HH: Without a doubt, the very best show on television about the intersection of the economy, politics and money is Kudlow & Company on CNBC every night at 7pm in the East, 4pm in the West. And joining me now, Larry Kudlow. Merry Christmas to you, Larry.

LK: And you. Happy and Holy, and Merry and Joyous.

HH: Thank you, and boy, what a Christmas present the market delivered today. The Dow up 200 points, NASDAQ 50 points. What’s going on, Larry Kudlow?

LK: Well, you know, the recessionists and the pessimists were so totally wrong again. We had the best consumer spending number in three and a half years. So all this talk about sub-prime and credit clogging up, all these negatives, which are there, but they’re not impacting the entire economy. And everybody keeps telling me the consumer’s going to collapse. And the answer is, the consumer has not collapsed. And one reason for that is employment has not collapsed, and production has not collapsed, and businesses have not collapsed. So consumers have the wherewithal, I mean, for example, incomes are rising at 6% over the past 12 months, for Heaven’s sakes. And if you take out inflation, they’re still running substantially above inflation, at around 3%. So it’s just hard to understand all these guys. There’s this great hall of shame out there that keep bad mouthing Goldilocks. Bill Gross, the bond man, tells the Financial Times this morning we’re already in a recession. Martin Feldstein, Lawrence Summers, Clinton’s guy, Alan Greenspan, and these numbers keep coming in better than anybody thinks possible. So markets are up 200 points across the board, and you know what? It could well be that today was the beginning of a new year’s stock market rally. How about that?

HH: I think you might be right, because the number we haven’t talked about yet is gross domestic product in the 3^rd quarter going up almost 5%.

LK: Right.

HH: That’s dizzying, and it’s almost impossible for me to see how there could be a recession before the next election, Larry Kudlow, given that it requires two consecutive quarters of negative growth. I don’t know how you get there from 5% growth.

LK: You’re right. You’re right. I mean, to have that kind of thing, to have a complete plummeting one or two quarters later, you’d have to have, I mean, Hugh, you’d have to have bombings, decimations, attacks, God forbid. I mean, it just can’t happen. You’d have to have some massive crisis, which is not really foreseeing. And you know, all along, I played this from the optimistic side. There’s a lot of forecasts and predictions, but you know what? At the end of the day, what I know is what is actually happening. That’s why I try to pay attention to these numbers. And what we see, from what we know, which is in the box is that things are just fine. You know, the 4^th quarter, after today’s number, may come in around 2.5% growth, which after 5%, is a terrific performance. And for 2007, as a whole, the economy’s probably going to grow at 3%, adjusted for inflation. So this is why the stock market is holding up. You know what? It’s a good year for stocks. When you look at the year to date stock market stuff, you’ve got the Dow up 8%, the NASDAQ is up 11.5%, and of the ten major sectors in the S&P 500, eight are up, two are down, financials and retailers, and you know what? Of the eight that are up, six of them are up in double digits, for Heaven’s sakes.

HH: And you know, Larry Kudlow, the credit crunch, I have some friends who are in it, and they just refinanced from a ridiculous adjustable down to a moderate 30 year, and that’s going on, it’s working its way out. It’s like the snake is swallowing that, and money from abroad’s coming in. So the question is, is this the soft landing that we always hope for but we’ve never seen before, but in this instance, actually has happened?

LK: Well, you know, I keep calling it Goldilocks 2.0, although to tell you the truth, I probably should adjust it to Goldilocks 3.0.

HH: I think you’re right.

LK: I call it Goldilocks 2.0. Incidentally, we have periodically, we saw a soft landing in 1995 after a vicious Federal Reserve tightening. But you know, 25 years of Reaganomics, low taxes, deregulation, open and free trade and investment, and disinflation, this capitalist economy of ours, this technology economy of ours, is delivering returns across the board. All these pessimists are, you know, I don’t know what they’re…they’re operating out of the 1970’s, or they’re operating out of the 19…they just don’t get it. They’re so intent, the Bush bashing out there is so intent on disproving that guy, that they are missing what is right in front of their eyes, which is peace and prosperity. And bravo for Bush yesterday, Hugh, here’s a little sidebar. He said he’s going to knock down all these pork barrel corrupt earmarks. He said that. And boy, did that ever get my attention. I had Senator Tom Coburn on, who’s the general in charge of earmark destruction.

HH: You bet, yeah.

LK: He was great. He said you know what? This isn’t even about Democrats and Republicans. This is about the country. It’s about helping taxpayers. Good for Bush. Good for Coburn.

HH: Let’s talk about the stock market. Research In Motion led the way today. Of course, that’s the Blackberry. It doesn’t take a rocket scientist. I’m smart enough to know to buy RIM, because everybody I see has a Blackberry. The same with Apple, the same with Google. These are the tech stocks of the next ten years, Larry Kudlow, and there’s no sign that they’re going to stop doing what they’ve been doing, which is grow, grow, grow.

LK: No, that’s a good point, because the reality is they’re kind of like new tech, new tech, which is very interesting. But you know, you look at the board today, your energy companies, Occi, Schlumberger did well, GE did well, that’s an industrial conglomerate, Weyerhaeuser International Paper. The banks and brokers did pretty well. You’re just seeing strength all around. It’s just, look, I’ll be the first guy, if the market plunges 15-20%, if some of these numbers on spending and income and employment start going down into negative territory, then I will say you know what? Money is too tight, and we do have a problem, and we may weather a mild recession. I just don’t see it.

HH: Now comment for me, Larry Kudlow, this is going to be all over the place tomorrow. Mike Huckabee got a Christmas present after getting beat up by Rush. Goldman Sachs gave their CEO, Lloyd Blankfein a $67.9 million dollar bonus today. That’s the stuff that Huckabee and the neo-populists love to bash on.

LK: Yeah.

HH: Not prudent on their part, but that’s the wages of capitalism. It’s why our system works.

LK: No, you know, when I had Governor Huckabee on, what was it, last week or the week before, I had a bout with him. I went at it. He wants to, if need be, have government regulate salaries. I think he’s crazy. I don’t think he understands the free market business system. He’s not good on taxing, he’s not good on spending, he’s not good on free trade. In other words, all the prosperity factors seem to be Mr. Huckabee’s weakness. I don’t think he understands it. He’s just out of tune with all measures of free market, supply side economics. You know, it isn’t his religion, and I admire his religion. I personally am a man of faith. I regard myself as an Evangelical, the fact is. But it’s not his religion, it’s his positions. Condi Rice came out of the State Department. Hell, I haven’t seen her in about a month or two. She came out and attacked him because of his naïveté on dealing in international affairs with Iran and others. He doesn’t seem to understand power politics, and that we are in a jihadist global war.

HH: Larry Kudlow, on that note, I want to say Merry Christmas to you and yours. We’ll talk next week, and hopefully, the markets will be poised for what you call the great start to the New Year. Thank you, my friend.

LK: All right.

End of interview.