tonight on ""the kudlow report report,"" big profits and ultra-easy money trump future obama-care tax hikes. the dow hits a 17-month high, closing up over 100 points today, and vice chair to be janet yellin sparked a late-day rally with, you guessed it, a statement on policy. but even with artificial money stimulus, existing home sales tanked for the third straight month, their lowest level in eight. we're going to look at this. is there really a housing recovery at all? tim geithner talks fannie and is

freddie, but there is no plan, meanwhile, bleeding taxpayers dry. the tsunami that will follow obama care, and talking too big to fail. and finally, is there a new euro currency crash in the cards? fasten your seat belts, everybody, "the kudlow report" begins right now. good evening, everyone, i'm larry kudlow. welcome back to the kudlow report where we believe free market capitalism is still the best path to prosperity, lonely as that is. let's begin with my thoughts. we're talking stocks tonight, a nice rally for the best finish in 17 months. the index is closing in on 11,000. even with all the left-wing politics coming out of washington, the stock market reality, as you have heard me say dozens of times in recent

months is a strong, cyclical rebound in corporate profits, riding on a wave of ultra-easy money from our nation's friendly central bank. profits are the mother's milk of stocks, and it's a global beverage. and despite sinking home sales, a topic we're going to get to later in the show, our friend instead of an abrams sees railroad and freight company indicators that show up a pickup of inventory rebuilding that will create more production and real output. those are old-time. rail and freight cars. and i think truck tonnage, as well. and then as a special gift to ben bernanke, a very special gift, the euro continues to slump in the wake of the greek debt problem that still has not been solved. now, that means a strong dollar, despite ultra-easy money. really, mr. bernanke should visit the parthenon, the symbol of ancient greece and general u flekt in thanksgiving for the crackup which has created king

dollar in expensive ultra-easy money. this is called having your slovaki and eating it, too. and janet yellin did not disappoint today. she had another statement that boosted stocks in a late-day rally. so i bring good tidyings to equity investors despite the fact i cannot find a single free market policy. not one single policy. but sometimes the business cycle and, of course, the fed, are very, very important. we'll talk to senator judd gregg about this in a moment. but first up, i want to talk about this boom in stocks. how long can it last before the tax hikes kick in? is 2010 going to show us even greater appreciation? is the dow going to cruise through 11,000? let's bring in our ace investors. we have the president of berini associates. we have jim le camp, portfolio manager at macro portfolio advisers. hello, gentlemen, thank you for

coming on. you've been a bull, i take it you remain a bull and i would like to know how far this great dow rally can continue. >> well, we just published a piece literally this afternoon called the rally one year and counting, and our attitude that this is a multiyear bull market, and that unfortunately, precedences don't hold here. so we're just going to play it as it goes. but i think you're in for a long ride. >> why don't precedents hold and let me ask you about the future tax hikes? we get a bunch in 2011, more obama care ones in 2013. what's the precedent it doesn't hold, lazlo? >> we looked at the previous bull markets and the best first year the financial stocks ever had was the 1990 bull market when they went up 60, 70%. this time, when they went up 140%. so all kinds of things we looked at in the past for clues, it's a different bull market. there is no cliche that says it's different this time, and it's supposeded to be a badcally say. it's actually true. it's different every time. >> interesting. all right. jim le camp, welcome back.

left-wing politics in washington, in my opinion, are by and large, wealth destroying, not wealth creating. and yet, jimmy, the cyclical profits, profits the mother's milk of stocks. plus we have an ongoing, ultra-easy money fed. those are my two building blocks. where are you coming out? you're a bullish bear. are you still? the higher the dow goes, do you take profits or keep riding this wave? >> i think, larry, you can call me still a cowardly bull. you can ride this market as long as it continues to show expansion in leadership, expansion in groups moving, good decline numbers. the zero interest rate policy is still a big player here. investors really don't have any other place to go. but zero interest rates have also kept borrowing costs low and credit spreads have come down in, and we're seeing credit companies have a better ability to pay down debt. that's helped, as well. merger and acquisition activity is very strong.

and earnings comparisons for the first quarter and the second quarter are going to be very easy. i don't agree with laslo in that this will be a multi-year bull market. i think we're going to run out of steam sometime later this year. but i think for now, investors need to be in. because there is no other game in town. and, again, the market doesn't always move. so when it does move, you have to be a participant, and that's why we're a player there. >> laslo, what's your response to jim's skepticism about the multiyear bull market? >> i've been fighting skepticism all along. and again, when we compare the previous markets, the market that comes up as the best parallel on a market basis is 1982. and one of the points that we've made to our customers is a fascinating article that appeared in october 1982, "the new york times" where they quoted about a dozen of economists friends, none of whom saw an expansion. the feeling was, one or two more quarters and they were going to dip again. and as you know in '83 and '84, we averaged well over 6% gdp

each quarter. >> actually, it was closer to 8%. i was in washington those days, working for the giper. >> we had 20% interest rates in 1982. they came all the way down for the next 20 years to record lows. we also had tax rates that were falling. we also had debt to gdp that was nowhere near where it is today, we're at an all-time record of debt to gdp. yet each decade that we have increased our debt to gdp, we have had diminishing returns. >> okay. all right, big guy. all these bad things, i agree. higher taxes, higher debt, more spending, more government, more pay commissars to dictate salaries. more, more, more. so jim le camp, why aren't you selling? that's my question to you. you correctly figure the anti market, anti supply side, anti wealth creation, anti entrepreneurial policies, but the market is going up anyway. >> larry, i manage money for my clients, i manage money for myself. we have to make hay while the

sun is shining, and right now, these shorter-term factors, the low interest rates, the money flows, we don't have rampant bullishness, yes. when we see too many bulls out there, we'll start selling. when we see interest rates start to tick up, which i think will happen sometime this year, we'll start lightning up. even now, we're keeping our stops very, very tight. but right now, we're seeing an expansion of leadership. we're seeing corporations come in it with very good numbers. and interest rates have remained low. so i think you have to play the cards that you're dealt from a policy standpoint. >> a phenomenal corporate bond rally, a phenomenal corporate bond rally, which continues. corporate bond rates continue to fall. the risks spread versus treasuries it continue to narrow, and, of course, as a symbol of dovish federal reserve policy, the treasury curve is steep and upward sloping, so there really isn't a lot of the. laslo, janet yellin, a very distinguished economist, never going to get personal.

she operates on a phillips curve target. but she spoke today, many people think she helped drive the market up in the last half hour or last hour. she essentially said this. 3.5% growth this year. 4.5% growth next year. and no inflation. that was essentially her view. and consequently, the fed will stay very easy, and accommodative. now, checking fed president charles evans said something similar in asia. but i'm interested in janet yellin, laslo and your take. 3.5% this year, that's her forecast, 4.5% growth next year, and no inflation. >> you know, larry, i'm a market person. and i appreciate this is not like 1982 and a fundamental basis. but when i look at the market, the market is a totally different story. people worry about housing. mvr has doubled, up at 750, is about 10% from its all-time high. i see a stock like ralph lauren up 150%. i see the specialty retailers up 80%. i think there is something going on in the markets and it's not just liquidity, not just soft

funds. i think it's a fundamental factors. and historically, these -- you know, times like this, you have a lot of skepticism. so i'm still very confident in what we're doing. >> all right, so that's fair enough. jim le camp, i was going to mention my friend stephan abrams today. and he mentions there are a lot of problems in state and local governments, bankruptcy, heavy debt problems, your housing, your ongoing head winds. but he also mentions railroad and freight improvement. railroad and freight improvement. those are old, classical economic indicators. those are important. your industrial stocks had a good day today, your commodity stocks had a good day today. maybe the industrial side, the basic materials side is going to really drive this thing. because laslo is saying here is the message of the marketplace, which is saying there is going to be a better recovery. what do you think? >> well, i think there's a lot of truth to that. if you look at stocks like bucyrus and joy global, all these stocks are performing very

well. industrials have led. and if you look at global shipping rates, they've started to come up, as well. and one of the most positive things i've seen, larry, i hate to always be negative, one of the most positive things i've seen is that global consumers have started to take the -- the baton a little bit from u.s. consumers. the world doesn't have to rely on the u.s. consumer so much anymore. so i think there are some good things going on. the problem is, from our policy standpoint, we're headed 90 miles per hour down a dead end street, we're not doing anything that's going to create any self sustaining recovery. unlike other recovers that we've seen over the last 30 years, one year into the recovery, we still haven't seen credit expand. small business owners are being attacked. we're not seeing anything that's going to lift this thing off of the stimulus -- the need for stimulus. and until we see that, you have to be very skeptical here. >> laslo, on the other hand, the dow transports have been very strong. some people think that confirms the dow industrial signal. and also, and i think you

referred to this, s&p retailers up 10% this year. year-to-date up 10%. that's a good sign for consumers. home builders are up 20%, despite the fact that home sales have fallen three straight months. is the market a better indicator than the economic stats, laslo? >> that's how you make money. you make money by listening to the market. and one of the things i'm going to advise people is cut down on their reading. the second law of the market is the negative case is always more articulate, compelling and rational, because the negative is looking now. the market is looking ahead. and we don't know exactly what the market is telling us. but if i'm going to follow a scout, it's going to be the market. >> well, you see, that's such a great story, particularly with our present other guests, my great friend, jim le camp. because he will point out 25 negative bearish things. and he is right every time, from politics to the economic stats. and yet, laslo, jim le camp is buying stocks despite the bearish stuff. i want to does ask you about

this, laslo, there's a lot of institutional and retail investors who feel the same way. okay, the numbers are coming out pretty lackluster, but it's time to buy. is that an attitude? is that a mentality? is that a psychology, laslo? >> yes, this is what the market does. of we say a zillion times, it's a barometer, not a thermometer. and i go back and i remember 1990, before the kuwait war, i was with a few people who were bullish because everyone said wait until the war starts. and i go back and long-term capital, and we were positive. the market has a great ability to discount and look ahead, and it doesn't give you three decimal points. it just sort of gives you a direction. and i will leave it go at that and let the decimal points for people who are smarter than i am. >> i spoke at a breakfast that morning, the kuwait invasion morning, laslo. i'll never forget this. i was down in dallas, texas, working for bear stearns, was a partner at bear stearns, and i said go buy everything.

get out of this breakfast, go and buy everything. and i agree, that was a good call. i felt the same way jim cramer and i did on the eve of the iraqi war. going back in 2003. but laslo, what could trip you up? is there a market signal, a market indicator, something that would cause you to pull back? >> the thing i'm concerned about now, is seeing some of the technicians who have sat on the sidelines for 60%, who all of a sudden say now that we've crossed some sort of number that this is a really -- now it's time to get in, and i'm seeing a little bit of capitulation along the bears. and you know, that's sort of -- >> would that be a volume sign, would that be a price sign? you know, we had a 10% or 8% correction earlier this year. we have now cruised right by that. is there one thing you can say to an investor tonight? because we need to be obviously sober and serious about this. euphoria is not a disease any of us want to catch after the events of recent years. is there one area you would

encourage people to focus on for a negative sign? >> again, i think, you know, the market is not the cover of any magazine. those are the kind of anecdotal things which actually do work if you do monitor them day in and day out. so, yeah, i'm concerned. and i would be a little bit worried if some of these people who just sort of sat it out -- if somebody said well, you know, it's time to get back in. and that's what i'm watching foreclosely closely. >> jim, i want you to answer this fast. suppose the economy turns out to be very, very strong, much stronger than anyone thinks, okay? and we get nearer and nearer or to the point of fed tightening. will that end this bull market, jim le camp? >> i think rising interest rates ultimately will end this bull market. whether you have a recovery or not. i mean, ultimately, if it you start to see better recovery, corporate issuance is going to have to compete with government issuance. and the government is running the risk of crowding out the private sector. when the fed ends these mortgage

purchase programs, you're going to have some issues there, too. so i don't know if it's going to happen in two months, four months, six months, but at some point, you're going to see rising interest rates and that's going to have a militarious effect. >> besides rising fed rates, what about rising tax rates? maybe people hold on, hold on, and then as we get into november, december, we know we've got a big capital gains tax hike, january 1st, 2011. that's not even including the new medicare payroll tax on cap gains. it doesn't go until 2013. will people start selling big-time to take profits at the lower cap gains rate toward the end of this year, jim le camp? last question, light and fast. >> it certainly could happen. and don't forget that capital -- capital investment is the single-biggest determinant of job creation, which i think makes the capital gains tax the stupidest tax we have, which is why i call it the crap tal gains tax. >> you didn't answer my question. is there going to be selling

late in the year as a result of a higher tax rate in 2011? >> i certainly think there could be. if so, you're going to see people jumping the gun on it, though. and it starts happening probably in august, not in november. >> okay. all right, laslo, does that have any impact, or are you just going to watch the market to see how it behaviors? >> we try to dissect the market. we take things like taxes and currency out, and it's hard to really qualify what they do to the market. i think there will be selling that might already be in the process, because everybody has capital gain losses carrying forward. so i'm still going to hold my position, and if i change it, i'll call you. >> where's the peak, laslo, 12,000? >> we're telling people you can make 15% this year by good, intelligent stock selection and i'm not excited by stocks like walmart and exxon, probably not big contributors here. >> thank you both. thank you, gentlemen. coming up, has the passage of obama care opened the floodgates

tore more big government, if such a thing is possible? we have financial regulatory reform. we've got fannie, we've got freddie, we've got too big to fail. do we have cap and trade, do we have car check unionization? we're going to cover it all with republican judd gregg when we return in the show. when we revisit, a potential collapse of the euro and what is going on with falling home sales? that's something to think about. you're watching cnbc. we're first in business, worldwide.

after a century of striving, after a year of debate, after a historic vote, health care reform is no longer an unmet promise. it is the law of the land. it is the law of the land. now, as long as a road that this has been, we all know our

journey is far from over. there is still work to do to rebuild this economy. there's still work to do to spur on hiring. there's work to do to improve our schools and make sure every child has a decent education. there is still work to do to reduce our dependence on foreign oil. there is more work to do to provide greater economic security to a middle class that has been struggling for a decade. >> all right. that, of course, was president obama today right after signing the health care reform bill into law. now congress is turning its eyes to another historic piece of legislation, financial reform. maybe -- maybe we could get a free market policy and too big to fail will be on its way out the door. hmmm. here we have senator judd gregg from new hampshire who serves on the budget committee, as well as a myriad of other responsibilities. senator gregg, i have to ask you -- i can't keep doing this health care thing, it's just driving me crazy. >> yeah, it should. >> but look at, president obama

in the signing ceremony or in his speech in the interior department after the signing ceremony, he said the journey is far from over. and he listed a lot of other priorities, mentioned education. he mentioned energy. i just want to ask you, will the health care victory at the moment 'em bolden the president and the democratic leadership in the house and senate to go for energy reform so-called on cap and trade and also on unionization car check? two things that the business and investor communities do not want? senator, is it possible that they're going to roll the dice again on those two areas? >> oh, i think absolutely. larry, this administration has a very aggressive, very, very left-leaning agenda. if you look at their goals, it is basically to push us into a european-style democracy, and they have a game plan to do that, and they're pretty far down the road. i mean, this health care bill issi issel single-largest expansion of government in the last 50 years.

included in the health care bill, which nobody is noticing is a total nationalization of the student loan program. of course, you've got the nationalization of the automobile industry and then a house bill on financial reform, which says essentially if you're big, it doesn't matter if you're in trouble, just if you're big, we can break you up. it is a policy of an overbearing government, it's a policy that genuinely believes that you create prosperity by growing government. of course, i believe and other people on our side of the aisle believe that you create prosperity by giving individuals the ability to go out and be entrepreneurs, take risks and create jobs. but this attitude that government is -- should be more intrucive and all sorts of segments of our market economy is very much the dominant view in washington right now, and it's undermining what i think is one of the great strengths of american exceptionalism. >> do you think we'll see a revival of cap and trade? >> yes. i don't think there's any question about that. i don't think there's any question you're going to see your issue on car check. probably they're going to try to do that through regulation.

something like that. you've got these initiatives that are going forward under the health care umbrella, which are very significant, and in that they're not only expanding the government dramatically, but they're setting up the -- setting up the scenario where inevitably private insurance will be priced out of the market and people will be forced on to some sort of public plan. and then, of course, you've got this medicare situation where they have essentially taken a trillion dollars out of medicare and moved it over to create new entitlements that have nothing to do with medicare. none of these people are getting this benefit are senior citizens, they haven't contributed to medicare and so the practical effect is that the resources that should be used to address the issue of medicare and its insolvency, which is the primary driver of our debt as a nation, which as you know, there's some very serious problems of our debt in the looming deficits and the looming debt burden. the primary resources for addressing that are being used to create more government, and the practical implications of that are that we won't be able

to pay for this government. the government is going to go from 20% of gdp to 26% of gdp and we're in deep trouble. >> senator, can i just get a very quick -- i want to go to too big to fail, but i want a lightning take from you. 13 states are suing the medicaid expansion in obama care. and these include democratic states. they're democratic governors in here, as well as republican governors, because they said we can't afford it. this is a mandate from a huge expansion of medicaid. now, that's different from the other entitlements in here. they say they can't afford it. what's the buzz on capitol hill? are you watching this medicaid lawsuit? they're going to run it all the way up into the courts. >> and they should. because basically, what you're seeing here is the federal legislature and the administration pass a law which they're not willing to pay for, and they're going to move that -- the burden of that law or a large percentage of it on to the states, and that really skews the state's budget. as a former governor, i can tell you, these mandates in the

federal government where the members are hearing congress pound their chest and take great credit for doing this or that, that's wonderful, but they're hard to deal with. >> does that have any impact on the allegedly state-run private insurance exchanges which is where the insurance subsidies, you know, four times the poverty rate, is going to go? in other words, if the states can somehow stop medicaid, what does that do to these so-called private insurance exchanges where the entitlement is supposed to flow? >> i think we'll have to figure that out. but as a practical matter, what they're taking -- what they're doing with medicaid is pumping people who might otherwise go into those exchanges. but with very significant subsidies into the medicaid system. and the -- one of the big problems with the medicate system, of course, is that doctors aren't serving medicaid patients because the reimbursement rate is way below what they can afford to give service as. it's about 60% of the actual cost. and the practical effect of that is that the additional cost ends up being borne by the private insurance industry, and by the

small employer whose premiums go up so they can support the people on medicaid. and so it's really a vicious cycle. the more people you pud on medicaid, the higher the small business insurance premiums go, the more difficult it is for small businesses to insure people, is so more people end up being pushed out of their insurance and on medicaid. and to be honest, that's the goal. the goal here is to nationalize the system. >> i know. look, they're going to -- anti profits. they're going to put caps -- insurance companies or pharmaceutical companies or hospital companies who think they're going to be able to keep their prices up for the new traffic are nuts. >> you're absolutely right, larry. >> nuts when these regulators get through with this. >> you have to remember, larry, this is an administration made up of community organizers they don't believe in the markets, don't believe in capitalism and certainly don't believe in profit. their goal is social justice as they define it, and they're using the government to accomplish that. >> i couldn't have said it better myself. in fact, i have said it. but senator gregg, let me ask you one last question. >> better, i'm sure, too. >> no, never better.

too big to fail. senator shelby told us last night there is a chance there might be an end to too big to fail. could you just give me a quick one on that? >> has to be an end to too big to fail. and i think senator corker and senator warner came up with a good scenario and template to do that. unfortunately, it wasn't fully put into the dodd draft. but i think before we get this bill to the floor, there will an agreement hopefully between senator shelby, dodd, corker and warner to do just that. >> that would be the best possible reform. that would come out of right field, and i think investors would love to see that. senator judd gregg of new hampshire, thank you ever so much. >> thank you, larry. coming up on "the kudlow report," existing home sales down again in february. that makes three months in a row. rest of the economy may be getting better. housing is certainly not. how big a problem is this? steven meister and howard glazer will explain to us why federal policies are failing in the housing market, and maybe making matters worse. we'll be right back.

too big to fail may be going down, according to senator greg. i love it. great stuff.

tdd# 1-800-345-2550 to help with my investments. tdd# 1-800-345-2550 so where's that help when i need it? tdd# 1-800-345-2550 if i could change one thing... tdd# 1-800-345-2550 we'd all get a ton of great advice tdd# 1-800-345-2550 just for being a client. tdd# 1-800-345-2550 i mean, shouldn't i be able to talk about my money tdd# 1-800-345-2550 without it costing me a fortune? tdd# 1-800-345-2550 if i had my way, investment firms would be tdd# 1-800-345-2550 falling all over themselves to help me with my investments. tdd# 1-800-345-2550 (announcer) at schwab investors rule. tdd# 1-800-345-2550 are you ready to rule? treasury man tim geithner testified before the house financial services committee today. didn't seem to offer any details on how to reform fannie and freddie. but he did defend the government's role in housing. all this with the existing home sales continuing to drop for the third straight month. let's bring in cnbc's diana olick from washington with the full report. really, a lousy housing report,

diana. >> yeah, it really was, larry. and it was kind of, dare i say, poe yettic that the hearing on the future came out at exactly the same time when the realtors put out a very lackluster report on the february housing data. let's take a look at that report first. existing home sales fell 0.6% in february from the previous month. of and home prices are down 1.8% from february of 2009. remember, prices should always be measured year over year. most disturbing, though, is that after some improvements, inventories -- that is, the number of homes on the market, rose dramatically from january to february, and that's concerning, because higher inventories mean lower prices. now all this, as i said, underscoring a full week in housing, and that is the secretary's concern on capitol hill this morning as he was grilled on the future of fannie mae and freddie mac. >> we still have an economy that has only been growing now for three quarters. we have unemployment at around 10%, much higher in many parts of the country. housing market still

overwhelmingly dependent on the government, because there is no private will to provide financing for financial real estate. >> he said fannie and freddie cannot continue to exist as they are now, but he stressed the need for some kind of mortgage guarantees. >> i think there's likely to be a good public policy case, good economic case, likely that both conservatives and liberals could agree on, where they design a carefully calibrated guarantee, appropriately priced that could continue in some form. >> when will this happen? not any time soon, that's for sure. remember, fannie and freddie and the fha, that is the mortgage market right now, about 90% of it. so there will be a lot of talking over the next several months. there will be a lot of proposals put forward. but nothing is going to happen this year. it will probably get started sometime next year. larry? >> all right, diana, great report. i just want to ask you, in terms of mr. geithner's testimony, he didn't really have a plan. he's just saying there is going to be government involvement and government backing for fannie

and freddie. that's basically his message? >> that was basically the message. i mean, look, there are a lot of proposals out there. the mortgage bankers have put out a proposal, the realtors have put out a proposal. there are proposals coming from left and right on the hill. but at this point, they believe, the administration believes, that housing right now is really too tenuous to come out with anything specific. he's talking about there needs to be some kind of guarantees, but as he said, it's all very vague right now. looking at a lot of proposals, and over the next several months, they'll start hashing it out. but until we get housing on a solid footing, you can't pull the rug out from under fannie and freddie. >> all right, diana olick, thank you very much, washington, d.c. let's get a quick reaction from our guests. gentlemen, i want a 30 second tease. steve meister, partner at meister, sooeling and fine. and howard glaser, farmer counselor to the hud secretary, president clinton. you're going to come back in the next segment. i just want a quick tease. is the bottom in housing about to crack lower? howard, you first. >> critical and dangerous spring

for the housing market. we've got the withdrawal of mbs from the fed, the housing tax credit expiring, and we have 3 to 4 million homes and shadow inventory. we have a problem ahead if we're not careful. >> all right. so steve meister, do you agree with that? is the bottom going to crack lower? it's going to crack lower, larry. unless the democrats have figured out a way to repeal the law of supply and demand, we're going to go lower. there is a lot of mortgage foreclosure inventory, shadow inventory, coming on. and we are going to have to see lower prices in order to deal with that increased inventory, no question. >> gentlemen, stay right where you are, please. when we come back, i want to pursue this. i want to ask, with all the federal assistance to housing, why isn't the market stronger? much more with our guest coming up right after the break. and then later on, don't forget, is the euro cracking? is the euro currency cracking? and does ben bernanke owe it all to greece?

all right. with all the federal assistance surrounding the housing market, why are home sales falling, third straight month, lowest level in eight months. we are in danger of cracking the so-called bottom. food for thought for all the bullishness about the stock market. we're here with steve meister

and howard glaser. steve, we've had tax credits, we've had foreclosure moratoriums, loan modifications and whatever else i've forgotten. but it doesn't seem to be helping. and you know what's interesting, courtesy of my friend, mike pento, you can blame the february numbers on the bad winter, but in the northeast, home sales are up so that makes me think there is something more fundamental wrong here. >> larry, you can't make a housing recovery out of the first time home buyer. the first time home buyer has been 40% of this market. we need to draw the balance of the market into play here. and the balance of that market, these are smart people, and they see that all those policies you're talking about, larry, they're just amounting to kicking the can down the road. that shadow inventory is an overhang here. people know it, and they're worried about the double dip when perhaps as much as 10 million additional homes come on over the next three years. so that's what people are worried about. eve got to get this behind us, and until we do, we're not going

to engage the rest of the market. >> howard, just to review, again. sales down again, third straight month, worst in had eight months. inventory is up, as i think you both have pointed out. prices continue to fall, as diana olick continued to point out. now maybe we would have been much better off just leaving the market alone, and letting it adjust, howard. i guess that's my question. maybe these cash for clunker tax credits have done more harm than good. of. >> i would say that the housing market has become the vietnam of the american financial system. once you commit, it's extremely difficult to withdraw, and we now have as load-bearing supports the federal government providing all the backstops to the housing market, and we're structurally integrating. i would argue that was necessary. until we stepped in about a year ago with the tax credit and the mbs purchases and the other programs, we were in a downward spiral that has stabilized. now, the question is, how sustainable is this effort over the long-term? and you can't put this out for

another five years with this kind of federal effort. we need a softer landing. you can't pull these things out now. you can't have them go on forever. i think you need some continued federal support to keep the bottom from completely going through the basement. >> all right. well, yours is the reveiling view in washington. let me go back to steve on this. the fed is going to cease its purchases of mortgage-backed securities, the end of march. and we heard geithner and everybody else talk about how important fannie and freddie are to funding. no private capital to finance. but with this all, with fannie and freddie financing, with the tax credits, with the foreclosure moratorium, i just all of a sudden am waking up and saying, huh? i,000 i saw a bottom in had home sales and now i'm not so sure and i'm usually the optimist. >> because, larry, we have to concern ourselves not just with the loan side, but with the demand side for those loans. not just the supply side of those loans. we need buyers across the

marketplace to be stepping in and buying. and as long as they're afraid of a double dip, people don't to buy a home for a monthillion dos and find out they've lost $100,000. so what's happening is this kicking the can down the road and keeping the inventory in the wings as shadow inventory is really ending up having a sort of a law of reversed effect, and is pushing off buyers. we need -- >> what about this thought? i mean, the tax credits, you know -- worked last summer and fall, but maybe they just borrowed from this year. maybe they stole sales from this year? i mean, that's -- that was the cash for clunkers thing. and let me ask you another what-if. here, i want you to wrestle with this. what if mortgage rates in the open market go up? i'm not talking about 600 basis points. but if you had a signal that we have seen the low, the bottom, in mortgage rates, then my people come in and say, wait a minute, now it's time for me to buy ahead of rate increases, is

that possible, steve? i want you to both address that. >> well, i mean, i think mortgage rates are going to go up a little bit once these mbs purchases are fully phased out. most economists think 30 to 50 basis points. in itself it wouldn't have a tremendous impact an the market but with these other things we have talked about, i think it would have the opposite effect of what you're suggesting, larry, which is people begin to sit on their hands when the psychology changes, and they think that the value of the home, given the cost of getting in the mortgage are going to go down over time. and that's the tipping point we have to worry about. i think the big issue here is the inventory. and we really can't stabilize this market with these 4 million homes sitting on the sidelines. so you have a couple options. your solution, i think you know, you hear -- on this show most of the time is put them on the market, let them throw the prices down and the market will correct. >> yes, the faster that correction happens, the better off we're going to be. and the faster the correction and upward mortgage rates, the better off we're going to be. because people will see low prices, and they want to get -- they want to get financing ahead of possible mortgage rate hike.

>> once we start that run to the bottom -- >> markets work, my friend. >> i don't think there is an end to that, once we start that run to the bottom. plus, larry, it disrupts hundreds of thousands of lives, and there is a better way. >> steve meister, i've got it give you the last word. we're running out of time. you know, higher interest rates sometimes can spur buying of homes, and other durable goods and what not. and i love price moments. you go into san diego county, you see how the foreclosures came on the market. the prices got slammed 50 -- 50%, steve. and sales started rising as a result of that. >> we need a free market clearing process. and larry, you made a good point about the regionalization of this. the northeast had a price increase. the west had a 10% price decrease. and so you really are getting a regionalization. that's the marketplace acting. the market -- the free market works. the government's support doesn't. so we have to get to a free market. i do think right now, the mortgage interest rate factor is a smaller factor than the

psychology of fear in the marketplace. >> well, i think more job creation would help, too. i think psychologically. steve meister, thank you ever so much. howard glaser, thank you. coming up on t"the kudlow report," is the euro headed for another crash, and should ben bernanke kneeling at the head of the parthenon giving thanks to greece for reducing king dollar out of nowhere? we'll debate this proposition and what it means for stocks. keep it right here with "the kudlow report." ( music playing )

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the modern-day greek dead crackup has created king dollar. in spite of ultra-easy money from our fed. this may be called having your slovaki and eating it too. here is david goldman, senior editor of "first things first" magazine. the dollar was heading south toward the end of last year and early this year, and then along comes greece. along comes greece. really bailing out the dollar, suppressing inflation expectations, giving the fed more easy money, running room. shouldn't mr. bernanke go to the parthenon and genuflect in gratitude? >> well, he should, larry, because the european economy,

remember, is much worse off than the u.s. economy. they've got no high-tech exports. germany doesn't ship high-tech goods to asia. it ships commodity dws goods to the periphery of europe. so they're down by a quarter. the european economy is sagging. greece is a place where if you take away corruption, you destroy the social fabric of society. it's a banana republic, which for a short time had a aaa credit rating. >> does that mean the euro is going -- i appreciates theagek actives. does that mean the euro is going south? euro by the way, just hit a low today against the suisse frank. david is the euro going to continue to go south and the dollar becoming more king dollar? >> the europeans, according to robert mundell want the euro at around 1.25 to deal with their export catastrophe. so i think that's about right. i see 1.25, gradual fall. i don't believe the fed is going to tighten and push the dollar up further for a simple reason.

you've got -- >> they don't have to! greece is doing it for them! that's my point. let me bring in axle mark. bernanke lucked into in. because after ignoring the dollar as he always does, he finally put a line in his speeches in january -- the dollar had fallen, u.s. import prices are rising, producer prices are rising, and suddenly greece comes and bails out bernanke axle. what's your take? do you think the dollar will keep falling? >> hi, larry. i actually disagree. i think the euro is a great buying opportunity. but let's start with bernanke. unlike greenspan, he is seeking dialogue about the currency occasion. he has gone as far as testifying in congress that going off the gold standard doctoring the during the great depression by debasing the currency, he helped spur growth. so he likes to have currency to spur growth. and also referencing the banana republic, i agree, greece may be a banana republic, but greece as a whole only is running half as

much of a deficit of their gdp as in the u.s. so while in greece they certainly have made their issues, at least they're trying to contain the spending, and while it looks like a circus over there, when push comes to shove, the europeans are spending less money, they're printing less money, and as a result, we do believe that the euro will be much stronger down the road. >> all right. so axle, let me just -- this is a good contrary view. you're a buyer. dave goldman would be a euro seller. what happens if the euro does go up and the dollar goes down, axle? just take a gander. what does that mean for the u.s. stock markets? >> well, it's not necessarily a good thing for the u.s. stock market. and indeed t may not be a good thing for the exports of the u.s. but i think let's clear up one misconception. we talked about growth before. people always think you need to have economic growth to have a strong currency. that only applies when you need foreigners to support you in the u.s. and australia when you have a current account deficit. but look at japan. japan has had a lousy economy for the longest time, yet a

strong currency. similarly in the euro zone, yes, they may have a declining economy, but because they're spending less money, because when you have a bank bailout you can't have a treasury secretary stuff the money into the banking system, it has to come from the local budget, it's far more painful. >> as we are talking, the euro is fall to go a three-week low. it's now dropped to 1.34 and change. dave goldman, what do you think about axle's counter view? maybe the euro is cheap. >> that service as a percentage of gdp is rising very fast in the euro zone. there are only a couple percentage points behind the united states and the danger that the entire southern european periphery, not just greece, but the pigs portugal greece and so forth are going to crumble is that the export structure of the german economy goes south, and their deficit will increase. plus the fact that their nanny state is putting an enormous future on them. so the fact that the european

economy is dead in the water, nothing worth buying there, means that the european economies will continue weak, and the interest rate differential will continue. >> last one. i've got 30 seconds. real fast. will jean-claude keep his target for the bank lower as a result of the greece crisis? >> absolutely. no choice about it. >> axle, what's your take, will trichet keep it lower than the funds? >> the u.s. is just phasing out the additional purchases. in the u.s. we have the weaker housing market as you pointed out. >> i've got to leave it there. very good. axle merck, thank you very much. and david goldman. coming up, my last words. stay with us. mr. bernanke walked into a good thing, didn't he? exit 5. we're on it. onstar, we may have that tahoe. ok, i'll flash the lights. we got it. it's in the clear. i'm sending a signal to cut the power.

we got him. mr. ross, the police have recovered your tahoe.

even though it may be a greek euro accident, the only good thing i've seen in american economic policy, accident or not, is the return of king dollar. at least temporarily. that's good for growth. and i think it's good for stocks, too. we'll catch you tomorrow night. king dollar, free markets. of