After a nice oversold bounce off the 10,700 low, the Dow seems to be slowing down as it gets closer to the 11,000 mark. I would like to see the index break above 11,000 prior to the June 29th Fed meeting, but investors will need to hear some good inflation news in order for this to happen.
Over the past few weeks, several Fed officials have been talking the market down by focusing on inflation problems that past government reports were saying didn't exist. Wasn't it just a month or so ago we were being told that inflation was not a problem, and now, out of the blue, everyone is concerned about inflation. I have been heavily focused on this issue for the past six months.
Its nice to see that we were at least 6 months ahead of the Fed.
On January 31, 2006 (No Inflation Huh...), I wrote;
"The inflation data being released by the government is not worth the paper its written own. All one needs to do is look at how gold and the dollar are reacting to rumors that the fed may halt its rate hikes. These two indicators are telling us that real inflation is alive and well."
Heck, just last week, the NAFTA king and former Chairman of Honeywell , Larry Bossidy was a guest host on CNBC, and made this comment;
"There is no inflation out there. This inflation thing came up over the last two weeks."
Here are a few other examples of where I said inflation was a problem;
February 23, 2006 (Yesterday, They Said....);
Yes, yesterday the financial media reported that inflation was benign? Today, without breaking stride the AP is reporting that stocks are mixed on inflation concerns.
Here's the article from the AP on Yahoo.
This type of news kind of makes you feel like a squirrel in the middle of traffic, doesn't it?
We do not need for anyone to tell us that inflation is not a problem. We know better.
February 28, 2006 (Inflation Hitting Consumers & CHK added to S&P);
Well, well, it looks as if the cat is out of the bag. This morning the GDP numbers were revised upward, consumers are beginning to feel the pinch, and the economy is slowing.
The real danger is clear; cost-push inflation is a result of supply shocks such as high energy and commodity prices. An economy can slow, but as long as cost-push inflation is a factor, interest rates will continue to climb.
Its important for investors to know the difference between demand-pull and cost push inflation. The Federal Reserve is going to react negatively toward one versus the other, and the implications for the stock market are very different.
I think you're beginning to see the point, so I'll stop here because I do not want to re-write the entire blog going back 6 months.
The Metals are rallying this morning after the industrial production numbers dropped 0.1 percent in May. This was a small piece of good on the inflation front since the March number was up 0.5 percent, and April was even higher at 0.8 percent.
The Metals rally is probably sensing a possible Fed pause, and this could cause a futher decline in the dollar over the next few months.
Let's see what the rest of the day brings.
