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memorial service for senator ted kennedy has begun and they should stop exploiting his death by calling it kennedy care and instead work on a good health care plan for america. ethical absences or absentminded. either pay your taxes, mr. charlie rangel or leave your post as head of the means and ways committee. time to fish or cut bay. are deficits saving the world? deficits? that's what paul drug man says. we will debate why he's totally wrong. fasten your seatbelts, "the kudlow report" begins right now. good evening, everyone. i'm larry cud low. welcome back to "the kudlow report" where we believe free market capitalism is the best path to prosperity. you're looking at live pictures from inside the kennedy library in boston, massachusetts tonight, where a private

memorial service for senator ted kennedy is just getting under way, may he rest in peace. those set to share their memories are former presidential nominee, john mccain, vice president biden and caroline kennedy. nbc steve handelsman joins us live from the kennedy library in boston with some of the details. hello, steve. >> reporter: larry, good evening to you from the jfk library. the arrivals here showed off who's who of democratic politicians across america and the enormous kennedy clan, almost 100 family members arrive for what they feel will be a mixture of both sadness and joy as they celebrate the life of their patriarch, ted kennedy. two you named, two big republicans and may be a couple more. we expect perhaps both president bush 41 and president bush 43 to be on hand for at least some of this service, not confirmed yet,

we haven't seen them out here. but orrin hatch was here, one of the staunchest conservatives in the u.s. senate but marked ted kennedy as a strong personal friend and john mccain, another conservative said he loves to fight with ted kennedy on the senate floor and loved to get together with him afterwards. both those republican senators will speak positively about ted kennedy here tonight. earlier was the more public remembrance of ted kennedy, of thousands of mourners came here, many from massachusetts. they know the kennedys clan reputation for reaching out to the public. what they experienced exceeded a lot of their expectations. emotions ran high as thousands more mourners filed past senator edward kennedy's coffin, to say their final good-byes and thank yous. >> wide open space, no running. >> reporter: outside, along the long lines of people waiting to get into the jfk library, the

thank y thank yous came from the kennedys. family members greeting the public. kennedy kids as young as 12, like mckay la kennedy. >> a lot of me and my cousins are going around and saying thank you. >> reporter: twin brothers, matt and joe kennedy, the sons of joe kennedy, the former congressman said to be on the short list to succeed uncle joe in the senate, locals were still impressed. >> i've never seen the likeness in all the years i've lived. >> reporter: not far away was senator lawford, the senator's niece and saying thanks, making a strong impression. >> they show so much caring that they care about people and have so much love for the people, that's why the kennedys are so much appreciated in this country. >> reporter: then vicki kennedy arrived, senator kennedy's widow, for the second day, making herges secure of thanks, reaching out to people, like john. >> my life is complete. i spoke to victoria kennedy. everybody around owes a debt to

the kennedys. and vicki has made ted the last 17 years wonderful. >> reporter: now, the senator is gone. the last of the storied kennedy brothers. the end of an era, stirring powerful feelings. tomorrow's the funeral in boston and senator ted kennedy makes his final trip to his second home, washington, for burial in arlington national cemetery. >> steve, let me just ask, you what are the odds all of the living ex-presidents will in fact show up there? we have clinton, carter and the two bushes? >> reporter: that's correct. it's four now. there's no telling, larry. there's been a major secret service presence. they had the bomb sniffing dock, all the local police in an uproar, taking orders from the secret service. we haven't seen them but told they'll come. this is a big event. the last i saw something like this, larry was the remembrance at the u.s. capitol after the death of president ronald

reagan. i don't know the numbers of people who came by in the three day, it is known but i don't recall it, they're saying 50,000 people came by over the last couple of days to say good-bye to ted kennedy. >> steve handelsman, we appreciate it very much for the coverage. now, from obama-care to something called kennedy care, i still don't get it what does the death of the liberal lion mean for the government takeover health care is the number one issue in the country today. here to debate all this, cnbc contributor and democratic strategist, julia and betsy mccoy a patient advocate and founder of the committee to reduce infection death. thank you for coming on. i want to dismiss this first issue. no sooner had senator kennedy passed away when nancy pelosi and senator harry byrd, senator robert byrd start talking about something called kennedy care, as though hiding behind man whom we all have great affection for is going to make this turkey of

a bill do any good. betsy mccoy, is this kennedy care nonsense dead. even president obama backed away from it today. >> they may not have the votes because so many democrats are feeling heat from their constituents feeling heat realize these bills are not just about covering the uninsured, we all know that. these bills mean you have to give up your health care, you have to move from that plan you like that lets you go to the doctor any time into the one size fits all plan the government is telling you, you have to buy. if you're sanks you will really bear the brunt because there will be a $500 billion cut in future medicare when more people will be in medicare. >> on the political question, i mean, you're a democratic strategist, form of democratic strategist, i am appalled, i think a lot of people are appalled what pelosi and byrd tried to do, to slap mr. kennedy's name on this turkey of a bill. i was very glad to see president obama through his spokesperson

say he was not going to play that silly game. what is it about your democrats they tried to exploit senator ken down in this point. don't you oppose it yourself. >> do you know who actually exploited it today? mike huckabee, who said if ted kennedy were alive under the obama plan, he'd be forced to take a pill and die a year ago. that's disgusting. to get back to your point. >> mr. huckabee is neither in the senate or house or white house. will the democrats get off this kick, which is so offensive to most americans. >> larry, ted kennedy wrote a great column in "newsweek" a couple months ago before his death, this is the cause of a lifetime, pass this legislation, i want it passed, something i have been working for for 40 years, wouldn't it be honoring his legacy and wishes. >> no. it will hurt too many americans. >> you and i disagree. >> the largest employer of the united states, more than gm and others combined we're in a

recession. the president says these bills will curb a recession, will mean layoffs across the country, fewer nurses on the floor when you're circumstance less mri equipment and other diagnostic equipment and long waits for treatment. it will impose a european kind of medical scarcity in the united states. >> i want to raise this point, an economic point. apart from all the get down in the weeds details about this health care plan, the fact of the matter is as betsy said, isn't this one of our greatest industries, one of our greatest job creator, you have biotech, pharmaceutical, they employee everybody around the world, even in this rese health care jobs have actually gone up in the private sector, won't a government takeover stifle america's greatest newest most prosperous industry? >> two things. one, it's not a government takeover, larry, you know it's not. nobody is trying to put private business out of business, all they're doing is advocating a

public option alongside. secondly, let me finish this, bet circumstance you know full well the pharmaceutical industry and other health care industries are working with obama to craft this health care legislation, they realize it's beneficial to them. they would not be doing this if they didn't do that back in '93, they did not do that and doing it because it will be beneficial to them. >> it will force hospitals into bankruptcy. right now medicare pays 94 cents for every dollar of case, m medicaid pays 86 cents. hospitals can stay open because they can squeeze 1.32 out of the private insurers as it get to lower and lower, there's no place to go. already a huge hidden tax on everyone with private insurance, the hospital, i know they will go bankrupt and some are already sending out memos to the employees. >> let me ask you, when i hear these washington people, i don't care who they are, i won't be

political on this, they say we spend too much on health care, i disagree with that. health care technology, keeping people alive for longer and employing people is a phenomenal industry in this country. i am worried about phenomenal industries in this country after this long recession. what i want to do, julie, i want to ask you, isn't government spending of health care the problem, not private spending? because, look, the technology rises and incomes rise and this has created, like a second technology industry, health care. why would we want to stifle that and why do we want the government to have all this authority? >> are you advocating the elimination of medicare and medicaid? it stounds me like what you're advocating is getting government entirely out of this. >> answer that. >> we can save medicare, we can make medicare fiscally solvent according to the congressional budget office by inching up the eligibility age one month a year until 2043 when it will hit age

70. we can solve the medicare problem without denying seniors the hip replacements and me to replacements -- >> nobody -- >> yes. this current legislation is being paid for by a 10% reduction in future medicare spending at a time 30% more people will be enrolled in medicare because of the baby boomers. >> big tax hikes. i don't know why i can't use my same free market froinls deal with this. why shouldn't we have tax cuts for consumers of health care individuals instead of businesses? why shouldn't we have a free deregulated insurance market? why shouldn't we have health care economic freedom let's say for health savings accounts to choose and go across state boundaries. >> i will explain why. >> things that grow the economy, lower taxes, dereg iraqis lower government spending should apply to health care. julie, why is it they never seem to? >> unfortunately, health care is not like buying a loaf of bread. you know full well if i have cancer and pre-existing condition, the insurance company

will not provide me care. >> i'm glad you said cancer because according to the national bureau of economic research report that just came out, the united states has the best five year cancer survival rates for almost every kind of cancer. overall, the best in the world. why do we want -- >> not for those -- not for -- >> that -- that data covers everybody in the u.s. >> julie -- >> you don't want to sacrifice the best cancer car in the world. >> how about if i apply more free market prestigious to your thought. let's take the illness free condition issue. >> mark: why not lower taxes for insurance that includes those preconditioned people in the risk pools. second point, with respect to those truly uninsured low income people that cannot afford it, why not give them vouchers. >> debit cards. >> your food stamp debit card, some form of essentially refundable tax credit senator coburn talked about last night on this program. i can think of a way with

economic freedom and low taxes and spending and deregulation to solve every single one of these problems without a government takeover? why are we going down that direction? >> if you look at ted kennedy's illness, his specific type of cancer fairly common, the kind of treatment he got would probably cost half a million dollar. what kind of voucher will you give somebody? >> it's free country, he has the choice to do that. >> under medicare, he would get that very fine treatment. >> i don't have medicare. >> the administrators, the president's administrators are urging privated insurers and medicare to cut back on coverage for cancer care. >> that's such a -- with all due respect, that's -- >> ezekiel emmanuel wrote that in his article. >> that's completely incorrect. >> this business about limiting insurance across state lines, do you know blue cross blue shield

in the state of georgia has unveiled a plan, has a $5,000 deductible, has catastrophic, has a lot of bells and whistles, it costs you a little less than 100 dollars a month to pay the premiums for that plan. you come to new york city, new york state, new jersey, you can't get a plan like that because they have a monopoly and the government has caused them to put so many mandates in. once again i come back to my free market economy, why can't i as a new yorker buy that georgia plan for less than 100 bucks a month or you mentioned yourself, why can't you buy it? >> larry -- if you want to -- >> these aren't your will. >> if you want in to sure me. not if i have an illness i won't. >> the congress will force everyone under the age 65 to buy the same one size fits all government plan. you won't have a choice. >> how is that possible? it's an option. >> on page 17 it must be a qualified plan defined -- >> let me answer that -- with

all due -- may i answer a point, with all due respect your contention the government will tell old people to off themselves, it's not accurate. >> they will not get the care they need with the $500 billion cut. >> it's an option. it means you have an option. >> i'm not talking about the public plan. page 16 size must be enrolled in a qualified plan whether public or private. >> let me cap this. my fervent hope here is that pelosi democrats get off this kick of putting senator kennedy's name on a turkey of a bill the public seems to be rejecting. will president obama and his team be open to compromising a real good health care plan that will have some of the free economic and health principles, tax cuts, deregulation? will they open the books and start over and work for america? >> if they weren't open to

compromise, they'd push a reconciliation bill through tomorrow and not talking. >> tossing out simple majority, is that off the table. >> i don't think it's off the table. >> you're telling me they will not compromise? >> i'm telling you they will compromise to a point. if chuck grassley and others would compromise, completely stonewall this legs sfligs are you sure it's a not the white house stonewall ing ing or cong stonewalling. >> i'm sure chuck grassley is telling seniors they will be put in the grave under obama-care. >> can we get ourselves a decent health care policy for help america and help america's greatest growth industry? >> let's covered the uninsured, giver them the option of buying the private health plan they want and help protect this growth industry, largest employer in the united states. >> you want prosperity in economic recovery, health care is your ticket. thanks to julie and betsy, very spirited, very smart, i

appreciate it, ladies. coming up, economist, paul krugman says washington's out of control spending and growing deficits have saved the global economy. what's he smoking? we have to debate that later, ethical lapses or just absent minded? either disclose your income and pay your tax, my friend, charlie rangel or your post as head of the ways and means committee should be vacated. you have too fish or cut bait. charlie, you're friend but you have to solve these disclosure problems and pay your taxes. we'll look at that later in the program. "the kudlow report" will be back. i want health care and economic prosperity. they go hand-in-hand, folks. free market principles can work. join us, we'll still be "the kudlow report."

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in this morning's "new york times," paul krugman cheers the

spending deficits coming out of washington. he says the nearly $2 trillion deficit this year alone saved the global economy. is he right or is he nuts? here is michael, with the center for american progress and jim, money and politics columnist with reuters. what is krugman getting at in this piece. >> two things. he wants to give the administration a lot of credit for the recession not turning into a depression. the dog that didn't bark, what about the fed? when ever the administration democrats talk about what they've done to help this economy, the fed is not in the picture. if it hadn't been for the fed, we may very well be in a depression. deficits don't matter, $9 trillion the next couple of years doesn't matter, only a few years ago he was worried about bush's deficits only $200 billion and 2 1/2% of gdp. >> michael, i want you to respond to that and explain to

me how it is over the next ten years, according to the concord coalition on policy basis, we're looking at $14 trillion for deficit, 1.4 trillion per year. how can that save the economy? >> i think what paul krugman was talking about, short term deficits are necessary to turn the economy around right now. everybody know, economists from all different stripes say deficit spending in a short term recession is good for the economy and we're seeing that right now as the economy is leveling out. there's no question that's what's happening right now. >> let me challenge you, michael, just on this point. >> sure. >> in terms of governmental stimulus, which is more powerful to you? spending and borrowing or federal reserve's money creation? >> they have to go hand-in-hand. >> why do they have to go hand-in-hand. >> when you've got demand way down during a recession, you need the government to step in. that's what they've been doing, even nile ferguson was saying that the stimulus is starting to

work. i think that's clear and we should applaud president obama for that, if anything, the stimulus may have been a little too low and really starting to work. what paul krugman is saying the short term deficits are not a problem and long term deficits can be addressed. >> the short term deficits are the problem because they're laying a groundwork for much bigger long term deficits. this gave a much more realistic look at spending and taxes over the next ten years. >> i will go with the congressional budget office. >> $1.4 trillion a year, if you talk to those inside the congressional budget office, they say those are phony and looking close to 10% of gdp every year the next ten years, you're looking at currency crisis and bond market crisis. >> sorry to interrupt you, jim, i don't want to argue over what the cbo says. >> right. he doesn't say that.

listen, there are long term deficits that need to be addressed when the economy recovers. >> let's go there. i don't see them being addressed by either political party. what i want to pose to you and get jimmy to weigh in also, are things so helter-skelter and out of control in washington there, is absolutely no fiscal discipline whatsoever. we're adding entitlements instead of reducing, it is time to look for constitutional limitations on spending and taxing, we have to let the voters who run this country have a chance, the voters and taxpayers to put strict constitutional limits on washington's errant ways. >> listen, i can understand your perspective, but president obama's budget does cut the budget deficit in half by the end of his first term. it's bigger than it needs to be and he will work on that. these deficits came from somewhere, not like they showed up from nowhere when president obama dame in.

>> you're not going to blame the bush administration, even obama said 60% of these deficits had nothing to do with the bush dollars an administration. >> i have nod heard him say that even if you add up everything obama did in the past six months it's only 10% of the deficit. it came from somewhere. >> there's economics in here. deficit during a bad recession for one year doesn't bother me really, doesn't crowd out interest rates. what bothers me is long term estimates not being dealt with by the policies of mr. obama or the congress. jimmy p., you put your finger on it, it does threat then dollar and financial markets but also threatens to jack up taxes massively, jimmy. what i'm saying is no one in washington is lifting a finger to put strict limits on spending and borrowing and debt creation. jimmy, i see this as a new american revolution coming down the road. i talked about it last night with senator tom coburn. i want to go down this road.

that's what krugman misses. krugman is trying to be some fine tuning economist. long term, how are the limits going to be made if we don't get people who vote constitutional limitations on this. >> you do see that in the state level. several states passed laws to limit spending like growth and population and rate of inflation for that very reason because the state legislature saying the same thing in congress cannot be relied upon to show any fiscal discipline at all. for michael to dismiss the idea of 1.4 trillion deficits as far as the eye can see, i don't know the exact point the bond market or currency market explodes, i'd rather not find out. trillion dollar deficits is a fast way to get there. >> i can't understand why you're suggesting constitutional requirements when california which has all sorts of legal restraints on its budgeting process is an absolute mess. >> no, they don't have restraints on their spending. they don't have restraints on their spending.

other states, do california does not. california spent like crazy and look where it's gotten them. >> you saw -- an interesting point. you saw the local initiatives in california strike out against spending and taxing. i think there's a national movement. we've seen some of this from the tea parties and town halls. i think it's damaging health care. i think citizens and voters and taxpayers see washington as out of control. whatever paul krugman says or doesn't say doesn't matter. folks are smarter than we think. we have to do something about this and we have to have strict limitations, michael and jimmy, i will leave. there it i think krugman misses that whole point. our future is being jeopardize and compromised if we don't get some constitutional restraints involved. all right. thank you, gentlemen, i appreciate your discussion. folks, be sure to tune in to squawkbox here on cnbc starting at 6:00 on monday. steve leisman will have an interview with the new york fed

president, william dudley. don't miss it. more allegations surfacing regarding charlie rangel's tax returns or lack thereof. we give you all the details. this is a nasty story. he is a friend. right now it is fish or cut bait. he must disclose and pay taxes or resign his post. keep it right here. all around the world, men with erectile dysfunction have asked their doctors about cialis. ask your doctor if a cialis option is right for you

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it's been a bust for the lobster industry. janet joins us with details. >> reporter: it appears to be shaping up as clash of tough time, tradition and territory in lobsterland, main coast of maine. off the small coast here there, is a storm of sorts brewing, one that involves protectionism and people who live on the island in mid-coast maine should be able to farm for lobsters. people on that island are asking for state protectionism, insisting or asking, rather, they be allowed to have exclusive access there, a question that raised issues all along the coast. this is a very tough time in the lobster industry, prices at a 20 year low since the spring. bait is up, gas is up and these folks are just looking for a way to make ends meet. it recently turned to violence as one fisherman shot another in that region. state officials are now taking a close look at the matter.

back to you, larry. >> thanks very much, janet. coming up, lapses or absentmindedness. charlie rangel, who is a friend, may be in hot water, will he have to leave his post as head of the powerful ways and means committee that writes our nation's taxes. the mr. clean

magic eraser. house ways and means chairman charlie rangel found himself in a heap of disclosure and tax problems. let me say, mr. rangel is a friend, i'm an admirer, a guest on this program many times. i worked with him on corporate tax reform, pro growth although i disagree with raising the top personal tax rate. however, much new disclosure from the "wall street journal" and new york city post are reporting mr. rangel failed to disclose approximately $7 million of assets and other incomes between 2002 and 2007. the chairman is accused of failing to disclose first, let's look at the full screen, 200 to $250,000 held in checking accounts, $100,000 investment funds, 15 to $50,000 in stocks.

this is new. these are new disclosures we found out about. then, he is accused of failing to disclose several south jersey properties. there are tax liens on them resulting from the non-payment of taxes. in addition, he has failed to disclose the sale of a building in harlem that he conducted. all of this comes after earlier reporting lapses that included $75,000 in rental income from a dominican rebubbly can villa and the use of four rent stabilized new york city apartments. this is recents stuf stuff goes four or five years. there is an investigation, mr. rangel is a friend and i do not understand it. the question is, are they ethical lapses or just absentmindedness. already, the ethics problem is coming to the fore. democratic strategist julian epstein and steve moore,

co-author of "the end of prosperity." i love charlie rangel a good man, especially talking about cutting corporate tax. this ethical business is out of control. i don't see how he can maintain his post as head of the tax ways and means committee. what's your thought? >> this reminds me of that steve mountain routine he used to say, you can make a million dollar and pay no taxes. first make a million dollar, when the irs comes knocking on your door and asks why you didn't pay your taxes, you say, i forgot. that's what's going on here. this is important. this is a series offer ethical lapses that have happened under the chairman of the ways and means committee. let's keep in mind, this is the guy in charge of writing the tax laws. does he not understand the tax laws he's written himself? he wants to raise tax rates on high income violence but not paying them himself.

i can't help say also you have had three or five major people in the democratic party and administration now been caught cheating on their taxes. what's going on here with liberals that want to raise tax rates but not paying taxes themselves? >> julian epstein, i will repeat i. i happen to like charlie rangel and worked with him and regard him as a friend, he's been on the show. when the initial revelations came out i figured he'd fix it up, dominican properties and harlem properties. newer regulations came out and all of a sunday we have an even kwierer pattern of ethical lapses, how can this be resolved without him losing his chairmanship of the i was and means? >> i think quite easily. you look at all the lapses, whether property in new jersey or reporting of other assets, all the revelations of this came about because charlie rangel hired a forensic accountant and actually, he was the one who discovered the financial disclosure forms were

incomplete. he was the one that completed and amended the forms allowed under the ethics rules. this is not a case of bob ney or jim traffic kcanktrafficina who or jefferson convicted of bribery, this was a case charlie rangel was admittedly sloppy not reporting some income from the punticana property and hired and accountant and found out mistakes were elsewhere. i don't think there'll be a problem. >> i was with him until then. what really blows me away, these most recent disclosures coming from the "new york post" and "wall street journal" and other media outlets. julian, how do you not know you have a $500,000 checking account and those are taxable incomes? how you do not know you have a $500,000 investment account? how do you not know you have

certain stocks that could grow as high as $50,000. you know what you have in your checking account, julian, come on, for heaven sakes, you know what your investment funds statement looks like. that's why it begins to look like tax evasion and tax avoid dance. the non-reporting, julian, begins to create a sense he doesn't want to pay his taxes. for a guy running the tax committee, that is an unconscionable position to be in. >> let's be clear about this. you look at the property in new jersey, the total amount of taxes he owed failed to pay was $160. with respect to the checking account, yes, you're talking about the fact he should know what's in his checking account. he's not looking to avoid taxes on that. he's supposed to report that as part of his reportable assets on the financial form. >> why didn't he. >> he made a mistake. you know him, i know him. i don't think anybody ascribes any evil motive to this guy, not a corrupt politician a very honest guy. he happened to be careless. he's the one that corrected the

error, not somebody else. >> this is what people have been saying. this is a series of cheating on his taxes, not just one. >> not cheating. >> i will use the word cheating. when you said this is just sloppiness, julian, the jails are filled with people sloppy in paying their taxes. why is there this double standard the ways and means committee chairman and tom daschle and tim geithner get to hold, they don't pay their taxes. you know this administration has basically said we're going to go after tax cheats, we will throw these people in jail, we will raise another $100 billion by getting people to pay their taxes yet people in the administration and democratic congress don't pay the taxes themselves. that's what infuriates people. >> with due respect, steve, i know you're a very fair guy, this is a temp pest in a teapot. we're talking about two issues. the primary reason is failure to disclose certain assets on the

financial form. that is not tax evasion a house ethics rule. he cured that problem by amending the returns all on his own, nobody told him to do it. >> the newest financial disclosures may well be tax evasion. i have to ask you, this is so serious, what's causing me to raise this on the program publicly here. if in fact it is, when does the irs prosecute, as steve moore is inferring. this becomes much greater than ethics, this is a guy just dodging his taxes? >> i don't think so. i think when it becomes a real problem like that, larry, when you show a pattern and practice of intentionally trying to under-report your income so you don't pay taxes. in this case, i think it will be shown by all the evidence before the ethics committee, i think the ethics committee report will vindicate this, he was the one that discovered the financial errors, he was the one that reported it and he was the one that corrected it. never at any time will it be show heed was intentionally trying to avoid paying taxes. >> steve, i will give you the

last word. is that true? these latest round of revelations did not come from mr. rangel? i thought they came from media. >> i'm not tax lawyer. i think julian has give an brilliant defense here. you should be his lawyer. i simply think when you have this pattern of misdeeds and under-reported income and you're the chairman of the ways and means committee, you have to go. one other problem, why don't we have a flat tax so people understand the tax law? >> it's pattern of mistakes and no -- >> thank you very much. by the way, at the beginning of the segment, we misreported $7 million. no, the word should have been several million dollar over a five year period. that is a very serious problem. anyway, we will continue to follow the charlie rangel story. coming up on "the kudlow report," another bullish week on wall street. bob has today's headlines. don't go away. we will be right back.

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the dow jones was down slightly today but still up for the week which makes it up six

weeks in the past seven. a heck of a rally. now to bob at the new york stock exchange. >> despite positive comments from intel, dell and tiffany, they beat estimates and raised the guidance. third quarter sales still down 10% compared to the same period a year ago but better than down 12% that was the previous guidance. intel did what everybody wanted, they raised revenue guidance, great news. intel was up. all the semiconductors to the up side but the rest of the market didn't really respond to that. everyday, high volume, citi did over a billion shares and price movement to the upside although the movement to the upside was not as great as earlier in the week. look at these financial names, aig, up 53%, citi group up 11%. fannie mae up 70%, all the major

indices were up but just fractionally. coming up, much more on the new bull market. we'll have two gurus discuss this and show you why the recovery stock sectors have been the absolute best performers a powerful force suggesting economic growth is on the way, jim lecamp and bill. stay with us, everybody. we'll be right back with a real bull battle and i will tell you why the fed is bullish for stocks. ♪ well i was shopping for a new car, ♪

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all right, the new bull market. since early march, we're looking at the best stock market bull period in 76 years, the new bull market. plenty of time to get in, all for shadowing some kind of economic recovery. let's talk about what our investment gurus have to think about it. bill and jim. thank you for coming on. let me open up with the recovery stocks. i want to put this up on the full screen to show folks. it's really banks and financials led the way followed by consumer cyclicals and retailers, followed by commodities and materials, followed by technology, followed by industrials. now, these are all cyclical recovery oriented stocks. stocks like telephones and utilities and consumer goods and staples defensive stocks have done very poorly. bill, i think the market now for a solid six months, up over 50%

not only signalling its own durability but better times ahead for the american economy. >> i would agree with you on that. also, i would add in the professional investors were loaded with cash at the bottom. they've applied it. the short sellers were as short as they've ever been short in the history of mankind and they reduced their short positions. i'm very positive about the next couple of years. but the public has not yet engaged. the sentiment polls show the public still very negative while professionals much more optimistic. i agree with you. i think your these is right about the economy and think you will see the lagger groups perform better as the public begins to engage. >> i think the stock market is a very good forecaster. jim, you were bear on the stock market rally perhaps until very recently. are you short the market? are you one of the guys bill is talking about?

>> no. he made a lot of very good points for my case, a lot of short-covering for this rally and money managers used up all their cash. mutual fund and money manager cash levels are very very low right now. during this six month rally, what happened? consumer incomes has dropped, consumer credit dropped and tightened, lending into the system has gone down, the number of banks reduced, number of leverage per bank has been reduced, all this happened during the six months bear market rally. >> i always want to ask -- hang on one second, let me challenge my friend, jim. consumer incomes are starting to rise. we had three straight months of real increasing nucleus from today's spending and income report. >> increasing real income because inflation is down. >> that is correct. inflation is a great tax cut, you nailed. >> it deflation is not good. your weekly earnings are up over 3%. i don't think a mild deflation

coming off an oil inflation is a bad thing at all. i want to ask you, one thing you never talk about this is fed. the fed is really stock market friendly, you have a steep upward sloping yield curve, zero short term interest rate and essentially double digit money supply growth. as long as the fed is that expansive and easy, we may pay for it in three or four years, isn't that the most totally bullish thing for stocks and have you and others missed that? >> no. first of all, we've been in areas that have done better than the u.s. market, emerging markets, brazil, china and the inflation trades. we don't feel like we missed it at all. second li the fed has been friendly. that money has been redothed at the fed, it's not been lent. redeposited. >> what our friend is leaving out, first, you don't end a bull market by solving the problems,

you have a great bull market for a long time by having people like our friend consistently negative for the same reason he was negative two months ago and 4 months ago and six months ago, the bank problems extend like they did in '88 and '92. here's the beauty, the cash on the sidelines in money market and savings accounts is still at the bottom of '74 and '82. >> come on. they've been talking about cash on the sidelines for two years now? when is it going to come off the sidelines? >> that's correct. >> while we're searching for the cash on the sidelines, i want to inject one other point. profits. we had a revision on gdp profits. 5 million business, much bigger than the s&p 500. turns out they were up in the second quarter by over $200 billion. compared to the fourth quarter at the end of the year, they're growing at a 25% annual rate.

jim lacamp, besides a stock market friendly fed, the fact that businesses all large medium, small businesses are profitable, isn't this another tremendous positive for stocks? >> it is a positive. again, i do think this market has one more leg up. we're looking for 10,500, 11,000. i'm not outrageously bearish from where we are right now think this is a bear market rally. >> we're out of time. >> you can't -- you can't cut costs forever, you have to have revenues. >> coming up, much more on "the kudlow report." catch me on the call at 11:00 with melissa and trish.

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