Stocks and devaluation

I enjoy your work. This imminent/inevitable breakdown of the long bond is one of the most important items in the market today. It gets little media coverage (what else is new?)!

Also, in the past (on Jsmineset) you have alluded to quantitative easing being good for stocks in general, and small cap stocks in particular. Am I understanding you correctly? If I am understanding you correctly, than why?

JGB

Weimar Republic model serves as a classic example of rising equities prices in the face of deteriorating economic conditions due to extreme currency devaluation. While the U.S. dollar's decline has been orderly, it has provided a similar boost to equities since 2001. F-TV describes the equity performance as a series of cyclical bull and bear market since 2000. These are nothing more than movements within a depressionary trading box.

S&P 500:


The devaluation boost, however, is little more than a currency illusion. This illusion is revealed by in shades of 1932 commentary. Gold-adjusted, or devaluation normalized, stock performance reveals the true trend.

Small cap stocks have follow a similar but clearly unique trend.

Small cap stocks total return index to gold ratio:


Large cap stocks total return index to small cap stocks total return index:


The question is why? Does quantitative easing favor small cap stocks? Does it matter?

Questions to ponder for the comment board.