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Larry Kudlow

Yikes! The stock markets are surging. And Treasuries are selling off. It’s a pro-growth trade, and exactly what I’ve anticipated. Bears beware. Pessimists go hide. Business Round Table naysayers, change your tune.

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Technology, the most growth-sensitive sector, is leading the charge. In recent days some old standards like Hewlett-Packard, Intel, Advanced Micro, Dell, IBM, and Cisco are at the top of the advance board.

Since the market bottom on October 9, the S&P 500 has increased 20%.A 46% rise in info-tech is number one, followed by a 39% gain in telecoms, a 27% rise in financials, a 21% jump in utilities, and 18% increases for industrials, materials, and consumer cyclicals.

The Dow Jones index has increased 1,544 points (21%), while the Nasdaq has appreciated 350 points (31%). These are long-awaited moves.

Behind this stock-market jump are two macro factors. First, productivity is rising beyond anyone’s expectations. This shows that businesses are becoming more and more efficient by deleveraging, cost-cutting, and modernizing with high-tech applications.

Second, while the extent of pro-growth tax-cutting that will come out of the new conservative Congress and the White House is still unknown, Alan Greenspan & Co. at the Fed filled the policy vacuum with a big and much-needed easing move two weeks ago.

All the money measures are confirming this. Key liquidity spreads are widenening. The Fed’s balance sheet continues to grow at better than 8% yearly. And Milton Friedman’s M2 money measure has increased at a 10.5% annual rate over the past six months — more than double the 4.2% pace of the prior six-month period. More, industrial metals indexes, led by copper, are showing life signs, and the gold price is holding near $320. Finally, unemployment claims keep dropping. When all these measures point the way they are pointing at the same time, it’s hard not to be extremely happy.

If the central bank continues to pour in cash, and a reduction in the tax cost of capital — especially dividends — is included in next year’s budget-reconciliation package, then we’re in for a barnburning rate of economic growth and stock-market appreciation over the next twelve months.

Here’s a final thought on the new Senate leadership line-up. Conservatives will now be running the show. Rick Santorum will chair the GOP Conference and the Rules Committee. John Kyl will head the Policy Committee. Jeff Sessions will run the Steering Committee. And Don Nickles will head the Budget Committee that will piece together a hoped-for pro-growth reconciliation package that will be scored on a dynamic basis to correctly capture the pro-growth impact of tax cuts. Along with House Budget chair Jim Nussle, look for Nickles to find a supply-side director of the Congressional Budget Office.

Bull market pieces are falling into place. Keep the faith, faith is the spirit.



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