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No.1 - Trading The Inflation Money


Trading the Inflation Monkey on Bernanke's Back as Fed Chief Spooks Market During Congress Talk

Today, Fed Chief Bernanke left traders with whiplash, after he told Congress that inflation is still a risk, and suggested an interest rate cut is not in the cards. On the news, the market dropped like the Coney Island Cyclone.

Big Ben’s comments are sharply different than they were last week, in which he hinted interest rate relief was ahead. That, in turn led stocks to their biggest rally in 4 years. Please tell us Ben, is the economy growing too fast or too slow?

The Top Three #1

Joseph LaVorgna, Deutsche Bank Chief U.S. Economist joins the guys for this conversation.

He says Bernanke is too focused on inflation which is lagging economic indicator. The economy is soft, he says and Ben ought to worry more about growth.

Dylan says in other words, Bernanke is driving the car looking into the review mirror and sending the economy into a recession?

Joseph feels that about sums it up. He adds the economic data out this morning was terrible and shows the two biggest back-to-back declines in capital spending since October 2001.

Eric Bolling bristles and says the Dow was down 96 points today. Imagine how far down it would be if Bernanke wasn’t speaking? (Eric believes markets love Bernanke.) He adds that the Fed Chief told the markets that inflation is moderating, growth is okay and the economy is at full employment. Eric interprets that to mean the economy is okay.

Eric says the trade is to "strangle" the SPDR S&PHomebuilders ETF (XHB) if investors agree that homebuilding isn’t going to rally anytime soon. Basically Eric is recommending selling both calls and puts on this index.

Dylan Ratigan explains that a “strangle” is a classic bet traders make when they don’t think something is going to move. And it’s called a “strangle” because if it does move – it will strangle you!

Jeff Macke says walk away, don’t play the homebuilders.

Questions? Comments?

Trader disclosure:
On MAR 27, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders
Bolling Owns (XOM), (NMX),(DIS), Gold, Silver, Soybeans, is Short Natural Gas, is Short Corn. Strazzini owns (SNDK), (MER),(MO), (NBG), (TIN), (WMT), (YHOO)