Good Afternoon,

Gold prices fell by nearly $40 or 4.6% in Monday's New York session. It was the yellow metal's largest decline in six weeks. Bullion prices touched a low of $814.60 per ounce on the back of a falling euro/rising dollar/falling oil combination brought on by global background economic conditions. Deflationary pressures are relentless and are making life difficult for most assets aside from cash. Weak physical bullion demand in key consuming markets also contributed to overnight selling.

Today's technical damage might take some time to sink in, (see below) but the selling (and not just in gold) is not yet seen as abating among the larger players. Thus we need to allow for the possible breach of $800 in the near-term, unless massive buying emerges right at the current level for some reason. Clearly, hedging for inflation is not on asset managers' models at this juncture.

Overbought conditions and the rebalancing of commodity index asset weightings (last week's cautionary story should not have been glossed over by the perma-bulls) drove bullion prices through various support levels and kept them low as little in the way of buying interest surfaced in the wake of the massive declines. Participants today also reported tacit apprehensions about the source of potential funding after the IMF said it needs an additional $150 billion to help fast-imploding emerging economies.

The US dollar climbed to above 83.00 on the index and refused to obey the orders to roll over and die being issued by the ever-prolific writers of its obituaries once again. Not that anything will stop the dollar's morticians from actively campaigning for its demise. Silver lost 71 cents on the day, to trade at $10.54 by the afternoon hours. Platinum dropped $38 to $951 and palladium fell $8 to $184. To make matters worse (for oil and the noble metals), automakers suddenly pulled several electric and a slew of hybrid rabbits out of their Detroit industry showcase hat, showing that when it comes to their own survival, they have the know-how.

The engineering and technology just happened to be sitting on the shelf, while consumers were herded into gas-guzzling SUVs on the premise of 'lifestyle' needs created by their marketing firms. Payback time. Toyota handed the firm's reins over to members of the (founding) Toyoda family in an aggressive move to restore the firm's industry position. Honda decided to cut its US inventories to levels that better reflect its nearly empty showrooms. Ford will now likely accept the Uncle Sam loan handouts as its sales come in way under expectations.

GM will drop some of its brands, drop many a US dealer, and will (in a hurry) open a lithium-ion battery plant in Michigan. What perfect PR for a day when the firm also said it needs from Uncle S. Harley-Davidson shares went onto the chopper block today as the realization sunk in that not too many yuppies will plunk down the cash anymore, to ride free for the sheer joy of it on carefree weekends...

Well, we made one bad guess for today. Mr. Madoff remains free on bail ($10 million) despite the expectations of many. The rest of this week's guessing game is looking more promising in terms of turning out to be more accurate, and is already focused on the ECB and its need to put policy into reverse and ease aggressively. At this economic juncture, the region can ill-afford further hawkish posturing from the ECB. The central bank is seen as likely to cut its benchmark rate by half a percent, to 2% following this week's meeting. Even then, it would be left as the lone standout among large global central banks, with the highest rate among them.

Mr. Trichet tried to divert our attention from the stark European economic reality with a clever allusion to his expected 'significant pickup in the global economy' in...2010. Very interesting jawboning from someone who has to deal with 2009 first. Kind of like the statement by Mercedes boss Zetsche saying the firm does not plan to cut car prices. Keyword: plan. Citigroup never planned to break-up. It is breaking up. UBS never expected to lose $8 billion in the last quarter. It likely will. President Bush held his last news conference. He expected to find a large cache of WMDs in Iraq. He did not. He planned for the economy to grow and the financial system to hold together. They did not.

Markets started the week on a stressed-out footing, amid challenging conditions in a global economy that is still snowed under from an avalanche of challenges. European retailers prepared to show swooning earnings, oil and oil producers were down across the board on demand apprehensions, and Alcoa was set to kick off the earnings season reports with what is very likely some very poor numbers. On the Ponzi-watch radar today: allegations that homebuilder Lennar may have treated its joint ventures like the similarly-named scheme. That, and Bernie Madoff going 'free' for now...

The Dow was off by nearly 140 points this afternoon, amid warnings of around $3.5 billion in losses each, by Bank of America and Royal Bank of Scotland. Adding to the stock market's woes were earnings apprehensions related to firms such as Alcoa and ConocoPhillips. Crude oil fell and remained down for the day, showing 8% in losses on expectations that OPEC will not be able to curtail production sufficiently to offset waning demand. Copper fell the most in one month on the psychology surrounding today's markets: Sell hard. Raise cash. Anything else is a hard sell.

That psychology shows all of the symptoms of being diagnosable with the D-word. As opined last week, you may put the hyper-inflationary dollar-death script on the back-burner while this act unfolds. It has hardly started.

Until Tomorrow