I haven't written for a while, but there's been lots of small things happening in the markets which are painting a picture. I'll list them briefly:
The worldwide investment community has been fixated on the "green shoots" showing in the economies. The reality is that stock markets have recovered maybe 1/3 of the 50% they lost in 2008. Stock markets are now wandering sideways with no conviction, waiting for a rise to confirm whether we're in a new "bull" market, or a crash to resume the current bear market. Regardless of outcome, the good news is that there are bull markets elsewhere, that being in the commodities sector. US/UK stock earnings are very low meaning that stocks according to PE ratio's are currently very expensive despite what the media is currently saying. See http://www.bullandbearwise.com/SPEarningsChart.asp
Commodities had a fantastic month in May, lead by palm oil (44% up), crude oil (32%), sugar & soy beans with an average rise in commodities of about 12%. Gold rose 11% and silver, 26% for the month as measured in dollars. As the dollar was weakening, gold maintained it's own in pounds and silver rose by 14%. Technically there's a lot of bullish patterns pointing to higher highs in the commodities sector. Precious metal, mining and oil stocks have been flying. Considering the amount of new money that has been printed to bail out the world's financial system, commodities are just repricing to adjust for the presence of this new money. Commodities react positively to inflation. This is the sector to be in for the next 10 years or so and it's still got a long way to go.
To confirm this view, look at the bond markets. Corporate bonds have risen to 12-14% in order to attract investment and the 10 year US treasury rate has been rising since the low of January this year to the current 3.75%, despite short term bonds being kept at near 0%. See attachment. The resulting yield curve is therefore steepening, indicating future inflation. This means that credit is getting more, not less expensive.
The dollar index is currently breaking down. See the attachment. Having hit a triple top in a counter market rally, it has broken down below support. The rally was caused by massively liquidation of dollar denominated debt due to the deleveraging process. When the dollar drops, the euro, commodities and gold (in dollars) all get wings and fly. It is interesting that both the dollar and dollar bonds are dropping as they usually operate opposite one another. This is because the world is losing confidence in all dollar denominated paper and is diversifying out of the dollar. In the past when China earned dollars, they'd buy US treasury bonds (IOU's paying interest to the holder) with the proceeds. China and other countries are now openly diversifying from the dollar due to US money-printing policies. Here's an interesting article: http://www.contrarianprofits.com/articles/why-is-china-buying-gold/17353
Take home message: Inflation is looming, buy commodities, be wary of stocks, avoid the dollar, fix/pay down your debt.