a and waddell and reed upgraded. shares up about 2%, mark. mark right now up 40 points on the dow. not too shabby. we were down 50 shortly after the open. >> that's right. >> we've come all the way back. what's on "street signs?" >> a lot of things including a new segment we're calling pick and play. >> look forward to that. >> watch and see. >> i'll see you tomorrow. >> time for "the call." good morning, everyone. welcome to "the call." i am trish regan. we've got stocks fighting back after getting off to a rather weak start. the health care bill just one of the things investors are contemplating right now. also the dollar getting a bit of a boost here thanks to ongoing concerns about greece. we'll talk about it all. >> i'm larry kudlow. an historic vote to overhaul the nation's health care system. we'll look at the big winners and the big losers and debate whether the prescription for america will kill or fuel the

stock market rally. >> hi, larry. i'm melissa francis. google set to announce its next step in china. will the internet giant pull out? we'll tell you what that would mean for shareholders and rivals microsoft and yahoo!. this is "the call" on cnbc. stocks making a comeback, erasing earlier losses. health care among the sector of leaders on the back of that historic vote. energy stocks also leading declines. the dollar also getting a pop on concerns about greece. take a look at the s&p 500 right now. it's up. barely positive on the session, about a third of a percentage point. climbing well off those lows we started at on the open. the dow a very similar story right there. near the highs of the session right now. 42 points. and the nasdaq trading higher by about 0.6%. dollar versus euro chart, this is what's moving a lot of action. earlier today a ten-month low

for the euro versus the dollar. right now see the trend is fully in place. trish, what's happening on the floor? >> investigators are trying to weigh all of this news coming out of washington. i want to share a funny story with you guys. i was out with james at dinner at a french restaurant. it was packed. he said why are there so many people here? is there some french holiday i don't know about? i said, no, everybody's celebrating we're becoming one step closer to becoming more like france with this socialist health care policy. it's pretty much a dollar play we're seeing. >> we may be turning into france. markets don't seem to be bothered by that. >> it is more of a dollar question right now. there's a lot of time for all of the health care issues. >> we're back to trading on the dollar a little bit. the dollar index is near the highest level since july as we opened. stocks opened lower. there's is euro/dollar.

when the euro started strengthening in the mid-morning, things got better. head of the euro group was making comments about greece, trying to soothe everybody's nerves again, saying we're not going to abandon greece, we'll find something, and the euro strengthened on that. our market strengthened as the dollar weakened here in the united states. there's good reason to be concerned about a really strong dollar at this point. you know all the reasons why the market doesn't particularly like strong dollars. number one, you've got the issues with what's going on overseas. profits get hurt. the amount of money you can actually repa -- there's another thing, by the way, floating around today. mr. lipsky, second in commend at the imf was making very aggressive speeches over in hong kong at a forum saying the economic crisis was leaving deep scars in fiscal balances.

on the dollar here, you can see some of the weakness we've had early in the day. >> i know you didn't want to get into health care much. there are a lot of concerns about the deficit right now, whether this is the right timing, in fact, for a bill like this. there are a lot of concerns about the increase in tax on the wealthy and what that's going to do for investment at a place like this. because people might be tempted to take out their money, out of the equities markets ahead of that tax increase. >> yes. not happening today. >> not happens today. people are concerned about it. i want to head back to larry. >> trish, you stay with it. let us go on. a landmark vote to over haul the nation's health care system. as you know, it was a close call. 218-212. not one vote from the republicans. cnbc's chief washington correspondent john harwood joins us now with the fallout. it's like nuclear fallout. hello, john. >> reporter: well, i don't know if it's nuclear, larry. i think the white house has got to be encouraged that the market's up slightly today. and a sign that maybe businesses aren't all going to shut down.

in trish's favor, french restaurants aren't all going to close because they passed this health care bill. still got some action in the senate. you even had some republicans this morning like bill frist, the former senate majority leader on the republican side who is a physician saying he saw some merit in this plan even though he has concerns about the cost. take a listen. >> 32 million people over ten years, that was about the same size as medicare. my real concern with it, i think the coverage aspect, i am probably to the left of where most republicans are. because i do think we ought to have every american have affordable access with insurance in this country. but this bill fails from the cost standpoint, from the spending standpoint. >> reporter: of course, of course, there's still one piece of action required in the senate which today takes up those reconciliation changes that they passed in the house yesterday. that debate is going to be lengthy. it will consume most of the week.

i think we know what the out come's going to be. even some democrats agree with bill frist. they've got concerns about the cost of this bill. take a listen. >> 93% of the american people who have insurance were this won't really affect their cost very much. that means it's going to continue to go up at rates that are going to be hard to sustain. that's really an issue yet to be addressed. >> reporter: so, larry, i think the debate's now going to shift. especially after the senate acts later this week, on what this bill actually does and the democrats are going to try to shift the political debate here. and i do think they can be confident, larry, that the people on wall street in new york are not going to starve as a result of this bill. >> john, we'll leave the starvation for another time. i want to ask you about the out look for the reconciliation piece in the senate. >> trish was worried about the french restaurants. >> we enjoyed that. >> how about the reconciliation outlook? inside the reconciliation bill is the 3.8% medicare tax on investment. that goes out to 2013.

nonetheless, that is a huge issue up here on wall street. what's your first take on the reconciliation passage? >> reporter: i think they've got the votes. remember, they only need 50 plus 1. they don't have to have 60. i think evan bayh has sounded ever since the massachusetts senate race when he decided that the health effort was too ambitious and decided not to run for re-election that maybe it's too rich for his blood. so he may be a no vote. there may be some more no votes. but democratic leaders tell me they've got at least 53 votes for reconciliation. the question is how many amendments are republicans going to insist on votes on. the democrats are counting on the fact that president obama's going to sign the senate bill probably tomorrow as taking some of the steam out of the sails of the opposition since it will already be enacted into law. >> john harwood on his way to lunch at a french restaurant. now, the s&p health care index is getting a boost today from health care bill's passage. up about 4%.

so will health care stocks continue to get a lift from the new legislation? where should you invest? how do you play this whole thing? let's go to carl mcdonald, managed care senior analyst for oppenheimer and president of capital street, a health care policy consultant firm. i'm so proud of myself i got your name more or less right. give me your quick thought. what does this mean for the stocks? >> i think it's generally good news. we finally have some clarity on what this bill looks like. that's outstanding whether you're a pharmaceutical company, a hospital company. i think pharma and hospitals are the biggest winners. even within managed care, sure there's new taxes and regulations on the insurers, but i think they can manage their way through it. i guess i would say within the health insurance group, the medicaid plans are probably the biggest winners and medicare advantage plans, those are the part c players, those are probably the biggest losers within managed care. >> carl, it seems to me that the

lot of -- no matter how you feel about your taxes or this plan or whatever, just looking at the stocks, a lot of the health care companies are going to become utilities as a result of this. does that make them good or bad investments? >> this bill is not catastrophic for health insurers. but it is by no means good. there is certainly clarity now in terms of what's in the bill. i think we're just trading that clarity for a lot of uncertainty about what these companies are going to earn in 2014 and beyond. in the meantime, we still have a lot of rules and regulations to get through. a lot of what's in this bill is what's called enabling legislation, which means it's not actually spelled out. it's left up to the administration to figure out how to implement it. no secret this administration not a fan of the health insurers. so a lot of these small eer decisions not going to go there way. >> why is it specifically not good? because there's not a lot of clarity or because of things that make it bad for the health insurance company? give us more color on that. >> sure. the biggest thing is the way these rules are set up, i think the individual market in the u.s. is going to be destroyed.

i don't think these companies are going to be able to earn any kind of a margin in that product because of all the adverse selection, mainly because of the fact there's a very weak individual mandate. the penalty in 2014 for not having insurance is $95. somebody that's 25, young and healthy, they're just going to pay that fine as opposed to several thousand dollars for their health care. that's one piece. the creation of the health insurance exchange i think the going to put pressure on margins in the small group business. and, finally, the medicare advantage cuts that were mentioned, medicare advantage has been a huge earnings drive for these companies the past couple of years as the commercial market's gotten smaller and margins are going to pressured in medicare advantage. >> ipsita, can you go to that point? carl makes probably the single most important point with respect to profits and volumes. how many mandates, regulations, prices, price control, premium price control, these could have huge impact. they were not specifically spelled out in the legislation.

so we have to deal with the so-called enabling legislation impact on hhs, which will become the czar of the insurance company. will it not? >> yeah. i agree with that. i mean, certainly the individual and small group markets are the worst off in all of this. and the devil is going to be in the details. the center for medicaid and medicare services will have to put out regulations. it's going to be a lot of uncertainty even though we have clarity from the bill. there's going to be uncertainty from the administration for sure. >> yeah. carl, you know, bill frist was saying this morning that having 15 people on a committee where they're going to go ahead and set prices, you know, this is not an elected body, it's a little bit scary. there's a lot of price coms there. what does it mean for the future of this market? when i look at a place like new york where we live, there are doctors who take no insurance whatsoever who have totally opted outside the system because they don't want to deal with controls and rules. they charge a lot more. this creates a two-tiered system where if you have money you get

better health care because the government is so deeply involved. is this what we're going to see overtime do you think and who benefits from that? >> yeah. i think on the pricing side there was some discussion about putting in place a federal pricing board to monitor rate increases. that actually didn't make it into the reconciliation bill because of fears that it would have to be pulled out for lack of a budgetary impact. >> but there will be price controls. >> i think -- not officially, but i think certainly from the state regulator perspective. >> carl, what about from the hhs perspective? how far will they go on price controls? i think this is a gigantic question which is unanswered. >> yeah. i mean, there's nothing in the legislation that enables them to control pricing in the commercial market. but i think they can certainly let it be known from the state regulator perspective that there's nothing wrong with putting a lot of pressure -- >> i'm asking about -- melissa's insurance question, but i'm asking about the drug companies also. because the devil is in the details and the actual

regulation and they're setting up these federal boards. i'd like you to both take a whack at that. it's a very important part in terms of profit margins for these companies or maybe the whole industries are going to consolidate here? >> i just wanted to mention also the deficit reduction board. you figure after this bill passes the senate, which i think it will happen, they've got about 52 votes at the moment, this congress is all about deficit reduction. so medicare providers are going to get chwhacked all over again. even though there's no price controls as it stands in the bill right now for pharma and biotech companies, the devil again is in the details. >> this is a gigantic point. i don't see how anybody can make a final decision until we know this stuff. i think you're both right on target here. >> thanks to both of you for joins us. when we come back, market reaction to the historic health care bill and find out if the prescription for america will kill the rally. >> did larry really tell john to go have lunch at a french restaurant. >> i think john volunteered. >> he seemed like he wanted to,

trish. >> he's been working around the clock. >> he was very taken with your opening remarks. i was very taken with them, too. perhaps for different reasons. >> we do like french food. not necessarily french health care. lawmakers getting health care done. now they're turning their attention to wall street. we're going to tell you about tefrts to ramp up regulations as soon as we come back.

live in the financial capital of the world, this is kwauk on the street.

welcome back. will the health care bill fuel or kill the rally we've been seeing? we want to bring in david kelly, jp morgan's fund chief. market strategist. also jim lacamp, part folio manager at macrofo portfolio advisers. what is this increase going to mean for the stock market? it seems to me logically you'd want to try and shield some of your money from that increase in tax before it takes effect in 2014? >> absolutely. but that's a ways off. there's a lot of time between now and then. the understand lying conditions are still there for the market. trish wsh i absolutely agree with you. the single biggest determinant of new job creation is capital investigationment. why you want to increase the taxes on that is beyond me. forgetting that for now, and we have to forget it for now,

because we always have to operate in the environment that we're in. we still have zero percent interest rates. credit spreads have come in. merger and acquisition activity is still there. earnings comparisons for next month are going to be pretty easy. we still have an environment that in the short term is friendly for stocks. in the long run i'm very pessimistic, and larry's called me a bullish bear. i'm still a bullish bear. for now as we say in texas you have to make hay when the sunshines. >> easy money from the fed. greece is a gift. greece brings down the euro. that drives up the dollar. that holds down inflation. that gives the fed more open field running plus profits. dave kelly, i just want to say, david, i was reading your notes from your report this morning. this is really as good of stuff i've seen from anybody. i hope people read your stuff. you talk about price setting regarding the various health care sector. give us your thoughts on price setting. obviously from prices often come profits.

>> for the moment it looks like everybody's basically punted here in trying to control pharmaceutical costs, insurance costs. i'm not seeing a lot of price control in this. i'm not seeing a lot of control of consumption either. i think the big end game apart from the increase in people covered is we're going to see higher overall health care spending in the u.s. economy. that doesn't stop the economy from growing. it's basically a choice we're making as a society pip think the u.s. already leads the world in terms of health care spending per person. i think that lead is probably going to grow after this bill. >> what is that going to mean? when we look at the deficit that continues to mount each and every day, when we look at the obligations we have already for social security, for medicare, and now we're adding this into the equation, when does this come back to roost, so to speak? >> i think it continues to haunt us. already we're looking at over $9 trillion in additional deficits over the next decade. this will only add to it, i believe. i appreciate the job the cbo does in trying to score this stuff. if you take away any incentive

where you don't add in incentives to control costs or spending by individuals, you're going to end up with higher overall spending and probably in the long run higher deficits. to the point of the stock market remember this tax on dividends and capital gains is also tax on interests. it doesn't necessarily make stocks a worse deal relative to bonds and cash. i don't really think it changes the asset allocation decision that much. whatever your financial assets are, you're going to be paying higher taxes on this if you're above $250,000 in household income. >> jim lacamp, it also strike s me, i hate to see investors make any major long term decisions right now. let's take, for example, the payroll tax on investment which is an ugly anti-growth, anti-investor, anti-capital gains. but it doesn't kick in until 2013. i think it's the end of 2013. you may have regime change in congress. right now this coming november. you may have regime change in

the white house in the 2012 election. all this may change. that's why i'm going to ask both of you, maybe people should keep their powder dry and look at this health care thing from the short run and try to pause through it. these long-term things wh, who heck knows? >> not only that, larry, but there's a lot of states already challenging the constitutionalty of this. in my state here in texas they're going to challenge it. there's a lot of room between now and when this is implemented. the fact remains we've removed some uncertainty now. a lot of uncertainty is a lot of what kills investor. they're afraid to make decisions. at least we've taken some uncertainty off the table. my concern here is we've done nothing to grow this economy in the long term. we have no policy that's been implemented that will help keep this economy going on a self-sustaining basis. even bernanke said, look, this is an economy that can't function without stimulus. i've called it a hugh hefner economy. i agree with all of that.

we haven't seen any policy -- >> jim, you don't think that growing the government here is going to grow our economy? >> every increase that we've had in debt has resulted in a lower gdp in greece. in fact, now we're getting negative implications every time we take on -- we're applying greecian formula here in the united states. forget a french restaurant. come down here and eat texas barbecue. this is a model that's already failed all across europe. it's amazing to me that they bandy about social security and medicare as a good reason -- >> it's important to be logical -- it's important to be logical about this. because we are still seeing a big cyclical bounceback in the economy because of pent up demand. i think it's very important. we always say try to take the emotion out of investing. i know people feel strongly about this politically on all sides. right now we're still seeing the economy rebound. still seeing stocks undervalued. i think that's probably the biggest of the big pictures out

there. >> dave kelly, how undervalued are they? >> over the next five years as the economy recovers stocks will give us better than a 10% annualized return. >> next five years? >> i think when you invest in stocks you should think about five year or longer time frames. i think stock wills give you more than 10% return over the next five years. >> that's pretty darn bullish. very interesting. >> a hugh hefner economy? did you guys let that one fly right by? up next, health care is just about out of the way. but financial regulation is next in line for legislators. we'll tell you what's on tap. and are snails good or bad for hugh hefner? google is announcing its shutting down its china site. could the move open doors for google's u.s. rivals? find out later in the program.

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boeing upgraded. the plane makers price target being raised to 80 bucks from $56 a share. this is after boeing said it will accelerate production for its 777s and 747 jets. you can see the stock reacting positively to all of that. 2.4% it is up right now. 72.42 a share. some surprising news this morning on regulatory reform breaking right now on cnbc. the senate banking committee will vote the regulatory reform bill out of the committee today without an expected week long debate. that means none of the more than 300 amendments introduced by republicans will be considered until the bill gets to the senate floor. and during a cnbc exclusive interview this morning st. louis fed president warned against parts of the regulatory reform bill that would take away from the fed the ability to loan to banks in a crisis. listen. >> so you've got this lender of last resort role. and there's no getting around that no matter what you do in the legislation. everyone will run to the central

banks. so you have to be ready to handle that. >> yeah. joining us now is director of financial regulatory studies at the cato institute. >> no one is saying the fed can't open up the discount window, steve? where is that coming from? >> steve, explain to us. >> my understanding is they're going to take away the ability to do extraordinary lending to an individual bank. that's, i think, one of the concerns that he has. getting back to that discussion -- that great discussion you and i had last week, larry, about the back door bailout thing sheila bair was so concerned about. >> i heard dodd say, first of all, as steve said, sheila bair attacked a dodd bill for allowing back door bailouts. dodd responds within a short period of time, his people talk to cnbc, steve liesman, and say, all right, we're going to strip out. there will be no back-door bailouts. it will be virtually impossible.

over the weekend bernanke makes a little speech and says too big to fail is pernicious. i know you're a skeptic. this sounds to me like we are, in fact, moving in the direction of either abolishing or certainly curbing too big to fail bailouts by the government. >> that was my first question as well. >> then we are united. >> we are united. >> before we go out to have lunch at the french restaurant, we are united that it looks like too big to fail is dead in the water. mark, why are you stubbornly opposing this growing consensus? >> i'm the leading edge of that consensus. i really do think we need to end too big to fail. i just think we need to look beyond press releases and spin and rhetoric and actually read the legislation. when i read the legislation, i mean, granted, if senator dodd has come out with something new today, over the weekend that actually fixes the parts of the bill that allow these bailouts, then i think that's to be applauded. that said, my read of the language of the bill is, no more bailouts except under a, b, c,

or d. as long as we have those a, b, c, or do exceptions you're going to have -- >> steve, how do you read it? >> you purists need to get a little more reality here. here's the reality. the reality is when a big bank has a big problem it hurts and affects everyone and there will be discussion about how to stop that bank from failing in a way that does not bring the economy to its knees. >> i guess the question, though, steve, we don't want those ad hoc bailouts. >> let me finish my thought here, please. there is no way that you can establish a system that is not ad hoc, let's say it's a system that is in legislation, trish, okay, then all of a sudden you're criticized by "the wall street journal" op-ed page as creating essentially a too big to fail -- >> can't you help them fail out taking down the system? can't you have an organized failure. >> yes, you can. that's what this tries to do. >> i don't think it does that.

>> go ahead, mark. the criticism is that it tries to do this, basically sets up a system and says we will protect you. that's the criticism. >> i think it's important that as long as institutions and creditors of those institutions think that there's a safety valve, they're going to take advantage of that safety valve. i think it's a legitimate point to say, okay, we're going to have institutions fail but institutions need to -- >> mark, look what bernanke's saying over the weekend. what he said on saturday. he said the resolution agency should not be allowed to protect shareholders and other capital providers. >> but that's in the bill. >> that's what i'm saying. it should have clear authority to impose losses on debt holders, override contracts, replace managers and directors. >> in the bill. >> it has this living will. it has a bankruptcy court piece to it. i mean, look, steve liesman, i'm on the wrong side of this from the standpoint of my conservative friends. i think they are actually moving in the right direction. everything i hearsays that.

>> i just don't think it does that. >> there's three bankruptcy judges that determine the solvency of the bank, by the way. so that solved the republican criticism that says use the -- steve forbes doesn't like the idea. he thinks it holds out basically the -- go ahead and fail because we'll protect you. >> that's what mark is saying. >> the $50 billion bank assessment, mark calabria, which i guess the banks don't like. that's different from the bank tax which i completely oppose. this assessment could not be nothing more than debtor in possession safety net financing when the bankruptcy comes. think about that. >> well, i'd have two reactions to that. the language needs to clearly specify that that's all it's allowed to do. >> okay. >> and not used to bail out creditors. otherwise people are going to perceive it that way. >> that's a good point. >> we'll leave it there.

>> i amend my earlier remarks. that is a good point. >> larry was going for an on television conversion here. >> we're all going to have lunch at a french restaurant. >> might as well. live it up. right? >> thank you, fellas. when we come back, google may be getting ready to get out of china. we're going to tell you what it means for investors and its biggest rival, microsoft. dividends stocks certainly make a comeback. the smart plays for dividends. wh

major news expected from google. the tech giant may be pulling out of china after talks with chinese authorities about sensorship hit a dead end. google, microsoft and baidu shares. cnbc's silicon valley bureau chief joins us. what does google leaving china mean if that were to happen? >> you got to think baidu is already the big winner, has been the big winner. watching and waiting for word from google that it is leaving china. unwilling to trade search censorship for a piece of the 300 million chinese now surfing the web. lurking in the wings, microsoft. i'm told if google does make an announcement it will be poste e on the company's blog. while baidu has enjoyed the

spotlight as a big potential winner from all of this, don't discount the opportunity that microsoft might enjoy. yes, you're going to be looking at here shortly of video of motorola's new smart phones. even though it runs on the google android operating system, motorola has chosen microsoft's bing as the difficult search engine in china. that could be a sign of things to come. unlike yahoo! which immediately came to google's defense microsoft has struck a far more conciliatory tone, planning on spending money on r and d in china. microsoft's top exec telling reuters regardless of whether or not google stays we will aggressively promote our search and cloud computing in china. there's a concern that chinese backlash could extend to companies partnering with google. that might represent an opportunity for microsoft, if, of course, it can navigate the diplomatic mine field more effectively than google.

trish? >> okay. thank you so much. the question is, what does google's move mean for investors and rivals microsoft and yahoo!? great to see you guys. heath, you'd have to assume from google's point of view that it's better to be in china than not to be there. they already have more than 30% of the market share. one would assume that's going to continue to be a major source of growth. my question to you is, do you believe that google either thought, one, there wasn't that much potential in that region or, two, that washington was actually pressuring google to make that move? >> you know, i think there's a -- a third choice that's really the real answer here. google certainly thinks china's a big market opportunity. they'd like to be there. but they have to be there under the right circumstances. this is a company that from the

beginning decided that their mantra was going to be don't be evil. and it got to the point that being in china simply didn't allow them to keep that mantra true to what they were doing. >> okay. then if you think about it in terms of that, then, heath, how are these other companies, for example, yahoo! or microsoft, really going to be able to operate in the same kind of space? do they just not have the same -- i guess you would call them almost altruistic concerns about evil versus good? >> yeah. you know, i mean, i think they look at it a different way and basically say that, you know, them being there, and this is kind of the way google started out along this path, them being there is better for the chinese people than just pulling out and not being there. particularly given the fact, and we're seeing this with google, the chinese aren't going -- >> mark, what's the business angle? yahoo! and himicrosoft. yahoo! is showing us nothing in terms of its share price. microsoft doing a little better maybe. flat lined since the tech crash

back in 2000. what does this really mean from a business standpoint? >> yeah. i mean, i think that's a good point. i think what you're seeing with google, it's a little bit of dealing the cards at the table. i think what they're kind of saying here, this is not just about censorship. it's about about the fact that the advertising market in china is very undeveloped compared to what we think of here in the united states. you know, it's a difficult market to operate in, no question about that. but beyond that, you've got other emerging markets, you know, brazil, south korea, kind of on down the list that are also undeveloped compared to the u.s. but offer better nearer term potential. >> what about in asia. >> i think there are other -- >> the japanese market or korea? >> i don't know that there's any one particular market. i think you kind of spread it across the region. asia pacific. latin america are certainly two emerging regions with many countries there. some of the more leading ones. but, you know, keep in mind, google's $20 billion -- has become developed a lot because of pricing and the fact that

advertisers have bid up these key words over the last five or six years. so far in all of these emerging markets it's still early. that's not happening yet. >> can google do stuff -- look, suppose they physically leave china. that doesn't mean they're off the internet in china, does it? >> absolutely not. when you look at it -- >> no. in fact -- >> i'm just saying, they will have a business. they'll just be outside of china. so it gets them a little bit off the censorship hook but they can still operate some ad model, can't they? >> the ad model is probably going to be a little bit more of a challenge. >> go ahead. finish up. >> i think on the google cn website you could shut that down. that would get around the censorship issue on search. they still have a display advertising business. that's not very big for google these day. but it's growing. you could still be in that market and effectively get around the censorship issue. >> all right. we'll leave it there. when we come back, dividend stocks making a comeback. we'll have the start plays.

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a couple of big retail earnings out today. tiffany says profit more than

quadrupl quadrupled. but still fell short of estimates. williams sonoma profits surged. tiffany's lost ground almost 2%. williams sonoma up nearly 10%. goes to show, profits matter. ge saying it will increase its dividend in 2011. t pepsi recently announced an increase in its dividend. our dividend stocks back? should you be investing in them? let's get the cnbc edge. joining us is president and ceo of rnc capital management and president of heritage capital. thanks to both of you for joining us. dan, let me start with you. it's expected that companies when the economy rebounds are going to increase their dividend again. even though these seem like great plays to me, isn't it already priced in? >> i don't think it is priced in. because i think as you're going forward, what we're seeing is a confirmation with the companies that are increasing now that this is going to continue.

it's been driven by earnings, positive cash flow. i think the demand is going to continue. what you really have is you have a risk rotation that you're seeing by rotations that want to reduce their risks. these stocks are basically lower volatility. about 20%, 30%. you're at a position where people want to smooth out their returns. if you can look up 4% to 5% at the beginning of the year with incomes going up, you're in a very strong position. i think you've got an overall riding demand from the standpoint you've got a big baby boomer population that needs income. they're equity oriented. they're going to have to get cash flow. >> paul, you agree with that? >> somewhat. but here's the problem. if people are using dividend stocks as a substitute for fixed income products, they're in for a rude awakening when the market corrects which i think we're in for the second half of the year. more importantly last night's vote was bad for dividend stocks. it's bad for the markets, bad for the economies. taxes are going to go up next

year. dividend stocks are going to be right in the cross hairs. >> paul, i think that's an incredibly good point. and it's something that, you know, everyone's very much concerned about. exactly when will the policy that we're seeing out of washington start to catch up to the stock market? so far, paul, it hasn't. i mean, we're up 32 points today. we've been in a sluggish but real bull run over the course of the last nine trading sessions or so. at what point does the market start to suffer as a result of washington? >> i think my message has been the same. i think we're going to peak between 11,500 and 13,000 between memorial day and labor day. last night, that has an overall negative impact on the market for the second half of the year, certainly end of third quarter and fourth quarter. dividend stocks, people have to be careful. rates so low they're reaching for the kimberly clarks, the --

some of the drug stocks as a b substitute. >> dan, tell me why that's not true. you're saying people want to reduce volatility, there's a shift in demographics that's causing all these baby boomers to grow more caution and for that reason dif dend stocks are going to continue their bull run? >> i think what you're going to have, this is an equity oriented generation. people aren't going to give up totally on equity. when you're going to see that adjustment in volatility, i agree with paul, people are going to move down the food chain, look for lower volatility stocks and look for the the higher and more secure return. let's face it. we'd all be happy to have an 8% to 10% rate of return right now. if you can look in 4% to 5% from dividends you're right there. >> why would you invest more heavily in cap gains taxes are going up? if your taxes on dividends are going up why would you invest

more heavily? could it possibly outweigh that? >> i don't think we're totally done with that. i'm hoping we reach some type of a compromise. the fact of the matter is you're still going to need the income. unless something else is going to get preferential treatment, which doesn't seem to be in the cards -- >> what about munis? >> we like munis and manage a lot of munis. if you're looking at intermediate term portfolio you're getting 2%. that's pretty well it. this way you can be there almost that same level after tax and still get appreciation, it's a stronger asset class in total return. >> got to take that into account, though. thanks so much for joining us. >> taxes matter. i think i heard that. when we come back, investors are going to get back into auto stocks. a look at what's fueling the sector. the market call heading into this afternoon's trading session.

welcome back to "the call" with your daily realty check. i'm diana olick in washington. commercial real estate prices are rising. moody's real all property index measured a 1% increase in january. the third straight month of pos tiff returns. prices have come back just over

6% from the bottom last october but still 40% below the peak in '07. risks to the housing market are tipping to tup side. that according to to marcus andy of moody's economy.com. branks may manage their foreclosure inventories better than expected avoiding a flood of cheap homes on the market. he warns that thereby a double dip in home prices. he's forecasting a total peak to trough drop of 44%. first indications of the spring housing market. tomorrow we get february's existing home sales at 10:00 a.m. check back with the realty check up next at 2:50. until then go to the blog. larry? >> thank you, diane. all right. the auto industry is picking up speed on all fronts as car stocks are surging. it's even giving a boost to the jobs market. we also have new details on alan mulally's compensation from ford. my lord. only cnbc's phil lebeau can report on this. he joins us from chicago with much more on what's fueling the sector. >> you want to see an incredible return, take a look at the s&p autos index from one year ago.

granted, a year ago the industry was on its knees as the white house took over. but that's a heck of a run these guys have had over the last year. when you look at that return of more than 258%, one of the things to keep in mind, the recent run is because you have automakers adding production. remember, in the auto business, production drives revenue which in turn drives the stocks. general motors adding a third shift at its lansing plant. three other plants also adding that extra shift. when you take a look at the overall jobs picture, these guys are amongst many who are adding jobs. gm about 5,500 either hired or in the process of being hired. ford bringing on another 2,000. even the parts makers like tenneco adding 260. alan mulally made $17.9 million in 2009. that's up about $1 million compared to the year before. bill ford jr., chairman of the company, his compensation, $16.8 million last year.

keep in mind, however, that's deferred compensation. he will not actually get that money until the company turns profitable with its auto business. that's a pledge he made about 18 months ago. what a run ford has had over the last year. now trading just under $14 a share. melissa, about a year ago, year -- maybe a year and three months ago, this stock was all the way down around a buck a share. if you had a lot of guts at that time, said, you know, i'm going to buy this, you'd be in great shape right now. >> i don't know how i feel about that compensation package, though. i know alan mulally is like the new executive for the future. everyone's really excited about what happened at ford. but that's a lot of money. what's the reaction been like? >> i don't think there's much reaction. he was making $21 million when they were sliding lower. he was in front of lawmakers in washington. they said, you think you should take a pay cut? he said, no, i'm good. >> i'm getting in touch with my feelings on this. he didn't take t.a.r.p. that's a plus. >> it's just a big paycheck. i'm sure we'll get a lot of e-mail. phil lebeau, thank you so much.

a quick break and we're back with this morning's market action. >> we're also going to have the links of the stocks to watch as we head into afternoon trading. larry, we're counting on you to pick that restaurant. >> no t.a.r.p. we're going to have french food for lunch.

okay. hello, again, everyone. it's now time for "the call to action" on the stocks you need to be watching during afternoon trading. we've got cnbc scott cohn who's here with a look. >> pretty clear how you guys feel about health care reform. the market tends to be a little more dispassionate. it's been interesting to watch how they sort this out and look for opportunities and costs as a result of all this. health management association's leading hospital stocks higher. about a three-year high on the stock. all new patients will need a place to go. we can see health management up on the day.