INFLATION ON OUR MINDS-WHERE TO PUT YOUR MONEY IN THIS TOUGH ENVIRONMENT

12/15/07 3:20 PM CT Saturday

BY DAVE HARRIS

Here's what spooked investors this week and caused the recent volatility in stocks: inflationary concerns and how the Fed is going to handle it. We had stronger than expected inflation at both the consumer and wholesale levels last week. Core consumer inflation was up .3 percent and the core PPI rose .4 percent. In my view, these upward pressures will make it hard for the Federal Reserve to justify cutting rates when they meet again January 29-30^th 2008. It may also be tougher than expected on the consumer with these higher energy costs. On top of that, we’re still dealing with the credit crisis, housing and mortgage mess. It's a tough market, but I have some places for you to put your money.

On a positive note, retail sales showed real strength in November. We learned last week that sales rose a solid 1.2 percent and that was better than anticipated. I like the retail mall REIT Simon Property Group (SPG) here. When those holiday sales numbers come out, and I think they’ll be better than expected, you’ll want to own this stock. My suggestion is to buy it here at 92.18. Plus it has a nice 3.5 percent yield.

The dollar has been weaker of late, but that's good for the big companies with international presence. Caterpillar (CAT), the maker of farm and construction equipment, has great exposure in China. I think that stock is picking up steam again and would buy it here. The earnings multiple is only about 14. The stock closed Friday down .83 at 73.39. It’s going to hit 80 in a matter of months.

McDonalds (MCD) had a 4.4 percent same-store sales rise in November. The premium blend coffee business is red hot! Word is they're going to start selling espresso drinks and more locations are getting WI-FI. I think they’re going to start hurting Starbucks (SBUX), which is already having problems with lousy same store sales numbers. Sell that stock and buy McDonalds (MCD).

The economic data in the week ahead includes building permits and housing starts from the commerce department Tuesday. A final reading on the third quarter GDP should shed further light on economic conditions on Thursday, including jobless claims. Then Friday it's personal income and spending data. The market these days is especially sensitive to any news suggesting weak spending, and that could move stocks in a negative direction

Also on tap for next week are earnings from a few significant companies. Goldman Sacs (GS) the brokerage is Tuesday. Shoe maker Nike (NKE) reports Wednesday. Bear Sterns (BSC) another brokerage and ConAgra (CAG) the food packer are on Thursday. Then Friday is the beaten down drugstore Walgreen (WAG).