Thursday, July 31, 2008
Palin on Deck
Tonight on CNBC I’ll be talking with Alaska Governor Sarah Palin. Obviously, Palin’s a leading candidate to be McCain’s veep. InTrade prediction markets have her at 20 percent, third behind Romney and Pawlenty. I’ll be talking to her about drill, drill, drill. Has she made any progress persuading McCain to drill in ANWR? And what’s the latest in her battle for a new Alaska pipeline? We’ll also talk about the Sen. Ted Stevens indictment, as well as Don Young (the other Alaska pork-barreler). I’m also going to ask her what it means to be a conservative these days.
Thursday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKET & ECONOMY...Our stock market and economic all-stars will discuss and debate all the latest news, trends and developments affecting investors including today's GDP report.
On board:
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Vince Farrell, managing director, Scotsman Capital
*Jerry Bowyer, chief economist at Benchmark Financial
*Mark Skousen, financial economist, author, editor of the financial advice newsletter Forecasts & Strategies
INTERVIEW WITH GOV. SARAH PALIN...Joining us from Juneau, Alaska will be Republican Governor Sarah Palin. We'll discuss her status in the McCain campaign veepstakes, drill, drill, drill, and more.
OBAMA VS. MCCAIN...Our Washington pros will offer their perspective on all the latest developments in the presidential campaign including what appears to be a ratcheting up of the rhetoric between the two candidates.
On board:
*Keith Boykin, New York Times bestselling author and former Clinton White House aide
*Deroy Murdoch, conservative syndicated columnist
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Drill, Drill, Drill: My Interview with Senator Jon Kyl
What follows below is an unofficial transcript of my interview last night with Senate Republican Whip Jon Kyl of Arizona.
Kudlow: All right, drill, drill, drill. Or not? So we welcome back Senate Republican Whip Jon Kyl of Arizona. Hopefully, he's going to give us the inside scoop. Senator, before I get started, I just want to play a quick sound of President Bush on this topic today.
[President Bush: “The need for congressional action is urgent. So I’ve lifted the executive restrictions on offshore exploration. I’ve done my part. And that means the only thing now standing between the American people and these vast oil resources is the United States Congress.”]
Kudlow: All right, since President Bush started to aggressively go for this drill, drill, drill, oil prices have come down a lot from near $150 to about $125 bucks. Senator Kyl it’s great to see you again sir.
Sen. Kyl: Thank you.
Kudlow: Now this thing has gone back and forth. It is a huge issue. It’s a political issue. It’s an economic issue. It’s a stock market issue, as I’m sure you know. Let me just ask you, late in the day, here’s what we got. Senator Harry Reid calls on [Republican Senate Leader Mitch] McConnell to work with him to organize a bipartisan energy summit. Mr. Kyl, can you tell us what that means?
Kyl: [Laughter] Well it’s Harry Reid’s way of trying to pass the blame to somebody else, when in fact, for the last two weeks, he has prevented us from getting amendments that would permit us to drill offshore.
You’re right about the President’s announcement. It immediately began to drive prices down. And if we were able to pass legislation that opened up some of the off coast and deep waters of the Gulf areas to exploration, you’d see those long prices go down even more. The reality is the American people understand we need more drilling. And certainly it would help the economy if we were to do that. But we’ve got to get by this congressional impasse that has prevented Republicans from being able to drill for more.
What Harry Reid also said, if I could Larry, is that while Democrats favor a lot of other things, the one thing they will not vote for is more drilling off our coasts.
Kudlow: How does Mr. Reid unequivocally rule out amendments regarding drill, drill, drill? Some kind of rollback of the moratorium? Or for example, some kind of compromise—we’ve had [Democratic] Senator Mary Landrieu of Louisiana on a couple times, she’s working with a group of five Democrats and five Republicans. She wants to include offshore drilling. She wants to include shale drilling, not ANWR. And she says some kind of CFTC regulation of speculators has to be part of it. Has Reid ruled out that gang of ten compromise?
Kyl: Well for right now. But I think there’s no doubt that if we’re not able to do anything before Congress recesses for August, that when we come back, this so-called gang of ten that is a bipartisan group that’s worked on a proposal, will get a vote on their proposal. And my guess is, having talked to some of their members, it’s something which could get pretty broad support on both sides of the aisle.
Kudlow: But when you say they’ll be a vote, look, this is Wednesday evening sir, you’ve got Thursday and Friday, you all go out Friday, would that vote come in the next 48 hours? Or do we have to wait for Godot to appear?
Kyl: Well the latter unfortunately. I think we’re talking about no votes on energy for the next two days. So this bipartisan bill would have to be proposed first part of September. But Larry, here’s the good news I think. Even though we haven’t been able to get amendments for drilling this week, when it should have happened, I think public opinion is now building behind this to such an extent, and it will continue to crescendo during the month of August, that it will be irresistible in September. And while it may not be quite strong enough now, by September it will be strong enough to have a good result.
Kudlow: Even tougher against drilling, House Speaker Nancy Pelosi. I mean, she just flatly again today said no way she’s gonna vote. Let me ask you. It’s a tactical question. I just want your judgment and your forecast. If the Senate got the kind of votes you’re talking about, a compromise vote, even though it might have to wait until after the recess to get it in September—might a Senate bill influence action on the floor of the House and stop the stonewalling in the House?
Kyl: It would have a significant influence. Whether or not it could break the hold that the far left has with Nancy Pelosi as Speaker would remain to be seen. But there are a bunch of Democrat Blue Dogs, and other Democrats, that I think would really like to drill. And combined with Republicans, I think we can get it done.
Kudlow: All right, Senator John Kyl. All the best sir. Thanks for coming back on. Appreciate it.
Kyl: Thank you Larry.
Kudlow: All right, drill, drill, drill. Or not? So we welcome back Senate Republican Whip Jon Kyl of Arizona. Hopefully, he's going to give us the inside scoop. Senator, before I get started, I just want to play a quick sound of President Bush on this topic today.
[President Bush: “The need for congressional action is urgent. So I’ve lifted the executive restrictions on offshore exploration. I’ve done my part. And that means the only thing now standing between the American people and these vast oil resources is the United States Congress.”]
Kudlow: All right, since President Bush started to aggressively go for this drill, drill, drill, oil prices have come down a lot from near $150 to about $125 bucks. Senator Kyl it’s great to see you again sir.
Sen. Kyl: Thank you.
Kudlow: Now this thing has gone back and forth. It is a huge issue. It’s a political issue. It’s an economic issue. It’s a stock market issue, as I’m sure you know. Let me just ask you, late in the day, here’s what we got. Senator Harry Reid calls on [Republican Senate Leader Mitch] McConnell to work with him to organize a bipartisan energy summit. Mr. Kyl, can you tell us what that means?
Kyl: [Laughter] Well it’s Harry Reid’s way of trying to pass the blame to somebody else, when in fact, for the last two weeks, he has prevented us from getting amendments that would permit us to drill offshore.
You’re right about the President’s announcement. It immediately began to drive prices down. And if we were able to pass legislation that opened up some of the off coast and deep waters of the Gulf areas to exploration, you’d see those long prices go down even more. The reality is the American people understand we need more drilling. And certainly it would help the economy if we were to do that. But we’ve got to get by this congressional impasse that has prevented Republicans from being able to drill for more.
What Harry Reid also said, if I could Larry, is that while Democrats favor a lot of other things, the one thing they will not vote for is more drilling off our coasts.
Kudlow: How does Mr. Reid unequivocally rule out amendments regarding drill, drill, drill? Some kind of rollback of the moratorium? Or for example, some kind of compromise—we’ve had [Democratic] Senator Mary Landrieu of Louisiana on a couple times, she’s working with a group of five Democrats and five Republicans. She wants to include offshore drilling. She wants to include shale drilling, not ANWR. And she says some kind of CFTC regulation of speculators has to be part of it. Has Reid ruled out that gang of ten compromise?
Kyl: Well for right now. But I think there’s no doubt that if we’re not able to do anything before Congress recesses for August, that when we come back, this so-called gang of ten that is a bipartisan group that’s worked on a proposal, will get a vote on their proposal. And my guess is, having talked to some of their members, it’s something which could get pretty broad support on both sides of the aisle.
Kudlow: But when you say they’ll be a vote, look, this is Wednesday evening sir, you’ve got Thursday and Friday, you all go out Friday, would that vote come in the next 48 hours? Or do we have to wait for Godot to appear?
Kyl: Well the latter unfortunately. I think we’re talking about no votes on energy for the next two days. So this bipartisan bill would have to be proposed first part of September. But Larry, here’s the good news I think. Even though we haven’t been able to get amendments for drilling this week, when it should have happened, I think public opinion is now building behind this to such an extent, and it will continue to crescendo during the month of August, that it will be irresistible in September. And while it may not be quite strong enough now, by September it will be strong enough to have a good result.
Kudlow: Even tougher against drilling, House Speaker Nancy Pelosi. I mean, she just flatly again today said no way she’s gonna vote. Let me ask you. It’s a tactical question. I just want your judgment and your forecast. If the Senate got the kind of votes you’re talking about, a compromise vote, even though it might have to wait until after the recess to get it in September—might a Senate bill influence action on the floor of the House and stop the stonewalling in the House?
Kyl: It would have a significant influence. Whether or not it could break the hold that the far left has with Nancy Pelosi as Speaker would remain to be seen. But there are a bunch of Democrat Blue Dogs, and other Democrats, that I think would really like to drill. And combined with Republicans, I think we can get it done.
Kudlow: All right, Senator John Kyl. All the best sir. Thanks for coming back on. Appreciate it.
Kyl: Thank you Larry.
Wednesday, July 30, 2008
Wednesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS & ECONOMY...Our stock market all-stars will discuss and debate all the latest news, trends and developments affecting investors.
On board:
*Dennis Gartman, economist & editor of the Gartman Letter
*Doug Kass, president, Seabreeze Partners Management
*Don Luskin, chief investment officer, Trend Macro
*Stefan Abrams, Bryden-Abrams Investment Management managing partner
DRILL, DRILL, DRILL...Arizona Senator Jon Kyl (R) will give us an update on all the latest energy and drilling developments coming out of Congress.
The market panel will rejoin us following our interview with Senator Kyl.
TRANSPORTATION & PRIVATE FUNDING...Transportation Secretary Mary Peters will give us an update on the Bush administration's call for new tolls on freeways and more private investment to finance road and mass-transit projects.
OBAMA VS. MCCAIN...Larry Sabato, Director of the Center for Politics, University of Virginia, will offer his insight on all the latest election developments.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
McCain Talks Straight on Fan-Fred Reform
This is Big Mac at his very best.
There will be no more business as usual for housing lenders Fannie Mae and Freddie Mac if John McCain is elected president. That’s McCain’s clear message in a recent hard-hitting op-ed in the St. Petersburg Times and in various straight-talk media interviews.
Politically powerful Fannie and Freddie may be popping champagne corks in Washington, where a congressional bailout package provides full government backing for their outsized management pay packages, massive political-contribution and lobbying practices, and private portfolio hedge-fund activities. These government-sponsored enterprises (GSEs) got just what they wanted, and they now have the power to pay more dividends to their shareholders without any caps on compensation.
But Big Mac is gonna put an end to this if he’s elected come November.
“Americans should be outraged at the latest sweetheart deal in Washington,” writes McCain. “Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It’s a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade.”
Fannie and Freddie represent the worst of Washington’s bailout fever. Using government power for private profit is how Wall Street Journal editor Paul Gigot puts it. Privatizing gains while socializing losses is the complaint registered by former House majority leader Dick Armey. Government semi-socialism is how I see it.
The GSEs spread political vigorish in turn for more power and more privilege. Just this year alone their portfolio caps were raised twice while their capital reserve requirements were lowered. And now, with an explicit government guarantee, unlimited credit lines, and the possibility of federal stock purchases, they’ll be GSEs on steroids. All this in the name of helping housing, the most favored political sector in the American economy.
Budget assistance for homebuyers is already staggering. The Housing and Urban Development department spends $52 billion a year. The home mortgage interest deduction is worth about $80 billion yearly. A capital-gains exclusion is estimated at $29 billion. And the local property-tax deduction comes to roughly $14 billion. That’s a total of $175 billion in annual assistance to the housing sector. And that’s before we get to the Fannie-Freddie bailout.
Some people talk about a so-called Marshall Plan to spur American energy independence. But for years we’ve had a Marshall Plan for housing. It’s enough already. There are other economic sectors worthy of investment.
John McCain has taken a strong reform position here, and he’s totally right. This is McCain at his very best. He argues that Fannie and Freddie employees manipulated financial reports to line the pockets of senior executives. He calls the GSEs a danger to financial markets. And he says if one dime of taxpayer money ends up in those institutions “the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists.”
He also argues for strong regulation of Fan and Fred “that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.”
McCain economic advisor Steve Forbes wants to breakup Fannie and Freddie into 10 or 12 companies, completely severing their ties to the government. With these private companies competing in the mortgage market, Forbes says the entire housing sector will be revived, with taxpayers off the hook for a change.
On the other hand, Treasury Secretary Henry Paulson is putting his reform hopes on new Fannie-Freddie regulator James Lockhart, who runs the Office of Federal Housing Enterprise Oversight. Lockhart is a reformist skeptic of Fannie and Freddie. But his term would only last until year-end. After that, his successor will be subject to Senate confirmation and a public grilling from the two banking committees, all while Fan and Fred pour money into the campaign coffers of the Democrats and Republicans serving on those committees.
Does this sound like true reform? Highly doubtful. In fact, the bailout bill should be completely rewritten to stipulate the kind of privatization program outlined by Sen. McCain.
Former Reagan Treasury official Peter Wallison has warned for years that Fannie and Freddie would blow up financial markets. Well, we just witnessed the blow-up. But now we should also blow up the Fannie-Freddie bailout. It’s not real reform.
Obama won’t do it. He says there must be an essential role for Fan and Fred. And Obama advisor Franklin Raines — the former Fannie Mae CEO who was forced to resign over accounting scandals — argues for the status quo. But McCain is talking real reform. Bravo for the Arizonan. He’s the real candidate of change.
There will be no more business as usual for housing lenders Fannie Mae and Freddie Mac if John McCain is elected president. That’s McCain’s clear message in a recent hard-hitting op-ed in the St. Petersburg Times and in various straight-talk media interviews.
Politically powerful Fannie and Freddie may be popping champagne corks in Washington, where a congressional bailout package provides full government backing for their outsized management pay packages, massive political-contribution and lobbying practices, and private portfolio hedge-fund activities. These government-sponsored enterprises (GSEs) got just what they wanted, and they now have the power to pay more dividends to their shareholders without any caps on compensation.
But Big Mac is gonna put an end to this if he’s elected come November.
“Americans should be outraged at the latest sweetheart deal in Washington,” writes McCain. “Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It’s a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade.”
Fannie and Freddie represent the worst of Washington’s bailout fever. Using government power for private profit is how Wall Street Journal editor Paul Gigot puts it. Privatizing gains while socializing losses is the complaint registered by former House majority leader Dick Armey. Government semi-socialism is how I see it.
The GSEs spread political vigorish in turn for more power and more privilege. Just this year alone their portfolio caps were raised twice while their capital reserve requirements were lowered. And now, with an explicit government guarantee, unlimited credit lines, and the possibility of federal stock purchases, they’ll be GSEs on steroids. All this in the name of helping housing, the most favored political sector in the American economy.
Budget assistance for homebuyers is already staggering. The Housing and Urban Development department spends $52 billion a year. The home mortgage interest deduction is worth about $80 billion yearly. A capital-gains exclusion is estimated at $29 billion. And the local property-tax deduction comes to roughly $14 billion. That’s a total of $175 billion in annual assistance to the housing sector. And that’s before we get to the Fannie-Freddie bailout.
Some people talk about a so-called Marshall Plan to spur American energy independence. But for years we’ve had a Marshall Plan for housing. It’s enough already. There are other economic sectors worthy of investment.
John McCain has taken a strong reform position here, and he’s totally right. This is McCain at his very best. He argues that Fannie and Freddie employees manipulated financial reports to line the pockets of senior executives. He calls the GSEs a danger to financial markets. And he says if one dime of taxpayer money ends up in those institutions “the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists.”
He also argues for strong regulation of Fan and Fred “that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.”
McCain economic advisor Steve Forbes wants to breakup Fannie and Freddie into 10 or 12 companies, completely severing their ties to the government. With these private companies competing in the mortgage market, Forbes says the entire housing sector will be revived, with taxpayers off the hook for a change.
On the other hand, Treasury Secretary Henry Paulson is putting his reform hopes on new Fannie-Freddie regulator James Lockhart, who runs the Office of Federal Housing Enterprise Oversight. Lockhart is a reformist skeptic of Fannie and Freddie. But his term would only last until year-end. After that, his successor will be subject to Senate confirmation and a public grilling from the two banking committees, all while Fan and Fred pour money into the campaign coffers of the Democrats and Republicans serving on those committees.
Does this sound like true reform? Highly doubtful. In fact, the bailout bill should be completely rewritten to stipulate the kind of privatization program outlined by Sen. McCain.
Former Reagan Treasury official Peter Wallison has warned for years that Fannie and Freddie would blow up financial markets. Well, we just witnessed the blow-up. But now we should also blow up the Fannie-Freddie bailout. It’s not real reform.
Obama won’t do it. He says there must be an essential role for Fan and Fred. And Obama advisor Franklin Raines — the former Fannie Mae CEO who was forced to resign over accounting scandals — argues for the status quo. But McCain is talking real reform. Bravo for the Arizonan. He’s the real candidate of change.
Drill, Drill, Drill: My Interview with Devon Energy CEO Larry Nichols
Stop all restrictions, just say no to cap and trade.
What follows below is an unofficial transcript of my interview last night with Devon Energy chairman & CEO Larry Nicols on the subject of oil shale. Devon Energy is a fabulous company. And I completely agree with Mr. Nichols. We should be lifting restrictions on oil shale and all of our energy sources.
Kudlow: All right. Drill, drill, drill. The incredible Barnett Shale on top of Dallas-Fort Worth is America’s biggest natural gas find. Here to tell us about this really great story is Larry Nichols, chairman and CEO of Devon Energy Corporation. He’s the one. He joins us now. Hello Larry. Thank you very much for coming on.
You know, I could talk about your stock which is up 270 percent over the last five years. Your profits are rising about 50 percent a year. But I want to talk about this incredible Barnett Shale. First of all sir, what’s shale? Describe to our viewers as quick as you can the shale story.
Nichols: Well the shale story—shale is a formation that is not like sand or limestone. It’s a dark, dense rock that historically the industry did not know how to complete. They knew gas was there, but they didn’t know how to get that gas out. In 2002, Devon established a position in the Barnett Shale, in the middle of Dallas-Fort Worth, the central part of Texas. And using technology that literally ten years ago did not exist have made ourselves the largest natural gas producer in Texas. We’re producing over billion cubic feet a day and using technology that did not exist ten years ago.
Kudlow: You know, I was reading—actually the first time I saw this sir, the New York Sun here in New York wrote a big story, a big editorial, about the Barnett Shale. So let me get this right. You’re sitting on top of Dallas-Fort Worth, schools, houses, airports. What’s the environmental impact? Because you know, a lot of greenies don’t want us to go after shale.
Nichols: Well most of it is actually not under Dallas. It’s more under Fort Worth in the western and southern and northern suburbs, and out into the prairie of Fort Worth. It’s an easy place to drill. It’s flat land. There are lots of oil and gas pipelines there. So it’s a very simple place to drill.
Kudlow: Have you decimated the local environment as a consequence of your exploration and drilling?
Nichols: [Laughter]. The local environment is as robust as anyplace in the world.
Kudlow: And you put a lot of money into it from what I gather.
Nichols: Our company alone will spend $1.5 billion dollars drilling wells in that area alone. That creates a tremendous amount of jobs; a tremendous amount of taxes for schools, and hospitals and roads. It really increases the wealth of that part of the world significantly.
Kudlow: The number that was in the editorial was 100,000 new jobs. That’s pretty hefty for Dallas-Fort Worth, central Texas.
Nichols: I have no doubt that’s a true number because there’s thousands of wells being drilled there. We’re up to about 3500 wells ourselves. The gas we’re producing is about 2 percent of the natural gas in the United States. It will heat something like 13,000 homes for an entire year out of that one field.
Kudlow: Now look it, even our friend Boone Pickens, who is sort of smooching with wind power, he says natural gas is essential to solving our energy problem. I want to ask you about that. Do you agree with Boone? You must because you’re doing this work. But can we convert the natural gas to transportation?
Nichols: That’s more challenging. However it’s used, natural gas is our cleanest burning fuel. It’s a fuel that we’re growing in the United States, even with all the restrictions we have on where we can drill. Our industry is still growing this fuel. And it’s going to be an important fuel for our country for a long time to come.
Kudlow: Now what about all the shale up in the Rocky Mountains? Some people are guesstimating that there might be 2 trillion barrels worth of oil up there. I think the low-end estimates are about 800 billion. Congress, in its wisdom, in late 2007, put a moratorium on extracting or drilling for oil and gas in the Rocky Shale. Isn’t that a dumb idea?
Nichols: All these restrictions we have on natural gas, on oil exploration, on coal, on nuclear, on wind, on all of our forms of energy, should not be restricted. We need to encourage all of them. We need to stop exporting jobs outside this country, exporting dollars outside this country to import oil and import gas. Our country has a tremendous amount of resources.
Kudlow: Finally, real quick. If Congress imposes cap-and-trade on your business, what will that do to it?
Nichols: It will have a very significant negative impact. Cap-and-trade is nothing more than a BTU tax. They don’t like to call it a tax. It’ll take dollars away from our industry. And that can only mean that we’ll drill less natural gas wells and prices will go up.
Kudlow: Larry Nichols, Devon Energy. You’re terrific sir. Good luck. Thanks very much.
What follows below is an unofficial transcript of my interview last night with Devon Energy chairman & CEO Larry Nicols on the subject of oil shale. Devon Energy is a fabulous company. And I completely agree with Mr. Nichols. We should be lifting restrictions on oil shale and all of our energy sources.
Kudlow: All right. Drill, drill, drill. The incredible Barnett Shale on top of Dallas-Fort Worth is America’s biggest natural gas find. Here to tell us about this really great story is Larry Nichols, chairman and CEO of Devon Energy Corporation. He’s the one. He joins us now. Hello Larry. Thank you very much for coming on.
You know, I could talk about your stock which is up 270 percent over the last five years. Your profits are rising about 50 percent a year. But I want to talk about this incredible Barnett Shale. First of all sir, what’s shale? Describe to our viewers as quick as you can the shale story.
Nichols: Well the shale story—shale is a formation that is not like sand or limestone. It’s a dark, dense rock that historically the industry did not know how to complete. They knew gas was there, but they didn’t know how to get that gas out. In 2002, Devon established a position in the Barnett Shale, in the middle of Dallas-Fort Worth, the central part of Texas. And using technology that literally ten years ago did not exist have made ourselves the largest natural gas producer in Texas. We’re producing over billion cubic feet a day and using technology that did not exist ten years ago.
Kudlow: You know, I was reading—actually the first time I saw this sir, the New York Sun here in New York wrote a big story, a big editorial, about the Barnett Shale. So let me get this right. You’re sitting on top of Dallas-Fort Worth, schools, houses, airports. What’s the environmental impact? Because you know, a lot of greenies don’t want us to go after shale.
Nichols: Well most of it is actually not under Dallas. It’s more under Fort Worth in the western and southern and northern suburbs, and out into the prairie of Fort Worth. It’s an easy place to drill. It’s flat land. There are lots of oil and gas pipelines there. So it’s a very simple place to drill.
Kudlow: Have you decimated the local environment as a consequence of your exploration and drilling?
Nichols: [Laughter]. The local environment is as robust as anyplace in the world.
Kudlow: And you put a lot of money into it from what I gather.
Nichols: Our company alone will spend $1.5 billion dollars drilling wells in that area alone. That creates a tremendous amount of jobs; a tremendous amount of taxes for schools, and hospitals and roads. It really increases the wealth of that part of the world significantly.
Kudlow: The number that was in the editorial was 100,000 new jobs. That’s pretty hefty for Dallas-Fort Worth, central Texas.
Nichols: I have no doubt that’s a true number because there’s thousands of wells being drilled there. We’re up to about 3500 wells ourselves. The gas we’re producing is about 2 percent of the natural gas in the United States. It will heat something like 13,000 homes for an entire year out of that one field.
Kudlow: Now look it, even our friend Boone Pickens, who is sort of smooching with wind power, he says natural gas is essential to solving our energy problem. I want to ask you about that. Do you agree with Boone? You must because you’re doing this work. But can we convert the natural gas to transportation?
Nichols: That’s more challenging. However it’s used, natural gas is our cleanest burning fuel. It’s a fuel that we’re growing in the United States, even with all the restrictions we have on where we can drill. Our industry is still growing this fuel. And it’s going to be an important fuel for our country for a long time to come.
Kudlow: Now what about all the shale up in the Rocky Mountains? Some people are guesstimating that there might be 2 trillion barrels worth of oil up there. I think the low-end estimates are about 800 billion. Congress, in its wisdom, in late 2007, put a moratorium on extracting or drilling for oil and gas in the Rocky Shale. Isn’t that a dumb idea?
Nichols: All these restrictions we have on natural gas, on oil exploration, on coal, on nuclear, on wind, on all of our forms of energy, should not be restricted. We need to encourage all of them. We need to stop exporting jobs outside this country, exporting dollars outside this country to import oil and import gas. Our country has a tremendous amount of resources.
Kudlow: Finally, real quick. If Congress imposes cap-and-trade on your business, what will that do to it?
Nichols: It will have a very significant negative impact. Cap-and-trade is nothing more than a BTU tax. They don’t like to call it a tax. It’ll take dollars away from our industry. And that can only mean that we’ll drill less natural gas wells and prices will go up.
Kudlow: Larry Nichols, Devon Energy. You’re terrific sir. Good luck. Thanks very much.
Tuesday, July 29, 2008
Tuesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET & ECONOMY…Our market all-stars will discuss and debate all the latest news, trends and developments affecting investors including today’s big stock market rally.
On board:
*Jerry Bowyer, chief economist at Benchmark Financial
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Dennis Kneale, CNBC media & technology editor
STEVENS GOES DOWN…We’ll discuss Alaska Sen. Ted Stevens indictment by a Washington federal grand jury on charges of hiding hundreds of thousands of dollars in gifts he received. Joining us to discuss Stevens' indictment, as well as the political fallout, will be John Fund from the Wall Street Journal and David Goodfriend, political commentator and former Clinton aide.
PRIMARY POLITICS…Our political pros will provide their latest Washington to Wall Street perspective on the race between Obama and McCain. Joining us will be Scott Rasmussen, president of Rasmussen Reports and Frank Newport, editor in chief of the Gallup Poll.
DEVON ENERGY CEO…Larry Nichols, chief executive of Devon Energy, will weigh in with his thoughts on moving toward U.S. energy independence including the development of oil shale.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Drill, Drill, Drill Strikes Again: Oil Drops $3
Isn’t it funny that news reports this morning showing that Sen. Harry Reid will in fact allow a drill, drill, drill amendment to come to the Senate floor seem to have triggered a $3 drop in oil to less than $122 a barrel. Is this a coincidence? I don’t think so. More like cause-and-effect.
Oil traders aren’t stupid. There are a dozen Democrats in the Senate who will vote for drilling, and that means future energy supplies will rise. Coupled with falling oil demand, especially by motorists, that means lower prices. Even unleaded gas futures are now dropping to less than $3 a gallon. Add in a buck for local and state taxes on average, and pump prices will drop to under $4 a gallon.
So I guess those horrible oil speculators are not so horrible anymore. Since President Bush launched his drilling-moratorium offensive oil prices are down almost $30.
Even in the House, where Nancy Pelosi wants to save the planet, political pressures are building for a series of votes to expand drilling. Republicans are now linking Obama to Pelosi and Reid as the cause of high oil prices and the economic downturn. This is good politics and good economics.
It also reminds me that government matters a lot in fostering economic expectations. Take the gigantic housing bailout bill. Supposedly this was going to help banks recover from sinking sub-prime mortgage paper based on defaults and foreclosures. But as the bailout bill passed the House and the Senate going back to last Thursday, banks and other financial stocks have been clobbered. Know why? Lenders may be forced to take the very worst mortgage paper as part of the “loan modification” program. That means the banks will have to write down a lot more loans and loan principal.
I guess the moral of the story for the growing bailout crowd in Washington is be careful what you wish for. Or, remember the unintended consequences of hyperactive government.
Oil traders aren’t stupid. There are a dozen Democrats in the Senate who will vote for drilling, and that means future energy supplies will rise. Coupled with falling oil demand, especially by motorists, that means lower prices. Even unleaded gas futures are now dropping to less than $3 a gallon. Add in a buck for local and state taxes on average, and pump prices will drop to under $4 a gallon.
So I guess those horrible oil speculators are not so horrible anymore. Since President Bush launched his drilling-moratorium offensive oil prices are down almost $30.
Even in the House, where Nancy Pelosi wants to save the planet, political pressures are building for a series of votes to expand drilling. Republicans are now linking Obama to Pelosi and Reid as the cause of high oil prices and the economic downturn. This is good politics and good economics.
It also reminds me that government matters a lot in fostering economic expectations. Take the gigantic housing bailout bill. Supposedly this was going to help banks recover from sinking sub-prime mortgage paper based on defaults and foreclosures. But as the bailout bill passed the House and the Senate going back to last Thursday, banks and other financial stocks have been clobbered. Know why? Lenders may be forced to take the very worst mortgage paper as part of the “loan modification” program. That means the banks will have to write down a lot more loans and loan principal.
I guess the moral of the story for the growing bailout crowd in Washington is be careful what you wish for. Or, remember the unintended consequences of hyperactive government.
Monday, July 28, 2008
Monday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS & ECONOMY...Our stock market all-stars will discuss and debate all the latest news, trends and developments affecting investors including today's 239-point sell-off.
On board:
*Vince Farrell, managing director, Scotsman Capital
*Jim Lacamp, portfolio manager, RBC Dain Rauscher
*Gary Shilling, president of A. Gary Shilling & Co.
OBAMA'S ECONOMIC PLAN...Laura Tyson, former chairwoman of President Clinton's Council of Economic Advisers will be aboard to discuss.
MCCAIN'S ECONOMIC PLAN...Former eBay chief and McCain campaign co-chair Meg Whitman will join us in a one-on-one discussion.
PRIMARY POLITICS DEBATE...On to debate the Obama and McCain economic plans will be Jared Bernstein, senior economist at the Economic Policy Institute and the Wall Street Journal's Steve Moore.
DRILL, DRILL, DRILL...Sen. Mary Landrieu (D-LA) will join us from Washington with her take on the latest developments in the oil and energy debate.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Is Obama Freedom and Democracy Deficient?
Why is it that in all his statements in his recent foreign-policy trip to the Mideast and Europe, Sen. Obama never mentions the importance of spreading freedom and democracy around the world, and most especially in the very troublemaking nations that are so tied to terrorism that he has been discussing?
Perhaps I’m wrong about this. But I tried to read most of his speeches and I watched his television interviews, and I can’t find or don’t recall any references to freedom and democracy. What’s up with this?
And let me add, although Obama does mention terrorism, I do not recall him using the phrase “global war on terrorism,” or “war on terrorism,” or “protecting the U.S. from terrorist attacks.” I’m no expert on foreign policy, so I ask my colleagues at NRO to tell me what I’ve missed here. I’ll be happy to recant. But I continue to believe that the biggest reason to stop Iran, stabilize Iraq and Afghanistan, nail Osama and his evildoing friends in Pakistan, and generate some sort of protection for Israel against Hamas, Hezbollah, and the weak Palestinian government is a) to get the bad guys on their home turf before they get us and b) to spread freedom and democracy since democratic countries tend not to attack each other or us.
Perhaps I’m wrong about this. But I tried to read most of his speeches and I watched his television interviews, and I can’t find or don’t recall any references to freedom and democracy. What’s up with this?
And let me add, although Obama does mention terrorism, I do not recall him using the phrase “global war on terrorism,” or “war on terrorism,” or “protecting the U.S. from terrorist attacks.” I’m no expert on foreign policy, so I ask my colleagues at NRO to tell me what I’ve missed here. I’ll be happy to recant. But I continue to believe that the biggest reason to stop Iran, stabilize Iraq and Afghanistan, nail Osama and his evildoing friends in Pakistan, and generate some sort of protection for Israel against Hamas, Hezbollah, and the weak Palestinian government is a) to get the bad guys on their home turf before they get us and b) to spread freedom and democracy since democratic countries tend not to attack each other or us.
Friday, July 25, 2008
Friday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET & ECONOMY...Our stock market all-stars will discuss and debate all the latest news, trends and developments affecting investors including today's better than expected durable goods and new home sales reports.
On board:
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Michael Pento, Delta Global Advisors, senior market strategist
*Vince Farrell, managing director, Scotsman Capital
*Dennis Kneale, CNBC media & technology editor
UNRAVELING REAGAN?...On to debate whether the Reagan government deregulation revolution is coming to an end will be Jared Bernstein, senior economist at the Economic Policy Institute and Jerry Bowyer, chief economist at Benchmark Financial.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
If Things Are So Bad . . .
If the economy is in recession, why are business durable-goods orders and shipments booming? Non-defense capital goods (capex) excluding aircraft rose 1.4 percent in June, or 19 percent at an annual rate over the last three months. Capex shipments rose 0.7 percent in June, or 8 percent annualized over the last three months. Business looks pretty healthy to me. And non-financial profits in the second quarter are rising 12 percent. Even including depressed bank earnings, positive surprises for profits are well outstripping negative surprises.
And if we are in a housing depression, why have existing home sales in the hard-hit West (think California, Arizona, and Nevada) increased four straight months (plus 12 percent)? And why are they up 17 percent from the low in October? More important, nationwide median existing home prices have increased four straight months, from $196,000 to $215,000. That’s a 10 percent gain.
And if the humongous Freddie, Fannie, and FHA ($300 billion) housing-bailout bills are so important, why did bank, thrift, and other financial stocks register their worst losses in eight years yesterday?
Maybe the answers to these questions are a bit different from what the mainstream media are telling us. To wit, Phil Gramm was right: We are in a mental recession, not an actual recession. And the low-tax, free-trade, free-market, capitalist economy is a whole lot more resilient and durable than the pessimistas and declinists would have us believe.
Big-government bailouts — the likes of which we haven’t seen since the 1930s — might just make matters worse, rather than better, since they interfere with the workings of free markets. In relation to the bailouts of Fannie and Freddie, we are talking about privatizing gains while socializing losses. Or as Paul Gigot of the Wall Street Journal put it, we’re using government power to generate private profits. This is always a bad idea.
And if we are in a housing depression, why have existing home sales in the hard-hit West (think California, Arizona, and Nevada) increased four straight months (plus 12 percent)? And why are they up 17 percent from the low in October? More important, nationwide median existing home prices have increased four straight months, from $196,000 to $215,000. That’s a 10 percent gain.
And if the humongous Freddie, Fannie, and FHA ($300 billion) housing-bailout bills are so important, why did bank, thrift, and other financial stocks register their worst losses in eight years yesterday?
Maybe the answers to these questions are a bit different from what the mainstream media are telling us. To wit, Phil Gramm was right: We are in a mental recession, not an actual recession. And the low-tax, free-trade, free-market, capitalist economy is a whole lot more resilient and durable than the pessimistas and declinists would have us believe.
Big-government bailouts — the likes of which we haven’t seen since the 1930s — might just make matters worse, rather than better, since they interfere with the workings of free markets. In relation to the bailouts of Fannie and Freddie, we are talking about privatizing gains while socializing losses. Or as Paul Gigot of the Wall Street Journal put it, we’re using government power to generate private profits. This is always a bad idea.
Thursday, July 24, 2008
Thursday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:INSIDE TODAY'S HOUSING NUMBERS, STOCK MARKET & ECONOMY...Our stock market all-stars will discuss and debate all the latest news and developments affecting investors including whether today's housing numbers might actually be hiding some good news.
On board:
*Noah Blackstein, portfolio manager at Dynamic Mutual Funds
*Jack Gage, Forbes magazine associate editor
*Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners
*Stefan Abrams, Bryden-Abrams Investment Management managing partner
SENATE OFFSHORE ACCOUNT PROBE...Sen. Chuck Grassley (R., Iowa) ranking member of the Senate Finance Committee, will discuss tax evasion in offshore accounts.
PRIMARY POLITICS...Our political panel will offer its perspective on all the latest presidential election developments including Obama's speech in Berlin earlier today.
On board:
*Scott Rasmussen, pollster & president of Rasmussen Reports
*Jay Campbell, pollster, Hart Research
*Kellyanne Conway, pollster & president of the polling company
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
McCain on Fan and Fred Is McCain at His Very Best
Senator John McCain hit a grand-slam homerun today with an op-ed piece (“Take taxpayers off hook for rot at Fannie, Freddie”) that debunks the federal worship of Fannie Mae and Freddie Mac, and takes off the table the possibility that these GSEs will get a strong dose of steroids if he is elected president. This is a dramatic statement that completely differentiates his view from the go-along, get-along policy of Sen. Obama.
“Americans should be outraged at the latest sweetheart deal in Washington,” writes McCain. “Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It’s a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade.”
This is right on the money. This is the straight-talk McCain as true Washington reformer. The senator goes right to the heart of what Wall Street Journal editor Paul Gigot describes as a bad mix of government power backing private profit.
McCain goes on to argue that Fannie employees manipulated financial reports to line the pockets of senior executives. Freddie did likewise. Big Mac calls them a danger to financial markets. He says if one dime of taxpayer money ends up in those institutions “the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists.”
Sen. McCain argues that government backing is no longer needed for their original mission. He writes, “There are lots of banks, savings and loans, and other financial institutions that can do this job.”
Later on in the piece he argues for strong regulation of Fan and Fred “that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.”
This is as clear a statement as I’ve seen any politician make regarding the absolute folly of the GSE bailout that unfortunately will probably be passed by the Congress before the week is out. This is McCain at his very best. This is shot-across-the-bow stuff. I hope the voting public gets the message.
“Americans should be outraged at the latest sweetheart deal in Washington,” writes McCain. “Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It’s a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade.”
This is right on the money. This is the straight-talk McCain as true Washington reformer. The senator goes right to the heart of what Wall Street Journal editor Paul Gigot describes as a bad mix of government power backing private profit.
McCain goes on to argue that Fannie employees manipulated financial reports to line the pockets of senior executives. Freddie did likewise. Big Mac calls them a danger to financial markets. He says if one dime of taxpayer money ends up in those institutions “the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists.”
Sen. McCain argues that government backing is no longer needed for their original mission. He writes, “There are lots of banks, savings and loans, and other financial institutions that can do this job.”
Later on in the piece he argues for strong regulation of Fan and Fred “that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.”
This is as clear a statement as I’ve seen any politician make regarding the absolute folly of the GSE bailout that unfortunately will probably be passed by the Congress before the week is out. This is McCain at his very best. This is shot-across-the-bow stuff. I hope the voting public gets the message.
The Media Are Missing the Housing Bottom
Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.
For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter.
And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months.
Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters.
It’s a pity the mainstream media keeps searching for more and more pessimism. The reality is a possible upturn in the housing trend, and at the very least we are getting a bottom. Stocks sold off 165 points largely on media reports of terrible home sales and prices. But I am hoping the market comes to its senses and realizes the data are a whole lot better.
And on top of all that, just as housing may be on the mend, Congress is about to ratify a huge FHA-based bailout that could total $42 billion. Congressional solons are putting up $300 billion to refinance and insure distressed loans through the Federal Housing Administration. But this dubious government agency, with a whole history of bad portfolio management, may wind up taking in the very worst loans on the books.
Of course, taxpayers are on the hook. More government semi-socialism.
For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter.
And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months.
Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters.
It’s a pity the mainstream media keeps searching for more and more pessimism. The reality is a possible upturn in the housing trend, and at the very least we are getting a bottom. Stocks sold off 165 points largely on media reports of terrible home sales and prices. But I am hoping the market comes to its senses and realizes the data are a whole lot better.
And on top of all that, just as housing may be on the mend, Congress is about to ratify a huge FHA-based bailout that could total $42 billion. Congressional solons are putting up $300 billion to refinance and insure distressed loans through the Federal Housing Administration. But this dubious government agency, with a whole history of bad portfolio management, may wind up taking in the very worst loans on the books.
Of course, taxpayers are on the hook. More government semi-socialism.
Drill, Drill, Drill: My Interview with Senator Mitch McConnell
Senator Mitch McConnell, in another virtuoso performance, said in no uncertain terms in a CNBC interview last night that the GOP is committed to drill, drill, drill. Interestingly, he said he is willing to do business with the Democratic leadership, and despite news reports to the contrary talks between him and Harry Reid are in fact going on. But if the Dems stonewall, then McConnell will take it to the people in a concerted national effort to make the point on drill, drill, drill and position the GOP for a comeback in the congressional elections this fall. Once again, the distinguished Republican Senate leader showed an awesome command of an issue as well as a clear strategic view on how to proceed. I hate to say he is underrated, but he is truly one of the top Republicans in the country. What follows is a transcript of the interview:
Kudlow: Our lead story tonight is the hammer and tongs, drill, drill, drill battle in Congress that could decide the fate of the November election, the economy, and stocks. Here to tell us about this historic battle is Republican Senate Leader Mitch McConnell of Kentucky. Mr. Leader, welcome back. Thank you sir for your time.
McConnell: Glad to be with you Larry.
Kudlow: Senator McConnell, there’s a lot of talk about a drilling deal that could be out there – energy speculation, trading speculation may be part of it. There was a 94-0 vote on a procedure. Where is this debate? Because this could really be a huge issue for stocks and the economy, and I reckon for the November election as well.
McConnell: Well there’s good news and bad news. The good news is we’re turning to the subject. The bad news is our Democratic friends think this is only a speculation problem. You know, the most famous rich Democrat in America, Warren Buffett, says it’s not a speculation problem; it’s a supply and demand problem. Boone Pickens has been down here promoting his plan which involves doing everything. He thinks we ought to do all of these things.
What our goal is as Senate Republicans is to get the Democrats to open this thing up. Let’s have real amendments on real issues. And at the top of the list, obviously, would be following the desire of over 70 percent of the American people to get the option to go into the Outer Continental Shelf. Right now 85 percent of the Outer Continental Shelf is off limits. [Democrats] have shut down all of the oil shale. We have three times the reserves of Saudi Arabia in oil shale, right here in America. A moratorium has been imposed by this Congress last year on that. We need to have votes on those amendments and see if we can do a better job of opening up our own resources and become significantly less dependent on Middle East oil.
Kudlow: Senator McConnell, let me pick you up on the moratorium idea. First of all, what would be in this? Would it be a total reversal of the moratorium that expires September 30th? Are we talking offshore drilling? Are we talking Alaska, ANWR. Are we talking shale?
McConnell: Well I think we ought to do, at the very least on offshore, is give states an option. A state like Virginia for example, which wants to go into the Outer Continental Shelf, is currently not permitted to do that. At a very minimum, we ought to allow states an option. Many of our members obviously think 50 miles and out, and that’s what we’re talking about, nobody by the way would see any of these oil rigs, because they’d be further out away from the shore. Why not give states the option at the minimum to do that?
And why in the world would we want to shut down oil shale when we have three times the oil reserves of Saudi Arabia right here on shore, on land, in the western United States? There are other things we ought to do as well. I’d like to see a vote on opening up a small portion of the Alaskan wilderness. I’d like to see an amendment on coal to liquid. We’d all like to promote nuclear power, particularly those who are concerned about climate change. There are a lot of things we need to do. And we need to do them now. The American people are demanding that we do it now.
Kudlow: There are reports that you were having negotiations with Senator Reid and the Democratic leadership in recent days over amendments to what I guess is some kind of anti-speculators bill. I’m not sure if that’s even right. But the report said that these negotiations broke down sir. Can you shed any light on that?
McConnell: No they continue. The first thing we want to make clear to the Democrats is that we want to get on this subject, and stay on this subject. We think they want to just pass some kind of bill on speculation that almost no one thinks would make a difference, and then move on to something else. We want to stay on this issue. We want to offer amendments that will make a difference. We hope that will encourage the American people that we’re finally going to get a handle on our own energy production and try to make a difference in the future, rather than handing our future over to Middle Eastern governments, many of whom are not friendly with us.
Kudlow: Senator, there’s a gang of ten out there, I’m sure you know about it. We interviewed Senator Mary Landrieu of Louisiana who’s one of the ten. They’re looking for a compromise deal to open lots of drilling opportunities offshore and onshore. Not Alaska, but I think the shale was included with some conservation measures. Sir are you working with the gang of ten? Might that be some support for your position?
McConnell: Well I certainly hope so. I’ve certainly encouraged this group. I think any Democrats we can find who are willing to come on board for additional drilling both on and offshore, I think that’s a good thing. And by the way, I want to emphasize that every member of my conference also is in favor of most of the measures you can think of to use less. For example, we’re enthusiastically in favor of incentivizing battery-driven cars. Many of my members are interested in natural gas, natural gas automobiles, which are driven all around the world, except here. We have a few here, but not nearly enough. We’re for both finding more and using less. Our Democratic friends, most of them, and I think Senator Landrieu may be an exception to that, are only interested in using less. They’re not interested in finding more. And that’s not enough to help solve this problem.
Kudlow: As you can imagine, the whole world is watching this debate. Since President Bush removed the executive moratorium, we’ve seen a precipitous drop in energy. Oil prices are off, I don’t know, more than $20 dollars, about 15 percent, just on the hope of greater energy supplies. So the whole world is watching this debate in the Senate and the House. Do you have any sense of a timetable for votes that would give us guidelines?
McConnell: Well we’re on the subject now. And our view, Republicans in the Senate’s view, is that we ought to stay on this subject until we do something worth doing. Something important that will send a signal, not only to the rest of the world, but to the American consumer that we intend to get a handle on this problem and make progress.
Kudlow: You know Senator, you and I have talked about your need to create a firewall against, perhaps, contingencies in the election coming up. 60 votes is the magic number. In your judgment, is this drill, drill, drill argument a key political issue? Could this in fact boost GOP hopes for November?
McConnell: Well it could. My first choice frankly is to get something done that’s important for the country. But if our friends on the other side are unwilling to increase domestic production, then we’re happy to take that to the people as a political issue this fall. First choice is to have an accomplishment; second choice is we take it to the American people. We think they’re on our side. We think they want us to expand American production, and to begin to solve this problem now.
Kudlow: When might the first votes occur? Are we talking tomorrow? Are we talking Friday? Are we talking actually before you go out for Labor Day?
McConnell: Yeah. Friday and then you know, if we stay on the subject, which is my goal, we’ll be still dealing with this next week.
Kudlow: All right, Senator Mitch McConnell. Thank you very much for the update sir. We appreciate it.
McConnell: Thank you Larry.
Kudlow: Our lead story tonight is the hammer and tongs, drill, drill, drill battle in Congress that could decide the fate of the November election, the economy, and stocks. Here to tell us about this historic battle is Republican Senate Leader Mitch McConnell of Kentucky. Mr. Leader, welcome back. Thank you sir for your time.
McConnell: Glad to be with you Larry.
Kudlow: Senator McConnell, there’s a lot of talk about a drilling deal that could be out there – energy speculation, trading speculation may be part of it. There was a 94-0 vote on a procedure. Where is this debate? Because this could really be a huge issue for stocks and the economy, and I reckon for the November election as well.
McConnell: Well there’s good news and bad news. The good news is we’re turning to the subject. The bad news is our Democratic friends think this is only a speculation problem. You know, the most famous rich Democrat in America, Warren Buffett, says it’s not a speculation problem; it’s a supply and demand problem. Boone Pickens has been down here promoting his plan which involves doing everything. He thinks we ought to do all of these things.
What our goal is as Senate Republicans is to get the Democrats to open this thing up. Let’s have real amendments on real issues. And at the top of the list, obviously, would be following the desire of over 70 percent of the American people to get the option to go into the Outer Continental Shelf. Right now 85 percent of the Outer Continental Shelf is off limits. [Democrats] have shut down all of the oil shale. We have three times the reserves of Saudi Arabia in oil shale, right here in America. A moratorium has been imposed by this Congress last year on that. We need to have votes on those amendments and see if we can do a better job of opening up our own resources and become significantly less dependent on Middle East oil.
Kudlow: Senator McConnell, let me pick you up on the moratorium idea. First of all, what would be in this? Would it be a total reversal of the moratorium that expires September 30th? Are we talking offshore drilling? Are we talking Alaska, ANWR. Are we talking shale?
McConnell: Well I think we ought to do, at the very least on offshore, is give states an option. A state like Virginia for example, which wants to go into the Outer Continental Shelf, is currently not permitted to do that. At a very minimum, we ought to allow states an option. Many of our members obviously think 50 miles and out, and that’s what we’re talking about, nobody by the way would see any of these oil rigs, because they’d be further out away from the shore. Why not give states the option at the minimum to do that?
And why in the world would we want to shut down oil shale when we have three times the oil reserves of Saudi Arabia right here on shore, on land, in the western United States? There are other things we ought to do as well. I’d like to see a vote on opening up a small portion of the Alaskan wilderness. I’d like to see an amendment on coal to liquid. We’d all like to promote nuclear power, particularly those who are concerned about climate change. There are a lot of things we need to do. And we need to do them now. The American people are demanding that we do it now.
Kudlow: There are reports that you were having negotiations with Senator Reid and the Democratic leadership in recent days over amendments to what I guess is some kind of anti-speculators bill. I’m not sure if that’s even right. But the report said that these negotiations broke down sir. Can you shed any light on that?
McConnell: No they continue. The first thing we want to make clear to the Democrats is that we want to get on this subject, and stay on this subject. We think they want to just pass some kind of bill on speculation that almost no one thinks would make a difference, and then move on to something else. We want to stay on this issue. We want to offer amendments that will make a difference. We hope that will encourage the American people that we’re finally going to get a handle on our own energy production and try to make a difference in the future, rather than handing our future over to Middle Eastern governments, many of whom are not friendly with us.
Kudlow: Senator, there’s a gang of ten out there, I’m sure you know about it. We interviewed Senator Mary Landrieu of Louisiana who’s one of the ten. They’re looking for a compromise deal to open lots of drilling opportunities offshore and onshore. Not Alaska, but I think the shale was included with some conservation measures. Sir are you working with the gang of ten? Might that be some support for your position?
McConnell: Well I certainly hope so. I’ve certainly encouraged this group. I think any Democrats we can find who are willing to come on board for additional drilling both on and offshore, I think that’s a good thing. And by the way, I want to emphasize that every member of my conference also is in favor of most of the measures you can think of to use less. For example, we’re enthusiastically in favor of incentivizing battery-driven cars. Many of my members are interested in natural gas, natural gas automobiles, which are driven all around the world, except here. We have a few here, but not nearly enough. We’re for both finding more and using less. Our Democratic friends, most of them, and I think Senator Landrieu may be an exception to that, are only interested in using less. They’re not interested in finding more. And that’s not enough to help solve this problem.
Kudlow: As you can imagine, the whole world is watching this debate. Since President Bush removed the executive moratorium, we’ve seen a precipitous drop in energy. Oil prices are off, I don’t know, more than $20 dollars, about 15 percent, just on the hope of greater energy supplies. So the whole world is watching this debate in the Senate and the House. Do you have any sense of a timetable for votes that would give us guidelines?
McConnell: Well we’re on the subject now. And our view, Republicans in the Senate’s view, is that we ought to stay on this subject until we do something worth doing. Something important that will send a signal, not only to the rest of the world, but to the American consumer that we intend to get a handle on this problem and make progress.
Kudlow: You know Senator, you and I have talked about your need to create a firewall against, perhaps, contingencies in the election coming up. 60 votes is the magic number. In your judgment, is this drill, drill, drill argument a key political issue? Could this in fact boost GOP hopes for November?
McConnell: Well it could. My first choice frankly is to get something done that’s important for the country. But if our friends on the other side are unwilling to increase domestic production, then we’re happy to take that to the people as a political issue this fall. First choice is to have an accomplishment; second choice is we take it to the American people. We think they’re on our side. We think they want us to expand American production, and to begin to solve this problem now.
Kudlow: When might the first votes occur? Are we talking tomorrow? Are we talking Friday? Are we talking actually before you go out for Labor Day?
McConnell: Yeah. Friday and then you know, if we stay on the subject, which is my goal, we’ll be still dealing with this next week.
Kudlow: All right, Senator Mitch McConnell. Thank you very much for the update sir. We appreciate it.
McConnell: Thank you Larry.
Wednesday, July 23, 2008
Wednesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:DRILL BILL DEBATE...Joining us to discuss the battle in Congress and the road ahead to U.S. energy independence will be Sen. Mitch McConnell (R-KY) and Sen. Byron Dorgan (D-ND).
THE STOCK MARKET, ECONOMY, OIL'S SELL-OFF & MORE...Our stock market all-stars will discuss and debate all the latest news and developments affecting investors.
On board:
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Jeffrey Kleintop, chief market strategist, LPL Financial Services
*Dave Maney, co-Founder & chairman of Headwaters MB
HOUSING BILL BAILOUT...On to discuss will be Jared Bernstein, senior economist at the Economic Policy Institute and former Republican House Leader Dick Armey.
WASHINGTON TO WALL STREET...Democratic strategist Bob Shrum will square off with Republican strategist Ben Ginsberg on a host of political issues including John Edwards' Beverly Hills Hilton flap, Romney's rise, and other news in the veep sweepstakes.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Wall Street Likes the Bailout plus Drill, Drill, Drill
Can bad Washington policies sometimes work to the benefit of financial markets? In the short run the answer is certainly yes. Nothing illustrates this point better than the gigantic Fannie-Freddie housing bailout bill that will soon pass Congress and be signed into law by President Bush.
This is a perfect example of Washington’s new too-big-to-fail corporatism, or even semi-socialism. Fannie and Freddie are getting their dream wish lists of expanded loans, expanded debt, a full-fledged explicit government guarantee, and virtually nothing in the way of real reform, all in return for Uncle Sam’s imprimatur.
The only remote possibility for future GSE reform of political lobbying, huge compensations, and a downsized internal portfolio, or even future privatization moves, rests solely on the new regulatory powers embedded in the bill. But the chances of a strongman regulator actually succeeding in changing these government housing banks are slim to none in my view. Democrats running the House and Senate banking committees will never permit it. The GSE political pressures are too strong. And no reforms were codified in the actual bill.
As for the $300 billion FHA housing bailout — with its ACORN-like community slush funds and tax credits and subsidies for existing and new homeowners — well, it’s just a big bailout. Oh my gosh. Between Fan and Fred and the FHA, U.S. taxpayers are gonna be on the hook for potentially gargantuan sums.
And yet, bank stocks are roaring ahead on Wall Street for the simple reason that in the short run the Fan-Fred guarantee from Uncle Sam stops the potential run against the financial stocks and the banking system. It’s very similar to the Bear Stearns story, when the Fed stepped in to open the discount window to prevent a run against the investment banks.
In fact, not only are financial stocks rising, but the near-term credit-preserving impact of the Fan-Fred backstop is strengthening the dollar and punishing the gold price. So Wall Street is cheering big government’s big expansion, at least in the short term.
More constructively, the growing possibility of a drill, drill, drill oil bill, even with some mild anti-speculator attachment, is contributing to a bear market in oil prices. Ever since President Bush unleashed last week, oil has been falling. It’s now down to $126, a little more than a $20 drop. This oil sell-off improves the outlook for lower inflation and better economic growth, which in turn is strengthening the dollar, pushing down gold, and driving up share prices.
The drilling issue in Congress is a huge election-year debate. It could well be the Republican’s last hope for November. The Democrats don’t want to drill, even while the public does. This could be a Democratic waterloo and could actually help elect Republicans, narrowing anticipated GOP losses in the election. But the Republicans have to launch an all-out fight nationalizing this issue, taking it to the public with a large media ad-buy, lots of speeches, and daily presser sound bites from Washington. Mitch McConnell is the right leader in the Senate — he’s one of the best tacticians ever. The votes are there for a drill, drill, drill compromise, with probably a dozen Democrats coming along.
As Michael Franc writes today on NRO, the House version of drill, drill, drill is a tougher uphill climb against Nancy Pelosi, who may be putting her speakership on the line against the drillers. Using a discharge petition is a tough road to hoe, though not impossible. But my thought is that a Senate victory might just blow Pelosi out of the water and open the floodgates to Democratic defections in the House.
If a drilling bill ever passes Congress, oil prices will keep on plunging — perhaps all the way to $75 a barrel, which is the profitable break-even point for lifting the extra barrel of oil. That would drive the Dow to somewhere between 15,000 and 16,000, and it would have a huge tax-cut effect on the economy. And, of course, it could completely change the November election outlook in a highly favorable way for the GOP.
The conventional wisdom says Republicans are gonna get clobbered again this fall. But drill, drill, drill would overturn that wisdom. More drilling today would have the potency of the Reagan tax cuts 28 years ago in the 1980 landslide race. But the GOP has got to make the case. And deregulating oil, which is great policy, would offset much of the bad policy pain coming out of the Fannie-Freddie housing bailout.
This is a perfect example of Washington’s new too-big-to-fail corporatism, or even semi-socialism. Fannie and Freddie are getting their dream wish lists of expanded loans, expanded debt, a full-fledged explicit government guarantee, and virtually nothing in the way of real reform, all in return for Uncle Sam’s imprimatur.
The only remote possibility for future GSE reform of political lobbying, huge compensations, and a downsized internal portfolio, or even future privatization moves, rests solely on the new regulatory powers embedded in the bill. But the chances of a strongman regulator actually succeeding in changing these government housing banks are slim to none in my view. Democrats running the House and Senate banking committees will never permit it. The GSE political pressures are too strong. And no reforms were codified in the actual bill.
As for the $300 billion FHA housing bailout — with its ACORN-like community slush funds and tax credits and subsidies for existing and new homeowners — well, it’s just a big bailout. Oh my gosh. Between Fan and Fred and the FHA, U.S. taxpayers are gonna be on the hook for potentially gargantuan sums.
And yet, bank stocks are roaring ahead on Wall Street for the simple reason that in the short run the Fan-Fred guarantee from Uncle Sam stops the potential run against the financial stocks and the banking system. It’s very similar to the Bear Stearns story, when the Fed stepped in to open the discount window to prevent a run against the investment banks.
In fact, not only are financial stocks rising, but the near-term credit-preserving impact of the Fan-Fred backstop is strengthening the dollar and punishing the gold price. So Wall Street is cheering big government’s big expansion, at least in the short term.
More constructively, the growing possibility of a drill, drill, drill oil bill, even with some mild anti-speculator attachment, is contributing to a bear market in oil prices. Ever since President Bush unleashed last week, oil has been falling. It’s now down to $126, a little more than a $20 drop. This oil sell-off improves the outlook for lower inflation and better economic growth, which in turn is strengthening the dollar, pushing down gold, and driving up share prices.
The drilling issue in Congress is a huge election-year debate. It could well be the Republican’s last hope for November. The Democrats don’t want to drill, even while the public does. This could be a Democratic waterloo and could actually help elect Republicans, narrowing anticipated GOP losses in the election. But the Republicans have to launch an all-out fight nationalizing this issue, taking it to the public with a large media ad-buy, lots of speeches, and daily presser sound bites from Washington. Mitch McConnell is the right leader in the Senate — he’s one of the best tacticians ever. The votes are there for a drill, drill, drill compromise, with probably a dozen Democrats coming along.
As Michael Franc writes today on NRO, the House version of drill, drill, drill is a tougher uphill climb against Nancy Pelosi, who may be putting her speakership on the line against the drillers. Using a discharge petition is a tough road to hoe, though not impossible. But my thought is that a Senate victory might just blow Pelosi out of the water and open the floodgates to Democratic defections in the House.
If a drilling bill ever passes Congress, oil prices will keep on plunging — perhaps all the way to $75 a barrel, which is the profitable break-even point for lifting the extra barrel of oil. That would drive the Dow to somewhere between 15,000 and 16,000, and it would have a huge tax-cut effect on the economy. And, of course, it could completely change the November election outlook in a highly favorable way for the GOP.
The conventional wisdom says Republicans are gonna get clobbered again this fall. But drill, drill, drill would overturn that wisdom. More drilling today would have the potency of the Reagan tax cuts 28 years ago in the 1980 landslide race. But the GOP has got to make the case. And deregulating oil, which is great policy, would offset much of the bad policy pain coming out of the Fannie-Freddie housing bailout.
Obama's Social Security Tax Plan
Cato tax expert Dan Mitchell just emailed me his new video analyzing Obama's class-warfare Social Security tax scheme. It's definitely worth a look.
As Larry Lindsey recently wrote in the Wall Street Journal, "It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer."
As Larry Lindsey recently wrote in the Wall Street Journal, "It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer."
Tuesday, July 22, 2008
Tuesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS, ECONOMY, OIL & MORE...Our stock market all-stars will discuss and debate all the latest news and developments affecting investors including oil's continued slide, financials, and more.
On board:
*Don Luskin, chief investment officer, Trend Macro
*Quentin Hardy, Forbes Silicon Valley Bureau Chief
*Vince Farrell, managing director, Scotsman Capital
*Mark Skousen, financial economist, author, editor of the financial advice newsletter Forecasts & Strategies
FANNIE MAE & FREDDIE MAC…Senator Bob Casey (D-PA) will be aboard to discuss all the latest developments in the GSE saga.
DRILL, DRILL, DRILL…Joining us from Washington to debate America’s energy solution will be Senator John Barrasso (R-WY) and Senator Amy Klobuchar (D-MN).
MONEY POLITICS…The Wall Street Journal’s Steve Moore will square off against political commentator Lawrence O'Donnell on a number of Washington to Wall Street subjects including whether the rich in America shoulder an unfair share of the tax burden.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Paulson: We’re Gonna Be Alright
Treasury man Henry Paulson reassured investors and bank depositors in a speech this morning in New York that the U.S. banking system is okay. Mr. Paulson noted the failure of IndyMac bank, the third largest in history. But he said it represents only two-tenths of 1 percent of total banking industry assets and that depositors are insured up to $100,000 per account. The FDIC took over the bank two Fridays ago and reopened it the next Monday with business as usual and no one losing a penny of insured deposits.
Mr. Paulson went on to say that of the 8,500 insured banks and thrifts in the U.S., 99 percent are well capitalized. While one thrift and four commercial banks have failed this year, this doesn’t even remotely compare with the 1980s savings-and-loan crisis, where there was an average of 255 failures per year. What’s more, Paulson noted that U.S. financial companies have raised more than $150 billion of new capital.
So I think the Treasury man was basically trying to say that we’re gonna be alright, media pessimism notwithstanding.
Mr. Paulson went on to say that of the 8,500 insured banks and thrifts in the U.S., 99 percent are well capitalized. While one thrift and four commercial banks have failed this year, this doesn’t even remotely compare with the 1980s savings-and-loan crisis, where there was an average of 255 failures per year. What’s more, Paulson noted that U.S. financial companies have raised more than $150 billion of new capital.
So I think the Treasury man was basically trying to say that we’re gonna be alright, media pessimism notwithstanding.
Forbes Spins Positive on Gramm
Last night on CNBC I asked Steve Forbes about the McCain-Gramm breakup. Steve of course is a McCain economic advisor, and he had a positive spin on Phil Gramm’s continuing role in the campaign. Here’s what he said:
Kudlow: Steve Forbes, we just have a little bit of time. A lot of conservatives are very dispirited that Phil Gramm has left the McCain campaign, Steve. Has he in fact left? I know he resigned. Will Senator McCain, who has yet to speak about this, do you think Sen. McCain will ask him to come back?
Steve Forbes: Oh I think in terms of advice, Phil Gramm will be critical, which is good, because on things like trade he’s absolutely right. I think John McCain has a long friendship with Phil Gramm. So this was something, Phil Gramm said something that you’re not supposed to these days. And he paid a price for it. But in terms of the relationship, I think it’s as strong as ever. And in a McCain administration, I think Phil Gramm’s advice will be taken to heart.
Kudlow: Why won’t Sen. McCain say what you just said publicly? In other words, McCain can say, “I don’t want your resignation, you misspoke, let’s leave it be, we’re a large tent, a big family, we need you on this campaign.” Steve, do you think McCain will come out and say that?
Forbes: I think he will say good things about Phil Gramm. And Phil Gramm paid the price for it. Gramm’s been in presidential politics, as I have, and when these things happen somebody walks the plank. But I think in terms of the relationship, and the philosophy, that’s not going to change.
Kudlow: All right. Appreciate it, Steve Forbes. Very, very much.
Monday, July 21, 2008
Monday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET & ECONOMY…Our stock market and economic all-stars will discuss and debate all the latest news, trends, and developments affecting investors.
On board:
*Gary Shilling, president of A. Gary Shilling & Co.
*Steve Forbes, editor-in-chief of Forbes magazine
*Art Laffer, economist & chairman of Laffer Associates
*Dr. Bob Froehlich, chief investment strategist, DWS Scudder
*Jared Bernstein, senior economist, Economic Policy Institute
AN EYE ON FANNIE & FREDDIE…Former Treasury official Peter Wallison of the American Enterprise Institute will join the market panel with his insight and ideas on all the latest news and developments.
COUNTRYWIDE & VIP LOANS...Attorney, columnist and former Republican state legislator Kevin Rennie will joins Messrs. Forbes and Bernstein with a look into Countrywide lending practices with an emphasis on the loan received by Senator Dodd (D-CT).
THE GREY LADY SNUBS MCCAIN…On to discuss and debate the New York Times's refusal to run John McCain's recent op-ed criticizing Obama's Iraq policy will be Kevin Madden, former press secretary and senior adviser to former Massachusetts Gov. Mitt Romney and progressive economist Jared Bernstein.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
The Essential Phil Gramm
When the Phil Gramm flap broke out about 10 days ago, with his Washington Times interview miscues about a nation of whiners and a mental recession, other McCain economic advisors were quick to lambaste the former Texas senator. Douglas Holtz-Eakin told the PBS Nightly Business Report that Gramm is no longer giving advice to McCain or his aides. He said, “I haven’t spoken to Sen. Gramm since the comments took place, and I’m not expecting to.” On Meet the Press, Carly Fiorina emphasized that Sen. McCain had rejected Gramm’s remarks, and then said, “I don’t think Sen. Gramm will any longer be speaking for John McCain.”
While McCain clearly disowned Gramm’s remarks, Holtz-Eakin and Fiorina were wrong, at least at that point, to throw Gramm out of the campaign. In fact, McCain spoke to Gramm after dissing him, and asked him to stay in the campaign and continue to be a surrogate speaker. This was not widely reported, but several sources confirm the conversation. However, it was no secret that Holtz-Eakin in particular has been a Gramm adversary inside the campaign.
So when Robert Novak’s Saturday column was initially published Friday evening, correctly reporting that McCain and Gramm had patched up their relationship, McCain insiders apparently went ballistic, even though their boss wanted to keep Gramm inside the tent. Once Gramm got wind of this internal war dance last Friday night, he resigned as campaign co-chairman, relegating himself to rank-and-file supporter status.
What exactly happened Friday night is still a mystery. At least one senior campaign official believes Gramm resigned without any prodding. Sources close to Gramm, however, report that it was the campaign staff revolt that forced Gramm’s hand.
Interestingly, Sen. McCain himself has yet to publicly comment on Gramm’s resignation. When asked about it this morning on NBC’s Today Show, McCain dodged the question. Many conservatives are hoping McCain will overrule his staff by saying no to Gramm’s resignation. In other words, not accepting it. Those conservatives believe the hard-nosed free-market Gramm is essential to the formulation of McCain economic policy.
As inartful as Gramm’s initial comments were, these things happen during campaigns. And Sen. McCain could have made light of the comments while still rejecting them. He also could have pivoted and attacked Obama’s constant whining, economic pessimism, and American declinism. What’s more, McCain’s basic economic message of low taxes, ending pork-barrel spending, and drill, drill, drill to generate more energy supplies at lower prices is a strong contrast to Obama’s high-tax-and-spend plan. Essentially, McCain has an economic-recovery program. Obama does not.
But the effects of Gramm’s absence may already have surfaced. Appearing in Michigan at a GM town hall meeting last Friday, McCain lapsed into talking auto-bailouts and huge government subsidies for GM’s new battery car, the Volt. McCain’s message was basically that he’ll do anything to keep the car business afloat. This sort of pandering by McCain was missing during the Michigan primary last winter. And when asked by a worker how GM could cope with cap-and-trade greenhouse-gas emissions standards, McCain said that we’ve got to adjust these standards so they don’t kill off the industry. So McCain is back on his cap-and-trade system which completely dilutes his drill, drill, drill message. It’s this kind of confusion that the tough-minded Phil Gramm could solve with a clear policy message. An attempt to be all things to all people and all constituencies is a sure-fire path to an empty message that garners the support of no one.
A last thought: If Sen. Gramm is in fact out of the campaign, might Sen. McCain give new titles and influence to supply-side stalwarts Jack Kemp and Steve Forbes? So far their contributions have been sporadic. Perhaps elevating their roles would fill the gap left by a departing Sen. Gramm.
While McCain clearly disowned Gramm’s remarks, Holtz-Eakin and Fiorina were wrong, at least at that point, to throw Gramm out of the campaign. In fact, McCain spoke to Gramm after dissing him, and asked him to stay in the campaign and continue to be a surrogate speaker. This was not widely reported, but several sources confirm the conversation. However, it was no secret that Holtz-Eakin in particular has been a Gramm adversary inside the campaign.
So when Robert Novak’s Saturday column was initially published Friday evening, correctly reporting that McCain and Gramm had patched up their relationship, McCain insiders apparently went ballistic, even though their boss wanted to keep Gramm inside the tent. Once Gramm got wind of this internal war dance last Friday night, he resigned as campaign co-chairman, relegating himself to rank-and-file supporter status.
What exactly happened Friday night is still a mystery. At least one senior campaign official believes Gramm resigned without any prodding. Sources close to Gramm, however, report that it was the campaign staff revolt that forced Gramm’s hand.
Interestingly, Sen. McCain himself has yet to publicly comment on Gramm’s resignation. When asked about it this morning on NBC’s Today Show, McCain dodged the question. Many conservatives are hoping McCain will overrule his staff by saying no to Gramm’s resignation. In other words, not accepting it. Those conservatives believe the hard-nosed free-market Gramm is essential to the formulation of McCain economic policy.
As inartful as Gramm’s initial comments were, these things happen during campaigns. And Sen. McCain could have made light of the comments while still rejecting them. He also could have pivoted and attacked Obama’s constant whining, economic pessimism, and American declinism. What’s more, McCain’s basic economic message of low taxes, ending pork-barrel spending, and drill, drill, drill to generate more energy supplies at lower prices is a strong contrast to Obama’s high-tax-and-spend plan. Essentially, McCain has an economic-recovery program. Obama does not.
But the effects of Gramm’s absence may already have surfaced. Appearing in Michigan at a GM town hall meeting last Friday, McCain lapsed into talking auto-bailouts and huge government subsidies for GM’s new battery car, the Volt. McCain’s message was basically that he’ll do anything to keep the car business afloat. This sort of pandering by McCain was missing during the Michigan primary last winter. And when asked by a worker how GM could cope with cap-and-trade greenhouse-gas emissions standards, McCain said that we’ve got to adjust these standards so they don’t kill off the industry. So McCain is back on his cap-and-trade system which completely dilutes his drill, drill, drill message. It’s this kind of confusion that the tough-minded Phil Gramm could solve with a clear policy message. An attempt to be all things to all people and all constituencies is a sure-fire path to an empty message that garners the support of no one.
A last thought: If Sen. Gramm is in fact out of the campaign, might Sen. McCain give new titles and influence to supply-side stalwarts Jack Kemp and Steve Forbes? So far their contributions have been sporadic. Perhaps elevating their roles would fill the gap left by a departing Sen. Gramm.
Friday, July 18, 2008
Friday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET, ECONOMY, MONEY POLITICS & MORE...Our stock market and economic all-stars will discuss and debate all the important issues and developments affecting investors.
On board:
*Jerry Bowyer, chief economist, Benchmark Financial Network
*Vince Farrell, managing director, Scotsman Capital
*Gary Shilling, president of A. Gary Shilling & Co.
*Fritz Meyer, senior investment officer with A I M Advisors
Also on board...Energy and commodities expert Kevin Kerr, president of Kerrtrade.com & editor of MarketWatch's Global Resources, will offer up his take on all the latest oil news.
DRILL, DRILL, DRILL...On to discuss opening up offshore drilling, ANWR, oil, alternative energy sources and more will be Acting Deputy Secretary of Energy Jeffrey Kupfer.
***William Rogers, attorney and member of SOS California, an environmental group that supports offshore drilling, will also be aboard to offer his perspective.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Thursday, July 17, 2008
Is Failure No Longer an Option?
Why does it seem to me that all Washington ever seems to talk about these days is bailouts? Bailout Freddie Mac. Bailout Fannie Mae. Bailout Wall Street. Bailout homeowners. Is it possible in America today that no one is allowed to fail?
You know, Phil Gramm was right. We are a nation of whiners. No one wants to believe that failure is an option anymore. Whatever happened to personal responsibility? Or learning from your mistakes? Or going through transformative difficulties that just might change your life and your behavior? But it seems like failure is off the board nowadays and that it’s government’s job to rescue everybody.
Whatever happened to the philosophy of Friedrich Hayek, the great free-market economist and Nobel Prize winner, who said the great thing about capitalism is the freedom to succeed beyond your wildest dreams, but that there is also the freedom to fail? I believe Hayek once argued that if he had to choose between success and failure, failure is more important in terms of preserving the free-market system.
Of course, the great thing about America is that you can fail many times, pick yourself up, keep on trying, and then succeed beyond your wildest dreams. But this whole process is being subverted by the political attitude that no one must ever be allowed to fail. I don’t like it. It’s socialism, isn’t it? Perhaps it’s big-government socialism. Or maybe it’s corporate socialism. Or maybe (with Fan and Fred) it’s Republican socialism.
No, I guess it’s really bipartisan socialism.
And you know what? There may be other bailouts. Look at General Motors, a complete basket case. They’re now trying to come up with a new hybrid-type car, but so far no one is buying. Given their bankruptcy, my friend Holman Jenkins of the Wall Street Journal worries that government subsidies in the name of global warming will lead to a government bailout of GM.
And what about the bankrupt airlines? Is government gonna bail them out too?
So I guess I was relieved to come across a passage from President Bush’s press conference last Tuesday. A reporter asked him about bailing out banks and mortgage markets, and wondered about other entities in the economy that might be crucial, like General Motors. And President Bush said, “If your question is, ‘Should the government bailout private enterprise?’ the answer is no, it shouldn’t.” POTUS went on to say, in terms of private enterprise, that no, he doesn’t think the government ought to be involved with bailing out companies.
Whew.
You know, Phil Gramm was right. We are a nation of whiners. No one wants to believe that failure is an option anymore. Whatever happened to personal responsibility? Or learning from your mistakes? Or going through transformative difficulties that just might change your life and your behavior? But it seems like failure is off the board nowadays and that it’s government’s job to rescue everybody.
Whatever happened to the philosophy of Friedrich Hayek, the great free-market economist and Nobel Prize winner, who said the great thing about capitalism is the freedom to succeed beyond your wildest dreams, but that there is also the freedom to fail? I believe Hayek once argued that if he had to choose between success and failure, failure is more important in terms of preserving the free-market system.
Of course, the great thing about America is that you can fail many times, pick yourself up, keep on trying, and then succeed beyond your wildest dreams. But this whole process is being subverted by the political attitude that no one must ever be allowed to fail. I don’t like it. It’s socialism, isn’t it? Perhaps it’s big-government socialism. Or maybe it’s corporate socialism. Or maybe (with Fan and Fred) it’s Republican socialism.
No, I guess it’s really bipartisan socialism.
And you know what? There may be other bailouts. Look at General Motors, a complete basket case. They’re now trying to come up with a new hybrid-type car, but so far no one is buying. Given their bankruptcy, my friend Holman Jenkins of the Wall Street Journal worries that government subsidies in the name of global warming will lead to a government bailout of GM.
And what about the bankrupt airlines? Is government gonna bail them out too?
So I guess I was relieved to come across a passage from President Bush’s press conference last Tuesday. A reporter asked him about bailing out banks and mortgage markets, and wondered about other entities in the economy that might be crucial, like General Motors. And President Bush said, “If your question is, ‘Should the government bailout private enterprise?’ the answer is no, it shouldn’t.” POTUS went on to say, in terms of private enterprise, that no, he doesn’t think the government ought to be involved with bailing out companies.
Whew.
Thursday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS…Our stock market and economic all-stars will discuss and debate all the latest news and developments affecting investors and offer their take on the road ahead.
On board:
*Don Luskin, chief investment officer, trend Macro
*Jack Gage, Forbes magazine associate editor
*Michael Pento, Delta Global Advisors, senior market strategist
*Michael Darda, chief economist, MKM Partners
SHUT DOWN UBS?…Joining us to discuss whether regulators should consider revoking the US banking license of Swiss banking giant UBS because of its alleged role in helping wealthy Americans evade billions of dollars in taxes will be Sen. Carl Levin (D-MI).
Our market guests will weigh in with their perspective following our interview with Senator Levin.
DRILL, DRILL, DRILL…Joining us to discuss America’s drilling policy will be Senator Richard Shelby (R-AL) and Senator Ron Wyden (D-OR).
PRIMARY MONEY POLITICS…On to debate all the latest Washington to Wall Street issues facing investors including how the Obama/McCain match-up is shaping up will be “Jimmy P” Pethokoukis, money and politics blogger for U.S. News & World Report and political columnist Harold Meyerson.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
My Interview with Congressman Ron Paul
What follows below is an unofficial transcript of my interview on Kudlow & Company last night with former Republican presidential candidate Congresman Ron Paul of Texas. We talked about inflation, bailouts, the Fed's role, Fannie & Freddie and much more. Last night's K&C market panel also joined in the discussion.
Kudlow: All right. We welcome back to the show Ron Paul, Republican Congressman from Texas, former presidential candidate who had some tough words for Ben Bernanke. Take a listen to this please.
[Video of Congressman Paul’s comments during Bernanke testimony: “Inflation is a tax. And if the Federal Reserve, and you as chairman, have this authority to increase the money supply arbitrarily, you’re probably the biggest taxer in the country.]
Kudlow: Oh, Mr. Paul, I heard that this morning, I got so excited sir. I just had to have you on. I’m so glad you’re around today. I say almost nightly that inflation is the cruelest tax of all. And the consumer price index, I’m sure you know this, but I didn’t hear Bernanke reference it today, 1.1 increase in June, 7.9 percent at an annual rate over the past three months, and 5 percent over the last 12 months. Did Bernanke understand what you were getting at sir?
Rep. Paul: Well I was hoping he did. You know, I did bring up the CPI very briefly. But I thought he did concede half of the message that I gave because he did say that inflation was a tax. He did acknowledge that, but he didn’t acknowledge that he had anything to do with it. And you know, I did make the concession to him that he himself didn’t create every bit of inflation that we have today, because it does add up. It’s been over a period of time and we’ve been inflating for a long time. Every time we’ve had a crisis we have sort of arrested that crisis by more inflation, exactly what we’re doing now. But ultimately, people pay for it in higher prices. So if we look at the higher energy prices, and you and I would agree we need free markets and capitalism and more drilling and all this, but if there’s an inflated price there due to the depreciation of money that won’t solve that part of the problem.
Kudlow: Well that’s the deal. Let me go with you on this. The Federal Reserve is accumulating more and more authority now in our financial system. They may well be the so-called “financial stabilizer” of last resort. They now have new regulatory power over Wall Street investment banks. And of course, they’re supposed to balance unemployment and inflation. Mr. Paul, with all these new missions, it seems to me what’s gonna get sacrificed? Inflation and the dollar, isn’t that the way this is going to wind up?
Paul: Absolutely, but also our freedoms. And just that litany of what you listed there is central economic planning. We don’t believe in central economic planning. At least I don’t. But that’s central economic planning through the monetary system. And now the regulatory system, not only does the Fed have the power over the supply of money and the interest rates, but now they want the regulatory function over more than just the banks, all the financial industries. I tell you, I think it’s a bad sign for free market capitalism.
Kudlow: I’ve been talking sir, a little bit, just in recent days and weeks, this funny story, I’m calling it the new socialism. Nobody can fail in America. If something fails, then government’s gonna come in and bail them out. Now the latest of course is Fannie and Freddie. There’s a huge housing bailout bill out there. Who knows? Maybe we may [bail out] the airlines, the automobile companies, I don’t know. You know, Phil Gramm may have had a point. We are a nation of whiners. Nobody wants to lose. Capitalism, you’re supposed to have the great opportunity and freedom to succeed, but you also have the freedom to fail. What’s happened to the freedom to fail?
Paul: Well you know a lot of consumers and people who are losing their jobs, they have a right to be angry and complaining and I sympathize with them. And you talk about socialism, and we do have a form of socialism creeping in, but it sort of is of the fascist type, because we have business and big government, you know, working together. It’s not the old-fashioned type of socialism where government owns everything. But they do control a lot of the financial markets for the benefit of certain industries, whether it’s the banks or other industries. And they do want bailout. And they are socializing their failures and that certainly shouldn’t be what we’re working for.
Kudlow: Mr. Paul, can you stay with us and work with our panel for a moment or two?
Paul: I think so.
Kudlow: All right we’d love to have you. Jerry Bowyer what did you just hear? What’s the way out? And let me ask you too Jerry, I mean once again today, Bernanke, you get this big inflation number in the CPI. Yesterday it was the Producer Price Index. So far as I can tell Bernanke has thrown the dollar overboard. He’s thrown the dollar under the bus. He’s saying we have to worry about financial stability, a weak economy, high inflation. If you try to be everything to all people you get nothing done. I’ve kind of lost hope on the dollar Jerry. You heard Ron Paul. What’s your take?
Jerry Bowyer [chief economist Benchmark Financial]: Well don’t lose hope on the dollar because Bernanke will learn I think from experience. I think Ron Paul is right on the policy side, where he says that the Fed has been far too loose and we are devaluing our coinage. I don’t think he’s right in saying that there shouldn’t be a Fed, that there shouldn’t be a national bank, that it’s unconstitutional. I think that’s an overstatement. I want a Fed that does its job well. I want a lender of last resort, with a good strong money policy, a good strong dollar policy. So at least on that policy, I agree with Congressman Paul.
Kudlow: Mr. Paul, can we have a Fed that does its job well?
Paul: I don’t think so. I think it’s the system that by nature will fail. Because of, you know, the character of the human beings, whether they’re in the Congress or in the Federal Reserve. The temptation is – you know, even Milton Friedman said that you could have a type of Federal Reserve, or a computer, increase the money at 3 percent. But if you understand human nature, 3.5 percent might be better than 3 percent. And the Congress loves this because they can spend money, they don’t have to tax directly, and they can always resort to the Fed. So whether it’s the Fed deliberately doing this or the pressure from the political side and the Congress, no, I don’t think so. It’s the monetary system. You have to have the consumer in charge and only a gold coin standard can do that. Because if you mistrust the system, you can always say, “Hey, are they printing too much money? Let me see if they have the gold in the bank.” And that’s the only real test of money.
Kudlow: Gold, gold…
Bowyer: We didn’t have a gold standard in the 1980s and we had great money.
Kudlow: Yeah gold is definitely my favorite four-letter word. I mean it is, look, we basically had the equivalent of $300 dollar gold for almost twenty years. I mean it worked beautifully. It all broke down at the beginning of the new century. I mean that’s the interesting thing. It just completely broke down. Joe Battipaglia, you’ve heard Congressman Paul. You’ve heard Jerry Bowyer and others. Joe, if you buy into it, I don’t know if you do or not, what do you do as an investor, if you’re faced with this problem, the breakdown in Federal Reserve and monetary discipline. Inflation is the cruelest tax of all. As an investor Joe, what do you do about it?
Joe Battipaglia [Stifel Nicolas market strategist]: Well unfortunately you become a trader, not an investor. Because policy decisions will be made that will work in contrast to the economy’s proper functioning, and you will have bouts of inflation, and you will have bubbles. So, the long-term strategy of buying and holding and growing equity gets tossed over to trading environment. And you swing from commodity classes to traditional assets like equities and bonds. And that’s a very dangerous place to be because you create more risk in the marketplace, you retard investment I think, and you also retard the ability to accumulate wealth over time. Because what’s happening is monetarism is being put at the beck and call of Keynesianism. So now you’ve got government policy run amok and the central banker coming in behind to make sure there’s no failure, puff up the economy, create more credit, keep the bubbles going. It’s a very bad mixture.
Kudlow: Well it’s over-tinkering and fine-tuning. You’re exactly right. David Kotok, what’s your take on all this?
David Kotok [co-founder & CIO of Cumberland Advisors]: Well I have to weigh in on defense of the Fed. The Fed cannot do its job until and unless it restores financial markets with functionality. We have dysfunctional financial markets. That means the Fed…
Kudlow: What does that mean? What does that mean? In plain language, what did you just say?
Kotok: Some markets are not clearing at all, like adjustable rate preferreds, or student loans. Other markets are not clearing at pricing which is not normal. That was true of the federal agencies. So you have to have a fix, and that’s part of this process. And if you look at history far back enough you will find in the Gold Rush days 150 years ago, there was rampant inflation in California during gold discoveries. Gold is not the magic cure.
Kudlow: Jerry Bowyer, did Dave Kotok just blame markets? Did I hear that right Jerry?
Bowyer: Well I think what he did is he saw that there’s a problem in the markets and basically thought that the Fed could solve that with the printing press. There are problems in credit markets, but they’re regulatory problems. A lot of these loans were foisted on the banks by political pressure, [the] Community Reinvestment Act and other things. And so the banks did what the regulators told them to do, and now they’re having trouble selling those mortgages because a lot of them shouldn’t have been issued in the first place. You can’t solve that with the printing press. If you could solve it with the printing press, it would already be solved because the Fed funds rate is at 2 percent and we are pouring money into this economy. The solution is not more money.
Kudlow: Well in Argentina, it would be the center of the world economy. Jim Lacamp do you want to weigh in on this? You’ve heard Mr. Paul…
Jim Lacamp [portfolio manager, RBC Dain Rauscher]: Yeah.
Kudlow: You heard the Kotok opposition to it. You heard Jerry Bowyer and Joe B. I want to know, should we be advising investors to run a sort of inflationist investment policy? In other words, today, commodities, basic materials and energy got hit, but maybe you buy those on the dips because that’s the new long run play. And as Joe Battipaglia said, inflation is inherently unstable. So you can’t buy and hold, you’ve got to trade the market. What’s your take Mr. Lacamp?
Lacamp: Yeah it’s a fiat monetary currency system. And when you have something like that it builds up a bigger and bigger mountain of debt and creates asset bubbles just like Joe said. And so the buy-and-hold really hasn’t worked over the last ten years. The ten years numbers on the S&P right now are about 2.7 percent per year. That’s sub-par throughout history. And the reason is because we keep creating these bubbles. And Fannie May and Freddie Mac are poster children for why we should not have government involvement in our financial system to a big degree. And the reason is that these are semi-socialistic, not even semi-socialistic, they’re socialistic entities that were allowed to create bad business models because of this implied government backing. Well now we have to give this unlimited line of credit with taxpayer money to a bad business. That’s not good policy. It rewards bad behavior. And I think that we need to get government out as much as we can.
Kudlow: Alright Mr Paul, just two quickies on the way out sir. We appreciate your time. You gonna vote for bailing out Fannie and Freddie?
Paul: No. No way. I can’t do that. Because that would contradict everything I’ve been saying. No. We should have the cleansing of the system. All the malinvestment, all the problems came from the artificially low interest rates. Yes, the markets are dysfunctional. But the problem should be laid at the doorstep of the Federal Reserve. Like I said, not just Bernanke, but the system itself. All of the Greenspan years. It caused all of the malinvestment. There were a lot of sound economists over the last ten years warning about this housing bubble. I even had a bill in eight years ago to remove the line of credit to the Fed saying it was a moral hazard because even though it was only $2.5 billion dollars, I said when push comes to shove, it’s gonna be a lot more. Now it looks like it’s $300 billion dollars.
Kudlow: Yeah, we’re gonna go from $2.25 to $300. Last one, real quick sir. Political question. I’m going to switch gears. Have you thrown your support to Bob Barr, the Libertarian candidate?
Paul: No. No I have not. I have not endorsed any one particular candidate. The only question I’ve answered has been would I vote for John McCain, and I wouldn’t be able to.
Kudlow: But you haven’t ruled out voting for Barr, is that correct?
Paul: No I have not. I’ll probably do some type of announcement like that sometime in September.
Kudlow: All right. We appreciate your time very much.
Paul: Thank you.
Kudlow: Congressman Ron Paul, thank you for joining us.
Kudlow: All right. We welcome back to the show Ron Paul, Republican Congressman from Texas, former presidential candidate who had some tough words for Ben Bernanke. Take a listen to this please.
[Video of Congressman Paul’s comments during Bernanke testimony: “Inflation is a tax. And if the Federal Reserve, and you as chairman, have this authority to increase the money supply arbitrarily, you’re probably the biggest taxer in the country.]
Kudlow: Oh, Mr. Paul, I heard that this morning, I got so excited sir. I just had to have you on. I’m so glad you’re around today. I say almost nightly that inflation is the cruelest tax of all. And the consumer price index, I’m sure you know this, but I didn’t hear Bernanke reference it today, 1.1 increase in June, 7.9 percent at an annual rate over the past three months, and 5 percent over the last 12 months. Did Bernanke understand what you were getting at sir?
Rep. Paul: Well I was hoping he did. You know, I did bring up the CPI very briefly. But I thought he did concede half of the message that I gave because he did say that inflation was a tax. He did acknowledge that, but he didn’t acknowledge that he had anything to do with it. And you know, I did make the concession to him that he himself didn’t create every bit of inflation that we have today, because it does add up. It’s been over a period of time and we’ve been inflating for a long time. Every time we’ve had a crisis we have sort of arrested that crisis by more inflation, exactly what we’re doing now. But ultimately, people pay for it in higher prices. So if we look at the higher energy prices, and you and I would agree we need free markets and capitalism and more drilling and all this, but if there’s an inflated price there due to the depreciation of money that won’t solve that part of the problem.
Kudlow: Well that’s the deal. Let me go with you on this. The Federal Reserve is accumulating more and more authority now in our financial system. They may well be the so-called “financial stabilizer” of last resort. They now have new regulatory power over Wall Street investment banks. And of course, they’re supposed to balance unemployment and inflation. Mr. Paul, with all these new missions, it seems to me what’s gonna get sacrificed? Inflation and the dollar, isn’t that the way this is going to wind up?
Paul: Absolutely, but also our freedoms. And just that litany of what you listed there is central economic planning. We don’t believe in central economic planning. At least I don’t. But that’s central economic planning through the monetary system. And now the regulatory system, not only does the Fed have the power over the supply of money and the interest rates, but now they want the regulatory function over more than just the banks, all the financial industries. I tell you, I think it’s a bad sign for free market capitalism.
Kudlow: I’ve been talking sir, a little bit, just in recent days and weeks, this funny story, I’m calling it the new socialism. Nobody can fail in America. If something fails, then government’s gonna come in and bail them out. Now the latest of course is Fannie and Freddie. There’s a huge housing bailout bill out there. Who knows? Maybe we may [bail out] the airlines, the automobile companies, I don’t know. You know, Phil Gramm may have had a point. We are a nation of whiners. Nobody wants to lose. Capitalism, you’re supposed to have the great opportunity and freedom to succeed, but you also have the freedom to fail. What’s happened to the freedom to fail?
Paul: Well you know a lot of consumers and people who are losing their jobs, they have a right to be angry and complaining and I sympathize with them. And you talk about socialism, and we do have a form of socialism creeping in, but it sort of is of the fascist type, because we have business and big government, you know, working together. It’s not the old-fashioned type of socialism where government owns everything. But they do control a lot of the financial markets for the benefit of certain industries, whether it’s the banks or other industries. And they do want bailout. And they are socializing their failures and that certainly shouldn’t be what we’re working for.
Kudlow: Mr. Paul, can you stay with us and work with our panel for a moment or two?
Paul: I think so.
Kudlow: All right we’d love to have you. Jerry Bowyer what did you just hear? What’s the way out? And let me ask you too Jerry, I mean once again today, Bernanke, you get this big inflation number in the CPI. Yesterday it was the Producer Price Index. So far as I can tell Bernanke has thrown the dollar overboard. He’s thrown the dollar under the bus. He’s saying we have to worry about financial stability, a weak economy, high inflation. If you try to be everything to all people you get nothing done. I’ve kind of lost hope on the dollar Jerry. You heard Ron Paul. What’s your take?
Jerry Bowyer [chief economist Benchmark Financial]: Well don’t lose hope on the dollar because Bernanke will learn I think from experience. I think Ron Paul is right on the policy side, where he says that the Fed has been far too loose and we are devaluing our coinage. I don’t think he’s right in saying that there shouldn’t be a Fed, that there shouldn’t be a national bank, that it’s unconstitutional. I think that’s an overstatement. I want a Fed that does its job well. I want a lender of last resort, with a good strong money policy, a good strong dollar policy. So at least on that policy, I agree with Congressman Paul.
Kudlow: Mr. Paul, can we have a Fed that does its job well?
Paul: I don’t think so. I think it’s the system that by nature will fail. Because of, you know, the character of the human beings, whether they’re in the Congress or in the Federal Reserve. The temptation is – you know, even Milton Friedman said that you could have a type of Federal Reserve, or a computer, increase the money at 3 percent. But if you understand human nature, 3.5 percent might be better than 3 percent. And the Congress loves this because they can spend money, they don’t have to tax directly, and they can always resort to the Fed. So whether it’s the Fed deliberately doing this or the pressure from the political side and the Congress, no, I don’t think so. It’s the monetary system. You have to have the consumer in charge and only a gold coin standard can do that. Because if you mistrust the system, you can always say, “Hey, are they printing too much money? Let me see if they have the gold in the bank.” And that’s the only real test of money.
Kudlow: Gold, gold…
Bowyer: We didn’t have a gold standard in the 1980s and we had great money.
Kudlow: Yeah gold is definitely my favorite four-letter word. I mean it is, look, we basically had the equivalent of $300 dollar gold for almost twenty years. I mean it worked beautifully. It all broke down at the beginning of the new century. I mean that’s the interesting thing. It just completely broke down. Joe Battipaglia, you’ve heard Congressman Paul. You’ve heard Jerry Bowyer and others. Joe, if you buy into it, I don’t know if you do or not, what do you do as an investor, if you’re faced with this problem, the breakdown in Federal Reserve and monetary discipline. Inflation is the cruelest tax of all. As an investor Joe, what do you do about it?
Joe Battipaglia [Stifel Nicolas market strategist]: Well unfortunately you become a trader, not an investor. Because policy decisions will be made that will work in contrast to the economy’s proper functioning, and you will have bouts of inflation, and you will have bubbles. So, the long-term strategy of buying and holding and growing equity gets tossed over to trading environment. And you swing from commodity classes to traditional assets like equities and bonds. And that’s a very dangerous place to be because you create more risk in the marketplace, you retard investment I think, and you also retard the ability to accumulate wealth over time. Because what’s happening is monetarism is being put at the beck and call of Keynesianism. So now you’ve got government policy run amok and the central banker coming in behind to make sure there’s no failure, puff up the economy, create more credit, keep the bubbles going. It’s a very bad mixture.
Kudlow: Well it’s over-tinkering and fine-tuning. You’re exactly right. David Kotok, what’s your take on all this?
David Kotok [co-founder & CIO of Cumberland Advisors]: Well I have to weigh in on defense of the Fed. The Fed cannot do its job until and unless it restores financial markets with functionality. We have dysfunctional financial markets. That means the Fed…
Kudlow: What does that mean? What does that mean? In plain language, what did you just say?
Kotok: Some markets are not clearing at all, like adjustable rate preferreds, or student loans. Other markets are not clearing at pricing which is not normal. That was true of the federal agencies. So you have to have a fix, and that’s part of this process. And if you look at history far back enough you will find in the Gold Rush days 150 years ago, there was rampant inflation in California during gold discoveries. Gold is not the magic cure.
Kudlow: Jerry Bowyer, did Dave Kotok just blame markets? Did I hear that right Jerry?
Bowyer: Well I think what he did is he saw that there’s a problem in the markets and basically thought that the Fed could solve that with the printing press. There are problems in credit markets, but they’re regulatory problems. A lot of these loans were foisted on the banks by political pressure, [the] Community Reinvestment Act and other things. And so the banks did what the regulators told them to do, and now they’re having trouble selling those mortgages because a lot of them shouldn’t have been issued in the first place. You can’t solve that with the printing press. If you could solve it with the printing press, it would already be solved because the Fed funds rate is at 2 percent and we are pouring money into this economy. The solution is not more money.
Kudlow: Well in Argentina, it would be the center of the world economy. Jim Lacamp do you want to weigh in on this? You’ve heard Mr. Paul…
Jim Lacamp [portfolio manager, RBC Dain Rauscher]: Yeah.
Kudlow: You heard the Kotok opposition to it. You heard Jerry Bowyer and Joe B. I want to know, should we be advising investors to run a sort of inflationist investment policy? In other words, today, commodities, basic materials and energy got hit, but maybe you buy those on the dips because that’s the new long run play. And as Joe Battipaglia said, inflation is inherently unstable. So you can’t buy and hold, you’ve got to trade the market. What’s your take Mr. Lacamp?
Lacamp: Yeah it’s a fiat monetary currency system. And when you have something like that it builds up a bigger and bigger mountain of debt and creates asset bubbles just like Joe said. And so the buy-and-hold really hasn’t worked over the last ten years. The ten years numbers on the S&P right now are about 2.7 percent per year. That’s sub-par throughout history. And the reason is because we keep creating these bubbles. And Fannie May and Freddie Mac are poster children for why we should not have government involvement in our financial system to a big degree. And the reason is that these are semi-socialistic, not even semi-socialistic, they’re socialistic entities that were allowed to create bad business models because of this implied government backing. Well now we have to give this unlimited line of credit with taxpayer money to a bad business. That’s not good policy. It rewards bad behavior. And I think that we need to get government out as much as we can.
Kudlow: Alright Mr Paul, just two quickies on the way out sir. We appreciate your time. You gonna vote for bailing out Fannie and Freddie?
Paul: No. No way. I can’t do that. Because that would contradict everything I’ve been saying. No. We should have the cleansing of the system. All the malinvestment, all the problems came from the artificially low interest rates. Yes, the markets are dysfunctional. But the problem should be laid at the doorstep of the Federal Reserve. Like I said, not just Bernanke, but the system itself. All of the Greenspan years. It caused all of the malinvestment. There were a lot of sound economists over the last ten years warning about this housing bubble. I even had a bill in eight years ago to remove the line of credit to the Fed saying it was a moral hazard because even though it was only $2.5 billion dollars, I said when push comes to shove, it’s gonna be a lot more. Now it looks like it’s $300 billion dollars.
Kudlow: Yeah, we’re gonna go from $2.25 to $300. Last one, real quick sir. Political question. I’m going to switch gears. Have you thrown your support to Bob Barr, the Libertarian candidate?
Paul: No. No I have not. I have not endorsed any one particular candidate. The only question I’ve answered has been would I vote for John McCain, and I wouldn’t be able to.
Kudlow: But you haven’t ruled out voting for Barr, is that correct?
Paul: No I have not. I’ll probably do some type of announcement like that sometime in September.
Kudlow: All right. We appreciate your time very much.
Paul: Thank you.
Kudlow: Congressman Ron Paul, thank you for joining us.
Definition of “Schumer”
My friend Jim McTague over at Barron’s sent me an amusing e-mail earlier.
Apparently Jim has coined a new word he’d like to see added to the lexicon. The word? Schumer. It’s a verb with the definition, “to cause a decline in confidence at a financial institution by a public statement.” As in, “XYZ Bank today was schumered by the Washington Post.”
Jim notes that his last attempt to coin a word — indigencia — failed to catch on. That’s too bad. It’s actually a pretty handy word. Indigencia is a noun that refers to “the class that both promotes and benefits from welfare subsidies.”
Very clever, Jim.
Apparently Jim has coined a new word he’d like to see added to the lexicon. The word? Schumer. It’s a verb with the definition, “to cause a decline in confidence at a financial institution by a public statement.” As in, “XYZ Bank today was schumered by the Washington Post.”
Jim notes that his last attempt to coin a word — indigencia — failed to catch on. That’s too bad. It’s actually a pretty handy word. Indigencia is a noun that refers to “the class that both promotes and benefits from welfare subsidies.”
Very clever, Jim.
Wednesday, July 16, 2008
Wednesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS...Our stock market and economic all-stars will weigh in with their perspective on all the latest news, trends and developments affecting investors.
On board:
*Joe Battipaglia, Stifel Nicolas market strategist
*Jim Lacamp, portfolio manager, RBC Dain Rauscher
*David Kotok, co-founder & CIO of Cumberland Advisors
*Jerry Bowyer, chief economist, Benchmark Financial Network
*Bert Ely, president for banking consultant Ely & Co.
INTERVIEW WITH REP. RON PAUL...Joining us to discuss Fed head Bernanke, Fannie & Freddie, inflation and the dollar will be former GOP presidential candidate Rep. Ron Paul of Texas.
The market panel will weigh in with its response following our interview with Congressman Paul.
INTERVIEW WITH SENATOR SHELBY...Joining us to discuss Washington's approach to Fannie & Freddie will be Senate Banking ranking member Richard Shelby (R-AL).
SECURING AMERICA'S ENERGY…Decorated retired General James Jones will be aboard to discuss drill, drill, drill.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Bunning Squawks at Paulson and Bernanke … Good for Bunning
I see this morning that some of my CNBC colleagues are talking down to Jim Bunning, almost making fun of him as some sort of “odd duck,” because the Kentucky senator dared to squawk back at Henry Paulson (and for that matter Ben Bernanke) during yesterday’s Senate hearings on Fannie Mae and Freddie Mac. In fact, Bunning deserves credit for being a principled conservative.
I interviewed Sen. Bunning last night on CNBC and he was very clear about his strong reservations about the Paulson bailout plan. In particular, Bunning simply refuses to sign on to a blank check of any kind — whether it’s an unlimited line of credit from the Treasury to the GSEs or an unlimited injection of equity or debt capital into their balance sheets. Bunning quite rightly points out that the phrase “Treasury money” or “government money” is really taxpayer money. He’s got a point there, doesn’t he? A very good point.
What’s more, Sen. Bunning wants to see Fannie and Freddie restructured. Whether Paulson meant to or not, he left the impression that the government will backstop the two housing lenders without changing their business plans. The key issue right now is the portfolio/hedge-funds that both GSEs operate. Most of what Fannie and Freddie do is buy mortgages from local lenders or big banks, package them, and then resell them to institutional investors around the world. But oftentimes Fannie and Freddie buy the mortgages and put them in their own portfolios. This creates huge credit risk. And then they try to hedge their risk through various derivative contracts which create even more credit risk.
The stock market crash of Fannie and Freddie is directly related to their portfolio risk. Market sellers believe huge mortgage write-offs are coming, and that neither Fred nor Fan has enough real capital to safely take the earnings hit from the portfolio losses. What must be done here in return for government backing, at the very minimum, is to severely limit the GSE portfolios and over time force them to gradually sell off these portfolio holdings. Doing so would reduce taxpayer risk. It also would move Fan and Fred in the direction of future privatization.
Mr. Paulson didn’t talk about portfolio management changes, so I think Sen. Bunning is quite right in his criticisms. Notice that Fannie and Freddie stocks fell again yesterday after the Paulson hearing.
One more point: Sen. Bunning was highly critical of Ben Bernanke as the Fed head basically threw the dollar under the bus in yesterday’s hearing. Bernanke talked tough in June on dollar defense and inflation. But he was a dove yesterday. Today’s 5 percent CPI report as well as an increase in the core CPI illustrates Bernanke’s folly and Bunning’s wisdom.
The only good thing to come out of yesterday was President Bush’s drill, drill, drill message, which caused oil prices to fall sharply. But neither Paulson nor Bernanke hit the right notes in their testimonies. We should be giving Sen. Jim Bunning credit, not making fun of him. Taxpayer bailouts are very serious business. Some are even calling it Republican socialism. And a chronically weak dollar is merely feeding the problem rather than solving it.
I interviewed Sen. Bunning last night on CNBC and he was very clear about his strong reservations about the Paulson bailout plan. In particular, Bunning simply refuses to sign on to a blank check of any kind — whether it’s an unlimited line of credit from the Treasury to the GSEs or an unlimited injection of equity or debt capital into their balance sheets. Bunning quite rightly points out that the phrase “Treasury money” or “government money” is really taxpayer money. He’s got a point there, doesn’t he? A very good point.
What’s more, Sen. Bunning wants to see Fannie and Freddie restructured. Whether Paulson meant to or not, he left the impression that the government will backstop the two housing lenders without changing their business plans. The key issue right now is the portfolio/hedge-funds that both GSEs operate. Most of what Fannie and Freddie do is buy mortgages from local lenders or big banks, package them, and then resell them to institutional investors around the world. But oftentimes Fannie and Freddie buy the mortgages and put them in their own portfolios. This creates huge credit risk. And then they try to hedge their risk through various derivative contracts which create even more credit risk.
The stock market crash of Fannie and Freddie is directly related to their portfolio risk. Market sellers believe huge mortgage write-offs are coming, and that neither Fred nor Fan has enough real capital to safely take the earnings hit from the portfolio losses. What must be done here in return for government backing, at the very minimum, is to severely limit the GSE portfolios and over time force them to gradually sell off these portfolio holdings. Doing so would reduce taxpayer risk. It also would move Fan and Fred in the direction of future privatization.
Mr. Paulson didn’t talk about portfolio management changes, so I think Sen. Bunning is quite right in his criticisms. Notice that Fannie and Freddie stocks fell again yesterday after the Paulson hearing.
One more point: Sen. Bunning was highly critical of Ben Bernanke as the Fed head basically threw the dollar under the bus in yesterday’s hearing. Bernanke talked tough in June on dollar defense and inflation. But he was a dove yesterday. Today’s 5 percent CPI report as well as an increase in the core CPI illustrates Bernanke’s folly and Bunning’s wisdom.
The only good thing to come out of yesterday was President Bush’s drill, drill, drill message, which caused oil prices to fall sharply. But neither Paulson nor Bernanke hit the right notes in their testimonies. We should be giving Sen. Jim Bunning credit, not making fun of him. Taxpayer bailouts are very serious business. Some are even calling it Republican socialism. And a chronically weak dollar is merely feeding the problem rather than solving it.
My Interview with Senator Jim Bunning
What follows below is an unofficial transcript of my interview on Kudlow & Company last night with Senator Jim Bunning (R-KY). Mr. Bunning is a Republican member of the Senate Banking Committee.
Kudlow: Senator Jim Bunning, Republican from Kentucky, not happy today with either Treasury man Paulson or Fed head Bernanke. Now, Senator Bunning, here’s what you said at the hearing, taking direct aim at Treasury man Paulson’s bailout plan for Fannie and Freddie. Take a listen to your own words.
[Senator Bunning's remarks at yesterday's Senate Banking Committee hearing: “When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turned out it was socialism here in the United States of America. And very well, going well. And the Treasury secretary is now asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns assets was amateur socialism compared to this.”]
Kudlow: All right. So Senator Bunning, I heard two things, Republican socialism and a blank check. Could you expand on that?
Bunning: Well, both are true. The administration is absolutely wrong in bailing out Bear Stearns and Freddie and Fannie. And the Secretary of the Treasury, and the complicity of the Fed chairman to these two things, you’re absolutely right, we have socialism in the Republican Party and this administration.
Kudlow: Did you think that Ben Bernanke, you had some unkind - I won’t say unkind, let me just say you had some spirited discussion with him. Has Bernanke thrown the dollar over the side? Has Bernanke thrown inflation targeting over the side…
Bunning: Yes.
Kudlow: Is he too obsessed with this Republican socialism?
Bunning: Absolutely. He threw the dollar over the side when he lowered the rates to 2 percent and have kept them there. And we’re not going to have an increase in an election year Larry. You can mark it down somewhere, wherever you mark things down, it’s going to be January or February before we have an increase in the Fed Funds rate which we need desperately to shore up our dollar. If you don’t care about the dollar, let Ben Bernanke do his thing.
Kudlow: Well, stocks went down again today. Gold went up, even though the oil went down. I think Bush was the only guy that got it right with his drill, drill, drill. He’s trying to prod Congress. But let me ask you this. Coming back to Mr. Paulson, and his so-called bailout of Fannie and Freddie. Did you get any satisfaction, you asked him specifically about blank checks and credit cards. Did you get any satisfaction from Paulson?
Bunning: The only thing I got from him was doubletalk. And the doubletalk was that they didn’t want to put a limit, because they didn’t think they were going to use it. And my question was, well then why do it at all?
Kudlow: If we give them some backing and guarantees, as we apparently are, then shouldn’t we have the willingness, the ability, and the right, to totally restructure their operations…
Bunning: Ahhh…
Kudlow: For example, they have an inside portfolio which is like a little hedge fund. It’s about $700 billion dollars. Shouldn’t we do something about that? That’s the ultimate taxpayer hook, isn’t it?
Bunning: That’s the hook.
Kudlow: Did Paulson say anything about that?
Bunning: No, he didn’t say anything other than to keep Freddie and Fannie like they were. Or are.
Kudlow: So let me get this right, if we keep them like they were, with $5 dollar stock prices we are now giving them a total U.S. full faith and credit guarantee? And then they can go ahead off and pay themselves fat salaries and bonuses? Is that the deal here?
Bunning: Well, I don’t know if you heard Chuck Hagel today. But he said $15 million dollars to mismanage Freddie and Fannie as badly as they have mismanaged it? And the boards on each of those GSEs getting paid the prices they’re getting paid? No, that’s not America. You get paid when you do something right! You don’t get paid when you do something wrong.
Kudlow: Well I think that’s called moral hazard. We’re rewarding bad behavior.
Bunning: That’s exactly what we’re doing. That’s what we did with Bear Stearns.
Kudlow: Who’s gonna pay for this, Senator. Who’s gonna finance this?
Bunning: The good old U.S taxpayer always gets stuck with the bill.
Kudlow: All right. Senator Jim Bunning. Appreciate it. Good to see you.
Bunning: Thank you, Larry.
Kudlow: Great stuff. Take care. Many thanks to Mr. Bunning.
Kudlow: Senator Jim Bunning, Republican from Kentucky, not happy today with either Treasury man Paulson or Fed head Bernanke. Now, Senator Bunning, here’s what you said at the hearing, taking direct aim at Treasury man Paulson’s bailout plan for Fannie and Freddie. Take a listen to your own words.
[Senator Bunning's remarks at yesterday's Senate Banking Committee hearing: “When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turned out it was socialism here in the United States of America. And very well, going well. And the Treasury secretary is now asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns assets was amateur socialism compared to this.”]
Kudlow: All right. So Senator Bunning, I heard two things, Republican socialism and a blank check. Could you expand on that?
Bunning: Well, both are true. The administration is absolutely wrong in bailing out Bear Stearns and Freddie and Fannie. And the Secretary of the Treasury, and the complicity of the Fed chairman to these two things, you’re absolutely right, we have socialism in the Republican Party and this administration.
Kudlow: Did you think that Ben Bernanke, you had some unkind - I won’t say unkind, let me just say you had some spirited discussion with him. Has Bernanke thrown the dollar over the side? Has Bernanke thrown inflation targeting over the side…
Bunning: Yes.
Kudlow: Is he too obsessed with this Republican socialism?
Bunning: Absolutely. He threw the dollar over the side when he lowered the rates to 2 percent and have kept them there. And we’re not going to have an increase in an election year Larry. You can mark it down somewhere, wherever you mark things down, it’s going to be January or February before we have an increase in the Fed Funds rate which we need desperately to shore up our dollar. If you don’t care about the dollar, let Ben Bernanke do his thing.
Kudlow: Well, stocks went down again today. Gold went up, even though the oil went down. I think Bush was the only guy that got it right with his drill, drill, drill. He’s trying to prod Congress. But let me ask you this. Coming back to Mr. Paulson, and his so-called bailout of Fannie and Freddie. Did you get any satisfaction, you asked him specifically about blank checks and credit cards. Did you get any satisfaction from Paulson?
Bunning: The only thing I got from him was doubletalk. And the doubletalk was that they didn’t want to put a limit, because they didn’t think they were going to use it. And my question was, well then why do it at all?
Kudlow: If we give them some backing and guarantees, as we apparently are, then shouldn’t we have the willingness, the ability, and the right, to totally restructure their operations…
Bunning: Ahhh…
Kudlow: For example, they have an inside portfolio which is like a little hedge fund. It’s about $700 billion dollars. Shouldn’t we do something about that? That’s the ultimate taxpayer hook, isn’t it?
Bunning: That’s the hook.
Kudlow: Did Paulson say anything about that?
Bunning: No, he didn’t say anything other than to keep Freddie and Fannie like they were. Or are.
Kudlow: So let me get this right, if we keep them like they were, with $5 dollar stock prices we are now giving them a total U.S. full faith and credit guarantee? And then they can go ahead off and pay themselves fat salaries and bonuses? Is that the deal here?
Bunning: Well, I don’t know if you heard Chuck Hagel today. But he said $15 million dollars to mismanage Freddie and Fannie as badly as they have mismanaged it? And the boards on each of those GSEs getting paid the prices they’re getting paid? No, that’s not America. You get paid when you do something right! You don’t get paid when you do something wrong.
Kudlow: Well I think that’s called moral hazard. We’re rewarding bad behavior.
Bunning: That’s exactly what we’re doing. That’s what we did with Bear Stearns.
Kudlow: Who’s gonna pay for this, Senator. Who’s gonna finance this?
Bunning: The good old U.S taxpayer always gets stuck with the bill.
Kudlow: All right. Senator Jim Bunning. Appreciate it. Good to see you.
Bunning: Thank you, Larry.
Kudlow: Great stuff. Take care. Many thanks to Mr. Bunning.
Tuesday, July 15, 2008
Tuesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS...Our stock market all-stars will discuss and debate all the latest news, trends and developments affecting investors.
On board:
*Don Luskin, chief investment officer, Trend Macro
*Michael Ozanian, Forbes magazine senior editor
*Vince Farrell, managing director, Scotsman Capital
*Stefan Abrams, Bryden-Abrams Investment Management managing partner
POWER GRAB BY THE FED & TREASURY?...Senator Jim Bunning (R-KY), member of the Senate Banking Committee, will join us to discuss his comments during today's question-and-answer session with Fed Chairman Ben Bernanke about the Fannie and Freddie backstop plan.
The market panel will weigh in with its perspective following the Bunning interview.
THE FED, DOLLAR, ECONOMY, INFLATION & MORE...Our economic heavyweights will discuss and debate all the latest economic news, trends, and developments.
On board:
*Art Laffer, economist and chairman of Laffer Associates
*Brian Wesbury, chief economist at First Trust Advisors
*Michelle Girard, senior economist at RBS Greenwich Capital
SCHUMER, BANKS, BAILOUTS & THE ROAD TO RECOVERY...On to debate will be author, public policy professor and former Clinton labor secretary Robert Reich and Dick Armey, former GOP House Majority Leader and chairman of FreedomWorks.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Bravo for Bush
In a dramatic move yesterday President Bush removed the executive-branch moratorium on offshore drilling. Today, at a news conference, Bush repeated his new position, and slammed the Democratic Congress for not removing the congressional moratorium on the Outer Continental Shelf and elsewhere. Crude-oil futures for August delivery plunged $9.26, or 6.3 percent, almost immediately as Bush was speaking, bringing the barrel price down to $136.
Now isn’t this interesting?
Democrats keep saying that it will take 10 years or longer to produce oil from the offshore areas. And they say that oil prices won’t decline for at least that long. And they, along with Obama and McCain, bash so-called oil speculators. And today we had a real-world example as to why they are wrong. All of them. Reid, Pelosi, Obama, McCain — all of them.
Traders took a look at a feisty and aggressive George Bush and started selling the market well before a single new drop of oil has been lifted. What does this tell us? Well, if Congress moves to seal the deal, oil prices will probably keep on falling. That’s the way traders work. They discount the future. Psychology and expectations can turn on a dime.
The congressional ban on offshore drilling expires September 30, so that becomes a key date. A new report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratorium were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. They’re talking about 10 billion barrels worth off the coast of California.
There’s also a “gang of 10” in the Senate, five Republicans and five Democrats, that is trying to work a compromise deal on lifting the moratorium. So it’s possible a lot of action on this front could occur much sooner than people seem to think.
So I repeat: Drill, drill, drill. Deregulate, decontrol, and unleash the American energy industry. Those hated traders will then keep selling oil as the laws of supply and demand and free markets keep working.
Bravo for Bush. Bravo for the traders.
Now isn’t this interesting?
Democrats keep saying that it will take 10 years or longer to produce oil from the offshore areas. And they say that oil prices won’t decline for at least that long. And they, along with Obama and McCain, bash so-called oil speculators. And today we had a real-world example as to why they are wrong. All of them. Reid, Pelosi, Obama, McCain — all of them.
Traders took a look at a feisty and aggressive George Bush and started selling the market well before a single new drop of oil has been lifted. What does this tell us? Well, if Congress moves to seal the deal, oil prices will probably keep on falling. That’s the way traders work. They discount the future. Psychology and expectations can turn on a dime.
The congressional ban on offshore drilling expires September 30, so that becomes a key date. A new report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratorium were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. They’re talking about 10 billion barrels worth off the coast of California.
There’s also a “gang of 10” in the Senate, five Republicans and five Democrats, that is trying to work a compromise deal on lifting the moratorium. So it’s possible a lot of action on this front could occur much sooner than people seem to think.
So I repeat: Drill, drill, drill. Deregulate, decontrol, and unleash the American energy industry. Those hated traders will then keep selling oil as the laws of supply and demand and free markets keep working.
Bravo for Bush. Bravo for the traders.
The Saga of Fannie and Freddie
Watch out for the moral hazards.
"Too big to fail” was the verdict in the U.S. Treasury decision to backstop mortgage lenders Fannie Mae and Freddie Mac. But is the taxpayer risk of moral hazard still as big as ever?
Investors trashed shares of these government-sponsored enterprises last week, knocking them down almost 50 percent on a wave of bankruptcy rumors. Former St. Louis Fed president Bill Poole argued that technically, the two are already in bankruptcy, while fears spread they couldn’t even raise overnight money to finance their operations.
So Treasury secretary Paulson stepped in. His full-throated-support plan raises Fannie and Freddie’s line of credit from $2.25 billion to $300 billion, and leaves the door open for the Treasury to buy stock in the banks. The Federal Reserve, meanwhile, would make its discount lending window available to the pair if necessary.
For decades, Fannie and Freddie sold pools of mortgage-backed securities in the bond market and raised cash for their own accounts under the previously untested assumption that someday the implicit guarantee of the full faith and credit of the U.S. government would become explicit. That explicit promise has now become the new reality.
Fannie and Freddie paper is owned by institutions and investors worldwide. And yes, if there had been a run on these banks, the global financial system would have titled precariously toward calamity. So the bailout was wise, at least in the short run.
But what happens in the longer run?
Mr. Paulson’s dramatic Sunday-evening announcement raises as many questions as it answers. Most important, will a new regulatory plan expected to be passed swiftly by Congress allow the two housing-finance giants to continue on their merry way? Or will there be serious changes in their conduct?
Here’s the issue: The main mission of Fannie and Freddie is to provide liquidity into the mortgage markets by purchasing loans made by local lenders and repackaging them into bond-market security pools that are sold to investors with the U.S. government’s stamp of approval. You might call this the good-cop function.
But then there’s the bad-cop function: Fannie and Freddie purchased some of these mortgage pools for their own portfolios, essentially setting up a high-risk internal hedge fund. It was the sinking credit quality of this hedge fund that drove last week’s shareholder run. Think sub-prime mortgages and other shaky and exotic loans.
As per first-quarter 2008 financial reports, Fannie Mae had $727 billion in its portfolio of sub-prime alt-A and other paper, while Freddie Mac had $712 billion. That’s $1.4 trillion of assets that under the new regulatory rules could place U.S. taxpayers on the hook. But the Treasury’s new dictum only puts the U.S. squarely behind the $3.7 trillion in mortgage-backed securities that Fannie and Freddie packaged and sold to third-party investors. The bailout doesn’t say anything about the portfolio holdings that have stock markets so skeptical.
According to expert Peter Wallison of the American Enterprise Institute, the new congressional regulatory approach permits the new Federal Housing Finance Agency supervisor to gain control of these risky portfolios, gradually downsize them, and ultimately sell them off. But Wallison fears that if the new regulator fails to go down this road, Fannie and Freddie may “gamble for resurrection” — meaning they will use their government backing to raise more cash to buy even more risky portfolio holdings and try to bail themselves out.
Wallison says the government should just take control of Fannie and Freddie, making them tightly controlled government agencies with the aim of reducing taxpayer risk, not expanding it. Maybe down the road the two housing banks could be completely privatized, but that no longer looks to be part of the conversation.
There’s another key point to this bailout. The proposal to open the Federal Reserve discount window to Fannie and Freddie may essentially put the Fed in charge of yet another part of our financial system. The central bank is already becoming the lender of last resort and regulator of Wall Street investment banks. The New York Sun’s Seth Lipsky calls this a power-grab. But Fannie and Freddie jurisdiction would have the Fed grabbing even more power.
Here’s the key question: If the Fed is supervising and lending to Wall Street and the two housing-finance behemoths, when will it have the time or inclination to defend the value of the U.S. dollar and stop the incipient inflation that has been taxing consumers and dragging down the economy? Remember, low unemployment is also a Fed mission. So what are the central bank’s priorities? If it is the ultimate “financial stabilizer,” what should we expect about the future value of our money?
The saga of Fannie and Freddie already shows the moral hazard created when Uncle Sam rewards institutional miscues. But if the Fed is bailing out all these financial areas, the ultimate moral hazard could be a U.S. dollar that nobody wants to own.
"Too big to fail” was the verdict in the U.S. Treasury decision to backstop mortgage lenders Fannie Mae and Freddie Mac. But is the taxpayer risk of moral hazard still as big as ever?
Investors trashed shares of these government-sponsored enterprises last week, knocking them down almost 50 percent on a wave of bankruptcy rumors. Former St. Louis Fed president Bill Poole argued that technically, the two are already in bankruptcy, while fears spread they couldn’t even raise overnight money to finance their operations.
So Treasury secretary Paulson stepped in. His full-throated-support plan raises Fannie and Freddie’s line of credit from $2.25 billion to $300 billion, and leaves the door open for the Treasury to buy stock in the banks. The Federal Reserve, meanwhile, would make its discount lending window available to the pair if necessary.
For decades, Fannie and Freddie sold pools of mortgage-backed securities in the bond market and raised cash for their own accounts under the previously untested assumption that someday the implicit guarantee of the full faith and credit of the U.S. government would become explicit. That explicit promise has now become the new reality.
Fannie and Freddie paper is owned by institutions and investors worldwide. And yes, if there had been a run on these banks, the global financial system would have titled precariously toward calamity. So the bailout was wise, at least in the short run.
But what happens in the longer run?
Mr. Paulson’s dramatic Sunday-evening announcement raises as many questions as it answers. Most important, will a new regulatory plan expected to be passed swiftly by Congress allow the two housing-finance giants to continue on their merry way? Or will there be serious changes in their conduct?
Here’s the issue: The main mission of Fannie and Freddie is to provide liquidity into the mortgage markets by purchasing loans made by local lenders and repackaging them into bond-market security pools that are sold to investors with the U.S. government’s stamp of approval. You might call this the good-cop function.
But then there’s the bad-cop function: Fannie and Freddie purchased some of these mortgage pools for their own portfolios, essentially setting up a high-risk internal hedge fund. It was the sinking credit quality of this hedge fund that drove last week’s shareholder run. Think sub-prime mortgages and other shaky and exotic loans.
As per first-quarter 2008 financial reports, Fannie Mae had $727 billion in its portfolio of sub-prime alt-A and other paper, while Freddie Mac had $712 billion. That’s $1.4 trillion of assets that under the new regulatory rules could place U.S. taxpayers on the hook. But the Treasury’s new dictum only puts the U.S. squarely behind the $3.7 trillion in mortgage-backed securities that Fannie and Freddie packaged and sold to third-party investors. The bailout doesn’t say anything about the portfolio holdings that have stock markets so skeptical.
According to expert Peter Wallison of the American Enterprise Institute, the new congressional regulatory approach permits the new Federal Housing Finance Agency supervisor to gain control of these risky portfolios, gradually downsize them, and ultimately sell them off. But Wallison fears that if the new regulator fails to go down this road, Fannie and Freddie may “gamble for resurrection” — meaning they will use their government backing to raise more cash to buy even more risky portfolio holdings and try to bail themselves out.
Wallison says the government should just take control of Fannie and Freddie, making them tightly controlled government agencies with the aim of reducing taxpayer risk, not expanding it. Maybe down the road the two housing banks could be completely privatized, but that no longer looks to be part of the conversation.
There’s another key point to this bailout. The proposal to open the Federal Reserve discount window to Fannie and Freddie may essentially put the Fed in charge of yet another part of our financial system. The central bank is already becoming the lender of last resort and regulator of Wall Street investment banks. The New York Sun’s Seth Lipsky calls this a power-grab. But Fannie and Freddie jurisdiction would have the Fed grabbing even more power.
Here’s the key question: If the Fed is supervising and lending to Wall Street and the two housing-finance behemoths, when will it have the time or inclination to defend the value of the U.S. dollar and stop the incipient inflation that has been taxing consumers and dragging down the economy? Remember, low unemployment is also a Fed mission. So what are the central bank’s priorities? If it is the ultimate “financial stabilizer,” what should we expect about the future value of our money?
The saga of Fannie and Freddie already shows the moral hazard created when Uncle Sam rewards institutional miscues. But if the Fed is bailing out all these financial areas, the ultimate moral hazard could be a U.S. dollar that nobody wants to own.
Monday, July 14, 2008
Monday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:FINANCIALS, FANNIE & FREDDIE, & MORE...Our stock market and economic all-stars will discuss and debate all the latest news and developments affecting investors.
On board:
*Dennis Gartman, economist & editor of the Gartman Letter
*Tom Brown, CEO & founder of Bankstocks.com
*James Bianco, president of Bianco Research
*Dennis Kneale, CNBC media & technology editor
*Gary Shilling, president of A. Gary Shilling & Co.
THE DYNAMIC DUO DEBATES DRILL, DRILL, DRILL...Former Clinton labor secretary Robert Reich will square off against The Wall Street Journal's Steve Moore on all things oil including President Bush's decision to lift the executive ban on oil exploration in America's Outer Continental Shelf.
Also...US Interior Secretary Dirk Kempthorne will join us with additional perpsective on today's landmark announcement.
WASHINGTON TO WALL STREET...On to discuss and debate all the latest money politics and election-related issues facing investors will be Greg Valliere, chief strategist at Stanford Washington Research Group and "Jimmy P" Pethokoukis, money and politics blogger for U.S. News & World Report.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Cleaning Up Fannie and Freddie
I noticed that gold went up $10 this morning to around $970 on the news that Uncle Sam will backstop mortgage lenders Fannie and Freddie. Gold, of course, is still a key barometer of dollar value and future inflation, while it may be a sidebar to the bigger story of saving Fannie and Freddie.
Inside the government bailout is yet more power for the Federal Reserve, which will be given “a consultative role” to set capital requirements and other “prudential standards” for Fannie Mae and Freddie Mac. This comes on top of the Fed’s power-grab to regulate Wall Street investment banks and become the “financial stabilizer” of last resort.
The sinking dollar and rising gold price in recent years suggest market doubt about the ability of the Fed to maintain price stability and a stable dollar in the face of all their other responsibilities to inject liquidity into the banking system as a safety backstop measure — or for that matter to keep the unemployment rate low. The New York Sun’s Seth Lipsky has been making this point and it’s a very good one.
As for the rescue of Fannie and Freddie announced last night by Treasury man Paulson, it’s a necessary and prudent move in order to avoid a global financial blowup. Everybody owns Fannie and Freddie bonds here in the U.S. and around the world. So, in effect, Fan and Fred paper is now explicitly guaranteed with the full faith and credit of the U.S. government.
However, one key point is what to do with the portfolio holdings of Fan and Fred. You see, these banks have two purposes: One, they purchase mortgage loans made by local lenders and then repackage them into bond-market pools that are sold to investors with the U.S. government’s stamp of approval. But their other business activity is to purchase mortgage loans for their own portfolios, essentially setting up a high-risk internal hedge fund. This is what caused stock market investors to slash Fannie and Freddie share prices nearly 50 percent last week, leading to much angst.
According to expert Peter Wallison of the AEI, Fannie Mae has a $780 billion portfolio of mortgages and derivatives. Freddie Mac’s is about $680 billion. Some believe under fair-value accounting that these portfolio holdings are deep in the red. My question is whether under the new rules U.S. taxpayers are gonna be on the hook for these portfolios. Wallison tells me that the new regulatory approach coming out of Congress permits the new Federal Housing Finance Agency supervisor to gain control of these risky portfolios and to gradually downsize them and ultimately sell them off. If this reform takes place it will be a good thing. If the reform is not implemented it will be a very bad thing and will keep Fannie and Freddie doing exactly the same high-risk things they have always done.
Incidentally, it would be good if the new regulatory regime insists upon board members for Fannie and Freddie who have true mortgage and financial expertise, rather than the political roster that has governed these agencies for decades. The two guys running Fan and Fred, Dan Mudd and Dick Syron, are financial guys. But in the past, at least for Fannie, CEOs have too often been political people — like Frank Raines, the former Clinton budget director, or James Johnson, former Mondale aide-de-camp. Both Republican and Democratic appointees have been placed inside Fannie, even though they have no expertise. It’s a great place to make a lot of money, but at taxpayer expense. For example, Jamie Gorelick, former general counsel to the Clinton Defense Department and later deputy attorney general, had a big Fannie Mae job. But it’s hard to see how she was qualified to take a senior mortgage-lending position.
All this sort of thing has to be cleaned up.
Inside the government bailout is yet more power for the Federal Reserve, which will be given “a consultative role” to set capital requirements and other “prudential standards” for Fannie Mae and Freddie Mac. This comes on top of the Fed’s power-grab to regulate Wall Street investment banks and become the “financial stabilizer” of last resort.
The sinking dollar and rising gold price in recent years suggest market doubt about the ability of the Fed to maintain price stability and a stable dollar in the face of all their other responsibilities to inject liquidity into the banking system as a safety backstop measure — or for that matter to keep the unemployment rate low. The New York Sun’s Seth Lipsky has been making this point and it’s a very good one.
As for the rescue of Fannie and Freddie announced last night by Treasury man Paulson, it’s a necessary and prudent move in order to avoid a global financial blowup. Everybody owns Fannie and Freddie bonds here in the U.S. and around the world. So, in effect, Fan and Fred paper is now explicitly guaranteed with the full faith and credit of the U.S. government.
However, one key point is what to do with the portfolio holdings of Fan and Fred. You see, these banks have two purposes: One, they purchase mortgage loans made by local lenders and then repackage them into bond-market pools that are sold to investors with the U.S. government’s stamp of approval. But their other business activity is to purchase mortgage loans for their own portfolios, essentially setting up a high-risk internal hedge fund. This is what caused stock market investors to slash Fannie and Freddie share prices nearly 50 percent last week, leading to much angst.
According to expert Peter Wallison of the AEI, Fannie Mae has a $780 billion portfolio of mortgages and derivatives. Freddie Mac’s is about $680 billion. Some believe under fair-value accounting that these portfolio holdings are deep in the red. My question is whether under the new rules U.S. taxpayers are gonna be on the hook for these portfolios. Wallison tells me that the new regulatory approach coming out of Congress permits the new Federal Housing Finance Agency supervisor to gain control of these risky portfolios and to gradually downsize them and ultimately sell them off. If this reform takes place it will be a good thing. If the reform is not implemented it will be a very bad thing and will keep Fannie and Freddie doing exactly the same high-risk things they have always done.
Incidentally, it would be good if the new regulatory regime insists upon board members for Fannie and Freddie who have true mortgage and financial expertise, rather than the political roster that has governed these agencies for decades. The two guys running Fan and Fred, Dan Mudd and Dick Syron, are financial guys. But in the past, at least for Fannie, CEOs have too often been political people — like Frank Raines, the former Clinton budget director, or James Johnson, former Mondale aide-de-camp. Both Republican and Democratic appointees have been placed inside Fannie, even though they have no expertise. It’s a great place to make a lot of money, but at taxpayer expense. For example, Jamie Gorelick, former general counsel to the Clinton Defense Department and later deputy attorney general, had a big Fannie Mae job. But it’s hard to see how she was qualified to take a senior mortgage-lending position.
All this sort of thing has to be cleaned up.
Thursday, July 10, 2008
Cap-and-Trade “Minimizing”
Yesterday I wrote that the McCain campaign is distancing itself and moving away from cap-and-trade. This is clear from the fact that the senator’s recent speeches do not mention cap-and-trade, and that the 15-page policy pamphlet issued by the campaign also makes no mention of cap-and-trade.
After several responses to my piece shot thru the blogosphere yesterday, Jill Hazelbaker, McCain’s communications director, issued a statement saying that any notion that the senator is abandoning or minimizing his support for cap-and-trade is “totally false.”
Well, as far as abandoning, that’s not what I said. I wrote that a McCain presidency might resurrect cap-and-trade, although it will be a much different format. But the key point is that several campaign advisors told me that the issue now is jobs and the economy, and of course $4 gas at the pump and $140 oil in the world market. Since cap-and-trade would not only establish the biggest government regulatory plan in history, and also would substantially raise gas and other fuel prices, the idea is a loser right now as every opinion-poll survey clearly shows.
Hence, the senator is being smart to move away from cap-and-trade and instead support drill, drill, drill for more energy supplies to reduce gas prices, as well as tax-cut plans to spur economic growth and jobs.
Mr. McCain is also correct to link drill, drill, drill with new energy-related job creation. In my formulation of this, nuclear power and clean coal are part of drill, drill, drill, as are natural gas and even alternative fuels. Last night former-Sen. Phil Gramm, who is ostensibly McCain’s most senior economic advisor, said as much on our program.
So while Ms. Hazelbaker may say that minimizing cap-and-trade support is totally false, she is engaging in a certain degree of cognitive dissonance on this subject. And let me note that the intent of my piece yesterday was to praise Mr. McCain on this topic, not to bury him.
After several responses to my piece shot thru the blogosphere yesterday, Jill Hazelbaker, McCain’s communications director, issued a statement saying that any notion that the senator is abandoning or minimizing his support for cap-and-trade is “totally false.”
Well, as far as abandoning, that’s not what I said. I wrote that a McCain presidency might resurrect cap-and-trade, although it will be a much different format. But the key point is that several campaign advisors told me that the issue now is jobs and the economy, and of course $4 gas at the pump and $140 oil in the world market. Since cap-and-trade would not only establish the biggest government regulatory plan in history, and also would substantially raise gas and other fuel prices, the idea is a loser right now as every opinion-poll survey clearly shows.
Hence, the senator is being smart to move away from cap-and-trade and instead support drill, drill, drill for more energy supplies to reduce gas prices, as well as tax-cut plans to spur economic growth and jobs.
Mr. McCain is also correct to link drill, drill, drill with new energy-related job creation. In my formulation of this, nuclear power and clean coal are part of drill, drill, drill, as are natural gas and even alternative fuels. Last night former-Sen. Phil Gramm, who is ostensibly McCain’s most senior economic advisor, said as much on our program.
So while Ms. Hazelbaker may say that minimizing cap-and-trade support is totally false, she is engaging in a certain degree of cognitive dissonance on this subject. And let me note that the intent of my piece yesterday was to praise Mr. McCain on this topic, not to bury him.
Fannie, Freddie, Ben, and the Dollar
As banking and financial stocks lead the overall indexes down into bear-market territory, Fed head Ben Bernanke and Treasury man Henry Paulson are testifying today before Barney Frank’s House Financial Services Committee on ways and means to reform all manner of bank and securities dealer supervision and regulation. This includes Fannie and Freddie, whose shares continue to plummet as investors doubt their solvency.
On this issue of Fannie and Freddie, which have become the central banks of housing, the matter boils down to this: Will it be an expansion of private capital or government capital to bail them out? The Wall Street Journal editorializes today on the need for government capital. I would prefer, at least at this point, that private capital do the job. There’s no question that these quasi- government agencies are in fact “too big to fail.” But before Congress gives them even more power to make more loans, somebody has got to resolve the question of how to bolster their balance sheets. And there really are just two choices: public or private money. Meanwhile, the Democratic idea that transaction-loan fees from Fannie and Freddie expansion should be siphoned off to finance the $300 billion FHA bailout bill is one hell of a bad idea.
Now, on the broader question of new financial regulation to backstop the banking system, it is noteworthy that as Paulson and Bernanke talked this morning the gold price jumped up $15. Is this a coincidence? I doubt it. Think of it this way: If the Fed becomes the financial-system stabilizer of last resort, as Bernanke suggested in a speech a few days ago, and if the Fed takes on yet another responsibility as the regulator of Wall Street investment banks, how will this agency be able to maintain price stability and a dependable dollar?
In other words, the Federal Reserve is already hobbled by a so-called dual mandate of maintaining low unemployment and low inflation. They haven’t done very well on this lately, as both targets have been rising rather than falling, while the dollar has been sinking in recent years. Now, if two more mandates are tacked on to the Fed’s mission, something is going to be sacrificed. And that something is likely to be price stability and a dependable dollar.
The gold price is signaling precisely this fear. Yesterday’s New York Sun editorial on this, undoubtedly penned by my friend Seth Lipsky, calls the Fed moves toward financial stabilizer and Wall Street regulator a “big power grab.” Well, maybe so. But if we keep heaping more and more responsibility on the Fed, then the original intent of that agency, which is to protect the value of the currency and keep prices stable, is assuredly going to fall by the wayside. That’s why Congress and the president and Mr. Paulson should think very hard on this whole idea that the Fed is the supreme being of economic central planning. I don’t think this is a good idea.
On this issue of Fannie and Freddie, which have become the central banks of housing, the matter boils down to this: Will it be an expansion of private capital or government capital to bail them out? The Wall Street Journal editorializes today on the need for government capital. I would prefer, at least at this point, that private capital do the job. There’s no question that these quasi- government agencies are in fact “too big to fail.” But before Congress gives them even more power to make more loans, somebody has got to resolve the question of how to bolster their balance sheets. And there really are just two choices: public or private money. Meanwhile, the Democratic idea that transaction-loan fees from Fannie and Freddie expansion should be siphoned off to finance the $300 billion FHA bailout bill is one hell of a bad idea.
Now, on the broader question of new financial regulation to backstop the banking system, it is noteworthy that as Paulson and Bernanke talked this morning the gold price jumped up $15. Is this a coincidence? I doubt it. Think of it this way: If the Fed becomes the financial-system stabilizer of last resort, as Bernanke suggested in a speech a few days ago, and if the Fed takes on yet another responsibility as the regulator of Wall Street investment banks, how will this agency be able to maintain price stability and a dependable dollar?
In other words, the Federal Reserve is already hobbled by a so-called dual mandate of maintaining low unemployment and low inflation. They haven’t done very well on this lately, as both targets have been rising rather than falling, while the dollar has been sinking in recent years. Now, if two more mandates are tacked on to the Fed’s mission, something is going to be sacrificed. And that something is likely to be price stability and a dependable dollar.
The gold price is signaling precisely this fear. Yesterday’s New York Sun editorial on this, undoubtedly penned by my friend Seth Lipsky, calls the Fed moves toward financial stabilizer and Wall Street regulator a “big power grab.” Well, maybe so. But if we keep heaping more and more responsibility on the Fed, then the original intent of that agency, which is to protect the value of the currency and keep prices stable, is assuredly going to fall by the wayside. That’s why Congress and the president and Mr. Paulson should think very hard on this whole idea that the Fed is the supreme being of economic central planning. I don’t think this is a good idea.
My Interview with Top McCain Economic Advisor Phil Gramm
What follows below is an unofficial transcript of my interview on Kudlow & Company last night with investment banker and former Texas Senator Phil Gramm. Mr. Gramm is a top economic advisor to John McCain.
Kudlow: Joining us now is former Senator and chairman of the Senate Banking Committee, Mr. Phil Gramm. He’s John McCain’s top economic dog. Senator Gramm it is a pleasure to see you. Thanks for coming on sir.
Gramm: Thank you Larry.
Kudlow: Unfortunately Senator, this is a rough day. And I want to ask you some questions. Put your hat on.
Gramm: It sounded like a rough day the way you were yelling a minute ago.
Kudlow: Yes, this is not a good day. Markets are down. And I want to ask you, as former chairman of the Senate Banking Committee, Fannie and Freddie are getting clobbered Mr. Gramm. They’re down, really they’re approaching zero. Ten, fifteen points away from zero. The market has completely lost confidence. There’s a Fortune magazine story that’s talking about a doomsday scenario, what would happen if they both failed. I want to ask you, what would happen if they both failed? If the unthinkable happens?
Gramm: Well, let me make it clear you asked me this question.
Kudlow: Yes sir.
Gramm: I’m not speaking for Senator McCain.
Kudlow: Yes sir.
Gramm: Freddie and Fannie are not going to fail. Obviously they have not only the implicit guarantee of the government, but clearly that’s not going to happen. I think today was a very rough day on financials across the board. I do think it’s important to remember that for everybody that sold, somebody bought. And I think Freddie and Fannie are under stress, as the financial sector is. I think maybe Congress ought to go back and look at this taking of Freddie and Fannie funds to fund a program for housing. But Freddie and Fannie are important to the American housing industry. The way our system is structured, if we could go back to the Depression and start over, I don’t doubt we would do it differently. But I expect both of them to survive. But we are going through a very difficult financial period.
Kudlow: As I recall Senator, I used to have these accounts when I worked at the Office of Management and Budget many years ago, when you and I first met. As I recall, they have a credit line to the Treasury that is something like $2.5 billion dollars, which goes back many, many many decades. And obviously is nothing even remotely close to the assets on their balance sheet or the downside risk in the event of default, or worse, bankruptcy. I mean, how should taxpayers look at this? This thing could be a time bomb.
Gramm: Well I think people are obviously concerned about the financial markets. I think at some point here we’re going to feel the bottom of our housing problem. Obviously, I hope it’ll be tomorrow. And when we do, I think confidence will rebuild quickly. But I think clearly we have a problem today. And it’s not just in Freddie and Fannie, it’s in the whole financial sector. But, underlying the financial structure of the country, most of the major institutions are profitable except for their write-offs on subprime. If we can get through this period, I think we’ll see a quick recovery. But I think what anybody who is a policymaker today, and I am not, I’m an investment banker, but I think what anybody’s got to do is try to do the things that will get us through this period quickly. And that is basically trying to stimulate economic growth and investment.
Kudlow: Before we get back to stimulating growth and investment which is always a heck of a good idea, let me ask you about Ben Bernanke. In his speech yesterday, this was a speech heard ‘round the world, he said the Fed is going to have to accept the mantle of promoting financial stability, number one. Number two, he said the Fed is going to have to regulate and supervise the Wall Street banks, the investment banks. I don’t know whether your bank UBS fall into that. It’s certainly Merrill Lynch, and Morgan Stanley and Goldman Sachs and so forth. Number three, and this is a criticism coming from many people, that’s going to give [the Fed] two more mandates, stability and regulation of Wall Street. Their first two mandates, low unemployment and low inflation have not been met. Unemployment is rising. Inflation is rising. Sources tell me The Wall Street Journal editorial page may call for Bernanke’s resignation tomorrow. Do you think Bernanke and the Fed are on a power grab? Do they deserve this added turf? Is this the right thing? Or maybe the stock market’s telling us it’s all wrong?
Gramm: Well we’re already regulated by the Federal Reserve Bank. Look, Larry, when the Federal Reserve Bank stepped in, trying to deal with systemic risk – and I think they did a very good job, and I give Bernanke very high marks on it – they basically changed the nature of investment banks and non-bank financial institutions in America. Having the data to make judgments about systemic risk makes sense. And I think it has been clear since their intervention that this was going to happen. Any move can turn into a power grab. I don’t see this as one as of today. I’m afraid that I think Bernanke has done a very good job. I think he was very clever in auctioning off loans and getting rid of the stigma of borrowing from the Federal Reserve Bank discount window. I think he’s done a good job. Especially given that he had not established a long reputation as Greenspan had. Any idea of him stepping down I think would be wrong. I would be adamantly opposed to it. I’m sure Senator McCain would be opposed to it.
Kudlow: Alright.
Gramm: These are not easy times.
Kudlow: Right.
Gramm: And when you’re being decisive, as he is being, and when you’re beginning to face a threat to the dollar, the inflation threat, in addition to the softness of the economy, this is a tough job. And I think he’s doing a good job at it. And I think we’ve got to be supportive. Leaders, when they face tough decisions, deserve our support.
Kudlow: Alright. So ultimately the buck stops here in the Oval Office, and President, possible President to be John McCain. You’re a top advisor. What would Mr. McCain say? We have rising unemployment. We have rising inflation. We have a falling dollar. What’s he gonna say? How are you advising him? How will he get the economy back on track?
Gramm: Well I think, first of all, he’s going to try to go back to programs that work. We’re not talking about faith; we’re talking about evidence. And we know the evidence, that fiscal responsibility works. It will strengthen the dollar. It will bring down oil prices. We know the corporate tax rate in America is the second highest in the world. And when you bring in state corporate tax rates – which none of the other OECD countries have – we have the highest corporate tax rate in the world.
ITT says they can build a plant and operate it in ten years, for ten years, in Ireland for a billion dollars less than they can do it in the United States because of the corporate tax rate. Obviously, we can’t live with that rate as it is. And I think we can collect more taxes by attracting more investment, by bringing it down from 35 percent to 25 percent. Senator McCain wants to do that. I know it looks popular for some in Congress, and for Senator Obama, to be calling for raising the top tax rates. But the problem is 85 percent of the taxes paid in the top bracket are paid for by small businesses filing as subchapter-S corporations or with pass-through income. And so you’re socking small business at the very moment that we need to create more jobs.
Kudlow: Okay. Let me just get you to react to—you know Senator Obama has been very critical obviously, and this is going to be a major part of the campaign and the debate. Senator Obama says Senator McCain’s plan is for millionaires and big corporations. Instead, he says he’s gonna give everybody under $250,000 a year a $500 tax credit, a thousand dollars per family, per household, to offset Social Security expenses. Let me ask you this, does Obama have a more direct assistance in this plan to the middle class than Mr. McCain?
Gramm: No. Now let me ask you a question. How many people poorer than you have ever hired you?
Kudlow: [Laughter]
Gramm: Zero.
Kudlow: Listen I’m not sculpting Obama’s message. But Obama is ahead by six or seven points in the polls or thereabouts. And I’m just saying that’s the distinction in this campaign. [Obama] says he’s going to give everybody $500 bucks, a thousand per household, help them pay off their Social Security liabilities, and that’s gonna help the middle class. The middle class is up for grabs Senator. Is Senator McCain in favor—does his plan resonate with the middle class as much as Obama’s, in your view?
Gramm: Yeah I think it will. Let me give you an example. Both Senator McCain and Senator Obama came out in the primary for doubling the dependent exemption. Senator Obama came out for doubling it by raising the top tax bracket, which is a tax on small business. Senator McCain came out for a program to reclaim the budget authority from the add-on of $18 billion dollars with earmarks in 2007, and an add-on of $17 billion dollars in 2008. Now when you ask Americans, do you want to fund doubling the dependent exemption so that families have got more money to spend on their own children – something both candidates agree to – do you want to do it by stop building bridges to nowhere, and stop pork barrel add-ons, or do you want to raise taxes on small business? I think the choice is pretty clear.
Kudlow: Alright. Thank you for that. One last one sir. We appreciate your time very much. I’m sorry to bring you on in a rough day. Cap-and-trade, Senator McCain has kind of shifted toward a pro-production, pro-energy production, he’s now in favor of offshore drilling. I think he’s in favor of drilling up in the oil shale. He’s not quite there yet on ANWR. I noticed in his two latest economic speeches – which were very much pro-growth, supply-side speeches – he did not mention cap-and-trade. I also noticed in his 15-page policy pamphlet, which most people don’t read, but I did, and you may have written it, there is no mention of cap-and-trade. Many conservatives think that would be the biggest expansion of government in American history. Is cap-and-trade dead in the McCain campaign?
Gramm: No. But let me make it clear. You know some people have been critical of the senator for moving so aggressively on nuclear power and opening up the [Outer] Continental Shelf where states agree and share in the revenues. But look, if you don’t see the world differently at $140 dollars a barrel then you did at $40 a barrel, something is wrong with you. I mean, the world has changed dramatically. And we need to act dramatically. The old tired clichés of the past—speculators, big oil companies—that’s not gonna get the job done. If we want more energy, we got to produce it. If we can produce more of it here at home, at a price people can afford to pay, we’re going to be better off.
Senator McCain is concerned about the environment. There’s no conflict between trying to expand our ability to produce energy at home and being concerned about the environment. In terms of cap-and-trade, I think we’re gonna have to make a fundamental decision. If the objective is to change the relative price of carbon-generated products, that’s one thing. But the tax also makes people poorer. And I think what we need to do, if we take this policy, and we go in that direction, is we need to take the revenue and give it back by cutting the payroll taxes, income taxes and corporate taxes to eliminate the wealth effect. To simply get the substitution effect to try to deal with global warming. But the idea of letting government spend that money is very frightening. And it would be a disaster for freedom and for America.
Kudlow: Alright, that’s great stuff. Thank you very much, Senator Phil Gramm. We appreciate it sir.
Gramm: Thank you. Calm down. America will survive.
Kudlow: I’m with you. You got to look at the optimism for the long run. Free market capitalism is the best path to prosperity.
Kudlow: Joining us now is former Senator and chairman of the Senate Banking Committee, Mr. Phil Gramm. He’s John McCain’s top economic dog. Senator Gramm it is a pleasure to see you. Thanks for coming on sir.
Gramm: Thank you Larry.
Kudlow: Unfortunately Senator, this is a rough day. And I want to ask you some questions. Put your hat on.
Gramm: It sounded like a rough day the way you were yelling a minute ago.
Kudlow: Yes, this is not a good day. Markets are down. And I want to ask you, as former chairman of the Senate Banking Committee, Fannie and Freddie are getting clobbered Mr. Gramm. They’re down, really they’re approaching zero. Ten, fifteen points away from zero. The market has completely lost confidence. There’s a Fortune magazine story that’s talking about a doomsday scenario, what would happen if they both failed. I want to ask you, what would happen if they both failed? If the unthinkable happens?
Gramm: Well, let me make it clear you asked me this question.
Kudlow: Yes sir.
Gramm: I’m not speaking for Senator McCain.
Kudlow: Yes sir.
Gramm: Freddie and Fannie are not going to fail. Obviously they have not only the implicit guarantee of the government, but clearly that’s not going to happen. I think today was a very rough day on financials across the board. I do think it’s important to remember that for everybody that sold, somebody bought. And I think Freddie and Fannie are under stress, as the financial sector is. I think maybe Congress ought to go back and look at this taking of Freddie and Fannie funds to fund a program for housing. But Freddie and Fannie are important to the American housing industry. The way our system is structured, if we could go back to the Depression and start over, I don’t doubt we would do it differently. But I expect both of them to survive. But we are going through a very difficult financial period.
Kudlow: As I recall Senator, I used to have these accounts when I worked at the Office of Management and Budget many years ago, when you and I first met. As I recall, they have a credit line to the Treasury that is something like $2.5 billion dollars, which goes back many, many many decades. And obviously is nothing even remotely close to the assets on their balance sheet or the downside risk in the event of default, or worse, bankruptcy. I mean, how should taxpayers look at this? This thing could be a time bomb.
Gramm: Well I think people are obviously concerned about the financial markets. I think at some point here we’re going to feel the bottom of our housing problem. Obviously, I hope it’ll be tomorrow. And when we do, I think confidence will rebuild quickly. But I think clearly we have a problem today. And it’s not just in Freddie and Fannie, it’s in the whole financial sector. But, underlying the financial structure of the country, most of the major institutions are profitable except for their write-offs on subprime. If we can get through this period, I think we’ll see a quick recovery. But I think what anybody who is a policymaker today, and I am not, I’m an investment banker, but I think what anybody’s got to do is try to do the things that will get us through this period quickly. And that is basically trying to stimulate economic growth and investment.
Kudlow: Before we get back to stimulating growth and investment which is always a heck of a good idea, let me ask you about Ben Bernanke. In his speech yesterday, this was a speech heard ‘round the world, he said the Fed is going to have to accept the mantle of promoting financial stability, number one. Number two, he said the Fed is going to have to regulate and supervise the Wall Street banks, the investment banks. I don’t know whether your bank UBS fall into that. It’s certainly Merrill Lynch, and Morgan Stanley and Goldman Sachs and so forth. Number three, and this is a criticism coming from many people, that’s going to give [the Fed] two more mandates, stability and regulation of Wall Street. Their first two mandates, low unemployment and low inflation have not been met. Unemployment is rising. Inflation is rising. Sources tell me The Wall Street Journal editorial page may call for Bernanke’s resignation tomorrow. Do you think Bernanke and the Fed are on a power grab? Do they deserve this added turf? Is this the right thing? Or maybe the stock market’s telling us it’s all wrong?
Gramm: Well we’re already regulated by the Federal Reserve Bank. Look, Larry, when the Federal Reserve Bank stepped in, trying to deal with systemic risk – and I think they did a very good job, and I give Bernanke very high marks on it – they basically changed the nature of investment banks and non-bank financial institutions in America. Having the data to make judgments about systemic risk makes sense. And I think it has been clear since their intervention that this was going to happen. Any move can turn into a power grab. I don’t see this as one as of today. I’m afraid that I think Bernanke has done a very good job. I think he was very clever in auctioning off loans and getting rid of the stigma of borrowing from the Federal Reserve Bank discount window. I think he’s done a good job. Especially given that he had not established a long reputation as Greenspan had. Any idea of him stepping down I think would be wrong. I would be adamantly opposed to it. I’m sure Senator McCain would be opposed to it.
Kudlow: Alright.
Gramm: These are not easy times.
Kudlow: Right.
Gramm: And when you’re being decisive, as he is being, and when you’re beginning to face a threat to the dollar, the inflation threat, in addition to the softness of the economy, this is a tough job. And I think he’s doing a good job at it. And I think we’ve got to be supportive. Leaders, when they face tough decisions, deserve our support.
Kudlow: Alright. So ultimately the buck stops here in the Oval Office, and President, possible President to be John McCain. You’re a top advisor. What would Mr. McCain say? We have rising unemployment. We have rising inflation. We have a falling dollar. What’s he gonna say? How are you advising him? How will he get the economy back on track?
Gramm: Well I think, first of all, he’s going to try to go back to programs that work. We’re not talking about faith; we’re talking about evidence. And we know the evidence, that fiscal responsibility works. It will strengthen the dollar. It will bring down oil prices. We know the corporate tax rate in America is the second highest in the world. And when you bring in state corporate tax rates – which none of the other OECD countries have – we have the highest corporate tax rate in the world.
ITT says they can build a plant and operate it in ten years, for ten years, in Ireland for a billion dollars less than they can do it in the United States because of the corporate tax rate. Obviously, we can’t live with that rate as it is. And I think we can collect more taxes by attracting more investment, by bringing it down from 35 percent to 25 percent. Senator McCain wants to do that. I know it looks popular for some in Congress, and for Senator Obama, to be calling for raising the top tax rates. But the problem is 85 percent of the taxes paid in the top bracket are paid for by small businesses filing as subchapter-S corporations or with pass-through income. And so you’re socking small business at the very moment that we need to create more jobs.
Kudlow: Okay. Let me just get you to react to—you know Senator Obama has been very critical obviously, and this is going to be a major part of the campaign and the debate. Senator Obama says Senator McCain’s plan is for millionaires and big corporations. Instead, he says he’s gonna give everybody under $250,000 a year a $500 tax credit, a thousand dollars per family, per household, to offset Social Security expenses. Let me ask you this, does Obama have a more direct assistance in this plan to the middle class than Mr. McCain?
Gramm: No. Now let me ask you a question. How many people poorer than you have ever hired you?
Kudlow: [Laughter]
Gramm: Zero.
Kudlow: Listen I’m not sculpting Obama’s message. But Obama is ahead by six or seven points in the polls or thereabouts. And I’m just saying that’s the distinction in this campaign. [Obama] says he’s going to give everybody $500 bucks, a thousand per household, help them pay off their Social Security liabilities, and that’s gonna help the middle class. The middle class is up for grabs Senator. Is Senator McCain in favor—does his plan resonate with the middle class as much as Obama’s, in your view?
Gramm: Yeah I think it will. Let me give you an example. Both Senator McCain and Senator Obama came out in the primary for doubling the dependent exemption. Senator Obama came out for doubling it by raising the top tax bracket, which is a tax on small business. Senator McCain came out for a program to reclaim the budget authority from the add-on of $18 billion dollars with earmarks in 2007, and an add-on of $17 billion dollars in 2008. Now when you ask Americans, do you want to fund doubling the dependent exemption so that families have got more money to spend on their own children – something both candidates agree to – do you want to do it by stop building bridges to nowhere, and stop pork barrel add-ons, or do you want to raise taxes on small business? I think the choice is pretty clear.
Kudlow: Alright. Thank you for that. One last one sir. We appreciate your time very much. I’m sorry to bring you on in a rough day. Cap-and-trade, Senator McCain has kind of shifted toward a pro-production, pro-energy production, he’s now in favor of offshore drilling. I think he’s in favor of drilling up in the oil shale. He’s not quite there yet on ANWR. I noticed in his two latest economic speeches – which were very much pro-growth, supply-side speeches – he did not mention cap-and-trade. I also noticed in his 15-page policy pamphlet, which most people don’t read, but I did, and you may have written it, there is no mention of cap-and-trade. Many conservatives think that would be the biggest expansion of government in American history. Is cap-and-trade dead in the McCain campaign?
Gramm: No. But let me make it clear. You know some people have been critical of the senator for moving so aggressively on nuclear power and opening up the [Outer] Continental Shelf where states agree and share in the revenues. But look, if you don’t see the world differently at $140 dollars a barrel then you did at $40 a barrel, something is wrong with you. I mean, the world has changed dramatically. And we need to act dramatically. The old tired clichés of the past—speculators, big oil companies—that’s not gonna get the job done. If we want more energy, we got to produce it. If we can produce more of it here at home, at a price people can afford to pay, we’re going to be better off.
Senator McCain is concerned about the environment. There’s no conflict between trying to expand our ability to produce energy at home and being concerned about the environment. In terms of cap-and-trade, I think we’re gonna have to make a fundamental decision. If the objective is to change the relative price of carbon-generated products, that’s one thing. But the tax also makes people poorer. And I think what we need to do, if we take this policy, and we go in that direction, is we need to take the revenue and give it back by cutting the payroll taxes, income taxes and corporate taxes to eliminate the wealth effect. To simply get the substitution effect to try to deal with global warming. But the idea of letting government spend that money is very frightening. And it would be a disaster for freedom and for America.
Kudlow: Alright, that’s great stuff. Thank you very much, Senator Phil Gramm. We appreciate it sir.
Gramm: Thank you. Calm down. America will survive.
Kudlow: I’m with you. You got to look at the optimism for the long run. Free market capitalism is the best path to prosperity.
Thursday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE DYNAMIC DUO...On to debate the fate of Fannie and Freddie, as well as discuss former senator and top McCain economic advisor Phil Gramm's controversial "mental recession" comments are former labor secretary Robert Reich and the Wall Street Journal's Steve Moore.
DRILL, DRILL, DRILL...Sen. Mary Landrieu (D-LA) will join us from Washington with her take on oil and energy.
THE STOCK MARKET & ECONOMY...Our stock market all-stars will discuss and debate all the latest news and developments affecting investors.
On board:
*Mark Zandi, chief economist for Moody's Economy.com
*Don Luskin, chief investment officer, Trend Macro
*Andy Busch, global FX strategist, BMO Capital Markets
*Jim Awad, chairman, WP Stewart Asset Management
PRIMARY POLITICS...Pollsters Scott Rasmussen of Rasmussen Reports and John Zogby of Zogby International will lend their insight on all the latest issues affecting the presidential race between Obama and McCain.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Wednesday, July 09, 2008
Mac’s Off Cap-and-Trade
After writing favorably about Sen. McCain’s recent economics speeches, where he clearly shifted toward the supply-side both on tax cuts and producing more energy, I went back last evening and carefully read his 15-page policy pamphlet called “Jobs for America.” Here’s what I found: There is no mention of cap-and-trade. None. Nada. There is a section about “Cheap, Clean, Secure Energy for America: The Lexington Project.” But that talks about expanded domestic production of oil and gas, as well as the need for more nuclear power and coal along with alternative sources. Then it has the $300 million battery and flex-fuel cars. But nope, no cap-and-trade.
So I picked up the phone and dialed a senior McCain official to make sure these old eyes hadn’t missed it. Sure enough, on deep background, this senior McCain advisor told me I was correct: no cap-and-trade. In other words, this central-planning, regulatory, tax-and-spend disaster, which did not appear in Mac’s two recent speeches, has been eradicated entirely -- even from the detailed policy document that hardly anybody will ever read.
So then I asked this senior official if the campaign has taken cap-and-trade out behind the barn and shot it dead once and for all -- buried it in history’s dustbin of bad ideas. The answer came back that they are interested in jobs right now -- jobs for new energy production and jobs from lower taxes. At that point I became satisfied. Even though a McCain presidency might resurrect cap-and-trade, it will be a much different format. More important, the campaign is cognizant of the conservative rebellion against it.
That’s enough for me.
I might add that in this lengthy policy document there’s a strong statement about appreciating the value of the dollar. “John McCain’s policies will increase the value of the dollar and thus reduce the price of oil.”
This is good. It’s not perfect. Neither is McCain’s tax plan and new energy plan. But it is excellent progress. We’ll see if the next batch of polls shows any positive movement on the basis of McCain’s new pro-growth, supply-side approach. I notice today on the Intrade pay-to-play prediction market that McCain is up almost a full percentage point. That’s good, except he’s still way down, 65 to 31. However, the national average on RealClearPolitics shows a tightening to just over 5 percentage points, 48.2 to 43.0.
If Steve Schmidt had anything to do with McCain’s nouveau supply-side economics, good for him.
So I picked up the phone and dialed a senior McCain official to make sure these old eyes hadn’t missed it. Sure enough, on deep background, this senior McCain advisor told me I was correct: no cap-and-trade. In other words, this central-planning, regulatory, tax-and-spend disaster, which did not appear in Mac’s two recent speeches, has been eradicated entirely -- even from the detailed policy document that hardly anybody will ever read.
So then I asked this senior official if the campaign has taken cap-and-trade out behind the barn and shot it dead once and for all -- buried it in history’s dustbin of bad ideas. The answer came back that they are interested in jobs right now -- jobs for new energy production and jobs from lower taxes. At that point I became satisfied. Even though a McCain presidency might resurrect cap-and-trade, it will be a much different format. More important, the campaign is cognizant of the conservative rebellion against it.
That’s enough for me.
I might add that in this lengthy policy document there’s a strong statement about appreciating the value of the dollar. “John McCain’s policies will increase the value of the dollar and thus reduce the price of oil.”
This is good. It’s not perfect. Neither is McCain’s tax plan and new energy plan. But it is excellent progress. We’ll see if the next batch of polls shows any positive movement on the basis of McCain’s new pro-growth, supply-side approach. I notice today on the Intrade pay-to-play prediction market that McCain is up almost a full percentage point. That’s good, except he’s still way down, 65 to 31. However, the national average on RealClearPolitics shows a tightening to just over 5 percentage points, 48.2 to 43.0.
If Steve Schmidt had anything to do with McCain’s nouveau supply-side economics, good for him.
Wednesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS & ECONOMY...Our stock market all-stars will discuss and debate all the latest news and developments affecting investors including today's stock market sell-off.
On board:
*Doug Kass, president, Seabreeze Partners Management
*Michael Pento, Delta Global Advisors, senior market strategist
*Jack Gage, Forbes magazine associate editor
*Dennis Kneale, CNBC media & technology editor
YOUR MONEY, YOUR VOTE: AN INTERVIEW WITH PHIL GRAMM...On to discuss the details and objectives of Senator John McCain's economic plan will be former Texas Senator & top McCain economic advisor Phil Gramm.
Economist Jared Bernstein from the Economic Policy Institute will join the panel following the Gramm interview to discuss Mr. McCain's proposals.
BOEING & THE $35 BILLION DOLLAR TANKER CONTRACT...Jed Babbin, online editor of Human Events and former deputy undersecretary of defense will be aboard to discuss news that Boeing has pushed the Department of Defense to reconsider an Air Force decision on a fuel-tanker contract originally awarded to Northrop Grumman.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Tuesday, July 08, 2008
Mac Is Moving to the Supply-Side
Sen. John McCain gave two economics speeches in the last 48 hours. They were very strong, pro-growth, and pro-energy production. McCain also is finally slamming Obama on taxes and energy. Yesterday in Denver, the senator said, “If you believe you should pay more taxes, I am the wrong candidate for you. Sen. Obama is your man. The choice in this election is stark and simple. Sen. Obama will raise your taxes. I won’t.”
This is good. Strong. I hope it’s the beginning of a Big Mac resurgence under the new management of Steve Schmidt, who is effectively running the campaign as of this past weekend.
McCain also slammed Obama on energy, essentially labeling him Doctor No. In the Denver speech McCain said, “My opponent’s answer is no to more drilling; no to more nuclear power; no to research prizes that help solve the problem of affordable electric cars. For a guy whose ‘official seal’ carried the motto, ‘Yes, We Can,’ Sen. Obama’s agenda sure has a whole lot of ‘No, We Can’t.’” This also is good.
Increasingly McCain is shifting his positions towards the supply-side: across-the-board tax cuts, keeping the Bush tax rates on investment, slashing the corporate tax rate, doubling the child deduction for family dependents, cutting pork-barrel spending, and producing more energy.
On the drill, drill, drill energy front, McCain argued in favor of producing more oil and gas, and he said this would send a message to the market that would result in lower prices. He argued for nuclear power, clean coal, and oil shale. And he noted for the first time that expanded energy production would be a strong job-creator. This is so important in terms of an economic fix.
And here are a couple things missing from McCain’s speech: There was no mention of “obscene profits”; no mention of cap-and-trade; and no mention of reckless traders. We will see if these ideas continue to be absent from the senator’s formal speeches. I hope so. Voters want more drilling and they do not want cap-and-trade, which is really tax-and-raise-gas-pump-prices and ultimately cap-and-kill-the-economy.
By the way, in his second economics speech today in Washington, D.C., Sen. McCain strongly defended free trade, saying it would create more and better jobs, increase wages, keep inflation under control, and make goods more affordable for low- and middle-income consumers.
He also supported more competition for schools and empowering parents with choice. I have not heard him argue for school choice before. He then argued for comprehensive immigration legislation that would include border security first, apprehending illegal felons who commit crimes, recognition of the important economic contributions of immigrants, and finally humanitarian treatment. I still believe the best way to stop illegal immigration is to promote more legal immigration — namely by raising the entry limits to meet U.S. job demands. But McCain is combining this with a tough border-security message, and I think that’s good.
In general, the senator is developing a good supply-side message for economic growth, with a big focus on tax cuts and new energy production. Obama is for tax hikes and opposed to energy production. These are important contrasts. Now it’s up to the Republican standard bearer to keep hammering these key points on the campaign trail. More energy. Lower taxes. A pro-growth economic recovery plan. Perhaps he will even add King Dollar to his repertoire. I might add that increasing the value of the dollar is part of McCain’s 15-page policy blueprint. Right now he is definitely on the right track.
This is good. Strong. I hope it’s the beginning of a Big Mac resurgence under the new management of Steve Schmidt, who is effectively running the campaign as of this past weekend.
McCain also slammed Obama on energy, essentially labeling him Doctor No. In the Denver speech McCain said, “My opponent’s answer is no to more drilling; no to more nuclear power; no to research prizes that help solve the problem of affordable electric cars. For a guy whose ‘official seal’ carried the motto, ‘Yes, We Can,’ Sen. Obama’s agenda sure has a whole lot of ‘No, We Can’t.’” This also is good.
Increasingly McCain is shifting his positions towards the supply-side: across-the-board tax cuts, keeping the Bush tax rates on investment, slashing the corporate tax rate, doubling the child deduction for family dependents, cutting pork-barrel spending, and producing more energy.
On the drill, drill, drill energy front, McCain argued in favor of producing more oil and gas, and he said this would send a message to the market that would result in lower prices. He argued for nuclear power, clean coal, and oil shale. And he noted for the first time that expanded energy production would be a strong job-creator. This is so important in terms of an economic fix.
And here are a couple things missing from McCain’s speech: There was no mention of “obscene profits”; no mention of cap-and-trade; and no mention of reckless traders. We will see if these ideas continue to be absent from the senator’s formal speeches. I hope so. Voters want more drilling and they do not want cap-and-trade, which is really tax-and-raise-gas-pump-prices and ultimately cap-and-kill-the-economy.
By the way, in his second economics speech today in Washington, D.C., Sen. McCain strongly defended free trade, saying it would create more and better jobs, increase wages, keep inflation under control, and make goods more affordable for low- and middle-income consumers.
He also supported more competition for schools and empowering parents with choice. I have not heard him argue for school choice before. He then argued for comprehensive immigration legislation that would include border security first, apprehending illegal felons who commit crimes, recognition of the important economic contributions of immigrants, and finally humanitarian treatment. I still believe the best way to stop illegal immigration is to promote more legal immigration — namely by raising the entry limits to meet U.S. job demands. But McCain is combining this with a tough border-security message, and I think that’s good.
In general, the senator is developing a good supply-side message for economic growth, with a big focus on tax cuts and new energy production. Obama is for tax hikes and opposed to energy production. These are important contrasts. Now it’s up to the Republican standard bearer to keep hammering these key points on the campaign trail. More energy. Lower taxes. A pro-growth economic recovery plan. Perhaps he will even add King Dollar to his repertoire. I might add that increasing the value of the dollar is part of McCain’s 15-page policy blueprint. Right now he is definitely on the right track.
Tuesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET, ECONOMY, OIL & MORE...Our stock market and economic all-stars will discuss and debate all the latest news, trends and developments affecting investors including the recent sell-off in oil.
On board:
*David Malpass, economist & president of Encima Global
*Vince Farrell, managing director, Scotsman Capital
*Jerry Bowyer, chief economist, Benchmark Financial Network
*Quentin Hardy, Forbes Silicon Valley bureau chief
A LOOK AT OIL...Kevin Kerr, president of Kerrtrade.com & editor of MarketWatch's Global Resources, will join the aforementioned market panel with his perspective on the recent slide in oil prices.
INTERVIEW WITH SENATOR ENSIGN...We'll have a one-on-one interview with Republican Senator John Ensign of Nevada covering all the latest issues affecting investors.
WASHINGTON TO WALL STREET...Pollster Scott Rasmussen from Rasmussen Reports will join Messrs. Farrell, Bowyer and Hardy with a look at the latest money politics developments in Senators McCain & Obama's presidential campaigns.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
My Interview with Senior McCain Advisor Carly Fiorina
What follows below is an unofficial transcript of my interview on Kudlow & Company last night with Carly Fiorina. Ms. Fiorina is the former chairman & CEO of Hewlett-Packard and a senior economic advisor to John McCain.
Kudlow: Alright. Dueling economic visions today from Senators McCain and Obama. Here to talk about it, we welcome back senior McCain advisor Carly Fiorina. Carly it’s wonderful to see you.
Fiorina: Nice to see you Larry.
Kudlow: We’ve got a couple [clips], we’ve got some great sound. I want you to respond. Obama in St. Louis is criticizing your man and his talk out in Denver. First of all, here’s Senator Obama on his tax plan.
[Senator Barack Obama: If Senator McCain wants to debate about taxes in this campaign, then it is a debate I am happy to have. Because if you are a family making less than $250,000 a year, my plan will not raise your taxes. Not your income tax, not your payroll taxes, not your capital gains taxes, not any of your taxes.]
Kudlow: Alright, so he’s saying anything under $250,000 is tax-hike free. What is your response to that?
Fiorina: Well, I don’t know how he does it. Because first of all, he said that he does not agree with making the tax cuts permanent. Which means every American will experience an increase in their taxes. Secondly, 100 million Americans have some form of investment in a mutual fund, some stock market investment. So 100 million Americans would get hit by his capital gains tax increase. Third, in the last six months he has voted twice for a Democratic budget that would raise everyone’s taxes. He voted to increase the tax rate at 23, 25, 28 percent, which basically means if you’re making under $32,000 a year, your taxes would go up. He’s also said that his massive government spending programs are “paid for.” And the only way he can do that is by raising everyone’s taxes.
So one of the things I’ve come to know is, honestly, that I think there is Barack Obama’s words, and then I think there are his actions. And his actions to date support the fact that he would raise taxes. Not only on people making less than $250,000 a year, but importantly, on small business owners, 23 million of whom file as individuals. And it is those small businesses that are the one bright spot in this economy. They have produced 233,000 jobs in the last six months, while the rest of the economy lost 400,000 jobs.
Kudlow: Alright, let me give you another one from Senator Obama today in St. Louis. Here it comes, please listen.
Fiorina: Okay.
[Senator Barack Obama: What Senator McCain is going to need to explain is why his tax cut for the middle class would leave out 101 million households. And why for the families who are lucky enough to get a tax cut under his plan, it would be worth only about $125 dollars in the first year.]
Kudlow: So Carly Fiorina, I don’t understand this. He says Mr. McCain’s middle-class tax cuts would leave out 100 million or 101 million households. Do you have a thought on this? A response?
Fiorina: Well I really can’t respond because I have no idea where he gets the numbers. Here’s what John McCain explicitly has said. First, he would give every family, he would double the exemption for dependents from $3500 dollars to $7000 dollars, for all families, or all parents who are raising children regardless of their income. Second, he would repeal over time, the alternative minimum tax which hits about 60 million Americans. Third, he would make the tax cuts permanent which hit many Americans. Fourth, he would not raise the capital gains tax. Fifth, he would propose to lower the estate tax to 15 percent, while Barack Obama would raise it to 45 percent. So I simply don’t understand where Barack Obama gets his numbers. We’ve laid out the McCain economic plan in great detail today, in a 15-page outline proposal that says very clearly what we’re doing and how we intend to pay for it and balance the budget.
Kudlow: I noticed Mr. McCain is really kind of, pardon the phrase, getting with the energy drill, where he’s now talking about an energy plan that expands all forms including drilling offshore and shale. It will be a big American job creator.
Fiorina: Absolutely.
Kudlow: Not jobs in Bangladesh or Viet Nam, but right here. High paying jobs. This sounds like a change.
Fiorina: Well John McCain has said for quite some time that we need to break our dependence on foreign oil. He’s said for quite some time that we must take the lead in climate change. But he also, to your point Larry, began a very serious conversation with the American people about our dependence on foreign oil as thirty years in the making. And we now have to really get serious about it, because it threatens not only our national security, but our economic security, and as well, our environment. And we’re going to start with producing more of our own energy. Whether that’s nuclear power, which could produce up to 700,000 jobs as we build out nuclear power plants. Whether that’s clean coal, the demonstration projects for clean coal alone will employ about 30,000 Americans. Or whether that’s natural gas, or whether that’s offshore drilling, we have to produce more of our own.
Kudlow: I hear you. I notice—I read the speech very carefully—no mention of cap-and-trade.
Fiorina: Well if you had gone back and read his speeches from his energy, when he launched the Lexington Project, you would have seen some mention of cap-and-trade…
Kudlow: I know, but I don’t want to go back!
Fiorina: I know that you and the Senator…[laughter]
Kudlow: I don’t want to go back. I like this speech. I didn’t see it. I couldn’t see it, I couldn’t smell it. It was awesome! No cap-and-trade.
Fiorina: Well I think, again, knowing that you don’t exactly agree with that part of the plan, I think what Senator McCain is doing with cap-and-trade is to put incentives on the side of alternative technologies. Today all the incentives are on the side of oil, in particular. And so he’s trying to shift the incentive structure. In other words, he’s trying to use techniques that we know work in the free market to try and shift where people make their investment. And by the way, you were talking earlier about the automotive industry. That’s an industry that we clearly need to revitalize. And I think with enough incentives, to really focus on some of these alternative technologies, it could help to revitalize that industry.
Kudlow: Well hope springs eternal on that one, but I appreciate the thought. Let me ask you another one. I did not see the phrase, “obscene profits.” Does this mean Mr. McCain now is throwing his hand with the great American energy companies? It’s okay to be profitable?
Fiorina: Well maybe you’re confusing in that question Senator McCain with Senator Obama. It is Senator Obama who is for a windfall profits tax. Senator McCain…
Kudlow: I understand, but Senator McCain keeps using [the phrase] “obscene profits” which drives me crazy. I didn’t see it today. I was very happy.
Fiorina: Well Senator McCain has said that he is against a windfall profits tax. He has also voted against the 2005 Energy Bill which was full of giveaways to big oil. Barack Obama voted for it. McCain voted against the bill that was laden with pork for agricultural subsidies, which as you know and you would agree I think, distorts markets. Barack Obama voted for it. So, part of my point here is to contrast Barack Obama’s actions with Barack Obama’s words. But also to say that John McCain, while he may absolutely empathize with the American people while they are paying record prices at the pump, and seeing massive, and from their point of view, obscene profits at the oil companies, he doesn’t propose taxing them
Kudlow: Alright. Just one real quickie. I’m sorry we don’t have time. It is being reported that you are meeting with Senator Hillary Clinton’s supporters, particularly her financiers. Can you just tell us one bullet, one line, what are you saying to them on behalf of the McCain campaign?
Fiorina: No woman’s vote should be taken for granted. Women represent 52 percent of the voting public. They are not a constituency, they are the majority. And women are also an economic force, because they start small businesses at twice the rate of men. And we know that small businesses are producing the majority of jobs in this country. So in other words, every woman’s vote deserves to be taken very seriously. John McCain will take every woman’s vote seriously. And he will fight for their votes.
Kudlow: And it’s high time we had a woman in the Treasury Department. Is it not? Running it?
Fiorina: [Laughter] Well Larry, that’s up to somebody else, namely President McCain. Meanwhile I’m happy to be doing my part. And by the way, I still support a strong dollar!
Kudlow: I know you do. And actually, in the policy blueprint today, Mr. McCain came out right at the top of that thing for a strong dollar.
Fiorina: That’s right.
Kudlow: Carly Fiorina, thank you ever so much for coming back. Thank you for your time.
Kudlow: Alright. Dueling economic visions today from Senators McCain and Obama. Here to talk about it, we welcome back senior McCain advisor Carly Fiorina. Carly it’s wonderful to see you.
Fiorina: Nice to see you Larry.
Kudlow: We’ve got a couple [clips], we’ve got some great sound. I want you to respond. Obama in St. Louis is criticizing your man and his talk out in Denver. First of all, here’s Senator Obama on his tax plan.
[Senator Barack Obama: If Senator McCain wants to debate about taxes in this campaign, then it is a debate I am happy to have. Because if you are a family making less than $250,000 a year, my plan will not raise your taxes. Not your income tax, not your payroll taxes, not your capital gains taxes, not any of your taxes.]
Kudlow: Alright, so he’s saying anything under $250,000 is tax-hike free. What is your response to that?
Fiorina: Well, I don’t know how he does it. Because first of all, he said that he does not agree with making the tax cuts permanent. Which means every American will experience an increase in their taxes. Secondly, 100 million Americans have some form of investment in a mutual fund, some stock market investment. So 100 million Americans would get hit by his capital gains tax increase. Third, in the last six months he has voted twice for a Democratic budget that would raise everyone’s taxes. He voted to increase the tax rate at 23, 25, 28 percent, which basically means if you’re making under $32,000 a year, your taxes would go up. He’s also said that his massive government spending programs are “paid for.” And the only way he can do that is by raising everyone’s taxes.
So one of the things I’ve come to know is, honestly, that I think there is Barack Obama’s words, and then I think there are his actions. And his actions to date support the fact that he would raise taxes. Not only on people making less than $250,000 a year, but importantly, on small business owners, 23 million of whom file as individuals. And it is those small businesses that are the one bright spot in this economy. They have produced 233,000 jobs in the last six months, while the rest of the economy lost 400,000 jobs.
Kudlow: Alright, let me give you another one from Senator Obama today in St. Louis. Here it comes, please listen.
Fiorina: Okay.
[Senator Barack Obama: What Senator McCain is going to need to explain is why his tax cut for the middle class would leave out 101 million households. And why for the families who are lucky enough to get a tax cut under his plan, it would be worth only about $125 dollars in the first year.]
Kudlow: So Carly Fiorina, I don’t understand this. He says Mr. McCain’s middle-class tax cuts would leave out 100 million or 101 million households. Do you have a thought on this? A response?
Fiorina: Well I really can’t respond because I have no idea where he gets the numbers. Here’s what John McCain explicitly has said. First, he would give every family, he would double the exemption for dependents from $3500 dollars to $7000 dollars, for all families, or all parents who are raising children regardless of their income. Second, he would repeal over time, the alternative minimum tax which hits about 60 million Americans. Third, he would make the tax cuts permanent which hit many Americans. Fourth, he would not raise the capital gains tax. Fifth, he would propose to lower the estate tax to 15 percent, while Barack Obama would raise it to 45 percent. So I simply don’t understand where Barack Obama gets his numbers. We’ve laid out the McCain economic plan in great detail today, in a 15-page outline proposal that says very clearly what we’re doing and how we intend to pay for it and balance the budget.
Kudlow: I noticed Mr. McCain is really kind of, pardon the phrase, getting with the energy drill, where he’s now talking about an energy plan that expands all forms including drilling offshore and shale. It will be a big American job creator.
Fiorina: Absolutely.
Kudlow: Not jobs in Bangladesh or Viet Nam, but right here. High paying jobs. This sounds like a change.
Fiorina: Well John McCain has said for quite some time that we need to break our dependence on foreign oil. He’s said for quite some time that we must take the lead in climate change. But he also, to your point Larry, began a very serious conversation with the American people about our dependence on foreign oil as thirty years in the making. And we now have to really get serious about it, because it threatens not only our national security, but our economic security, and as well, our environment. And we’re going to start with producing more of our own energy. Whether that’s nuclear power, which could produce up to 700,000 jobs as we build out nuclear power plants. Whether that’s clean coal, the demonstration projects for clean coal alone will employ about 30,000 Americans. Or whether that’s natural gas, or whether that’s offshore drilling, we have to produce more of our own.
Kudlow: I hear you. I notice—I read the speech very carefully—no mention of cap-and-trade.
Fiorina: Well if you had gone back and read his speeches from his energy, when he launched the Lexington Project, you would have seen some mention of cap-and-trade…
Kudlow: I know, but I don’t want to go back!
Fiorina: I know that you and the Senator…[laughter]
Kudlow: I don’t want to go back. I like this speech. I didn’t see it. I couldn’t see it, I couldn’t smell it. It was awesome! No cap-and-trade.
Fiorina: Well I think, again, knowing that you don’t exactly agree with that part of the plan, I think what Senator McCain is doing with cap-and-trade is to put incentives on the side of alternative technologies. Today all the incentives are on the side of oil, in particular. And so he’s trying to shift the incentive structure. In other words, he’s trying to use techniques that we know work in the free market to try and shift where people make their investment. And by the way, you were talking earlier about the automotive industry. That’s an industry that we clearly need to revitalize. And I think with enough incentives, to really focus on some of these alternative technologies, it could help to revitalize that industry.
Kudlow: Well hope springs eternal on that one, but I appreciate the thought. Let me ask you another one. I did not see the phrase, “obscene profits.” Does this mean Mr. McCain now is throwing his hand with the great American energy companies? It’s okay to be profitable?
Fiorina: Well maybe you’re confusing in that question Senator McCain with Senator Obama. It is Senator Obama who is for a windfall profits tax. Senator McCain…
Kudlow: I understand, but Senator McCain keeps using [the phrase] “obscene profits” which drives me crazy. I didn’t see it today. I was very happy.
Fiorina: Well Senator McCain has said that he is against a windfall profits tax. He has also voted against the 2005 Energy Bill which was full of giveaways to big oil. Barack Obama voted for it. McCain voted against the bill that was laden with pork for agricultural subsidies, which as you know and you would agree I think, distorts markets. Barack Obama voted for it. So, part of my point here is to contrast Barack Obama’s actions with Barack Obama’s words. But also to say that John McCain, while he may absolutely empathize with the American people while they are paying record prices at the pump, and seeing massive, and from their point of view, obscene profits at the oil companies, he doesn’t propose taxing them
Kudlow: Alright. Just one real quickie. I’m sorry we don’t have time. It is being reported that you are meeting with Senator Hillary Clinton’s supporters, particularly her financiers. Can you just tell us one bullet, one line, what are you saying to them on behalf of the McCain campaign?
Fiorina: No woman’s vote should be taken for granted. Women represent 52 percent of the voting public. They are not a constituency, they are the majority. And women are also an economic force, because they start small businesses at twice the rate of men. And we know that small businesses are producing the majority of jobs in this country. So in other words, every woman’s vote deserves to be taken very seriously. John McCain will take every woman’s vote seriously. And he will fight for their votes.
Kudlow: And it’s high time we had a woman in the Treasury Department. Is it not? Running it?
Fiorina: [Laughter] Well Larry, that’s up to somebody else, namely President McCain. Meanwhile I’m happy to be doing my part. And by the way, I still support a strong dollar!
Kudlow: I know you do. And actually, in the policy blueprint today, Mr. McCain came out right at the top of that thing for a strong dollar.
Fiorina: That’s right.
Kudlow: Carly Fiorina, thank you ever so much for coming back. Thank you for your time.
Monday, July 07, 2008
Monday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS & ECONOMY...Our stock market all-stars will discuss and debate all the latest news, trends and developments affecting investors.
On board:
*Don Luskin, chief investment officer, Trend Macro
*Joe Battipaglia, market strategist, Stifel Nicolaus
*Dennis Kneale, CNBC media & technology editor
*Stefan Abrams, Bryden-Abrams Investment Management managing partner
McCAIN'S ECONOMIC PLAN...Carly Fiorina, former CEO of Hewlett-Packard and economic adviser to John McCain, will join us in a one-on-one discussion live from the McCain campaign's headquarters.
OBAMA VS MCCAIN: DUELING ECONOMIC PLANS...The Dynamic Duo will debate. Joining us will be former Clinton labor secretary, author, and UC Berkeley public policy professor Robert Reich and Steve Moore, senior economics writer at The Wall Street Journal.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Thursday, July 03, 2008
My Interview with Obama’s Director of Economic Policy
What follows below is an unofficial transcript of my interview on Kudlow & Company last night with Jason Furman. Mr. Furman is Barack Obama’s director of economic policy.
Kudlow: Alright, can Senator Obama reassure Wall Street and become the growth candidate? To talk about this we have Jason Furman. He’s Obama’s director of economic policy. Jason, welcome back to the program. Appreciate it.
Furman: It’s great to be here Larry.
Kudlow: Alright, good to see you. Congratulations on your new post. Look, you know as well as I do, Wall Street is worried, or at least some people on Wall Street are worried about tax increases and future economic growth. What can you say regarding Senator Obama’s message that would reassure people here up in New York?
Furman: Sure. I mean, the folks I’ve talked to on Wall Street are worried that we’re going to have a continuation of the economic policies of the last eight years. And, they don’t want to see the type of economy we’ve had in the last eight years. When you look at what Barack Obama is talking about, number one, we need to get our economy going today. We have real serious problems. They’re looking more serious by the day. He was out in front in fiscal stimulus in January. Out in front again, calling for another $50 billion dollar round of stimulus.
Second, if we don’t have buy-in, in this economy, Larry, if we don’t have an economy that’s working for people, we’re not going to have people with a lot of support for overall economic, pro-growth, pro-market strategy. So you want tax cuts for middle class families. You want health insurance for everyone. But finally…
Kudlow: What do you think about this bond guy – this is so fascinating Jason, I want to let you take a whack at this – famous bond guy Bill Gross of Pimco out in the West Coast. He’s posted this letter to Senator Obama, and basically he says we need a trillion dollar, a trillion dollar deficit, in order to stimulate the American economy. You’re an old hand on fiscal policy. What’s your response to Bill Gross’s recommendation to Senator Obama?
Furman: Well Larry, you know Senator Obama likes to listen to a wide range of voices and a lot of different ideas. [But] I think a trillion dollar deficit is a little bit outside of the range of advice we’re interested in getting. We want to cut the deficit from where it is this year, and that’s one of the important changes that should reassure people about our economic policy.
Kudlow: In the early 90s – I don’t remember I think it was ‘90 or ‘91 Jason – Papa Bush and Congress instituted a luxury tax on a lot of things, furs, boats, yachts and so forth. And one of things they found out was that well yeah, the wealthier people stopped spending on boats and yachts, but the real losers were the blue-collar workers who were building the big boats. Do you worry that if you raise taxes on the rich you’re going to cut off their demand and the boat builders and the blue-collar folks might get hurt by this?
Furman: You know, if we had a proposal to tax yachts I might be interested in looking into the evidence in that. But we don’t. We have a proposal that says to some of the most affluent families, you can keep only a portion of the Bush tax cuts that you’ve gotten over the last seven or eight years. You can still keep a portion of them, but you’re going to have to give up some, because we need that money for our deficit. We need it for some of the critical investments in education and infrastructure to move our country forward. And we’ll have tax rates below where they were in the 1990s, a period where we created 23 million jobs.
Kudlow: So you’re not worried that if you let the top tax rate go up, and they keep less of what they earn, that they would – I mean a lot of people talk about cap gains and supply-side, I’ll get to that in a second – but just on the demand side, might it not backfire so they have less discretionary income after tax, and again, you know whatever it is, boats, houses, anything, that it’s the blue-collar folk that might get hurt?
Furman: There’s just no evidence for that Larry. Again, we’re going to have lower tax rates than we had during a decade when we created 23 million jobs. Some of the biggest threats to this economy are that it’s getting unbalanced. And it’s getting unbalanced, you see that in the fiscal deficit, you see that in cutting Head Start, you see that in under investment in research and healthcare for example. And it’s some of those imbalances that we need to redress. Those are the real threats to our economy. And we can’t redress those problems while continuing to let the most affluent keep every single one of those very generous tax cuts they’ve gotten over the last seven or eight years.
Kudlow: Going back to the capital gains tax, Senator [Obama] said he would raise the capital gains tax for upper-end people. If we’re looking to generate more energy – and particularly more advanced technology in energy, especially in the alternative energy sources – wouldn’t you want to keep that cap gains tax as low as possible because of the need for these very high risk investments?
Furman: Well first of all lets just remember Ronald Reagan raised the capital gains rate to 28 percent. After that, the stock market went up 270 percent over the next decade. We wouldn’t go above 28 percent. In fact, we believe we can make our budget work with a number coming in a lot closer to 20 percent. Second, no one below $250,000 would be affected. This is a new rate. Families below $250,000 wouldn’t be affected. And finally, and to your point, small businesses and start-ups, they’re going to have a zero capital gains rate. It’s John McCain who wants to tax their capital gains. Barack Obama doesn’t. He wants a zero capital gains rate for small businesses, for start-ups. They’re the ones generating these new ideas. And he wants to encourage that type of growth.
Kudlow: Actually, Reagan cut it. Reagan got it at 28, he took it down to 20. In ’86, in the tax reform, it did move up to 28…
Furman: Uh no, the tax reform, you should look at, oh the Tax Reform Act of 1986 took it up to 28, then we…
Kudlow: Yes. Yes. Initially, Reagan’s tax reforms of ‘81 lowered the cap gains, although it was mostly aimed at reducing the income tax. Jason, let me go to a couple other points though. Here’s George Bush today in the Rose Garden of the White House on energy. Let’s take a listen.
[President Bush: Nobody likes high gasoline prices. And I fully understand why Americans are concerned about gasoline prices. But I want them to understand fully, that we have got the opportunity to find more crude oil here at home, in environmentally friendly ways. And they ought to be writing their congress people about it. And they ought to say you ought to be opening up ANWR and Outer Continental Shelf, and increasing oil shale exploration for the sake of our consumers, as well as become less dependent on oil.]
Kudlow: Jason I hope you heard him. Open up the drilling, Outer Continental Shelf, shale and ANWR. What is Mr. Obama’s take on this?
Furman: Right. I mean, first let’s look at our energy policy today. We’re where we are, John McCain has been in Congress for 26 years. George Bush has been president for eight years. Neither of them has done anything about the problem. They’re the ones that have been overseeing this. They’re the ones that have allowed this to happen. And the reason they’ve allowed this to happen is because they’ve never wanted to make the types of investments in alternative energies, and new energies and efficiency in raising fuel efficiency standards for cars.
There’s a whole range of things we’d do that we know can really work. The problem with [President Bush’s] plan is you don’t get a single drop of oil for another decade. John McCain and his top economic advisor Doug Holtz-Eakin, they admitted it wouldn’t do anything for prices. They did say it would help psychologically, which is Washington-speak for ‘does well in a poll.’
Kudlow: Well it does do well in a poll, you’re quite right. Did you see Marty Feldstein’s story in the [Wall Street] Journal today? He says if you have the expectation of more drilling as the moratoriums come down, traders would sell oil and prices would fall?
Furman: I saw Marty said that. And most of the energy experts I’ve talked to say the exact opposite. You’re talking at something that – and, and one of those experts by the way is the administration’s own Department of Energy, which doesn’t think this would have very much of an impact on prices, and that impact would be, you know, 10 or 20 years from now.
Kudlow: Alright, Jason Furman. We’re going to leave it there. I appreciate you coming back on the show. Hope to see you soon.
Furman: Okay, great Larry. It’s terrific to be back.
Kudlow: Alright, take care.
Kudlow: Alright, can Senator Obama reassure Wall Street and become the growth candidate? To talk about this we have Jason Furman. He’s Obama’s director of economic policy. Jason, welcome back to the program. Appreciate it.
Furman: It’s great to be here Larry.
Kudlow: Alright, good to see you. Congratulations on your new post. Look, you know as well as I do, Wall Street is worried, or at least some people on Wall Street are worried about tax increases and future economic growth. What can you say regarding Senator Obama’s message that would reassure people here up in New York?
Furman: Sure. I mean, the folks I’ve talked to on Wall Street are worried that we’re going to have a continuation of the economic policies of the last eight years. And, they don’t want to see the type of economy we’ve had in the last eight years. When you look at what Barack Obama is talking about, number one, we need to get our economy going today. We have real serious problems. They’re looking more serious by the day. He was out in front in fiscal stimulus in January. Out in front again, calling for another $50 billion dollar round of stimulus.
Second, if we don’t have buy-in, in this economy, Larry, if we don’t have an economy that’s working for people, we’re not going to have people with a lot of support for overall economic, pro-growth, pro-market strategy. So you want tax cuts for middle class families. You want health insurance for everyone. But finally…
Kudlow: What do you think about this bond guy – this is so fascinating Jason, I want to let you take a whack at this – famous bond guy Bill Gross of Pimco out in the West Coast. He’s posted this letter to Senator Obama, and basically he says we need a trillion dollar, a trillion dollar deficit, in order to stimulate the American economy. You’re an old hand on fiscal policy. What’s your response to Bill Gross’s recommendation to Senator Obama?
Furman: Well Larry, you know Senator Obama likes to listen to a wide range of voices and a lot of different ideas. [But] I think a trillion dollar deficit is a little bit outside of the range of advice we’re interested in getting. We want to cut the deficit from where it is this year, and that’s one of the important changes that should reassure people about our economic policy.
Kudlow: In the early 90s – I don’t remember I think it was ‘90 or ‘91 Jason – Papa Bush and Congress instituted a luxury tax on a lot of things, furs, boats, yachts and so forth. And one of things they found out was that well yeah, the wealthier people stopped spending on boats and yachts, but the real losers were the blue-collar workers who were building the big boats. Do you worry that if you raise taxes on the rich you’re going to cut off their demand and the boat builders and the blue-collar folks might get hurt by this?
Furman: You know, if we had a proposal to tax yachts I might be interested in looking into the evidence in that. But we don’t. We have a proposal that says to some of the most affluent families, you can keep only a portion of the Bush tax cuts that you’ve gotten over the last seven or eight years. You can still keep a portion of them, but you’re going to have to give up some, because we need that money for our deficit. We need it for some of the critical investments in education and infrastructure to move our country forward. And we’ll have tax rates below where they were in the 1990s, a period where we created 23 million jobs.
Kudlow: So you’re not worried that if you let the top tax rate go up, and they keep less of what they earn, that they would – I mean a lot of people talk about cap gains and supply-side, I’ll get to that in a second – but just on the demand side, might it not backfire so they have less discretionary income after tax, and again, you know whatever it is, boats, houses, anything, that it’s the blue-collar folk that might get hurt?
Furman: There’s just no evidence for that Larry. Again, we’re going to have lower tax rates than we had during a decade when we created 23 million jobs. Some of the biggest threats to this economy are that it’s getting unbalanced. And it’s getting unbalanced, you see that in the fiscal deficit, you see that in cutting Head Start, you see that in under investment in research and healthcare for example. And it’s some of those imbalances that we need to redress. Those are the real threats to our economy. And we can’t redress those problems while continuing to let the most affluent keep every single one of those very generous tax cuts they’ve gotten over the last seven or eight years.
Kudlow: Going back to the capital gains tax, Senator [Obama] said he would raise the capital gains tax for upper-end people. If we’re looking to generate more energy – and particularly more advanced technology in energy, especially in the alternative energy sources – wouldn’t you want to keep that cap gains tax as low as possible because of the need for these very high risk investments?
Furman: Well first of all lets just remember Ronald Reagan raised the capital gains rate to 28 percent. After that, the stock market went up 270 percent over the next decade. We wouldn’t go above 28 percent. In fact, we believe we can make our budget work with a number coming in a lot closer to 20 percent. Second, no one below $250,000 would be affected. This is a new rate. Families below $250,000 wouldn’t be affected. And finally, and to your point, small businesses and start-ups, they’re going to have a zero capital gains rate. It’s John McCain who wants to tax their capital gains. Barack Obama doesn’t. He wants a zero capital gains rate for small businesses, for start-ups. They’re the ones generating these new ideas. And he wants to encourage that type of growth.
Kudlow: Actually, Reagan cut it. Reagan got it at 28, he took it down to 20. In ’86, in the tax reform, it did move up to 28…
Furman: Uh no, the tax reform, you should look at, oh the Tax Reform Act of 1986 took it up to 28, then we…
Kudlow: Yes. Yes. Initially, Reagan’s tax reforms of ‘81 lowered the cap gains, although it was mostly aimed at reducing the income tax. Jason, let me go to a couple other points though. Here’s George Bush today in the Rose Garden of the White House on energy. Let’s take a listen.
[President Bush: Nobody likes high gasoline prices. And I fully understand why Americans are concerned about gasoline prices. But I want them to understand fully, that we have got the opportunity to find more crude oil here at home, in environmentally friendly ways. And they ought to be writing their congress people about it. And they ought to say you ought to be opening up ANWR and Outer Continental Shelf, and increasing oil shale exploration for the sake of our consumers, as well as become less dependent on oil.]
Kudlow: Jason I hope you heard him. Open up the drilling, Outer Continental Shelf, shale and ANWR. What is Mr. Obama’s take on this?
Furman: Right. I mean, first let’s look at our energy policy today. We’re where we are, John McCain has been in Congress for 26 years. George Bush has been president for eight years. Neither of them has done anything about the problem. They’re the ones that have been overseeing this. They’re the ones that have allowed this to happen. And the reason they’ve allowed this to happen is because they’ve never wanted to make the types of investments in alternative energies, and new energies and efficiency in raising fuel efficiency standards for cars.
There’s a whole range of things we’d do that we know can really work. The problem with [President Bush’s] plan is you don’t get a single drop of oil for another decade. John McCain and his top economic advisor Doug Holtz-Eakin, they admitted it wouldn’t do anything for prices. They did say it would help psychologically, which is Washington-speak for ‘does well in a poll.’
Kudlow: Well it does do well in a poll, you’re quite right. Did you see Marty Feldstein’s story in the [Wall Street] Journal today? He says if you have the expectation of more drilling as the moratoriums come down, traders would sell oil and prices would fall?
Furman: I saw Marty said that. And most of the energy experts I’ve talked to say the exact opposite. You’re talking at something that – and, and one of those experts by the way is the administration’s own Department of Energy, which doesn’t think this would have very much of an impact on prices, and that impact would be, you know, 10 or 20 years from now.
Kudlow: Alright, Jason Furman. We’re going to leave it there. I appreciate you coming back on the show. Hope to see you soon.
Furman: Okay, great Larry. It’s terrific to be back.
Kudlow: Alright, take care.
Thursday Night Lineup
***Please note that Kudlow & Company will air live at 4pm ET today...DYNAMIC DUO DEBATE: IS IT TIME FOR A SECOND STIMULUS?...Squaring off on this subject will be Wall Street Journal senior economics writer Steve Moore and former Clinton labor secretary, author, and public policy professor Robert Reich.
THE STOCK MARKET & ECONOMY...Our stock market and economic all-stars will discuss and debate all the latest news, trends and developments affecting investors including today's jobs number.
On board:
*Joe LaVorgna, chief U.S. economist, Deutsche Bank
*Jerry Bowyer, chief economist, Benchmark Financial Network
*Jim LaCamp, portfolio manager, RBC Dain Rauscher
*John Browne, senior market strategist at Euro Pacific Capital
BEAR STEARNS'S PORTFOLIO & THE FED...CNBC senior economics reporter Steve Liesman and CNBC anchor Sue Herera will both be aboard with breaking news on the value the Fed now places on Bear's portfolio.
YOUR MONEY, YOUR VOTE...On to debate John McCain's new message, Obama's lead in the polls and much more are Democratic strategist and author Bob Shrum and Ben Ginsburg, partner and lobbyist for Patton Boggs LLP.
Please join us at 4pm ET on CNBC for another free market edition of Kudlow & Company.
Bush Talks King Dollar and Drill, Drill, Drill (But Where’s John McCain?)
President Bush led his Rose Garden news conference today with this statement: “We’re strong-dollar people in this administration.” Perfect. It’s a true King Dollar message, and hopefully he’ll carry it to the G8 meeting next week.
It’s unfortunate the administration doesn’t seem ready to back this strong rhetoric with some old-fashioned intervention. The Treasury has the authority to buy dollars and sell euros in the open market. Better yet, it can coordinate these efforts with Jean Claude Trichet of the European Central Bank. President Bush and Treasury man Paulson also are forgetting the key word: “appreciate.” As in appreciate the dollar. That would be a head turner on Wall Street and on global foreign-exchange markets.
But the strong-dollar message is very welcome.
And so is the president’s continued drill, drill, drill offensive. He made it front and center in the Rose Garden, too -- which has me wondering. Where in the world is John McCain on this? Why isn’t the senator saying drill, drill, drill, and pummeling Barack Obama with this message every single day?
That’s the thrust of my latest column. You can read it here.
It’s unfortunate the administration doesn’t seem ready to back this strong rhetoric with some old-fashioned intervention. The Treasury has the authority to buy dollars and sell euros in the open market. Better yet, it can coordinate these efforts with Jean Claude Trichet of the European Central Bank. President Bush and Treasury man Paulson also are forgetting the key word: “appreciate.” As in appreciate the dollar. That would be a head turner on Wall Street and on global foreign-exchange markets.
But the strong-dollar message is very welcome.
And so is the president’s continued drill, drill, drill offensive. He made it front and center in the Rose Garden, too -- which has me wondering. Where in the world is John McCain on this? Why isn’t the senator saying drill, drill, drill, and pummeling Barack Obama with this message every single day?
That’s the thrust of my latest column. You can read it here.
Wednesday, July 02, 2008
Wednesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE STOCK MARKET, ECONOMY, DOLLAR & DRILLING....Our stock market all-stars will discuss and debate all the latest news and developments affecting investors.
On board:
*Jeff Matthews, general partner of Ram Partners, LP
*Michael Pento, Delta Global Advisors, senior market strategist
*Dennis Kneale, CNBC media & technology editor
*Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners
OBAMA MONEY POLITICS...Jason Furman, Senator Barack Obama's economic policy director, will join us for a one-on-one interview to discuss the economy, where Mr. Obama stands on the issues and more.
Our market panel will weigh in with its perspective following our interview with Mr. Furman.
RUSH'S $400 MILLION PAYDAY, A LOOK AT MCCAIN'S CAMPAIGN & MORE...Our political pros will discuss and debate.
On board:
*Kevin Madden, Republican strategist
*Larry Sabato, director of the Center for Politics, University of Virginia
*Jonah Goldberg, editor at large of National Review Online and author of Liberal Fascism
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
Tuesday, July 01, 2008
Tuesday Night Lineup
On CNBC's Kudlow & Company at 7pm ET tonight:THE MARKETS, OIL, ECONOMY & MORE...Our stock market and economic all-stars will discuss and debate all the latest news and developments affecting investors.
On board:
*John Mauldin, president of Millennium Wave Advisors, LLC
*Don Luskin, chief investment officer, Trend Macro
*Vince Farrell, managing director, Scotsman Capital
*Jim Awad, chairman, WP Stewart Asset Management
Also...Frank Gaffney, president of the Center for Security Policy, will also be aboard.
DRILL, DRILL DRILL...John Pinkerton, president & CEO of Range Resources, will join us in a one-on-one interview to discuss what his company is doing and offer solutions to the American energy crisis.
SUING COUNTRYWIDE...California Attorney General Jerry Brown will discuss the multi state lawsuit accusing Countrywide of misleading borrowers and pushing loans on people who could never afford to repay.
YOUR MONEY, YOUR VOTE...Conservative syndicated columnist Ann Coulter will square off against Keith Boykin, New York Times bestselling author and former Clinton White House aide, on all the latest political news.
Please join us at 7pm ET on CNBC for another free market edition of Kudlow & Company.
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