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Stocks Weaken, Bernanke Talks & Who's Shopping?

Stocks weakened shortly after 1 PM ET after Goldman Sachs broke decisively below $123, which was the price of its secondary.

Could the Fed's aggressive action lead to inflation? This was one of four questionsBen Bernanke addressed in a just-completed speech.

Bernanke reiterated that the Fed would like to see an annual inflation rate of 2 percent. But inflation has been less than that, and Bernanke said it would remain "quite low" for the foreseeable future.

He acknowledged that demand for goods would grow in the future and at that point the additional liquidity the Fed has provided could be an inflationary threat unless the Fed acted and raised rates "at an appropriate time." That would include unwinding some of the existing Fed programs.

So the answer to the question is, yes the Fed's actions could lead to inflation, but the Fed will act before that gets out of control. The skeptics believe the Fed will not be able to control the beast it has created.

Oops, what was I thinking? Talbots has demonstrated the danger of going long in a murky economic environment.

Talbots

was up 17 percent yesterday on hopes that retail sales might be stronger than expecting.

Wrong. It’s down 27 percent today; not only was March retail sales below expectations in general, but Talbots earnings were dismal: fourth quarter was a loss of $1.17 per share from continuing operations, well below consensus estimate of a loss of $0.66. Comp store sales were down 25 percent.

First quarter guided to a loss of $0.47-$0.52, consensus estimate is about break even.

Ouch. What happened? Young women did not buy. They were forced to dramatically cut prices, which killed margins.

It wasn't all bad news: the company did secure a $150 million revolving loan facility. At one month LIBOR, plus 600 basis points. Ouch again.

Here is the danger of going long in a murky environment. These are called "bull traps."

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