Wednesday, March 05, 2008

A Victorious McCain, the Ongoing Hill-Bama Saga, and Welch's Wisdom

So, Hillary’s got a second life after her sweep last night of Texas and Ohio. The game goes on.

The next big state showdown is in Pennsylvania on April 22nd. Indiana and North Carolina follow in early May. Hillary’s claim to having won the big states is a strong one, especially if she can take the next three.

But the real winner yesterday was John McCain. No doubt about it. Mac completed his primary victory journey in one of the greatest comebacks in American political history.

On Kudlow & Company last night, Phil Gramm, McCain’s chief economic advisor, talked about McCain's commitment to pro-growth tax reform, spending restraint, and free trade. (As bad as Hill-Bama are on trade, Mac is excellent.) The pro-growth former Texas Senator also discussed a healthcare program that is consumer-powered, not government-controlled.

However, I continue to believe that Sen. McCain should be talking up the dollar. We need a McCain dollar appreciating reform plan. We need dollar diplomacy, with the U.S. Treasury and the G7 finance ministers. We need a Reagan dollar to boost American prestige and strength throughout the world.

There is no question that a McCain presidency will be vastly better for stocks and the economy than Hill-Bama. For a considered viewpoint regarding Hill-Bama economic policies, what follows is my conversation with legendary GE Chairman & CEO Jack Welch on last night’s program. Mr. Welch pulled no punches.

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Kudlow: Jack Welch, welcome back to the show, sir. We love seeing you as always. Did Senator Obama listen [to the advice you gave him on CNBC back in January] from what you now know?

Welch: He’s the smoothest guy in town, I’ll tell you. He put me under the table, and didn’t listen to a word I said.

Kudlow: That’s right. Didn’t listen to a word you said. And that’s where I want to pick up on this. Now let me ask you, first up, Warren Buffett was on the network yesterday or the day before. He thinks we’re in recession. Do you?

Welch: Well he said we’re in a practical recession. We’re certainly in a slowdown. But if I had to bet a dollar or two, I’d bet we’ll have a positive GDP in the first quarter, and the second quarter. But it’s certainly is a slowdown of enormous proportions from what we were experiencing.

Kudlow: Alright, I like your optimism very much, as always. So let me ask you, you’ve seen a lot more of Hill-Bama, as I’ve taken to calling them. Senator Clinton, Senator Obama on the campaign trail, particularly in Ohio, bashing trade, bashing businesses, bashing wealthy people, talking about income inequality. As you look at this, you’ve seen a lot of elections, you’ve been through a lot of election cycles. What’s your read here? What should people be thinking about?

Welch: Larry, you know everyone’s talking about why the market’s tanking, the slowdown, and everything else. I think the market’s also tanking on the fact that there’s an enormous Democratic surge in voting. They’re outvoting the Republicans in every primary that’s out there. And there’s a great enthusiasm for change away from the Bush administration. And I think people, the market, is usually ahead of things, are seeing some of these crazy proposals that are out there from these people. We’d be the only country in the developed world that’s raising taxes, not lowering taxes. And there’s a whole series of programs here. And Larry, we haven’t even talked about yet, the first thing they’ll do is pass that damn [Employee] Free Choice Act. And if you want to see jobs escape, in a country where [American workers] don’t have a secret ballot for voting, you’ll see it happen here.

Kudlow: Well that’s not the only one. Look, that’s an interesting theme [about] the union influence. This is the first time in quite some while. When Bill Clinton ran he kind of dissed the unions. He was never beholden to them. But Senator Obama and Senator Clinton, we’re seeing in Ohio, but we’ve seen it before, they’re very much in tune with the unions. Now, one of the union proposals is to set wages not on supply and demand, but on some social theories. And this kind of equal pay, comparable wages, I mean what would this do to large corporations? What would this do to companies in America?

Welch: It’ll kill small business. It’ll kill everybody. I mean, it’s just bad for us Larry. Now hopefully, in the Democratic primary, as they’re pushed to the left, the rhetoric will in fact overwhelm what they will do. And they’ll get back more towards a more centrist policy later on. You know, when you talk about the great Clinton years, we always hear [that], one of the reasons the Clinton years were so good is -– look at ’92-’94, they weren’t so good – [but] they became better when we had a strong Democratic president, with a charismatic personality, who dealt well with a Republican congress that Newt Gingrich led, that Dick Armey who’ll be on [Kudlow & Company] tonight, led. That was a team that worked together to get more moderate policies all through the ‘90s.

Kudlow: So basically, you’re suggesting the stock market is beginning to discount a Democratic victory. And you believe that the Democratic Party has shifted to the left. It’s essentially a union agenda on taxes, on the card check on unionization, on equal pay, on other things. On trade for example, stopping trade. That’s part of the union issue. You’re saying the stock market is already discounting some bad times, presumably in 2009. Is that basically where you’re coming from on this?

Welch: I’m not an expert on this, but I’d certainly be suspicious of that theory. I think it is in fact a real possibility.

Kudlow: And you think that’s more important than the organic issues we’re seeing – the credit problems, the recent rise of inflation, the slowdown, the slump in the dollar, and things of that sort. Corporate profits are soft. You think those organic issues are just part of the story, that the political issue is really becoming a big overhang?

Welch: Larry, corporate profits outside of the financial sector aren’t that bad. And of course credit is a real problem. Let’s not kid ourselves. I mean, credit has really dried up. So we’ve got to go through this process. But one of the things we have going for us now is information is so prevalent. Every cable channel, the Internet. So the responses to this slowdown have been immeasurably faster. And in fact, I think if we have a “small r’ – but I don’t think we will – if we have this slowdown we’ll be out of it faster than we ever would have been with all the stimulus and other things that are going on.

Kudlow: Just one last one Jack, before we bring in Mr. Shrum and Mr. Armey. And I hope you’ll stay with us for awhile. In a recent speech Hillary Clinton says, we’ll take on the oil companies and harness their record profits. We’ll take on the credit card companies. We’ll take on the insurance companies. We’ll go after the drug companies. We’ll take on Wall Street. Mr. Obama has said a number of times he wants to regulate corporate profit margins. What do you make of that? I haven’t heard anything like that Jack, in I don’t know, I don’t think I’ve ever heard anything like that in my professional lifetime.

Welch: You know I haven’t, and I’m older than you are. I have not heard it either. I think it [goes] back to the early days of Franklin Roosevelt, I think. That’s the last time we heard some of that stuff. Prewar. That’s why I think Larry, a real component of this Wall Street slowdown, aside from credit and the slowdown in the market, is this concern about this next election and going to these policies. These polices are really anti-business.