Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

Profits Matter


My latest syndicated column.

Stock market bulls like myself were on the losing side of last week’s trading, as the Dow gave back roughly 4 percent from its 14,000 peak. The big story was a wave of high-anxiety credit fears over the value of corporate and housing loans. Credit circuits blew a fuse, lending markets temporarily froze, and a number of buyout deals were postponed as analysts and traders worked through their problems.

But this is no time to lose faith. The economy has found its legs with a 3.4 percent GDP report for the second quarter ‘” a much-needed surge from only 0.6 percent growth in the first quarter. Moreover, core inflation came in at a rock bottom 1.4 percent.

Most important, second quarter corporate profits are flowing in two-to-three-times better than expected. Much of this reflects the huge global economic boom that Treasury Secretary Henry Paulson describes as the greatest worldwide surge in his professional lifetime.

These rising profits inject new value into the stock market. Doomsday seers on Wall Street take notice: At fifteen times forward earnings, the S&P 500 yields about 6.5 percent, a very high equity risk premium compared to a 4.8 percent yield on 10-year Treasury bonds.

Be it loan worries or the stock correction, the key point in all this is the steady stream of rising profits. Profits matter. They are the best guarantee for the credit worthiness of corporate loans and the value of stocks. As classical economist Benjamin Anderson wrote in the 1920s when he was the top economist at the old Chase National Bank, ‘profits are the heart of the business situation.’ Down through the years, I’ve paraphrased that as ‘profits are the mother’s milk of stocks and the economy.’ It’s time to add credit-worthiness to that list.

What we’re witnessing is not a true credit crunch, but a temporary credit freezing-up. Banks have a lot of loans from financing buyout deals, and right now the credit freeze has stopped them from selling these loans to institutional customers. Loan markets have been over-leveraged by private-equity funds that over the past year or so have completed deals with too little cash equity and too much loan leverage.

Bond vigilantes are disciplining the buyout mavens and forcing a credit-risk re-pricing that will incentivize cash equity and discourage debt over leveraging. It’s a healthy market-driven correction.

But the key point is that robust business profitability makes these over-leveraged bank loans good paper ‘” not bad. In due course, the dust will clear and credit markets will resume functioning. Bankers will divide up these loans and resell them in tranches at handsome interest rates to pension funds, insurance companies, and money managers around the world.

Congressional Democrats could enhance this healing process if they would quit threatening to raise taxes on buyout firms and hedge funds whose ears are being pinned back by the bond market. This is no time to raise capital costs by repealing President Bush’s tax cuts or by raising new taxes. Case in point: former Sen. John Edwards’s bad idea to raise the capital-gains tax rate to 28 percent from 15 percent, and to drive up the top personal tax rate to at least 40 percent from its current 35 percent.

Treasury man Paulson was right when he told me in a recent CNBC Kudlow & Company interview that if you tax something more you get less of it. That’s why he opposes the hedge- and buyout-fund tax hike. Millions of pensioners including firefighters, police, and teachers will suffer lower retirement returns if Democrats have their way. Taxing capital more will throw a wet blanket over the income and spending power of American families by weakening the jobs picture, which remains one of the brightest spots in our economy.

Secretary Paulson has a better idea. He recognizes that our corporate tax system is broken. Business tax reduction is occurring all over the globe. Hence, the U.S. is becoming less competitive in the global race for capital. Paulson believes the best solution to this is full-fledged, pro-growth corporate tax reform.

His Treasury staff is apparently preparing a plan to reduce the current 35 percent federal tax on business down to 27 percent. It’s a very good idea. Paulson also favors Loews CEO James Tisch’s idea to reduce the corporate capital-gains tax rate. Measures like this would improve business profitability, make the U.S. more hospitable to global investment, spur new businesses and job creation, and enhance the credit worthiness of all that loan paper gathering dust on bankers’ shelves.

The loan credit freeze-up currently plaguing corporate stock and bond markets would improve rapidly if Washington would befriend the markets, instead of waging war against them.

Friday Night Special Lineup


*STOCK MARKET & ECONOMY*…We are going to spend the entire hour tonight debating what’s going on in the stock market and economy.

Our market pros tonight include:

*Joe LaVorgna, chief US economist, Deutsche Bank
*John Rutledge, chairman, Rutledge Capital
*Michael Pento, senior market strategist, Delta Global Advisors
*Jeffrey Kleintop, chief market strategist, LPL Financial Services
*David Sowerby, chief market analyst, Loomis Sayles & Co.
*Michael Panzner, Financial Armageddon author
*Jared Bernstein, senior economist, Economic Policy Institute
*Robert Hormats, vice chairman, Goldman Sachs International
*Brink Lindsey, The Age of Abundance author, VP research at Cato Institute

Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.

The Heart of the Business Situation


Despite yesterday’s 2 percent drop in stock prices, driven by high anxiety credit fears over corporate and housing loans, today’s 2nd quarter GDP report brings some very good news: an annualized inflation adjusted 3.4 percent pace ‘” the strongest economy growth rate in a year.

While consumers spent at a somewhat slower pace, business construction and investment picked up the slack. Exports were particularly strong, reflecting the huge global economic boom that Treasury Secretary Hank Paulson describes as the greatest worldwide surge in his professional lifetime. In addition, the depressed housing sector was less of a drag than in recent quarters.

Also noteworthy is the fact that 2nd quarter business profits are coming in 2-3 times better than expected. So there is considerable value in the stock market, despite the current loan worries.

Another key statistic in today’s GDP report was a rock bottom 1.4 percent core inflation reading from the Fed’s personal consumption deflator target. Averaging the 1st and 2nd quarters together produces a picture of slower growth and very low inflation. During the first half of 2007, real output averaged 2 percent and the core deflator, 1.8 percent.

There’s a lot of gloom and doom on Wall Street right now from yesterday’s market drubbing and the cumulative 4.5 percent corrective stock slide from the 14,000 peak reached last week. But the economy is expanding, profits are rising, and inflation is muted. So stocks look pretty attractive. (In fact, they look almost downright cheap.) At fifteen times forward earnings, the S&P 500 yields about 6.5 percent, a very high equity risk premium compared to a 4.8 percent yield on 10-year Treasury bonds.

Moreover, the steady stream of rising profits is the best guarantee for the credit worthiness of corporate loans. As classical economist Benjamin Anderson wrote in the 1920s when he was the top economist at the old Chase National Bank, ‘profits are the heart of the business situation.’ Down through the years, I have always paraphrased that as profits are the mother’s milk of stocks and the economy. It’s time to add credit worthiness to that list.

What we are witnessing now is not a true credit crunch, but a temporary credit freezing-up. Banks have a lot of loans from the financing of buyout deals and right now the credit freeze has stopped them from selling these loans to institutional customers. Loan markets have been over leveraged by private equity funds that over the past year or so have completed deals with too little cash equity and too much loan leverage.

Now, private credit markets are disciplining the buyout mavens and forcing much better balance between equity and debt. This is a good thing. It is a market driven corrective that will add rationality to corporate finance. The key point here is that more than ample business profitability makes these over leveraged loans sitting in bank hands good paper, not bad.

When the dust clears and credit markets resume functioning, bankers will be able to divide up these loans and resell them in tranches at handsome interest rates to pension funds, insurance companies, and other investors all around the world. Again, what makes all of this possible is the strong profitability of the business sector.

The Democrats in Congress could enhance this corrective process if it would quit threatening to raise taxes on the very buyout firms and hedge funds whose ears are being pinned back by the bond market vigilantes who are demanding more equity and less loan leverage from the buyout financiers.

This is no time to raise capital costs and reduce investment returns by repealing the Bush tax cuts or by raising new taxes on the very entities which are struggling. A case in point is former Senator John Edwards’s bad new idea to raise the capital gains tax rate to 28 percent from 15 percent, and to drive up the top personal tax rate to at least 40 percent from its current 35 percent. Senators Clinton and Obama are thinking along the same lines, though their pronouncements have not yet been as specific as Mr. Edwards.

Thursday Night’s Special Lineup


*SELL-OFF*…We are going to spend the entire hour tonight on today’s stock market plunge.

Following two quick reports from CNBC’s Bob Pisani live from the NYSE and Scott Wapner over at the Nasdaq, our stock market panel will launch into a lively debate about what happened today and what’s ahead for the markets.

(I happen to believe this is a big buying opportunity.)

Our market panel:

*Art Laffer, Laffer Associates Chairman
*Steve Liesman, CNBC Senior Economics Reporter
*Barry Ritholtz, President of Ritholtz Research & Analytics
*William Smith, President/CEO of SAM Advisors
*Gary Shilling, President of A. Gary Shilling & Co.
*Elizabeth MacDonald, senior editor at Forbes magazine
*Jerry Bowyer, National Review Financial columnist and author of “The Bush Boom”

Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.

The Pause that Refreshes


In the midst of this hurricane-strength gale force wind of stock market pessimism, permit me to offer a very basic, positive view of stocks.

Corporate profits are the mother’s milk of stocks and the economy. They are also the ultimate backstop and guarantor of the quality of credit.

Amidst this panicked obsession about market downgrades of corporate and housing debt, the fact is that with 50% of the S&P 500 companies reporting (as of the close of business last evening) market cap-weighted profits are up 15.3 percent.

That is roughly three times the consensus expectation for the 2nd quarter.

Meanwhile, positive earnings surprises are virtually identical to those in the first quarter, while negative surprises are almost 6 full percentage points less than the first quarter.

So, while the bond market instructs private equity buyout firms to stop their over-leveraging of debt and go back to equity issuance in their takeovers, the key point that many people are missing in this market correction is that profits are robust and stocks remain relatively cheap.

Not only are stocks relatively cheap in relation to stronger than expected profits, but the decline in the Treasury bond rate that is used to discount the present value of future earnings makes stocks even cheaper still.

The moral of the story is that intelligent investors should be shorting toxic bonds’”whether they are corporate or mortgage backed’”and buying valuable stocks as they correct lower. The dynamic U.S. economy is on solid ground as is much of the global economy. Goldilocks is alive and well, so long as Congress doesn’t muck it up.

As for corrections, they come and go. This one is the pause that refreshes.

So, Are They Loony Enough?


Looks like some Democrats out there aren’t too keen on class warrior John Edwards:

“…If Democrats are loony enough to buy the reactionary left-liberal, complete-the-New-Deal, wealth re-distributionist economics that Edwards is hustling, we (I’m a libertarian Democrat) risk blowing a nearly sure thing in 2008.

The middle class in this country is not falling behind. It is suffering from the psychological turmoil of “The Age of Abundance,” as Brink Lindsey describes it so well in his recent book. America’s working class is working….” -Terry Michael, director of the Washington Center for Politics & Journalism and author of a “libertarian Democrat” blogsite writing on RealClearPolitics.

Someone ought to pass along the message to Mr. Edwards that attacking rich people, taxing them to death, and making life harder for America’s most successful earners won’t ever make the non-rich, rich. The best anti-poverty plan is a growing economy, one that creates jobs and higher living standards for all Americans.

Goldilocks Still Strong


Yesterday’s stock sell-off is no cause for alarm.

Some important things to consider:

Second quarter profits are coming in around 7 percent while 10-year bond rates remain slightly below 5 percent.

After-tax GDP profits based on IRS taxable income (nobody overestimates IRS-taxable profits) have increased 130 percent since the 2001 recession low. Meanwhile, the DJ Wilshire 5000 has gained 109 percent. Simply put, profits have risen more than stock market averages.

Despite credit and loan quality worries, junk spreads remain historically low at around 335 basis points. (The junk spread was over 1,000 basis points in 2002.) So while there’s a move toward higher risk premiums in the loan markets, it still looks containable.

Long-term interest rates and capital investment tax rates are lower today than they were six years ago.

The price earnings multiple for the S&P 500 on a trailing 12 month basis at the peak of the Internet boom was 46 times. Today’s S&P 500 on the same basis is a much more modest 18 times earnings.

The Fed will keep the fed funds rate target on hold at 5.25 percent for the foreseeable future.

The economy is coming back from a first quarter rough patch. Believing as I do that stocks are determined by earnings and interest rates, the market still looks cheap, though it is not nearly as cheap as it was one year ago.

Bye-Bye Adam Smith, Hello Marx?


Steve Forbes, former presidential candidate and president/CEO of Forbes magazine had some interesting thoughts on my interview with Treasury Secretary Hank Paulson on last night’s Kudlow & Company.

KUDLOW: Steve Forbes, you heard Mr. Paulson on the question of corporate taxes and trade. Steve, as you know, the Democrats are debating again this evening. What do you expect to hear out of that debate?

STEVE FORBES: Well, I’m afraid you asked the right question, and obviously, the secretary had to duck it, about being double-crossed by the Democrats in Congress. Even [House Ways and Means Chairman Charles]Rangel couldn’t get around the leadership and the labor union bosses who are against any kind of free trade agreement. So I’m not optimistic on it. I wish we could get these things through. They’d be good for us, good for the world.

KUDLOW: What do you think of this, Steve? I know you’re a Giuliani man, I think you’re one of the chairmen of his campaign. But Governor Mitt Romney teed off. He talked about the Democrats. He said, quote, “Their solutions are big brother, big taxes and big government. That’s not the right answer for America.” And he went a little further and he said–describing Senator Clinton–he said that’s out with Adam Smith and in with Karl Marx. That’s pretty tough stuff, Steve. Your comment?

STEVE FORBES: I think it’s right on target. I think the Democrats miss it entirely on the economy. They still think in the 1990s the economy boomed when they raised taxes. Actually, as you know, it slowed economic growth. It wasn’t until the Republicans took over that the economy took off. They haven’t learned it yet. And unfortunately, we the people, if they get in [in 2008], are going to pay a huge price for their education.

The Paulson Interview


The straight shooting, sound thinking, optimistic Treasury Secretary Henry Paulson offered his views on a variety of topics on Kudlow & Company last night. What a pleasure it was to interview a civilized man with a keen intellect who does his own thinking.

It’s a pity Mr. Paulson has been dealt such a difficult hand. He’s up against a highly partisan Democratic Congress attempting to block the Treasury man’s good ideas on broad based reform of taxes, trade and entitlements.

Incidentally, the former Goldman Sachs CEO would not have argued that the subprime mortgage problem is contained if he didn’t really believe it. And his comments about the greatest global economy in our lifetime echo my own thinking.

Here’s a look at Mr. Paulson’s thoughts on last night’s show…

On U.S. & global economic health:

I don’t think there’s much argument that we are in a very strong global economy. Japan is on a sustained growth course. In Europe, their growth rate has just about doubled’”unemployment is still high, but it’s at a 15-year low. The developing countries, you know, are growing twice the rate they grew in the ’90s, three times the level of the industrial companies.

So now let’s get to what’s going on in the US. I happen to believe that we are making a successful transition to an economy that was growing at a rate that wasn’t sustainable to one that is sustainable.

There has been a very significant housing correction. I think we’re at or near the bottom there. I don’t deny there’s a problem with subprime mortgages, but I really do believe that’s containable.

We have, Larry, a very, very healthy economy. We have very strong employment. We’re creating jobs here at very high levels. The consumer is strong.

When you look at what’s happened with the equity market and S&P going up about 24 percent over the last 12 months, there’s been about $3 1/2 trillion of wealth created in the marketplace. That doesn’t hurt the consumer in the US. And again, the strong growth outside of the US helps the US economy. The fact that our trading partners are strong is a positive. So I believe we have a very healthy US economy.

On whether credit markets are freezing up, subprime, and a possible credit crunch:

Well, I would just simply say this: We have had, now, benign positive markets for a while. And there’s always a temptation to give way to excesses, to have less discipline. And so I believe that some of the issues we’ve had recently are a wake-up call. And I do believe that borrowers need to be vigilant, lenders need to be vigilant. I’m not going to say it’s without risk, but I’m going say we have a healthy financial sector in this country, record earnings. You know, non-performing loans are at low levels. We need to be mindful. We need to always be vigilant.

Well, this was certainly a surprise...


Thanks for noticing.

Markets Love Him (scroll down)

1980s Redux: Hillary Clinton and Industrial Policy


Quick quiz: What does Hillary Clinton think is a “great organizing principle” for the American economy? Increasing our standard of living? Maximizing economic growth and economic freedom, maybe? Putting a chicken in every pot, perhaps? Nope, none of those. In a speech to the Chicago Economic Club last spring, she suggested that climate change would be a cool concept to organize an economy around….

Click here to read the rest of frequent Kudlow & Company guest “Jimmy P” Pethokoukis’s latest entry over at U.S. News & World Report.

Paulson on Kudlow & Company Tonight


’This is far and away the strongest global economy I’ve seen in my business lifetime.’ -U.S. Treasury Secretary Henry Paulson

Kudlow & Company is taking free market capitalism back down to Washington for tonight’s show.

The Treasury Man himself, Hank Paulson, will be joining me on set for an exclusive, one-on-one interview.

We’ll of course discuss the dynamic global economic boom and what it means for the U.S. economy and stock market.

Also on tap will be taxes, trade, and the latest on Sarbox reform.

Please be sure to join us on CNBC at 5pm ET.

Infectious Exuberance


A decade or so ago, Alan Greenspan added the catchphrase irrational exuberance to the stock market lexicon.

Ten years later, we are given infectious exuberance.

I prefer the latter.

Debating the Dollar


A big hat tip to Steve Conover over at The Skeptical Optimist blogsite for his kind words about Kudlow & Company. As Mr. Conover points out, we always strive to give both sides a fighting chance in the war of ideas…

Here’s The Skeptical Optimist take on a big issue we’ve been covering recently on the show:

Interest Rates and the Dollar, July 2007

The dollar will supposedly collapse sometime soon, according to the bears. That’s hogwash, according to the bulls. Both sides have plausible arguments (…and, by the way, getting to hear both sides of the argument on any given question is the main reason I like to catch Larry Kudlow’s CNBC show, Kudlow & Company, whenever time permits’”about twice a week; I can’t remember the last time he didn’t have both viewpoints represented by an expert on the topic at hand).

I still refuse to get into the game of predicting interest rates or the forex value of the dollar, so I’ll just continue to keep a close eye on the indicators, and be content with my role as net judge at a ping pong match. (If I ever get good at predicting either of those, I’ll shut this blog down and start trading futures.)

Anyway, a weaker dollar should in theory translate into higher long term interest rates, and so should higher inflation. But inflation is staying level at around 2.5% according to most measures; interest rates are moving sideways to slightly up; and although the trade-weighted dollar index is falling, it’s still much higher than in previous decades. In short, dollar doomsday isn’t on the radar yet.

What A Pullout Might Mean to the Market


Dan Dorfman wrote an excellent piece in today’s New York Sun on the bearish market implications a quick U.S. pullout in Iraq might engender. (“Iraq Pullout Could Give Markets an Anxiety Attack.”)

We’ll weigh in on this very important subject on tonight’s Kudlow & Company.

As I recently wrote, U.S. and world stock markets are standing with President Bush. They have confidence in his wartime policies. The remarkable global stock market surge since 2003 is testimony to this and represents a stern rebuke to al Qaeda.

Incidentally, here are a few notable quotes from various investment strategists Mr. Dorfman interviewed:

“If we’re seen going home with our tail between our legs, why would that encourage anyone to buy American stocks?” – Bill Rhodes of Rhodes Analytics, former strategist at Merrill Lynch

“We’re looking at increased turmoil throughout the Middle East and a possible disruption in the supply of oil. And who’s to say Iraq’s problems wouldn’t spread to Saudi Arabia? For the stock market, it’s bound to make things more uncertain and more volatile.” Michael Metz, chief investment strategist at Oppenheimer & Co.

“As a market event, I think it’s a nonevent, although it might temporarily boost energy stocks through a rapid and sharp increase in the price of oil. A withdrawal, plain and simple, is an admitted defeat. You have extremists in this world who want to change the name of this country from ‘

Reforming the Reform


The National Review Institute is hosting a luncheon discussion on Sarbanes-Oxley reform this Monday, July 23rd, from 12pm-2pm down in Washington, D.C.

I will serve as moderator for the event.

Panelists include:

* Sanjay Anand, Chairman of the Sarbanes-Oxley Institute
* Hank Greenberg, Chairman/CEO of C.V. Starr & Co.
* Senator Jim DeMint (R-SC)
* Jason Trennert, Managing Partner & Chief Investment Strategist of Strategas Research Partners
* Alex Pollock, Resident Fellow at The American Enterprise Institute
* Michael Ryan, Executive Director of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce

If you’re interested in attending, please email [email protected]

‘While America sleeps, Europe is catching up’


My friend and frequent Kudlow and Company market guest Jason Trennert wrote a great op-ed in the Financial Times earlier this week (’While America sleeps, Europe is catching up’). Looks like Mr. Trennert and Secretary Paulson are on the same page. Both gentlemen are absolutely right.

Here’s an excerpt:

“He Hit All Three”


In case you missed it, legendary columnist Bob Novak sat down with us on Kudlow & Company last night to discuss his new book, “Prince of Darkness,” a memoir chronicling his 50 years of Washington reporting. Here’s what the greatest journalist of our generation had to say when I asked him who the best president he’d seen in his half century of reporting was.

NOVAK: There’s no question. There’s not even a close second. Ronald Reagan was really the only fundamentally successful president in my half century. And it’s because–I didn’t really fully realize it at the time–he didn’t get bogged down in details. He wasn’t a micromanager. He really had very few things he was trying to do: Win the Cold War, restore the economy through some tax cuts; and restore the faith of the American people. He hit all three.

“Our Broken Corporate Tax Code”


Here’s an excerpt from Treasury Man Hank Paulson’s excellent op-ed in today’s Wall Street Journal. He’s dead right. With countries all over the globe racing to reduce their tax rates, it is foolhardy for the United States to be in the back of the pack.

“In 1986, President Ronald Reagan in tandem with the Democratic House and Republican Senate reformed and simplified the tax code, reducing the number of brackets, closing loopholes and lowering individual and corporate rates. The U.S. moved from a country with above-average corporate tax rates to one with below-average rates. The Reagan tax reforms set the stage for 20 years of remarkable economic performance in the U.S. and around the world, what Ronald Reagan called “The American Miracle.”

Twenty years later, after much of the world has followed our lead, the U.S. is once again a high corporate tax country. We now have, on average, the second-highest statutory corporate tax rate (including state corporate taxes), 39%, compared with an average rate of 31% for our top competitors — the democratic, market-oriented nations that form the Organisation of Economic Cooperation and Development (OECD).

…The 1986 tax reform recognized that if there is a prescriptive role for business tax policy, it is to free companies to put capital to its best use, which is essential to grow and sustain higher standards of living for U.S. workers. Instead of building on the proven success of these reforms, we have moved in the opposite direction, making the code more complex, adding narrow provisions that create or respond to current headlines. What Reagan referred to in 1985 as the “old jalopy of our tax system” is clogging the U.S. economic highway yet again….”

Al Qaeda’s Iranian Connection


Former CIA analyst Michael Scheuer told us on last night’s show that Eli Lake’s New York Sun report on the new National Intelligence Estimate of the global terrorist threat concerning al Qaeda in Iran was wrong. Mr. Scheuer casually dismissed the report as a function of that newspaper’s obsession in defending Israel. Oh really? In fact, Mr. Lake culled his information from the NIE report itself.

As the Sun editorializes this morning, one of the two policy-making councils running al Qaeda and planning attacks’”they are called Shura Majlis’”meets in eastern Iran. One of the participants in the Iran council happens to be Saad bin Laden, one of Osama’s sons and possible successor.

Investors Business Daily also editorializes today in support of the Sun’s version, adding details that senior al Qaeda members have taken up residence in Lavizan, a military base near Tehran; Chalous, a Tehran suburb; Mashod a Shiite holy city; and Zabul, a town near the Afghanistan border.

The speculation is that these al Qaeda groups are operating under an umbrella of support from Iran’s Quds Force. As IBD points out, the Quds force is the Iranian terrorist support group helping both Shiite and Sunni militias in Iraq kill American soldiers and Iraqi civilians.

So why would Scheuer dismiss the Iranian connection?

Well, ace military reporter Rowan Scarborough, formerly with the Washington Times, and now with the Washington Examiner fingers Scheuer in his new book Sabotage; America’s Enemies Within the CIA. Turns out Scheuer wrote Imperial Hubris: Why the West is Losing the War on Terror. It’s a Bush bashing exercise that got him on 60 Minutes and produced a free reign platform for Bush opponents.

Of course, Scheuer and his pals at the CIA never caught bin Laden. So if the West was really losing, aren’t the CIA analysts partly responsible?

I’m still waiting to see if any of the bigger mainstream media newspapers pick up the story of al Qaeda activity inside Iran. So far they haven’t. In fact, the media seems to be arguing’”in the face of all the facts’”that al Qaeda in Iraq does not pose a threat to the United States. Moreover, the MSM blames the Bush administration for the retooling of al Qaeda in Pakistan.

The reality here is that all three al Qaeda branches’”in addition to their jihadist cohorts elsewhere’”are coming at us.

The question now becomes whether the U.S. government will stay on the offensive, maintain all of its Patriot Act tools, and beat down the bad guys.


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