It seems that the old cult of equity has died. Or has it? From 1900 to 2010, U.S. equities outperformed inflation in the U.S. by 6.3% compared to 1.8% for bonds. This is according to a widely used benchmark maintained by the London Business School. Since 2000, however, two stock market crashes have caused investors to lose faith in equities. In fact, equities have not been so cheap relative to bonds since 1956 which turned to be one of the best moments in history to have bought stocks. If you are old enough, you might just remember that the Suez Canal crisis was in full swing and the Mid - east looked ready to explode. The more things change, the more they same the same - fast forward to 2012.

To paraphrase Ben Stein, former Chairman of the Council of Economic Advisors under Nixon , "Things that can't go on forever - don't." Government bonds are expensive, due to quantitative easing and perceived havens from risk, may soon turn negative meaning investors pay for the privilege of lending to the government.

When that happens, investors will start looking at equities with a different eye. The question is when. For the moment, however, markets are politicized and, as a consequence, distorted and risky. And another dynamic is at play - a reduction in supply of equities. Companies are buying back their stock as valuations get too cheap and with interest rates this low, acquisitions are being funded with debt at the expense of equity issuance. So the pool of equities continues to shrink while money sits on the sidelines.

At some point the stock market will experience a huge rally. Not having some exposure to equities is analogous to missing one's flight by being late to arrive at the gate except, in this case, it's more like waiting for charter flight that you know is leaving but whose departure keeps getting postponed. This is where fundamental analysis is critical. Investors need to be vigilant and know what they want to buy when this market turns. Using watch lists that MarketGrader has on its site is great way to monitor stocks without committing funds.

We all are familiar with the old adage that just as the world seems be coming to an end, opportunity is at its greatest. Even though things are beginning to look bleak, equities will have their renaissance and those in the know will be ready.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I could not find your feedback regarding my previous submission. All I want to do now is out this out as an instablog.

To many, the expansion of the Federal Reserve's balance sheet is the harbinger of hyperinflation. Those on fixed income are incensed with low interest rates, and almost everybody is angry about the bank bailouts. Yet, the fact that central banks saved the world from the second great depression is disregarded. Martin Wolf said it best in today's Financial Times. "Nobody gains credit for eliminating a hypothetical event."

What then happens when central banks reverse course and begin selling assets into the market and reducing bank credit as lending recovers? We really don't know but hope they do it carefully and over time. The greatest danger is a premature exit. It will only be in the mid 2020's before we likely know how this all turns out. During this period, central banks will be faced with balancing their traditional role of maintaining financial stability with managing monetary policy to control the rates of inflation. How this all works with financial regulators having a seat at the post - crisis table remains to be seen. At least we can be sure of one thing - markets will ruthlessly measure their success or failure in doing so.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Anything written about an Index that can out perform the S&P 500 index with a 10 year annualized average return of nearly 8% means no lost decade for investiors and isn't PR.

It's a gift to the investment community. I am not changing it.

Regards,

DCML

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Yet, there is something emerging in the American economy that can fuel growth for the next ten years and beyond that is acting as a massive counterbalance and game changer: Shale Gas. Over the next ten years, the U.S. will experience a renaissance in manufacturing driven by low energy costs and investment that can lead to an export driven America in energy and manufacturing and the creation of jobs - millions of them. And lest, we forget, the same dynamics are at play in Canada. For many an investor, this is alien turf.

Investment time horizons for each of us are deeply personal. Yet, it might behoove those whose only point of reference has been the internet and an America that imports almost everything it consumes from China to take another look at the basics - new manufacturing capacity and its impact on U.S. economic growth both here at home and our near abroad - Canada and Mexico.

For the moment, this 'market' seesaw can go either way. However, sooner or later, the impact of cheap gas will have its say and be reflected in company financial statements and market pricing.

With this in mind, it might not hurt to start looking at the basics that made America what it used to be - an export driven economy with hope for the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Some thirty-seven years ago, John Bogle launched the first passive index based on the S&P 500 as a mutual fund. In the process, he democratized the investment process by offering access to a universe of stocks used by many of the largest institutional money managers in the world as their performance benchmark without the cost of active management. Fast forward to today and the managed fund terrain is awash in new index products, some even derivative based, traded as ETFs. The old adage that investors used for years: buy and hold seems to have disappeared especially when looking at daily ETF trading volumes. Yet, some still do invest in ETF indices for the long haul.

One thing is certain, however. Investors now look at investment expenses with a different eye. What if a stock index fund could be bought as a buy and hold but also factored in re-balancing as part of the equation. Is there room in the equity index world for an index that combines low expense ratios with passive / active management that is equally weighted and outperforms a widely accepted benchmark?

MarketGrader thinks so and to prove its point developed the Barron's 400 Index for Dow Jones along with 14 proprietary indices of its own. In the case of the Barron's 400, the Index was designed to outperform the S&P 500 doing so handily over the last ten years. www.marketgrader.com/MGMainWeb/mgfree/mg...

Key to the Barron's 400 outperformance of the S&P 500 has been the use of MarketGrader's research marketgrader.com to optimize portfolio holdings. Twice a year, the Barron's 400 Index is rebalanced in accordance with strict portfolio construction rules that use ratings derived from MarketGrader's fundamental research. As a result the portfolio is optimized with approximately 45-50% annual turnover and meets the time proven test that successful investing is about taking intelligent risk, diversification, and keeping costs to a minimum. A similar discipline is applied to the construction of proprietary portfolios that are core, market cap, and sector based.

The Role of Re-balancing in an Index

William Smead in his recent blog on SA referenced Jason Zweig of the Wall Street Journal who wrote "Simple Index Funds May Be Complicating the Stock Market". Smead explains how passive investments have risen to 33% of the money in equity mutual funds and says that Zweig theorizes that all these agnostic investments might be adding to the volatility and the high correlations in the marketplace.

To quote Zweig: "Recently, leading investing experts-including Rodney Sullivan, editor of the Financial Analysts Journal, consultant James Xiong of Morningstar Investment Management and Jeffrey Wurgler, a finance professor at New York University-have been warning that index funds could destabilize the financial markets. The rise of trading in index funds, these researchers say, is causing stocks to move more tightly together than ever before-as if they "have joined a new school of fish," as Prof. Wurgler puts it. That is reducing the power of diversification and could make booms and busts more likely and more extreme. Unlike conventional funds run by highly paid stock-pickers who seek to buy the best securities and avoid the worst, index funds-including most exchange-traded funds, or ETFs-effectively buy and hold all the securities in a market benchmark such as the Standard & Poor's 500-stock index."

This assumes, of course, that only highly paid stock pickers can sort out which stocks to buy to avoid the worst. What about unconventional indices that rebalance? Stock picking does not need to have legions of highly paid analysts to be effective. Fundamental analysis that is automated and cost effective has proven otherwise.

Index providers owe a debt of gratitude to John Bogle. The investment landscape we have today has been shaped by his vision. The buy - hold market cap weighted investment strategy he espoused Vs the buy - hold & re- balance equal weighted investment strategy both have merit. In short, as markets evolve in time, investors will see that there are viable and prudent alternatives to straight passive index investing as long as expense ratios are controlled & methodologies are transparent. Such stock picking inherent in those indices that are cost efficient in their rebalancing will help also to mute the boom or bust cycles that others worry about coming from markets over reliant on passive investing. In the end, only performance will matter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.