Tuesday, February 28, 2006

Inflation......It's back!!

You see it everywhere, but everyone is afraid to talk about it. Inflation. It's touching every aspect of our lives, fuel, heating, electric, rent, real estate, almonds (has anyone noticed that almonds are up more than 100% in the last year?), etc.

But we, led by the venerable Mr. Greenspan, have been fed a steady diet of "Well if you strip out volatile numbers like food, fuel, energy, housing, etc, inflation remains in check". Pardon me but, huh?

So here's the rub, inflation has to be dealt with and the longer it persists, the greater the risk to the equity markets. The equity markets are humming along at 5 yr highs (Nasdaq excluded) and there seems to be some concensus that the fed is only thinking about one or two more rate hikes. I think there is a perfect storm brewing - a weakening economy that is pinched by inflation (think 1978-82).

Couple this with retail investors plowing back into stocks - the little guy tends to be a great contrarian indicator, the last time he was this bullish was Mar 2000 (ouch!) - and I think we're set up for a prolonged period of tough slugging in the equity markets.

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