Living through a bull or bear market is far different from looking at it in hindsight; in real life, the weekly fluctuations tend to be magnified and badly distorted by most amateur investors.

Currently global equity markets are behaving much like it did at the end of 2011. We anticipate this behavior to continue into early 2013. The U.S. Treasury market is especially vulnerable to a free fall in a highly volatile 2013. This is just when most bond holders are fully convinced that they are invested in safety and stability.

The majority of investors will be fooled in winter or spring of 2013 with breakout for equities. Just as huge inflows into equity funds in early 2011 doomed the continuation of the bull market for a while, the continued selling of equities by flock investors in recent months will ensure stronger stock-market gains ahead.

Eventually, strong equity fund inflows will reoccur in 2013 to put a stop to the rally. Hence, the new arrivals once again lose money. It’s the old story of ‘buy high and sell low” all over again for the amateurs. The shift from safety to risk will remain an important theme throughout the first quarter of 2013, but in the short run there is likely to be some kind of consolidation. There will be a temporary short term rebound in the U.S. Treasuries and other defensive assets, while most risk assets will surrender some of their recent sharp gains in this healthy consolidation. Raw material and precious metals will be among the top performers while this consolidation takes effect, in order to realign themselves with other assets. During the next few months, precious metals could gain nearly twice as much in percentage terms as other risk assets.