Stock Market -- Fundamental

My SP500 Market Tracker has dropped from the 1340-1350 area
down to 1325. This is entirely a reflection of the acceleration
of inflation, which now stands at 4.3% yr/yr. Short term
earnings expectations have steadied, and the consensus forecast
for '08 SP500 eps has been raised ever so slightly. That tiny bump
is the first positive one following months of cuts.

Economic data for January show a flattish economy and do not
confirm a recession is underway. The weekly leading economic
indicators have shown more stability as well. However, since the
indicators have fallen hard enough since last July to be
consistent with the development of a recession, the jury is still
out.

Last year's financial crisis blew a $600 billion hole in liquidity.
The yr/yr change in credit driven liquidity has dropped sharply to
5.2%. This compares to a yr/yr change of 6.7% for the $ cost of
production, which has been strongly influenced by a higher inflation
rate. Net, net, the real economy is draining liquidity via higher
inflation, leaving the capital markets primarily dependent on
portfolio and money fund cash for support.

At the current 1360 level, the SP500 is treading water relative to
recent earnings and inflation readings.