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Larry Kudlow (CNBC)

Jan 12, 2018|

Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

Joining us now on the line as he does every Friday is senior contributor to CNBC Larry Kudlow and Larry thank you for joining us. Grave we've we've got to start we've got you know Larry no problem at all. I know the economy's booming and you're just looking at all the good news out there are sought out Miami. They did do that from time to time let's. Let's talk about where we are right now and how long this boom can can last obviously everyone's excited about tax reform businesses are talking about spending money. How long do you anticipate. That the boom from tax reform can go. Papa don't don't tax reform. Don't talk about things. Go quite a while. I mean certainly profit. Will be helped by this. And investment demand you know capex investment demand which is already rising quite a bit. Business equipment. And ad business equipment investment and business equipment production there really taken out less what reform months. That's a good beginning. You see these stories about all these companies. Offering dividends and bonuses and what have you and the withholding rates are gonna come down. In the early February according to the IRS yes and I mean I just like the story and you ask me how long. Well just be that this is as investors start to go on provides six years if you go on for ten years to be honest with you. At that and other things might not intend or comment. You know disappointing late. You can't predict all the future parables but I I suspect you know you're we haven't had a long boom and invest. Since the days and nine. So that's twenty years and this one couldn't provide the same thing and you know get. Get GDP it GDP up. Back to its long run baseline that's really the key and get business investment. Back to its long term baseline and again the goal here. 1% bird GDP and about. 22 and a half almost 3% are business investment this could go on for a good long while. Larry Walker hit a eight couple notes from. Members of the Federal Reserve in the last couple days William Dudley came out yesterday and said that he thought this might end up overheating the economy in the long run. Chaplain came out today and says hey we we may end up overshooting full employment. Or are those things that people need to worry about it all or is that just kind of worst case scenario. What that is is down. Is the keynesian demand side economics. Kind of a blast from the past I mean it's I've known Bill Dudley from many many years when he was an economist at Goldman Sachs. I was Bear Stearns and we used to debate a Bill Dudley didn't understand supply side economics then. And he doesn't understand supply side economics now. He would he is all this. Demand and you know you cut taxes more money your pocket at that he doesn't understand the incentive that the reward effect for work. And investment. He ever did. He probably never well it's all keynesian I don't know Kaplan very well so. Top reserve comment on that by Debbie has never got that look what you're doing here in the maybe one. You're not you're increasing. The economy's potential to grow. You're expanding the economy. Not the demand in the economy but the supply like. What happens if you have a bumper crop up. The supplier of apple jobs cup does that increase or decrease the price about. And degrees bank that spans and UN the Nobel Prize this morning that answer and that puts you way ahead and build badly. I'd feel good about myself oh yeah it's just we did distance you know 45 minute boat UN Nobel bill that he doesn't understand that. Most of the Federal Reserve economists don't understand. They just don't get it and you know in the great swamp of Washington DC that he'd be all models the joint committee on taxation models they'll get. Don't get it. The best of the lot at the Tax Foundation they do get it. He should maybe tracked their views more but inflation is caused by excess money creation. Boris sharp. Devaluation of the dollar. And I babble cause inflation and lower tax rates. At the margin. Are actually inflationary in a positive way there was no hold prices down so. If you have too much money chasing too few goods is inflationary. Uncle Milton Friedman taught that none 67 years ago and you increase the supply of goods and services. And you keep the money grows about the same as illustrated let's say about as stable dollar debt Ellen place. Its price stability. And that's exactly what we're gonna get if you know this program has been tempered it so. I'm very optimistic about this and I can't look. Did you know you could have slowed down quarters in that you could have 2% quarters and you get out 6% court. But the year on year changes the trend line I think has got a range between three and 4%. You're gonna get a correction in the stock market in brackets several corrections in the stock market dipped as always term interest rates are on top. Real rates are going up as a result the higher capital return. But that's fine by the stock dipped and do not buy bonds do not buy bonds and underscored that. On dot dot dot. Where'd you of any concerns about the flattening all of that yield curve right now. Not at the moment I keep an eye on it it's important indicator. But I think that you're gonna leave that curb wide or speed. Because I think long term rates. Which have been edging higher. Are gonna run out let stated ten year treasury. It's now limited to sixty needed to get into his sixties yeah yeah yeah. So I think that's gonna go to 33 and a half percent next year. As a result of better capital in higher returns to investment and that's a good thing. And now steeped in the curve. I presume that that is not gonna rush. Hurly burly and there's a massive wild side rate hiking. Orgy. Because of these dummies don't understand the difference between supply side demand that I assume that they won't do that. So. I would worry about right now modest step byways you know the world is awash with equity. And low rates abroad are having some impact on our rates that are long rates are going out as what I believe and I think it's quite healthy and it will probably cause the stock correction on the way. Did you you have corrections and healthy markets you have stocks that rally in bad markets so. It's just kind of the nature of the beast Larry we thank you for joining us have a great weekend and we'll catch a lot of sweet. Larry Kudlow senior contributor to CNBC. And looking at rates and where we see those go in this gym a pulled up just the up projections. Four off Fed Funds futures right now. Today where we sit okay the next Federal Reserve meeting is in about two and a half weeks the 31 January. Right now work between one and a quarter and one half percent the expectation for the end of this year. Is three hike so again it's in Miller said hey as long as the Fed doesn't do waiting nodding. They appear to be on a path to doing anything not now I don't think so. But I mean if you talk about the Fed country and take a look at the tenure treasury went past the last few months it's pretty crap yeah you you've seen me a little bit of a sell the mid to long range bonds. I question you know I think that you can probably get is there said maybe that three and a quarter to three and a half range. I don't know there's much room beyond. Because that's can't imagine just you know even get there like I could see it touching but I think long term kind of the stability at this point probably that to a three quarter to 3% range that's so that's where I see long term stability. In rates at this point and as long term mean pay over over the next you attend a fifteen year that's that's kind of what I see there. But. Lucky you continue to see signs of good economic activity and you look at the companies that keep reporting earnings. In every single one of them saying you raise in wages this year yet we week it's a tough labor market yet and we have to invest more so. I think between just kind of the natural impetus where they things get tight labor market to begin with and and also now we have more money to spend. I do think that you have this wave of investment that's coming my question my concern is what's that initial wave is gone. Is there continued moment to map what where to continue to instill a diver of that I look out nine to twelve months and I say. Let's let's be careful once we get out past that point but for the next nine to twelve when you look at this you say. Eight the market's gonna go up and down as Larry said like you have corrections larger good market. But hey that things look pretty neat pretty rosy out there from an economic perspective for the next nine to twelve months as if they do.