollars of Democratic overspending on appropriations, in addition to all the tax hikes chronicled in today’s Wall Street Journal by editorialist Kim Strassel. It is my hope that President Bush and the GOP congressional minority hang tough on the tax and spend issue.
So, while the mainstream media peddles its flimsy “sky is falling” narrative, the reality is a 13,400 or so Dow, along with rising wages and a 4.6 unemployment rate, point to a prosperous nation. These are the key barometers. The Bush boom continues.
No one should buy into this 1929 scenario. It’s not happening.
Thursday, August 02, 2007
Thursday Night Lineup
On CNBC's Kudlow & Company this evening:CNBC's Bob Pisani and Scott Wapner will start things off with two quick reports from the Nasdaq and the NYSE.
STOCK MARKET PERSPECTIVE...Our market mavens will offer up their latest insights on what's ahead for the markets.
*Barry Ritholtz, president of Ritholtz Research & Analytics
*Jason Trennert, chief investment strategist at Strategas Research Partners
*Jerry Bowyer, National Review Financial columnist and author of "The Bush Boom"
Silicon Valley whiz Roger McNamee, managing director and co-founder of Elevation Partners will also be aboard this evening's program.
INTRADE CEO INTERVIEW...CEO John Delaney from Intrade will join us live from London with insight on what his trading exchange market is predicting on political races and the economy.
MINNESOTA BRIDGE COLLAPSE...Sen. Norm Coleman (R-MN) will join us with his take on all the latest news.
CHINA PROTECTIONISM DEBATE...Economist Art Laffer, chairman of Laffer Associates, will weigh in along with former Michigan Governor John Engler, president of the National Association of Manufacturers.
Please join us at 5pm ET tonight for another free market edition of Kudlow & Company.
China Bashing Baloney
Seventy-seven years ago, economists from both sides of the political aisle warned President Hoover not to sign the Smoot-Hawley protectionist trade bill—1,028 economists to be exact. Hoover didn't listen. He signed it and the Great Depression ensued.
Yesterday, the Club for Growth released a petition signed by 1,028 economists (once again—from both sides of the political aisle) advising Congress and the president against imposing retaliatory trade measures against China.
One of the signers, John Rutledge, joined me on Kudlow & Company last night with his unique perspective. John is a former Reagan economic adviser, chairman of Rutledge Capital, president of Mundell International University Business School in Beijing and the chief adviser to China's Silicon Valley governor. Simply put, he knows a thing or two about trade.
KUDLOW: Look, John, here's the deal. I want to challenge you a little bit—just to play devil's advocate. Economists love free trade, no question about it. Half of the signers today were Democrats. But Main Street may not love free trade. And you know the rap, John. Free trade, particularly with China, is costing Americans jobs and wage inequality. How do you respond to that?
RUTLEDGE: Baloney. That’s how I respond. Larry, Congress is the only whorehouse in America that loses money. Today they proved why. The Senate Banking Committee today passed a China-bashing bill 17-to-4. It wasn't just the Democrats, it's the Republicans too. We're having a race to the bottom now of politicians trying to get in front of that Main Street lynch mob you were describing with tax increases, with protectionism. People are scared. The world is changing fast. Politicians have chosen short-term political gain over long-term growth for the US and abroad. They should be ashamed of themselves.
KUDLOW: Okay. That's the usual mantra with Congress. I don't disagree with you. But on this point, let me go back to it. So many people have come to believe that trade deficits, large trade deficits with China are costing Americans jobs and lower wages and benefits, and therefore free trade is a bad idea. I mean, are the Democrats smarter than we think here? I'm not looking at it from the economists’ perspective, I'm looking at it from Main Street.
RUTLEDGE: I think the Democrats are very smart politically. They're not idiots. But they're doing a bad thing here intentionally to garner votes. Main Street doesn't think about free trade and long-term growth. And right now growth is what's in danger. We've got Obama, we've got Hillary and others, all competing to be the biggest foreigner basher we've got. That's just like what happened in 1930. This is a grave situation. The world is growing now faster than ever. The only risk is protectionism out of America. We've got to do something to stop it.
Yesterday, the Club for Growth released a petition signed by 1,028 economists (once again—from both sides of the political aisle) advising Congress and the president against imposing retaliatory trade measures against China.
One of the signers, John Rutledge, joined me on Kudlow & Company last night with his unique perspective. John is a former Reagan economic adviser, chairman of Rutledge Capital, president of Mundell International University Business School in Beijing and the chief adviser to China's Silicon Valley governor. Simply put, he knows a thing or two about trade.
KUDLOW: Look, John, here's the deal. I want to challenge you a little bit—just to play devil's advocate. Economists love free trade, no question about it. Half of the signers today were Democrats. But Main Street may not love free trade. And you know the rap, John. Free trade, particularly with China, is costing Americans jobs and wage inequality. How do you respond to that?
RUTLEDGE: Baloney. That’s how I respond. Larry, Congress is the only whorehouse in America that loses money. Today they proved why. The Senate Banking Committee today passed a China-bashing bill 17-to-4. It wasn't just the Democrats, it's the Republicans too. We're having a race to the bottom now of politicians trying to get in front of that Main Street lynch mob you were describing with tax increases, with protectionism. People are scared. The world is changing fast. Politicians have chosen short-term political gain over long-term growth for the US and abroad. They should be ashamed of themselves.
KUDLOW: Okay. That's the usual mantra with Congress. I don't disagree with you. But on this point, let me go back to it. So many people have come to believe that trade deficits, large trade deficits with China are costing Americans jobs and lower wages and benefits, and therefore free trade is a bad idea. I mean, are the Democrats smarter than we think here? I'm not looking at it from the economists’ perspective, I'm looking at it from Main Street.
RUTLEDGE: I think the Democrats are very smart politically. They're not idiots. But they're doing a bad thing here intentionally to garner votes. Main Street doesn't think about free trade and long-term growth. And right now growth is what's in danger. We've got Obama, we've got Hillary and others, all competing to be the biggest foreigner basher we've got. That's just like what happened in 1930. This is a grave situation. The world is growing now faster than ever. The only risk is protectionism out of America. We've got to do something to stop it.
Wednesday, August 01, 2007
Wednesday Night Lineup
On CNBC's Kudlow & Company this evening:MARKETS...CNBC's Bob Pisani and Scott Wapner will deliver two quick reports from the NYSE and the Nasdaq.
Our stock market panel tonight:
Joe LaVorgna, Chief U.S. Economist - Deutsche Bank
Russ Koesterich, senior portfolio manager - Barclays
Rich Karlgaard, publisher of Forbes Magazine
Kevin Divney, portfolio manager - Putnam Investments
Alison Deans, director of investment policy at Neuberger Berman
Michael Pento, market strategist - Delta Global Advisos
On Anti-Protectionism Protest in DC:
John Rutledge, founder of Rutledge Capital
Your Money, Your Vote:
John Harwood, CNBC political contributor
General Barry McCaffrey will discuss the Pat Tillman Hearings in DC
Please join us tonight @ 5:00 p.m. (eastern) on CNBC
1,028 Then and Now
1,028 economists who are against imposing retaliatory trade measures against China signed the Club for Growth petition that includes almost 50 percent Republicans and 50 percent Democrats. Bravo!
Seventy-seven years ago, 1,028 economists in both political parties petitioned Herbert Hoover to veto the Smoot-Hawley tariff bill. Hat tip to Greg Mankiw's blog site for reprinting the New York Times article.
While the Hoover-Smoot-Hawley tariff was a huge hike in tariff rates, and Dodd-Shelby and other Congressional bills would impose retaliatory duties unless China significantly raises its Yuan currency exchange rate, the potential trade war similarities are very worrisome. As was the case in the 1930s, legislation proposed today could spark a China trade war that conceivably could spread worldwide. Of course, this would put an end to the record-setting global economic boom.
The White House is opposed to any of these China bashing bills, but as yet the President has not indicated clearly that he would veto.
Senators Baucus and Grassley have a protectionist bill. House members Timothy Ryan (D-OH) and Duncan Hunter (R-CA) have a bill. And of course Sen. Chuck Schumer and Lindsey Graham started the anti-China ball rolling a couple of years ago.
Hats off to the Club for Growth for sponsoring their free trade petition. Trade barriers or tariffs amount to tax hikes on international commerce, which are just as bad as tax hikes on domestic work, saving, investment, and entrepreneurship. Both are growth-stopping.
Seventy-seven years ago, 1,028 economists in both political parties petitioned Herbert Hoover to veto the Smoot-Hawley tariff bill. Hat tip to Greg Mankiw's blog site for reprinting the New York Times article.
While the Hoover-Smoot-Hawley tariff was a huge hike in tariff rates, and Dodd-Shelby and other Congressional bills would impose retaliatory duties unless China significantly raises its Yuan currency exchange rate, the potential trade war similarities are very worrisome. As was the case in the 1930s, legislation proposed today could spark a China trade war that conceivably could spread worldwide. Of course, this would put an end to the record-setting global economic boom.
The White House is opposed to any of these China bashing bills, but as yet the President has not indicated clearly that he would veto.
Senators Baucus and Grassley have a protectionist bill. House members Timothy Ryan (D-OH) and Duncan Hunter (R-CA) have a bill. And of course Sen. Chuck Schumer and Lindsey Graham started the anti-China ball rolling a couple of years ago.
Hats off to the Club for Growth for sponsoring their free trade petition. Trade barriers or tariffs amount to tax hikes on international commerce, which are just as bad as tax hikes on domestic work, saving, investment, and entrepreneurship. Both are growth-stopping.
The Ethanol Boondoggle
Well, this is a first. In the three years I’ve been blogging, not once have I mentioned or linked to Rolling Stone magazine.
But Jann Wenner’s four-decade old pop magazine served up quite a dish recently—a definite must-read entitled, “Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles.”
The author calls ethanol, “dangerous, delusional bulls*it.”
This echoes my feelings exactly.
(A big thank you to Mark Perry who highlighted this story on his excellent Carpe Diem blog.)
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