Market Talk

Ah-HEM!

So the Journal’s got a big, splashy story in the paper today, highlighting how some big-shot investors like Bill Gross are worried, seriously worried, like adjust your portfolio worried, about deflation. So I’m looking at this thing, and I’m, like, really? Really?

Now we’re all worried about deflation?

Look, you know your correspondents here at Market Talk have been warning you about the dangers of deflation long before Bill Gross. We’ve been working this story for more than a year. Deflation isn’t like a stock market selloff; it’s a slow motion dynamic, and it’s been building all this time. The scary thing is, too, that it hasn’t even fully lodged itself in the public mind yet.

“Deflation isn’t just a topic of intellectual curiosity, it’s happening,” the Journal quotes Gross, the “Bond King” who runs Pimco, as saying. “It’s an uncertain world that’s tipping toward deflation.”

These guys are buying Treasurys and corporate debt and dividend-paying stocks as a hedge against deflation, understanding how hard it will be for companies to generate profits if prices are falling across the board.

Deflation is the nightmare scenario of every central banker. It’s something that once it takes hold is apparently very hard to fight. Not that they won’t try, they most certainly will, and you can bet your debased dollar the Helicopter Ben will resort to the money drop before he lets demon deflation loose upon the land.

Listen, I’m not getting too deep into this this morning; for one thing, we’ve got another column to write for the paper. But, really, I just wanted to make the point that we were riding these rails long before Bill Gross hopped on board.

- “If the bond vigilantes are ready to ride again, there should be little doubt who will be leading the charge,” Tom Petruno says.

- Big buzzword at CES this year is 3-D. But major problem facing TV manufacturers is they have lousy timing.

- Say it loud and clear, it’s a renter’s market. US apartment vacancy rates in 4Q jumped to a 30-year high, while rent prices keep falling.

- Nexus One’s product placement couldn’t be better.

- Apple (AAPL) is looking for new ways to touch its fans. The US Patent and Trademark Office publishes an APPL patent describing touch screens with pixels that both display information and receive touch instructions from the user, according to a blog post on Patently Apple.

- Rail traffic trending in the right direction. “The data continues to reflect a weak recovery, but the trend is positive for now and equity markets have remained robust as the rail data troughed and turned higher,” Pragmatic Capitalist says.

- “One striking aspect of the public debate about the future of derivatives – and how best to regulate them – is that almost all the available experts work for one of the major broker-dealers,” Simon Johnson says.

- Retailers generally reported above-average December sales. Discounters Costco and BJ’s fared well. But Abercrombie lagged behind other teen retailers.

- China unexpectedly raises key interbank rate.

- Believe it or not, GM expects to be profitable this year.

Remember that thing we talked about - and for God's sake, man, don't let the press find out.

There are two conspiracy theories floating around getting a lot of attention: the assertion by Charles Biderman from TrimTabs that the government is propping up stock prices, and the notion put forth by Sprott Asset Management that the funding the federal budget has become one giant ponzi scheme.

Now, these aren’t just your usual tin-foil hat types talking here, and the fact that these claims are gaining traction shows that at the least, there’s a portion of the citizenry that just isn’t buying the official story line.

They are sort of reductio ad absurdum arguments, and one problem with them is that don’t actually make the case that would prove their point; rather, they draw their conclusions as the only possible explanation, given a lack of alternate conclusions.

Still, they raise troubling questions about the actual strength and durability of the economic recovery.

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Just keep cranking out that money, ladies.

We have been leery for some time now about the government’s attempts to throw a safety net under the economy and reflate it through trillions in spending and guarantees. It’s always seemed to us that the best cure for profligate spending at the corporate and consumer level isn’t necessarily profligate spending at the federal level.

But today along comes not one, but two, warnings from two big names, Warren Buffett and Bill Gross, about the costs and shortcomings of government spending. A lot of folks are going to say the market’s bout of existential angst is being driven by fears about China’s fortunes, but we think the fears can be traced to developments much closer to home.

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Have some alpha, it's free!

This rally’s been so fast and furious, the Dow’s up 9.4% in less than two weeks, that a pullback is bound to ensue soon (today’s looking pretty likely.) In fact, some folks have been expecting one since late last week. But as they says, markets tend to take the path of least resistance, and for whatever reason, that path has been up – in a straight line.

But when markets shoot up like this, they can and sometimes do shoot right back down, and Morgan Stanley is warning investors who are suddenly banking on a V-shaped recovery to be wary (incidentally, amid a recession that has already last 18 months and shows few concrete signs of abating soon, it should be obvious to all but the most dedicated huckster that a V-shaped recovery flew out the window shortly after Lehman Brothers’ swan dive.)

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Still plenty of bargains for smart shoppers!

We had hoped that the Public-Private Investment Program, the so-called PPIP, would wither on the vine and die a quiet death. Call us crazy, but a plan to spend a trillion dollars to grossly overpay for deteriorating assets choking banks’ balance sheets didn’t strike us as the best use of the government’s money.

Well, it didn’t exactly die, but what’s been loosed upon the world is a shadow of the original plan. And that’s a good thing.

When it was first announced, the PPIP was envisioned as a major program, as in $500B-$1 trillion major. But the version that was announced yesterday will see the Treasury Department contribute “only” $30B (roughly what they threw at GM.) The reason is, simply, lack of demand. But the reasons behind that reason aren’t so simple.

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