Friday, July 31, 2009

It’s a New Bull Market

Resilient capitalism pushes back against Obama.

Let’s call this what it is: A new bull market in stocks has emerged from the ashes of the financial meltdown and the deep recession that followed. And it’s signaling the onset of economic recovery. Free-market capitalism is more durable, resilient, and self-correcting than its detractors would have us believe.

This is not just a summer rally -- although a 12 percent market rise since July 10 is absolutely splendid. There’s a lot more going on here. Over the last five months, since March 9, the broad-based S&P 500 is up 46 percent. If I’m not mistaken, a 20 percent rally that is not quickly reversed constitutes a bull market. We are more than double that, and there will be no total reversal.

Consequently, I want to change the agenda. This is much grander than what most commentators are describing. This is a new bull.

With positive, beat-the-street earnings coming from all corners of the economy, the current rally is based on solid fundamentals. Roughly two-thirds of S&P companies have reported so far, and 75 percent have beaten profits expectations by about 10 percent on average. Just look at the recent results posted by companies as diverse as Dow Chemical, MasterCard, Visa, Tyco, Colgate-Palmolive, Kellogg’s, Cummins, and International Paper, all of which follow better-than-expected announcements from Caterpillar, IBM, and Intel a few weeks ago.

Incidentally, research from JPMorgan shows that sequential revenues -- second quarter over first quarter -- are rising. And investment guru Vince Farrell says there’s $11 trillion sitting on the sidelines in money-market and other short-term balances. So this rally is no empty air pocket. When markets in China plunged 7 percent earlier this week, U.S. stocks could have followed suit. But they held their own. It was a big show of bull-market strength.

And let’s not forget the banks. The KBW Bank Index has doubled since early March. With a zero short rate and a steeply upward-sloping Treasury yield curve, even a banker can make money. Financial earnings are soaring. The credit crisis is over. And the banks will earn their way out of their toxic-asset problems provided that the nerds at the Financial Accounting Standards Board (FASB) don’t resurrect mark-to-market accounting and force immediate distressed-market write-downs.

Does this bull have long legs? Historically, bull markets last an average of 17 months, and this bull should run well into next spring. And judging from the breathtaking decline in LIBOR rates, the TED spread (between LIBOR and Treasury bills), and corporate-bond spreads relative to Treasuries, I believe there’s another 20 percent upside to the bull. That would return us to the pre-Lehman levels of August 2008, with the S&P above 1,100 and the Dow at 11,000.

And here’s the economic deal: Businesses have made the necessary cost-cutting adjustments to jobs, salaries, and inventories to restore profitability. (My hunch is that businesses fired too many people when the credit roof fell in and the economic bottom fell out.) It’s a classic, Austrian, Ludwig von Mises corrective to prices and production. As the economy rises, lean-and-mean companies will reap a profitable harvest. Profits are the mother’s milk of stocks, business, and the economy. As profits heal, consumer incomes and spending will rebound.

My guess is the economy will grow by 3 percent annually or slightly more in the second half of 2009 and the first part of 2010. This growth is back-stopped by a very-easy-money Federal Reserve, which in the short-run is overcoming some of the anti-growth, war-on-capital policies hailing from Washington. It’s because of these prosperity killers that a return to the stock market peak of mid-2007 -- when the Dow climbed over 14,000 -- is not likely.

The ineffectual Keynesian spending-and-borrowing from Team Obama will actually reduce our long-run potential to grow, but at least in the shorter-term Milton Friedman’s monetary power from the Fed has re-liquefied commerce. This includes a $1 trillion rise in the Fed’s balance sheet and steady 10 percent annualized growth in the inflation-adjusted money supply this year.

Longer-term, yes -- there are inflation risks and potentially big obstacles to prosperity. A full economic recovery from a deep recession should produce 7 to 8 percent growth, as was the case with the 1983–84 Reagan rebound. But tax rates are going back up in 2011, not down. That’s the wrong side of the Laffer curve. And if we’re going to get nationalized health care, with surtaxes on the rich and higher payroll taxes for businesses and workers, then I would say: Enjoy the fat goose at Christmas this year, because there may be fewer Easter eggs next spring.

But this is much more than a summer rally. It’s a new bull market heralding a new economic recovery. Free-market capitalism is trying hard to push back against Obama’s central-planning.

The bears will lose this round.

Thursday, July 30, 2009

On Tonight's Kudlow Report

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

CNBC’s Matt Nesto will report all the latest earnings news.

An eye on the S&P 200-day moving average

*Peter Costa, Empire Executions President; CNBC Market Analyst
*Mike Khouw, Cantor Fitzgerald Director of US Equity Derivatives Trading



*Ed Yardeni, Yardeni Research President
*Joseph Grano, Centurion Holdings CEO; Former UBS Wealth Management USA Chairman & CEO
*Peter Costa, Empire Executions President; CNBC Market Analyst

Opposing positions on the summer rally


*David Kotok, Cumberland Advisors Chairman & Chief Investment Officer; CNBC Contributor
*Bill Smead, Smead Capital Mgmt.CEO/CIO
*Dan Fitzpatrick, President & CEO; Senior Contributor,

Is that bad for stocks & jobs?


*Frank Newport, Gallup Editor-in-Chief
*Scott Rasmussen, Rasmussen Reports Founder & President
*Steve Moore, WSJ Editorial Board; co-author of "The End of Prosperity"

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

An Interview with CFTC Chairman Gary Gensler

We welcomed Gary Gensler, chairman of the Commodity Futures Trading Commission, back to the show last night to discuss measures the CFTC is currently considering to curb what it believes is speculation in energy and commodities markets.

(The interview begins as the 2:33 mark)

Wednesday, July 29, 2009

On Tonight's Kudlow Report

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


*Joe Battipaglia, Stifel Nicolaus Market Strategist
*Jim Paulsen, Wells Capital Management Chief Investment Strategist

And an eye on Doctor Copper


*Mike Holland, Holland & Company Chairman
*Andy Busch, Global FX Strategist, BMO Capital Markets
*Steve Forbes, Fmr. Presidential Candidate; Forbes Inc. Pres. & CEO; Forbes Magazine Editor-in-Chief


CNBC’s Hampton Pearson will report on the latest energy markets regulation developments from the CFTC.

*David Goodfriend, Fmr. Clinton W.H. Official; "Left Jab" Co-Host; Air America Co-Founder
*Steve Forbes, Fmr. Presidential Candidate; Forbes Inc. Pres. & CEO; Forbes Magazine Editor-in-Chief -

Steve Forbes will offer his perspective.


*Jon Fortt, Senior Writer Fortune
*Paul Kedrosky, Columnist; CNBC Contributor

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

InTrade: Positive GDP in Q3?

My great pal Jerry Bowyer brought this interesting InTrade chart to my attention.

It shows that the global pay-to-play prediction market is growing confident that Q3 GDP is headed into positive territory. In fact, this contract is up another 2 points today, and now reveals a 75 percent probability of a positive U.S. GDP number in Q3. Not bad. It's another positive economic sign from folks betting with real money.

As I wrote in my latest column, Team Obama will surely take credit for any improving economic news. Republicans need to start crafting a smart political response.

Tuesday, July 28, 2009

Are Republicans the Economic Pessimists?

What’s their strategy when Obama takes credit for the recovery?

Are Republicans too pessimistic about the economy? I put this question to Sen. Jim DeMint (R., S.C.) this week, and it would be hard to describe his response as optimistic. The senator trash-talked Vice President Joe Biden’s recent defense of the stimulus in the New York Times, and he warned that any economic rebound will be short-lived because of the runaway spending-and-borrowing plans of the Obama administration.

Truth be told, respected economists like Donald Marron, Keith Hennessey, Bruce Bartlett, and Kevin Hassett have all carefully chronicled the fact that the Obama stimulus package does not feature any real fiscal multipliers. They say the bulk of the package consists of transfer payments to individuals and states, along with tax credits that will produce no real incentive effects to spur economic growth.

But the fact remains that numerous signs are now pointing to economic recovery. And the GOP needs to craft a smart political response to this. Obama and Biden will surely take credit for the better economic news, just as any White House would. It’s the way the political game is played. But Republicans have to play the game, too.

A tremendous summer rally is going on in stocks, and it’s being driven by better corporate profits and improved leading indicators -- including a possible upturn in housing starts and sales, and a major downward spike in weekly initial jobless claims. So you have to believe the stock market is calling the tune for recovery.

And while politics are not everything, I do believe that the shrinking prospects for Obamacare have been a big contributor to the stock market’s recent surge. This sweeping new government insurance plan would lead to high-tax-and-spend-and-borrow-and-regulate nationalized health care, a big economic negative. Ditto for nationalizing energy through cap-and-trade-and-tax. If these initiatives fail, it is very bullish for stocks and the economy.

Meanwhile, a global stock market rally strongly suggests that a global economic recovery is in the cards. (The Bank of Canada has even declared Canada’s recession over.) The biggest gainers are coming out of Asia, especially China. But the larger economies of Europe, Japan, and the U.S. are also producing large market gains.

The rise in world commodity prices, especially Dr. Copper -- a metal that has a PhD in economic forecasting -- bolsters this bullish view. So does a steeply upward-sloping yield curve in the U.S. Treasury market. And so does the very bullish action in corporate bond prices, where declining yields have narrowed the interest-rate differences with Treasuries all the way back to pre-Lehman-AIG-credit-collapse levels. This is yet another sign that business credit and profits are improving.

Most demand-side strategists fail to understand that businesses, not consumers, are at the heart of the economic story. People forget Say’s Law of Markets, which argues that we produce in order to consume. So if industrial and service production levels are poised to rise -- because of an improvement in profits -- then consumer and family incomes also will rise to provide the spending stimulus.

And the recent rise in consumer savings is a good thing. Keynes was very wrong about this. Nowadays, higher consumer savings are channeled through the financial system into business investment, which translates to the purchase of computers and heavy equipment that will spur economic growth. Economist Jerry Bowyer keeps reminding me of this, and I try to convince my demand-side friends that they are barking up the wrong tree when they trash consumer-savings rates.

And we can’t forget monetary policy. During a recent town hall meeting, Federal Reserve chief Ben Bernanke noted that the Fed “put the metal to the pedal” in order to avoid a second Great Depression. So there’s an enormous volume of newly created money out there that’s ready to be put to work through economic spending and investing. Down the road there’s an inflation threat from this money, but not now.

Bernanke himself is predicting 1 percent growth in the second half of 2009, however he may be too cautious. It could be 2 or 3 percent growth -- which is subpar for a recovery, but ain’t chopped liver either. That’s what stock markets are signaling.

Sen. DeMint told me during our interview that the economy is getting better mainly because of the corrective forces of free-market capitalism in the private free-enterprise sector, and not from all this government spending and borrowing. Abstracting from the Fed’s big stimulus effort, he’s right.

But the White House is going to take credit for economic recovery anyway, and that’s the newest political challenge for the GOP.

On Tonight's Kudlow Report

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


*Ken Fisher, Fisher Investments CEO
*Art Hogan, Jeffries Director of Global Strategies
*Art Laffer, chairman of Laffer Investments
*Steve Grasso, CNBC Market Analyst; Stuart Frankel Managing Director

Plus…Diane Swonk, chief economist at Mesirow Financial.


*Ken Fisher, Fisher Investments CEO
*Art Hogan, Jeffries Director of Global Strategies
*Art Laffer, chairman of Laffer Investments
*Steve Grasso, CNBC Market Analyst / Stuart Frankel Managing Director

Plus…Doug Cliggot, Chief Investment Officer at Dover Management.


On board:

*Rich Clarida, Pimco Global Strategist
*Peter Morici, University of Maryland Business Prof; U.S. International Trade Commission Fmr. Chief Economist


*Kevin Kerr, president of
*Tom Buis, Growth Energy CEO; former president of the National Farmers Union

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

Is America Sliding into Socialism?

Sen. Jim DeMint (R., S.C.) seems to think so. We discussed this topic and much more on last night's Kudlow Report.

Monday, July 27, 2009

On Tonight's Kudlow Report

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



*Steve Moore, WSJ senior economics writer
*John Carney, Managing Editor of Clusterstock.
*CNBC's Rick Santelli

TODAY'S HOUSING REPORT...CNBC'S Diana Olick will join us.

STOCK MARKET REPORT...CNBC's Rebecca Jarvis will join us.



*James Glassman, president of World Growth and former under secretary of state for public diplomacy and public affairs
*Mike Ozanian, Forbes National Editor
*CNBC's Rick Santelli

Also...Special guest Sen. Jim DeMint will join us to discuss the rising socialist tide in Washington.


*Jimmy Pethokoukis, Reuters Money & Politics columnist
*Mark Walsh, Fmr. Sr. Vice President at America Online; Fmr. Vertical Net CEO; Founding CEO at Air America; Fmr. DNC Advisor

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

Friday, July 24, 2009

On Tonight's Kudlow Report

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

-Are we witnessing a historic turn in the markets?
-How high is the market going to go?


*Joe Battipaglia, Stifel Nicolaus market strategist
*Steve Moore, Wall Street Journal senior economics writer
*Dr. Bob Froehlich, chief investment strategist, DWS Investments; "A Bull For All Seasons" Author
*Peter Morici , Univ of Maryland Business Prof; U.S. International Trade Commission Fmr. Chief Economist


*Carter Braxton Worth - Oppenheimer
*John Wilson - Morgan Keegan

-Bernanke, Bair and Geithner all disagree...
-Could this affect the rally and investments?

*Jerry Bowyer, CNBC Contributor & syndicated columnist will join the panel with his perspective.


*Michael Cuggino, president & portfolio manager at the Permanent Portfolio Family of Funds will join us.

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

Thursday, July 23, 2009

Stocks Surge as Obamacare Implodes

Hate to say it but Obama’s disastrous press conference last night is a big contributor to today’s roaring stock market. The Dow opened strong and is now up over 200 points, continuing a very bullish rally that is breaking new high ground for shares this year.

Politics is not everything, but I believe that the shrinking probability of a new government insurance plan that would lead to nationalized health care — along with the demise of cap-and-trade that would nationalize energy — is very bullish for stocks.

Hat tip to Bill Kristol for the phrase “docs and cops,” that latter of which were attacked by Obama last night. It looked real bad. In fact his whole garbled, inconsistent, and baffling defense of health care looked real bad. The president’s polls have been falling, especially on his policies. And markets see the possibility that free-market capitalism will live to see another day.

Of course, there are a lot of positives going on inside the economy and markets. Earnings continue to surprise on the upside and a profits bottom following a nasty two-year decline is upon us.

This morning, the weekly jobless-claims figure — a key leading indicator of future employment — did rise 30,000. But that does not erase the near 100,000 downward spike on a four-week moving average. The chart has gone from 660,000 claims to 566,000. It could well mean that businesses cut too many jobs in the first half of the year. Planned layoffs are falling, and the July jobs figure may be better than we think. The unemployment rate might actually level off.

Meanwhile, Ben Bernanke is signaling an accommodative Fed policy for as far as the eye can see. And in the money and bond markets, credit-risk spreads have now fallen back to the pre-Lehman levels of late last summer. Economist Joe LaVorgna thinks stock prices could go back to pre-Lehman levels, too, which would be about 1,250 on the S&P — nearly 30 percent higher than today’s 977 level.

I’m not predicting a return to the all-time S&P high, which was over 1,500. There are still too many government threats to free-market capitalism emanating from Democratic Washington. But the political tide is clearly turning for the better. And so are the economic stats. If the July employment report wipes out some of the negatives of the June report, this market could really roar.

Recovery Canaries in the Economic Coal Mine

Hailing from four separate corners of the U.S. economy, Apple, Caterpillar, Starbucks, and Merck all beat the street. Throw in the banks and now you’re talking five corners. It’s bullish — 90 percent of the American workforce and rising business may be doing some spending and risk-taking after all. I like this story a lot. (Special hat tip to blogger Douglas McIntyre.)

Ben Bernanke may be too pessimistic. Perhaps it’s time for him to begin his liquidity-exit strategy — before year end. That is, if he has the wisdom to follow market-price indicators in order to prevent an inflationary bubble. Like Dr. Copper for example: The metal’s up 70 percent from the bottom. Are you watching, sir?

I’m staying with my “buy banks” call. Look folks, toxic assets are still a problem. But don’t forget that zero interest rates and a steep yield curve mean that banks can, and will, and are, earning their way out of the non-performing assets problem. It’s not all about toxic assets. Think cash flows. Give it time. Banks look like they are still a great investment.

Despite solid, beat-the-street earnings from drug companies like Pfizer, Glaxo-Smith-Kline, Eli Lilly, and Merck, health care actually dropped yesterday after rallying pretty well in recent days. You know why health care dropped? Because President Obama is going to try to snatch victory from the jaws of nationalized health-care defeat.

The current debate over health care is of paramount importance. It is without a doubt the most pivotal issue facing this country’s free-market system right now. Obamacare would be a total disaster. This battle must be won in order to stave off the rising socialist tide in Washington.

Caveat emptor investors.

Wednesday, July 22, 2009

Is Bernanke Wise Enough to Exit?

Fed head Ben Bernanke went before Congress this week with his midyear update on monetary policy and the economy. In so many words, the former Princeton economics professor is taking credit for averting the collapse of our financial system; is cautiously optimistic about economic recovery by year-end and 2 to 3 percent growth in 2010; and says he has the tools and wisdom for a carefully crafted liquidity-exit strategy that will prevent future inflation and more asset bubbles.

Do we believe him? Is he credible? Or is this a triumph of hope over experience?

Before, during, and after Bernanke’s testimony a flood of corporate-earnings reports beat Wall Street expectations, sending stocks into an unexpected summer rally that has virtually beaten the bears into submission. A third-straight rise in the Index of Leading Economic Indicators points emphatically to recovery and an end to the recession. Strong profits at companies like Apple, Caterpillar, Merck, and Starbucks suggest that “someone, somewhere, somehow is spending money,” in the words of Wall Street blogger Douglas McIntyre. Or maybe the Fed’s liquidity mustard seeds are finally germinating.

Yes, nearly 10 percent of the workforce is unemployed. But the other 90 percent who are still working -- along with the companies that employ them -- are out there taking risks and going about their daily chores. Think of them as recovery canaries in the coal mines of the economy.

So I say amen to Mr. McIntyre, which means Mr. Bernanke should be getting ready to implement his exit strategy.

In ballpark terms, the Fed pumped $1 trillion of new cash into the economy to stop the financial crisis last fall. So far in 2009, the Fed’s balance sheet has flat-lined; no new money has been created. That, by itself, could spell the beginning of an exit strategy.

In a much-ballyhooed editorial in the Wall Street Journal this week, Bernanke said that while a near-zero interest rate will be maintained for an extended period, the Fed is on guard to stop potential inflationary pressures. And he correctly noted that most of the Fed’s newly created cash has been deposited by the banks as reserve balances at the Fed itself.

These “excess reserves” are way more than the banks need to keep at the Federal Reserve. And when banks re-employ these reserves with renewed lending, Bernanke says he’ll have a signal to gradually take restraining actions. The Fed can drain the excess cash by selling Treasury securities, or it can pay higher interest on the reserve balances themselves.

I find it very interesting that these so-called excess reserves are already coming down. Last May they were running close to $850 billion, which is an astronomical number. But in the last few weeks they’ve dropped to $700 billion. This may suggest that the economy’s animal spirits are awakening from their slumber.

My hope is that Bernanke & Co. actually uses the excess reserves as a policy variable, rather than as something to be manipulated by the interest charged for those reserves. But the bigger question for future Fed policy may be whether the government bank employs forward-looking market-price indicators to gauge future inflation and its own operations. These consist of the dollar, commodities (including gold and energy), and Treasury bond rates.

Mr. Bernanke has a poor track record here. As Alan Greenspan’s copilot in the early 2000s, Bernanke deliberately dissed the dollar and commodities in Fed meetings as potential inflation influences. So from 2002 to 2005, an over-easy Fed bubbled up housing, energy, and commodities, allowed the dollar to sink, and wound up moving the consumer price inflation rate from 1 percent to 6 percent, all of which helped sink the economy into the Great Recession.

As chronicled in the Wall Street Journal editorial pages, these Bernanke-sponsored monetary errors weren’t the result of stupidity, but of using the wrong targets -- such as the unemployment rate, resource-capacity underutilization, or the difference between actual and potential GDP. These statistical measures are highly suspect, whereas market prices are the real McCoy.

So right now, if the Fed targets the unemployment rate and the recessionary underutilization of economic resources -- as Bernanke suggested it might in his congressional hearing -- it is quite possible the central bank will repeat the very same mistakes it made in the early part of this decade.

Complicating matters, President Obama’s massive spending-and-borrowing policies -- and the tax hikes to pay for them -- will significantly reduce the economy’s ability to grow. This means that each dollar of Fed-created money becomes potentially more inflationary, just as it means unemployment will stay higher than usual.

I have no doubt that Mr. Bernanke and the Fed have the right tools to protect the consumer dollar. The question is: Do they have the wisdom?

On Tonight's Kudlow Report

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

CNBC’s Rebecca Jarvis reports.

-Only the strong survive.
-Goldman pays back its warrants.
-GE gets rid of guarantee.

Our panel will offer its perspective.

Sen. Jim Bunning (R-KY) will join us.

Raymond James's CEO will offer his take on his company’s earnings report and the outlook for the stock market and economy.


Squaring off:

*John Stossel, ABC's 20/20 Anchor
*Robert Reich, autho; professor; former Clinton Labor Secretary; CNBC Contributor

Also…Messrs. Reich & Moore will discuss Rahm Emanuel’s comment asserting that Team Obama “rescued” the economy.

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

Does Ben Bernanke Have the Goods?

Joining me on last night's Kudlow Report with his take on Chairman Bernanke's handling of the Federal Reserve was former Republican presidential candidate, Rep. Ron Paul (R-TX).

Tuesday, July 21, 2009

Tonight on The Kudlow Report

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

CNBC’s Rebecca Jarvis will take a look at today’s top market news.


CNBC’s Jim Goldman reports.

CNBC’s Hampton Pearson reports from Washington.

Rep. Ron Paul (R-TX) will join us from Washington.

Where to Put Your Money

*Jerry Bowyer, CNBC Contributor; Syndicated Columnist
*Ned Riley, Investment Strategist, Riley Asset Management
*Dan Fitzpatrick, President & CEO; Senior Contributor,

CNBC’s Jane Wells joins us from Los Angeles.

Also…Steve Moore, senior economics writer at The Wall Street Journal and author of "End of Prosperity" will offer his perspective.

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

President Obama's Dishonest Demagoguery on So-Called Tax Havens

My friend Dan Mitchell over at Cato just emailed me the following video.

Kudlow 101: What Kind of Recovery?

The recession looks like it's ending, but what kind of economic recovery is on the way? Here's my take on last night's Kudlow Report.

Monday, July 20, 2009

Tonight on The Kudlow Report

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

CNBC’s Mary Thompson and Jim Goldman will report all the latest news including Texas Instruments. Also…a look ahead to Apple & Cisco.


On to discuss:

*James Altucher, Managing Partner Formula Capital
*CNBC’s Jim Goldman

Lakshman Achuthan, managing director at the Economic Cycle Research Institute, will offer his perspective.

-Earnings rally
-Bernanke & the Fed
-CIT, Markets are working


*Jason Trennert, Strategas Research Partners Chief Investment Strategist
*Mike Ozanian, Forbes National Editor
*Eamon Javers, Politico

AN INTERVIEW WITH LendingTree's CEO…We’ll take a look at mortgages, the housing market and much more with Doug Lebda, CEO & founder of LendingTree.

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

Stocks Roar on Positive Leading Indicators

The discouraging June jobs report published two weeks ago has been overtaken by some really positive leading indicators for the economy.

Initial jobless claims have plunged in recent weeks. Housing starts are up, although modestly, for four straight months. And today, the Index of Leading Indicators (LEI) from the Conference Board provided the most bullish sign yet that the recession is ending.

For the first time in four years the LEI is up three straight months, with a better-than-expected 0.7 percent gain in June following upwardly revised gains of 1.3 percent in May and 1 percent in April. Higher stock prices, falling first-time jobless claims, rising housing starts, and a steep upward sloping Treasury yield curve led June’s advance.

Stocks roared on the news, with the Dow up almost 100 today and the S&P 500 reaching a new yearly high. Goldman Sachs strategists are now expecting a barnburner second-half stock market rally of 15 percent to 1,060 by year-end. Right now the level is almost 950.

Profits continue to come in stronger than expected, mostly from rabid cost-cutting which has caused a steep drop in jobs and hours worked. But if the leading indicators are correct, and the economy expands by even 2 percent at an annual rate in the second half of 2009, then top-line corporate revenues will start rising again, taking some of the pressure off job cuts and rising unemployment.

As I’ve said before, stocks are the best barometer of future business and the economy. This current rally is signaling that business conditions are getting better, not worse. There are too many negatives out there for the kind of 5 or 6 percent growth that should happen after a deep recession. But I’ll go out on a limb with two positives: Nationalized ObamaCare and cap-and-trade are dead in the water. That includes their massive tax hikes and central-planning controls of the economy.

Oh, and did I mention that in early Rasmussen polls for the hypothetical 2012 race, Obama is now running even with Mitt Romney and Sarah Palin? There’s gotta be something good embodied in those numbers.

Friday, July 17, 2009

Is Obama-Care a Sick Joke?

We took a close look at President Obama's healthcare reform proposal on last night's Kudlow Report. Joining me was my pal Michael Tanner, Cato Institute director of health & welfare studies. He calls Obama's healthcare reform "malpractice." I happen to agree.

Tonight on The Kudlow Report

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

Today's markets, earnings & a look ahead

CNBC’s Brian Shactman reports.



*Charlie Gasparino, CNBC 0n-air editor
*Josh Siegel, Stone Castle Partners Managing Principal
*Bob Reich, former Clinton Labor Secretary and “Supercapitalism” author



*Karl Denninger, The Market Ticker Blog
*Bill Smead, Smead Capital Mgmt. CEO
*Jerry Bowyer, Syndicated Columnist; CNBC Contributor


On board:

*Peter Morici , Univ of Maryland Business Prof; U.S. Internat'l Trade Commission Fmr. Chief Economist
*Peter Schiff, President, Euro Pacific Capital President

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

Thursday, July 16, 2009

Bravo for Paulson and Jobless Claims

Initial jobless claims fell a huge 47,000 in the week ending July 11 to 522,000. In the prior week they dropped 48,000, according to the U.S. Labor Department. So that’s a giant 95,000 drop in just two weeks, bringing the four-week moving average down to 585,000.

If you buy into these numbers, the long march toward big job losses and soaring unemployment may soon be coming to an end. Veteran Wall Street economist Robert Sinche believes unemployment will peak below 10 percent. He bases this on the sinking jobless claims that are a key leading indicator of the jobs market.

Some, however, think the recent claims data are massively distorted by the shift in timing of summer shutdowns in the auto industry. The collapse of GM and Chrysler pulled this summer’s layoffs -- and then some -- into the spring. This is the view of John Ryding and Conrad DeQuadros.

We won’t know how reliable these initial jobless claims data are until we get into August. I myself am still concerned about the dismal June jobs report and the implication for sinking incomes. So I remain cautious. But perhaps the clouds are parting more than I think. Even permabear Nouriel Roubini is saying the recession will end by year-end.

And stocks are certainly signaling a change for the better: The Dow is up another 100 points as this week’s gigantic rally continues to roll, led by banks and tech.

CIT is not too big to fail -- it’s going into bankruptcy and the market is applauding. And Henry Paulson’s testimony on the Bank of America/Merrill deal has been well received on Wall Street. Both Republicans and Democrats on the investigating committee look like fools. Paulson basically told them, “You bet I put a gun to Ken Lewis’s head to complete the merger. We were in a crisis, and could have tipped over into the abyss.”

Essentially, Big Hank just stuck it to the politicians. He put the wood to Lewis and was right to do so. These flatfooted, tinhorn politicos in Washington look like fools. There’s no smoking gun. They’re looking for a needle in a haystack, and if they ever found it, it would be rusted and useless.

Paulson deserves a congressional medal of economic and financial honor, not this ridiculous witch-hunting-and-fishing expedition.

Take a look at the improving health of the financial system today and compare it to the dark days of last autumn. Not everything was perfect. It never is during wartime. But efforts by the Fed, the FDIC, and the Paulson Treasury helped save the system. Paulson’s a hero, not a goat.

Oh, and did I forget to mention that former Pres. George W. Bush, the man who appointed Paulson, signed off on the Treasury rescue operations and publicly took the heat for them? Of course, no one ever gives him any credit.

I’ll have more to say about this Paulson stuff in a forthcoming column. But suffice it to say stocks are very bullish today, and stocks are the best leading barometer of business and the economy.

Tonight on The Kudlow Report

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

Google & IBM After The Bell

CNBC’s Brian Shactman and Jim Goldman have all the latest news.

Fortune magazine ‘s John Fortt will join us.


*Martin Weiss, Weiss Research President; "The Ultimate Depression Survival Guide" Author
*David Stepherson, Sr. Portfolio manager at Hardesty Cap Mgmt.

CNBC’s Mary Thompson reports.


*Bob Doll, Vice Chairman & Global CIO of Equities at BlackRock
*Gary Shilling, A. Gary Shilling & Co. President

CNBC chef Washington correspondent John Harwood reports.

Michael Tanner of the Cato Institute will join us with his perspective.

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

The Stock Surge and the Profits Paradox

Stocks are roaring this week. A 6 percent surge is being fueled by better-than-expected earnings — profits that make capitalism go. Earlier this morning, on the heels of stellar results from Goldman Sachs and Intel, JPMorgan Chase announced record net revenues that easily beat analyst estimates. The bank’s second-quarter profits rose 36 percent from a year earlier.

Profits remain the mother’s milk of stocks, business, and the economy. Even though profits may be a dirty word in Washington these days, this is the golden rule on Wall Street.

Here’s an unconventional capitalist thought: Businesses are slashing jobs, hours worked, production, and inventories — big-time. Unfortunately, this is driving up unemployment and creating skepticism about a real economic recovery. However, at the same time, these cost-cutting measures are contributing to better earnings and profit margins. This, in turn, is driving up stocks.

I call this the profits paradox. Bad economic news can be good profits news, at least for awhile, as businesses take corrective measures. And from this business discipline comes a big surge in productivity, which ultimately drives us into recovery.

This is all part of the self-correcting nature of free-market capitalism.

Second point: I was right one time in a row about this bank-stock rally. Financials have soared this week. So let me repeat: Borrowing at near-zero interest rates and lending much higher is so profitable that even bankers can do it right. The steep, upward-sloping Treasury yield curve, which has gotten even steeper, is the best bailout for banks. They are earning their way out of their toxic problems.

Wednesday, July 15, 2009

Tonight on The Kudlow Report

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

CNBC's Brian Schactman has all the latest.



*Dr. Bob Froehlich, chief investment strategist, DWS Investments
*Quentin Hardy, Forbes National Editor
*Jerry Bowyer, CNBC Contributor; Syndicated Columnist


We are pleased to welcome our friend, Senator Kay Bailey Hutchison (R-TX) back to the show to offer her take on what may lie ahead.

Plus, much more on the economy, stocks, and Washington to Wall Street.

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

Will Obama-Care Kill the Economy?

Here's the transcript of last night's Senate GOP response to the House Democrats’ tax-and-spend healthcare bill proposal on The Kudlow Report. Joining me were Senators John Barrasso (R-WY) and Bob Corker from (R-TN). Incidentally, Sen. Corker senses a "train wreck" coming.

LARRY KUDLOW: Gentlemen, thank you very, very much. Mr. Barrasso, as a doctor, let me start with you, because I’m fascinated in this. You actually may know something about the details of how this works. What’s going on here? Because what I am hearing is a new government entitlement on insurance and a wave of higher taxes to fund it. And President Obama keeps saying this going to help the economy. Huh?

SEN. JOHN BARRASSO: It can’t help the economy. To me this is a program that’s bad for all the people of America. It’s bad for people who are patients; it’s bad for the folks who have to pay for it; and it’s bad for providers, whether it’s nurses, doctors or hospitals. We have a trillion dollar deficit that was just passed today Larry, we’ve gone beyond that number, the highest in the history of the United States. That’s going to get worse. We can’t afford this right now. There is plenty of money in the healthcare system. There’s a lot of care that is not necessarily helping people get better. There are ways we can be more efficient, and do a better job at taking care of people, and save money that way. We do need healthcare reform. We do need to get the costs under control. But to throw another trillion dollars or more at it, which is what I see the Democrat plan doing, I just don’t see this thing as the right solution at all.

KUDLOW: Senator Corker, what do you and your colleagues make of these tax hike proposals coming out of the House?

SENATOR BOB CORKER: Well this is what I think we expected. I mean in essence, if you look at this healthcare plan, you have small business paying for most of it. On the Medicaid side, I haven’t read the details, but up until earlier today, it was states paying for it, for Medicaid programs. And then you have this Medicare program which we all know is insolvent—$38 trillion in unfunded liabilities—taking money from that program, one that’s insolvent, it almost makes Madoff look like a piker. Taking money from that to fund a whole new program, that is going to again, add lots of costs to our healthcare system. So it’s pretty phenomenal to me. I do think, as someone said earlier, that we’ll be a little saner in the Senate. I do not think this is the kind of thing that will come out of the Senate.

KUDLOW: Mr. Barrasso—or Dr. Barrasso, look, you’ve got in this bill a 5-½ percent surtax on the top incomes. Now maybe it’s unpopular to be millionaires. There’s a new study out by the way written by Robert Samuelson of the Washington Post, he reported on it, that actually the highest end, successful earners, formerly, have been the hardest hit in this recession. I don’t know if anybody is looking at that. But they have been the ones that have been killed. You can’t have a successful economy without successful earners. That’s one point. Second point is this House tax from my friend, Ways & Means chairman Charlie Rangel would raise the tax on capital gains. And the history of these things is, when you raise the tax on capital gains, and you raise the top income tax, you actually get lower revenues.

SEN. BARRASSO: Well you do get lower revenue if you do that. And look what happened in Massachusetts. Look at the Massachusetts plan, it ended up costing much more than even the anticipated amount. So I have grave concerns. And especially, I agree with Bob Corker, they talk about doing this against Medicare—to take $500 billion off of Medicare? It’s absolutely ridiculous. Our seniors are going to be paying for those people that don’t have insurance. People on Medicare right now are having a hard time finding physicians. And to say, well, we’ll just $500 billion away from Medicare, away from our seniors, I think is irresponsible.

KUDLOW: Mr. Corker, what’s going to happen here? Can you walk us through this?

SEN. CORKER: You know Larry, it’s interesting. Up until about a week ago, I felt like there might be a bipartisan solution. You know there’s about 80 percent of the thing that we actually have some agreement on. I feel a train wreck coming. And I do because I think the pay-fors, the things that you’re talking about right now, are getting sort of cast in stone. And I know that a number of practical thinking Democrats have great problems on the Senate side with much that’s being discussed. I know I was with Chairman Baucus today, he said that he is going to have a bill out of the Senate by this work session, by the time we have August recess. I just see things spinning apart right now. And I don’t know what’s going to happen. I would have predicted a possibility of a bipartisan solution not long ago, I’m not sure about that now.

KUDLOW: Senator Barrasso, what can you agree on for healthcare reform? Where are the areas of agreement?

SEN. BARRASSO: I agree that we need to have healthcare reform and cut down the costs. And I believe that you get that by allowing people to buy insurance across state lines; by giving people the ability to actually make lifestyle changes that help lower their own costs, not just something, you know in the prevention in the Kennedy bill—they say well we’ll put some sidewalks in, and some streetlights, and jungle gyms. I’m talking about ways to help an individual person and incentivize them. If they lose some weight, if they get their diabetes under control, get their blood pressure under control, that they can personally save money. That’s the incentives.

But I have to tell you Larry, from all of my years practicing medicine, people are very smart about using their own money—in terms of what their deductibles are, their co-pays. But when it comes to spending the insurance company money, or government money with Medicare, people are focused more on their own wallet than they are on somebody else’s money. That’s always been the case. And Medicare has really been the biggest deadbeat in terms of paying and has never done anything to coordinate care or to work prevention. And I think we need to really redefine the way Medicare works in this country. We ought to start with that, get that under control, and then incrementally build from that.

KUDLOW: You know Senator Corker, I’ll give you the last word on this. I appreciate your time, from both of you. President Obama is saying that healthcare costs are the cause of this recession, or one of them. I don’t know a single economist who makes that point. And therefore, if we’re aiming for growth, and we’re aiming for jobs, I don’t know a single economist who believes healthcare reform is a job creator.

So in other words, I don’t understand the logic. What is the immediate issue here? I thought it was to create jobs and generate economic recovery. But a massive spending bill, and a massive tax hike to go with it, it just doesn’t make sense to me. I have to believe that it doesn’t make sense to the American people either, no matter how much we need improvements in healthcare.

SEN. CORKER: Well I hear the music, so my last word is I agree with you and I look forward to seeing you soon.

KUDLOW: (Laughter) Well I mean the logic is not there. That’s the thing that has baffled me. We could’ve just fixed Medicare. A lot of people would like to do that, because they’re furious at the deficits. I don’t know…

SEN. CORKER: And let me say, Republicans are willing to, want to, look at ways of helping people who can’t afford private insurance to do that. That’s the 80 percent area we need to work on.

SEN. BARRASSO: And if you’re going to change one-sixth of the entire economy of this country, you need to basically slow it down and get it right. We should be focused on getting it right, instead of getting something passed quickly.

KUDLOW: All right gentlemen, I appreciate it very much. Senator John Barrasso and Senator Bob Corker. Thank again.

Stock Markets Are Up Again

I agree with publisher Mort Zuckerman who recently wrote that subprime jobs numbers in the U.S. foreshadow continued economic weakness. But the stock market seems to disagree with both of us. Stocks are roaring ahead again today — up over 150 points — after holding the high ground yesterday and following Monday’s huge rally. Even a sub-par retail sales report didn’t stop retail stocks from posting a 1.6 percent gain.

Blowout profit numbers from financier Goldman Sachs and chipmaker Intel — covering two key sectors — suggest that better times are coming.

I’m hearing a lot of ankle-biting about Goldman’s performance. But I’m not with the naysayers on this one. I say bravo to Goldman. Look, the firm made $3.5 billion in profits on $14 billion in revenues. Those are unbelievable numbers. And you know what else? Goldman paid down $10 billion of its TARP money. Plus, it paid taxpayers $426 million in dividends.

Of course, I’d like to see Goldman get out from underneath its $30 billion in government taxpayer-guaranteed debt. I’d also like to see some more transparency in its toxic asset reporting. But I continue to argue that the big banks are the best stock market investment right now. That remains my mantra. Near-zero borrowing rates and a steep Treasury yield curve will allow the banks to earn their way out of their problems.

And if the Intel profits blowout carries through to the other big tech companies, that tells me there’s something good going on in the economy.

As far as Washington is concerned, hopefully the Senate will bury cap-and-trade and health-care legislation — two extremely toxic, anti-growth bills that would clobber businesses and the U.S. economy.

The cap-and-trade-and-tax energy takeover will jack up costs for everybody and let the central planners run wild in the economy. And big-government healthcare nationalization will be funded with personal tax rates above 50 percent and yet another hike of the dividend and capital-gains tax rates.

You know what folks? If you want to create new jobs, you need to help businesses. But President Obama and congressional Democrats seem to think that “business” is a dirty world. It makes no sense. This is not good and it must be changed.

Tuesday, July 14, 2009

Tonight on The Kudlow Report

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

CNBC’s Brian Shactman has the latest.

CNBC’s Jim Goldman speaks with Intel CFO Stacey Smith.



*Mike Ryan, head of UBS Wealth Management Research
*Joe Battipaglia, Stifel Nicolaus market strategist
*Mike Maiello, Forbes editor of Markets and Intelligent Investing

CNBC chief Washington correspondent John Harwood reports from Washington.

*Sen. John Barrasso (R-WY)
*Sen. Bob Corker (R- TN)

Inflation, Consumer Spending & More

*Mark Vitner, Wells Fargo Securities Sr. Economist
*Art Laffer, chairman of Laffer Associates and co-author of "The End of Prosperity

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

Stocks for the Long Run? Jeremy Siegel and Barry Ritholtz Debate

Debating whether stocks are the best bet, or a sucker's bet, on last night's Kudlow Report were Barry Ritholtz, Fusion IQ CEO and author of "Bailout Nation" and Jeremy Siegel, Wharton finance professor, author of "Stocks for the Long Run".

Banks Winning at Expense of Taxpayers

Banks surged and stocks followed yesterday, mostly on the heels of high expectations for trading firm Goldman Sachs, which really is more of a hedge fund than a real bank.

Last Thursday, I said banks are my favorite stock market sector. So I got it right one time in a row. With a steep upward Treasury curve, even a banker can make money borrowing at near-zero and lending at much higher rates.

Deposits are flowing into the big banks. Mark-to-market reform permits cash-flow valuation to replace fictional distressed-market sales which have unnecessarily crashed bank capital and profits. Toxic assets can be funded by low rates for as far as the eye can see. And let’s not forget that President Obama — the biggest government-bond salesman in our nation’s history — needs Goldman and other banks to re-offer the massive, record-breaking, and unprecedented Treasury debt sales to the public.

In other words, our terrible spending-and-borrowing story is at least good for somebody — even if it does mean banks are winning at the expense of taxpayers.

Incidentally, the federal budget deficit update for June was horrible. Year to date the deficit broke past $1 trillion. Now, June is always a surplus month. But this year it’s a deficit month.

We are cruising toward a $2 trillion budget deficit for fiscal year 2009. Federal spending is up 23 percent against the year-ago level. Recessionary revenues are plunging; they are down 16 percent. Personal tax receipts are off 22 percent and, get this, corporate taxes are off an astounding 57 percent.

But no one in Washington gives one hoot about business. What a pity. Businesses are the ground-zero job creators in the economy.

So all is not well in this story. But as far as yesterday goes, stocks were very bullish.

Monday, July 13, 2009

Tonight on The Kudlow Report

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

-Goldman Sachs moves the market
-Is White House economic advisor Christina Romer backing off Obama's positive forecast?


*Charlie Gasparino, CNBC on-air editor
*Robert Crandall, former AMR Chairman & CEO
*Rich Karlgaard, Forbes Publisher; “Life 2.0" author
*David Joy, Chief market strategist at RiverSource Investments

Does the market really care?
CNBC’s Michelle Caruso-Cabrera reports.

An attack on "stocks for the long run" theory

*Barry Ritholtz , Fusion IQ CEO & Director of Equity Research; "Bailout Nation" Author
*Jeremy Siegel, Professor of Finance; Wharton School at Univ. of Pennsylvania


On to debate:

*Bob Reich, former Clinton labor secretary; "Supercapitalism" author; Univ. of CA., Berkeley, Prof. of Public Policy
*Steve Moore, senior economics writer for the Wall Street Journal; co-author of "The End of Prosperity"

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

Friday, July 10, 2009

The Road to Economic Demoralization

Washington is going the wrong way.

There’s no question that current government policies for taxes, spending, and regulation are causing the U.S. to lose competitiveness in the global race for capital, prosperity, and growth.

Of course, China has been moving in the direction of free-market capitalism for years. To some extent, this shows the positive benefits of America’s free-trade policies and its open-mindedness in helping nurture not only China growth, but also middle-class prosperity worldwide.

But what’s particularly galling about Obamanomics is that we may well be losing our competitive edge with Europe. While Europe is ever so slightly moving toward Reagan and Thatcher, the U.S. is shifting toward an overtaxed and overregulated model that smacks of Fran├žois Mitterrand. That’s something no one should want to tolerate.

Heavy government controls at home, along with an income-leveling social policy couched in economic-recovery terms, is no way to run a railroad. At the simple stroke of a computer key, world investment flows to its most hospitable destination. That includes a reliable currency. But in President Bush’s last year and President Obama’s first, the U.S. has become a less-hospitable destination for global capital. That should worry everybody.

But let’s first look to the China story.

We know that China is already our principal banker, to the tune of nearly $1 trillion. As President Obama’s record spending and borrowing continues — he’ll be the greatest bond salesman in American history — our financial reliance on China grows daily. But that’s not all.

Fortune magazine recently reported that the number of U.S. companies in the world’s top 500 fell to the lowest level ever, while more Chinese firms than ever made the list. Thirty-seven Chinese companies now rank in the top 500, including nine new entries. Meanwhile, the number of U.S. firms has fallen to 140, the lowest total since Fortune began the list in 1995. This is not good.

China also surpassed the U.S. as the world’s biggest automaker in the first half of 2009, with June sales soaring 36.5 percent from a year earlier. The Chinese registered 6.1 million car sales for the first half of the year. That way outpaced American sales, which were only 4.8 million.

And China has no capital-gains tax. It only has a 15-to-20 percent corporate tax. The U.S., on the other hand, is raising its cap-gains tax rate to 20 percent. It’s also increasing its top personal tax rates.

In fact, the scheduled income-tax hike along with a much-discussed 4 percent health-care surtax will balloon the top U.S. tax rate all the way to 51 percent. And there’s more. In order to finance so-called health-care reform, congressional Democrats are now talking about raising the tax rate on capital gains and dividends by another 1.5 percent while installing a value-added tax (VAT) that would begin at 1.5 percent.

So top tax rates in the U.S. may edge into the mid-50 percent range. Compare that to the OECD average of only 42 percent. And when those tax-hikes kick in, the top U.S. tax rate will rank above that of France, Germany, and Italy. That can’t be good.

Incidentally, our 40 percent corporate tax rate is already almost 15 percentage points higher than the corporate rates in most of Europe.

Washington’s enormous expansion of the state-, local-, and federal-government spending share of GDP to over 40 percent — including Bailout Nation, TARP, and takeovers in numerous industries — is eerily reminiscent of Old Europe’s old policies. And in an ironic twist, Europe seems to be moving toward a lower-tax-and-spend-and-regulate, Ronald Reagan–type approach, while the U.S. is regressing to the failed socialist model of Old Europe. This makes no sense.

Higher tax rates undermine the incentive model of growth. At the margin, investment risk and work effort become less rewarding. On top of this, Obama’s regulatory moves toward greater government control of the economy will further drown animal spirits in a sea of red tape born of bureaucratic officialdom.

Think about this in terms of the threat to nationalize heath care, which is over 15 percent of the economy. Additionally, Washington’s cap-and-trade proposals will essentially nationalize the entire energy sector — another 15 percent of the economy — sending long tentacles into every nook of the economy that’s impacted by energy, which is virtually everything.

And all this comes on top of the U.S. government’s takeover of auto companies, banks, AIG, Fannie, and Freddie. Instead of Schumpeterian gales of creative destruction, we’re on the road to economic demoralization.

Here’s the clincher: Year-to-date, Dow Jones stocks are off 8 percent, while China stocks are up 71 percent. The world index is up 4 percent. Emerging markets are up 25 percent. They’re all beating us. None of this is good.

We’re going the wrong way. That’s why stock markets are not voting for the United States anymore.

Tonight on The Kudlow Report

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

The Fed and stock market are deflating.

Deutsche Bank Chief U.S. Economist Joe LaVorgna will offer his take.


CNBC’s Phil LeBeau reports from GM headquarters.



*Robert Pavlik, Banyan Partners Chief Market Strategist
*Jerry Bowyer, CNBC Contributor; Syndicated Columnist
*Joe LaVorgna, Deutsche Bank Chief U.S. Economist

CNBC’s Hampton Pearson reports from Washington.


*Rep. Michele Bachmann (R-MN), Financial Services Committee
*Bob McTeer, former Dallas Federal Reserve Bank President

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

Washington Is Going the Wrong Way

Are current government policies causing the U.S. to lose competitiveness in the global race for capital, prosperity, and growth?

Fortune magazine recently reported that the number of U.S. companies in the world’s top 500 fell to the lowest level ever, while more Chinese firms than ever before made the list. Thirty-seven Chinese companies now rank in the top 500, including nine new entries. Meanwhile, the number of U.S. firms has fallen to 140, the lowest total since Fortune began the list in 1995. This is not good.

China also surpassed the U.S. as the world’s biggest automaker in the first half of 2009, with June sales soaring 36.5 percent from a year earlier. The Chinese registered 6.1 million car sales for the first half of the year. That way outpaced American sales, which were only 4.8 million.

And China has no capital-gains tax. It only has a 15-to-20 percent corporate tax. The U.S., on the other hand, is raising its cap-gains tax rate to 20 percent. It’s also increasing its top personal tax rates.

In fact, the scheduled income-tax hike, plus the much-discussed health-care surtax, will balloon the top U.S. tax rate all the way to 51 percent. Compare that to the OECD average of only 42 percent. When those tax-hikes kick in, the top U.S. tax rate will rank above that of France, Germany, and Italy. That can’t be good.

Incidentally, our 40 percent corporate tax rate is already almost 15 percentage points higher than the corporate rates in most of Europe.

Washington’s enormous expansion of the government’s spending share of GDP to over 40 percent — including Bailout Nation, TARP, and government takeovers in numerous industries — is eerily reminiscent of Old Europe’s old policies. In a twist of irony, Europe seems to be moving toward a lower-tax-and-spend-and-regulate, Ronald Reagan–type approach, while we in the U.S. are regressing to the failed socialist model of Old Europe. This makes no sense.

Here’s the clincher: Year-to-date, Dow Jones stocks are off 7 percent, while China stocks are up 71 percent. The world index is up 4 percent. Emerging markets are up 25 percent. They’re all beating us. None of this is good.

We’re going the wrong way. That’s why stock markets are not voting for the United States anymore.

Thursday, July 09, 2009

$20 Oil in the Cards?

Debating future oil prices on last night's Kudlow Report were Philip Verleger, professor of business at the University of Calgary and David Pursell, managing director at Tudor, Pickering, & Holt Securities.

Tonight on The Kudlow Report

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



*Neil Weinberg, Forbes executive editor
*Zachary Karabell, River Twice Research president
*Michael Cuggino, Permanent Portfolio Family of Funds president & Portfolio Manager


Dana Telsey, founder of the Telsey Advisory Group, will offer her insight.

As China breaths down their neck…

CNBC’s Phil LeBeau reports from GM headquarters in Auburn Hills.


*Jimmy Pethokoukis, Reuters Money & Politics columnist
*Dan Clifton, Strategas Research Partners Director, Head of Policy Research
*David Malpass, President of Encima Global; Deputy Asst Secy of Treasury Under Reagan

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

Let Oil Markets Work

Placing regulatory limits on oil trading is a terrible idea. This is the latest example of the government sticking its nose where it doesn’t belong. We ought to allow oil markets to trade unencumbered, without government meddling, or limits, or controls on both large and small investors. This creates the broadest possible base and the largest possible volume. This approach — unsurprisingly — creates an efficient market.

Oil prices are continuing to fall as economic fears linger among investors. What’s so hard to grasp about this story? Look, if President Obama, Vice President Biden, and the White House advisers managed to misjudge the economy, why can’t we cut some slack for the oil traders who decided oil demand won’t be so strong?

By the way, if we would stabilize the value of the dollar, oil prices would probably be less volatile. And speaking of volatility, have you taken a look at the VIX index for stocks? It has been incredibly volatile of late. And yet I don’t hear tinhorn, flatfooted politicians calling for a limit to stocks. Do you?

England’s Gordon Brown and France’s Nicholas Sarkozy wrote a Wall Street Journal op-ed yesterday saying oil prices need government supervision. Nonsense. Oil prices need market supervision, and Brown and Sarkozy need adult supervision. They need to stop meddling in markets and attempting to control prices.

Here’s the key: If Team Obama would deregulate energy, drill, drill, drill, and make it easier for our Canadian cousins to send us oil from the oil sands in Alberta, oil prices would be a whole lot lower with greater inventory supplies. And our enemies in the Middle East would be a whole lot poorer.

Yes, I believe oil trading and any other market trading should be totally transparent. But various forms of market meddling and price controls would be an unmitigated disaster.

Finally, the markets will move offshore if we mess with them. So let market freedom rule. Drill, drill, drill. Work with Canada. Stabilize the dollar. And accept the fact that markets always work better than government planners do.

Why is this so difficult for Washington to grasp?

Wednesday, July 08, 2009

Washington Needs to Help Businesses for a Change

Are the stock market and economy taking turns for the worse? Do we really need a new stimulus plan from Washington?

Let’s begin by rolling back the clock to last Thursday’s June jobs report. It was not a good report. Stocks have fallen over 4 percent since then. And here’s one reason why: plunging wages.

Private hours worked continue to free-fall. Hourly wages have flattened. It was a nasty report. Job losses are still substantial. It’s a powerful and nasty combination. While I am an optimist by nature, this does worry me. It suggests a later, and weaker, economic recovery.

So here’s a novel thought for all the geniuses down in Washington. Help businesses for a change.

You can begin by stopping the taxing of overseas corporate profits. Do not hike the minimum wage. Back off cap-and-trade. Do not nationalize health care. Stop the anti-trust assault on phone companies, pharmas, Google, airlines, and multi-nationals.

And how about a six-to-twelve-month payroll-tax holiday? That would make it cheaper to hire new workers. What about a corporate tax cut? And immediate cash expensing for business-investment write-offs? In other words, cut the tax cost of hiring, investing, and doing business. Because it’s businesses that create the jobs and the incomes for families all throughout America.

And if you are still worried about the housing story or bank toxic assets, how about a capital-gains tax holiday?

Does anyone in Washington understand the way the world really works? It’s called incentives. That’s what this is all about. And we’re going to need many more of them if businesses, investors, and families are to start prospering once again.

Tuesday, July 07, 2009

Tonight on The Kudlow Report

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


*Steve Forbes, former Presidential Candidate; Forbes Inc. Pres. & CEO; Forbes Magazine Editor-in-Chief
*Jim LaCamp, portfolio manager at RBC Wealth Management
*Jim Paulsen, Wells Capital Management Chief Investment Strategist

Also…Is there manipulation in the oil futures markets?
Sen. Bernie Sanders (I-VT) will join us with his take.

Veteran political strategist Roger Stone joins us.

CNBC’s Jane Wells reports.

CNBC chief Washington correspondent John Harwood reports.

Stimulus/Sarah Palin/PPIP

Sen. Jim DeMint (R-SC) will be aboard.


*Jim Glassman, president of World Growth and former under secretary of state for public diplomacy and public affairs
*Donald Baker, former DOJ head of antitrust

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

Bigger and Better Things for Sarah America

I’m all for Governor Sarah Palin’s move over the weekend. It’s time for her to get out of Alaska’s small town, ankle-biting politics. Now she can take her show on the road. This is a woman brimming with charisma and raw political appeal. That’s why everyone’s afraid of her, and attacking her. In other words, Sarah Palin has the power to reinvigorate conservatism and republicanism.

Here's my debate last night with nationally syndicated columnist Deroy Murdock.

Minimum Wage Debate

With jobs falling and recession lingering, is now the time to cut taxes and stop the minimum wage hike scheduled for July 24th? Debating this question on last night's Kudlow Report were former Clinton White House aide Keith Boykin and the WSJ's Steve Moore.

Monday, July 06, 2009

Tonight on The Kudlow Report

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



*Mario Gabelli, chairman of Gabelli Funds
*Rich Clarida, PIMCO strategic advisor
*Phil Orlando, chief equity market strategist at Federated Global Investment Management


*Steve Cohn, professor of Russian History at New York University
*Frank Gaffney, president of the Center for Security Policy


*Dan Yergin, chairman of Cambridge Energy Research
*John Kilduff, MF Global Sr. VP & Energy Analyst


The Wall Street Journal’s Steve Moore will square off against Keith Boykin, author, editor of The Daily Voice & former assistant to President Clinton.


Syndicated columnist Deroy Murdock will offer his perspective.


Fund manager Mark Travis of Intrepid Capital Funds will join us with his stock market insight.

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

Thursday, July 02, 2009

A Grim Jobs Report

After nine months of explosive monetary and fiscal stimulus, you’d think economic recovery would be upon us. But the June jobs report tells a much different story.

Non-farm payrolls fell by 467,000 as the unemployment rate edged up to 9.5 percent. This isn’t nearly as bad as the 700,000 monthly job losses of last winter, but it’s still a rough number. Equally disappointing is the household survey -- often a key turning-point signal since it captures the health of small businesses -- which has dropped 811,000 in the past two months.

Donald Marron, a former senior economist with the Council of Economic Advisors and the CBO, calls it “a grim jobs report.” Marron, digging deep into the Labor Department Statistics, says the continued decline in hours worked by private-sector employees, now 7 percent over the past year, is especially troublesome. He writes, “The economy is thus losing jobs and, for the jobs that remain, is losing hours worked. That double-whammy is bad news for the economy.”

I would add that along with manufacturing and construction, the service sector continues to shed jobs, with a 244,000 drop in June. Inside that category, the important professional-and-business-services sector lost 118,000 jobs. The wage data is equally disconcerting. Over the past three months, average hourly earnings barely rose at 0.7 percent annually.

There are still some bright spots that strongly suggest the recession has bottomed. The ISM manufacturing report for June held a number of positives. Auto sales, retail sales, and home sales look to be bottoming. And May factory orders climbed as inventories crashed. So businesses, including automakers, may be increasing production in the months ahead.

In fact, even while second-quarter real GDP is expected to fall by 1 to 2 percent annually -- much better than the 6 percent declines of recent quarters -- the third quarter could show a small positive GDP score. Much smaller GDP subtraction from inventories, housing, and business cap-ex bodes statistically well for growth.

But there won’t be a real recovery until jobs start rising. The unemployment rate is a lagging indicator. But jobs are the most important coincident indicator of the economy. Until they turn around, nobody should expect anything resembling real economic growth.

Leading indicators -- especially monetary, financial, and credit-market signals -- are flashing “go” for future growth. The Fed has pumped roughly $1 trillion into the economy since last August. Key money-supply measures are growing at 10 to 15 percent annually. Short-term rates are near zero. The Treasury curve is steeply upward-sloping. Corporate-bond-market spreads have declined significantly. And commodity prices are off their lows. This is all good.

But for all the Fed’s stimulus, which has had a salutary effect on the banking crisis, the lags are long and variable. And as former Dallas Fed head Robert McTeer has written, much of the central bank’s balance-sheet expansion is being hoarded by commercial banks, with banks holding about $800 billion more than what they’re required to hold. Until these excess reserves come way down, the impact of the Fed’s monetary stimulus will be more muted than has traditionally been the case in Milton Freidman’s monetarist model.

And as Washington economist Bruce Bartlett has written, Obama’s $800 billion fiscal-stimulus package has yet to stimulate. Bartlett notes that 60 percent of the stimulus package goes to transfer payments and tax credits with no incentive effects. Meanwhile, the rest of the package, aimed at public works that might produce growth, is spending out at a snail’s pace.

As an old-fashioned supply-side guy who is out of date with contemporary Washington policies, I would add that Obama’s biggest mistake was not cutting marginal tax rates for individuals, businesses, and investors. Instead of the fiscal profligacy that is driving spending and borrowing sky-high, lower tax rates with true incentive-reward effects would have reignited the animal spirits that are sagging so badly.

But Obama’s temporary tax credits and social spending offer no growth effects. At the same time, the government’s fiscal nymphomania has scared everyone into thinking the U.S. is going bankrupt. The president himself has said there’s no money left. It’s scary enough to keep your savings under the mattress.

And if you add all the talk of nationalizing health care and energy (cap-and-trade) to the rest of Bailout Nation, it’s not hard to understand why people are shying from risk.

Stocks are the single-best barometer of our nation’s future economic health, and the stock market began to rise in early March. But over the past month, with all these new big-government tax-and-regulatory threats, the stock rally has stalled. And the June jobs report caused an immediate 2 percent sell-off for equities.

I do the best I can to be optimistic about our nation’s future. But realistically, the current picture is not particularly good.