CPI Data and the Santa Claus Rally

So the CPI numbers came out today.
That's the Consumer Price Index (just in case)

It's put together by the Dept. of Labor and is a weighted average of prices of a specified set of goods and services purchased by consumers.

In simple terms, it tracks the prices of a "specified basket of consumer goods and services, providing a measure of inflation". It's considered a cost-of-living index.

When that shopping cart of goodies rises dramatically we have inflation.

You'll hear from time to time people referring to "Core Inflation".
Core Inflation is when you take the CPI numbers and back out the most volatile components - food and energy.

Why you ask?

Because these two groups can have dramatic mood swings, which then will skew the monthly numbers, which then might have even more dramatic results on the market.

Why do we care?
> CPI is very closely watched by the Feds.
> The Feds raise and lower short term interest rates.
> That changes influences the markets in general (not 30 yr mortgages)
> Which then determines how much investment money is out there for lenders to use and at what rates.

So other there are other reasons why we as members of society care about CPI than just how much it's going to cost us to live here, cloth our children in the latest fashions, and so on.

I'm not a betting man.
It's not a moral, ethical or religious stance, it's just that I don't find gambling fun.
I promise not to go into tirade on why poker, billiards, and the like actually takes up space on my sports channels,
(if you know any good reason I'd like to hear it)

But did you know you can bet on pretty much anything?
Even on whether the Fed's are going raise or lower rates in the future?
Pretty cool, eh?

And guess what?
The "Tame" CPI numbers that came out just changed the odds of that bet.

The odds of a future rate cut DOUBLED this morning!

"The odds of an interest rate cut by the end of the first quarter of 2007 increased after tamer-than-anticipated retail inflation data for November. April fed funds futures rose 0.03 to 94.81, which implied a 24% chance that the Federal Reserve would lower its target for overnight rates to 5% from 5.25% by the end of its policy setting meeting in late-March. Late Thursday, the odds of a rate cut were 12%. Earlier, the U.S. Labor Department said its November consumer price index was unchanged, as was core CPI, which excludes food and energy prices."

These "tame" numbers also seemed to have spurred on the Dow, the Nasdaq, the Russell, the S & P and so on. The Santa Claus Rally is now in full swing.
Or is it?

There are many economic analysts who do not believe in the S.C.R.
They believe the market is just doing what it is supposed to do.

I'll bet you can bet on that somewhere as well.
I just hope they don't start putting that on my sports channel.