I love the resolve of the market today; it's these little nuances that help us make decisions on buying and selling. Of course, there is still much time left in the session, and if there is weakness going into the last hour we could touch the lows of the session. I'm just intrigued with the nibbling going on right now. Granted, firmness in Blue Chips underscores growing anxiety, but those making the transition also have the option of going to cash. The market is grappling with many issues that have mitigated a pretty good earnings season. The market was due for a pullback, but when it gets into vulnerable states we have to worry about really bad news or unfortunate developments. That is why the timing of the President's latest assault on Wall Street was so disappointing.

We have been through this and worse over the years. Now is the time to be cool, take a couple of lumps, have some cash and have patience.

Beyond the Headlines
By: Brian Sozzi, Research Analyst

* Inflation in the supply chain is not being seen until the latter stages of 2010 according to most of the management teams we are plugged into. Companies are buying goods for spring and summer, with costs appearing to be down about 5 to 7%. Cost increases are leveling out thereafter. I think an advantageous cost backdrop benefits large box retailers (gets goods on the cheap, passes some of those savings onto consumers and some onto shareholders in the form of higher earnings), hurts extreme discounters (business model it as its best when purchasing costs are low), hurts some domestic white goods companies that don't have sufficient operations overseas, and benefits steel companies. Regarding steel, Whirlpool (WHR) took an interesting route yesterday and began to dip its toe into steel hedging; it usually just hedges for other component costs. This would signal to me they are prepping for a rising cost environment in 2011.

* I am not a giant fan of investing in consumer products companies at the moment. Aside from inflation and the sector's valuation, the companies that buy their products, retailers, continue to aggressively edit their assortments to improve operating efficiencies. For example, Wal-Mart (WMT) and Target (TGT) are investing capital in fresh food departments, thereby eliminating floor space devoted to slow moving items such as certain house cleaning and beauty care products. I think the recent move by Procter & Gamble (PG) to begin selling directly to consumers online is a signal that they can no longer dump 20 different kinds of whitening toothpaste at Target expecting them to stock them all. Not only does Target not want to shelve the stuff because it's cost inefficient, but they will no longer have the space in the stores.
David Silver

* Breaking the trends of recent months, unemployment by state got worse during the month of December with four states setting records: South Carolina (12.6%), Delaware (9%), Florida (11.8%), North Carolina (11.2%), District of Columbia (12.1%). Michigan still leads the way with the highest jobless rate (14.6%), however, it did improve slightly from the 14.7% recorded in November. In all, 43 states and the District of Columbia saw their rates increase last month, while four states reported a decrease and three states had no change in their unemployment, according to the Labor Department. The December data is a reversal from the previous month, when 36 states reported lower unemployment. More people are losing jobs, but instead of concentrating on that, the Administration is still going after banks...

* Johnson Controls (JCI) reported results this morning for its first quarter of fiscal year 2010, and even raised its guidance. This company will be a direct benefactor of the stimulus funds that are finally released this year. I had the pleasure of attending the company's analyst conference in New York a few months ago and I was shocked to learn that some projects were actually halted (or even cancelled) because it was too difficult to meander through the government's red tape to be classified as shovel ready.

David Urani

* In an interview today, Barney Frank suggested that Fannie Mae (FNM) and Freddie Mac (FRE) will be eliminated from their current form as a quasi-government entity. Hallelujah! Finally someone on Capitol Hill decides to take some action against these two entities that are every bit as evil as the banks (and have taken much more tax payers funds). While President Obama publicly rips apart the big banks for their bonuses and their trading, Fannie Mae and Freddie Mac, who have already eaten up more than $111 billion of taxpayer dollars and were recently given an unlimited lifeline, have received no such scrutiny from the President. While we do agree with Mr. Frank that these companies need to change, he went on to say that he recommends creating a whole new housing finance system, which essentially means a full-on government mortgage entity. If we really want Fannie and Freddie to be fixed, we suggest putting them out of their misery and breaking them apart.