Larry Kudlow has had Donald Trump’s ear for more than two years now. But how loudly must the presidential campaign advisor shout to convince Trump to take his crucial new advice?
Five months into the presidency, Kudlow continues to informally advise Trump about economics and taxes.
In an interview with ThinkAdvisor, he talks about his urgent appeals to the president to push ahead with tax cuts within the next two months — or run the risk of failing to achieve the strong economic growth he has promised.
For 15 years, Kudlow, 69, was a nightly fixture on CNBC, hosting “Kudlow & Co.” and then “The Kudlow Report.” The talk-fests centered on economics, securities markets and politics.
At the top of his initial solo series, the conservative supply-sider would make no bones about it: “We aim to be right on America, right on business and right on the money.” Now he is a three-times-a-week CNBC contributor and also hosts WABC Radio’s “Larry Kudlow Show,” syndicated nationwide.
Certainly, in the interview the former financial services executive is unrelenting about the need for speed in passing tax cuts and proposes a way to expedite that. Why the rush? Reducing corporate taxes is the key, Kudlow argues, to freeing up capital investments, the lack of which has been holding back U.S. prosperity for years.
Kudlow also weighs in on the obstruction-of-justice and Russian-collusion issues, discloses his personal investing strategy and reveals what he does to help cocaine addicts working on Wall Street and in other fields. Twenty-two years ago, Kudlow himself completed successful rehab for an acute cocaine and alcohol habit that eventually impeded his work as Bear Stearns’ chief economist.
He started as a Federal Reserve Bank of New York economist, then served as chief economist at three other firms besides Bear, including Paine, Webber, Jackson & Curtis.
The free-market capitalist had been a young Republican, then, in college, turned liberal Democrat. Returning to his Republican roots, he later worked as associate director for economics and planning in the Office of Management and Budget during Ronald Reagan’s first presidential term.
Post-rehab, about 20 years ago he launched a new career as a full-time TV broadcaster, plus opened Kudlow & Co., a New York-based economics research firm.
ThinkAdvisor recently interviewed Kudlow, on the phone from his Manhattan office. The author of “JFK and the Reagan Revolution: A Secret History of American Prosperity” (Portfolio 2016) discussed where FAs should be focused this year and “the big fat correction” he sees likely to pounce. But his main concern: Trump has no time to tarry in pushing through the tax cut. Albeit, in frustration the TV host twice voiced the obvious: “He can’t wave a magic wand.” Here are highlights from our conversation:
THINKADVISOR: What’s the biggest threat to the stock market this year?
LARRY KUDLOW: Failure to get pro-growth tax cuts. The [expectation] of getting them is [partly] driving the stock market. If it doesn’t happen, I don’t see a crash — but there’ll be a lot of disappointment.
When do you think President Trump will get those cuts passed?
He can’t wave a magic wand. He has to deal with Congress. But The Committee to Unleash Prosperity — Art Laffer [economist], Steve Moore [economics analyst], Steve Forbes [publisher] and I — who advised Trump during his campaign, wrote a New York Times Op-Ed piece [April 19, 2017] saying here’s what you’ve got to do. And do it fast with great urgency.
Was Trump made aware of the article?
I was told by several senior White House people that when he read it, he went ballistic, called everybody in and said, “Goddamn it! Kudlow’s right. Let’s get moving!”
A couple of days later they put out their statement of principles, which were pulled from the campaign that Steve Mnuchin [now U.S. Treasury Secretary], Steve Miller [now Trump’s senior advisor for policy] and I had worked on. Trump worked with us, too. We had a lot of meets with him.
Is it really that urgent to get the tax cuts passed?
It’s key in many ways. He promised stronger growth: 3%-plus. [The White House] has to be much more aggressive because if they don’t get the tax cut done this summer, I don’t believe it will get done this year. And that will hold back the economy in the second half and in election year 2018. I think they can do more and be more urgent. So some of us got together and yelled at [Trump] to get going.
Is there a way to expedite the cuts?
You can attach a tax cut to the health care bill, which is coming close to getting passed — in the same reconciliation package. There’s some discussion in the White House about that because we [the Committee to Unleash Prosperity] are talking it up. If they don’t do it by summer recess — that is, summer vacation — they should cancel their summer vacation and work all summer to get it done.
Have you given the president any other new advice regarding tax reductions?
Leave the individual side, which needs repair — simplicity and lower rates and so forth — till next year. Go for the business side first.
What does the economic plan for business that you and your colleagues put together entail?
We call it “The Three Easy Pieces”: 1) Lower the corporate tax rates to 15% from 35%; 2) [Institute] expensing of new business equipment as opposed to depreciation schedules, which is a wacko system that can last as long as 39 years; and 3) bring [business] back home [to the U.S.].
Do you still speak with President Trump directly?
Yes. I have good communication. But I will never reveal any conversations with the president.
Reports are that that he’s very upset about the obstruction-of-justice investigation and the Russian election-meddling accusations. Is he?
Sometimes he gets distracted. That’s about as far as I can go on that. When I see him or his closest aides, I don’t talk about that. I talk about tax cuts and economic growth.
What’s your take on the Russian collusion accusations?
It’s nothing. Just a distraction. There’s no “there” there. No collusion. There’s no obstruction. Nothing. They’re wasting taxpayers’ money. Regarding Trump, nothing will come of the [Russian collusion investigation].
What about those connected to the president?
Regarding some of his campaign people who had ties to Russia and the Ukraine, I don’t know. But it’s not a sin to do business with Russia. The collusion thing is utter nonsense. Never had a case, never had a charge. It’s just stupid silliness and partisanship.
What has President Trump accomplished so far?
He’s been a promise-keeper. I’ve got to give him credit. You look at what he’s done on rolling back costly regulations. He gets high marks for that. He’s got a bunch of executive orders and many more coming. The Treasury just published a long list of regulatory rollbacks in the financial sector that they’re studying. One way or the other, they’ll come out with something.
What else is Trump making good on?
He’s already tackled the environment, oil and gas pipelines and fracking.
How about infrastructure rebuilding? Not much seems to be happening.
I don’t agree. Trump is pushing infrastructure. Remember, he’s been in not quite six months. You can’t get it all done in six months. But he’s talking about infrastructure, pushing it, urging it. They’ve got some very interesting private-sector ideas, which he’s been developing. But [infrastructure rebuilding] requires congressional appropriations, so that always slows things down.
What’s holding back health care reform?
The House and Senate have not yet agreed fully on essential benefit mandates for Medicaid or proving that premiums will really go down if they have a plan that will cut premiums. They’re negotiating all that.
What’s the main way Trump can improve the way he governs?
I would fault the White House for not prioritizing enough. I would have cut taxes first. I think Paul Ryan gave them very bad advice about health care. Now I’m saying, get this health care [Act passed] and attach a tax cut to it. Then next year start rolling out the infrastructure [program].
What’s an example of a president who had his prioritizing act together?
Reagan. I was Office & Budget deputy in his administration. The only two things he wanted in year one — apart from some deregulation — was 1) overthrow Soviet Communism and build up defense and 2) tax cuts. By the middle of his first year, he had both. The Trump White House wants to do too many things. You can only do a few [right away].
Many say the stock market is rising on hopes that Trump will keep his campaign promises.
To some extent, I agree with that. But I think the biggest factor behind rising stocks has been a big pickup in profits since late last year. Profits are the mother’s milk of stocks. [Many] investors may not like Trump, but they would love to see corporate tax cuts. So I’m sure that’s absolutely part of the stock market rally.
What will happen in the market if Trump doesn’t keep all his campaign promises?
If we don’t get the tax cuts, it won’t help. How much it will hurt, I don’t know as long as profits are doing well because that’s an important floor under stocks.
Speaking of Ronald Reagan, are you still a supply-side guy?
I sure am. The single biggest reason we’re growing at 2% for 16 years instead of at 3% or 3-1/2% is the lack of capital stock formation, business investment and productivity. All those are supply-side issues.
Someone I interviewed recently said that supply-side economics isn’t what’s needed now because we have a demand crisis and no excess supply.
Whoever told you that is a dummy because the consumer — the demand side — has carried this economy. It’s the business side that’s held us back. That’s because [Barack] Obama declared war on business. Even my friend George W. [Bush] could have done a lot better: Sarbanes-Oxley [Act of 2002] was a killer regulatory problem for business.
What’s the main problem now for business?
People don’t want to pull the trigger for investments until they see a new tax law. If we don’t have one, we’ll continue to stagnate. Businesses have been making money, though they’ve pushed a lot of it offshore. Trump’s tax plan is aimed at resolving the problem of lack of business investment.
Would you like a job in the Trump administration?
No. I’ve been asked. I considered it, talked about it with the president. But I love what I do. I’m a broadcaster. I’m a happy camper. And those [White House] jobs are 24/7 — all day, all week, every minute. Let the younger generation do that.
Would you run for political office?
No. I was offered the nomination for the Senate race in Connecticut a couple of years ago and decided no. I made a career change about 20 years ago, and I don’t want to give up what I do.
Do you ever miss working on Wall Street?
I loved it, but no. I went from the New York Fed to Wall Street into government, and then I came back to Wall Street. Then I had my crash and burn. And with God’s help, I overcame that. It’s 22 years now.
You’re referring to cocaine addiction?
Alcohol and cocaine.
You’ve received a Spirit Award from the Hazelden Foundation of Center City, Minnesota. Is that where you were treated?
Yes, I was there for five months in 1995. It was the absolute turning point in my life.
I’ve written articles about cocaine addiction among financial services people on Wall Street. It’s a bad problem.
Yes. It was up, and then it was down for a while. Now I hear, unfortunately, its’ gone back up. And you’ve got your opioids and synthetic heroin. I go to a lot of A.A. meetings; so I hear the stories and see the people coming in trying to get healthy. Yes, this is a tough period. I sponsor people in A.A. one-on-one all the time. I try to help them [not just Wall Street employees]. I still go to several A.A. meetings a week.
Why do you think cocaine use is so common on the Street?
It’s a kind of fast-lane life. These things go in cycles. And right now, unfortunately, it’s cycling up.
I don’t really know. Sometimes it’s in the genes. Sometimes you try something and don’t realize how dangerous it is, and you get hooked on it. People [often] start with marijuana. It’s a gate-opener to harder drugs. I think the attitude in the U.S. right now that’s so benign toward marijuana is crazy. Any professional drug counselor will tell you how dangerous marijuana is.
Focusing again on investing in the stock market: What’s the biggest challenge for financial advisors and their clients this year?
They should be alert if a crisis is coming. My one recommendation right now is to stay in stocks. Do not go to bonds. Bonds are overpriced. If the economy does perk up, interest rates are going to go up, as they should. But stocks will also go up, though not in a straight line. There’s a big fat correction out there someplace.
Why do you say that?
History proves it. But my friend Bob Shiller [Nobel Prize-winning economist] said the other day on CNBC that you can go up 50% from here in the stock market. Usually he’s rather bearish and dour. Interesting to hear a guy like that say that.
What’s your personal investing strategy?
I’m a buy-and-hold guy. I like the indexes. I Like ETFs. I own SPDRs and have owned them for a long time. I’ve done very well. If you own the S&P 500, you’re buying the world stock market.
Why don’t you like active management?
The numbers are queer. A lot of my friends are brilliant hedge fund managers. Some have done great. But when you look at the whole universe of hedgies, they’ve lagged the market pretty badly [and are] losing money with cash outflows. Financial advisors should be aware of that. Most are because that game is much different from the stockbroker game.
Back to Donald Trump: Do you think his proclivity for prolific tweeting is a help or a hindrance for him?
When he tweets on policy message, it’s great. When he goes off message, not so great [laughs].
Ever mention that to him?
No. That isn’t my role.
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