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Hewitt and Kudlow: Economic Jackasses

Hugh Hewitt had Larry Kudlow on his show on Friday. They agreed that Obama's victory was a reason why the market's tanked hard.
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I was wondering when the Republicans would start to blame the market's problems on Obama's victory. Well -- it's didn't take long. Hewitt had Kudlow on his show on Friday and they agreed that Obama's victory was a reason why the market's tanked hard. In addition, Kudlow is sticking with his soft landing predictions, which are incredibly fact-free.

First, let me state: I am not an Obama supporter. He has no executive experience -- and the White House is not the place to get on the job training. I was a Dodd supporter largely based on a great resume and personal record.

That disclaimer stated, let's go to the tape.

On Friday Hewitt made the following comment on his blog:

The market is tanking, allegedly because of the jobs report, with the Dow down 244 and the NASDAQ off 92 (3.5%) at this writing.

How much of the decline is due to the investor class rejecting the idea that any good news comes out of either Obama-McCain or Obama-Huckabee? Neither matches up well against the youthful, "politics-of-hope" Illinois populist with Oprah at his side. Both Senator McCain and Governor Huckabee are identity politicians who leave part of the Reagan-Bush coalition cold without adding any significant new groups to make up for their loss.

He later added this in a later post:

Finally, per my earlier post today about the markets tanking partially in response to the Iowa vote, Larry Kudlow agreed that many in the investor class are very worried about either an Obama or Huckabee canidadacy and reacted accordingly today, though Larry does not agree with me that the investor class is also figuring in that Obama would trounce the 72-year old McCain.

If Hugh had any knowledge of what is actually going on in the markets and the economy he would know what complete garbage this statement is. Of course, Hugh is probably 100% long tech stocks right now so he's a bit cranky.

Let's look at the facts. Here is a chart of job growth from econoday:

Let's walk Hugh through the economic baby steps. This is called a chart and it depicts data over a period of time. The data in this chart is job growth. Now Hugh, you will notice two types of data. There are gray lines which represent the monthly change in jobs and then there is the copper line that represents the year over year percentage change in job growth. You will notice the copper line has been trending downward for the last year. This is called a trend. Job growth is a key indicator of the economy's health, so a decreasing line indicates the economy isn't that healthy.

And there is this data point (as in fact):

The department said that for all of 2007, payroll employment growth averaged 111,000 a month, down from 189,000 a month in 2006. President George W. Bush told Reuters in an interview on Thursday that he was considering stimulus measures to shore up the struggling economy but had not made any decisions.

If Hugh was actually paying attention to the financial press over the last six months, he would know that one of the central arguments the bulls have put forward is job growth was still strong enough to keep the economy from slipping into recession. Well, Hugh, the Friday jobs report blew that argument out of the water.

And then there is Kudlow who is "sticking with Goldilocks 2.0." This means he believes the economy will have a soft landing, meaning there will be slower growth rather than a recession. While the jury is still out on what will happen, Kudlow's data is, well, dead wrong. As usual, he completely ignores basic facts that are readily accessible.

First he notes:

Payroll jobs rose a mere 18,000 for December. But we had a 115,000 jobs gain in November and a 159,000 gain in October. And with Friday's ISM non-manufacturing business barometer coming in strong, December payrolls might be revised upward. Still, it's just one soft month. On a year-on-year basis, non-farm payrolls increased 1.3 million, or roughly 1 percent. Aggregate hours worked increased 1 percent annually in the fourth quarter, producing at least 2 percent real growth for the quarter.

See the above comments on the job figures which completely contradict his statements.

When he goes on:

A 50 basis point cut would help businesses, consumers, and mortgage owners. It would make the cost of money cheaper and expand the overall liquidity base of the economy. The reality is that the economic weakness is coming from the business side. Domestic business profits are falling at about a 6 percent clip. They're due to fall some more in the fourth-quarter data. We're witnessing high energy and raw-material prices cause unit costs for businesses to rise faster than prices. Business inflation is only 1.5 percent. So this is a business slowdown.


Some folks argue that rising inflationary pressures would offset these benefits. But that's nonsense. I disagree with the link between Fed rate cuts and inflation. Inflation is the most overrated issue out there right now. Even when you factor in energy, headline inflation in 2007 is going to come in below the prior year while 2008 inflation should be even lower than that.

First, note that Kudlow contradicts his own inflation arguments within the space of three paragraphs. But there's more.

Second, the Federal Reserve (those guys who actually set interest rate policy) Here's what the Fed said in their latest policy statement:

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

And then there are these annoyingly pesky things called charts. Notice this one of agricultural prices:

And here is the chart of oil prices:

Does anybody notice a trend? They're going up.

And there is this chart of gold -- a price that Larry often uses as a measure of inflation expectations.

That chart says people are really concerned about inflation, Larry.

And then there is this statement from Larry:

As for this notion that consumers are tapped out, take a look at disposable income. After inflation, it is rising better than 2 percent. Strong income gains of 3.7 percent for hourly earnings are running 1 percentage point ahead of the headline PCE (personal consumption expenditures) measure. As it happens, car sales numbers were strong this week. They're running 3.6 percent at an annual rate, ahead of the third quarter. Meanwhile, the holiday sales season has surprised on the upside.

Regarding auto sales, let's see what the Wall Street Journal Reported:

The industry yesterday reported a 3% drop in sales of cars and light trucks in December, according to Autodata Corp., as housing woes and high fuel prices scared increasing numbers of consumers away from showrooms.


Overall in 2007, industry sales declined 2.5% to 16,556,423, and most analysts expect more gloom in 2008. They see increasing difficulties for manufacturers, even among some of the foreign companies that have gained share in the U.S. market in recent years.

Oops. That's a big mistake.

And then there is his huge mistake about wages. Larry (as usual) uses macro level numbers which add in the top 20% of income earners. Let's see what the wage picture was for the vast majority of Americans. According to the Bureau of Labor Statistics, the average hourly earnings of productions workers was $17.01 in December 2006 and $17.71 in December 2007 for an increase of 3.74%. From December 2006 to November 2007, the inflation level increased from 201.8 to 210.77 or an increase of 4.15%. And note -- this figure doesn't include December 2007 because it's not out yet. So Larry -- most Americans are treading water. Remember those charts of oil and agricultural prices from above? They're starting to hurt big time.

I could go on, but you get the picture. These guys lie, plain and simple. They could care less about actually helping their listeners and readers; they are far more concerned with remaining in political power. As a result, these guys are like the Wall Street Analysts who were recommending tech stocks in 2000.