Market Brief: Monday, October 11, 2010

Jason Goepfert charts AAII's asset allocation of its members each month, and the public investor is currently holding 55% in stocks and 20% in cash.

Now, remember these are "investors."  Can you believe they are now holding the highest percentage of bonds (yielding less than 3%) of anytime in the last 23 years of their survey?

Bond managers are trying their best to keep these assets, and they're coming up with some of the best stories of "new normal" to convince their investors (who absolutely ADORE them now with fear so high) to keep buying bonds.  But at the same time, the Fed is on our side and doing all in their power to run that money out of bonds.  The bond industry's story is more prone to satisfy today's public fears, so I don't expect our story to make any revolutionary progress on the conviction scale.  We're planning on building this story one brick at a time, but you will see the infrastructure become recognizable in the not to distant future.

As the stock market continues to heal the bruises from 2007-2008, the public will return to stocks.  The election could have a lot to do with this as well.  The stock market is voting for a successful evolution.  That does not mean it is Democratic or Republican, but it likes what it sees in some of the real change that is being bantered around.  We'll see...

Psychology internally is a little better than the last two weeks.  It still is in the mid range, which is not bad.  We've been saying (for all of those who listened to the extremely bullish readings in July) to walk a little slower here.  But, with Valuation so undervalued, we can continue to expect for any significant surprises to be on the upside.  

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Don Hays

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