okay. we are riding higher, getting

closer to the 11,000 on the dow jones industrial average. in today's street poll we asked you whether the government should focus more on creating high-tech jobs and green jobs over traditional manufacturing jobs. 73% of you said america will always need traditional manufacturing jobs. 27% said focus on high tech and green. i would have thought the cnbc viewers pushing to the boundaries of where things are moving and where would assume they would have had the debate about educating americans for the future and i would assume that was high tech and green and business services and all those sorts of things. >> if i may -- if i -- >> don't say it that way. yes, you are. >> if i may register a complaint -- >> about me? >> the questions and the answers, the answers are not exclusive. the question, i think if you

delved into that a little bit more. but i understand where those people are coming from. we need to make stuff, hard stuff that you can pick up and carry around. we got to go, we'll see you monday. are you here on monday? >> yes. >> good. >> bye. good morning, everyone. happy friday. welcome to "the call." i'm trish regan here at the new york stock exchange where we're watching a market that is getting closer and closer on the dow. the question now, is whether it is time to sell bonds and buy stocks. we're going to talk about it. hey, larry. >> hello, trish. i'm larry kudlow. the obama administration expanding its plan to help troubled homeowners. we'll speak with the fha commissioner about it and we'll debate whether it's a good idea or government gone wild. >> i wonder what larry things. >> our special cnbc day-long coverage focusing on manufacturing jobs coming back to america but do manufacturing jobs matter to the u.s. economy? this is "the call" on cnbc.

stonchlthsices are rising but the real action is in treasury and still the major indices in positive territory despite fourth quarter gdp the expenditure measure rose at a rate of just over 4% in the first half of the year. good signs of recovery, that's my theory. i welcome yours. the s&p 500 trading at six points and radio shack the biggest gainer in the s&p right now. the dow industrial traded plus side by better than 52 points. bank of america, jpmorgan chase helping the bulls there. look at the nasdaq. positive territory, as well. 2406. trish, what's happening on the floor? lots of chatter about the bond market, right? >> lots of chatter about the bond market and we are seeing some inflows here to equities. we'll talk about that coming up the relationship between the

two. bob pisani on the floor with me here. a relationship with the u.s. dollar, the euro and the equity market here. >> we have seen that relationship as the euro has weakened the dollar strength earlier in the week and trouble in big parts of the market like commodities and today the dollar is a little bit weaker and, guess what, the big material names and the commodities names and some of the big industrial names all do a little bit better. typical examples. they're all doing a little bit better here today. the market is going back, parts of it to respond to that dollar/euro relationship and particularly the strength of the dollar. >> the question is, too, when you look at that part of what's going on, one thing you have to question is how sustainable is this? the reality is -- >> there is a big fight going on and there are dollar bears and dollar bulls. it can go either way right now. this week, the weakness of the euro has definitely gotten people a little bit concerned here.

>> also the mounting, mounting deficits and what that means for the u.s. dollar. >> all that is fixing in. but you can see the relationship with greece and the euro very, very clear this week and how it's influenced. >> so, volatility, not much of it? >> you know what the biggest debate is, why aren't we getting any movements any price swings in stocks, why there is no volatility right now. the biggest problem on trading. they're not making any money. here's a few ideas here. less interest in buying protection out there. think about this, if you have high yield better and gone to 80 cents there are fewer big bets out there and a lot of people have already decided to reduce their risk portfolio and not as exposed as they were two years ago and they have other things out there. less hedging using options when the market makers are out there. we'll discuss this at 3:00 this afternoon. but, believe me, the fact that we have a loveless rally here is a big problem for the traders.

>> we have to go, but have you been keeping tabs on trim tabs and whether or not the retail investor is getting -- >> no equity mutual fund -- >> that's a good sign because we look at that as a contrarrian indicator. once all the moms and pops come in, then it's questionable. >> they would have partaken in the rally. >> bob pisani, have a great weekend, thanks so much. larry, back over to you. >> thank you, trish. we have two big readings on the state of the economy. steve liesman has all the details and he'll look at the sources of the big, bad budget deficit. good morning, steve. >> larry, the trade market trading better today after mixed economic data. gdp coming in, the third reading coming in at 5.6% down from the previous 5.9%. a little trouble with the consumer there and little less strength of the consumer and less building of inventories largely responsible and more inflation. coming in at 73.6 after an estimate of 73.

that took a big downturn, you remember, in the month of february. the past two days have seen those two bond auctions highlighting growing concern on main street and is all this red ink a surprise. cnbc working with the congressional budget office to answer that question. the ten-year outlook for the deficit has taken a rapid and historic turn for the worst in just two years. what was projected by the cbo to be on $240 billion surplus before the recession this is for the year '09 through 2018 deteriorated in '09 to a $4 trillion deficit and now projected to be a $7.4 trillion deficit. that makes for a whopping nearly $8 trillion swing in the deficit in just two years. we'll put it another way, every man, woman and child in this country is now taking on an extra $25,000 in debt in addition to what was already owed. how is the balance on your credit card? how did it happen? according to our work with the cbo, 57% of the increase from

'08 through 2018 is the result of a decline in revenues in which the vast majority the cbo outlook for the economy is for the economy. social security over the ten-year period looked at by cnbc it was supposed to show a $3.3 trillion surplus. now the surplus is supposed to be just over $1 trillion. the stimulus bill a slight change and little bit of t.a.r.p. and more interest on the debt and extended unemployment benefits all add up on the side. economic turn around will serve part of our fiscal problem, but not all of it, not by a trillion dollar long shot. melissa? >> okay, we want to go to diana olick right now who has a very special guest with her, diana, are you there? >> as you know, the administration this morning announced big changes to the home affordable modification and refinance problem is a big part of that. joining me commissioner dave stevens and mr. stevens, commissioner, thanks so much for

joining us on this crazy day. >> good to be here. >> risk, we have to start out with risk. you'll get more borrowers through principal and through bigger incentives and what about risk to the already overbloated fha? >> two components to it. first, t.a.r.p. funds available, $14 billion that will be used for second incentives but the majority of it will go to offset the risk associated with these loans so that fha doesn't take on that burden. borrowers will have to qualify for this. this has taken borrowers who want to stay in their homes and r who, because of price declines, they will be able to, potentially, if they qualify and investor agrees to get into a new mortgage that they can afford based on their desire to stay in the home. >> a lot of folks will say this is just like the previous administration's hope for homelender's program but lenders didn't want to do it. what will make the lenders get on board now?

the services and investors. >> this is using a refinance program that exists within fha today. not a new program, all within our existing guidelines today and what we have learned is investors who hold first mortgages and investment companies around the nation are concerned about some of their borrower population that are so deep in negative equity that they'll never get out and those borrow oers who had payment reductions are at risk of default because they can't afford their mortgage today and their home is under water and no way out. for the investor, cheaper to write down a portion of it and get them in an affordable loan than hold them on the balance loan and risk the default of that mortgage. >> isn't this based in certain geographical area because investors can say, sure, in nevada, it makes sense. in a place like right here in the d.c. area where home prices have stabilized, why should i take the cut? >> that may be the case. investors will take that option. clearly the worst negative equity is in several states and a lot western states and that's where most of the negative

equity is concentrated. i would highlight in washington, d.c., in the southeast and around the country, there are markets where homeowners may find themselves 130% under water and 130% in negative equity and they want to keep their homes and income may have declined and investors may have the opportunity to write down loans if any of those situations across the country as long as that borrower qualifies. >> the fha part of this plan is just part of an announcement plan today. the program will require that lenders consider principal write down and already outrage online about this. why is it fair? why it is it not a for government incentives that is tax dollars to write down principal, give back equity to some borrowers who are behind on their loans as opposed to other borrowers who are paying on time? >> look, keep in mind principal right is by the investor, not --

>> but you're offering incentives, big ones. >> to servicers. the critical component here, keep in mind, is that in these cases the borrowers are going to see impairment to their credit ratings by having to go through these principal write downs. but with the lack of alternative, borrowers who through no fault of their own had job loss or negative equity and consideration you have to have that in consideration. remember all of us who own homes if a home goes into foreclosure on your neighborhood or in your street it brings down value and it impacts stability. this program is part of an ongoing set of solutions to deal with a unique crisis this country is facing. >> david stevens, thanks for joining us on this very rainy day. back to you guy,s trish? >> thank you so much. you just heard from the fha commissioner about the administration's plan to help troubled homeowners fight

foreclosure. is this the right solution or just gaumovernment gone wild. we'll debate it. the dow is heading near 11,000, whether it's time to sell bonds and buy stocks. this is "the call." we'll be right back on government going wild.

some key pieces of data seeming to share recovery in the economy at the same time the

bond market doesn't seem to be buying it. joining us michelle gerard and harry and steve liesman is with us, as well. michelle, let me start with you. what do you think the bond market is telling us right now? >> sort of like the bond market woke up this week and we have a big deficit and none of these issues, you know, are really anything new, but this is how it always goes in the market. at some point people become very focusesed on issues that have been pressing all along and, quite honestly, perhaps the time where we're actually beginning to look forward and with the economy doing better, the prospects for the deficit going forward are improving and, in fact, treasury themselves have been signaling that they're overfunded, if you will, the size of these auctions coming down in the months ahead. so, i women say definitely a sentiment shift is overdue and the question is now i guess how far will it go. >> do you buy that or do you think we'll have a problem

funding debt in the future? >> i think the bond market is more worried about what happens four, five years down the road. this health care legislation has been advertised as something that actually helps reduce the deficit, but there's a lot of doubt about that. we don't know how much it's going to cost us. we're not sure how much money we can collect. i think the margin this health care legislation adds to deficit uncertainty. that same time, the health care ledgislation to help finance ths you're raising taxes on higher income people who do a lot of the saving in this country. so, over the next couple years, the taxes on high incomes go up, but the savings pool goes down. so, maybe you reduce the deficit by raising taxes on high income people but the financing doesn't become that much easier because there's less savings in the pool. >> you know, michelle y think mori made some good points regarding the longer term.

i think they're good points. michelle, i have to tell you i'm overwhelmed by the bond rates and deficits. what we have seen for 30, 40 years inflation affects interest rates or the real growth of the economy affects real interest rates and i want to ask you maybe the bond market is signaling that maybe the economy is stronger than we think. >> you know, larry, we've done all that work where the relationship between the interest rates and the deficit are negative because usually the deficit is coming down as the economy strengthens and tax revenues are going up. i believe there's no question here that the economy is showing itself very strongly in the first quarter. we had this great, you know, 5.6% fourth quarter growth rate boosted by inventories. the thing that's really telling about the first quarter we're looking for gdp growth of around 3% and really demand. consumers have come out and are spending this year in a way that people, i think, expected. business spending is up and we're actually getting that

transition from what maybe temporary boost to growth from inventories to the more sustained, demand recovery that everybody has been waiting to see. >> i can't believe we haven't heard from steve so far. >> i'm pondering what michelle just said. if you don't to mind, guys. michelle, you may be breaking a little news here on our air. i have not heard the treasury say it is overfunding itself. where did it say it will reduce the size of these auctions? >> in the refunding statement last time they signaled, they suggested that perhaps that the next move was going to begin looking at reducing the issue and i think that's something that the treasury is considering and that's something we heard matt rutherford talking about and i think as we get into the funding you may see more discussion. they'll be asking individuals, primary dealers what are your expectations for the deficit and how it will be funded. >> if i could amend what larry said. no hard and fast correlation between deficits and interest rates. i will say there is a

correlation between deficit expectations, larry. what i have heard from bond traders a lot -- >> i don't think it has been proven. >> i don't think it has been proven. the health care thing kind of spooked their sense of trajectory of the deficit. >> no doubt about that. >> i agree with that. and i think -- >> they don't need to solve the problem, they need a plan to solve the problem. >> structural deficits down the road. look, i'm against it. >> it can't be coincidenceal that we saw it over the weekend. >> i don't know. it's hard to say. i like your point about taxing savings, which is really among the dumbest things we've seen. we'll tax savings in 2011 and then it will and back again in 2013. let me ask you another question. >> sure. >> one of the biggest questions here is the sharp rise of the dollar this year. it's up 10% or 12%. how does that impact your interest rate outlook? >> if anything, if the dollar goes up, it helps to hold down

inflation. if the there stdollar stays up cut back on our experts next year. our experience with this, larry, is that you need some very big sustained swings in the dollar to make a big difference and the dollar is strong this year and weaker in earlier years and importers and exporters don't change their prices that rapidly. this has to be more sustained before you start changing your outlook. >> suppose the dollar is sustained. let's just have a suppose on that, would that in part, it is counterinflationary. it has gone up 10% or 12% and a lot of people talking about 1.25 euro. the dollar increased against the japanese yen and the dollar has even increased against gold. does that, in part, a deflationary effect on the u.s. economy? >> i don't think it's big enough -- >> i can't believe larry's saying this. >> it's not big enough to be deflationary, but, clearly, it takes something off the inflationary.

>> michelle, i want you to take a whack at that. you know where i'm going. if king dollar is rising rapidly while mr. bernanke did a little saber rattling, steve liesman was right, i thought he came off hawkish yesterday. >> this is a whole new larry. >> think about this. i'm being mischievous here. >> we'll see the fed hiking interest rates this year. the outlook for inflation isn't as bright and perhaps this is what the market is getting a sense of. >> maybe the dollar is doing it for them, michelle. think about that. >> obviously, all these things working together and in the right drekdz. i have to say, i think we have a long way to go in terms of the dollar strengthening before we think about the fed being restricted or deflation or anything along those lines. but i do think it is all part of the same story where you have the markets now beginning to go from, you know, thinking the fed was never raising rates and the economy was weak and the dollar

was under pressure to now the u.s. story is improving. >> how high are bond rates going to go? how high? the treasury is what today? 3.80 and change. how high will it go? >> i think it will go up to 4% and 4.5% next year. >> i think even higher. we have the funds going to 5. so higher. >> thanks for joining us, guys. trish, over to you. >> larry is full of surprises. >> look, i think this dollar rally, i call it king dollar, is very interesting and if it continues and i reckon it will, it does change a lot of factors. that's all i'm saying. >> so you'd bet against europe then even though they're talking about bailing out greece? >> i think europe is being very europe-like and my great hope is that we don't imitate europe. >> my great hope, as well. you know how i feel about france. still ahead, cnbc state of financial jobs. we'll see whether there is any growth in that sector and

whether it will happen again. do these jobs really even matter? we'll debate it. first, if it's time to sell bonds and get into stocks.

a couple of big name upgrades on this friday. coach raised away from neutral and nike raised overweight and those shares are both trading higher right now. coach is up by better than 3.5%. trish? >> thanks so much. the dow is inching towards 11,000. here we are, 10901. as many on wall street are saying the bond rally may be over. so, is it time to sell your bonds and buy stocks? we want to ask jim swanson chief investment strategist and also carmine, chief investment strategist. great to see both of you. jim, i'll start with you. what do i do? do i sell those bonds and get into equities? >> here's the way to think about it. if you own those bonds as diversification against some major political event, then you're doing the right thing. if you're owning them to make

money, i don't see how. we have growth all around the world. growth alone drives interest rates up and prices down. when you buy a stock, you buy a claim on future cash flow and earnings and s&p companies, let me tell you what's going on here. they're derisking themselves and bringing their leverage down and profits continue to exceed what everyone expected of this recovery from really the depths of a really bad recession and i want to claim on othat future cash flow and earning and they're coming in in every sector strong. >> do you buy that? >> i certainly do. i have been arguing that basically the equity market should outperform by a significant margin here. i expect the s&p to hit 35 by mid-summer. earnings are rising and basically corporations are going to come in this year and buy $380 billion worth of stuff. a great environment for equities. >> jim swanson come back to the stock market strategy. traditionally, as you know, a

strong dollar is good for consumer related stocks, bad for producing and commodity stocks. if the dollar continues to rally, how might that affect your investment strategy? >> it's definitely going to help the consumer here. if this keeps up, i think it will, the u.s. is losing the race to the bottom in this fx game and the biggest buyer is, of course, china. look at their alternative. they have to own the dollar and that means a stronger dollar and i think the consumer cyclicals are here to do a lot of the work in lifting this market up for sure. as far as mining and metals, it's too early to be there. >> carmine, do you agree with that? >> basically i'm looking for companies in the technology area and biootech to basically oult perform here because of the huge build up of cash and technology in the health care area. i expect free cash flow to basically be driving this market. corporations are sitting on over $300 billion of excess cash on their balance sheets today and over the months ahead they're

going to be using it. >> that's what i want to talk about here, the time frame. i'll go back to the one thing we keep talking about on this show and that's whether or not washington is really making the best policy decisions when it comes to this economy and, therefore, when it comes to investors. carmine, what is your time rise and how long can this bull market last before some of these policy issues start to seep in? >> see, it's been my contention that basically the bull market continues to go on and we'll see quite strong gains, so long as rates do not rise. at some point rates are going to begin to rise and you'll see this collision between public and private credit demands that could be of historic proporti proportions. if you look back at past jobless recoverries, basically off of the 1991 recovery and off of the 2001. both of those cases we saw the longest, strongest bull markets. we did not see a 10% correction in the equity market off the 1990 low for seven years.

and 2001 when they rallied, it took five years to see a 10%. >> what do you think the bond market has been telling us over the past couple days and do you think it will keep moving in this direction? >> i think it will keep moving in this direction. there is growth ahead. it's telling us there is growth ahead and higher long-term rates. >> i just love that because it isn't deficits, i think it's real growth. by the way, the rise in the dollar, the real exchange rate is predicting stronger, real growth, too. these are good, not bad. jim, where is the break even point on a discounted profits model. if you get 4.5% ten year at what point does that cut in and reduce future cash flows from stocks? >> it will when we get to around 5% on the ten-year. >> that's great, thank you very much. >> thanks for joining us. still ahead, we'll debate whether the white house plan is a good idea for the housing market or just government gone wild with more meddling. >> nothing from the peanut

gallery. i thought i would hear a little chirping in the background on that one. we'll save it for later. first, our special coverage of the state of manufacturing and how those jobs are doing. we're going to debate whether or not there are jobs in the sector that really matter in the long run.

we continue cnbc special day-long coverage on which states are seeing job creation. after years of off shoring to cheaper countries like china.

companies are coming back home. dane wells joins us with more on this. >> we just got information about unemployment rate in california in february stay unchanged and still much higher than the national average and the state lost 20,000 nonpayroll jobs in the month. you know, for years we have been offshoring manufacturing jobs and we became an information economy, a service economy, we didn't make things any more. well, made in america is making a comeback. >> the goal is to make everything in the united states. >> john moore runs ricco international which makes musical instrument components it is the largest accessory company which decided 18 months ago to bring all production back in the u.s. from china. just part of this new wave of onshoring jobs and caterpillar

is considering moving it back into a u.s. plant. companies from ge to at&t to hp are also doing or considering it. even toy companies like wham-o are moving jobs back home. in many cases, the recession has forced these companies to become so efficient is not just patriotic but more affordable to build here. >> because we've made the operations much more efficient now, we can compete economically, the cost is low enough where it doesn't make economic sense to do it in china any more and the quality is far, far superior. >> that's really one of the big reasons why keeping it close it home, you can control quality. also, it cuts down on the risk of potential loss of property rights and cuts down on transportation costs and more importantly than anything, larry, as wages overseas have come up, in many cases wages here have gone down. especially to make these things. a clarinet read and alto sax.

>> jane, how are you on the trombone thing? >> lots of spit going everywhere. >> jane wells, thank you very much. so, are manufacturing jobs really important to the u.s. economy? right now, let's ask people chief economist to the u.s. trade commission and aka jimmy p. who is a cnbc contributor and money politics for money breaking views. i think manufacturing jobs are important to the economy and my thought here is the very simple one, which i've learned from fred smith, the distinguished ceo of fedex. if we want to help the u.s. manufacturing sector, why don't we change the tax laws and, in particular, let us expense all business investment writeoffs immediately to lower their cost of capital and get us competitive globally. doesn't fred smith have it right? >> that is an excellent point

and an excellent suggestion. as you know, we're going the other way. we're increasing corporate taxes and increasing the cost of capital gains increasing dividend rates by 200. we're going the other direction. but, listen, the state of the manufacturing sector, the state of manufacturing is actually great. output per worker is as high as it's ever been. the u.s. economy was just manufacturing, it would still be the third largest economy in the world. >> peter, you have 15% of the economy, more or less, 16%. it's still manufacturing. but the job's portion of that has slumped badly, as you know, peter. so, we have high productivity and fewer jobs. but what about the tax policy? let me add to fred smith's rapid depreciation idea, let's just lower business tax rates across the board. it will help transportation and help manufacturing and it will help chemicals, it will help technology and it will help america, peter. >> absolutely, it will help america. you know, manufacturing takes,

does most and it creates other industries. if it wasn't for intel and ibm, would we have that great service company microsoft? i think not. they made financial engineering possible. so much of what american banking sits on was created by american manufacture manufacturers. we want to be in those forward-looking industries. >> those industries and we can be doing things like the innovation part and the design part. we don't necessaricessarily hav the putting things together part. >> i disagree with that. >> why do you disagree with that? >> you learn a lot about the product by making it. doosh stuff on the computer and likewise, if you outsource the actual assembly you lose a lot of information about making product very efficiently. >> let me talk about the skills involved here. one of the things that makes us such a great economy and makes us such a great nation is that

we have incredibly skilled, incredibly productive workers. shouldn't we be harnessing that talent to really have them focus on areas that are more brain power as opposed to just using it and pressing the switch. >> let me give you the perfect example. a great company in palo alto they're a design firm and if you go to that company you have engineers that work there, filmmakers, software programmers that work there. those are the high value adds jobs that we need. >> you haven't mentioned the health care bill. you saw all the headlines last night and we covered it last night and the health care bill, which is supposed to cut costs is actually raising tax burdens on prescription drugs and other issues for about 3,000 companies, led by caterpillar, led by deer. you saw this, we're going in the wrong direction. >> it's just another tax on manufacturing. >> why are we doing this?

it's insanity. we're killing our young. we're eating our rich. >> i mean, the president is bending the curve. he says he's bending it this way, he's bending it this way. he will make life much more expensive and make it much more difficult for people to manufactur manufacturer. >> if we want to establish, one, we want to keep as many jobs here in the usa that we can. we don't care what kind of jobs they are whether they're assembling. we want jobs, so, how do we keep those jobs here? >> we have to get the currency right with china. >> you know -- >> i want a stronger dollar against the euro, a weaker dollar against the yen. i want to get all the currencies aligned properly. >> jimmy p., talk about peter maurices trade war. currency and trade war, he's just out there, isn't he? >> not just out there -- >> interesting experiment. let's see what happens when the

two most important economies get into a trade war. that will be great for historians and people like peteer. >> peter, you have to respond. >> you know, i believe in markets. if the markets are going to determine who makes what, then let the market determine what the exchange rate should be. i'm for free markets. free trade in goods and stop intervening and let currency find its own value. >> how about letting currencies be fixed? peter, you know i love you. i just wanted to get that little part of the trade war part. we're being told we really have to wrap it up. so, i'm going to do that right now. thank you so much, guys. coming up cnbc special coverage continues on "power lunch." they're looking at manufacturing metrics. up next the obama administration forcing banks to modify loans and we'll debate whether it's a good idea or government gone wild. >> gone wild. and, of course, the list of stocks to watch as we head into afternoon trading. stay with us, we are "the call."

a number of s&p 500 companies hitting 52-week highs

today. urban outfitters trading at all-time high levels, actually, since it first hit its ipo in 1993. so, quite a significant move there up for urban outfitters. comcast trading at levels it has not seen since october 2008. lennar, starwood hotels also hitting highs. a lot of upside there. we heard from the fha commissioner earlier this hour earlier on "the call" about the white house plan to help underwater homeowners. is it a case of government gone wild with more interfering? let's bring in steven moore and also david goodfriend, former clinton white house staffer. i want is to ask each of you which is the essential question about this plan. which is, the last thing the bank wants is to foreclose. they don't actually want the house. so, why are they not modifying loans and how is this plan going to change that? what do you think, steven?

>> i agree with you, melissa. here's the problem i have with this plan. we all have sympathy for people who can't pay their mortgages because they lost their job or something. what we learned over the last 18 months with the mortgage modification plans is, guess what, we modify the loans and you know what happens six months later, they, again, go into default. i have a real doubt that this is going, this is going to lead to a reduction. >> i hear you, but that doesn't answer the essential question. >> not a single thing is work. not a singal thing's work. >> what is this going to change? >> i don't want you to bail me out, david goodfriend. and i don't want to bail you out. let markets work. >> larry, let's face it, first of all, larry, good to see you again, can i just say that right now. >> you are the best, you are the best. you are a great american, but you're wrong on this. >> you haven't even heard what

he had to say yet. >> please continue. >> it just so happens in my private practice i do a lot of work for the home building industry. this is not your sad sack, bleeding hard liberals, larry. these are businessmen and they have done it for years. what do they think? i'll tell you what they think. when you are trying to sell homes in this market, as the other speaker said from "the wall street journal." foreclosures hurt everybody. everybody. not just the banks but the resalers. the reason the prime government failed according to it people i worked with is that it was too modest. it was too light a touch. what does that tell us? we have bank of america today, 45,000 mortgages being renegotiated in their own self-interest. >> that's fine. that's fine. >> that's it. >> industry is applauding. if industry is applauding.

>> listen -- >> what will this specific program change? because it was never in the bank's interest to foreclose. so, why does this change anything? >> let us distinguish between the bank of america's business plan and the u.s. government's interference. two different things. >> okay, larry, i'll take you on that and let's answer this question. the fha is the answer. the federal housing administration and people will say, oh o, my god, the taxpayer's on the hook. >> the banks will do it now because the fha is sweetening the deal? >> it's an actuarial exercise. the government issues are premium set correctly -- >> it's called bankruptcy -- >> the taxpayer protects them. >> steve moore, let me ask you this. david goodfriend, our good friend asked a good question. does foreclosures help anybody? and i want to answer that in the affirmative. i want to say foreclosures bring down prices and those greatly lowered prices, steve, help new

home buyers who can afford it. >> there might be more efficient ways to do it like short sales. >> however you get it done, if you can't afford -- >> a modification changes the price, as well. if you reduce the principal, that changes the price in the market. a short sale. we're all talk about resetting the price to a lower, more accurate level and we want to do it as quickly as we can. foreclosure is slow. >> new families, new immigrants, they can buy these houses cheaper, steve. that's called creative destruction. that's called dynamic capitalism and also called free market prices. >> that's right. you know what's happening. i have a bumper sticker on my car that says honk if i paid your mortgage. a lot of americans are getting angry because 80% to 90% of americans are paying their mortgages on time. it's a sacrifice for people and people are getting angry they have to pay taxes -- >> what is the quickest way to clear the market? >> furthermore, why don't we allow the foreclosure process to work, as melissa was saying, why

don't we get the banks together with the homeowners if it has to be renegotiated, do it. i as a tax payer and most american taxpayers are getting sick and tired of bailout nation. >> steve, i agree with everything you have to say, the problem is when you look out there in florida in the actual foreclosure market, it's taking forever. you know, people have stopped paying. >> no. >> people have stopped paying for one or two years and the bank isn't showing up because of the backlog and they don't want the house. >> the data shows in florida, in southern california and in arizona there's a lot of places. take a look at dr. mark perry's website. he chronicles how in those areas where the price drops have been the most, 40% to 50%, the new sales have been rising at double-digit rates. see, david goodfriend. i come back to this point. i don't want you to help bail me out and i don't want to bail you out and i want markets to bail everybody out. >> can i just say, can i just say, larry, i put my taxpayer

dollars into bailing out bank of america and i would like them to come forward with small business loans. >> that's fine. >> they're not doing their jobs, the banks. they're not doing their jobs right now. >> i don't know what the demand is out there. that's a totally different argument. >> we need college professors in the website to tell banks how to do their jobs better. >> we didn't solve anything, i'm so disappointed. thanks, guys. trish, over to you. >> all right. good stuff, you guys. we'll take a quick break and then i'll head down to the floor to check in with a few traders. a list of stocks to watch, which i think is growing. we head into the afternoon trading and we tell you all about it. for broccoli, say one. for toys, say two. toys ! the system can't process your response at this time. what ? please call back between 8 and 5 central standard time. he's in control. goodbye. even kids know it's wrong to give someone the run around.

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welcome back, everyone. we want to check in on this market as the dow continues to forge ahead here at 10,893. closing in on that 11,000 level. here with me to dissect it all we have warren myers and also matthew, good to see you guys. is this a dollar play or people saying i don't want to be in the bond market right now? >> i think it's a little combination of both.

the dollar is showing a little weakness today and you tend to getilatal pop in the markets on that and i think we've seen that switch over the last couple days in the bond market of people getting out of some of their bond positions and where else are you going to go? you'll funnel some of that money back into the money market. >> are people feeling better about the european situation right now? >> i think we're getting some clarity. i don't think it matters what the dollar has been doing. the dollar showing serious strength over the last couple days and we still had a market rise with the exception of wednesday. i don't think it's so much the dollar, but clarity we're seeing in europe. >> i have to throw one out here to my good friend larry kudlow because he's very concerned that the dollar continue its momentum and that it gets stronger and that, in turn, would help the market where what we typically see on a daily basis here is the inverse. but when you talk about the long-term consequence of a dollar at some point that will catch up with the stock market and the economy. >> absolutely. i've always been a fan of the strong dollar. i know larry has been pushing that for years. i think, ultimately, at the end

of the day you want a long term, strong, stable dollar. in the interim i'll take a slightly drifting dollar when it's going to push the market. >> when it's going to help the market, right? all right, we have to leave it there. but i'll head back over to larry and melissa. >> i just want to say, i'm all for king dollar. i'm just saying that the dollar rally does change the game in firms of investment strategy. that's all i'm saying. i'm all for king dollar, don't get me wrong. >> giant among midgets as rick santelli may say. >> it may be better than that, but that's another segment. stocks to watch heading into afternoon trading.