Tuesday, January 06, 2009

The Fed Targets Inflation

Top Line: The stock market still has the possibility of a drop in the next few days. Two spikes higher during the day took the Dow up to about the same level, just under 9090.

The stock market's decline that we envision, whether it happens or not, does not change our thinking on the rally over the next few weeks. When the decline is over, again, if it occurs, we should get a powerful rally for several days. The deeper the decline, the higher the market can go. Our current price target is above 10K in the Dow.

One of the items that took the market down in the afternoon was the Fed's news that it wanted to target inflation. The Fed wants to target a positive rate of inflation so that people are more inclined to "buy now" rather than wait for cheaper prices. But, the idea that they would actually write it down and tell the world that they will Force inflation to a higher level tells you just how scared they are or deflation.

For those of you who think that deflation is a current concern, you need look no further than deflation's enemy, the Fed. This revelation should also provide ample ammunition to buy gold or the mining stocks. Yes, we have been pushing these stocks for several months now and continue to think they will provide good returns this year. Now, we are probably going to be selling them in the next few weeks but we will be looking to buy them back in March or April.

More tomorrow...

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