The stock market was down a little bit over the past week. Bonds and real estate had positive performance. The momentum of stocks continues to rise, and it nearing the crossover point where they will pull ahead of bonds. Much of this is due to poor performance in the past dropping out of the calculation. A balanced portfolio should be poised to reduce any overweighting to bonds and prepared to begin equal weighting stocks. An asset momentum portfolio should sell emerging markets and own real estate (XRE) this week.

It’s hard to believe that long bonds, Canada 10-years, are yielding just 2.5%, the same as the current rate of inflation. If inflation continues at 2.5%, which doesn’t really stretch the imagination, investments in 10 year bonds won’t earn anything (and won’t lose anything). It’s hard to believe that this situation can persist for long, and interest rates are likely to rise, causing bond investors to suffer losses. Disclaimer: this will happen, at some point, but it hasn’t happened over the last three years, despite my repeated predictions and expectations. It could be a long time…

Market Outlook March 5, 2012

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