Despite massive evidence that both recession and inflation - "stagflation" - are now present, Ben Bernanke tried to assure Congress last week that stagflation is not a problem. On Thursday, Bernanke said, "I don't anticipate stagflation. I do not think we are anywhere near the situation that prevailed in the 1970s." Well, we may not have the runaway double-digit inflation of the 1970s, but we have rising inflation combined with slow economic growth. In fact, things are likely to get worse before they get better, so I am amazed that Bernanke is in denial about stagflation. Let me give you the evidence that stagflation, namely rising inflation and slowing economic growth, is now with us.

(1) One half of stagflation is rising inflation. On Tuesday, the Labor Department reported that the Producer Price Index (PPI) rose 1% in January (a 12% annual rate), with food prices up 1.7%, the biggest one-month increase since October, 2004. Energy prices were also on the rampage and rose 1.5% in January, with gasoline prices at the pump rising at even a faster pace of 2.9% (a 41% annual rate). If you live in the Northeast, you were likely not a happy camper, since home heating oil prices rose 8.5% in January. Excluding food and energy, the core PPI rose 0.4%, led by higher drug prices, which rose 1.5%. Overall, the PPI is up 7.4% in the past 12 months, the fastest rate since 1981!

(2) The other half of stagflation is slow economic growth. On Thursday, the Commerce Department reported the revised fourth quarter GDP, showing that economic growth decelerated to the slowest pace in five years, to only 0.6%. This GDP revision was disappointing since many economists were expecting an upward revision, due to robust U.S. exports, which rose 4.8% after accelerating 19.1% in the third quarter. But the export number was likely distorted by seasonal adjustments. In summary, if you exclude exports and government spending, many components of the economy are now in retreat. Another piece of evidence that the economy has slipped into a recession is that on Wednesday, the Commerce Department reported that demand for durable goods declined 5.3% in January, due largely to slow business spending. Orders for commercial planes decreased 30.5%, while military aircraft orders fell 32.6%. Hardly any orders rose - a clear indication of a rapid deceleration of the economy.

A possible ray of hope in the fourth-quarter GDP report is that inventories subtracted a whopping 1.5% from GDP growth, so if cautious businesses get around to rebuilding their inventories, then maybe GDP growth will eventually improve. But the bad news is that consumer and business spending is fizzling in 2008, which is why I expect negative GDP growth to be announced soon.

This is from a Bulls & Bears debate from last May in Las Vegas. Joe Battipaglia and I makes the bull's case:

Part 2
Part 3
Part 4
Part 5

The AP reports:

The dollar's plunge continued unabated Thursday, striking record lows after the European Central Bank kept its benchmark rate on hold and the U.S. released another batch of dour economic reports.

The euro fetched a record $1.5370 in European morning trading before falling back to $1.5360. The European currency closed at $1.5262 Wednesday.

Meanwhile, the British pound broke through $2 again after the Bank of England also decided to keep its key refinancing rate unchanged at 5.25 percent.

The British pound traded as high as $2.0057 before falling back to $2.0027.

"Inflationary pressures similarly remain something of a high-profile concern of the Bank of England, but speculation continues to point toward a quarter point cut during the second quarter," said James Hughes of CMC Markets.

The market is down sharply today. The indexes will now have to retest their intra-day lows from January 23. The S&P 500 is now below 1300.

If we have a successful retest, then the market will likely bounce back.

McDonalds' (MCD) strategy of premium coffee and value meals is paying off. The company announced today that its same-store sales for the month of February rose 11.7% over last year. Total worldwide sales for the company rose nearly 20%. In the U.S., same-store sales increased by 8.3%.

In Blue Chip Growth, I currently rate McDonalds as a strong buy for all types of investors up to $59 a share.

There's no doubt that the U.S. is in a recession. The Fed will continue to cut interest rates and the U.S. dollar will continue to soften, which could send oil prices substantially higher. Things are so bad that in my home state of Nevada, Las Vegas gambling revenues in January declined by 1.3%. That's the first time that gambling revenues have declined since 2001!

Complicating matters is that Nevada's sport books incurred massive losses from the biggest betting event of the year, the Super Bowl. Apparently, the vast majority of the Super Bowl bets were on the New York Giants, so many sport books had their yearly profits wiped out by just one game! This is not good since the casino industry has traditionally been immune to economic cycles.

The stock market is soaring this morning. We've definitely hit a turning point. Yesterday, the S&P 500 successfully retested its January 23 intra-day low. The index fell to a low yesterday of 1272.66 which was just slightly above the January 23 low of 1270.05.

The important thing is that we held and we didn't make a new low. That set the bulls charging this morning.

Combined with the Fed's additional stimulus, this means that this is the time for conservative investors to reenter the stock market. I've been cautioning conservative investors to wait on the sidelines until the successfully retested its low, but now that has passed. Another factor that will help the bulls is that the Fed will give us a big rate cut next Tuesday.

If you're a very cautious investor, then you should start gradually reentering the market now and plan to be fully invested by early May.

One of my favorite China-based stocks, JA Solar Holdings (JASO), just reported very strong earnings. The company makes solar cells for photovoltaic modules and conversion systems.

For 2007, JASO earned 40 cents a share, which was a huge increase over the 15 cents a share it made in 2006. Sales rose from $95.5 million to $369.3 million.

But the best part of the report is that JASO said it expects revenues this year to be between $990 million and $1.10 billion. The Street was expecting $779.2 million.

In my Global Growth service, I currently rate JA Solar a "strong buy" up to $13.62 a share.

Here's an interesting article from the AP on the incredible demand for steel in countries like Brazil and China.

Vale's Martins said he expected demand for steel will grow by about 7 percent this year, but most of that demand would come from emerging market nations because demand from the U.S. and Europe is growing by only around 1 to 2 percent.

It makes sense for Chinese companies to produce steel in Brazil because so much of the iron ore they use comes from Latin America's largest country, said Luiz Compagnoni, one of the conference organizers.

"A lot of the interest is due to a rise in the price of iron ore and increased steel exports," he said. "There's a tendency today to have steel mills close to the iron and Brazil has lots of iron."

Brazilian miners produce 25 percent of the world's iron ore _ the key ingredient of steel _ but only 4 percent of the world's pig iron _ the next step to producing steel.

In my Global Growth newsletter, I currently recommend three steel stocks, two are based in Brazil and one is based in Russia.

Last year, you could have picked up shares of Bear Stearns (BSC) for about $150. Only a week ago, you could have grabbed them for about $70. Now, JP Morgan (JPM) has announced that it's buying out Bear Stearns for just $2 a share. That's less than a gallon of gas!

I hope you've taken the opportunity to use my PortfolioGrader Pro stock-rating website. You would have seen that I spotted trouble at Bear Stearns long before the crowd did. We had Bear rated as "F - Strong Sell." I strongly encourage you to visit PortfolioGrader and see how your stocks stack up. Any stock that rates a D or F should be sold without delay. As we've seen from Bear Stearns, this market moves very fast.

Of the other major investment houses, I have Merrill Lynch (MER) rated "F - Strong Sell." Lehman Brothers (LEH) and Morgan Stanley (MS) are both rated "D- Sell." Goldman Sachs (GS) is rated as "C - Hold."

The Fed Funds rate is now 2.25%. Here's the statement:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.

They clearly care about the dollar and didn't want to see it go down further. I still expect a 50-point cut in April and then the cutting party will be over.

One of my favorite video game stocks, GameStop (GME), just had a great earnings report.

GameStop Corp., the biggest retailer of video games, said Tuesday fiscal fourth-quarter earnings climbed 46 percent as demand for popular games such as Guitar Hero III and Call of Duty 4 led to a surge in sales.

Net income in the quarter ended Feb. 2 rose to $189.8 million, or $1.14 per share, from $129.8 million, or 81 cents per share, in the year-ago period.

The result was better than the $1.12 expected by analysts in a Thomson Financial poll. Sales rose 24 percent to $2.9 million from $2.3 million last year, in line with Wall Street estimates.

For the year, profit jumped to $288.3 million, or $1.75 per share, from $158.3 million, or $1 per share, and sales rose to $7.1 billion from $5.3 billion.

I first recommended the shares in Emerging Growth in August at just below $40. We're currently sitting on a 23% gain in just seven months.

I rate the stock a strong buy for all types of investors up to $47 a share.

On Wednesday, Citigroup issued a fascinating report, which talked about the "Great Unwind," as markets and economies de-leverage across the globe. Citigroup strategists warned investors that they should avoid companies and countries (like the U.S.) that have grown to rely on too much borrowed money. Specifically, Citigroup predicted that hedge funds, private equity funds and real estate investments would lose market share and that plain old stock investing would likely pick up the slack and become increasingly attractive as investors abandon other asset classes. Echoing S&P's concerns (cited above), Citigroup's strategists warned that the financial-services sector should be avoided because it is still over-leveraged. Citigroup's global equity team made it clear that they were leaning toward emerging market countries, like Brazil, and away from the U.S.

The author of the report, Robert Buckland and his colleagues on Citigroup's global strategy team, wrote in a cover note to clients that "steady growth, low inflation and rock-bottom interest rates encouraged economic and financial participants across the world economy to gear up over the past few years...But now, any behavior that relies upon continued access to easy money is being dramatically reassessed." Citigroup's global strategy team concluded that "Leveraged banks must lend less, leveraged consumers must consume less, leveraged companies must acquire or invest less, and leveraged speculators must speculate less." Wow! That's a tough but true assessment.

Citigroup's European bank research team pointed out that during the most recent credit crisis - the Long-Term Capital Management hedge fund failure in 1998 -- European banks were leveraged 26 to 1. In the early part of this decade, leverage grew to 32: 1. Now the sector is leveraged 40:1, on average. These strategists stressed that "banks have a long way to go" and concluded by stating that "we would continue to avoid the sector while they are de-leveraging."

Matt King, a Citigroup credit strategist, pointed out that the rate spread between investment-grade corporate bonds and Treasury bonds has jumped in recent months, even though most non-financial companies are not very leveraged. The widening interest rate spread is being caused by leveraged investors (such as hedge funds) having to sell their good quality assets to meet margin calls and requests for more cash or collateral. King stated that "it is the leverage of the investors who hold these bonds that is now being brutally exposed."

The Citigroup report summed up the situation by saying "we are now confronted by a broad bloodbath in the credit markets. The most leveraged paper is falling in value because it is leveraged, and now the least leveraged paper is also falling in value because it is owned by leveraged investors." Citigroup concluded that "The U.S. shows up as the world's greatest consumer of external capital" and noted that the U.S. "has the most to lose as this capital becomes less freely available."

Monsanto (MON), one of my Top 5 Blue Chip Growth stocks this month, is up strongly this morning. The company just raised its profit outlook for 2008. Wall Street was expecting second-quarter earnings of $1.34; Monsanto said it will be closer to $1.75 (that's after adjusting for a one-time gain).

For the year, the company now expects EPS to be between $3.15 and $3.25. Monsanto's original forecast was for EPS in the range of $2.70 to $2.80.

The stock is currently up over 10% today. In Blue Chip Growth, I rate MON a strong buy below $116 a share.

I'm currently working on the April issue of Emerging Growth. Given the market's recent volatility, this is a crucial issue for investors.

I haven't finalized my research but it looks like I'm going to add three new stocks to our Emerging Growth Buy List. The first company makes containers for bulk shippers. This sector has been very strong lately. The second stock specializes in removing contaminants--its earnings skyrocketed 685.7% last quarter. The third is a generic drug company that just boosted its guidance for 2008.

In the issue, I'll give you my thoughts on the Fed's last rate cut, and my outlook for the Fed's meeting next month. I'll also have a brand new Top 10 list.

The issue will be sent out to subscribers after the market closes on Friday.

One of new features on my NavellierGrowth.com website is our Stock of the Week. We've also added a "what's your take?" section to hear what you have to say.

This week, I'm featuring Apple (AAPL). The stock is up 354% since I first recommended it in Blue Chip Growth. Here's a sample of this week's feature:

In case you don't know what the iPod fuss is about, just ask a teenager. (By the way, when your teenager starts driving, they'd prefer to have a car that works with their iPod.) Apple also recently exploded onto the cellular scene by introducing its iPhone, a product that was anticipated long before it reached store shelves. And of course, for those of us who haven't hopped onto the latest craze of iPods and iPhones, we best respect Apple for its quality computers. Because they are UNIX-based they are much less vulnerable to computer viruses. Also, Apple's G4 and G5 Macintosh computers, with their Motorola processors, are very adept at processing digital pictures and movies, which are almost as popular as digital music.

Apple had a strong first-quarter earnings report. Profits jumped over 54% to $1.62. That beat Wall Street's estimate by 8.6%. The problem is that Apple dropped sharply after the announcement because of cautious earnings guidance.

Here's the thing: Apple always has cautious guidance. It's just a game they play so they can beat expectations when earnings come out.

Here's part of a fascinating article on crop prices from the New York Times:

Economists note there should not be two prices for one thing at the same place and time. Could a drugstore sell two identical tubes of toothpaste, and charge 50 cents more for one of them? Of course not.

But, in effect, exactly that has been happening, repeatedly and mysteriously, in trading that sets prices for corn, soybeans and wheat -- three of America's biggest crops and, lately, popular targets for investors pouring into the volatile commodities market. Economists who have been studying this phenomenon say they are at a loss to explain it.

Whatever the reason, the price for a bushel of grain set in the derivatives markets has been substantially higher than the simultaneous price in the cash market.

Read the whole thing.

I'm going to be on CNBC's Closing Bell this afternoon with Maria Bartiromo. My segment should be on around 3:45 pm ET. I'll be discussing how growth and value performed during the first quarter.

Update: Here's the video.