Thoughts From The Mind

My contention is that the bond market has more than discounted the soft patch now.

Remember, it is how the market reacts to the news that is more important than the news itself!

A 2.72% yield on the 10-year note is priced at a P/E multiple of 36.5x vs. the S&P's P/E multiple of under 12x.

It remains my view that the flight-to-safety trade should subside in the months ahead, as it becomes clearer that the domestic (and world) economy is not going into a double-dip but rather into a moderating expansion.

I'm bullish on LNC and XL.

As always, the growing concern is that there is the potential for policy mistakes around the world. The risk-reward on the S&P 500 is now tipping back to a slightly more attractive ratio.

The proximate cause for yesterday's weakness was the broader recognition that we are trapped in a liquidity, tax and regulatory vortex, and the growing concern is that there is the potential for policy mistakes around the world:

* China slamming on the brakes has threatened a hard landing.

* Europe's austerity programs suggest decelerating economic growth.

* The regulatory and tax uncertainty in the U.S. has caused indecision and lost confidence at the corporate and consumer levels.

It's time for a new policy playbook. More decisive and responsible fiscal action could greatly improve the outlook for U.S. equities over the next 12 months. But, for now, relying on our politicians to embark upon logical and growth-enabling legislation remains something of a leap of faith.

That said, we rarely have full clarity in investing, and valuations and expectations remain depressed. The recent market drop appears to have begun to discount the aforementioned and well-known challenges. From my perch, the risk-reward on the S&P 500 is now tipping back to a slightly more attractive ratio. My target 1,150 for the S&P for the second half of 2010 still seems to be a reasonable one, which would still imply a P/E multiple of less than 13x.....