Ten Year Bond Yields - Stay Long Equities?

As Alex Daley of Casey's Research points out, "there are a lot of troubling signs with the equity markets these days; with valuation ratios at multi-year highs despite troubles in the EU and continued joblessness. To make matters worse, there are fewer and fewer bears." From a contrarion standpoint it's time to take some money off the table, but one reason to stay long equities, at least in the short-run, is it looks like the wheels are coming off the bond market. Ten year government bond yields everywhere are up roughly 100 basis points since QE2 (by the way, wasn't that supposed to reduce bond yields?), which means in the past 3 weeks bond portfolios are probably down somewhere between three and four percent.

Fund flows have reversed in a major way and now favor equities, while bond inflows have gone negative for the first time since the crash; investors big and small are shifting back into stocks in search of that increased return. To quote John Mauldin: "The markets are going up. The call-to-put ratio is high and rising. Bull-bear sentiment is very high. The world is bullish. What could go wrong? Bartender, another round please."

GB