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Update: 4 Stock Mini-Basket & Other Inflation Plays

Tuesday, 15 Feb 2011 | 6:05 PM ET

The S&P closed lower on Tuesday, with chatter on the Street suggesting that inflation was quickly creeping back into the picture.

The Fast Money traders were among the many investors examining the latest data in an attempt to determine just how serious inflation may become.

Here’s what they’re looking at:
- A gauge of manufacturing in New York State climbed to its highest level in eight months in February.
- U.S. import prices jumped at nearly double the forecast rate.
- In China price pressures, excluding food, were their strongest in at least a decade.
- Spiking inflation in the UK hit 4 percent —double the Bank of England's target.

What should you make of these data points? How should you position now?

The Tech & Inflation Trades
CNBC's Melissa Lee and the Fast Money traders discuss the Dell earnings and why it might be better to look elsewhere in the tech sector. Also, a look at how to trade rising inflation in light of the news coming out of China. And oil hits an 11-week low. Will rising rates continue to snuff out demand?

Instant Insights with the Fast Money traders

Jon Najarian isn’t terribly concerned by the data or surprised by Tuesday’s profit taking. He considers it more of a healthy sign. However, it you’re concerned by the potential of inflation he suggests gaming energy. “I like Transocean and Diamond Offhshore as a bet on increased demand. Also as derivative plays I like Schlumberger and Halliburn – that’s my 4 stock mini-basket,” he says.

Steve Cortes agrees that the play is long energy. But for him it’s not just an inflation play. He also thinks unrest in Iran is bullish for oil. (As you may know, clashes broke out on the streets of Tehran between security forces and protesters when thousands of opposition supporters rallied in sympathy for popular uprisings in Egypt and Tunisia on Monday. Click here for more on the spreading unrest.)

“It’s an important and wealthy country," says Cortes. " I covered my short in oil. I fear Iran. I'm not involved in oil right now but if I were I'd be involved on the long side."

Brian Kelly is inclined to play inflation with a long position in gold . He reminds the desk that Wall Street whales such as George Soros remain bullish. And he believes that China may be putting money to work in gold. “I’m long gold with a price target of $1500,” he says.

Patty Edwards suggests gaming inflation with industrial metals. I’m long platinum and silver, she says. “Inflation is a sign that economic activity is heating up and they’re both used in economic activity.”

Karen Finerman tells the desk that traditionally supermarkets have been the place to go in the face of inflation. “If they charge say 3% over cost – as the cost of goods goes higher – that 3% is more dollars for the supermarket.” However, she cautions this trade might not work if supermarkets can’t pass along the increases.

Meanwhile, Tim Seymour is concerned that inflation could be the monster that finally defeats the bulls. “This may be the catalyst that knocks us down,” he says.

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STREET FIGHT: IS THE NYSE DEAL GOOD FOR YOU? IS IT GOOD FOR AMERICA?

Street Fight: The NYSE Deal
Sal Arnuk of Themis Trading offers his opinion on the NYSE/Deutsche Boerse merger and ends up expressing his belief the exchanges have become nothing more than server farms that cater to high-frequency traders, with CNBC's Melissa Lee and the Fast Money traders.

On Tuesday the Deutsche Boerse formally announced its intentions to buy the NYSE. As you might expect, executives from the NYSE and Deutsche Boerse went to great lengths on Tuesday to convince investors this deal is not a German takeover of an iconic u.s. company.

But, is it and is it bad for America? Sal Arnuk of Themis says yes to both questions.

Find out why. Watch the video now!



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Trader disclosure: On Feb 15, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL); Seymour owns (BAC); Seymour owns (F); Seymour owns (FXI); Seymour owns (GE); Seymour owns (GM); Seymour owns (INTC); Seymour owns (POT); Adami Owns (AGU) ; Adami Owns (C); Adami Owns (GS);; Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (MDY); Finerman's Firm Is Long S&P Puts; Finerman's Firm Is Long Russell 2000 Puts; Finerman's Firm And Finerman Own (AAPL); Finerman's Firm Owns (BAC) Leap, Finerman Owns (BAC); Finerman's Firm Owns (BBY); Finerman's Firm And Finerman Own (BP); Finerman Owns (C); Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (IBM); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's Firm Owns (M); Finerman's Firm Owns (MCD); Finerman's Firm And Finerman Own (MSFT); Finerman's Firm Owns (WMT); Jon Najarian owns (NWL) calls; Jon Najarian owns (DELL) calls; Jon Najarian owns (CHS) calls; Jon Najarian owns (AMD), is short (AMD) calls; Jon Najarian owns (BP), is short (BP) calls; Jon Najarian owns (CME), is short (CME) calls; Jon Najarian owns (CBOE), is short (CBOE) calls; Jon Najarian owns (GS), is short (GS) calls; Jon Najarian owns (JNPR), is short (JNPR) calls; Jon Najarian owns (NYX), is short (NYX) calls; Jon Najarian owns (RIMM), is short (RIMM) calls; Jon Najarian owns (WMT), is short (WMT) calls; Jon Najarian owns (X), is short (X) calls; Weiss owns (QCOM); Weiss owns (VZ); Weiss owns (SMCI); Weiss owns (CSCO); Weiss owns (MSFT); Weiss owns (AGU); Weiss owns (IPI); Weiss owns (JPM); Weiss owns (FAS); Weiss owns (UUP); Weiss owns (MEE); Weiss owns (BTU); Weiss owns (CNX); Weiss owns (DVN); Weiss owns (COP); Weiss owns (HBAN)

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For Sal Arnuk
Arnuk has no disclosures

For Aldo Mazzaferro
Mazzaferro has no disclosures

For Scott Nations
Nations is long (SPY)


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