Today’s action suggests that the deflation story is the dominant story in the market. We saw bonds rise while commodities and gold declined. Stocks eked out a rise but every other market showed that deflation is the key story. The reason behind it is that virtually every economic indicator is showing that the US economy is weakening. This also weighed on the US dollar.
Right now, I have been highlighting the fact that the US economy is not going to rally at all over the coming 1-2 years. Although the Fed has massively eased, people and corporations are hoarding that liquidity rather than spend it. The same story is also being seen all over the world. Only emerging markets are going to show decent economic growth.
What this means is that we must continue to expect the major global stock markets to remain in bear markets. Look for most commodities to also drift lower. Gold will tend to hold up OK but silver will suffer more because it is more of a economic good rather than a monetary good.
My strategy is to be very selective in buying stocks, make sure that there are plenty of hedges on, and start to look for bargains to buy when the market starts to turn around.