// Insights


Stocks vs. Bonds High Yield Munis

We have argued for several years that the US stock market could be in the biggest bull market of our careers. We don’t think there are many fixed-income asset classes that are attractive relative to stocks. However, high yield munis are very equity-sensitive and offer attractive yields relative to the stock market.

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Toward the sounds of chaos

Stock market volatility is always a scary thing. Investors nearing retirement fear their nest eggs will evaporate. Younger investors saving for a home or a child’s college education fear their families’ futures might be in doubt. However, history suggests that allowing volatility to overrule a good investment plan tends to lead to poor performance. It’s not volatility itself that generally leads to poor longer-term performance, but rather it appears to be investors’ emotional reactions to volatility that ultimately lead to poor performance.

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Lack of corporate hubris means elongated cycle

When we started Richard Bernstein Advisors roughly five years ago, we thought the US was entering one of the biggest bull markets of our careers. Today, we are likely in the midst of this long bull market. Despite the general consensus that a bear market is on the horizon and investors’ ongoing interest in protecting potential downside risk, we do not think the Fed, investors, or corporations are yet sowing the seeds for the next recession.

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Financial Times - Investors manic for 'disrupter' stocks

Investors rationalised lofty valuations during the technology bubble with theories regarding the “new economy”. “Disrupter” companies are today’s rationalisation. Investors seem willing to pay outrageous valuations for disrupter companies because the companies are supposedly changing the world and have no relationship to the economic cycle, to Washington or to geopolitical events.

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EM debt seems risky

At RBA, we search for gaps between perception and reality, and this seems to be the case for emerging market debt. Investors have been lured to these securities by their higher yields, yet the underlying economic and currency fundamentals are deteriorating without commensurate widening of spreads.

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Worried about the Downside?

There have been numerous academic studies that suggest investors’ reactions to market risk are not symmetric. Investors consistently react more negatively to losses than positively to gains. At RBA, we incorporate this asymmetry in our sentiment work. Data clearly show that no group of investors is currently willing to take excessive US equity risk. Pension funds, endowments, foundations, hedge funds, individuals, Wall Street strategists, and even corporations themselves remain more fearful of downside risk than they are willing to accentuate upside potential.

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Rich Bernstein on "The Nightly Business Report"

Rich discusses the importance of having a financial plan and focusing on the long term on "The Nightly Business Report" on PBS.

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A Classic Barometer

Investors seem a bit too eager to tout emerging market equities. Much as they did with technology stocks during the early-2000s, investors today are looking for the best re-entry point. Data clearly do not support anymore the notion that emerging markets are a superior growth story, yet investors seem to be ignoring the classic warnings signs for fear of missing out. One such classic warning sign is the slope of the yield curve. Historically, steeper yield curves have been reliable forecasters of stronger overall nominal economic growth and stronger profits growth. While US yield curves remain extraordinarily steep, emerging market yield curves tell a very different and disconcerting story.

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The Importance of Beta Management

Morningstar recently released “Mind the Gap-2014” which demonstrated that investors are generally very poor beta managers. The Morningstar data showed that investors’ performance lagged that of their funds by about 250 basis points per year for the past ten years because of poor beta management, i.e., investors tend to be very poor allocators of capital. Beta management is the core of RBA’s strategies, and we decided to reissue our 2011 report on beta management in light of these Morningstar data.

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American Industrial Renaissance Revisited

We first wrote about The “American Industrial Renaissance” in 2012, and it remains one of our favorite investment themes. We continue to implement this theme through small US-centric industrial companies and small financial institutions that lend to public and private industrial firms. It remains unlikely that the United States will be the manufacturing powerhouse that it was during the 1950s and 1960s, but many factors are suggesting that the US industrial sector will continue to gain market share.

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Financial Times - Japan Shows Itself a Better Growth Story Than Emerging Markets

Most investors readily admit the global credit bubble is deflating, but they have not significantly altered core investments accordingly. One of the biggest opportunities in the post-credit global economy is Japanese equities because Japan has the potential to increase competitiveness versus the emerging markets. Observers of Japanese stocks tend to focus on Prime Minister Shinzo Abe's policies, but such analyses might be overlooking a larger, even more favourable issue.

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Market Share: The Next Secular Investment Theme

It is well known that corporate profit margins are at record highs. US margins, developed market margins, and even emerging market margins are generally either at or close to record highs. A myopic focus on profit margins may miss an important investment consideration. Whereas most investors remain fearful of margin compression, we prefer to search for an investment theme that could emerge if margins do indeed compress. Accordingly, our investment focus has shifted toward themes based on companies who might gain market share.

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Equity Bubble? No.

The US stock market performed very well during 2013. The S&P 500®’s total return of nearly 33% far outpaced the returns of most asset classes. A growing contingent of market observers is fearful that the US equity market is in some sort of a bubble. We disagree completely with this notion. A strong market rally that many investors have missed is hardly sufficient grounds for a financial bubble.

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Joseph Zidle on Fox Business

Richard Bernstein Advisors Portfolio Strategist Joseph Zidle on "Countdown to the Close" on Fox Business. Joe discusses investing in Japanese stocks, and US vs. Emerging markets.

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10 for '14

Each December we publish a list of investment themes that we feel are critical to the coming year. Here are our themes for 2014.

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Like a Shakespearean Script

Shakespearean plays follow a pattern. The underlying plots and storylines change from play to play, but the five-act construction is a common overlap. Market cycles tend to follow a similar pattern cycle after cycle. Like the different plots in various Shakespearean plays, the catalysts that begin and end each cycle, and the events during the cycle are always different. However, market cycles seem to follow a script and, so far, this cycle seems to be following the script almost perfectly.

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EM - The Growth Story That Isn't

We remain very concerned about emerging market stocks and bonds. The recent outperformance of EM stocks is again luring investors to once again touch the hot stove. Emerging markets seem to have some significant structural and cyclical issues about which investors seem unaware or seem to be ignoring.

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A Special Note on Potential Government Debt Default

We find it incredible that the government is, once again, on the verge of a default on US debt. Although we doubt that the US will actually default, it is unfathomable that elected officials would even consider such an event. Worse yet, some officials apparently believe that a default might benefit the US.

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Global Sea Change Continues

Our long-standing theme has been that the US stock market is again a growth market. Whereas investors generally still believe that the emerging markets are a growth story, the data increasingly suggest that growth is now predominantly in the developed markets. When it comes to quality, transparency, and consistency of growth, the US seems to stand above other markets.

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Charts for the Beach

Our basic positions are now famous (or infamous). We continue to favor US assets and to shield our portfolios from the on-going and broad problems in the emerging markets. In the spirit of August, we forego significant text this month to present a series of charts that outline a few of the opportunities and risks we see in the global markets.

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Japan - The Land of the Rising Stock Market

We have been ardent bulls on the Japanese stock market since last Fall. We were quite alone when we first invested for this theme, but that changed quickly as the Japanese stock market rose. Today, everyone is talking about Japan, and the Japanese stock market's daily volatility has increased as leveraged, short-term traders now dominate daily results.

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Wealthrack with Consuelo Mack - A New Investment Era

Wall Street veteran Consuelo Mack interviews Rich Bernstein, CEO of Richard Bernstein Advisors.

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Never mind the taper. A comparison of historical and current fundamentals suggests investors are overly apprehensive regarding the Fed's taper of quantitative easing.  

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Morningstar - Going for Growth in U.S. Equities

Investors' real-return expectations are too high for foreign stocks and too low for U.S. stocks, especially for small- and mid-cap names, says Richard Bernstein, CEO of Richard Bernstein Advisors.

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Breakout – Yahoo! Finance - U.S. Will Benefit From Emerging Markets Slump

Emerging markets companies are predominately reporting negative earnings surprises--which indicates that expectations are still very high. Domestically-focused U.S. companies are benefiting from EM weakness. 

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The REAL Great Rotation

The phrase "Great Rotation" has come to mean a sizeable shift in asset allocations from bonds to stocks. We, too, believe that stocks are likely to secularly outperform bonds, but we don't think that is the "great rotation" about which investors should be concerned.  

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Financial Times - Forget EMs, US investors should think local

The consensus in the US is that investors should focus on large-cap, multinational companies that offer exposure to global growth. Few have noticed the secular shift in performance that is under way in which smaller, more domestically focused companies are outperforming.

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The Dollar isn't the Peso anymore

Many years ago, we wrote a report called "The US Peso". At the time, investors were generally quite bullish on the US dollar based on the strength of the funds flows into the US to buy technology stocks and the advantages a strong dollar offered US consumers. We felt that such euphoria was misplaced, and that the US dollar was likely to weaken over the ensuing years.

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Reversing Quantitative Easing

The Fed has clearly raised the issue of reversing their policy of quantitative easing, and investors have become more anxious. However, one should remember that the Fed is generally a lagging indicator, and that a tightening of monetary policy is unlikely so long as the overall economic growth and inflation remain anemic.

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80's Bull Redux

Investors often remember bull markets as days of wine and roses. However, those fond memories are largely based on the latter stages of a bull market during which investors are convinced that there is indeed a bull market underway and that it will never end. They seem to forget that the majority of a bull market is typically characterized by fear and indecision. 

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The Year in Review: 2012

Politicians crave the spotlight, but it is unfortunate that investors watch the show. 2012, like 2011, was another year in which Washington theatrics scared investors. We think there are several important points to consider when reviewing 2012 performance, and when structuring portfolios for 2013. 

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This Is What Bull Markets Are All About

Investors have the impression that bull markets are days of wine and roses. However, nothing could be farther from the truth.  Bull markets are periods of fear.  This becomes quite obvious when one examines the valuation and sentiment data associated with the 1982, 1990, 1995 and 2003 bull markets. 

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Morningstar - Bernstein: A Lot to Like in U.S. Assets

People have underestimated the risks outside the U.S. and overestimated the risks in the U.S.

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Beyond the Fiscal Cliff

Politicians love the spotlight, but it is very unfortunate that investors watch the show. The drama of the so-called "fiscal cliff" has scared investors, and led them to miss a very good year in the equity market.  

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13 for '13

Each December we publish a list of investment themes that we feel are critical to the coming year. Here are our 13 for 2013. 

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Climbing the Wall of Worry

Most investors have heard the phrase "bull markets climb the wall of worry". However, they also have difficulty identifying whether the stock market is indeed in a bull phase that is climbing the wall of worry or whether fear is justified and the bull market is nearing the end. 

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Financial Times - America Is Not The Next Greece

Article featuring Rich Bernstein. Originally published in the Financial Times on November 5, 2012.

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A Chart Worth Noting 

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American Industrial Renaissance

The “American Industrial Renaissance” remains one of our favorite investment themes. We prefer to implement this theme through small US-centric industrial companies and small financial institutions that lend to public and private industrial firms. 

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Is Buy and Hold Dead?

If one searches in Google for "Does buy-and-hold work?", more than 191 million results will appear. If one searches for "Is buy-and-hold dead?", more than 81 million results will appear. However, if one searches for "successful buy-and-hold strategies", only about 9 million results will appear. It's pretty clear that the investing world believes that buy-and-hold strategies are basically dead and gone.


Is the consensus correct, and are buy-and-hold strategies truly dead? the answer, if you ask us, is a definative no. Buy-and-hold is very much alive and well.

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Financial Times - Don't Trust the Political Debate on US Growth

Article featuring Rich Bernstein. Originally published in the Financial Times on July 19, 2012.

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Kiplinger - Buy American Stocks

Article featuring Rich Bernstein.  Originally published in Kiplinger on June 13, 2012.

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TheStreet - Don't Write Off Treasury Bonds

Article featuring Rich Bernstein.  Originally published in TheStreet on June 13, 2012.

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Why Smaller Banks are Atractive

We continue to prefer smaller, US domestic banks to larger, multinational banks. A backdrop of anemic yet improving US employment and stabilizing housing markets will likely benefit domestic lenders, but the continued deflation of the global credit bubble could continue to hurt the growth prospects for global financial institutions. Although the vast majority of risks related to the deflation of the US credit bubble seem well-known, investors still appear to be underestimating the risks of credit deflation in Europe and in the Emerging Markets. It sems as though the managements of global financial institutions are making the same forecasting error.

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You should worry about EM inflation. Not US Inflation.

Investors seem overly concerned about US inflation. Both market-derived expectations and actual rates of US inflation remain very subdued, yet we are consistently asked about inflation and whether our investment strategies are adequately structured for high US inflation.

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Alternative to Alternatives

Alternative assets (such as hedge funds, private equity, direct real estate, etc.) have been quite popular among institutional investors, and are gaining interest among individual investors. Investors' perception is that these assets provide higher returns through time and are uncorrelated with other asset classes. Alternatives have become the accepted norm (and in some cases the core of the portfolio) among pension and endowment investors.

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Diversification Remains Difficult

Our firm believes three core principles build long-term wealth:

1) Extend the investment time horizons.

2) Compound dividend income.

3) Truly diversify portfolios.

Although these principles sound obvious, few investors actually follow them consistently.

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The First Sign of Weakness in Corporate America

Our bullishness over the last several years regarding US equities has been primarily based on the strength in US corporate profits. Whereas the overall economy had a rather tepid recovery, the US corporate sector had one of its strongest receoveries in history. Corporate profits now compose the largest proporation of national income in post-war history.

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Financial Times - Why the 'Risk-On' Rally Will Not Last

The recent rally in global markets has been led by what most investors are now calling "risk-on" assets. Their counterparts, risk-off assets, have lagged. We question the longevity of this risk-on trade. Indeed, we believe that the secular investment theme remains off.

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Forbes - Skip Gold, Go for Bank and Treasuries in 2012

Forbes interviews Richard Bernstein on his global market outlook. Originally published in Forbes on February 16, 2012.

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2011: The U.S. Year

The market generally proves the consensus wrong, and 2011 certainly adhered to that historical precedent because the consensus "must owns" at the beginning of 2011 generally underperformed during the year. What is somewhat startling to us, however, is that conviction has yet to be shaken. The consensus continues to favor commodities, emerging markets, and "any-bond-but-treasuries".

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USA Today - Roundtable: Top Strategists' Moneymaking Tips for 2012

USA Today Roundtable featuring Rich Bernstein. Originally published in USA Today on December 15, 2011.

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Fortune - Where to Invest in 2012: The Experts Weigh In

Fortune Roundtable 2012 featuring Rich Bernstein. Originally published in Fortune on December 14, 2011.

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Year Ahead 2012

Assessing the prospects for a coming twelve-month period is always a challenge.  We rely on our broad arsenal of fundamental barometers for profits, sentiment, momentum, and our cyclical indicators to help us identify whether markets are correctly aligned relative to their economic and profits cycles.

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Welling@Weeden - Asset Allocation Champ Defensive, Looks For Bigggest Gains At Home

Kathryn M. Welling of Weeden & Co. interviews Rich Bernstein. Originally published on October 28, 2011.

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The New York Times - For Clues to U.S. Stocks, Look to Greek Bonds

The New York Times interviews Richard Bernstein. Originally published in The New York Times on November 4, 2011.

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Follow the Cycle

It remains a mystery to us as to why investors believe each cycle is terribly different from the other cycles. The title of a very popular book right now is "This Time is Different". Some cycles are, of course, stronger and some are weaker, and some cycles last longer than others. However, the investment implications at different points in the cycle remain remarkably consistent. With the exception of bubbles, we have yet to come across a truly "different" investment cycle. Most important, the typical cyclical rotations within the global financial markets are following their normal pattern even during the current cycle.

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The Financial Times - Turn America into a giant 'enterprise zone'

The Financial Times article by Richard Bernstein. Originally published in The Financial Times on October 19, 2011.

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RBA and Eaton Vance launch a second open end fund

Eaton Vance Management announces the launch of the Eaton Vance Richard Bernstein All Asset Strategy Fund.

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Registered Rep. - The Ten to Watch 2012

Registered Rep. names Richard Bernstein among the "Ten to Watch 2012".

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Forbes - Capital-Starved Small-Cap Sector Provides Immense Investing Opportunity

Forbes interviews Richard Bernstein on his global market outlook. Originally published in Forbes on August 16, 2011.

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Everyone forgot the basic laws of economics

The consensus over the past month or so was that Washington would come to a last minute debt limit resolution and the equity markets would rally once the the cloud of uncertainty regarding the US's finances was removed. Washington did come to its last minute resolution, but the markets have sold off, what happened?

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Commodity Caution

The overwhelmingly bullish consensus regarding the emerging markets should be worrisome to even the most stalwart enthusiasts of emerging markets. It's hard to believe that the consensus a decade or so ago was that the emerging markets were terribly risky and should be avoided. Today, emerging markets, and ancillary asset classes like commodities, have become the cornerstone of most investment strategies.

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The Financial Times - Mood change in Washington to hurt global bank stocks

The Financial Times article by Richard Bernstein. Originally published in The Financial Times on July 27, 2011.

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First Trust Introduces The Richard Bernstein Advisors Quality Income Portfolio

First Trust Portfolios, L.P.  ("First Trust") announced today the anticipated launch on July 25th of the Richard Bernstein Advisors Quality Income Portfolio, a new unit investment trust ("UIT") focused on income and total return. First Trust will serve as the sponsor of the UIT.

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Widespread Tail Risk Concerns Seem Bullish

Investors tend to be overly bullish at a stock market peak, and are overconfident regarding the economic and profits outlooks. There is typically no widespread desire to hedge risk, and the subsequent bear market comes as a surprise.

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The Disconnect Continues

Our strategies focus on finding "disconnects" between investor sentiment and the reality of improvement or deterioration in fundamentals. The current disconnect regarding the United States and the emerging markets still appears to us to be quite significant.

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All That Glitters

It is hard to find anything in the current financial landscape that has caught investors' attention as much as gold. We were proponents of gold at times over the last decade. However, the rationale for investing in gold has changed in the last three years. The story was a fundamental one, but today's general enthusiasm seems more emotionally-based.

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MarketWatch - Five Money Moves one China Basher is Making Now

MarketWatch's interview with Richard Bernstein about his views on small caps, Europe and emerging markets. Originally published in MarketWatch on May 19, 2011.

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The Financial Times - EM Central Banks Doing the Fed's Dirty Work

The Financial Times article by Richard Bernstein. Originally published in The Financial Times on April 26, 2011.

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This Time Isn't Different

Most investors know that hearing the phrase "this time is different" is often a warning signal. History amply demonstrates that rationalizing an overvalued, ebullient market by suggesting that the economy has structurally changed, or that we've entered a "new paradigm", is not generally a fruitful strategy. Rather than be repealed, the basic axioms of economic and investment theory have time and again been proven correct.

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The New York Times - The Wall of Worry Has Never Looked So High

The New York Times interview with Richard Bernstein about his views on the global equity markets. Originally published in New York Times on April 17, 2011.

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The Importance of Beta Management

2008's bear market has led investors to increasingly focus on absolute returns rather than relative returns. However, investors continue to judge manager performance based on relative performance despite the change in their performance goals. That seems inconsistent and self-defeating to us.

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USA Today - 15th Annual Investment Roundtable

Experts agree: get over your fear and get back into stocks. Originally published in USA Today on December 17, 2010.

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Barron's - New Gig, Old Approach

Interview with Richard Bernstein about his new firm, and the newly launched Eaton Vance fund. Originally published in Barron's on December 6, 2010.

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Eleven Themes for 2011

Here are our eleven investment themes for 2011. Each of these is either specifically or generally embedded in our investment strategies.

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Four Things you probably don't know

We continue to believe that we are in the earlier phases of a much more normal bull market than most investors realize. By our reckoning, stock markets have four phases:


1. Denial: The bull market can’t happen. Shouldn’t be happening. Won’t continue.

2. Acceptance: Fear of missing out leads investors to increasingly participate.

3. Brainwashing: New investment world. The bull market is never going to end.

4. Bear market: The end of investing as we know it.

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Investing with an eye on the future

Pretend for a moment that it’s 2001, and that you are reading this report in the midst of the deflation of the technology bubble. It is likely that the most important investment question on your mind is, “When will technology stocks rebound?” You are also probably quite content to continue your strategy of buying and holding US stocks because you have read so much about how those stocks will outperform for the “long run”.

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Non-US groups reaped fruits of Bush tax cuts

Continuation of the Bush tax cuts has been the subject of much discussion in US political and economic circles. Those on the right object to most forms of increasing government revenue, while the left wants to narrow disparities of income and wealth.

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The Bush Tax Cuts: Investment Implications

There has been considerable discussion recently regarding the continuation of the Bush tax cuts. Much of that discussion seems to be based on philosophical differences, not on economic facts.

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The US is Cheap

The US stock market is cheap. That doesn’t mean that a sustainable bull market is at hand, but the US appears to us to be quite undervalued when viewed in isolation, and fairly valued when compared to global markets.

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