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We have maintained that the mere fact that the Financials sector has been successful in raising capital via new equity issuance in the stock market is a good sign that the system is stabilizing. The aftermarket support for these deals indicates a healthy secondary market, and furthermore, points to the presence of ample stock market liquidity.

One might begin to think that if the reports of money supply growth rolling over are true, that the stock market could be facing its own liquidity crisis in short order. While these reports sound pretty bleak for future stock market liquidity, we advise taking these headline “scare” stories with a grain of salt.

During the past several years, it has become fashionable to believe that bond investors are more sophisticated than stock investors. Personally we don’t buy that bond investors have any edge in intelligence or diligence.

Despite strong stock market returns relative to 10-year Treasuries, the “generational anomalies” still exist. Stocks should outperform bonds going forward.

Expectations for broad leadership from inflation-beneficiary sectors of Materials and Energy tell us that investor obsession seems to have shifted too rapidly from deflation to “reflation”.

VLT Momentum measures shifted to buy signals based on May 29^th market close. These are low risk signals, which by definition are confirmation of longer term sustainable bull market moves.

In mid May, 4% of assets were shifted from U.S. stocks to Emerging Market holdings, buying a package of individual Asian stocks. This same package is being used to boost exposure to 70% in early June.

Establishing a new Select Industries equity holding in the Diversified Financial Services group as a 7.7% holding. This is first Financial sector exposure since August 2008, but the portfolio continues to be significantly underweight in this broad sector.

One might have expected gold and gold stocks to stumble as investors abandoned their defensive postures. However, spot gold and gold stocks (on a relative basis) are threatening to break out to new highs.

After an uneventful start in 2009, deal flow for equity financings has jumped to life in recent weeks.

Starting to see some modest inflow into U.S. focus equity mutual funds, which is a stock market positive.

Jim Floyd is boosting his 12 month interest rate targets by about 50 basis points across the board. The economy is expected to be showing signs of recovery by year end 2009, and the credit markets are thawing.

Valuation metrics using S&P 500 aggregate earnings can be skewed by large losses. Building a profile of valuations by looking at median valuations, or the distribution of valuations, can be helpful to avoid this problem.

Superior performance of foreign stocks of late is likely only the preamble to what the rest of the cyclical bull market will look like.

There are two important conclusions about the historical relationship of stock vs. bond returns:

1. The current stocks vs. bonds performance differential, over both very short and very long time periods, is at or near historical extremes in every timeframe we examined. This suggests that we are at the threshold of a major (but temporary) market anomaly.
2. Historically, periods when bonds have outperformed stocks over very long timeframes have proven to be very opportune times to shift out of fixed income assets and into equities.

Despite the recent rally, the best two month move since 1933, investors migrating back to bearish camp. This is the best defined “wall of worry” we have seen in over a decade, and one that will provide more fuel for what we believe is a cyclical bull market.

Establishing new portfolio holding in Oil & Gas Drillers, which brings exposure up near market weight in Energy sector.

So, over the long run, stocks are supposed to provide better returns than bonds as compensation for taking greater risk. Well the last 20, 30, and 40 year periods show that bond and stock returns have been at the smallest performance spreads ever. In some cases, bonds actually produced better returns. It’s pretty depressing huh?

A look at the perils with Chinese A Shares. Concern has been raised about China A Shares because they are seeing significant increases in their share float, due to government releasing restricted shares to the public.

Several independent methods are presented that seem to triangulate on the years 2012 and 2013 as candidates for another significant stock market low  - - maybe the final low of a secular bear market which began in 2000?