Kudlow’s Money Politics

More Mother’s Milk

Profits, profits, profits.

How many times have you heard me say that profits are the mother’s milk of stocks, business success, and job creation? Well, they remain the story of the day.

S&P earnings look to rise about 45 percent in the first quarter, with earnings estimates pegged at a 9 percent gain in April to lead off the second quarter. Meanwhile, Chevron reported better-than-expected profits this morning, on top of yesterday’s positive results from Conoco, Motorola, and Starwood Hotels. (Stocks are taking a breather this morning, after posting their best rally in two months yesterday.)

Look, profits are the purest and most efficient form of stimulus to the economy. They are vastly greater than oversized government spending and borrowing. Profits improve our future outlook, while borrowing and spending undermine it.

Investors need to remain vigilant of looming tax hikes on investors and successful earners. But right now we’re witnessing some big numbers in retail sales, business investments, ISMs, and the aforementioned profits. All of this is driving stocks higher on the shoulders of a V-shaped recovery in the U.S. and — let me add — Asia.

I prefer Asia to Europe. European countries like entitlements that are bankrupting them. Asia likes entrepreneurs, capital formation, and free-market capitalism. There are even some new free-trade agreements springing up right now, which will spur even more growth.

As for Europe, why in the world should U.S. taxpayers — via IMF bailouts — finance the bankrupt entitlement state of socialist Greece or any other EU country? After all, the IMF is largely funded by American taxpayers. I’m quite sure investors will revolt against the idea of bailing out Greece or the EU’s massive social-welfare failures. This is a key political point with financial and economic overtones.

Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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