Tuesday, June 30, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

Are Municipal Bonds Safe?

CNBC’s Jane Wells reports.


The Wall Street Journal’s Steve Moore and CNBC’s Jane Wells will discuss.

-VAT tax cometh?
-The Al Franken factor: A filibuster-proof senate
-Is Gov. Sanford toast?

On to debate:

*Julian Epstein, LMG CEO Fmr. Democratic Chief Counsel
*Steve Moore, WSJ senior economics writer

Winners & Losers in the Climate Bill

Devon Energy CEO Larry Nichols will join us.


-How to survive & thrive
-Fortune's 10 Best Stocks For 2009
-Consumer confidence
-Fiscal nymphomania: winners & losers
-AIG is Amtrak


*Randy Bateman, Huntington Asset Advisors President & Chief Investment Officer
*Peter Boovkvar, Miller Tabak Market Strategist
*Sean Tully, Fortune Sr. Editor-at-Large

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday, June 29, 2009

Madoff Sentenced, But He Didn’t Sing

So Bernie Madoff was sentenced to 150 years in the slammer today. He also delivered one of his now-patented non-repentant repentance speeches in the courtroom. Oh, by the way, his wife Ruth also issued a statement, and she threw him under the bus.

Yet while everyone can now cheer that the greatest crook in financial history will die in jail, Madoff also may die keeping his secrets with him. So far, prosecutors have come up with very little about this case. And under the tutelage of the clever lawyer Ike Sorkin, Madoff has given almost nothing up. No singing in jail. (Maybe he should have been waterboarded.) We don’t know if his wife or two sons were part of the scam. Nor do we know where most of the money -- estimated up to $65 billion -- has gone. There’s a number being used that bankruptcy trustee Irving Picard has recovered $1.2 billion of the $13.2 billion in estimated net losses. But the strength of those numbers is somewhat in doubt.

Where’s the money? Who are the accomplices? And what about some of these big-time fat cats who invested with Madoff, people we thought were victims but may turn out to be the real winners in the story?

There are several reports about Jeffry Picower and Stanley Chais, two rich businessmen who may have taken $6.1 billion in returns from the Madoff fraudulent funds -- more than they put in. There’s also businessman Carl Shapiro, a close Madoff pal. And while there is yet no number as to what he took out of the funds, years ago the guy sold his garment business for $20 million and grew that sum to nearly $1 billion -- most of it from investing with Madoff.

I’m using reports from the Wall Street Journal and the liberal investigative group ProPublica. I’m also using first-hand accounts from friends of mine who are circulating these rumors down in Palm Beach, Fla. They’re very close to the Madoffs, their funds, and their investors.

The point is, it’s been six months since Madoff was first arrested, and the actual case against him has progressed very little from his own self-confession right at the start. Neither his wife nor his two sons have been deposed. Nor have these other characters who probable looted the funds.

The thing about a Ponzi scheme is others besides Ponzi can get rich. And there are names in circulation of people who may also have gotten rich. But where’s the money? When will these people be brought in to testify under oath? The thousands of other smaller investors and charities who were totally ripped off by Madoff could recover a lot more if these big shots are finally hammered.

Madoff will die in jail. And he deserves it. But the justice system has much more work to do following today’s sentencing.

*Madoff Special Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:


Our stable of CNBC reporters will report all of the latest Madoff news and developments.


*Joe diGenova, former US Attorney
*Paul Callan, former NY prosecutor
*Tom Curran, criminal defense Attorney
*Pat Brosnin, Brosnan Risk Consultants

Also...Madoff victim Sharon Lissauer will join us with her story.

Dow 10,000?
Robert Prechter, founder & CEO of Elliot Wave International will offer his take.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Friday, June 26, 2009

A Heavyweight Inflation Debate

Last night we welcomed two highly distinguished economists to debate their opposing outlooks on inflation on The Kudlow Report. Joining me were former Federal Reserve vice chairman & Princeton economics professor Alan Blinder, along with my mentor, former Reagan advisor Arthur Laffer.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:


On to debate:

*Ann Coulter, conservative author & syndicated columnist
*Anthony Salerno, criminal defense attorney


(BEAR) Joe Battipaglia, Stifel Nicolaus Market Strategist
(BULL) Ned Riley, Investment Strategist, Riley Asset Management

MSNBC’s Miguel Almageur will report.

CNBC’s Hampton Pearson reports.



*Robert Murray, Murray Energy Corp. CEO
*Joe Petrowski, Gulf Oil President & CEO
*Kevin Book, Clearview Energy Partners Energy Analyst

Also… Rochdale Securities analyst Dick Bove will join us with his investment ideas.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Thursday, June 25, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:


Rep. Darrell Issa (R-CA) of the House Oversight and Government Reform Committee will join us once again this evening to discuss today's heated congressional hearing with Fed chair Ben Bernanke over the Bank of America-Merrill Lynch controversy.


*Bill Fleckenstein, president of Fleckenstein Capital
*Jeremy Siegel, Wharton finance professor & author of "Stocks for the Long Run"
*Quentin Hardy, Forbes National Editor


*Alan Blinder, Princeton University Professor of Economics & former Federal Reserve Vice Chairman
*Art Laffer, chief investment officer at Laffer Investments, author & former Reagan Economic Advisor

Please join us. The Kudlow Report. 7pm ET. CNBC.

King Dollar Liked the FOMC Statement

The Federal Reserve’s policy statement yesterday elicited a strong King Dollar reaction with its mild dose of hawkishness, which I applaud. I’m reading the Fed positively here. There was no announcement of any new debt monetization via Treasury purchases, a slightly more positive economic view, and an end to deflation worries. This all to the good.

The result was a stronger dollar in world currency markets. King Dollar. This is very good.

I was encouraged that the Fed cited rising commodity and energy prices. It is another nod to a market-price rule. That is clearly the best way to conduct policy, rather than the goofy Philips Curve tradeoff between inflation and unemployment.

Now, the Fed is going to keep the target rate near zero for the foreseeable future. But remember, the Fed’s balance sheet has flat-lined over the last six months as it has slowed down the overworked printing presses. So, while the Fed didn’t mention an exit strategy, it may already be building one.

The markets basically voted in favor of the Fed. While the Dow was off slightly on the news, the S&P gained almost 1 percent, with the NASDAQ finishing up a solid 27 points. As you know, markets conduct an up-or-down election vote every single day on the economy, Washington, and policy. It remains the most important opinion poll there is.

Finally, I think this sideways market correction we’re in is nearing an end. As a result, I think this could be a strong buying opportunity for investors, who can put some of their sidelined cash back into stocks.

Wednesday, June 24, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:


Rep. Darrell Issa of the House Oversight and Government Reform Committee will join us to discuss.

According to a statement released by Rep. Issa: "The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the 'shotgun wedding' that was the Merrill Lynch acquisition. The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies."

Please join us. The Kudlow Report. 7pm ET. CNBC.

Biden’s Snares and Delusions

President Obama said at his press conference yesterday that no second stimulus package is being contemplated right now. Well, I sincerely hope that’s the case, because the current package is a disaster. It spends far too much for far too little in return. All of this frenzied fiscal nymphomania is placing a tremendous burden on Treasury-bond rates and the U.S. dollar. It is undermining the confidence of key foreign investors like China, Brazil, Russia, and others who have to buy our bonds.

But the worst thing I heard yesterday was the snare-and-delusion proposal announced by Vice President Biden. Apparently, Joe Biden wants to create a new government council to help laid-off autoworkers who are supposed to transition to solar, wind, and biotech industries. Huh? Are you kidding me?

Look, if you really want to help manufacturing workers everywhere, then cut that ridiculously high business-tax rate by 15 to 20 percentage points. Then allow full cash expensing for immediate tax write-offs for new business investment. Heavy industries will soar. This is FedEx CEO Fred Smith’s idea, and I totally agree with it. It would boost the manufacturing, auto, and transportation sectors.

And by the way, let’s move forward and deregulate the energy industry so we can drill, drill, drill and nuke, nuke, nuke. We’re talking about an enormous potential job-creator here. The fact of the matter is that alternative energy will be a tiny part of the energy calculus for many years to come. That’s just the reality. So let’s get real and eliminate all these ridiculous regulatory roadblocks standing in the way of American job-creation and energy independence.

And what’s this about a sub-czar for cars? Talk about a sub-par idea. I’m sorry Mr. Biden. Personally, you’re a good man. But economically, this is a terrible idea. Tax incentives are what will help the blue-collar middle class rise out of the doldrums.

Tuesday, June 23, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:


CNBC chief Washington correspondent John Harwood will report.


-Getting Out From Under TARP
-Is Barofsky Being Stymied?
-Consumer Financial Protection Agency in Sight?
-Blowing Up A New Bubble?

Elizabeth Warren, Harvard University Law Professor and Congressional Oversight Panel chairman will join us in an exclusive interview.


*CNBC's Rick Santelli
*Charlie Gasparino, CNBC on-air editor
*Andrew Ross Sorkin, New York Times


David Kotok, Chief Investment Officer at Cumberland Advisors will offer his investment insight.


-Is there a Fed exit strategy?
-A Fed Dictatorship?
-Are they fighting or listening to the bond market?

*Brian Wesbury, chief economist at First Trust Advisors
*Bob McTeer, former Dallas Federal Reserve Bank President

Please join us. The Kudlow Report. 7pm ET. CNBC.

We Don’t Need Big-Bang Health-Care Reform

A small-ball, targeted plan would do the trick.

Why do we need President Obama’s big-bang health-care reform at all? What’s the real agenda here? If it’s really to cover the truly uninsured, a much cheaper, targeted, small-ball approach would do the trick. But on the other hand, maybe the real goal is a government takeover of the U.S. health system.

In a recent column, Larry Elder points to an ABC News/USA Today/Kaiser Family Foundation survey that shows 89 percent of Americans are satisfied with their health care. That means up to 250 million people could be happy with their plans. So why is it we need Obama’s big-bang health-care overhaul in the first place?

In a new Pew Research Center poll, only 41 percent of those surveyed believe the U.S. health-care system needs to be completely rebuilt. In early 1993, when Mr. and Mrs. Clinton started on health-care reform, 55 percent said the system needs a complete overhaul. So something has changed.

In a new CBS/New York Times poll, 38 percent say the economy is the most important problem facing the country, 19 percent say jobs, and only 7 percent say health care. In an NBC/Wall Street Journal poll, 24 percent say the budget deficit is today’s most worrisome problem while only 11 percent say health care.

There’s more. According to the U.S. Census Bureau we don’t have 47 million folks who are truly uninsured. When you take college kids and those earning $75,000 or more who choose not to sign up for a health-care plan, roughly 20 million people are removed from the list of uninsured. After that you can extract the 10 million who are not U.S. citizens and the 11 million who are eligible for SCHIP and Medicaid but for some reason have not signed up for those programs.

So that leaves only 10 million to 15 million people among the long-term uninsured.

Yes, they need help. And yes, they should get it. But not with mandatory universal coverage, or new government-backed insurance plans, or massive tax increases. And certainly not with the Canadian-European-style nationalization that has always been the true goal of the Obama administration and congressional Democrats.

Instead, we can give the truly uninsured vouchers or debit cards that will allow for choice and coverage, and even health savings accounts for retirement wealth. According to expert Betsy McCaughey, rather than several trillion dollars and socialized medicine, this voucher approach would cost only $25 billion a year — with no socialized medicine.

Columnist Peter Robinson, writing for Forbes.com, relates an interview with the late free-market Nobelist Milton Friedman about the inefficiencies of the health-care system. Friedman stated simply and clearly that the cost problems in our system can be traced to the fact that most payments for medical care are made not by the patients who receive the care, but by third parties — typically employers or the government.

“Nobody spends somebody else’s money as wisely as he spends his own,” said Friedman. He also fingered the tax code, which allows for an exemption from the income tax only if health care is employer-provided. This is a free-lunch syndrome, one that removes incentives for competition and cost-control because we’re all playing with somebody else’s money. And in the case of Medicare and Medicaid, caregivers have become employees of insurance companies and the government.

A new government-backed insurance system will intensify this free-lunch syndrome. It also will surely lead to a government takeover of what’s left of our private-enterprise system.

But the Democratic agenda has never really been just about the uninsured, has it? And according to the Congressional Budget Office, with a price tag of $1.6 trillion in new spending, it certainly hasn’t been about real cost-cutting or budget restraint. Nor has it been even remotely about true market choice and competition. Nor has it been about tort/trial-lawyer reform, which itself would be a major cost cap.

And let’s not forget a spate of new tax-hike proposals that would sink economic recovery: employer benefit taxes, higher payroll taxes, taxes on soft drinks and alcohol, a value-added tax (VAT), or another income-tax hike for successful earners. And remember, existing health-care entitlements are estimated to be roughly $80 trillion in the hole over the decades to come. Wouldn’t it make sense to solve these bankrupt entitlements before we layer on new ones?

So there is a strong suspicion that the Democratic agenda has always been a class-warfare, anti-business attack on private-sector doctors, hospitals, insurance firms, and drug companies. In the name of cost-cutting, what’s really going on is a major knockdown of profits. Liberals have always railed against the “excess profits” of insurance firms, drug companies, and physicians.

Knocking down profits and telling people what to do because government planners know best, right? Wrong. Absolutely wrong.

Monday, June 22, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:


CNBC on-air editor Charlie Gasparino is on the story.


CNBC’s Matt Nesto will join us with today’s top market news and developments.


*Rich Karlgaard, Forbes Publisher; "Life 2.0" Author
*Doug Cliggott, Dover Management Chief Investment Officer
*Ron Shah, Jina Ventures Managing Partner


*Sean Tully, Fortune Senior Editor At-Large
*Peter Coy, BusinessWeek Economics Editor


*Bill Atwood, Executive Director of Illinois State Board of Investment
*Rob Kaimowitz, Bull Path Capital Management

Please join us. The Kudlow Report. 7pm ET. CNBC.

An Imperial Fed?

Does the Obama administration really want to grant a virtual dictatorship to the Federal Reserve on monetary policy and banking oversight and regulation? The Fed already has enough trouble figuring out monetary policy. So this business about the central bank engaging in systemic-risk regulation and all the accompanying regulatory bells and whistles makes no sense.

A host of factors contributed to the credit crisis. But it was ultimately the Federal Reserve — with its bubblehead policy of ultra-cheap rates, monetary explosion, and a sinking dollar — that created it. The Fed was the chief culprit, just as it was ten years ago when it unleashed the tech bubble. It not only created this current crisis, it totally missed it as well. So why would anyone think it has the right stuff to fix it?

I say put Sheila Bair and the FDIC in charge of systemic-risk regulation. Make them totally independent from the Treasury. And while we’re at it, let’s get the Fed to return to a market-price rule for money, including gold, the dollar, bond rates, and commodities. This would mark a sorely needed return to the stable-money period that stretched from the early 1980s to the late 1990s. That was before the central bank embarked on this crazy pillar-to-post stop-go-stop-go monetary-meddling insanity that completely destabilized the economy and undermined the stock market.

On a related note, Washington is spending far too much time focusing on regulations right now. They’re not devoting nearly enough time to figuring out ways to truly grow our economy. It is a statist governmental approach. This great country of ours is thirsting for free-enterprise incentives and solutions. And as the latest polls show, Americans are becoming fed up with the out-of-control spending, borrowing, debt-creation, and tax increases.

What we need is serious economic growth. That is priority number one. What we need is risk-taking and entrepreneurship. Of course, we need transparent markets. But it is the growth message that is being overlooked.

And by the way, speaking of limits to reckless borrowing and debt, the Treasury is going to auction $104 billion in debt this week. That’s yet another record. The previous record was set a few weeks ago, which came a week after another record. Talk about the need for limits. This is total fiscal insanity. It needs to stop now.

But this Fed-dictatorship proposal is a terrible idea. The Fed needs to stick to its knitting and focus on stable money. That’s what’s been missing for ten years under Alan Greenspan and Ben Bernanke. That’s why we experienced two nasty recessions. And that’s why the stock market has gone nowhere.

We Don’t Need Obama’s Big-Bang Health-Care Plan

It looks like President Obama’s big-bang health-care reform is going down to defeat. This is good. But my question is why do we need it at all? According to a recent ABC News/USA Today/Kaiser Family Foundation survey, 89 percent of Americans are satisfied with their health care. That could mean up to 250 million people are happy. So why is it that we need Obama’s big-bang health-care overhaul in the first place?

There’s more. According the U.S. Census Bureau, we don’t have 47 million folks who are truly uninsured. When you take college kids plus those earning $75,000 or more who chose not to sign up, that removes roughly 20 million people. Then take out about 10 million more who are not U.S. citizens, and 11 million who are eligible for SCHIP and Medicaid but have not signed up for some reason.

So that really leaves only 10 million to 15 million people who are truly long-term uninsured.

Yes, they need help. And yes, I would like to give it to them. But not with mandatory coverage, or new government-backed insurance plans, or massive tax increases. And certainly not with the Canadian-European-style nationalization that has always been the true goal of the Obama administration and congressional Democrats.

Instead, we can give the truly uninsured vouchers or debit cards that will allow for choice and coverage, and even health savings accounts for retirement wealth. According to expert Betsy McCaughey, instead of several trillion dollars and socialized medicine, this voucher approach would cost only about $25 billion a year.

But the Democratic agenda has never really been about just the uninsured. And it certainly hasn’t been about real cost-cutting or true market choice and competition. Nor has it been about tort/trial-lawyer reform. Instead, the Democratic agenda has always been a class-warfare, anti-business attack on private-sector doctors, hospitals, insurance firms, and drug companies. It’s all about control, knocking down their profits, and telling them what to do.

Because government planners know best, right? Wrong. Absolutely wrong.

Thursday, June 18, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Hampton Pearson reports.

An Historic Regulatory Proposal & Its Market Implications

On to debate:

*CNBC’s Rick Santelli
*Mike Ozanian, Forbes National Editor
*Mark Walsh, Fmr. Sr. Vice President at America Online; Fmr. Vertical Net CEO; Founding CEO at Air America; Fmr. DNC Advisor


NBC News Chief Foreign Correspondent Richard Engel reports.

On to discuss...Vanity Fair columnist and author Christopher Hitchens.

CNBC chief Washington correspondent John Harwood will join us from the White House.

Is The Public Growing Weary Of Intervention?

On to debate:

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary

Please join us. The Kudlow Report. 7pm ET. CNBC.

Welch Nails It

Former GE CEO Jack Welch discussing Obama's financial reform plan on Squawk Box this morning:

Welch: "My whole feeling [not just on the financial reform plan] is let's slow down. I mean, we're touching every corner of this economy. We're going from healthcare, 20 percent of the economy, to the environment with cap-and-trade, which touches every corner. And now this. And he's only been in there four or five months. I hope somebody in Congress says, 'Whoa, let's discuss these things and what the implications are."

Amen. The latest polls reveal a growing public revolt against massive deficits and massive government intervention, especially among independent voters. We sorely need limits on spending, borrowing, debt creation, TARP-ing, bailing-out and government expansion. Limits! This limits theme was my message at the GOP Senate policy lunch on Tuesday. Washington has run amok, and folks don't like it.

Double Dip Or Roaring Recovery?

Two terribly bright stock market minds joined me on last night's Kudlow Report - Jason Trennert of Strategas Research and Dougie Kass of Seabreeze Partners Management - to discuss the stock market and economy. Both the video and Dougie's recap of the discussion follow below.

With My Fav'rite Host
6/18/2009 7:41 AM EDT

Last night, I was back with one of my fav'rite hosts, Sir Larry Kudlow (of course, along with my other favs, Becky, Carl and Joe on "Squawk").

The topic of our short segment was "Double-Dip or Roaring Recovery?"

With us was my friend/buddy/pal, the lynx-eyed Strategas Managing Partner Jason Trennert, who posited that we are in the "V" portion of what Lee Cooperman has described as a "square-root economic recovery." Jason was more optimistic than I (though he fully recognized the consumers' weak status) and favors the late-cycle stocks (materials, gold and energy) or "where the government is investing."

Sir Larry, ever the optimist, viewed the "amazing monetary stimulus," narrowing in credit spreads, the rise in the CRB Index and the steepening yield curve as forward indicators of prosperity.

By contrast, I saw growing signs of a possible double-dip in mid 2010, as the consumer is already flailing. Moreover, a number of nontraditional headwinds must be encountered and overcome in the 2009-2011 cycle.

I opined that Best Buy's (BBY) weak results (domestic down 5%, international dropping by 15%), even without the competition of now bankrupt Circuit City, were symptomatic of a weakening retail picture and an overextended consumer. My notion of May as Retail Interruptus gained some support this morning on the report of an unexpected downturn in U.K. retail sales during the latest reporting period.

I emphasized that a generational stock market low was very much in place and that a further move in the S&P 500 over the next few months towards my 1,050 objective still remains possible but the odds are now being lowered. If achieved, however, then it's Katie, bar the doors, as the economic double-dip grows into sharper focus later in the year.

In terms of where to put money, I thought the late-cycle plays that Jason pitched were somewhat crowded trades and were starting to roll over. I favored bank and specialty financial stocks, which will benefit from widening net interest margins that could serve to ameliorate the continued pressures from the loan-loss cycle.

Wednesday, June 17, 2009

The Fed in Charge of Systemic Risk? What a Mess

The big winner of the Obama financial-regulation plan appears to be the Federal Reserve, which becomes the consolidated supervisor of large, systemically important banks.

This is like the fox guarding the henhouse. After all, the Fed’s overly loose money policies created the asset bubble -- including housing, commodities, and energy -- in the first place. Near-zero interest rates, huge money growth, and total disregard for the plunging dollar are what set up the housing boom and the unfortunate overleveraging by consumers, mortgage borrowers, and Wall Street securitizers.

It also set up the astronomical $150 oil shock, which came alongside the Fed’s overly tight money policies to offset the prior loose policies that would cause this credit crunch and deep recession. In fact, looking back to the last two bubbles -- the tech bubble of 1999-2000 and the housing/energy bubble after that -- it was the Fed’s pillar-to-post go-stop-go-stop lurches that deserve the principal blame for the economic messes that ensued.

The Great Moderation of the ’80s and ’90s has given way to extremism in Fed policy. And we may be in danger of repeating it all over again, with a new round of near-zero interest rates and a massive 11 percent growth of M2 over the past nine months.

There is one positive in the Obama plan: Sponsors of securitized asset-backed bonds will be forced to put 5 percent equity-skin in the game, in order to improve incentives for more appropriate risk and responsibility in lending. But it strikes me as somewhat ironic that the Fed would be placed in charge of systemic risk.

We also don’t know if any of the new regulations from the Obama White House and Treasury will deal with the moral-hazard question of “too big to fail” that was pointed out in Paul Volcker’s China speech last week. There will be new resolution authority to close down banks, but whether that will apply to the big banks remains to be seen.

Then there’s the new Consumer Financial Protection Agency. This provision was apparently written by liberal-left Harvard professor Elizabeth Warren, a staunch foe of free markets and an overzealous supporter of consumer-as-victim rights. Among its massive powers, this agency would enforce the Community Reinvestment Act, which has for years forced banks and other lenders to throw mortgage money at borrowers who cannot afford it. And the consumer protection would reach deep into bank supervision as well. What a mess.

Missing from the package is a reform that would put Fed monetary policy back on a commodity-price rule, including gold and the dollar. This rule was basically used from the early ’80s to the late ’90s, during Paul Volcker’s Fed term and the first half of Alan Greenspan’s term. This would have been the best-possible reform, but of course it’s not in the proposal.

So now the Fed has become the supreme Keynesian unemployment vs. growth Philips-curve tinkerer. Until this totally mistaken policy is changed, we can have ten more reregulation plans that will not fix the real problem.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC senior economics reporter Steve Liesman will report.

On to discuss:

*Sen. Robert Bennett (R-UT) Senate Banking Cmte
*Sen. Maria Cantwell (D-WA) Financial Reform Working Group

Did the Fed Create the Mess?

On to debate:

*Steve Liesman, CNBC senior economics reporter
*Michael Pento, Delta Global Advisors, Inc. Senior Market Strategist
*Frank Sorrentino, North Jersey Community Bank Chairman & CEO

A Look At Political Sex Scandals

Former Clinton Whitehouse counsel Lanny Davis will join us with his take.


*Jason Trennert, Strategas Research Partners Chief Investment Strategist & Managing Partner
*Doug Kass, Seabreeze Partners Management President; TheStreet.com Contributor

And Nuke! Nuke! Nuke!
Jim Connaughton, Constellation Energy Executive Vice President will join us with his perspective.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, June 16, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

An Eye on Healthcare

CNBC chief Washington correspondent John Harwood reports on his exclusive interview today with President Obama at the White House.


*David Gratzer MD, Manhattan Institute Sr. Fellow
*Matt Miller, senior fellow at the Center for American Progress
*Betsy Ross McCaughey, former NY State Lieutenant Governor; Hudson Institute Health Policy Expert


NBC News Chief Foreign Correspondent Richard Engel reports.

An Eye on Financial Reform, Stimulus & the Economy

CNBC’s John Harwood will report.

How to Regulate Right

*Chris Mayer, Economics Professor Columbia University
*Peter Morici, Univ. of Maryland Robert H. Smith School of Business Prof.; U.S. International Trade Commission Fmr. Chief Economist

Insight on the Fed, Dollar & Gold

*Mike Khouw, Options Action trader
*Jim LaCamp, portfolio manager at RBC Wealth Management

Please join us. The Kudlow Report. 7pm ET. CNBC.

An Eye on King Dollar

Is a strong dollar bad for stocks? A lot of people are floating that idea of late. I happen to think it's garbage. Joining me last night to discuss this issue, the stock market, and economy were BlackRock's Bob Doll, former Fed Governor Wayne Angell, and Trend Macro chief investment officer Don Luskin.

Monday, June 15, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC chief Washington correspondent John Harwood reports from Washington.

CNBC’s Hampton Pearson reports.

Larry Summers Says No Back-Door Socialism

*Jerry Bowyer, chief economist at Benchmark Financial Network
*David Goodfriend, former Clinton Whitehouse staffer, Democratic Strategist & Co-Host of 'Left Jab'

CNBC senior economics reporter Steve Liesman will deliver a report.

CNBC’s Bob Pisani will join us with today’s top market news and developments.


On board:

*Robert Doll, Vice Chairman & Global CIO of Equities at BlackRock
*Don Luskin, Trend Macro Chief Investment Officer
*Wayne Angell, former Federal Reserve Governor

Karen Greenrose, President & CEO of the American Association of Preferred Provider Organizations (AAPPO) will join us with her take.

Please join us. The Kudlow Report. 7pm ET. CNBC.

5 Reasons to Reject Class-Warfare Tax Policy

Cato's Dan Mitchell just sent over his latest video explaining why President Obama's soak-the-rich tax increases are economically foolish. He's got the story right. Raising taxes robs incentive power from entrepreneurs, investors, and small-business owners. In other words, it is precisely the wrong recipe for recovery and economic growth.

Friday, June 12, 2009

Thune Talks TARP...

Sen. John Thune (R-SD) joined me to talk TARP on The Kudlow Report last night. He wants a date certain government exit from General Motors and all the other companies U.S. taxpayers now own. I agree. It's time to roll back socialism.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

NBC News Chief Foreign Correspondent Richard Engel reports from Iran.


On to discuss:

*John Kilduff, CNBC Contributor; MF Global Sr. VP & Energy Analyst
*Michael Ledeen, American Enterprise Institute Resident Scholar; "The Iranian Time Bomb" Author
*Kevin Kerr, Global Commodities Alert at kerralert.com & Fund Manager Cane Garden Capital

David Sokol , MidAmerican Energy Holdings Co. Chairman will offer his perspective.

Larry Summers; Cell Phone Tax; Healthcare Tax; & Czars For Sale

*Ann Coulter, Syndicated Columnist; "Guilty" Author
*Mark Walsh, Fmr. Sr. Vice President at America OnlineFmr. Vertical Net CEO; Founding CEO at Air America

CNBC’s Jane Wells joins us live from Los Angeles.


*Jim Bianco, President, Bianco Research
*Joe Battipaglia, Stifel Nicolaus Market Strategist


*Susan Kaplan, Kaplan Financial Services President
*Dawn Bennett, CEO, Bennett Group Financial Services

Please join us. The Kudlow Report. 7pm ET. CNBC.

Thursday, June 11, 2009

The Fed Head’s Problem

Did the Federal Reserve’s Ben Bernanke lie about pressuring the Bank of America not to back out of the Merrill Lynch merger? BofA CEO Ken Lewis made this charge to New York AG Andrew Cuomo, and basically repeated it with a bit of sugar-coating in a House hearing today on Capitol Hill.

The central issue was whether Lewis would invoke the material-adverse-change clause (the MAC clause) to back out of the Merrill deal last December, when Merrill’s books showed far greater losses than were first recognized. Of course, the deal is now succeeding profitably, with the whole financial world having changed for the better since late last year.

But a bunch of e-mails and documents clearly show that Bernanke was hammering Lewis, as was former Treasury man Henry Paulson. So far as I know Paulson has never denied this. But Bernanke did, and therein lies the Fed head’s problem.

Last May 5, in front of the Joint Economic Committee, when asked if he pressured Lewis, Bernanke responded: “Absolutely not, that I absolutely did not in any way ask Mr. Lewis to obscure any disclosures or to fail to report any information that he should be reporting.”

However, an e-mail reveals that Richmond Fed president Jeffrey Lacker spoke at length with Bernanke about all this: “Just had a long talk with Ben . . . says they think the MAC threat is irrelevant because it’s not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone.”

In other words, Bernanke acknowledged to Lacker that if BofA management disclosed to shareholders the terrible state of Merrill, even in considering a withdrawal from the deal, Bernanke would fire them. This directly contradicts the Fed head’s public statement before Congress’s JEC.

At that time, Lewis was strongly considering a material-adverse-change clause to stop the Merrill deal. So Bernanke put a gun to Lewis’s head, but he won’t fess up about it. A House investigative committee will probably call Bernanke to testify on this subject. If so, the whole world will be watching. As former Reagan prosecutor Joe diGenova told me last night on CNBC, the Justice Department won’t prosecute Bernanke. But his political and monetary credibility may suffer enormously.

Now the question is whether the Obama White House will issue a statement strongly supporting Bernanke, as they have in the past, or whether they will let the Fed head twist slowly in the wind. Perhaps my Larry Summers/King Dollar preference over Bernanke for Fed head next year is not so far fetched.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Mary Thompson has the story.

Is the Fed Head's Rep On The Line?

*Rep. Darryll Issa (R-CA)
*Rep. Elijah Cummings (D-MD)

John Kilduff, senior vice president of energy at MF Global, will join us with his perspective.

*Stacey Gilbert, Options Action Trader, Susquehanna Capital Group Market Strategist
*Zach Karabell, CNBC Contributor; River Twice Research President

CNBC’s Hampton Pearson reports from Washington.

CNBC’s Mary Thompson will speak one-on-one with President Obama’s new pay czar.

Sen. John Thune (R-SD) will be aboard with his take.


On to debate:

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary

Please join us. The Kudlow Report. 7pm ET. CNBC.

Wednesday, June 10, 2009

King Dollar + Drill, Drill, Drill

Right now, with oil trading through $71 a barrel, Treasury bonds closing in on 4 percent, and commodity indexes up 25 percent year-to-date, inflation fears are circulating through the markets.

There’s a way to nip this in the bud: First, the Treasury and Fed should work together to protect the value of the dollar. Here’s how they do it. At the Fed’s June meeting in two weeks, Ben Bernanke should put in the FOMC minutes a clear reference to an exit strategy that will curb the massive money creation that Art Laffer wrote about in today’s Wall Street Journal.

Next, at its September meeting, the Fed should raise its target rate — which is now 0.0 to 0.25 percent — pulling it up to 25 basis points, the upper end of the current range. That’s a small, even tiny, move that would represent about a 12 basis-point hike. But the move would at least send a signal that the Fed has an exit strategy from excess money that it intends to implement. Just that tiny move would go a long way towards protecting the dollar and knocking down inflation fears.

At the same time, the Treasury should purchase dollars in the open market to reinforce the much-neglected King Dollar scenario. In the long-run, Treasury interventions won’t work. But in the short-run, when combined with a Fed exit strategy, a dollar intervention will work.

Moving together, these two agencies can resurrect King Dollar and snuff out inflation fears. These fears have helped boost the price of oil and retail gas at the pump. But there’s a second factor at work in energy. The U.S. and world economies are starting to rise. This leads to drill, drill, drill. Onshore and offshore drilling restrictions for oil and natural gas have to be removed. Deregulate the energy sector. Open the door to nuclear power. Drill the shale regions for natural gas.

Exploration has dried up in the new Obama environment, which is so very anti-fossil-fuel and anti-nuke. If we are going to power our way to economic growth, fossil fuels and nuclear energy have to play key roles.

Alternative-fuel technologies may grow up, but that’s gonna take several decades. Right now they’re about 2 percent of our power. That’s all. And the idea that cap-and-trade can be implemented without taking a huge toll on the economy is an Obama hallucination. Cap-and-trade would severely limit economic growth by knocking out fossil fuels. Right now, the jump in retail gas prices could really hurt the nascent economic recovery.

In short, King Dollar and drill, drill, drill would be major pro-growth measures. Why not show the rest of the world that the U.S. can move from a position of strength rather than weakness?

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

A Look at Fed Emails Critical Of Lewis

CNBC’s Scott Cohn has a report.


*Charlie Gasparino, CNBC on-air editor
*Joe DiGenova, former U.S. Attorney

The House Energy Solutions Working Group

Rep. Mike Pence (R-IN) joins us with an update from Washington.

CNBC’s Diana Olick has the story.

*CNBC’s Rick Santelli
*Joe LaVorgna, Deutsche Bank Chief U.S. Economist

CNBC’s Hampton Pearson reports from Washington.

Should Feds Have Say Over Pay?

*Charlie Gasparino, CNBC on-air editor
*CNBC’s Rick Santelli
*Andrew Ross Sorkin, New York Times

Please join us. The Kudlow Report. 7pm ET. CNBC.

Drill, Drill, Drill: An Interview with Senator Mary Landrieu (D-LA)

Senator Landrieu agrees with me, and even credits me with drill, drill, drill. She’s on the right side of this issue with retail gas rising at the pump to $2.62 today. That’s up from $1.60 at the beginning of the year. The Conrad amendment will open up the Eastern Gulf for drilling. It’s a good start. But the White House and Congressional Democrats will stand in the way. I give a lot of credit to Sen. Landrieu for hanging in there on this issue.

Here's the transcript of our interview on last night's Kudlow Report.

LARRY KUDLOW: Senator Landrieu, welcome back.

SENATOR MARY LANDRIEU: Thank you Larry, happy to be back.

KUDLOW: All right, we appreciate your time. Now as you know, though gasoline prices are way down from last year’s $4 dollars at retail, today according to AAA, they’re $2.60. They were $1.60 at the end of the year. Some folks are saying this could hurt recovery, that it’s a tax hike. It could raise inflation. What is Congress going to do about this? And isn’t it time to drill, drill, drill?

LANDRIEU: Larry, it absolutely is. These prices are going north, and pretty quickly, and alarmingly because we’re trying to recover. And one thing we could do is drill more here in the United States. Not just for oil and gas, that’s important, and also reach for alternative fuels. But on the drilling issue, you’ve been right on this for a long time. And today we had a very important vote on the energy committee. We opened up a large section of the Gulf which is good, but we did not include revenue sharing which in the long run will not encourage states to drill offshore. And there are lots of resources there.

KUDLOW: How much is this revenue sharing [issue] going to be a sticking point to possible legislation? I mean, I think opening up the Gulf, or the Eastern Gulf, is a terrific idea, at least as a partial solution. How much of the revenue sharing is going to stand alone as a problem?

LANDRIEU: Well actually, it could be a help Larry, in the long run. Because as you know part of the reason that we don’t have a lot of offshore drilling right now in America, although we have a lot of gas, and a lot of oil off our coast we believe, is because there’s really no reason for the states, the coastal states to engage in drilling. They don’t get any direct benefit. They get indirect benefit, it helps the nation. But they don’t get any direct benefit, unlike the interior states that keep 50 percent of their revenues. So I think it’s an important partnership for production.

We hope to open up drilling on the eastern seaboard in some places. We hope to open up the Eastern Gulf. But you know Larry, what we did today will open up the Destin Dome, which has 3 trillion cubic feet of gas at $10 a cubic foot. That is not small change. It’s $30 billion of value. So it’s important that the companies get a share of that, that drill. The state of Florida and the Gulf Coast states should share. And then the Treasury for deficit reduction. It makes a lot of sense to me.

KUDLOW: What are you going to do—the ban on drilling expired last September 30th if my memory serves me. Where does that stand now? Is that ban still banned and does that open the door for the kind of offshore drilling you’re talking about?

LANDRIEU: Larry, the ban is still banned. But the door is opening just an inch. And in fact, about two or three weeks ago, the door was actually slammed shut by a very bad, very detrimental opinion in the DC Court that basically threw our current 5-year drilling plan into limbo. So we’re not moving forward Larry, we’re moving backwards. And the way to move forward again is to continue to present partnerships with the states for drilling. If Florida opens drilling, or North Carolina, or Virginia, let them share in the revenue. Then take that revenue, invest in energy infrastructure, invest in the coasts. Give some of those coastal communities a share of this money and it will benefit the whole nation and we’ll get more oil and gas.

KUDLOW: Well cut a deal, it’ll probably be cheaper for the taxpayers…

LANDRIEU: Absolutely.

KUDLOW: …than bailing out those states anyway. Let me ask you though, I mean it’s a very interesting thing. Oil prices on the world market are now back to $70. They were up $2 bucks today as I’m sure you know. But natural gas prices are real cheap. $3.76. That’s a 19:1 ratio, it’s very interesting. Why not go the Boone Pickens route? He wants to develop natural gas everywhere, liquefy it, turn it into fuel for those big 18-wheelers. He wants to lift the drilling restrictions. He wants to lift the refining restrictions for heavens sake. And lift the shale restrictions. Isn’t this part of the problem? If we put more oil and natural gas on the open market, those prices are going to fall and motorists and consumers are going to be helped.

LANDRIEU: Absolutely, I agree with you 100 percent. And I agree with Boone Pickens on many of his points, but I would just raise this caution. We don’t want to Larry, in America, be over reliant on any one fuel. We want more of it all. We need more oil. We need more gas. We need to develop solar and wind. But in the right way. And so what I cautioned Boone Pickens about, and I have had this discussion with him personally, we don’t want America to be overly dependent on natural gas. We have many resources that we can use, even though I’m a big proponent of drilling. So let’s, you know, let’s go forward with our brains and our heart, and I think we can.

KUDLOW: Well the other thing is refiners aren’t refining. I mean there’s all kinds of restrictions about refining…


KUDLOW: …It seems to me that’s got to be changed. And I want to ask you Senator Landrieu, will you be voting against the tax hike on oil and gas? I can’t imagine how a tax hike on oil and gas is going to encourage anybody to produce, invest and explore.

LANDRIEU: Absolutely. I will be not only voting against it, but I am lobbying against it. I am doing everything I can to convince this administration that they’re wrong. We don’t want to discourage energy production. We want to encourage it, as well as new production, wind and solar. But you don’t want to step on the traditional industry that is doing everything it can to produce energy, despite the fact that Congress keeps putting bans, keeps raising taxes. We’ve got to reverse our policies. You know, President Obama has an opportunity. I hope that he will take it.

KUDLOW: But has not—last question Senator—has not President Obama really tilted the playing field against this? I mean he seems to be opposed to drilling—whether it’s oil, whether it’s natural gas, whether it’s shale. He’s ruling out nuclear because he hasn’t funded the Yucca mountain nuclear waste disposal. And I wonder, has the White House weighed in on this bill from the energy committee that’s going to open up the Eastern Gulf?

LANDRIEU: They have not weighed in yet. But again, I remain hopeful. You’re right. President Obama’s team out of the box has not looked good on these issues. But they have time to adjust. And we’re hoping they will. I am against the taxes on oil and gas. I think the President will hear those objections, not just from me, but from many. I think the President wants to be open to nuclear and to find a way to dispose of this waste. Even if we don’t do Yucca, Larry, there are other ways that we can take care of that waste. I think the President has made it clear that he wants a goal of energy independence. And one more thing Larry, one of the guys you should interview, he’s a great guy on this, is Ken Salazar. Secretary of Interior.

KUDLOW: Mmm-hmm. We’ve talked to him.

LANDRIEU: [He’s] very balanced, wants America to be energy secure. And I think he knows it can’t be done without oil and gas, as well as alternative fuels. So let’s keep talking.

KUDLOW: All right, we’ll go after him. Drill, drill, drill.

LANDRIEU: Allright, thank you. Drill, drill, drill.

KUDLOW: Thank you ever so much Senator.

LANDRIEU: Thank you.

Tuesday, June 09, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Hampton Pearson has the story from Washington.

CNBC’s Mary Thompson has the latest details.

-Roll Back the Tarp Slush Fund and Reimburse Taxpayers
-Republicans To Counter Dems' Financial Reforms

On to discuss:

*Rep. Jeb Hensarling (R-TX)
*Charlie Gasparino, CNBC on-air editor
*Martin Weiss, Weiss Research CEO

CNBC’s Phil LeBeau has the latest news.

CNBC chief Washington correspondent John Harwood reports.

Sen. Chuck Grassley (R-Iowa) joins us from the Capitol.

U.S. Senate Panel Ok's Drilling Near Florida Gulf Coast

Sen. Mary Landrieu (D-LA) will be aboard.


*Kevin Hassett , American Enterprise Institute Sr. Fellow & Economic Policy Studies Director
*Mark Walsh, Fmr. Sr. Vice President at America Online; Fmr. Vertical Net CEO; Founding CEO at Air America

Please join us. The Kudlow Report. 7pm ET. CNBC.

The Next Fed Chair: Bernanke vs. Summers

Last night we discussed the real meat & potatoes portion of yesterday's New York Times story ("President's Economic Circle Keeps Tensions at a Simmer") which is who's going to get the nod for Fed chair come January -- Ben Bernanke or Larry Summers. As I wrote yesterday, I'd take Summers and old King Dollar.

Joining Rick Santelli and me were two old friends and economic heavyweights, Steve Forbes and Art Laffer.

Monday, June 08, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

NBC News Brian Mooar reports from Washington.

Is This Becoming The Big Government Stimulus Backfire?

On to debate:

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary

CNBC’s Hampton Pearson reports from Washington.


*Carlos Gutierrez, Fmr. Commerce Secretary; Fmr. Kellogg CEO; CNBC Contributor
*Steve Forbes, Fmr. Presidential Candidate; Forbes Inc. Pres. & CEO; Forbes Magazine Editor-in-Chief


*Art Laffer, chief investment officer at Laffer Investments, author & former Reagan Economic Advisor
*Steve Forbes, Fmr. Presidential Candidate; Forbes Inc. Pres. & CEO; Forbes Magazine Editor
*CNBC’s Rick Santelli

$99 iPhone, Steve Jobs & More
Fortune’s Jon Fortt will join us live from the Apple Conference.

9 Banks Can Payback Tarp?

*Charlie Gasparino, CNBC on-air editor
*Martin Weiss, Weiss Ratings, Inc. Chairman

Please join us. The Kudlow Report. 7pm ET. CNBC.

Summers vs. Bernanke? I’d Take Summers

The New York Times ran a front-page story today on personal tensions between Larry Summers and other top Obama economic advisors. Parsing through it, it looks like Austan Goolsbee, who argued against the Chrysler bailout, has the cheekiest relationship with Summers. Christina Romer takes a shot at Summers. Geithner does not, though the Treasury man says he’s not afraid to push back against the former Clinton Treasury official and Harvard president.

It’s hard to know what to make of stories like this. Conceivably, White House chief of staff Rahm Emanuel planted it as a Summers put-down, because the latter is getting too powerful. But I truly do not know the meaning of this part of the story. In the Reagan days we had plenty of internal economic tensions, which I think are good for policymakers -- not bad.

But the most interesting part of the Times story, at least to me, is the speculation about Summers vs. Bernanke. With Bernanke’s term expiring in January 2010, President Obama will make a decision about the Fed head before year-end.

So given the choice between those two, who do I like? Well, meaning no disrespect to Mr. Bernanke, I think I’ll go out on a limb and choose Summers. Why? Because during the Clinton years, when Summers held several Treasury posts (including Treasury secretary), a strong-dollar policy was in place. Back then I called it King Dollar. And I frequently praised Robert Rubin and Larry Summers for backing King Dollar.

And since I believe in a price-rule approach to Fed policy, where the dollar should be stable and the Fed head should watch open-market prices such as the dollar, gold, and commodities in order to promote price stability and economic growth, Larry Summers’s résumé as a Clinton-Rubin alumnus is closer to my liking.

And in terms of Mr. Summers’s so-called prickly personality, that might be an excellent credential for a truly independent Fed chairman. Paul Volcker had a prickly personality, but he was the inflation slayer (with Ronald Reagan’s help).

Ben Bernanke, on the other hand, seems to be targeting the unemployment rate, and he has never given much emphasis to a stable dollar as a key Fed-policy variable. Right now the bond markets are pricing in five or six Fed tightening moves as the economy shifts toward recovery. And at least until recently, the dollar was soft and gold was strong. But if Mr. Bernanke targets the unemployment rate, the Fed will overstay its easy-money welcome and inflation will shoot up in the years ahead.

Now, I can’t be sure that Summers would stick to a dollar-related price rule. But if history is any guide, he might. Of course, I can think of some other names that I would prefer to take over the Fed: Robert Mundell, Steve Forbes, Art Laffer, David Malpass. There’s even the late Milton Friedman, who after all said a computer should run the Fed.

Friday, June 05, 2009

One-On-One with CFTC Chairman Gary Gensler

Last night we welcomed our old friend Gary Gensler back to the show to discuss derivatives regulation and market transparency. Gary was recently appointed chairman of the Commodities Futures Trading Commission (CFTC).

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

The printing presses are working overtime.

CNBC’s Hampton Pearson will lead us off.

On the Right:
*Deroy Murdock, syndicated columnist
*Ann Coulter, author & syndicated columnist

On the Left:
*Keith Boykin, author, editor of The Daily Voice & former assistant to President Clinton
*David Goodfriend, former Clinton Whitehouse staffer, Democratic Strategist & Co-Host of 'Left Jab'

Whatever happened to a good old-fashioned cabinet?

The aforementioned panel will debate.

And what’s this talk about a “Pay Czar”?

*Charlie Gasparino, CNBC on-air editor
*Andrew Ross Sorkin, chief mergers and acquisitions reporter of The New York Times

Is the recession over yet?

On to debate:

*Jerry Bowyer, chief economist at Benchmark Financial Network
*Don Luskin, chief investment officer at Trend Macro

Please join us. The Kudlow Report. 7pm ET. CNBC.

Kudlow on Twitter...

A quick programming announcement for all of you Twitter fans out there in cyperspace: Yours truly, Larry Kudlow, is now officially on Twitter. You can now follow all of my latest pithy thoughts, Kudlow Report updates, and more throughout the day at @larry_kudlow. I'll be Tweeting away.

Thursday, June 04, 2009

Rollback Time

Recall the stimulus, let the de-TARPing begin, and set the Fed free.

Testifying before the House Budget Committee this week, Ben Bernanke said that when the time comes, the Fed will raise interest rates in order to stop inflation from building in the next recovery. He also asked for “fiscal balance” to sustain financial stability. On the surface -- in terms of keeping prices stable and restoring value to the softening U.S. dollar -- this is positive. Surely Mr. Bernanke wants to do right for America, and he’s giving it his best shot.

But when you talk to traders and economists, the whisper story is that Bernanke and the Fed are no longer truly independent of the Obama White House and Treasury. As a result, Bernanke will not be able to slow down the printing presses and gradually lift the near-zero target rate in a timely and effective manner. Already the Fed has created more than $1 trillion in new cash, and the M2 money supply is growing at its fastest pace in 25 years.

This monetary explosion explains what’s really driving the dollar down and Treasury rates up (alongside rising gold and oil prices). It’s not huge budget deficits, but the growing fear that a less-than-independent Fed will keep pushing new money into the financial system in order to fund Obama’s liberal spending policies.

This week, German chancellor Angela Merkel launched a broadside against the Fed, saying she views the Fed’s powers “with great skepticism.” It was an important rebuke. Here’s the elected leader of a major country actually telling a central bank to stop the printing presses and avoid creating yet another inflationary bubble during the next recovery cycle. In other words, it’s the printing presses, stupid.

Rising inflation and interest rates are always a monetary problem. When Dick Cheney said a few years ago that deficits don’t matter, he was basically right. There is no clear relationship between budget deficits, inflation, and interest rates. In fact, for most of the’80s and ’90s, and much of the 2000s (excepting the 2003–05 bubble), interest rates and inflation fell while deficits averaged over $200 billion a year and got as high as 6 percent of GDP at some points. This is because Paul Volcker and Alan Greenspan restrained money-supply growth in a non-inflationary manner.

Now surely today’s $2 trillion deficit -- which is 13 percent of GDP and likely to remain very high -- is a shocking number. But if the Fed refuses to monetize the deficit, inflation will stay low and long-term interest rates will normalize. Conventional economists and most politicians do not understand that excess money is the root cause of inflation, spiking rates, and a bad, unwanted dollar.

Unfortunately, with the Fed purchasing Treasury bonds, mortgage-backed securities, and other asset-backed bonds, the growing suspicion is that Bernanke & Co. is too entangled in Obama economic policy. Therefore, a timely Fed exit strategy is just as unlikely as a timely fiscal exit strategy to remove unnecessary budget spending and TARP money.

With clear signs of economic recovery on the horizon, some are now calling for an end to the unnecessary stimulus package and a de-TARPing across-the-board. Along with a big rise in the money supply, there’s been a rebound in commodities, a stabilization in housing, falling unemployment claims, a booming stock market, narrowing credit spreads, and rising ISM manufacturing reports. All this is telling us that additional stimulus is unnecessary.

Economic blogger Scott Grannis says “recall the stimulus.” Prof. Russell Roberts of George Mason notes that only $36 billion of the stimulus has been spent through May, out of a total $787 billion. And USA Today reports that $209 billion in countercyclical automatic safety-net stabilizers -- which is apart from the stimulus package -- has already been spent on unemployment insurance, food stamps, Medicaid, and early Social Security retirements.

On the eve of recovery, with all this prior spending, why on Earth do we need more?

Policy analyst Dan Clifton tells me that the $200 billion spending increase scheduled for 2011 to 2019 should definitely be rolled back from the Obama stimulus package, before it’s built into the current-services spending baseline. And let’s not forget that the Obama Democrats already passed a $400 billion omnibus spending bill for 2009. So anybody in Washington who is serious about spending and deficits can save hundreds of billions of dollars by rolling back the stimulus package and TARP. The financial system is healing, and banks want to pay TARP down anyway.

Here’s the moral of this story: Excessive Fed pump-priming and over-the-top federal spending is what matters, not the budget deficit. If we keep paying people not to work by piling on more transfer payments and government subsidies, economic growth will suffer mightily. And if the Fed keeps buying bonds issued by Uncle Sam, inflation will ratchet higher.

Republicans, are you listening? Rollback the unnecessary stimulus and restore the Fed’s independence.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:


CNBC’s David Faber and Charlie Gasparino will join us with the latest news on the S.E.C.'s civil fraud and insider trading charges against ex-Countrywide CEO Angelo Mozilo.


JPMorgan Chase senior economist Jim Glassman will offer his perspective on oil prices, the latest economic numbers, markets and deficits.

Roll Back the Stimulus!

On to debate:

The Wall Street Journal’s Steve Moore and Democratic strategist Julian Epstein.

Commodity Futures Trading Commission Chairman Gary Gensler will be aboard.


On to debate America’s energy policy will be Daniel Weiss from the Center for American Progress.

Please join us. The Kudlow Report. 7pm ET. CNBC.

P.J. O'Rourke Talks Cars on The Kudlow Report

We were delighted to have best-selling author and political satirist P.J. O'Rourke join us on last night's show to talk about America's love affair with cars and whether that love affair is now in jeopardy.

Dougie Kass's Kudlow Report Recap

Here's my pal Dougie Kass's recap of Tuesday night's economic discussion with the terribly bright Ed Yardeni on CNBC's The Kudlow Report.

With My Fav'rite Host
6/4/2009 7:25 AM EDT

I was back with my fav'rite host, Sir Larry Kudlow, on Tuesday night. Along with us was one of the most respected economists extant, Ed Yardeni, who posited an optimistic message of low inflation, reasonably healthy domestic economic growth and an encouraging picture of corporate profits for 2009-2010. Ed remains concerned about our long-term deficit situation, however, and suggested testing Social Security and Medicare, which could alleviate the growing concerns of the bond vigilantes.

Below were my bullet points from Tuesday night's show:

- I remain confident that a generational stock market low is now in place.

- I described the early March low as a "Susan Boyle" moment that took most market participants by surprise.

- But equities have now fully discounted the "second derivative recovery"; stocks are ahead of the real economy.

- There is little causality between advancing stock prices and an improving economic recovery.

- Should Treasury rates continue their rise, they will provide additional competition to equities by the third quarter of 2009.

- Near term, more tangible signs of economic traction are necessary before the markets move toward my 1,050 target for the S&P 500 by late summer.

- The trajectory of economic growth will be shallow and will likely disappoint the equity markets during the second half of 2009.

- Massive cost cutting has resulted in better than expected first-quarter 2009 profits, but it holds a downside as significant employee layoffs (and a still-weakened consumer) threaten the seeds of domestic economic growth over the intermediate term.

- Savings rates will remain high and personal consumption expenditures will remain low for an extended period of time.

- The specter of rising taxes and higher interest rates in late 2009/early 2010 will likely impact an already fragile recovery in the economy and in the markets.

- Summarily, the weakened state of the consumer is the most significant intermediate-term market/economic challenge. Rendering the market as near-term exposed and capping the upside, it is the single most important factor influencing the economy and markets.

- Where to invest? I reminded Sir Larry of one of Grandma Koufax's old Yiddish proverbs: "steep curve means big bank profits." I continue to be most attracted to bank stocks, with Bank of America (BAC) and SunTrust (STI) being my favorite names.

Position: Long BAC and STI