Since the summer of 2011 most investors have been making huge net withdrawals from equity funds and all-time record deposits into bond funds. Sooner or later most of these investors will be humbled with a dramatic equity rally and a stunning retreat for U.S. Treasuries and other fixed-income instruments. The mom and pop investors have been selling at a staggering rate during the last two weeks. Presently, the savviest traders are selling both the U.S. dollar and U.S. long Treasuries prior to an eventual strong global stock market rally. These traders have been busy buyers all the way since June of 2012. You have to be able to appreciate that the market will always punish the majority of investors and only reward a few very experienced traders. The old buy high sell low is in full force for amateurs, as usual.
Given the kind of mood which is represented by the recent articles of strongly followed mainstream financial media websites, it is very likely that we will experience a strong stock market rally. There is a good chance of S&P 500 and Dow Industrial reaching new highs. The commodities will also have a very strong rally. Gold will eventually surge sharply higher in order to make up for the fact that it should have already been rallying in a typical inverse correlation with the U.S. dollars behavior.
The recent price drop of TLT (long-dated US treasuries) has been modest. However, eventually this drop will accelerate when there is an undisputed belief that long-dated Treasuries (TLT) are a hopeless investment. This will happen sometime during the next few months when the stocks are rallying full force. Then we are going to be very interested to start buying TLT and HDGE.