Signs point to a strong economy - Dubya stock a "buy" (Is Bush prosperity better than *Clinton's?)

Kansas City Star ^ | 12/01/05 | LARRY KUDLOW

[Libloather]

Signs point to a strong economy
By LARRY KUDLOW
Columnist
Posted on Thu, Dec. 01, 2005

Here are a few things I’ve learned recently:

■ The boat-building business is booming, with big backlogs for orders in the $80,000 to $300,000 price range.

Why is this important? Prosperity. People buy luxury items when they’ve got the money to do so. This is a very positive economic-growth indicator.

■ A midsized U.S. insurance company has been issuing a record number of group employee-benefit packages for disability, accident and other coverage to small companies. This is a sign of new- and small-business formation, and yet another indicator of economic growth.

This corroborates the rise of household employment data, which has again been running well above the more traditional establishment payroll numbers put out by the Labor Department. The household survey picks up self-employed and other start-ups that take years to be scored in the payroll survey.

This economy is stronger than most folks think.

■ Despite energy spikes, hurricanes and multiple tightening moves from the Federal Reserve, the broad Standard & Poor’s 500 stock index has actually gained ground since early 2004. This is a sign of latent economic strength. The S&P could be consolidating its base, following the big 2003 run-up, in advance of a huge increase next year.

■ The investor class continues to expand, according to a recent survey, with nearly 57 million U.S. families now invested in stocks. This is an incredibly powerful force for capital formation, economic growth and pro-capitalism politics.

Twenty years ago, only one-fifth of families owned shares. Now, it’s three-fifths.

■ The Google revolution on the Internet makes me think of the overall technologically driven productivity boom, which is now 10 years old. This boom is measured conservatively at 3 percent yearly, suggesting at least a 4 percent annual rate for potential real economic growth.

Economist Joseph Schumpeter taught us years ago that gales of creative destruction generate more than usual growth, profits and real wages, with lower- than-usual inflation and interest rates. Schumpeter’s gales are blowing.

■ The Angela Merkel grand-coalition deal in Germany will be a complete disaster for the already anemic German economy. Top personal tax rates will be raised, the VAT tax will be increased, scheduled corporate tax cuts will be postponed, and proposed labor-market reforms will be pushed aside.

This is unbelievable — worse than Gerhard Schroeder. Say, “Bye-bye, Germany.”

■ Ben Bernanke is a really smart guy with a good idea for a numerical inflation target. But investors were turned off by him when he testified before the Senate. Just a guess: IRA and 401(k) owners may be worried that a 1 percent to 2 percent inflation target could be too close to deflation or recession.

Folks may be fed up with Fed fatigue over Greenspan’s robo-cop, autopilot tightening moves. If Bernanke says he’s going to be just like Greenspan, does that mean the autopilot rate increases will go on forever and doom the stock market?

■ President Bush could be bottoming, though it may take several months for this to become clear.

But add up all the reasons why the Bush stock deserves a “buy” rating: The economy is strong; gasoline prices are falling; the GOP Congress will pass a sizable tax- and budget-cutting fiscal plan; and after another successful election in Iraq next month, at least 35,000 U.S. troops will be withdrawn in 2006.

Larry Kudlow is host of CNBC’s “Kudlow & Co.”

[Libloather]

This economy is stronger than most folks think.

After 9/11, hurricanes, war and the *Crinton/Gore recession, the United States should be tanking. It isn't. Rush mentioned the ONE thing that could ruin this great economic situation - tax increases...

[ARCADIA]

Rush mentioned the ONE thing that could ruin this great economic situation - tax increases...

It all sounds like whistling in the dark. We wouldn't need to talk up the economy, nor wory about liberal hysteria, unless there is a concern.

[BenLurkin]

You might find this article and discussion interesting.

[EQAndyBuzz]

Now is the time to make the tax cuts permanent. Go after the RATS hard on this. Force them to say no and use it against them in the 2006 election cycle.

[Dont_Tread_On_Me_888]

Yes, those are very interesting observations by Kudlow. He stated "the Bush stock deserves a “buy” rating: The economy is strong; gasoline prices are falling . . ." Kudlow knows Bush does not have anything to do with the economy, it is just that he knows that people do make that false association. (e.g., he stated Bush's stock deserves a "buy" rating because gasoline proces are falling). Bush has nothing to do with the fall in gasoline prices, just as Bush had nothing to do with the rise in gasoline prices. We have reached that point where the press and even economists have thrown in the towel on the ignorant Ameican public and "just go along" as they now make that same association of the president with the economy. I also wish Larry would have mentioned the other stock indices other than the SP 500. As you see, the SP 400 (mid) and SP 600 (small) have done even better than the SP 500 (large). {GSPC is the code for SP 500).

[Neoliberalnot]

In the face of a war, the 911 attack on our financial heart, and the natural disasters, the economy is going gangbusters.

[Dont_Tread_On_Me_888]

Go after the RATS hard on this. Force them to say no and use it against them in the 2006 election cycle.

Our problem is not the RATs.

Our problems are with the far-left RINOs.

[rodguy911]

Our problem is both.

[Dont_Tread_On_Me_888]

In the face of a war, the 911 attack on our financial heart, and the natural disasters, the economy is going gangbusters.

1] war

Actually, war is not a detriment to the economy, so your "in the face of" comment is misplaced. The war has stimulated spending with tax increases so the war actually helped the economy, not hurt it. 2] 911 attack

The 911 attack was about a $1 trillion shock to the economy, but it only took about 9 months to work that off. The % change of GDP over the previous year was .8 in 2001/2000 ------- 1.6 2002/2001 ------ 2.7 2003/2002 and 4.2% 2004 over 2003. You can see we recovered from the 911 attack long ago, not just now.

3] natural disasters

The hurricanes were a very (VERY) temporary slight drag on some current indicators, but again, they do no hurt the economy but actually stimulate the economy since you are giving more freebie money away without taxing the taxpayers.

All three items you mentioned are not really "in the face of" . . . It is just that the cycle of the economy is more in the sweet spot following the late 2000, early 2001 downturn.

Note: The United States makes up less than 30% of the world's economy. Factors outside the United States carry more weight than factors inside the United States since most personal income and spending and business income and spending is tied to the world economy in so many ways. Positive factors outside the US can offset negative factors inside the US, and the economy here rolls on.

[Dont_Tread_On_Me_888]

I disagree.

We control the White House, the House and the Senate. Our problems lie more with spineless (and SPIN-less) RINOs than it does with the RATs. Our problems also lie with the inability of the GOP to market its agenda with the public. The GOP has an amateur style marketing campaign (no campaign to be specific), Bush has a lousy Press Secretary and the GOP hides and stays on the sidelines and lets the RATs dominate the airwaves.

When the GOP has the majority in Congress and owns the White House, your problem is with RINOs, not the RATs.

[Dont_Tread_On_Me_888]

My second line in post #9 should say WITHOUT TAX INCRESES, not with.

[Democratshavenobrains]

If you listen to the DUmmies, every job created under Clinton gave million dollar salaries and a 10 hour work week. But all of Bush's jobs are for McDonalds.

[Mogollon]

During the ridiculous presidency of slick-willy the impeached the MSM raved about the blistering high rate of growth of 2.3%....now Dubya's rate of growth of 4.3% is either ignored by the MSM or mentioned only in a negative way.

[ez]

Guess that puts the lambs in a more precarious position.

I wonder sometimes what the Dow was at the day clinton took office, and what it was the day W. took office, compared to what it is today. Seems to me W inherited a Dow near 8500 and it is now pushing up against 11,000.

Also seems to me clinton inherited a Dow in the 9000 range and left it sucked dry, having burst the tech bubble with the Microsoft suit, to the benefit of his political allies.

[ez]

During the ridiculous presidency of slick-willy the impeached the MSM raved about the blistering high rate of growth of 2.3%....now Dubya's rate of growth of 4.3% is either ignored by the MSM or mentioned only in a negative way.

I wonder sometimes what the Dow was at the day clinton took office, and what it was the day W. took office, compared to what it is today. Seems to me W inherited a Dow near 8500 and it is now pushing up against 11,000.

Also seems to me clinton inherited a Dow in the 9000 range and left it sucked dry, having burst the tech bubble with the Microsoft suit, to the benefit of his political allies.

[Owen]

I don't want to destroy this thread, but it's important for everyone who is economically oriented to understand that the ONLY way to avoid tax increases for Social Security is to have more people of working age. Tax increases would be a disaster. So . . . [deep breath] we need to throttle down on all this talk of deporting people who could become legal workers paying into Social Security.

[ARCADIA]

we need to throttle down on all this talk of deporting people who could become legal workers paying into Social Security.

It doesn't matter if they pay into social security, as long as they remain a net tax burden. The only way to avoid a tax hike is to reindustrialize the country. It is not about adding jobs; but adding the types of jobs that are valued enough to help carry the burden. The illegal population in this country is a mixed bag. Some can help, others are simply criminals, and many lack the basic skills that would make them anything other then a social burden. The premise of sealing the border; deporting all of the illegals, and allowing a select group, those with the right skills, to re-enter legally, is the right way to go.

[Owen]

But what does that have to do with addressing Social Security and pension payout. It is those taxes that matter. They are the taxes paid by the largest number of people. Low income people escape income tax, but they pay Soc Sec, and they depend on its pension payout.

That payout isn't going to be there if we lose working age people to deportation. But I will say it does make sense to deport any one of them without a job. If they have a job, then they obviously have the needed skill and can now pay into SS.

[ARCADIA]

But what does that have to do with addressing Social Security and pension payout.

The Social Security fund is an administrative fabrication. The only thing we really have is general tax revenues, and having a guy contribute $2,000 a year to Social Security, while we are laying out $20,000 to put his kids through public school is a net loss.

[Owen]

Calling it a fabrication won't fly. It is administered seperately and its funding is explicitly delineated.

There must be more working age people in the US or the parents of people here are going to have no pensions. Where are those working age people going to come from?