Friday, December 31, 2010

Tea Party's O'Donnell Fights Back

Christine O’Donnell, the former Tea Party favorite and GOP Senate nominee from Delaware, is on the hot seat right now for allegedly misusing campaign funds. Is there something to this story? Or is this just another attempt by the left to discredit the whole Tea Party movement?

O’Donnell joined me for an exclusive interview last night to defend herself. Here’s the transcript.



Friday, December 17, 2010

Reaganomics 2.0 in the Driver’s Seat

On a historic night this past Thursday, a new Tea Party Republican Congress completely transformed U.S. economic policy. Elections matter, and so do their ideas. Smaller government, low taxes, and less spending were key election themes in the Republican landslide. And those themes triumphed this week as a large tax-cut bill finally passed the House and a monstrosity of a spending bill was defeated in the Senate.

In one fell swoop, Obamanomics is out the window. Reaganomics 2.0 is now in the driver’s seat.

Perhaps the most amazing part of the story was the work of Mitch McConnell and John McCain (among others) to kill the 2,000-page, $1.2 trillion omnibus spending bill in the Senate, along with its 6,600 earmarks totaling $8 billion. This budget monster dripped with contempt for voters and taxpayers. But business as usual was overturned.

I had an inkling of this when Sen. McCain told me in a CNBC interview earlier that night that, if need be, he would favor a government shutdown over passage of the spending bill. And now, under a short-term continuing resolution, the whole current-services budget baseline can be lowered by anchoring it to 2008 spending.

Hundreds of billions of dollars can be saved, producing a smaller government that will be, in effect, a tax cut for the private economy. And the symbolism of overturning massive spending only two years after Obama’s debt-laden stimulus package is enormously important.

Of course, the tax deal is far from perfect. But low tax rates will be preserved for personal incomes, capital gains, dividends, and estates. This is pro-growth and pro-capital formation, and it’s a confidence builder, too.

Tax cuts for businesses, which are new to this bill, may prove more effective than most people think. And while the payroll tax cut has only a small labor incentive, it is not nothing.

Yes, there’s too much spending in the tax bill, as some cranky conservatives keep reminding us. However, it’s only about 12 percent of the total $857 billion legislation. Unemployment benefits come to $56 billion, the refundable tax credits are about $44 billion, and the utterly stupid ethanol subsidy is about $5 billion.

Meanwhile, 88 percent of the bill goes to tax cuts — where people get to keep their own money and where there are some significant incentive-effects on the supply-side.

It’s not a panacea. Hopefully broad-based flat-tax reform will materialize in the next few years, along with entitlement reform and deep spending cuts. But it is worth noting that late Thursday night, according to the Washington Post, negotiators removed more than 70 temporary programs from the bill.

For those conservatives who are still complaining, I urge you to reconsider the importance of marginal tax-rate incentives for the economy. Tax-rate increases will depress growth and worsen the budget deficit. There’s no way America’s financial position will improve without economic growth, nurtured by low tax-rate incentives. And if the compromise tax plan had been defeated, the economy would have been held hostage for as much as six months, before the implementation of some kind of new plan to extend the Bush tax cuts through the complicated budget process.

In this sense, the tax-cut compromise does far more good than bad. A new batch of statistics shows recent economic improvement: rising retail sales and industrial production, a jump in the Index of Leading Indicators, and lower jobless claims. The trick here is to nurture the new economic improvement, not snuff it out with higher taxes.

In the new session of Congress — which will feature a true Tea Party GOP conservative majority — new spending-limit policies can fill in the blanks left by the tax deal. But if President Obama has the acumen to see that a pro-growth economic policy is tied to low tax rates, the GOP should take great care not to cede that message and lose the economic-growth high ground.

A great battle will be joined over the spending, taxing, and regulatory mandates of Obamacare, which is probably the biggest job-killer of all. Conservative reformers in the new Congress will force this fight, along with tax, spending, entitlement, and monetary reform. Behind all this, however, the new Tea Party GOP must maintain a message of economic growth and prosperity.

Crankiness is no substitute.

Wednesday, December 15, 2010

A Growth Bounce for Treasuries

Rising Treasury bond rates are all the buzz on Wall Street. Over the past six weeks, bond rates have moved up about 100 basis points to more than 3.5 percent.

Will this snuff out economic recovery? No.

In fact, yields are going up precisely because economic growth has quickened and real yields are rising. Some call it the growth trade. Get out of bonds and buy stocks.

A blowout retail number for November arrived this week, with retail sales up five straight months. Manufacturing from the industrial-production report is up five consecutive months. And the production of business equipment (capex) is rising 12.5 percent over the past year.

Fourth-quarter growth could be 3.5 to 4 percent. And that could spill over into the new year, especially with tax cuts coming. The Senate voted overwhelmingly to pass them, and 80 to 100 Democrats will join most Republicans to pass the tax-cut package in the House.

The tax deal isn’t pure, but it is a positive. It adds to confidence and refreshes incentives on personal-income investments. And with 100 percent cash expensing, it even adds incentives to business investment.

I can’t for the life of me understand why any conservatives would want tax rates to jump up, or would want to drain $600 billion or more from the private economy. Some of the goofy spending increases in the package -- which are probably only 5 percent of the total -- can be fixed later. Let Paul Ryan take them out. Or fund them out of the leftovers from the stimulus package, which failed so badly.

I’m glad to see that the NFIB, the Business Roundtable, the Chamber of Commerce, any number of bank economists, FreedomWorks, Americans for Tax Reform, and others agree with me. And I do not understand Mitt Romney’s opposition. He ought to know better.

And speaking of ought to know better, the jump in long-term interest rates on rising economic growth should tell the Fed to stop QE2. Capital gains and low-tax incentives for businesses large and small are real job creators. On the other hand, just printing money would be an inflation-creator over time. In fact, the rise in long-term Treasury rates is telling the Fed that short-term rates are too low and should be higher.

On CNBC's Kudlow Report

Tonight at 7pm ET on CNBC:

MARKETS & ECONOMY

- Rich Karlgaard - Forbes
- Jon Najarian - OptionMonster
- Andy Busch- BMO Capital Markets


DEBIT CARD FEES: IS THE FED OVER-REACHING?

-Brian Gardner, Keefe, Bruyette & Woods
-Peter Navarro, University Of California - Irvine Business Professor

CEO SUMMIT AT THE WHITE HOUSE: PROCESS OR POLITICS? WILL CEOS START HIRING?

- Jimmy Pethokoukis, Reuters Money & Politics
- David Goodfriend, former Clinton WH staffer

GOVERNMENT SPENDING GONE WILD
New Spending Bill Totals $1.1 Trillion

- Rep David Dreier (R-CA)
- Rep. Bill Pascrell (D-NJ)

HOUSING:
FORECLOSURE DATA TO BE RELEASED TOMORROW...WILL RISING INTEREST RATES AND THE FORECLOSURE MORATORUM KILL THE HOUSING SECTOR? ... WHAT DOES ALL THIS MEAN FOR THE HOMEBUYER AND YOUR MORTGAGE?

- Stephen Gandel, Time magazine
- Matt Englett - KEL Attorney

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, December 14, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

MARKETS & ECONOMY...DOES THE BERNANKE FED HAVE THE STORY ALL WRONG?

- Don Luskin, Trend Macro Chief Investment Officer
- Keith McCullough, Hedgeye Risk Management
- David Goldman, former head of Global Fixed Income Research at Bank of America

TAX DEAL UPDATE

CNBC’s chief Washington correspondent John Harwood reports.

THE OBAMA-CEO SUMMIT
President Obama met with Gates & Buffet today and will meet with CEO's/Business Roundtable tomorrow. Is this a new pro-business move or just a game of politics? What can we expect from the "new" Obama economic agenda?

- Robert Reich - former Labor Secretary
- Steve Moore - Wall St. Journal Editorial Board

ECONOMIC GROWTH & INTEREST RATE OUTLOOK
With all the positive economic signs, isn't it time for Gary Shilling to change his forecast?

- Gary Shilling - A. Gary Shilling & Co. President
- Brian Wesbury - First Trust Advisors Chief Economist


RETAIL: ARE WE LOOKING AT A NEW CONSUMER?

- Hitha Prabhakar -Style File Group retail analyst
- Liz Dunn - FBR Capital Markets & Co. Retail Analyst

IS THIS THE END OF OBAMACARE?

- Ben Ferguson - Syndicated Talk Radio Host ICON Radio Network- Memphis
- Mark Levine, Democratic strategist

Please join us. The Kudlow Report. 7pm ET. CNBC.

Respectful and Loving Opposition to Krauthammer

As I wrote in my last column, “Sell Bonds, Buy Stocks,” I continue to favor the tax-cut package. With all respect to Charles Krauthammer — he’s a brilliant guy, at least three-times smarter than I am on most things, and I love him — his recent column mischaracterizes the tax package.

Republicans should distinguish between tax cuts now (or back in 2003) and massive government-spending stimulus in 2009. The current package would refresh and maintain low tax rates, adding to confidence. So many people around the country and in financial markets expected the tax cuts to expire. Now they won’t. This is good.

We can avoid the train-wreck scenario for the economy and the stock market. We can avoid rolling back marginal tax incentives and draining $600 billion or more from the private sector and handing it over to the government.

Roughly 90 percent of this package is tax cuts. Neither Charles nor other conservative critics of the deal even mention the business tax cuts that are new, including 100 percent cash expensing, which will have a positive effect for job creation (though it should be permanent rather than just one year).

The package’s payroll tax cut for one year is really a demand-side rebate. But at least it keeps money in the pockets of the workforce. That’s not nothing. And extending the AMT is very positive. At $150 billion, this too is not nothing.

Like other conservatives, I worry that extended unemployment benefits will keep unemployment higher than necessary. But this could be funded out of the $110 billion of unspent stimulus funds from the 2009 package. And while the extra spending add-ons for ethanol, wind, and solar power, along with other nicks and nacks, come to $5 billion, they also could be taken out of the unspent stimulus and should not be enough to block the package.

I think conservatives have to keep their eye on economic growth. There’s stuff in the deal that I don’t like, but the overall impact is going to be positive.

The GOP should not go back to root-canal deficit obsession. Next year Paul Ryan is going to lead the charge on deep spending cuts. That’s the best way to lower the budget deficit — not tax hikes.

Root canal doesn’t work. Growth has to be essential to deficit reduction.

When I read Charles Krauthammer’s article carefully, what he really seems to be saying is that conservatives should oppose tax cuts because their growth impact (he acknowledges 1 percent better growth) might reelect Obama. I don’t think that’s good economic or political logic. What Republicans should be doing now is promoting growth and better jobs. There’s plenty of credit to go around. And then comes flat-tax reform, spending cuts, and meaningful deficit reduction.

I know this tax-cut package is not a panacea. I’m just saying it’s a good thing, a step in the right direction. And I think it is consistent with Tea Party principles, as per its endorsement by FreedomWorks.

More on this later.

Wednesday, December 8, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


10-YEAR TREASURY SOARS TO SIX MONTH HIGH…GOLD SILVER DOWN SHARPLY
- CNBC’s Rick Santelli reports.



THE MARKETS & ECONOMY

- Howard Lutnick, Cantor Fitzgerald Chairman & CEO; BGC Partners Chairman & CEO
- Todd Schoenberger, Managing Director; LandColt Trading, LLC
- Joe Battipaglia, Stifel Nicolaus Market Strategist

CEOs ROADMAP FOR GROWTH
- CNBC's Eamon Javers reports.

ONE-ON-ONE WITH HOWARD LUTNICK
- Howard Lutnick, Cantor Fitzgerald Chairman & CEO; BGC Partners Chairman & CEO

SHOULD THERE BE MORE DEFICIT OFFSETS TO $1T STIMULUS PACKAGE?

- Chris Chocola, Club for Growth President
- James Glassman, George W. Bush Institute Executive Director; Kiplinger's Personal Finance Columnist

OBAMA & STATE OF THE DEMS ON TAXES, SPENDING & JOBS
- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy

Please join us. The Kudlow Report. 7pm ET. CNBC.

Friday, December 3, 2010

Shock Therapy for Jobs

Unemployment jumped to 9.8 percent in a very disappointing November jobs report. Nonfarm payrolls increased by only 39,000 and private jobs expanded by just 50,000. This is way below what the economy needs. Most discouraging, the smaller-business household employment number fell for the second time in a row, down 173,000 in November after a 330,000 drop in October. This is the nineteenth straight month with unemployment above 9 percent.

Now, after the severe financial panic of two years ago, it seems clear that too many tax and regulatory obstacles are blocking satisfactory job creation. And it also seems clear that a number of fresh new incentives will be necessary to spur the kind of prosperity that Americans desire. Following the deep recession, we need shock-therapy, pro-growth, tax-cut and deregulatory incentives.

Post-election, is the Washington war on business really over? Has the war on successful earners and investors truly ended? Is the class war against capital still being waged by the White House?
Will Obama bring senior business people into his inner circle? Are we going to get pro-growth tax reform for individuals and corporations? Are we truly going to limit government spending in order to reduce the onerous budget deficit? Is King Dollar currency stability on the table?

These are all key questions for the economy’s future and the murky unemployment outlook.

Perhaps the only saving grace from the poor jobs report is that it will spur a quick resolution to extend all the Bush tax cuts.

Democrats keep shilly-shallying with all these silly class-warfare amendments, like a $250,000 limit, or a $1 million limit. This has everything to do with left-wing redistributionist social policy and nothing to do with economic growth. The fact is, passing the bill to freeze the tax rates will help business confidence. Why don’t Democrats understand this?

But there’s more.

Large and small companies remain worried about the high regulatory and tax costs of Obamacare, which is the number-one jobs-stopper. How expensive will it be over the next five to ten years for the new hire? Companies also have to deal with a crazy quilt of new financial regulations that may block access to new bank loans when private credit demand kicks up.

But the Bush tax cuts will not do the job alone. Full-fledged flat-tax reform — of the sort embodied in the best of the Bowles-Simpson fiscal recommendations — will be necessary for full-fledged economic recovery.

Lowering the top personal and corporate tax rates will increase after-tax returns for work and investment. That’s the kind of strong new incentive that will be necessary to ignite rapid economic growth in the post-meltdown period. Broaden the tax base and lower marginal rates across-the-board.

And full-throated spending reduction will be necessary to drive deficits lower, and reduce the threat that future taxes may have to go up if the bond vigilantes come after the U.S. Treasury market the way they have attacked various countries in Europe.

Meanwhile, the Fed can produce money, but we are learning again that it cannot produce jobs. It also can produce inflation and a devalued dollar.

In other words, the basic building blocks for growth must be restored: limited government, lower tax rates, and a steady currency.

However, all is not doom and gloom on the economy. There is some optimism. In fact, there’s a mystery to Friday’s jobs report, since it just doesn’t tally with all the other good economic news.

Retail sales are up four straight months, and chain-store sales for the early holidays surprised on the upside. Manufacturing reports have been solid. Even for November, the Institute for Supply Management’s surveys for manufacturing and services were solid. The ISMs are basically real-time economic indicators. And oddly enough, the employment component of each looks fairly strong.

Meanwhile, core business investment is rising at a double-digit pace. Profits are at a record high. Commodity indexes are rising at a better than 10 percent rate, year-on-year. The M2 money supply is growing around 8 percent annually. Business loans from commercial banks are finally bottoming. The Treasury yield curve is positively sloped. Oil prices, closing in on $90 a barrel, are too strong. And the stock market’s strong run continues.

In sum, the economy is actually rising at a roughly 3 percent rate. But economic growth should be double that.

There is so much work to be done by the new Republicans in Washington. Let’s hope the Tea Party message is alive and well in the GOP. Smaller government, lower tax rates, deregulation, and free-market economic freedom. We need it now more than ever.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

THE IMPACT OF THE JOBS NUMBER; IS IT A BOGUS NUMBER? JOBS; TAXES, DEBT COMMISSION & QE2





- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

WHY DID MARKETS IGNORE THE JOBS NUMBER? WHAT'S DRIVING STOCKS?
COMMODITIES RALLY BOOSTS EARLY DAY STOCK SLUMP

- Todd Schoenberger, Managing Director LandColt Trading, LLC
- David Tice, Portofilio Manager, The Prudent Bear Fund
- Marc Pado, Cantor Fitzgerald U.S. Market Strategist

OIL CREEPING UP - HOW HIGH WILL IT GO? ANOTHER TAX ON THE CONSUMER?

- Daniel Dicker, Independent Oil Trader, TheStreet.com Senior Contributor
- Peter Beutel, Cameron Hanover President and Author

THE GREAT ESTATE TAX DEBATE

- Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor
- James Pethokoukis, Reuters Money & Politics Columnist; CNBC Contributor

STOCK PICKERS

- Michael Cuggino, Permanent Portfolio Funds; President & Portfolio Manager
- Michael Farr, Farr, Miller & Washington President; CNBC Contributor

Please join us. The Kudlow Report. 7pm ET. CNBC.

Wednesday, December 1, 2010

Good News Lifts Stocks

Stocks hit the jackpot today, with the Dow up almost 250 points.

There was better economic news from ADP private jobs and ISM manufacturing. Revised productivity came in stronger with falling unit labor costs that point to strong profits. Europe’s debt problem looks a little easier on hopes the ECB will be buying bonds. (Maybe QE2 for Europe.) There were rumors that the U.S. would contribute more money to a bigger IMF/Euro bailout fund, although the Treasury denies any commitment. China’s manufacturing survey came in stronger. And hopes are growing for an across-the-board extension of the Bush tax rates.

So all of this added up to a big stock rally.

And one final thought: The improving U.S. economy again suggests to Ben Bernanke that he should back off QE2. A tax-rate freeze is a much better idea for growth.

However, if Europe pumps in more money — as I increasingly think it should — we could be headed for a global mini-boom. Surprise, surprise.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

ECONOMIC AWAKENING!....ANOTHER BANNER DAY FOR STOCKS!





- Russ Koesterich, BlackRock's iShares Group; Global Chief Investment Strategist
- Joe Battipaglia , Stifel Nicolaus Market Strategist
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
- Zach Karabell, River Twice Research President Economist; CNBC Fast Money Contributor
- CNBC’s Bob Pisani


TAX TALKS // AUSTAN GOOLSBEE INTERVIEW
- CNBC chief Washington correspondent John Harwood reports.

GOOLSBEE TAX, ETC. DEBATE
- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host
- Brian Darling, Heritage Foundation Dir. Government Relations

GOLDMAN LIFTS SECTOR VIEW TO OVERWEIGHT....ARE BANKS BACK? DO YOU PLAY IT LIKE GOLDMAN?
- Scott Valentin, FBR managing director
- Peter Cohan, Peter S. Cohan & Associates

TOMORROW'S JOBS REPORT....PLUS, SHOULD UNEMPLOYMENT BENEFITS BE EXTENDED (AGAIN)?

- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Dan Mitchell, CATO Institute Senior Fellow

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, November 30, 2010

King Dollar & Lower Taxes

How ironic. Ben Bernanke launches QE2 and everyone worries about a dollar collapse. But instead, it’s the euro that has collapsed, dropping 9.5 percent relative to the greenback. Overall, the dollar index has appreciated 7 percent.

Some, like Robert Mundell, believe sharp currency swings change monetary policy. In this case, as Euro-debt worries escalate, the rising dollar amounts to a tightening of Fed policy. Smaller than what happened last winter and spring during the Greece problem, but still significant.

This is partly why U.S. stocks have corrected lower by just under 4 percent. Tighter money slows the economy. It’s too bad, because the October numbers show an economic awakening, maybe influenced by GOP election confidence.

In any case, if the greenback keeps appreciating, economic concerns and stock jitters could deepen. All this despite booming corporate profits and strong holiday retail sales.

So, this would be a great time to make a deal on extending the Bush tax rates. Today’s White House meeting seemed to lean ever so slightly towards a deal. But nothing’s definite. Maybe lunch at Camp David.

But my macro point is this: A suddenly stronger King Dollar will be just fine as long as tax rates stay low. The Laffer-Mundell supply-side model argues for tight money and lower tax rates in order to maximize economic growth. That’s what we need now.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

GREAT ECON DATA: CHICAGO PMI & CONSUMER CONFIDENCE...WHAT'S DRAGGING ON THE MARKETS?....TAX SELLING WORRIES; LINGERING HOUSING CONCERNS; EURO DEBT CRISIS... SHOULD INVESTORS GET READY FOR A 4TH QUARTER COMEBACK?


- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Brian Wesbury, First Trust Advisors Chief Economist
- Jack Bouroudjian, CEO of Index Futures Group and a CNBC contributor

OBAMA'S BIPARTISAN LEADERSHIP SUMMIT
- CNBC chief Washington correspondent John Harwood reports from the White House.

TAX DEBATE: SHOULD THE CAP BE RAISED TO $1 MILLION?

- Mark Levine, Democratic Policy Analyst; Lobbyist
- Curtis Dubay, Heritage Foundation Senior Policy Analyst

WIKILEAKS TARGETS MAJOR U.S. BANK
- CNBC’s John Carney
- Dick Bove, Financial Strategist; Rochdale Securities

HOW TO AVOID GETTING BURNED BY EUROPE

- Michael Cuggino, Permanent Portfolio Family of Funds President & Portfolio Manager; Permanent Portfolio Fund
- Lee Munson, Portfolio Asset ManagementChief Investment Officer

DEFICIT COMMISSION REPORT
- Rep. Xavier Becerra (D-CA)

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday, November 29, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

BRIGHT SPOT: RETAIL ROARS ON BLACK FRIDAY/ CYBER MONDAY...Is retail picture as rosy as it looks? Is it a reflection of optimistic consumer or saving-weary consumer? Are retailers discounting too much to turn a profit?



- Brian Sozzi, Equity Research Analyst
- Marshal Cohen, Chief Retail Analyst The NPD Group
- Loren Bendele, Founder & CEO of Savings.com

EUROPEAN DEBT CRISIS -- IS THIS A BUYING OPPORTUNITY?

- Robert Froehlich, The Hartford, Sr. Managing Director
- Peter Morici, University of Maryland Robert H. Smith School of Business Prof; U.S. International Trade Commission Fmr. Chief Economist

CONGRESS BACK IN SESSION

- Rep. Mike Pence (R-IN)

WILL THERE BE A TAX CUT EXTENSION? WHAT IS THE RIGHT COMPROMISE?

- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

WIKILEAKS & CHINA

- CNBC's Hampton Pearson.

HOW SHOULD INVESTORS NAVIGATE THESE TRICKY WATERS?

- Jon Najarian, Co-Founder, OptionMonster.com; Fast Money Contributor
- Alan Valdes, DME Securities Vice President

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, November 23, 2010

No Time to Panic

Stocks are getting ripped by North Korea and Ireland, with all the fears that go along with those two stories. People should not panic. A lot of good news out there is suggesting a strong economy, regardless of what the Fed says.

Third-quarter real GDP was revised up from 2 to 2.5 percent, including better consumer spending. And inside the report, business equipment and software investment is growing 19 percent year-on-year. But the really important news in the revision is a continuation of strong business profits. After-tax profits are up 28 percent from year-ago levels. Domestic financial profits are up 28 percent. And domestic profits for non-financial corporations are up 40 percent.

Profits are the mother’s milk of stocks, business, and the economy.

We had a string of positive economic reports in October, including stronger retails sales and factory output. And via Mark Perry of the Carpe Diem blog, Thompson Reuters reports that mall traffic for November is showing a steep rise.

Employment trends are getting slightly better. Housing is not, and that’s the biggest glitch in my narrative. But it doesn’t seem to be getting any worse. And believe it or not, for whatever reasons, the dollar has been relatively steady of late. America is still a safe haven in times of stress.

What’s left to be done is a temporary extension of the Bush tax cuts. When that occurs, stocks could be poised for another large rally. Strong profits, a positive yield curve, the Fed greasing the wheels (for better or worse), improved business activity, and slowly recovering consumers all add up to positive market fundamentals.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

HEADLINE RISKS:
REALITY OF MILITARY THREAT FROM N. KOREA...DOES IT TRANSLATE TO MARKET THREAT AT HOME?
WHAT YOU NEED TO KNOW TO PROTECT YOUR PORTFOLIO



- Zach Karabell, River Twice Research President; Economist; CNBC Fast Money Contributor
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Frank Gaffney, Center for Security Policy President; Former Asst Secy of Defense for International Security Policy Under Reagan

HOW DEEP & HOW WIDE IS THE EUROPEAN DEBT THREAT?

- Andy Busch, BMO Capital Markets; CNBC Contributor
- Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor


IS IT TIME TO BUY THE MARKET?

- Art Hogan, Jefferies Managing Director, Global Equity Product
- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services


PART II OF THE GEORGE W. BUSH INTERVIEW
BUSH ON THE DOLLAR, SPENDING, TAXES & U.S. GLOBAL COMPETITIVENESS

HOW IMPORTANT IS A STRONG DOLLAR POLICY?

- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth
- Tony Fratto, CNBC Contributor; Fmr. White House Deputy Press Secretary

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday, November 22, 2010

An Animated Conversation with Former President George W. Bush

I recently sat down with George W. Bush to discuss his new book, Decision Points.

With the greatest respect to the former president, he and I disagreed on a number of issues, and let each other know about it.

In particular, the stock market's scorecard of his two terms, the collapsing dollar, and Too-Big-to-Fail Bailout Nation.

Click here to read the full transcript.

Friday, November 19, 2010

A Lively Talk with George W. Bush

Former President George W. Bush told me in a CNBC interview today in Salt Lake City that the stock market was not a fair scorecard of his presidency. When he took office, the Dow was 10,600. At the height of the Bush boom, in October 2007, it reached 14,165. And on the day he left office, as the financial crisis continued, the index had fallen to 8,300.

Like the Bush presidency, the Bush stock market was a rollercoaster.

But the former president stuck with his view that TARP Bailout Nation was necessary to avert a depression. And although there were other voices with different solutions inside his administration, he said there was no time for theoretical discussion.

I asked about crony capitalism in the Bailout Nation era, and whether ordinary Main Street folks felt the game had become rigged against them. Five Wall Street banks that received $135 billion in bailout money gained $125 million in fees for underwriting the IPO for GM, the car company that itself was bailed out for $50 billion.

Isn’t capitalism without failure like religion without sin? Mr. Bush says he believes in the free market, but to this day he still thinks he had to abandon market principles in order to save the free-market system. He told me today that he hopes future recessions will not be dominated by more bailouts.

I asked if our culture has changed. Are we now more like Western Europe? He said he hopes not.

He refused to discuss the Sarah Palin/GOP revolt against Ben Bernanke’s $600 billion pump-priming campaign. He also did not want to discuss the 35 percent collapse of the dollar under his watch.

He believes his tax cuts worked and hopes they are extended. He defended his spending record. And he does not believe the U.S. is falling behind China and other emerging countries around the world.

I asked if we are losing the new economic cold war. Mr. Bush said no. I asked if the best of the American way of life and prosperity is behind us. He said no. But he would not comment on current events, which has been his custom during his book tour.

It was a very lively interview.

It will be shown Monday and Tuesday (November 22 and 23) on CNBC’s Kudlow Report.

Wednesday, November 17, 2010

Pence-Corker Inflation Target Aimed at QE2

The political attack on Ben Bernanke’s QE2 continues. House leader Mike Pence and Sen. Bob Corker submitted legislation to end the Fed’s dual mandate of balancing employment and inflation. Instead, they want to rewrite the late-’70s Humphrey-Hawkins act to mandate an inflation target for the Fed, dropping the employment part.

This new inflation target is aimed at QE2, and the Fed’s attempt to lower the unemployment rate by inflating the money supply and the price level. It’s a good idea, though I would prefer going straight to a King Dollar stabilization approach referenced to gold in order to capture inflationary expectations, and thereby guide the Fed’s interest-rate and money-supply operations.

But an inflation target does clarify the central bank’s role as a guardian of price stability, and moves it away from the all-powerful central-planning disease.

Meanwhile, in the short term, the threat of dollar decline has been temporarily mitigated by the Irish and European debt-contagion flare-up, which has caused a run into dollars and out of euros. Dollar-gold has fallen accordingly.

However, in the QE2 cease-and-desist category, there is no deflation for the manufacturing sector. Factory output increased 0.5 percent in October and is running 6.1 percent ahead of last year. Along with a strong retail sales number, it looks like the economy’s growth rate is getting a bit better, and certainly not worse.

The producer price report for business wholesale prices shows no deflation. In October it increased 0.4 percent, and is running 4.3 percent above year-ago. Intermediate and crude prices also are strong.

Today’s CPI report showed a two-tenths of 1 percent increase in October, and a 2.4 percent annual gain over the past three months. The Fed will undoubtedly point to the scant 1.2 percent year-on-year gain, but that’s not deflation. The CRB futures index is still 7 percent above year-ago. Gold is 17 percent ahead of last year.

And Treasury bonds in the 10-to-30-year zone are actually higher in yield than they were late last summer when Bernanke first mentioned QE2. Not surprisingly, if the goal of the central bank is to inflate, long-term bond rates also will inflate.

A political uproar over Fed pump-priming has moved Bernanke to meet with Senate Banking Committee folks in order to re-sell the policies that were so sorely unsold in the first place. So far we don’t know what transpired in that closed-door meeting. But it looks to me like the Democrats are the easy-money party and the Republicans are the harder-money partisans.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

GM’s MONSTER IPO






- Jeremy Anwyl, Edmunds.com CEO
- Paul Ingrassia, CNBC Contributor; Pulitzer Prize Winner; "Crash Course" Author
- CNBC’s Phil LeBeau

DO GOV'T BAILOUTS WORK & WILL BAILOUT NATION CONTINUE?

- Jimmy Pethokoukis, Reuters Money & Politics Columnist; CNBC Contributor

MARKETS, CHINA, IRELAND, COMMODITIES

- Gary Shilling, A. Gary Shilling & Co. President
- David Gilmore, Foreign Exchange Analytics Partner
- Jim Iuorio; Options Action Contributor; Director, TJM Institutional Services


NBC/WSJ POLL ON SPENDING & TAX CUTS - NO POLITICAL WILL TO CUT?

- CNBC chief Washington correspondent John Harwood reports.

BERNANKE DEFENDS BOND-BUYING PLAN TO CONGRESS

- Sen. Judd Gregg, (R) New Hampshire; Budget Cmte Ranking Member

CONGRESS NET WORTH GOES UP WHILE REST OF COUNTRY'S FALL

- CNBC’s Eamon Javers reports.

LEGISLATIVE LOGJAM FOR TAX EXTENSIONS? … TRAINWRECK COMING IF THE BUSH TAX CUTS AREN'T EXTENDED?

- Steve Moore, WSJ Editorial Board; Founder & Fmr. President of the Club for Growth

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, November 16, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

WALL STREET GROWS WORLD-WARY
Global markets fall as investors fret over China & Europe





- David Goldman, Senior Editor First Things Magazine; Fmr. Wall St. Economist
- Mike Khouw, Cantor Fitzgerald Director, U.S. Equity Derivatives Trading; Options
- Boris Schlossberg, GFT Forex Director Of Currency Research

PENCE & CORKER CALL FOR END TO FED'S DUAL MANDATE

- Rep. Mike Pence, (R) Indiana; House Republican Conference Chair

BOND MARKET DEFIES THE FED

- Brian Wesbury; First Trust Advisors Chief Economist
- Vince Reinhart, American Enterprise Institute resident scholarformer director of monetary affairs at the FOMC

U.S. STOCKS: EXPECTED CORRECTION OR SOMETHING WORSE?

- Bob Froehlich, The Hartford, Sr. Managing Director
- Lee Munson, Portfolio Asset Management Chief Investment Officer

GM IPO SHENANIGANS?

- Ronald Kruszewski, Stifel, Nicolaus Chairman & CEO

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday, November 15, 2010

Strong Retail Sales Warn the Fed: Cease and Desist

The headline story in this morning’s Wall Street Journal is a beauty. Republican economists, hedge fund managers, and even some presidential candidates are blasting the Fed for its $600 billion QE2 pump-priming operation. Quite sensibly, the group that signed an open letter to Ben Bernanke argues against dollar devaluation and inflation. At least a couple of the signees are Democrats. And following Sarah Palin’s Bernanke broadside, potential presidential candidate Mike Pence is on the hustings attacking the central bank.

All this is good. King Dollar politics.

During the 19th century, many presidential campaigns were fought on the issue of the dollar and its gold or silver backing. So history may repeat itself. Will we have Keynesian fine-tuning, or stable money backed by commodities including gold?

But here’s another reason why the Fed should cease and desist: There’s more evidence that the economy looks to be picking up. Today’s retail sales report showed a 1.2 percent rise for October, printing to an 11.8 percent annual increase over the last three months. Core retail sales that feed into GDP increased 6.3 percent annually over the past three months.

This won’t calculate into the 6 or 8 percent recovery growth that the country really needs. But it does look like business and consumer confidence improved in the run-up to the GOP election sweep.

And it’s worth noting that incomes are rising a bit faster, with hours worked combining with wage increases to produce some spending power. And of course, cash-rich companies remain highly profitable.

Meanwhile, on the inflation front, the CRB futures index is up 11.5 percent over the past twelve months. So does the Fed really want to ease into an improving economy, backed by an ominous commodity increase?

Final point: With better economic stats, the U.S. dollar is rising, not falling. And long-term bond rates are rising, not falling. Along with a better economy, the consensus has it wrong, at least for the moment. Go figure.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

ECONOMY GETTING STRONGER ... IS EVERYONE OBSESSING ABOUT THE FED TOO MUCH?





- Charles Reinhard, Morgan Stanley Smith Barney Global Investment Strategist
- Joe Battipaglia, Stifel Nicolaus Market Strategist
- Jack Bouroudjian, CEO of Index Futures Group

FRESH ATTACK ON FED MOVE: POLITICS OF THE FED & KING DOLLAR ... IS A BOND CRISIS COMING?

- CNBC's Hampton Pearson reports.

ECONOMIC COLD WAR BREWING...IS AMERICA GOING TO LOSE IT?
Is the Fed bankrupting government, destroying the dollar & making U.S. a second-rate rate economic power?

- Andy Busch, BMO Capital Markets; CNBC Contributor
- Bob McTeer, CNBC Contributor; Fmr. Dallas Federal Reserve Bank Pres. & CEO

LAME DUCK SESSION: GOP EARMARKS VOTE TOMORROW- McCONNELL JOINS GOP BRETHREN TO SUPPORT EARMARK BAN; TAXES & BUDGET

- CNBC chief Washington correspondent John Harwood reports.

WILL THE LAME DUCKS STOP THE TAXING AND SPENDING IN ORDER TO PROMOTE AMERICAN PROSPERITY?

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley
- Dan Mitchell, CATO Senior Fellow

LAME DUCK INVESTING

- Jim LaCamp, Macroportfolio Advisors Portfolio Manager & Advisor
- Ned Riley, Riley Asset Management CEO

SENIOR BOOM BEGINS AMID ECONOMIC BUST: IS SOCIAL SECURITY GOING BANKRUPT LIKE THE REST OF THE GOVT & WHAT'S THAT MEAN FOR THE BOOMERS?

- Frederick Lynch, Professor at Claremont McKenna College

Please join us. The Kudlow Report. 7pm ET. CNBC.

Thursday, November 11, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

MARKETS…LEGENDARY INVESTOR JEREMY GRANTHAM SAYS IF YOU'RE CONSERVATIVE NOW, HOLD SOME CASH....BUT SHOULD WE BE GOING INTO CASH? HOW SHOULD AN INVESTOR PLAY THIS MARKET?



- Warren Meyers- DME Securities CNBC Market Analyst
- Michael Cuggino- Permanent Portfolio Funds President & Portfolio Manager

ARE SLASH AND BURN BUDGET CUTS THE KEY TO ECONOMIC RECOVERY?

- Rep. Paul Ryan- (R) Wisconsin /House Ways & Means Cmte. & Ranking

BUSH TAX CUT EXTENSION/DEFICIT COMMISSION: WHAT'S THE STOCK MARKET IMPACT?

-Andy Busch - CNBC Contributor; BMO Capital Markets Global Currency & Public Policy Strategist
- Jeff Matthews - founder of the hedge fund Ram Partners LP /author of "Pilgrimage to Warren Buffett's Omaha"

TOMORROW'S UNVEILING OF QE2...IS THE LAUNCH OF QE2 REALLY SO BULLISH FOR THE STOCK AND THE ECONOMY?

-Joe LaVorgna - Deutsche Bank Chief U.S. Economist & CNBC Contributor
-Vince Reinhart - Former Federal Reserve Board's Division of Monetary Affairs Director
-Jim Iuorio - Options Action Contributor /Director, TJM Institutional Services

IS TEAM OBAMA CAVING ON BUSH TAX CUTS?

*Boyce Watkins- Syracuse University Finance Professor
*Jimmy Pethokoukis - Reuters BreakingViews Money & Politics Columnist

Please join us. The Kudlow Report. 7pm ET. CNBC.

Wednesday, November 10, 2010

Deficit Commission on Right Track . . .

My first cut at the Bowles-Simpson deficit-commission recommendation is that it basically moves the ball in the right direction. It goes after entitlements, domestic and defense discretionary. It puts some kind of freeze on federal hiring and salaries. It lowers the corporate tax, flattens the personal tax, and gets rid of a bunch of tax-expenditure loopholes.

However, it should be much, much tougher on spending. By 2015 the baseline should be lowered by at least $500 billion, if not more — not just $200 billion.

And there should be a much more aggressive, true, flat-tax reform, with no more than two brackets of 15 and 28 percent, and preferably one bracket somewhere south of 20 percent. Plus, capital gains and dividends, which would go up under the commission, should be abolished altogether, along with the estate tax. And corporate tax reform should have a lower top rate and should include full cash expensing for new investment in plants and equipment.

And finally, to ensure economic growth over the long run, we need a King Dollar currency reform linked to a gold reference point to stabilize and protect the value of our money.

However, if Dick Durbin and Nancy Pelosi oppose the Bowles-Simpson commission, then I know I’m right that the new proposals are at least on the right track.

What I gather is that 14 votes from the 18-member commission guarantees an up or down vote in Congress. That makes it interesting.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

DEBT COMMISSION'S PROPOSAL: DRAMATIC TAX REFORM; SPENDING CUTS; SOCIAL SECURITY....WHAT'S AT STAKE FOR STOCKS?




-CNBC’s Eamon Javers reports.

Panel:

- Lee Munson, Portfolio Asset Management Chief Investment Officer
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
- Barry Ritholtz, Fusion IQ CEO, Director of Equity Research

MORE FEDERAL WORKERS PAY TOPS $150,000
- CNBC’s Hampton Pearson reports.

HOW TO SAVE AMERICA'S ECONOMY
- Thomas Sowell, Hoover Institute Senior Fellow

WHAT DOES EURO/IRISH DEBT THREAT MEAN FOR STOCKS & DOLLAR?

- Russ Koesterich, Head of Investment Strategy; Barclays Global Investors
- Chris Whalen, Institutional Risk Analytics

FROM THE CORNER OFFICE: FUTURE OIL PRICES & WHAT THE NEW CONGRESS MEANS FOR THE ENERGY SECTOR

- John Richels, Devon Energy Pres. & CEO

OUTRAGE: "HOW TO BE A PEDOPHILE" ON AMAZON
- CNBC’s Bertha Coombs reports.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, November 9, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

QE2 HAS BECOME A FRONT-PAGE POLITICAL FOOTBALL ... WILL SARAH PALIN & GOP ATTACK ON FED POLICY FORCE BERNANKE TO LIMIT QUANTITATIVE EASING?



- Rep. Jeb Hensarling, (R) Texas; Financial Services Cmte
- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

ETF TICKING TIMEBOMB? IS THERE SYSTEMIC RISK IN ETFs?

-CNBC’s Herb Greenberg reports.

- Harold Bradley, co-authored Kauffman Foundation's study
- Bruce Lavine, WisdomTree Investments Pres. & COO

IS OBAMA TAX PROPOSAL DEAD IN THE WATER? WILL GOP REPEAL OBAMACARE?

- Rep. Dave Camp, (R) Michigan, Likely House Ways & Means Chairman

HOT COMMODITIES

- Harry Rady, Rady Asset Management CIO
- David Goldman, Senior Editor First Things Magazine; Fmr. Wall St. Economist: Bear Stearns & Credit Suisse

GLOBAL REFLATION? STOCKS...BUY, SELL OR HOLD?

- Art Hogan, Managing Director Director, Global Equity Product
- Alan Valdes, Vice President DME Securities

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday, November 8, 2010

The World Against Bernanke

The great Bernanke QE2 debate continues to heat up. In the run-up to the G-20 meetings, China, Russia, Germany, and others are all coming out against the Federal Reserve’s quantitative-easing agenda. They don’t want hot-money excess dollars to flow into their higher-yielding currencies.

The assault against Bernanke’s easy money has reached such a fever pitch that President Obama felt it necessary to defend the $600 billion in new-money printing in a news conference in India.

Meanwhile, World Bank president Robert Zoellick has actually called for putting gold back into global money, in order to use it as an international reference point to measure market expectations over inflation or deflation. The former Treasury and State Department official wants a successor to Bretton Woods. To my way of thinking, Zoellick is dead-on right.

And then there’s Kevin Warsh’s opus op-ed in Monday’s Wall Street Journal. I have written about Warsh in the past, and his sound-thinking views. Taking a bit of a shot at Bernanke’s QE2, the Fed board member basically says: Look, you want better growth, reform the tax code and stop regulating. “The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies,” he writes.

But in the key part of his op-ed, Warsh calls for a strictly limited QE2, not an open-ended commitment. He describes it as “necessarily limited, circumscribed, and subject to regular review.” And he goes on to say that if the dollar decline and run-up of commodity prices continues, these inflation signals should stop QE2, regardless of the unemployment rate.

It’s noteworthy that both Zoellick and Warsh are using gold, commodities, and the dollar as alarm signals — market-based alarm signals — that would warn the Fed if it’s too loose.

Since Bernanke first hinted at quantitative easing in late August, commodity indexes have jumped nearly 20 percent, gold has hit a new record high over $1,400 an ounce, and the dollar has fallen nearly 10 percent against the euro. And riding the crest of easy-money expectations, stocks have increased just less than 20 percent. But is it real? Is it sustainable?

The fact is that Ben Bernanke, who seems wedded to an old-style monetarism, is looking at backward inflation signals such as the consumer price index. And here’s the irony in Bernanke’s monetarism. In the six months prior to April, the M2 money supply was flat. But since April, M2 has turned up rapidly at a 7 percent annual growth rate. So it looks like people are putting money to work as the whole economy may actually be heating up.

And notice that while M2 growth has surged, so have commodities and gold — all while the dollar has been declining.

I’m not going to make a case for old-fashioned monetarism, because we have learned that the velocity (or turnover) of money is unstable. Anyway, it’s the King Dollar value of money that really counts. But I will note that as Bernanke’s new monetarist experiment takes off, higher commodities and a rising money supply at the same time suggest the economic situation is taking a new turn. This new turn is likely to include a faster growth rate, especially if Washington keeps the Bush tax rates down.

And it’s quite possible that business confidence is improving with the election trends having become clear. Early October economic reports from the Institute for Supply Management for both manufacturing and services came in above expectations. The same was true for the October jobs report, with a more than 150,000 gain in payrolls. And car sales, especially light-truck sales, have picked up substantially. According to Auto Nation CEO Mike Jackson, rising pickup sales show that small businesses and entrepreneurs are going to work. (Hat tip to Mark Perry of the Carpe Diem blog.)

And then there are profits. The dominant economic fact behind the rise in stocks and a possible upturn in the rate of economic growth is a continuation of strong business profits across-the-board. This is the best and most durable form of stimulus coming from the private sector.

So I would say to Mr. Bernanke, be careful what you wish for. And I would say to Messrs. Zoellick and Warsh, thank you for your sound-money contributions.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

TWO TOP ECONOMISTS SAY ECONOMY IS ON THE ROAD TO RECOVERY
WHAT'S IT MEAN FOR THE MARKETS?




- Art Laffer, Chief Investment Officer, Laffer Investments; Fmr. Reagan Economic Advisor
- Zach Karabell, River Twice Research President Economist; CNBC Fast Money Contributor
- Mike Ozanian, Forbes National Editor

OBAMA & THE BUSH TAX RATES DEBATE

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

BERNANKE VS. THE WORLD…GOLD TOPS $1400...BACK TO A GOLD-BASED CURRENCY?

CNBC’s Eamon Javers reports.

- Vince Reinhart, American Enterprise Institute Resident Scholar; Fmr. Dir. of monetary affairs at the FOMC
- Peter Navarro, "The Coming China Wars" author; University Of California - Irvine Business Professor

RISING PRICES AT THE GROCERY STORE
- CNBC’s Brian Shactman reports.

"BALANCED BUDGET NOW"
- Mike Lee , (R) Utah Senator Elect

Please join us. The Kudlow Report. 7pm ET. CNBC.

Debunking White House Pro-Tax Increase Propaganda

Take a minute to watch this new mini-documentary from my old friend and frequent Kudlow Report guest Dan Mitchell. He debunks White House pro-tax propaganda with a point-by-point rebuttal of a video narrated by another old friend of the Kudlow Report, Austan Goolsbee of Obama's Council of Economic Advisers.

Friday, November 5, 2010

Why Is the Fed Priming the Pump?

Go figure. The mighty, all-knowing, all-powerful Ben Bernanke Fed is set to pour 900 billion new dollars into the economy over the next eight months. But it may be launching this pump-priming operation at exactly the time the economy is picking up. Huh?

Today’s jobs report was the best since last May. Nonfarm payrolls increased 151,000, with upward revisions of 110,000 for the two prior months. Similarly, private payrolls increased 159,000 in October, with sizable upward revisions for September and August. It’s not a fabulous report, but it’s certainly the best in a while.

Other October economic stats — like the two ISMs and car sales — are also pointing to a stronger economy. Maybe 3 percent growth instead of 2 percent.

Unfortunately, the unemployment rate is stuck at 9.6 percent, with household employment dropping unexpectedly by 330,000. And of course, both the nonfarm and household surveys need to rise by about 250,000 per month in order to chop down unemployment. So let’s hold the champagne celebration.

But the question is this: If jobs and the economy are improving, why is the Fed launching QE2? Maybe it should keep it in the dock. Let’s not risk a dollar collapse for a change. Gold prices are marching toward $1,400 an ounce.

Foreign central bankers are furious at the Fed for pouring more dollars into the world economy. And all this hot money is going to go to countries in Asia that don’t want the new dollars.

German finance minister Wolfgang Schaeuble said, “With all due respect, U.S. policy is clueless.” And former Fed chair Paul Volcker said the Fed’s new easing “is not the kind of action that’s likely to change the general picture that I have described of slow, labored recovery.” Volcker also said the Fed’s monetary easing could eventually lead to inflation. He called on the central bank to be cautious about taking further quantitative-easing steps.

Maybe the Fed ought to hold off for awhile. A tax-rate freeze and deep budget spending cuts look to be coming from the new Republican Washington. That will help restore confidence and might get businesses to step up their investment with all the profits and loose cash they have to spend.

Leave QE2 dockside, I say. The U.S. economy just might be turning over a better leaf. Change is in the air. That’s just what the strong stock market is telling us.

On CNBC's Kudlow Report Tonight?

Tonight at 7pm ET on CNBC:


POSITIVE JOBS REPORT: ECONOMY ADDED JOBS FOR 1ST TIME SINCE MAY - WHY DIDN'T STOCKS RALLY?




- Jon Najarian, OptionMonster.com Co-Founder; "Fast Money" Contributor
- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services
- David Tice, Portofilio Manager, The Prudent Bear Fund

FORMER GE CHIEF JACK WELCH SAYS PAYROLL TAXES SHOULD BE CUT TO CREATE JOBS. IS HE RIGHT?

- Michael Linden, Center for American Progress Associate Director for Tax and Budget Policy
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

IS BEN BERNANKE POURING THE MONEY IN AT THE WRONG TIME?

- Jeff Matthews, hedge fund manager; Ram Partners founder; "Pilgrimage to Warren Buffett's Omaha" author
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer

REIT REPORT
CNBC’s Diana Olick reports.

BUY OR SELL REITS?
- Rob Manning, Keefe, Bruyette & Woods; Senior REIT Trader

IS GOVERNMENT SPENDING AUSTERITY GOOD OR BAD FOR ECONOMIC GROWTH & PROSPERITY?

- Chris Edwards, CATO Director of Tax Policy
- Joseph Minarik, CED Sr. VP & Director of Research

Please join us. The Kudlow Report. 7pm ET. CNBC.

Thursday, November 4, 2010

The Buzz That's Driving This Rally

Besides the Fed’s quantitative easing, a new buzz from Obama about extending all the Bush tax cuts is driving stocks up nearly 200 points today.

The president opened the door to full extension at his post-election news conference yesterday.

Today, Obama spokesman Robert Gibbs acknowledged this possibility at a news gaggle.

Gibbs said the administration is “open” to negotiations on extending tax cuts for upper-income individuals in order to win extensions for middle-income families. Gibbs did add, however, that the president still “does not believe it’s a good idea.”

But here’s the key: Two Democrats elected to the Senate on Tuesday, Chris Coons of Delaware and Joe Manchin of West Virginia, campaigned on extending all the Bush tax cuts. Since they will fill the seats of Joe Biden and Robert Byrd, they will be seated during the lame-duck Congress coming in a few weeks.

And there are roughly a half-dozen additional Senate Democrats — at least — who would vote for a two-year extension of all the Bush tax cuts. Plus, there will now be 46 or 47 Republican senators voting for them, too. And over in the House, about 40 Democrats signed letters and campaigned for extending all the Bush tax cuts. So the outlook for the full Bush is getting good, and the hope that we will avoid an economic train wreck is rising.

One key point about today’s rally is the lack of year-end tax selling, based on the idea that the capital-gains tax would jump from 15 percent to 20 percent and the dividend tax from 15 percent to 39.6 percent. Tax selling has been hanging over the market. But with Obama moving to the center, and newly elected Senate Democrats in favor of the full Bush, things are looking a lot better for stocks and the economy.

Full Bush extension, by the way, might just add some business confidence to the picture, which could lift job creation next year. Profits are very strong, and the early October ISMs came in above expectations. So did car sales at almost 12.5 million. So keep your fingers crossed.

But surely the election results are sending a strong message to Washington. The next step will be big budget cuts through congressional rescissions and policy changes. That, too, will generate confidence and reduce uncertainty.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

GLOBAL EQUITY RALLY

-Joe Battipaglia - Stifel Nicolaus
- Art Hogan - Jefferies Director of Global Equity Product
- Ned Riley - Riley Asset Management CEO


FED FALLOUT: QE2 MONEY PRINTING LEADING TO INFLATION?

*Gary Shilling - A Gary Shilling & Co. President
*Brian Wesbury- First Trust Advisors Chief Economist

FUTURE OF THE BUSH TAX CUTS

*Jimmy Pethokoukis- Reuters BreakingViews Money & Politics Columnist
*Boyce Watkins - Finance Professor Syracuse University

COLD DOLLAR … HOT COMMODITIES

-Boris Schlossberg - GFT Forex Director Of Currency Research
-Andre Julian - OpVest Senior Market Strategist

30TH ANNIVERSARY OF RONALD REAGAN'S ELECTION
- Steven Hayward - The Age of Reagan: The Conservative Counterrevolution: 1980-1989

Please join us. The Kudlow Report. 7pm ET. CNBC.

Wednesday, November 3, 2010

Less Bad Stuff Is Good

Momentous events this week — the Republican House sweep and the Fed’s QE2 — moved the stock market needle only a little over Tuesday and Wednesday, although the net impact was a gain of about 90 points.

Obamanomics was repudiated at the polls and the Republicans inflicted a crushing defeat on the Democrats in the House. However, tea partiers disappointed in several Senate elections, leaving Harry Reid & Co. in charge of the upper chamber.

The real meaning of the new Senate-House-Obama triangle is not yet clear. The bad stuff will be stopped. That’s good. But how much good stuff can be legislated remains to be seen. This might be what’s slowing down the stock market. (Though again, I note, a 90 point rise is not nothing.)

Two key Senate races produced supporters of extending all the Bush tax rates. This could be the key. Democrat Jim Manchin in West Virginia and Republican Mark Kirk in Illinois will be seated immediately to fill the Robert Byrd and Barack Obama vacancies. This raises the probability that a full extension of the Bush tax cuts will go through the Senate. I’m going to assume that the people have spoken, even to the lame ducks in the House. And a conciliatory and compromising Obama at his news conference today suggests that the president will sign a temporary full extension of the Bush tax rates. That’s a pro-growth development.

On the Fed side, the central bank is going to pump $600 billion of new money into the over $14 trillion economy in the next eight months. The Fed held back on a shock-an-awe program that could have been over $1 trillion. But it’s going ahead with the money stimulus.

This middle-ground action was already discounted by the market. The dollar did fall today, but so did gold. Of course, I would have preferred no QE2 at all. Similarly, to protect the dollar, I would replace the Fed altogether with an ounce of gold. But that’s my problem.

Here’s a question, though. Is the Fed stimulating into an improving economy? Today’s ISM for services came in above expectations. The same is true for Monday’s ISM manufacturing report. September factory orders rose 2.1 percent. And monthly car sales near 12.4 million at an annual rate are the best since September 2008.

It wouldn’t be the first time the central bank is a lagging indicator. Commodity indexes have been booming. Bond market inflation expectations have been rising. And now the economy seems to be improving in the early part of the fourth quarter.

To me, the Fed is at least doing minimal harm, although I continue to fret about the outlook for the dollar. But the possibility of a pro-growth fiscal policy coming out of the lame-duck Congress — a large budget continuing resolution that extends the Bush tax rates and is stingy on spending — is a good thing.

Regarding the future triangulation between Obama, Reid, and Boehner, we will all have to puzzle though this. But surely stopping the bad stuff is a plus.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

FED, ELECTIONS & YOUR PORTFOLIO
HOW TO CAPITALIZE ON THE GAME CHANGING EVENTS





- Dan Clifton, Strategas Research Partners Director, Head of Policy Research
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Ronald Kruszewski, Stifel, Nicolaus Chairman & CEO

DID THE FED GET IT RIGHT?
FED'S IMPACT ON MARKET, KING DOLLAR, COMMODITIES, ECONOMY; CURRENCY WARS

- John Taylor, Stanford University Economics Professor; Hoover Institute Sr. Fellow; "Getting Off Track" Author
- Dan Greenhaus, Chief Economic Strategist, Miller Tabak + Co.
- CNBC’s Rick Santelli

GOP PLEDGE TO AMERICA
- Ed Gillespie, Republican Strategist, Ed Gillespie Strategies Founder -

NOW WHAT'S THE AGENDA?

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof.
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth

HOW DOES THE NEWS CHANGE YOUR INVESTMENT STRATEGY?

- Michael Cuggino, Permanent Portfolio Family of Funds President & Portfolio Manager; Permanent Portfolio Fund (PRPFX)
- Andy Busch, BMO Capital Markets; CNBC Contributor

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, November 2, 2010

King Dollar Is Essential

A Republican tsunami will be bullish for the dollar. The bigger the GOP landslide, the better it will be for the greenback.

However, QE2 new-dollar creation will be bearish for the dollar. And the Fed’s money-creating will outweigh — at least in the shorter term — any Republican fiscal-policy improvements toward lower spending and taxing.

The GOP needs a King Dollar policy, preferably one backed by gold. A depreciating dollar will drain cash from the U.S. and send it overseas; foreign investment into the U.S. will be stunted by a chronically weak dollar. And the inflationary consequences of the devaluing dollar will ultimately outweigh any low-tax-rate incentives.

As the dollar kept falling during the Bush years, it blunted the pro-growth effects of the 2003 tax cuts. There is a crucial lesson to be learned here: A strong and stable dollar is an essential complement to low tax rates.

Regarding Team Obama, it now appears that Tim Geithner’s protest that no country can devalue its way into prosperity was a lot of smoke-blowing. His credibility is going to suffer.

But in a new Republican House (and maybe Senate), committee chairs will have a great opportunity to work on a King Dollar policy.

As I said, a stable and reliable dollar is an essential complement to low tax rates on the path to restoring growth.

Friday, October 29, 2010

Final Nail in the Democrats’ Coffin

On the eve of the midterm elections, a third-quarter GDP report showing a meager 2 percent growth rate is the final nail in the Obama Democrats’ political coffin.

The economic nails slowly have been hammered into that coffin all summer and fall. A spate of subpar economic statistics has shown the failure of the fiscal-stimulus spending program. And myriad tax and regulatory threats produced by new government policies have created a massive uncertainty overhang and a dismal jobs outlook. American businesses have gone on an investment-capital and hiring strike.

For a White House that bet the ranch on a massive government pump-priming plan, it has all turned out to be a complete failure. The scheduled economic recovery has simply not occurred.

And that’s why a Republican Tea Party tsunami lies just over the horizon. That tidal wave could be even greater than current polling suggests.

It should have been recovery summer, according to the president and his followers. But it is now officially a recovery slump. The entire command-and-control economic philosophy of the Obama Democrats has proven to be a big bust. And they’ll pay a very big price for this.

In fact, the last two GDP reports have averaged less than 2 percent growth, something that qualifies as a growth recession, not a recovery.

Even worse, the GDP deflator — the broadest inflation measure — came in at 2.2 percent in the third quarter, following a 2 percent reading in the second quarter. That means inflation is rising faster than real output. Stagflation.

The Bernanke Fed should take notice of this on the eve of its quantitative-easing pump-priming exercise, expected to be announced the day after the election. We are actually experiencing a mini version of stagflationary growth recession.

The spending, taxing, and regulating policies of the Democratic Congress and administration have blocked growth, putting the Fed in a position to provide even more money to chase fewer goods. But in classic Milton Friedman terms, even though the economy is mired in stagnation, that’s still an inflationary prescription.

On top of all that, the depreciating-dollar policies of the Fed have led to a boom in commodity prices, including food and energy — things ordinary Americans pay for in the course of their typical week.

When the economy came in at 5 percent in the last quarter of 2009, and at 3.7 percent in early 2001, it looked like a recovery scenario. This, of course, followed the Fed’s massive $2 trillion stimulus plan and the more than $1 trillion fiscal stimulus. But the sugar highs quickly evaporated as growth slowed to 1.7 percent in the spring and 2 percent in the summer.

Meanwhile, a stubbornly high unemployment rate of 9.6 percent was supposed to have dropped to 8 percent last year and 7 percent by the end of this year, according to the president’s Council of Economic Advisers. But it didn’t. The so-called stimulus failed to stimulate.

Actually, unemployment is much worse for regular workaday folks. Counting marginal part-time workers and discouraged workers, unemployment is 17.3 percent. And this year, while the president promised 1.5 million new jobs, nonfarm payrolls have grown by only 613,000, and actually have fallen over the past four months.

The trouble with the whole Obama mindset is the notion that government can run the economy. That idea has failed. It is business that runs the economy, including entrepreneurs and risk-takers. Yet the animal spirits have been stifled, while the producers have been laughed at, mocked, and insulted.

The Obama class-warfare campaign against business and investment has created a wall of worry and a refusal to invest in the future. The incentive model of growth, where it must pay more after tax and regulatory costs to work, produce, and invest, has been discarded by Obama’s extreme left-liberal Keynesianism. Predictably, higher costs — including the cost of Obamacare, probably the single-greatest barrier to growth and jobs — have forced the most productive factors in the economy to hole up and virtually shut down.

But the whole Tea Party movement of free-market populism represents an attempt to re-oxygenate the economy by unclogging the blood vessels of entrepreneurship with a major rollback of spending, taxing, and regulating. This Tea Party philosophy is derided daily by the Democrats, but it represents a bull’s-eye in terms of creating future economic growth.

Fortunately, the Republican party has returned to this Reaganesque message. This is the single most-important theme in the GOP comeback.

Wednesday, October 27, 2010

QE Lite...

Perhaps I was right to give Treasury man Tim Geithner the benefit of the doubt over his statements last week hinting at King Dollar protection. Perhaps.

Today’s big news on the Fed’s QE2 money-creating policy — due out the day after the election — suggests a minimal Fed pump priming. Call it QE Lite.

This comes from Jon Hilsenrath’s Fed-leak story in the Wall Street Journal. The next round of monetary stimulus won’t be anything near $1 trillion to $2 trillion, but more like “a few hundred billion dollars over several months.”

As a result of this story, the dollar rose half a percent across-the-board, and gold is now about $80 below its recent peak.

Now, don’t get me wrong. I don’t want QE anything. There’s plenty of unused liquidity sloshing around the system. And a stable King Dollar is the best medicine for economic growth and price stability.

What will trigger a stronger economy with job creation is the $100 billion budget cut now being discussed by Republicans in the House along with a freeze on the Bush tax rates. That’s pro-growth fiscal policy. Join it with pro-growth currency stability.

But back to the Fed and Treasury. A minimalist Fed stimulus is certainly better than a massive new-dollar creation that would totally sink the greenback and lead to a much higher inflation tax far more quickly than almost all commentators think.

And here’s an interesting point. Maybe Bernanke & Co. has been watching inflation-sensitive market prices, including gold, commodities, the negative real yield on inflation-protected bonds, and even the run-up in oil. Perhaps the Fed is at least cognizant of the risks of a plunging dollar.

Even longer-term bond rates have been backing up. So it’s not inconceivable that the Treasury and Fed are watching market-price indicators, including the dollar. And perhaps that accounts for the Fed leak of a minimalist action rather than a dollar-destroying maximum action.

And as Hilsenrath points out, there are a lot of doubters inside the Fed. The presidents of the reserve banks in Minneapolis, Dallas, Philadelphia, and Kansas City are leading the skeptical charge. Good for them.

In any event, since Geithner came out with his statement that no country can devalue its way to prosperity, and that the dollar is low enough against the euro and yen, the greenback has at least temporarily stabilized and gold prices have dropped.

The stock market is trying to figure all this out, and it got slammed earlier this morning. But the Dow came back to close only 43 points down.

Let me say this: Stocks soared during the strong-dollar Ronald Reagan ’80s (at least during his first term) and in Bill Clinton’s second term. These were King Dollar periods that helped set the stage for non-inflationary wealth creation and low unemployment.

More to the point, the expected Republican tsunami come Tuesday is likely to shift fiscal policy in the direction of lower spending, taxing, and regulating. We can debate how much, but that will be the GOP/Tea Party intent. That’s bullish for the dollar, the economy, and the stock market.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

ELECTION COUNTDOWN:
HOW BIG A SHELLACKING WILL DEMOCRATS TAKE OVER LACK OF JOBS & POOR ECONOMY & UNPOPULAR OBAMA-CARE PLAN?



- Gov. Ed Rendell, Pennsylvania Governor (D-PA); Former DNC Chairman
- Sen. Tom Coburn, MD; (R) Oklahoma

BIG NEWS: FED GEARS UP FOR QE2-LITE
WHAT DOES ALL MEAN FOR STOCKS, COMMODITIES & THE DOLLAR?

- Jon Hilsenrath, Chief Economics Correspondent at The Wall Street Journal
- Mike Holland, Holland & Company Chairman; The China Fund Board of Directors
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer

PROP 19: LEGALIZING MARIJUANA ON THE BALLOT

- CNBCs Jane Wells reports.

NEW HOME SALES & TODAY'S HEARING ON CONGRESSIONAL OVERSIGHT FORECLOSURE MESS SYSTEMICALLY IMPORTANT?

- CNBC’s Diana Olick reports.

WHAT HAPPENED TO "HOPE?"
IS THE ELECTION A REFERENDUM ON OBAMA'S 20 MONTHS OF WAGING WAR ON BUSINESS

- Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor
- James Pethokoukis, Reuters Money & Politics Columnist; CNBC Contributor

WORLD SERIES PREVIEW: IN THIS MONEYBALL WORLD, 2 TEAMS WITH MIDSIZED PAYROLLS ARE THE LAST ONES STANDING
- CNBC’s Darren Rovell reports from San Francisco.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, October 26, 2010

Rising Prices Are the Fear

An extraordinary event for bond markets occurred yesterday when the Treasury sold $10 billion of 5-year inflation-protected securities, or TIPS, at an auction with a yield of negative 0.55 percent. That’s right. Negative. Can’t remember when that’s happened before.

In other words, investors were willing to pay the Treasury 105 cents in order to buy $1 of inflation protection.

Now how does that square with the Fed’s newfound fear of deflation? Does the central bank ever listen to markets?

Ever since Ben Bernanke announced his QE2 pump-priming monetary-stimulus idea late last August, inflation-sensitive markets have been going wild. The dollar is down. Gold is up. Commodities are up — big time.

Treasury head Tim Geithner made some noises about protecting King Dollar, and I gave him the benefit of the doubt. But he endorsed QE2 at the G-20 meeting in South Korea, and that really dooms the dollar. You can’t print $1 trillion of new money without sinking the currency. The dollar is already overproduced. Just ask China and other Asian countries, or Brazil, each of which is fighting against the inflow of excess dollars.

Again, judging by inflation-sensitive markets, rising prices are the fear, not falling prices.

Wall Street strategist Peter Boockvar writes about the CRB index rising to its highest level in two years, including booming cotton and copper. He also notes companies like Starbucks, McDonald’s, General Mills, Goodyear, and Kimberly-Clark, which have all reported higher cost inflation. And then comes this priceless sentence: “Ahead of next week’s FOMC meeting, where the Fed wants higher inflation, all will be okay as long as you don’t drive, eat, drink, wear cotton-based clothes, use copper wire for any type of construction, blow your nose, diaper a kid, or wipe your arse.”

Boockvar is right. The Fed is wrong. Investors will even take negative real yields to protect against inflation. What does that tell you?

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


WILL THE DIVIDE ON THE DEFICIT GROW AFTER THE ELECTION?




- Steve Forbes, Forbes Chairman and CEO; Forbes Editor-in-Chief; Fmr. Presidential Candidate; "How Capitalism Will Save Us" Co-Author
- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host

INVESTORS BET ON INFLATION NATION
WHY ARE INVESTORS ACCEPTING NEGATIVE YIELDS ON INFLATION PROTECTED BONDS? IS THERE A JIMMY CARTER INFLATION TSUNAMI COMING?

- Dan Greenhaus, Miller Tabak Chief Economist/Strategist
- Michael Pento, Euro Pacific Capital Senior Economist

COUNTDOWN TO THE ELECTION
- CNBC’s John Harwood, Hampton Pearson and Eamon Javers report.

ELECTION COUNTDOWN: WHY THEY HATE US
- P.J. O'Rourke, Political Satirist; author, Don't Vote It Just Encourages the Bastards

MARKET MOVING EVENTS LOOMING LARGE: THE INTERSECTION OF MONEY & POLITICS....WHAT'S AN INVESTOR TO DO?

- Michael Farr, Farr, Miller & Washington/CNBC Contributor
- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday, October 25, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

KEY TAX BREAKS AT RISK: IS A FLAT TAX THE ANSWER?

- Robert Reich, Fmr. Labor Secretary; Author, "Aftershock"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Dan Mitchell, Cato senior fellow


DE FACTO DOLLAR DEVALUATION: ARE WE HEADED FOR FULL-FLEDGED DOLLAR CRASH?

- Brian Kelly, Kanundrum Capital President / Fast Money Contributor
- Art Laffer, Chief Investment Officer, Laffer Investments; Fmr. Reagan Economic Advisor

THE HOUSING MARKET
- CNBC’s Diana Olick reports.

COULD FORECLOSURE MESS CREATE A DOWNWARD SPIRAL FOR HOUSING

- Mark Calabria, CATO Director of Financial Regulation Studies
- Matt Englett, Managing Partner of KEL Attorneys

COUNTDOWN TO ELECTION: BALANCE OF POWER SHIFTING RIGHT?

- Pat Toomey, (R) Pennsylvania U.S. Senate Candidate; Fmr. Rep. Pat Toomey (R-PA); Fmr. Club for Growth President

Please join us. The Kudlow Report. 7pm ET. CNBC.

Friday, October 22, 2010

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

IS GEITHNER SIGNALING KING DOLLAR’S RESURGENCE?

"The USA and no country around the world can devalue its way to prosperity, to competitiveness, it is not a viable feasible strategy and we will not engage in it." - Treasury Secretary Timothy Geithner

- Jim Rogers, Rogers Holdings Chairman
- Andy Busch, BMO Capital Markets; CNBC Contributor

IS IT TIME TO END TAXPAYER FUNDING OF NPR & PBS?

- Josh Silver, Free Press President & CEO
- Michelle Caruso-Carbrera, CNBC Business News

YOUR TAXES, YOUR VOTE
CAMPAIGN'S BIG SPENDER: PUBLIC UNIONS…HOW CAN PUBLIC UNIONS USE TAXPAYER MONEY TO SPEND ON ELECTIONS?

- Joy Reid, ReidReport.com Editor; Miami Herald Columnist
- Jimmy Pethokoukis, Reuters Money & Politics Columnist; CNBC Contributor

Please join us. The Kudlow Report. 7pm ET. CNBC.

Thursday, October 21, 2010

Beware the Two-Sided Dollar Trade

Traders beware. Treasury man Tim Geithner appears to be setting up a two-sided dollar trade. The dollar could go up, not just down.

Following my latest column -- “Tim Geithner, Dollar Protector?” -- where I discuss how the Treasury man said we can’t devalue our way into prosperity, there’s new information from today’s Wall Street Journal: Geithner says “the major currencies are roughly in alignment now.” And the WSJ thinks that might mean Geithner sees no need for the dollar to sink more than it already has against the euro and the yen.

In today’s trading, the dollar index is up about a third of a percentage point. Gold is off $18 and has now corrected about $60 lower from its early week peak.

Geithner’s comments on the euro and the yen are very important. Yes, he wants the Chinese yuan to go up against the dollar, which is a depreciation for the greenback. But he separates that away from the yen and the euro. And it seems to me that he really lays down a marker in the sand. It could be a dangerous marker for traders and investors who until recently have been totally short the dollar and long gold and commodities.

Of course, the question is: What will Geithner do to back up his strong dollar-defense language? Will he intervene in the foreign-exchange market to support King Dollar? I’m especially interested in the dollar-euro relationship, which is probably the most important in global trading.

And that’s why I warn about a two-sided market. Up to now, shorting the dollar has been like shooting fish in a barrel. This may change.

And there are more implications: Perhaps Geithner and Fed head Ben Bernanke are working out a deal with the Japanese and Europeans. Such a deal might include a minimal Fed QE2 pump-priming.

In other words, stock investors beware -- at least those who believe a $1 trillion QE2 of new liquidity is good for stocks. Expectations of a massive Fed easing may be way overblown. It could turn out to be a miniscule pump-priming and new-dollar-creating action. And that could cause a setback in stocks, despite strong earnings reports and the Tea Party congressional cavalry coming to Washington on November 2.

Once again, I don’t know how to completely read Geithner’s comments. But he has been very visible and very bold, really putting himself out there with these dollar-protection statements. He must know that if he fails and the dollar tanks, his credibility will suffer irreparable damage. And that’s why I believe he knows exactly what he is doing, and that he has some new cards up his sleeve to protect King Dollar.

So as I said, traders beware.

Wednesday, October 20, 2010

Will Tim Geithner Resurrect King Dollar?

The falling dollar is on most everybody’s mind, especially in financial markets here at home and globally. A currency war? World protectionism? Race to the bottom?

The dollar is the lynchpin of the world’s financial system, and it’s still the world’s reserve currency. But as the Federal Reserve gets ready for its so-called QE2 pump-priming expedition to re-inflate the U.S. economy, the greenback has fallen about 10 percent, while gold and broader commodity indexes have soared. Despite a weak-kneed jobless recovery, inflation is in the air.

Apparently, the weak dollar doesn’t concern Fed-head Ben Bernanke all that much. But in a new wrinkle to this story, one wonders if Treasury Secretary Tim Geithner is suddenly paying attention to the greenback.

Most Treasury men chant a mantra that a strong dollar is in the nation’s interest. And until this week, Geithner had not even done that. In fact, he has said little to nothing about the dollar during his tenure.

But then on Monday, in a Silicon Valley speech to businessmen, he said the following: “It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to be competitive. . . . It is not a viable, feasible strategy, and we will not engage in it.”

Answering a question at this meeting, Geithner said the U.S. needed to “work hard to preserve confidence in the strong dollar.” And when asked if the dollar would lose its status as the world’s reserve currency, he said, “Not in our lifetime.”

So, is Tim Geithner out of the closet as a hard-money dollar protector? Or is he engaging in some sort of cognitive dissonance, blowing smoke at us? Is he speaking with forked tongue, or is he going to mean business about protecting the dollar?

I don’t know the answers here. But I do know that if the Fed sets sail with its pump-priming campaign to put one trillion new dollars in circulation, the greenback is going to fall mightily more.

Last year, during QE1, the trade-weighted dollar fell 17 percent from peak to trough. Guess what? Coming out of the worst recession in at least 30 years (if not longer), the consumer price index jumped higher — regardless of the high 10 percent unemployment rate. On a quarterly basis, the CPI fell 9.2 percent in the fourth quarter of 2008, and dropped another 2.2 percent in the first quarter of 2009. Then, as the dollar fell, the CPI increased 1.9 percent in last year’s second quarter, 3.7 percent in the third quarter, and 2.6 percent in the fourth quarter, all at annual rates.

And all this despite a moribund economy.

So the falling dollar is, in fact, a very strong transmission mechanism for higher inflation. And inflation is the cruelest tax of all on the economy. With the dollar rising earlier this year, inflation has cooled in the last six months. But many now fear the falling dollar will reignite the price indexes.

Nobelist Robert Mundell recently said there’s about one-year lag between a sinking dollar and a higher inflation rate. But that lag may be even shorter.

Now, Mr. Bernanke has never really understood the inflationary power of the falling dollar. Witness the oil shock of 2007-08, which decimated the economy. But the question is whether Mr. Geithner suddenly does grasp this relationship.

What exactly is Tim Geithner telling us? If he opposes devaluing our way to prosperity — a sensible position — does that mean he disagrees with Bernanke’s QE2 campaign. Is there a Fed/Treasury split in the works? (The White House has never publically opined on QE2.)

Is Tim Geithner actually preparing to intervene to defend the dollar in foreign-exchange markets, even while the Fed pumps another $1 trillion into the system? Or is Geithner just jawboning the exchange markets in a futile attempt to slow the dollar’s plunge amidst QE2?

This weekend the G-20 convenes to discuss currencies. In my view, they should develop a policy of worldwide currency stability. And I would prefer a golden anchor for that stability. To paraphrase Mundell, low tax rates and currency stability is the key to prosperity.

But more immediately, what will Geithner do? The greenback already has fallen about 10 percent, and it will surely drop at least another 10 percent if the Fed follows through and radically increases the quantity of money. Another dollar plunge will do great harm to the economy. Foreign investment in the U.S. will dry up. Domestic investment will flow out of the country. Liquidity will be drained. The inflation tax will kick in.

So will Tim Geithner resurrect King Dollar? That’s a very big question.