i have seen various reasons for today's bloodbath (as opposed to all the other bloodbaths of the past three months.) the market may be getting more than a whiff of deflation, but i think the most likely outcome is stagflation like the 1970's only worse. another possibility, although much less likely, is hyperinflation, and the most remote possibility is deflation.

for one thing, bernanke wouldn't be the fed chief if they were willing to undergo a 1930's-style deflation. his entire career has indicated that he will inflate, and try to control the outcome later if necessary. also, they would not have spent $2.1 trillion in bailouts if they weren't desperately trying to avoid deflation. it would have been a lot easier for the government to let all of these big banks fail than to try to save them.

as far as today is concerned, it appears that some large hedge funds are on the hook for lehman-related credit default swaps. they will now be paid less than 10 cents on the dollar. until recently, no one ever expected lehman to go bankrupt, and the hedge funds that sold insurance on lehman obligations are now in deep kimchi. those funds, being heavily invested in commodities and mining shares, received margin calls and had to liquidate. combine that with the fact that buyers are on strike because they don't know how far down this thing can go, and you have institutions selling into a vacuum. eventually there will be a bid, but only at a much lower price, and that's what happened today.

prices of precious metals and mining stocks have now officially left reality. a year from now we will look back at these bargain prices, but the fact is that next week they could be even better bargains. the latest rumor i heard was a global bank holiday to begin on sunday. if that happens, there is no telling where this stock could open the next time the stock exchange opens.

as long as you aren't on margin, i am confident that this stock will do well in the long run. selling now is a very risky proposition, and buying is not for the faint of heart, no matter how cheap it is. but this too shall pass.

i miss the days when i could discuss mining deposits and resource estimates in this forum, but the financial end of the business is driving everything else in the market right now.