Are markets all over irrational again?

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: Warren Buffett’s recent planned $27 billion acquisition of Burlington Northern Santa Fe has been described as an “all-in wager on the economic future of the US”. If the best expression of the future of the US economy is a railway operator dating back to the mid-1800s, then Mr Buffett’s (it is hard to contest Mr Buffett’s strategy as a means of accumulating long-term wealth, given that it has worked so well) judgement on the strength and prospects of the US economy appears less than sanguine.

With equities correcting over the last few weeks and gold rallying to record highs, price of gold has once again exceeded the price of S&P 500. It now takes 0.96 ounces of gold to buy S&P 500. This is considerably less than the long-term average of 1.74 since 1980, and a far cry from July 1999 when it took over 5.5 ounces of gold to buy S&P 500. The question now is, if gold eclipses 1,100, will its time above that level be as brief as it recently was for S&P 500?S&P 500 priced in gold:

Today, S&P 500 is priced for 4% real economic growth in the coming year. In contrast, the corporate bond market is now priced for 2% real GDP growth, not 4%. In other words, there is less risk in credit than there is in equities, even after corporate spreads have been sliced in half from their depression-era levels.

The dollar slump has to reverse: Last year’s dollar slump, with its attendant rise in commodity prices, ended when the market put paid to it. This time governments are attempting to slow it down. Canada’s central bank recently talked down its own currency, Brazil’s government has imposed capital controls to stop the Real gaining at the dollar’s expense and Taiwan’s central bank is believed to be preparing to intervene since flows of speculative “hot money” have made the rate too volatile. Other countries, it appears, have more to lose from a weak dollar than the US does. Once the fall in the dollar index reverses, so will the renewed rise in commodity prices. Energy stocks and commodity prices along with trash stocks (banks like Citi and AIG in the US, and real estate stocks in India) have been at the vanguard of the recent stock market advance.