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Back on the Kudlow Report at 7:00 pm this evening with Chris Whalen. We are discussing the Market, the Fed, and the Deficit.

For a preview, some bullet points:

Market
1. Markets look like they trade poorly, but refuse to go down. A very powerful bid is beneath
2. Stocks are reasonably priced – not cheap but not dear
3. Earnings have been very strong
4. The trend is still upwards
5. QE2: Give me a $100 billion per month, and I will throw you a helluva party.
NOTE: Only small divergences so far: 52 week high is softening, sentiment a tad bullish – but nothing is at an extreme

Bernanke’s Fed
1. QE experts? Suddenly we are a nation of amateur policy wonks
2. There are probably fewer than 100 people in the world who are qualified to discuss this intelligently in great detail (Sarah Palin ain’t one of them)
3. As a money manager, my job is to discern the impact of the Fed’s policy on equities and bonds – not analyze it for my Poli Sci final

Deficit
1. Social Security is fine – raise retirement age, raise the cut off for contributions ($106k), means test, etc.
2. Medicare is the bigger issue – prescription drugs, etc. We have the world’s most expensive, least efficient health care system (The ER)
3. Defense cuts must be on the table
4. Discretionary spending must be on table
5. AMT Tax is an issue
6. Mortgage deduction for vacation properties, boats, etc. (but I’ll bet that $500k gets raised)

~~~

Video is here

Category: Media

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Media Appearance: The Kudlow Report (11/10/10)”

  1. rktbrkr says:

    No mort deduction over 500K or vac homes???!!! They’re carpet bombing the Hamptons! (not to mention most Manhattan condos). This is revenge of the proles between the coasts.

    Another wet blanket for RE,esp bad for areas with a lot of expensive & vacation properties – most of which have already been hammered – many areas of the sand states and ski areas. Another big incentive to default strategically – and this will ripple thru to the biggest and baddest mortgage mills

  2. carleric says:

    Hey Barry, you don’t need much intelligence to figure out the Fed….Money printing puts an artificial floor under equities in the vain and silly hope that equity holders will spend more money…makes about as much sense as using gasoline to stop the fire. I love the contrast between Bailout Nation and the real you…..Lets just destroy the Fed monster, let Wall Street make it through this period without a Fed put and move on…..money managers have to work for their money….how sad…

  3. The Window Washer says:

    If it goes like your last appearance with Chris everyone should watch this clip beforehand.
    I swear I thought of this scene after the last show, you guys were finishing each other’s sentences.

    http://www.youtube.com/watch?v=BsbQrS6yC4A

    Looking forward to more of the two of you.

  4. VennData says:

    Greenspan things QE2 is a bad idea. What else do you need to know?

    http://online.wsj.com/article/BT-CO-20101110-722089.html

    Nice job Bernanke.

  5. yosull says:

    One word — Entitlements.

    Oink Oink

  6. obsvr-1 says:

    The language of calling Social Security and Medicare entitlement needs to change, these are programs that are funded by the participants — sure there needs to be attention paid to fraud and in the case of medicare cost reductions across the healthcare environment (including fraud, lawsuits, quantity vs quality care, pharmaceutical pusher channel, on and on ….)

    Social security payroll tax reform, cut the rate and eliminate the income cap … add some percentage to capital gains income to capture those who only have un-earned income.

    Entitlements would be those funds transferred to someone from the general fund without being paid for specifically … TARP would fall into that category (with its Exec Bonus Entitlement provisions)

    How about focusing on radical reduction or elimination of foreign aid, state dept nation building and a significant reduction in Military, Industrial, Energy Complex (Entitlement Spending).

  7. call me ahab says:

    QE experts? . . .There are probably fewer than 100 people in the world who are qualified to discuss this intelligently in great detail

    of course- when we have folks like Ben “there is no housing bubble” Bernanke at the helm- why question policies from the Fed?

    and why stop at a 100- maybe there is less than 10 people in the world- or maybe no-one-

    such brilliance is probably derived from divine intelligence- with Ben Bernanke touching the fingertip of God himself-

    BR- you’re always good for a laugh

  8. gman says:

    TWO WORDS-endless wars

    bang bang..then cha-ching.

  9. Bob A says:

    If only they had the Kudlow show without Kudlow…

  10. kmckellop says:

    What I would like to know is how economist can account for the FED’s actions within the efficient market theory… or is it all a hoax? A Ponzi scheme as Bill Gross from PIMCO has alluded to.

  11. RW says:

    The Quote for the Day feed got stuck (at least on my browser) but the quote is appropriate to the topic so here it is:

    “There is a tide in the affairs of men, which, taken at the flood, leads on to fortune.” – William Shakespeare (Spoken by Brutus in the play Julius Caesar)

    Assessing environment without introducing excessive bias or ego can be a bitch but it is a key element in successful investing. For that matter success in life depends on it too: The best ideas in the world will wither and fail if there is no sustainance for them.

    It may take real expertise to model something like QE fully but that is not needed to be aware of trend: The big problem is the assumptions you carry with you and discerning trend with clarity. I (used to) do a fair amount of sector rotation investing guided by the business cycle but failed to compensate for the increasing dominance of the financial sector and, eo ipso, the credit cycle.

    Calling a liquidity rally a ‘cyclical bull’ still sits poorly with me as a matter of definition – a skewed and damaged business cycle conveys as many bogus signals as true – but I can live with it if helps me understand what folks believe they are saying and what they believe it means. Keynes was right (as he usually was, never mind critics who rather obviously have not read him), investing is like a beauty contest:

    “It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”

    Keynes died after donating millions, virtually all of which were earned by investing rather than inheritance, to causes he deemed worthy: He not only practiced the fifth and higher degrees he was a generous spirit; Shakespeare would have approved I think.

  12. Arequipa01 says:

    Thank you, RW.

  13. ubnutsagain says:

    @ obsvr-1

    “The language of calling Social Security and Medicare entitlement needs to change, these are programs that are funded by the participants”

    —-

    Not so.

    Social Security and Medicare are funded by taxes, with no specific identification of those funds or any part thereof, to any particular individual.

    FICA taxes that have forcibly been taken from you have been spent on other things, not you. There is no “lock box” with your name on it, regardless of whether Al Gore wants one or not.

    Furthermore, if collections of SS and/or Mediscare are insufficient, benefits will still be paid, out of general revenues.

    Websters Dictionary gets it right: “something to which a person is entitled; specif., any of various benefits provided to qualifying persons under certain government programs, as Medicare”

    The benefits under the programs are, in fact, entitlements because qualifying persons have been so entitled legally … at least until someone in the District of Confusion finally gets smart and changes things.

  14. rktbrkr says:

    I’d have more confidence in Bernanke’s plans if they weren’t clouded by euphemism like “QE”. QE is currency printing. This whole financial mess has been clouded by terminology. Systemic risk is whatever the speaker wishes it to be, moral hazard is an oxymoron as BB, Paulson & Geithner have reloaded the worst players.

  15. rktbrkr says:

    We ought to play close attention to what happens in Ireland as open ended government guarantees to their risky business banks are about to pull down the house. I read this article about real estate loan losses mounting and think “what’s different here”? Deaf, dumb & blind regulation and accounting that constantly provides surprises. We are due for some nasty surprises when the foreclosure dust settles (it’s still rising)

    http://online.wsj.com/article/SB10001424052748704506404575592360334457040.html?mod=WSJ_hp_mostpop_read

  16. Lyle says:

    One way to avoid this if the company is slow is to pay yourself and then you will get a refund one way or the other. Back in the late 80s and early 90s the mortgage company I had would not pay for a couple months after the policy was due, so I paid the premium myself. Then I would get a check from the insurance company when the mortgage company finally paid.
    I finally just paid the mortgage off at the 15 year point to stop this game. I was amazed the insurance company was willing to trust the mortgage company so much more than they were willing to trust consumers, i.e. the policy did not get canceled at 2 months past due.

  17. louis says:

    BR-You forget if you bought a house in the last 5 years you can’t afford an Ipad.

  18. The iPad has become the fastest selling gadget of all time — someone is buying them.

    As to the houses — I sold one over priced property and bought another. Its a wash . . .

  19. John says:

    obsvr-1,

    To add to what ubnutsagain wrote, Social Security and Medicare are welfare programs.

  20. obsvr-1 says:

    @ubnutsagain
    Not so.

    >Social Security and Medicare are funded by taxes, with no specific identification of those funds or any part >thereof, to any particular individual.

    — Reply: SS, payroll taxes, go to the SS Trust Fund (Currently $2.4T) which buys treasury bonds, the UST gets the proceeds and the gov’t spends it. The amount of withholding is tracked to each person (SSN) – unless you get paid under the table or somehow outside of the system you receive quarterly statements showing this information. Congress will spend money and borrow to cover the deficit, about $5T from various Gov’t accts and trust funds. I would rather they balance the budget and not overspend, but if they are going to borrow then using these accounts is more favorable to China or other (assuming we do not intend to default).

    >FICA taxes that have forcibly been taken from you have been spent on other things, not you. There is no “lock >box” with your name on it, regardless of whether Al Gore wants one or not.

    — Reply: FICA taxes are the cost of being part of the system, see above regarding “your name on it”

    Furthermore, if collections of SS and/or Mediscare are insufficient, benefits will still be paid, out of general revenues.

    — Reply: Yes, these are obligations of the SS system back stopped by the FF&C of the US Govt — keeping it solvent is the goal, reforming SS with a concept like reduce the payroll tax rate, remove the income cap and add/allocate tax on capital gains (to pickup contributions from unearned income, or carry interest from those hedgies).

  21. obsvr-1 says:

    @John Says:

    obsvr-1,

    To add to what ubnutsagain wrote, Social Security and Medicare are welfare programs.

    — Reply

    WTF ? what are you guys smoking … The SS and Medicare programs are far from perfect, mismanaged, full of fraud and in need of reform. BUT they are not welfare, no different than a private pension fund (most are underfunded) or private medical insurance (subject to bankruptcy) with the exception of being backed by the FF&C of the US Gov’t

  22. perra says:

    “Stocks are reasonably priced – not cheap but not dear” ???

    This doesn’t sound like you Mr. Ritholtz. I always laugh when I hear pundits claim that stocks are either cheap, dear or fairly priced. What exactly do you mean by this statement?

    ~~~

    BR: If you don’t understand the distinction between cheap and expensive, I’m afraid there isn’t much I could ever explain to you about, well, anything else . . .

  23. ubnutsagain says:

    @ obsvr-1

    All those words you wrote in reply contain some worthy observations.

    But what they fail to do is support your assertion that SS and Medicare should not be called entitlements, the point of my first post.

    John got it right … it’s welfare. Simply put, welfare is the organized efforts of government agencies that provide money to the poor, the unemployed, etc. Retired folks are often poor and/or unemployed, and government has stepped in to help them, although in many cases why we pay our taxes to help people who haven’t first taken the steps to help themselves is beyond me.

    I know some folks whose private income in their retirement years well exceeds $100k/year. Yet they receive SS in the $22k – $30k per year, not to mention Medicare financing of their health care costs.

    That’s crazy, but entitlement and welfare it is.

  24. dead hobo says:

    BR quipped:

    There are probably fewer than 100 people in the world who are qualified to discuss this intelligently in great detail (Sarah Palin ain’t one of them)

    reply:
    ————–
    Economics is less complicated than you think, unless you throw a lot of complicated math into the mix to make it look more complicated than it is. Most with opinions on monetary theory know exactly what is going on in general and only get it messy around the edges. Fundamental analysis beats technical analysis any day of the week, although very short term technical analysis can be useful to spot microeconomic trends. Long tern technical analysis can be considered magic charts. By claiming that <100 people are fit to discus the subject, you make an assertion that the economy is being managed by elite experts who are smarter than the rest of us. Given events of the past year, I would agree the criminal element is smart and successful, but the experts are just winging it.

    Sarah Palin is an opportunistic personality, but is probably as smart as many of those who write for the business press. I'm glad she's trying to draw the common person into the dialog. Even if she's full of crap, she will get more people interested in things they would normally run away from.

    In another topic, when the bond bubble eventually blows up, the cash won't evaporate, it will flow into the best place available, such as equities. QE2 will be the gift that keeps on giving long after June as former bond money looks for a new place to work. (PS This is called economics when you think like this)

  25. dead hobo says:

    perra Says:
    November 11th, 2010 at 3:53 am

    “Stocks are reasonably priced – not cheap but not dear” ???

    This doesn’t sound like you Mr. Ritholtz. I always laugh when I hear pundits claim that stocks are either cheap, dear or fairly priced. What exactly do you mean by this statement?

    reply:
    ———–
    As I understand the statement, (I agree the phrase ‘fairly priced stocks’ is wobbly) it requires the analyst to consider either trailing eps (earnings per share) or projected eps or pro forma eps, or eps without items, or eps with items, or eps with only some items, or super duper fantasy eps, or some very special favorite eps that means something only to you. Then are you calculating basic or fully diluted eps or are you using a personally calculated denominator? EPS for this purpose does not have to be GAAP and probably rarely if ever is.

    Then you multiply your favorite eps by you favorite PE ratio (price Earnings Ratio). Your PE ratio might be current, historical, usual, average, industry influenced, or very special to you because it was based on your selected net earnings from bygone financial statements (with items, without items, bottom line, or any combination of this).

    eps * pe ratio = price. Whether the price is fair or not depends on the adequacy of the eps or the pe ratio.

  26. Scott F says:

    But when you say stocks are reasonably priced, not cheap not dear, what criteria are you using? The two methodologies that have consistent predictive power are Tobin’s Q and a cyclically adjusted PE. Both yield roughly the same result, a market that’s in the neighborhood of 60% overvalued. I’d call that dear.

  27. daf48 says:

    So a society does not have a moral obligation to provide for the welfare of its citizens?

  28. Molesworth says:

    More posts from RW please.
    Thoughtful, provocative and beautifully written.

  29. Ltdata says:

    @ dead hobo: appreciate your elaboration (now I know better what questions to ask)

    Re: the Fed – likely part of Ben B’s job description is “managing expectations”. That doesn’t automatically mean that you say what you think, does it? Didn’t Greenspan pioneer vague and opaque Fed statements? (Ex: “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said”. AG) Be glad that Ben has deep knowledge of what led to/worsened the ’29 crash. It helped me buy at the trough in ‘08. So far ok.

    In honor of Vet’s day: If you can read English, thank a teacher. If you speak English, thank the US military.

  30. hdoggy says:

    2. There are probably fewer than 100 people in the world who are qualified to discuss this intelligently in great detail (Sarah Palin ain’t one of them)

    It’s Friday and I can’t believe no one thought about this one. If there are fewer than 100 people in the world qualified, why do repeatedly bash Greenspan unless you are one of those few? I’m assuming Greenspan is one of the qualified 80 because he ran the central bank.

    Conversely, there are 6 Billion people – 100 qualified to describe life outside of central banking. Happy Friday!!