This does not imply that commodities cannot decline as well, but it should be clear that the supply of confetti, equities and bonds can be increased ad infinitum whereas the supply of precious metals in particular is extremely limited.
Moreover, confetti has lost its function as a store of value because of artificially low interest rates, which of course favors precious metals over paper money, cash, and bonds.
Consequently, I expect commodities to continue to out-perform financial assets including equities - although I admit that gold is now significantly over-bought from a near term perspective (as is the dollar over-sold).
How would gold perform in a deflationary global recession? Initially gold could come under some pressure as well but once the realization sinks in how messy deflation would be for over-indebted countries and households, its price would likely soar.
Therefore, under both scenarios - stagflation or deflationary recession - gold, gold equities and other precious metals should continue to perform better than financial assets.
In the US there is a renewed love affair with high tech stocks. Driven by the superior performance of Google (GOOG), Apple (AAPL) and Research in Motion (RIMM) the NASDAQ 100 has recently exceeded its July high and with its out-performance has lured the momentum players into tech stocks.
But there are two points to consider: GOOG, AAPL and RIMM are already extremely over-extended and have become overly popular among investors at a time at which these companies' growth rates are likely to slow down.
Also, the high tech industry's best customers are consumers and the financial sector. Since the demand from both these sources is likely to slow down and possibly even decline, the fundamentals would not seem to support the recent rise in high tech stock prices.
Emerging stock markets have fully recovered from their July/August declines and several markets are making new highs. However, market breadth has deteriorated and declining volumes are arguing for some caution.
There is no doubt that we are dealing with bubbles in China and in India. Can these bubbles be inflated by another 100%? Possibly, if Taiwan and Japan in the 1980s serve as a model!
However, risks are high (as they are for the NASDAQ 100) and once these markets tumble (and they will) the shaky global financial system will be tested one more time.