My Current Views
We are (have been) in a bear market rally since March 2009 (maybe even since 2003). I have no clue when the market will finally top out. Maybe it happens after the last current string of Hindenburg Omens, maybe not. But I believe that there is a larger than average likelihood that the market will top out by the end of 2011. Hard to say how much the record liquidity provided by governments around the world could continue to fuel a potential prolonged bear market rally. The market is rallying on falling volume, which is an unhealthy sign.
Liquidity is what is driving the market, and almost all markets and asset classes have been highly correlated. It is therefore very hard to diversify away from any risk at the current moment. Because of all this liquidity the market could grind on for a little longer.
Expect the USD to strengthen against almost all other currencies in the medium-term. This turn will most likely correspond to the turn in stocks. The USD will strengthen as people want to minimize risk exposure. The USD is however most likely to fall in the longer term together with most other fiat-currencies. You want to have a share of your total assest invested in physical gold for the long-term.
Everybody seems to believe that we will see inflation. Jim Rogers and Marc Faber are both “a 100% certain that we are entering hyperinflation”. Both extremely successful investors over many years and their views should be reviewed with care. I still believe we will see deflation first as credit and debt is reduced. Long-term I can potentially see that we could enter hyper-inflation.
Government bonds seem to be building the bubble of a lifetime. Make sure to exit them, except for the absolute safest of countries (Switzerland, Singapore, and Norway, and maybe a few others) if you really feel you need to own some bonds. Shorting the long-term bonds of western governments is likely to be the trade of the decade! But you should have a time horizon of 10 years.
Bearish on Gold for the medium term. The only major market that has continued to create substantial new tops since 2008 is gold, so this is a market on which investors are now fixated. First it was real estate that would never go down; then it was stocks; then it was commodities; now gold is the only market left on which people can express full optimism. People should though own physical gold and I would continue to buy a little physical gold each month.
In short I am bearish on all typical long markets (equities, non-USD currencies, most major commodities, precious metals, real estate). I think the continuation of the bear market will take us well below the lows seen in March 2009!
Commercial real estate looks very bad and the Chinese stock market will probably correct more than the US in an eventual continued bear market. Also Chinese real estate looks very expensive. In other words, no decoupling of emerging markets.