there is no millionaire. so where is the $31 million he took from investors? tonight, do not miss an all new "american grode." i'm jim cramer. i will see you tomorrow! [ music playing ] good evening. i'm larry kudlow and this is "the kudlow report." as the new york times slammed obama ma today for his political woes and questionable vision, the president, himself, held a news conference where he rejected calls for an irs special council, which i think is a huge mistake. meanwhile, another top irs official has stepped down. cnbc correspondent john harwood joins us now with the details. good evening, john. >> good evening, larry, the president again was trying to get past this scandal yesterday by firing the acting irs commissioner stephen mill early. today it was by rejecting calls for a special count sim. he justified that at a news conference at the white house by

pointing to the inspector general's report, investigations by many committees of congress and more than. attorney general holder also announced a criminal investigation of what happened. between those investigations, i think we're going to be able to physical out exactly what happened, who wassed involved, what went wrong and we're going to be able to implement steps to fix it. >> but, of course the president is going to be right back in it again tomorrow. because the house ways and means committee whose chairman, dave kevin, i interview -- dive dave kemp and mat t baucus. he wants more answers from miller on exactly what was behind the political target. >> well, he's still the acting commissioner until june. so he's still the guy. we have a lot of questions to answer.

first, why did they target people for their political beliefs and how pervasive was this? >> do you, personally, have any reason to believe or do you believe that the white house was involved in this? >> i don't know the answers. we need to get answers. we will follow this where it goes. >> reporter: so that process, larry, is going to continue for an extended period of time by members of congress and various committees whenever the president gets around to appointing a new irs commissioner. of course, there will be confirmation hearings. this isn't going away any time soon. it's interesting. i sat down with dave kemp and matt baucus. both of those chairman told me they intend to pass tax reform bills out of their committees by the end of 2013 and see if they can put them together in 2014 put them together in an election year. >> i hope you are right. thanks very much, john harwood. now, the president uses a press conference to weather the

storm. so the question is, did he succeed? let's talk to former white house aid and contributor keith boykin, clyde benson an cnbc robert costa, i want to start with you, this is insane, later in the day, i take it after the press conference, they appointed danieler with per. -- daniel werfel. i am not picking on this buy werfel. people say good things about him. he served under w. bush and obama. here's the thing, bob costa, he's only going to be there four months. the appointment takes effect may 22nd. he's going to serve through the end of the fiscal year, which is september 30th. four months. he will clean up the corruption and politicking in four months. that is the nuttiest thing i've ever heard. >> reporter: the congress doesn't think it and the president is reshuffling the debt shares on the sinking irs shichlt you say dave kemp talk

about how tomorrow's hearing is the real story. my take away from the press conference is the president is on the ropes for the first time in five years, he is feeling the heat from congress. he knows he has to act. i think he is stumbling to strike the right tone. >> of course, they should have a special council. of course, because this guy werfel is there four month, second of all, he will have his hands running whatever he needs to run. you need a separate, independent special council to find out what happened, how it happened and what needs to be done to prevent it and to have heads roll. this couldn't possibly be done by a part-time guy in four months. i don't get it, keith. >> we have an inspector general's report, larry, which is the reason we know about this in the first place. that is actually the basis of the forum that needs to take place. i will disagree with robert who i normally agree with. i think the president was strong. i don't think he was on the ropes at all.

i think what we seen in the past two days is a case study for crisis management from the whouls. white house, they've turned this out from what was a sinking ship two days ago. now, they've gotten behind this story or in front of this story, rather. i think they have done it effectively. they put the president out there two or three times this week. they got e-mails on the benghazi story, getting information out there on the irs story, also, effectively in taking swift, decisive action, getting rid of stephen miller. appointing a new acting irs commissioner. >> for four months. nobody is going to believe that that is any effectiveness at all. i got to go to you on this, this make nos sense. all right. keith is doing the best he can to spin this. but the reality is four months, can you not put a guy in. the second reality is the inspector general's report. some people think it's okay. other people are questioning it. you need a special council to go through wit a fine tooth comb. you also need a special council

to make recommendations this won't happen again. the i.g. report doesn't do that. that's why i think today's actions guy was back paddling by the president. there is nothing going on here. >> well, with all respect to my friend keith, i think he's living in an alternate universe if he watches the press conference an thinks the president performed ably and made things better for himself. just the opposite. if we are focusing on one of the scandals the irs scandal. he as you mentioned declined the special prosecutor. the i.g. report i think is the beginning and has some flaw, frips, said there was no political bias. oops, so that's just point one on the irs thing. he also said, i thought this was so interesting from the president. earlier today he expressed his confidence in attorney general eric holder who in yesterday's testimony said he didn't know anything about anything and he said, oh, we're going to have a criminal investigation of the irs but the one thing i do know is that this doesn't touch the

white house. so there is an attorney general with a conclusion that he has already reached about the white house' involvement. >> can i correct you guys. the attorney general did not say he doesn't know anything about anything. he recused himself. he recused himself from the justice department investigation. >> right. >> into the ap controversy. >> absolutely nothing to do with the irs controversy. >> but he also -- >> don't confuse the two. he talked about both. keith, i'm trying to keep the scandals straight here. i know it's tough. there are so many of them. yes, he said he recused himself on the a.p. thing on that mess with the doj. he couldn't remember when he recused himself, it wasn't in writing. he didn't know which of his deputies took over the kals. that's amazing. >> again, you are trying to shoehorn the issue of the a.p. issue into the question of the irs, which is not right at all. >> i'm separating the two. >> the problem with the gop, larry, it's a danger of overreach. they did this in 1998 with the

monica lewinsky thing on bill clinton. >> i got to say -- i don't think it's 1998 at all. i think the leaders of the irs lied through their teeth and that is going to be shown with clear proof in these oversight hearings and the one place i do agree with the attorney general is there are going to be criminal prosecutions. that's for sure u sure. but bob costa, i want to put something else into the witch's brew here. this wall street editorial this morning, i'm sure you saw it, chuck schumer and max baucus and senate democrats wrote a letter to the former irs commissioner shullman saying they should go slow, essentially, do what they did concerning applications for tax exempt status. this is schumer and baucus. i'm sorry he didn't ask him that. that was the seed planted right at the beginning. what happens? it got politicized.

these senators did what they wanted them to do. >> we can debate the theatrics all we want. the problem for the droots and the president is this has been going on for years. there is document, freedom of information requests since part of these investigation about democrats putting pressure on tea party groups and conservative organization. the more this evidence comes out and unfolds, it's going to keep hurting the president. so he can be as smooth as he can be at a xramps, these will make it the summer scandal in walk. >> what they said, bob costa, the bureaucrats. i actually read this, they said, we were doing what we thought they wanted us to do. they, the congressional democrats have pressuring the bureaucrats. that's exactly how this works in the federal bureaucracy. i think that's one of the key factors and i think it filtered into the leadership, too, with now miller and schedule schumer

and others. >> the irs is influenced by the broader political culture. that's the argument the public is making. they are a part of the whole apparatus in washington. >> that's the big issue. . of course, they were directed by the president himself. he only appoint two people the president of the irs and the council. this whole criticism, this famed outrage about the irs, which is a legitimate scandal i will admit would make much more sense and have credibility coming from the gop if they said anything when the irs was targeting the aaacp or greenpeace or lesbian organizations. no, they said then. now a legitimate ininquiry into 501(c)(4)s. >> i got to stop. i completely agree the irs is a scandal. that you are completely right. that's not going away. these hearings coming up tomorrow and next week, oh my gosh, you white and see, stuff

is going to surface, it's going to make your head turn, maybe your stomach, too. we appreciate it very much. now, folks, president obama seems to be losing a lot of his support from his key scituatecy, that being the media. the irs, a.p. and benghazi scandals are taking a toll. the love affair may be over. we will talk to media expert brent brosell about. that listen to manic obama supporter chris matthews. she talking this morning about how the obama team is losing the voter's confidence. chris matthews. >> for anybody to run around walk and say we don't run the irs, i'm recusing myself, everybody is saying the steering wheel doesn't control the car anymore. the voter out there says, wait a minute. i voted. i want the person i voted for to be in charge so i can vote against him or her the next time. that's the only power i have. you are telling me i don't have it because you don't have it. that's going to really bug

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>> he's report adjust ditional review on that team to some of

this. >> what happened in 2007? >> i'm asking you what happened in 2009 when he was president of the united states. >> the legislative history is more economiced than you present. >> all right. that was nbc's chuck todd and jay carney facing off on how president obama is dealing with these scandals in washington this week. but other main stream left leaning media outlets are joining in the criticism, including a front page leader from the new york times. check it out, also the huffington post, also the washington post is usually supporters of obama. they are backing off. how much trouble is the president in with his media base? who better to ask than brent bo zell. it looks to me they're up in arms. their hero has been so badly wounded, these main stream media guys don't foe twhoo to do. >> yoepgs, larry. are they up in arms? no, are they upset? yes.

it's a lover's quarrel at this point. they're upset because of the a.p. that itself the one that's getting them the most. because that was aimed right at them and they see that as betrayal and some reporters have actually said that, lisa miers of nbc actually said, befud el befuddled. we can't understand it. we're his friend. that's the way she put it. there is the irs scandal. that kind of crosses the lines, liberals, democrats, conservatives all don't like that. the benghazi scandal, that's been around since september 11th, 2012. the media hasn't cared about i. they don't much care about it right now. here's what's going to happen. there will be a lot of angst. in about a week, there will be the moveon.org syndrome t. bill clinton syndrome will be on us. it's time to move on. we've covered it. they will turn the fire on republicans being obstructionists. mark my word. >> i want to ask one thing.

i was very impressed with jonathan carl of abc. because he was the one that broke the what 13 different memos, the different drafts of the memos. i thought that opened the flood gates to a lot of criticism of obama on that very subject. the other point i want to make to you brent, the irs, it is more of a financial story, there isn't anybody backing obama on the irs. nobody has a good word to say with this whole story. the stories that come out, brent, the lies that will be surfaced again and the investigations are going to kill obama. >> well, the investigation -- larry, the key word is investigations. go book to the clinton years and the alphabet soup of scandals involved with clinton. now, think of the investigation that went into those scandals. it was virtually nonexistence. they would report what they had to report that someone else might investigate. but the zeal of going after watergate with woodward and bernstein, that hasn't been there in these scandals.

fistart seeing that. if i see the media, themself, investigating the irs scandal. fisee the media, themselves, why isn't anyone in the press found anybody in the continues lat in benghazi to interview? do you realize, we haven't interviewed anyone there. they start investigating it, then i'll take it seriously. >> i can actually cite the wall street and "wall street journal" and the new york times. they sequestered the key date in the entire report, which was august 4th 2011 when all the irs big shots were informed clearly about the attacks and the conspiracy to keep these conservative groups from tax exempt status. it was jonathan weissman that did it. my hats off to him. he fingered the absolute key meting when the lawyers from the irs were there. >> it's very true. some reporters have done good work to date, finally.

but let's be very blunt about this. these scandals didn't just happen. these scandals happened in the first term. and they're now arriving at those scandals. where were they when these scandals broke? there were conservatives writing about the irs 15 months ago, nobody was picking up on it. not nbc, not anybody else. the fact that they arrived at the story is a good thing. my point still holds, will they continue to investigate this? every day, every few hours, there is a new rip him on the irs story with yet another organization that was targeted. are they really going to investigate this? if they, do i applaud them. >> i don't want to defend the pain stream media. i'm pointeding out as i file this as close as i can, there have been pretty good reporting jobs. i think politico has done a good job hammering on the irs investigation. >> i think so, too. >> today they fingered somebody. it's all quiet. i appreciatet. you want to see more follow through on this you are right

the main stream media is not reliable. aagree with you on that.. anyway, thanks to brent bozell. >> thank you, larry. the november chris christie announced a major bailout for homeowners hitgy sandy. don't -- hit by sandy. don't forget, free market works with the rule of law. i'm kudlow, we'll be right back. . he scenes

at ducktherapy.com. >> we have been following the

saga of president obama's recess appointment to the national labor relations board. a few development in that story comes up today. seema moddy has that story. >> a federal appeals court says president obama exceeded his power by going around the senate and putting craig becker on the nlrb. he was on break, not officially in recess. so the president could make a recess appointment. another court said the same thing earlier this year. the huge problem is this. every decision made by this board pay have to be thrown out. in other news, new jersey governor chris christie announcing a big federal bailout for homeowners who lost their homes in hurricane sandy. $300 million to buy out flood-prone homes. 1,000 homes on the initial list. a record art auction at christies last night $495 million in total. the most expensive weiss was this jackson pollack which sold

for $58 million. this is the big one everyone is talking about today $1.9 million for a portrait called b. arthur naked. the actress did not stand for it. if you want the other half, can you google it. >> i'm not going to comment. when you look at the jackson pollack, when he group, he was a naturalist, a realist. he knew how to draw. then he broke through. the reason i know that is my wife is an artist. she is a realist. they have to draw and he did pretty well for himself. >> my mom was an artist as well. i think art is in the eye of the beholder. >> of course. that's the way it will be. that's why those auctions went so well. seema moddy, thank you very much. one of the successful new governors is about to join us. indiana's mike pence will tell us what he thinks about the irs

scandal and the amount of taxes he repealed in his home state. next up governor mike pence is exhausting business. . [ male announcer ] citibank's app for ipad

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helps him deposit his checks. jay also like it when mother nature helps him wash his car. mother nature's cool like that. citibank mobile check deposit. easier banking. standard at citibank. welcome back to "the kudlow report." i'm larry kudlow.

in this half hour, more victims in the irs scandal are speaking out. two will joan us, including the leader of a conservative latino organization in texas. also the stock rally took pause today with disappointing economic stats. we will hear from one top notch expert worried about this situation. first up, the red state path to pros period of time. earlier today, i talked to one of the leaning pro business pro growth republican governors, that being indiana's republican mike pence. we also talked about hits efforts to cut taxes and spending at home. i did begin by asking him for his take on the current irs scandal, which is rocking washington. take a listen to what he told me. >> well, my thought is that congress needs to do tear job. i believe they will, to get to the bottom of what happened here and how in the world you can have individuals or organizations in this country targeted by the internal revenue service is totally unacceptable and as i said, the public has a

right to know and it's the congress's job to hold this administration accountable and i'm at least grateful at this point the administration has expressed outrage and is cooperating fully with that inquiry. >> do you think the not so hidden motive here by many of these people. it's not a couple people in cincinnati. it's a whole network of people, essentially trying to take the conservative groups, whether they are tea party or not, defund them and take them out of the 2012 election? that's the way i read this. >> well, and we need to know more. we need to know what the objective was here. what in the world the rationale was. we have constitutional protections against targeting individuals with the tax code or tax action. i just think this is an enormously serious matter. i'm confident that congress will go about its inquiry in a very serious way. but the public has a right to know and we need to hold those accountable for this targeting

at that time irs strictly to the rule of law. >> with the oversight committees, do you think they're going to need a special council? someone who is completely independent of the obama administration? >> i don't know the answer to that. but i do think that the seriousness of this matter as it bears upon the privacy rights of individuals, the first amendment rights of americans. it just needs to be dealt with, with a level of moral serious inside than it warrants and i'm confident that congress will deal with it that way. >> just last run on this, is this part and parcel of the kind of government overreach we seem to have had in washington in recent years? >> well, look, no one has been a harsher critic of big government than me over the last ten years, but this is something that's beyond that. this is a matter of bureaucratic

excess and i was pleased to see the president express outrage about it and we'll see the administration hopefully follow through with strong action, strong corrective actions. but at the end of the day, this is not just one more example of the excesses of big government. this is something worse and congress needs to get to the bottom of it. >> all right. let's go to indiana. you've just passed a budget about $30 billion if my home is correct. tax cuts, spending cuts. tell us about it. >> right. very pleased we came out of our first legislative session with an honestly balanced budget. we paid down debt. we've strengthened our reserves, we increased funding for roads an schools and passed the largest state tax cut in indiana history. we think at a time when families and businesses in our state, just like around the country are the continuing to struggle in this economy, we think now we really have a framework for getting our economy moving again and telling indiana's story all over the country and all over

the world. >> you have an 8.7% unemployment rate. that's rough. >> a quarter of a million hoosiers are out of work. as i travel around their state on a regular basis, we see evidence of this difficult economy. i have to tell you, there is a lot of optimism in indiana. people sense that our state has been on the right track in recent years and with this budget, we've made, we doubled down, if you will, in our commitment of fiscal responsibilities, pro growth, policy, that combined with our commitment to education reform. we expanded school choice. we're making a new commitment to vocational education in our high schools. i think hoosiers know the best is yet to come. >> is this the trend, the great divide, indiana, ohio, go down in texas, you can go to oklahoma, can you go to kansas, perhaps look at new jersey, pro business, pro tax reform, spending reform, pro business environment versus the old school the blue states,

california, new york, ill now, maryland, is this where the new divide is going to be? >> well, it may bell b. i was pleads chief america magazine said indiana is the best place to do business and one of the top five states in the country to do business. that's reflective of our commitment to fiscal responsibility. right to work, pro growth policy, pro growth tax relief and education reform. but, look, there is a tough competition for jobs, not just between states but on a global basis and i think for america to compete, we've got to have this ongoing competition between the states to see who can have the strongest balance sheet, who can promote the kind of pro growth policies that will encourage capital formation and investment. i hope to have indiana continue to lead the way. >> so with indiana and other governors like yourself leading the way, does the national gop, the national republican party get this? do they have a good growth message? do they see what you all are

doing? >> well, i think they do. i hope they do. i will tell you that after, you know, i spent 12 years on fill, that's where we became acquainted. i've spent a little more than four months as governor of indiana. i'm more convinced than ever the cure for what ails this economy, will come more from the states than it ever will our national government. i think indiana is a shining example of showing that you can have government as good as your people. can you live within your means, can you promote pro growth policies even while you provide funding for roads and schools and necessary public services. you know, in state after state, led by republican governors, we are demonstrating that you can have government as good as your people. and i think that, those solution put into practice will have an impact on policies in washington. >> last one. back in 2012, a lot of conservatives wanted you to run for president. are you thinking of running if

2016? >> you know, i haven't spent one second thinking about anything else other than the future of the state of indiana and i couldn't be more excited seeing our state lenls lach -- legislature renew our pro growth policy, education reform. >> it's the kind of thing that would work at the national level, mike pens, just the kind of things that would work. >> they're working in indiana. they will work even more. >> thank you ever so much for visiting with us again. all best of luck. >> thank you. >> all right. mike pence, governor mike pence, the best of the best out there in indiana. folks i want to thank the team at yahoo finance for providing us the studio for the interview today. now, the irs harassment policy didn't just target stereo typical conservative types. we're about to talk to the lead every of a laity no group. latino group. he says it was singled out too. next up on "the kudlow report." .

as president obama tried to calm the irs scandal storm, more victims are speaking out. joining us is kevin cook, the founder of lynchpins of liberty and george rodriguez president of texas alliance, the tea party

group that was predominantly latino. george rodriguez, i want to join with you, a tea party group predominantly latino is worth talking about. first of you'll, the republican party did bad in the last election. second of all, i had no knowledge there was other latino tea party groups. >> well, there are. here in south texas. we have one in harlengen and one in mechanicalen and one that cater specifically to the latino community. ours happens to be both angelo and latino and african-american. however, because san antonio is 50% latino, obviously, we will have a lot of folks latino by definition. >> one more question, because this is a little off topic. i want to hear what dirty tricks were played on you. all right.

you are in snoevenan santonio i san antonio. >> tax the bottom line when government gets big, our rights and our libertys begin to shrink. people recognize that. we have, while there are a lot of people who are waiting for santa claus in the form of obama or the federal government to take care of them. we have a vast majority of people that recognize their abilities and their freedoms are right there at their fingertips. all they have to do is get up and do something to achieve whatever their dreams are. >> kevin, let me ask you. you are from a different part of the world. what were the key issues that coalesced your group? >> well, my group is actually a very small group, larry. lynchpins of liberty, an american leadership development

enterprise. our motto is to challenge the rising generation. we actually mentor high school and college students and conservative political philosophy. we do this on a one-on-one basis, almost like mission work. >> you don't sound subversive to me. why'd the irs target i? that's downright american. i mean, actually, it's downright bipartisan. >> yeah, it's interesting. not only is it not subversive, but we also have a different model. we are 501 v 3 rather than a c 4. unlike the other organizations targeted because they had the word tea party or patriot in their application. we had neither of those words in our application nor our mission statement. larry, i think the one thing that connects me with the other organizations is we share a common idea. that is we reject the expansion of the federal government beyond its legitimate authority. >> as you said that. is that where they targeted?

did they question you? did they ask you, who believes that, what books you read? who showed up at the rallys? that last part sounds premarket subversive. i leak the free market. i'm saying, is that where these irs bureaucrats went after you? >> yes. the questions were so broad, so invasive, 31 questions with multiple subquestions leethd up to about a 95-point inacquisition. i had about ten days to respond to it. even, consider again that i work with young people. i work with high school and college students. the irs asked me to identify those students and to tell them in detail what i am teaching the students. >> identify them by name? >> how else do you identify them? >> that sound unconstitutional to me. >> absolutely, it's unconstitutional. which is why we got the aclj involved since february or march of 2012. until last week had been proceeding through a normal legal process.

then we got weak and incomplete apology by the irs. >> george rodriguez, were you asked to identify your followers, your members by name? >> yes. we were asked, we were asked not only that, who attended our meeting, where our meetings were held. we got a questionnaire that was longer than the one that he's talking about. we got one that was about 50 pages that had extensive questions on it, questionnaires on it. you know, the thing that we've got to remember, larry, is that the movement, the tea party movement and we have the name of tea party. they singled us out very quickly. the thing we got to remember is the vast majority of people initially were mom and pop folks, ordinary citizens, that we're not used to the rough and tumble politics. so when the irs came crack down, many of them became discouraged, dissuaded and scared. i think that was the intend consequence the irs had. >> threatening, bummying. let me just ask you, did you

finally get your exempt shun status? >> after 18 months, yes, we did. after 18 months, a lot of tears, frustration. we finally got it. >> i was reading today, kevin, one study, one report said for conservative groups, tee party groups and other -- tea party groups and conservative groups on average the application took about 27 months to be completed. for liberal groups, which far smaller number was used, the average was nine months, so there's a difference right there. now, let me ask you this, kevin, how much money did it cost you in legal fees and accounting fees to get your application okayed? >> well, my application has not been, i have not been granted status yet. i am 27 months and counting. i put about 30-$50,000 of my money plus i lost a grant for $50,000 from another nonprofit that was willing to grant me

that i maintain status or achieve status. because it took so long, they said, sorry, you will have to apply later. it was clearly the impact was more than my finance, that would have given me if you know in the nonprofit world, if you have a launch grant, you can use that to say this organization trusts this organization, it helps you to raise funds wherever you go. >> it gets donors, cincinnati, clbs columbus, washington, d.c., where were the post marks? >> there's the interesting thing, when the apology came out last friday. they said it was a few rogue agents in cincinnati. but i had a conversation with an agent in cincinnati on december 30th, 2011. he told me these words. i said, why is it taking so long for my application to go through the process? he said, we have been waiting on guidance from oureriors as to your -- our superiors as to your organizations and other

organizations. >> superiors in washington, d.c.? >> he didn't say washington, d.c., clearly, it was not down the hall in cincinnati. >> george, where were your tormenters coming from? >> from washington and the irs has an office in austin. that's where our folks, that's where we were having to send our applications to. >> so when the facts are ultimately known, if they are ultimately known, we are going to find out that there are more irs agents coming from more cities and towns in the country than anyone is willing to let on. we will find out the big shots knew about this and condoned it. that's what this will show. that's why i want a special counsellor, a special prosecutor. in other words, you guys have given me more information than i read before. you are talking about austin, texas. i never heard austin, texas as a home for one of these irs attackers. that's new information, george. >> yeah. i mean, the fact of the matter

is that regardless they can say that maybe the directions were coming from cincinnati, i have no idea, but the fact of the matter is we were having to work with your local office so that we could make sure that we could, that we knew exactly what we were supposed to turn in and our is were being dotted and our ts were crossed. the big thing was the amount of anxiety that we went through. that cannot be, a price can not be put on that, because our civil rights were violated. the dog gone anxietys that people went through personally. the discouragement. we lost membership, et cetera, et cetera, their intended effect was to dissuade us. >> i hope both you guys come back. i want you to come back in 2014, have a renaissance, a reawakening and fight like heck. i mean. that take on the establishment. take on the irs. thank you. kevin, thank you, george, rodriguez, you are great. all right, time to get back to the markets, first, the bull run took a bit of a break today.

is this a short breather? the strategy, jonathan gallop and seema mody will join me next. .

all right. stocks closed down on rumors, there were lousy economic numbers. wait a minute, the leading inflation indexes are falling, falk, cpi and ppi. out of the retail sales, equal

numbers have been really not very good, manufacturing and so forth, housing wasn't all that good. why would the feds snuggle up and tighten its bond buying when there is inflation falling and the economy ain't all that great. here now is chief u.s. equities strategist. i think we want to go to seema mody, to give us a report. do you want to go to you first? >> there were reports or talk that the fed will taper back on monitoring support, sooner than expected. we did see that move about 2:00 to 3:00 p.m. eastern standard time. i think that continues to be the big scare in the market right now and why some traders are cautious. because the vital science continue to improve, when you look at the jobs number. why would the fed continue to put the u.s. on life support? >> well, jonathan, i know you hold a similar view, the inflation target is 2-2.5%.

right now inflation is getting a positive energy strike t.cpi 1% against a year ago. that itself not going to cues the feds to snuggle umm. actually, retail sales came out pretty good. housing starts lousy, manufacturing lousy. capital goods manufacturing lousy. that's not stuff the feds will snuggle up on. >> there is no way the fed lbs. pulling out of this thing right now. maybe they're trying to test the market to see what the appetite would be or the market response. right now, it's not only the fed, central markets will continue to pump. >> you are reporting what the traders are telling the network. you are right. you are exactly right. i think it was a fed guy jonathan williams from san francisco? >> the federal reserve bank, yes, from san francisco. >> i got that one right in a row. i'm saying, he said. that i read some of his remarks. his remarks could be interpreted many different ways. and i can bet, jonathan, i know

you are worried about the economy. >> right. >> and, okay. you should be. the economy is 2%. but here's my.. the stockmarket is record what 140-150% since the bottom. the economy has been 2% since the whole period. why are you more worried now than you might have been a year ago or two years ago or three years ago? >> i'm not sure that i'm more worried. i think that if you compare now to, let's say. >> you look worried? >> do i have that look? >> you have a little bit of a frown. you look very worried. >> if you look at year end, everyone is concerned about the fiscal cliff and you know all tease deficit issue, at the end of the day, those tail risks have to come down. which is why the marks have done so well. at some point, though, with all of this printing going on everywhere, these deficits we're running, you got to get more than 2% growth. >> look what happened in japan. they got 3.5% in the first quarter. that may have been a

coincidence. i love what japan is doing? they are pouring the money in, to stop deflation. that's what shea should do. the federal reseven. i made my mea culpa. i think bernanke had it exactly right. the gold is falling some more t. dollar is rising some more. the inflation rate is nil. if all those enflation indicators are nil, i got to say, bernanke has the story right. >> absolutely. i think the question is there, where can you make money in the market right now? we did have the dow transports move to a big high. that, of course, is a leading indicator, showing signs the market can continue to move higher. we won't get that correction that traders have been speculating. >> one thing, jonathan, are you a bright guy. are you a leader on wall street. there is one word you neglected to mention. profits. >> right. >> profits are the mother's milk of stocks. okay? and profits have are the reason why the stockmarket has outperformed the stockmarket.

it's not about the economy. it's about earnings. earnings have done better than people thought repeatedly, including in the first quarter. >> this is something we talked about. i will take both sides of this, the first thing, if you look in the last four quarters, you had near zero profit growth. if you take out the financial sector, which is reserve releases, prior writedowns, however, what you are seeing is companies are doing an unbelievably good job of managing margins. i think margins will go through prior peak levels. but the problem is, not getting revenues, you are getting -- >> i don't care about revenues. i care about margins. i care about the fact that profits as a share of gdp are back to where they were in the early 1950s. all right. if revenues were collapsing, i would care. they're not. they're growing slow. it's earnings that matter. seema, this is where, the story, i don't know if you saw this story. these hedge fund guys are so angry at the feds, stanley

drakenmiller, he's angry at the feds. second of all, they underrated the ability and competitiveness of american business. american business is a delight and they operated so great during this difficult period and investors are rewarding them. >> and i have a staff for you on that note. out of the 500 stocks that make the s&p 500, 150 of those stocks generated 150 hoff 95% of the revenue in the u.s. they are outperforming the s&p 500 this year. >> that's impressive. what do you think of that? >> first of all, we think domestic companies will substantially outpace, u.s. companies that do business at home as compared to business abroad, they have been delivering to your points on earnings, much better earnings for the last couple of years, so the general belief you have to be overseas in order to grain gain the growth. >> if they are selling in japan, they're doing well. don't forget japan. when i grew up in the business, japan used to be very important. i know it's china. it still could be japan. last words.

>> first of all, the japanese, the population is shrinking. this is still on test. we'll see how it goes. >> the money supply is growing. they might cut the corporate tax. anyway, hats off to bernanke, hats off to american business and jonathan and seema mody. that's it for this evening show. i'm larry kudlow. profits are the mother's milk of stocks. that's why stocks will continue to rise. we'll see you tomorrow night. . if you've got it, you know how hard it can be to breathe and man, you know how that feels.

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