Is it time to take profits on the reflation play?

We've participated in a strong rally in commodities, including energy, crops, and precious metals, achieving triple digit gains in some cases.

Actually, I've already lightened up on some major gold mining positions, and replaced them more speculative gold prospectors with impressive track records and land holdings. This should give me more upside on any advances in rallies in gold, but also gives me more exposure should gold correct. Short-term, this could be a mistake on my part, but long-term, it should pay off if they continue to find more gold deposits.

Is this rally in hard assets sustainable, given my bearish outlook on an economic recovery? The rally can be explained due to dollar weakness and poor participation in long-dated US Treasury bond auctions. In other words, we called it right. But has this rally gone too far too fast? Will I be able to pick up these same assets at a lower price in the future, once this phantom economic recovery is exposed? Personal and corporate debt is still strangling the US consumer, and government debt is at an all-time high with no end in sight. Can China's recent upsurge in demand replace continued demand destruction in Europe and the US?

I'll continue to play the binary-event driven biotechs, hoping for continued outsized gains. The overall market could become irrationally extended despite deteriorating fundamentals, climbing the "wall of worry". But I feel the need to lighten up just a little more to lock in profits. I may miss out on the absolute top, sacrificing another 10-20%, but at current levels, I believe there is more downside risk. I hope I'm wrong, but I can't act on hope alone.

Most people are terrible market timers, and I am one of them. Generally, I will miss the exact bottoms and tops of markets. But if I can participate in the majority of a big move, like the rally since March 2009, and if I can avoid the majority of a big decline like I did in 2008, I can live to see another day.

Investing is risky and you can lose most or all your investment. Please do your due diligence. Good luck to all.