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Stock Markets Like What They’re Seeing

A Commentary by Lawrence Kudlow

Tuesday, October 14, 2008

Stocks are up over 700 points today, a record-breaking one-day rally. Good news is coming from the four corners of the world as the U.S., G-7, and G-20 are all working to stem the global banking crisis and credit freeze-up.

Most importantly, the Europeans and the Brits got out in front of the curve with a blanket guarantee for inter-bank lending. This in my view is the single-biggest solution for the credit-crunch problem. If banks won’t lend to each other, and they won’t even make short-term loans to healthy businesses, then no one else is going to get any credit — right down the line to the smallest Main Street store.

Now we are waiting for Paulson & Co. to make a similar guarantee of inter-bank loans for American banks. They are looking at it carefully, and I think the British and European actions are basically forcing the U.S. Treasury to move. Additionally, the Treasury is putting the final touches on their bank-recapitalization plan as well as their toxic-asset purchase plan. A big-bang Treasury announcement is now expected for tomorrow morning. Hopefully it will have plenty of meat on the bones.

Clearly, world stock markets are signaling strong approval of these government actions. The sooner credit starts flowing the shorter the recession is going to be. We have suffered what amounts to a credit-freeze spasm. But that spasm has spilled over into the economy. If credit starts flowing again, it is possible — amidst all the doom and gloom — that the economy could start rising a lot faster than almost anybody thinks.

The Fed is pumping in plenty of new cash. That’s a huge positive. And $80 a barrel oil, along with $3 a gallon retail gas at the pump, is a tax cut for the economy. In fact, as Democrats line up their latest package of spending and political-giveaway goodies — called a second stimulus plan — they don’t understand that plunging energy prices are the best stimulus plan of all.

Meanwhile, instead of temporary tax rebates all over again — after the first package did nothing earlier this year — John McCain should be yelling at the top of his lungs for permanently lower tax rates across-the-board. Let people keep their own money instead of hanging on the dole from government.

Incidentally, the highly accurate IBD /TIPP poll has started today with its daily tracking of likely voters. Just off the press: Obama 45; McCain 43; and 13 percent unsure. The poll of 825 likely voters has an error margin of +/- 3.5 percentage points. Also, McCain has a 48-41 lead among investors with 10 percent not sure. All this is good news for McCain

C’mon, Big Mac. Get moving. The clock is ticking.

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