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Halftime: Is Inflation About To Derail Rally?

Although the S&P traded in the green on Friday, chatter on the Street had everything to do with inflation and whether it would kill the stock market rally.

The latest data released by the Labor Department showed consumer prices rose 0.5 percent in December, the largest increase in 18 months.

But this data is very much subject to interpretation. What should you make of it?

Instant Insights with the Fast Money traders

The Bulls Case

Some investor are not concerned by the latest CPI data because 80 percent of the increase was due to an 8.5 percent rise in the gasoline index, the sharpest increase in 18 months. If you subtract energy costs, there’s little sign of inflation.

In fact, they say the inflation is good for the market.

Brian Kelly reminds the desk that the Fed is counting on inflation to generate the wealth effect. In fact, the Federal Reserve would like to see prices rise a bit faster than they are now. Its preferred range for the core consumer index is roughly 1.5 percent to 2 percent. (Figures below that carry the threat of deflation, a widespread and prolonged downturn in prices, wages and home values.)

Combine that “with hawkish commentary from Jean Claude Trichet and China raising reserve requirement again, it looks like the US is the most attractive place for investors to put money to work," Kelly says.

The Bear Case

Other investors, such as Peter Boockvar of Miller Tabak, suggest proceeding with caution; they don’t like that 8.5 percent spike in gas – especially with prices at the pump among the most powerful factors influencing consumer spending.

On top of that, corn , wheat and soy have risen sharply in recent months. “I think it’s just a matter of time until rising commodity prices seep into consumer prices and constrain the recovery. Nothing can stop a rally like higher inflation and higher interest rates," says Boockvar.

His advice: "Bulls have to keep their eyes wide open in buying stocks at these levels.”

What do you think? We want to know!

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FBR COAL STOCKS

The traders are keeping a close eye on coal stocks after FBR Capital cut Patriot Coal and Walter Energy to ‘Market Perform’ from ‘Outperform’ citing little upside in the near-term.

What’s the trade?

Steve Grasso doesn’t buy it. “I would stay in the coal names,” he says.

“Although I think there needs to be a pause in some coal names, in this space, I’d still look at Bucyrus ,” says Pete Najarian. “It’s a name that I think can still perform.”


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THE INTEL TRADE

One day after earnings, the traders were closely watching the action in Intel , which traded modestly lower as the session drew to a close.

As you likely know, the Street has been critical of Intel for not being aggressive in the exploding tablet market.

However, Intel CFO Stacy Smith suggests the tablet market is small potatoes when compared to PCs, where Intel is dominant. In an exclusive Smith tells CNBC, "The PC market is shipping a million units per day, the wildest expectations are tablets shipping in the millions total this year... I don’t think the tablet market is having a big impact on the PC market."

It's probably safe to say it's not having an impact right now.

"2010 was the best year in Intel's history. We believe that 2011 will be even better," Paul Otellini, Intel president and CEO, said in a written statement.

Looking at the numbers, the firm said that it earned 59 cents a share in the fourth quarter, up from 40 cents a share last year.

Intel reported revenue for the most recent period of $11.46, an increase over last year's $10.569 billion.

Equity analysts who follow the chip maker saw Intel turning in a profit excluding items of 53 cents a share on sales of $11.372 billion, according to a consensus estimate from Thomson Reuters.

What's the trade?

I thought the Intel earnings report was good, says Brian Kelly. I’m a buyer if the stock pulls back to $19.


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Trader disclosure: On Jan. 14, 2011, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (BBY) calls. Pete Najarian owns (F) calls. Pete Najarian owns (GM) call spreads. Pete Najarian owns (AXP) call spreads. Pete Najarian owns (V) call spreads. Pete Najarian owns (HPQ) call spreads. Pete Najarian owns (YHOO). Pete Najarian owns (MSFT) call spreads. Pete Najarian owns (MS). Pete Najarian owns (C). Pete Najarian owns (BAC) call spreads. Pete Najarian owns (GE). Pete Najarian owns (MCD). Pete Najarian owns (REE). Pete Najarian owns (PCX) call spreads. Pete Najarian owns (CNI); Steve Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (JPM), (LIT), (LPX), (MHY), (NDAQ), (PFE), (PRST) and (S).

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BRIAN KELLY
Accounts Managed By Kanundrum Capital Own (RKH)
Accounts Managed By Kanundrum Capital Own (GLD)
Accounts Managed By Kanundrum Capital Own (DE) call spreads
Accounts Managed By Kanundrum Capital Own (FCX)
Accounts Managed By Kanundrum Capital Own (JJC)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (MS)
Accounts Managed By Kanundrum Capital Own (DNR)
Accounts Managed By Kanundrum Capital Own (LYC.AU)
Accounts Managed By Kanundrum Capital Own (RUSAL)
Accounts Managed By Kanundrum Capital Own (WYN)
Accounts Managed By Kanundrum Capital Own (ANDE)
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Own USD
Accounts Managed By Kanundrum Capital Are Long The Australian Dollar
Accounts Managed By Kanundrum Capital Are Long the Hong Kong Dollar
Accounts Managed By Kanundrum Capital Are Short The Euro
Accounts Managed By Kanundrum Capital Are Short The Yen

PATTY EDWARDS
Edwards owns (SPY) for clients
Edwards owns (PGM) for clients
Edwards owns (GLD) for clients
Edwards owns (SLV) for clients
Edwards owns (AMZN) for clients
Edwards owns (TTM) for clients
Edwards owns (V) for clients
Edwards owns (JNJ) for clients
Edwards owns (AAPL) for clients
Edwards owns (VZ) for clients
Edwards owns (MSFT) for clients
Edwards owns (GS) for clients
Edwards owns (C) for clients
Edwards owns (GE) for clients
Edwards owns (MCD) for clients
Edwards owns (SLB) for clients
Edwards owns (TGT) for clients

STEVE GRASSO
Stuart Frankel & Co and its partners own (AAPL)
Stuart Frankel & Co and its partners own (AMGN)
Stuart Frankel & Co and its partners own (ABX)
Stuart Frankel & Co and its partners own (CSCO)
Stuart Frankel & Co and its partners own (CUBA)
Stuart Frankel & Co and its partners own (GERN)
Stuart Frankel & Co and its partners own (HSPO)
Stuart Frankel & Co and its partners own (NEM)
Stuart Frankel & Co and its partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NY)
Stuart Frankel & Co and its partners own (PDE)
Stuart Frankel & Co and its partners own (PFE)
Stuart Frankel & Co and its partners own (PRST)
Stuart Frankel & Co and its partners own (RDC)
Stuart Frankel & Co and its partners owns (SDS)
Stuart Frankel & Co and its partners own (XRX)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners are short (QQQQ)
Stuart Frankel & Co and its partners are short (AAPL)

PETER BOOCKVAR
Boockvar has no disclosures

GERARD CASSIDY
RBC Capital Markets provides (BAC) with non-investment banking services
RBC Capital Markets provides (BAC) with non-securities services
RBC Capital Markets provided (BAC) with non-securities services in past 12 months
RBC Capital Markets provides (JPM) with non-securities services
RBC Capital Markets has provided non-investment banking services to (JPM) in last 12 months
RBC Capital Markets or one of its affiliates managed or co-managed a public offering for (BK) in past 12 months
RBC Capital Markets or one of its affiliates received investment banking compensation from (BK) in past 12 months
RBC Capital Markets provides (BK) with non-securities services
RBC Capital Markets has provided investment banking services to (BK) in the past 12 months
RBC Capital Markets has provided (STT) with non-investment banking services in the past 12 months
RBC Capital Markets or one of its affiliates managed or co-managed a public offering for (WFC) in past 12 months
RBC Capital Markets or one of its affiliates received investment banking compensation from (WFC) in past 12 month
RBC Capital Markets provides (WFC) with non-securities services
RBC Capital Markets Personnel & A Household Member Or Members Of Analyst
Team Hold(s) Or Exercise(s) Investment Discretion Over A Long Position In (WFC)







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