Thursday, August 31, 2006

"Excess Baggage"

Despite today's United Nations deadline for Iran to give up its nuclear bomb program, Iran has done no such thing. The next diplomatic move is supposed to be for the U.N. to impose sanctions on Iran. That won't work, either...

Claudia Rosett writing in today's Wall Street Journal.

Render Unto Caesar...

"You know, the Lord has told us that his share is a tenth of what we earn, and He has told us that if we prosper 10 times as much, we will give 10 times as much. But when we start computing Caesar's share under our present tax policy, you can prosper 10 times as much and find you're paying 50 times as much tax. So, I think what's fair for the Lord ought to be more reasonably fair for Caesar."

Ronald Reagan, Remarks to Religious Leaders at a White House Meeting on Tax Reform, October 29, 1985

Wednesday, August 30, 2006

Who's the Pig in the Closet?

God help the poor, piggy senator behind the “secret hold” on S.2590.

Whoever this Porky Pig lawmaker is, you can take it to the bank that he/she isn’t getting much sleep these days. And, if this senator is sleeping (with the help of handfuls of Ambien no doubt), they’re likely dreaming of a way out of the wretched mess they created for themselves.

Here’s a question: Why in the world would any above-board lawmaker attempt to shelve this pork transparency legislation?

What’s so scary about a little old website that would allow voters to see where their own hard-earned tax dollars are going? What the heck are they so afraid of?

It’s great to see the power of the blogosphere on this one. Both sides have come together calling for an end to the earmark madness. As Martha is apt to saying, “This is a good thing.”

From Glenn Reynolds of both Porkbusters and Instapundit (who deserves credit for spearheading this whole thing) to the fiscally responsible Club for Growth’s Andy Roth, all the way across the political spectrum to the lefties over at Daily Kos, bloggers have spoken in one unified voice and have issued their edict: NO MORE PORK.

It isn’t everyday that you see virtually unanimous agreement from the left and right. But, when you do, whenever both sides of our polarized, political divide rally together against an “as-yet” unidentified lawmaker; whenever red and blue voters join hands and turn purple in a common cause, well, you’ve just got to know that they’re on to something.

After all, this is our money lawmakers are playing around with, not theirs. Much of Washington seems to have forgotten this fact, which is why cancerous pork-barrel earmarking skyrocketed to around 13,000 earmarks this year, costing taxpayers $64 billion dollars. It is also the reason why some shady senator sees fit to put a secret hold on valuable legislation that would help clean up this earmark nightmare.

When you consider the resounding success of President Bush’s tax cuts, and all the money that’s been pouring into the Treasury as a result, you’ve got to shake your head in disbelief and think: Had their been some fiscal accountability in Congress this year, some tightening of the budget belt, we’d be in a far better budgetary position.

God help this poor lawmaker. Porky may get roasted.

Tuesday, August 29, 2006

A New Life Has Been Born

(The following excerpt is from an interview I gave to The American Spectator back in March of 2001. )

TAS: How did you become a Catholic?

Kudlow: I had a problem with alcohol and cocaine. In the winter of 1993 I had spent a month in a treatment center here in New York. It taught the twelve-step program. God plays a role, but it's more the spiritual God of your choice. But at least there's something. I was not raised religious but I was searching for help. I remember that in this little prep school that I went to, the Dwight Englewood School in New Jersey, we had to say the Lord's Prayer in homeroom. Every morning at your desk you put your head down and say the Lord's Prayer. I was there grade seven through twelve, so it's something you remember. When I was going into this dark abyss with alcohol and cocaine, after some terrible binge, I can remember lying in bed desperate and I started saying the Lord's Prayer. What made me do that? Just--I was desperate, I was trying to ask for help. You know, who was going to get me out of this? I started searching for God.

TAS: So then what happened?

Kudlow: It was Jeff Bell, an old supply-side ally, who actually got me started with the Church. That same winter I was in the treatment center I bumped into Jeff on the street. I was still at Bear Stearns so it was 45th and Park. Now I knew that somewhere along the line he had converted to Catholicism. We started talking, and I told him--I don't know why because not many people knew about my problem yet--I told him that I was taking some steps that had recreated my faith in God. I didn't really tell him much. Then one day Father C. John McCloskey appeared at Bear Stearns. My secretary said, "This priest is here to see you." No appointment, but a lot of the partners donated to various charities. So I was ready to pull out my checkbook and write a thousand dollars to whatever. But this guy didn't want any money. He was a friend of Jeff Bell's and he wanted to talk to me. And he was a very engaging man.

TAS: Wasn't he a gold trader before becoming a priest?

Kudlow: Right. At Merrill. But that day he said he had been watching me on TV on the financial shows. "You've changed," he said. He was right. I was trying to be more restrained, calmer, things they taught me in treatment. So then he asked me, "Do you believe in the hereafter?" My answer was yes, because that's what you're taught in the Jewish faith, though I had not been raised very religious and I hadn't been in a temple since I was fifteen. Then, "Do you believe in Jesus Christ?" And I said I didn't know. But I didn't say no. He gave me a book or two to read and then said: "Why don't you try going to Mass?" I told him I had never been. "Do you have any opposition to it?" I said no. But, I would feel a little odd just walking into a Catholic Church. He said, well, lots of people do it. Then he introduced me to a friend who went to St. Thomas More on 89th and Madison, near where I lived. And I loved it. I loved the Mass.

TAS: Why?

Kudlow: If done right it has a certain mystical quality, and it appealed to me. It was different from anything I had been exposed to. I went to a retreat and I didn't like it because I didn't understand it, mostly. But it wasn't church. The church part is what I liked, the actual Mass. I liked the robes, the smoke. I loved it. All these rituals and rules. I began to realize that for the past eight or ten years I had been living without them. I was the rule. I was so self-centered. I'd just do whatever I felt like. I was in my master-of-the-universe period. You can't live that way. Nobody can. I knew it wasn't good and the drugs and the booze were part of it.

TAS: How are drugs part of that?

Kudlow: You become so self-centered and self-willed that you decide you can do anything, without regard for others. I wasn't showing up for events, for friends, for my wife. I'd go missing in action for days. I've made amends to people directly, but still, I'm ashamed about that period. But the church offered me a regulated regime for life, as did my twelve-step program. The two are similar because Bill Wilson, the founder of A.A., had been part of the Oxford Group, and a Catholic priest from St. Louis was his mentor. Anyhow, I knew this was something I should be doing, just from a selfish standpoint. I needed regulation. I needed to be taught rules of the road. It took me awhile to get my arms around it. But as I hit bottom, Ilost jobs, lost all income, lost friends, and very nearly lost my wife. I was willing to surrender and take it on faith that I had to change my life.

TAS: But you became a Catholic. So you had to stand up and say I believe some very specific things.

Kudlow: I was going to Mass on Sundays. And we recite the Nicene Creed, the church's statement of beliefs. There came this one day when I stopped just mouthing it and read it in an intellectual, cognitive way, and realized there's a whole story here. If you read the eucharistic part of the Mass, there's a whole story there and it's a fabulous story.

TAS: What is that?

Kudlow: It's--we are partaking of the body and blood of Christ. That's what I understand the Eucharist to be. We are pledging our faith in him and what he taught and all of a sudden it clicked, that Jesus Christ does not want me to touch alcohol or drugs because I wreck my body and I wreck his body and I wreck my life. Jesus died for me, too. And that is my redemption. I'm not a Catholic intellectual. I will never be one. I'm not interested in that. I'm interested in how I live my life each day. How I conduct my relationships with people. My view of Lord Jesus is very basic in that sense, though I have read some books that are interesting to me, including Fr. Richard John Neuhaus's recent book, Death on a Friday Afternoon.

TAS: He's a priest in New York, edits First Things.

Kudlow: The basic thought in the book is that even we optimistic Americans mustn't ever forget that Jesus spent that time on the cross, painfully. His crown of thorns was sticking into his skull, he was nailed to the cross, and it was horrible. The book had an impact on me, because in my own mundane, low-level way, I was on the cross. I don't know if I've had salvation, but I have had a change. Sobriety is one of the keys to my faith. And that's good because for me to destroy my life is a rejection of Jesus. In my worst moments--and I still get a few--the reason I don't go out and do something crazy is because I don't want to break my bond with God.

TAS: Sometimes people forget how tough addictions can be.

Kudlow: You see, what this journey is really about is changing along Christian principles. I still do stupid things, but I also go to confession. One of the things I like about Mass is that you go on your knees for part of the time. It is a wonderful thing to learn some humility. I was at Mass the other day and I was having some trouble, and I prayed. I didn't ask for an outcome, just help. Please show me some clarity, some calmness, give me a sign, and it worked. Took about a day, but it worked. I don't pray for stuff that I want. I ask help for stuff that I believe I need.

TAS: The Pope would say that the original reason God gave us liberty was to complete his creation. And that does take us back to economics and politics. It's no accident that your favorite dead economist, Joseph Schumpeter, focused on creativity.

Kudlow: That's why "supply side" doesn't really capture it. The reason we have the best economic and stock market record in the world is we are the freest country in the world. We call it supply-side economics, but what we're really fighting for is more freedom. Not unlimited freedom, and that's where faith comes in. Since God granted us our liberty, for which we are eternally grateful, we must reflect that by abiding by his rules. It's the rule part that I've come to acknowledge and frankly love. This is part of that mystery of faith, but I believe Jesus is with me. He enters my body and mind as long as I'm open to him and prevents me from doing something really stupid or from misbehaving. I believe that. Last Saturday, when I was at sixes and sevens in my own head, which is a risky real-estate section to be in, I believe Jesus came to me. I believe he somehow entered into my head for the next 48 hours and helped me get through this little patch. People brought Jesus to me: Fr. McCloskey, Jeff Bell, my mentor Sim Johnston. And He helps keep me sober every day and helps me to discharge my responsibilities.

TAS: Do you think you will write more about this?

Kudlow: I believe it is possible that the Holy Spirit can bring a certain ability to explain my faith. But not in an intellectual way. I don't possess those tools. Just in a personal way: Here's why I go to Mass, here's what it's done for me. Some people want me to carry the sword of Catholicism the way I carry the sword of free-market economics. It's not my goal and if it does happen, it will not be by my design. It's very personal. Jesus is my Father. He's also my Supreme Court because the court has rules and if you break them you get into trouble. In my twelve-step program there's all these young kids who went to Catholic school and rebelled. And they always get up and say how they rebelled against the Church and its rules. I just nod my head and kid them. I say, well, you don't understand how wonderful those rules are. Take it from me. I came to it late in life, but that's exactly the way it was supposed to be. I wrecked my life. It was literally destroyed. My old life was taken and a new life has been born. I understand now that all that had to happen. There's a script here. It's just that I didn't write it.

Where Was the Economic Vision?

The Wall Street Journal editorial, “The Tragedy of New Orleans,” quite rightly points out that President Bush and the Republican Congress have spent the utterly mind-blowing sum of $122.5 billion on Hurricane Katrina money largely designated for New Orleans.

One can only imagine the almost incomprehensive number of better purposes to spend this astonishing sum of money. And, still, leading Democratic politicians want to spend even more taxpayer dough as many New Orleans neighborhoods remain underwater (to coin a metaphorical phrase).

A much better approach would have been to employ the capitalist laws of the market economy and simply make New Orleans a tax-free zone. Though some tax abatements have been employed in enabling congressional legislation, neither the White House, nor Congress, ever went full bore on the supply-side to attract private capital investment and business to New Orleans.

Think of New Orleans as an emerging economy in the Third World, desperately seeking private investment flows, and perhaps the picture becomes clearer. Capital to finance human ingenuity, entrepreneurship, and the love of New Orleans that many have, would be a much more efficient, timely and simpler solution than the gargantuan, bureaucratic spending plan which was doomed to failure from the very start.

Let’s say for example, a zero capital gains tax. Or, perhaps, any new businesses started up in New Orleans would be tax-free for 5-10 years. This would include cash expensing for the building or rebuilding of any plant, home, office building or mall. Eliminating the tax costs of rebuilding New Orleans, coupled with high incentive rewards, after tax, would do the trick a lot quicker than this horrible central planning experiment.

Frankly, this is a case where neither the Bush Administration, nor the GOP leadership in Congress, gave New Orleans (or the United States for that matter), any economic vision at all. It is a shame.

On Mike Pence

The New York Times front page profile on my friend, Rep. Mike Pence, “Star of the Right Loses His Base at the Border,” is really all about the anti-immigration, far-right group led by Tom Tancredo of Colorado to oppose any broad-based immigration reform whatsoever—and to label any proposals for temporary workers, or even Pence’s 17 year citizenship path, as “amnesty.”

This word “amnesty” is being used to attack absolutely any conceivable immigration compromise. I could go on forever on this subject. I have written several columns on it. But at the end of the day, the Tancredo crowd, which includes Pat Buchanan, just wants border security to keep out immigrants.

They also want to deport all illegal or undocumented immigrants. “Border security” and “deportation” are their watchwords. They manage to completely ignore the economics of the problem, whereby Mexicans seeking higher paying jobs in the U.S. rather than the faltering Mexican economy can produce are coming here to work. After all, living conditions in the U.S. are a lot better for all but the richest people than they are in Mexico.

If we ever deported the 10-15 million undocumented workers, then the U.S. economy would be severely damaged. New studies show the Mexicans actually help the U.S. economy and wages actually rise overall, (though there are small losses in border town wages). Even unskilled American workers benefit from lower priced goods and services generated by these new Mexican worker-immigrants.

Pat Buchanan attacks me as “worshipping at the church of GDP.” But in a CNBC Kudlow and Company interview, I reminded him that I also worship at the church of Catholic Mass, as do the vast majority of the Mexican immigrants. These faith-based folks would create a new blue-collar middle class that is sorely needed in this country if we let them.

They would also finance Social Security over the next fifty years. Though it should be noted that academic research shows that 2/3rds of them pay Social Security with phony ID cards and will never receive the benefit as matters now stand. And, of course, they pay the sales tax on whatever purchases they make in stores.

The problem will never be solved unless we legally permit roughly 400,000 per year to fill the demand for U.S. jobs that are currently available. This resembles the Bracero Program and it must be part of any solution. It’s just plain common sense that at any given productivity rate, a larger labor force generates more GDP growth to the benefit of the U.S. economy. During the high tide of immigration, over the past twenty years, the U.S. has enjoyed unrivaled prosperity at low unemployment. So, again, I ask, if immigration is so bad, then why are things so good?

Yes, there should be tough border security. Yes, there should be foolproof ID cards, with biometrics, for Social Security and employment purposes. Former Sen. Alan Simpson of Wyoming, the co-author of the 1986 Simpson-Mazzoli immigration reform bill, has said the failure of that bill was a function of the lack of an ID card system.

But the intransigence of the Tancredo-Buchanan crowd is a remarkable political event which is all out of kilter with poll after poll that shows a substantial majority of respondents favor broad based immigration reform.

If these guys win, the Republican Party loses, and the nation loses. Unlike the big countries of Western Europe and Japan, the U.S. benefits from immigration that keeps our population rising. (In fact, harking back to the Catholic Mass, roughly 45 million unborn children have been killed since the abortion wave was launched by Roe v. Wade in the early 1970’s. We have an opportunity to replace this extraordinary loss of human life with hard headed but compassionate and economically sound immigration reform).

Incidentally, I wrote the article for Human Events when that newspaper awarded Congressman Pence its “2005 Man of the Year” award. I know Mike. The man is a wonderful, Reagan-thinking conservative. His life is governed by religious values, a belief in a strong national defense, and a pro-growth approach to low taxes and less government spending.

This Tancredo-Buchanan backstabbing does this rising GOP star a great disservice. If allowed to go unanswered, it would represent another devastating blow to the Republican Party.

While the Pence-Hutchinson immigration reform idea is not perfect, it does represent a useful discussion point for future action. As diplomatically and kindly as possible, with all the greatest respect for differing points of view, let me just say that the Tancredo-Buchanan attack on Mike Pence is nuttier than a fruitcake.

Monday, August 28, 2006

Kudlow's Stock Club

Twice a week, on Tuesdays and Fridays, our investment segment on CNBC’s Kudlow and Company, will feature the "Kudlow Stock Club" selection of various investment ideas. No, they are not my stock picks; these recommendations come from our four and five star Morningstar rated portfolio managers—an elite club of investors with excellent track records down through the years.

Here are the picks from Friday night's program:

David Sowerby, portfolio manager at Loomis Sayles & Company – (Mr. Sowerby is up 6 percent YTD, S&P up 3 ½)

ConocoPhillips COP
Franklin Resources BEN
Bear Stearns BSC
Abbott Labs ABT
Burlington Northern BNI
Texas Instruments TXN
Harris Corp HRS
Hewlett-Packard HPQ
Wyndham Worldwide WYN
Molson Coors TAP

Barry James, CFA, CIC is President and Portfolio Manager with James Investment Research, and President of the James Advantage Funds. (He's up 3 percent YTD)

McDonald’s MCD
PolyOne Corp POL
Merck MRK
Archer Daniels Midland ADM
American Physicians Capital ACAP
Goldman Sachs GS
Hewlett-Packard HPQ
Alliant Energy LNT
American Electric Power (AEP)
Valero Energy (VLO)

Bernanke’s Hail Mary

Ben Bernanke didn’t talk about the Fed’s money policy in his speech at the big Fed summit in Jackson Hole, Wyoming last Friday. Instead, the former Princeton economics professor, now the nation’s new money maestro, spoke on the benefits of global free trade and globalization. But in terms of money creation, which is the Fed’s primary job, the new maestro has put the screws on.

This year the high-powered monetary base has flat-lined, compared to 6 percent growth last year. This means, the central bank has stopped creating new money, a decidedly counter-inflationary move that is stabilizing the value of those greenbacks in your wallets and purses.

This 2006 tight money Fed policy is also reducing expectations of future inflation, according to a number of inflation-sensitive market price indicators.

To wit: long-term bond rates have dropped to 4.80 percent from 5.25 percent earlier this summer. The Treasury market yield curve now is inverted, meaning that long-term rates are below short-term rates, an unnatural shape that signifies tight money. Gold prices around $625 are about a hundred bucks less than their peak last spring.

And here’s another interesting sideline to this story: unleaded gas futures prices have slipped down to $1.79, as Hurricane Ernesto fizzles. My rule of thumb, connecting pump prices to the futures market, is to simply add a dollar for taxes and carrying charges. This means pump prices head to $2.79 in a few weeks, another thirteen cents or so from current national averages. There’s Republican mid-term congressional election content in these numbers.

Putting all this together, inflation will remain under control as Ben Bernanke’s global economy keeps producing more goods to absorb a less accommodative money supply. This is right out of Milton Friedman’s playbook, as recently discussed by Art Laffer in last week’s Wall Street Journal.

Finally, stock markets are moving back to their five-year highs, a signal that investors are voting for a continued economic growth scenario rather than a recession. The Investor Class likes what maestro Bernanke is doing, and strongly suspects that the Fed’s highly watched target rate—now 5.25 percent—will not be raised anymore this year.

Give Bernanke credit. And say a Hail Mary for the GOP.

Friday, August 25, 2006

The Price is Too High?

From Reuters:

The American Civil Liberties Union and a leading Islamic group (CAIR) on Wednesday accused security officials at New York's JFK airport of racially profiling Muslims.

"The price to pay for racial profiling is too high," Dennis Parker of the American Civil Liberties Union told a news conference. "All people should be treated in the same way regardless of their race, their ethnicity or their religion."

Soviet Style Central Planning

Unfortunately, it’s beginning to look like two of Washington’s major institutions (The Fed & the CBO) want to sabotage the American economy.

Let’s start with the Fed’s goofy sacrifice ratio, which basically refers to how much unemployment has to go up in order to bring inflation down. I call this economic garbage the "Phillips curve in drag," because over the last 25 years, unemployment and inflation have actually moved in tandem and they have both moved down.

In other words, as inflation slows, unemployment comes down because the economy is strong. (If you look at their relationship during the 1970s, you would see unemployment and inflation both moving higher.)

The fact is, strong growth coexists rather nicely with low inflation. And since inflation is too much money chasing too few goods, then if you're producing more goods that absorb the money supply, especially with low tax rates to produce more goods, then why should we fear growth?

But let's not forget that misguided bunch over at the Congressional Budget Office. These folks are telling Congress that only higher taxes in the next ten years will balance the budget. Huh?

This crowd actually believes that President Bush’s tax cuts will trigger a $1.7 trillion budget hole in the next decade. The reality is that in the last couple of years since they were implemented, there have been huge revenue gains rolling in to the Treasury from the strong economy.

As it stands, the Fed’s sacrifice ratio model is simply running amok, and so is the CBO’s absurd tax hike/deficit model. Between these two genius institutions, they could destroy the economy with their bizarre logic.

What is it that causes Washington to work overtime to stop prosperity?

I don’t get it.

Majority of Brits Fear Islam

From the Daily Telegraph:

The alleged plot to blow up transatlantic airliners and last year's terrorist attacks on London have made more people fear Islam as a religion, not merely its extremist elements, a poll for The Daily Telegraph has found.

A growing number of people fear that the country faces "a Muslim problem" and more than half of the respondents to the YouGov survey said that Islam posed a threat to Western liberal democracy. That compares with less than a third after the September 11 terrorist attacks on America five years ago...

...there has been a substantial increase over the past five years in the numbers who appear to subscribe to a belief in a clash of civilisations. When YouGov asked in 2001 whether people felt threatened by Islam, as distinct from fundamentalist Islamists, only 32 per cent said they did. That figure has risen to 53 per cent.

Five years ago, a majority of two to one thought that Islam posed no threat, or only a negligible one, to democracy. Now, by a similar ratio, people think it is a serious threat.

Thursday, August 24, 2006

"New Yorker arrested for broadcasting Hizbollah TV"

From Reuters:

U.S. authorities have arrested a New York man for broadcasting Hizbollah television station al-Manar, which has been designated a terrorist entity by the U.S. Treasury Department, prosecutors said on Thursday.

Javed Iqbal, 42, was arrested on Wednesday because his Brooklyn-based company HDTV Ltd. was providing New York-area customers with the Hizbollah-operated channel, federal prosecutors said in a statement...


(Note to Authorities: Throw out all the anti-American Imams while you're at it.)

Tonight's Lineup

On CNBC's Kudlow & Company this evening:

Rep. Barney Frank (D-MA) will square off with conservative commentator Ann Coulter on myriad subjects including homeland security, immigration, and the economy.

Tim Strazzini, independent trader/CNBC’s “Fast Money” contributor and MarketWatch Senior Columnist Herb Greenberg will discuss the markets and offer some perspective on Viacom/Paramount and Sumner Redstone's flare-up with Tom Cruise.

CNBC's Tyler Mathisen will discuss the latest business headlines.

An economic debate on the Fed, recession fears, and the sacrifice ratio with Brian Wesbury, Chief Economist for First Trust Advisors; Jared Bernstein, senior economist at the Economic Policy Institute; and David Kotok, Chairman and Chief Investment Officer Cumberland Advisors.

Business Produces

Will business pick up the economic slack created by the housing drag? That’s the big question separating economic optimists from the cult of the bear. Well, today’s factory report on the production of durable goods answers that question with an emphatic yes.

Spurred by record profits and low tax rates on capital, business other than the ailing Ford and GM looks really strong. Major categories of new orders, shipments, and unfilled orders for non-defense non-aircraft capital goods surged in July at a double digit annualized pace. Over the past year, orders are up 13 percent, shipments increased 10 percent, and backlogs rose 14 percent. These are very big numbers.

Economic pessimists and recessionists will have to go back to the drawing board. Incidentally, 3rd quarter GDP, reported just before the November election, will likely come in within the 3 to 3 ½ percent zone.

There’s no question that the housing boom is leveling off. But supply-siders know that it is business that creates jobs and consumer incomes for spending.

July retail sales were very strong, showing a resilient consumer. So was industrial production outside of autos, and today’s factory report confirms this. What the pessimists miss is that the U.S. economy is a very durable, resilient, and flexible free-market capitalist organism. Resources like capital and labor are always shifting from weak areas to stronger ones.

It is also worth noting that while housing construction is in the doldrums, business building of plants, equipment, office buildings and shopping stores is booming.

Congressional Republicans should heed President Bush’s advice by emphasizing the strong low tax economy. And here’s an added bonus for that argument: gas prices in the futures markets are falling on a daily basis. Pump prices are just beginning to reflect this. By the time we get to November, pump prices could be down to $2.75.

Think of it.

Privatized Canadian Health Care?

From North of the Border...

Canadian doctors have given their blessing to patients having the option of purchasing private health insurance as a possible solution to the problem of not getting timely medically necessary treatment in the public system...

Wednesday, August 23, 2006

History Shows Tax Cuts Work

Superb article by Richard Rahn in today's Washington Times ("Tax cut revenue rewards").

Many in the Washington establishment were shocked Aug. 17, when the Congressional Budget Office reported a surge of "unanticipated tax receipts" that will sharply push down this year's deficit. Those who had been proclaiming the Bush tax rate cuts would result in a big reduction in tax revenues tried to hide their disappointment. It was tough being proved wrong again after having said the same thing when Ronald Reagan cut tax rates in the early 1980s.

We have now had three major experiments with tax rate reduction in the last half-century, and each time both economic growth and tax revenues have surged, despite the fears and cries of the anti-tax-cut crowd. How much more evidence will they need to understand the difference between tax rates and tax revenues? Most everyone, including most members of Congress, can understand that properly structured tax rate reduction, by decreasing the impediments to working, saving and investing, will lead to a higher rate of economic growth. Why then is it so difficult to understand that a bigger economic pie can lead to more tax revenue rather than less?

Click here to finish the article.

Radio Interview with Hugh Hewitt

(The following is a transcript from my weekly appearance on Hugh Hewitt's national radio show. Yours truly is a guest on Hugh's show every Friday night at 7:20pm ET. If you'd like to listen to the transcript from this past Friday's broadcast, click here.)

HH: This is rapidly becoming my favorite segment of the week, because Larry Kudlow cuts through the crap, and just gets to the bottom line when it comes to the economy. Larry Kudlow, interest rates on the 10 year dropped below 5%. The overnight is at 5 1/4. What's going on?

LK: Mortgage rates fell big. Mortgage rates are falling, I think, three or four consecutive weeks. Mortgage rates are falling. Energy prices are falling. Gasoline prices in the open market dropped under $2.00 to $1.95. If you add a buck for taxes and carrying charge, it tells you that across the nation, we're going to hit a $2.95 cent average gas price. That gets it below $3 bucks. NASDAQ tech stocks, Hugh, had their best week in four years. And the overall averages were all up. We are approaching, again, the highs, the five year highs, that were registered in early May. It is the greatest story never told, including the underlying economy, including the tax cuts, which George Bush talked about at Camp David today. It's a good story, and the cacophony of all these complaining, cults of the brear people is being put to rout.

HH: Let me talk to you a little bit, Larry Kudlow, about specific advice for people listening, and then get back to the macro. If you've got cash on the sidelines, and you want to park it in a mutual fund, where does Larry Kudlow tell you to look?

LK: You know, I always say buy the broad-based indexes. Buy the indexed fund for the S&P 500, buy the indexed fund for the Wilshire 5,000. You get all the major traded stocks in America. Essentially, you're buying a piece of the rock in this country's long-run economy. That's where they should go. If they're not professionals, believe me, you can't be picking and choosing, and buying and selling, and trading and day trading. Better off to buy the broadest indexes, and it's cheap. These index funds cost you about $.25 cents on the dollar. It is the best way to participate in this stock market, which by the way, is heating up, and it's going to bust through all the highs, you wait and see, by the end of this year, or early next.

HH: Now Larry, I always get questions, that say Hugh, I'm in the investor's class. I'm in an investment club. I want specifics from Larry Kudlow. And so, if they are doing the $100 dollars a month, and they're picking stocks because it's fun, what do you tell them to do?

LK: Well, that's an interesting question. That's a very interesting question. You know, when you look down the list, you see some very interesting things right now. You see, for example, some of the retailers, which have done very poorly, are having a nice little comeback, like this week, Circuit City was up 11%.

HH: Oh.

LK: Nordstroms was up 7%. Federated was up 4%. Even was up 4% this week. Now that stuff has been clobbered, and people have shunned it. I would go back to it. I'll tell you another one. Semiconductor companies...this week, AMD, which is kind of the new Intel, was up 21%. Broadcom was up 20%. Marvel Technologies was up 8%. Some of the communications companies...these are the equipment builders, because you know, the telephone companies are doing fiber optic buildouts to do internet telephony, and they're doing buildouts in order to get a piece of the television business. So what you're seeing...and the cable companies, by the way, are having to redo their own fiber optic stuff. So for example, this week, Qualcom was up 12%, and Lucent was up 9.5%. And Cisco was up 6.5%. And cell phone maker Motorola, I got my razor phone. You ought to have one, too. Motorola was up 5%. These are all very interesting little plays going on here.

HH: Hey, a programming suggestion for you, Larry.

LK: Now I'm not recommending. I'm just saying these are interesting plays. I am not the guy to recommend and pound the table. But since you asked, I'm just saying here's some hot stocks in some neglected sectors. Retail and computer chips, and communications equipment. Let me be very clear. I can't recommend them. I'm just saying this is stuff that looks like it has value.

HH: Programming for you, though. I think Larry Kudlow's stock club, that took the same kind of ethic that stock clubs around the country did on a Friday afternoon feature, would be enormously popular, because people do do this. And it's a good thing for the investor class to get together and talk about this. It's an educational process, for one thing.

LK: Well, I can only tell you that I think the growth-oriented sectors of the economy, and know, let's take the consumer sector. Let's look at that for a minute. Everybody wrote the consumer off. They said the housing is slumping. That's going to kill consumers. Guess what? It hasn't. Consumers are very resilient. The great American consumer. Jobs are rising, unemployment is low, incomes are going up, tax rates are low. Consumers are showing a lot of resilience, and that's why I wouldn't write off all the consumer stocks. And incidentally, I wouldn't write off the home builders. Home builders have been smashed. Some of these great companies are down 50% for God's sakes. the home building correction is coming to an end. In fact, we saw in the 2nd quarter, home prices actually went up for a change. And while all the Wall Street consensus bears are telling you homes are getting killed, and are going to keep getting killed, if you have any contrarian blood in you, you might want to look at some of these home builders. I mean...

HH: Especially with interest rates on a glide path.

LK: Yes. Mortgage rates are coming down. For example, this week, Toll Brothers was up 5%, Lennar was up 5.5%. Pulte Homes was up 7%. Centex was up 8%. It's very interesting what's going on out there. It's counter-consensus.

HH: Now let me ask you to go macro again. Damage to the Israeli economy. How significant?

LK: Well, they got hurt. I don't know how significant it's going to be in the longer run. I'm not sure that there's going to be all that much. I mean, I hate to say it, but they are used to this kind of buffeting.

HH: Interesting.

LK: And I would also say that the Hezbollah rockets, they've fired a lot of rockets. I'm not sure what all damage they did. I mean, they did kill some people, some families are hurt, and they had to move out. But in terms of the know, the Israeli economy is a technology driven economy. It's a near cousin to the NASDAQ. So it kind of trades off of the NASDAQ, and it's been in a slump just like the NASDAQ has been, but when you see the NASDAQ go up, really, to the best week in four years, and it may be that there's a revival in tech stocks, you might want to take a look at that.

HH: Thirty seconds, Larry. What about the defense industry? It's been a strong sector for a long time.

LK: Fabulous. Absolutely fabulous the last five years, up about 260%. The world is a dangerous place. I don't care who's running Congress. Military budgets are going to continue to expand. I love the defense companies. I just love them. And by the way, they're all better managed, and they apply good technology, and they're very productive. I would buy them across the board. I love defense stocks. Love them.

HH: Larry Kudlow, think about that Larry Kudlow stock club. It's a winner on Friday afternoon. I'll keep it up here. Larry, talk to you next week.

End of interview.

Tuesday, August 22, 2006

The Threat We Face

(An excerpt from Thomas Sowell's literary wake-up call, "Point of No Return," available in its entirety on RealClearPolitics.)

"...What kind of people provide a market for videotaped beheadings of innocent hostages? What kind of people would throw an old man in a wheelchair off a cruise liner into the sea, simply because he was Jewish? What kind of people would fly planes into buildings to vent their hate at the cost of their own lives?

These are the kinds of people we are talking about getting nuclear weapons. And what of ourselves?

Do we understand that the world will never be the same after hate-filled fanatics gain the ability to wipe whole American cities off the face of the earth? Do we still imagine that they can be bought off, as Israel was urged to buy them off with "land for peace" -- a peace that has proved to be wholly illusory?

Even ruthless conquerors of the past, from Genghis Khan to Adolf Hitler, wanted some tangible gains for themselves or their nations -- land, wealth, dominion. What Middle East fanatics want is the destruction and humiliation of the west.

Their treatment of hostages, some of whom have been humanitarians serving the people of the Middle East, shows that what the terrorists want is to inflict the maximum pain and psychic anguish on their victims before killing them.

Once these fanatics have nuclear weapons, those victims can include you, your children and your children's children.

The terrorists need not start out by wiping our cities off the map. Chances are they would first want to force us to humiliate ourselves in whatever ways their sadistic imaginations could conceive, out of fear of their nuclear weapons.

After we, or our children and grandchildren, find ourselves living at the mercy of people with no mercy, what will future generations think of us, that we let this happen because we wanted to placate "world opinion" by not acting "unilaterally"?

We are fast approaching the point of no return."

Tonight's Lineup

On CNBC's Kudlow & Company this evening:

The Great Rate Debate between Michelle Girard, senior economist at RBS Greenwich Capital Management and David Goldman, Global Head of Fixed Income Research.

The inaugural edition of The Kudlow Stock Club. Keith Wirtz, President & CIO of Fifth Third Asset Management and Frank Holmes, CEO/CIO of US Global Investors will present and defend their latest stock picks.

An economic discussion with Laura Tyson, Dean of the London Business School and David Malpass, Chief Global Economist of Bear Stearns.

A political discussion with Tony Blankley of the Washington Times; former House Majority Leader Dick Armey; Larry O'Donnell, MSNBC Senior Political Analyst; and Dan Gernstein, Sen. Lieberman's communications director.

No Doomsday Yet

Although there are still a few more hours left in the day, the Islamic doomsday scenario scheduled for today, August 22, appears not to be in place. Maybe the airplane bombing terrorist threat foiled by our British cousins at MI5 and Scotland Yard was aimed at the doomsday scenario. We will always be thankful for the Brits.

But the big Internet story in recent days was the potential significance of August 22nd as a possible target date for a massive terrorist attack commemorating the return of the 12th Imam; a supposed day of reckoning for Shiites who believe that August 22nd corresponds to the end of the world.

Stock market investors were wearily eyeing the top of yesterday’s Drudge Report which featured this story. But veteran portfolio manager Mike Holland told us on Kudlow and Company last night that he didn’t believe a word of it. Blessedly, Mr. Holland looks to have gotten it right.

Stocks have been rising in recent weeks on the strength of a stronger than expected American economy, where resilient consumers and highly profitable businesses are outperforming the doom & gloom, cacophonous, cult of the bear on Wall Street.

Within shouting distance of 5-year highs, the bull market economy and stocks, backed by President Bush’s successful low tax rate program, continues to outperform the bearish consensus. It is the greatest story never told. It continues to dodge doomsday.

And then we have President Bush, under fire from both the left and the right, who very clearly communicated a strong positive vision for the upcoming congressional elections during yesterday’s news conference. Bush is attempting to take command of the election year Republican strategy to avoid a doomsday scenario this November.

He said, “Look, issues are won based on whether or not you can keep this economy strong—elections are won based on economic issues and national security issues…I'd be telling people that the Democrats will raise your taxes…I’d be running on the economy and I’d be running on national security. But since I’m not running, I can only serve as an advisor to those who are.”

The latest Gallup Poll shows Bush’s approval now at 42 percent, up from 31 percent in May. But here’s the real anti-doomsday shocker: among registered voters, the Republicans have closed a 12-point deficit on the generic congressional ballot in early last June to only 2 percentage points now, with the Dems at 47 percent and the Republicans at 45.

It may well be that the “Armageddon Imams” are actually helping the down on their luck GOP.

With terrorism on the front page, Democrats are losing ground rapidly, almost as much ground lost as the Boston Red Sox, who just got slammed for five straight games by the New York Yankees. Now that’s doomsday.

As for the rest of this story, I say keep the faith. Faith is the spirit.

Come Out, Come Out, Wherever You Are!

Looks like Instapundit's Glenn Reynolds is ruffling feathers again on Capitol Hill.

Here's the background from The Wall Street Journal:

"There's a desperate new manhunt across the country, and the suspects are no less than 91 Members of the world's greatest deliberative body. One of these Senators has a big secret, and we should all have some fun as the foes of government pork try to run the mystery politician to ground.

Here's the forensic background: In April, Oklahoma Senator Tom Coburn introduced legislation that would set-up a database to track an estimated $1 trillion in federal grants, earmarks, contracts and loans. Americans would be able to perform Google-like searches to track how their tax dollars are spent -- or frittered away, as the case might be. Twenty-nine Senators have co-sponsored the bill, and it's a testament to how concerned some are about Washington's miserable spending reputation that the list includes a who's who of Presidential hopefuls, from Hillary Rodham Clinton to George Allen to Bill Frist.

Yet most Senators clearly have no desire to shine a light on their spending practices, and at least one -- perhaps more -- has placed a "secret" hold on the legislation. Normally the architects of these holds are exposed within a few legislative days, but with Congress on recess the masked spender has so far evaded capture and public scrutiny.

Porkbusters, a grassroots outfit that fights government waste, found this untransparent move to stymie government transparency a bit rich, and last week launched a campaign to unveil the blocker's identity. It has asked its members to call on their Senators to disavow the hold, and the responses are trickling in. The group, which is tracking the results on its Web site (, still has the pictures of 91 Senators under its "Suspect" list. The nine Senators who have denied placing the hold are now listed as "In the Clear"; they are Senator Coburn, Barack Obama, Mary Landrieu, David Vitter, John McCain, Ron Wyden, Richard Shelby, Jim Inhofe and Jeff Sessions.

If Congress insists on spending like there's no tomorrow, at least the Members could let the voters see what they're spending it on by passing Senator Coburn's reform. Will the real secret Senator please stand up?

A tip of the hat to you Glenn...

Monday, August 21, 2006

Israel vs. Hezbollah: The Markets React

(From the National Review Online.)

A Vote for Civilization in the Middle East
Tracking Arab large-caps through the Israel-Hezbollah crisis.

By Jerry Bowyer

After the battle for southern Lebanon ended, the battle to dominate the global post-war spin room immediately began. Pundits are fine, but when BuzzCharts really wants to know whether a region is moving towards chaos or towards civilization, it looks to the marketplace. Reporters can poll the “Arab street” all they want, but to find out what the locals really believe, you have to watch one of the most powerful ballots a man can cast — his nest egg.

By that measure, the Israel-Hezbollah crisis of 2006 yields some surprising results. BuzzCharts looked at an index of 50 large publicly traded companies which do business in the Arab world, mostly banks and utilities. We then synced it with the timeline of the conflict, marking out major advances and setbacks in Israel’s war against Hezbollah.

You probably won’t be surprised to learn that the Israeli stock exchange rallied and fell in step with Israel’s fortunes in the war. But as the above chart shows, the Arab Titans index did the same, rising and falling in step with Israel’s success. Why? Because Israel’s counter-attacks were not the destabilizing factor in the region. Hezbollah’s failed-state warlordism was.

Israel’s attack was part of the solution. That’s because the conflict isn’t between Arab and Jew; it’s between civilization and chaos. The complex web of information that constitutes Saudi bankers, Kuwaiti phone execs, and their shareholders seems to have been voting that civilization is either winning, or that it must win.

Lieberman and Iraq

As I predicted, Lieberman has become increasingly critical of President Bush’s war management polices. Yesterday, on CBS’s “Face the Nation”, Lieberman called for Defense Secretary Rumsfeld’s resignation and he criticized the Bush administration for not having sent more troops into Iraq.

The Lamont campaign then attacked Lieberman by saying, “his new found criticism of war won’t convince Connecticut voters after so many years of stubbornly rubberstamping Bush’s failed policies.”

Looks to me like the big difference on war between Lieberman and Lamont is that Lamont favors a one year deadline troop withdrawal (as he said on Kudlow & Company last week) whereas Lieberman does not favor a deadline.

So, pro-war hawks like myself would favor Lieberman. But of course the big problem I have is that the U.S. is not winning the war. Staying the course doesn’t sound like a solution to the massive sectarian violence going on in Iraq.

On domestic policies, they’re both liberal democrats opposing tax cuts, ANWR and offshore drilling, and opposing the ban on partial birth abortion.

Lamont however may be slightly to the right of Lieberman on budget spending. In the CNBC interview with me, Lamont said he wanted to eliminate budget earmarks like the abusive transportation bill. Lieberman is a defender of earmarks.

Incidentally, Sen. John Kerry on ABC’s “This Week with George Stephanopoulos”, blasted Lieberman and called him the new Cheney. OOOooooooo! But I know Dick Cheney, have known him for many years, and Joe Lieberman, you’re no Dick Cheney.

Friday, August 18, 2006


Does the Congressional Budget Office truly believe that higher tax rates over the next ten years will expand economic growth and lower the budget deficit? This forecast of theirs simply defies economic common sense.

If that were the case, then why not raise tax rates across the board back to 70 percent, where Reagan found them, or even 91 percent, where JFK inherited them?

If it pays less to work and invest, after tax, as implied by the CBO, does anyone really believe people would work harder?

Over then next ten years, the budget agency expects 2.8 percent annual growth, when in fact over the past 50 years, growth has averaged 3.5 percent. What's more, rapid growth over the past 25 years with lower tax rates has greatly boosted this 50-year average.

So the idea that higher tax rates might balance the budget, or that an extension of lower tax rates will generate a $1.7 trillion higher deficit, just makes no sense at all.

Mainstream economists today believe that tax incentives matter. All but the farthest left economists like Paul Krugman and his ilk believe that economic behavior is highly responsive to changing tax rates. The CBO is telling us otherwise and it just doesn’t figure.

Of course, these long term economic and budget projections remind us of Friedrich Hayek’s fatal conceit. That is, government planners can accurately predict the future. I don’t think so. Consequently, with all due respect to the professionals at CBO, I just don’t buy into their new numbers.

Perhaps they should focus more clearly on the here and now. What’s happened in recent years following the Bush tax cuts is a stronger economy, much higher tax revenue collection, and continuous downward estimates of the budget gap.

This is the real story.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

We'll begin with a look into what's ahead following Bush's meeting with his economic team.

Al Hubbard, National Economic Council Director will join us from the White House.

On board to weigh in after our interview with Mr. Hubbard will be renowned economist Art Laffer and Robert Reich, former Clinton Labor Secretary and economics professor at UC Berkley.

The CBO's acting director, Donald Marron, will join us to discuss the deficit.

Conservative columist Ann Coulter will square off against liberal author Peter Beinart on a number of hot issues including profiling, wiretapping and national security.

Jeff Kleintop, chief investment strategist of PNC Wealth Management, will discuss domestic and international markets.

Profiling Works

(The following is an excerpt from last night's heated discussion on "Kudlow & Company" where we discussed profiling potential terrorists. My guests were Ibrahim Hooper, the spokeman for the Council on American-Islamic Relations (CAIR) and Jed Babbin, author/former deputy undersecretary of defense.)

KUDLOW: All right, gentlemen. Let me move quickly to another but very important subject, the front page of the New York Times. An excellent story by Mr. Eric Lipton. Let me just read briefly. "As the man approached the airport security checkpoint here on Wednesday, he kept picking up and putting down his backpack, touching his fingers to his chin, rubbing some object in his hands and finally reaching for a pack of cigarettes even though smoking was not allowed. Two transportation security administration officers stood nearby, nearly motionless and silent, gazing straight at him, then with a nod they moved in, chatted briefly, and then swiftly pulled him aside." Now, this is called behavioral--this is called behavioral profiling...Jed Babbin, what is your take on this new development? They're using it in London. They're using it in Israel, Tel Aviv and so forth, and it looks like they're using it in the United States increasingly.
Mr. BABBIN: Well look, it's not new. It's been used by the Israelis for three decades very successfully. And what we're talking about here, Larry, this is not a civil rights issue. Nobody's going to confuse Ibrahim with Martin Luther King Jr., or confuse CAIR with the NAACP. We're talking about profiling of people who are more likely to be terrorists. And if you look at the list of the 24 people arrested in London, you don't see any Johanssens or Kowalskis or Goldfarbs or O'Flanagans on that. It's all those people.
Mr. HOOPER: Can you be more racist?
Mr. BABBIN: Well, I don't think I--that's not racist. This is not about racism.
Mr. HOOPER: OK, I'll ask you...
Mr. BABBIN: If you read the Con--look, I will...
Mr. HOOPER: How would you determine who is a Muslim to be profiled? Would you pull me aside? I didn't wear my skull cap just so that you...
Mr. BABBIN: Oh, I certainly would. I would absolutely. Ibrahim, you'd be at the top of my list because CAIR's history...
Mr. HOOPER: How would you know I was a Muslim?
Mr. BABBIN: Because I know you--look...
Mr. HOOPER: How would you know I was a Muslim?
Mr. BABBIN: It's not a question of knowing who is a Muslim or who is not. We know people who have certain appearances, we know people who have certain behavior patterns. This behavior profiling has been working for 30 years.

"Go West, Young Man..."

There’s a wonderful piece in The Wall Street Journal today about how Canada’s western provinces are cutting tax rates and growing rapidly. The combination of supply-side tax cuts, free trade, and the oil sands boom has created quite the economic boom up there.

You couldn’t have a bigger contrast between the western provinces (British Columbia, Alberta and Saskatchewan) and Canada’s high-tax, high-spending, over-regulated eastern provinces like Ontario and Quebec. And, remember, it was the conservatives in western Canada that really elected conservative Canadian Prime Minister Stephen Harper.

I often wonder why the western part of Canada doesn’t join the United States.

And then, to be consistent, maybe I should be wondering why the northeast here in the U.S. doesn’t just go ahead and lock arms with the lefties in eastern Canada. Think of it.

Thursday, August 17, 2006

Islamic Fascism

President Bush and others have begun using the term, "Islamic Fascism," to describe the terrorist enemy the United States and the rest of the civilized world is up against. This terminology has sparked controversy.

On Thursday's edition of CNBC's "Kudlow & Company," we had a rather heated debate on this very subject, between my friend Jed Babbin, author/former deputy undersecretary of defense and Ibrahim Hooper, the spokesman from the Council on American-Islamic Relations (CAIR).

Incidentally, the good folks over at National Review Online assembled a symposium of experts to address this developing word choice brouhaha, and it is definitely worth a read.

Here's a snippet from Bat Yeor, the author of a number of books exploring the conditions of Jews and Christians in the context of the jihad ideology and the sharia law:

"...However, unlike Fascism, Islamism is deeply imbedded in a jihadic ideology, with its legal framework of permanent war derived from religious scriptures, consolidated by a history of 13 centuries of warfare, conquests, and subjugation of infidels. Unlike fascism, all its references are religious, and its hatred targets equally Jews and non-Jews. Codified in 8th-century Islamic jurisprudence, Islamist warfare tactics conform exactly to a sharia-jihadic worldview, set in an enduring, theological pattern. Similarities with fascism emerge from a shared totalitarian mechanism, despite divergences in the two movements. Promoters of jihadism define their actions as a jihad, using its terminology and history. But they object to Westerners adopting this view negatively since for Muslims jihad represents the highest sacred duty in the path of Allah, and it is this positive interpretation of jihad that they want to impose on its victims. Being unfamiliar with jihad, Westerners do not understand that the fight against terror is against a 21th-century jihad and they do not realize the breadth of its scope and constituents."

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

We'll begin the show with a debate on terrorist surveillance and today's absurd federal court ruling that halts the NSA's domestic surveillance program.

Jed Babbin, author/former deputy undersecretary of defense will square off against James Bamford, "Body of Secrets: Anatomy of the Ultra-Secret Security Agency" author.

Mr. Babbin will stick around and tackle the profiling issue with Ibrahim Hooper from Council on American-Islamic Relations (CAIR).

Democrats vs. WalMart...Kimberley Strassel of the Wall Street Journal will debate Chris Kofinis, spokeperson for Wake Up Walmart.

Our market guests will discuss the latest stock market and economic news. On board tonight are John Augustine, Chief Investment Strategist for Fifth Third Asset Management; Barry Ritholtz, president of Ritholz Capital; Herb Greenberg, Senior MarketWatch columist; and Jeff Macke, president of Macke Asset Management.

And, finally, a look at pensions with Scott Talbott, vice president of government affairs at the Financial Services Roundtable.

Lamont, Liberals, and the Midterm Election

In a lengthy interview on CNBC’s Kudlow & Company last night, Connecticut Democratic Senate candidate Ned Lamont presented himself as an affable, attractive man with a sense of humor. It was a pleasure to interview him. But his positions on key issues are very disappointing, and very much in sync with the liberal left of the Democratic Party.

Lamont opposes any expansion of electronic surveillance for the Homeland Security war against our terrorist enemies, and made it clear that he would come down on the ACLU side of civil liberties.

For example, the Greenwich entrepreneur opposes surveillance of libraries, even though would-be terrorists can find a lot of useful and damaging information there. Lamont does not want warrantless wiretapping, or searches, and he believes probable cause or criminal intent is a mainstay for warrants.

He is not opposed to telephone datamining, so as long as it focuses on call patterns, rather than call content. But he seems far, far away from our British cousins of MI5 or Scotland Yard, in their efforts for rapid surveillance in all areas.

Mr. Lamont wants a one-year deadline for troop withdrawal from Iraq. In my judgment, he does not appreciate the disastrous consequences such a decision would entail for a possible Iranian takeover of Iraq. Nor does he appear to grasp the added new momentum in favor of Hezbollah, Hamas, Syria and all our other enemies in that dangerous part of the world. The consequences of such a move would be colossal. It would send exactly the wrong message to our radical Islamist enemies.

On domestic issues, Mr. Lamont would roll back the investor tax cuts. He would ignore their hugely positive impact on current U.S. economic growth, and the revival of risk-taking.

On a positive note, he leans against the over-regulation of Sarbanes-Oxley, especially on small companies. As the founder of Campus TeleVideo, he is sensitive to the SarBox problem, although he is not ready to move for total repeal. (I asked him about Section 404, as the key problem, but he wasn’t really familiar with that detail.)

In another area, Lamont unfortunately seems to be moving away from free trade and the free flow of investment. Though he appreciates the need for capital flows, he talked about an “unlevel playing field” among countries, and was critical of China. Sounds very much like a Smoot-Schumer-Hawley-Graham Democrat to me.

We didn’t get a chance to talk about tax-free savings accounts for retirement, education, health care and social security, but his op-ed piece in yesterday’s Wall Street Journal suggests that the Lamont approach is a big government approach, rather than an ownership or investor class approach.

Similarly, Mr. Lamont seems opposed to school choice and merit pay for education reform. On energy, he is on the record in opposition to ANWR and offshore drilling.

The interesting part about Lamont’s race with Independent/Democrat Joe Lieberman is that Senator Lieberman agrees with Lamont on virtually all domestic issues. This list includes higher taxes, opposition to offshore drilling and ANWR, and Bush style entitlement reform. Lieberman has also voted against a ban on partial birth abortions.

So, for the most part, with the exception of foreign policy and possibly earmarks (where Lamont may actually be to the right of Lieberman), Sen. Lieberman and the man who would like to unseat him are tried-and-true, big government, liberal Democrats.

Lieberman is much more sensible on the terror war and our war in Iraq. However he has taken to criticizing President Bush on the management of the war. I expect more of this from him.

Though, to be perfectly honest, there is much to criticize on the disappointing war management. A lot of hawks like myself, who want to win the war, are frustrated and dispirited by the explosion of sectarian violence that borders on civil war. Additionally, Republican management of war finances leaves much to be desired, including the need to immediately end no-bid contracts, plus the failure to develop an effective reconstruction plan in Iraq. This contributes to the frustration.

The latest Quinnipiac poll shows Lieberman taking a strong lead over Lamont, perhaps even double digits, while the Republican candidate remains utterly inconsequential. As far as the overall race for the U.S. Senate this fall, Connecticut is just not going to be that important. The fact is, you have two liberals on domestic policies, and one moderate on the war (who may be rapidly distancing himself from the President).

A recent Human Events survey of numerous polls around the country concludes that if the election were held tomorrow, the Senate tally would be 50-50. So, it’s going to be a close call. The GOP’s Rick Santorum is closing in fast on Democrat Bob Casey in Pennsylvania, but Rep Harold Ford (D) is making a great run in Tennessee’s Senate race against Bob Corker (R). However, it looks like Ford is the real pro-growth tax cutter in that race.

On the House side, I have to believe that national discontent from the left and the right over Iraq will lead to a Democratic victory. My sense is the electorate wants a more divided government, rather than Republican control in the executive and legislative branch.

But if the GOP gets out there, and makes a strong case for the tax cut led economic growth recovery, (which, incidentally, is a heck of a lot stronger than the “cult of the bear” would have us believe) they may do better. Also, if Republicans campaign hard on stronger surveillance measures for homeland security, including behavioral profiling in airports, they may also do better. After all, the Democratic sympathy for civil liberties is a bigtime loser. But if I were a Republican House Member, I would sure run scared right now, on a 24/7 basis.

Unquestionably, President Bush will veto any Democratic tax hikes, should they come about in a new Congress. Bush will put on his Grover Cleveland hat, and get downright veto-ornery on tax and spending increases (something regarding the latter, he should have done several years ago). But if the U.S. Congress moves markedly left on foreign policy, then America will be headed in exactly the wrong direction at exactly the wrong time.

We need a victory strategy in Iraq, not an immediate pullout. We need a revived Pentagon leadership; one with tough-minded, action-oriented generals to carry it out. We need a Congress committed to managing the war money on behalf of taxpayers, as well as the poor folk in Iraq who are still desperately seeking economic recovery.

In other words, the future of American foreign policy is a nervous one, very much still up for grabs.

Wednesday, August 16, 2006

Twenty-Five Years Later

My friend Thomas Bray wrote an excellent article ("Reagan's Winds Still at Our Backs") reflecting on the resounding success of the Reagan Revolution. Here's a portion of the article available at RealClearPolitics.

"Last weekend was the 25th anniversary of a turning point in Western civilization: the Reagan tax cut of 1981. Aside from an approving editorial in the Wall Street Journal, however, there was hardly a peep in the mainstream media.

That's not surprising: Ronald Reagan and his tax cuts remain highly suspect in the highly statist world of the national press corps. Among the chattering classes, and even among many tax-cutting enthusiasts, there is still little appreciation of the broader significance of the tax-cutting movement that swept Reagan into office in 1981.

It was far more than a revolt of hard-pressed taxpayers, who, acting out of base self-interest, greedily wished to keep more of their paycheck (or in the left's view, the dividend check). It was far more than a matter of making the economy more "efficient." It was an outward manifestation of a sea change in public attitudes about the proper role of government itself.

Reagan gave voice to that sea change, sometimes coarsely - "the most feared words in the English language are 'the government is here to help you'" - and sometimes eloquently, as when he lectured students at Moscow State University about what my late colleague Warren Brookes called "the economy in mind" - the good things that happen when government power is limited...

...Reagan's optimistic message that freedom and markets can do a better job of delivering the goods than government still has no serious opponent."

Well put...

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

Democratic U.S. Senate candidate Ned Lamont will join us in a "Washington to Wall Street" discussion on a wide range of issues including terrorism, the war in Iraq and the outlook for Democrats.

Rep. David Dreier (R-CA) and Rep. Artur Davis (D-AL) will weigh in on the political and economic discussion.

An economic roundtable with Donald Luskin, CIO for Trend Microlytics LLC; Martin Baily, former Chairman of the Council of Economic Advisors/Senior Fellow at the Institute for International Economics; Nariman Behravesh, chief economist for Global Insight; and CNBC anchor/all-star Ron Insana.

Pat Dorsey, Director of Stock Research at Morningstar, will offer his take on the markets.

What We're Up Against

(From the cover story in today's New York Post, BRIT 'BABY BOMB' BEASTS)

"Twisted young British parents planned to sacrifice their precious baby in the evil cause of jihad by mass murder.

Fanatical terror suspect Abdula Ahmed Ali, 25, and his wife, Cossor, 23, are among those being interrogated by police as suspects in the massive plot to attack trans-Atlantic flights in midair.

What the outwardly normal couple had secretly plotted is almost too horrifying to consider, cops said.

The Alis planned to use 6-month-old son Zain's baby bottle as a liquid bomb, blowing themselves and their child up, along with hundreds of others aboard the flight...

...British security experts suspect that Cossor Ali is an example of a chilling phenomenon that is growing in popularity among the terror set - a woman willing to use her innocent appearance to allay suspicions and carry out a suicide bombing. At least 20 Muslim women have blown themselves up in such attacks.

Particularly disturbing was Cossor Ali's apparent intent to conceal the liquid trigger for a bomb in Zain's baby bottle when the family boarded a jetliner.

"It may be beyond belief, but we are convinced that there are now women in Britain who are prepared to die with their babies for their twisted cause," a security adviser to the British government told The Times of London.

"They are ruthless, single-minded and totally committed."

Tuesday, August 15, 2006

Give Them the Boot

“…Richard Perle, former Defense Department official and currently an adviser to the Defense Department, wrote a very interesting article. The title is "We Should Not Tolerate the Preachers of Jihad." This is a particular little bugaboo of mine, a burr under my saddle. Imams preaching in mosques and imams preaching in these schools, we see them all over the country. They're preaching destruction of America. They prey on our liberal democracy and the openings we give them and the visas we give their students. Why don't we boot all of these people out?… I say the imams must go right now. They hate this country.”

CNBC’s Kudlow & Company, 8/14

Smiling (crazy-ass) Villain

"O villain, villain, smiling, damned villain!
My tables,—meet it is I set it down,
That one may smile, and smile, and be a villain:
At least I ’m sure it may be so in Denmark."
- Shakespeare, Hamlet. Act i. Sc. 5.

Milder Inflation

Today’s low PPI report punches a big hole in the inflation story.

The core PPI is only 1.3 percent over the past year. Probably more important, the PPI ex-energy is 1.2 percent, compared to a 3.2 percent peak in early 2005.

Gold dropped over $6.

We’ll see about the CPI tomorrow. The key number to watch is the chain weighted CPI.

Churchill's Wisdom

"I am an optimist. It does not seem too much use being anything else."

"Courage is rightly esteemed the first of human qualities... because it is the quality which guarantees all others."

"An appeaser is one who feeds a crocodile, hoping it will eat him last."

"Some regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is - the strong horse that pulls the whole cart."

"Victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory, there is no survival."

"One ought never to turn one's back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half. Never run away from anything. Never!"

Monday, August 14, 2006

Give Them the Tools They Need

“Britain's successful preemption of an Islamicist plot to destroy up to 10 civilian airliners over the Atlantic Ocean proves that surveillance, and other forms of information-gathering, remain an essential weapon in prosecuting the war on terror. There was never any real doubt of this, of course. Al Qaeda's preferred targets are civilians, and civilians have a right to be protected from such deliberate and calculated attacks. Denying the terrorists funding, striking at their bases and training camps, holding accountable governments that promote terror and harbor terrorists, and building democracy around the world are all necessary measures in winning the war. None of these, however, can substitute for anticipating and thwarting terror operations as the British have done. This requires the development and exploitation of intelligence.

Despite this self-evident truth, critics of President Bush and the war on terror have relentlessly opposed virtually every effort to expand and improve the government's ability to gather the type of information needed to detect and prevent terrorist attacks, whether in the form of the Patriot Act's "national security" letters and delayed notification warrants (derisively described by pseudo-civil libertarians as "sneak and peak" warrants), the NSA's once secret program to intercept al Qaeda communications into and out of the U.S., and the Treasury Department's efforts to monitor financial transactions through the "SWIFT" system. These, and similar measures, are among the tools that we will need to finish the job...” – Today’s Wall Street Journal, “The British Way”

David Rivkin and Lee Casey's op-ed delivers a spot-on analysis of how the Brits are afforded greater flexibility in their fight on terrorism, and how we need greater latitude here at home in order to ferret out terrorists.

This is what Michael Chertoff has been calling for, and he’s exactly right. The Department of Homeland Security chief told Fox News yesterday that we need the ability to be as nimble as possible with surveillance. That’s what gives the Brits an advantage over the U.S. right now, along with their ability to hold suspects for a longer period of time.

We need to use all the tools we possibly can in catching terrorists. The big question right now is whether we’re using all the tools available to us, or whether the liberal-ACLU-left is compromising our fight against these evildoers.

Another thought here is that Bush should get out there and make this “the” election year issue. There’s really no greater issue. All the politicians ought to be put on record where they stand. Bush needs to make a strong push here.

By the way, it’s not enough for the GOP to label Dems soft on terrorism—Republicans need to get specific, offer concrete proposals, and make Dems reveal their cards. If the Dems want to get tough on this issue (finally), well fine, God bless ‘em.

But if they’re going to fall back and blindly support civil liberties during wartime that is not fine, and they need to be called out for it. They’ll pay dearly for it on November 7th.

Incidentally, Ned Lamont looked like a deer in headlights on Fox News yesterday when he was asked about security. When Chris Wallace asked a befuddled Ned Lamont whether there was any specific measure in the Patriot Act he wanted removed, Lamont hemmed and hawed something about defending librarians. Huh?

Its not the librarians I’m worried about, it’s the terrorists. Someone needs to give Ned Lamont, and the rest of the national security-saboteurs a serious wake-up call.

Get out of the way and give the men and women charged with the enormous responsiblity of protecting American lives all the tools they need.

Alive and Kicking

(The U.S. economy is still hitting on all cylinders. Rising jobs and incomes appear to be trumping higher gas prices and cooling within the housing sector. Lots of economic data out this week on inflation, production, and housing—will tell us whether Q3 could be growing at 3 percent to 3.5 percent, rather than 1 to 2 percent, as the cult of the bear would have it. Here's a portion of my latest column ("Alive and Kicking") at National Review Online that discusses all this in greater detail...)

"The great American consumer has been written off so many times in the last couple of years, just like the rest of the economy. But he/she is alive and kicking. Another great story never told.

Retail sales came in at 1.4 percent for July, way above Wall Street expectations, while core sales excluding autos, gas, and building materials — a number that feeds directly into GDP — increased 0.6 percent. Over the past 3 months core sales rose 6.7 percent at annual rate, and in the past year they’re up 7.4 percent. Excluding autos alone, sales have gained 9.2 percent in the last 12 months. That’s big time.

Sales of consumer durables also were strong. Some economists sounded the death knell for consumers when durable sales dropped in the second quarter. But in the newly released July report, durable-goods sales rose across the board: 3.1 percent for cars, 1.9 percent for electronics and appliances, 1.8 percent for building materials, and 0.5 percent for furniture. These are fat monthly gains.

Far too many investors, hedge fund managers, and economists link the housing slowdown to an imminent consumer collapse. These bears are also quick to add rising gas prices and higher interest rates into their pessimistic outlooks. But they skip two very significant data points: jobs and incomes are still climbing.

It may well be that Wall Street keeps overestimating the monthly job gains, but the fact remains that jobs are being added at a noteworthy clip of about 125,000 per month and the unemployment rate remains low. Because hours worked and wages continue to rise, incomes are still increasing at a comfortable 6 to 6.5 percent yearly pace. If jobs and wages were falling each month, you could write off consumer spending. But that’s simply not happening.

Charles Biderman, of Trim Tabs Investment Research in Santa Rosa, California, adds an additional bullish factoid: Individuals now hold $6.3 trillion in savings accounts, money market funds, and CDs. In contrast, short-term debt — notably credit card and installment debt — stands at only $2.2 trillion, and is growing slowly. So, despite the housing slump, consumers have an excellent cash position. That is why Biderman is very bullish on the stock market, which he thinks will rise by 15 to 20 percent by year-end.

The cult of the bear will also be wrong on business capex spending. American businesses have even more cash on hand than consumers, bolstered by second-quarter profits that came in 4 or 5 percentage points above estimates. Even though business equipment and software investment declined 1 percent at an annual rate in the second quarter, it rose 15.6 percent in the first quarter. Averaging the two gets you 7.3 percent business capex for the first half of the year, and 6.9 percent for the last four quarters. Pretty hefty.

Since low tax rates on capital have rejuvenated investment returns and the overall economy’s animal spirits, this trend will only continue. Today’s low tax environment is also a job creator, as is the red-hot corporate and commercial real-estate market...."

Friday, August 11, 2006

The Supply-Side Revolution

"Common sense told us that when you put a big tax on something, the people will produce less of it. So we cut the people's tax rates, and the people produced more than ever before." -President Reagan’s Farewell Speech

Exactly twenty-five years ago, Ronald Reagan signed into law the first supply-side tax cuts since the JFK plan of the early 1960s. By reducing high marginal tax rates, Reagan transformed the American economy and opened the door to two-and-half decades of prosperity. Economic behavior responds significantly to the incentive power of low tax rates that raise the after-tax return on work, investment, and risk-taking.

Over this time span, the U.S. has experienced only six quarters of negative GDP -- a remarkable performance. Roughly 45 million new jobs have been created, with the economy averaging about 3.5 percent real growth each year. In the 1980s, as the economy supplied more goods to absorb the Fed’s money supply, inflation plunged from the stagflationary 1970s. Meanwhile, entire new technology industries sprung up, forming an information economy that has transformed business and productivity.

Stock markets exploded in the Schumpeterian environment of entrepreneurship that Reagan helped launch. Wealth creation reached unheard of levels among the 100 million investors who were spurred by new incentives to keep more of what they earned, saved, and invested. Capitalism was rejuvenated in the U.S., and then it spread around the world.

Ankle-biting, demand-side Keynesians (most of whom reside in the Democratic party) are always looking for blotches, hanging toenails, and the occasional scrape on what is today’s muscular and statuesque American economic body. But the genial and optimistic Mr. Reagan undoubtedly chuckles from his perch on high, as he watches his critics scramble to come up with a coherent opposing idea. They can’t, and they won’t.

One of Reagan’s big ideas was that tax incentives matter. It has been a blockbuster, runaway success. But even today, twenty-five years later, it remains the greatest economic story never told.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

We'll begin with a look at airline security. Michael Boyd, founder of the Boyd Group (airport analysis and consulting firm) and Steve Pomerantz, Former Deputy Director and Director of Counterterrorism, FBI will weigh in.

Terrorism & Politics: Do Dems have a problem here? Conservative commentator Ann Coulter will duke it out with David Sirota, author and political strategist.

A look into the stock market with bullish Charles Biderman, Founder/CEO of TrimTabs Investment Research and Herb Greenberg, senior Marketwatch columnist.

Bear Stearns retail analyst Dana Telsey will address today's strong retail numbers.

And finally, a supply-side tax debate between the legendary Art Laffer and Jason Furman, senior fellow at the Center on Budget and Policy Priorities.

Thursday, August 10, 2006

God Bless the Brits

“We are confident that we have disrupted a plan by terrorists to cause untold death and destruction and to commit, quite frankly, mass murder. Put simply, this was intended to be mass murder on an unimaginable scale.”-London Metropolitan Police commissioner Paul Stephenson

Just in case anybody forgot, we are in the middle of a war.

Thank God for the British authorities. They did excellent work in unearthing this latest evil plot.

By the way, they used “sneak and peak” tactics to go into the homes of the terrorist suspects. These are tactics not permitted in the U.S. without a warrant.

There’s a lesson here: Give the authorities whatever powers they need during wartime. Let’s not forget the importance of total electronic surveillance, in addition to “sneak and peek.”

By the time you tell the right number of Senators, House members, various judges, assorted bureaucrats and God knows who else, it could be too late. Please think of that.

There are reasons for taking these wartime measures which may infringe upon civil liberties, but does anyone truly believe we should be worried about the civil liberties of terrorists?

It is a miracle that the British security folks uncovered this plot. Their work saved untold innocent lives. God bless them.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

We'll begin the show with an update of the latest news surrounding the foiled terrorist bombing plot of commerical airlines, then hear from our roundtable of terrorism experts.

Our guests include Neil Livingstone, CEO of GlobalOptions, an international risk management company; Bill Daly, former FBI Investigator/Sr. V.P. of Control Risk Group; and Scott Weber, Senior Counselor at the U.S. Department of Homeland Security.

Rep. Chris Shays (R-CT) will join us to discuss homeland security.

Gordon Bethune, former CEO/Chairman of Continental Airlines, will address the impact on the airline industry.

Our market panel will look into terrorism's impact on the markets and economy.

Our guests include John Augustine, Chief Investment Strategist for Fifth Third Asset Management; Stefan Abrams, CIO at Trust Company of the West; John Silvia, chief economist at Wachovia.

Our Evil Enemy

"I'm worried that too many people, both in politics and out, don't appreciate the seriousness of the threat to American security and the evil of the enemy that faces us - more evil or as evil as Nazism and probably more dangerous than the Soviet Communists we fought during the long Cold War. If we just pick up like Ned Lamont wants us to do, get out by a date certain, it will be taken as a tremendous victory by the same people who wanted to blow up these planes in this plot hatched in England. It will strengthen them and they will strike again." - Sen. Joe Lieberman in remarks announcing his independent bid earlier today.

"Bloodthirsty Barbarians"

(Here's a noteworthy comment posted here on Money Politic$ by one of our regulars - well worth a read.)

"...The diligent guardians of freedom in Scotland Yard, the London Metropolitan Police and MI5 have proven that comprehensive surveillance, applied with discipline, can save society hundreds of tragic deaths and deny the bloodthirsty barbarians the misplaced joy they so desperately seek.

There was one thing the Honorable Mr. Hume got wrong in his address to the world early this morning. For internal political reasons, I suppose, he stated that this was not a war of one society against another - a clash of civilizations. Merely the rounding up of a few ne'er-do-wells.

With all due respect, the world does not go on high alert if the Brits pick up two dozen pickpockets in Shepherd's Bush or Charing Cross Station. If you listen to the spokespeople for the jihad, it is exactly a clash of civilizations. Nothing else explains the chanting in the streets across the mideast, and the celebration of the shelling of Israel, the "Death to America" signs, and all the rest.

The sooner we draw a sober breath and recognize it as such, the sooner we can begin to build a world worthy of our forebears and safe for our children."

Bush's Speech Today

Mr. President, speaking as a strong supporter, couldn’t you have provided us with just a bit more inspiration and leadership in light of today's events?

NYC Mayor Mike Bloomberg talked about courage. He said the secret to winning the terror war is courage. He is absolutely right.

Your inspirational remarks at Ground Zero after 9/11 will never be forgotten. Your words helped to focus and rally a wounded nation.

We know nothing happened today and America and its freedom are intact. With God’s help this will continue.

My suspicion is that you are leaving this to Tony Blair. This is, after all, Mr. Blair’s great moment, and you have been talking with him all night, but just a wee bit more inspiration might work.

"We need more tools, not less"

“This is yet another reminder, if anyone needed one, that the war on terror is not over. And it is a reminder that our military, law enforcement and intelligence forces are working around the clock and around the world to prevent attacks here at home.

That's why we need more tools, not less, to fight terrorists. It is clear to anyone paying attention that our law enforcement and intelligence forces need every legal means at their disposal to be able connect the dots and prevent and disrupt al Qaeda’s attacks. Tools such as the terrorist surveillance program and others allow us to prevent the attacks before they happen, not just to respond when it’s too late. We must continue to arm our forces, so that they can disarm terrorists.”

-U.S. Senate Majority Whip Mitch McConnell (R-KY)

Wednesday, August 09, 2006

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

We'll begin with a look at BP's Alaskan pipeline shutdown and its effect on oil and markets. Thomas Rooney, whose company Insituform Technologies, fixes pipelines, will join us, along with energy analyst Charles Swanson from Ernst & Young, which just released a comprehensive oil industry study.

Our core market panel will weigh in on oil and other market-related issues.

Our market guests include: Dennis Kneale, Managing Editor of Forbes Magazine; Bob Froehlich, ViceChairman of Scudder Investments; Michael Pento, Senior Market Strategist at Delta Global Advisors.

Eric Ross, Chief Investment Strategist at Think Equity Partners, will discuss Sprint's WiMax plans as well as the FCC airwaves auction.

CNBC ace Charlie Gasparino will offer some perspective on the unfolding options probe.

Michael Mandel, chief economist for BusinessWeek, will address the mystery of low wage growth.

And, finally, Lanny Davis, former special counsel to President Clinton/author of "Scandal: How 'Gotcha' Politics Is Destroying America" will discuss what's ahead for Joe Lieberman and the Democrats with Human Events editor Terry Jeffrey.