While it galls me to hear the Fed say that core inflation, which excludes food and energy prices, has "improved modestly," I'm reminded that one can't fight the Fed. Yes, stock prices rallied after the Fed made their post-FOMC statement yesterday, but it didn't last long. So maybe investors weren't fooled by the Fed's fictional appraisal after all.

Not until today, anyway. So it's back to rally mode as CPI core consumer prices rose just 0.1% in May and are up only 1.9% over the last 12 months. Inflation, as defined by the Fed is now within its guidelines of 1 to 2% per year. So what's to worry? Nothing, except $3.00 gasoline and $9.00 hamburgers are busting John Q. Public's budget. The Commerce Department reported that consumer spending increased for the second consecutive month. So they say that business is getting better. But it isn't. A good chunk of that increased spending is for food and energy.

Indeed, the Wall Street Journal reported this week that restaurants are beginning to feel the pain. VectorVest shows that the Food(Restaurant) Industry Group peaked on June 4th and has fallen 5.3% since then. Coincidentally, June 4th is the same day that the Price of the VectorVest Composite peaked. It's down 1.9% since then.

As a matter of prudence, you should look at Industry Group performance on a regular basis. Simply click on Viewers on the Main Tool Bar; then click on Industry Viewer. The Industry Groups are presented to you ranked by Relative Timing, RT. As of last night, the Chemical(Fertilizers) group was at the top of the list. A two-year daily graph of this Group shows that this Group's RT rose above 1.00 eleven months ago and has been above 1.00 ever since. Oh my, what a wonderful ride they have had. Anyone who has been looking at these Industry Group displays had numerous opportunities to pick some truly great winners. But that's not what's concerning me today.

Right now I'm concerned about which stocks might be going down more than I am about which could go up. So let's sort these Industry Groups by RT ascending. Here we see the poorest performing Industry Groups at the top of the list. Not surprisingly, most of them are sensitive to interest rates. These include Home(Textiles), Building(Residentl/Comml), Retail(Home Furnishings), Financial(Mortgage Services), and so on. Some of these groups, such as Food(Dairy Products), are sensitive to energy costs. Weak stocks in these groups should be sold or at least watched very carefully.

Rising inflation, interest rates and energy costs are only part of the reason I'm concerned about lower stock prices at this time. The main reason is that we are entering the three poorest performing months of the year and our Market Timing System has been sounding alarms for the last two weeks. I am not a forecaster and stock prices might take off come Monday, but prudence tells me that it's time to start thinking about protecting your portfolio. You don't have to sell your stocks to do this. Several techniques for protecting profits were presented as our March 31, 2000 "Strategy of the Week." In addition, the use of an Option Collar to protect a position in a single stock was described on February 18, 2000. The use of an Option Collar to protect an entire portfolio was presented on May 28, 2004.

This week's "Strategy of the Week," called "Low Cost Insurance," shows how to protect an entire portfolio by using an Option Collar. Visit the VectorVest University and watch this video even if you are unfamiliar with options trading. You can only benefit by learning all you can about Portfolio Protection.

I know, the name is awful, but I have to tell you about HCIP Favorites.

HCIP Favorites is the name of a WatchList of stocks that we have been providing to you since April 20th. These stocks are supposed to represent a weekly update of our "favorite" picks from the stocks found by the "High CI Prospects" strategy. As you may recall, the "High CI Prospects" strategy was first described in my essay, "Cherry Picking for Big Winners," dated April 5, 2007. Its purpose is to "find really big winners when they are in the early stages of development."

As the name implies, this search did indeed find many excellent "High CI" prospects, but they were embedded among the other stocks returned by the search. Sorting by VST helped put big winners at the top of the list, but it favored stocks that appeared to already have made big moves. So it was suggested that we could find the hidden winners by cherry picking.

While cherry picking is a lot of fun and the techniques we illustrated in our VectorVest University presentations of 04/05/07 and 04/13/07 will help make you a better stock picker, many of our subscribers still wanted to find the best prospects via a sort. So we decided to do the cherry picking and present our selections to you in the "HCIP Favorites" WatchList. The first HCIP Favorites WatchList was delivered on 04/20/07. So how have they performed since then?

The results have been very good so far, but two months of testing is too short of a time frame to declare victory. Nevertheless, it will be well worth your time to check out this week's "Strategy of the Week." It's called HCIP Favorites.

When I was a kid, I accepted things pretty much as they were. Sure, I would fantasize about being the next Otto Graham or Joe DiMaggio, but I never dreamt of distorting reality. For example, I caddied at a prestigious Country Club and would get to play there on Mondays. Like all golfers, I used to visualize my shots before I struck the ball. If I had done what I had visualized, I would have made Ben Hogan look like a duffer. But I hardly ever made shots as I had visualized and I had to accept the consequences of my failures. I never thought of changing fact to fantasy back then, but I learned how it's done later in life.

I learned this wonderful skill from a bunch of whiz kids from the best business schools in the country. If they didn't like a business or situation, they just sold the business or took an eraser and changed the numbers. Selling a business or changing numbers is easy. It takes no skill or expertise. But it's not dealing with reality. As a chemical engineer, I had to deal with physical reality. If a vessel were leaking a poisonous chemical, we had to physically fix the leak. We couldn't stop the leak by assuming it wasn't leaking. A lot of people in today's world don't understand that because they never dealt with physical reality. So they create a fantasy world of false assumptions and distorted numbers that doesn't exist. They are lying to us, and we believe them.

Today we got the CPI inflation report for May 2007. It showed that consumer prices rose at the fastest rate in 20 months, powered by surging food and energy prices. That's really bad news -- but not if you don't count food and energy prices. "They're too volatile." The core rate of inflation, i.e., without food and energy, rose only 0.1 percent in May, much less than 0.7% for all items. So today's inflation report was really good news. Really?

What we have here folks, is The Federal Reserve Board's version of "The Big Lie" as promulgated by Adolph Hitler and Joseph Goebbels. Make the lie preposterous enough, make it big enough and repeat it often enough and the "thick-headed numbskulls" will believe it. Indeed, stock traders swallowed the spin and stock prices took off. Even if you're offended by Wall Street's antics, forget about it. It's more profitable to fly on the wings of Inflation Fantasies.

Starting at 6:00 PM each evening, CNBC runs a series of programs called "Mad Money", "On the Money" and "Fast Money". Each show is designed to stimulate your greedy juices for making a killing in the stock market. Each show recommends or highlights stock after stock that could go up in price. The game is clear. If they throw enough names out there, some of them are bound to go up. I don't know how anyone could listen to these shows without using VectorVest to check out the stock tips.

Besides, I've got a strategy that makes money, beats the market and doesn't require two hours of "homework on each stock every week." I'd quit investing if I had to do that. In fact this strategy is so easy to use, you could manage a portfolio of these stocks in less than 10 minutes a week. It's not a "buy and hold" strategy, but turnover is low and the percentage of winners is high. If you want, you don't even have to time-the-market. But you would have to follow a simple plan for buying and selling positions.

The secret to getting 20 plus percent per year gains lies in the sort. Of course, VST does the job. So if you want to read the paper, drink a martini, eat dinner, smoke a cigar and walk the dog between six and nine o'clock each evening, stop watching CNBC and start using Easy Money.