Mid-week Update

The market is higher than anticipated in last fridays post, largely due to reaction to the GDP number. GDP was revised upward primarily due to rising inventories, which will (as the thinking goes) reduce price pressures and signal the end to the rate cycle for good. I still haven't seen inflation data that convinces me there aren't any more rate increases coming - a slowing economy typically relieves pricing pressures, but the pressure built up in this market has been delayed for so long that I'm not sure a slowing economy will be enough to assuage inflation fears fast enough for the markets expectation. Think about the effect slow growth has on inflation like the lagged effect of monetary policy -it will not be overnight and it could be some time for price pressures to come down. Also, debate on whether or not energy prices can be ingored with respect to Fed policy has died down considerably and I think that there is some risk to not looking at potential effects of a consolidated build-up in energy prices like we have seen over the past few years. I don't know how many times the market is going to rally on the same news (the end of the rate cycle) only to run up against the same fears. I guess at least one more time.