Exclusively. Why do so many people keep investing in hedge funds. They have lousy returns that way underperform the s p 500. Coming up on the kudlow report beginning right now. Good evening, everyone, im larry kudlow. And this is the kudlow report. President obama gathered in st. Peters today for addressing the worlds financial situation. In a working dinner this evening, it was disagreement over how to handle serious use of chemical weapons that dominated the agenda. Nbcs chuck todd joins us now with the latest. Good evening, chuck. Reporter good evening, larry. Or i should say good morning, the first day and night of the g20 summit is over. President obama only a few minutes ago left the dinner with the 20 World Leaders. A dinner that lasted until nearly 2 00 in the morning here in russia. The topic of the dinner was supposed to be all things syria. And what the white house was telling me was that wey wanted president to lay out his case and put as many World Leaders to his side. He doesnt have a hundr0hundred percent buy in. He was hoping to get somewhat of a half united front. The goal, as far as the white house is concerned, is to get about 10 of news 20 leaders sometime tomorrow to come out in support of what the president wants to do in syria. It may only be rhetorical support. It may not be help with the military. It may not be help with money. But theyre looking for that feeling of an international coalition. Why . Because the white house believes this will help them recruit democrats on capitol hill to support the authorization in congress. All of this is connected. And the white house knows this lack or appearance ofl a lack of coalition than is larger than just a couple of countries is hurting them as theyre trying to recute members of congress to their side. If they can get a big show of support, they know theyre not going to bet one frget one from china, but if they can get one they think its helpful for them as they try to at least recruit democrats to their side. Now, they head home tomorrow and know that they have a weekend of work to do. Larry, back to you. All right, many thanks. Now, relations between Vladimir Putin may be worse today than at any time in the post cold war period joining the two countries. Joining me now is the director of economics, author of the battle of bread and woods and leon allen at the American Enterprise institute. Legion, are relations the worst theyve been since the cold war . They are simply at a very low point probably since the 98 bombing of serbia. But that was corrected very quickly because there was a different regime in russia. That regime has not seen the hostility of the United States with the United States as a b bonus for its domestic political literacy. On a personal level, i think it is probably the worst, as just the other day, putin essentially accused the american president of lying to American People and the world. And if there is proof, there is no proof that they were used by the syrian forces, rather than the forces that he calls terrorists. In order to provoke a military intervention. He also directly accused the secretary of state kerry of lying. Hi actually used there are seven russian words for lying. He used one of the rudest ones. More importantly, he accused them of lying where they did not at all. He denied that alqaida is part of the rebel forces in syria where as kerry stated that quite emphatically. Ben steel, i want to get to some economic and currency in just a moment. But as chuck todd reported from st. Petersburg, washington is watching president ob. I dare say many in the world believe vladamir putin is a thug. The question is how does president obama handle snims does he add credibility and confidence to the american position . As chuck todd indicated, right now, in the house of representatives, various whip counts by various news organizations show that this resolution is down 31. President obama has failed to secure not only the home base, larry, but the foreign base. Hes gone to st. Petersburg without the support of his key allies. Really, the yooiUnited States r now is in a very key position. And what can he do about it. Hes got to try to play the statesman. They called ker ri eed kerry a is an extraordinary thing to do. Is there anything that obama can and should do that you can recommend . I dont think he can do anything in st. Petersburg. Hes got to work washington, hes got to win congress. Thats the way to convince the world that the United States is serious and that the United States is going to be a major player. Leon and e rin, do you agree with me that this is a mat other of american credibility . This is where its come. Its even bigger than barack obama. The point is everyone in the world is watching this story. An obama defeet in at in washin and the house would be cripp crippling. It would give them unbelievable reasons to float and have fun. What should obama do . What can he do . Well, larry, on your show three weeks ago, i said he should not have gone to that summit at all. It gives putin not only the opportunity to be on the domestic and international scene, but, also, now lek which you remember the american president on the international rights. The respect for the u. N. And so north. Theres absolutely no way that the g20 summit could help obama in anyway. And, incidentally, if he had heeded my advice, he would have been working in washington. What he ought to be doing right now. Ben steel, this is allegedly a conference about the world economy, which aint great. And, in terms of Economic Growth, theres discussion about currency and reserve funds led by china and others. Theres a bust up there. They had to use this summit in order to take a pot shot of the american system. Theyve announced this creation of the 1 hun 100 billion kurn reserve fun which they believe has been precipitated by clumsy, Federal Reserve management of the winding down. But the fed has said that. Theyre going to have to take domestic actions to salvage their currency, to salvage their economy. Ben bernanke cant do it. After his comments in may, you saw a huge selloff in emerging market bonds and currencies. This has created a current account crisis. Thats right. Were seeing your typical boom busz cycle coming to another apex. How serious is this . Very important point. Is it going to spread worldwide . It doesnt look like its going to be serious here at home. Theyre going to spread worldwide to these emerging countries. Its going to take a while to get the 100 billion fund in place, okay. This is not something thats going to occur overnight. Its not going to be snumpbs. Im very pes migsic. I think there was great overconfidence in brazil. Brazil always is the country of the future. China, as you know, has been very concerned about american stewardship. Theyve used this conference to link it to the global economy. They say American Military action is going to precipitate a further hike in oil prices which, itself, is going to damage the economic world. All right, gentlemen, we will have to revisit this and see how it goes. Coming up on kudlow, stocks close higher for a Third Straight day. Thats good. Have markets already bottomed in advance of a military strike. Plus, a prel view of tomorrows everimportant jobs. Is there really reason for continued Economic Optimism for this second half of the year. Dont forget, folks, freemarket capitalism is the best past to prosperity. Those emerging countries are going to have to engage if they expect to survive on kudlow. Well be right back. [ male announcer ] imagine this cute blob is metamucil. And this park is the inside of your body. See, the special psyllium fiber in metamucil actually gels. And that gelling helps to lower some cholesterol. Metamucil. 3 amazing benefits in 1 super fiber. Metamucil. Seasonal. Doesnt begin to describe it. Running a bike shop has its ups and downs. My cashflow can literally change with the weather. Anything that gives me some breathing room makes a big difference. The plum card from American Express gives your business flexibility. Get 1. 5 discount for paying early, or up to 60 days to pay without interest, or both each month. Im Nelson Gutierrez and im a member of the smarter money. This is what membership is. This is what membership does. Does the stock market have a track record of bottoming just days before a military strike . This pattern goes back to world war ii. The iraq bombing of 98, serbian bombing in 99, the iraq war in 2003 and even the libya bombing two years ago. On the eve of potential syrian bombings, is it time to buy stocks . Now, we have jeff from lpl financial. The author of this brilliant piece called the stock market has a track record of bottoming days before a military strike. This is stock market history. And its important. We bring in dennis, founder, editor and publisher of the famed letter. Jeff, i always knew you were a smart guy. Now youre just offthecharts smart. Im going to ask you is the same pattern going to hold up . I dont know if this resolution is going to pass. And as we said in the prior segment, right now, its running 3to1 behind in the house of representatives. If there were to be a syrian bombing campaign, does this pattern hold up . Every single time weve had one of these military conflicts from major world to more localized events, we have seen the market rally in the days ahead of the strike. And so i think, again, domestic concerns may still trump foreign policy. This pullback that weve seen in the market started before the august 21st chemical attack. This is more about the debt ceiling. Let me just stick with that. I want to have some fun with this. This is serious business. What if i tell you, you may not blo believe me, but what if i tell you there will be no shutdown in washington. The Federal Reserve is going to slow down their bond purchases at some point. By the way, their meeting is the 167th and 18th. Im presuming the fed would wait a moment or two. But lets say thats all in the market. How confident are you . Say im an investor and i want to buy. I see the nervousness before the syrian bombing. The bombing is going to turn out to be stronger. The military is preparing a much more comprehensive plachb. Should investors get in, then . If all of those fiscal things are out to the side, should investors stay with your his tor kal model . I think it will work, larry. I think they should. All of this suggests its worth getting into even ahead of syria. Its surprised me i was not accepting a second half. I still want to see the jobs and the incomes. Ism is very strong. And a 3 10year summary could be a sign of strength. Is this economy fooling us . Well, first of all, thanks for having me on, larry, you guys drew the short straw and got me tonight. I apologize for that. Always. I think jeff was brilliant in what he had written. And history shows that thats the way nings occur. Theres an old adage on wall street, sell on the trumpets, buy on the cannons. I think thats what this is. You want to be a buyer. Once the attack occurs. Its probably going to occur after yomkippur. He probably cant get it through congress before then. Even if he cant get it through congress, if he does it on his own, which would be constitutional, it probably can occur for another ten days or so. But when that happens, you want to be prepared to be buyer. And i think that the fed is going to go into some sort of slowing accommodation. I cant imagine that the fed is going to announce at its september meeting that thats a change in policy. Thats been put off to some time in the future. I tend to agree with everybody. You note in your article, that this time it might be a little bit different. You do have these fiscal issues that you mentioned before. Were at a 3 10year. Youre really sort of longer psych m term . Larry, so many investors have its been a long trip back to even. Now, with economic uncertainty, concerns oobt a military engagement, there are a lot of investors who are saying forget it, im going to sell even worse. We dont see a major decline here in the markets ahead. We think the balance of risks favors stocks. Den ni dennis, do you agree with that . Im going to leave oil out of the picture for a second. Basically, commodities, yourtodate, have done nothing. If these medium and longer Interest Rates keep rising, what does that do to the commoditys sector . Its not bullish. And i think thats, in fact, whats happening. I dont think the fed has any antipathy for the banking system. Its exemplary of Stronger Economic circumstances. Im amused at how many people are kpieexcited about and depre about going to 3 yields at the 5 a and 10year level. Just one last point. Given the steepness of the rate, given that, given the drop in jobless claims, which is another key indicator. I mean, i dont know if were going to grow to three or four or five percent like we should. But all of this signals more than growth in the future. It just seems to me thats inescapable. Yeah, thats key, larry. Theres probably no better indicator of profits than the ism index. Its a great business barometer. We might be due for rebound in profits in the quarters ahead. Great stuff. Thank you for coming on. We appreciate it. Up next, folks, americas top hedge funds are raking in cash. Does it mean that the rich are just getting richer and leaving everybody else behind . Or maybe they really dont deserve your money. Were going to discuss that when the kudlow report comes right back. It starts with something little, like taking a first step. And then another. And another. And if you do it. And your friends do it. And their friends do it. Soon well be walking our way to awareness, support and an end to alzheimers disease. And that . That would be big. Grab your friends and family and start a team today. Register at alz. Org anbe a name and not a number . Tor scottrade. Ron im never alone with scottrade. I can always call or stop by my local office. Theyre nearby and ready to help. So when i have questions, i can talk to someone who knows exactly how i trade. Because i dont trade like everybody. I trade like me. Thats why im with scottrade. Announcer scottrade proud to be ranked best overall client experience. Good evening, larry. Lets talk about the u. S. Equity markets. Theyve gotten back all that theyve lost and more. At the same time, americas largest hedge funds have been getting bigger and bigger and are closing in on hedge funds. The absolute return magazine list each year the biggest hedge funds which are those managing at least a billion dollars in assets. Theres 287 funds that make up their group. They have assets of 1. 65 trillion. Thats up 7 from the start of the year and the record for total assets for these big hedge funds was just under 1. 7 trillion. That was july of 2008. Were not that far off from there. Were taking in more money. The biggest firms are still bridge water, j. P. Morgan as set management. The biggest gainers in terms of how much theyve garnered, j. P. Morgan, apr capital. And the biggest decliners include First Quadrant and napier park global. It looks like the hedge fund industry, theyre starting to recooperate some of the assets that they los lost. All right, dominic, stay where right where you are. Dominics facts are impeccable. As always. But the one thing you ne glegle to mention is that all of these funds raking in all of this minnesota had a total return of 4. 05 through july. 4. 05 . The s p 500 during the same period, had a return of 19. 63 . If my math is right, thats about four times as good as the hedge fund. In fact, the Morgan StanleyCapital Index for the world had a 14 return, which is more than twice at these hedgies. Why dont you just buy an atf or an index for the s p 500 and hold it for the rest of your life . What good is this . That potential for them to get in that big trade and make that big, big return is there. I think that pulls a lot of this money off the sidelines. Youve got guys its a gamble. I dont want to name names, but youve got guys putting all kinds of money or shorting all kinds of things, the Retail Department stores, Health Department food stores and getting their butts kicked down. Their investors cant be too thrilled about that, dom. I want to say something. I want to take the other side of the argument. Youre talking about the big payoff. The big rigsing. The big trade. Many of the managers i used to work alongside with will tell you if you look at those performance figures, its sometimes unfair. Often times, these hedge funds out perform in times of down markets and underperform when the market is in a bold, bold rally. They do some of their returns with a lot less volatility. So sometimes so, again, i just want to bring that to life. But they also take a huge amount for their commissions. Thats why i say these e. T. F. S are very good. Youre right. But youre not always right. I mean, if you go back, ive seen like jim glassman, i think hes going back to financial column. He did a long study and buying the index. You look at one of my i forgot his name. The professor for princeton university. He has shown in the long run, youre better off buying the index. Youre just better off buying the index. I think dominic made a very good point. The term hedge means youre hedging your pogtss. In up markets, they tend to short. If you look at the short positions, theyve been just demolished over the past 36 months. Thats one of the reasons these Hedge Fund Returns have been way underperforming. In the down markets, youre going to with very glad theyre there. I want to see that evidence. I want to see those data points. I think with up around down markets, you have this long continuum. You can go dry for 10 or 12 years. You can buy the index, like i did, Nothing Happened to me for 10 or 12 years. Were up, were making money, im thrilled, my wife is thrilled and im not paying 20 . The one things you want to remember, for these hedge funders, its just an asset class. You say etx, those are all pieces of a puzzle. He might do well in the e mesmig marketings for you, too. To be continued. To be continued. Thank you very much, as always. Up next, Economic Confidence looks like its growing. Could be a decent jobs number coming out tomorrow. Slower