with troubled companies. and you'll get something done on a consumer protection side. it may or may not be the agency that's been proposed, but it will certainly be tougher consumer regulation than we have had in practice. >> so it sounds like we're in no danger of -- i'll give this one to doug, too. it sounds like we're in no danger of overreacting, at least in terms of regulating. >> oh, there is always a danger of overreacting. however, there is strongly entrenched interests here that make it difficult to get anything done. i do worry about overreaction. i'm more worried about under reaction, though. >> mark? final thought? >> well, if i can -- and i don't want to say i do agree we need to focus on the banking sector. my concern about the administration plan is their way of dealing with too big to fail is not to get rid of it but institutionalize it. these institutions that we will never let their debt holders take losses, they borrow at lower rates, gain market share, and they'll become even bigger.

so rather than actually dealing with too big to fail, i think the plan makes it worse. we really need to talk about basically reining in the fed's 13.3 bailout authority. >> we've got to go, guys. mark -- >> we're out of time. thanks to both of you. >> show is over. see you tomorrow at 9:00 a.m., and you'll be back on "street signs." >> that's right. i'll see you at 2:00 p.m. this is cnbc.com news now. >> boeing shares jumping 8% after the company announced that the flight of the 787 dream liner would take place before the end of the year. arthur minuteson has been named chief financial officer of aol in advance of the spinoff from parent time warner. and former aig outside directors are asking that a shareholder lawsuit be dismissed. it accuses them of ignoring things that led to a bailout. that's cnbc.com news worldwide. much. >> i'm mandy drury standing in for trish regan and melissa

francis. stocks are lower. despite economic data development, and gdp. plus, the latest on the fdic quarterly report on problem banks. larry? >> i'm larry kudlow, everyone. citigroup up about 70% in the last month. aig, fannie mae, freddie mac also on the rise. we'll discuss whether there is still an appetite for these risky stocks. this is "the call." we are cnbc. >> stocks trading negative to find better than expected results on both gdp and jobless claims. and the fdic reporting the number of problem banks rose sharply in the second quarter. home builders also lower, after toll brothers reported a widening second quarter loss. right now, the s&p is also to the down side. and the nasdaq is not doing too much better, an over 1% drop for the s&p 500. and the nasdaq is only getting 1995, below 2000, a drop of

1.5%. we have hampton pearson in washtd, bob pisani with the market reaction. but hampton, let's begin with you. >> well, first, here at the fdic, its second quarter banking profile tells us that by the end of june, its list of so-called problem banks was at a 15-year high, some 416 institutions with combined assets of just under $300 billion. fdi-insured banks had a $3.7 billion aggregate net loss in the second quarter, two out of three institutions reporting lower quarterly earnings than a year ago. 28.3% were unprofitable. net chargeoff rates, set a quarterly record. $48.9 billion versus $26.4 billion a year ago. the noncurrent loan rate now at a record level. 41.4, up 14% in the second quarter. fdic chair sheila bair says banks are setting aside more

reserves to deal with loan losses, but they will be a headache long after the economy recovers. >> in the second quarter, loss provisions were ten times what they were three years ago. the obvious reason for this is the ongoing need to bolster reserves in the face of rising levels of troubled loans. these credit problems will outlast the recession by at least a couple of quarters. >> now, as far as the health of the fdic, it's deposit insurance fund decreased by $2.6 billion in the second quarter, and the reserve ratio declined by five basis points. now over to bob pisani at the new york stock exchange. >> thank you very much, hampton. weaker throughout the day, really a lack of bids in the markets. let's look at toll brothers, because we got good news and frankly bad news. toll brothers, big luxury builder in their earnings reported noted that new orders had increased, but selling at lower price points. all right, mixed news. the cancellation rates,

three-year lows. the deposit activity was up 26% year over year. i thought that was especially good news, a recent bit of information we-had before. and it looks like toll brothers is capturing market share in the high end, which is what they occupy. here is the bad news. pricing still isn't there, really. margins are very much under pressure. they can't really build homes at a profit right now, at best at breaking even or losing money. there is toll brothers. remember, toll brothers was $15 six weeks ago. all these stocks are up 50%, no matter what you look at in this particular group. let's move on and take a look at the financials quickly. freddie, fannie, citi. remember, 25 to 30% of the volume of the new york stock exchange on monday and tuesday, they started moving up again about an hour ago. they're not going to do 25% of the volume today, but they're still pretty heavy. finally, energy stocks have been weak when oil cracked at $75 a couple days ago, energy fell down. now with oil sitting at $70, again taking another turn to the down side. let's go over to scott standing

by at the nasdaq, not getting a lot 6 of help from technology. >> technology stocks moving lower about an hour ago and the nasdaq down 1.5%, been in that range for the last 60 minutes or so. and you see large cap technology stocks pulling back along with the overall index. research in motion down 2%, apple is weaker, google is weaker, cisco down, microsoft weaker, as well. as is dell. and dell will be out with its earnings after the closing bell today. it's a critical report, because they're not only going to give us insight into consumer spending on pcs, but also technology spending from a business perspective. that will be interesting to hear, particularly the commentary on the conference call. but dell shares lower there. semi conductors a weakness. the stocks down 1.75%. intel is lower today, sandisk is, as well. finally, tivo is off about 5.5%. they filed a patent suit against at&t and verizon. it's over that so-called time warping technology.

they did post a narrower than expected loss. our forecasting results below expectations. the ceo of tivo is coming up on "the call", bottom of the hour, and larry, we want to hear his comments. back to you. >> we look forward to hearing from tom rodgers. gdp falling, better than economists were expecting. and jobless claims falling to a four-month low, leading many to believe the economy is stabil e stabilizi stabilizing. how about recovering? but not everyone agrees. joining us to discuss the outlook for the economy, chief u.s. economist at jpmorgan, and mark zandi, chief economist at moody's,.com. bruce, start with you. how do you read this, and let me ask you about the profits. profits seem to be the brightest spots in these reports this morning. >> no doubt it was a good report in terms of corporate earnings. but, of course, on the flip side of that, part of that came on the back of job losses in the quarter.

i think what's really important as we're watching the economy now, is to see in the second quarter a very big set of of cost adjustments on the inventory side, on other sides on the part of corporate. and signs that there's momentum beginning to build broadly in terms of businesses moving away from retrenchment in the early part of the third quarter. you combine that with what we're seeing globally, you combine that with we're seeing in housing, the consumer looks stable. to me that's a recipe for a growth of as we go through the second half of the year. >> for the whole second half, 3%? >> it may be lum me quarterly, but i would say a 3% pace or so. >> mark, let me get your take on that, and let me say that today's unemployment claims were kind of mired around 550, 560,000. much it's not a fabulous story, may be the achilles' heel of the consumer recovery. how do you differ with what bruce is saying? >> i agree with him. 3% sounds a little bit high, but only a little bit high.

i think a lot of it is related to an inventory swing in manufacturing, more specifically the inventory -- in the vehicle sector. but, you know, it's not enough growth, and certainly not consistent enough growth to get businesses hiring again. and that's why those unemployment insurance claims remain stubbornly high. and i think it's going to be a while before we get any meaningful job growth, certainly enough to get unemployment down. >> so i see, mark, but you expect policy makers to come up with even more stimulus next year. >> ooh. >> i do. larry, i don't think we'll call it stimulus because of your growning. >> what would you call it, and how would it be defined? >> i think it will be more help for the economy and part of the normal budget process, and things i think everyone can roughly agree to. helping unemployed workers, because unemployment will remain high for quite some time. what. >> kind of stimulus? how about across the board tax cuts? >> i think we'll get extended,

expanded temporary tax cuts. housing tax credits, net loss carryback. we may even see if the economy is weak next year, policy makers delay or phase in tax increases that will occur in 2011. >> bruce, do you still think we need more initiative and more stimulus from the policy makers? >> i don't think in the near term we do. much i think it's a mistake to look at what is happening now as a technical inventory adjustment. what we have is synchronized move on the part of businesses about away from entrenchment across the world. consumers have stopped pulling back. they're not in good shape. but the dynamic of businesses moving away from retrenchment, of consumer stabilizing has a feedback element to it, through financial conditions, through confidence. and i think it's going to carry us. i think we do have a problem that while we're going to get more growth than people expect, it's less than what we need to dig ourselves out of this hole in the downturn. but i don't think quick fix meshes in terms of tax cuts or stimulus for next year is the

recipe for solving that problem. >> you know, mark zandi, to me, apart from supply side tax cuts, and i love your cash expensing idea, that would be a big help to business. but the best stimulus for the economy is profits. and i just want to know and get your take, in this report today, corporate profits after tax, up 7.6% in q2. up 16.5% in had q1. that's a 25% annual rate of rise from the fourth quarter. so we're seeing a big shift. now, i see profits, the mother's milk of stocks and business and the economy. isn't that great stimulus? >> oh, yeah, absolutely. but, you know, i don't know that it's enough. i mean, a lot of that is just related to cost-cutting, slashing jobs, slashing investments, some of it's in the financial sector, lower provisions -- >> but a good first step, mark. isn't that always how it starts? >> absolutely. this is very key. but -- and i hope bruce is right. i hope this is the beginning of something more sustainable, but i worry that he's not right, and we'll get into early next year

the benefits from the inventory swing are over, the credit crunch is still with us, that we're still losing jobs, and consumers aren't spending. and while it's still premature to conclude that we -- that policy makers need to provide more help, but we need to be prepared for that possibility. >> how important is it for attracting capital and the stabilization of the u.s. dollar, that we seem to be seeing a similar parallel in the cycle in it europe as in the u.s. >> i think it's unprecedented what we're seeing. basically, all of our recovery is going back to the way the mid '70s, with europe, with the big economic block in the world, lagging in in a significant way. this is a recovery in which europe is synchronized us. asia is always synchronized with us. and i don't think we want to lose sight of what's going on. this say kbloebl synchronized upturn, which will feed off cells in a way that we haven't seen since the mid 1970s. >> what are the indications the policy makers on the same page

at the same time? >> i think one point that needs to be made here very clearly is that while we're getting growth here, we're not getting help in the labor market, not reducing slack very quickly. i think inflation is going to be moving down here very decidedly. we think core inflation will be below 1% in the u.s. and western europe next year, and i think policy makers will keep their feet on the gas. that's going to be one of the key i think pillars for keeping this story moving forward. >> can i make a quick point, larry? bruce is right. this is a synchronized global recovery, but it's all stimulus-induc stimulus-induced. a lot of stimulus out of china, europe, monetary policy unprecedented. a lot of it is almost -- almost all of it is stimulus related. so if the stimulus begins to fade early next year, and it will, then we may need to see more. >> that's why the profits numbers are so important, gentlemen. i mean, because profits are really important for stimulus. if you see a carry-over in profits, then i think the risks of a double dip or whatever are really minimal. >> yeah, but the question is,

why are profits improving? and so far it's all been cost cutting, so we have to see improved sales. >> creative destruction. free market capitalism. self correction inside the market. these are great principles. we're correcting, we're moving towards recovery. >> okay. mark and bruce, thanks very much for your time today. coming up next, investing in high hj risk stocks and what the run up means moving forward. >> plus, more trouble in rising banks and whether you should buy financials, and how will tivo bounce back from its latest quarterly loss? we're going to ask ceo tom rodge rodgers. of we're cnbc, first in business, worldwide. taking its rightful place

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according to "new york post" hedge fund big wig john paul son is gobbling up shares of citigroup. the stock up about 70% in the last month alone apparently trading at 4.8 3 with another gain of 4% today. aig, fannie mae and freddie mac are also on the rise of. the question now is, are risky stocks still a good investment? let's ask our bull, hank schmidt, chief investment officer from has beener ford investments, and our bear, dan fitzpatrick, president of stock market mentor. i'm going with the bear first. dan, what do you think? how great is the risk? >> well, they're pretty risky. however, i think you almost just have to play price action. i mean, longer-term, we're going to have problems financially. i mean, on these riskier stocks. but for right now, frankly, i think i've got to take the long

side of the trade. in fact, i'm long citigroup. >> oh! dan fitzpatrick! isn't that interesting? >> that's because a famous investor like john paul son is in there in the stock. >> oh, that guy doesn't know anything. >> hank schmidt, pretty lousy fdic report, okay? lots of losses, reserves are too low, for all we know the insurance fund is in trouble. but let me just ask you on the flip side, you have an incredibly steep yield curve, 350 basis points from 10 down to short end, anchored by zero. can't bankers keep making money and grow their way and earn their way out of of their problems with this incredibly steep yield curve? >> absolutely, larry. but why go to such low quality, speculative stocks. these high-risk stocks are really speculative stocks. and do you really want to be an owner with the u.s. government? we think not. >> what about citi? you're talking fannie and freddie, i take it. what about citi, which, you

know, what uncle sam owns a citi now. >> at least a third. look, we would put citi in the category of former blue chip, now cow chip. >> whoa. >> that doesn't mean you can't make money. look, it was a cow chip in the early '90s, as well. and it certainly made investors a lot of money for those willing to buy near the bottom. >> okay. so hank, you did flag citi, aig, fannie and freddie mac. what about you, dan, do you disagree? >> no, i don't disagree as far as disliking them. but i think again, if you want to make money, look, the big names like bank of america, wells fargo, even goldman and jpmorgan have gone up so much, that i think money is rotating out of those sure things and looking for speculative trade. so i guess we've just flipped, and i'm the bull and he's the bear. >> you know, i like the cow chip thing. >> let me go back to cow chips, hank. one of the dung chips is aig.

but the price action has been good. got themselves a new ceo, he's consulting with hank greenberg. maybe aig has got some value in there. >> good. but this is for speculators, not for traders. this really -- why take that kind of risk when you can own high-quality names both in the financial sector and outside the financial sector. >> you know what? the thing is, it's not what you own, it's where you own it from. >> yeah. i mean, it's always about where you buy it. but can i just follow up with that? what would you be buying then? >> right now, away from that, i would be buying health care, but in the financials, i -- i like -- i like all of those. i liked city group, i liked aig, i liked fannie and freddie, just because the market likes them. but this is a trade for me. it's certainly not a long-term investment. i think in 2010, we're going to have a clara peller economy. >> what would be the trader for you, what would be the indication you should get out? >> you know what?

about 15% on the up side, i would be flipping them. >> oh. now, that's good. okay. so you're -- so this baby is going to run. >> yeah, innings. but shorts -- again, to be clear, short-term. >> i understand. but i'll take it as i can get it. hank, what's your take here? how high the s&p? how high the dow? with all of the pullback corrections, brenny, a pretty smart guy saying people looking for a pullback are going to be disappointed. what do you think of mr. noreeny's call? >> it has segued into anxiety, anxiety of all this cash on the sidelines, missing a new bull market and getting paid nothing to be in cash. unlike another major bottom in august of '82. those investors were getting paid double digit returns, and they probably didn't even know a bull market was occurring until a year-and-a-half later when all of a sudden they left the stock markets up 150%, and that double digit return is now 6, 7%. and then they came piling in.

today's cash on the sidelines does not have that luxury, larry. >> yeah, zero interest rate. who wants it? zero interest rate. what's the dividend yield? 3%? it just doesn't pay to be in cash. >> but longer term, that's the problem. >> so you should take a risk. why not? profits are rise. of you saw the gdp report, we have profits action going on here. >> a lot of that is artificial profit. it's from cost cutting over the stekd half -- >> every time you guys tell me that, i cheer. because this is the base stash forming a base where any rise in the economy at all will leverage up into massive profit. >> what's the definition of any? >> any rise. 2%. give me 2%, i'll be thrilled. 4%, we're going to dow 11, 000. >> but you'll probably get that just from government spending. >> don't remind me. >> larry, the cost cutting is resulting in permanent savings, and in many cases, those costs

won't come back. and so you're absolutely right. any pickup in the top line will have a trom positive lien effect. >> you get the nobel prize for economics this morning. you get it. you absolutely win it. >> i think the springs on that trampoline are stretched a little bit. that's what i'm thinking. and i think the guy on it is kind of fat and bloated. >> thank you both of so much. a great rundown. up next, the list of problem banks in america continues to rise. now a 15-year high. so should you be invested in financials? we're going to discuss it some more. >> and here is some fuel for thought for you, the natural gas prices are down, demand is down. but guess what? supply is rising. find out why, what it means for you as the investor. you're watching cnbc, first in business worldwide. carol, when you replaced casual friday with nordic tuesday, was it really for fun, or to save money on heat?

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all right. good news for video game lovers. microsoft slashing the price of its 360 model to $299. that begins tomorrow. this comes after sony cut prices for playstation 3. right now, the stock is down just ever so slightly, 22 cents. i guess one big question is, is

microsoft always ten minutes behind the curve? a very disappointing story. >> as we reported, the fdic saying the number of problem u.s. banks and thrift shot in the second quarter. what does it mean, and what is buying out there? let's ask jeff and matt, banking analyst. thank you for joining us. matt, to you first of all. what do you think the implications of the fdic report are for investors in financial sector? >> it depends on your view. if you're euphoric, the message really doesn't matter, mandy. but if you are like i, which are a little bit concerned about the financials here, thing they're a little frothy, any time you see the insurance fund decrease by 20% and the problem banks increase by 36%, it is a sobering number. i think when you're looking here in the market, in -- especially in the financials, you're seeing low-quality shares accelerate and being sought out by risk-seeking investors.

and i think it's time to take profits especially in some of these riskier names. >> larry, i was going to ask jeff whether he agreed. >> in general, i do. i think the report was is a bit of of a reality check. i don't think there were a lot of real surprises in there. we knew losses were going up, we knew the fund was probably going to go down. the insurance fund. i think the good news in the report was, like we have seen from a number of different data points, the early stage delinquency, and the outlook for future loss is getting better. so that's kind of a positive data point to hang your hat on. but i kind of play into the camp that, you know, we went from banks being priced like the world was coming to an end to them being priced for a recession, to make meaningful moves up from here, you have to start believing a recovery is really right around the corner, and i struggle a little bit with saying that, fundamentally. >> well, matt, to some extent, the fdic report is what it is, but it's a snapshot of yesterday. and i'm interested in tomorrow, because that's where the stock market is trading. and i'll go back to what i said in the earlier segment. the yield curve is a great

indicator for bank profits. ten years at 350, zero percent fed funds rate that, is taylor made for continued bank recovery and bank profits, is it not? >> i think it may be, if you assume all things being equal, larry, and i think what people are forgetting is that consumption patterns have changed forever. and people, if you look at the playbook, essentially following what happened after '03 when we came out of the recession, focusing on financials, focusing on low-quality names, i think the consumer has crimped every time of con assumption pattern they have. they're relying on credit cards. if you look within the fdic report in their maximum credit card exposure, it is just exploded. and i believe that investors -- or not investors, but consumers are still living on their credit cards and that's something i don't see going forward. people are going t spending the same way they had. so i agree with you you could make a trade in here, but as an investment -- >> all right. so what do you buy and sell? what do you buy and sell? >> we like a name like northern

trust, which we even own in our quality growth portfolio. a great bank, just paid their warrants out today, never cut its dividend, and i like its trust and advisory business and plus lends to people who don't need the money, larry. so strong credit quality, great franchise, a safe way to play in here. we also like bank of nova scotia, a bank we own, international, has zero subprime exposure to the u.s., has a healthy yield. we like dividends in general, one of the areas that people have frankly ignored in this market environment, and if the market rotates, it's going to rotate to dividend-seeking names. >> jeff, have you got a different list there? >> i've kind of gone from having a number of buys to an awful lot of holds. one of the names i'm pushing people toward today is citigroup. i think -- a lot of the what i would call high-quality names got through the cycle pretty well. i think northern trust is one of them. goldman sachs, jpmorgan. those stocks have done well, but it's hard to see those be the next leg up. so i look at a citigroup where

they've had staggering losses over the last couple of years, but almost all of those losses have been driven by what you call the problem asset portfolio. that's subprime mortgages and leveraged loans. and i would argue, the loss cycle is pretty much through in those asset classes. much we still have credit issues coming, but i think you start looking forward about those massive losses. >> that's what i'm saying, jeff. that's my point. you can earn your way out of this. the toxic assets on a cash flow servicing basis with a very steep curve and zero rate at the bottom, that's taylor made for earning their way out. >> and you kind of have to pick your spots, because to get bullish on banks in general, you've got to believe the economy is going to make a turn. but to get bullish in citigroup, you have to believe what you're looking in the rear-view mirror is a lot worse than what you're looking through in the windshield. >> can't i find a bank i hate and just buy it? look at this environment. the interest rate on the environment is so great for banks. i have to pipe down, i'm sorry. thank you, gentlemen. i appreciate it very much. i've got to get out. coming up, folks, natural gas

prices keep falling, but producers are still drilling. what do they know that we don't? we're going to discuss it. >> good question, larry. tivo to protect the digital regarding technology. we'll talk with the ceo, tom rodgers, an exclusive interview here on cnbc. first in business worldwide. stick with us.

welcome back to "the call" i'm phil lebeau, and looking at shares of boeing which are getting a nice pop following the

company making an announcement about the new schedule for the 787 jet liner. shares of boeing up more than 8% today, trading over $50 a share. here is the new schedule when it comes to the 787 dreamliner. first flight expected to happen by the end of 2009. first delivery now expected to occur in the fourth quarter of 2010. by the way, in case you're wondering, boeing has orders for 850 dreamliners. so far to date, just 60 cancellations as they have had delays. boeing will produce ten 787s per month once the pull production schedule is up by late 2013. the new 787 schedule will have no impact on the cash outlook going forward, but boeing did announce today a noncash charge of 221 a share, that will go toward third quarter earnings when the company announces those coming up over and the weeks to come. but again, shares of boeing once again trading over $50 a share, mandy, up more than 8% on that news. >> yeah, fantastic.

looking fantastic from a stock point of view. thanks, phil. digital recording company tivo reporting a loss saying sales came in better than forecast. in addition, the company filled suit against at&t and verizon for patent infringement. shares are up around 40%, year-to-date. and currently trading to the down side today. let's get out to los angeles. julia boorstin has more, along with an exclusive interview. . >> reporter: hi, mandy. news from the digital video recorder company which defined the competitive says and is now taking on its competitors in court. this morning we speak with tivo ceo tom rogers. thanks for joining us. >> thanks for having me. >> reporter: so last night, tivo filed suit against verizon and at&t, claiming their dvrsin fling on three tivo patents, looking for them to shut down their dvrs. is their goal to get the licensed technology?

>> well, we've shown very clearly our willingness to enter into commercial relationships, and we concluded here that there was no willingness to enter into a commercial relationship, so we decided we needed to protect our intellectual property, and to stop this. obviously, our first choice is to enter into commercial relationships, as we have done with such companies as come comcast and directv. >> also yesterday, you announced that tivo has gone to a second quarter loss of $2.9 million. and your over all subscriber numbers down by over 100,000 from last year much how do you plan to reverse those trends? >> well, on both the job front and the revenue front, we actually showed slight increases from the first quarter. tough environment, clearly. but we did see some i am i provement there from the first quarter. we have some tremendous cat

lifts for this company going forward. our directv relationship, which has been renewed, product not ready yet, will be rolling out early next year, comcast at the very early stage of rolling out tivo, but has announced its intentions to do so in a number of markets, and that is something we look forward to with great anticipation. over the course of the quarter, we announced a major strategic relationship with best buy, looking for tivo to drive their interest into the home digital. so we have a lot going here and a lot to look forward to. >> now, in your relationship with best buy t sounds like you're going to be helping best buy develop some exclusive tivo-type technology to sell in stores. how is that kind of retail relationship going to be important to tivo or help tivo moving forward? >> well, we've had a long-term relationship with best buy, obviously. it's been the lead retailer in terms of tivo sales, but this is

much more of a strategic relationship. this is a way to get tivo into the home to advance best buy's ability to have an ongoing dialogue with customers about all kinds of things. and give them a platform for their distribution of their own digital content. we're in discussions with them to build tivo into their store brand television sets. and look at distribution opportunities for tivo in that way. so it's a mutual relationship, which is intended to drive our distribution and drive their strategic issues. >> now, you have some insight into consumer trends, based on your describer trends. what's your sense on whether or not the economy has bottomed, and what's your outlook for the economy toward the rest of the year and early next year? >> well, that's a very tough question. i guess i subscribe to the viewpoint that it's going to be tough sledding for a while here in terms of consumer spending. but having said that, i continue to be impressed with how

consumer electronics, which is about as discretionary spending as you can get, is holding up relatively well in this environment. and in terms of our business, there's simply no doubt that when a company like ours which would uniquely like ours delivers 5 million pieces of content directly to the television set that you can't get on cable or satellite, it's a great way to be able to get entertainment options very cheaply, as people cut back on expensive out of home entertainment expenditures. >> great. well, tom rogers, thank you so much for joining us. mandy, back over to you. >> okay, thank you very much. julia boorstin joining us from los angeles. coming up, stocks to watch in afternoon trading, and why j crew is getting a helping hand from the new administration. >> but first, natural gas, defying economics 101. prices down, demand down, but supply is rising big-time.m the reason??m up next on cnbc, first in business worldwide. of these days... i gotta ask, what's in it for me? i'm not looking for a bailout,

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we have been talking about it all show, but do take a look again at the move in aig, up a whopping oh amount. and citigroup up 70% this month

alone. hedge fund big wig john paulson a 2% stake in the bank. >> real quick, new ceo of aig, ben moshe talking to hank greenberg, and that has to be bullish, because greenberg is one smart guy that noknows the s with aig. natural gas keeps falling, plunging to a seven-year low this week. extending losses on higher inventory. gas, $2.70. but energy producers keep drilling, bringing more supply to the market. here cnbc's jimmy cramer is asking why. >> michael, you would not, i believe, be drilling in pens. you didn't think, this is my own personal view, we're going to get a change in washington and this natural gas fuel will be favored from more than just 62% of heating american homes. >> i definitely agree with you. i think we're about to see a change where natural gas will be a favored fuel. it clearly has benefits over some of the more carbon-emitting

hydrocarbons like coal, and will help us move to wind and solar. rnlts all right. so my pal jimmy cramer has it right. is nat gas going to be the fuel of the future? hello, gentlemen. ti tyler, let me start with you. natural gas. >> we have seen these predictions before in the 19 0s, natural gas prices were also plummeting. we built a whole bunch of efficient gas-fired plants and a lot of those were forced to go idle when gas prices shot through roof. we started again in 2005, allen greenspan saying liquified natural gas was the key to lower prices. we added capacity, and it didn't have an effect. the problem is, is that natural gas prices have burned investors in the market before, because it is so volatile, the pricing of it. and so it's -- natural gas is going to be a key to the future, but as a supplemental fuel to

talk about natural gas, as a foundation for energy policy is very risky, because of the inherent extreme volatility in natural gas prices. >> daniel, do you feel part of this problem could be resolved if there was more policy support behind it, more conducive support to use it? >> absolutely, the most important thing that we need to do to increase demand for gas and shift away from dirty coal and insecure oil is to put a price on carbon dioxide pollution through some sort of global warming, pollution reduction program. once you do that, the coal is much, much less economically competitive. right now, coal has a great advantage. they pa lut for free. so let's put a price on that pollution, and natural gas -- >> why is this not happening? -- >> let me finish, please. which is twice as clean as coal and more secure than oil. why isn't it happening? because you have big oil out there, lobbying senate, trying to block consideration of a

global warming, pollution reduction bill. the house has passed one, the senate will take one up this fall. >> but i want to go, tyler, more of a technical point. technological point. are we getting -- look, we're -- the shale drilling is producing oolthss oodles and oodels of natural gas. what were they, 12, $15 a year ago. >> right. >> question. what about natural gas to liquid to fuel into the cars, into the automobiles? i mean, that's the holy grail here. where are we in that process? well, one of the problems with moving natural gas heavily into transportation fuels is that you are going to more directly link its pricing with crude oil. one of the things that distances natural gas pricing in the futures market from crude oil is the fact that it's not heavily used in the transportation sector. once you start making it a direct competitor to oil, futures traders on wall street are going to more directly link their futures, and you're going

to see natural gas prices increase. and i agree -- >> why would you see oil prices fall? this is reducing the whole -- they have the potential to reduce, dan -- >> you're right, larry. >> has the whole potential, dan, to lower whole cost structure of fuel, and as you said earlier, it's cleaner. >> you're right, larry. in fact, it's important that we -- for natural security reasons, that we reduce our importation of foreign oil. much natural gas has the potential to do that, if it is used predominantly for heavy trucks, buses and fleet vehicles. i don't think it works well with private vehicles, because then you need a whole new refuelling instruct. but for these other vehicles, it would work. it's important we introduce this new gas in an environmentally sustainable way, because we don't want to increase one kind of pollution while fighting another. if we do that, it has a tremendous opportunity to reduce our use of oil, and therefore increase our national security. >> tyson, on this matter, on a very practical level, is the technology not yet at a stage

where it's actually safe to use gas in, for example, a car? >> well, it's not incredibly practical for individual automobiles. it makes a lot more sense for fleet vehicles where you have a centralized maintenance and servicing station for buses, government fleets, police cars, things like that. but again, getting back to the point about pricing carbon, i agree with dan that we've got to have a price on carbon emissions to address climate change. but the assumption that making fuel -- fuels that compete with natural gas more expensive is going to keep gas low is not correct. when you look at the operation of the futures market, if you price a competing fuel, whether it be oil or coal, natural gas futures are going to be pushed up. and so a lot of assumptions are being made on sustained low prices for natural gas, and recent history tells us that we cannot make that assumption. natural gas is important, but to keep it as a foundation fuel going forward carries a lot of

price -- >> mandy, it's important to note that we're already using natural gas in fleet vehicles like buses here in washington or school buses in texas. >> don't they use it in the west coast, dan, seattle or some place? >> los angeles they do. here in washington, many buses are powered by natural gas, as tyson was saying, it doesn't really work for private vehicles because of the infrastructure problem. >> okay. i've got to jump in, guys. dan, tyson, thanks for your thoughts today. >> our pleasure. >> "power lunch" at the top of the hour, and mr. griffith is telling us what's in store. >> thank you so much. we're looking at the japanese elections coming up on sunday. the expected change in power, first time there in more than half a century. does it present investment opportunities as a result? that's something we'll explore with a couple analysts. aig now almost at $50. we have a trader coming on to talk about the surge in the shares there. he's got a theory of what's going on, and a price target that ought to get your attention. and then jim goldman looks at

apple's for ray of the iphone into china. and what that could mean for their earnings, as well. >> up next, how the first lady is giving a popular retailer a big boost. jane wealth, what do you have? >> well, i've got a story that's the tale of two retail universes. one that includes michelle obama, and the real housewives of the orange county. how is that for a tease? we'll have that after the break.

j crew reports second quarter earnings after the bell. shares are on fire rising to $10 in march to 30 bucks today. one reason for the 210 rise, michelle obama. jane wells has the full story. jane. >> reporter: e, even though they're expecting a drop in profits this afternoon, it's an unusual retail story thanks to a very important fan. as you said, michelle obama loves j crew, she wears it everywhere, on the tonight show, overseas, dressed her kids in it for the inauguration. even her husband wore a j crew bow tie to the inaugural ball. bow tie, $52. publicity, priceless. >> it's just been brought more aware, given the fact that it's a small company and the amount of advertising the obamas have brought to j crew has certainly given a lift not only to the brand, but also to customers who wouldn't have seen the store before. >> now, she also says j crew is stealing market share from department stores and stores

like banana republic. and here's what analysts are saying. bri murray has a buy, store traffic remains positive and steady. upgraded shares to outperform based in part on product that is trend and target-appropriate. another upgrade to outperform from bmo capital markets, we are gaining good visibility -- why don't you say potential success, on the success potential for fall. but not everyone is a fan. we were at the mall for an hour and did not see a single j crew shopping bag. and speaking of the mall, i want to talk about a snapshot, one of the swankyest malls in america, robert van could you say j sent me photos of the new mlt million dollar parking structure with signs which tell you how many spaces are available. look how many are available. we took foes the atwo times, once in evening, once at noon. lots of empty parking spots in

the land of the real housewives of arrange orange county. that's a popular tv show here. larry can explain it. >> i know it well! >> i never miss it. we'll be back for today's call, plus aig and citi. >> the stocks to watch for your afternoon trade. you're watching cnbc. first in business worldwide. some people buy a car based on the deal they get. others by the car of their dreams. during the lexus golden opportunity sales event, you can do both. special lease offers now available on the 2009 is 250. whento compliment theirflac benefits package aflac! it made a big splash with the employees yeaaaahhhh! find out more at aflac!... ...forbusiness.com (laughter)

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time for "the call to action" on stocks you need to watch during afternoon trading. cnbc's mary thompson is here with a look. >> hey, larry, keeping an eye on aig, volume unusually high. over 07 million shares exchanging hands. 100 day volume of 17 million shares. you can see it's up 31% since a reverse split in july. the pay czar is expected to approve a new pay package for the ceo, robert