Good Morning,

Precious metals price action was somewhat subdued overnight, with gold falling and rising around the $845 area while silver broke to under the $11 level. Only marginal dips were seen in the US dollar and crude oil markets, thus little giving little impetus to players to take the metals substantially lower or higher. Perhaps the New York session will have more to offer as US news become available during the day. European (and Asian) stocks fell on profit concerns, following yesterday's 245-point rout in the Dow (the worst such drop since Dec. 1st of last year).

Deflationary patterns and reactions thereto continued to be the principal feature of overnight developments in markets around the world. The Bank of England reduced its key interest rate to a...315-year low. Enough said.

Wal-Mart (!) missed earnings expectations, Costco (!) sales fell 4%, Sears cash registers were off by over 7%, Macy's will close ten stores, Williams-Sonoma's tallied 24% lower intake in the critical holiday sales season. This was most certainly not a December to remember. There is talk of job cuts in the reindeer sleigh team.

Think that's all? Think again. Lenovo, Dell, and EMC all announced job cuts, while the tally for axing US worker positions reached its highest level since 1945 in the year that just passed. President-elect Obama warned that the US unemployment rate could go into 'double-digit' territory and that irreversible economic decline could be in the cards for the US, lest immediate (and sizeable) government action takes place to revive it. None of the above has been sufficient to temper the incessant stream of hyper-inflationary predictions from various quarters. In some playbooks, that phenomenon is as sure to manifest itself as day follows night, and as soon as this year, but if not this year, then surely the next one. Or the next one after that. Just pick a year.

The opening bell brought little change to gold values in NY this morning, as the metal opened only $1 lower at $841 per ounce. With the US dollar off by 0.06 on the index (at 82.28) and oil down a nickel (to $42.58 per barrel) there was little to do but await direction from equities trading and financial news in the pipeline. Jobless claims figures will be coming shortly.

Gold miner GoldCorp announced record gold output for Q4 2008 and it also forecast a 50% increase in its production over the next five years. Its total cash costs for '08 came in at roughly $300 per ounce. Bravo. Silver lost 15 cents to start at $10.87 per ounce, while platinum continued its apparent fundamentals-based rally by rising $8 to $975 per ounce. Palladium was unchanged at $195 this morning.

Marketwatch's David Callaway believes the real fireworks show is about to start, and he links recovery prospects in large measure to oil values:

Everybody should have known the holidays would only delay it. The freight train of job cuts, plunging earnings and massive spending cutbacks set to hit the economy was, thankfully, pushed back a few weeks while stunned investors and workers across the globe caught their breath after the worst fourth quarter in decades.

But now the great dying has begun, and I'm not talking about German billionaires throwing themselves in front of trains or French aristocrats slitting their wrists, as alarming as these incidents have been. No, earnings season, the time for companies to 'fess up just how bad it's been for them in the last three months, is here.

A rally since late November in the markets gave hope that equity investors, a forward-looking indicator, may see the bottom for the economy in the first half of this year.

That may still be true, but we still have to get there. And the next few weeks of earnings warnings and then actual earnings, along with outlooks for the next three months, are expected to be littered with bad news. It's not just layoffs and plant closings, which are bad enough on hard-working folks and the surrounding economy. And it's not just bank failures, or collapsing investment banks and hedge funds.

Companies will start going completely out of business, including retail firms, biotech companies, and many, many mom-and-pops out there in everything from auto parts to bars and restaurants. Much of it will be tied to consumers pulling in their horns. They were willing to buy the Christmas tree or the holiday trip to grandma's house. But now that we're in January, getting more exercise is no longer on the top of the annual resolutions list.

Investors won't be safe either, especially with time bombs like Wednesday's fraud at India's Satyam Computer Services going off with alarming frequency, causing its shares to fall almost 80%. This is the time in the cycle where all the frauds come out -- Enron, Worldcom, Madoff. They're all exposed when the tide goes out.

You think Ken Lay isn't chuckling on some cloud somewhere about all this? Is it a coincidence that Jeff Skilling was back in the news this week? Already somebody is calling Satyam India's Enron. There will be more to come. So what will signal the turning point? Could it come during the worst of earnings season? Perhaps. But I expect it will come afterward, and that it will be tied to oil prices.

The collapse of the oil bubble was stunning in its ferocity, equally if not more stunning than the rapid inflation of the bubble itself. Likewise, crude is now oversold and while it looks set to fall below $40 a barrel and maybe well into the 30s, investors will flock back to it at the first sign of an economic rebound. That will in turn spark energy stocks, and probably financial stocks, and we'll be off to the races again.

Obama's inauguration and the swift passage of his economic stimulus package will provide some gauze for the wounded markets, but there is still too much to work through to think the passing of the torch will be the catalyst.

In the meantime, financial advisers will continue to recommend the old saw that the best position for investors is indeed the fetal position, and asset managers sitting on cash and low-yielding bonds will be awaiting any sort of signal that the worst of the actual economic pain is over. When the economy does get ready to turn, the markets will react quickly. But it isn't there yet.

Continuing jobless claims topped the 4.6 million mark, while first-time claims fell by 24,000 last week. Early signs showed a more than $1 fall in oil and a bit more of a dent in the greenback. The metals turned positive half an hour after the start of the daily action. Your guess for the day is as good as anyone else's.