Market-based variables point to a mini boom in the new year.
Despite the historic expansion of the federal government’s involvement in, intervention in, and control of the economy -- including Bailout Nation; takeovers of banks, car companies, insurance firms, Fannie, Freddie, AIG, GM, Chrysler, and GMAC; large-scale tax threats; overregulation; an attempted takeover of the health-care sector; ultra-easy money; a declining dollar; and unprecedented spending and debt creation -- despite all the things that would be expected to destroy the economy -- all this socialism lite and the degrading of incentives and rewards for success -- despite all this, the U.S. economy has not been destroyed.
In fact, it is coming back. In 2009, the stock market had one of its greatest rebounds in history. And in 2010, we’re likely to witness a mini boom in economic growth.
If you believe in miracles, as I do, this looks like a miracle. If you have faith in free-market capitalism, as I do, then somehow this faith is being rewarded by a more durable and resilient free-enterprise capitalism than many of us thought possible only one year ago.
If you believe in the supply-side model of growth, including low marginal tax rates, a reliable King Dollar, and limited government, yes, you have very little to cheer about. Yet market-based forecasting variables are all pointing to a stronger-than-expected economic rebound in the new year.
Stocks are signaling better economic growth. So is the steeply upward-sloping Treasury yield curve. So is the worldwide rebound in commodity markets. So is the collapse of credit-risk spreads in the bond market. Each of these market-based forecasting tools points to a significant recovery in 2010.
I’m calling it a “mini boom” because we’re likely headed toward 4 to 5 percent real economic growth. That’s not as good as the 7 to 8 percent boom that followed the similarly deep recession of the early 1980s. Then again, Reagan slashed tax rates and Volcker stabilized the dollar. That’s not happening now. Gold has jumped from around $700 to $1,100, signaling higher inflation in 2010 and even more price increases in 2011.
But we know from recent data on retail sales, personal income, corporate profits, industrial production, business investment, and jobless claims that the economic patient is healing.
The most recent release from the Chicago Purchasing Managers is boom-like, with the best gains in nearly four years being registered for business activity, production, new orders, and even employment. Meanwhile, the housing sector is stabilizing and consumer confidence is gradually improving.
The biggest source of economic stimulus is not the $800 billion Obama spending package. It’s the $4.6 trillion of capital gains thrown off by the stock market over the past three quarters. This is investment money, and it also enhances consumer spending. As a result, jobs are likely to start rising early in 2010.
The second-biggest stimulus is the Fed’s zero-interest-rate policy and ballooning balance sheet that has poured about $1.5 trillion into the economy. How the Fed exits from this remains to be seen. The longer it waits, the more inflation-prone the coming boom will be. So there’s a false prosperity here, or at least one that raises skepticism about the longer term.
And with marginal tax rates going up in 2011, the top 5 percent of successful earners and investors are going to bring their income forward next year in order to beat the tax man. That’s even more false prosperity.
But the fact remains that businesses large and small, along with family households, have performed the necessary belt-tightening and deleveraging corrections made necessary by the Great Recession and its bubbled-up speculations. These free-enterprise actions have led to great productivity in our mostly free economy. Again, the results will show in next year’s mini boom.
A political belt-tightening also has been taking place. The Tea Party movement came on the scene in 2009 to revolt against big-government spending, taxing, and controlling. This movement is so reminiscent of California’s Prop 13 tax revolt of 30 years ago, which led to the Reagan revolution. It may well be the backbone of an anti-Washington revolution in 2010, ushering in a much more conservative Congress and a chastened Obama White House.
It remains to be seen whether this political revolt can stop the big-government assault on free enterprise. But I have as much faith in the political markets turning the ship of state around as I have in rising year-end Treasury bond-market rates forcing the Bernanke Fed to shape up and ship out of its wild money-printing ways.
In other words, free people and free markets have always been the best guarantors of American economic growth. Because I believe this, I am an optimist going into the new year.
30 Aralık 2009 Çarşamba
Scanners In Every Airport?
Should these security scanner machines be in every airport? A look at body scanners currently on the market, with Ajay Mehra, Osi Systems executive v.p. and Cherif Rizkalla, Smiths Detection, security and inspection president.
29 Aralık 2009 Salı
On CNBC's Kudlow Report Tonight
This evening at 7pm ET:TERROR LATEST
Are more al Qaeda attacks in the works?
CNBC’s Hampton Pearson reports from Washington.
THE NEXT GENERATION OF AIRPORT SCANNERS
On to discuss:
*Cherif Rizkalla, Security & Inspection President Smiths Detection
*Ajay Mehra, Executive V.P., OSI Systems and President, Rapiscan Systems
ALL SIGNS POINTING TO A MINI-BOOM?
-U.S. Consumer confidence
-Hope in the housing market?
-A firmer dollar and drop in gold.
CASE-SHILLER SHOWING SIGNS OF LIFE
Joining us to discuss will be Robert Shiller, Economics Prof, Yale School of Mgt's Int'l Ctr for Finance; Chief Economist Macromarkets.
IS THE FED MOVING CLOSER TO AN EXIT STRATEGY?
*Peter Navarro, "The Coming China Wars" Author; University Of California - Irvine Business Professor
*Daniel Indiviglio, The Atlantic Staff Editor & Blogger
KUDLOW'S HOTLINE
Give us a call! 800-800-CNBC. Phone lines open up at 7pm ET.
Please join us. The Kudlow Report. 7pm ET. CNBC.
Altucher's 2010 Top Ten List
Last night James Altucher joined me with a look ahead at what might be in store for the 2010 stock market and economy.
28 Aralık 2009 Pazartesi
On CNBC's Kudlow Report Tonight
Get your questions ready folks...we're taking live calls on this evening's Kudlow Report. The number is 800-800-CNBC.
Phone lines will open at 6pm ET.
On tonight's program:
* Terrorism expert Steve Emerson will offer his take on the thwarted Christmas Day bombing attempt on Flight 253.
* Investment whiz James Altucher from Formula Capital will offer his 2010 stock market picks and predictions.
* Clusterstock's John Carney will opine on the latest Fannie/Freddie controversy.
Please join us! 7pm ET. CNBC.
23 Aralık 2009 Çarşamba
On CNBC's Kudlow Report Tonight
This evening at 7pm ET:Obama's First Year
*Brian Mooar, NBC reporter
Did Obama Rescue the Financial System?
*Steve Moore, WSJ senior economics writer
*Bob Shrum, Democratic Strategist
Stimulus Waste
*CNBC's Brian Shactman
Fed Watch
*Peter Morici, Univ. of Maryland professor
*Vincent Reinhard, AEI Resident Scholar
*Andy Busch, BMO Capital Markets
Who is Ayn Rand?
*CNBC's Hampton Pearson
Why is Ayn Rand So Popular?
*Don Luskin, Trendmacrolytics CIO
*Jerry Bowyer, CNBC Contributor
Larry's Last Word
Please join us. The Kudlow Report. 7pm ET. CNBC.
22 Aralık 2009 Salı
The Yield Curve Is Signaling Bigger Growth
What’s a yield curve and why is it so important?
Well, the curve itself measures Treasury interest rates, by maturity, from 91-day T-bills all the way out to 30-year bonds. It’s the difference between the long rates and the short rates that tells a key story about the future of the economy.
When the curve is wide and upward sloping, as it is today, it tells us that the economic future is good. When the curve is upside down, or inverted, with short rates above long rates, it tells us that something is amiss -- such as a credit crunch and a recession.
The inverted curve is abnormal, the positive curve is normal. We have returned to normalcy, and then some. Right now, the difference between long and short Treasury rates is as wide as any time in history. With the Fed pumping in all that money and anchoring the short rate at zero, investors are now charging the Treasury a higher interest rate for buying its bonds. That’s as it should be. The time preference of money simply means that the investor will hold Treasury bonds for a longer period of time, but he or she is going to charge a higher rate. That is a normal risk profile.
The yield curve may be the best single forecasting predictor there is. When it was inverted or flat for most of 2006, 2007, and the early part of 2008, it correctly predicted big trouble ahead. Right now it is forecasting a much stronger economy in 2010 than most people think possible.
So there could be a mini boom next year, with real GDP growing at 4 to 5 percent, perhaps with a 6 percent quarter in there someplace. And the unemployment rate is likely to come down, perhaps moving into the 8 percent zone from today’s 10 percent.
The normalization of the Treasury curve is corroborated by the rising stock market and a normalization of credit spreads in the bond market. I note that as the curve has widened in recent weeks, gold prices have corrected lower and the dollar has increased somewhat. So the edge may be coming off the inflation threat. If market investors expect the economy to grow, inflation at the margin will be that much lower as better growth absorbs at least some of the money-supply excess created by the Fed. My hunch is that inflation will range 2 to 3 percent next year.
It also could be that the health-care bill about to pass in the Senate is less onerous from a growth standpoint -- and certainly less onerous than the House bill. For example, the Senate bill does not contain a 5.4 percent personal-tax-rate surcharge, which also would apply to capital gains. So if the Senate bill becomes the final bill, it will be less punitive on growth. That could explain the fall in gold and the rise in the dollar. We’ll still be stuck with a tax hike from the expiration of the Bush tax cuts, but at least we won’t have a tax hike on top of that. That’s the optimistic view, at any rate.
But really, pessimists have missed the big rise in corporate profits, the resiliency of our mostly free-market capitalist economy, and the monetarist experiment from the easy-money Fed. The optimal policy mix on the supply-side is low tax rates and King Dollar. We don’t have that. So as good as 2010 may be, with investors moving to beat the tax man, it could be a false prosperity at the expense of 2011.
But let’s cross that bridge when we get there. Right now, rising stocks and a wide and positive yield curve are spelling strong economic growth in the new year.
Well, the curve itself measures Treasury interest rates, by maturity, from 91-day T-bills all the way out to 30-year bonds. It’s the difference between the long rates and the short rates that tells a key story about the future of the economy.
When the curve is wide and upward sloping, as it is today, it tells us that the economic future is good. When the curve is upside down, or inverted, with short rates above long rates, it tells us that something is amiss -- such as a credit crunch and a recession.
The inverted curve is abnormal, the positive curve is normal. We have returned to normalcy, and then some. Right now, the difference between long and short Treasury rates is as wide as any time in history. With the Fed pumping in all that money and anchoring the short rate at zero, investors are now charging the Treasury a higher interest rate for buying its bonds. That’s as it should be. The time preference of money simply means that the investor will hold Treasury bonds for a longer period of time, but he or she is going to charge a higher rate. That is a normal risk profile.
The yield curve may be the best single forecasting predictor there is. When it was inverted or flat for most of 2006, 2007, and the early part of 2008, it correctly predicted big trouble ahead. Right now it is forecasting a much stronger economy in 2010 than most people think possible.
So there could be a mini boom next year, with real GDP growing at 4 to 5 percent, perhaps with a 6 percent quarter in there someplace. And the unemployment rate is likely to come down, perhaps moving into the 8 percent zone from today’s 10 percent.
The normalization of the Treasury curve is corroborated by the rising stock market and a normalization of credit spreads in the bond market. I note that as the curve has widened in recent weeks, gold prices have corrected lower and the dollar has increased somewhat. So the edge may be coming off the inflation threat. If market investors expect the economy to grow, inflation at the margin will be that much lower as better growth absorbs at least some of the money-supply excess created by the Fed. My hunch is that inflation will range 2 to 3 percent next year.
It also could be that the health-care bill about to pass in the Senate is less onerous from a growth standpoint -- and certainly less onerous than the House bill. For example, the Senate bill does not contain a 5.4 percent personal-tax-rate surcharge, which also would apply to capital gains. So if the Senate bill becomes the final bill, it will be less punitive on growth. That could explain the fall in gold and the rise in the dollar. We’ll still be stuck with a tax hike from the expiration of the Bush tax cuts, but at least we won’t have a tax hike on top of that. That’s the optimistic view, at any rate.
But really, pessimists have missed the big rise in corporate profits, the resiliency of our mostly free-market capitalist economy, and the monetarist experiment from the easy-money Fed. The optimal policy mix on the supply-side is low tax rates and King Dollar. We don’t have that. So as good as 2010 may be, with investors moving to beat the tax man, it could be a false prosperity at the expense of 2011.
But let’s cross that bridge when we get there. Right now, rising stocks and a wide and positive yield curve are spelling strong economic growth in the new year.
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