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tonight on "the kudlow report," the summer rally continues. dow 9100 today, more good news on housing and banks. it is a great story. it's also a global rally. the g3, u.s., japan and europe, plus the emerging markets, and it is spelling a global recovery. ben bernanke on the public broadcasting campaign trail. he says he fought the next great depression, he put the pedal to the metal, now he is running hard for reappointment. obama's pay czar versus citigroup's $100 million man. who is going to win? and senator demint fights joked joe biden and socialism. "the kudlow report" begins right now. 

good evening, everyone. i'm larry kudlow. welcome back to the kudlow report, where we believe free market capitalism is the best path to prosperity. well, almost miraculously, the dow closed strong, and is literally, the last few minutes of today's trading session to finish over 9100, with a 15-point last-inning gain. it shows the strength of the big summer rally driven by better profits and improving economic indicators, including today's surprise, strong new home sales. and here's my key point this evening. this is a global rally from all corners of the world. in fact, we put it up on the full screen to show you. look at this. look at the g-3, all up what, 45, 44 and 42%. of and the emerging markets coming off a smaller base are up 65 to 70%. this is a global rally, and that suggests strongly a global

economic recovery. and it's called worldwide optimism. and, of course, it's bullish. from the g-3 right across the board, we are now seeing tremendous action, stock markets rallying everywhere. and that suggests strongly that there is economic recovery. investors are putting their money behind this recovery. and i continue to believe that the rally here in the u.s., that's all i can talk about, has quite a ways to go. i'm looking for 11th and 1200, based on what the corporate bond market is suggesting to me, and based on my reading of corporate profits. now, that means -- that means, as the s&p approaches 1000, those of you who are still in cash on the sidelines have plenty of time to get into the market action. and then finally, perhaps fed head ben bernanke is right in his public broadcasting town hall meeting. he feared a second great

depression last autumn. so, as he told the folks, he put the pedal to the metal for big money growth and now quite possibly, we are seeing the positive results of mr. bernanke's policy. now, he's got his detractors, and he has the supporters. we're going to debate this later on in the program. but let me say this. right now, mr. bernanke is looking awful good. so are the markets. so is the economic recovery outlook, and therefore, so is his own renomination. those are the facts, best i can determine. incidentally, the in trade, pay to play, global betting market shows a 70% chance he'll be back in january. today's market rally putting the dow over 9100. and our own rebecca jarvis snapped victory from the jaws of defe defeat. >> well, here is an interesting point. you made this at the top of your program. a lot of stocks connected to the global rally have rallied over

these last handful of weeks. what we saw today was sector rotation into the more local, u.s. centric names. traders impressed by the resilience of this market. today there was buying across sectors, but it was a little bit more of buying on the dip. the sustained interest in stock. and that rotation was out of tech, out of some of those plays that are the international story into more u.s. centric stocks, the ones that have received a lot less love lately. also, bears do expect we may see more attempts at selling pressure. they look at the vix up 5% or rather more than 5%. at friday closed at its lowest since september. the fact it's gone uninterrupted for so long, they are looking for a pull back here and the vicks, and we are seeing the row takes into names like the regional banks. they were particularly strong on the day. there were great earnings reports coming out of that space. but by and large, you have to remember that the play in the bank story was buying on the big

guys and selling on the little ones. what we saw today was buying of the small, regional banks. also, the home builders, a more clear-cut story folks. of course, we have the economic data and it looks better than where we were expecting on that front. also, the oil names, they saw a big surge on today's trade, we're seeing the crack spreads or the spread between oil and gasoline widening out to the gasoline side. so it's favorable for those refiners. they can make more money in this kind of environment. larry, as i accepted it back to you, what we have to keep in mind is we're closing in on the end of the month. traders are consolidating their positions, but some traders that missed the rally on the up side, they are concerned now if they don't stay in it, if they don't stay long that they will, in fact, miss out on a potential second leg. that's some of the market, not obviously all of the mark. but there are those who missed out. >> yeah, hedge fund guys, right,

waiting for the big correction. got hammered again. the one i especially love, rebecca, is the regional banks. all these smart guys were -- the regionals pop up! >> yeah, they do. and the reality there, larry, is that people were going with the government on that trade originally. they were saying if approximate the government insures and guarantees this company, that i'm going to stick with them and wait and see what happens with those regional banks. some of this data coming out of the housing market, some of the data that looks like things are stabilizing a little bit more at the consumer level, bode particularly well for them. and is they haven't seen the same price activity as the bigger guys. so that's another thing. >> i have two related mottos on this. first of all, number one, never invest solely on the basis of the government. it's a terrible idea. and number two, find a bank you hate and buy it, because even a banker can make money with a zero interest rate and a steep upward sloping yield curve. rebecca jarvis, thanks ever so

much. >> thanks, larry. >> we had splendid news at the opening. let's swing to the housing story. another important mustard seed today, and diana olick joins us with the details. hello, diandiana. >> hello, larry. this was a big number today, beating street expectations by a lot. new home sales volumes appear to be bottoming out a bit, but i want to look at the numbers. new home sales rose 11% month-to-month to 384,000 units. keep in mind, though, that that's a very low volume. down from a peak during the housing boom about 1.4 million. median price down 12% from a year ago and that is driving those sales. add to that the first time home buyer tax credit, an extra $8,000, so stabilization there. the most important number, though, to me is the inventor s inventories, down to an 8.8 month supply, and it's not just the increased sale pace driving the supply, but inventory is driving units.

still plaguing the builders are increasing foreclosures, especially the fact that appraisers are using foreclosures as comps in home sales transactions. now, this is all very good news, no question. but the foreclosures are still a thorn in the side of this housing recovery, and until we start to see those numbers on foreclosures go down instead of up, we cannot call a bottom to this market. >> yeah, well, hope springs eterrible. i've got a couple charts to underscore diana's report. first of all, this is the new homes sales number, and you can see going back to the start of the year, an upward trend. its particularly the case in the last, what, four months. so that's a positive sign. we've got a long ways to go, as diana suggested, but i'll take it as it comes. and on the inventory, this is basically new homes that are still for sale, and we've had a steady downturn. we've had a steady downturn, extending all the way to the current month. this is positive. it ain't over. it's surely a sign that housing is bottoming. that's the main thing. and that the pain out of gdp is

going to be greatly diminished when we get those numbers later this week. let me look at something on the s&p home builders. let's just put some stock market content on this. now, they are having a very good year. really, since the bottom last march, with a sort of double peak right here and now this is the latest. the home builder stocks, basically up close to 70% on the year. that's the good news, a terrific run. on the other hand, to be perfectly honest, fair, judicial, restrained and objective. this only goes back to 2007. you can see, it's been a lousy period for home builders. since early 2007, they're down about 65%. and actually, after we made up this chart, we found the second chart that showed i believe the peak was in the middle of 2005, and they're actually down over 80%. so they're up 65% or so from the bottoms last march, but still have a long ways to go.

i don't want to get overly bullish on the sector. i'm not a home builder analyst. i'll just say, today's news was good news. and don't forget, existing home sales came out, and they were very positive a few days ago. so we appreciate all that. let us dive in with our gurus. we have james glassman, former under secretary of state, a columnist for "kiplingers personal finance." and bob owe zany of forbes, and cnbc's rick santelli. now i'm going to guess my good friend rick santelli reporting every day from the pits of chicago, today we've got him out here. you are the least bullish of our group, mr. santelli. is that still the case? >> well, i'm the least bullish in terms of equities, but not necessarily the least bullish in terms of upward price mobility. i think momentum could certainly force equities higher. what i'm not buying into, larry, is that the higher equity prices are going to automatically drag the economy at large, into a much more positive spin.

i think gdp is going to be lackluster for a long time, and i think the interest rate complex -- i think a steep yield curve is good for banks, but it also at some point could get so steep that the long end could offer a variety of inhibitors and head winds to things like mortgage rates. >> why do we sell off today? ten year bonds sell off to what, 375? >> it wasn't so bad. we saw the worst deals early, by the end of the did i hovering just above 370, still in a range, i don't see anything dire at this point. and the supply moved actually rather well. >> james glassman, great seer that are are, wearing all these hats, state department undersecretary and before that a great financial columnist and kmechb tater and now contributing to "kiplingers," i'm impressed with the globalness of this rally, and you are the main big picture man tonight, and in fact maybe we can put back on the full screen the g-3 u.s., europe and japan,

asia, latin america, the brics and so forth, they're all rallying big-time jimmy glassman. what does it mean? >> actually, what i call the g-2 is the u.s. and china. >> whoa. >> i think that's really what we ought to be concentrating on. china has been phenomenal over the past year. china really has -- if you talk about a global rally, china has been leading the global rally. china now has by market capital, largest bank in the world, the largest life insurer in the world. in may, the chinese bought more cars than americans bought. china is really -- and it's growing at 8%, according to the latest second quarter figures. china is leading this rally, and it's doing it by increasing its internal consumption, and that's good for the united states. >> is it sustainable, jim glassman? a lot of people are saying the chinese, we're going to maybe -- no, let's deal with it right now. they have $2 trillion worth of foreign exchange reserves, about

$850 billion from the u.s. what the rumor is, what the discussion is, what the agenda seems to be, is that they're now going to diversify their reserve holdings at the margin. new money coming in is going to be used for other investments, namely commodities like copper and aluminum. for all i know, maybe gold. now, they need commodities, they want to diversify. some people think there's a speculative blow-up in the making. your thoughts. >> well, i think -- look, the chinese have been buying commodities for some time. they continue to buy u.s. treasuries, and that's good. and i think the conversations that are going on in washington today and tomorrow will emphasize that the chinese should continue to buy those treasuries. i think we've got a good relationship with the chinese. i don't think they're going to all of a sudden stop buying dollar denominated securities. so i'm not particularly worried about that. is it sustainable? i mean, look, i don't know the answer to that question. but i think the chinese economy is more sustainable than the american economy right now. >> ooh.

>> i mean, i agree with what you said earlier, larry, that the dow could be going to 121 or -- to 11 or 12,000. we have so much debt loaded up, we have so much government intervention in this economy, there has to be consequences. >> but you know, mike ozanian, and i was thinking s&p 11 to 1200, but i'm fine with the 11 to 12,000. suppose you're president obama, mr. ozani, he's had a rough week or two, polls are down, his own democratic conservatives, the blue dogs, are revoting against cap and trade, they're revoting against the government takeover of health care, et cetera, et cetera. on the other hand, the market is rising. recovery prospects are improving. does president obama get credit of this mike ozanian? >> no, he doesn't, larry. >> are you sure? you said that so fast. not even waiting one nano second. you said no. >> it's the the american entrepreneurs and the great

ability we've had, actually, to cut costs that has allowed many companies to surpass their earnings estimates. i think that's been an untold story. what's been going on in the stock market. many companies are beating earnings estimates. these profits are going to be reinvested back into the economy, and eventually, that's going to lead to job growth. >> but the bears say the cost-cutting is no good. we have to have top-line revenues. and that's why they're bearish, and corporations can't do it by cutting into the muscle. they've gone through the bone and into the muscle. what is your response to that argument? that is the last refuge of the bears so far as i can tell. >> this creative destruction at its best, larry. >> who started creative destruction? >> i think it was you. >> joseph shum petter. much more to do on this tremendous story. and by the way, the s.e.c. apparently -- this came out late in the afternoon, i want to ask our market gurus about this, no more naked short selling.

what does that mean? we're going to get to ben bernanke on tour, on a re-election campaign, traveling more than president obama. what does that mean, and why is he doing it? you're watching "the kudlow report," and we'll be right back. >> the world is changing, but i still believe in america, and free market capitalism is still the best path to prosperity.

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all right. dow 9100, really incredible close today, pushed the indexes into positive territory, sort of an unbelievable call. shows you the strength of the summer rally. we're back with jim glassman, mike ozanian and rick santelli. rick, really this is on the wires late in the afternoon. the s.e.c. is saying no more naked short selling. no more naked short selling. you've got what, three days to cover, if you don't cover, you're out of here. is that good or bad? >> i don't have a problem banning naked short-selling. i will tell you this, though. it seems like it's been used as a pawn in a giant chess game sometimes, and maybe at the heart of some of these rallies, think back to when they ban short selling of any stature about six months ago. but i think, you know what, on the expressway of capitalism,

it's okay to have regulations in speed limits. i don't have a problem with it. >> well, i like the expressway of capitalism a lot more than some of the regulations, jim glassman. but you tell me. i mean, the deal is here, you're going to get three days to cover it. if you haven't borrowed, you can't do it, and you're out. i don't know what they're going to do, drop a bomb on the broker. but a lot of people, as rick said, have suggested that this whole thing was because of short selling, this whole stock market slump. >> at least a contributing factor. >> all right, a contributing factor. you hear a lot about it. i remember in the early 1930s, they blamed the telephone, orders on the telephone for the market decline, jim glassman. so i'm not sure i buy into this. do you want more regulation on short sell organize not? >> no, i don't want more regulation. i think short sellers are an indication of where the value auto to be. they need -- they need to be able to have their say to make their bets and make their investments, and you know, the notion that the problems that we

have are through a lack of this kind of regulation or that kind of regulation i think misses the point entirely. >> what's the point? let's continue this free market thought. i hear a free market pause. >> well, i think -- i think the point is that where we ended up, where we have -- where we have been is the result of people exercising bad judgment. and i think -- i think lenders ought to be able to exercise bad judgment, and then pay the consequences. one of the big problems i think we've got is moral hazard. the fact that people are not, and businesses are not paying the consequences for their actions. the government steps in, constantly. ever since 1987 and i think before that, to rescue, and these rescues cause worse and worse problems. so it's not regulation, it's not rescuing. it's people making mistakes who ought to pay for those mistakes. >> and get punished. >> yeah. >> part of the capitalism. >> but every time you get to the

precipice of failure, they say the system is going to break down, if you let this entity fail. >> but what's wrong with that thinking? mike ozanian, can we fail? we're going to have a detour from the main -- i want to come back to the banks and find the bank you hate and buy it. but before we do that, this detour, what about this regulatory assault? all right? san tetelli says good, glassman says bad. >> i agree with glass man. i think the main problem that caused the big situation -- we're in right now is the federal reserve. they're the ones that printed all of money, they're the ones that kept interest rates incredibly low. >> but i thought bernanke is a hero today. barn storming, we're going to cover this in great detail, he pumped money in, he said he put t put the pedal to the metal, and you're blasting him. >> yeah, i think that greenspan and bernanke are a big reason why the dollars collapsed and i think that's going to come home to roost. the ppi was up 1.8% in june. i know only 0.7% for the cpi.

but bernanke is going to have to deal with deleveraging his balance sheet. i read his piece in the "wall street journal," he mentioned all of the tools he has, but never said when he is going to do it. >> by the way, rick, the inflation protected treasury securities went pretty good, and it looks like the forecast for inflation is, what, less than 2% right now. what is mr. ozanian talking about, all this inflationism? >> i don't think that inflation is around the corner. i've said this all along, larry. but the notion of the vulnerability of the dollar and the fact that these excess reserves are sitting out there, they're certainly not going to get pulled back by the fed. it's a matter of time when the consumer does wake up from this rip van winkle snooze they're going through. i just think that at this point in time, these options will continue to go well. and you know, really want -- think about the implications. >> i see everybody gives their hard-earned money to government, period. end of sentence. jim glassman, find a bank you

hate and buy it. that's my mantra. even a banker can make money with a steep curve, which leads me to ask you about that hypothesis and what your investment strategy is overall. >> first of all, i agree with you, larry. >> whoa. >> with the steep yield curve, you've got to make money as a banker. and i have liked regional banks for quite a while now. i'm worried. i have to say, short-term, i'm bullish. longer term, i am worried by the kinds of things that government has done, including this load of debt that we are facing. and my advice to investors is they should certainly get back into the stock market if they're out of it, but the asset allocation rules that have prevailed for a long time now i don't think prevail any longer. >> what do you mean by that? expound on that, please. >> what i mean is that if people in general were recommending that you should hold 80% stocks and 20% bonds, related to your

age or to your level of risk aversion, i think it's now closer to 60/40 or 50/50. i don't see the kind of growth that we've had in the past over the last 40 or 50 years going forward. for a number of reasons. some of them demographic, some of them having to do with regulation, some of them simply having to do with the fallout that we've gone through. >> but mike ozanian, all right, modest expectations. let me come back to this. i want you and rick santelli -- corporate bonds having a tremendous run of. the spread, the difference tweens treasury has come down. corporate bonds are looking at the same thing stocks are looking at. the earnings, the revenues, they're seeing good times ahead. why can't we make a real good run? i know there will be pullbacks and corrections. i rather agree with jim glassman, i'm not ready to say we're going back to the prior highs in the stock market, but why not 11 or 1200 on the s&p, or for that matter, the dow

12,000? >> i think you're right. and i think obama care gets killed. >> give me an update. you're thinking about obama care, cap and trade and other big government threats. >> i think cap and trade will be completely diluted where it will be ineffective. and i think obama care will be defeated and that's how we get to your mark in the market. and i do like corporate bonds. i think the risk reward for corporate bonds is better than treasuries right now. >> we might have a corporate bond chart. okay. we don't have the corporate bond chart. rick santelli, final thought on this. conservative democrats, sometimes called blue dogs, used to be called yellow dogs, now called blue dogs, i don't know why. conservative democrats are emerging over 50 of them in the house, probably, what, almost a dozen in the senate. are they going to straighten this story out in washington? is that possible? are conservatives too -- are they too conservatively pessimistic about the outcomes

for governmental policies. >> >> the party in control is where the blue dog democrats are having control. they want to get re-elected. the constituents, the public, is worried about some of the big expenditures, lots of debt, very little detail. i think the notion that they are in control speaks volumes about an up side to less size, more detail, less debt. and i think that's the direction we need to head. >> all right. i happen to think that is inside the stock market. we have got to get out of here. we have gone way over, but you're all so darn interesting. jim glassman, mike ozanian, thank you ever so much. rick is coming back to poke at ben bernanke in a second. from fed chairman to fed showman is how the "times" put it this morning. is he opening the temple to the fed, or what? we've got to see whether what he is doing is good. sometimes no good deed goes unpunished. i think bernanke is on the right track. you're watching "the kudlow report." we'll be right back. oof!

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all right. i want to talk about this ben bernanke barn storming around the country, really fascinating. very unfed like. we have "the wall street jour l journal" ed moore, and manager of insider.com. and rick santelli is still with us. now, john carney, let me go to you. paul volcker showed up at some kind of town hall meeting many years ago, but it's pretty unusual now. bernanke has been on "60

minutes," a news conference, now barn storming with jim lehrer with this town meeting and so forth and so on. is he running for re-election, or is he informing the public about his well-intentioned policies, john? >> i think he is doing a little bit of both. more than just his personal re-election, i think what he is running for is the independence of the fed. he is very worried that politicians are going to come in, and try to control what the fed does with monetary policy. that's a big danger. because politicians tend to be less hawkish on inflation than the guys -- >> you mean, even more -- that's a terribly interesting point. very insightful. you're saying that's his real agenda, is making his case to the public, in effect, he's going over the heads of congress, and to many some extent, the white house, and making it directly for fed independents, leave us alone. that's your point, john? >> that's exactly right. he's trying to say, look, we've been doing this -- what we need to do is prevent politicians from coming in, and stopping the

fed from raising rates once inflation starts going. because that's the real danger. that political pressure could come in and stop it. because we're going to have high unemployment for a while. >> hang on, john. i need a whip around -- steve moore, what do you think about what mr. carney has just said. it's the independence of the fed. it is not bernanke's self agrand eyesment, which is diving this very, very unusual public exposure to unlock the secrets of the fed temple. >> he is wrong. i think, larry, that ben bernanke thinks he's bruce springsteen. he's going out on this tour, and i think this is about not what you were just talking about, i think this is about vindication and what i'm not hearing from ben bernanke is any kind of mea culpa, any kind of humility for being there when this crisis started. larry, i blame ben for a lot of the financial crisis. i know you're a strong supporter of him. >> no, mediocre. i want to correct that record,

i'm a very mediocre supporter, and i've suggested publicly on the air that if i were assured that larry summers would be a king dollar guy as he was in the 1990s, i might prefer summers, because i agree with part of what you said, that bernanke has never protected the value of our money or consumer pocket books, and he and greenspan deserve a lot of the blame. >> and i think this auditioning is kind of unseemly. >> rick santelli, i want to play you a quote on the great depression. this was a little bit of a shocker to me when i read this. here is bernanke on the second great depression. >> i was not going to be the federal reserve chairman who presided over the second great depression. and for that reason, i had to hold my nose and stop those firms from failing. i am as disgusted about it as you are. and i think it's absolutely critical as we go forward that we put in a new system that will make sure that when a firm does not succeed in the marketplace that it fails. that is absolutely critical, and i support that 100%. >> all right.

this from jim lehrer, public broadcasting sponsored town hall meeting. i've never heard him talk in such stork terms. wouldn't be the chairman to preside over the second great depression. what do you think? >> i think that's an exaggerati exaggeration. i wish he would have had this backbone when he cried fire in the theater. but i tell you this. right now, it's about clean-up. do you want the government in control to clean up this mess that in many ways mr. bernanke and paulson created? no, i think i would rather have mr. bernanke -- maybe not the best two choices but lesser of two evils. >> so you think he is rationalizing the fed's huge t.a.r.p.ness, the money they pumped in in, the bailouts of the too big to fail aig. you think bernanke is not persuading the public or is, rick? >> i think he is going a bit towards per situating the public. but at the end of the day, the public is going to demand something. they're going to demand some religion come back in the

marketplace, they don't want the market's tab and tax dollars to back every are market in the country. >> ben bernanke is coming back, and so is john carney, steve moore and rick santelli. we're going to dive into some more controversial quotes, and is bernanke now in the driver's seat to be reappointed come this january? we are "the kudlow report." i don't know. you've got to give him some credit. look at this global stock market rally. look at this summer rally here in the state. something seems to be working. so i want to stay on the optimistic side. we'll be right back. (announcer) take your time to find the right time with cialis for daily use... a clinically proven, low-dose tablet for erectile dysfunction you take every day

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all right. ben bernanke is sort of barn storming country, very unfed like. i like it, i say go out and meet people. after all, we all have money in our pocket books. john carney, as i'm sure you heard, your two co panelists there, steve moore and rick santelli are a little more un r underwhelmed with the bernanke performance. i want to play this. this is their beef. and i want you to hear the beef from moore and santelli. this is bernanke on a driving

metaphor. >> the federal reserve has been putting the pedal to the metal. we have the interest rate as low as it can go, putting everything we can into strengthening credit markets. we are buying up mortgage securities to get people into houses, so we're doing everything we can to support the economy. and we hope that's going to, you know, get us going next year sometime. >> all right. so john carney, this is not hard, this narrative, that bernanke has set up. it's very elegant and simple. basically saying i want to avoid a second great depression and just opened the spigots and poured the money in, and but the pedal to the metal, that's what's on steve moore's mind. every single day. the guy has gotten rid of his stock portfolio because he is worried about inflation and he's not alone and neither is rick santelli. how do you respond to the pedal to the metal criticism? >> i think that's a valid criticism. my point is, i would rather stick with the devil we know rather than the one we don't. right now, ben bernanke may be

pushing things very hard. the pedal to the metal, as you said. but what i'm really worried about is something even worse. i have lots of friends who hate the fed who work for ron pahl. you know these guys. but they don't realize we could get something far worse, something closer to, say, fannie mae for monetary policy. and that's what i'm worried about. >> we don't want fannie mae for any policy, at least i don't. but steve moore, i've got to ask you this, it's one of the themes of the program. with dow 9100, if things are so bad in washington, why are they looking so much better in stocks and the economy? in other words, if inflation were on the verge of raising, if pedal to the metal is dead wrong, why are we having such a splendid summer rally, and it's a global economic recovery rally, steve? >> well, i think i would give the answer that you taught me a couple months ago, larry, which is that the fed has had the pedal to the medal. and my problem isn't so much what the fed is doing right now, larry. it's that nobody is taking responsibility for the biggest

meltdown in the market that we've seen in 60 years. i mean, greenspan is pointing to other people, paulson is, bush is. i mean, somebody has to basically take responsibility, and it was the pedal to the metal policy that happened four or five years ago that i'm critical of. >> all right. but rick santelli, going to end with you. in the new york times today, their distinguished economics writer andrew edmond says this, this is a milestone, this barn storming around the country. and bernanke's evolution from fed chairman to fed showman. now, it could be something more moderate than that, that he's just trying to explain to the public. and that's a good thing. or not. i mean, it's like no good deed goes unpunished, rick. fed chairman to fed showman, is that true? >> hey, he's a teacher. at heart, mr. bernanke is a professor. and i don't see anything wrong with trying to educate the average person who doesn't see inside the fed as to what he's doing. now, whether you want to call that explanation, is he worried about his place in history?

or is he trying to carve out his job in the future? you never lose ground if the public gets more -- >> you know, rick, this guy has to go to charm school. i mean, he's never going to charm people. and you know what? -- >> are yeah, you know, that's a little unfair. because after the "60 minutes" interview his ratings went up. >> what's wrong, larry, with a little transparency at the fed? >> nothing. that's what he's doing. he's charming, he's elegant, he's debonair. john carney has this story exactly right. he is -- he is we will manying. he is bernanke. he may not overwe will many. >> what's our grand panel say? >> the stock market is roaring, the proof of the pudding is in eating. steve moore, rick santelli, and coming up senator jim demint will take on joe biden. that's a whelming event. first, let's talk with dennis

kneale and see what he is cooking up. >> larry, i'm going to do a bit of gloating tonight. declared end of recession a month ago. and today on the cover of "newsweek," recession is over. so a special message for those bloggers. >> dennis coming up at 8:00. stick around. we'll be right back. so, what's the problem?

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all right. we welcome back south carolina republican senator jim demint, author of the new book, "saving freedom" and mr. demint, i thought you might have a thought in the sunday "new york times" op-ed section, joe biden says what you might not know about recovery. team obama is taking credit for recovery. do you have a thought on that? >> anyone who thinks all this government spending is making the markets come back doesn't understand the economy the same way you do, larry. >> well, i want to ask you about this, because one of the themes tonight, dow 9100, a splin did i do, splendid summer rally, which has crushed the bears and the petitions mists, okay? now, question. if things are so bad in the world of politics down there in washington, why do you reckon they're so much better here in

the stock market and the outlook for economic recovery? >> well, america has a resilient economy. there is still a lot of free enterprise working out there. we're doing this in spite of the politics. i think the government has probably done about all it can to slow down our economy. but fortunately, america is still working, and you're seeing that reflected in the market. at least in a short-term. but larry, i'll tell you, if we don't loosen up commercial lending, the commercial credit, i think we're going to see a fall that's worse -- will be worse than last year. >> well, but that's not what the stock market is telling us, and i want to ask you this. if you were president obama, and vice president biden, and you saw a nice rally in stocks, and now the consensus of economists is protecting recovery in the second half, wouldn't you take credit for it, too? >> probably so. but, you know, we were talking about a fall recovery before we passed the stimulus plan. and most of us said we don't need all this government spending. we don't need all this debt. what we need to do is get out of

the way and let the market recover. and i think that's what is happening. we have predicted it all year. but i'm convinced, unless we loosen up credit in the commercial area, if approximate we don't cut this spending and is all of this debt, this is not going to be a long-term recovery. >> well, speaking of credit, ben bernanke said he has put the pedal to the metal, because he is worried about a second great depression, but i want to ask you, is there a risk down there? republicans too pessimistic about the world and the economy and the stock market? is that a risk? it sounds very negative, coming out of the gop right now. and events up here in new york and maybe around the country don't really bear out that negativis negativism. >> i don't think republicans are being negative. we actually believe in america. america is working. the part that's not working, i think, is the political side of this. and maybe there's some republicans bad-mouthing the economy. but not many that i hang around with. i mean, i think we can work our way out of this, but not if we continue to expand government,

and government control. that creates uncertainty and a lack of predictability. what we need to do is see if we can get the government out of our banking system. out of our insurance system. and reform fannie mae and freddie mac in a way that will let the industry work. >> all right. senator demint, we're going to leave it there. i just want to get your responses. an awful lot of good news cooking up on wall street. i don't know what it means, but i have a feeling it means times are going to change for the better. up next, should pay czar ken fineberg go head-to-head with citigroup's million-dollar man? actually, it's hundred-million-dollar-man. that's the stakes, the pay czar versus a $100 million bonus. stay with "the kudlow report." is this going to be wage controls, or what? we'll be right back. p sive.com. are you all right? a ferocious white whale wrecked my boat. well, i'm sure we can help you, captain...

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all right. big battle brewing, front page "wall street journal" story, pay czar kenneth fineberg squares off against energy trader john hall who looks to make a $100 million bonus. somebody is getting rich let's discuss this with mark walsh, and jim, with reuters. mark, this guy is making so much money for shareholders, and taxpayers. maybe fineberg ought to back off. >> well, first of all, we don't know that ken fineberg is going

to rip up his contract. in fact, he's not. he's going to negotiate a fair price. >> you may say a fair price is $100 million because that's his contract. and i agree. but why not take a moment to make sure he did make $100 million in profit for citibank. remember, they're a creditor of ours, yours and mine as taxpayers, we have the right through ken fine berg. is this guy worth a $100 million bonus, if so, that's he will to have. >> but jimmy, this is a performance bonus, so this guy has made a lot of income for the bank which means they've got better chance of paying us taxpayers off at the end of day. why not reward john hall instead of punish him? >> well, first of all, tell me that while i'm talking you're not showing pictures of his castle or -- >> not yet. no, no. >> remember, the whole government strategy here is to get these banks back in good shape by them earning their way out of the problem. there is no more money coming

from congress. they need to earn their way out of the problem, and here is a guy who not just last year or the year before, for the past 12 or 15 years has brought in huge numbers for citigroup. so doing it again. reward him, don't penalize him. >> point mark, say the guy makes 4 or $500 million, i don't know the exact figures, he gets a certain percentage of that, he gets 1/5 or 2/3, but a., that's the contract and b., it looks like he has earned it. don't we want these banks to earn their way out of this mess? >> listen, absolutely, larry. but let's all three of us take a moment and think about the false earnings and the bubbly earnings generated by banks, just like citi in the last 12 years. just hold on a minute. >> we don't have time for the narrative. just this energy story. in other words, this is feinberg's first test. wage caps or wage controls or not? >> absolutely not. ken feinberg is going to negotiate his way out, as he has

done in the 9/11 commission and other situations. >> what's more likely to happen, they're going to lose this guy. they're going to lose this guy, going to lose his unit. and they'll start their own -- >> to who? >> to who? they're start their own firm. what, are you crazy? and listen, you're going to end up with a less profitable company that's going to be hard to earn the money back, earn the taxpayer money back. >> citigroup is not any good, anyway, for god sake's mark. this is their only profitable area. >> it's the one kroul jewel and you're getting rid of it. >> you, mark, have a big, big taxpayer in the american revenue system, you have an incentive to get paid, you should be ruined for this guy, mark hall. >> no, you guys are putting words in front of me that i'm not eating up here. i think the guy should be paid $100 million. but i also think he should be made aware of the fact that ken feinberg representing and you me as lenders has a right to review hes compensation agreement. >> jimmy p., though, okay. here's the deal. president obama has said many times, he is against excessive

risk-taking. he is in favor of some kind of performance standard. but he is against excessive risk-taking. are they going to try to say that john hall energy trader chap who is very successful is taking excessive risks? would they go there, jimmy p.? >> listen. i hope they go there. they don't go there. for the reason you just said. will they go there? there's a lot of concern that a company with all these government guarantees should not be involved in this. i think it's that kind of group that's going to drive this guy and drive his unit away from citigroup. >> i'm sorry, mark. we're out of time. we appreciate it -- you're terrific, both of you. mark walsh, and jim. catch me tomorrow morning on "the call" with melissa and trish at 11:00. i'll be right back this evening. at 155 miles per hour, andy roddick

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