Wednesday, February 28, 2007

Take a Deep Breath

Hedgehogs always win the long-term race against foxes. Isaiah Berlin wrote this many years ago, and the thought can be applied to today’s stock market.

Fortunately, prices opened higher this morning after yesterday’s 3 ½ percent across the board correction.

What happened yesterday was that the U.S. and other world markets caught a dose of the Shanghai flu. Much of the selling was based on rumors that the U.S. Treasury and the IMF are messing with China’s free market boom.

However, it is doubtful that any of these rumors will ultimately pan out. The Chinese like prosperity, and they are trying to deregulate capital controls and develop a true functioning banking system that can accommodate currency convertibility.

Here at home—surprise, surprise—the usual round of doom and gloom pessimists jumped all over yesterday’s correction. The permabears exited their caves, heralding the beginning of the end. Only problem is, these guys have been wrong all throughout the Bush Boom.

The fact remains that profits are high and interest rates are low. This means that U.S. stocks are undervalued somewhere between 10-25 percent, even after a fabulous four-year run up.

So long as President Bush vetoes any anti-growth tax hikes, or union assaults against business, our strong and resilient free market capitalist economy will continue to do very well. Ditto for the stock market.

Periodic corrections are healthy. They represent good buying opportunities. As the late, great financier J.P. Morgan told a Congressional hearing a hundred or so years ago -- prices fluctuate. That’s why corrections come and go.

Yes, I still believe it’s still the greatest story never told.

Tuesday, February 27, 2007

Tuesday Night Lineup

***Tonight's special edition of Kudlow & Company will center around today's stock market selloff. We'll discuss the stock market plunge, the China stock market story, the housing market and much, much more. Please be sure to join us at 5pm ET.***

Our guests tonight include:

*John Rutledge, president of Rutledge Capital
*Art Laffer, president of Laffer Associates
*Quentin Hardy, Forbes Magazine Silicon Valley Bureau Chief
*Herb Greenberg, Senior MarketWatch columnist/CNBC contributor
*Barry Ritholtz, president of Ritholz Capital Partners
*Mark Zandi, Chief Economist at Moody’s
*Lakshman Achuthan, Managing Director, Economic Cycle Research Institute
*Bob Hormats, Vice Chairman of Goldman Sachs (International)
*Gary Shilling, President of A. Gary Shilling & Co., Inc

China Story "Overblown"

An old friend of mine from my Bear Stearns days sent me this email:

"...the china story is waaay overblown - most people don't know the difference between A shares and H shares - A shares are what went down 10% last night - they are only able to be owned by local Chinese - the H shares are the ones which trade on the Hang Seng (in Hong Kong) and are able to be purchased by foreigners - anyway the A shares trade at about a 71% premium to the H shares - which means that todays selling is waaaaay overdone."

That said, China appears to be taking over-regulatory steps to crack-down on a so-called speculative bubble stock market of the past 18 months, including capgains taxes on land, higher bank reserve requirements, and higher central bank interest rates. This is anti-growth IMF/G-7/US Treasury stuff. Their real GDP is about 10%, with only 2% CPI.

Rudy Praises Free Markets

The Republican presidential hopeful told the Hoover Institution in Washington that the GOP should be "the party of freedom"—free markets, lower taxes, school choice, and a health care system rooted in free market principles.

Here’s the money sentence from The New York Sun:

[Giuliani] “said that while Republicans believe that the American economy is ‘essentially a private economy,’ Democrats ‘really believe, honest, that it is essentially a government economy.’"

Rudy also criticized Democrats for universal heath care that he said would threaten a “socialization” of our medical system “That would be a terrible, terrible mistake.” Solutions “have to be free market solutions” and the system needs to be “competitive” according to the former mayor.

Sounds pretty good to me.

Now, if he can protect the life of the unborn.

Dueling Fed Chairs

Greenspan says a recession is likely, while Bernanke remains upbeat about Goldilocks.

Meanwhile, Ben Bernanke says inflation is falling. But the rising price of gold says inflation may actually be rising. Bond rates remain low however, and therefore disagree with gold.

So this is tricky business.

Who do you trust? Greenspan or Bernanke? Gold or bonds?

As for me, as long as marginal tax rates stay low, I think we’re going to be okay on the future economy.

Monday, February 26, 2007

Bye-Bye Phillips Curve?

The Fed is apparently abandoning its unemployment target -- aka the Phillips Curve -- according to this morning’s front page Wall Street Journal article. On the surface this is a good idea, because inflation is caused by printing too much money, not by more people working and prospering.

Keynesian central planners have always liked the Phillips Curve because it gives them an excuse to fine tune the economy, as though they know better than markets. But as Milton Friedman taught us, inflation is a monetary phenomenon. However, it’s not clear what is replacing the unemployment rate target.

The article suggests that inflation is caused by higher rents and oil prices. This is nonsense. Prices don’t rise because other prices are rising. The general level of all prices goes up when excess money creation devalues the exchange rate of money.

Are we to conclude that the Fed is now targeting money either through commodity indicators like gold; or bond market indicators like the TIPS inflation spread; or even the money supply itself, especially the monetary base? The article doesn’t answer these important questions.

Right now signals are mixed. For example, gold prices have been rising, which is traditionally an inflation warning sign. However, bond rates are low, the yield curve is inverted, and the TIP inflation spread remains low. This suggests no inflationary problem.

Ultimately, if the value of money declines significantly, then price indexes will rise substantially. Right now there are mixed signals.

In another area, home prices are falling -- a potential deflation sign. So, there’s even more ambiguity.

On these topics, this morning’s WSJ story raises more questions without offering any particular answers. Targeting any form of economic growth or the unemployment rate is a lousy idea. But what will replace it?

Finally, House Financial Services Committee Chair Barney Frank believes the Fed is over-obsessing about inflation and opposes a strict inflation target. He wants the central bank to keep a sharp eye on the unemployment rate. So the Fed story may cause some political friction, as well as some analytical confusion.

Core inflation is now running at a 2.2 percent rate according to the Fed’s favorite measure of the personal spending deflator. This is just above the bank’s 2 percent target. Perhaps, at the end of the day, the Fed is moving towards a straight out inflation target. This could qualify as a price rule even though it avoids leading indicators like gold or bond rates.

We’ll have to wait and see if there’s any clarification from Bernanke & Company.

Monday Night Lineup

On CNBC's Kudlow & Company this evening:

A ONE-ON-ONE INTERVIEW WITH JACK WELCH...we'll discuss the latest in the business v. labor debate, the state of the economy, politics and more...

BUSINESS VS. LABOR...former Michigan Governor John Engler will square off against Jared Bernstein, senior economist at the Economic Policy Institute.

FED & INFLATION...CNBC's economics commentator Steve Liesman will come aboard to weigh in with his perspective.

A BEAR VS. BULL MARKET DEBATE...between Doug Kass, founder and president of Seabreeze Partners Management, and Dr. Bob Froehlich, Vice Chairman and Chief Investment Strategist of Scudder Investments

SUNDAY UNSPUN...Gallup Poll editor-in-chief Frank Newport will join us in our weekly segment sifting through the latest media spin.

AN AL GORE/GLOBAL WARMING DEBATE...between Christopher Horner, senior fellow at the Competitive Enterprise Institute/author of "The Politically Incorrect Guide to Global Warming and Environmentalism" and Dan Lashof, senior scientist for the Natural Resources Defense Council (NRDC) Air & Energy Program.

A Troubling Immigration Development

From today's Washington Times:

Mexican wives seek ouster of husbands from U.S.

...They have created an English-language Web page where they identify themselves as the "wetback wives" and broadcast their pleas, both to their men and to the U.S. government.
"To the United States government -- close the border, send our men home to us, even if you must deport them (only treat them in a humane manner -- please do not hurt them)," it reads....

This is an interesting and important angle on the whole immigration question.

These Mexican wives seem to be saying that family breakup is a bad idea, even though their husbands are sending extra money back home.

As a free trader, I favor the Bush comprehensive immigration reform plan, which includes better border security, temporary worker cards, and ultimately, a path to citizenship.

However, family breakup is very troubling for a social conservative like myself.

Frankly, the extent of this family breakup problem is new information to me. I find it troubling.

"No Rightful Heir"

A terrific Investors Business Daily editorial called "No Rightful Heir":

The Presidency: As the race for the White House begins, a sad but inescapable fact emerges: None of the candidates with a serious chance firmly believes in the principles of either Ronald Reagan or George W. Bush…

They single out the big three (Giuliani, McCain, and Romney) plus Sam Brownback and even Newt Gingrich, as guilty of variations of big government conservatism.

It’s a very thoughtful and troubling editorial which echoes my own concerns.

Not only do Americans want to win the war in Iraq according to recent polls, but none of the candidates with the possible exception of McCain are talking about winning the war.

What’s more, not a single candidate in either party is pro-stock market and pro-investor class. In recent elections, two of every three voters own stocks. Investors are the most powerful political group in the country, but none of the candidates so far are reaching out to them.

This is very troubling.

Jack Welch on Kudlow & Company Tonight

The legendary Jack Welch, former General Electric CEO, and man of the world, is coming on the show tonight.

Welch is perhaps the greatest business figure of his generation. No one has a better-informed worldview than him. It’s a great honor to have him as a guest.

We’ll talk about the union assault on business, especially this so called Employee Free Choice Act, which is not free choice, but would abolish the secret ballot currently allowed workers in union organizing situations.

We’ll also discuss the state of the economy, and whether there are any presidential candidates out there who are pro-business and pro-stock market.

Please join us tonight at 5pm ET...

Friday, February 23, 2007

Friday Night Lineup

On CNBC's Kudlow & Company this evening:

A HOUSING & RECESSION DEBATE...Nouriel Roubini, chairman of Roubini Global Economics will square off with Michelle Girard, senior economist at RBS Greenwich Capital Management.

A MARKET DRILLDOWN...we'll hit Japan's stock market surge, gold's recent climb, the forecast for U.S. markets and more. Joining us tonight are Robert Hormats, vice chairman of Goldman Sachs (International), Craig Columbus, chief market strategist at Advanced Equities Asset Management and Kevin Kerr, editor of the MarketWatch Global Resources Trader.

KUDLOW'S STOCK CLUB...Charlie Smith, Chief Investment Officer at Fort Pitt Capital Group, will present his top stock picks.

IMMIGRATION...Julie Myers, Assistant Secretary of Homeland Security, will join us to discuss the recent immigration arrests.

WASHINGTON TO WALL STREET DEBATE...on the alternative minimum tax. "Jimmy P" Pethokoukis, senior writer with U.S. News & World Report will duke it out with Gary Gensler, former Undersecretary of the Treasury.

IRAN...U.S. Undersecretary of State Nicholas Burns will offer his unique perspective on the latest developments.

Please join us tonight at 5pm ET for another edition of Kudlow & Company. We still believe that free-market capitalism is the best path to prosperity.

A Shot Across the Bow

Whatever the mighty Clinton spin machine is putting out over the front-page catfight between Hillary, Barack Obama, and David Geffen, the fact is, the Geffen/Obama forces put a big hurt on Mrs. Clinton.

David Geffen made the key point about the Clintons when he said, “Everybody in politics lies, but they do it with such ease, it’s troubling.” It's an important point because Geffen is obviously referring to both Clintons. After all, former First Lady Hillary Clinton enabled President Bill Clinton’s lies time and time again, and there’s more where that came from.

This whole Geffen episode, with its huge media echo chamber, reminds folks what it was like when the Clintons were in power in the White House. It also suggests what may be in store if the Clintons return to the White House. Surely, this is a troubling point for voters.

Geffen’s shot across the bow pries the lid off the rusty old can of Clinton lies. It reminds people what may happen all over again if they return to the White House. In other words, Geffen’s point has been unstated so far in the campaign, but now it is very clearly out of the can. It’s in the middle of the kitchen table.

Does the American electorate want to go through this all over again? Have we forgotten the lies? Well, I googled the phrase “Bill Clinton lies.” Here are some of the things that came up from various sources:

- Clinton lied under oath to a Federal Grand Jury. (Of course, that’s perjury. Perjury remains a felony.)

- Clinton continues to lie about his 12-year affair with Gennifer Flowers.

- Clinton continues to lie about sexually harassing Paula Jones. (Of course, he paid her $850,000 of hush money.)

- Clinton continues to dismiss the Whitewater scandal as a "land deal where I lost money" - despite the fact that a dozen of his close associates landed in jail over the illegal activities in that deal.

- Clinton illegally obtained FBI files on his political opponents - lied about that, too.

- On the golf course, Clinton has an incredibly difficult time playing his ball where it lies. It’s virtually impossible for him to keep an honest score. His final scorecard is always a good deal better than his real score.

- According to Washington Post reporter John Harris, Clinton was so upset about his inability to lose weight in 2000, that he made his aides release a bogus number after his annual physical to make him five pounds lighter.

Mr. Geffen also reminded everyone of the Lincoln bedroom scandal, where White House sleepovers in return for large political contributions were commonplace. I could be wrong, but I don’t recall a single instance of this sort of thing being reported during President George W. Bush’s term, nor his father’s, nor Ronald Reagan’s. Nor for that matter do I recall any Lincoln bedroom sales during the presidencies of Jimmy Carter, Gerald Ford, or Richard Nixon.

Just Clinton’s.

It is highly ironic that the very liberal Mr. Geffen has put all this front and center in the campaign. Ironic because he seems to still be jilted by President Clinton’s failure to pardon Leonard Peltier, an American Indian activist who was convicted and sent to jail for killing two FBI agents. This was shown by Geffen’s ire when the subject came up during his interview with the New York Times’ Maureen Dowd.

And it may constitute the “ultimate lie” where (and I am speculating here) Bill Clinton promised Geffen a pardon for Peltier, but the former president reneged, and instead pardoned the currency and commodity manipulator/money launderer Marc Rich, the husband of Clinton pal Denise Rich, also a suspected Clinton paramour. This long lingering resentment may have triggered Geffen’s Hillary insurrection and his bile filled remarks to Maureen Dowd.

Right smack in the middle of the campaign, Geffen, unwittingly or not, is reminding voters of the moral impoverishment and chicanery of the Clintons. This is why I believe the Geffen episode has bloodied Hillary’s nose much more so than Obama’s.

Thursday, February 22, 2007

Thursday Night Lineup

On CNBC's Kudlow & Company this evening:

We'll start things off with a MARKET DEBATE...our market mavens will weigh in with their latest insights on the stock market and economy.

On board:

*Joe Battipaglia, CIO at Ryan Beck
*John Rutledge, president of Rutledge Capital
*Dennis Kneale, Managing Editor of Forbes Magazine
*Frank Holmes, CEO/CIO of U.S. Global Investors

A LOOK AT HOUSING...Bob Toll, chairman/CEO of Toll Brothers, will join us in a one-on-one interview.

(The market panel will weigh in with their housing perspectives following the Toll interview.)

OIL/ENERGY...a discussion with Daniel Yergin, president of Cambridge Energy Research Associates, and Roger Stern from the Department of Geography and Environmental Engineering at John Hopkins’s University.

OBAMA VS. HILLARY...CNBC reporter John Harwood will lead us off with the latest news, followed by what will assuredly be a spirited debate between conservative author/syndicated columnist Ann Coulter, and liberal radio host Leslie Marshall.

Please join us at 5pm ET for another edition of Kudlow & Company - we still believe that free market capitalism is the best path to prosperity...

Catfightin' Dems

I can’t begin to capture how terribly sorry I am—sincerely sorry—to witness this unseemly catfight with David Geffen and Obama on one side, and Team Hillary on the other. Tsk-tsk.

Did someone say presidential leadership? Oh my, the wheels are coming off.

Remember when Toto the dog pulled the curtain on the Wizard of Oz? Stripped away of all the mystery was this little, chubby, bald man who seemed rather powerless.

Kind of reminds me of these Dems.

Wednesday, February 21, 2007

Wednesday Night Lineup

On CNBC's Kudlow & Company this evening:

A STOCK MARKET ROUNDUP with Vinny Catalano, chief investment strategist with Blue Marble Research, Dr. Bob Froehlich, chief investment strategist at Scudder Investments, and Art Laffer, chairman of Laffer Associates.

AN INFLATION DEBATE between Brian Wesbury, chief economist at First Trust Advisors and economist Art Laffer.

IMMIGRATION...a debate over Bank of America's new credit card program, voting rights and more between former Congressman J.D. Hayworth (R-AZ) and Tamar Jacoby, senior fellow at the Manhattan Institute.

IRAQ...CNBC reporter John Harwood will offer up the latest news from Washington.

AN IRAQ/IRAN DEBATE between Tony Blankley, editorial page editor for The Washington Times and Thomas Ricks, Washington Post Pentagon and military correspondent.

The Rising Investor Class

Take a moment to check out Dan Clifton’s blog over at the American Shareholders Association. He wrote a very good post yesterday on the rising investor class, ownership society, 401(k) revolution. It’s quite good.

Clifton mentions another very good article called “Good Government” in the brand new business magazine The American.

It’s written by Matt Rees and lists five major policy changes that have boosted economic growth. He quotes a number that today 2 in 5 families have a 401(k), and that over the past fifteen years, these plans have rocketed from $385 billion to $2.4 trillion. Those are serious numbers.

Both are worth your while…

Tuesday, February 20, 2007

America Wants to Win

Yet another new poll shows that America wants to win in Iraq, disproving the Democratic party view in Congress and on the campaign trail that America wants to leave Iraq quickly.

By 53% to 43%, respondents say it's still possible to establish a stable democracy in Iraq and reduce the threat of terrorism at home.

By 57% to 41%, voters want to finish the job in Iraq.

By 53% to 46%, voters think the Dems are going too far, too fast in pressing the President for troop withdrawal.

The poll was conducted by Alexandria, Virginia-based Public Opinion Strategies, a group that scored the best win-loss record in 2004 and was named pollster of the year in 2002.

The POS poll supports the IBD poll we blogged earlier today.

Both surveys suggest that the Democratic presidential candidates, catering to the party's left-wing base, are making a huge mistake by misreading the US electorate and the results of last November.

Essentially,the Dems are re-McGovernizing themselves over the war and national security.

Americans Want to Win

Speaking of Investors Business Daily, they posted tremendous polling data last Friday on Iraq that you won’t read about in the mainstream media.

Contrary to common wisdom, most Americans want to win in Iraq.

The poll was conducted by IBD’s polling partner TIPP. This is Raghavan Mayur’s company and they are very accurate pollsters.

Based on 915 respondents, the IBD/TIPP poll revealed that as of February 7th, 66% believe that it's “very important” or “somewhat important” to win in Iraq. That includes 85 percent of Republicans, 63 percent of Independents, and 53 percent of Democrats.

It goes on to say that 58 percent are “very hopeful” or “somewhat hopeful” of a U.S. victory in Iraq.

These are incredible numbers.

Tuesday Night Lineup

On CNBC's Kudlow & Company this evening:

We're going to start the show off with a BIG INFLATION, FED & ECONOMY DEBATE between Jerry Bowyer, author of "The Bush Boom"/chairman of Newsmakers Leadership Group and Don Luskin, CIO at Trend Macro.

The Luskin/Bowyer debate will be followed by a STOCK MARKET discussion with Mike Holland, chairman of Holland & Company and Herb Greenberg, senior MarketWatch columnist/CNBC contributor.

We'll get all four of these guys together to take a look at the JetBlue fallout, subprime loan defaults, and other market related news.

KUDLOW'S STOCK CLUB...Sam Lieber, portfolio manager of the Alpine US Real Estate Equity Fund, will be aboard to present his stock picks.

POLITICAL HOT TOPICS...CNBC ace John Harwood will offer up all the latest out of Washington.

THE DYNAMIC DUO...Robert Reich, former labor secretary, and The Wall Street Journal's Steve Moore will square off on a number of issues including JetBlue and airline passenger bill of rights legislation.

Please join us at 5pm ET this evening for another edition of Kudlow & Company. We still believe that free market capitalism is the best path to prosperity...

An Excellent President

Investors Business Daily ran a terrific piece last week featuring Calvin Coolidge, who happens to be one of my favorite presidents besides Ronald Reagan.

Coolidge was a highly popular president during the 1920s boom. He assumed the presidency in 1923 following Warren Harding’s death, won a landslide in 1924, then chose to not run again in 1928, despite what looked like certain victory.

He was a pro-business, tax cutting, supply-sider who believed in limited government regulation.

Coolidge also stressed religious values, though not necessarily religion. He cleaned up after Harding’s Teapot Dome mess, as well as other scandals. While Governor of Massachusetts, he fired police union leaders who illegally went on strike (brings to mind Reagan and air traffic controllers).

The IBD article goes on to note that Coolidge was media savvy and used radio quite effectively. He was also an impressive figure at press conferences, and had two key PR advisors from Madison Avenue.

Right at the beginning of President Reagan’s term in 1981, the Gipper hung the Coolidge portrait in the Cabinet room. I’ve always been a big admirer of Coolidge, as well as his supply side Treasury Secretary, Andrew Mellon.

Liberal historians have treated him poorly down through the years, but Coolidge was an excellent president.

Bravo to IBD for running the profile over Presidents Day weekend.

Where's the Respect?

Great NRO column on the Rodney Dangerfield economy by my friend Victor Canto.

"...About four decades ago, the John F. Kennedy tax cuts, inherited by Lyndon B. Johnson, went into action, and they were implemented while the country was still on the Bretton Woods system, or the international price rule. The economy roared. (Johnson would later raise taxes and begin to dismantle the international price rule.) Then, about two decades ago, Ronald Reagan cut taxes while his cohorts at the Fed shifted monetary policy to a domestic price rule. The economy roared again. Neither JFK nor Reagan, it must be noted, was a slouch on defense.

Now let’s see: It’s 2007, taxes have been cut and remain historically low, the Fed by most reasoned accounts is adhering to a price rule, and strength is the foreign-policy credo of the executive branch. Sound familiar? Indeed.

If Bush got lucky, so did Reagan and Kennedy. The truth is, all three of these presidents are due some respect for turning out robust and sustainable economies."

Friday, February 16, 2007

White House Official Sets the Record Straight on Tax Hikes

The front page of today’s Wall Street Journal claims “Bush May Acquiesce to Higher Levies on Rich to Pay for Curbing AMT.”

This story is bunkum according to a senior White House official who emailed me earlier this morning:

“Larry—just wanted to touch base with you on this story in the WSJ. I don’t know who those “officials” are, but let me be very clear: they are not representing the President’s views. The story is dead wrong. The President proposed a balanced budget while making tax relief permanent and is firmly committed to keeping marginal tax rates low. The President supports the proposal in his budget. President Bush has proven that he’s a tax cutter, not a tax raiser.”

The key phrase here is “keeping marginal tax rates low.” That means no tax hikes on the 15 percent marginal tax rates for dividends and capital gains. It also means the 35 percent top personal tax rate.

By the way, Washington economist Alan Reynolds has a great idea. Instead of raising the top personal tax rate, why not abolish the 10 percent bottom tax rate? It’s scored as a $40 billion dollar revenue loss, even though no one pays it. $40 billion dollars is 80 percent of the estimated $50 billion cost of a one year AMT patch fix-up.

If I may be so bold, with ka-gillions of revenues pouring into Treasury coffers, it looks to me like the Bush marginal rate tax cuts are paying for themselves.


Tax Savvy Rock Stars

From ABC News:

Feb. 14, 2007 — - U2, the Rolling Stones, movie stars, sports figures and a host of corporations have turned to an unlikely accountant, the Netherlands, to help them avoid paying taxes on multimillion dollar profits in their home countries.

Bands like the Rolling Stones and U2 were publicly outed last summer for using tax shelters in the Netherlands to protect the millions they earn on royalties from getting taxed in their respective home countries.

They are part of a growing number of celebrities who've turned to the low-tax, politically stable Netherlands to protect royalties they earn legally from licensing intellectual property -- from J.Lo's derriere to U2's hit song "One"....

We welcome Mr. Jagger, Bono, and the rest of them to the supply-side movement.

Thursday, February 15, 2007

Bernanke's Goldilocks

So, Fed Chairman Ben Bernanke, testifying before Congress, officially threw in with Goldilocks -- moderate growth, declining inflation.

The stock market loved it, up 100 points. Stocks soared in all sectors and around the world.

Strong business, rising exports to the rest of the world, healthy consumers, low unemployment, wages on their best run in years; these were Bernanke’s key bullet points.

Senate Democrats like Christopher Dodd and Chuck Schumer kept harping about income inequality and wage stagnation, trying to change the subject from the excellent economic news and to pave the way for a tax hike on the top, most successful American earners. But wages are booming. And the rest of the inequality story is so much statistical illusion and faux arithmetic. (Just ask Washington economics scholar Alan Reynolds).

None of the Senators succeeded in ruffling Bernanke’s feathers. He waved him off. Besides, Ben believes that better education, not higher taxes, is the key to unleashing worker competitiveness and success in the globalized economy.

Interesting guy, this Ben Bernanke -- one of only a couple of non-socialist members of Princeton’s economic faculty. He’s a seasoned government policy maker, serving as a former top White House economic advisor following his three-year stint on the Federal Reserve Board. He is an academic, with the air of a Talmudic scholar. With his slightly hunched over posture, and closely clipped, well-kept beard, he even looks like a Talmudic scholar.

Since taking the chief Fed job last February, Bernanke has stopped the inflationary fevers and laid the groundwork for what is virtually a runaway bull market in stocks.

Averages across-the-board are now moving toward all time highs: Dow, transports, utilities, the small cap Russell 2000, the NYSE index, and D-J Wilshire 5000. Inside the indexes the story is the same: commodities, cyclicals, defense, machinery, and construction all hitting all-time highs. The depth, breadth, and resiliency of this rally is remarkable.

America’s bull market economy stands at the epicenter of the newly-capitalist world market economy. Therefore, it is no surprise that America’s stock rise is being emulated around the world. This is called economic leadership.

The reality is that non-inflationary growth and rising living standards are occurring all around the globe. For this, thank the spread of American-style, free-market capitalism. Some call it cowboy capitalism, but I prefer to think of it as prosperity capitalism.

Record wealth is now being created among a hundred million plus investors in the U.S., including union and public employee pension fund holders who are 60 percent invested in the Bernanke bull market. This, even though they rail against stock market wealth and business in general, and still don’t get it that their retirement wealth bread is being buttered by the fabulous expansion of the portfolio value of the ownership society.

Stocks are the best barometer of future business and economic health. They are signaling that the wealth of the nation currently and prospectively looks excellent.

Democrats rule the roost on Capitol Hill, but Bernanke stuck to his free market principles. He is targeting inflation and employment, so far doing a good job with both.

Does anybody remember that President George W. Bush appointed Mr. Bernanke? And that Mr. Bush’s record low tax rates on capital have promoted strong economic growth? And that this tax-driven growth and investment surge brings inflation down by absorbing the excess money created by Alan Greenspan between 2003 and 2005. The availability of more goods and services makes the existing money supply less inflationary.

In his brief tenure, Mr. Bernanke has mopped up this excess liquidity and reduced inflation expectations. Meanwhile, low tax rates are counter-inflationary. So, a combination of strong economic growth and newfound monetary control are working together for the betterment of investors, workers, businesses, and federal finances. The supply-side model is very much in place right now.

Demand-side Wall Street bears fail to understand this, but Mr. Bush and his Fed appointee, Ben Bernanke, have pulled a fast one. They have restored the Ronald Reagan approach to non-inflationary growth economics: tight money and low tax rates.

The recessionists are wrong. The bears are wrong. The pessimists are wrong. The doom and gloom crowd is wrong.

We are witnessing the Bush/Bernanke boom. It is still the greatest story never told.

Wednesday, February 14, 2007

Wednesday Night Lineup

On CNBC's Kudlow & Company this evening:

We'll start the show with a MARKET DRILLDOWN from the NYSE floor with CNBC ace Bob Pisani.

A FED/ECONOMIC DEBATE between Brian Wesbury, chief economist at First Trust Advisors and NYU economist Nouriel Roubini.

A LOOK INTO THE ROARING STOCK MARKET with Mike Holland, chairman of Holland & Company, Don Luskin, CIO at Trend Macro, and Herb Greenberg, senior MarketWatch columnist/CNBC contributor.

NORTH KOREA & IRAN...a one-on-one interview with U.S. Undersecretary of State Nicholas Burns.

A UNION DEBATE between "Jimmy P" Pethokoukis from U.S. News & World Report and The Washington Post's Steven Pearlstein.

Please join us at Kudlow & Company at 5pm ET, where we still believe free market capitalism is the best path to prosperity.

Free Market Capitalism is Still the Best Path to Prosperity

Brian Wesbury wrote a great op-ed in the Wall Street Journal today.

Here's a snippet:

...Free-market capitalism is not perfect. But it remains the single most efficient and powerful system for creating wealth, reducing poverty and developing less wasteful ways of organizing output and consuming resources.

With the U.S. seemingly at a political turning point, the next few years are very important. At a similar juncture in 1929, and again in 1965, the U.S. moved toward bigger government. After World War II, and again in the early 1980s, Washington chose less intrusive government. The results speak for themselves. Good times or scary times: It's our choice.

Incidentally, our resident permabear Nouriel Roubini will square off in a one-on-one economic debate against Mr. Wesbury on tonight's Kudlow & Company.

These guys don't agree on much. Should be one heck of a debate...

Color Me Skeptical

Great headline on Drudge:



Are we really sure about manmade global warming? Are we really sure we want to put caps on carbon emissions?

We know from numerous studies—especially from work done by the Department of Energy—that carbon caps and carbon taxes would inflict massive damage to the economy.

Jobs, production, and wages would all be hit hard.

So, are we really sure about these long run global warming models?

Aren't many of these global warming alarmists the very same people screaming and hollering about an impending ice age back in the 70s?

Heck, econometric models can’t even predict this quarter’s GDP. So color me highly skeptical about these hundred year global warming models.

"Business Seeks to Defeat Bill on Unions"

Very important article on this so-called Employee Free Choice Act in the Wall Street Journal today.

This bill is a very bad idea.

Unions are seeking to undermine the secret ballot that has protected workers for so many years. With private sector union membership crashing (the percentage of wage and salaried workers in unions was 12 percent in 2006, compared to 20 percent in 1983), labor leaders are desperate to overturn the secret ballot.

And incidentally, more and more union dues are appropriated and dispersed for liberal left political causes—not the health of worker compensation.

Tuesday, February 13, 2007

Tuesday Night Lineup

On CNBC's Kudlow & Company tonight:

A MARKET DISCUSSION . . . Barry Ritholtz, chief market strategist of Ritholtz Research; Noah Blackstein, Dynamic Mutual Funds portfolio manager; Ralph Acampora, chief market strategist with Knight Equity Markets.

KUDLOW'S STOCK CLUB will feature Neil Hennessy, president of Hennessy Funds.

AN IMMIGRATION DEBATE with Carol Tabor, president of and Frank Sharry, executive director of National Immigration Forum.

THE FED AND THE ECONOMY . . . ahead of Ben Bernanke's testimony . . . Wayne Angell, former Fed governor; Larry Lindsey, CEO of the Lindsey Group; and Fred Bergsten, director of the Peterson Institute.

Big Day

Stocks are having a big day, with the Dow up nearly 100. Investors are building in a market-friendly testimony from Ben Bernanke, who will appear in front of Congress tomorrow and Thursday.

I think folks are expecting Goldilocks -- not too hot, not too cold. St. Louis Fed president Bill Poole probably set this up last week when he said economic growth is moderate and inflation is falling.

Poole also said if inflation were to increase, then the Fed would restrain it through tighter money. Many in the markets interpreted this negatively, but central bankers always say that if inflation rises they will offset it. But the meat and potatoes from Poole's speech is Goldilocks.

Also helping stocks is Saudi chatter that OPEC will not cut production further. Add to this a tentative North Korean deal that trades disarmament in exchange for energy assistance and security guarantees. However, as Ronald Reagan used to say "trust, but verify." It's that verify part that needs to be verified.

President Bush dampened speculation of a military strike on Iran in a C-Span interview, but the "kill or capture" policy for Iranians in Iraq is still in place. On top of this, the Iraqi government says that it is closing the border with Iran and Syria for 72 hours.

The U.S. troop surge has probably already begun, as General Petraeus takes over the reins in Baghdad.

But the basic reasons for the U.S. stock surge include solid growth, low inflation, strong earnings, high productivity, and lower tax-rates on capital.

In other words, the Bush boom. It's still the greatest story never told.


Compliments of our friend, Michael Darda, chief economist at MKM Partners

Treasury data for January released yesterday afternoon showed that tax receipts continue to roll in at a rapid rate, which has reduced the fiscal deficit to $191.9 billion or 1.4% of GDP, well below the 2.3% average since 1970. At the current pace, the budget could move back into balance as early as May 2008.

Key points:

During the last twelve months, tax receipts have grown by 11.5% while spending growth is up 5.5%. If the six percentage point gap between the two were to continue, the budget would move into surplus by June 2008;

Total tax receipts now are 18% ($375 billion) above their previous all-time peak, which was reached in April 2001. Since tax rates on capital (and labor) dropped retroactively in the spring of 2003, total tax receipts are up $686 billion;

Household net worth has risen by $13.2 trillion since the tax cuts were fully implemented. Even excluding the value of homes (but including the mortgage debt), household net worth has risen by $6.9 trillion to a record $33.5 trillion. With non-managerial wages averaging twice the rate of growth in real terms during this cycle compared to the first five years of the last expansion, it is hard to argue that only the very wealthy have benefited;

The fiscal balance as a fraction of GDP has born a strong, positive relationship with real yields in the Treasury market, the exact opposite of what neo-Keynesian demand theory (sometimes referred to as “Rubinonomics”) would hold. To wit: the 10-year TIPS yield, at 2.45%, is nearly 60 bps higher than it was when the fiscal deficit stood at 3.9% of GDP in April 2004. In other words, whatever the impact of deficits on interest rates (real or nominal), the effect is usually totally swamped by other factors such as global liquidity flows, the current and expected level of short rates, and economic growth expectations.

The NIPA data now shows that, on a quarterly annualized basis, tax receipts have risen to 18.9% of GDP, above the 18.6% average since 1970. In other words, with total receipts growing faster than GDP, the ratio of tax receipts to the overall economy is rising and likely will rise further given the interaction of a tight labor market with progressive tax rates.

Conclusion: Treasury data continues to show extraordinarily strong tax receipt growth while spending seems to be moderating somewhat. This has allowed the deficit to plunge to 1.4% of GDP, well below historical averages around 2.3%. We continue to believe the interaction of massive liquidity with a lower marginal tax wedge on capital and a super-tight labor market will continue to drive overall revenues higher (both in absolute terms as a fraction of GDP). With a little gridlock along the way, the budget could move back into balance by May 2008 with surpluses emerging during the second half of next year.

Monday, February 12, 2007

Monday Night Lineup

On CNBC's Kudlow & Company tonight:

A STOCK MARKET & ECONOMY DISCUSSION...between Art Laffer, supply-side economist and president of Laffer Associates, Joe Battipaglia, chief investment officer at Ryan Beck and Michael Darda, chief economist at MKM Partners.

A WASHINGTON TO WALL STREET DEBATE on upcoming French elections, Dems moving to the left, earmarks, taxes and more with Barron's Jim McTague, The Wall Street Journal's Kim Strassel, Jared Bernstein from the Economic Policy Institute, and Art Laffer.

SUNDAY UNSPUN...Frank Newport, Gallup Poll editor-in-chief, will sift through the latest media distortions in our weekly segment.

Please join us tonight at Kudlow & Company, where we still believe free market capitalism is the best path to prosperity.

Lefty Royal

Ségolène Royal, the French socialist presidential candidate, unveiled an incredibly left wing economic platform yesterday—one that includes a large buildup of state subsidized housing, higher taxes and boosting pension payments and the minimum wage.

Unfortunately, most of the MSM is talking about how feminine and unorthodox she is—everything, except her hard left policies. Even the Wall Street Journal ran a semi-favorable profile of her.

The International Herald Tribune had the best article – "Ségolène Royal unveils far-left economic campaign platform."

Royal was quoted saying “the unfettered rein [sic] of financial profit is intolerable for the general interest.” She wants fewer inequalities and wants to tax companies more. She also attacked the European Central Bank for focusing too much on inflation, not enough on employment and growth.

The MSM should give equal time to Nicolas Sarkozy.

Sarkozy is a free enterpriser—a tax cutting, law and order, pro American capitalist. Sarkozy would cut taxes across the board to spur France’s economy. He has a sizable lead of 6-8-percentage points in the May election.

Message to MSM – liberate Nick Sarkozy.

No Surprise There

Matt Drudge linked to this story from The Arizona Republic with the following headline:

New wage boost puts squeeze on teenage workers across Arizona: Employers are cutting back hours, laying off young staffers

(The headline tells you all you really need to know.)

Friday, February 09, 2007

Show Them the Door

This John Edwards’ blogging brouhaha has the potential to derail his nascent presidential bid. (Of course, that wouldn’t be such a bad thing).

Edwards needs to find the spine to fire these two anti-Christian, anti-Catholic blogging bigots. Send them on their way.

There is absolutely no room in this country for this sort of nonsense. None.

Friday Night Lineup

On CNBC's Kudlow & Company tonight:

We've assembled a top-notch team to explore the latest political developments including the John Edwards blogging controversy and Pelosi's plane problems. We'll also discuss the top '08 presidential contenders.

*Kellyanne Conway, CEO and President of the polling company
*Frank Luntz, Republican pollster & strategist
*Peter Beinart, editor-at-large for The New Republic
*Bill Press, synicated columist & Sirius radio host

Also, Bill Donahue, president of the Catholic League, will join the panel to weigh in on the John Edwards blogging controversy.

A WASHINGTON TO WALL ST. DEBATE on tax threats, Wal-Mart & unions, Bernanke & the Economy, between Walt Williams, Professor of Economics at George Mason University and Gary Gensler, former Treasury undersecretary.

KUDLOW'S STOCK CLUB & A LOOK AT THE MARKETS with Wendell Perkins, portfolio manager for JohnsonFamily Large Cap Value fund.

When You Tax Profits, You Tax People

ExxonMobil just reported the largest annual profit ever by a U.S. company — a staggering $39.5 billion.

I say congratulations, although Hillary Clinton begs to differ.

At the winter meeting of the Democratic National Committee, the senator from New York said, “The oil companies reported the highest profits in the history of the world. I want to take those profits and I want to put them in an alternative energy fund.”

Take? Isn’t that a confiscation of private property? Author P.J. O’Rourke framed it perfectly on a recent edition of CNBC’s Kudlow & Co.: She’s “Hugo Chavez in a pants suit.”

And what exactly would Mrs. Clinton be taking? ExxonMobil’s profits are outsized, but they come on sales of $377.5 billion, making for a profit margin of just over 10 cents on the dollar. This remains well below the profit margins of many industries, including banking and biotech where the margins nearly double those in the energy sector. The numbers are big, but the returns are middling.

And since sales and profits in the energy sector depend on the world price of oil, it’s feast or famine for these businesses. In the last decade, oil prices have fluctuated from about $10 a barrel to nearly $80. Talk about volatile pricing.

Indeed, the energy business isn’t easy. Still, ExxonMobil remains one of the best-run companies in America. Many professional investors believe it’s the best-run company. In his recent book, The Future for Investors, Jeremy Siegel of the University of Pennsylvania reveals that Exxon has been one of the top-three stocks in terms of return on investment over the past fifty-odd years. John D. Rockefeller Sr., looking down from on high, must be pleased.

But it’s also a tax-burdened company. While ExxonMobil recorded record profits last year, it also paid $100.7 billion in taxes — two-and-half times its net profits, according to the Tax Foundation. In fact, over the past twenty-five years, federal and state governments took $397 billion from the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today’s dollars, that’s $2.2 trillion.

This isn’t an isolated problem. The prevailing 35 percent corporate tax rate takes a monster bite from all U.S. businesses. Moreover, our business taxes are far too high in relation to the rest of the world. Believe it or not, the corporate tax rate is lower in France than it is in the United States.

Along with slow-growing Japan, the U.S. has the highest marginal tax rate on corporate profits of any of the developed countries. Think of this: Germany is cutting its corporate tax rate to 15 percent from 25 percent. And if frontrunner Nicolas Sarkozy wins the French presidential election this spring, he plans to slash France’s corporate tax burden. Meanwhile, we’ll still be taking our best companies behind the barn and shooting them.

The bottom line here is that our economic system is all about free-market capitalism, and at the core of that system is profit. Profit isn’t a dirty word. From profits spring the abundance of this great country. Profits are the mother’s milk of stocks and the economy. Expanding profits provide businesses the resources to enlarge production operations and hire additional workers. This, in turn, is how incomes are created, wages that are then spent by American families.

Why can’t liberals grasp this?

When the government meddles in the market and taxes companies more — when it sticks its nose where it doesn’t belong — it ends up hurting not just businesses, but all individuals. Taxing profits more means taxing families more. Taxing profits more leads to smaller wage gains for middle-income workers. When you tax American companies more, the American workforce is paid less. And when you tax American energy companies more, they produce less energy. That means higher prices for gas at the pump and heating fuel at home. This may enrich Uncle Sam, but it comes at the expense of ordinary folks.

Washington economist Kevin Hassett has shown that the U.S. workforce bears a full 70 percent of the cost of corporate taxes. So, if folks are indeed worried about wage inequality, they should be lobbying their congressional representatives to cut corporate taxes in order to increase worker wages.

The truth is, when you tax profits more you undermine the American work ethic and the incentive structure that goes along with it. In fact, you demoralize the very system that has made this country great. It’s the people who ultimately pay the corporate profits tax — and that includes shareholders, pensioners, and other retirees. Business taxes should be headed down, not up.

Punish ExxonMobil for turning a healthy profit? Take those profits? Do that and you punish the American worker and the entire economy, too.

Quote of the Day

"Do not be afraid. Do not be satisfied with mediocrity. Put out into the deep and let down your nets for a catch." -Pope John Paul II

Thursday, February 08, 2007

Want a National Sales Tax? Repeal the 16th Amendment

I was almost persuaded by Fred Bergsten and Greg Mankiw on tonight's show that raising the federal gas tax and instituting a carbon tax might be good ideas if they were accompanied by significantly lower income tax rates.


But not quite.

Because I don't believe this Congress would ever cut marginal tax rates.

And because I believe that Congres would spend this honeypot of new money once they got their paws on it.

And then Congress would become addicted to all that new energy sales tax money, and keep raising the sales tax rate, just like Old Europe has for so many generations. To the detriment of their welfarist stagnant economies.

Greg Mankiw is the brilliant Harvard economist who is now advising Gov. Romney in his presidential campaign. Greg is pushing hard for a $1 hike in the gas tax to reduce consumption and slow carbon emissions. So far Romney has said no.

Fred Bergsten has been influential on the Washington scene for many years after serving in the Carter treasury department. Fred wants a sales tax to promote more saving and reduce our dependence on foreign capital (and energy). I think we save plenty through wealth-creating investment, with family net worth in stocks, bonds, real estate, and family-owned businesses now at a record high $54 trillion. But I'd love to end the multiple taxes on saving and investment caused by our thoroughly screwed-up income tax system.

Apparently Kevin Hasset, another bright Washington guy from the American Enterprise Institute who is advising Sen. McCain, would like a carbon tax to reduce fossil fuel emissions. The revenues would be used to fund elimination of the corporate income tax.

However,I still believe that free enterprise technological advances and market sustitution effects will work, without any government intervention, regulation or subsidies. Actually, gasoline consumption over the past three years has already fallen 8% in the wake of higher pump prices. Markets work. Free prices regulate supply and demand much more efficiently that government planners.

But, there is merit in the notion of eliminating the income tax and replacing it with a consumption tax. Saving and investment would no longer be taxed. Capital deepening would spur more productivity, higher wages and greater entreprenneurship.
The economy's potential to grow would be enlarged. More business start-ups, more employment, etc, etc.

Crucially,the trick for a successful national consumption tax scheme is to abolish the income tax altogether. Including the corporate income tax. This way there won't be more taxes (on sales) on top of existing taxes (on income).

Of course Sen. Hillary Clinton wants to abolish the corporate income tax -- by confiscating corporate profits. That's her energy plan. But that's a different idea. It's called state socialism. It's been tried before, and failed. Karl Marx is both dead and wrong.

However,if the numbers and collection systems could ever be worked out satisfactorily, there is a way to avoid the European disease and put together some kind of national sales tax in the U.S.

Abolish the 16th amendment.

You remember, that's the one that legalized the income tax way back in 1916, under Woodrow Wilson.It was passed by Congress in 1913, and then ratified by three-fourths of the states three years later. If I remember correctly, the original top marginal tax- rate was something like 2%. Think of that.

So, if the 16th amendment were repealed, I'm ready to deal on a consumption tax. But that's the only way I'd go there.

Thursday Night Lineup

On CNBC's Kudlow & Company tonight:

We're going to start the show off with a look into the stock market and economy. On board to offer their perspective:

*Art Laffer, president of Laffer Associates
*Doug Kass, president of Seabreeze Partners Management
*James Smith, chief economist for the Parsec Financial Management

A HARD-HITTING WASHINGTON TO WALL STREET DEBATE...(with an **all-star** lineup.)

We'll take a look at Hillary's plan to confiscate oil company profits, the Bush economic boom, gas taxes, terror/war taxes, as well as a a look at the GOP frontrunners--who's best for the markets and economy?

*Greg Mankiw, Harvard economist, former chairman of Bush's Council of Economic Advisors
*Rob Portman, White House budget director
*Fred Bergsten, director of the Petersen Institute for International Economics
*Art Laffer, supply-side guru

And finally, a heated Iran/Iraq debate between Jed Babbin, Human Events editor, and Larry Korb, senior fellow at the Center for American Progress.

Driving Companies Offshore

Terrific article on the enormous benefits of lowering corporate taxes. It's by my friend, Washington economist Kevin Hassett, in the latest issue of The American:

...Sure, the U.S. has a highly productive workforce and the world’s largest single consumer market, but the latest literature suggests that relative tax rates are a big, big deal. Indeed, the dramatic flow of international capital to the lowest tax environment is one of the strongest and most reliable findings in the history of economic science.

If a country lowers its rate below its rivals, as Ireland, now with a 12.5 percent rate, began doing more than a decade ago, then multinationals flood that nation with capital. It’s very much in the data.

And the capital attracted by low taxes leads to amazing economic growth—about 10 percent annually for Ireland in the late 1990s....

Wednesday, February 07, 2007

Governor Romney on Kudlow & Company Tonight

We are pleased to welcome former Massachusetts Governor Mitt Romney to CNBC’s Kudlow & Company tonight. We will discuss his 2008 presidential run with an emphasis on Romney’s economic plan.

Mr. Romney is mulling over a cut in the top personal tax rate to 30 percent from 35 percent, as well as a reduction in the corporate income tax and deep cuts in Medicare and Social Security benefits.

He’s also expected to propose an expansion in tax-free savings accounts.

I plan on asking him about key social issues including his thoughts on gay marriage and abortion, as well as his current thinking on Iraq and Iran.

Tune in tonight to find out where he stands on taxes, spending, CEO pay, energy, healthcare, and more in our exclusive one-on-one interview...

Wednesday Night Lineup

On CNBC's Kudlow & Company tonight at 5pm ET:

MITT ROMNEY FOR PRESIDENT?...Former Massachusetts Governor Mitt Romney will join us in an exclusive one-on-one interview to discuss his '08 presidential run. We'll cover a lot of ground including taxes, CEO pay, the economy, and Iraq and Iran.

WASHINGTON TO WALL ST. PANEL REACTION...our all-star panel will weigh in with their perspective on the Romney interview.

*"Jimmy P" Pethokoukis, senior writer at U.S. News & World Report
*Quentin Hardy, Silicon Valley Bureau Chief for Forbes magazine
*Jared Bernstein, senior economist with the Economic Policy Institute

THE STOCK MARKET, TECH & MORE...our market mavens will debate what's ahead for investors.

*Stefan Abrams, senior advisor to Trust Company of the West
*Barry Ritholtz, president of Ritholz Capital
*Quentin Hardy, Silicon Valley Bureau Chief for Forbes magazine

Please join us at Kudlow & Company tonight - we still believe that free market capitalism is simply the best path to prosperity...

Tuesday, February 06, 2007

The Real Two Americas

Investors Business Daily ran a good editorial recently called, “An Undertaxed America?”

Of course, we already know John “Two Americas” Edwards and the other Democratic candidates want to raise taxes on the “rich.”

In fact, Sen. Chuck Schumer’s new book criticizes Ronald Reagan and Republicans for supporting economic royalism. Nancy Pelosi and Charlie Rangel also want to raise taxes on “rich” people, and all of this revolves around left-wing economic populism circa Sen. James Webb, Lou Dobbs and some others.

Yes, there are two Americas, but not the two that these tax-happy liberals keep talking about. The real two Americas are a taxpaying America and a non-tax paying America, according to Tax Foundation president Scott Hodge.

Congress’ Joint Economic Committee reports that the richer half of the American population pays almost 97 percent of income taxes. Those in the top 5 percent pay 54 percent. And those ranked in the top 1 percent pay over a third of all personal income taxes.

(Alan Reynolds proposes abolishing the low-end ten percent marginal tax rate, since no one really pays it anyway.)

Speaking of global tax competitiveness, Germany intends to reduce its corporate tax rate to 15 percent. French presidential candidate Nicolas Sarkozy aims to lower the French corporate tax rate to around 25 percent. (Looks like a European trend.) Meanwhile, back in the states, corporations are footing a hefty 35 percent federal tax bill and roughly 40 percent overall.

It’s worth noting that Hillary Clinton doesn’t want corporations to pay any taxes at all—not a single penny. Hillary plans on confiscating their profits altogether! (In our CNBC interview Friday night, P.J. O’Rourke referred to Mrs. Clinton as “Hugo Chavez in a pantsuit.”)

That’s all folks!

Tuesday Night Lineup

On CNBC's Kudlow & Company tonight:

We'll start off with:


*Paul McCulley, PIMCO Managing Director
*Don Luskin, CIO at Trend Macro
*Herb Greenberg, senior columnist for MarketWatch/CNBC contributor

WASHINGTON TO WALL STREET...a debate between Kevin Hassett, director of economic-policy studies at the American Enterprise Institute and Ross Eisenbrey, vice-president of the Economic Policy Institute.

KUDLOW'S STOCK CLUB...we'll get stock picks from Derek Izuel, senior portfolio manager with AIM's Global Equity Fund.

GIULIANI FOR PRESIDENT?...we'll take a look at Rudy in a debate between Terry Jeffrey, editor-at-large of Human Events and Steve Malanga, Senior Fellow at the Manhattan Institute.

Happy Birthday, Mr. President

“May all of you as Americans never forget your heroic origins, never fail to seek divine guidance and never lose your natural, God-given optimism.” —Speech to Republican National Convention, Aug. 17, 1992

Monday, February 05, 2007

Moving Sharply Left

The “Big Three” Democratic presidential hopefuls are making a hard-left turn in the ’08 Presidential race—despite the fact that Congressional Dems won last November because they did their best imitation of Republicans (who themselves forgot to be Republicans).

Hillary, Obama, and Edwards are all running as lefties—anti-growth, anti-business, anti-war, and anti-capitalism.

This past Friday, Mrs. Clinton announced her profound aversion to oil company profits and cited ExxonMobil as enemy number one. (Thanks to a link from Matt Drudge, almost 200,000 YouTube visitors heard Hillary’s anti-capitalist tirade. In case you missed it, it boils down to nothing more than confiscating private property.)

That ought to send a chilling message to investors everywhere.

And today, “Two Americas” Edwards captured headlines by coming out in favor of raising taxes on the rich (surprise!) to finance his Big Government healthcare program. Edwards says it will only cost $100 billion, but I think the true cost is closer to $200 billion.

Here’s my question: Is there a single Democrat out there advocating a pro-growth message? I haven’t heard one. Are any of them touting a pro-business message or pro-competiveness message?

In the midst of these candidates’ anti-growth, tax-hiking talk, across the pond in Germany they’re preparing to slash their corporate tax rate from nearly 40 percent to less than 30 percent. Big company corporate tax rates are headed to 15 percent from 25.

To top it off, Nicolas Sarkozy, the French presidential favorite, told Charlie Rose last week that he was a free enterprise capitalist. Sarkozy said he believes in capitalism and competition, and wants to cut taxes in France.

What’s going on here?

The Dems are moving further and further to the left. If they keep moving at this rate, at some point, they’re going to fall off the cliff.

Monday Night Lineup

On CNBC's Kudlow & Company tonight:

MARKETS/ECONOMY...We'll begin with a look into all the latest news and developments.

*Dennis Kneale, Managing Editor of Forbes magazine
*Michelle Girard, senior economist at RBS Greenwich Capital Management
*Greg Church, president of Church Capital

BUDGET...White House Budget Director Rob Portman will join us from the White House North Lawn to offer insight.

BUDGET REACTION...a "Dynamic Duo" debate between former labor secretary/Cal Berkeley professor Robert Reich and the Wall Street Journal's Steve Moore.

SUNDAY UNSPUN...Gallup Poll editor-in-chief Frank Newport will examine the lastest media spin in our weekly installment. interview with Democratic presidential candidate/former Iowa Governor Tom Vilsack.

"Hugo Chavez in a Pantsuit"

“The other day, the oil companies reported the highest profits in the history of the world. I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart, energy, alternatives and technologies that will begin to actually move us toward the direction of independence.” –Sen. Hillary Clinton

(Some thoughts from Friday night’s show on Hillary’s anti-capitalist, confiscation of private property proposal...)

KUDLOW: P.J., what would Adam Smith say about a carbon tax, or a carbon cap, or Kyoto to deal with global warming?

P.J. O'ROURKE ("On the Wealth of Nations" author): Well, I happen to know exactly what he'd say. But first let me say that Hillary Clinton is Hugo Chavez in a pantsuit.

Adam Smith knew about greed. You know, greed for money is nothing. Money's a neutral thing. It can be used for good, for ill, for indifferent things. And money is not zero sum. We can always make more money.

You want to see real greed, look at greed for power. Look at greed for political power. Because power is zero sum. The power that I accrue to myself is power that I take from you, that I take from all free people. And politicians will use any excuse to accrue power. I don't know about global warming. All I know is I'm buying beach front in Greenland. I don't know about the theory. I don't know whether it's right. I don't know whether it's wrong.

But I know that anything, any excuse will do for politicians to accrue power. If it's not like too broad a range of income between the poor and the rich, then it's global warming. If it's not global warming, then it's the fringe-toed lizard. If it's not the fringe-toed lizard—anything, any excuse will do. What you see with Jerry Brown there is greed, sheer, raw, naked greed of the kind that Adam Smith would have...

KUDLOW: Well, it's public greed. You know what? It's government greed. It's the Hillary thing. It's public greed.

Mr. O'ROURKE: It is greed for power.

Friday, February 02, 2007

"I Want to Take Those Profits..."

Sure sounds like socialism...

(She really ought to read this.)

Footnote to Today’s Strong Jobs Report

(Here are some new factoids to sink your teeth into concerning all the nonsense about wage inequality -- a subject that the brilliant Washington economist Alan Reynolds has debunked voluminously):

At $16.76, average hourly earnings are nearly 20 percent above year 2000 levels, and 44 percent above the $11.65 level in the fifth year of the Papa Bush/Clinton business expansion cycle.This is the fifth year of the GWB cycle.

Even in inflation adjusted terms, real average hourly earnings are slightly higher than the 2000 peak, and nine percent above the 1995 fifth year average level.

By the way, since President Bush’s supply side tax cuts in 2003, adjusted household jobs (a BLS combination of non-farm payrolls and the civilian employment household survey) have grown nearly 3 million per year over the past three years.

Incidentally, looking at strong profits and productivity, economist Mike Darda thinks the unemployment rate will fall below 4 percent.

Why Tax Profits?

ExxonMobil just reported the largest annual profit ever by a U.S. company—a staggering $39.5 billion.

Well, I say congratulations.

They posted sales of $377.5 billion, giving them a profit margin of just over 10 cents on every dollar of sales. This remains well below the profit margin of most other industries, like banking and biotech, whose margins are nearly double the profits of energy companies.

Historically, the energy business has been feast or famine, depending on the world price of oil. In fact, over the last ten years or so, oil prices have fluctuated from a low of around $10 a barrel, to a high of nearly $80 dollars. No other industry outside of the commodities business has such volatile pricing—not even close. It’s not an easy business.

But ExxonMobil has historically been one of the best-run companies in America. A lot of professional investors believe it’s the best-run company in America. Wharton’s Jeremy Siegel shows in his latest book that over the past fifty some odd years, Exxon has been one of the top three stocks in terms of rate of return on investment. (John D. Rockefeller Sr., looking down from high, must be very pleased.)

So why is it that liberal Democrats always want to punish this success by taxing them more for their “excess profits”?

These companies already pay a fortune in taxes. The prevailing 35 percent U.S. corporate tax rate already takes a monster bite from these companies. Moreover, our taxes are already far too high in relation to the rest of the world. (Believe it or not, France has a lower tax rate than the United States.) Is this what we really want? Why are we taking our best companies behind the barn and shooting them?

The bottom line here is that our economic system is all about free market capitalism. This is the cornerstone of the great American economy.

And at the core of all this is profits. It is not a dirty word. Profits are the core of capitalism and the wellspring of abundance in this great country. They are the mother’s milk of stocks and the economy. Expanding profits provide businesses the resources to enlarge production operations and hire additional workers. And that in turn is how incomes are created for family spending.

Why can’t liberals grasp this?

Taxing profits more means taxing families more. And taxing profits more leads to smaller wage gains for middle-income workers. Washington economist Kevin Hassett has shown that the workforce bears 70 percent of the corporate tax costs. For all those liberals worried about wage inequality, what they really should be doing is lobbying their congressional representatives to cut corporate taxes in order to increase worker wages.

When government steps in and taxes companies more, when government pokes its nose around and starts meddling, it hurts businesses and individuals. It simply means the workforce is paid less.

We should be slashing the tax rate on corporate profits, not increasing it.

Better yet, since it’s always people that ultimately pay the corporate profits tax (this includes shareholders, pensioners and other retirees), the best solution is to abolish the corporate tax altogether. (Toss into the mix the multiple taxation of capital.) Make the U.S. more competitive. Shift the income from government to the workforce.

You see, when you tax profits, you undermine the American work ethic. And you undermine the incentive structure that goes along with it.

In fact, you demoralize the very system that has made this country so great.

Friday Night Lineup

On CNBC's Kudlow & Company tonight:

THE ECONOMY...a look at what's ahead for the U.S. and global economy with our all-star panel.

*Arthur Laffer, supply-side chieftan/president of Laffer Associates
*Bob Froehlich, vice chairman of the DWS Scudder investment
*Nouriel Roubini, NYU economics professor

"ON THE WEALTH OF NATIONS"...Bestselling author P.J. O'Rourke will join us in a special one-on-one interview to discuss his brand new book all about the great Adam Smith.

A GLOBAL WARMING DEBATE...between Steven Milloy, publisher of and and former California governor/current CA Attorney General Jerry Brown.

(Mr. O'Rourke and the economic panel will weigh in further on the ramifications of global warming, the stock market, and the economy.)

KUDLOW'S STOCK CLUB...we're delighted to have Bernie Shinkel, senior portfolio manager from Huntington New Economy Fund join us tonight. He is four-star Morningstar rated and will provide us with five of his top stock picks.

It's going to be another great show tonight, we hope you'll join us...

Thursday, February 01, 2007

Thursday Night Lineup

On CNBC's Kudlow & Company tonight:

A LOOK INSIDE THE ECONOMY...the latest perspective on the health of our nation's Goldilocks economy.

*Diane Swonk, chief economist at Mesirow Financial
*Gary Shilling, president of A. Gary Shilling & Co
*Don Luskin, chief investment officer at Trend Macro

MARKETS...insight on what's ahead in the markets.

*J.J. Burns, president of JJ Burns & Company
*Fritz Meyer, senior investment officer with A I M Advisors
*Barry Ritholtz, president of Ritholz Capital

INCOME INEQUALITY, WINDFALL PROFITS TAXES & MORE...a "Dynamic Duo" debate between former Clinton labor secretary/Cal Berkeley professor Robert Reich and the Wall Street Journal's Steve Moore.

A WASHINGTON POLITICS DEBATE between former DNC chairman/Sen. Hillary Clinton's campaign manager, Terry McAuliffe and Human Events editor Jed Babbin. (This ought to have some fireworks...)

Please join us on Kudlow & Company tonight, where we still believe free market capitalism is the best path to prosperity...

A Hard Government...

“It would be a hard government that should tax its people one-tenth part of their income.”
- Benjamin Franklin, Poor Richard’s Almanac in 1758