11.30.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A markets and economic discussion with Dr. Irwin Kellner, chief economist for MarketWatch, Michael Darda, Chief Economist at MKM Partners, and Michael Cuggino
of Permanent Portfolio Family of Funds.

A debate over Bush and Iraq: Guests include Tom Friedman, three time Pulitzer Prize winning author, Peter Brookes from the American Enterprise Institute, and Craig Crawford, columnist at Congressional Quarterly.

A look at gold with Michael Dudas, mining analyst with Bear Stearns.

And Michael Kupinsky, AG Edwards cable analyst to talk about the cable industry.


TONIGHT'S POLL:

Are you satisfied with President Bush's plan for the War on Terror?

Cast your vote at www.kudlowcnbc.com.

India Firing Away on All Pistons


India continues its robust expansion. The Indian economy grew an impressive 8-percent in the latest quarter, easily surpassing analysts’ forecasts of 7.4-percent GDP growth compared with a year earlier. India’s torrid growth has spurred many analysts to pull out their pens and raise their full-year growth forecasts. These are numbers we’ve come to expect from its Asian neighbor China.

The Bombay Stock Exchange has been on an absolute tear. It has broken through one resistance level after another. Just take a look at the chart. Back in 1988, the BSE hovered around 500. Today, less than twenty years later, the BSE flirts with 9000—a staggering 1700% gain. Talk about explosive growth. These are mind-boggling numbers.

India has assumed a leading role on the global stage. Its strategic importance to the United States cannot be overstated. India is the largest English speaking democracy and shares common democratic values and national interests with the United States—values of freedom, democracy, market-economics and common law. The U.S. and India are becoming stronger allies with greater alignment in our foreign policies. We share similar goals in winning the war on terrorism, dealing with weapons of mass destruction and managing the rise of China.

Under the leadership of Prime Minister Singh, India has begun a gradual process of liberalization. They are opening up to greater direct foreign investment. India continues to be a great center of high-tech research and development; home to significant software developments. Slowly but surely they are beginning to get it right. These are positive developments as demonstrated by their economy and stock market.

Venture Capitalists Putting Money to Work

The Wall Street Journal reported today that valuations for companies backed by venture capitalists soared to their highest level in four years. This is a clear sign of economic strength. It is also a sign that high-risk entrepreneurship is back. VC firms are making larger investments with cash that has been sitting on the sidelines. All this capital feeds through the economy which is a good thing for our economy.

Here’s a link to the WSJ story.

Bring Out the Trumpets

The economy is absolutely booming.

Booming.

Yet the White House and the Republican Congress remains mum. Why is this? They need to get out there and trumpet this soaring economy.

Take a moment and check out my article on this very subject at National Review online where I list the myriad highlights of the soaring U.S. economy.

11.29.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A markets and economy discussion with:

Robert Froehlich, Scudder Investment Chief Investment Strategist & Vice Chairman;

Mark Zandi, Economy.com Chief Economist; and,

Diane Swonk, Mesirow Financial Chief Economist.

Also, a look at the telecom industry with Anthony Ferrugia, A.G. Edwards Telecom Analyst.

And John Baliotti from Fulcrum Global Partners Sr. Industrial Analyst to talk about the durable goods number as well as other topics.


TONIGHT'S POLL:

Would you want to live in New Orleans?

Cast your vote at www.kudlowcnbc.com.

A Tale of Two Senators

Two Democratic Senators from Connecticut visit our troops in Iraq.

The first Senator—a man respected on both sides of the aisle—comes away confident. He heralds our continuing progress. He cites specific examples of our success, ranging from significant military triumphs orchestrated by our brave men and women in uniform to the burgeoning number of cars driving along the streets. He talks about elections. He observes signs of promise—the proliferation of cellphones by Iraqi citizens and satellite dishes dotting their rooftops. It is clear that this man is not about to walk away from unfinished business. He knows better. He knows these things take time. And despite the shortsightedness of some of his fellow senators, he knows this is a war worth fighting and finishing. Failure is not an option.

The other Democratic senator visits the same country. He hears the same stories. He sees it with his own eyes. Yet instead of seeing strength, he sees weakness. Instead of acknowledging our successes and building upon them, he seizes upon the failures. Instead of getting behind a nation brimming with promise, a nation on the threshold of becoming a full-fledged democracy, he falls prey to the heebie-jeebies and calls for a massive withdrawal.

Two men. Two senators. Both from the same state and the same party, seeing two totally different things. Of course, I am referring to Connecticut Senators Joseph Lieberman and Christopher Dodd.

President Bush is scheduled to deliver a speech tomorrow at the U.S. Naval Academy outlining his plans for Iraq. This is an enormous opportunity for the President. It is another opportunity for him to silence the “Sky is Falling” chorus in Congress and to continue unfurling the flag of freedom in Iraq. The American public will get behind our President. They will get behind our troops and our mission in Iraq. We are a nation of finishers. The President simply needs to remind the nation why we are fighting this war.

A word or two on recent polls showing a lack of support for our Iraqi mission. Polls are fickle. Their direction can, and oftentimes do, change overnight. President Bush has never seemed to pay them much heed. But you can bet your bottom dollar that if President Bush gets out there tomorrow and makes his case that the polls will move in his favor.

"We do have a strategy," Senator Lieberman said after returning from Iraq. "We do have a plan. I saw a strategy that's being implemented."

11.28.2005

Economic Tea Leaves

Despite energy spikes, hurricanes, war costs, and multiple Fed tightenings, the U.S. economy continues to prosper.

Here are some notable highlights:

Real GDP has grown at 3 percent or better for ten straight quarters for an average rate of 4.1 percent, the best performance since the middle 1980s.

Business profits have increased at a double digit pace for nine straight quarters -- for only the third time in the past fifty-five years.

At 8 percent of GDP, after-tax earnings stand at a record high.

Even during the Fed tightening cycle, the big cap S&P 500 has gained 10 percent, while small caps have increased 20 percent.

Productivity in the Google Internet economy is increasing at 3 percent yearly for ten years.

Core inflation is tame.

Fed funds rate-frost. Interest rates are historically low.

Average monthly job creation over the past 2 years is 179,000. More than 5 times the GM loss of 30,000 jobs.

Unemployment is 5%. Total employment is at a record high, as is family net wealth.

Nearly 57 million families own stocks.

The continued global spread of free market capitalism is breathtaking.

After-tax rewards for work, investment and risk-taking are adding to prosperity.

There is much more to be done on budget, tax reforms, and the war effort to defeat terrorism and spread freedom and democracy. But the great reality is that the U.S. is doing very well, though it may not always seem that way through various news reports. As we enter the holiday season, I believe we have much to be thankful for.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

Allan Hubbard, Director of the National Economic Council, to discuss the economy, budget and taxes.

Pat Buchannan, Former Presidential Candidate and John Fund, WSJ's OpinionJournal.com columnist in an immigration debate from a political & business standpoint.

A markets discussion with Barry Ritholtz, Maxim Group Chief Market Strategist, and Mike Thompson, Director of Research at Thomson Financial.


TONIGHT'S POLL:

Should undocumented immigrants be permitted to work legally or should they be sent home?

Cast your vote at www.kudlowcnbc.com.

11.27.2005

Winning in Iraq

Pres. Bush will deliver an Iraq update this week according to news reports. I certainly hope he reads James Q. Wilson's marvelous piece in the weekend WSJ. We are winning the war, Wilson asserts. Saddam is gone,there is no civil war, the oil fields were not set on fire, there have been free elections, most of Saddam's clique (including his two sons) are dead or imprisoned,the schools and hospitals are open and functioning,the economy is recovering, there is a free press (with 170 newspapers), democracy is spreading, and the terrorists have failed.

And Charlie Cook's latest poll shows that only 15% want to withdraw immediately, while 29% favor a timetable and 50% say not until goals are met.

So the president has a good opportunity to make the case for Iraq. While he does it, I hope he refers back to his excellent Veterans Day speech where he called "The murderous ideology of the Islamic radicals...in many ways this fight resembles the struggle against communism in the last century."

I have written before that Bush is bottoming. The US economy is strong, stocks are rising while retail gas prices are falling, and troops will be gradually pulled out after the parliamentary election as Iraqi security forces continue to strengthen. Tax and budget-cutting bills will pass the Congress. The conservative base will be returning. The Alito nomination has great support. Hopefully the president will announce a tougher stance on illegal immigration.

But I also believe that Mr. Bush must choose a few key issues like these, and then repeat his message over and over. Success in Iraq. Solid economic growth and job creation. More supply-side tax reform. A truly tough budget for next year. Conservative judges. No illegal immigration incentives.

Message repetition is the missing link in the Bush political approach. Other than tax the rich and immediate Iraq withdrawal, two losers, the Dems have nothing to say. There is talk of a Newt Gingrich-like Contract with America from the Dems, but I'll believe when I see it. And we'll all see exactly what their plans are for peace, security and prosperity.

As long as Bush stays with first principles on Iraq and the economy, along with immigration and judges, he will do fine. But he must repeat, repeat, repeat.

11.23.2005

Fed Direction

Stock markets are wildly happy over the prospect of an end to the Fed tightening cycle as suggested in the November FOMC minutes. But there’s still no clarity on the fed funds target, whether it gets to 4.25-percent, 4.5-percent or even 5-percent.

But forward-looking indicators are helpful. The so-called natural rate of the economy is 2.07-percent as per today’s ten-year inflation indexed Treasury. The nominal ten-year Treasury is 4.47-percent. So that leaves a forward-looking expected inflation rate of 2.4 percent on a CPI basis -- about 50 basis points lower on a consumer spending deflator basis.

Take the 4-percent fed funds rate, subtract out the 2.4-percent expected inflation, and you get 1.6-percent as the real fed funds rate. That’s 40 basis points less than the roughly 2 percent real interest rate on the TIPS--the so-called natural or neutral rate. So if the Fed wants a totally neutral fed funds rate that is neither accommodative nor restrictive, a 4.5 percent fed funds rate would do the job.

If on the other hand, they want it to be slightly accommodative they could stop at 4.25-percent. This would be my preference. In fact I would stop now. But I’m willing to put in another 25 basis points to cover the recent gold increase, which may suggest the last remnant of excess liquidity.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

Eric Ross from Think Equity Partners discusses the chip sector.

Rick Gallagher from the National Retail Federation talks about his latest retail study.

David Schanzer, utilities analyst with Janney Montgomery Scott to talk about nuclear power.

And, in a markets and Fed discussion:

Stefan Abrams, CIO of the Trust Company of the West;
Jim Glassman, senior economist at J.P. Morgan; and,
Joe LaVorgna, Chief US Fixed Income Economist at Deutsche Bank.


TONIGHT'S POLL:

How will you pay for you holiday purchases?

Credit card?
Check/Debit card?
Cash?

Cast your vote at www.kudlowcnbc.com.

My Holiday Reading List

Capitalism and Freedom, by Milton Friedman. This is a golden oldie. I reread it this year. Apparently President Bush also read it this year — hopefully, he memorized it.

Flat Tax Revolution, by Steve Forbes. Tax reform is Bush's last hope for a big-bang policy proposal. Secy. John Snow is cooking up one. I hope the president and his Treasury secretary read the Forbes book.

Churchill and America, by Martin Gilbert. Winston Churchill was ahead of his time in understanding the power behind the English-speaking nations. Gilbert connects Churchill's ideas with those of the rising nation across the pond. (For a 21st century update on this theme, read James Bennett's The Anglosphere Challenge.)

Blueprint for Action: A Future Worth Creating, by Thomas P. M. Barnett. The U.S. military in Iraq must now shift from war to peace. We were brilliant in the Iraq war, but we bungled the peace. Here's how to solve it.

The New Dealers' War: FDR and the War Within World War II, by Thomas Fleming. This is the book on why American-style socialism didn't work then and still doesn't now.

Team of Rivals: The Political Genius of Abraham Lincoln, by Doris Kearns Goodwin. Lincoln put all his political opponents in his Cabinet, where he befriended them and overshadowed them. Meanwhile, he somehow managed to save the Union and free the slaves. This is a great read.

11.22.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A political debate between Rep. David Dreier (R-CA) and Rep. Xavier Becerra (D-CA).

Tony Blankley, Editorial Page Editor for The Washington Times and Craig Crawford Congressional Quarterly Columnist to talk about Bush and Iraq.

Rudolph Penner, former Congressional Budget Office Director/The Urban Institute with Stephen Slivinski, Director of Budget Studies at the Cato Institute to discuss the deficit and the economy.


TONIGHT'S POLL:

Will upcoming Congressional action on taxes and spending make the deficit larger or smaller in 2006?

Cast your vote at www.kudlowcnbc.com.

“Porky Pig in Fatigues”

One blathering commentator after another has willfully chosen to ignore the cold hard fact that Rep. John Murtha has been anything but a supporter of the war in Iraq. Despite his lengthy record of vocal opposition to the administration’s mission in Iraq—one that extends back over three years—media hacks continue to portray Murtha as a staunch hawk who just recently changed his position on Iraq. CBS News actually had the audacity to refer to Murtha as a "leading supporter" of the war. This from a man who just last week said, "All of Iraq must know that Iraq is free — free from a United States occupation." It’s no wonder so many Americans distrust the news media when blatant falsehoods like these are spewed out on a daily basis.

As Investors Business Daily pointed out in a devastating editorial today, “It's not the late pro-defense Democrat Henry "Scoop" Jackson whom Murtha should be compared to, but Porky Pig in fatigues.” As ranking Democrat on the Defense Appropriations Subcommittee, it appears Mr. Murtha has buttered more than a few muffins of people lucky enough to be in his orbit.

IBD also points out that the nonpartisan watchdog group Taxpayers for Common Sense is questioning Murtha’s use of the 2005 Pentagon spending bill to give business to his lobbyist brother. The article cites a Los Angeles Times report that Murtha funneled nearly $21 million to ten or more clients of KSA Consulting, where Robert "Kit" Murtha is a senior partner. While blood may run thicker than the water, Murtha also appears to reward loyalty: Carmen Scialabba, a Murtha congressional aide for 27 years, is also a senior partner at KSA Consulting.

In one case, a small Arkansas manufacturer of military vehicles who was a KSA client was awarded $1.7 million — triple its total sales for 2004. One defense contractor based in Murtha's home state of Pennsylvania even told the LA Times he hired KSA on the recommendation of a top Murtha aide.

Before partisans start hollering about some imagined “right wing conspiracy,” let’s not forget that the Los Angeles Times and Taxpayers for Common Sense can hardly be described as conservative mouthpieces. TCS prides itself on its allegiance to neither party and boasts a record backing it up. And while the LA Times has been accused of many things, “conservative” has never been one of them. In fact, it was the LA Times’ own Maura Reynolds who wrote just after Murtha’s “revelatory” speech: “And when President Bush decided to wage war on Saddam Hussein, perhaps no Democrat was a firmer ally.”

According to Roll Call, Republican lawmakers are saying that a House ethics committee investigation of Murtha's apparent improprieties may be in the works.

Just follow the money folks.

The Good News from Michigan

There’s another story coming out of Michigan besides GM’s layoff of 30,000 workers and the closing of nine plants. Saul Hymans and his well-respected University of Michigan forecast model predicts 3.4-percent real GDP growth in 2006 and 2.8-percent growth in 2007. They also expect 2.1 million new jobs in 2006 and another 1.8 million jobs in 2007. Unemployment should drop to 4.8-percent. Core inflation is expected to rise slightly to 2.5-percent in ’07, after hitting 2-percent in ‘06. The ten-year Treasury bond is projected at 5.5-percent in ‘06 and 5.9-percent in ‘07. (During the 1995-2000 boom, ten year treasuries averaged 6.05-percent).

Hymans expects private housing starts to slow to 1.9 million next year and 1.8 million the following year. Real disposable income is expected to average well over 4-percent in the next two years, with consumer spending growth at better than 3.5-percent. In my view, the current stock market rally led by technology, materials, transports and financials is telling us that ‘06 will be a strong economic growth year.

Question: Will the Bushies build on the economic growth success of their 2003 tax cuts by adding “Big Bang” pro-growth tax reform to the President’s agenda that would flatten the top tax rates for individuals and corporations to 25-percent? This plan could be the backbone of a Bush comeback next year.

11.21.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A markets discussion with Joe Moglia, CEO of Ameritrade, Noah Blackstein, Dynamic Mutual Funds portfolio manager, and Louise Yamada of Louise Yamada Technical Research Advisors.

John Hathaway of Tocqueville Gold Fund to talk gold.

Star Parker, President of the Coalition on Urban Renewal and Education with Joe Conason, from The New York Observer in a political discussion on Iraq, tax cuts and the CIA leak.

David Malpass, Bear Stearns Chief Global Economist, and Fred Bergsten, Director of the Institute for International Economics to address President Bush's Asia trip.


TONIGHT'S POLL:

Do you think your company pension plan or 401(k) will deliver adequate retirement returns?

Cast your vote at www.kudlowcnbc.com.

Bridges to Nowhere Derailed

You may have heard the news by now that Congress decided to pull the plug on the two Alaskan bridge projects totaling $432 million—including the $223 million "Bridge to Nowhere.” Looks like the hearing impaired GOP majority finally heard the message after about a million op/ed pieces took aim at the ridiculously wasteful earmark spending. Well it’s about time.

The only problem is that all that money isn’t going anywhere. It’s staying put in Alaska, supposedly to be used on other road projects. That begs the question: What other road projects? $432 million dollars worth of road projects? That’s almost half a billion dollars. Are Anchorage’s streets going to be paved with gold? Is every Alaskan resident going to receive their own chauffer driven Bentley? While I certainly appreciate the role of compromise in the political process, this doesn’t look like much of a compromise to me.

Spending remains completely out of control. Let’s allow the facts to speak for themselves. In 1991, 546 pork projects in thirteen appropriation bills cost just over $3 billion. Today, the 13,997 pork projects cost over $27 billion. Talk about spiraling out of control. You do the math.

And Congress is still wringing its sweaty hands—trying to figure out how to cut government growth by $54 billion over five years. That’s $10.8 billion a year from five budgets projected to total $12.5 trillion, of which $54 billion is four-tenths of 1 percent. This is craziness.

Four tenths of one percent.

Poor Don Young. Apparently this robber baron who moonlights as an Alaskan Congressman was so incensed over the death of his pet bridges, he verbally attacked sensible fiscal conservatives Reps. Jeff Flake (R-AZ) and Marilyn Musgrave (R-CO). His behavior defies all logical explanation. Flake and Musgrave deserve medals for having the courage to confront the likes of Mr.Young and Sen. Ted Stevens for their brazen looting of this country’s coffers. And cheers also go to the bold freshman Senator Tom Coburn (R-OK) and his fourteen courageous Senate colleagues who also took these wasteful spenders head on.

So it looks like Congress may be showing signs of waking up. But they still need to get out of bed and get to work.

Smooth Sailing Ahead

Last week I discussed a number of leading economic growth signals that bode well for the engine of growth here in America and suggested our economy is stronger than most folks think. I mentioned the continued expansion of the “Investor Class” which according to a recent survey, has blossomed to nearly 57 million US families. I talked about the ascent of the household employment data that is running well above the more conservative establishment payroll numbers. (The household employment survey picks up self-employed and other start-ups that take years to be scored in the payroll survey.)

I also mentioned that the boat-building business is booming, citing the big backlogs for boats ranging between $80k and $300k. This is a very positive economic growth indicator. People don’t build boats unless they see smooth sailing waters ahead.

One of our astute readers who has been in the boat business since the Nixon administration sent me an email confirming suspicions that I’d like to share with you:

Larry:

You got it right.

I have been active in the yacht business since 1970. I will spend this winter in the Caribbean working on and around yachts. Places like St Maarten are almost overflowing with huge yachts all busy with charters, repairs, and maintenance. The bar-talk is alive with the new build rumors.Many of the newest projects are for people who are in the business of manufacturing new products:


• Limitless, owned by Gap/Limited clothing;
• Titan, owned by a construction company guy;
• Octopus, owned by Paul Allen of Microsoft.

The list goes on and on but I haven't memorized it…

A number of the newer and flashier/experimental projects are for business people who are at the "bleeding edge" of business and technology. Schumpeter's “Creative Destruction” principal is evident everywhere…Yacht purchases, especially new construction, are leading economic indicators. Almost no one builds a yacht unless they foresee many years of economic stability.

The world looks pretty good to this guy! I see people lining up to build, buy, refi depreciating assets, yachts, at a great rate. The economy must be pretty darn good worldwide.So, off to the Caribbean I go to run yet another expensive sailboat. Hope your winter goes as well.
See you there?


Norman M.

Quitting Not an Option

Retired Army officer Ralph Peters penned a terrific editorial in today's New York Post about the ramifications of giving up and running away from the war in Iraq and the unintended consequences such shortsightedness would bring.

"No matter how great your team, you can't win the game if you walk off the field at half-time. That's precisely what the Democratic Party wants America to do in Iraq. Forget the fact that we've made remarkable progress under daunting conditions: The Dems are looking to throw the game just to embarrass the Bush administration.

Forget about the consequences. Disregard the immediate encouragement to the terrorists and insurgents to keep killing every American soldier they can. Ignore what would happen in Iraq — and the region — if we bail out. And don't mention how a U.S. surrender would turn al Qaeda into an Islamic superpower, the champ who knocked out Uncle Sam in the third round...As long as the upcoming elections show Democratic gains, let the terrorist threat explode. So what if hundreds of thousands of Middle Easterners might die in a regional war? So what if violent fundamentalism gets a shot of steroids? So what if we make Abu Musab al-Zarqawi the most successful Arab of the past 500 years?"

To read the article in its entirety, please visit the NY Post.

11.18.2005

" Our work is paying off."

This was Rep. Sam Johnson's absolute key money point. The highly decorated and former POW soldier from Texas talked about the elections, the capture of Saddam and most of his key lieutenants, and the unreported progress in Iraq. He is right. Freedom is progressing there, thanks to US and coalition efforts. This is not a small thing, it is a big one.

Mr. Murtha struck me as too defeatist, too pessimistic about the US operation. But I don't know nearly as much as he does about it. His points about lack of body armor and other equipment shortages are very troubling. Clearly he is a good man.

Certainly the vote against the resolution will pass overwhelmingly.

But I wish it had been put in the affirmative.

And I believe that if next month's Iraq election is successful, a sizable number of troops will be withdrawn.

Unserious

Any preannounced timetable for troop withdrawal from Iraq aids and abets the enemy at the risk and expense of our troops. Jack Murtha is a decorated Vietnam vet and a good man, a patriot. But his six-month withdrawal idea, even including US forces in nearby bases, is not a good idea.

The terrorist forces who fight against freedom and democracy and in favor of communist-like totalitarianism will not announce a withdrawal schedule.

Therefore I believe that Pres. Bush and Sen. McCain are exactly right: premature withdrawal would be a disaster.

That said, however, I do not like the Duncan Hunter resolution "...that the deployment of United States forces in Iraq be terminated immediately."

It is not serious. It demeans the House. It totally politicizes the debate. It is a ploy and a rather weak one at that.

"Calling their bluff," as so many Republicans are arguing to embarrass Murtha and the Democrats, is an exceedingly ham-handed way to make a point. Duncan Hunter is also a good man, but this is not the way to do it.

Why not state the resolution in the affirmative? " We pledge to deploy troops in Iraq until the mission of liberation, freedom and democracy is satisfactorily completed." And why not seek to gain as much bi-partisan political support as possible? This would truly help the mission, and the troops.

Jack Murtha is speaking now in the well of the House. So I will stop to listen.

But I am not happy with the House Republicans on this.

Showdown in Congress

The gloves are coming off folks...

Amidst the waves of Democratic criticism of the war in Iraq, Drudge is reporting that GOP members are calling for Democrats to show their hand once and for all.

Troop resolution scheduled to hit the House floor between 5:45 and 7:45pm.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A political debate with Rep. David Dreier (R-CA) and Rep. Xavier Becerra (D-CA).

John Fund, WSJ's OpinionJournal.com columnist and E.J. Dionne Jr., Brookings Institution Sr. Fellow/Washington Post columnist in a Washington policy discussion.

Tom McManus, Banc of America Securities Chief Investment Strategist to talk about the markets.

Paul Hoffmeister, Polyconomics Director of Market Strategy and Frank Holmes, U.S. Global Investors Chairman & CEO to discuss gold and other commodities.

Murtha and the Usual Suspects

Representative John Murtha (D-PA) seized headlines today with his call for an immediate withdrawal of American forces from Iraq. This should not come as a surprise to anyone. While the Usual Suspects in the media fall over themselves in their frenzied attempt to paint this as a bombshell, and Rep. Murtha as a committed hawk whose support for the Bush administration and the war in Iraq remained resolute until now, the facts clearly indicate the opposite. Facts don’t lie. This is no bombshell.

While many critics of the war in the news media would like to frame Murtha’s comments as revelatory, as an abrupt policy reversal—the truth betrays them. Murtha’s been whistling his tune for quite some time—over three years if you really want to know.

It started thirty-six months ago. Prior to the commencement of the Iraqi campaign that successfully removed Saddam Hussein from power and ignited democracy’s flame in a darkened region, Murtha was already on the record criticizing President Bush and questioning the war. In an interview he gave during that time, Murtha professed serious reservations about going into Iraq, despite his vote authorizing the use of force like so many of his jittery colleagues who would now like nothing more than hightailing it out of Iraq before finishing what we started. He said a key reason for his questioning a second Iraqi war was strategic. He worried that it would cost the United States not only money and lives, but important allies as well. They are his words.

A year and a half later—in May of ’04—Murtha was at the microphone again, only this time he had Democratic House Leader and tireless critic Nancy Pelosi by his side. Murtha didn’t mince words and cut to the chase in his criticism and rebuke of the Iraq campaign. Perhaps you’ll note that Murtha raised the possibility of cutting and running back then. That was a year and a half ago.

Murtha has been holding the white surrender flag in his hand for quite some time. The fact that the flag is now hoisted high above his head is not news. Not by a long shot.

Now for all this talk the Usual Suspects eagerly point out about Murtha serving in Viet Nam and the fact he’s one of the House's most influential Democrats on military issues. It goes without saying that Rep. Murtha should be applauded for his service to our country in Southeast Asia. That’s a no-brainer. However, Mr. Murtha is not the only member of Congress with military experience under his belt. And yesterday’s attack on the Vice President’s failure to serve in the military during the Vietnam era, like he was the only one who served, only muddies the water.

Yesterday Murtha sarcastically quipped, "I like guys who've never been there to criticize us who've been there,” Murtha said. “I like guys who got five deferments and never been there, and send people to war, and then don't like to hear suggestions about what needs to be done.''

Well maybe Mr. Murtha would like to hear from someone who has been there. Mr. Murtha is not the only member of Congress who has proudly served our nation that has something to say about the war in Iraq. Nor is he the only expert on military matters in Congress who has earned a Purple Heart and a Bronze Star. Apparently Mr. Murtha has overlooked a scrappy navy pilot serving on the Senate Armed Services Committee who also likes to speak his mind. A certain senator whose plane was shot down over Vietnam and spent five long years as POW in the Hanoi Hilton. And when the North Vietnamese discovered he was the son and grandson of admirals, and was offered a chance to go home, refused to leave his brothers behind, rather than break the military code that POWs be released in the order that they are captured.

Mr. Murtha has forgotten John McCain.

Senator John McCain is not in the Chicken Little crowd. Not by a long shot. McCain is firmly on the record in favor of seeing our mission in Iraq through to completion. He boldly said so just last week—at a time when many of his timid colleagues on Capital Hill began pandering in lemming-like fashion to fickle polls.

While Mr. McCain may be right in suggesting specific policy changes to our campaign, he was crystal clear in his emphasis that America needs to see this mission through to victory.

In a speech given last week, Mr. McCain said the following: "America, Iraq and the world are better off with Saddam Hussein in prison rather than in power. Does anyone believe the stirrings of freedom in the region would exist if Saddam still ruled with an iron fist? Does anyone believe the region would be better off if Saddam were in power, using oil revenue to purchase political support? Does anyone believe meaningful sanctions would remain or that there would been any serious checks on Saddam’s ambitions? The costs of this war have been high, especially for the over 2000 Americans, and their families, who have paid the ultimate price. But liberating Iraq was in our strategic and moral interests, and we must honor their sacrifice by seeing this mission through to victory."

Senator McCain’s speech is long, but it absolutely deserves a read. You can read it in its entirety by clicking on this link.

I will repeat what I’ve been saying all along. We must avoid—at all costs—succumbing to the weak-kneed pleas by members of Congress who would rather lay down our arms in defeat, than seeing our historic mission to completion. As Senator McCain forcefully put it: “We must get Iraq right because America’s stake in that conflict is enormous. All Americans, whether or not they supported American action to topple Saddam Hussein, must understand the profound implications of our presence there. Success or failure in Iraq is the transcendent issue for our foreign policy and our national security, for now and years to come. I would submit that the stakes are higher than in the Vietnam War.”

And don’t forget to turn the volume down when the Usual Suspects rear their beaks on your televison screen.

11.17.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

John Rutledge, former Reagan Economic Advisor and chairman of Rutledge Capital, along with Elaine Garzarelli of Garzarelli Research in an economy/markets discussion.

Craig Russell, Alaron Sr. Foreign Exchange Dealer to discuss China and the dollar.

Christine Augustine, Bear Stearns Retail Analyst to talk about the retail sector and earnings.

Senators Dick Durbin (D-IL) and Jon Kyl (R-AZ) in a political discussion including Iraq policy and budget cuts.


TONIGHT'S POLL:

Do you Yahoo or do you Google?

Cast your vote at www.kudlowcnbc.com.

Stop the Madness

Vice President Cheney delivered a powerful, rousing speech last night defending the administration from recent accusations it misled the American people on pre-war intelligence. Cheney went after the true purveyors of misinformation—Senators Harry Reid, Jay Rockefeller, and John Kerry to name but a few—as opportunists making a shameful play for political advantage in the middle of a war.

Cheney’s remarks came right on the heels of two similar speeches given by President Bush in recent days and indicate that the White House has had enough of the ranting and ravings—“cynical and pernicious falsehoods” as Cheney put it—emanating from the chorus of Democratic lemmings on Capital Hill.

"The President and I cannot prevent certain politicians from losing their memory, or their backbone," Cheney said. "But we're not going to sit back and let them rewrite history. We’re going to continue throwing their own words back at them."

And that’s precisely the point here. It’s an “either or” proposition. Either these Democratic senators have completely lost their heads and forgotten the facts, or, they’re losing their nerve in finishing up the job in Iraq.

As Cheney pointed out, these revisionist attempts at history fall from the foaming mouths of the same politicians who authorized the use of force against Saddam—politicians who had access to the intelligence and were free to draw their own conclusions. No one twisted their arms. They arrived at the same conclusion regarding Saddam’s capabilities and intentions—conclusions reached by the Bush as well as the Clinton Administration. “There was broad-based, bipartisan agreement that Saddam Hussein was a threat,” Cheney said. “That he had violated U.N. Security Council Resolutions, and that, in a post-9/11 world, we could not afford to take the word of a dictator who had a history of weapons of mass destruction programs, who had excluded weapons inspectors, who had defied the demands of the international community, whose nation had been designated an official state sponsor of terror, and who had committed mass murder. Those are the facts.”

And now these people are trying to rewrite all of it. It is pathetic. No one misled anyone. What these individuals are doing is incredibly irresponsible.

We are in the middle of a war right now in case these Senators have forgotten. This is the real deal. And contrary to some Chicken Little contentions lobbed from the Left, the Iraq war is, in fact, going quite well courtesy of our men and women in uniform. The seeds of democracy are being planted in a region whose soil thirsts for the blessings it can bestow. The people of Iraq showed up at the polls in an historic constitutional referendum. Saddam is ancient history. This is a big deal. And it is no time to lose our nerve.

People seem to forget these things take time. Rome wasn’t built in a day, and neither will post-Saddam Iraq. But the wheels are in motion and progress is being made. Don’t let any of these chickens down in Washington tell you different.

One final thought here: Mr. Cheney’s speech was delivered at a Frontiers of Freedom dinner celebrating the career of Senator Malcolm Wallop (R-WY), in which the former Senator received the institute’s Ronald Reagan Award. Senator Wallop is a man whose storied, impressive career includes the notable honor of being the first elected official to propose a space based missile defense system—a program that later became part of the Strategic Defense Initiative (SDI).

Well, you surely remember the role SDI played in bringing down the Soviet Union. It seems only fitting that the Vice President’s remarks defending the war in Iraq from weak-kneed Democratic broadsides would come during such a gathering. After all, Ronald Reagan and Malcolm Wallop are two men whose lives have helped protect us here on the home front.

11.16.2005

What I Learned This Week

1) The boat-building business is booming. Big backlogs for boats ranging between $80k and $300k. This is a very positive economic growth indicator.

2) 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 hiked, scheduled corporate tax cuts will be postponed and proposed labor market reforms will be pushed aside. Unbelievable. Worse than Schroeder. Say bye, bye Germany.

3) Ben Bernanke is a real 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 one to two 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. Perhaps if Bernanke says he’s going to be just like Greenspan, does that mean the autopilot rate hikes will go on forever and doom the stock market?

4) A mid-sized US insurance company has been issuing record group employee benefit packages for disability, accident and other policies to small companies. It's another economic growth sign, especially for new and small business formation. It also corroborates the rise of the household employment data that has again been running well above the more traditional establishment payroll numbers. The household employment 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.

5) The broad S&P 500 stock market has actually gained some ground since early 2004 despite energy spikes, hurricanes and multiple Fed tightening moves. It's another sign of latent economic strength. And it could be consolidating its base, following the big 2003 run-up, in advance of a huge increase next year.

6) The investor class continues to expand, according a recent survey, to nearly 57 million US families. 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.

7) The Google revolution from the Internet reminds us of the technologically-driven productivity boom which is now ten years old. This productivity boom is measured conservatively at 3% yearly, suggesting at least a 4% annual rate for potential real economic growth. 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.

8) George Bush could be bottoming, though it may take several months to become clear. Think of this: a) the economy is strong; b) gasoline prices are falling; c) the GOP Congress will pass a sizable tax and budget cutting fiscal plan; and, d) after another successful election in Iraq next month, at least 35,000 US troops will be withdrawn in 2006.

Tax Cut Extensions Looking Good

The House Ways and Means Committee reported out a tax bill at midnight last night which includes the extension for capital gains and dividend tax cuts. Congressman David Dreier tells me these tax cut extensions will pass the House floor.

On the tax cuts for dividend and capital gains, the Senate Finance Committee reported out a tax bill without them, but they will be voted on the floor where Olympia Snowe cannot stop it. Majority Leader Bill Frist said that it will get the House Senate conference report and he is totally in favor of it. This is very good.

Though there is still uncertainty, the tax cut extender story is looking better. Score a plus for stocks and the economy.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A poltical & economic debate between Gene Sperling, former White House National Economic Advisor and Richard Rahn, Center for Global Economic Growth Director General.

A look at markets with Neil Hennessy, Hennessy Funds President.

John Tinker, ThinkEquity New Media Analyst, to talk about online advertising.

Greg Ehret from State Street Global Advisors to discuss ETF's.

Rep. Jeff Flake (R-AZ) and Rep. Harold Ford (D-TN) to talk taxes, spending and Bernanke.


TONIGHT'S POLL:

Are you buying exchange traded funds (ETFs)?

Cast your vote at www.kudlowcnbc.com.

Control of Internet Remains Safe in American Hands

Negotiators from around the globe threw in the towel and agreed late Tuesday to leave the United States in charge of the Internet's addressing system known as ICANN, averting an international showdown at this week's U.N. technology summit.

The deal means the United States will continue its day-to-day control of the quasi-independent body responsible for the main computers that control traffic on the Internet. An international forum will be created to address concerns. It will have no binding authority on the U.S.

The outcome was never really in doubt. The U.S. government did the right thing and made it clear all along that it would not go along with any major change to the Internet’s status quo.

Sounds good to me. After all, it was American sweat and ingenuity that created the Internet in the first place. It’s our baby. And a quick glance around the globe at anti-democratic, totalitarian countries like China and Iran, where repressive governments do anything and everything within their power to suppress ideas makes the idea of turning over ICANN appear ridiculous.

As media mogul Rupert Murdoch said earlier this week: “[T]he Internet has been the most fundamental change during my lifetime and for hundreds of years. Someone the other day said, ‘It's the biggest thing since Gutenberg,’ and then someone else said, ‘No, it's the biggest thing since the invention of writing.’

Whatever the case is, there’s nothing to be gained and everything to lose by giving up Internet governance and helping countries like China in their doomed efforts to put the cat back in the bag.

11.15.2005

Tonight's Lineup

In light of Ben Bernanke's confirmation hearings, Larry will be live from Washington on CNBC's "Kudlow & Company" tonight.

Tonight's guests include:

Mike Holland, Money Manager and Chairman of Holland & Company in a markets discussion with Frank Gannon, Portfolio Manager at AIG SunAmerica Asset Management.

Andrew Balls, Financial Times Chief U.S. Economic Correspondent and Nell Henderson, Washington Post Federal Reserve Reporter to report on the Bernanke hearings.

Paul Katzeff, Investors Business Daily Sr. Writer to talk about Bernanke's portfolio.

Also:

Steve Forbes, President & CEO of Forbes Inc. and Editor-in-Chief Forbes Magazine;

Dean Baker, Co-Director of the Center for Economic and Policy Research; and,

Bill Zollars, Chairman & CEO of Yellow Roadway.


TONIGHT'S POLL:

After today's hearings, do you still believe Fed Chairman-Nominee Bernanke is good for the market?

Cast your vote at www.kudlowcnbc.com.

Ben Bernanke’s Toolbox

In his book, Essays on the Great Depression, Ben Bernanke blamed the gold standard as one of the major causes of the massive economic plunge. So rest assured, the next Fed chairman will not use gold as a market price indicator to guide his policies in pursuit of a one to two-percent core inflation target.

The question is will he use other forward-looking price indicators. This of course is important because the measured inflation rate from government reports are by definition backward looking indicators. There’s no question that Bernanke understands the power of the Fed’s balance sheet in the money creation process. I believe he also understands that excess money creation causes inflation, while a shortage of money causes deflation. In that sense he is somewhat Friedmanesque. But money works through markets, which provide early warning signals of price level changes.

In prior speeches Bernanke has referred to the inflation break even TIPS spread, which measures the market rate on treasury bonds, minus the inflation adjusted rate as a way of gauging future inflation expectations. Today that margin is 250 basis points on a CPI basis or slightly less than 2% on a core consumer deflator basis. Using the TIPS spread would be a plus for monetary policy. It is part of a price rule approach. Should Mr. Bernanke also cast an eye on the dollar exchange value, as well as commodity index movements, he would be a price ruler. But I am skeptical that he watches commodities very closely. However, a Treasury bond market approach coupled with a dollar value approach would be ok.

Bernanke clearly believes that price stability leads to strong employment and economic growth. So while the Fed has a dual objective of price stability and low unemployment Bernanke will continue the evolution of putting low inflation first, a process successfully begun by Volcker, and continued by Greenspan. The Fed already has an informal but important inflation target, so really the inflation target idea is neither novel nor radical

Stocks are up slightly today, gold is flat and bonds are little changed. So Bernanke’s testimony is not really a market mover.

America’s future Fed chairman is a very bright man with tremendous monetary knowledge. But as I learned from Reagan: trust but verify.

11.14.2005

Beware the Wrath of the Investor Class

A brand new, hot-off-the-press survey shows that the American investor class continues to grow by leaps and bounds. In the last three years, the number of families owning stocks has risen to 56.9 million from 54.1 million, meaning that nearly 60 percent of U.S. households are invested in equities today. That number is even more striking when you look back twenty years, when only a fifth of households were card-carrying members of the investor class. The Investment Company Institute, one of the sponsors of the survey (which was based on five thousand interviews), proclaims that the U.S. has “become a society of equity investors.” The Securities Industry Association, another survey sponsor, believes that these trends will only intensify with the aging of the post-war baby-boom generation.

With the House and Senate now weighing crucial votes on whether to make permanent the 15 percent tax rates on investor dividends and capital gains, you’d think our elected officials would be considering the needs of America’s stock-owning families. But the Harry Reid and Nancy Pelosi Democrats continue to oppose these tax cuts as nothing more than sops to the rich. Are they saying that three-fifths of American families are rich? Zogby polling shows that nearly all Americans -- 93 percent -- earning $75,000 a year or more own stocks. They can’t all be rich. And how about those earning up to $75,000 a year? In this group, more than half, or 56 percent, own shares. Of those earning below $50,000 a year -- a group that in the aggregate pays very little in taxes overall -- 30 percent own stocks.

The “tax cuts for the rich” argument just gets weaker and weaker as the investment class gets larger and larger.

The Republican Congress, meanwhile, can’t seem to get the job done either. Instead of winning one for the investor class, a vital part of their base, GOP politicians in Washington are attacking oil companies (whose shares are widely owned), reneging (perhaps) on the tax-cut extenders, and coming up blank on offering a strong budget-cutting plan. This is not yet a Republican crack-up, but it’s perilously close to becoming one.

The good news for the GOP is that Democrats continue to disrespect the investor class. But the bad news is that by failing to enact higher after-tax rewards for investors and job-creating capital formation in the overall economy, Republicans may be alienating their most natural supporters. In recent elections, nearly two out of every three voters were stock owners. Where will they turn if the Republicans they put into office no longer represent them?

In a recent speech to the Washington Economics Club, President Bush again expressed his strong support for investor-class tax cuts, and also for the necessity of additional spending cuts. But is one speech sufficient to make the case, and to really put the heat on Congress? I don’t think so. Good political marketing requires message repetition. Bush must make the investor-class case again and again, day after day, as Congress considers key votes on budget and tax policy. He must give voice to the investor class, becoming their representative in Washington; their advocate general. He must make it clear to the tone-deaf Republican majorities in both houses of Congress that they risk an electoral overthrow a year from now if they don’t heed the call of America’s stock-owning families.

It really has come to this breaking point. IRA and 401(k) owners are getting fed up with GOP recalcitrance. Nearly two-thirds of respondents to a recent CNBC poll actually believe that a Democratic majority in the House would be bullish for stocks. In other words, gridlock might be better than Republican government.

Polls like this, and perhaps the Democratic gains in the election earlier this month, are bad straws in the wind for the Bush vision of ownership, individual choice, and growth economics. Investors are risk takers and they know how to trade. If they see a stock in decline they will sell it. And they just may short the GOP unless they see a major turnaround in that company’s management and performance.

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A look at financial markets with John Augustine, Chief Investment Strategist with Fifth Third Asset Management, and Jim Glassman, Sr. U.S. Economist at JP Morgan.

Mike Churchill, President of Churchill Research, to talk commodities.

Donald Cassidy, Lipper Sr. Research Analyst to discuss exchange-traded funds (ETFs).

And finally, Rep. Marsha Blackburn (R-TN), in a political discussion focusing on the budget and taxes.


TONIGHT'S POLL:

Is Fed Chairman nominee, Ben Bernanke, good for the market?

Cast your vote at www.kudlowcnbc.com.

11.11.2005

Tonight's Lineup

On CNBC'S "Kudlow & Company" tonight:

A market discussion with portfolio manager David Fondrie of Heartland Select Value Fund.

Steve Moore of the WSJ Editorial Board, and Robert Reich, former U.S. Labor Secretary to discuss politics.

John Authors, U.S. Markets Editor at the Financial Times, to discuss his article in today's paper on the growing "Investor Class."

Rep. David Dreier (R-CA) to discuss the budget, taxes and issues within the GOP.


TONIGHT'S POLL:

Would a Democratic takeover of Congress make the market more bullish or more bearish?

Cast your vote at www.kudlowcnbc.com.

He's Back...

It's official folks.

The New York Times is reporting that Karl "The Mastermind" Rove is back and in full swing, making up lost ground following the Valerie Plame boondoggle.

And who better to report this development than the Gray Lady?

According to the Times, Rove made his first major public appearance in weeks last night at the Federalist Society, laying into "judicial imperialism" and arguing that judicial activism from the High Court needs to be reined in.

More from the Times: Rove "is running meetings and pursuing candidates for the 2006 elections - and, associates say, devising long-term political plans that suggest he does not believe he will face future legal trouble despite the C.I.A. leak investigation in which he has been involved."

Rove's return is a bullish sign for the GOP and the Bush team. But there is still much that needs to be done. Now is the time for Bush to regain his footing and move ahead with tax reform and budget cuts. Now is the time for Bush to use his bully pulpit. They need a strong pro-growth tax reform plan that lowers personal tax-rates by at least 10 percentage points (25% from 35%). And the administration still needs to deliver a specific budget proposal. Tax cuts must be extended. It is time for Bush to deliver.

This is just what the doctor ordered.

11.10.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A look at markets with Noah Blackstein, Portfolio Manager at Dynamic Mutual Funds.

A political discussion with The Washington Times' Tony Blankley and Margaret Carlson from Time Magazine.

Internet Analyst Jordan Rohan of RBC Capital Markets joins Johnnie Roberts from Newsweek magazine in a wide ranging media analysis including Time Warner's rejection of Yahoo's bid for AOL.

And finally, Steven Emerson, NBC Terrorism Analyst/"American Jihad" Author to talk about terrorism and the recent bombings in Jordan.


TONIGHT'S POLL:

Do you feel more safe or less safe since Sept. 11th?

Cast your vote at www.kudlowcnbc.com.

New Blood, Budget Cuts and Inertia

The GOP House leadership continues to struggle over a $50 billion budget-cutting bill.

They dropped ANWR in order to pick up some moderate Republican votes and they are desperately reaching out to Blue Dog Democrats. The Senate Finance Committee is marking up only a one year tax cut extension, despite the clear fact that the strong economy is based in large part on the huge incentive jolt from capital formation spurred by lower tax rates on dividends and capital gains.

Symbolically, Intel just boosted its quarterly cash dividend by 25-percent. Why Republicans don’t say more about the tax cut related economic expansion is beyond me. And whether Tuesday’s disappointing election results provide a wake up call for the GOP remains to be seen. But they need a wake up call.

Young Turks in the House like Mike Pence, Jeff Flake and Marsha Blackburn should be represented in the House leadership. Ideas matter. Dick Armey was a great idea man. Speaker Dennis Hastert doesn’t seem to be a great idea man. The Tom DeLay period is probably over. New blood in the leadership is essential.

And speaking of new blood, where exactly is the White House proposal for budget cutting? Last week Mr. Bush said he was open to deeper budget cuts. But no new budget-cutting list has so far been unveiled by the Office of Management and Budget. So the White House is not really using the bully pulpit to lead the budget cutting effort.

The public is clamoring for exactly this kind of budget (and tax) crusade. A specific budget proposal from the West Wing would be very helpful. The lack of one offers more evidence of Bush fatigue. Failure to provide a specific Social Security reform plan was a key reason for the downfall of Social Security reform. Likewise, failure to publish a specific budget cutting plan, which could energize the whole congressional process, may lead to the downfall of a significant budget cut this year.

Inertia is becoming a big problem. Specific policies will beat inertia. But without specifics, the Democrats will gain more ground simply because the Republicans now running government are failing to meet taxpayer expectations.

This is a real problem. It ain’t going away.

11.09.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

We are going to take a close post election look at the political landscape, today's Senate oil hearings, and all the latest market news.

Our guests include:

Republican Pollster Kellyanne Conway;

DNC Pollster Cornell Belcher;

Terry Jeffrey, editor of Human Events;

E.J. Dionne, Senior Fellow at the Brookings Institute;

Center For Economic & Policy Research Co-Director, Dean Baker;

PFC Energy Founder & Chairman, Robin West; and,

Barry Ritholtz,Chief Market Strategist at Maxim Group.


TONIGHT'S POLL:

Do Tuesday's election results foreshadow a Democratic Congress in 2006?

Cast your vote at www.kudlowcnbc.com.

Election Results Are a Wake-Up Call

Last night’s election results were a stinging blow to the Republican Party.

Undoubtedly Harry Reid, Nancy Pelosi and Rahm Emmanuel are in very good moods today. This off year election raises the question about a Democratic sweep in next year’s mid-term elections.

While the GOP is attacking oil companies and perhaps reneging on tax cut extenders without offering any strong budget cutting plan, the Dems are thinking about putting together their own Contract with America.

Republican pundits who try to downplay these elections are just plain wrong. While Democrats still have to craft a coherent message, and their glee may yet be premature, the message is clear: It’s time to get serious here. This is a Republican problem.

In terms of winners and losers, I’ve already mentioned Congressional Democrats. Another Dem winner is outgoing Virginia Governor Mark Warner and of course, Hillary Clinton. The Democratic swing in Virginia could jeopardize George Allen’s presidential bid, but maybe not.

Rudy Giuliani is a big winner because of his support for Mayor Mike Bloomberg. While the latter is barely a Republican, nonetheless, he crushed the Democratic machine in New York City. On the other hand, Giuliani’s embrace of Doug Forrester in New Jersey simply didn’t work out. So perhaps Rudy’s coattails are not as long as once believed.

But it’s hard to find any other Republican winners from yesterday’s results.

Bill Gates' Call to Arms

The Wall Street Journal got its hands on an email sent by Bill Gates to his top lieutenants in which Microsoft’s chairman warns of a “sea change” in the technology industry’s shift to Internet-based software and services.

According to the WSJ report, Mr. Gates’ email included a memo from Microsoft's chief technology officer, Ray Ozzie, outlining ideas to address the burgeoning threat posed by the likes of Google.

In the memo, Ozzie concedes that Microsoft has not led the pack on Internet-based software and services, and now faces intense competition from companies like Google. He added Microsoft needs to focus on key tenets of the new model, including a shift toward offering free, advertising-supported offerings and more sophisticated, Internet-based methods of delivering products.

Here are a couple excerpts from Gates’ email in the WSJ story:

"Today the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model."

“We will build our strategies around Internet services."

And from Ray Ozzie’s memo:

"Most challenging and promising to our business, though, is that a new business model has emerged in the form of advertising-supported services and software. The model has the potential to fundamentally impact how we and other developers build, deliver and monetize innovations."

We ran a piece here Monday referring to Google as the “Elephant in the Boardroom”and discussed “Microsoft’s resolve to stem Google’s meteoric rise.” Also, how “the worker bees at the Sleeping Giant in Redmond have been feeling the sting and are working night and day to curtail Google’s growing lead.”

Gates’ email confirms these suspicions.

The Sleeping Giant has woken up.

Whether Microsoft is capable of catching up to its competitors is a question waiting to be answered.

11.08.2005

Tonight's Lineup

On CNBC's "Kudlow & Company" tonight:

A political discussion with John Fund from Opinion Journal.com and Mort Zuckerman, US News & World Report Publisher/NY Daily News Publisher.

(Mort will stick around and discuss the newspaper and real estate industries.)

A market discussion with Economist/Author/Actor Ben Stein.

A.G. Edwards media/newspaper analyst Mike Kupinski.

Internet,entertainment and media stock analyst Anthony Noto from Goldman Sachs.


TONIGHT'S POLL:

Where do you get your daily news?

Newspapers?

Internet?

Broadcasts?

Cast your vote at www.kudlowcnbc.com.