The data is also showing signs of a bottom, and European equity markets are beginning to shrug off negative headlines.  Germany the largest economy in Europe and most influential, will also be the largest beneficiary of the strongly depreciating Euro given its export orientation.  The improvement in Europe will most likely not be seen in the numbers until the later half of 2012.

Most recently, commodity prices have begun to decouple from the direction of the Euro.  Commodities and the Euro have moved for much of the last two years in lock step.  This relationship is breaking allowing commodities to move higher as the Euro weakens.

I know I sound like a broken record but I very much believe now is not the time to abandon the basic material commondity trade.  If nothing but consistent, I believe the best place to be is in the copper trade.  As China’s prospects improve and demand continues strong, we still have very limited new supplies hitting this market and I believe this will propel copper prices higher and improve low stock valuations.  Currently, Copper inventories are on a strong downward trend which bodes well for the near term copper prices.

With 2011 being a rush to safety by investors, there has been an unprecedented outperformance of bonds versus stocks.  Either stocks are severly undervalued or corporate earnings are about to collapse or interest rates are about to head dramatically higher.  My view are stocks are substantially under valued and 2012 will be a better year for equity markets as global economies continue to improve.

Stocks vs Bonds most undervalued in 35 years

The price of gold was a great performer in 2011 as a flight to safety trade.  The gold stocks did not perform particularly well.  The gold price has checked back and the stocks, especially small cap gold stocks appear very cheap on every valuation metric.  The fund has an above market weight of small cap gold stocks as well.

Last, but certainly not least, wishing everyone a happy, healthy, prosperous New Year.

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