Wednesday, October 18, 2006

Dow 12,000

The Dow neared 12,000 as tame CPI and PPI data was reported by the gov't. In the last FOMC meeting there was one vote for an increase in the funds rate, so a relatively hawkish outlook is correct. Inflation still looms and Bernanke's reputation is on the line. It looks like rates will stay at 5.25% for the next few months and even drop. Dow 12,000 and an impending rate cut over the next few months seems to be a conundrum: As the bond market predicts falling prices and a recession, equity markets see robust growth. Let's wait and see. I'm buying puts on the S&P given the recent rise and going long on retailers with the cold weather view.