PPI Rose 3.2% in November

Includes: DIA, QQQ, SPY
by: Philip Davis

The PPI rose 3.2% in November, JUST November.

Even the core PPI rose 0.4%, double the estimate. No one else is going to do it but I am going to THANK Mr. Bernanke for having the guts to almost stand up to Cramer, Paulson, Bush and the entire MSM by showing a modicum of restraint in setting rate.

I said on Tuesday that I was pleased with the smaller cut, that I was willing to consider long-term investing again thanks to Uncle Ben realizing not all rice should be cooked in a minute. Jobless claims FELL 7,000 this week and retail sales were UP 1.2% (1.8% ex autos, which we know are a disaster) so those are not the concern. The 3.2% rise in the PPI, THE LARGEST SINCE AUGUST OF 1975, needs to be the Fed’s top concern.

For all you historians, 1975 was the Fabulous Ford administration, when this country was being run by a man who had been elected by a total of 38,000 people in Michigan and decided giving out WIN buttons (Whip Inflation Now) would solve the problems of the previous administrations endless pointless foreign war that was draining our budget and alienating the rest of the world, causing political tensions that drove the price of oil to record levels. Thank goodness we’re much to smart to fall into a trap like that again, right?

You can learn all about inflation and what a scam it is to fight it by asking the working class to make sacrifices by reading my Nobel Prize Nominated (but they never got back to me) Article here. Inflation isn’t your problem, especially if you owe someone money, it is a huge problem for the lenders, who were counting on getting paid back in dollars that were going to be worth more or less a dollar and the Fed can give out free money until the cows come home but that’s not going to stop banks from RAISING rates to compensate for the long-term devaluation of the currency that a prospective borrower will be paying them back with.

What could possibly be worse for holders of SIVs and CDOs than holding a book of assets that are dropping in value by 20% over the next 5 years while the payments they receive from the borrowers (those who don’t default) are worth 10% less each year? The lenders, who the Fed essentially is there to protect, need to either keep home prices high or keep inflation low and it’s so tricky to do both that this little house of cards they build is just about ready to collapse.

So Happy New Year!

Asia had another down day with the Hang Seng dipping another 2.5% indicating more to come tomorrow. The Nikkei also hit the 2.5% rule and Europe looks like they are inclined to do the same today. I just had a funny thought that everyone has been assuming that China’s $200B Sovereign Wealth Fund will be a boost for the markets but they are out hiring top-notch investment managers and who’s to say they won’t be using that money to go short? Let’s see, oil is at an ATH, China is the swing consumer of oil, China has an SPR they can tap to mess with the prices and the $8T US energy sector is amazingly overbought. I’m pretty sure that given those tools at my disposal and $50Bn to play with that I can double it by March. Have your translator call my translator and we’ll do lunch!

Yesterday, at 12:47, I said to members: "Here’s the 20% bounce off yesterday’s drop - Hyper critical failure if we break here, which is conveniently just under 13,500. Nas 2,675 keeps popping up as an inflection point as does S&P 1,485. Right now the energy patch is holding up the whole market so if XOM does go you’d better damn well be covered elsewhere because this could go fast!"

Then, at 3:16, with the market at the absolute low of the day, I said: "I’m not even going to talk to people who aren’t taking some puts off the table into this fall, especially if you just recovered from getting burned in the morning! Don’t be greedy, take a little profit on the way down when the mo slows, not when it reverses. XXX"

Where did we finish for the day? Up 150 points from my low call, right back at the levels I set at 12:47. See, this stuff isn’t hard, you just have to know what to look for… We were also looking to break those levels at the close or we expected another day of pain and, so far, the pre-markets are predicting a world of hurt for the markets but now we’ll be watching the top of my trading range at 13,300 to see if we’re going to slip back in there (probably testing the bottom again if that’s the case) or if we have really established a better consolidation point for the balance of the year.

The same way we cash out our calls yesterday at the top, we should be ready to cash out our puts at the bottom if we find one so let’s go into the session without prejudice as I think the Fed did exactly what they needed to do to keep the economy on track, whether Kudlow and Company like it or not.