Kudlow’s Money Politics

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

Cindy Sheehan on Kudlow & Company Tonight


Anti-war activist, Gold Star Mother and peace mom Cindy Sheehan will appear on Kudlow and Company this evening for a one-on-one interview.

Earlier this week, Ms. Sheehan announced plans to run as an independent against Nancy Pelosi next year if the congresswoman doesn’t move to impeach President Bush by July 23rd. The crux of her early stage campaign is built around Bush being impeached and an immediate end to the war in Iraq.

Of course, I strongly disagree with Ms. Sheehan’s proposals and her politics.

And while I intend to give her a respectful hearing, I will of course challenge her opinions.

Please join us tonight at 5pm ET on CNBC.

Wednesday Night Lineup


On CNBC’s Kudlow & Company this evening:

MARKETS…CNBC’s Bob Pisani will give us a quick recap of today’s stock market developments from the NYSE.

Our market panel tonight: Vahan Janjigian, executive director of the Forbes Investors Advisory Institute; David Sowerby, chief market analyst at Loomis Sayles & Company; Jerry Bowyer, National Review Financial columnist/author of “The Bush Boom: How a Misunderestimated President Fixed a Broken Economy”; Michael Pento, senior market strategist for Delta Global Advisors.

ECONOMY & INFLATION…A debate between Michelle Girard, senior economist, RBS Greenwich Capital and Robert McTeer, former Federal Reserve Bank of Dallas President.

WASHINGTON TO WALL STREET DEBATE…On to debate taxing hedge funds, the budget and more are Steve Moore from The Wall Street Journal’s editorial board and Jared Bernstein, senior economist at the Economic Policy Institute.

NET NEUTRALITY…We will take a look at the latest FCC developments with John Rutledge, chairman of Rutledge Capital.

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

Fond Farewell to the Phillips Curve?


“Still, I think we can agree that, at a minimum, the opposite proposition–that inflationary policies promote employment growth in the long run–has been entirely discredited and, indeed, that policies based on this proposition have led to very bad outcomes whenever they have been applied.”
’” Fed Chairman Ben Bernanke speaking before the National Bureau of Economic Research yesterday.

If Ben Bernanke is dissing the fossilized Phillips curve as a monetary indicator and as an inflation forecaster (as seems to be the case based on his remarks), well, that would be a very good thing indeed. More Americans heading off to work and prospering simply does not cause inflation.

Excess money created by the Fed causes inflation.

And, as I’ve argued on countless occasions, it does not appear that we are faced with an excess money situation. Commodity markets continue their boom principally because of vigorous global economic growth, not inflation.

In addition, U.S. bond market spreads — particularly the difference between market Treasury bond rates and inflation-adjusted Treasury bond rates — suggest that inflation is moving sideways at just around 2 percent. The actual inflation data from the consumer spending deflator corroborates this view. Importantly, the Fed has contained monetary base growth for years. This may be why rising energy prices have not leaked through to the core inflation rate.

As a result, I still don’t look for any change in Fed policy in the foreseeable future. The not-too-hot, not-too-cold Goldilocks economy and the stock market are doing just fine without any Fed fine-tuning.

Incidentally, Mr. Bernanke mentioned the TIPS inflation spread several times during his speech yesterday. This appears to be a key indicator for him. Good.

A Dunkirk in the Desert


Strong remarks from Frank Gaffney, president of the Center for Security Policy and former assistant secretary of defense for international security policy under President Reagan on last night’s show.

KUDLOW: Frank Gaffney, Nancy Pelosi said this is going to be a month of action to end the war. Senator Harry Reid says we have a moral obligation to end the war. He’s already declared defeat. How much is this going to affect President George Bush, Frank?

FRANK GAFFNEY: I’m much less worried how it’s going to affect President Bush than how it’s going to affect all of us, specifically the country. I worry that what defeat will translate into is not simply a debacle in Iraq–orders of magnitude worse than anything we’ve seen so far, not just for the Iraqi people, but for our retreating forces. A Dunkirk in the desert seems to me to be a distinct possibility if we retreat pell-mell, as the Democrats seem to want now. And a disaster, I think, for those of us in the free world more generally who are confronting an enemy who will not stop the war just because we’ve decided we’ve had enough of it.

Tuesday Night Lineup


On CNBC’s Kudlow & Company this evening:

MARKETS…Bob Pisani will lead us off with a market report from the NYSE.

Our market panel tonight includes Barry Ritholtz of Ritholtz Research & Analytics; Herb Greenberg, senior columnist at MarketWatch/CNBC contributor; and Noah Blackstein, portfolio manager at Dynamic Mutual Funds.

INFLATION & THE ECONOMY…A debate bewtween Robert Stein, First Trust Advisors Senior Economist and Wayne Angell, former Federal Reserve Board governor

A LOOK AT TRADE…US Trade Representative Susan Schwab will join us in a one-on-one interview.

The market panel will respond and weigh in with their thoughts.

TROUBLE IN THE MCCAIN CAMPAIGN?…Larry Sabato, director of the University of Virginia Center for Politics will offer up his unique perspective on recent senior personnel departures.

IRAQ…A debate between Joe Cirincione, vice president for national security at the Center for American Progress and Frank Gaffney, former assistant secretary of defense under President Reagan/president of the Center for Security Policy.

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

Deja Vu?


Looks like Mr. McGovern himself thinks the soft-on-terror Dems may be snatching defeat from the jaws of victory in 2008…

“I’m not sure that an anti-war Democrat can win [the general election]. We haven’t proved that yet. Some people point to the fact that the war in Vietnam was dreadfully unpopular, but that when I came out for an immediate withdrawal, it helped me win the nomination but not the general election. And there may be some truth about that.” -George McGovern, former Democratic presidential nominee who lost the 1972 election in a landslide winning only 38 percent of the popular vote.

Click here for my thoughts on why the Dems are dooming themselves to defeat in next year’s election.

“Speak Truth to Anxiety”


Here’s some of what Senator Joe Lieberman (I-CT) had to say on Kudlow & Company last night.

“I can tell you that any of the Iraqis in power – Shia, Sunni, Kurdish – of course, they all want us to get out eventually, but not yet. Because they don’t believe that they can hold the country together yet.

Look, I was in Ramadi about a month ago. And I was with a group of American and Iraqi soldiers. The commanding officer of the Iraqi unit asked to speak to me privately. Frankly, I’ve had this to happen before on trips. I thought he was going to ask me for more equipment or better equipment. And he said to me, `Senator, I watch American television by satellite. Please go back and tell your colleagues’–and this was all through an interpreter–`your colleagues who are calling for a withdrawal, that if you withdraw, I’m going to get killed and all my family will get killed, and al-Qaeda will take over Anbar province, and this will be the base for their empire, caliph-led, throughout the Middle East.’

So I think we just have to speak truth to anxiety here, and convince our colleagues that the purpose–I know this war is unpopular. I know it myself because I lost a primary over it last year. I know that the public is frustrated. But, you know, we get elected to lead, not to follow. And we get elected to do what’s right for the country, not just to get re-elected. So this is going to be a week of great challenge for the Senate and for every individual member. And I hope we’ll come through it in a way that will most of all put the security of our country first.

Monday Night Lineup


On CNBC’s Kudlow & Company this evening:

CNBC’s Bob Pisani will get us started with a market drilldown from the NYSE.

SENATOR JOE LIEBERMAN…The distinguished Senator from Connecticut will join us in a special one-on-one interview from Washington to discuss Iraq, the war on terror and more.

STOCK MARKET & ECONOMY…Joining us with their market insights are Jim Awad of Awad Asset Management; John Rutledge, chairman of Rutledge Capital and former economic adviser to President Reagan; and Gary Shilling, president of A. Gary Shilling & Company.

TACKLING TERRORISM IN NEW YORK CITY…New York City Police Commissioner Ray Kelly will discuss the expansion of the city’s anti-terror surveillance camera program.

INTERNATIONAL MARKETS, MIDDLE EAST TENSIONS & TERRORISM…Ambassador Cofer Black, chairman of Total Intelligence Solutions and the former director of the CIA’s counterterrorism center will join us with his unique perspective.

The market panel will weigh in.

BULL VS. BEAR SHOWDOWN…An economic debate between University of Michigan economics professor Mark Perry and Gary Shilling, president of A. Gary Shilling & Company.

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

Back to the 70’s?


Art Laffer on Kudlow & Company:

“This economy’s great. If you want to know what problems are, go back and look at the 1970s, and look at what some of these [Democratic] candidates are proposing that would take us back to the 1970s. I see these guys proposing all these new things. I mean, the Democrats have been given an issue on a sterling silver platter called Iraq. And they are choosing to use that issue to reform the economy which has been the best-performing thing ever. If they do that, Larry, I mean, very seriously, if they do what they’re saying they’re going to do, we’re going to go back, we’re going to have the film played backwards of the 1970s, and it will be a catastrophe. The economy is the one thing that no one should touch.”

It Pay$ to Stay in School


Brink Lindsey throws cold water on the heated issue of economic and wage inequality in today’s Wall Street Journal. It’s an important piece well worth reading.

The main point is that wage inequality is a function of people not staying in school. This is a point I keep making’”that if you earn a college degree or better, the unemployment rate is 2 percent, whereas if you don’t graduate from high school it’s closer to 7 percent. Moreover, the wage gap between these groups is very significant and continues to grow.

Simply put, it pays to stay in school.

Lindsey also points to demographic changes as the source of much of the increase in measured inequality. He cites the rising number of single parent households, the influx of low skilled Hispanic immigrants, and an older, better educated population as skewing the numbers. People over 55 years old have the most money by far. People under 25 don’t have nearly as much. Finally, dual earner couples in the top 5′”10 percent of the income scale obviously make a lot more than low-end families with only one earner.

He concludes with the vital notion of schooling and blames the current school system for getting the job done. According to Lindsey, ‘Real improvements will come from challenging the moribund state-school monopoly with greater competition.’ Of course, poor parenting and family breakup play a big role in all of this.

The doom and gloomers have it all wrong according to Mr. Lindsey. He’s right. In fact, the U.S. economy today is vastly better than it was thirty years ago’”in terms of median income as well as the expansion of comforts, conveniences and opportunities.

Friday Night Lineup


On CNBC’s Kudlow & Company this evening:

CNBC’s Bob Pisani will get us started from the NYSE with a recap of today’s market action.

STOCK MARKET, STELLAR JOBS REPORT…Joining us to discuss tonight are Craig Columbus, chief market strategist at Advanced Equities Asset Management; John Browne, editor of; Art Laffer, former Reagan economic adviser and chairman and chief investment officer of Laffer Investments; and Doug Kass, president of Seabreeze Partners Management.

GOLDMAN SACHS TERROR THREAT, NOPEC, & MORE…our market panel will stick around to discuss.

POLITICAL ROUNDUP…CNBC Chief Washington correspondent John Harwood will weigh in.

GEPHARDT/HILLARY-PROTECTIONISM & NEWT’S “CALL TO LIBERALISM”…Jared Bernstein, senior economist at The Economic Policy Institute and author of “All Together Now: Common Sense for a Fair Economy” will debate Don Luskin, chief investment officer at Trend Macro.

TERROR DOCTORS IN THE US/GOLDMAN SACHS THREAT…Robert Spencer, New York Times bestselling author of The Politically Incorrect Guide to Islam and The Truth About Muhammad as well as the director of the website Jihad Watch will be aboard.

IRAN/TERRORISTS IN U.S…On to debate are General Wesley Clark and Jed Babbin, former deputy under secretary of defense and the editor of Human Events.

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

Red Scare?


Is China trying to poison us, our kids, and our pets? Are Beijing’s communist hardliners waging some clever, clandestine, economic/military war against U.S. citizens? Now, before flatly dismissing the idea, consider that China freely admits a lengthy record of safety woes.

Check out yesterday’s Wall Street Journal for Pete’s sake. According to China’s own findings, almost 20 percent of Chinese goods fail to meet quality standards. 20 percent. Now, when you factor in that China was responsible for issuing the report, and that its China’s own quality standards that are at play here, one needn’t go out on a limb to reach the conclusion that safety problems are likely far more widespread than what’s being officially reported.

Some recent Chinese safety woes: poisoned pet food; baby diapers laden in excessive fungus, children’s toys with lead, a slew of foods tainted with high levels of bacterial contamination, poisoned toothpaste, etc.

Even the Chinese government admits to ‘major quality problems’. One high ranking Chinese health official recently stated, “These are not isolated cases.”

Could this be a calculated Communist strategy? Is China trying to poison our pets and our kids? Maybe the folks suspicious of China are right after all?

Great Goldilocks Job Report


More Goldilocks from today’s solid jobs report.

With prior monthly revisions non-farm payrolls increased 207,000′”that includes 132,000 new jobs in June, 190,000 in May, and a 122,000 in April. Not too hot, not too cold.

Year-to-year wages for non-management workers increased 3.9 percent. Comparing that with the 2.3 percent increase in the headline inflation personal consumer deflator (for May, the latest month) leaves about 1.5 percent improvement in real wages.

The unemployment rate remains at a historically low 4.5 percent. This means the Fed will neither tighten nor ease. Holding its target rate steady, with a rising economy and profits, is very bullish for stocks.

(Note: If you graduated from college your jobless rate is 2.0 percent. If you failed to graduate from high school your rate is a much higher 6.7 percent. Message: Stay in school.)

The whole economy is experiencing a midyear pick up, led mostly by business, though consumers will be chipping in. For the consumer pessimists out there, remember Say’s Law’”supply creates its own demand. In other words, as businesses invest, produce, and hire more, rising incomes will spur consumer spending.

Congress take note: Raising investment or business tax rates will undermine Jean-Baptiste Say and the whole economy. Message to President Bush: Keep your veto pen handy for economy-slowing tax hikes or trade protectionist tariff increases.

Without tax hikes, it’s still the greatest story never told.

Thursday Night Lineup


On CNBC’s Kudlow & Company this evening:

CNBC’s Bob Pisani will get us started with a market drilldown from the NYSE.

MARKETS…Joining us this evening are Liz MacDonald, Forbes Sr. Editor; John Rutledge, chairman of Rutledge Capital; Heather Bouchey from the Center for Economic & Policy Research; and Brian Wesbury, chief economist at First Trust Advisors.

CORP TAX REVENUES DOWNPROFITS CORRELATION?…Dan Clifton, Head of Policy Research at Stategas Research Partners will offer his expert insight. The market panel will join in.

BARRON’S CAMPAIGN 2008 INVESTOR GUIDEBarron’s Washington Editor Jim McTague will offer up his perspective. The market panel will also weigh in.

POLITICAL ROUNDUP…CNBC chief Washington correspondent John Harwood will bring us up to speed on all the latest news and developments.

CLINTON/OBAMA TRADE BILL…Krishna Guha, Financial Times Chief U.S. Economics Correspondent will discuss this latest development.

THE TERROR DOC PLOT…Joining us to discuss the latest terrorist threat and its implications are Neil Livingstone, CEO of security consultant ExecutiveAction; Thomas Lifson, Editor/Publisher at The American Thinker; and Michael Sheehan, NBC Terrorism Analyst.

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

If It Ain’t Broke, Don’t Fix It


A flurry of new reports shows that the Goldilocks economy is alive and well.

New readings for both manufacturing and services from the Institute for Supply Management show solid economic growth both now and in the future. Also, a private sector survey on jobs suggests a solid number tomorrow when the Labor Department reports.

Additionally, core inflation is running only 1.9 percent ahead of year ago, with headline inflation increasing only 2.3 percent. Hard goods prices are actually falling by 2 percent over the past year. Forward inflation spreads in the bond market are signaling continued low inflation ahead. And gold prices haven’t moved in a year.

Commercial rents in major cities are very strong according to this morning’s Wall Street Journal. And while housing is still a drag, business construction remains strong.

Real GDP for the second quarter should come in close to 3 percent after a near death experience of only 0.7 percent in the first quarter. Federal Reserve policy is on hold, as it should be.

It remains a bullish scenario.

However, congressional Democratic tax polices aimed at raising taxes on private partnership investment and public buyout firms is just plain stupid. The Bush boom is nearly six years old, with a very strong stock market, low unemployment, and low inflation. If it ain’t broke, don’t fix it.

This war on prosperity almost seems as though Democrats wish to bring down the Bush boom, in order to gain election year fodder. Perhaps I’m being too cynical, but I can think of no good reason for these tax hike proposals.

Reagan Shines


Scott Rasmussen released a poll today showing Ronald Reagan near the top of the best-liked post WWII presidents.

The Gipper shares the number two slot with Dwight Eisenhower’”both claiming a 72 percent favorable rating. JFK won top honors, coming in at 80 percent. Harry Truman was a close fourth at 70.

I believe history will eventually show Ronald Reagan to be the dominant post war president. He changed the world. Reagan ended the Cold War, while simultaneously reigniting and restructuring American capitalism through low tax rates, deregulation, and disinflation. It’s good to see him up there in the top three.

President George W. Bush’s low numbers come as no surprise. But it might be instructive to look at Truman’s story. When he ended his presidency he was hovering somewhere in the low 20s because of Korea. Today Bush is in the high 20s with Iraq weighing heavily on him. Could be a parallel there. Time will tell. But rating Bush now is a fool’s errand.

Win Arguments, Make Money


I have an idea for all you summertime book worms. In addition to the trendy novels and biographies you plan to stick in your beach bag, why not insert a book on how to do better than most stock market investors? Or a book on how to sound like a seasoned supply-sider when the conversation turns to economics?

If you’re interested, my good friend Victor Canto has written a book that covers both of these topics. It’s called Cocktail Economics: Discovering Investment Truths from Everyday Conversations (Financial Times Press, 336 pp.). The title promises easy entry into what can be intimidating material: economics and investing. On this front, the book does not disappoint. But it offers so very much more.

Here’s the story behind the catchy title:

Back in the late 1970s, Victor had a problem. He was just out of the University of Chicago ‘” where he studied, no less, with Milton Friedman and Arthur Laffer ‘” and he was teaching his first class at the University of Southern California. His subject was economic theory, and he was to teach it to budding MBAs. So far, so good. But there was a problem: Victor’s students didn’t see what economics had to do with their careers.

The better economists understand that making money in business or the stock market is directly tied to a person’s knowledge of the big-picture macroeconomic environment. Supply-siders, like Victor and myself, call this a top-down worldview, whereby a large policy ’shock’ occurs at the top of the economic food chain, after which it wields enormous influence on the broad economy, including the businesses that operate in the economy. But for Victor to convince his students of the importance of this process, abstract textbooks and traditional course outlines just wouldn’t do. More important, if he was to survive his first teaching engagement, he had to develop a hook.

And so he did.

Young Professor Canto told his students that rather than work from the textbook each class, they would investigate the Wall Street Journal’s editorial page. Specifically, if an editorial discussed a new policy action in Washington, they would ask a few basic questions: Would the action impact the whole country, or just a pocket of the country? Would it play more on the supply or demand side of the market? How would the economy return to equilibrium in the wake of the action? And finally, who in business and society would be the winners and losers following each policy shock?

It was this last question that hooked his students, all of whom wanted to be winners in life. Indeed, if they could answer this question correctly, they would be empowered. With economic truth on their side ‘” truth that, not coincidentally, is the basis for supply-side economics ‘” they just might win an argument at a cocktail party. (Hence, ‘cocktail’ economics.) And if they applied this information to their investment portfolios, they stood to make a few bucks.

This is what gives this important book its practicality. Winning arguments about the economy can be thrilling ‘” I happen to love the sport. But being able to take supply-side truths to your broker can be much more satisfying.

Here’s how the Canto process works:

A policy action occurs in Washington ‘” say a tax cut, a series of rate hikes from the Federal Reserve, or a regulation that slams into a handful of industry sectors. Any of these events can set a world of macroeconomic indicators in motion: industry output increases or decreases; profits rise or fall; jobs swell or swoon; GDP expands or contracts. But something else occurs in tandem with these events: Distinct asset groups respond accordingly and predictably.

Identifying these asset-class responses ‘” for instance, a spike in large-cap stocks, or a dip in bond-market returns ‘” is critical for any stock market investor interested in superior performance. I talk a lot about the investor class and how it has become such a formidable force in politics. To join this class all you need is a 401(k) or a portfolio of index funds that you hold for the long-term. But as Victor makes clear, adjusting your long-term investments periodically based on the policy shocks that lead to major macroeconomic shifts is a proven money maker.

In fact, skipping these periodic adjustments is the equivalent of throwing money away. And there’s no need to do that if you can perform some very basic functions, such as reading the newspapers and keeping your eyes open.

Want to have a productive summer while you work on your tan? Read Cocktail Economics. It educates and entertains (there is no shortage of anecdotes and real-world examples) while offering simple-to-follow instructions on how to do better than the average investor. It’s also an excellent primer on how to argue like a supply-sider ‘” which is not a bad thing if you like winning arguments.

Just Another Limousine Liberal?


Hopefully everybody saw the Investors Business Daily editorial yesterday entitled Buffett’s Bad Math.

Two quick points on it:

First, as IBD carefully researched, there’s simply no way Mr. Buffett’s secretary paid 30 percent in taxes.

Second, the reason Mr. Buffett has such a low tax rate of only 17.7 percent is that he takes all of his income as dividends and capital gains.

Nobody’s accusing Buffett of breaking the law. And, as a savvy investor, he ought to use the rock bottom investment tax rate that spurs capital formation and rewards his effort’”just like private equity buyout funds, hedge funds, and other partnerships.

But there is hypocrisy here.

Besides playing fast and loose with his secretary’s tax data points, Mr. Buffett wants to raise taxes on all the other players in the rarified investment risk game. But the problem is he wants everybody else to pay higher taxes on their high-risk investments.

In other words, Buffett’s already made his dough’”a ton of it. But now it sounds like he doesn’t want to allow other clever and ambitious people to have the same opportunity to make their own bundle.

Is Mr. Buffett just another limousine liberal speaking with forked tongue? I don’t know, I’ve never met him. But it sure sounds like it.

The Right Decision


As both a supporter and friend of Scooter Libby, I’m glad President Bush decided to use his constitutional authority to commute Scooter’s prison term.

In my heart, I wish the president would provide him a full pardon. Maybe that will come at some point in the future. Perhaps at the very end of Mr. Bush’s term late next year, or early in 2009.

The Libby case still baffles me. It was Colin Powell’s deputy, Richard Armitage, who leaked Mrs. Wilson’s name’”not Scooter.

And as those of us who know Scooter well, he is a good and honorable man who served his country with distinction.

Good News on Taxes


There’s no doubt that President Bush will veto any capital gains tax hikes that congressional Democrats are proposing for buyout funds, hedge funds, and other private partnerships.

Through White House spokesman Tony Snow, the president said he’s prepared to veto any measures to increase taxes.

Treasury chief Henry Paulson said, ‘I don’t believe it makes sense to single out one industry’


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