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Columnist and economic advisor Lawrence Kudlow started out his career as chief economist for several Wall Street firms. He served as the associate...
Read more about Lawrence Kudlow.
Columnist and economic advisor Lawrence Kudlow started out his career as chief economist for several Wall Street firms. He served as the associate...
Read more about Lawrence Kudlow.
Storm Clouds Gather as Dow Hits 10,000
Lawrence Kudlow
Dow Jones 10,000 arrived on Wall Street Wednesday for the first time
in a year. It's a milestone of sorts, and it certainly represents a
vote for investor confidence in economic recovery. Blowout profit
reports from Intel and JPMorgan helped fuel the day's 145-point gain.
So did a retail sales report that excluding Cash for Clunkers was
actually quite strong.
Profits are the mother's milk of stocks, business and the economy. And top-line sales revenues now appear to be bolstering the corporate cost-cutting effort. As long as these earnings keep coming in strong, stocks will keep rising. My hunch is that we'll move back to pre-Lehman levels -- to over 11,000 on the Dow and over 1,200 on the S&P. Backed by an easy-money Fed, the economy will probably grow in a mild V-shape of something like 3 percent to 4 percent for the next year or so.
But storm clouds are gathering.
One of the biggest clouds out there is the sinking dollar. What we're witnessing right now is a big global shift out of dollars and into commodities. The dollar is quickly losing its reserve status to the yen and the euro. The proof is in the pudding: Earlier today, the greenback notched a new 14-month low against the euro. This is not good.
Meanwhile, in the second quarter ending in June, central banks around the world invested 63 percent of their new cash reserves into euro and yen, and put only 37 percent into dollars. And over the past six months, the greenback has lost 15 percent, while gold has climbed nearly $150. If this trend continues, spiking inflation and interest rates will choke off the stock market rally and do serious damage to the economy. It could happen very fast.
No one in the Obama administration or at the Fed seems to care about any of this. In fact, they are probably applauding the lower dollar as a sort of 1970s way of boosting exports and the manufacturing heartland in the Midwest. But the falling dollar is bad news for consumers. It will ultimately cause higher inflation, as signaled by the rising price of gold.
There are also future tax hikes looming out there, as well as the enormous explosion of government spending and debt. All of this is why it's hard for me to be a long-term bull.
The great market boom between 1982 and 2000 was basically characterized by low marginal tax rates and a strong King Dollar. Unfortunately, the 21st century has witnessed a weak dollar and, more recently, rising tax rates that are coming due in 2011 (if not sooner). In other words, the prosperity-inducing Mundell-Laffer supply-side model is being reversed.
As economist Art Laffer put it to me, we are stealing demand and production from the future. So, even as we get a V-shaped recovery now and into next year, 2011 may finally pay the piper for both low growth and higher inflation.
What we need to be doing is exercising some monetary restraint to save the dollar. The Fed should start moving excess cash from the economy. They should follow Australia's lead and begin raising their target rate. In addition, the Treasury ought to be buying all these unwanted dollars in the marketplace. And Washington needs to quit their explosive spending and borrowing. It is killing us. Some statutory -- or even constitutional -- limits should be set.
We also need economic-growth incentives like lower marginal tax rates, which would benefit investors, entrepreneurs and workers. We should be slashing tax rates on large and small businesses across-the-board.
Stocks could have another four to six months left to rally. That would be great news for increasing the wealth of the investor class and maybe even enhancing the animal spirits a bit. But the policy mix is all wrong right now. Health care entitlements and taxes punctuate the wrong-way policy mix.
What remains to be seen is whether the Republicans can successfully challenge the Democrats with a true supply-side economic-growth message and job-creating platform. If not, beware of the storm clouds.
========
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
Copyright 2009 Creators Syndicate Inc.
This news arrived on: 10/16/2009
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Posted Comments:
10-19-2009 00:13
JCE wrote:
old cowboy, considering the importance of the subject, you aren't beating a dead horse.
Catharyne I read a book called "French Women Don't get Fat." The premise was that it isn't the problem for French women for a couple of reasons. One is that their health in more important to them. Another is that they believe that while they can eat what they want, it MUST be real food, and they must walk and be active, sometimes extra. AND, they don't have to eat everything in front of them. A woman can buy that desert, and share it with two other women. What a concept. So many countries don't even have the word organic and you never see it on food. Here we have organic which is real food, and fake food which only looks like it, and sometimes tastes like it. Back to old cowboy, small farmers can make real food, as that is their goal. Big farmers are only out for money, and they aren't on the land, in the dirt, or eating it. They can buy real food it they want it. Most people either can't find or afford it. I can easily tell the difference, by taste, and often look, of real food. Milk, butter, cream, eggs, fruit or vegetables that have ripened on the vine, tree, or ground, and organic meat have the natural and real taste. A study found that more American children responded more to orange flavored chemical sugar water than to orange juice. And there ain't much better than fresh squeezed real orange juice. How many kids have never tasted that, I wonder? You pick an orange before it is ripe, after all the chemicals and poisons added, and the has wax added to make it look better, etc., isn't real.
Catharyne I read a book called "French Women Don't get Fat." The premise was that it isn't the problem for French women for a couple of reasons. One is that their health in more important to them. Another is that they believe that while they can eat what they want, it MUST be real food, and they must walk and be active, sometimes extra. AND, they don't have to eat everything in front of them. A woman can buy that desert, and share it with two other women. What a concept. So many countries don't even have the word organic and you never see it on food. Here we have organic which is real food, and fake food which only looks like it, and sometimes tastes like it. Back to old cowboy, small farmers can make real food, as that is their goal. Big farmers are only out for money, and they aren't on the land, in the dirt, or eating it. They can buy real food it they want it. Most people either can't find or afford it. I can easily tell the difference, by taste, and often look, of real food. Milk, butter, cream, eggs, fruit or vegetables that have ripened on the vine, tree, or ground, and organic meat have the natural and real taste. A study found that more American children responded more to orange flavored chemical sugar water than to orange juice. And there ain't much better than fresh squeezed real orange juice. How many kids have never tasted that, I wonder? You pick an orange before it is ripe, after all the chemicals and poisons added, and the has wax added to make it look better, etc., isn't real.
10-18-2009 11:19
Catharyne Stauffer wrote:
To JCE , I know exactly what you mean concerning free trade with developing nations that DON'T have the same chemical restrictions and you can blame many of the Big Chemical companies for this .
When one of their products is banded they immediately give good deals and lobby to use it in other less well informed countries .
When I was in Costa Rica the locals called free trade , free raid . The local producers were told they had to apply certain chemicals on melons etc so that they were unblemished for exporting to developed nations like the US and Canada .
many problems have arisen from the local food pickers handling the fruit and vegetables before they have been washed . The chemical residue would be on their hands and clothes and the amount of health issues I saw is very small communities really shocked me . Lots of birth defects and stomach cancer and lots of the people complained to us about fertility problems .
I don't know if a medical study has been done or a chemical analysis has ever been done on those people but I sure would be interested in knowing the results .
I watched a programs on the agriculture practices of Cuba and how they do not use chemicals but natural supporting plants which suppresses and or eliminates pests etc . Its only with mono farming ( planting just one species of plant) that problems with weeds and insects arise .
Most gardeners can tell you what accompanying plants should be mixed in your garden to reduce or eliminate certain problems .
Example planting Mexican marigolds ( a large variety) kills quake grass and it places a natural chemical in the soil that will actually stop the germination of most grass weed seeds for about 3 years .
When one of their products is banded they immediately give good deals and lobby to use it in other less well informed countries .
When I was in Costa Rica the locals called free trade , free raid . The local producers were told they had to apply certain chemicals on melons etc so that they were unblemished for exporting to developed nations like the US and Canada .
many problems have arisen from the local food pickers handling the fruit and vegetables before they have been washed . The chemical residue would be on their hands and clothes and the amount of health issues I saw is very small communities really shocked me . Lots of birth defects and stomach cancer and lots of the people complained to us about fertility problems .
I don't know if a medical study has been done or a chemical analysis has ever been done on those people but I sure would be interested in knowing the results .
I watched a programs on the agriculture practices of Cuba and how they do not use chemicals but natural supporting plants which suppresses and or eliminates pests etc . Its only with mono farming ( planting just one species of plant) that problems with weeds and insects arise .
Most gardeners can tell you what accompanying plants should be mixed in your garden to reduce or eliminate certain problems .
Example planting Mexican marigolds ( a large variety) kills quake grass and it places a natural chemical in the soil that will actually stop the germination of most grass weed seeds for about 3 years .
10-18-2009 01:30
old cowboy wrote:
to Catharyne
We may be beating a dead horse but there are other consequences to the big subsidized farms. In the case I stated they tried to change some good hard grass pasture into farm land with section sized pivot sprinklers and are depleting the water table to try to raise crops that will never produce but they can use them for a write off. Same is happening all over the west and water diverted from pristine rivers is causing all sorts of problems.
10-18-2009 00:35
JCE wrote:
Catharyne
I know you did. But the big businesses started to buy or force out the little guy back in the 1880s. The 1980s was more the end of it. You are quite correct in your posts. Big business is all about money, and quality of life and product is sacrificed. Big business in all areas. I wish I could handle the heat, and live on my dads 180 acre farm in North Carolina. He bought it from my grandparents so they could afford to still run the farm. It is really a beautiful valley in the Smoky Mts. But June, July and August have temps in the high 90s and this old Alaska boy can't handle that. I try to buy as much local stuff as I can, fish included, because of the things you mention. But over fishing has really made the fish disappear and the Yukon doesn't get enough for subsistence anymore. It is harder for me to get my smoked salmon, and what is in the store isn't real to me. What is worse, with all this free trade nonsense, chemicals that we have outlawed are put on food in other countries, and they sell it to us. Mexico is a prime example. I keep trying to find the info that tells all the bar codes, and where they show that the food comes from. It is disgraceful how much food is brought into this country. And wrong. I have bought all the stuff at the farmers market I could, and they will shut down soon. My freezers are packed. But less fish than usual. And the fish caught locally are toxic.
10-17-2009 22:14
Catharyne Stauffer wrote:
To Old Cowboy , The negative impact on the environment from corporation farming is felt many ways . First they use far more chemicals and often spray these chemicals at less than optimum times because they have soo much land to work they can't afford to wait . Many of these chemicals travel miles in the wind plus when you get huge feed lots in one area the smell carries and any unfortunate person owning a house near those feed lots have a huge loss in property value and of course health issues because of the methane .
Corporation farming also likes to farm right up to all the natural water sheds that feed rivers and lakes and because of the nitrogen run off from manure and sprays you get blue green algae bloom . In my area not one lake does not have blue green algae bloom so thick you could almost walk across it . This algae is very toxic for birds and fish and that is only one type of algae that is toxic many other are as well .
Big fish farms are also a horrible on the environment a few years ago they had a major problem with fish lice and this year for one type of salmon returning to spawn . They expected the numbers to be up are 50 plus million salmon and instead only 1 million returned to spawn of that species and it was due to the fish lice from big fish farms .
Corporation farming also likes to farm right up to all the natural water sheds that feed rivers and lakes and because of the nitrogen run off from manure and sprays you get blue green algae bloom . In my area not one lake does not have blue green algae bloom so thick you could almost walk across it . This algae is very toxic for birds and fish and that is only one type of algae that is toxic many other are as well .
Big fish farms are also a horrible on the environment a few years ago they had a major problem with fish lice and this year for one type of salmon returning to spawn . They expected the numbers to be up are 50 plus million salmon and instead only 1 million returned to spawn of that species and it was due to the fish lice from big fish farms .
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