Wednesday, June 30, 2010

On Tonight's Kudlow Report

Tonight at 7pm ET on CNBC:


- John Hussman, Portfolio Manager Hussman Strategic Growth Fund (HSGFX)
- Michael Darda, MKM Partners Chief Economist


- James Altucher, Formula Capital Managing Director
- Danielle Hughes, CEO of Divine Capital

CNBC’s Diana Olick reports from Washington.

Should we be unleashing the power of business to create jobs?
Did the government spending stimulus work?

- David Stockman, Fmr. Reagan Budget Director
- Ezra Klein, Writing Fellow The Washington Post

- Sharron Angle, (R) Nevada Senate Candidate

How do we use the disaster to unleash private biz and jobs?

CNBC’s Melissa Francis reports.

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

Tuesday, June 29, 2010

Double-Dip Trade Is Probably Overdone

Stocks took a real drubbing today, with the Dow off 268 points and the major indexes basically falling 3 percent. Call it the double-dip trade.

But are we really heading for a double-dip recession? I think not. And I say this as someone who has been advising investors to take profits this year before the IRS takes them next year, as taxes on capital gains, dividends, estates, and top incomes are all scheduled to rise in 2011 — unless, of course, a tea-party Republican Congress overturns all this following the midterm elections.

Investors are worried about China and Europe in addition to a U.S. double-dip. Consumer confidence plunged this morning, but that largely may be a function of the BP oil spill, as the Gulf states reported the biggest confidence drops. And then there’s Team Obama, which shows no sign of spending restraint. Nor do they see any need to call off the tax hikes. In fact, bank taxes are going up.

Whatever the reason for today’s market drubbing, economists like John Ryding and Michael Darda do not see a double-dip. The manufacturing sector is still displaying a V-shaped recovery, while profits continue to rise across-the-board. And private-sector incomes have begun to rebound, despite the jobless recovery. This is because hours worked are being extended while hourly wages increase modestly.

Of course, the Fed remains ultra easy with a steep upward curve. And corporate balance sheets are pristine, with net corporate cash flow standing at about $1.7 trillion.

If you bet on the profits story, the price/earnings multiple on the S&P 500 stands just over 11-times earnings, which translates to an 8.8 percent earnings yield, much higher than the 6 percent corporate bond rate and the incredibly shrinking 3 percent 10-year Treasury rate.

So as a final thought, if you bet on profits and the tea-party movement, the big stock market correction is probably overdone. However, let me reiterate, unless tax policy changes, investors should sell into relief rallies in order to take profits before the Tax Man does.

On Tonight's Kudlow Report



CNBC’s Bob Pisani reports from the NYSE.


CNBC’s Rick Santelli reports.


- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services
- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor
- Art Hogan, Managing Director Director, Global Equity Product
- CNBC’s Rick Santelli

Uncertainty: global debt fears; tax hikes, spending, austerity vs. stimulus - Is the Stimulus Model working or failing? Are we pouring money down a rat hole?

- John Mauldin, Millennium Wave Investments President
- David Joy, RiverSource Investments Chief Market Strategist
- Patricia Chadwick, President of Ravengate Partners

CNBC’S Diana Olick reports.

CNBC’s Eamon Javers reports.


- Jim Paulsen, Wells Capital Management Chief Investment Strategist
- Dan Fitzpatrick,; Pres. & CEO; Sr. Contributor

The Rahn Curve and the Growth-Maximizing Level of Government

Here's the latest and greatest from my old friend Dan Mitchell over at the Cato Institute. Dan offers a layman's explanation of the scholarly evidence showing how excessive government spending is hindering economic performance.

Saturday, June 26, 2010

Get off the Deficit-Spending Treadmill

As the G-20 meets in Toronto, I want to make a point: Stop the crazy spending and borrowing and stocks will start rising again while economies pick up recovery speed.

In the U.S. and around the world, stocks have fallen about 11 percent this spring. It’s a signal of lost confidence. Out-of-control deficit spending has swept the world toward a leftist vision of big government. We need a return to free-enterprise incentives in order to speed up recovery.

My simple point: Get off this left-wing Keynesian treadmill of deficit spending. Get off it. In fact, cut spending and borrowing, hold down tax rates, and try restoring confidence in private enterprise for a change.

Team Obama will give the G-20 that old-time liberal religion of more and more spending. It’s wrong. Meanwhile, the new Tory government of David Cameron in Britain is cutting $170 billion out of the deficit. In Germany, Chancellor Merkel is cutting $100 billion. They’re not taking our advice. Good. Japan is slashing its corporate tax rate to 25 percent. Why don’t we do this?

Create investment and jobs rather than deficits and welfare. Instead of mangled multipliers, let’s have some new economic-growth incentives to spark real world economic recovery.

Friday, June 25, 2010

Santelli & Dobbs Talk Tea Party Power

So what exactly is the real message of the tea parties? And how large an impact will they have on the upcoming elections? These are just a couple of the questions I posed to my old friends Rick Santelli and Lou Dobbs on last night's Kudlow Report. Rick's rant on CNBC a little over a year ago of course helped launch the whole tea party movement. We also welcomed David Webb to the show for the first time. David's a big tea party player and is the co-founder of TeaParty365. I guess you could call it a tea party trifecta.

Click below to watch last night's fireworks.

Click here to watch the final portion of last night's interview.

FedEx Founder Fred Smith Explains How to Keep America #1

FedEx's terribly smart and successful front-man, Fred Smith, joined me to discuss his take on how to keep America number one and whether Washington is standing in the way of true economic recovery.

Thursday, June 24, 2010

On Tonight's Kudlow Report

Tonight at 7pm ET:


CNBC’s Eamon Javers reports from Washington.


- Marcos Rodriquez , Palladium Equity Partners Managing Member
- John Carney, CNBC Business News


- Fred Smith, FedEx Founder & CEO


CNBC’S Dennis Kneale reports.


- CNBC’s Rick Santelli
- Lou Dobbs, Business & Political Commentator
- David Webb, Host of The Grinder on AM 970; Co-founder TeaParty365

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

Wednesday, June 23, 2010

Soft Patch or Double-Dip?

The latest batch of lousy economic data took a sharp turn for the worse this morning with an awful report on new home sales for the month of May. New home sales plunged a record 33 percent to a record four-decade low. In addition, the April sales number was revised lower while inventories jumped from 5.8 months in April to 8.5. This ain’t good.

Making matters worse, existing home sales surprised on the downside yesterday with a 2 percent decline. Before that, we had big drops in housing starts and retail sales, and an upward tilt to weekly jobless claims. So it’s really no surprise that there’s a growing debate over whether we’re muddling through a soft patch, or whether a double-dip recession lies ahead.

Housing does look particularly vulnerable to a double-dip. All of these temporary, goofy, big-government tax credits, mortgage modifications, and other forms of temporary stimulus merely steal economic activity from the future. They are shortsighted thieves. As the late Milton Friedman successfully argued in his permanent-income theory decades ago, these measures simply do not work. Friedman’s work, of course, won him a Nobel Prize in economics.

The only bright spot out there? A V-shaped recovery in manufacturing.

It’s been about six weeks since I first recommended that investors take some stock market profits off the table, before the IRS does it for them next year. Since then, the market has roiled around a 10 percent correction. I’m still sticking to my call. The Tax Man is coming. Take profits on up days.

The Fed will announce its interest-rate policy decision later this afternoon. Here’s one conundrum: I believe market prices are smarter than Fed computer models. The very strong King Dollar is suggesting a deflationary trend in the economy which would call for a Fed easing. And yet, the soaring gold price is suggesting an inflationary trend calling for a Fed rate hike. So what will the Fed do? In the short run, until it levels out, the deflationary rising dollar is a bigger influence on the economy. Longer run, gold is screaming for a normalized Fed policy.

One particularly interesting story I’ll be paying attention to is that of hawkish Kansas City Fed chief Thomas Hoenig. Will Hoenig abandon his tightening stance in light of all this lousy economic data? Now that would be a big deal.

As for me, I remain in the slow-growth camp. No double-dip, just slow, muddied growth. I also think an overly strong dollar — neglected by many on Wall Street — is interrupting the rate of recovery.

From New Jersey to Beijing and Back Again

Here are some thoughts on a few recent and important money-politics headlines.

Garden State Millionaire Tax Defeated. Some late-breaking news was delivered in New Jersey Monday afternoon on the tax front. Democrats there failed in their efforts to override Gov. Chris Christie’s veto of the millionaire tax. Make no mistake: This is a big win for GOP maverick Chris Christie, and a big win for limited, tea-party-inspired government. This story has national election implications.

The Democrats needed two-thirds of the assembly, but without Republicans they couldn’t do it. This ill-conceived tax on income over a million bucks would have hit roughly 16,000 households at an anti-growth 10.75 percent rate.

I call it the “Move to Florida” tax. It would have destroyed New Jersey job creation. One study after another demonstrates what a bad idea it is for states to go down this road. It’s a fiscal dead end. After all, capital goes where it’s treated best. Apparently, this lesson was lost on the New Jersey Democrats, who fortunately lost their tax-hike bid.

And get this: the millionaire tax would have represented the 116th tax increase in the last eight years in the Garden State. Unbelievable.

That begs an obvious question: If the first 115 tax increases failed to balance the state budget, why on earth did they think the 116th would? New Jersey is a mess. My hat goes off to Chris Christie.

The BP Mess. Two important headlines on the Gulf oil catastrophe:

First, the Senate may finally be moving to overturn the Jones Act. That act, of course, is preventing foreign flag ships from helping in the Gulf clean-up effort. What in the world has taken them so long?

Second, in what could become a major story, a federal judge in Louisiana might conceivably overturn Obama’s job-killing drilling moratorium as early as Tuesday.

So at least there’s a chance of some better news out there. Lord knows we need it.

Yuan Appreciation. So China announced a more flexible exchange rate for its yuan. I call it an upward managed, crawling peg against the dollar. It’s ultimately a slow delinking, one that will take years, but it could liberate China from Fed head Ben Bernanke.

Near-term, it’s much ado about very little. There will be no big yuan shift. But at least the China move might stave off a Smoot-Hawley protectionist trade war. That’s the last thing we need right now. So it’s likely good news on the trade front.

And while China’s move represents a tax cut for Chinese consumers and workers (better purchasing power) it’s ultimately a tax hike on American consumers, since imported goods will cost more at the cash register.

A message to all those people blaming China for our slow, jobless recovery: Shame on you. Stick to your own knitting.

Washington is the problem, folks. Our government’s massive overspending, over-taxing, and over-regulating has caused corporations and banks to hoard $2.5 trillion in cash and credit. If all that money was unleashed, it could ignite the economy. But the problem is everyone is absolutely scared to death of Washington’s anti-business, anti-profit, anti-investment policies.

The Market: Sell into Rallies. The yuan-based stock market rally completely fizzled on Monday as triple-digit gains were wiped out by the end of trading. The biggest market mover was gold, which dropped about $25, while the greenback held firm.

Let me raise a few key questions: Did the yuan crush gold? Is the strong dollar deflating stocks and the recovery? Is gold overvalued right now?

Stocks are still off about 8 percent from their late-April peak. From my perch, I think it’s going to be difficult to return to that peak, or to surpass it, for some time. Not impossible, but difficult.

I also happen to agree, at least partly, with Nobel Prize‒winning economist Robert Mundell’s recent take on the dollar. He believes that the 20 percent overshoot of King Dollar, relative to the euro, possesses some deflationary consequences that could slow the recovery rate. And the euro decline will speed-up the German and (northern) Euroland recovery rate.

Here’s a little economic reality check: Despite Monday’s gains, copper is still off around 20 percent. Jobless claims are moving up, not down. U.S. retail sales and housing starts have both recently surprised to the downside.

These are not good signs.

While manufacturing production remains the single strongest part of the economy, I’m wondering whether it also might slow with the decline of industrial commodity prices, due to an overly strong dollar. Now, you know me. I’m all for a strong, stable, and reliable dollar. But huge swings in the greenback always produce lagged consequences in our economy. This worries me.

Let me state for the record that I’m not a double-dipper. I’m just in the slowdown camp. And tepid growth could very well slow down the stream of corporate profits.

In other words, a slowing economy, a big 2011 Washington tax-hike wall, an overly strong dollar, ongoing debt concerns in Europe, and bad economic news from the BP catastrophe in the Gulf all leave me feeling realistically cautious on the stock market. For now.

Let me conclude with the following thought. I’ve mentioned this a bunch in recent weeks, and I’m sticking to my guns here: Why not consider taking some profits off the table, before the tax man arrives next year? Taxes on capital gains and dividends are heading higher folks. Why not book some gains before the IRS grabs them?

I’m not suggesting that investors sell everything they own. But investors may want to seriously consider lightening their portfolios a bit. Take some profits on these mini-market rallies.

No, I am not going all doom and gloom. I’m just saying this is a good time to be cautious. That’s all.

Monday, June 21, 2010

On Tonight's Kudlow Report

Tonight at 7pm ET:

What does it mean? Will this stave off the G20 & a Smoot-Schumer trade war?

- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor
- Peter Morici, University of Maryland Robert H. Smith School of Business Prof; U.S. Internat'l Trade Commission Fmr. Chief Economist
- Dave Goldman, Senior Editor First Things Magazine


CNBC chief Washington correspondent John Harwood reports.


- Jason Trennert, Strategas Research Partners; Chief Investment Strategist & Managing Partner
- David Kotok, Cumberland Advisors Chairman & Chief Investment Officer; CNBC Contributor
- David Malpass, President, Encima Global; Deputy Asst Secy of Treasury Under Reagan '86-'89

Slick Politics…BP CEO Tony Hayward out yachting this weekend...Obama golfing...White House deal with BP lobbyists?...What about the Jones Act?

CNBC’s Eamon Javers reports.


Republican Senator Roger Wicker from Mississippi will offer his take.

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

Friday, June 18, 2010

BP, the White House, and Congress Are All Dirty

Amidst all the political jockeying over the BP catastrophe, the main players are missing what is really uppermost on America’s mind: It’s the spill rate, stupid. It’s jobs, stupid. It’s the economy, stupid. And none of it is happening.

All eyes in Washington, Wall Street, and Main Street were turned this week to the congressional show trial featuring beleaguered BP CEO Tony Hayward. Hayward was a disaster. He played dumb. He stonewalled. And he never got honest about the colossal failure of human judgment at BP that caused this catastrophe.

But folks, seriously, what did you expect? Before this thing is said and done, Hayward and others at BP may very well be criminally indicted by the Justice Department. Hayward could eventually do hard time for all I know. So, of course, he stonewalled. Thank Eric Holder.

What Hayward should at least have done is talk about the progress being made in capping the spill rate, which is gradually going down. To most Americans, and especially those in the Gulf, it’s the spill rate of capture that matters most. Hayward also should have talked about the new BP relief well, which could be up and running in less than a month, to end this disaster. That would be great news for America, and her economy and stock market. Plus, he could have mentioned that BP is hiring thousands of workers to fill new jobs in the cleanup effort.

But Hayward was lawyered to the gills, which doesn’t make anyone happy, including me. And that’s precisely why these congressional show trials leave me bored, tired, and depressed.

And oh, by the way, what’s the role of Congress in this catastrophe? What exactly is it doing besides presiding over these show trials? Doesn’t it have oversight authority when it comes to the Minerals Management Service that utterly failed to regulate the safety of BP’s deep-water drilling operations? Why aren’t more people talking about this?

And why in the world hasn’t Congress suspended the Jones Act, thereby allowing foreign-flag tankers into the Gulf area? What is it waiting for? We’re basically two months into this never-ending disaster. The Gulf cleanup could have been greatly aided by at least 15 foreign countries that were instead spurned after offering their tankers and other equipment. Why aren’t we accepting these offers of help?

And where, really, is the president in all this? Speaking to the nation from the Oval Office earlier in the week, he failed to declare a Jones Act waiver, and he made no call for a task force of hands-on oilmen from the likes of ExxonMobil and other big oil sisters who actually know what they are doing.

Another problem with Obama’s address was his arrogant announcement that he would inform BP’s CEO “that he is to set aside” an asset amount ($20 billion) for the government-run escrow fund to pay for the spill damages. Trouble is, there are no laws to permit our government to force such financial retribution. Not even a new TARP, at least not yet. Did someone say nationalization?

The government has no right interfering with the financial decisions of a private, shareholder-owned corporation. This sounds like GM and Chrysler all over again. Or maybe health insurers, pharmaceuticals, private investment funds, and multinational corporations. And it could end up having a serious and chilling effect on corporate investment.

Look, at least BP already agreed to pony up. Why should the government control this? Isn’t this another case of the Obama administration bullying, taxing, and regulating business as part of a social agenda to redistribute income and power from private enterprise to government? It’s a war on profits and capital.

Consider this: American companies are sitting on an astonishing pile of $1.5 trillion in unused cash. Why aren’t they investing to create new jobs? Well, it’s because massive tax and regulatory threats coming out of Washington have created a tall barrier of disincentives and uncertainty that is blocking the normal efficiency of the free-market capitalist system.

The instincts of our free economy are to promote growth. But when government blunts these instincts, the system ceases to work efficiently.

Americans do not want a cap-and-trade system. What they do want is a full-throated and comprehensive energy plan conducted on all fronts -- carbon and non-carbon -- that would unleash energy entrepreneurs and existing businesses to create more power and more jobs and more economic growth. Besides stopping the spill, this is the key point that Obama misses.

So, if BP is dirty, and if BP is incompetent, then so is Congress. And so is the White House, as far as I’m concerned.

The BP story is a total outrage. Once again America is not getting what it needs.

Thursday, June 17, 2010

The Strong-Dollar Slowdown Scenario

Bob Mundell, the Nobel Prize‒winning supply-side father, is talking about the rapidly rising dollar versus the euro as a growing threat to the pace of economic recovery. He basically argues that the euro is a very important currency, and that the dollar’s appreciation signals a significant shift in the terms of trade. (Hat tip to The Supply Side blog.)

So, when the dollar ratcheted up against the euro by 30 percent in the second half of 2008, it imparted a major deflationary impulse that drove the already fragile U.S. economy deeper and deeper into recession. Then, in 2009, the dollar’s decline imparted a stimulative impulse to the U.S. economy, which began to recover. Over the past six or seven months, however, the greenback has rallied nearly 20 percent against the euro and about the same against a basket of currencies that includes the Japanese yen. As a result, Mundell sees a slowdown in the U.S. and a speedup in the Eurozone economy.

I argued a few months ago that the rapid dollar rise, especially in April and May, was a deflationary event. Since mid-April, copper -- which is a key economic indicator -- has fallen 15 percent in dollar terms. Crude oil has fallen about 10 percent. And the 10-year Treasury bond has dropped 55 basis points in yield. This sets up a slowdown in the recovery. And the stock market correction parallels the dollar appreciation, adding fuel to the slowdown fear.

Recent weakness in retail sales, housing starts, the Philly Fed manufacturing index, and the drift upward in weekly jobless claims confirm the slowdown threat. I’m not talking about a double-dip recession. But for whatever reason, the upward rate of economic recovery seems to have been interrupted.

Of course, there’s a big tax wall out there beginning next year. And the many regulatory threats to businesses and job hiring -- from Obamacare, other government interventions, and the BP catastrophe -- will also play a role in the slowdown scenario.

Corporations are sitting on a record volume of cash, $1.5 trillion, perhaps as a defensive measure against tax and regulatory uncertainties. And banks continue to hoard money, with a gigantic excess-reserve position, including money laying fallow on deposit at the Fed.

Now, it’s hard to talk about long-term deflation with gold near $1,250. And it’s hard to reconcile a strong dollar with the continued record-high level of gold in dollar terms. But I think what Mundell is saying is that the shift in the terms of trade to a strong dollar and a weak euro has near-term economic consequences, whereas the rise in gold has long-term inflationary consequences.

In any event, I continue to believe that investors should take profits this year before the IRS confiscates them next year when tax rates go up for capital-gains, dividends, and estates.

Wednesday, June 16, 2010

Weak Speech from an Indecisive Obama

One problem with President Obama’s Oval Office speech was his declaration that 90 percent of the oil spill would be captured in “coming days and weeks.” Ah, if only government were that strong and powerful. Trouble is, the spill rate late yesterday afternoon was again revised upward toward 60,000 barrels per day from the prior estimate of 25,000.

To most Americans, and especially those in the Gulf, it’s the spill rate of capture that matters most. Perhaps there’s a magic wand to cure this problem — maybe a spill-rate de-stimulus package — but so far the magic cure remains elusive.

In addition, the president did not announce a Jones Act waiver to bring foreign-flag tankers into the Gulf area. Nor did he announce a new task force of hands-on experienced oilmen from the likes of ExxonMobil and other big oil sisters who actually know what they are doing.

Another problem was Obama’s arrogant announcement that he will be informing BP’s chairman “that he is to set aside” some undisclosed asset amount ($20 billion) for the government-run escrow fund to pay for the spill damages. Trouble is, there are no laws to permit our government to force such financial retribution. Not even a new TARP, at least not yet. Did someone say nationalization? But stock-option and credit-default-insurance markets are already pricing in a BP bankruptcy.

And while the media waited breathlessly for a clear Obama push for cap-and-trade, there was only a passing mention of the House bill, rather than a full-throated call to arms. So it was an indecisive Obama, a rather meek and defensive Obama, in terms of reducing carbon dependence. Of course, Obama knows that cap-and-trade politics will drive up Republican numbers even more in the fall.

But folks would rather see a full-throated and comprehensive energy plan conducted on all fronts — carbon and non-carbon — that would unleash energy entrepreneurs and existing businesses to create more power and more jobs and more economic growth. Besides stopping the spill, this is the key point.

Obama’s weak speech really missed the point.

Tuesday, June 15, 2010

Will Obama Go Nuclear on BP Tonight?

Is Obama going to launch the nuclear option against BP in tonight’s Oval Office speech? That option would terminate all BP oil and gas leases and suspend all federal contracts with the oil company. BP is the Defense Department’s biggest oil supplier, with a contract worth more than $2 billion yearly, according to energy analyst John Kilduff. Such a move by the president could conceivably bankrupt BP.

One wonders, by the way, why the Defense Department has never applied the Iran sanctions law against BP, given numerous press reports that the energy company continues to trade with the enemy Iran. In fact, BP has partnered with Iran in at least two oil fields and a pipeline outside of Iran.

But back to the nuclear option: It is possible that debarring BP is going to be an Obama threat, as the administration seeks to push BP to create a $20 billion oil-cleanup escrow fund run by the government. That looks suspiciously like a nationalization move. Remember Citigroup.

The other oil sharks are already swimming in the waters around BP. It has been reported that the beleaguered oil company has sought the services of several Wall Street banking firms for a takeover defense against ExxonMobil, Royal Dutch Shell, and Chevron.

Of course, the suspension of, or moratorium on, offshore drilling will continue to damage BP’s bottom line and cash flow, along with the bottom lines of other big drilling companies. Many of these big drillers are already looking to move their operations to China, Africa, and elsewhere.

The Gulf area supplies nearly 30 percent of U.S. oil, and suspension of drilling seems already to be putting upward pressure on oil prices. Oil is up $2 today to $77 — nearly $10 higher than its low in recent months. Retail gas prices are creeping up, too, which could set the stage for a somewhat slower economic-recovery rate. So will rising unemployment in the Gulf region, along with lost tourist dollars.

In today’s congressional hearings, ExxonMobil and other big oil companies blasted BP for human malfeasance. And now there is talk that Obama wants the U.S. military to take over the whole cleanup operation.

Meanwhile, the president is expected to make a clarion call tonight for cap-and-trade — a huge energy tax on the economy that could sink recovery hopes. Cap-and-tax will never play around the country, but it will mobilize tea-party candidates to overturn Obama supporters in the midterm elections.

Despite repeated trips to the Gulf to create the aura that he is “doing something” about the BP catastrophe, the president is digging himself into a deeper political hole. Nationalizing BP, taxing oil and gas companies, and promoting unpopular cap-and-trade policies all give the appearance that Obama is flailing about. It’s not a good appearance.

Monday, June 14, 2010

On Tonight's Kudlow Report

Tonight at 7pm ET:

Earlier today, I sat down with former Fed Chairman Paul Volcker and former FDIC president Bill Isaac. We covered a lot of ground on the economy and financial reform on the eve of Congress sitting down to work out final details of the historic FinReg legislation. We'll take a look at the highlights this evening.

Also on tap tonight...a $1 TRILLION MINERAL FIND IN AFGHANISTAN is all over the news today. Syndicated columnist Tony Blankley will be joined by Foreign Policy's Blake Hounshell with a look at what it all may mean.

Plus...a look at all the latest developments in the BP oil spill with CNBC chief Washington correspondent John Harwood and CNBC energy analyst John Kilduff.

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

Take Some Profits

Stocks are up strong across-the-board with renewed hopes of global growth fueling a roughly 1 percent gain in all three indices. Of course, today’s move to the upside follows last week’s strong equity performance.

So here’s what I think, folks: This is as good a time as any for investors to think long and hard about taking some profits off the table.

Why, you ask?

As my old friend Art Laffer continually reminds us, the Tax Man is coming to town on January 1, 2011. Taxes are going up across-the-board. So investors should seriously consider selling into any stock market strength ahead of the tax deadline. Doing this will enable investors to lock in a lower capital-gains tax this year and beat next year’s higher rates.

It’s a lesson investors literally cannot afford to forget: If after-tax investment returns decline, because the key capital-gains tax rate and other investment taxes go up, the future value of stocks is damaged.

In other worrisome news, despite some improvement in consumer sentiment, U.S retail sales fell on Friday for the first time in eight months. That was something of a shocker.

Incidentally, the Economic Cycle Research Institute’s important weekly leading index continues to fall. A lot of smart money guys pay a good deal of attention to this thing.

The question must be asked: Are we setting up right now for a second-half slowdown? Not a double-dip recession necessarily, but some sluggishness and inertia in the V-shaped recovery?

Oh, by the way, in addition to slowing economic growth and rising tax rates here at home, I’m also concerned about the lingering unsolved problems in Greece and the rest of Euroland. The European debt-crisis story is simply refusing to die. Like it or not, headline risks like Europe and the BP oil spill are still on the radar screen.

Bottom line: Investors should at least consider taking some profits off the table on days like today.

Friday, June 11, 2010

‘Medium Term’ Ben Sucks Up to Spendthrift Congress

When Ben Bernanke testified a couple of days ago before the House Budget Committee, he gave a fairly upbeat forecast of 3.5 percent growth this year, and somewhat stronger growth in 2011. Okay, fine.

However, when Bernanke was asked about out-of-control spending and deficits, he basically said, yes, this is a huge problem, but it’s not an immediate problem. He said, sure, the fiscal situation is not sustainable, but it shouldn’t be solved or attacked until “the medium term.” By that he means immediate spending cuts might harm economic recovery. I think this is nuts.

If the Fed head says, on the one hand, it’s a self-sustaining recovery led by the private sector, which is what he said, then why not tackle the overspending problem right away? Waiting for something called the medium term just lets Congress off the hook — which, of course, is what the Democrats want to hear. The Democrats are cooking up another $150 billion to $200 billion so-called stimulus package. And that package includes a near $50 billion tax hike, which will sharply increase the capital-gains tax on investment funds. In other words, a sure jobs loser.

But Bernanke keeps talking about the medium term. Is there ever a good time for Congress to cut spending? Apparently not.

You know, Paul Volcker used to chastise Congress for spending and deficits. He would have shouted out this past week that there simply is no need for more spending. Volcker would have put Congress on the spot. He would have been tough. And in his heyday, Alan Greenspan would have done the same. But not Ben Bernanke.

Why? Well it’s not hard to speculate that Bernanke is a politically weak chairman. His reconfirmation generated a record 30 “no” votes. And he has been desperately fighting the Democratic Congress to stop a GAO audit of Fed policy and to preserve the Fed’s bank-supervision turf over smaller community banks. No wonder he doesn’t want to rock the fiscal boat.

And get this: When asked about the huge 30 percent gold rally, the Fed head said he was “puzzled.” He said, “I don’t fully understand movements in the gold price.” Well, maybe the distinguished former Princeton economist should connect the dots between massive overspending and borrowing on the one side and the soaring gold price on the other.

One of the gold messages is that fiscal bankruptcy is going to lead to a continuation of an ultra-easy zero interest rate and excess money creation. Gold is looking at wildly profligate spending and borrowing in Europe and the U.S. as a leading indicator of massive money creation that ultimately will lead to significantly higher inflation. In other words, a loss of confidence in paper money, due in no small part to a loss of confidence in governmental fiscal policies.

If central bankers like Bernanke won’t get tough on the budget, gold prices are going to continue to rally higher and higher. Yet instead of slamming Congress, Bernanke sucked up to it. This is exactly wrong. He had a chance to slam his foot down on the unnecessary spending bill (and tax hike), but he failed to do it.

On Tonight's Kudlow Report

Tonight at 7pm ET:

CNBC’s Bertha Coombs and Mary Thompson report.


- John Kilduff, CNBC Contributor; Round Earth Capital co-CIO
- Peter Flaherty, National Legal & Policy Center
- Bruce Lanni, Energy Portfolio Strategist; Nollenberger Capital Partners

- Marco Rubio, Florida GOP Senate Candidate

- CNBC’s Bob Pisani

- Lakshman Achuthan, Economic Cycle Research Institute Managing Director


retail sales; consumers pull back; consumer sentiment; Greece defaulting this summer?;China

- CNBC Dennis Kneale
- Fritz Meyer, Invesco Sr. Market Strategist

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

Thursday, June 10, 2010

Carly Fiorina, Woman for the Future

Revolution in California and political regime change come November has been a theme of mine for weeks. Tuesday night's big victories for Meg Whitman and Carly Fiorina moved that agenda nicely down the field.

And let me add to it. Following the Tuesday primaries, the mainstream media began calling this the year of the woman, pointing not only to Fiorina and Whitman in California, but to Sharron Angle in Nevada, Nikki Haley in South Carolina, and Democrat Blanche Lincoln in Arkansas.

But we need a qualifier here. This is really going to be the year of the women from the past versus the women for the future.

In Arkansas, for example, Blanche Lincoln stands a good chance of losing her Senate seat to Republican House member John Boozman. Sen. Lincoln is a reliable Obama vote -- make that a reliable Obama/Harry Reid vote -- for issues like the stimulus package, Obamacare, cap-and-trade, and bank reform (even with the ruckus she made over forcing banks to spin off their derivative operations).

In California, the Carly Fiorina/Barbara Boxer matchup -- likely to be the marquee Senate race nationwide -- is a battle between a woman of the liberal-left Washington past and a woman who is a fiscally conservative outsider of the future. Recovering from cancer, and running in a tough primary, Fiorina demonstrated a steely inner strength that reminded one of Margaret Thatcher as she trounced her rivals by a wide margin.

The subject of this year's election will be the fiscal catastrophe coming out of Washington, D.C.: overspending, over-borrowing, over-deficit-making, overtaxing, over-regulating, and over-government-controlling. Obama's Washington is about welfare-state redistribution, the European model that has failed so miserably across the pond.

In contrast, Carly Fiorina's model is about entrepreneurship, growth, and opportunity, the basic American values of economic freedom that have been shunted aside in our nation's capital.

Fiorina wants spending controls and limited government. She opposed the $860 billion stimulus as well as Obamacare. She is a smart, fiscally conservative woman who has campaigned on lower income-tax rates, a reduced capital-gains tax, and the elimination of the estate tax. And she can be expected to push for a lower business-tax rate for large and small companies.

The former HP CEO understands that only healthy businesses create new jobs, and that healthy businesses require investment. She believes in the old-fashioned, but tried-and-true, axiom that economic growth can only come from the private sector, and not from government spending.

Benefitting enormously from a campaign endorsement by Sarah Palin, Ms. Fiorina is also pro-life, pro-traditional-marriage, pro-free-trade, and very tough on border security in the immigration debate. But as pollster Kellyanne Conway told me Tuesday night on CNBC, Fiorina is a new kind of Republican woman. She is not running on so-called gender issues, but rather on fiscal-and-economic-growth issues, at a time when the economy is barely recovering from a long and painful downturn.

The California unemployment rate is 12.5 percent. Nationwide, the jobless rate is still hovering around 10 percent. Big government will not fix that. A return to opportunity-oriented incentives and rewards for workers, producers, and investors will.

Rather than a back-to-the-future, European model, the high-tech oriented Fiorina believes in the American model of economic freedom and creativity. Unleash the entrepreneur, but limit the government. This is why she can defeat the ultra-liberal Barbara Boxer, a radical cap-and-trade energy regulator and another sure vote for Obama who has been around for decades and has compiled one of the worst tax-and-spend records in Senate history.

Boxer is already attacking Fiorina for -- heaven forbid -- running a company efficiently, and yes, sometimes laying off workers when necessary. But this is a trap for Boxer, for it is exactly Fiorina's business experience that makes her so attractive to voters fed up with Washington's fiscal calamity. The issue now is laying off government workers; cutting back on oversized government union salaries and pensions; curbing the corrupt and corrosive power of the SEIU and AFL-CIO that is fast bankrupting America and literally pulling money out of taxpayer wallets in the process.

Career politicians are going to get slammed in this election. But it's more than that. The mood out there is not just anti-incumbent. It's anti-Obama's Washington. The new breed of Republican women knows that what matters is fixing the future, not replicating the past few years.

That's why Carly Fiorina can win.


Wednesday, June 09, 2010

On Tonight's Kudlow Report

Tonight at 7pm ET:

CNBC’s Hampton Pearson reports from Washington.


- Sen. John McCain, (R-Arizona)


- Carly Fiorina, (R) California Senate Candidate; Fmr. Hewlett Packard Chairman & CEO


- Vince Reinhart
- Rep. Jim Jordan (R-OH)


- Bob Doll, Vice Chairman & Global CIO of Equities at BlackRock

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

Do You Think Gold Might Be Telling Us Something?

In case you missed it, President Obama was out and about yesterday pitching $250 rebate checks for Medicare prescription-drug coverage. At the same time, gold prices were roaring ahead, hitting a record-high $1,245 an ounce. So let me ask: Is there a link between the government doling out even more budget-busting benefits to the elderly and the skyrocketing gold price?

Or look at a new Treasury report to Congress indicating that the U.S. debt is expected to soar to nearly $20 trillion by 2015. How about that? Do you think this latest mind-blowing multi-trillion-dollar debt projection might have something to do with the soaring gold price?

And don’t forget that the Congressional Budget Office just increased its Obamacare cost estimate by $115 billion. That brings the total cost to more than $1 trillion in the first ten years. Think there might be a gold connection?

Big-government spending, big-government borrowing, and an ultra-easy-money Fed for as far as the eye can see. And gold prices shooting to the moon.

Do you think there might be a connection? Maybe? It’s called cause and effect folks.

Here’s another question: What follows trillions in spending and borrowing?

Answer: Quadrillions.

Tuesday, June 08, 2010

The Message of Falling Stocks & Rising Gold

“Wall Street in a Slow Crash” was the headline splashed on Dow Jones’ MarketWatch, one of the top financial websites, yesterday afternoon. To be sure, the Dow suffered yet another down day on Monday, shedding 115 points. And the broad-based S&P 500 is off 14 percent from its late-April high. The last five to six weeks have been a tough stretch for stocks.

And let me add to the MarketWatch headline: Gold prices are continuing to rally this spring, even as stocks fall. The precious metal jumped $25 yesterday to close right on top of its $1,240 high. Gold bugs may be cheering the metal’s recent run, but the surge is a bad economic omen.

Here’s a simple way to look at the unholy combination of falling stocks and rising gold: Falling stocks are signaling a slower economy. Rising gold prices are signaling higher inflation down the road, along with paper-currency debauchment and broad-based financial stresses across the globe.

Falling stocks, rising gold. I don’t like the sound of it.

Incidentally, my good friend Art Laffer wrote a terrific op-ed in yesterday’s Wall Street Journal warning about the economic threats emanating from Washington. Art sees major storm clouds in 2011. At the top of his list are enormous, across-the-board tax hikes set to kick in on January 1. We’re talking tax increases on capital gains, dividends, and estates (the death tax). It’s all anti-growth. It’s an attack on the investor class.

Art has always been a positive, “glass is full” sort of guy, but he sees serious negative economic calamity ahead, including a double-dip recession. He makes a compelling case. And I’m wondering whether falling stocks on a near daily basis are already painting a picture of what’s on the horizon.

I don’t yet see a double-dip recession. A steep yield curve and strong profits are placing a cushion underneath the economy. Is a slowdown in the cards? Probably. But no double-dip recession — not yet.

That said, the threat of these higher marginal tax rates on investors and the ownership class is just plain bad for future growth. Tax rates affect economic behavior. That’s Art’s principal point. And while Obama’s Washington has rejected this thought, Art’s warning is very important.

You know me. I’m a positive guy, too. An optimist. But I’ll tell you what: None of this is good.

Tuesday, June 01, 2010

Are Government Workers Taking Taxpayers to the Cleaners?

Here's a great new mini-documentary from my old friend, Dan Mitchell. According to Dan, the U.S. has way too many bureaucrats, making way too much money. He uses government data to show how federal, state, and local governments are all in fiscal trouble in part because of excessive pay for a bloated civil service.

Stocks and the BP Catastrophe

It is noteworthy that the BP oil explosion occurred on April 20. Three days later, on April 23, the market peaked. Is this is a coincidence? Or is Mr. Market telling us something that we do not yet fathom?

Surely the environmental impact of the spill will be gigantic, and it will continue for a very long time. But are we underrating the economy-dampening effects of the spill? The unemployment impact? The psychological impact? What’s the Gulf Coast damage really going to mean for stocks and the economy?

Amidst all the news of the horrible BP-Obama oil-spill catastrophe, we had a near-catastrophic May in the stock market. The major indexes fell 8 percent, across-the-board, in response to the Greek-European debt mess and fears of a second-half economic slowdown at home. To put this into some perspective, the Dow Jones Industrial Average suffered its worst May in 70 years.

The outlook for stocks is rather murky right now. On one hand, after-tax profits — the mother’s milk of stocks and the economy — look great, with a 43 percent year-on-year increase. And the Federal Reserve’s zero-interest-rate policy is still in place, along with a steep Treasury yield curve. That said, U.S. jobless claims and a handful of other indicators are looking soft.

Perhaps the best news is King Dollar. The greenback rose another 1.5 percent last week, and is now up over 20 percent. That’s helping to keep oil and gas pump prices well below their peaks (although both rebounded a bit recently). All in all, it’s a mild tax cut for the U.S. economy.

But to be honest with you, the outlook for the euro currency is for further declines. The debt crisis in southern Europe is very far from being resolved. Without interbank loan guarantees, another short-term funding crisis could reemerge as the euro sinks.

Gold did rebound 3 percent to close the week at $1,214. All investors should own some gold in their portfolios. But regarding the stock market, for what it’s worth, my view is that this correction may not be over yet. To make matters worse, we’re facing a host of Washington tax hikes next year, on top of our continuing deficit-spending problems.