Markets continue to disconnect from reality with stocks, commodities, junk bonds and currencies around the world continuing to rally on US central bank QE2 'expectations'.
The Dow closed above 11,000 on a wave of Wall Street optimism and financial media headlines - yet Main Street continues to suffer (as evident in the 'real' economy with no recovery in sight for jobs or housing - the root cause of the crisis in the first place). Whenever markets disconnect so wildly from reality, expect a backlash.
Actually, we should expect a swift and sharp selloff of virtually all assets during the next wave of deflation. And with a record low of only 3% of traders bullish on the US dollar (Daily Sentiment Index) it now flashes a warning for a major and prolonged selloff in markets - coupled with a multi-month rally in the USD (not because of an improving US economy, but because of deteriorating global macro conditions).
