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Updated from 3:13 p.m. EDT

Stocks backtracked today amid weaker-than-expected reports from retailers such as


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, more sluggish economic data, another spike in crude prices, concerns about the widening probe of securities firms' boom-era IPO allocations and worries about


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midquarter update.


Dow Jones Industrial Average

ended down 1.68% to 8283.70. The

S&P 500

was lower by 1.60% to 879.15 and the

Nasdaq Composite

was off 3.20% to 1251.00.

The U.S. Dollar Index was down 0.01 to 106.09 after having traded as low as 105.41. Conversely, Treasury securities rescinded some of their earlier gains, which had briefly pushed the yield on the benchmark 10-year note below 3.90%. The price of the 10-year note ended up 10/32 to 103 22/32, its yield at 3.92%.

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The session's trend was decidely negative, due largely to renewed concerns about the economy. The Institute for Supply Management's non-manufacturing index fell to 50.9 in August from 53.1 in July, sinking to its lowest level since January and bucking expectations for slight rise. Factory orders for June rose 4.7%, in line with expectations, but orders excluding transportation were up just 1.8%. Also, initial jobless claims were higher than expected, at 403,000, and the prior week's claims were revised upward. Second-quarter productivity was slightly higher than expected at 1.5%, but that was down significantly from 8.6% in the first quarter.

Other issues weighing on shares included a rise of 2.5% to $28.98 a barrel in crude futures after the American Petroleum Institute reported U.S. inventories were near an 18-month low. Also, geopolitical concerns were intensified by U.S.-U.K. coalition aircraft firing on Iraqi positions in the so-called no-fly zones, an apparent assassination attempt on Afghani president Hamid Karzai, which followed a car bombing in Kabul's main shopping center, and a stymied car-bombing attempt in Israel.

That, in turn, helped push gold prices higher by 1% to $319.80.

Whose Haven Is It, Anyway?

Theoretically, gold should have rallied more, given the declines in the dollar and equities early today and on Tuesday. Jean-Marie Eveillard, manager of the $1.8 billion

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First Eagle SoGen Global and $80 million

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First Eagle SoGen Gold funds, offered some thoughts on that subject in a recent interview.

"There are conspiracy theorists who believe the price of gold is being kept down by hanky-panky, but to my mind it's irrelevant," he said. "If the price of gold is going to go up; nobody can stop it."

That it hasn't to a great degree is "disappointing," Eveillard admitted, attributing the trend to the fact that "the safe haven currently is Treasury notes and bonds." That is due to "perceptions of deflation," he explained, calling such concerns "completely wrong." He also took umbrage with the "confidence in paper" assets that is further helping fuel Treasuries' remarkable rally.

Regarding the deflation issue, Eveillard observed: "More and more you read how

the U.S. is like Japan. It is not."

Where Japan has an "immobile, resigned society" and policymakers, Americans have "no patience" for that kind of economic malaise and government ineptitude, he observed. "If you had two or three years in the U.S. of the kind of economy the Japanese have had for 12 years, congressmen would be thrown into the river," Eveillard quipped. The


has already examined the Japanese scenario and declared "they could take all sort of steps" to avoid the same fate, he observed, including buying various kinds of assets and "print

ing money like crazy."

Longtime readers know I have repeatedly bucked the conventional wisdom, arguing that inflationary pressures and (more recently) a potential stagflationary environment are greater threats than a deflationary spiral. Obviously, deflationary pressures exist in some segments, namely telecom and consumer electronics. Conversely, trends this year in the dollar, gold, the federal budget, crude futures, agricultural commodities, the Bridge/CRB Index and the Economic Cycle Research Institute's Future Inflation Gauge suggest inflation is not nonexistent as policymakers -- and the Consumer Price Index -- suggest. Unit labor costs rose 2.1% in the second-quarter productivity report, ending three quarters of decline and (among today's data) providing a counterweight to the decline in the prices-paid component of the ISM survey.

"If the dollar is weak enough, long enough, some inflation

will appear," Eveillard suggested, observing that while there's little price inflation, there was "big credit inflation" during the 1990s. That "credit boom" has burst on the corporate side -- leading some to deduce that deflation will result -- although individuals are still encouraged to take on more and more debt.

"Whether deflation is the appropriate perception or not should be clear within the next six to 12 months," Eveillard continued, openly admitting the possibility of being wrong, as do I.

He remains convinced, as do I, that "it's time for real assets and not paper" assets. Accordingly, I've recently taken positions in the

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Rydex Tempest 500 fund, a leveraged bet against the S&P 500, and the

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Toqueville Gold fund, Eveillard's funds being too expensive for my taste.

I mention that in the essence of full disclosure and after deciding to put some money where my mouth (pen) is. I do own traditional, long-only equity funds in my 401(k) and IRA, although I'm concerned about the market's long-term prospects in a post-bubble era. The aforementioned positions are mainly a hedge in case the extremely bearish scenario laid out here

last night comes to fruition.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.