“It took awhile, but every market is going our way. The U.S. dollar just broke out to a new 11-month high. U.S. stocks have stayed below their April highs. Foreign stock indexes are down 10%-50%. Gold and silver closed this week at their lowest levels since their peaks. And the CRB commodity index is down 10% on the year.
The best performing market for 2011 is one that nobody wanted. Bulls bet against U.S. Treasury bonds due to forecasts of an economic recovery, and bears bet against bonds due to forecasts of hyperinflation. But U.S. Treasury bonds have registered the best total return (+20%) for the year of any major investment sector. This event makes sense only to deflationists, and a few other scattered iconoclasts hiding around the globe.
The Fed reported on Tuesday that the economy has been “expanding moderately,” but economists waiting for economic reports to indicate contraction will be six to twelve months late. The November issue of EWT used a chart of silver to warn that the economy is already heading back into contraction. In fact, four useful leading indicators of the economy—namely, the prices of stocks, lumber, silver and copper—turned down months ago, between February and April 2011. If the market tries to bounce during the traditionally strong late December-early January period, any rally should stay in the context of a bear market.”
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