Doubt Dominates...

Stocks took a setback as the Dow drops 194.65 points on dubious CPI numbers and bad news stemming from Bear Stearns.

CPI and headline inflation turned in flat for February, beating all analyst's expectations. Certainly I was shocked and immediately had doubts as to its authenticity. That was supposed to be great news for the market but investors are just too smart for that. A look into the details showed energy prices to have fallen in February! A look at your pump prices as well as the sky high commodity prices and you will find that energy prices could never have fallen in February! One dubious number is enough to cast doubt on the entire report.

Compounding the problem of a dubious CPI number is the urgent bailout of Bear Stearns by the Fed ahead of the new plan to release liquidity into investment banks. This brought investors back to the reality that the subprime mess is far from over.

Well, the market is simply not buying into whatever good news there was last week, putting serious doubts on the speculation that this might be the start of a rally. What's worse is the fact that if the low of January is breached, the market could laspe into a full scale bear market, the kind we saw back in 2002. This is what I call the Last Line Of Defense.


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