Montreal, Canada

Global markets don’t like the prospects of a weaker economy. That’s the case now as it pertains to softer economic data in the United States and China over the past few months. One bit after another, economic statistics have been soft, suggesting another round of money-printing by the Federal Reserve might be on the horizon.

The plunge in benchmark ten-year Treasury bond yields is a bad omen for the economy. Rates fell below 3% yesterday and have rallied sharply from 3.57% just several weeks ago. I’m not stupid enough to buy T-bonds at 3% with the Fed apparently exiting QE II in less than four weeks; but maybe the Fed won’t leave the party…

The political will to start QE III isn’t there. Congress is fed-up with monstrous spending but doesn’t want to curb its expenditures in any meaningful capacity. No surprise there. And in an election year in 2012, Obama won’t get re-elected (hopefully not) promising to cut entitlements or other popular social welfare programs. Nor will any Republican.

Yet the reality of it all is the “new normal” of the economy, as PIMCO’s El-Erian posits, which needs a constant fix of government support in order to avoid heading into hibernation. This is the post-2009 economy, a recovery deeply fragmented by Main Street’s job losses and the dreamy world of Wall Street where corporate earnings and tech IPOs are all the rage. There’s an obvious disconnect with this picture.

I suspect as we progress into the summer stocks and commodities will struggle. But in the absence of anywhere else to place money, the individual investor and institutions will boost their holdings of common stocks, especially dividend-paying equities.

Where else are you going to go? Money-market rates yield almost nothing, most bonds are in a “bubble” and residential real estate is now officially in the worst bear market in history. Provided credit spreads and financial market liquidity don’t hemorrhage any time soon, the markets will likely endure a correction this summer and move higher.

Heading into an election year, the Fed is highly likely to introduce another asset purchase program, especially if the economy softens further. Call it QE III or TARP II… or whatever. But the markets have grown dangerously fixated on Bernanke’s spending programs and like a drug addict savoring his next fix, will struggle to move on without another dose.

Target your favorite stocks and commodities. By the end of the summer, possibly before, a great buying opportunity lies ahead. Rates will remain ultra-low for at least another 12 months until employment growth and housing show definitive signs of recovery. That’s bullish for risk assets and bearish for the dollar.