Solution To The Sell-Off

It seems Ben Bernanke has painted himself into a corner. If he raises interest rates he could tip the economy into recession. But if he doesn’t do something about inflation Americans could end up worse off, still. Consumers probably can’t withstand gas prices much longer.

Most Fed watchers agree the aggressive period of cutting interest rates appears to be over. The trouble starts when you try to figure out what period the Fed has now entered.

In their statement, Federal Reserve Chairman Ben Bernanke and his colleagues let it be known that they are now less worried about the economy slipping into a recession and more worried about inflation.

The wording, however, was somewhat bland, even by the guarded standards of Fed-speak, especially given the pronouncements of Bernanke and other Fed policymakers, who openly worried in recent speeches about the inflation pressures that could be sparked by a weak dollar and surging energy prices.

It seems pretty clear the Fed is in a pickle. So what’s the way out?

It’s going to be a tough road says Steve Cortes, founder of Veracruz Research on Fast Money. From here I think a dollar intervention is necessary. The US government needs to get into the private market and actually buy US dollars.

How would you trade?

Personally I’m short European equities but not long the dollar. Not yet.

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Trader disclosure: On June 26, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman Owns (GS); Finerman's Firm Owns (MO), (MSFT), (PM), (SUN), (TSO), (VLO), (AXP), (DVA); Finerman's Firm Owns SPX Index Puts; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM); Najarian Owns (AAPL), (ANR), (CHK), (RIMM), (TSO), (XLF); Najarian Owns (MER) Puts; Najarian Owns (NUE) Calls, (QID) Calls, (SLB) Calls, (YHOO) Calls; Terranova Owns (BNI), (CME), (FXC), (LUV), (GOOG), (INTC), (IYT), (XLF), (SU), (YHOO), (FCX); Terranova Owns Dollar Index Futures

Terranova is chief alternatives strategist at Phoenix Investment Partners;; Phoenix Investment Partners Ltd. Owns (RWX), (DBC), (DBV), (IGE), (AAI), (ALK), (AMR,) (APA), BP plc, British Airways plc, (CHK), (CVX), (COP), (CAL), (DAL), ENI SPA, (XOM), Gazprom, (HA), (HES), (HOC), (HSE), (JBLU), Lukoil, (MRO), (MUR), (OXY), Petrobras Intl Fin, Petro-Canada, (PBR), Petroleos De Venezuela, (QAN), (RJET), Royal Dutch Shell plc A Shares, (SKYW), (LUV,) (SU), (TSO), Texaco Capital, Total SA, (UAUA), (LCC), (VLO)

Cortes Is Short Euro Stoxx Futures And Is Long S&P Futures