DEFLATION is upon us...

Europe’s banking system is imploding, Gold has broken its long-term uptrend, and US Treasuries are signaling a Crisis even worse than 2008, stocks are bouncing off of support as though there’s no real danger.
This can be attributed to three factors:
1) Light volume (fewer and fewer folks are investing in stocks which allows Wall Street to move the market more easily).
2) End of the year performance gaming by hedge funds and institutions (most of which have had horrible years)
3) Misguided hope and delusions… just like the ones we had in 2008 when stocks didn’t “get it” until the whole system was ready to collapse
In simple terms, the best analysis of today’s markets is that we are getting MAJOR red flags across the board that another round of DE-flation is here.
Against this backdrop, stocks are as clueless as they were in 2008. And given that most traders will be taking off early this week, those remaining will be able to move the market any way they please as volume will be even lower than the abysmal levels we’ve seen for most of 2011.
So my advice is to avoid trading this week if you can help it. There is simply too much uncertainty in the market: stocks could rally based on end of the year shenanigans… or they could just as easily collapse due to Europe or any number of other issues in the system today.
However, the larger picture indicates that deflation is back and it’s back with a vengeance. It would be wise to prepare in advance for this as stocks are ALWAYS the last to “get it.” And by the looks of the recent action in Gold and Treasuries, “It” is going to be something VERY unpleasant.