Bond Lover, Stock Hater

I am bullish on bonds. I remain constructive on a bond market that is in a bull market running 36 years and counting. I also remain bullish on bonds relative to the stocks, for I continue to favor the asset class that has prospects for sustained future tailwinds. And, my bond instrument of choice above all others remains long-term U.S. Treasuries.

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Industrials: Running Hot

I am concerned about the industrials. For a sector whose fortunes are closely tied to that of the broader market, it has been running hot as of late. But it has been doing so without fundamental support and driven by an optimistic outlook that may ultimately fall well short of expectations. As a result of this recent disconnect, the industrial sector may find itself at best lagging the broader market going forward and suffering disproportionately during any future stock market decline.

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In Memoriam

It is a fundamental principle that is accepted as given by most stock market investors. Stock prices will simply rise over time, so ignore the short-term fluctuations, keep your head down, buy and hold. But just because it has happened in the past, does this mean that we should simply assume as fact that it will happen in the future? And what can we do, if anything, to protect ourselves in the event that for some reason it does not happen the next time around?

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If you’re looking for trouble, the U.S. stock market is the right place. Sure, stocks are within a stone’s throw of fresh new highs in what is the second longest bull market of all-time. But investors are not getting paid tomorrow for what stocks have done for the past eight years, two months and twelve days. And beyond the fact that the economy has been chronically sluggish and that price gains over the past six years have come almost purely from valuation expansion, the U.S. stock market is dealing with a whole new batch of trouble today. Will the U.S. stock market defy fundamentals once again to continue fighting into the future?

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I Told You So!

The stock market is a funny place. Unlike nearly all other markets where buyers and sellers come together with a rational mind to make decisions that perpetuate their best self interest, participants in the stock market often find themselves acting with different priorities and taking on peculiar behaviors that can lead to self-destructive outcomes over time. As a result, it can be useful to stand back and evaluate our perspectives as they relate to the stock market to consider whether they truly make good sense.

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