Market Recon Friday

Good Morning,
                       Where to go from here?  I ask myself this question every day, as I am sure many of you do.  Today, though, I think everyone is asking that question… with a couple of extra question marks at the end of the sentence.  Last night, the S&P 500 closed at 1917(Passchendaelle?), after peaking at 1930.  The index began it’s glorious march to victory last Thursday afternoon, just after kissing 1810.  Basically, you saw a 120 point move, and then all they took back was those 13 points.  Common sense, and more than a few chart monkeys would say that there’s more selling ahead…. but  you know something different happened yesterday.
                      No doubt…we saw a flight to safety yesterday.  Gold roared, the Utilities danced, and Treasuries pounded their mighty chests, but then again…we just discussed that the money did not largely come from equity sales, now did it?  So…..  if they inflow into the commonly used vehicles of safety came from sidelined cash, and not from sales, then many of our friends are not rotating out of their longs, but hedging them.   Food for thought.  The puzzle is so darned intellectually interesting… it’s almost a shame that we have weekends, right guys ?? ….. Guys??
                      Truth is almost anything could happen, and we will find a way in retrospect to explain it.  Defense should always be part of your game, as it is part of mine.  Now if you’ll excuse me, I’ve got some Fed bashing to do.  Care to join me?
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For My Next Trick, I’ll Make Inflation Disappear
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08:00 ET
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Fed Speaker: 
                      Cleveland Fed Pres. Loretta Mester will be in Sarasota. Florida to chat up the economy.  Last I heard from Mester, she was still waving the “What me worry?” banner.  She seems to almost understand that the economy, and markets can get in the way, but comes off (to me, at least) almost as a Private who’s not sure that she can speak her mind in front of her squad leader.  Today, Mester will have great potential to push the S&P futures around, and let’s not forget…… that she is a voting member of the FOMC this year.
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08:30 ET
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CPI (January): 
                       No sign of inflation.  At least that’s what they keep telling us.  Maybe they should stop now.  You….my people…yes MY people (You know I love you all) have been lied to.  All of planet Earth measures consumer level inflation through their CPIs, yet the Fed watches the PCE.  Why ??  Oh, there is a good reason !!!  Because….. if their target has not yet been reached, then they still have flexibility in regards to forward looking monetary policy decisions without losing even more credibility.  Get this through that adorable head of yours…..  They do not love you, they never have, and they are NOT here for you.  Core CPI printed at 2.1% y/y for December, and that’s also what we are expecting for January’s number.  Wait Sarge… Isn’t that above???….
                       Yes, my young student, Consumer level inflation at the Core met the Fed’s stated target in November, and bested it in December.  I will illustrate.
                        Year over year Core CPI printed at 1.7% way back in May, then spent three months at 1.8%, two months at 1.9%, one month at 2.0%, and then we hit December’s 2.1%.  It’s not the Weimar Republic, thank goodness, but it is steadily rising inflation.  So, my friends you are not crazy, you are spending more for the goods and services you need and/or want.  This inflation is simply being masked by what happened in the energy space.  Many of you are indeed benefitting from falling energy prices, but the pace of that increasing benefit is in a spot where it has to flatten.  The month over month print for the Core is expected to sport growth of 0.2% up from last month’s 0.1%.  You will  obviously see contraction in the headline print.  Don’t lie to me, and don’t lie to my people.
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13:00 ET
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Baker Hughes Rig Count (Weekly):
                                                           Last week, we saw the US count drop 30 to 541, and the North American count, in similar fashion lose a total of 50 rigs to 763.  These decreases in functioning oil rigs are starting to mount, and sooner or later should impact supply.  Yesterday the increase in supply was smaller than consensus, but still larger than I was looing for.  This number is going to matter, right when you start thinking about getting stupid on Friday night.  Don’t lose focus.
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Friday Earnings Highlights:
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Before the Open: DE (.70), VFC (1.01)
After the Close: Filet O’ Fish (Irish Catholic)