This is what I believe is coming-NKE

We have been talking a lot about the manufacturing reoirts, many of them with positive headlines, but digging into the reports, there has been a consistent theme, that of rising input costs There's only so many ways to deal with rising input costs, to absorb them which hurts your EPS, to try to become more efficient, which generally leads to lay-offs or to pass them along to customers-usually as a last resort.

NKE reported earnings last night, but what really disturbed the market is that NKE has reached the action of last resort, to raise prices across the board. On a macro basis, this can lead to stagflation as prices rise and consumer demand drops, we have perfect breeding grounds for stagflation.

I expect as more and more companies have grappled since July with rising material costs, many are reaching the option of last resort.

Here's what it looks like when it arrives.

The fact is, there's no easy solution. The Federal deficit requires that the debt ceiling be raised unless we are willing to lose all credibility and default on our debt. Which means the Fed must keep easy money policies in place, which leads to speculative inflation-the kind China is moving against right now as they continue to hike banks reserve requirements in an effort to absorb excess money. The US is in the opposite situation in which we continue to flood the market with cheap money which fuels speculative bubbles.

This is but one example, but as earnings come in and companies are forced to the measure of last resort, you can see what the consequences will look like and the threat of stagflation will only multiply the bearish effects in the market. This is a large part of why I believe we are near a stage 4 decline in the market. So my strategic plan is to keep adding to short positions that look good and decrease any exposure to long side risk, while keeping cash on the sidelines, ready to deploy at a moment' notice.

I believe NKE is a preview of what is coming down the line for the market.