A battle seems to be underway in markets between those who believe a global economic slowdown will trump inflation on one side, and on the other those who believe that growth in emerging markets will remain high enough to keep inflation in commodity prices high. The latter group might include the same people who subscribe to the decoupling theory: the view that emerging markets can rely on intra-regional trade to sustain growth despite weak export demand from the US. To some extent, this is already true. Asian growth rates remain above 6 per cent and no one is predicting a recession. The same cannot be said for the US, Europe or Japan. The IMF has revised down its estimates for global growth, forecasting growth of 3.7 per cent, down from 3.9 per cent. Commodity prices, however, will remain high and volatile, it said. Nonetheless, the slowdown camp is prevailing, if the dollar's continued rally is any indication, a trend that will continue to push down commodity prices. It has also squashed speculation that Gulf monetary authorities might revalue their currencies' pegs to the US dollar, creating a vacuum of liquidity in the region that is driving up real interest rates, helping to curb money supply and with it inflation. There are outliers like Nouriel Roubini, however, who predicted the collapse of the US housing market and subsequent financial crisis. Mr Roubini predicts a global recession, starting with the US and Europe, and spreading outward to emerging markets. In a bear market, it becomes important to separate the messages and keep in mind who is sending them and why. Ultimately, financial professionals earn a living by selling securities and so at some point have to generate sales. A one-way viewpoint on the direction of markets ultimately eliminates trading volumes, so the financial industry tends to undergo a seasonal change of economic fashion that encourages clients to churn their portfolios. Hence, firms that sell stocks cannot afford to be permanently bearish on corporate profitability. Firms that sell bonds cannot afford to see no imminent end to inflation. Currency traders tend to be more neutral since they can make money no matter which way interest rates go, but they cannot afford to be permanently bearish on a currency like the dollar. All traders need and thrive on volatility. Thus even commodities traders cannot afford to have the market align permanently behind higher commodity prices. Bond traders will tend to be focused now on the likelihood that inflation is licked and rates are about to come down. Equity traders will also count on the likelihood that rates will come down and revive growth. Stagflation made them strange bedfellows. Good news for them comes from the SEC, which has signed an agreement with Australia to let brokers in each country operate in the other but only be regulated at home, part of an effort to globalize financial markets. That should cut some costs and headaches and allow firms to start arbitraging regulators. The Fed is still in a difficult spot: weakening growth and shaky banks, which appear to be growing shakier by the day, argue for lower rates and higher spreads. But inflation argues for higher rates and lower spreads. Critics of the Fed say it has erred on the side of lowering rates to appease the public's taste for cheap money. Its defenders say it's protecting the financial system and avoiding undue hardship to its constituents. But there are some bright spots on the horizon: home sales rose 3.1 per cent in July, largely as foreclosed homes moved back onto the market. This is a positive development, since it means distressed assets are starting to move at discounted prices, a key step in resolving any financial crisis.