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Big Profits + Easy Money Trump Washington

We had a nice triple-digit Dow rally yesterday for the best finish in 17 months as the index closes in on 11,000. So, despite all the left-wing politics pouring out of Washington, the stock market reality remains. Why? As I’ve said dozens of times in recent months, we’ve got a strong cyclical rebound in corporate profits riding on a wave of ultra-easy money from our nation’s friendly central bank.

Profits are the mother’s milk of stocks. Right now it’s a global beverage.

So while housing remains an issue -- with the latest batch of home-sales reports showing no imminent end in sight -- we do have positive signals like this morning’s durable-goods report, which is now up three months in a row. Also, the index of U.S. leading indicators has increased the past 11 months -- the longest stretch since 2003-04.

Meanwhile, Stefan Abrams, my old friend and investor, reminds me that railroad- and freight-company indicators are showing a pick-up of inventory-rebuilding to create more production and real output. I think he’s right.

On another note, as a very special gift to Fed head Ben Bernanke, the euro continues its slump in the wake of the Greek debt problem that still hasn’t been solved. That means a strong U.S. dollar, despite all the Fed’s ultra-easy money. I think Mr. Bernanke ought to visit the Parthenon, the symbol of ancient Greece, and genuflect in thanksgiving for the modern-day Greek crackup that has helped support King Dollar in spite of his ultra-easy money.

This is called having your souvlaki and eating it too.

Speaking of central bankers, San Francisco Fed president Janet Yellen didn’t disappoint yesterday with a dovish statement that boosted stocks in late-day trading.

So I bring good tidings to equity investors, despite the fact that I can’t for the life of me find a single free-market policy in our nation’s capital. Not one single policy. But sometimes the business cycle, and of course the Fed, can trump Washington.

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Questions? Comments, send your emails to: lkudlow@kudlow.com