This is a classic "death spiral" situation and equity valuations are in a severe bubble as a consequence of all the government "cheese", despite "appearing" to be "cheap."
Bernanke has bricked himself into the outhouse and he knows it. Thus, all the "soft threats" to "quantitative ease" and all the screaming from both the left and right for yet more of it - both sides know exactly what sort of box they're trapped in, and it's a box of their own design.
Oh sure, there can be short-term pops in the market. They might even last months. There could even be parabolic moves upward. The Nikkei has had several of them.
But you cannot invest in them.
You can trade them, and if you have the time and patience to do so in a dispassionate fashion then have at it, but you cannot invest in equities, nor can you buy any coupon (bonds) with any sort of meaningful duration.
If you do, you will ultimately be destroyed.
Those pension funds and other investors who are "reaching for yield" and "reaching for risk" at the present time are making the biggest mistake of their lives. It is inevitable that this strategy will fail and when it does what you formerly thought was "safe" - whether it be your pension, your Social Security, your Medicare, your kid's prepaid college education - all of it will be gone.
This preoccupation with Bernanke's folly is not only unhealthy, it is certifiably insane.
The TNX does not lie folks.
It has not in the past - not even when "Easy Al" was running the joint and handing out money like candy. Nor has it this time, with Bernanke doing the exact same thing Easy Al was doing.
Policies haven't changed and until they do neither will market relationships.
Act as you deem best, but ignore the bond market at your considerable peril.
It is rarely wrong.
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