Last week the Feds began to come to their senses!

On Tuesday, the Feds only gave the Market a 25 basis point reduction. That sent the Market into a tailspin, down 300 points. The Market never recovered the entire week from that.

Was this small reduction warranted? Absolutely…On Friday, we saw the Consumer Price Index flare up to 8%, with core CPI at 3%. Overall inflation is now running at 4%.

At the beginning of the year, the Feds said that 2-2.5% inflation was within their tolerance zone. Now we are at 4%. The Feds simply cannot justify further interest rate reductions. Knowing this, the Dollar has begun to stablize, even gaining a little strength. Up to now, the Dollar has been free falling against the Euro/Pound/Yen.

This week we also saw pending home sales go up. Then it was announced that the report can be off as much as 30%. While they were reporting increased home sales, they also reported that the Foreclosure Rate in November shot up 32%, with 72,000 new Foreclosures.

What will we be watching for this coming week? Monday morning at 9:00am is a very important report. New Foreign Purchases. For the last 3 months running, this has been a negative report, showing that foreign countries are taking their money out of Treasuries instead of into them. We want to see if November shows the same trend. Lately we have seen that countries have not been willing to purchase Treasuries, because the Dollar was free falling. Instead, they are using their capital to purchase U.S. Corporations, including the Stock Exchanges. Will this trend continue?

One last note…the Market rewarded itself 38 billion in Christmas bonuses, while they simultaneously lost their customers 72 billion. It would have been better if their customers said, please don’t trade for me, just take 20k for your bonus! Now we see states beginning to levy lawsuits on these major brokerages for creating and promoting mutual funds based on questionable mortgage practices. Ny and Illinois are the first…needless to say others will follow.