All About the Stress Test

The markets look to open higher today as traders seem to be pleased with what they are hearing from the stress test. While it sounds as though some banks will require additional capital down the road, all indications appear to be pointing to the immediate crisis being over. You have heard me say many times that I did not buy the fact that we would not have inflation because all the money was going to build the banks balance sheets. Inflation is closer on the horizon than many would like to believe because improving banks will lend and the money multiplier will increase rapidly.

My FCX play continues to roll and I am now looking at natural gas. Yesterday I heard Chesapeake's CEO discuss the reduction in drilling that has taken place as we knew it would. I have said many times that production can be taken off line faster than it can be put on line. Many of the natural gas companies have had a decent run lately and I will try to wait for a pull back before making an entry.

The markets look poised to move higher still and S&P 1100 is certainly not out of the question in the near term. Longer term, I think we have to keep a watchful eye on the possibility of stagflation and the value of the US dollar. I must admit that many of the traders that I have talked to have been expecting a pullback and I think that is what caused the shorts to take a beating recently. When we get a down day, it will be interesting to see if the S&P can hold the 900 level.