like humana, united health, aetna big because the medicare reimbursement rules just got changed very positively for the health maintenance organizations. a remarkable move. i like to say there's always a bull market somewhere, i promise to try to find it for you right here on "mad money." i'm jim cramer and i will see you tomorrow. good evening, i'm michelle caruso-cabrera in for larry kudlow. stockton, california, gets the go ahead from the judge it can go into chapter 9 bankruptcy, the biggest city by population to ever declare bankruptcy. big question hasn't been answered, though, can stockton get a break on what it owes to pension funds? that's the key in this case. not just for stockton, but every struggling city and state in north america. a state of war with south korea. we've heard it all before, but this time the u.s. is taking it more seriously. the u.s. sending a missile destroyer to the area. should you be worried? and this is not an april fool's joke. the government really did spend

$50,000 on smokey the bear balloons. we'll have more outrageous examples of government waste and, unfortunately, they are all true. the "kudlow report" starts right now. . first, tonight, stockton, california, the largest city to enter bankruptcy. jayne wells with the details. jane? >> hi, michelle, and the battle between wall street and pension giant score one for calpers for now. economy and home prices tanked while at the same time it had some of the most generous public employee benefits in california and that's saying something. credit stores were fighting the bankruptcy filing in court because they said it wasn't fair they were taking haircuts but calpers was not. stockton argued under california law, it isn't a creditor. it had to be paid. today, federal judge christopher klein said the bankruptcy could

go ahead and that creditors were the ones so far acting in bad faith. >> there's no reason by the first anniversary of our filing that we don't have a plan of adjustment agreed to by our creditors. city of stockton makes deals, we negotiate, we've already negotiated ten deals, a handful more and we look forward to that opportunity. >> the judge did not rule out the possibility that calpers could see cuts to the pension obligations. that's not happening for the moment. chapter 9 was allowable and necessary, michelle for the city to continue to provide basic services. >> you described, you said these were some of the most pensions and benefits in california. if you got 30-year service, your retire with 90% of your highest pay ever plus automatic cost of living adjustments. is that true?

>> you saw this in various forms a all over this state. during the good times, and we had great times there for a while. the state itself offered all kinds of really nice benefits. and, of course, now they don't have the services, the taxes to pay for them. stockton was at the top of the heap of that. and of course, its home prices went way up, and when the crisis happened, nobody, no place fell harder than stockton. >> jane, don't move, we're going to talk more about this, stockton, is it the tip of the iceberg? if this works for stockton, will other cities and states try it? joining us shortly will be michael sweet. joining us on the set for the b evening, democratic strategist, great to have you here and conservative strategist ron myer. what do you make of this situation? should this city not pay as much to the pension fund obligation since they're trying to also tell the creditors they're not

going to get paid? >> well, they have to do something, right? they can't just sit there and not pay anyone. the worst case for workers is for the city not to be able to pay anyone. and that's the course they were on. and so what's best is to allow them to renegotiate their contracts and say this is what we can do, we can accomplish. and in places like illinois and other cities in california and in places across the country, especially in big cities where they've overpromised for these pensions, they'll have to do something about this. it's impossible to fix unless you renegotiate. >> michelle? >> go ahead, jane, go ahead. >> i was going to say with stockton says the preliminary plan calls for 45% of the savings in chapter 9 to come from employees and labor, but that doesn't affect already obligated pensions at this point. it's a going forward thing. at the same time, the city of san bernardino going through chapter 9, san bernardino is saying, yeah, we are going to cut our obligations to calpers. >> what do you make of the

situation? the money's got to come from somewhere. everybody's got to participate or else in the end nobody gets paid. >> sure it does, absolutely. stockton has made a good faith effort to make cuts in a lot of different places. the fact what the judge said today is that pensions were not the problem. pensions were not what sent the city into bankruptcy. if you're a city manager, you're making thousands of budgetary decisions. >> how do you conclude that? maybe might have to face the cut at this point, right? i don't think you can draw that conclusion. >> well, what he had said. that was part of what he said. another thing he said, the wall street creditors seemed interested in one thing. only interested in negotiating with the city if they're willing to reform the pension system. he said they didn't seem like they were negotiating good faith. so that's a problem, as well. but i also want to sort of correct the record a little bit here when we're talking about the size of these pensions. i know people talk about them being these sort of golden parachutes that people can live off for the rest of their lives. the fact is the average pension

is about $3,000 a month or $36,000 a year. now, i know a lot of people can live on that amount, but it's -- >> how do you explain someone retiring with 90% of their highest year pay ever and getting cost of living adjustments automatically? the average may be reflective of people who work part-time. but full-time employees are actually quite costly. and the unfunded liabilities are what's crushing the city. >> right. well, here's who we're talking about. firefighters, teachers, people who have some of the worst and most dangerous jobs in the state that have spent their entire career serving the public. i don't think -- >> reporter: i respect that, but there are people who work in coal mines that aren't guaranteed they're going to get 90% of their salary for the rest of their lives after they retire. >> here are some of the other bad decisions that the city made. they went at the height of the housing boom and bought a multibillion dollar new sports stadium, spent $40 billion on a new city hall. no one's saying give back the

city hall. all the attention is being directed to, you know, to these poor public employees. >> a $40 billion stadium is terrible, but the pension system, that's a problem. we're talking almost $1 billion. 300,000, 900 million pensions, they have to do something to be able to curtail those spending. >> it will be unbelievable if you force that on the people who don't work for the government. >> and as young people with long-term perspectives, we have to think about this. >> let's bring in mr. sweet. what do you think -- how would you solve this? >> well, solving it is going to be a longer term project. it's very interesting that the judge noted that the day of reckoning will come later on in this case. certainly the issue isn't ultimately resolved as to whether or not calpers will take a haircut. the other creditors, the

bondholders and the other general creditors are looking to take a reduction in the principal in the amount they're owed and calpers has taken a position that they're protected under state law and that they can't be required to take a reduction. but the judge made it very clear that in order for this case to be completed, a plan to be approved and the city to exit bankruptcy, the issue will have to be addressed in one way or another. >> how do you think it should be addressed? >> i think that stockton is suffering what a lot of other cities are suffering from in san bernardino, california, which as you noted also filed bankruptcy recently. also cities like detroit, they're facing extraordinary costs for these pension plans, which they agreed to when the money was there and times were flush and you're absolutely right. a public safety employee in the city of stockton who got a 3% pension over 30 years retires with a 90% of their retirement

pay and bumped spiking as the judge noted today with the other kinds of things you might have cashed in on the last little bit of the time you worked. >> could i interrupt you? bottom line, calpers is the organization in california that takes all of the pension money, puts it in a big pile, reinvests it and hopefully makes enough money to pay people back over time. if cities stop paying them, then the state has a crisis. right? that's what we're talking about. essentially, if this keeps going, mr. sweet, doesn't every california employee, state government employee end up with lower benefits if many, many municipalities stop paying? >> it certainly is a problem. it's a small percentage of the entire fund. that's why everyone else is watching this very closely. this could be -- >> michelle -- >> this could be extraordinary. >> jane, you get the last word.

>> it can't get it through investments, can't get it through members, it goes to taxpayers, that's how it works in this state. >> look forward to it, jane. >> thanks very much. >> jane wells and michael sweet, thanks so much. coming up, we could see a major immigration reform bill from congress. it has bipartisan support. how did that happen? business leaders met with union bosses. they figured something out without congress. we'll have all the details. first, though, north korea growing and real threat? we've heard their saber rattling rhetoric before, but this time, the defense department is sending stealth fighters and warships. live to seoul next is it time to take the threats seriously? don't forget, larry kudlow's creed, free market capitalism is the best path to prosperity and the "kudlow report" is coming right back. [ male announcer ] there are people who find their own path. and never back down. who believe the american dream doesn't just happen,

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more saber rattling from north korea, but the u.s. seems to be taking it very seriously this time, deploying f-22 stealth fighters to participate in military drills in south korea. late today, the u.s. navy confirmed it's moving a guided missile destroyer to the region, as well. just how serious is the north korea threat? our affiliate joins us live from seoul, south korea, she has the very latest. sherry?

>> reporter: hi, michelle. i don't think it's anything to play down these north korean threats of violence. but at the same time, when they come out of north korea almost on a daily basis, it certainly takes away the effect of these threats. over here in south korea, it's business as usual. even at the interkorean industrial complex that north korea threatened to shut down over the weekend despite north korea's recent threats to throw out the interkorean agreement, turning washington into a sea of fire and attack u.s. bases, even the ones in the mainland. but at this point, the south korean military is not ruling out the high chance of a north korean provocation like we've seen over the past years. michelle? >> what's the assessment there about why kim jong-un is doing this? is this simply so he looks tough in front of his people? because he's such a young regent so to speak? or is he trying to get more age

out of china? >> well, certainly at this point with the young leader who took power just less than a year and a half ago doing this, some north korea watchers are actually saying the backdrop of all of this tough talk is more important than the threats themselves. has he consolidated enough power? why does he feel the need to quiet down the complaints at home and make enemies abroad? these are some of the questions that we need to be asking ourselves. but, of course, it's very difficult to know the answers to these questions because north korea is one of the most secretive regimes in the world. >> yeah, completely opaque. thank you. chery. north korea, the tinderbox is about to explode, joining me now is retired army general, nbc military analyst barry mccaffrey and peter brooks. thanks so much for joining us. general mccaffrey, how serious

is this situation with north korea? it's so easy to get -- we've been listening to him, his father, his grandfather for decades now, it sounds the same after a while. is it different this time? >> well, i think it'd be irresponsible of us not to take him seriously. we've got to remind ourselves, things have changed. they probably have as many as a dozen nuclear weapons. and in my judgment within a year or so, they'll be able to fire an intermediate range missile with a nuke on it. we've got to remind ourselves, in the '90s, they killed, murders, starved to death 2 million of their own people. i think they are a threat. they've got 70-something odd submarines. i think this time, most impressive thing i've seen, secretary hagel saying we're starting reinvestment in ballistic missile defense. >> are they a threat to the united states? and the reason i ask, there have been these pictures of kim jong-un standing in front of

maps which outline an attack to the united states. >> that map is interesting too. it's laughable. it's so easy to discount these. that map had direct line of sight firings on austin, texas. >> right. >> you know, obviously the guy that put it together didn't understand you fire the great circle routes. to some extent, these are armed 10-year-olds, but they do have nukes, they do have a massive artillery for us. they could immediately start attacking seoul, korea. again, we better think through this and within a decade, we'll be undoubtedly be facing a nuclear armed north korea with weapons. >> what do you think we should do here? obviously we should take it seriously, but to what extent do you believe them? how much of this is just saber rattling? and what should we do here? >> right. well, i mean as i've often said, well, north korea carries out its threats except when it

doesn't. you have to take it seriously. the real challenge here is misperception and miscalculation. they have to do something. probably not an attack on the united states. they may do something against south career, remember a few years ago, michelle, 2010, they sunk a south korean warship with a north korean mini sub. they shelled an island and hatched a plot to assassinate the defense minister. the south korean government at the time was criticized for not doing enough in the face of these provocations. what happens? how do you control escalations if north korea does something? if they don't do something at some level, the threats mean nothing. and once again as you noted earlier on -- >> but a nuclear strike on south korea, the minute he does that, he's lost all leverage, right? i mean right now he has leverage because he has the threat, the

minute he executes, he's got nothing left. >> i don't think he's going to unleash a nuclear attack on south korea, but he could do something at a lower level. he could attack, you know, another warship, something along that northern limit line. there are disputed areas to the west and the sea there. i think those are possibilities. the problem is how does south korea and the united states respond to that? and then what happens? you could have an escalation. you have to be very, very careful here because things can quickly spin out of control and then you've got a situation with potentially dire consequences. >> is this a young kid who is just scared to death and needs to show the military or everybody in his country that he's really in charge, general mccaffrey? >> well, there's some argument that his stability in office is weak. it's an army that probably taken 25% of the gdp of the nation and putting in a defense.

i think there's a good argument he's not quite sure he can maintain the family dynasty. of course he comes from, you know, his dad was a sociopath, literally 250,000 people in concentration camps. we were hopeful we'd see a more logical regime. doesn't look like that's going to be the outcome. >> no, the leaf hasn't fallen far from the tree, that's clear. thank you so much. barry mccaffrey joining us and also peter brooks. coming up next, disaster seems to be averted in cyprus. we'll talk about whether the huge hit for large deposit or the depositors and their savings accounts.

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that companies depend on today's xerox for services that simplify how work gets done. which is...pretty much what we've always stood for. with xerox, you're ready for real business. bank of cyprus depositors could lose up to 60% of that money above 100,000 as part of the bailout restructuring deal that the country struck. and while markets may have declared victory over the cyprus banking crisis, does this deal pave the way for another european financial crisis down the road? here now is former treasury assistant secretary charles delara chairman and partner of the americas of partners group. great to have you here, mr. delara. and our viewers probably remember you from the many times we talked to you during the greek restructuring talk. >> good to see you. >> what do you make of what happened in cyprus? it was so clunky the way they

ultimately executed this. but bottom line, the imf forced them to shut down some of their very big banks and people with bank deposits there that weren't insured took a big hit. do you think that was a good idea? >> not really, michelle. you've been there and you've seen firsthand the consequences of this. i do understand that in a situation like this, the creditors to these banks and the investors in these banks should pay the price of their investments and take us a serious hit. not just the small-scale depositors but the large scale. because the depositors are the bedrock of confidence in any banking system. and right now, confidence is simply not there despite the very strenuous efforts of the government. >> when we look at the structure of the banks that are in cyprus, without getting into too much detail that the average person probably doesn't understand about capital structures, et cetera, et cetera. but you've got to admit, these banks in cyprus were very, very messy compared to the banks that you see in the united states. there wasn't a lot of investment

capital behind them to protect deposito depositors. a lot of people have argued what happened in cyprus would be extremely unlikely in the united states because we have more strength in our banks. do you agree with that? >> i do agree with that, michelle. on the other hand, i think that, you know, even more than ever, look at an issue like this through the prism of what are investors going to do? is the chairman of the americas for one of the world's leading private equity firms. what can restore investor confidence? in wiping out so much of the value of depositors, it would have cost an incremental 5 to 6 million euro in my view would've done much more to stabilize debt to gdp ratios and restore confidence to the banking system than the current approach. >> you know what the issue was, though, right? the eu and imf almost wanted to be punitive to cyprus because they had so much offshore money

coming from russians. and they made -- the imf made it clear they don't like it. >> well, i think you're right, michelle, as usual. but dealing with these difficult economic and financial situations in cyprus in greece and many other countries has taught me a fundamental lesson, that you cannot manage these things as if they were a morality play. you have to find pragmatic solutions to stabilize the economic outlook and restore investor confidence. that should be the issue, not whether there was russian money or other money laundering here. of course that should not be tolerated and should not be condoned and should not be reenforced. but there are ways to clean up those problems independent of forcing the economy into a downward spiral which, i'm afraid is about to happen and raising questions on you about the broader stability of the euro zone. >> yeah, i've seen estimates where they think that the economy will fall 10% a year for the next three years. that would be a decline of 30%,

worse than we even saw perhaps in the great depression in the united states. it was so great to see you again. i haven't talked you in a long time since the greece situation. >> it's a real pleasure to be with you again, michelle. >> charles delara joining us tonight. >> thank you. >> coming up next, government waste gone wild. uncle sam spending your money to produce climate change musicals. to develop iphone dancing robots and create talking urinal cakes. did i say that on television? i did. sounds like a bad april fool's joke, right? well, it's not and we're going to explain. .

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welcome back to the "kudlow report." i'm michelle welcome back to the "kudlow report." i'm michelle caruso-cabrera in tonight for larry kudlow. in this half hour, call it washington waste gone wild. just wait until you hear some of the absurd projects that uncle sam is spending your taxpayer money on. and believe me, it's no april fool's joke. speaking of spending, the white house is finally cutting back, furloughing hundreds of employees. but get this, the sky's not falling, the country is not less safe as they originally told us it would be. a major breakthrough on immigration reform. the senate bipartisan's gang of eight says it has come to an agreement with labor and business groups on a visa program with low-skilled workers. are they closer than ever to passing a broad immigration

bill? here now is congressman, republican from arizona, also on the set, christy setzer and ron myer are still with us. what do you think of this deal? tell me what it entails. >> first off, we don't know the actual details in writing. so we're getting some of the top line discussions. and look, i'm from a border state, so we're obviously paying lots and lots of attention to this whole discussion. but on this deal right now between big business, big labor, and sort of creating a prevailing wage mechanism for low-skill workers, many of us are actually really, really worried about this because as a back to sort of commanding control sort of price controlling of labor mechanics and how do you model that? where does that take us? >> so if we believe -- if we believe the reports, this new visa, the "w" visa where they sit back and say, okay, we're going to let in this number of workers here, this number of

workers next year and depending on which sectors of the economy need, you know, workers at this point we'll allow more or less, et cetera, et cetera, it's extremely difficult for government to do that, isn't it? >> well, but it's not only that part of the command and control sort of managed economy, which is very dangerous, it's on the wage side. okay. you're going to have a prevailing wage, how are you going to define the categories? we are about now to see category creep of, well, you can do this, but you have to pay this. and how does this end up affecting government? and business and are you about to see the other side of the problem where -- >> sounds like huge amounts of bureaucracy. >> yeah, but exactly and become so arbitrary that a lot of the businesses that needed the labor just go back to the illegal, undocumented market. >> obviously we don't have the exact details, but what do you think of this so far on what they've come to agreement on? >> i think i can make it a lot

more simple. i think whether or not the house republicans are going to be willing to do something they've proven incapable of doing in the past which is compromising on this. seems like we've gotten business and labor to come together on the stickiest part which is essentially a path to citizenship. is the house getting along with it, or not? >> whether or not the actual visa program is going to solve some of the issues that we're talking about. do you think so or you don't? >> i think it can. i think there's a huge benefit to the economy with bringing new people into the marketplace. i think it's something that in the past we have tried to move forward and haven't been successful. i'm glad it seems that there's progress. >> the spirit of this is getting more people in who would like to be here who we need. right, ron? the spirit is fine on this. it just seems like layers and layers of government to try to decide who can come in and what sector of the economy. >> i think both sides want to do a visa program. i don't think that's the controversial part. i think the house republicans, and obviously the congressman

can say more about this. whether or not this bill is going to allow for citizenship and how well we're going to do as far as increasing border patrol and giving them more power to patrol the border. i think those are the two biggest sticking points that the americans are looking at. i think this is relatively minor. >> representative, you should know, i come from this, i think you should listen to everybody who wants to come in, regardless of the skills they have and then let the market decide. and when prices fall in labor, people leave, we've already seen that -- >> yeah, but that's actually -- >> the downturn. >> but that's classic price theory. and i'm trying to give you a little bit -- i've got to give you a little bit of contrast. i think, actually, the big stumbling block, the one that's going to be hardest is what does immigration look like in the future? are you going to have an immigration system like canada, australia and great britain that uses a point system that brings in high-skill workers because that's what your economy and society needs to grow and

expand? are you going to continue with sort of the chain migration -- >> how do you know that's what we need? we need all -- >> because i can give you a perfect example. there's a brand new $6 billion intel plant in my community here that is desperate for electrical engineers. >> right. >> the fact of the matter is -- >> there'll be a lot more restaurants that need a lot of low-skill labor. >> but actually, where you're wrong on that, you can actually go back to your price theory again. i can price that where's the price movement on my low-skill labor to my price on high-talent labor. and the fact of the matter is if you're going to really, really, really grow this world econo economy -- this economy in a world labor marketplace, we need to find a way to bring as much high-skill talent as we can into the country. >> don't move because i want to talk to you about another topic in honor of april fool's day. we're going to take a look at

some examples of government spending that we wish were a joke. nasa has no current mission plans for mars but spends about $1 million every year on recipes that could be served there one day. more than $500,000 taxpayer dollars used to develop an iphone disk jockey. and balloons in the shape of smokey the bear's face. if this doesn't scream for a need for a spending cut, nothing does. representative, what do we do about all this? >> hey, i really want that iphone disk jockey. that was money well spent. look, it's very simple, as long as you expect government to do everything, they're going to spend money on absurdities. you need to come up with a different model on how we fund research and projects. maybe we should look at the "x"

price. whether they do it in the driveway or the garage or the university level, they get the prize instead of these crazy things we end up funding. >> do you think this is crazy? >> some of it is crazy. i mean, look, let's sort of forget how a bill becomes a law here. the fact is these are things that were voted on, you know, these were appropriation bills voted on by the republican controlled house of representatives. that went through the process. >> that's not completely true. you have a problem there. >> okay. >> a lot of these are on, you know, the way we end up doing national science foundation grants, grants here, grants there, and so you take these blocks of money and you -- it moves out into the grant research process. and these dollars are ending up often financing fairly absurd research. >> that's right. and when it's adding up to a lot. just to follow your point. the waste list has compiled this, $43 billion which is about

half of the sequester cuts this year. it's not a small amount. it's actually huge. and so we can talk about the funniest projects, but we're talking about as a whole, it's a lot. i think what we have to do, how we're going to get these departments to cut these programs, how are we going to do it? and this is one idea i've been throwing out. we freeze the department budgets and tell each department that your pay raise is actually -- they're actually funded by the amount of waste, fraud and abuse you can actually cut. we always talk about it, we laugh about it every single year. >> you say to a government employee, if you find $10,000 worth of savings, we're going to give everybody in the department a raise, equivalent to 10,000? >> it's got to be department wide. you fund your own raise by finding -- >> that would be awesome. >> we have to look at better incentivizing programs. >> representative, go ahead. >> we have to actually take one step back ward and have the honest discussion, what do we want government to actually do? >> exactly. what is the role of government? >> if we're going to have -- the

problem is we're having government do so much and so many things and many of them have great stories and narratives, but when you look at the data and the underlying facts, it isn't where the federal government -- >> milton friedman thought there was four things, defend the borders, maintain law and order and foster competition. the rest is gravy. where does funding basic research fit in, representative? >> well, that's a great example of where at our state levels and our patent laws and sort of the ability to sell futures on innovation and invention. i don't mind funding true research, but i'm uncomfortable with the way we do it. when you look at there's only a handful of major universities that seem to pull down most of the money. yet, if you actually look at the great primary research innovations that have broken through and become products, only a couple of them actually have come through that process.

they've come through private labs, literally garages or private companies. so we need to rethink how we're doing primary research. >> that's a good point. thank you so much for joining us. >> enjoyed it. >> up next, apple's ceo tim cook had two words for his company's chinese customers today. i'm sorry. next with that story and the other headlines coming into the cnbc newsroom today. ♪ you know my heart burns for you... ♪

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and knowing there's always more in the world to see. it's the all-new lincoln mkz. the first the first quarter, great for stocks. second quarter, didn't start off so well. cnbc's seema mody has that story and more. >> the big question on wall street is if the rally can power through the second quarter, markets, of course today did end lower on the day. apple, the big tech giant weighing on the nasdaq. cut the stake in apple. it is no longer the fund's biggest holding. and tim cook apologizing to chinese consumers for a warranty problem which many felt the company ignored. he acknowledged that some people think apple is, quote, arrogant inattentive and indifferent to customer feedback. nbc news confirms caroline

kennedy, the daughter of former president john f. kennedy has been asked by the white house to serve as an ambassador most likely to japan. but, that's not official just yet. and the white house is still closed for tours, but the white house easter egg roll went on as planned today. 30,000 people joined the first family for the 135th annual event. but the obama administration did take steps to save money today. press secretary jay carney saying 480 staffers at the office of management and budget have received furlough notices. they have to take unpaid days off. and michelle, more on that. jay carney also told reporters they are going to significantly scale back on equipment purchases, curtail staff travel, and reduce the use of air cards. >> don't move, seema, stick around. let's bring back christy and ron myer, talk about the budget cuts. is this the way the sequester should've gone? there was all this fear amongering about how planes were going to fall from the sky, et cetera, et cetera. that's turned out to be

exaggeration, right? >> i don't know. i don't think it's a good idea to furlough air traffic controllers, but i think what the white house is showing here, they're going to walk the walk. they had talked for a long time about the sequester being a pain that was going to be felt by everyone on all sides. clearly felt within among their own employees. >> this is totally a pr ploy. just to tie back to the last segment, the waste segment, this 43 billion in waste, we could've funded 45,000 years of white house tours. i thought it was a great comparison. and what this whole sequence of sequester cuts that he's paraded out here like this, it's been, frankly, disingenuous and almost insulting to the american people's intelligence to say that we have to cut here and cut there. we had plans on the table on both sides of the aisle to avoid this. president obama championed none of them. >> still, there's a lot of people at omb that are out of a job, i have sympathy for them, right? but ultimately, the government's going to have to get smaller. and that means people losing

their jobs, right? >> well, i think -- well, we can stop hiring people. we don't have to fire people, but stop the continuous hiring. >> which we'll have, by the way. there has been a government, you know, a pay freeze over the last couple of years and a lot of the different agencies, there's been a hiring freeze, as well. so we have been sort of making these cuts. government is smaller. >> well, the budgets of every department have grown every single year for the obama administration. the government spending keeps growing. and so we have to look at solutions of how we actually cut things, how we reduce things. and not to have a limited government, just to have a sustainable government. >> i want to point out something you said. you acquainted a pay freeze with a pay cut. that's the problem, right? it's not a cut, it's a freeze. there's got to be real cuts to spending at some point or else it just gets out of control. >> it does. but it's obviously not going to be solved through the sequester. the problem with the sequester is there's no logic to the way

the cuts are going down. we weren't being intelligent about agencies that have already been putting out efficient programs and were running things really well. this just isn't the way to get things done. i don't know. >> i think in response to today's announcement also the question is why now? i think that was a lot of the speculation or the chatter on the street today. we knew the sequester was coming. just an interesting timing to put out that release. >> especially when they haven't done a budget yet. >> right. >> cutting the omb when they haven't done the budget. it's ironic almost. >> all right. were you saying good night? thank you so much for joining us. >> that's it. >> the show's not over yet. coming up next, after a record first quarter, stocks kicked off second quarter in the red. can april continue the historic bullish trend? "kudlow report" is coming right back. i'm telling you right now, the girl back at home would absolutely not have taken a zip line in the jungle. i'm really glad that girl stayed at home. vo: expedia helps 30 million travelers a month find what they're looking for.

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stocks stocks kicking off the second quarter in the red after a record first three months of the year. but since 1950, april has been the best month of the year for the blue chips posting about a 3% increase. so, will the record rally roll on? here now, cnbc's seema mody still on the set with us. jim lecamp at ubs, and author of "rigged money." wow, that sounds frightening. lee, tell me, what do you think? this rally we've seen in the

first three months of the year, are we going to see it the rest of the year, as well? >> i don't think so, michelle. i think that we have on par right now 8% to 10% profit growth for the s&p 500. i think we've done it. do i think the market could go higher? yes. and i think we're going to be ready for new highs. maybe a santa claus rally. >> we're looking at the dow at 14,572. where does it end the year, do you think? >> on the dow, let me get my crystal ball here -- i say it'll be about 15,000, but most importantly, i like the s&p, i think the s&p could hit close to 1,600. i'm no columbus on that one. >> okay. what are you expecting after this very strong start to the year? which historically when you have a strong start, it actually portends well for the rest of the year. >> it does. and i would point out the last seven aprils, we've been up. so april's been a good month of the yearyear now beyond april is usually when

the market hits a correction. it has for the last few years. but last year's correction was only 5.5%. stocks right now are benefitting from a strange combination. we've got global money flows coming into u.s. assets. that's why uncharacteristically, stocks are rallying alongside bonds and the dollar. secondly, the momentum play is in stocks right now. so all the momentum chasers the performance chasers are in stocks. you've had this dual combination from globally and domestically, we've got the momentum play in stocks. so, yes, i think the market could go higher. we have the big thunder cloud out there. and that is possible bank runs in europe. i think this is being discounted too quickly. but beyond that, as long as the market continues to set higher highs and higher lows, we're going to be playing this market. >> what are you hearing from market participants. whether or not this can keep on going? >> one is learning about where we could potentially see the market move higher. we've already seen the defensive

sectors like consumer staples and health care move higher. they've had strong moves over the past three months. >> which is a little bit strange if you're expecting a strong economy, right? >> exactly. and we have a lot of theorists out there who say these two sectors could continue to move higher even though a lot of these stocks are trading at a premium to the s&p 500. and then there's other sectors like tech, which i follow closely at the nasdaq that are still trailing the s&p 500. the big question is, when is tech going to join in on the rally? and i think when we start seeing sectors like that outperform, there are a lot of traders who say that's when we have a true u.s. market rally. >> lee, what are you doing in the meantime with your money at this point? >> el wiwell, first of all, we to be neutral weighted. we don't want to be overweight this very second. waiting for an earnings announcement. jim was talking about -- >> i'm going to interrupt you. for the novice viewer, 60/40 mix is 60% in stocks and 40% in bonds? >> exactly. you know, our typical client at

our portfolio a lot of retired people, a lot of pensions will have that kind of 60/40 mix. so what we're trying to do right now in putting money to work, you know, if the rest of the year goes great, we make money, no problem. but because stocks and bonds are doing so well right now, i think you've got to wait for that 5%, 6% spring sale that we're expecting and then you go overweight stock for a lot of the rans that jim was talking about, we love u.s. stocks, there's a lot of reasons for that. i'm also sort of contrary putting money into emerging markets. some think it's early, i think it's yet to participate. >> they've changed over the last couple of years. how do you define emerging markets these days? >> i take south korea out. i'm looking for anything, you know, i don't like stuff that's heavy in russia, i think you can look at mid to smaller caps in china, india, all through south america. so i think outside of taking south korea out, i think it's, you know, mostly those bric countries. make them small, smaller caps

versus the big -- >> jim, what do you think if you were giving specific advice on sectors or etfs on people? >> well, i don't agree with lee on the one thing. on the emerging markets, we're not there yet. i've traditionally loved emerging markets. i think he's way too early and if there's a problem in europe, it's going to hit any big risk asset and that will be viewed as that. we're seeing big moves on medical related fields, biotechs, really hot on that sector. things that move things from the oil patch. the rails, et cetera. things that participate in the fraccing industry like the silicas and things like that. there's plenty of plays out there. i do agree with, lee, though, you've got to be a little careful. we've raised a little cash and we think there will be some 5%, 6%, 7% correction. and that's where you want to step on the gas this year. i think you have to wait for that, though, because we've got a long time without that correction. >> it's an interesting point on the dow transports. that index is seen as a leading indicator for the market. it's been hitting all-time highs over the past couple of months.

recently, though, we've seen the index move lower. is that a potential -- a potential -- >> a hint that maybe the economy is slowing. >> the s&p could move lower? >> the economy's not that good. the economy hadn't been growing that good. everybody says, oh, look the u.s. economy's doing better. what was gdp? .4%. >> your point, jim. >> come on, jim, you know every economic indicator out there is good. >> you were both arguing that basically the u.s. was the dog with the least fleas? >> yeah, but not because our economy's doing so poorly. >> i think the u.s. doesn't have fleas, i think we have -- >> guys, one at a time. jim? >> yeah, the economy's not doing that great. it's doing better than europe and we're not playing the risky game that japan is playing and we're not lying as much about our data as china is. so the u.s. is the fatter cow in the slaughter house right now. we've got global money flows coming in here. >> got it. >> that being said, we're not -- we don't have a lot of momentum in the economy. we're growing, but we're stumbling along.

>> lee, the last word here before we go. >> just remind everybody out there when unemployment is high like it is now and inflation is low, the future expect of return of the stock market does very well. i say buy it when it looks garage-y like it looks now. >> thanks so much. that's it for tonight's show. thanks so much for watching. revolutionizing an industry can be a tough act to follow,

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