so now we've turned her toffee into a business.

my goal was to take an idea and make it happen. i'm janet long and i formed my toffee company through legalzoom. i never really thought i would make money doing what i love. robert shapiro: we created legalzoom to help people start their business and launch their dreams. go to legalzoom.com today and make your business dream a reality. at legalzoom.com we put the law on your side. tonight on "the kudlow report," an interview with robert zelick. he blasts the fed for bumabling the asset price bubbles and believes the treasury, not the f fed, should be the uber systemic regulator with meanwhile, stocks had a huge upday. the best in five weeks from the animal spirits of merger monday,

expectations of higher profits and a toxic rally report from subprime mortgage bonds that helped drive banks and insurance stocks sky high today. i'll tell you all about it in our supply side minute. plus, german chancellor marco wins big with the tax-cutting close. is this the handwriting on the wall for the u.s. return to the supply side? fasten your seatbelts, everybody. "the kudlow report" begins right now. good evening. i'm larry kudlow. welcome back where we believe that free market capitalism is the best path to prosperity. earlier today i spoke exclusively with world bank president, robert zoellick, and he said don't take dollar supremacy for granted and said the treasury not the fed should be the risk regulator.

i began by asking about the global rally in stocks. and if that's the sign that the world recovery is upon us. take a listen. >> let me begin with some news we've had terrific rally up here on wall street. the dow is up about 150 points as of this conversation. and as you know, the last six months world stock markets, emerging stock markets have had a tremendous rally. is this a signal that the global recession is over? and world recovery is upon us? >> i think it's a signal that the governments have broken the fall in financial markets and there's a lot of liquidity out there but there's still a big question about whether the real economy will kick in. >> what are the economics people at the world bank, you have a splendid staff, you have a large staff. what are they saying about forecast for, let's say, 2010 next year? >> in general, they see a cautious and gradual recovery. concern there's not enough

demand because the u.s. consumer won't play the role that it has in the past. so a possibility that developing countries could step in with the right financing. but also, some big risks. for example, if you look at china's recovery which has been strong it's been fueled by a huge increase in credit. that's now starting to get turned back so that later in 2010, we face additional risks. >> let me go to your speech. you gave a strong speech before the johns hopkins international school. at the beginning up top, u.s. would be mistaken to take for granted the dollars place as the world's predominant currency. we would be mistake on the take for granted. let me ask you to clarify what you mean by that. >> something i feel strongly about, larry and i think you do as well. on the one hand, i don't believe this stuff about the dollar isn't a key reserve currency. it is. you can see people turn to it in the crisis because of a flight to security. but my point is, americans do

not recognize that countries all over the world would die for the ability to be able to print money, to issue bonds as freely as the united states has, and as you look in outyears that's not something we can take for granted. what that means is coming out of this crisis, the fed's policies in terms of making sure we have a recovery without inflation, making sure that you got a good, strong value for the dollar, having a sense that the financial market, yes, they need to improve the safety and soundness but have the depth and liquidity they've historically had, those won't be easy issues. but they are absolutely critical for the united states for decades to come. >> if the u.s. dollar continues to decline -- by and large were for about eight years under republican and now democratic administrations, the dollar has been weak. if the dollar continues its chronic decline, would that stop world economic recovery? >> it depends on what else is going on. it depends on how far of a

decline and it depends on some of the affects it has on interest rates. my point really goes more to the direct interest of the united states. i took a historical reference with prime minister pitt of britain saying that while people talk about great campaigns that won the napoleonic war. it aloud them to pay for the coalition. but the united states is in a unique position in terms of being able to have the dollar accepted as the predominant reserve currency, the euro did a good performance in this crisis. it will be an alternative. i don't think china is going to move to an open capital account soon. but i outlined why over the next 10 or 20 years it will move to be more of an international role. my message with, whether it's budget deficits or the monday their policies, don't take the dollar for granted. >> are you inferring a criticism

here? are these self-inflicted wounds by the usa in terms of overspending? or overborrowing or overmoney printing? >> i think across different administrations, across different times, you know, we haven't been able to get the discipline over the budget deficit across parties and different congresss and different parties. given the fact we'll have a budget deficit as a percentage of gdp of over 10%, that's fundamental to get on top of. you've seen the projections in terms of u.s. debt as a percentage of gdp. for years it hovered in a range that was manageable. but the types of numbers they are talking about, move it into a different league and that, combined with monetary policy, should be a priority for people across the spectrum. >> china has talked about this -- numerous chinese officials. maria bartiromo interviewed him and i didn't hear anything

specific from the g-20 on the profit. did you? this is a question that people on wall street and investors are asking. >> i think it showed up more in the discussion about the nature of having a sustainable recovery. obviously, part of that is monetary policy. you'll see a lot of references to imbalances. that partly, of course, relates to the different trade imbalances. but it also relates to the need for countries to be able to pay their bills and get control and discipline over their spending. so it wasn't so much focused on currency and exchange rates but that hovers in the background. >> moving on here, you have another topic in the speech that i think is controversial. you take some shots at central banks and by implication, the fed. let me read one of the money paragraphs and get you to respond. central banks failed to address risks in the new economy and they seemingly mastered product inflation in the 80s but most decided that asset bubbles were

difficult to identify and restrain with monetary policy. they argue that the damage to the economy from jobs, production and savings and consumption could be contained once bubbleless burst through aggressive easing of interest rates and then you say -- flatly and declaretively, they turned out to be wrong. i'm just quoting in your speech. what do you say here? what did you have in mind? >> well, it's not all central banks. we're also -- you'll see in the speech that's compliment the european central bank. i anymore jean-claud did a good job. to be fair, i think if federal reserve and the other central banks did a good job once the crisis hit. the key point of that paragraph was what i said about asset price inflation. central banks felt that was something they couldn't manage,

shouldn't manage. they could deal it with through other means and learned a lesson, as we all have to learn from the crisis that didn't work. the other point i make about this central banks is less a trying to cast blame. it's more a question of political economy in the united states. as you know, larry, we didn't have a federal reserve until 1913. that's been a rather acidic mix. it's going to be a big challenge to say that the federal reserve, which, with its independence, which is appropriate for monetary policy. should be given an additional role in the bank regulatory area. frankly, my reading of the different reports and seeing at the time, was one of the real challenges was whether the treasury department had enough authority to pull the regulators together. so it will depend on each economy. so with central banks as part of this deals with political history and kind of attitudes towards the role of independent

central banks. my view is the fed's going to have a big enough challenge concentrating on the monetary policy getting out of the crisis. that's what i think should be the prime focus. i think they need more authority on the regulatory side. >> that was my inference. you think the treasury should be the u ber regulator of the uber banks. my reading of recent crisis management is the treasury needs greater authority to pull together different regular lay to haves, moreover, the treasury is an executive department and, therefore, congress and the public can more directly oversee how it uses any authority. you seem to be say what can the treasury -- let the treasury have the principal role and you are injecting yourself in a very controversial discussion, going on in washington. may i ask why? >> well, i'm just sharing the perspective of something who's been involved in this for 25 or 30 years. and from my perspective, you know, whether it be secretary

paulson or secretary geithner, you read the newspapers. you can see them trying to strug it will deal with the regulators. you have a financial banking regulatory system that's a legacy of history of a financial system. so if people overhaul that, there's a need to try to make sure you've got somebody responsible and accountable. the second observation is i believe very much in a democratic sense of responsibility. congress is going to be sensitive to make sure that it can exercise oversight over financial regulation, as it should. and it's much more natural to have that in an executive branch which has to get elected every four years and plays -- has a balance of power relationship, a shared powers with the congress, than it is in an independent central bank. different countries do this differently. you see this debate in britain, europe. but i think for the u.s. system, the key message is, now that we're coming out of the crisis, the real danger is going to be

complacency. we got to figure the regulatory supervision. in my view i would make sure the treasury had to authority to play the role it should. >> so you're saying we got to fix the regulatory system and give the treasury a large piece and fix the dollar. are you also inferring it's time for an exit strategy from t.a.r.p., from all the spending and borrowing and from all the money print k? are you suggesting it is time right now for the usa to protect its system and its integrity and the value of its currency for an exit? an exit strategy? >> i think the u.s., and again, both the federal reserve and the executive branch are preparing for the exit. at the same time, i think one has to be careful about trying to pull the plug of support too quickly because, as i said, i think you face a lot of uncertainties in 2010. you've seen some of the articles that have been been written in terms of kevin warsh and the federal reserve trying to identify these issues. i think they are doing the right

thing and i mean to emphasize, this isn't going to be an easy call. but it will be critical and one that needs an informed debate. >> last one, bob. bigger man elections. the center right won, chance already marco was re-elected with strong support from the free democratic party. they are all pledging supply-side tax cuts and i can't help but ask you if supply side tax cutting going to be coming back into vogue instead of all this spend something would germany lead the way and change world economic policies? >> well, that's been the view of some of the parties in the coalition the csu and the bavarian party and they'll have to balance it with their own budget issues. ile larry, i support lower taxes i also support paying for what you spend. so that's their decision on how they manage their spending in their overall revenues. but it's an interesting

commentary on while the different ideas about the stimulus and the roam that it played, i think people want to make sure that they pay their country's bills and that's a good thing. >> all right. world bank president, we appreciate your time and controversial speech. thanks for coming back on "dud row." >> you bet, larry. folks, i don't know what you thought but i thought that was most outspoken. he's the head of the world bank, a global institution. the most outspoken i've heard one of those leaders in a long, long time. coming up on "the kudlow report" analysis of my interview and former labor secretary robert rice and columnist and bloggers here. was this a true free-market limited government supply side manifesto? we'll get our answers later. you're watching cnbc, first in

business worldwide.

looks like we're in for a bumpy ride. go ahead, ignore me. but in this turbulent market, you're going to need help... protecting some of your assets for retirement. an axa equitable annuity could give you... guaranteed income for life. i'd call them, but what do i know? i'm just the 800-pound gorilla in the room. don't worry. i'm here. want guaranteed income for life? axa equitable is redefining what you expect from annuities.

the big question, was world bank president's robert zoellich's speech a man on a mission with free market limited government and maybe some supply side in it? and by the way, the is german election handwriting on the wall for the united states in here to discuss it former labor secretary, robert rice, the author of "super capitalism." and blogger james. it just occurs to me that will be was a man on a mission. he was pretty darn clear, slamming the fed for one thing. i've never seen anything like that. i want to ask you. as the tide turns against obama, is there some kind of race going on in washington to be the next republican treasury secretary? kevin warsh on friday and now robert zoellick on monday?

what do you make of this? >> i think warsh is first and bob second. there's a rumor that if mccain won he would have brought in geithner. you asked, is he a man on a mission? yes. but i don't think it's a supply side mission. when i think of supplied side i think of free trade. i think he didn't talk about that in his speech. strong dollar and lower taxes, i don't think so. i think he was talking about making sure we get our fiscal house in order so we don't see a dollar collapse. he was so clear. >> he was so clear about the threat to the dollar. he never heard a guy in officialdom be that clear. compared to the mealy mouth stuff you get from the treasury and the fed. he just came right out and said it. get your house in order to stabilize your currency. that was a king-dollar speech. >> i thought it was a dollar-stability speech. i think he's on the same page of

the administration. we're entering a multidollar world. he said, not major currency. a major currency and i don't think he was talking about lower taxes. when he was talking about the deficit i think there'sly billing push in washington for it to be higher and i think he's part of that consensus. >> bob rice, what did you think of his forth wright speech? >> the most controversial part of it was the fed versus the treasury. i was surprised to hear him say the treasury ought to be the central control aid with regard to systemic risk, inserting himself very directly in a highly contentious political fight right here in the united states. not a matter of being on the left or right, but a matter of taking a different position from where the obama position is. >> bob, how did you read that? it's a terribly important point. he basically said, look, the treasury is more directly

accountable to congress and, hence, the taxpayers, bob, for these bailouts. how did you read that? you're right. i asked him, you're putting yourself smack in the middle of this incredible debate going on in washington. from a world bank president, it was unusual to say the least. >> it was very surprising. world bank and, in fact, all the central banks of this country, of the rest of the world, have been moving away from politics towards more and more independence and that's the stake in the ground that they maintained to a far greater extent than ever before. for the president of the world bank so say we need to move back toward more political accountability is the stuff of which headlines are made. i don't know why he said that. when you're talking about some organizations -- some institute that's going to be in charge of avoiding systemic risk, the argument can be made clearly -- and i expect a world bank president to make this argument -- you want to shield that institution from politics so that institution is not

influenced, for example, in an election year, to allow too much systemic risk to take over. >> that's what i was shocked about. i expected him to make an tie fed argument saying the fed, because of past regulatory history needs to focus on monetary policy, they should not be the systemic regulator. >> he did. >> that i expected. then i thought he was going to come out and favor some sort of new fsa sort of independent regulator, but not the treasury. >> but he was very clear. he slammed the fed. he did it by slamming central banks. but in the interview, in the interview he exempted jean-claude. he exempted the canadian central bank. well, hell, that just leaves the fed and then he basically says that the fed should stay with monetary policy because they screwed it up so badly. >> he likes the model. >> he also -- >> here's another interesting and surprising thing. he said the fed needs to take a

more active role in preempting bubbles and that kind of thinking, although it's gaining currency around the world -- it's still not conventional thought. we're now changing the entire world view about what the fed ought to be doing. >> one place where i know it's not a conventional thought is the white house. there's very little belief the fed has any power or precedents to be able to prick these asset bubbles. >> let's move on. i want to hit the angela merkel's victory with the help of whatever it is, the free draktic party, the pro business tax-cutting party. let me ask you, jimmy p., is there some global handwriting on the wall? is this a revolt against spending and borrowing? going back to supply-side tax cuts from, of all places, germany? >> you know what, i think the germans recognize they are in global competition and your tax code is very important. in this country we seem to be

ignoring there's the rest of the world and we're going to do what we want to do as far as taxes. so it's a breath of fresh air that the germans are looking at their tax code. are we moving in that direction? i have my fingers crossed that we are. >> i don't think that will happen. you can see in japan the same thing. there's across the world, a kind of revolt against incumbents. parties that have been in power and that are in power during this economic collapse. the ldp in japan stood for ekind of a stripped u.s.-western type of economic policy. and the new democratic policy -- they say, "no." >> but merkel was the incumbent and she won the coalition with a bigger vote that had almost 50% -- >> i'm not talking about the traditional incumbent party. the people that germany looks to as the head of the party.

the kind of traditional incumbent establishment parties are in trouble all over the world. >> but you've got sarkozy in san francisco that wants to cut business taxes. market might have some tax reform. one way or the other. they already cut corporate taxes in germany. on the other hand, you've got england, okay, gordon brown, prime minister of england is a dead man walking. cameron going to win. and you've got this absolute dope darling, who is the chancellor of the ex-czech republic who says no more bonuses for bankers, period, end of sentence, jimmy p. you have to be a dope for that. that sees london as a financial center. is there a shift to the right? he brown, dead man walking. sarkozy looks strong. merkel looks strong. is the shift to the right handwriting on the wall for the usa -- and that's where i'm

going with this? >> i think it should be the handwriting on the wall. in the united states you see on a state level where the push for higher taxes has gone absolutely nowhere. anyone who thinks -- remember a few months ago on election day, we thought that the taft issue is dead. people want higher taxes. chrp there were exit polls saying americans were okay with higher taxes. that's ridiculous. the tax issue is as relevant as it always was. >> people are struggling so much. average working people around the world, in the united states the last thing they want is a tax increase. any politician is dead walking if they try to impose a tax increase right now. on the other hand, if they are talking about a tax increase on people at the very top. if they are talking about capping, for example, those tax-free health care benefits, i think there is some sympathy for that because people understand, after all, there's no free

lunch. if i'm not going to pay, somebody else is going to have to pay. >> taxing the rich may becoming very unpopular and this health care plan taxes -- >> i think it's coming back. there's no evidence of that. >> mr. obama's poll relevance so bad -- >> somebody is taxed and the middle class -- >> he's going to tax middle class people. max baucus is going to tax middle class people. cap and trade is the middle class tax cut. so let me ask you, bob rice. you know the republicans will win the governor's races in new jersey and virginia. you know they'll pick up 40 to 50 seats in the house next year. and you know that kate bailey hudson is going to be the next president in 2012. isn't that where this whole story is going? >> they are not going to pick up 30 or 40 seats. that's what the republicans certainly want. they want to go back to 1994 when they picked up 54 seats. remember, 22 of those seats were vacant at the time.

the typical mid term election you pick up the party in power looses about 16 or 17 seats. i expect that's what's going to happen. >> 80 of those democratic seats were in districts that went for either mccain in 2008 or bush in 2004. if you don't think they are at risk you're crazy. >> i'm -- this is not a brief for complacency. i think the democrat also work hard and they'll lose ground. but when you talk about -- look at republican congress. in terms of the polls, they are in the doghouse. the polls are showing republic favorabilities are about half of what democratic favorabilities are which are not too much to write home about. >> jimmy p., is that really true? anders fogh rasmussen , the other polls, the simple analysis of linkage. i'm go from sarkozy, from sarkozy to her. >> caller: tell, from merkel to virginia and new jersey and from

there to the 2010 mid term elections. and there to kay bailey hudson who will be governor of texas and the first male president in the history of the united states. and she'll be the republican -- it all seems logical. >> how do you square this with all your doom and gloom about obama? >> i like the grand unified theory. >> the stock market sees the political shift after the supply side. it all makes sense to me. it just all masks sense. i love to connect dots, you know that. robert rice, thank you ever so much. and jimmy, thank you. coming up, my take on the bull market on tonight's "supply side minute." we're "the kudlow report" and we'll be right back.

welcome back to "the kudlow report." here's our quick supply side minute on a marvelous stock market ride today, merger monday. stocks went up about 2% across the board. the dow up 120 point and the s&p had its best way in five weeks up nearly 2%. the animal spirits reappeared. xerox, johnson & johnson making acquisitions and incidentally sysco was upgraded. financial material and consumer cyclical led the way.

but you know what? besides merger monday, there were two other underreported stories that started stocks going up right at the open. first, an excellent "wall street journal" said profits are poised to surprise again. profits are poised to surprise again. we'll get arco to start next week. they are set to leverage corporate cost cutting and productivity into much stronger sales revenues and earnings. not only year on year but sequentially quarter on quarter. and then, another big story. from the financial times, a toxic rally set to boost banks. listen to this. the market abx index of subprime mortgage-backed bonds has gained more than 30% over the past three months. that's for subprime and related mortgage-backed bonds. of course, the banks and other financials own these bonds. not surprisingly, it was the

financial stocks that led today's parade with the 3.4% gain. toxic assets. the benefits of the positive, yield curve anchored by a zero interest rates are helping the toxic asset values. the benefits are gradual but steady economic recovery helping toxic asset values. these are all key components of what i think would be, yet, another leg to the stock market rally, september was terrific. october may surprise on the upside. here's another one. chance lor angela merkel had a supply side tax cut victory in germany. we talked about it in the earlier segments. well, listen to this. the dow jones euro 50 gained 2.5%. the other side of the world in asia, japan and the rest of asia, including china, dropped over 2%. the merkel victory was a positive omen for european

economic policies. more lower tax rates and more help for business and deregulation. so the question now is -- are profits poised to surprise, once again, on the upside? that's the question de jour. our market experts will join us in just a minute. guys, give me a quick one. profits on the upside. bob, yes or no on the way out? >> absolutely yes. >> jason, yes or no? >> yes. >> joe? yes or no? >> no. below the expectation. >> all right, they you have it. 2-1. begot ourselves a bid and a offer. we'll be right back. here you go. whoa! that's some serious insurance. ding-ding-ding! ding! ding! fun fact --

progressive is the number-one truck insurer. yeah, great service at the right price. and nowadays, my business depends on it. do you have anything like that for my car? yes! our car insurance comes with 24/7 claim service, and you can save hundreds. so, what you haulin'? oh, eight-year-olds to soccer practice. nine! oh, precious cargo. protecting what matters most to you. now, that's progressive. call or click today.

stocks are up big today for a bunch of reasons. let's talk about it. we have joe and steve and jason, our strategic research partners. and here for his very first interview in his new position, our good friend, bob froelich. senior managing director of the hartford. i'll give you first whack as it. i'll ask you about the "wall street journal" profits better than expected story. and ask you about the ft toxic asset values are actually going

up. quick response? >> i think the quick response to the toxic asset is risk is back into the equation. people are willing to take risks again and i think that will see a big rotation of all the cash sitting on the sideline and the money will be put to use. that's the other story about mergers. instead of the corporations sitting on the money, they are going to buy something and bet on the future. when i look at the profit picture i look at the indices for earnings' revisions. i'm not saying it's going to be correct. i'll take half. i still think it will be a great story for profits. >> joe, on the table we have expected better profits. we got better behavior of toxic asset prices. and we've also got risk-taking animal spirits on a merger monday, joe? >> and if you don't get it bourn out by fundamentals it all roles over again much like it has in the past. here's the situation. the demand for credit is still contracting. third quarter earnings are below the third-quarter earnings of a

year ago. revenues are 12% below where they were a year ago on a nine-month bay skis and the economy itself is showing very little good evidence that on its own it's improving. that's 3r0bbly by we were off sharply last week when the fed came clean and said we're stopping buy treasuries in october. stop buying mbs in march, and good luck. everybody knows if interest rates move up a little bit, all of a sudden the mortgage story is finished. then when you compound it by the fact that the numbers aren't going up but down as it relates to housing, auto sales and the like, you see the third quarter gd 36789 was a one-hit wonder and not sustainable to next year. so the expectations of a 50% or better of improvement of profits won't evidence itself. i'm worried about fundamentals. if the risk takers are wrong we'll roll over and the momentum will be on the downside. >> joe didn't mention the credit markets where you've had a

phenomenal rally and a drop in interest rates for all manner of high-yield corporate bonds. investment-grade corporate bonds. this market index of toxic assets which includes subprime have had a splendid rally the last three months. if the credit markets are confirm tlg stock market, are they both wrong? >> larry, it's difficult to know because the fed is buying treasury securities and they are also buying mbs as joe pointed out so it's hard to know what the true cost of capital -- i would say at least for the treasury -- is. that's why i have a feeling that both bob and joe could be right over different time periods. i'm pretty bullish over the next couple of quarters because i think anyone wants to know or find out whether this is real or not pl it will look real. profits will be better. only a third of the stimulus will probably be spent by the end of this year. moving forward, though, looking longer term, the secular forces,

i think, are significant and i think joe is right to a certain extent, that longer term interest rates, it's hard not to see them going higher or taxes going higher or both, given the budget deficit that we have. >> i'm a supply sider. i don't like the direction of government policies in washington. although, as i said in the earlier segments the angela merkel victory may presage a return to more free market to supply side policies and i think the political hand yig is on the wall. but i'm more interested in the next six to 12 months. the bad tax hikes don't take effect until 2011. what i want to ask you is, might it be that the threat of higher taxes and in legislation in 2011, actually makes 2010 better? make pros fits better? more people take more activity? maybe make more mergers according to these corporations? might that be the key point now as byron said? the s&p 500 which closed today

at 1063 is going to 1200, according to byron. what do you make of that, jason? >> listen, larry, you have $3.5 trillion sid, on the sidelines making, i don't know, 10, 20 basis points in money market funds? the fed is basically pushing the kids outside to play. it's happening. again, i have a feeling for the next 6 to 12 months you'll see that and i think you'll see more m & a because companies are going to find it hard to grow earnings organically and they'll find a lot of cash on their balance sheets and find it compelling to buy earnings through acquisitions. it's going to be -- we're telling our clients to be bullish until the bill comes due. until the waiter shows up with the check -- have a good time. >> that's what it was like at citicorp. they said, keep dancing until the music stops. going back to fundamentals. the individual, the consumeer is

pretty much dead on their feet. they are not borrowing more. they are trying to pay down debt. >> isn't that good? isn't that what everybody wants, including you? >> but they are not dead on their feet. in the second quarter, consumer net worth will go up and watch what happens in the third quarter. it will still go up? >> it's below but it will drive consumer confidence and that drives the stock market and drives the economy -- >> in the proper environment, consumer confidence is at 95. you're cheering at 75. just like we if we have cancer and we live for a couple of months. >> seasons this the best consumer confidence number in months? >> and look at the correlation between the stock market and the consumer confidence? >> you better hold on for the holiday season. it's going to surprise everyone. >> if you have expectations that we have negative growth and now you're making a case that we're

going to have 2% but typically, it's commonly 5% in order to start employing people. let's not forget we're still increasing the size of the jobless in america. we're still having a credit contraction. . we have excess capacity in all industries. "cash for clunkers" was a one-quarter wonder. now the run rate in the showrooms is back to below where we were in the middle of this recession. >> the "cash for clunkers," we don't know if it reignited the animal spirits or not. what do you say? >> i'd say history is a great teacher. my first recession was 1981 and 1982. and in the first quarter of 1982, the economy contracted add 6.5%. a year from there, guess what happened? it grew at 5%, 8%, 9%, for a year and a half. >> we were much younger back then. >> if we go back to the low point in this one, it's in 2009

in the first quarter. i think we're looking at the exact same thing. >> let me just throw out to you a couple things. back then in your favorite example, we had much higher interest rates. now you have zero and they can't go lower. we had high tax rates and low tax rates over the ensuing 25 years. they are not going to go lower they are going to go higher. it's not getting better it's getting worse. the baby-boomers are now in their retirement profile and that's why they are fighting more about health care than tax cuts and the stimulus plan is not stimulus. not the first, second or third one. it's all about spending. >> they are not advising anybody to make an investment. >> jason, i want to know when your first recession was professionally? >> my first recession professionally was in '90-'91. >> i just want to say that mine was '73-'74. i want to put that on the table. what about monetary stimulus? i agree with joe b.

this fiscal stimulus is a literally a waste of money. what about the monetary stimulus? the bill bulg j in the fed's money creation? the incredibly upward sloping yield curve and the zero interest rate? is that not still the single, most biggest powerful stimulant, when you see the reality with toxic asset prices and bank profits are gigantic in q-3. what about that? >> what worries me is it will create inflation but it will probably create inflation in commodity and financial asset prices. probably not create inflation in the real economy but there's an awful lot of velocity of money, at least for speculators is going up. >> do you take that? you buy commodities? >> if you're a speculator you're a buyer. >> got to go. come back. everyone stay right where we are. i'm going to ask each person what could go wrong or right depending on their point of view. we'll be right back.

[screeching] [dejectedly] oh. [screeching] [barks] (man) if you think about it, this is what makes the ladders different from other job-search sites. [screeching]

we only work with the big talent. [all coughing] welcome to the ladders-- a premium job site for only $100k-plus jobs and only $100k-plus talent.

bob, bull, jason in between, i got to ask you you gentlemen, where are you puing your money now? we're in a heck of a mood today.

what happens tomorrow remains to be seen. in brief form, joe b. where would you invest? >> our balance of accounts are 50% in fixed income and defensive income in 50% in equities. a bigger exposure overseas than we had earlier in the year and we're focused on large, medium and small-capped stock as an opportunity. on the bond side, we're going into the corporates which is better and we have a 5% stake in gold because fiscal imbalance and currency imbalances are going to be problematic for sometime to come. >> good stuff. bob? where do you put your money? >> i agree with joe in some respects. i think a maybe 70/30 split in equity. more in equity. i don't like the treasury at all you want to be in corporates. i want to be in technology. i think the business cycle the telling us that technology has legs. i love financials. i'm telling you, that's going to be the big surprise. m & a will continue and the yield curve will play to their

sweet spot but i like the consumer. this consume her aawake. you want a little bit there. i think that will be the big surprise of the fourth quarter. >> jason, you mentioned, i think, financials and commodity materials. i want to give you another whack at it. is that correct? >> larry, i kind of think the first will be first and the last shall be first. so i'm putting my money into the late cycleals. i would be careful with consumer discretionary because i think we're in a long-term workout. the credit markets, i think, will be in trouble for a long time to come. i would balance that out, the energy and basic materials with more defensive sectors like health care and consumer staples. so that's how we're positioning it. i do agree with joe that i think hard assets, gold, maybe copper and some other hard assets, look awfully appealing here given the fact that it looks like the global way out is through public

spending. >> joe b., in searing self-analysis, given your views and you're a pessimist -- relatively pessimist -- i don't want to put words if your mouth. what's the one thing that could go right -- in a few seconds, what cold go right that would change your mind. >> a strategic swing coming from the administration towards incentivizing investment and lower tax rates which isn't going to happen. however let me say this. >> how about political swing? just the political swing? >> i'll connect the dots. that was an interesting seguay. merkel was basically leaning left until she realized she need to lean a little right and her tax doesn't go out tig until next year 123450 given your optimism, dr. bob, what's the one thing that could go wrong that would turn your around to a more bear? >> we're a global player. not just a u.s. domestic player. we have to not put up these barriers. we have to --

>> i would say this from my standpoint. i think the earnings' reports coming up are very, very important. i think a lot of earning optimism is baked in the cake, gentlemen. and we'll have you on as many times as you'll come back to discuss that. i think that's really going to be key. i think today's earnings' story was a big driver of stocks along with the improved subprime mortgages. joe, thank you ever so much. jason, as always and bob, congrats on your new job with the hartford. we're "the kudlow report" and we'll be right back. !e!e!e!e!e!e

ooh, peanuts.

in terms of kektd the political dots we saw the victory in germany of angela merkel and it is a supply-side convict which with her coalition. the next dots to be connected in order for me to make my case of a shift towards the center or a shift towards supply side, we have the new jersey race. chris christy, the republican is running against john core zien. and in virginia, bob mcdonald running against creigh deeds, the democrat. those are the next two dots if you want to follow this story, to see if sflie side free-market economics on the way back. i'm larry kudlow. catch me tomorrow on "the call" with melissa and trish. welcome to the now network. population: 49 million.

right now 1.2 million people are on sprint mobile broadband. 31 are streaming a sales conference from the road. eight are wearing bathrobes. two... less. - 154 people are tracking shipments on a train. - ( train whistles ) 33 are im'ing on a ferry.