1. Long commodities, (oil, gold, etc.) 2. Short dollar/ long euro This trade has both fundamentals behind it and also after the brutal selloff in commodities and the euro, has value behind it. Deflation was never a threat with Paulson and Bernanke on money watch. Their first instinct in times of uncertainty is to print money like mad. Amateurs at work who think the Great Depression is always around the corner. Stocks will likely drift around in a range, they can not go down much in a hyperinflationary environment, remember they are priced in nominal dollars, not real dollars. Bonds, especially long duration bonds, are for the biggest suckers at this stage, unless they are nominated in euros. The Treasury has made a blatant statement for all to hear: they will print till the cows come home.
All the commodities are rocketing today, the weak hands have been shaken out, the correction is over, and the bull market continues. At the same time, the dollar counter trend rally is over with a bang, Paulson and his strong dollar policy is the laughingstock of the world. He has nothing on Mugabe. Those holding Treasuries at these prices are complete dolts looking to be looted by Paulson, Bernanke, and their ilk. You can thank these clowns when you are pumping $5/gallon gas into your POS car in a couple of years while their banker buddies are driving around in Maseratis.
I think USD catches a bid soon... this has been short covering in the gold/crude play... I still see commods having one more leg down.. and USD having one more leg up..
Bull markets don't always resume right after a correction. Often you get an extended trading range. A good example is 2006. Commodities had a blowoff top in the spring of that year, then a brutal correction. Instead of rebounding rapidly, they actually ranged for 6-12 months going nowhere. Gold didn't make a new high until 18 months later after the top. An extended range frustrates not just bulls but bears. It is important to plan for this contingency, since if you are expecting a sustained move back to new highs, you may get bored to tears and sell your position in 6 months at breakeven or a slight loss (especially if there's a retest of last weeks lows). So whilst I agree long-term that it's a great time to be long commodities and short bonds, the trade may take more patience than anticipated. Also, inflation does not imply shorting the dollar. What if inflation picks up more in the rest of the world? The US economy is the hardest hit, so one could expect more inflation in places like the Eurozone which have not seen a huge credit crunch.
He's indisputably correct that the weak hands have been shaken out. Hell, even a lot of the strong hands have been shaken out. At the very least, it's time to go from short/flat to a normal market weighting in these sectors.
True, the commodities side of the trade is the one I have more confidence in. But there are extreme structural reasons for the dollar to be weaker versus the euro, at least over the next few years. In the long run, the euro zone has to make competitive devaluations to keep their export economy intact. I don't expect a rocket ship in commodities, there is considerable overhead resistance, but with a short term bottom in place in equities, commodities will attract capital again.