Decoupling.

Equity markets have decoupled from debt markets, emerging markets have decoupled from developed markets and the U.S. dollar has decoupled from just about everything.

Short-term government securities have acted as a safe haven for money in transit. Interest rate traders have bet that the U.S. yield curve will steepen as the Fed cuts short terms rates and the long end reflect fears of inflation. European interest rate may follows as economies weaken responding to a U.S. slowdown and a stronger euro.

Debt is distinctly out of favor. Debt is also less attractive in an environment of increasing inflation. Fundamental price pressures are coming from higher energy costs, increasing food prices and rising inflation in emerging markets. The price pressures are exacerbated by seemingly deliberate policies from central banks to inflate their way out of the credit crunch.

Investments reliant upon abundant and cheap debt - highly leveraged hedge funds, private equity, infrastructure and property look less attractive.

Equity markets have benefited from lower interest rates, strong corporate balance sheets and profitability.

Fear of inflation underpins demand for real businesses with strong, preferably recession insulated cash flows. Fossil energy, hard commodities and food producers are key areas of focus. Alternative energy, water resources, essential infrastructure (especially in emerging markets) and environmental services are perceived as attractive.
Support for equity markets has an emerging markets angle. Emerging market growth is expected to be insulated from the turmoil of developed markets. Suppliers to emerging markets ( e.g. commodity producers) are seen to be protected from a US and European downturn.
Outward investment flows from China, India, Russia and the Middle East - the emerging market "bid" - are a key driver of equity market resilience.

A weak U.S. economy and concern that the Fed will continue to ease interest rates further in an attempt to prevent recession and support the banking system weighs heavily on the dollar.

Major dollar investors, especially Asian central banks who have invested a substantial portion of their reserves in U.S. dollar assets (estimated around 60-70%), have started to diversify their currency investments. Moves to replace the dollar with the Euro as the settlement currency for trade in key commodities such as oil, if it eventuates, also removes an underlying pillar of support.

This has supported currencies, especially emerging market currencies or currencies seen to be closely linked to these markets. Appreciating currency values reinforce asset values in these markets triggering positive feedback loops. This helps keep the emerging market asset price bubbles going.