Either the dollar rallied because of Mr. Plosser’s comments or the comments made to justify the rally in the US dollar, this does not matter. What’s important is his message: the whole “increase in interest rate” before the market starts recovering to control inflation. I call this “bs”; fed will stick with 2.0 till 2009. Few reasons:

I. The spread between real rates (rates with which banks are lending) and the fed rate is still too high, imo, to have any effect on curbing inflation even if we raised fed rate by 0.5pct. Since “funny money” is only there to prop our “sound” financial industry, the rest of the industries will find it hard to get “funny money” (=easy, low interest). The lending by the banking industry has been contracting in UK/most of Europe and US for a while, therefore rising interest rate can only be a gesture to show we are fighting inflation while having no effect in curbing inflation.

2)The financial industry need this spread to keep the chemotherapy going on their cancer sheets.

3)Inflation, in developed countries, are always minimal (by comparison…) because the cost is digested properly (raw costs-to-PPI-to-CPI) However, asian countries, and other underdeveloped countries have (already have) INSANE inflation (usually double digits). Also, we have been exporting inflation to all countries that either peg to dollar or have high dollar reserves. However, this can’t continue (main risk of $ devaluation, and the image of an international currency) “In economies that were open to market forces, inflation numbers should start to ebb with commodities prices coming off,” said Philip McNicholas, an economist with research firm IDEAglobal in Singapore. “But countries like Malaysia, India and China, which were fairly heavily subsidized, it might stay high.”

4) Perfect timing to stay the same 2.0 fed rate. Inflation numbers WILL BE BETTER THAN expected as we continue the 2nd half. Why? IMO, the third quarter will have minimal inflationary pressures, as we have already seen the commodities pullback last for a month. Of course not all commodities will remain low, such as oil and coal. This reduction in raw cost will lower PPI in the coming economic data, however, i am not sure about how CPI will change. I am guessing US corporations will NOT demand HUGE increases in core inflation and food inflation to keep their revenue “looking” alive.(=better than expected PPI)

BEAR in mind this may ignite a BEAR market rally. Until such economic data comes forward and the “hype” is everywhere, we will most likely retest the s&p 1200 again. (wolf in sheep’s clothing: A double bottom can be all thats needed to drink the koolaid as better than predicted economic data shows market recovery) Eventually inflation(-2009)/deflation(2009/10-) will make most of us puke, as market’s will be all over the place. The only trade thats possible to hold on to wealth will be “gold”, not etf gold not mining stocks, but gold biscuits. Shorting may be another option, if its not illegal by then.

For next week look for V,MA results to signal deterioration (look at capital one rev)

MA looks good to short

Retails may shit their pants.

Continued financial collapse, especially towards regionals. The sepsis diagnosed fnm, fre will be put on life support until virus de-leveraging ends (will take years).

Commodities may rebound as oil is likely to rebound after touching 120. If it breaks 120, then 110 (200dma) is the next support.

Please respond in detailed comments, especially the purposed technique that lex/ppt/cnbc’s hype (salt to the wound) can use to prop the market.