Deflation Setting In

Bank of America received $118 billion in guarantees and $20 billion in preferred equity (8%) investment from the Fed.

BAC's market cap is $27 billion. Is there any doubt that equity is negative? The Fed will be taking losses on this for years and years and years.

And inflation is dead. Done. Deader than a doornail. CPI for last year was 0.1%, the lowest since 1955, according to Bloomberg.

Prices will plunge next year.

As far as market behavior, the market rallied 250 points off yesterday's low on the BAC bailout news. But something doesn't make sense. BAC was down 18% yesterday, and is down another 11% today. I was thinking of taking some chips off the table with the markets close to testing the lows, but now I'm going to wait. It just feels like we drop right through support like butter.

I was thinking of taking some profits on gold, but it has actually rallied against the market pullback. In addition, with negative CPI today, gold is up 4%. Finally, gold has rallied in the face of 10-yr Treasury yields from 2.07% to 2.5% earlier this month. So, I am going to hold on to gold here, and I'm almost tempted to buy some NG at $1.50.