New economic stats today on retail sales from both China and the U.S. show there’s no double-dip recession out there — no matter what the bears-gone-viral may be telling you. No Armageddon. And no stock market crash either. Actually, today’s 123-point Dow gain to get back over 12,000 is a key sign that the stock correction may be over.
Forward earnings at $96 a share on the S&P 500 (1,288) show a price-earnings multiple of about 13.4-times. Trailing earnings of $94 a share show a similar multiple. So stocks have decent value. Stocks also have an attractive 7.25 percent earnings yield, compared to 3.1 percent on 10-year Treasuries and 5.7 percent on investment-grade corporate bonds.
I’m not a roaring bull. But I am more positive than I was two months ago when I first started talking correction.
The Fed is still accommodative. The yield curve is positively sloped. And the oil-price shock looks to have peaked at around $100. All those are positives. Perhaps as QE2 pump-priming ends in a couple of weeks we will see a somewhat stronger dollar and a weaker oil price.
But the good news today is that retail sales in the U.S. came in better than expected. They actually increased slightly, by three-tenths of a percent, excluding the auto sector which has been hard hit by Japanese supply shortages. Core retail sales excluding autos, gas, and building materials increased two-tenths of a percent and are up 6.1 percent over the past year.
We’re in a muddle-through economy. It’s not the Reagan ’80s. But it’s also not the Carter ’70s.
In China, where the data is just about as important to the U.S. as the U.S. data, May retail sales rose 16.9 percent year on year, or slightly less than the 17.1 percent registered in April.
Meanwhile, industrial production in China rose 13.3 percent for the year ending in May, just a tad less than the 13.4 percent registered in April. These are solid numbers. They’re off their peaks. But it’s not a collapse. China’s going to keep on growing. There is no meltdown.
And the Bank of China raised bank reserve requirements again, a response to the 5.3 percent CPI for May — which is an inflation warning to both China and the United States.
Ben Bernanke should quit yapping about a clean debt bill for more Treasury borrowing authority without serious spending reductions. No fiscal confidence will return unless measures are taken now to curb out-of-control spending and borrowing.
People in the bond market are not stupid. For several months they have known that the debt-ceiling talks would be hardball negotiations and will go down to the wire. But 10-year Treasury yields have plunged from just under 4 percent to around 3 percent. The market knows there will be no default. A deal will be made. But it has to be a spending-control deal if anyone is to ever believe that the U.S. is serious about its financial plight.
And for my money, any deal should include a pro-growth component, like a 15 percent business tax rate that also abolishes all deductions.
Larry Kudlow for Treasury Secretary in the upcoming Repub administration!
Reply to this commentLinkReport AbuseI like that low rate and no deductions. But I prefer the consumption tax and no deductions. And abolish the IRS.
Reply to this commentLinkReport AbuseWe should abolish ALL federal taxes. Just let the Fed print x% of the money supply each year. They already do print money so this is nothing new. They would just print more of it and in exchange do away with the whole tax system -- the IRS, tax returns and accountants, using taxes and deductions and credits and such to manipulate our behaviour, etc. So simple. So like freedom.
Reply to this commentLinkReport AbuseI like Larry Kudlow a lot. But for now I'm paying more attention to Bill Gross' sentiments.
Reply to this commentLinkReport AbuseI have an alternate theory here. The rich have nowhere to put thier money (they arent buying housing, they are not starting new businesses in this environment) so they put it in the stock market. This is why we have very high unemployment and a stock market increase. The dying middle class is buying what essentials will keep a long time before more inflation hits, which increases retail sales.
But make no mistake, this country is in for deep troubles.
Reply to this commentLinkReport AbuseWow.
Let's see, in 2009 you conjectured the global economy was recovering and complained about Republican "economic pessimists." Then, in 2010, you talked about how a "v-shaped boom" is coming. Dissenters, we were told, were not just wrong, but destroying "Conservative credibility. Capitalist credibility."
I wonder how anyone gives you any credibility any longer. One of your arguments was that commodity prices were "roaring"--and that this was a positive signal. Now you're saying low oil prices are a positive.
Reply to this commentLinkReport AbuseKudlow's policy prescriptions(like lower tax rates) are usually correct, but he is often, if not always, wrong in assessing the state of the economy at any given point. He is definitely NOT good at market-timing. And no one jumps to conclusions(usually wrong) faster than Larry. He has a frantic enthusiasm about the markets that prevents him from accepting the inevitability and reality of bad results from bad policies, even when it is right before his eyes.
Reply to this commentLinkReport AbuseIt's about 1:30pm on the east coast as I write this, and so far the Dow is down 177 points.
Gee, the market turnaround that Mr. Kudlow cites as proof that a bottom has been reached sure didn't last long.
Reply to this commentLinkReport AbuseWhen do we learn that a single swallow does not make a spring nor does a single hair a beard?
Reply to this commentLinkReport AbuseSorry Kudlow, but I just can't take you seriously anymore.
You're starting to sound like Jim "DOW 36,000" Glassman.
Reply to this commentLinkReport AbuseStay tuned for "Kudlow and Krugman", the hot new comedy on CBS where they pundit their way through wacky economic adventures in *spins wheel* Miami, Florida!
Reply to this commentLinkReport AbuseI like Larry Kudlow and I agree with most of his economic prescriptions but I've got to say he is one of the lousiest prognosticators in the business. Maybe it's his innate sense of optimism about the resiliency of the U.S. economy that makes him look into a muddy puddle and see Lake Michigan, but he has been wildly, overly optimistic about this "recovery" from the start. Had we reacted to the initial financial crisis by allowing the auto companies to go through traditional bankruptcy, reformed the affordable housing act and reigned in Fannie Mae and Fannie Mac, drastically reduced spending, eliminated capital gains taxes, lowered the corporate income tax rate and made the overall tax regime more rational, we might indeed be looking at a recovery right now. Instead, we tripled the debt, spent a trillion in "stimulus" that did nothing but redirect money from the private economy and siphon it through an irrational bureaucracy, ignored the federal housing laws and bureaucratic structure that led to the financial crisis while saddling investors with massive new regulation and passed a socialist health plan that has frozen hiring in its tracks. The so-called recovery was nothing but a brief, quickly dissipated "sugar high" that reflected little more than one-time government hiring. Now, we are right back where we started from, as I assumed we would be and predicted at the time. It is instructive that L.K. released his latest rosy scenario on the same day that news about Greek and Portuguese debt and lousy domestic manufacturing numbers drove the market down by 200 points (at last count). We are not sliding into a "double-dip." We are continuing our original dip, which will be only longer and deeper after our failure to properly address its causes and weather the necessary correction.
Reply to this commentLinkReport AbuseComing soon to CBS - "Kudlow and Krugman", a comedy where America's most visible and least credible economists take every day observations and spin it into incredible predictions about the future economy!
Reply to this commentLinkReport AbuseIt's hard to predict the economy. It's even harder to predict the movement of the stock market. But Kudlow has quite a track record.
In December 2007 (the month the Great Recession began) Kudlow wrote a column criticizing those who were predicting recession. He predicted that the "Bush Boom" would continue. Then he predicted the V-shaped recovery back in 2009. Now this.
Kudlow's mistake comes from his predicting a long term trend based on a one day fluctuation. This is not just a mistake but pure ignorance.
Reply to this commentLinkReport AbuseThe Republicans are refusing to cut Farm Subsidies.
What hypocracy, what deceit, what lack of integrity.
Where are the Tea Party people on this? Get going
Reply to this commentLinkReport AbuseTP crowd.