Verizon Over Gold

Today's gains are confined to the stock sectors that don't depend on exports. Banks flush with government cash are leading the way, along with homebuilders who've managed to trim the inventory overhang to a mere 10.4 months' sales at the current pace, which was 2.7% above the prior month's 17-year-low. Broadcasters, retailers and staples suppliers are all looking forward to interest-rate cuts and additional fiscal stimulus that now looks inevitable. Meanwhile, techs, commodity suppliers and industrials are sporting bloody noses once again on worries about the steepening economic downturn overseas.

Verizon's leading the way, racking up an 11% lead in recent market action on evidence that its wireless business is still growing fast enough to offset the landline decline. Given the trends in the more volatile economic sectors, Verizon's slow, steady revenue gains seemed especially valuable, and the 7% dividend yield didn't hurt.

While traders waited to see whether any of the recently unleashed liquidity might find its way into the stock market, a tug-of-war was shaping up between those who expect all that easy money to fuel another bout of inflation, eventually, and those insisting that deflation is a better bet as the excess borrowing and spending is unwound.

Merrill Lynch economist David Rosenberg is carrying the banner for the deflationists, warning that "We are going to live through an event that most of us in the financial business have never dealt with." And his takeaway from the two prior such episodes in U.S. history, in 1948-49 and 1954-55 was the outperformance of "safe-yield" plays, be they in zero-coupon government bonds or the steadiest stocks. Verizon is evidence that this view has plenty of adherents.

On the other side are the inflationistas, who trust in Milton Friedman's credo that "inflation is always and everywhere a monetary phenomenon," and see lots of newly minted money floating around. It's true, as Rosenberg notes, that all this money isn't circulating much at the moment. But if the paralysis does pass, the world might start going around once again, and where the money will go then (assuming it doesn't merely become ballast on bank balance sheets) is among the more popular guessing games now on Wall Street.

When the monetarists are not tallying obscure money supply measures, they're apparently buying gold bars on eBay, and paying as much as 20% above the spot price for the privilege of figuring out where to store it.

Verizon does seem like the better bargain at the moment, and perhaps it just got served a shot of liquidity.