once again, i want to thank the incredible executives from ford, starbucks, macy's and dupont and boeing, coming here to tell their story. i promise to find . >> first half of 2013 is officially over and it was a great period for stocks, but gold and bond prices tanked. the economy is still bumping along at a kind of a nothing-heimer with 2% growth. get out your pen and paper and take down what our team of experts will predict for 2013. we will talk the issues, stock, gold, housing, the overall economy, plus, don't think about the fed, it's not just fed policy, but the bernanke success in sweepstakes that could rattle the markets the rest of the year. regrettably, i must also report the first half was really

bullish for political scandal, irs, nsa, benghazi, doj, scandals beat bonds. all those stories and much more coming up on "the kudlow report" beginning right now. [ music playing ] . >> that's closing the books on 2013. lots of money made in stocks. elsewhere, not so much. seema mody joins us with all the details. >> good evening, larry, we are halfway through 2013. boy, did that go fast. the dow jones industrials up nearly 14% year-to-date. s&p 500 up 12.6%. take a look at the nasdaq, a major comeback after the performance in tech the composite up 12.7% in 2013. here's the real story t. yield on the ten-year treasury note, which for a while was hanging on

below 2%, just hit its highest level in almost two years. the reason, ben bernanke talking about scaling back on qe. in response the dollar index shot up now about 5% this year, gold and other commodities which typically have an inverse relationship with the u.s. dollar fell sharply. actually, gold just had its worst quarter on record, now, a quick check on how we ended today. the s&p 500 down fractionally. the dow jones just below 15,000 and the nasdaq holding on to 3400, larry. >> many thanks, seema mody, appreciate it. >> now, folks, now is the time, grab your pen, paper and ipads, we have your playbook for the second 4568 of 2013 coming up. before we show you how to make money in stock, bonds and the rest. let me weigh in quickly. my own view, interest rates are going up. they're going up a lot more t. gold crash is waiting deplation. the fed is going to be tightening, all i can say is, investors beware, the second

half of this year could be a bumpy ride. that's just my take, but that is my concern. let's bring in our top investors. we have abigail dooloo. kenny paulcary, meredith whitney the new book "fate of the states." we have former reagan economic advisor matt laffner. mary, second half of the year, what do you want to do? where are you going to go? what's the investment? >> i'm bullish on the economy. on a relative basis i think the u.s. is the best in any neighborhood. but i think there is so much opportunity because of the vol at this point, i want to stay on my toes and active. august is going to be a really interesting month. bernanke is not going to the governor's meeting. will create i think an exciting weekend there, because you will see then who claims leadership.

clearly the folks around bernanke are almost as important as bernanke now. he's sending them all out to actually pull back on the message he tried to deliver and didn't like the results for. so whoever steps forward. if jel yellen steps forward into the leadership position, that will be great. what if she doesn't and everyone thinks she's heir aparent. it will be interesting. richard nisher is going to go in many, many years, six years. it's going to be for our world, it's going to be heavy drama and really exciting. an exciting fed, because to your point, how fast are rates going to go up? and how fast can people manage repricing a very poorly priced market? >> are you pricing at risk. very important. let me ask you about that. bonds had a specially bad may and june. and one question that i have about the second half of the year, if he was selling your bonds, because people are finding out that bonds are not bulletproof, where do you put your money? do you put it in stocks?

there is no real evidence that is happening. do you go into car, money market fund? where is that money going to go. >> it's moving out of money into cash. selectively, it's going into stocks. i do think the second half of the economy is, in fact, going to start a turn around. i don't think interest rates will go through the roof this year, maybe 2014 is another issue. i think in 2014, rates are going to hold steady. i think money will end up coming after the summer going into equities much more than we will see. >> not the next six, right now. >> i think the summer will be volatile. i think you have to be careful during the summer. >> what happens with the fed. >> they are not tightening. bernanke, they are absolutely not tightening in september. >> the first month. >> no way, bloomberg ran a survey 66 economists said they were going to -- >> who were they in. >> actually, they heard it from ben bernanke. we will do fed watching later in the show.

i thought i'd jab you a bit. >> art laugher laffert, let me k you. what are you telling people? >> my advice is don't make a mistake. do not lend money to government. just plain don't. don't lend it to maryland. don't lend it to illinois, don't lend it to california. for goodness say, don't lend it to the federal government. if you can avoid lending money to the government, will you do pretty well over the next several years. >> what does that mean? that means you are still leaving the door opened for stocks and corporate bonds, is that right? >> yeah, i think that's true. i think where you will lose money is if you are holding government bonds. you will lose money, your portfolio will underperform. >> you are right. when the fed does what it will do, you will get slaughtered. corporate bonds may take a hit, too. they all may take a hit. i don't know. that they all may take a hit, art. >> they might. corporate bonds may take a hit. the ones you really worry about

are the ones that have credit risks associated with them. that's some of the states there meredith has done great work on this area. there are some states you just don't want to lend money to. you just plain don't want to go there. >> all right. we can give that honor roll in a minute. ab gashlgs i want to go to you. what's your take? >> my take is pretty different than what i'm hearing outside of what you talk about thinking the second half of the year is bumpy. >> i sound bearish. >> for you, you sound bearish. >> i think are you being realistic. when we look at the fact the s&p was up nearly 20% trough to peak year-to-date. this could be the kroung peak over four years. i don't think this is the time for investors to be trying to narrator 10 or 20% for their portfolios for the second half. i think it's time to protect what they have gained. i think that can be done by hedging portfolios, shorting sector ets, index etfs, if the indices stay below the day average, i think we could see a

correction by the end of the year. if this is the case, it will be indicated by -- >> in terms of pens and pencils, you want to shorten etfs, be specific. >> the etfs include spy, that's the s&p etf currently confirmed forny near-term target for $151.50. also the yit and the iwm. that's the transports and small cap perspectively. they are all confirmed for 10% jobs. i am not looking at the bigger long-term targets. i am looking at the housing sector, the xhb and that sector looks -- >> you are pessimistic the second half. >> i think it's going to be bumpy. i think we will see a correction. in terms of reducing equity exposure, i don't think investors want to do that. we seen so much volatility. i suspect we will see a decent move on the downside. >> does anybody think as long as

the fed is there. i don't believe they are going anywhere. is the market going to correct what everybody knows, the fed is there, holding our hajdz, there have been, it doesn't ever correct. they done allow it to correct. it's an artificialim lated market. >> yeah, they do. i have been around for serious fed corrections in the market in years. real serious. >> me, too. >> listen, the fact is that, believe me, take some advice, friendly advice, when the fed makes its move, it has major reverb racings throughout, you better believe it. >> it may not be raising rates, the market is raising rates. >> that's correct. >> the fact is, that affects bond prices if terms of the securities that are held on so many institution's books. so that has a capital impact on -- institutions that i think is well underappreciated. >> what i'm asking is, hang on. i will come to you. given that view, it's a cross view. where do you run and hide if that's the right phrase? >> well, this was the greatest news out there. so for four or five years, it's

been a high correlation market. now correlations have broken down, fundamentals matter again. that's really exciting for stock pickers. where do you run and hide? you run and hide into quality t. quality names aren't pulling back that much. they're not pulling back as sort of the reversion to the mean stocks. i mean, for me, as a fundamental analyst, i haven't had it this good in five, six years. >> financials have done very well. they've outperformed you. do you like them in the second half? >> i like some financials. the financials have mostly outperformed are a reversion of the mean stocks. there are a lot of names the consumer stocks have done incredibly well. >> so i think that there is opportunities all along those, but there are stock specific opportunities. >> all right. art laffer, what were you going to say? >> i was going to say all the rise if interest rates so far this year was come from the tip yields the security yields, more

than 100% of the interest rates over the next ten years, that bodes very well for the economy, very well for the returns on capital. you know, i think the equity markets look good, but, frankly the bond markets where i really think there is a big chance of losing your shirt. >> but there is one point i want to make, normally when those inflation protected securities go up and those rates go up, normally you are right. it's a real rate of return. it's a sign of growth. it's a growth trait. >> yes. >> i don't know. this time around because of all this weirdness the fed has done in recent years. the mere hint as meredith said, defacto tightened by the fed, pulling money out of the bond market may have affected those rates much more than the normal growth rate of the economy this is a little different this time. >> but why would it affect the tip shield, larry, rather than the nominal yield? why wouldn't it be shared by inspected inflation? >> inspected inflation has come down. >> that's what i said.

>> break even spreads have come down. >> also you had stock prices rising and the tip shields rising and you have a very bullish i think economy. >> do you think, bottom line, can stock prices go up while interest rates go up? >> yes. >> do you think they can? >> that's what i think happens when the tip shield rises. >> in the next six months? >> oh, i think it will happen when we get back to normal real yields, larry, which will be on the tips, probably 2% on the tips. >> you were going to talk. where do you have to run and hide. >> i do believe the second half of the year is going -- although the summer will be bumpy the second half will be stronger, like meredith said, stock specific that you have to look for those opportunities. because in my mind, we were talking about the bond is going to get slaughtered. if you are sitting in bonds you know you are going to get slaughtered. you should be getting out. like we saw last week. >> like i said, i seen this

movie before. >> we saw last week that panic. they put the money in cash at the moment. because they weren't sure. they saw equities coming under pressure as a result. they're waiting. >> what's your favorite? >> i like financials and i like industrials. >> you like financials? >> i like financials and i like industrials. >> a lot of people talk about financial, even though europe is entering its seventh quarter of recession, why do you like industrials? >> my sense is they are on the verge of a return. >> europe is. >> i think our economy is on the return, i think we will drag europe into it. >> people have been saying that about europe for a couple hundred years. you think it will happen? >> i do. >> free market economics coming out of europe? let's talk. all right, abigail, i'll give you the last word, where would you go? tell me more, for example, can rates rise and stocks rise at the same time? for example, your pessimism, how long does it last? >> my pessimism lasts until we

see some sort of corrective action, 20%. i think again we're in a multi-year topping process. i think now there is a chance that instead of moving down 20% and potentially back up, i think we may actually be moving straight down. i would actually be looking towards king dollar, not immediately, but below the 200-day moving average, i think the precious metals look interesting here. i agree what you are talking about from deflation standpoint. if you look at gold andcismer on the quarterly close, it held pretty nicely from a technical aspect. >> i got to get out here. this is beyond me. i want to ask you one kwe question, what if people take a position and don't think the feds will do what they will do. it won't happen until september. that's my guess, that's what jerome stein said, could markets rolly? july and august or at least before jackson hole? could we have a rally before we get slammed? >> how much of a rally? >> i don't know, 10%, let's say,

for argument's sake. something that really fakes everybody out. >> i don't know. i think the tra ject i have upward, right -- trajectory is upwords. it comes from high risk asset repricing. but the fundamental also i think are strong enough to keep equities looking really good. so a 10% move in two months time, that's a big calm. >> we're up 15% year-to-date, what are we going up 25% by august? >> i agree, i don't think the fundamentals will be so great in the second half. >> i just want to suggest that the fed move doesn't actually come until september. >> i don't think it comes at all. >> i don't think it comes at all. >> and people won't know it until they see it. they won't believe it until they see it. i'm going to e-mail you when it happens, just so i want you to know. abigail doolittle, meredith whitney, art laffer are going to stay around for a while.

which feed their expertise because moody's sound another alarm about state pension, how bad is it? should municipal bond investors run for the hills? later, we will assemble a dream team of experts for the economy in the second half of this year. hold on to that pen and paper and ipad, please, don't forget, free market capitalism is the best path to pros permit i'd like to see a little more of it, please. i'm kudlow, we'll be right back. (announcer) scottrade knows our clients trade and invest their own way. with scottrade's smart text, i can quickly understand my charts, and spend more time trading. their quick trade bar lets my account follow me online so i can react in real-time. plus, my local scottrade office is there to help.

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. >> call it the state funding scam. moody's report, pensions are only 48% funded. that's even though the states, themselves, are saying they are 74% funded. that's quite a gap. municipal bond holders beware. you might not get paid. we are back now with financial analyst meredith whitney author of the new book "fate of the states" joining us is steve melangan. what does this study tell you? >> it tells us what others have been saying for years. basically, when states are

allowed to value their pensions, they are pa lot lower than when independent people say this saying look, they're using actuarials for pensions, run with projection on another, a guesstimate on guesstimate. they have basically enabled, given themselfles a formula which understate what is they really owe and the rest of the world is now catching up on this and so they can't really run this as you say, scam anymore. >> this is a national number, but i just wonder, some got to be worse, some got to be worse tan others, at the end of the day, either they make the contribution or they raise taxes. >> well, they have not made the contribution and they raise taxes, so it's pretty incredible the fact that they have been basically borrowing on the taxpayer or eating out on the taxpayer's dime at two levels, right? so they're taxing the taxpayer more on a real time basis. they're adding more on the bill on an underfunded liabilities

basis. this is so reminiscent when banks had their liabilities off balance sheet. they were understating all the 11age they had. effectively, that's moodies and what you said somebody had said they were doing it. the situation is so much worse than it is. illinois lasted this past week had more problems raising debt and i think more states will have that problem if they end up having way more in terms of risks to their balance sheet. >> what are they owe owe all right, there will be a tax revolt. sort of like wisconsin. i use wisconsin as my limit. wisconsin had a tax revolt because the people didn't want to pay the benefits and the pensions of the state government worker's union. at a certain point they won't pay higher property taxes anymore. >> if they were getting more services. that's the problem. i'm paying more, getting less, you are being made whole on your pension? how is that fair? >> that's the era we are in right now the problem is, first of all, this will play out

differently in every state, courts are interpreting this differently, some states like illinois, they have constitutional protections for these pension systems, as a result of that, it's really going to be bloody. i think the crucial thing is before you talk about bond investors, municipal investors being made whole the taxpayers are already taking a hit. in illinois two years ago, they raised taxes by $7 billion. about half of that money it is estimated went into the pension fund. >> when you say constitutional protection, does that mean? >> in the constitution. >> you can't clang the terms of the pension? >> that's right. >> but the state can change its funding habits or they can change its assumptions? >> it's so far behind, larry. >> they can raise interest rates. if they'd raise interest rates, they'd change the long-term valuation of the pension of the rate of return. >> lower the rate of return. here's the thing, they are so far behind now, if they lower the returns significantly, exposes themselves to more liability t. taxpayers -- somebody has to make up if they

project they will make lower projection rurnlgs returns, who is it? the tax payer. >> the taxpayer has been making that up, so if the average return assumption is 8% in the u.s., wouldn't it be great if everyone made 8% year after year when states don't make that, when the pensions don't make that the taxpayer has to make up for that lost return. now on a contribution plan, not a defined benefit plan, if i lose money on my plan, nobody comes in and plops in some money. i have to take the hit. nobody is taking the hit on these plans, you know, next year, actually, everybody is going to go on or the system gatsby the system for states are going to force states to disclose exactly what moody's is suggesting in this report. it's going to look really ugly. >> what is the risk to municipal bond holders? very important. >> i think first of all one of the risks, remember, there are like 5,000 issuers out there. california is an example,

municipalities are in such deep trouble in california, calpers, the biggest raised total municipality, they have to increase by 50% their annual contribution rates. you have cities and school districts where they are now putting 15 to 20% of their budget is going just into annual pension contributions. it used to be two to 3%. money has to come from somewhere. >> will it come out of the hydes of people. do they lose pooin money? can they not be paid? >> that's what happened in stockton and jefferson county. so the press dent is when is enough enough? so i want safe streets for my wife and my husband and kids to walk home on. i want a fire response unit to come before my house burns down. i want my kids to get a good education. it becomes an issue of willingness, not ability. this is the unprecedented

territory we are in now. and willingness is am i a taxpayer going to stand for bond holders being made, not, 100% when every other scituate i constituency is taking a hit. >> we'll leave it there. meredith whitney, steve malanga. good warning to muns bal bond holders. they have been trying to sugar coat it all week. markets are smarter. they know qe bond buying is coming to an end, just like bernanke said. watch out, investors, it could be a rocky road. we will have a closer look at all of that in just a couple of minutes.

. >> welcome back to "the kudlow report." keep your pencils and ipads handy. now we will turn to the second half of the economic outlook for 2013. look at this team we've assembled, art laffer. we also have jim petakukizy and ben steele. we will get their opinions on housing and the fed. earlier this week, ryan sir han from bravo's million dollar listing appeared on this show. look what he said on twitter, hey, larry kudlow, i got a $5 million listing from someone that saw me on "the kudlow report." thank you for having me. that's free market capitalism at work. i would say, almost, ryan, real free market capitalism would have given me a commission. but we can discuss that another

time. also, coming up on this show, president obama assembling a list of replacements for ben bernanke. i will tell you all the choices to the wrong people to get us out from all this monetary mess. congress says irs official lois lerner waved her fifth amendment rights at a scandal last month. does that mean she is going to jail or what? where is the whole food cane from the treasury into the white house? i'm waiting for that. ace reporter robert kos is that will join me with that story. please stay with us. "the kudlow report." ♪ ♪ ♪ [ male announcer ] if you can't stand the heat, get off the test track.

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. >> all right. we're halfway through 2013. the economy is still growing, i don't know, 2% t. jobs picture remains mixed. in fact, the whole economic story is mixed. before we turn to our experts, a quick take from me. here's my problem. i don't see free policy. obamacare, it's tax and regulate. now the epa is launching a war against coal and all other fossil fuels. real pro growth tax reform highly unlikely, the banking regulation may be strangling

loans. so i'd like to see market oriented policys to get this economy humming. let's talk, we have a senior fellow on budget policies, former economist biden and cnbc contributor, we welcome back art laffer and joe fikolura, president and ceo of new bank corps. let me start with my pal al bernstein, how do you see it? what's your take? >> sure. i might be the bearish guy on the panel. doesn't think i think things will get much worse. 2% you cited, i gave you guys a graph if you could put that up a second. if you look at where gdp and prices have been over the last few quarters, that's year over year changes, what you see in both cases are deceleration. deceleration in real growth. deceleration in prices. now i know you want to be

forward looking. i do, too. if you look at most of the forecasts for the year, we do better in the second half than the first half, but we're under trend. 2012 grew 2.2% on gzp on average, some of the forecasts i seen for 2013 are below 2%. i don't see how we nudge the unemployment down with that kind of growth. >> how do you see it? do you think jared will be able to get past that 2% marker or will it get better in the sending half? >> i think you are correct. it's dismal out there. i am optimistic about a longer term. you got the tip shield rising which is respective real return on capital, a unit of capital over the next ten years. it's risen by a huge amount, not seen in literally a decade. number two, you got stock prices way up, which is a clear harbinger of good times to come. you have government spending falk like a stone, government spending is taxation and lastly, there are wonderful changes coming in the political arena

where jared's former teams, i think, is going to be removed. i think our team is going to come in. then, larry, you will get your low rate flat tax spending restraent, sound money and a terrific economy. >> when is this, just to go back to the second half of 2013, you have some very interesting, very important trends going on, do you see 2%, 3%? what are you looking for in the next couple quarters? >> i would see something like 2, 2.5% in the second half. what i would see is a very good equity market and i think the political market's going to start moving very much in our direction. >> joe, how do you see it? i'm particularly interested in what you can tell ussant your lending policy, whether it's consumers, business loans, emergency, that sort of thing. >> well, we are very different than most banks, we are primarily a multi-family lender. so what's going on with our bank is very, very good. this market happens to be extremely strong for us for

growing up our portfolio. we have probably the best performance metrics in the nation with regard to non-performing assets. so our assets are basically in new york city and doing extremely well. but i have concerns about the various things that have not been taken care of in certainty that is being created, the degree to which the economy is vulnerable to adverse events. >> such as? >> any number of events. they don't have to be explicit events in the economy. it could be something in the middle east, it could be something in europe. it could be something here in the united states political. the idea that we can continue to trade on the wish trade and i believe the markets are trading on what people wish was actually happening, not what the fundamentals tell us is actually happening. >> are you making loans? . >> yes. we will grow our loan look. we will make something in the range of 22 billion in loans this 84, one to four -- multi-family loans.

>> i want to ask you something, if you look at the trend in mortgage rates, say the 30-year fixed rate mortgage, what you saw over the last month was as sharp an increase as i have seen in decades, about 3.5 to 4.5, so we're still relatively low. be you that increase has got to shave some growth from the housing sector. i think it will be relatively small. it's pushing in the wrong direction, isn't it, joe? >> absolutely correct. but the reality is the housing market has been taken over by the government. >> that's it. >> fannie and freddie control 50% of the originations when they went into conservativeship in 2008. it's well into the '90s. makes no sense. no regulators would let banks do loans fixed 30 or 35 years at these rates. yet the government is doing it. >> that's the result of a 100-year flood and the fact that the housing market andful markets were collapsing.

so i want to be clear about. that's not true. >> what are rates going to do? the federal reserve follows through and starts tightening down qe, which i think they will be, what are rates going to do? >> i think you will see the rates go way up. frankly, i wouldn't be surprised in two years you see the long bond, ten-year bond at 4.5% where it should b. i think you will see the overnight money at 2.5, 3%. that's if inflation stays very tame. those aren't high rates by any historical stampbdz. frankly -- standards, frankly, you will get real yields rising. >> larry, i have an important point here's the thing i haven't heard on the show tonight and you have been talking about the fed. if art laffer's 46 i predictions are correct, then bernanke and company will do less than they have been telegraphing. i think one of the things people

may have missed to the extent they are talking about, how their actions will be conditioned on incoming data. >> i'm not sure. i know bernanke left that door opened. i think with jobless claims low, this-is an important statistic. jobless claims down to 350 thou,000, i think you will get your 575,000 jobs. i think the federal reserve will say that's just fine. i think when they start, they're not going to raise their interest rates, but they're going to have an important effect, at least 100 basis points higher 10-ier note in the next six months, art laffer. i agree. i don't care how long you get around it. look how happened it was on the rumor. >> they never rise slow ply. >> you are saying that is not going to damage the economy? >> no, that's not. it means the markets will clear, larry, instead of the government

determine how much will be lot or sold. if you think 1% mortgage rates is great for the economy, you haven't been watching the housing market for the last four years. >> you get an extra 100 basis points, i'm going to say across the board, what's that do? >> i think there is no question the housing market has to slow. we've done multiple things. it's not just interest rates. it's also the fact that we've disqualified large numbers of people by the changes that have been put into place, people do not qualify for loans because they do not have the money to put down. so all the young people are not able to buy houses. we also disqualify people with ficos less than 750 because the fico requirements are higher. why is that? because the government is insisting upon you having to take responsibility for people who don't lend payments. lenders will have people lend it down. >> 20% down. >> at least. no problem. 20% down? >> absolutely. >> no exceptions. i know, jared, you will not like. i know of no -- no economic

model where you have higher real interest rates at a time like this where you have large output gap where the economy grows faster. >> that's an important point. >> we are moving the wrong way on the curve. >> i actually don't want the fed to do what they're fixing to do. that's a different subject. we will talk about it in the next sun. i want them to do it. if they do it, i want it to go so slow, i think the economy is very fragile. thanks. thank you all very much. we appreciate it. now, let's go back to all this fed talking. they're trying to soothe the stockmarkets this week with speech after speech, but none of them said anything different from bernanke's defacto tightening language early in the month. speaking of bernanke the short list of replacements is a bunch of mormontary fine-tuners and meddlers, no real policy rules. it's a pity. he needs a new crowd, but he's

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economic outlook not on the calendar. >> it's still in motion. i think we need to wait a couple more weeks. we really can't be too focused on either short-term high frequency economic data or short-term movement. >> it's important to the stress this added clarity is not a statement of unconditional optimism, nor does it represent a departure from the data-dependent philosophy of the program. >> all right. you heard all of that. the federal reserve is in full damage control, trying to calm markets, play down bernanke's announcement last week to phase the bond purchasing program out in about a year. i still think the markets have it right. i think, unfortunately, when tapering and tightening begins in september which is what stein said today, the council on foreign reels, i think it could be a back-breaker. i'm looking at gold which is tanking. it's a deflationary signal. interest rates have spiked. all i can say for stock investors and bond people, good

luck if they follow through. let's bring in ben steele, author of "the battle of bread and woods." cnbc contributor from the american interpriesz institute. jeremy stein didn't contradict bernanke one iothat, that's how it was reported this morning? >> no, jeremy stein spoke at my institution. he was trying to re-assure that the fed were adding clarity and specificity to economic data. you got it right, larry, there has been a big change in policy. if you go back to last fall, the operative word was pledge. the fed had pledged to keep the pedal to the metal for the next three years into 2015. fast forward to may, bernanke is now constantly using the word "calibrate" now he's going to calibrate a key tool of the fed's monetary program.

is asset purchases to incoming economic data. unemployment data, in particular. larry, these data are extremely volatile. >> right. >> if you extrapolate unemployment trends from individual employment reports going book to last fall, have you the fed tightening as late as the end of 2015 and as early as the middle of next year. >> all right. i don't know, jimmy p, i don't want them to do it. i'm against this by the way. i want to hear your take on it. this guy stein today used september. that's number, a month that's been thrown around. i think that is when the policy is going to begin. i think the policy is changing. we want to get out of this mess, jimmy p. the question, should they? >> you know, listen, it truly sound like september. he tried to make the argument, listen, as long as they're still buying bond, as long as that hoard of bonds is still increasing, they're not tightening. clearly the markets have yet to buy that theory. they are viewing this as a

defacto tightening. seems to be the direction we are going. i agree with you. i think it's a huge mistake. we have growth running, too, inflation closer to 1. i don't see that progress has been made when you have, as jared said earlier, a huge output and a huge jobs gap to be where we should be at pre-recession levels to be tightening. i don't see it. >> all right. ben steele, i'm going to go to you. you know, the names are put up for bernanke's successor. they're very successful people, johnny yellen, johnny somers, christina romer, maybe tim nightner. very distinguished people. they all have one ning thing in common. they're fine tuners, monetary meddlers, they don't believe in clear policy rules. whether it's the tailor rule or nomenist gdp rule.

whatever the latest fire, they will put out then. that troubles me enormously. >> i don't think you will get a rules man or rules woman right now, larry. i think you will have the fed looking for somebody who can manage in a crisis. i personally think this is janet yellen's job to lose. she's got the experience. she's media savvy. she's withdrawing savvy. she's market savvy. she's a dove and as you know, that's important to the president right now with his fiscal stimulus plans being blocked in the house. she's a she, with i is also important politically. so i think this is still her job to lose. >> i think, right, that yellen is a front runner. but christina romer has specifically come out saying the fed should have a nom nam gdp level target. which is a very clear role. i would not put her in the group of those other monetary -- med lers. >> that's an interesting point. when did romer say that? >> on the new york op-ed

columns. she is a market monitorist. is a very crystal clear rule. had we had that kind of clarity right now the marks would be not only a lot better off for it. you wouldn't have to have as big a bond buying program because of expectation. >> once upon a time, she and her husband were for lower tax, once upon a time. i better get out of here. you guys are great. thank you very much, gentleman. now, remember this woman? top irs official lois lerner took the fifth the last time she appeared before congress. she still has a job. she's still not talking. at least so far. we have the latest on ore lip-o-status that might have actually changed today next up on "the kudlow report" we go to the irs. hey, look! a shooting star!

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. >> i believe lois lerner waved her fifth aemtd privileges. >> yes, she has a constitutional right to remain silent. she could have invoked it, but she did not. >> lois lerner is, in fact, the poster child for thumbing her nose at federal bureaucrat th b thumbing her nose at congress. >> all right. the house oversight committee today declared lois learnary key physical in the irs targeting scandal, waved her fifth amendment rights against self-incrimination in testimony last month. but will she be forced to testify? here now is ace political reporter cnbc contributor robert kass that of the national review. so what happens now? >> i think her status remains murky, the house republicans keep pressing.

they want her to testify and talk about what she did at the tax exempt organization of the group. >> the lawyers may hold this up for a long time. i'm getting a little impatient. i think darryl issa is doing a good job. he's working hard. i want to go up the food chain. i want to see who is spribl responsible in the treasury department. it seems like it's all on hold right now. >> it is. we saw that on thursday at the ways and committee, werfel, the acting head of the irs. he didn't have answers. he said the 30-day investigation hasn't yielded many responses. so it's still a very vague question of what is happening and what gave these orderers. >> werfel annoyed me. he tried to make the case that liberal progressive groups were targeted as much as conservative groups the treasury inspector general had to contradict him and say, no, there's like 300 to 10 or something like that. does that put werfel on the dark side here? >> it really seems to larry.

it's odd. months after the scandal break, conservative groups are targeted. incredulous congressmen yesterday said not one group was complaining. >> where did werfel come off? so many of these irs people just lie. this guy hasn't been there 20 minutes. is he lying, too? >> we'll see. issa keeps lerner to come back to capitol hill. she's the key to all this if she doesn't have the answers, nobody does, she was running the group inside the irs. >> if she doesn't have the answers, they have to go to special council? >> boehner and special people have been re6, they want congress to lead the investigations. if congress continues to come up short in this investigation, they have to go to a special paven el. >> what is happening the irs is investigating? >> there is almost a simultaneous. eventually, you will see more subpoenas. >> in the last minute, immigration, okay, very divisive inside the republican party. let me ask you, what's your

outlook? the senate bill will not become the house bill. that's what i gather, listening to paul ryan and others, but do you think some kind of immigration reform is possible coming out of the house? >> i think it's very possible t. senate bill, itself, is not going to be passed in this house. there is some in the merging months, july 10th. they're going to talk about the passport to immigration. here's the prediction. the house breaks up the bill from the senate, tries to piece it together in congress, come up with a consensus later this summer. >> the senate bill, i know there is an issue about trickers. i think that's a legitimate issue between the board of security and legalization. but can they work through that? >> i think they can work through it. you saw on the border surge in the senate. i think you will see a lot of talk about the trickers in the house. will be the issue. >> all right. i think it would be very dramatic and very pos fipositiv. monday, we got a special show for you, we are focusing on hot

companies that make their innovative products right here in america. but are we giving them the free markets to backdrop to let them really flourish? i'm larry kudlow.

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