Many who are long this market and heeding the advice of perma-bulls will once again look back, as they have already done twice in the past decade, and scream “what the hell was I thinking?” Investing is a marathon, not a race, and the winners will be the current laggards who continued to pursue the virtues of capital preservation and income-orientation strategies. Remember, in the final analysis all returns have to be risk-adjusted. Managing the risk is every bit as important in the current and perspective uncertain macro and market landscape as generating the nominal returns.
This market is overextended and overbought. Sentiment is completely off the charts. Our advice: nobody should be reading into what happens in December any more than they should have heeded the 2% jump in the S&P 500 and the 60bps surge in bond yields a year ago, which told you exactly nothing about 2010. For all the talk about how things have turned around, this is a very recent development and not necessarily enduring.