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Market Recap: CPI Gains, Stagflation Concerns, Markets Fall


CPI increases. Citi took on over $50 bln onto its balance sheet and earned itself an upgrade. Yet the stock still sold off. Markets fell.

Investors sold off stocks into the weekend. The Dow Industrials fell –178 points, or –1.32% to 13339, the S&P 500 fell –20 points, or –1.37% to 1467, and the Nasdaq Composite fell –32 points, or –1.23% to 2635.

This morning the Labor Department released monthly figures for the Consumer Price Index. On a month-over-month basis, CPI came in at +0.8% vs. +0.6% cons, and core CPI figures came in at +0.3% vs. +0.2% cons. On an annualized basis, CPI increased +4.3% vs. +4.1% cons, with core figures at +2.3% vs. +2.3%. Professor Depew noted the 4.3% increase was the most since June 2006. A closer look at the figures also revealed that the core increase was led by a +0.8% increase in apparel, the largest in eight years, and a gain in transportation. Meanwhile prices in furniture, electronics, appliances, and other household goods were all flat to lower. For more analysis read Professor Depew's Five Things You Need To Know.

Yet, as inflation fears drove down stocks, Mr. Practical actually noted his deflationary concerns through the actions of Citigroup (C). The company announced that it would bailout its SIVs and take $58 bln onto its balance sheet. Investors may have believed that Citi's stock was near a bottom, yet Mr. Practical noted on the Buzz that the move was more of a sign of a bear market.

"Deflation is credit contraction…C's move today is a sign of deflation: the recognition that debt cannot be financed or sold to investors. The dollar is much stronger today against all currencies because of these deflationary pressures."

Even an upgrade on Citigroup by a Goldman Sachs (GS) analyst could not give the stock a sustained lift. Citi shares ended the day down –1.0%. Not all shares of the banking sector declined, however. GS finished +1.05%, Lehman Brothers (LEH) added +1.42%, and Morgan Stanley (MS) added +0.20%. But the broader Philadelphia Bank Index (BKX) fell –2.12%. For more read Mr. Practical's Citigroup's Move A Sign of Deflation. Also check out Toddo's Random Thoughts.

In commodities, crude oil slipped –0.88 to 91.37. Copper fell –0.45 to 295.65. Silver fell –0.25 to 13.98, and gold fell –6.0 to 798.00. Gold specialist Professor Lance Lewis addressed gold's weakness attributing it to "this silly idea that the Fed is going to be a tough guy because the inflation data is finally beginning to show some of the inflation that's been there all along." Yet with the perception of a weak economy, Professor Lewis predicted that the Fed would not be tightening anytime soon. "This is the stagflationary mess I've been talking about for over a year, and now it's finally even beginning to show up in the government's data." Read his article Is Gold Breaking Free?

For more summaries, click on Minyanville's Buzz Bits.

Idea Flow

Below is a recap of some of the idea flow on today's Buzz & Banter. Please note that stocks may appear in both bullish and bearish categories, due to long and short term trades by our many Minyanville professors.

Some bullish trade or investment ideas: ESLR, SOLF, C, LEH, EBAY, EEFT, PHM, UTHR, JOSB, CIEN, gold, ASA, GLW

Some bearish trade or investment ideas: C, AMZN, INTC

Have a great weekend, Minyans. It sure is well-deserved.
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No positions in stocks mentioned.

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