We believe that the primary risk faced by fixed income investors over the coming years is that central bankers are able to achieve their policy objectives - e.g., declines in US unemployment, financial stability for Italy and Spain, higher Japanese inflation. Progress towards these goals could prompt a removal of the "Panic Zone" premium currently built into bond prices, pushing longer-maturity bond yields up into their 2008 through 2011 trading range. Such an increase would be modest by historical standards (a rise of one to two percentage points) but could produce price declines approaching 10-15% for intermediate-maturity bonds and even greater losses for longer maturities. These downside estimates assume that inflation remains contained and the Federal Reserve continues both its zero interest rate policy and aggressive bond purchases for the next few years. Bond market losses could be much worse if any of these assumptions are overly optimistic. Current depressed bond yields and record high bond prices offer little upside potential to compensate for these risks, in our view.

RiverFront's 2013 asset allocation strategy hedges these risks by:

David Fuller's view I think subscribers will be interested in the rest of Michael Jones' Strategic View, which I commend to you.

I particularly liked this section:

We have observed that financial markets appear to be governed by three uncomfortable rules:

1. Investors may only get a chance to "buy low" when there is something to fear.

2. Market undervaluation is indirectly proportional to the amount of fear.

3. By the time there is nothing left to fear, markets will no longer be cheap.

Note also the first three graphs in this report.