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Aired at 03:00 PM on Friday, Mar 11, 2011 (3/11/2011)      View all transcripts from this day


00:00:00Cnbc world headquarters, this is "the " hkudlow.
00:00:11>>> Good evening, everybody.
00:00:11I'm larry kudlow.
00:00:13Welcome back to "the kudlow report" where we still believe free market capitalism is the best path to prosperity.
00:00:19In the face of a heartbreaking catastrophic japanese earthquake and following yesterday's stock market massacre, today's trading in stocks was incredibly resilient.
00:00:28An almost miraculous 60-point rise in the dow.
00:00:32However, stocks did fall across the board for a second consecutive week.
00:00:35And for whatever reason it seems clear that the long-awaited stock market correction is now taking place.
00:00:41As I discussed last night, there are a number of known unknowns and unknown unknowns, to requote donald rumsfeld.
00:00:49Add japan's recovery and earthquake to that list.
00:00:54Along with turmoil in libya, saudi arabia, the economic impact of higher oil and gasoline prices, and ongoing european debt problems.
00:01:00But what we do know is that retail sales for neb turned in a solid performance.
00:01:06Business sales roared in today's report, which scored january and inventories also jumped.
00:01:13On the other hand, consumer sentiments fell in march and consumer inflation expectations rose.
00:01:18This is undoubtedly part of the oil and gasoline spike story that is well known but whose full consequences remain unknown.
00:01:25A lot for investors to digest.
00:01:27Let's bring in our market panel.
00:01:28Here now is "fast money" contributor brian kelly.
00:01:31He's the president of kanaan drum capital.
00:01:38Stephanie cane.
00:01:39And our friend david dietz chief investment strategy at point view financial services.
00:01:43Brian, let me begin with you.
00:01:45We're going to cover the japanese earthquake story in some detail throughout this program.
00:01:49In your judgment what is the impact going to be on usa growth and world growth, brian?
00:01:55Can you start us off there?
00:01:56>> You know, I think it probably doesn't have a heck of a lot of impact on usa growth.
00:02:05When we're talking about usa growth we're talking about the u.s. consumer, 70% of gdp.
00:02:10The other percentage is coming from china.
00:02:12This is going to be a japan rebuilding story.
00:02:14There will be a big repatriation, japanese yen coming back to japan.
00:02:18But in terms of specifics for -based business, I'm not sure it will have that much of an impact.
00:02:26>> Does it have any particular impact?
00:02:28Real quick for me, brian.
00:02:29On the u.s. stock market.
00:02:30I mean, I thought today's market was very resilient, almost miraculously so.
00:02:35All that said, it looks like a correction to me.
00:02:37How does japan's quake figure into that?
00:02:41>> Today I think was really just short covering.
00:02:43You know, for everybody I talked to and the way that the market traded there wasn't a lot of volume.
00:02:48But really where it's going to impact it is with the japanese yen.
00:02:51If you start to see an unwind to the carry trade and a risk off, then you can see risk off in executives and just exacerbate this correction.
00:03:00>> Risk off in u.s. equities.
00:03:02Stephanie, as you parse through all of the stories running through today and the information on the catastrophe in japan, how does it affect your investment thinking?
00:03:08>> Well, we know that the market doesn't like unknowns, right?
00:03:11And we have had a ton of them this week, right?
00:03:15And as you say, it's pretty impressive.
00:03:17It's a small victory that we're down just 1.3%.
00:03:20So until you see some clarification on some of these events, on some of these issues, the market's probably going to trade in a range, especially given we're up so much from the market lows.
00:03:31But I would say this.
00:03:32You want to take advantage on the really bad days like we had yesterday when some stocks are down 4%, 5%, 6%.
00:03:37You want to buy them because the long-term fundamentals here in the states is actually pretty good with strong corporate earnings and a rebounding economy.
00:03:44>> David dietz, I know you've been cautious.
00:03:47Maybe I'm going to call you a bear.
00:03:51If not please correct me, people frequently do.
00:03:52But I want to know as you parse through the japanese earthquake and the aftershocks now being reportroad very nasty, we're going to cover that on this program in a few moments.
00:04:01Does it change your outlook for the worse or not?
00:04:08>> You cannot be the world's third largest economy suffering the tragedy it has -- whoever is exporting to japan is going to be exporting a little less.
00:04:20However, there are a couple mitigating factors which is one reason the market went up today.
00:04:23First of all, we've been worried about supply disruption in terms of oil.
00:04:26Today we saw demand disruption, we saw energy prices actually move down, and that's been one of the major headwinds.
00:04:34I think that's a near-term positive.
00:04:35The other thing we don't know is what's going to happen to interest rates.
00:04:40You're going to see a lot of treasuries as money gets repatriated to japan to pay for the rebuilding.
00:04:48On the other hand we've got an fomc meeting next week and whatever they were going to do i think it's going to be pushed off a little bit in terms of -- >> well, you didn't expect them to take actions, did you?
00:04:58They're going to complete qe-2 through the end of june.
00:05:01You didn't expect them to tighten or anything next week?
00:05:04>> But we don't know what they're going to do in june.
00:05:06Stocks priced in things three to six months away.
00:05:09They may now stretch things out a little bit longer.
00:05:12They're going to be a little bit more dovish than they were otherwise going to be.
00:05:17>> Brian kelly, the japanese are a great people.
00:05:19They've suffered a heartbreaking, catastrophic earthquake.
00:05:22But they have a history of rebounding from prior earthquakes, brian.
00:05:26What do you think?
00:05:27They may surprise us once the worst of this is over?
00:05:29They may go back in?
00:05:31They may rebuild?
00:05:32They're going to get help from their central bank and some old-fashioned pump priming as they must?
00:05:39I mean, brian, maybe we're selling japan too short.
00:05:42This is a great people.
00:05:43They know how to do business.
00:05:45>> Again, I -- I agree with you 100%.
00:05:47I think if anything this is a positive for the japanese economy.
00:05:50This is an economy that need someday kind of a stimulus.
00:05:53You will get some kind of pump priming.
00:05:55I think it will be more liquidity availability within domestic japan.
00:06:01But in terms of the stock markets, the nikkei, that type of trade, I actually think they're probably short because they're heavy exporters and you're going to have a stronger yen.
00:06:10But in terms of the domestic japanese economy, ultimately i think this will be very good for it.
00:06:16>> One of the good things that happened this week is that the saudi arabian day of rage, at least for now, is off the table.
00:06:22It was relatively tranquil.
00:06:23The turnout wasn't all that good.
00:06:25The saudis know how to control a riot.
00:06:27I don't want to make any value judgments on any side.
00:06:31All I'll say-s stephanie, oil prices fell 3% this week.
00:06:35Copper prices fell 5 1/2% this week.
00:06:37Gold down a little bit.
00:06:38The dollar was flat.
00:06:39But long-term interest rates in fell by a solid ten basis points.
00:06:44These are whiffs of deflation.
00:06:48What are you thinking?
00:06:50>> I don't know.
00:06:52Deflation, it's very debatable right now.
00:06:54I think you can spin this positively because everyone was nervous that the margin story had peaked in terms of corporate earnings because of the higher commodity prices and that it would really be very problematic with higher commodity prices.
00:07:05So I think it is a positive that commodity prices are coming down.
00:07:08We've got to watch it because obviously we know if it is really demand destruction that's going to be an issue.
00:07:13But I think right now it's way too early to tell.
00:07:17>> Brian kelly, are you buying or selling monday morning?
00:07:19>> I'm selling monday morgan.
00:07:20And I would just say we'd better hope that copper prices stay up because a lot of loans in china are based on that collateral and you want that collateral to stay up.
00:07:29>> David dietze, are you buying or selling monday morning?
00:07:31>> Selectively.
00:07:33>> Selectively buying and selling?
00:07:34>> Selectively trading.
00:07:36Basically looking at some stocks that were hit up at the end of this week perhaps due to japan.
00:07:41Something insurance companies who really don't have the exposure there that were knocked down unfairly, I think there's an opportunity.
00:07:46And I'd also look at a company like toyota.
00:07:48Three of their factories have been shut down.
00:07:51However, a lot of cars have been destroyed too.
00:07:54They're going to -- >> I mean, I know japan hasn't shown the world much recently, but they have a lot of great business acumen, and I do not want to sell them short tonight.
00:08:03Stephanie, I want to ask you, you're the only bull on the panel.
00:08:06Sensible bull in my opinion.
00:08:07>> Thank you.
00:08:07>> Give me a bullish take.
00:08:09Are you going to buy on monday moshing?
00:08:11Or what are you looking at?
00:08:14Correction kbz very healthy, can they not?
00:08:16>> Absolutely they can.
00:08:17Especially after the rally we've had after the lows.
00:08:22>> Stand up to these men.
00:08:23I want you to stand up and make your stand.
00:08:24>> Let me tell you, the figments, corporate profits are strong.
00:08:27Margins are not peaking.
00:08:29These companies have done an amazing job in cutting costs and doing a lot of things productivity-wise that will help the margin story.
00:08:35Even if the -- >> tax rates are low.
00:08:37>> And even if demand comes down a little bit, you're still going to have -- >> tax powers are successfully revolting in wisconsin, florida -- taxpayers revolting.
00:08:46That's good.
00:08:47>> And by the way the consumer remains resilient.
00:08:49Did you see the retail sales?
00:08:50>> I did.
00:08:51>> I'm a buyer.
00:08:52>> Brian kelly, stephanie link, david dietze as always.
00:08:56All right, folks, we are monitoring breaking news cometion out of japan.
00:09:01There's a fear the three mile island nuclear meltdown might actually be occurring.
00:09:05The moment we establish contact with tokyo we are going to take you there live.
00:09:08And later in the show is mr.
00:09:11Obama's green energy plan turning the president into jimmy carter 2.0?
00:09:15He gave a press conference today.
00:09:17Not a lot.
00:09:19The cover report continues right after the break.
00:12:21>>> Japanese officials are worried a nuclear power plant may be melting down.
00:12:26Cnbc's kaori anjoyi is live from tokyo with the latest.
00:12:31Can you help us?
00:12:32What's going on?
00:12:33>> Reporter: Well, larry, on the surface it seems like another regular saturday morning here in central tokyo, but for many residents across the country and also here in the capital it is a morning that they will never forget.
00:12:47The country is used to earthquakes of many kinds.
00:12:49But the magnitude of the quake that hit 19 hours ago was unlike anything anyone has ever seen.
00:12:5946 in the afternoon tokyo time in the middle of what witnesses called a beautiful calm day.
00:13:07Terrified business workers scrambled to safety had the tremors hit.
00:13:16Debris and office equipment falling everywhere.
00:13:19In the streets chaos as residents tried to dodge bricks and glass crashing to the ground.
00:13:30Japan is no stranger to earthquakes.
00:13:34With reinforced building designs like nowhere else in the world.
00:13:36But this one was a monster, 9, one of the strongest in the country's history.
00:13:46An american university professor in tokyo on business told us the tremors were relentless.
00:13:50>> The shaking got worse and worse.
00:13:52I don't know exactly how long it lasted.
00:13:54It seemed like it went on forever.
00:13:56>> Reporter: The country's prime minister, naoto kan, immediately activated an emergency response plan.
00:14:03After the shaking came the warning.
00:14:08And the wave.
00:14:09A chilling preview of the disaster to come.
00:14:12The target, the city of sendai, some 200 miles northeast of tokyo.
00:14:19Hundreds are reported missing there.
00:14:22An unbelievable sight, the force of the swirling water sucking boats into its center.
00:14:27Reports of at least one vessel missing with 100 people aboard.
00:14:31The tsunami hit with incredible force.
00:14:34The sludge sweeping away everything in its path.
00:14:37This wall of water and mud, some 30 feet high, washed across the low-lying coastal areas.
00:14:44Entire towns swept away.
00:14:46Thick and brown, strewn with debris, fast-moving, farmlands quickly disappeared.
00:14:55Entire major roads, bridges, and homes gone in a matter of minutes.
00:15:02The airport at sendai was completely destroyed.
00:15:05Workers and others scrambled onto rooftops trying to stay above the mud.
00:15:09A huge fire at an oil refinery near tokyo continues to burn.
00:15:14At least 80 other massive fires are still burning along the coastline after the quake cut off gas lines.
00:15:21Causing a series of explosions leaving homes and businesses ablaze.
00:15:26Power is out throughout parts of the country.
00:15:27And mass transit is down.
00:15:30In some places trains derailed.
00:15:33Tonight, evacuations are under way for miles around this nuclear power plant in fukushima.
00:15:38Officials say the cooling system failed during the jolt.
00:15:41Authorities now say that radiation levels have surged outside the plant.
00:15:48With daybreak here the search for dead and injured of this disaster is just beginning.
00:15:51Not to mention the cleanup, which will likely take months if not years.
00:15:59 on saturday morning here, larry.
00:16:04The public broadcaster nhk is saying that the combined human toll, including deaths and those that are missing, have exceeded 1,000.
00:16:12And a government spokesman saying that he is bracing for the possibility of more than 1,000 deaths.
00:16:21>> Kaori, thank you.
00:16:22Can we focus in for a moment on the damage in tokyo as the aftershock footprints have apparently spread?
00:16:29That looks like a story within a story.
00:16:31What can you tell us about the tokyo?
00:16:35>> Reporter: Well, the aftershocks are continuing here, larry.
00:16:38I continue to feel my building shake as little as 30 minutes ago.
00:16:43But as you can see on the streets here, everything looks fairly calm.
00:16:46The transportation system, the public subway system is fully operational.
00:16:50The buses have been operating now throughout the night.
00:16:54Newspapers are being delivered normally.
00:16:56There's even construction work that was scheduled on the street that is operating as normal.
00:17:01But I've heard that there have been three deaths in tokyo.
00:17:04Many of the structures where i am, larry, are modern structures, buildings that have been built after 1987, when stricter building codes were enforced.
00:17:14But there are many outlying areas outside the center here in tokyo that are still wooden structures and still vulnerable when we have aftershocks of this kind.
00:17:23Even in the center of tokyo in the key political district not far from here, it's about a 15-minute walking district -- distance, there was a landmark building where I heard the ceiling has caved in.
00:17:35>> And kaori, can you tell me about the nuclear threat?
00:17:39There's a lot of talk now about nuclear plants in trouble, emitting gases and whatnot.
00:17:43Can you give us a quick pencil sketch of this nuclear power story?
00:17:51>> Reporter: Larry, the government seems to be focusing its emergency operations on this nuclear power facility.
00:17:56Let me just give you the background on this.
00:18:00There are four nuclear power