The answer depends on how successful global central banks can be in their efforts to engineer a new round of inflation. Currently an environment of accelerated deflation, or falling prices, continues to plague world markets. Make no mistake about it, this is deflation.

Amid a surging dollar since July, commodities have tanked more than 25% - with crude oil prices about to post their worst weekly performance in four years. Even gold has faltered this week despite five bank failures across Europe.

Right now deflation is winning as global economic growth slows or, in some cases, contracts. The dollar has emerged as King. But over the next several months, global central banks will cut lending rates to stimulate growth and, invariably, inflation. It's literally "Inflate or Die" for the world's central banks, including the Fed.

Rapidly declining prices are now widespread in housing, credit, stocks, and commodities. The last time all major asset classes were purged this hard was back in the 1930s. The only major asset class still gaining value is Treasury bonds, up more than 13% year-over-year.

Global markets have placed new bets since July as we've transitioned from inflation to deflation for the first time since 2001. It's been a huge reversal with hard assets like oil, grains and industrial metals plunging, foreign currencies tumbling, and stocks collapsing worldwide.

What's happening now is the big reversal of "easy money," or the death of the carry trade, which relied on cheap funding costs and leverage. The entire global marketplace is now unwinding leverage, and the resulting shift is highly deflationary.

Is there any good news?

Assuming central banks print credit and do everything they can to contain deflation and support the financial system, then yes, markets will find a bottom. But I'm afraid we won't see a bottom for at least another 3-6 months because this train is running fast, cutting economic growth, and instilling fear among consumers. It's also an environment that is not supportive of corporate earnings.

Remain highly liquid, maintain low equity market exposure, and keep those reverse-index hedges. Also, don't give up on gold. We're all going to pay for this spectacular expansion of credit over the next five years - and that means high inflation.

Enjoy your weekend. See you on Monday.

ERIC ROSEMAN, Investment Director