hey, listen. it may seem an honest deal, but making money, it's never monotonous. i like to say there is always a bull market somewhere. i promise to try try to find it just for you here on "mad money." i'm jim cramer, and i will see you tomorrow! good evening, everyone. i'm larry kudlow and this is "the kudlow report." a very rough 48 hours for team obama. the hard questions for the white house just keep coming. is his whole second term going up in smoke? we begin tonight with the growing irs scandal, which has the administration in full-scale damage control mode. and just over an hour ago, the highly anticipated inspector general's report on this was released. cnbc's eamon javers joins us with details. good evening. >> good evening, this is the report you're talking about. it's a report from the inspector general, who deals with the irs. let's walk through a couple key

findings here that have been absorbing washington over the past couple days. now is our first chance to actually dive in and read the report. here's what they said they found. they found that the irs has used inappropriate criteria that identified tea party and other groups applying for tax exempt status. the irs also caused delays in processing certain applications, and it issued unnecessary information requests to groups for information such as who their donors are and other identifying information about how they operated. so take a look at some of the criteria here that the tigta report says the irs was using in krut scrutinizing some of these entities, looking for the name tea party or patriots or 912 group used in the case file. they say the issues include government spending or government debt or taxes. those would be entities that the irs would want to flag, as well. and education of the public by advocacy or lobbying to, quote, make america a better place to live.

that would be another type of entity the irs would want to scrutinize here in terms of their application for tax-exempt status. a lot to digest here in this report, larry. but we can tell you also attorney general, eric holder, holding a press conference dealing with a wide range of other issues today also said he's asked the fbi to investigate this, to find out whether any laws were broken in all of this. holder calling it outrageous, that the irs would have done this, and its response to the report here, the irs says it acknowledges that it made some mistakes, says they have corrected a lot of those issues, and they're confident they will not recur in the future. >> all right. eamon javers, thanks, we appreciate it. big question is what the white house -- was the white house involved in this scandal at all. take a listen to white house spokesman jay carney today. >> can you say categorically that nobody at the white house and nobody on the president's political team had any knowledge or was involved in any way in the targeting of tea party groups by the irs? >> yes.

i am certainly not aware of, and am confident that no one here was involved in this. >> not aware. what does not aware mean? inappropriate. what does inappropriate mean? this whole irs thing against conservatives and tea partiers, this is a political witch hunt, that's what it was. so i ask the question, is it time for an inspect investigator or a special prosecutor? because you can't trust anybody in the irs. coming up later in the show, i'm going to be joined exclusively by senate republican leader mitch mcconnell. but joining us on-set first up tonight, former prosecutor, tom concern, now head of white collar criminal and regulatory enforcement at peck arrest and abrahamson. katie berke, and cnbc contributor robert costa of the national view. all they do is lie. start with this. showman lied, learner lied, miller lied. they lied about cincinnati being the only place this is happening. we learned that it was washington. they knew over a year ago about the shenanigans and refused to tell congress properly.

so how can you have an investigation with a bunch of liars? >> i don't think you can. put aside whether they're lying or not. >> no, they lied to congress. i'm sorry. they knew -- memoranda show they knew that the irs people, the bureaucrats, the so-called cincinnati hoopels, which terrence out to be in california and washington. they told them about the mistreatment of these groups. they knew. and they said they didn't know and they lied. >> okay. here's the thing. right now we have the political misuse of the irs, which should frighten everybody. the head of the aclu said it's as troublesome constitutionally as it gets. i don't care if you're right of nude or left of whoopee, this is a big issue, and there needs to be fast restoration to the confidence that can be had in the irs. there needs to be a special council. the attorney general has the authority to do this. particularly when there are conflicts of interest. and department of justice is so intertwineded with the irs, particularly their criminal investigation division, there should be a step away.

people need to have -- the attorney general has its authority. he should exercise his authority and quickly, and define a narrow review, and establish the confidence back in the irs. >> think of that special counsel. i don't hear republicans saying much of anything. >> i'm hearing behind the scenes in washington, a lot of republicans very interested in a special prosecutor, because they want to have the lawmakers do the first level of investigation. but eventually they're going to need to focus the investigation, congress doesn't have the resources or the time to do this properly. so they're going to probably try to ask for a special prosecutor. >> i mean, katie, the irs is not some po dunk back water agency. this runs our taxes and unfortunately about to run our entire health care system. so folks know about this. and i think folks should be informed that the leadership lied and that you do need a special counsel. because that's the only way you can trust it. >> well, of course, larry. we're now asking people to turn their most sensitive and personal medical information over to the very same administration that is leaking confidential information to news

outlets. it is completely outrageous. >> what did they leak? it's a good point. >> politico reported today that they leaked confidential information, tax return information, to media outlets in an effort to discredit different groups. >> in the last election. >> that's exactly right, larry. >> and pro publicly -- about some of these openings for the 501-4 c. that's insanity. that's why you've got to have -- you cannot -- the fbi can work with the special prosecutor. >> no, the special counsel would rely upon people from the fbi and his own staff. and it would be narrow -- it could be done in a matter of months. the immediate need, put aside the political and political fallout in congress and everywhere else. and if somebody lied to congress, whoa be unto them. right now the improper use of the irs, the nick seasonian use of the irs, article 2 impeachment against president nixon. the irs -- the confidence -- if it can be had, needs to be

restored. because the fundamental -- >> all right. we're going to move on. darrell issa and jim jordan are going to make the case, what did they know and when did they know t. that's going to come out. we're going to talk about this later in the show. they just flat-out lied. i'm not letting go of that. everyone is reporting it. now, switching gears just slightly. how can the irs, which was targeting anti obamacare tea party groups possibly regulate obamacare? that's a question i would like to know about. so will this scandal spur a tea party and conservative resurgence, as well? let's bring into the discussion now tea party organizer and syndicated radio host tony katz. tony katz, during the last election cycle, let's say 2011 and 2012, how much did this irs assault on conservative groups and tea party groups hurt your operations, hurt the tea party? >> well, remember, it's not my operation. it's the operations of millions of americans who believe in the constitution open market's fiscal responsibility and smaller government. and the answer is, if the

government is breathing down your neck, quite a bit. you ask anybody who has had to deal with an audit whether or not it hurts their business or hurts their home life or hurts their family life, and the answer is going to be hell yeah. so you can only imagine what it did to people's efforts to try and organize and bring the truth to voters about what their future can look like under one administration or another. >> will this irs travesty revive, resuscitate, cause a resurgence, a resurrection of the tea party? because really, you didn't see the tea party strength in the last election. you say them in 2010 when they were dominant. i didn't see much in 2012. will they be revised, tony? >> the answer is yes, at the height of the 2010, 24% of americans saw themselves as part of the tea party. lately, it was 8%. you're absolutely going to see the resurgence and it doesn't come from loving the tea party. it comes from the idea what the obama administration and others have done with the irs is wrong. it's not who we are as americans. forget the idea of right versus left, republican versus democrat. this is right versus wrong time.

and the obama administration is in the wrong, and that's going to be the story. >> katie burke, you're nodding your head. i put that question to you. the question is will they reawaken the tea party which really wasn't around very much in 2012. maybe this had to do with mitt romney, the irs, i don't know. you think it will? you think it's going to be cause is he leb? >> i agree this is a much larger issue we are talking about. we are talking about an administration, larry, and a president that seemed wildly out of control at the moment and we are seeing a disturbing pattern. this is a president who ran on a campaign of transparency, and openness that he was going to have the most transparent white house in the history of the united states. and look at where we are today. people are worried. democrats are worried, republicans are worried. the center is worried. they don't want the government to play this kind of a role. and they want answers. and we don't seem to be getting answers out of this white house, and that is extremely disturbing to a lot of people.

>> robert costa, what are the politics here? it looks like, yeah, we hate obamacare, still the most unpopular thing. but, yeah, we also hate the irs. now, you have a situation where the irs is going to regulate obamacare. is that like 0 for 2 politically, a death knell? >> a huj win for republicans. galvanizing the conservative ranks. after mitt romney lost, conservatives were in a total funk now they want to run against obamacare. they can run against the irs. so this is really concentrating the conservative argument. >> you think -- go back to your argument, special prosecutor. just put that aside. >> special counsel, yeah. >> special counsel, okay. do you think people who hear this story and everyone is going to know this story, because everybody knows what the irs is. the irs regulating obamacare. so your tax records and now all your health records go to the hated irs. this has to be one of the biggest political losers in history. >> well, even the president said

it was outrageous. you know, this kind of -- >> not obama care. >> no. but the misuse of the irs. the irs, whether you like them or not, whatever your position may be, they have to be sackery sank. there has to be some confidence immediately. not some long, drawn-out hearing but a focused investigation by special counsel, free of conflicts, in order to restore the confidence people have. otherwise tax code doesn't work. >> 16,000 irs agents coming. did you know that? >> oh, yeah. >> 16,000. >> you're going to see that on campaign posters and campaign ads. look, republicans have struggled for so long to come up with an argument that makes sense and now they can say the irs is dysfunctional, it's playing politics. >> and they won't be even-handed. you're asking the irs to regulate obamacare, tax hikes, and mandates, which could mean regulating the very people they were just attacking and coming after. in other words, tea party groups -- guys -- might not want to pay the tax. are they going to be

fair-mindeded? do we think the irs after what they have done has a chance? >> not in their current iteration. look, what's the fix here, larry? there is going to need to be a serious scrub, a serious investigation to find out what went wrong, who knew what, and how do we prevent it on the go-forward. the administration is not going to get out of this one easily. they're not going to wait for another news cycle and other news to break to get out of it. it's going to affect obama's legacy and it's something we should all be worried about as obama care becomes a reality. >> tony katz, last word on this. tea party -- >> the agency, meaning the irs, that attacked the tea party groups and everything else, spending and taxing and making america better. the very same irs irs agency is now potentially going to do the same thing with respect to obama care, which is just as complex as the tax system, if not more so. you think the tea party knows the regulators who attacked them are coming again? >> i think that everybody knows.

everybody knows that they're going to be under assault, and they're going to be scrutinizeded. and this isn't the america that people signed up for. but the trust in the irs is not the subject. i think that number is always very low, if you polled it. it's about trust in obama. trust in this administration. trust in the quote, unquote, leaders. the guy who is going to bring everybody together is the guy dividing everybody left, right and center. this is the story. and this is where the administration is going to fail. this is where jay carney is cracking under the weight. that's the story that needs to get pushed. it's whether or not you can trust that man in the oval office, whether you can trust that man -- >> whether or not there is going to be any -- we have yet to see. whether it's this irs or leaking of tax returns, as katie said, and we're going to cover the a.a a.p. stealth recordings in a minute. what remains to be seen, whether there is any connection between these agencies and the white house. thanks, tony katz. we appreciate it. much more on this irs story

coming up up later in the show. including my exclusive interview with senator mitch mcconnell who says this scandal is about to get bigger. but the irs story is just one of many tough problems facing this administration tonight. there are still more questions about the justice department's secret subpoena to grab a massive amount of reporter phone records at the associated press. we learned today the decision to get that info was made personally by attorney general eric holder. we have the latest on that potential scandal. and later on, don't look now, but the bull run on wall street is stronger than ever. not looking at these scandals. big gains today for stocks, thanks to the good news on lower debt, lower inflation and maybe lower energy prices, as well. which reminds me. please don't forget, free market capitalism is the best path to prosperity. but capitalism works with the rule of law. i'm kudlow. we'll be right back. [ male announcer ] this is kevin.

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the irs is not the only scandal weighing on the administration today. the associated press says the department of justice secretly obtained two months' worth of phone records of a.p. reporters from & editors.

abc news mike isikoff is working the story and joins us live from washington. as always, mike, great to see you. good evening. what can you tell us? >> great to see you, larry. we learned a lot more today about this. attorney general holder had a press conference on another matter, but he was asked a lot of questions about this. a and, look, he said -- and this was new. he recused himself on this, because he was questioned by the fbi in the early stages of this investigation. as were a lot of other senior officials in the government, including cia director john brennan. so the decision to actually subpoena these records came from the u.s. attorney and the district of columbia ronald machen, with approval from the deputy attorney general, james cole. now, they -- cole, in a letter that was released by the justice

department today, this afternoon, vigorously defended this, said it was only taken after exhaustive steps as a sort of last resort, that 550 people were interviewed, tens of thousands of documents were reviewed. and then they secretly issued this grand jury subpoena for a.p. records. >> michael, why didn't they bother to talk to the a.p.? i mean, i know we have a patriot act and i know in some extreme cases these things may have to happen. and i know you all have been reporting, this was about a foiled terrorist plot, another airline bomber terrorist plot. but why didn't they bother to talk, negotiate, you know, get around a table with the associated press people? >> well, they didn't specifically address that. but, look, there are two obvious answers to that. one is perhaps they didn't want the a.p. reporters to tip off their sources, who the fbi and the u.s. attorney is trying to find. the other is they know the a.p. would not have voluntarily

turned over phone records to the justice department. so that it was never going to go anywhere. but that said, what's troubling to a lot of people about this subpoena is just how broad it is. how -- in other cases, where we have seen -- and they have gotten the phone records of journalists. when narrowly targeted to a specific journalist and his possibly communications with a suspected source, trying to verify the information by getting the records. here what it looks like is a fishing expedition. they couldn't find the leaker so they issue this broad subpoena for the a.p. said today over 100 people worked in the offices at the phone records where these men have been subpoenaed. and that is troubling to a lot of people in the press and press watchdogs. >> thank you, michael. leave it there. michael isikoff of nbc news. here's the question, right now should attorney general holder

resign? we'll bring back katie burke. first of all, before he resigns, is this legal? what they're doing? is this legal? >> yeah, no -- >> why is it legal? >> because a grand jury investigation, a grand jury has broad investigative powers. it's -- you know, a lot of reliance is placed upon the good faith of the investigating authority. here they, you know -- the attorney general was recused, because he was evidently asked in the leaking probe, as well as the cia had. and the u.s. attorney in d.c., who is responsible for this grand jury, and the grand jury -- we have to start somewhere. >> is this legal? >> yes, it is. >> you can have -- secret subpoenas. >> well, grand juries -- processes are generally secret. you don't advertise them. what is surprising is two things, as touched upon the breadth of the subpoena. because you -- it's surprising that this information that could have been leaked apparently was -- could have been had by so many people that they're interviewing 515 people, and

it's shocking that a cia operation is known to that many people. >> let me ask, katie burke. you worked in the press and communications areas in george w. bush's administration when we first met. i want to ask you, with this white house, which seems to coordinate everything so tightly, at least they certainly try, do we think that eric holder and obama did not get together on this decision? i'm not saying it's illegal, all right? i'm going to listen to kern. kern says it's legal, i'm going with that for the next 30 seconds. what i am asking is, do you think the president would not have known or would have to have known about this? >> you know, larry, i can't speculate on that right now. what i can tell you is, as was discussed, this was a sweeping subpoena. and you have to imagine that senior-ranking administration officials and just how senior we need to find out, were aware of this activity. and, you know, i've heard well respected journalists all day today describing these

activities as chilling, as unsettling. as unnerving. as a breach of trust. and i couldn't agree with them more. it is truly disgusting behavior. if this is as far-reaching as it appears to be and as the administration is now saying that it was. it was kind of nice to hear you say that holder was upset about the irs situation, given what's going on in his backyard. and he's upset about something. >> i love it. robert costa, what's the media buzz? >> i came up from capitol hill. benghazi, the irs, big stories. but the press is apa plek particular about this. the press is in a tizzy, because now the obama administration, cozy relations with the last four or five years, has been going after them. so you're asking when are we going to find out what holder knew, what obama knew. we'll find out. because every reporter in town is hot on this story. they're pissed, they're going after it. >> that pressroom is going to be hostile now to carney. >> you already see it today. >> they're going to be hostile as subsequent news conferences.

president probably won't even show up anymore now. >> tide has turned in this administration. the first term was pretty warm relations between the press -- the administration was cold toward the press but not warring. now the press is open lie hostile. >> does holder survive? >> somebody's head is going to roll, maybe steven miller at the irs, but holder is at the top. and obama is going to have to have somebody take the blame. >> all right, very good. thanks. tom kern, we appreciate it very much. two special counsels tonight. nice going. one scandal that does not involve team obama, the scandal at bloomberg where it may not just be reporters who accessed what should have been private client information from bloomberg terminal. here is my question. did anyone at bloomberg in their broker/dealer make money off this information? and if so, isn't that a serious financial crime? that story and much more coming up. girl vo: i'm pretty conservative. very logical thinker. (laughs)

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people have got to know whether or not their president is a crook. well, i'm not a crook. >> all right. rightly or wrongly, the growing irs scandal has many people comparing president obama with richa richard nixon. but is that comparison fair? does it hold water? we're going to talk about that in our exclusive interview with senate minority leader on this story, next up on "kudlow."

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so is the irs scandal just the tip of the iceberg for the obama administration? will what will the republican response be? is joining us exclusively, senator mitch mcconnell. thank you very much for joining us. let's jump in. what is the republican response going to be to this irs

targeting and attacking conservative groups? >> first, larry, i think it's important to point out, this is not condition find to the irs. i've been talking about this for over a year. let me recount some other examples and then come back to the irs. the department of health and human services during the obamacare debate issued a directive to the health insurance companies, telling them they could not say to their policyholders what their objections were to obamacare. and then now the secretary of health and human services, the same person who issued the gag order back during the debate, is calling these companies, shaking them down for money, to give to the administration. to spend on ads trying to convince the public that they should like obamacare. there have been efforts over at the securities and exchange commission to intimidate corporations into not being -- engaging in free speech. efforts over at the federal

communications commission to do the same thing, which brings us to the irs. a lot of americans, you know, haven't paid any attention to hhs, s.e.c. and fcc. but they know what the irs is. and now what you've got is an administration that based on the ig's report at the irs, engaged in shutting up, if you will, quieting the voices, discriminating against, conservative groups who would criticize the administration. this is a huge, huge story. >> and they also lied about it, sir. i mean, when you look at it, all of the leaders, all of the leaders, whether miller or schulman or lerner, they knew over a year ago and testified before congress they disobedidnw thing and filtered into washington, d.c. i guess i would like to hear your reaction today, attorney general holder said that department of justice, aka, the fbi, i guess, is going to

investigate the irs. in your judgment, is that sufficient, or do we need a special prosecutor or a special council to investigate the irs? >> well, that's fine. but the real investigation, the one you know will be objective, the one that the american public will pay attention to, will be the congressional investigation. the house republican majority, dave camp, the chairman of the ways and means committee, will start on that friday. even senate democrats are now trying to distance themselves from this irs scandal and the chairman of the senate finance committee, a democrat, has indicated he would like to also have an investigation. so i think the congressional investigation is the one to watch. anything within the administration, you could argue, is kind of the fox watching the chicken coop. the justice department can do what it wants the to, obviously. but the real investigation will be here in congress. this is figure to go on for quite a long time. we want to know exactly who knew what, and when.

how high up did it go. was -- did the white house know about it. all of these questions are going to take a long time to get to the bottom. >> do you think the white house knew about this? >> we don't know. >> do you think -- i mean, as you know, sir, this is a tightly knit, tightly coordinated administration. we saw this with the benghazi business, and the state department. do you think that the white house might have known, for example, about the secret subpoena for wiretapping or getting the records of the associated press? do you think that through the treasury department or maybe directly they knew that the irs was going after these conservative groups? or even worse, leaking tax returns? do you think the white house is -- can you get into that? is can you find that information out? >> well, the attorney general, of course, will be asked about all of this tomorrow over on the house side. what i'm telling you is, an investigation into the irs abuses by congress will have a lot of credibility. we have the tools to get to the

bottom of what happened. who knew about it, when did they know about it, who may have ordered it. also, there's evidence that the irs actually leaked confidential material to left wing groups. >> right. >> this is a huge scandal. >> a lot of people are saying they leaked to the group pro publicca. a lot of people think they leaked tax returns to the campaign, sir. a lot of people think they leaked tax returns before the campaign. let me just ask you one final question on this. how can the irs possibly regulate obamacare? they have our tax returns. they're abusing that. now they're going to have all our health care information. how can the irs possibly be permitted to regulate health care and taxes? last question. >> well, you know, that's part of the law. shouldn't have been passed in the first place, and one of the many, many reasons why it ought to be repealed, pulled out, root and branch. >> senator mitch mcconnell, we appreciate your time, sir, very, very much.

>> thank you. >> all right. with washington scandals reaching a critical mass, is a nixon watergate moment ahead for president obama? here now is business and economic historian, john steel gordon, author of "an empire of wealth: the epic history of american power". katie burke and robert are back with us. i want to ask you, what did you hear from mitch mcconnell? >> mitch mcconnell wants congress to be the focus but did not rule out appointing a special council. that's an important point. congress is going to press, but that is an issue that's only going to build. >> katie, do you think he's right that congress is the right vehicle, that congress can get the public or do you think the congressional investigations automatically become too political? >> well, let's see. they're starting their investigation, let's see if congress has the teeth to do this job and to do it well. and if not, then we certainly need someone on the outside to do it. the bottom line, larry, we need answers. and how we get there, i think we

can debate and discuss. but we've got to have answers to move forward productively. >> john steel gordon, congress played a prominent role in the nixon impeachment business, you've got to give them that. >> indeed it did. that's when it started almost 40 years, almost to this day when the congressional hearing started and that's when people really paid attention. >> i want to put up on the screen, the 40th anniversary of the impeachment of richard nixon. here it is. he has acted personally and through his subordinates and agents endeavored to cause in violation of the constitution of rights of citizens income tax audits, or other income tax investigations to be initiated or conducted in a discriminatory manner. that was article 2, section 1, articles of impeachment against richard m. nixon, adopted by the house judiciary committee, july 29, 1974. now, the irs was at the heart of that. the irs may be at the heart of this. what do you make of it?

>> well, the irs -- because it has such power and such knowledge that is supposedly to be kept secret, it's natural for people who want to get hold of other people to if they can use the irs, the irs is corruptible, then, you know, an awful lot of people willing to use it. and apparently nixon certainly was. franklin roosevelt was the same way, often used the irs for a political tool. he got away with it. >> is it obama -- obama has to be pulled into this some way, shape or form. otherwise it's just going to be an irs matter. is that fair? >> yes. i mean, if it stays in the irs, heads will roll at the top of the irs, but obama will get out scot-free. >> do you agree with that? >> i think this is all about the president. obama care discussion with the irs an important discussion. but this is really about the president, a president who has been popular for four and a half years. but now he has his first real scandal. and this goes all the way to the top. at least in terms of his blessing of the leadership of eric holder. that's why republicans want to keep this investigation in the house and in the senate. because they know when they look back at watergate, there is a

feeder to these investigations. they want to put obama on the spot. >> when you say holder, hang on -- >> confidante of the president. >> absolutely 100% right. holder is now some extent taking over the irs investigation. he said that today. department of justice is going to investigate. the fbi is going in. so the irs becomes holder's baby, and that in turn brings it closer to president obama, is that not right? >> that's exactly right. and obama and holder are two peas in a political pod. these guys have been together since the beginning of the administration. and if they go down, they're going to go down together. these are -- holder and obama -- if holder goes down or holder gets -- for the a.p. or mishandle the irs investigation, obama is going to be touched by that, as well. >> when you first got wind of this whole irs mess, what was your instinct, historian you are? what was your instinct? >> my instinct immediately is this is a very big story.

because there's just no defending it. no way to talk around it. it's just plain flat-out wrong and indefensible. and so friday when i first heard about it, i said, you know, oh, boy, here we go. >> now, it's going to be up to katie -- it's going to be up to holder, maybe, up to holder at the end of the day to make decisions about the irs. i have never seen an attorney general with that kind of portfolio before. that's heavy duty. >> it is heavy duty. and is eric holder up to that job? and should we trust him with that authority right now, larry? i'm not sure the answer is yes. i do know that president obama held president bush accountable be for every single thing that happened in his administration during his tenure as president and i think president obama should be held to the same standard. >> i just think it's amazing. last point, me. holder, taking over this irs investigation. i find that fascinating. i think that brings it closer, right into the living room of the white house. i really do. i don't see how he gets around that. there are going to be all kinds of questions. anyway, thank you, john gordon, we appreciate it.

as always. now let's get to some much needed good news for tonight. that's right, good news. we hit new record highs for the dow and the s&p today. good news on the economy. good news on the deficit, sending the bulls off and running. we have all that for you, next up on "kudlow." all stations come over to mission a for a final go. this is for real this time. step seven point two one two. verify and lock. command is locked. five seconds. three, two, one. standing by for capture. the most innovative software on the planet... dragon is captured. is connecting today's leading companies to places beyond it.

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all right. busy day on wall street as the record rally continues to roll on. let's start with famed head fudge managers david tepper's bullish case for stocks. take a listen to this. >> i'm definitely bullish. it's so overwhelming. the economy is getting better. autos are better. housing is better. it's a continuous improvement. they can't find enough people to work in housing, the only thing holding it back right now. >> all right. we basically want him on every day, did tepper's bullish call help? of course it did, always does. great reputation, made great calls. rebecca patterson, chief investment officer of best trust. stephanie link of the street. isn't it thestreet.com? >> just the street. >> just the street. and co portfolio manager of jim cramer's charitable trust. how important was tepper? >> very important. we all have a lot of respect,

he's got a great track record but the things he said were even more important. >> what did he say? >> the fed policies have -- are working. leading to better housing, better jobs. more confident consumer. earnings were good. not great. but better than expected. margins are holding in. very supportive of stocks, risky assets. there's no other place to be. so i think that what he said was very encouraging. it's something we have been talking about for a long time. but i think that the rally still has legs. >> i agree. rebecca, what's your take on tepper? >> i agree, as well. i mean, we have been adding equity risk in our portfolio. >> adding. >> uh-huh. >> and everyone in the world thinks there is a pullback coming. >> we added in january, we added in march, we added again this week. and i do that with a relative value play in mind. we had an underweight commodities, hard commodities, not commodity stocks. we added to that underweight this week, and said what's going to do better.

even if china improves, even if china demand improves those commodities, it's going to lift global growth expectations, that's going to help. >> you know what's interesting, the cyclical stocks are starting to outperform. >> i saw that. >> if you look in the last two weeks, the morgan stanley cyclical index, relative to the morgan stanley defensive index outperformed by 400 basis points. >> why is this? >> i think because of the global central bankers. >> global central bankers pouring it on. the only one left to pour it on is europe. but the asians are now cutting interest rates, following japan. they're all pouring it on. >> australia, south korea. we have it from all over the place. >> and europe catching up. druggy when he said we would consider negative interest rates, that was the unexpected part of that latest policy announcement the. equally importantly with europe, the fact they're taking a step away from austerity. so we have nonexistent growth in europe, record high unemployment rates. can't afford for that to continue. the fact they're going to give countries more time to hit their targets means the recession

isn't as deep. so a relative improvement in expectations going forward. >> easy money from the central banks. let's jump to another topic. congressional budget office today out officially with good news. the latest budget projection showing the deficit is going to be much smaller this year than expected. shrinking to a tiny,in finish tess mal $642 billion. gosh, a level not seen since 2008. i guess $600 billion is pretty good when you're ack accustomed to $1 trillion. does this matter? >> i think it does in the margin. i look at it more two-sided, though in the sense that yes, less of a deficit, less worry around government, fiscal policy in general. but also there is less need for congress to get something done on the longer-term issues. they don't have that fire under their feet, pushing them to think. >> keep congress away, period.

keep them away. >> they're all going to be occupied with these scandals so they can't do any economic harm. benghazi, now the associated press phone calls. now we have the irs. tomorrow we'll have something else. so if they're all hung up on that, they can't raise taxes, they can't overregulate, they can't even spend. >> that's good with the market. >> we can focus on fundamentals and what we talked about. >> so when the news comes out from the cbos, does the stock market react to it? basically not. you don't think so either. now, we have had -- this i think you will agree with. better than expected run of economic reports, both here and overseas. i want to go through this now. i know retail sales was yesterday. but that was a good number. an underestimated number taking out, for example, gasoline prices coming down. really good number. today, the small business confidence index actually went up instead of down. what's your take on that? is the economy getting better or worse? >> i think the economy is growing at about 2% but people were thinking the second quarter was going to be 1.1.5%, and

you're looking at higher than 2% and into next year, all of this global easing is going to lead to better growth. >> that's why the cyclicals are cyclicing. >> that's right. >> seriously. >> and you have to be buying these stocks now. because that's where you're still getting relative value. >> before the good news gets priced in. >> a lot of people give the other side, business is not investing in capital goods, consumers, yeah, retail sales. but the saving rate is too low and this and that and the other thing. where are you on the economy? she is 2% wrising. >> i might be a teeny bit higher but not much. i do think this small business sentiment survey today was really important. because we have seen consumer sentiment inching higher all year. they're helped by the wealth effect, and directly and indirectly by the fed, but business had been lagging, even deteriorating. how is it going to resolve? are consumers going to get more nervous or businesses more optimistic? >> and? >> today we got one data point saying maybe businesses are going to say, hey, the consumer

is still spending, the consumer is feeling confident. maybe we have reason to be confident too. so i think consumer 72% of the u.s. economy, they're going to be the dominant factor. business sentiment i think is biased to catch up with the consumer. >> that's pretty good. you almost got it right. it's going to be business investment that's going to be the dominant factor. the consumer thing is vastly overrated. but if businesses do invest, that will create jobs. which will create income. which will create consumer spending. anyway, we don't have enough time. thank you, ladies, as always. stephanie link, rebecca patterson, hang out. we'll have another topic. here is another burning kudlow question for tonight. was it just bloomberg reporters who used information from bloomberg terminal customers improperly? or was the data used to make a financial profit for bloomberg traders? the story is not going away. more banks and even foreign governments are ratcheting up their complaints about a breach of privacy. we have the latest on that story coming right up. (announcer) at scottrade, our clients trade and invest

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now on to the controversial privacy breach involving bloomberg reporters and the company's data terminals. cnbc's kayla tausche joins us now with all the details. good evening, kayla. >> larry, the bank of england says it's in contact with bloomberg calling it reprehensible, how they may have used proprietary information

about officials in their rourpg. the fact that journalists had that access is only the first issue. the second has become the security of private messages and trade data transmitted across platforms. the messages were private conversations over securities prices. and being used by bloomberg to tailor one of its product to traders. a bloomberg spokesman said they had consented to the messages but they were not supposed to be made public. he called the release, a quote, clear viaolation of our policie. bloomberg is also a veritable trading platform, trading trade book to service transactions clients were making, registered with the s.e.c. and finish rah but unclear what steps are being taken to ensure the areas of the note torously private company are being secured. those products create a unique element of competition between bloomberg and its clients.

dan doctoroff said he was in touch with over 300 clients and creating a position for compliance officer to ensure it didn't happen again. in the meantime, any efforts for banks to recreate products in-house are a niecent effort at best. traders are unlikely to give up terminals. >> many thanks to kayla tausche. i have one late edition. bloomberg is responding to the bank of england's objections with this statement and i quote. we regret the bank of england has taken this position, but we continue to engage with its management and staff to address their concerns. end quote. all right. let's continue this discussion. rebecca patterson and stephanie link. i don't know what to say about the bank of england. i want to ask you though, the trading platform that bloomberg has, is that not an inherent contradiction? is that not an inherent conflict of interest? >> well, yeah. i think it's a conflict of interest. but i think what's happening here is that there is risk to -- on the reputational side of things. i don't think is this going to

be a big deal from a business point of view, and the simple reason is because these terminals are so popular. and they really are so superior than what is out there right now. in terms of the news flow, the data content, the featured richness. you can't go on any trading floor without seeing a bloomberg terminal, if not many bloomberg terminals. so i think this is certainly headline risk for the company, and it's certainly a distraction. but i don't think it's going to -- i certainly don't think it's going to take down the company. >> let me ask you, though. reading matt winkler's editorial, do you feel they have closed down the conflicts here? the help desk looks like it's closed down. he named that specifically. he did not name this unique user identification, the z thing, which is another one of these user-friendly -- they didn't really say that. to me, he didn't button down the issues and that there is still some question. i think a lot of users of bloomberg will have lost trust in the firm now. you're going to be thinking twice before you type a message to a friend or discuss a trade

idea with a colleague or a counter party. but at the end of the day, what else can you do? you might be more careful with what information you put in there. but as stephanie said, you don't have a lot of choices. the other alternatives out there just aren't nearly as good in terms of the functionality they give you. >> we have to leave it there. much more to come. thank you, gentlemen. no, thank you, ladies. that's terrible. rebecca patterson, stephanie link. i'm kudlow. i'm a gentleman. that's this evening's show. thanks for watching. bny mellon combines investment management & investment servicing, giving us unique insights which help us attract the industry's brightest minds who create powerful strategies for a country's investments which are used to build new schools to build more bright minds. invested in the world.

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>> narrator: in this episode of "american greed"... in chicago, charles martin owns a lucrative currency brokerage but lives like a hollywood big shot. >> i think that was his goal in life -- to become a superstar. >> narrator: it's a game of make-believe with a very high price tag. >> he dropped $1 million on private-jet travel, a 2006 bentley, ferrari, bmw, land rover, hundreds of thousands of dollars at a strip club. >> narrator: and when the credits roll, he and his partners stick their clients with the bill. >> what dawns on me is nobody's gonna get a dime back ever. >> narrator: and later, miami accountant juan carlos rodriguez riomises to make his friends