Brace for Impact!

The futures look terrible this morning, careening lower after bad news from Intel overnight, and the crew on CNBC is furrowing their beetley brows with concern. Gold is down $18, too, and oil is around $90. Sentiment has swung decidely bearish.

This is the kind of territory where bottoms are found ... perhaps because this is also the kind of territory where the Fed makes an emergency rate cut.

But until then, let's admit the news is decidely negative. Technically speaking, the volume is lighter on each rally than on the declines -- that's a negative and indicates more selling ahead (unless the Fed comes in and waves its magic wand).

Also, there was some surprising news yesterday on the Producer Price Index. It declined 0.1% in December, when economists were expecting an increase of 0.2%. This immediately had doom-ologists clutching their pearls and shouting: "Deflation! It's deflation, I tell you!"

Now here's the skinny ...

Last month's decline in the headline number followed a 3.2% increase in November; the largest increase in 34 years.

Core prices, which exclude food and energy, rose 0.2%, in-line with forecasts.

year-over-year the PPI was up 6.3%, the largest yearly jump since 1981's 7.1% increase

The decline in the headline figure was largely due to 1.9% decline in energy.

Now how is that possible? Well, while energy prices soared in December, that occurred at the end of the month, after the Labor Department gathered its data. It's not so much a conspiracy as bad timing.

But it also means that the "deflationist" crowd can stick a sock in it.

Here's some news you can use ...

China Tells Banks to Set Aside Larger Reserves, Curbs Food-Price Increases China ordered banks to set aside larger reserves and imposed price curbs on grain, meat and eggs to try to prevent inflation at an 11-year high from triggering civil unrest.

XX That still sounds inflationary (and bullish for agricultural commodities) to me.

Dollar Falls to 2 1/2-Year Low Versus Yen on Widening Credit Market Losses The dollar fell to a 2 1/2-year low against the yen as losses in credit markets widened and the U.S. economy showed more signs of sinking into recession.

Oil Falls on Signs of U.S. Economic Slowdown; Saudi Comments on Production Oil fell to its lowest in more than three weeks in New York after an unexpected drop in U.S. retail sales added to concern the U.S. is headed for a recession.

Gold Declines in London as Lower Oil Costs Curb Demand; Silver Advances Gold fell for a second day in London on speculation lower oil prices will slow investor demand for the metal as a hedge against inflation. Silver gained while platinum and palladium declined.

Gold Will Average $915 This Year, Goldman Sachs Says, Raising Forecasts Goldman Sachs Group Inc., the world's largest securities firm, increased its gold forecast for 2008 through 2010 because of expectations for a U.S. recession in the second and third quarters and a weaker dollar.

And so what if the bears are right, and we're careening deeper into recession? Here's an interesting column on what that might mean ...

Different Recession, Different Cure

In a normal recession, the to-do list is clear. Copies of Keynes are dusted off, the Fed lowers interest rates, the president and Congress cut taxes and hike spending. In time, purchasing, production and loans perk up, and Keynes is placed back on the shelf. No larger alterations to the economy are made, because our economy, but for the occasional bump in the road, is fundamentally sound.

This has been the drill in every recession since World War II.

Republicans and Democrats argue over whose taxes should be cut the most and which projects should be funded, but, under public pressure to do something, they usually find some mutually acceptable midpoint and enact a stimulus package. Even in today's hyperpartisan Washington, the odds still favor such a deal.

This time, though, don't expect that to be the end of the story -- because the coming recession will not be normal, and our economy is not fundamentally sound. This time around, the nation will have to craft new versions of some of the reforms that Franklin Roosevelt created to steer the nation out of the Great Depression -- not because anything like a major depression looms but because we face an economy that's been warped by two developments we've not seen since FDR's time.

Go read the whole thing. Is that how things are going to play out? No one really knows. I do know that prices are rising so fast that China feels forced to impose price controls. Holy smokes!

Check out my new gold and energy blog at MoneyAndMarkets.com