If you have ever watched CNBC before, you probably would have seen Larry Kudlow. He's the guy with the pink tie and Phil Donahue-like glasses. He's a good guy. He touts himself as pro-growth, strong defense, virtuous values, business, and stocks. But he's wrong in his assessment of the economy and about these mustard seeds that he claims are being planted.
Larry is the type of guy that sees the silver lining in nearly any type of economic report, and then uses that silver lining as the basis for an economic recovery, even though the preponderance of evidence runs to the contrary. And hence you have the origin for his highly touted mustard seed economic philosophy. The analogy of the mustard seed is that it is one of the smallest seeds and yet it can grow to be a very large plant.
On Friday Larry wrote a post on his blog rationalizing why despite the deterioration of major economic indicators, that an economic recovery is right around the corner.
The first reference he makes is that despite an awful job report in which nearly 600,000 Americans lost their job in January, the stock market rallied. So what? If we have learned anything over the past year, it is that Wall St. needs to recalibrate its financial compass. Wall St. is being driven by day traders right now. The rallies and sell offs have become predictable and are no longer an indication of economic conditions but rather mood swings of bi-polar traders.
Larry goes on to say that wages rose by nearly 4% from a year ago and that 92.4% of Americans still have a job. Really? The U-6 unemployment number, the one the media doesn't report on, shows the "real" unemployment rate at 13.9%. And what a lot of talking heads overlook, is that just because somebody may be making more money or just because credit may be available, doesn't mean consumers are going to spend that money or obtain that credit. And the reason they aren't going to is because home values continue to deteriorate, stock losses continue to mount, and most Americans are scared of losing their job. Consumer confidence is at record lows. The government gave Americans more money to spend last Spring with stimulus checks, how well did that work?
Larry also makes mention of the new bank rescue plan as being a reason to be optimistic. You mean the rescue plan that was announced today in which Geithner couldn't explain even in remote detail how it was going to work, how much it would cost, and who was going to participate in it? The rescue plan that was responsible for a near 400 point sell-off today in the Dow? THAT bank rescue plan?
And then finally, the "mustard seed" that takes the cake is Bank of America CEO Ken Lewis claiming that they would repay their TARP loans within 3 years and that they would not have to be nationalized. Now, these types of statements need to be taken with a grain of salt. It's a lot like Alex Rodriguez saying that he only used steroids in years 2001, 2002, and 2003, but he hasn't used them since. Right. You haven't used them, or you haven't tested positive for them? First of all, what would we expect Ken Lewis to say? And second, does a CEO that has needed $45 billion in government aid over the past six months really have credibility left?
Mr. Kudlow, with all due respect, It's the housing market, ________. Until there is price stability in the housing market, Americans will contract their spending, employers will slash jobs, the stock market will follow suit with Japan, bailouts will become a national past time trumping baseball and the October Classic, and Ken Lewis will likely have to go into a witness protection program, maybe somewhere in Phoenix where I here that are plenty of homes for sale.