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Halftime: Recession on the Horizon?

The one thing that could lead to a recession, economist David Rosenberg said Monday, is inflation.

"We have this unusual situation where food and energy prices are going up double-digits," said Rosenberg, chief economist and strategist at Gluskin Sheff & Associates. "In the past when this has happened, you've had a significant squeeze not just on corporate profits down the road, but [also] on household incomes."

In real terms, Rosenberg said average weekly earnings are negative for four months in a row. Consumers have been helped by a payroll tax cut, but Rosenberg said this "incremental benefit" will subside after this quarter.

Rampant food and energy inflation, however, will not subside any time soon. Rosenberg said those higher prices will be enough for consumers to start cutting back "fairly dramatically" on discretionary spending.

In an effort to boost the U.S. economy, Federal Reserve chairman Ben Bernanke in November announced another round of quantitative easing, also known as QE2. The Fed said it plans to buy $600 billion in long-term Treasurys with the idea being it would push bond yields down, creating a surge in investment.

"I think that everybody looks at QE2 and determines that it's a success because it's managed to create for a few months this euphoria in the stock market," Rosenberg said. "But at the same time, the U.S. dollar went down and it also created euphoria in commodity markets and unfortunately, people have to buy food to feed their kids and they got to fill their gas tank."

Meanwhile, Rosenberg said that while the labor market is doing better than it was a year ago, people aren't making enough to offset higher food and energy prices. Rosenberg isn't sure how the Fed will handle this unintended consequence of QE2. As inflation continues, he's not sure how the Fed will embark on QE3.

What's the Trade?

In this market, Rosenberg recommends buying large-cap over small-cap stocks, especially energy names and food processing companies. Rosenberg also likes precious metal miners, like gold and silver names. Look for high-quality names with strong balance sheets, he said.

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POPS & DROPS

The "Fast Money" traders shared their thoughts on a few market movers that had caught their eye. Watch the video to see that segment.

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Trader disclosure: On Mar. 21, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Grasso Owns (AMD), (ASTM), (BA), (BAC), (C), (CSCO), (D), (JPM), (LIT), (LPX) (MHY), (MU), (NDAQ), (PFE) and (PRST). Stephen Weiss owns (FAS), (JON), (HBAN), (VZ), (QCOM), (CF), (MEE) (CNX), (COP), (DVN), (EMC) and (MSFT). Pete Najarian is Long (AAPL) and (AAPL) Call Spreads. Pete Najarian is Long (BAC) Calls. Pete Najarian is Long (PMCS) Calls. Pete Najarian is Long (BIG) Call Spreads. Pete Najarian is Long (AKAM). Pete Najarian is Long ( C ). Pete Najarian is Long (KEY). Pete Najarian is Long (HPQ). Pete Najarian is Long (HK). Pete Najarian is Long (PAL). Pete Najarian is Long (PFE). Pete Najarian is Long (TCK)
Pete Najarian is Long (TEVA). Pete Najarian is Long (MS).

Comcast Is The Parent Company Of CNBC
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GE Owns 49% Of CNBC

Stephen Grasso
Stuart Frankel & Co and It’s Partners Own (CSCO)
Stuart Frankel & Co and It’s Partners Own (CUBA)
Stuart Frankel & Co and It’s Partners Own (GE)
Stuart Frankel & Co and It’s Partners Own GERN)
Stuart Frankel & Co and It’s Partners Own (HPQ)
Stuart Frankel & Co and It’s Partners Own (HSPO)
Stuart Frankel & Co and It’s Partners Own (msft)
Stuart Frankel & Co and It’s Partners Own (NYX)
Stuart Frankel & Co and It’s Partners Own (PFE)
Stuart Frankel & Co and It’s Partners Own (PRST)
Stuart Frankel & Co and It’s Partners Own (SDS)
Stuart Frankel & Co and It’s Partners Own (UAL)
Stuart Frankel & Co and It’s Partners Own (XRX)
Stuart Frankel & Co and It’s Partners Are Short (QQQQ)
Stuart Frankel & Co and it’s partners Are Short (AAPL)

Brian Kelly
Accounts Managed by Kelly Are Long (GLD)
Accounts Managed by Kelly Are Long (SLV)
Accounts Managed by Kelly Are Long (XLF) Puts
Accounts Managed by Kelly Are Long Gold
Accounts Managed by Kelly Are Long Silver
Accounts Managed by Kelly Are Long (TLT)
Accounts Managed by Kelly Are Long Treasury Bonds
Accounts Managed by Kelly Are Long Corn
Accounts Managed by Kelly Are Long Wheat
Accounts Managed by Kelly Are Long Soybeans
Accounts Managed by Kelly Are Long (VLO)
Accounts Managed by Kelly Are Long (TSO)
Accounts Managed by Kelly Are Long (DBA)
Accounts Managed by Kelly Are Short S&P 500
Accounts Managed by Kelly Are Short Copper
Accounts Managed by Kelly Are Short (FCX)
Accounts Managed by Kelly Are Short (LOW)
Accounts Managed by Kelly Are Short (XLF)
Accounts Managed by Kelly Are Short (IXG)
Accounts Managed by Kelly Are Short (XRT)

Craig Moffett
**Waiting on disclosures from Craig Moffett

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