i like to say, there's always a bull market somewhere and i promise to try to find it just i'm jim cramer. see you next time. well, whatever happened to the summer swoon? stocks continue to rally, the economy is showing more signs of strength. wait a minute. weren't the sequester and the overseas turmoil supposed to ruin everything? i guess not. i have seven pro growth policies coming out of d.c. that will help stocks, jobs and the economy and things are looking up in the state of south dakota. there's the winner of this year's cnbc's top states for business. we'll explain why south dakota came in at number one. and look at what the folks in washington, d.c. could learn from it. and speaking of washington, d.c., does president obama have

any respect for the law? with all the changes and the delays he's making to obama care, some are asking this important question. does he have the legal right to do it? a top constitutional scholar is calling foul on all of this and he is going to join us tonight. all those stories and much more coming up on "the kudlow report," beginning right now. >> first up, this evening let's talk earnings. how will the quarter shake out? cnbc's own bob fa is asani has details. >> it was a risk day, with major outperformance from transportation stocks and home building stock, material, energy, financials were strong as well. and even though a lot of people are convinced this will be another lackluster quarter for earnings growth, you know the

s&p 500 is within roughly 1% of a historic high. now, my take on earnings this quarter is pretty simple. the estimates are for earnings growth of 1 to about 3%. they vary. but the final number invariably is three points higher than the initial number for start of the quarters so earnings are likely to be up 4% to 6%. that's below the historic average. the average is 8% growth. but it's not disaster. what about the flat top line growth everyone is worried ab? i don't like it either. but if we get better economic growth, that's going to change too. now remember, larry, just like nobody believed in the stock market rally for the last years, nobody believes the u.s. economy can stand on its own two feet with the fed behind it but that may be another fallacy. >> many thanks to our friend. here's our quick take.

stocks discounted the fed's de facto policy tightening at 100 basis point rise. in a lightning bolt. in fact, stocks are moving up with rates together. that could be a really good growth signal. i like gold's stabilizing, which takes the heat off some deflationary worries at least for now. we're going to be tested again later this year. investors, keep your eyes open. when the fed moves to end bond buying and the treasury goes up another basis points to 3.5% to 4%, i say to investors keep your eyes open. but for right now, enjoy the summer fun. this story is turning out better than many people thought. now let's welcome alec young, from s&p capital i.q. michael holland chairman of holland and company and ron

kashefski. michael, you said the cycle is going to take the dow to 20,000. before i go see my optometrist, tell me about dow 20,000 if you would. >> well, no predictions here, but i don't see why 20,000 is a particularly daunting number for where we are right now and all of the things that you and bob fasani just said. if we get a move in earnings you get two or three price earning points on the s&p. when we continue to have lessening of the fear that is caused by the five-year bull market, when you have those things come together, that's -- that is a 30% move. that is a dow 20,000. it's not a crazy number. in fact, i think it's eminently doable. on this show not that many years ago, you and i talked about dow 15,000. and we're here. >> we are here. we are indeed. 15,300. ron, you heard the distinguished michael holland. what's your take on his dow 20? >> well, you know, look, larry,

i think this has been an equilibrium rally and my take is as that fair value, the ten-year about 3.5% and the s&p 500 at 11 151750. and when we get there we'll need earnings growth. >> we will get earnings growth. >> look, i think 110 next year, stocks are undervalued. you know, some of the earnings growth numbers are pretty optimistic. >> all right, alec young, in order for this rally to continue this summer rally, before we look down the road at fed actions and higher interest rate, you have to have earnings. i thought bob gave a good account. they come in at 6, 6 may not be fabulous, but we're in the fifth year of an economic recovery. what's your earnings take and i want to particularly ask you about the stellar performance in the transport index which kind of tells me the economy and e n earnings may be better off than

we think. >> we think we're transitioning to a more fundamentally driven market, so it's great to see the economy showing signs of life in terms of how that translates into earnings, the consensus for this quarter as bob mentioned i think he got that data from us at capital i.q. is 2.9% for this quarter. companies have been beating it by about 3% for the last couple of years so we're expecting 5% or 6% this quarter. in the second half, they have it ramping up to 7% in q3 and then again another double digit gain for next year. we are being a little more conservative and we're looking for maybe 7% or 8% over the next 12 months. >> but you have to get it. if you don't get it you're in trouble. is that fair? >> absolutely. absolutely. >> but earnings have been the backbone of this rally going back to the very beginning, people say it's about the fed, i have never believed that. i felt it had so much to do with earnings. along with the fed. so if you don't get your 7% to 8% then what happens?

>> well, then you have a big problem. especially now that we're transitioning towards the fundamentally driven rally. their participation is key. they're stepping away. earnings become that much more important. we think the consensus in the low double digits for next year, we think 122 for 2014. that may be a bit high, but we think 115 is doable. if you put a 15.5 type multiple on that you can get the s&p into the 1800 range over the next 12 months and especially given the emerging melt down that we're starting to see in a lot of areas of bond land, we think stocks are definitely the place you want to be. >> bonds may be stabilizing, but i think you're quite realistic. i believe you talk about the 3.5% or 4% interest rate. that's my number so that's roughly the growth of the overall nominal gdp of the economy. stocks continue to rise as interest rates rise. that's been the pattern now. can it continue?

>> well, absolutely, larry. the reason that stocks are going to rise while interest rates rise is because interest rates are rising because the economy is getting better. this isn't hard stuff. the question will be is when we get back off of the fed ventilator if you will, we need earnings growth. but today, right now, today, stocks are still under value. >> right now. >> right now. >> all right. my -- let me go. you have some interesting stuff besides transports. home builders booming today. fedex had a big day. amazon, honey well, starbucks had a big day. what do you like here? how do you leverage your dow 20,000 into specific picks? >> there's no way you have that pleasant an outcome over the next several quarters, larry, if you don't have techs and financials in the forefront. the banks are up 24% year to date and you have stock less

than ten times earnings with nearly nearly a 3% yield. in the blue chip tech stocks they're ridiculously beaten. you have an earnings of less than ten times, you have intel, google, ibm. ibm getting hit. intel getting hit the last couple of days. these stocks are really cheap. even if you don't get the everyonings growth you were talking about earlier, we don't have a lot of down side with these companies because they're so cheap as they are right now. >> what about you're a china expert. you're a china investment director. what about the china story? the -- the imf downgraded a lot of the emerging country's economies today. it downgraded the usa a little bit. i don't particularly agree with that. but china, how big a factor might china be? so far i heard all positive

sweet tunes from you. any negatives out there? >> yeah, it's a short term negative. that is if the new government always comes in every ten years they're going to slow things down a little bit because they'll put in the financial reforms, but the slow down is down to like 6, 7, 8%, maybe 7% this year. that's down from 10% the last year. i'm not an expert, but what i have learned is listen to the companies. we just had a company today, alcoa, tell us their business in china is looking pretty solid. now, that's a very good indicator. the companies i'm listening to see things have slowed down, but there are still solids so that gives me hope that japan's increase in the outbreak will offset some of the slowdown in china. >> japan was upgraded by the imf. i thought that was interesting. it's kind of funny, this was supposed to be a bad summer. bad summer season. a lot of catastrophic things, but as we said at the top, the

whole bond market thing was discounted. who's running the american economy, who's the key driver that we should be listening to and looking at? >> clearly the fed is playing a smaller role. we think that private sector is capable of filling the shoes. so we have always watched the economic data, but i think that becomes even more important as we start to enter the tapering phase which we think happens in -- >> the fed is moving out. bernanke said we're pulling out of town. we'll see that in the next 6 to 12 months. how about this, how about business? how about business? i will argue that business in spite of washington, in spite of the fed, in the main has run this economy during this, you know, sub par recovery, but they're still eking out 2% to 3%. it's business we should be looking at and yet, it's profits

because profits are the mother's milk of stocks and business. >> yep. i think people are looking in terms of the second half recovery to see business, you know, -- >> be better, take it up. >> take a better role. one thing to throw out there in terms of how to play the thing, we are looking at domesti domes cyclicals. we think the bond proxy stocks have had their heyday. we want to focus on the u.s. not as convinced that china isn't something that's going to continue to be a head wind. >> ron, i want you to comment on my thought, that it is business running this country. washington may not like that. the president right now is bogged down in a lot of problems of his own. we're not seeing much from him. we're not going to see a lot of policy activism from washington. which i think is absolutely terrific. and boys, would you add banks to business as the real drivers of this economy? >> well, banks need to, you know, provide credit. this economy is still missing

credit or credit creation. but look, larry, entrepreneurs are the ones that create jobs. not government. so, you know, it's that way. i'll end with this thought for you. the market is figuring out when the fed does taper, it's good. >> yeah. >> there's what the market is figuring out. otherwise we're japan. do we want zero interest rate for the next ten years? no, i don't think so. >> the fed will stop all the tampering and the tinkering and its confusion and all of these reserve bank presidents when they start yapping and yelping won't be that important anymore. i can't wait for the day. it's a hallelujah day. but would you be buying financials, ron? i give you the last word. >> absolutely. financials, remember, as rates rise, banks make more money on the equity, the financials, okay. so rising rates help financials. they're a place to be. >> i hope it's rising rates for me. rising economy and not rising

rates from some sort of weird move. but we will see. >> that wouldn't be good. >> investors, keep your eyes open. alec young, mike holland, ron, the voice of reason. what about the economy? guess what? there's a pro growth swing in economic policies coming out of washington, d.c. believe it or not. i can count seven potential pro growth policies. "the kudlow report" the night of optimism continues and free market capitalism is still the best path to prosperity. these new policies are all about more markets and less government. i'm kudlow. we'll be right back. vo: traveling you definitely end up meeting a lot more people but a friend under water is something completely different.

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we've been hearing for months that our economy was headed for trouble. but one key factor behind the improving stock market and the 2% to 3% steady economy is the hope that better pro growth policies are coming out of washington. i say hope, but nonetheless, here are my thoughts. first, the sequester stays. second, new spending cuts are going to come with a debt ceiling deal.

third, that's a repatriation tax reform out there. fourth, the keystone pipeline is going to get approved. fourth, more brainiac immigration reform. and then obama obama care pull back. and no new tax hikes. i happen to like all of those. that's kind of what i'm thinking. joining me from illinois, joining me on the set, we welcome back to michael pento. and the author of the coming back bond market collapse. that's not a good thought to start on. but i will go to you first because you may be skeptical. but i think that things are changing in washington, d.c. i think the president's political power has been weakened by various scandals and what not. and i see these straws in the wind about good immigration reform and budget cutting and you saw in the paper today the

deficit and the spending share of gdp are coming down. are things getting better? >> the main point, the fed is about to taper. that's going to send interest rates rising. the view on my part is that they're going to hit 4%. that's where they were in the spring of 2010. >> i agree with that, by the way. i just said it in the last segment. >> the -- if the interest rates go to 4% and ben bernanke stops buying assets from banks which is what this country needs, but this country's rebound was predicated on rebuilding asset bubbles, namely the stock market and the real estate market. and rebuilding a consumption bubble by issuing $6 trillion, 6.9, since 2008. when that ends it's for the long term health of the country, but in the interim it will be very pernicious. >> brian west bury, michael is going right to the fed. i actually see a 4% interest rate out there towards the end of the year. >> sure.

>> do you think that if qe and bond buying ends, which is what bernanke is signaling is that the end of the world? >> no, absolutely not. in fact, we have been consistently saying stocks are undervalued but bonds are overvalued. in our stock market models, we actually use a 4.5% ten-year treasury yield. we have agreed that the bond market is in a bubble, so we put a 4.5% discount rate in and it still says the market is undervalued. i think stocks are in great shape. i think earnings are going to keep going up. but back to your point about these great things happening in washington. i do think there are great things happening. this one-year kind of cancellation of obama care, okay, guess what? you don't have to pay a fine, you don't have to have all of your workers on health care. i think it signals the demise of obama care.

it was never a workable law. and i think we're going to slowly but surely see it fall apart over -- >> that would be great news, but is that what caused the credit crisis in 2008? you hering for a lot of good things -- you're hoping for a lot of good things coming out of d.c. >> i'm looking forward, not back. >> let me tell you why it's not over. >> what i want to know, just for the moment, just to focus on these particular issues if you have smaller government and lower spending, if the sequestration goes through, okay, if you do have this pull back of obama care, which appears to be the case. if you get better immigration reform. >> i'm all for it. >> getting the brainiacs and better visas for more legal immigrants. >> slap the green card on the diploma. >> all those things are so pro growth that markets will look forward, they'll look forward with favor. >> i love your enthusiastic and i love your optimism, larry.

that's why you're captain america in my view. here's the point. the total debt to gdp in 2007, december 2007, was 350%. it's the same level it is today. it was $49 trillion in december of 2007. today it's $54 trillion. you are optimistic but missing the main point. brian, before you jump on me i want to say one thing. i want to tell you this. interest rates started to rise on may 22. that was when bernanke went before the joint economic committee and testified. and that is the reason. it is not because of growth. and now we have a $3.5 trillion balance sheet that has to be unwound. you're not pricing in what's really happening in the economy if you were ignoring what's going to happen with rates. >> brian, what about -- those excess reserves can evaporate. i never understood this argument. those reserves were never even used. the so-called -- >> money supply is growing at

7%. the gdp growth at 1.8%. >> which is the same as it was in the 1990s and early 2000s. m-2 hasn't changed the growth rate in 25 years. >> the inflation rate is going down, not up. >> exactly. >> i hear parade of people coming on your program talking about earnings. >> hang on. >> one of the saddest things that i think investors have had to face is this constant going back to 2008 and saying that it was the crisis to end all crises, that the world almost came to an end. that the government saved us. i don't buy any of it. i believe mark to market accounting is what caused the crisis. once we fixed it, the recovery happened. and it happened in march, april of '09. and we have been recovering ever since. and larry, you are 100% right. it's the entrepreneur, it's the private sector. >> it's business. >> the smartphone, the tablets, all of these things. >> when the government has to

pay a trillion dollars on the debt service payments, are you youing to blame that on what, brian? you'll say that has something to do with what? interest rate increases, right? >> i'm not sure why that's an issue. >> the deficit for this year is $750 billion and obama is doing victory laps. >> wait, wait. right. let's define our terms. the deficit is coming down by a couple of hundred billion dollars. >> from over a trillion. >> i understand. the likelihood is that the deficit in the next couple of years is going to be 2% of gross domestic product. >> that's a fantasy world. coming out of washington. >> there's what the numbers are showing. actually -- >> this year is going to be 4.5. >> if you get another round of spending cuts, brian, what i'm hearing in washington is not only the spending cut sequester will last, in order to make a debt limit deal there's going to be a second round of spending cuts. >> i hope so. >> and spending -- spending is a share of gdp which is the true tax burden on the economy, keeps

coming down. obama -- you can punch away and flail away at obama, but the actual numbers on spending and deficits and debt as a share of the economy is coming down. >> and how much -- >> right. i think you can add to your list and it was in there, but was the failure of the farm bill. >> oh, my. >> when the farm bill failed it was a basket case. it was spendaholics in washington, republicans and democrats, and the tea party defeated them. and that's the new america. the pendulum has swung. government spending has fall. >> fran: 25% -- has fallen from 25% to 22%. i believe in the next few years, i don't know if it's five or ten, we're actually going to deal with entitlements. and this stock market could go to 35,000 if that happens. >> i hope so. you guys are making me feel really good. here's the point. how much of the gdp and earnings that you crow about all the time were based on levitating a

consumption bubble? you guys totally missed that. day in and day out. >> that's where you and i disagree. i spent the last segment -- i think the most powerful force in the economy is not the federal reserve, but business and the entrepreneur. and i think it's the profitability of business which came out of the blue back in 2009 that has driven this stock market and the economy in the face of a lot of governmental opposition. >> consumption. credit card account up $20 billion, it's predicated on borrowing money. >> there's nothing on the gdp 17 million. go ahead. >> let me say this a different way. ben bernanke did not invent hydraulic fracturing. he did not invent the cloud. he did not invent the iphone. >> 3-d printing. i understand. >> that's not what happened here. these new technologies -- >> why have we lost 50,000 --

brian, why have we lost 50,000 manufacturing jobs year over year if this is a viable economy? why is the trade deficit still soaring? why? >> by the way, i have to get out. i can't get in. >> there's a manufacturing renaissance. >> why are we losing jobs? >> it's called energy. >> we are producing more with fewer workers. it's amazing. >> by the way, not only are we importing less and less energy, we are going to be exporting more and more energy and it will bring the trade deficit to almost nothing which will give me a strong dollar, king dollar is going to look great. the inflation rate which is now 1% will go to 0% and you'll worry about deflation. >> then we're going to start 3-d printing gold. it will plummet even faster. >> gold is about 1,000 bucks an ounce. thank you, gentlemen. we appreciate it. all hail the state of south dakota. cnbc has just named it as the number one state for business in america. and the man who puts that list

together, cnbc's scott cone joins us live from the foot of mount rushmore. he'll explain. hey! did you know that honey nut cheerios has oats that can help lower cholesterol? and it tastes good? sure does! wow. it's the honey, it makes it taste so... well, would you look at the time... what's the rush? be happy. be healthy.

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evening. good evening, scott. >> hi, larry. good to be here. >> all right. so tell me, south dakota, why? >> well, south dakota, no state comes close to south dakota when it comes to low cost and low cost this year is something that the states are talking about more than they have in years. businesses are talking about that as a criteria, a major point for why they'll locate in a particular state. and south dakota does very well on this. it's not just the tax burden which is one of the lowest in the country you'll be happy to know. but it's also all the other costs that we looked at. we look at utility and wage costs and the cost for industrial space and commercial space and things like that. south dakota does very well with that. it's not just cost. south dakota also does very well in its economy, the one problem with the economy is there's a worker's shortage here. that is an issue. that hurts them a little bit in the work force category. they also do very well with quality of life. i mean, how can you argue with

that? >> okay, it's a little thin during the wintertime. in fairness to south dakota. but it is interesting to me, are they participating in the great fracking revolution which is centered more in north dakota and montana, but does south dakota get a piece of that? >> well, what they're hoping to do, they don't have the kind of shale resources that their neighbors to the north have, but they're hoping for maybe a little bit of a halo effect where they can do some of the servicing of the shale exploration that's going on in north dakota. they know that they're not going to have the kind of direct benefit that north dakota gets, but maybe they can get some of the -- sort of the spilloff from that. that's something they're hoping for. and there is some possibility with that. one of the things we found with north dakota which did come in third this year they're having some growing pains. you know about that. that's one of the things that's holding them back from being on top. south dakota maybe getting a little bit of the best of both worlds. >> i see texas ranked number

two. i think last year was number one. so they're still pretty darn competitive. governor perry is on to something. >> oh, absolutely. texas has always been strong in our rankings. texas has never finished below number two. but i'll tell you, larry, they do have some issues with cost and, yes, they have no corporate tax, they have no personal income tax. but they do have the business franchise tax, they have property taxes that a lot of folks are complaining about. they have a sales tax on the high end. they have high utility costs. so looking at the cost of doing business, that hurt texas. texas and north dakota, the number three state, were separated by one point. so texas is hanging on to that number two spot, but by the skin of the teeth. >> so one or two biggest gainers, you know, states that really made a big jump in the ratings this year? >> well, let's see. we have -- massachusetts has done well, i believe, in the most improved states.

we have put some of this by the way on our website. top states.cnbc.com. which has a look at the biggest winners and losers. they did well. i'm blanking on some of the others but go to the website and look for the stories that we have written about the most improved states and least improved states. the state that dropped the most is my home state of illinois. you have talked about the horrible financial issues that they have here. governor pat quinn signed a big tax increase into law when he took office. that was to rescue the state's disastrous pension system. it hasn't really worked. illinois's bond rating was lowered by moody's. so they have a bit of an issue here and again, i keep talking about this cost issue. but illinois has that problem. at the same time, illinois is still an economic power house with lot of big companies located there. but they have that state finance issue that hurts them in our economy category which is right behind cost of doing business as the major ratings. >> on the west coast,

california, very near the bottom. number 46. nevada, number 47. and then disappointingly, scott, new jersey, connecticut, west virginia, rhode island, all of these sort of northeastern states, golly. why can't we do better up here? >> well, again, i keep harping on the cost thing and that's part of the issue. you know, obviously chris christie has talked a lot about improving the business climate in the garden state. he's not there yet. he's not there yet on cost and it's not just the tax issue. but there are other issues going on in new jersey with things like quality of life. education i believe. i mean, there's things that new jersey has to deal with that they haven't yet. rhode island is another state that's had disastrous state finances. their economy is not there yet. so again, you have these states in the northeast that should do well and just because of where they are, because of the great, you know, critical mass of economic activity in the

northeast and they're just not doing it. not yet. >> all right, scott cohn framed by mount rushmore. that looks like washington and jefferson and i think i see lincoln also. thank you, buddy. appreciate your work on the whole rating system. now, what was it to cause a surge in fedex shares today? bertha coombs has that story and the latest on what the workers will be baking when they make the twinkies. that's right, the twinkie is coming back and you should too. so... [ gasps ]

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welcome back to "the kudlow report." tonight in the gulf of mexico, an oilwell is leaking. bertha coombs has that story and much more. >> good evening. it's something we have been watching all afternoon. the coast guard is looking into the leak off the coast of louisiana. the well is owned by a subsidiary of taos energy. oil rose on the initial headlines that it was an oil leak. but most of the after-hours spike due to an industry report of a large crude inventory draw down. we'll get the government's report tomorrow morning. meantime, the twinkie is coming back next week. the people making it are earning

less than before according to "the wall street journal." they're earning $11 an hour, less than the final offer to the unions, but the union rejected it. hostess went into liquidation and the private equity firm that bought them is planning to bring them back to stores on monday. fedex was a big gainer today, up more than 4%. that's speculation billionaire bill ackman will make a big investment in the company. that send the shares to a four-month high. >> we'll see. mr. ackman on the loose. thank you. now, is president obama breaking the law by delaying or tinkering with obama care? joining us is a legal scholar who wrote an informative piece in today's "wall street journal," michael mcconnell. he'll be up next on kudlow. vo: traveling you definitely end up meeting a lot more people but a friend under water is something completely different.

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to avoid long-term injury, seek immediate medical help for an erection lasting more than four hours. if you have any sudden decrease or loss in hearing or vision, or if you have any allergic reactions such as rash, hives, swelling of the lips, tongue or throat, or difficulty breathing or swallowing, stop taking cialis and get medical help right away. ask your doctor about cialis for daily use and a 30-tablet free trial. welcome back to "the kudlow report." i'm bertha coombs. larry has fallen under the weather and he's needed to take a break. we hope that he's feeling better any minute. for a moment i'm going to pinch hit. so bear with me. we were going to talk now about

health care. it seems another day, another costly delay for obama care. the white house now quietly notifying smokcompanies to limi smoker's numbs for a year. now the small business exchange provision was delayed until 2015 and last week the white house unexpectedly delayed the major employer mandate. a move which house republicans sharply criticized today. take a listen. >> the president's actions on obama care last week were stunning. we think strongly that the president's actions were unfair, that we ought to also remove this mandate from the individuals. because it's just not fair to sit here and impose on the people of this country this mandate while letting business off free. >> republicans have also asked the health and human services to

respond to them by next week, an investigation into what went on into eliminating or postponing that mandate, but does the question have the legal right to tinker with the law passed by congress? here now is stanford law professor and former u.s. court of an peoples judge michael mcconnell who wrote the op-ed today in the "wall street journal." you think that they have really majorly changed the law by postponing this mandate. >> that's right. this law had a mandatory starting date, set by congress and the legislation. in our system, the president does not have the authority simply to decide which laws he's going to enforce and which ones he's not. he has to enforce them all. >> but they argue that they're enforcing the law. they are going to bring forth the exchanges or at least they plan to.

by october 1st, when they're supposed to begin open enrollment and that coverage will begin on january 1st. they are just tweaking some of the glitches that have appeared. >> well, undoubtedly there are a lot of glitches, but one of the provisions of this law, in plain language was that the employer mandate would begin on a particular date. and there's no waiver provision in the statute for that. there's no authority given to the president to change that. that is a statutory requirement. >> and yet, the business community had actually lobbied for this. one of the things that they said at treasury was they had listened to what the business community had said, that they weren't ready to implement a lot of these procedures. >> well, bertha, i'm not arguing the policy here. undoubtedly, the business community is happy not to be saddled with enforcement of this

now and probably it's good for the economy as well. but that's not the question. the question is a legal one. which is whether the president has a unilateral authority simply to decide he's not going to enforce a statute duly passed by congress. maybe in this case it's a good policy idea, but think of the precedent it sets because if presidents are able simply to dispense with the enforcement or to waive enforcement for -- of any law for a particular period of time, for a year say, this is something -- this is a precedent that's going to apply across the board. not just in cases where it may seem to us to be good policy. but across the board. it's a major -- an unprecedented shift in power from the elected representatives of the people to

the presidency. >> judge, you were on the bench and someone brought an appeal of this to you, would this mean throwing out the entire law? >> well, no. first of all, it's by no means clear this is something that can be remedied in court. remember the supreme court just about a week ago held in the same-sex marriage case out of california that individual citizens do not have standing to go to into court when the executive declines to enforce the law unless they have a concrete personal stake in the matter. so it's not clear that this will be going to court. if it did go to court, the remedy would not be to throw out the law. it would be to enter an injunction requiring the president to enforce the law. >> so it would be basically forcing the administration to go ahead and enforce the employer

mandate? >> that's right. or to go to congress, as he should have done, and get a postponement in the proper way. at which point he might have to talk to congress and think about what other portions of the law would likely need postponement as well. >> the republicans have said that they're going to try to introduce a bill to try to postpone the individual mandate given it seems unfair that employers should have a postponement. could congress have standing to bring this complaint against the obama administration? >> i don't think that they have standing to go to court. the only person that i can think of who would have standing would be an employee who would not receive the coverage that he was intended to receive from his employer. there are several serious technical problems with such a

lawsuit, including a couple of supreme court decisions from maybe 20, 25 years ago that limit the right of people to sue to enforce tax liabilities on other taxpayers. it's -- this is probably not a dispute that can be resolved in court. it's one that has to be resolved politically. what i would emphasize, it shouldn't be just republican members of congress who are alarmed about this because th this -- this sets a precedent that republican presidents in the future will be able to use as well. any member of congress that's concerned about the constitutional authority of the legislative branch should want to find a resolution for this that would be legislative and not one just involving unilateral executive decision making. >> judge, thank you so much for joining us this evening. so sorry larry couldn't be with you. judge michael mcconnell.

>> i hope he's feeling better. >> me too. meantime, are higher mortgage rates cooling the housing recovery? they're not hurting the home builder stocks. they all soared today. we'll look at that and talk about why renting is still very hot with cnbc's diana olick. it's a brand new start. your chance to rise and shine. with centurylink as your trusted technology partner, you can do just that. with our visionary cloud infrastructure, global broadband network and custom communications solutions, your business is more reliable - secure - agile. and with responsive, dedicated support, we help you shine every day of the week. [ male announcer ] you wait all year for summer. ♪ this summer was definitely worth the wait. ♪ summer's best event from cadillac.

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welcome back. i'm bertha coombs in for larry

kudlow. higher home prices and possibly higher interest rates have reinvigorated the rental market. diana olick has more details. rentals are hot. >> yes, they are, bertha, but analysts and investors have been down on the rental apartment sector, due to the rise in home sales and prices. the rush to rent that we saw during the housing crash was now shifting back to homeownership. well, rising mortgage rates may change all that. take a look. rents went up, both asking and effective. now the growth is slower than a year ago, but that's due to weak income growth and this before the rate jump even happened. vacancies were flat nationally at 3.4%, but 4.3% is well below the peak of 8% in late 2009. the vacancy declined largely due to more supply coming on. over 26.5,000 new apartments

were completed compared to the previous quarter. while they have been moderating lately, the rise in mortgage rates can turn up the heat on them again. starts had been low for multifamily, but now they're running above normal levels. i takes a lot longer to build an apartment building than a house, so this supply won't hit for another two years or so. for now, especially with the rents that rates are throwing in the housing, apartments are a good play. >> does that mean if you're looking to rent you'll find rents will stay reasonable, won't continue to move up? they seem to be jacking them up every month. >> they are in apartments because they're able to do that now, they can't raise them higher than income growth of course, because people can't pay. what it's saying is when you're looking at apartment reits and investors in the space it's a good play. investors were starting to shift out of it, thinking that housing recovery was booming. well, rising rates are

definitely changing that so you want to look at that sector. >> what about the rising recovery? we have the rates moving up, just here at the tail end of the spring housing season. do you think it's going to really curtail that, buying interest? >> absolutely. it's been kind of a terrible cocktail, the rise of rates as well as the rise of home prices. it's not what home buyers wanted. we have low inventory which continues to push prices higher. but you don't want to see rates rising, especially this fast, up 45% in barely three weeks. it's a little bit crazy. >> well, i have to tell you, i was thinking about moving and buying something new. and as those rates shot up, i certainly got a lot more nervous about it. >> you're definitely not alone. that's exactly what the real estate agents are telling me. we were at an open house today, some people are walking away, saying they can't pay the higher rates. >> all right, diana olick, thank you. not great news if you want to buy. that's it for tonight's show. again, larry feeling under the weather. thanks so much for watching.

tomorrow morning, be sure to tune in to "squawk on the street" when eliot spitzer will be here to explain why he's running for new york city controller. tomorrow night, join us here on "the kudlow report" when we have another new york city controller candidate, kristin davis. she knows spitzer very well, because she's a former madam in the prostitution scandal that forced spitzer to step down. ion. who is healthier, you or your car? i would say my car. probably the car. cause as you get older you start breaking down. i love my car. i want to take care of it. i have a bad wheel - i must say. my car is running quite well. keep your car healthy with the works. $29.95 or less after $10 mail-in rebate at your participating ford dealer. so you gotta take care of yourself? yes you do. you gotta take care of your baby? oh yeah!

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[watch ticking] >> it's just take-your-breath away type explosions, shake your body to the core explosions. >> mike williams was the chief electronics technician on board the deepwater horizon, one of the last to escape the inferno after the blowout in the gulf. he believes a series of mishaps may have led to the catastrophe, and his story has been critical to the investigation, a story he first told on 60 minutes. >> all the things that they told us could never happen happened. >> what he's saying is very important to this investigation, you believe. >> it is.