Risk-on, risk-off 

In the grand scheme of things in the investment world, there seems to be two current schools of thought. 

School "A” believes that interest rates will stay low for a very long time (like Japan) and in such a scenario, corporate bonds (bonds issued by companies) would be an ideal investment. School "A" generally believes that stocks (equities) are not the place to be and some believe that stocks could be headed for a correction.

School "B" believes that everyone is already currently invested in bonds (in record amounts) and that sooner or later money will flow back to stocks. School "B" says the slightest whiff of inflation or growth in the economy could be enough to trigger a massive sell off in bonds and a move back into stocks.

Right now, based on the many presentations I have seen from the professional money managers, School "A' appears to be a recurring theme. Few money managers are wildly bullish about stocks right now which if you are a contrarian investor, could be a very positive sign.

Therefore, the following comments from Michael Gayed were interesting. Mr. Gayed appears to be firmly planted in the School “B’ scenario. 

"If the facts are contrary to any predictions, then the hypothesis is wrong no matter how appealing." - David Douglass, physicist  

Michael Gayed [3] has some intriguing bond market comments: 

"...the bond market is re-evaluating its bearish/deflation stance...investors are beginning to expect that inflation expectations and growth will return." [1] 

"The most important condition that drives the asset-allocation decision is the direction of inflation expectations. If rising [inflation], risk-on into stocks. If falling [inflation], risk-off into bonds." [2] 

In other words, inflation is good for stocks but bad for bonds. 

[Editor's note: risk-on, risk-off is one of those quaint investment phrases currently in vogue but horribly over-used by some of the mainstream business media. Risk-on means investors are feeling a bit more bullish today and are tending to buy. Risk-off means investors are tending to be in a selling mood. The phrase often refers to very short term switches in investor sentiment.] 

[1] The Bond Market Questions Itself - seekingalpha.com

[2] 2012: A repeat of ‘03 and ‘09? - marketwatch.com (a publication of the Wall Street Journal)

[3] Michael Gayed - is chief investment strategist at Pension Partners, LLC.