Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

MONDAY’S MARKETS
CNBC’s Margaret Brennen will join us with today’s top market news.

GM PREPS FOR BANKRUPTCY
CNBC auto industry reporter Phil LeBeau reports.

IS THE BANK CRISIS OVER?
*Chris Mayer, Columbia University economics professor
*Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer

MARKETS
*Dan Fitzpatrick, president of StockMarketMentor.com
*Quentin Hardy, Forbes National Editor
*Don Luskin, Trend Macro CIO

LATEST OBAMA ECONOMIC INITIATIVES
CNBC chief Washington correspondent John Harwood reports.

TEA PARTY PREVIEW
Governor Rick Perry (R-TX) will join us live from Austin.

DYNAMIC DUO DEBATE
Tea Parties, Taxes and Cuba…
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary

Please join us. The Kudlow Report. 7pm ET. CNBC.

The Messages Behind the Wells Fargo Profits

Wells Fargo Bank shocked Wall Street today with an earnings report that was double what the street mavens expected. Stocks shot up 200 points. What’s the first message? Banks are turning profitable. They’re in better shape than people think.

Big numbers on mortgage refis and purchases helped Wells Fargo. So did the interest-rate spread, where banks can borrow short at a zero rate and lend long at 5 or 6 percent. This is the upward-sloping Treasury yield curve that I’ve been talking so much about. It’s an incredibly powerful tool for bank recovery. It’s also a very powerful tool for overall economic recovery.

Not only are mortgage applications soaring, but weekly retail chain-store sales are rising, the trade deficit is plunging, business inventories are evaporating along with the goods surplus (with sales actually picking up in February, the latest data point), and jobless claims, a leading indicator of unemployment, may be leveling off.

So let’s look at the second message behind today’s Wells Fargo news: The bank recovery leads into an economic recovery and a stock market recovery. Economist Brian Wesbury calls it a recovery based on a sea of liquidity created by the Fed. I totally agree. And yes, there may be higher inflation in 18 to 24 months. But in the next 12 months, Fed actions are going to give us stronger nominal and real growth as the inflation rate hovers around zero.

Here’s a radical guess: I think there’s a 50/50 chance that the second quarter ending in June could produce a positive real GDP report. That’s right. Monetary policy is driving the economy toward recovery.

Now step back a moment: The Wells Fargo story also suggests that we do not need any more TARP. Pay it down, don’t expand it. And don’t move to insurance-company TARP, or TARP for retailers or newspapers or anything else.

And wait, there’s more we do not need: $500 billion in social-spending transfer payments and welfare is completely unnecessary. The budget already has automatic stabilizers for the safety net. That will be sufficient. And as we watch the TALF securitization rescue auctions fall flat on their faces, I argue we don’t need TALF either.

Bolstered by the Fed, free-market forces are going to generate an earlier and stronger recovery than almost anyone believes possible. Rich Karlgaard of Forbes thinks the recovery has already begun. That’s the message of rising stock prices. I totally agree.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

WELLS FARGO MOVES THE MARKET
CNBC’s Rebecca Jarvis has the story.

LARRY SUMMERS SAYS ‘FREE-FALL’ NEARING END
CNBC’S Hampton Pearson will report.

A RECOVERY FOR THE BANKS, STOCKS & ECONOMY?
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary
*Art Laffer, chief investment officer of Laffer Investments; former Reagan Economic Advisor

PIRATE/HOSTAGE SITUATION UPDATE
Jim Miklaszewski live from the Pentagon.

CAPITALISM VS. SOCIALISM
Pollster Scott Rasmussen of Rasmussen Reports will share results from his latest poll.

LATEST ON BANK STRESS TESTS
CNBC chief Washington correspondent John Harwood reports from Washington.

MONEY POLITICS DEBATE
Bank Stress Tests, Tax Hiking States & More
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Jack Gage, Forbes magazine associate editor
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary
*Art Laffer, chief investment officer of Laffer Investments; former Reagan Economic Advisor

WHAT MAKES A BILLIONAIRE?
Forbes magazine’s Jack Gage will offer some perspective.

Please join us. The Kudlow Report. 7pm ET. CNBC.

TARP the Life Insurers? This Is Nuts

Is bailout nation about to strike again? Sure looks like it. According to this morning’s front-page Wall Street Journal story, life-insurance companies are about to get TARPed. This is nuts.

While the public clamors for an end to TARP, and while commercial banks of all sizes are trying to pay back their TARP money, the Treasury Department is now proposing to extend bailout funds to life-insurance companies, most of which are really in no danger of failing. And for those that are in danger, surely it’s time for a bankruptcy proceeding instead of more taxpayer money.

We are already on the hook for banks, GM and Chrysler, and lube jobs for guaranteed government-backed GM warranties. And now comes life insurance. When will this country stop saving losers and start rewarding winners?

Meanwhile, no one has proven that life-insurance companies constitute true systemic risk to the financial system. No one. This is nothing but a bailout. Actually, it’s a precautionary bailout, since none of these insures have failed.

And when you read the WSJ story, which surely comes straight from Tim Geithner’s Treasury, you see a bunch of “what if” scenarios. Despite the stock market rally and proliferating signs of an economic comeback, a new TARP regime is being prepared in case insurers lose more money in their stock portfolios, or their bond investments, or their residential- and commercial-mortgage purchases. (By the way, corporate bonds — which are heavily owned by life insurers to pay out retirement contracts — are rallying big time, with prices rising and yields declining.)

But for those insurers who may lose money on their investments, tough luck. A lot of these life insurers own variable annuities, which are retirement products that guarantee minimum returns no matter what happens to the stock market. Most of these products won’t come due for ten years or more. And the break-even point is something like 600 on the S&P 500 index, which is now above 800 and rising.

Not all the life insurers would be eligible for bailout funds — only those that own federally chartered banks or thrifts, like Hartford Financial, Genworth, Prudential, MetLife, and Lincoln National. But the WSJ article goes on to say that a number of life insurers are doing very well and still have triple-A gilt-edged ratings. These include MassMutual, New York Life, Northwestern Mutual, and TIAA-CREF.

A recent Bloomberg accounting of the federal financial-rescue package puts the grand total at $2.5 trillion for taxpayers on the hook. That’s a lot of future debt. And that total does not include the Federal Reserve’s $1.7 trillion, which is about to grow by at least another $1.5 trillion. It’s unclear right now how much money the life insures might get from TARP. And with members of Congress on recess — and undoubtedly hearing a mouthful from constituents who are fed up with bailout nation — it remains to be seen if our elected lawmakers will actually back up the Treasury’s life-insurance bailout.

But is there any limit to this administration’s intentions to interfere and perhaps control large swaths of our economy? And do these life-insurance mavens know what they’re getting into by going on the hook to Congress? And does anybody remember that free-market capitalism is about success and failure?

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

U.S. CREW RECLAIMS SHIP FROM PIRATES
Chief NBC Pentagon Correspondent Jim Miklaszewski reports.

SEC ON SHORT SELLING & UPTICK RULE
CNBC’s Hampton Pearson has the story in Washington.

Also…Sen. Ted Kaufman (D-Delaware) will join us with his perspective.

SPIES IN OUR POWER GRID?
NBC News correspondent Pete Williams has the story.

WASHINGTON TO WALL STREET DEBATE
TARP for Insurance Cos & SEC Short Selling Proposal
*Quentin Hardy, Forbes National Editor
*Don Luskin, Trend Macro CIO
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

CAPITALISM KILLER, ELIZABETH WARREN…
Harvard Law Prof Says Fire the CEOs and Liquidate the Banks
Messrs Hardy, Luskin, Bowyer and LaCamp will debate.

INSIDE THE MARKETS
CNBC’s Bertha Coombs will report.

Also…CNBC’s Bob Pisani will report on credit default swap overhaul.

THE MARKETS & ECONOMY
*Brian Wesbury, chief economist at First Trust Advisors
*Bob Froehlich, chairman of Investment Committee for the University of Dayton; "A Bull For All Seasons" author
*Michael Cuggino, president & portfolio manager of Permanent Portfolio Family of Funds
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

Please join us. The Kudlow Report. 7pm ET. CNBC.

NY District Attorney Robert Morgenthau Fingers Iran’s Nuclear WMD Program Funded By the Chinese Through the Big New York Banks

Last night I had the great honor of interviewing legendary Manhattan district attorney Robert Morgenthau regarding his office’s role in uncovering a rogue Chinese operation charged with selling weapons of mass destruction to Iran. As Mr. Morgenthau told me last night, "there are rogue companies that are selling weapons of mass destruction to Iran. And Iran is deadly serious about buying this equipment."

The 89-year old Morgenthau—who recently announced his retirement after 35 years in his current post—has led an impressive, storied, prosecutorial career brimming with achievement. His latest triumph in shining the light on this nefarious Iranian-Chinese operation is a fitting end to his remarkably successful tenure. We need more men like Mr. Morgenthau protecting our city on the hill. I wish him all the very best.

* * *

LARRY KUDLOW: Here now—we are greatly honored—we have Manhattan District Attorney Robert Morgenthau. Mr. Morgenthau, I can’t thank you enough sir for coming on the show.

ROBERT MORGENTHAU: Well I appreciate the opportunity because I think this is a very important case.

KUDLOW: Yes it is.

MORGENTHAU: The selling of contraband, banned materials, used in atomic bombs and long-range missiles to Iran. And misusing the U.S. banking system to pay for these contraband matters.

KUDLOW: Let me go through this as simply as I can. The Chinese bad guys are laundering money through U.S. banks, maybe European banks as well for all I know, in order to get the dough to Iran so they can buy all these materials that will help build weapons of mass destruction. Can you describe the transaction if I’m even remotely correct in this?

MORGENTHAU: You’re absolutely right. They were selling things like gyroscopes and accelerometers, maraging steel which is a special hardened steel used in atomic weapons. They were selling, this Chinese company, selling this to Iran with money going through U.S. banks, New York banks, and that’s how we got jurisdiction. And so number one, they were selling banned materials; number two, they were deceiving the banks into thinking it was not Iranian money that was paying for it.

KUDLOW: So can I assume sir that Iran, this is like a trade financing if you will, that Iran is going to take the cash they got and use it to purchase the Chinese materials used for weapons of mass destruction. In other words, it’s an Iranian-China transaction with money being washed through these banks.

MORGENTHAU: That’s right. In other words, if the banks knew it was Iranian money, they would not honor that transaction. It would stop. In the indictment we spell out the Chinese warned their customers, ‘we can’t let anyone know who we are because the transactions won’t go through.’

KUDLOW: Now from the side of the banks sir, let me just look at that. You say they’re friendly; they’ve been helping you in this prosecution. Don’t they have technology that can pick up fraudulent accounts? Don’t they have some sort of filtering technology, which apparently broke down or didn’t work? What’s the role of the banks here?

MORGENTHAU: Well the banks have filters to stop transactions going to Iran, and transactions of banned materials. But since they changed the names and used dummy companies both from the selling side and the buying side, the banks were not aware that these were sales of material for atom bombs and long-range missiles.

KUDLOW: A few years ago, didn’t your office prosecute Lloyd’s Bank? And didn’t they actually know that they were washing that illegal money into Iran?

MORGENTHAU: That was a very different case. That was actually in January of this year. And we brought a case against Lloyd’s Bank, one of the largest British banks, and they were doing what is known as “stripping”. They were stripping the identification of the Iranian money from the wire transfers. So the money was coming into New York without any identification that it was Iranian money. But that was a British bank. I mean, they actually put out a manual telling their employees how to strip the identification. They were also handling Sudanese money, doing the same thing.

KUDLOW: Have those problems been solved with Lloyd’s Bank?

MORGENTHAU: Well yeah. They paid a fine of $350 million dollars to the United States; half of which went to federal authorities, half of which went to New York.

KUDLOW: Were any European banks complicit in this most recent Chinese laundering scam?

MORGENTHAU: No, but there are some European banks that are under investigation.

KUDLOW: And that is on an ongoing basis? That investigation?

MORGENTHAU: Stay tuned. We’re working on both sellers of banned material and banks that process them.

KUDLOW: Now can you find this guy Li Fang Wei if I’m pronouncing it right? One of his aliases is Karl Lee. Can you find him, bust him, throw him in jail?

MORGENTHAU: We’re going to give it our best try. It depends whether we get cooperation from the Chinese government. We don’t know yet whether we will, but we are hopeful that we will. I mean one thing about these transactions, they can’t stand daylight. And once they’re exposed, then the authorities in their own countries frequently will crack down on them.

I mean, what we want is transparency in the dealing of material that is banned. Once we have that we think the companies involved, and the countries involved, will back off. And that’s our hope here, to enforce sanctions and also to let the general public know that Iran is deadly serious about buying material for long-range missiles and atomic bombs.

KUDLOW: Just one last one, on the New York banks sir. You’ve got all the big bank names—it’s been a bad year for banks in general. Let me ask you, have they been entirely cooperative? Have they been entirely transparent to the best of your knowledge?

MORGENTHAU: Entirely, entirely cooperative. Fully cooperative.

KUDLOW: Let me come back to your other point. China is really the bad guy here. I mean, President Obama has been in Europe, and he’s trying to negotiate a deal to get Russian cooperation to stop Iran from making weapons of mass destruction. Okay, fine. But really, are we learning through these investigations and other suits that China is the main bad actor in this? In arming Iran?

MORGENTHAU: Well that’s right. In this case, all of the material for weapons of mass destruction was coming from China. But we hope that once the searchlight is put on these deals that the Chinese government will crack down on the sellers of this illegal material.

KUDLOW: If you turn off the money spigot, as you apparently are doing, turn off their water here in New York, will that go a long way toward stopping this Chinese assistance to Iran?

MORGENTHAU: It would. And we also think transparency, once it’s brought to the public attention that this is going on in China, that the Chinese government will crack down on this activity.

KUDLOW: Well Mr. Morgenthau once again, you have done us all a great service. And I just want to say sir it’s such an honor to have you on the show. Speaking as a New Yorker, I’ve lived here almost my entire adult life, your public service has been absolutely wonderful. I personally am sorry you are retiring. I guess the time has come. But I cannot thank you enough for that service.

MORGENTHAU: Well I appreciate that. And I appreciate your making the effort to bring these serious problems to the public so that they understand what’s happening. And that there are rogue companies that are selling weapons of mass destruction to Iran. And Iran is deadly serious about buying this equipment.

KUDLOW: All right, again many thanks to Robert Morgenthau. All the best.

Will the White House and Treasury Let the Big Banks Repay TARP Money?

Do Pres. Obama and Treasury man Geithner want to control the banks, just as they have taken over GM? Will the government assert political direction of the financial system in place of market forces, or in place of the rule of law as enforced by bankruptcy judges?

These hot topics have been discussed in a recent Politico story, a Wall Street Journal op-ed by my friend Stuart Varney, and an IBD editorial called “Federal Takeover.” Much of the discussion centers on bank paybacks of TARP money. In particular, banks in Louisiana, New York, Indiana, and California (four in all) have offered to pay back $340 million to Uncle Sam. IBD speculates that the Treasury declined to accept these payments.

Melissa Francis and I discussed this today on CNBC, and almost immediately the Treasury Department called one of my producers and e-mailed a quarterly update of all TARP payments made by the Treasury that include capital-repayment details. It turns out that the Treasury has in fact accepted TARP repayment: The Bank of Marin Bancorp in California paid down $28 million, Old National Bancorp in Evansville, Ind., paid back all $100 million, Signature Bank in New York repaid $120 million, and Iberiabank Corp. in Lafayette, La., paid back $90 million.

So we know the Treasury is accepting payment from these smaller regional banks. However, we do not know if the White House or the Treasury will accept repayment of TARP money by the nation’s biggest banks.

In a speech today, Goldman Sachs CEO Lloyd Blankfein once again indicated his desire to quickly pay back TARP. Jamie Dimon of JPMorgan has indicated a similar desire, as has BofA CEO Ken Lewis. But the Politico story implies that Obama does not want the big banks to pay down TARP, and that he is in effect telling the banks, “You haven’t taken your antibiotic over the full period to heal your illness.”

But most of the big bankers are saying they’re regaining profitability. This is especially the case since they can borrow short at near-zero interest rates and lend long at five or six years.

There is a suspicion that the Treasury will use its new bank stress tests to judge whether the big banks should pay back the government capital purchases. But no one knows whether these stress tests are truly standardized; why they are any different from the normal FDIC tests, or for that matter testing by the banks themselves; whether this is going to be a Treasury judgment call; or whether that Treasury judgment call in effect puts a gun to the collective head of the banks in order to force the banks to sell toxic assets through the Public-Private Investment Program.

Many in the government believe that if some banks pay the funds back and others do not, a scarlet-letter stigma will be attached to those who do not. And they believe that might cause a deposit flight, or even capital flight. But it can’t be healthy for the government to determine whether the banks themselves are healthy. And the public is so opposed to the TARP program, you would think paying back TARP in order to retire our over-the-top debt would be a good thing.

Meanwhile, at yesterday’s National Review Institute luncheon here in New York, Sen. Bob Corker told us that he suspected — merely a suspicion — that one or two big-bank CEOs would be removed by the Treasury within 60 days of the conclusion of the stress tests. This is what Treasury secretary Geithner hinted at on the recent Sunday talk shows. And that raises the question of whether a bank CEO-removal would be playing politics: Would it be to even things out after the removal of Rick Wagoner of GM — to placate the unions and their allies like Sen. Carl Levin of Michigan who are charging that the auto industry is getting much tougher treatment than the bank industry?

How to end the political direction of our banks? Let them get out from under TARP as soon as possible. Let them make their own decisions. Let’s end this sordid chapter of unprecedented government intervention in the market economy.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

PRESIDENT OBAMA’S SURPRISE VISIT TO BAGHDAD
NBC’s Steve Handelsman will report.

TUESDAY MARKET UPDATE
CNBC’s Margaret Brennan will join us with today’s top market news.

MANHATTAN D.A. OFFICE FOILS PLOT TO SMUGGLE NUCLEAR WEAPONS MATERIAL THRU N.Y. BANKS

Manhattan district attorney, Robert Morgenthau will discuss the 118-count indictment accusing a Chinese national of setting up fake companies to hide the sale of millions of dollars in nuclear materials to Iran.

IS HOUSING HEADED FOR A 2009 RECOVERY?

On to debate:

*Diane Swonk, chief economist at Mesirow Financial
*Joe LaVorgna, Deutsche Bank Securities chief economist

CEO PAY $URVEY
CNBC’s Mary Thompson reports.

PROFITING ON PESSIMISM
CNBC’s Matt Nesto will be aboard with a report.

INSIDE THE MARKETS
*Ned Riley, founder & CEO of Riley Asset Management
*Zach Karabell, CNBC Contributor, River Twice Research President
*Michael Pento, Delta Global Advisors, Inc. Senior Market Strategist

GOLDMAN’S BLANKFEIN TALKS TOUGH
Protectionism, Markets & Economy
CNBC’s Rebecca Jarvis has the story.

TARP: THANKS, BUT NO THANKS
Joseph DePaolo, president & CEO Signature Bank, will join us to discuss his decision to return TARP money.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

WASHINGTON TO WALL STREET DEBATE
The Dymamic Duo will square off.

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary

MARKET ALL-STARS
A Look Inside the Market & Economy
*Bob Doll, vice chairman & Global CIO of Equities at BlackRock
*Art Hogan, chief market strategist for Jefferies & Co
*Peter Schiff, president of Euro Pacific Capital

BANKS UNDER THE GOVERNMENT GUN
TARP, CEOs on the Chopping Block & More..
*Frank Sorrentino, chairman & CEO of North Jersey Community Bank
*Art Laffer, chief investment officer of Laffer Investments; former Reagan Economic Advisor
*Dean Baker, co-director at the Center for Economic and Policy Research

Please join us. The Kudlow Report. 7pm ET. CNBC.

Dougie Kass's Recap

Here's my dear old bear-turned-bull pal Dougie Kass's recap of last night's market panel debate on CNBC's The Kudlow Report.

With My Fav'rite Host

The relevance of the Group of 20 meeting, the questioning the importance of mark-to-market accounting and the future for U.S. stock market were the principal subjects on CNBC's "The Kudlow Report" last night.

It was another spirited show!

Group of 20 Meeting

Sir Larry Kudlow, Andy Busch, and Jim Lacamp were all upset about signs (over there) of the heavy hand of regulation, the lack of discussion on tax cuts and the bold IMF financing policies (and greater regulatory role) that they perceived to be President Obama's (and others') message this week in London. I thought that the London meeting was "not a dark day in American history" -- it was a sideshow -- and that, in reality, an international anti-capital page was not being turned. Regulation (and "smackdown") geared toward hedge funds and the greater role of the IMF will not likely occur speedily, so, for now, the G-20 proceedings will have little bearing on the U.S. stock market.

I reminded the show's participants that free market capitalism failed in the last cycle and that, since the Obama inauguration, stocks have begun to act well; to some degree, this is an endorsement of the new administration's overall economic policies. (I viewed a need for more regulation following the laissez faire attitude of the prior administration. Free market capitalism failed miserably in its task of regulating our financial institutions.)

What is more relevant to me, and other investors, is that the delayed impact of fiscal and monetary stimulation is leading to a growing evidence of a bottom in production declines. Our stock market is responding to better factory orders, improving housing sales activity and better retail sales, not to the rhetoric at the G-20 meeting.

Mark-to-Market Accounting Changes

I viewed Thursday's announcement as a type of regulatory forbearance that forestalls the banking industry's capital bleed, serving to provide a grace period for the banks to "earn out" of their asset quality problems. Net interest margins are wide now and deposit bases are growing, so the financial sector will arrive at profitability sooner than many believe possible.

As proof of widening spreads, consider that Bank of America (BAC) sold three-year government guaranteed notes this week at only about 102 basis points above Treasuries. By contrast, Warren Buffett's Berkshire Hathaway (BRK.A) sold three-year notes at 282 basis points above Treasuries.

I added that it is important to recognize that, in anticipation of modifications of accounting, the banking stocks are up 50% in a month and, for the time being, have likely discounted yesterday's mark-to-market announcement.

The U.S. Stock Market

I disagreed with my friend/buddy/pal, Jim Lacamp, who expressed the bear market rally view. Rather, I view the current rally as having more "pith" (and vinegar!) to it than previous advances. The market internals, in particular, are unusually strong and indicative of a broadening market that likely hit a generational low a month ago and would likely sustain itself into the summer months. I repeated my notion that despite the continued weakness in many lagging economic indicators (e.g., employment), housing remains the leading indicator to watch; it was the epicenter of our economic and credit problems, and recent evidence suggests that it's showing signs of life in the current spring selling season.

Here is the tape of last night's show.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

TODAY’S JOBS REPORT
CNBC’s Hampton Pearson reports.


OBAMA IN EUROPE
NBC’s Steve Handelsman has the story.

WILL OBAMA’S PLAN KICK START JOBS?
The Dymamic Duo will Debate.

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary

POPULISM GONE WILD
CNBC’s Mary Thompson has a report.

HAS THE ECONOMY BOTTOMED?
*Joe Battipaglia, market strategist at Stifel Nicolaus
*Jerry Bowyer, chief economist at Benchmark Financial Network

OBAMA: CEO-IN-CHIEF?
*Ann Coulter, syndicated columnist, author of "If Democrats Had Any Brains, They'd Be Republicans"
*Jim Warren, former Managing Editor, Chicago Tribune; NBC Contributor

FRIDAY MARKET REPORT
CNBC’s Margaret Brennan will join us.

BULL VS BEAR
*Debra Brede, president of D.K. Brede Investment Management
*Dawn Bennett, CEO of Bennett Group Financial Services

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

THURSDAY MARKET REPORT
CNBC’s Margaret Brennan and Matt Nesto will be aboard with today’s top market news.

OBAMA AT G-20
CNBC chief Washington correspondent John Harwood reports live from London.

MARK-TO-MARKET MODIFICATION
CNBC’s Mary Thompson has the details.

BULL RALLY MARKET PANEL
*Doug Kass, president of Seabreeze Partners Management
*Dick Bove, bank analyst at Rochdale Securities
*Andy Busch, global FX strategist at BMO Capital Markets
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

TIME WARNER CABLE CEO EXCLUSIVE
CNBC’s Julia Boorstin has the story.

MARK-TO-MARKET DEBATE
*Bill Isaac, former FDIC Chairman, The Secura Group, LLC Founder & Chairman
*Jim Glassman, President, World Growth Institute, former Undersecretary of State
*Steve Forbes, Forbes Inc. Pres. & CEO; Forbes magazine editor-in-chief

KEN LEWIS INTERVIEW
CNBC’s Becky Quick will report.

OBAMA STYLE CAPITALISM
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary
*Steve Forbes, Forbes Inc. Pres. & CEO; Forbes magazine editor-in-chief

Please join us. The Kudlow Report. 7pm ET. CNBC.

Balancing the Bad News with Some Better News

More good economic tidbits dribbled out today, spurring a 150-point rally in the Dow as of this writing.

Another surprise increase in pending home sales for February — marking gains for two of the past three months — provides more evidence of a bottom in housing. Remember, both new and existing home sales themselves were up in February, as were housing starts.

What seems to be happening is that while prices fall, sales are rising. In other words, markets work. This effect is especially strong in some of the hardest-hit states, like California and Florida (hat tip to Mark Perry of the Carpe Diem blog).

Another mustard seed that could grow into recovery is the ISM manufacturing index for March, which picked up slightly from February and came in above the average for both the first quarter and last year’s fourth quarter. Inside the index, production increased, reaching its highest level since September, while new business orders also gained, registering its highest level since last August. This is not yet a recovery signal, but it is an important bottoming signal.

The bad news today was the ADP private-employment survey, which was down big. And the Wall Street consensus for Friday’s jobs report is running towards an 800,000 payroll decline. So I’m not overlooking the bad news, but I’m simply trying to balance it with some better news.

Behind all these numbers is a very easy-money position from the Fed. Please note the following two charts, which foreshadow economic recovery in the second half of this year.



First, the Milton Friedman M2 money supply adjusted for inflation is up 22 percent at an annual rate over the past six months (hat tip to Mike Darda).

Second, the Treasury yield-curve spread is significantly upward-sloping. That spread went positive in February 2008, and we should be seeing recovery signs right about midyear. The spread went negative back in July 2006, and constituted the worst credit crunch in post WWII history.

But the point is that money matters. Just as tight money was a key factor behind this difficult recession, the shift toward easy money is gonna stimulate economic recovery before too long. While everyone is focusing on Keynesian spending and its alleged multiplier, it’s really the growth of money that is gonna push the economy into positive territory.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

WEDNESDAY MARKET REPORT
CNBC’s Rebecca Jarvis will join us with a look at today’s top market news.

OBAMA & THE G-20
Tea with the Queen & Riots in the Street
CNBC chief Washington correspondent John Harwood reports from London.

G-20 PANEL
Currencies, The Gold Standard, Tax Havens & More
*Rich Karlgaard, Forbes Publisher, "Life 2.0" Author
*David Malpass, economist & president of Encima Global
*Noam Scheiber, The New Republic

MADOFF
CNBC’s Scott Cohn has the latest.

PROMISING PENDING HOME SALES
CNBC real estate correspondent Diana Olick has a report.

MARK TO MARKET
FASB Vote Tomorrow
CNBC’s Mary Thompson has the story.

MARKET PERSPECTIVE
*Gary Shilling, president of A. Gary Shilling & Co.
*David Sowerby, chief market analyst, Loomis Sayles & Co.
*Rich Karlgaard, Forbes Publisher, "Life 2.0" Author
*Bob Froehlich, chairman of Investment Committee for the University of Dayton; "A Bull For All Seasons" author

Please join us. The Kudlow Report. 7pm ET. CNBC.

An Interview with Two Market Legends

Jim Chanos and Mario Gabelli—two terribly smart and successful stock market veterans—joined me on The Kudlow Report last night to share their latest investment insight and economic perspective. Jim, of course, is a legendary short-seller and founder of Kynikos Associates. He made his mark (and a handsome profit) investigating and eventually shorting Enron well before its 2001 blowup. He also had the uncommon foresight to call out AIG well before problems surfaced. As for renowned value investor Mario Gabelli, founder & CEO of GAMCO Investors, his sparkling long-term track record speaks for itself. Both are all-stars.

Below are clips from last night’s show. Note that my discussion with both gentlemen begins at the 2:55 mark in the first clip.

A New World Currency?

Going into the G-20 international meeting in London, the Chinese and Russians appear to be coming together in a call for a new world currency backed by gold. Now, I don’t want to see the dollar go into the dustbin of history. But I really like the idea of reinserting gold into the world monetary system.

Nobel Prize winner Robert Mundell -- who is advising the Chinese central bank -- undoubtedly put China up to this. I don’t know if he wants a new world currency. The last time I talked to him he wanted the dollar stabilized with the Chinese yuan and the euro. But if the Bernanke Fed and the Greenspan Fed before it had paid attention to gold, their policies would not have been nearly as erratic with the housing and commodity boom and bust.

You don’t have to be for the old gold standard to nonetheless favor the use of gold as a key monetary indicator, or for that matter a broad commodity index that includes gold. Monetary policy has been so bad in recent years that a gold price rule or a commodity-price reference point could only make it better.

I was talking to Art Laffer about this today. Art remarked that if helicopter Ben Bernanke continues to print new dollars, we’re gonna need a new world currency. And he agreed with Mundell that putting gold back into the world currency calculus is a good idea.

Incidentally, Art believes the best thing the G-20 nations can do at the London conference is to not coordinate policies. He thinks policy coordination will probably produce bad policy. He’s in favor of tax competition among nations, including so-called tax havens that the Europeans and Americans want to abolish. I totally agree. In fact, we ought to make the U.S. a tax haven by slashing the corporate tax, declaring a two-year capital-gains tax holiday, and moving towards a low-tax-rate flat tax. Of course, it ain’t gonna happen, but that’s my thought.

Art also believes that Obama’s economic policy is starting to resemble Richard Nixon’s: easy money, heavy regulation, industrial policy, and rapid spending. Government’s influence on business keeps growing. Think GM.

But I will say this: The exchange value of the U.S. dollar is up about 20 percent over the past year and remains firm in current trading. So maybe it’s possible -- at least in the short run -- that 20 percent growth at an annual rate in real M2 (hat tip to Mike Darda) and the upward-slopping yield curve that signals economic recovery and bank profitability are more positive signs for stocks and the business outlook.

Even during the Nixon years, we did have periods of good growth and rising share prices, even though the 1970s were stagflationary and economically disastrous.

Sorry folks, that’s the best I can do right now.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

TUESDAY MARKET REPORT
CNBC’s Margaret Brennan and Matt Nesto will lead us off.

GM & CHRYSLER UPDATE
CNBC auto and airline industry reporter Phil LeBeau will join us from Detroit.

THE MARKETS & ECONOMY
*Mario Gabelli, chairman of Gabelli Funds
*Jim Chanos, founder & president of Kynikos Associates; chairman of the Coalition of Private Investment Companies

A LOOK AT HOUSING
CNBC real estate correspondent Diana Olick reports.

DEBATE: OBAMA’S AUTO PLAN
*Bob Crandall, former president & chairman of American Airlines
*Andrew Ross Sorkin, New York Times M&A reporter

OBAMA & THE G-20
CNBC chief Washington correspondent John Harwood will report from London.

MONEY POLITICS DEBATE
*Catherine Mann, Brandeis International Business School professor
*Art Laffer, chief investment officer at Laffer Investments; former Reagan economic advisor

Please join us. The Kudlow Report. 7pm ET. CNBC.

An Interview with Senator Bob Corker on President Obama’s 'Power Grab'

What follows below is a transcript of my CNBC interview on The Kudlow Report last night with Senator Bob Corker (R.,Tenn) concerning Team Obama’s ousting of GM CEO Rick Wagoner. [Video here.] Mr. Corker is a key member of the Senate Banking Committee and assumed the lead role for Republicans during negotiations to aid the ailing US auto industry back in December. As you’ll see below, he is alarmed by the Obama administration’s lurch toward centralized economic planning and control, a world where Washington calls all the shots. He believes that “a bright line was crossed” by the administration and that Americans are “becoming numb to this everyday erosion of what has made this country great.”

LARRY KUDLOW: All right, today’s GM move, “a major power grab by the White House”, that according to our next guest. We welcome back Republican Senator Bob Corker of Tennessee. In my opinion, he is the most knowledgeable congressional member on the issue of auto bailouts and other things. Senator Corker, you had a ripsnorting statement. Let me just read this real quick:

“This is a major power grab by the White House on the heels of another power grab from Secretary Geithner who asked last week for the freedom to decide on his own which companies are ‘systemically’ important to the country and which are not.” And then you say, “this is truly a breathtaking departure” referring back I guess to both GM and Geithner.

Tell me what you’re thinking here. Why is this a breathtaking departure?

SENATOR CORKER: Well Larry, today a bright line was crossed. First of all, the administration has been slow on the uptake as far as dealing with these companies. They’ve basically just let it go. They realized they were going to have a nothing burger kind of press conference today, and so they had to look like they were doing something. [And so] they fired [GM CEO] Rick Wagoner. And then now, in essence, they have taken over these companies.

I think the thing that probably got my attention more than anything else was last night on the conference call them explaining that in the Fiat/Chrysler merger, they are forcing Fiat to build energy efficient cars in this country as part of the deal. And so they are going to be deciding, obviously, which plants in this country stay alive, which plants are closed. They are going to be very involved in what I consider to be industrial policy, which is a very bright line that this country has not passed in the past. And we did it today. And I think it’s something that all of us need to stop. This is numbing what is happening to us. It’s like bowling an egg, it’s just kind of gradually happening. But today I think was a very bright line that all of us need to be aware of.

KUDLOW: Senator Corker, here’s a question. What gives the government—I’m going to ask you a legal or constitutional question, much less a policy question—what gives the United States government the right to tell manufacturers what plants to keep open, what plants to shut? But maybe even more, what products to make? Because your point about Fiat making green cars, if you read the Treasury term sheet on the Wagoner dismissal, and the GM failure to come up with a good plan by the deadline which is tomorrow, you know they mention green clean cars, they mention the failure of the Volt. Since when does government dictate the product line of an American company?

CORKER: Today.

KUDLOW: Today?

CORKER: That’s the point.

KUDLOW: So that’s the line. We’ve crossed the Rubicon here. I may as well use a Roman metaphor since we’re talking Fiat.

CORKER: That’s exactly right. And on the conference call last night, it was very evident to me that those comments were being said to pacify people on the left that were part of the call last night. So to me, again, this on the heels of Treasury Secretary Geithner’s announcement Thursday that he’s seeking, on a permanent basis, TARP-like ability—he wants to codify his ability to do the things that he’s been doing on into the future, and let him decide which companies pose systemic risk, I think that we all need to stop. We need to everything we can to reverse ourselves out of where we are. And I have great concern that that’s not where we’re going as we look at the many other policies that are buried in this budget that the administration has put forth.

KUDLOW: In our capitalist system, wouldn’t this better be the duty, the domain, of bankruptcy judges, bankruptcy court judges…

CORKER: Right.

KUDLOW: Which have always been the principal restructurers? If we’re going to violate contracts we leave it up to the judges to do so and then work out. In other words, is that what’s missing? You were for a pre-planned bankruptcy, I happen to agree with you sir. But isn’t this the role of bankruptcy court?

CORKER: It is. And I think on February 17th, when these plans were submitted, everybody knew that they were not good enough. The board could have been working towards a pre-arranged bankruptcy today. That’s what the terms of the agreement were. But instead, nothing happened. I met with the task force last week, which I appreciate, I could tell there were really no tangible conversations taking place. Then all of a sudden, in essence, a company is taken over. So working towards an orderly pre-arranged bankruptcy could have been done by this board. Instead, this administration has taken over the company. They are directing the company. They’re deciding who is going to be on the board of this company. And furthermore, they are going to be deciding the products and the plants that this company will make into the future. And again, it was a very bright line that we passed today.

KUDLOW: I’ve got two quick additional questions if I may sir. Did President Obama’s actions today, the actions of the auto task force, did they forget to include Mr. Gettelfinger, [president] of the UAW?

CORKER: You know I’m not—look there’s a lot of people certainly to blame for where this company is today. And I don’t know what their conversations have been. I know one of your earlier guests, as I was listening, was talking about the fact that they will be a focus very, very soon. So I think I’ll leave that to the administration. I do hope, I know there’s been a lot of prognostication about what’s going to happen. I hope for the sake of all those folks who depend upon these companies, that this administration gets it right. But they’re doing it in the wrong way. And I think that’s the thing that to me, again, is scary. And I think the American people, Larry, all of us, are becoming numb to this everyday erosion of what has made this country great.

KUDLOW: Well I think there’s a very strong populist revolt—by the way, populism from the left and populism from the right—against bailout nation. And that’s my last question to you sir. What happens next in terms of taxpayers? Taxpayers are going to pony up, what, 60 more days? I don’t know why. We’re going into bankruptcy. The president’s people admitted as much in a late afternoon breaking Wall Street Journal story. Why are taxpayers having to do this another time? And what do you reckon, how much is this going to be, this next tranche?

CORKER: Well I don’t know. If you remember, Mark Zandi, in our second hearing, which is why I got as involved as I did in this to try to solve it in a different way, he said if one dollar went into these companies, we’d ultimately spend between $75 and $125 billion dollars. And it looks very much to me like that’s the direction we’re heading.

KUDLOW: We’re on track. I am sorry to hear that. But I have no doubt that you’re right. I have no doubt my friend Mark Zandi is right. Senator Corker as always sir, we thank you ever so much for coming back on our program.

CORKER: Thank you. Thank you Larry.

A ‘Truly Breathtaking’ Departure

Has Obama officially ushered in a new era of government-controlled business?

Team Obama fired GM CEO Rick Wagoner Sunday afternoon, just a short time after Treasury man Tim Geithner told the television talk shows that some banks will need large amounts of new TARP-money government assistance — even though the bankers don’t want it. Does this smack of big-time government planning and industrial policy? Another lurch to the left for economic policy?

Remember, as bad as Wagoner’s performance has been over the years, it was the federal government — not shareholders or the board of directors — that threw him under the bus. (By the way, GM’s board is being thrown under that same bus.) And I’m not arguing in favor of Wagoner or his board; they’ve made a zillion mistakes. But I am wondering if we’ve officially entered a new era of government-controlled business.

Sen. Bob Corker (R., Tenn.), probably the most knowledgeable man in Congress about the car bailout, and someone who argued months ago in favor of a pre-planned government-sponsored bankruptcy for GM and Chrysler, calls the Wagoner firing “a major power-grab by the White House on the heels of another power-grab from Secretary Geithner, who asked last week for the freedom to decide on his own which companies are ‘systemically’ important to our country and worthy of taxpayer investment, and which are not.” Corker calls this “a marked departure from the past,” “truly breathtaking,” and something that “should send a chill through all Americans who believe in free enterprise.”

Mr. Corker has hit the nail on the head. And I think his idea of “a truly breathtaking” government departure from American free enterprise — whether it’s the banks or the bankrupt Detroit carmakers — is exactly what caused stocks to plunge 250 points on Monday.

Incidentally, most of the big bankers who met with President Obama in the White House last Friday want to pay back their TARP money, not take more of it. But the Treasury is conducting stress tests that could stop the TARP pay-downs and force the banks to take more taxpayer funds in return for even more federal control.

The big bankers say they are profitable. And with an upward-sloping Treasury yield curve and some market-to-market accounting reform coming from the Financial Accounting Standards Board (FASB), the outlook for banks should be getting better, not worse. So why is the Treasury jamming more TARP money down bankers’ throats, especially after announcing a new plan to use private capital to clean up bank balance sheets and solve the toxic-asset problem?

It kinda sounds like the Treasury doesn’t want to let go of its new uber-regulator status.

As for Detroit, the carmakers should have been in bankruptcy months ago. And it is a bankruptcy court that should have fired GM’s Wagoner and his board. Along with some serious pain for bondholders, bankruptcy would have broken the high-cost labor contracts with the UAW as well as carmaker contracts with dealers across the country. That’s what bankruptcy courts are for. They’re part of the free-market capitalist system.

Former SEC chair Richard Breeden is arguing against a systemic uber-regulator for banks, and in favor of special financial bankruptcy courts. Once again, the story is court-ordered restructuring, not government control by political bureaucrats who like their power so much they want to keep running the various companies in question.

And why isn’t Obama’s special auto task force ordering a replacement for Ron Gettelfinger, the UAW’s president? Weren’t their oversized pay and benefit packages a big part of the problem? Well, that’s never gonna happen. The election power of the union is too strong. But this does reveal the political nature of these government bailout operations.

Incidentally, in President Obama’s speech on Monday about the Wagoner firing, as well as in Treasury term sheets for GM and Chrysler, there are multiple references to “the next generation of clean cars,” to new CAFE-standard mileage increases, and to green power-train developments. All this is a big green climate-change priority for the new administration.

But the simple fact is, small, tinny, and expensive green cars just don’t work for consumers. And even if those cars are designed better, the cost structure of the carmakers will have to be brought down so far that UAW wages will be forced below those of the non-union shops in Detroit south (including Honda, Toyota, and other foreign carmakers who are now producing in the United States).

So add the green revolution to the industrial-policy plans of the White House. Expect a big increase in CAFE fuel standards, even though small cars are simply not profitable. And plan on bailout nation taking a new left-turn toward the kind of central planning that has held down economic growth in Europe and Japan for so very long.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

D-DAY IN DETROIT
CNBC’s Phil LeBeau will join us live from the White House.


MONDAY MARKET REPORT
CNBC’s Margaret Brennan and Matt Nesto will be aboard with a look at today’s market news.

MARKET PERSPECTIVE
*Quentin Hardy, Forbes national editor
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Vince Farrell, chief investment officer at Soleil Securities
*Jim Paulsen, chief investment strategist at Wells Capital Management

WAGONER, WASHINGTON & GM
A Major Power Grab?
Sen. Bob Corker (R-TN) will join us with his take from Washington.

THE FUTURE OF DETROIT
*CNBC’s Phil LeBeau
*Holman Jenkins, WSJ Editorial Board Member
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Keith Boykin, CNBC Contributor, Daily Voice Editor, Former Clinton White House Aide

TIME TO FIRE BANK CEOS?
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Keith Boykin, CNBC Contributor, Daily Voice Editor, Former Clinton White House Aide

Please join us. The Kudlow Report. 7pm ET. CNBC.